On April 18, 2023, the United States Supreme Court issued a unanimous decision in a case of original jurisdiction, New York v. New Jersey, No. 156, Orig., holding the state of New Jersey could unilaterally withdraw from the 1953 Waterfront Commission Compact, over the state of New York’s objection, because the Compact was silent as to withdrawal, and contracts contemplating performance for indefinite time periods are terminable at the will of either party.
In 1953, pursuant to Article I, Section 10 of the United States Constitution, New York and New Jersey agreed to delegate regulatory and law enforcement authority to the Waterfront Commission of New York Harbor, a bistate anticorruption initiative, comprised of one representative from each state. The Compact, a written agreement between the two states, was silent as to either state’s ability to withdraw.
In 2018, New Jersey sought to unilaterally withdraw from the Compact and reinstitute independent sovereignty over its side of the port. The Commission sued in federal district court, which held that New Jersey could not unilaterally withdraw. The Third Circuit Court of Appeals reversed, holding the suit was barred under state sovereign immunity. In 2021, New York filed a bill of complaint with the Supreme Court, seeking to prevent New Jersey’s withdrawal. New York and New Jersey filed cross-motions for judgment on the pleadings. The United States participated as amicus curiae in favor of New Jersey.
The Supreme Court held interpretation of congressionally approved interstate compacts is a federal question of contract interpretation. Because the Compact did not address withdrawal, the Supreme Court “look[ed] to background principles of law that would have informed the parties’ understanding at the time they entered the Compact.” The Supreme Court cited the default contract principle that a contract “that contemplates continuing performance for an indefinite time is to be interpreted as stipulating only for performance terminable at the will of either party.” (citing 1 R. Lord, Williston on Contracts § 4:23, p 570 (4th ed. 2022) (further citations omitted).
The Supreme Court observed the default rule aligned with New Jersey’s position but emphasized, “background rules of contract interpretation may not override a compact’s terms” and cited prior precedent “that a compact ‘is not just a contract,’ but also ‘a federal statute enacted by Congress’ that preempts contrary state law.”
The Supreme Court held principles of state sovereignty guided its interpretation of interstate compacts. Here, New Jersey delegated a “fundamental aspect” of its sovereignty, the protection of its people, property, and economy. The Supreme Court found the record indicated neither state intended the Compact to last forever. The Supreme Court rejected New York’s arguments, observing that states could propose express language addressing withdrawal in their interstate compacts if they wished.
Justice Kavanaugh delivered the opinion.
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