U.S. Supreme Court Cites Contracts 2d
Recently, in New York v. New Jersey, No. 156, Orig. (Apr. 18, 2023), the U.S. Supreme Court cited the Restatement of the Law Second, Contracts, in holding that New Jersey could unilaterally withdraw from the Waterfront Commission Compact it had entered into with New York, notwithstanding New York’s opposition.
In 1953, New York and New Jersey entered into the Waterfront Commission Compact, under which the states created a bistate agency known as the Waterfront Commission of New York Harbor and delegated to the Commission the states’ sovereign authority to perform regulatory and law-enforcement functions at the Port of New York and New Jersey, a commercial port spanning both states, in order to address corruption within the Port’s labor force. The Compact required both New York and New Jersey to agree if either state wanted to make any amendments and supplements, and recognized Congress’s power to “alter, amend, or repeal” the Compact, but it did not address either state’s power to unilaterally withdraw or terminate the Compact.
In 2018, New Jersey’s governor signed a law passed by the New Jersey Legislature to withdraw New Jersey from the Compact, and the Commission filed an action to prevent New Jersey from withdrawing. The U.S. District Court for the District of New Jersey entered judgment for the Commission, finding that New Jersey could not unilaterally withdraw. Reversing, the U.S. Court of Appeals for the Third Circuit held that state sovereign immunity precluded the Commission’s action. In 2021, New Jersey’s acting governor announced New Jersey’s intent to unilaterally withdraw, and the U.S. Supreme Court granted New York’s motion for a temporary order preventing New Jersey’s withdrawal.
The U.S. Supreme Court subsequently granted New Jersey’s motion for judgment on the pleadings, and denied New York’s cross-motion, holding that New Jersey could unilaterally withdraw from the Waterfront Commission Compact notwithstanding New York’s opposition. Associate Justice Brett M. Kavanaugh, writing for a unanimous Court, explained that “[b]ecause the Compact’s text does not address whether a State may unilaterally withdraw, [the Court] look[s] to background principles of law that would have informed the parties’ understanding when they entered the Compact,” and that the Court “has long explained that interstate compacts ‘are construed as contracts under the principles of contract law.’” The Court cited Restatement of the Law Second, Contracts § 33, Comment d, in noting that contract-law principles—both in 1953, when the Compact was formed, and today—established the general rule that a contract that calls for ongoing performance for an indefinite period of time could be terminated by either party; this “default contract-law rule therefore ‘speaks in the silence of the Compact’ and indicates that either State may unilaterally withdraw.” The Court also considered the principles of state sovereignty and the fact that both states did not intend for the Compact to perpetually operate, as further support for the Court’s conclusion that either state could unilaterally withdraw from the Compact.
Read the full opinion here.
