Supreme Court Watch By Beate Bloch Midyear Meeting Report The first part of the Court's October 1994 Term produced several decisions of importance to state and local governments. Eleventh Amendment Hess v. Port Authority Trans-Hudson Corp., 63 U.S.L.W. 4009 (decided November 14, 1994), resolved the question left open in Port Authority Trans-Hudson Corp. v. Feeney, 495 U.S. 299 (1990), by denying PATH's claim to Eleventh Amendment immunity. Two PATH employees sued PATH under the Federal Employers Liability Act. PATH claimed Eleventh Amendment immunity, and also raised the defense of the state statutes of limitations. The directors of PATH are the commissioners of the Port Authority of New York and New Jersey, which was created in 1921 pursuant to the Compact Clause with congressional consent. The Authority's twelve commissioners, six from each of the two states, are removable for cause by the state from which they are appointed. The governor of each state can veto actions of the commissioners from that state. The state legislatures, jointly, may augment the powers of the Authority, and specify the purposes for which surplus funds may be used. The debts of the Authority are not liabilities of the states, and the states appropriate no funds to the Authority. The Compact bars the Authority from drawing on state tax revenues, pledging the credit of either state, or imposing any charge on either state. A judgment against PATH would not be enforceable against either state. Justice Ginsburg, writing for the Court, noted, first, that the question of immunity had not been decided in Feeney because in that case immunity had been waived by consent of the states to the suit. Here, however, there was no such consent, because the suit had not been brought within the state statutes of limitations. The opinion noted that "Compact Clause entities owe their existence to state and federal sovereigns acting cooperatively, and not to 'any one of the United States." They "lack the tight tie to the people of one State that an instrumentality of a single State has." The Court cited Lake Country Estates, Inc. v. Tahoe Regional Planning Agency, 440 U.S. 391 (1979), which denied Eleventh Amendment immunity to a "political subdivision" that performed the local governmental function of regulating land use. The opinion pointed out that federal courts "are not alien to a bistate entity Congress participated in creating." Therefore, there is "no genuine threat to the dignity of New York or New Jersey in allowing Hess and Walsh to pursue FELA claims against PATH in federal court." The Court held that the states' control over the Port Authority is not relevant, noting that "ultimate control of every state-created entity resides with the State," but cities and counties do not enjoy Eleventh Amendment immunity. The Court accepted the view of most of the courts of appeals that "the vulnerability of the State's purse [is] the most salient factor in Eleventh Amendment determinations." The Port Authority is self-sustaining. The Court rejected the argument that because the Authority donates part of its surplus to projects that otherwise might be financed by the states, a judgment against it would affect the states' economy. "The proper focus is not on the use of profits or surplus, but rather is on losses and debts. The Court concluded that the lawsuit "does not touch the concerns¾the States' solvency and dignity - that underpin the Eleventh Amendment." Justice Stevens wrote a brief concurring opinion. Justice O'Connor, joined by the Chief Justice and Justics Scalia and Thomas, dissented on the basis of the two states' control over the Authority and PATH. Taxation In Reich v. Collins, 63 U.S.L.W. 4033 (decided December 6, 1994), a retired military officer sued to recover income tax he had paid since 1980 to the State of Georgia under a law that exempted state retirees, like the Michigan statute that had been declared unconstitutional in Davis v. Michigan Dep't of Treasury, 489 U.S. 803 (1989). Suit was brought under a Georgia statute providing: "taxpayer shall be refunded any and all taxes or fees which are determined to have been erroneously or illegally assessed and collected from him under the laws of this state . . . ." The Georgia Supreme Court held the statute inapplicable where the law under which the tax was collected was subsequently declared unconstitutional or otherwise invalid. On remand for reconsideration in light of the decision in Harper v. Virginia Dep't of Taxation , 113 S. Ct. 2510 (1993), that Davis must be given retroactive effect, the Georgia court again denied the claim, on the ground that the state's predeprivation procedures were "ample." The Supreme Court reversed, unanimously, and remanded the case for the provision of "meaningful backward-looking relief." Justice O'Connor, writing for the Court, pointed out that "Georgia held out what plainly appeared to be a 'clear and certain' postdeprivation remedy, in the form of its tax refund statute, and then declared, only after Reich and others had paid the disputed taxes, that no such remedy exists." The taxpayer could not have thought that the predeprivation remedy was exclusive." In Nebraska Dep't of Revenue v. Loewenstein, 63 U.S.L.W. 4037 (decided December 12), the Court held that a state may tax interest income derived from repurchase agreements involving federal securities. Section 3124(a) of 31 U.S.C. exempts "obligations of the United States Government" from taxation by States, but not interest on loans to a private party. Justice Thomas ruled for the unanimous Court that the "dispositive question is whether the trusts earned interest on 'obligations of the United States Government,' not whether the trusts 'owned' such obligations." The trusts received no interest from the federal securities, but only on the cash lent to the seller-borrower. Preemption American Airlines, Inc. v. Wolens, 63 U.S.L.W. 4066 (decided January 18, 1995), involved the preemptive effect of the Airline Deregulation Act of 1978. The action was brought by participants in the AAdvantage frequent flyer program, under the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act), and for breach of contract. The complaint alleged that modifications adopted by American in 1988 devalued credits they had already earned. American had reserved the right to change the terms and conditions, but - plaintiffs alleged not retroactively. In Morales v. Trans World Airlines, 112 S. Ct. 2031 (1992), the Court had invalidated the fare advertising provisions of the Travel Industry Enforcement Guidelines promulgated by the National Association of Attorneys General, because they "relat[ed] to [airline] rates, routes, or services." The guidelines were regarded by DOT and the FTC as state regulatory measures. The Illinois Supreme Court rejected the plaintiffs' claims to injunctive relief, because that would involve the regulation of current rendition of services and was therefore preempted by the ADA. But the Court held that plaintiffs could maintain their claims for monetary relief, because preemption extended only to state laws "that specifically relate to and have more than a tangential connection with an airline's rates, routes, or services." On remand for further consideration in light of the Morales decision, the court adhered to its prior judgment, on the ground that the frequent flyer program was not "essential," but merely "peripheral to the operation of an airline." The Supreme Court, adopting the position advocated by DOT, reversed as to the Consumer Fraud Act claims, but affirmed as to the contract claim. Justice Ginsburg, writing for the Court, rejected the Illinois court's distinction between "essential" and other matters. The claims relate to "rates." The Fraud Act, like the consumer protection legislation "underpinning the NAAG guidelines," is "prescriptive; it controls the primary conduct of those falling within its governance." The ADA does not, however, "shelter airlines from suits alleging no violation of state-imposed obligations, but seeking recovery solely for the airline's alleged breach of its own, self-imposed undertakings." The opinion cited Cipollone v. Liggett Group, 112 S. Ct. 2608 (1992), where the Court held that a common law remedy for a contractual commitment was not a "requirement imposed under State law." Justice Stevens concurring in part, would find no preemption, because the Consumer Fraud Act, unlike the guidelines in Morales, is a statute of general application. Justice O'Connor, joined by Justice Thomas, concurring in part, would find the entire lawsuit preempted on the ground that Morales was controlling as to both claims. Employment Discrimination In McKennon v. Nashville Banner Pub. Co., 63 U.S.L.W. 4104 (decided Jan. 23, 1995), the Court held, unanimously, that an after-discovered cause for discharge does not bar all relief under the Age Discrimination in Employment Act. Justice Kennedy's opinion for the Court stressed that the purpose of the ADEA is to eliminate discrimination in the workforce. The "clean hands" doctrine does not bar an action "when Congress authorizes broad equitable relief to serve important national policies." While reinstatement and "front pay" are not appropriate remedies when cause for discharge exists, the employee may be awarded back pay from the date of the unlawful discharge to the date the new information is discovered. Beate Bloch is a legal writing consultant in Washington, DC.