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against including in s. 2969 provisions relating to issuers of municipal securities and their officials like those in Section

ll of the 1933 Act relating to issuers of corporate securities and their officials. The question is one of federal not state

law, of course, and a state could not by its own law immunize

itself, its units of local government or its officials from

liability provided for in a valid federal statute.

E.g. Parden v. Terminal Ry. Co., 377 U.S. 184, 195-96 (1964).

The validity of the federal legislation envisioned

would be tested under the Eleventh Amendment, which reads as


"The judicial power of the United States
shall not be construed to extend to any
suit in law or equity, commenced or
prosecuted against one of the United States
by citizens of another state, or by citi-

zens or subjects of any foreign state." The Eleventh Amendment by its terms only limits the judicial power

of the United States with respect to suits against a state by a citizen of another state, or by aliens. It does not literally

apply to suits by a citizen against his own state.

However, it

has been the law since at least Hans v. Louisiana, 134 U.S. 1 (1890),

that suits by a citizen against his own state are also barred. Thus the general rule is that the Eleventh Amendment "denies to the federal courts authority to entertain a suit brought by private parties against a state without its consent." Ford Motor Co. v.

Department of Treasury, 323 U.S. 459, 464 (1945).

But it is equally

clear that "[i]mmunity from suit under the Eleventh Amendment is

a personal privilege which may be waived."

Missouri v. Fiske,

290 U.S. 18, 24 (1933); Clark v. Barnard, 108 U.S. 436, 447-48


See generally, Note, Private Suits


States in the

Federal Courts, 33 v.Chi. L. Rev. 331, 333-336 (1966).

State Liability

Since the Eleventh Amendment prohibits suits in the

federal courts against a state without the state's consent, the

only way that a state issuer could be sued for damages in federal court by an investor is if the state is found to have consented

to the suit.

Congress may, however, as a condition of partici

pation in the interstate offer and sale of securities, require

that a state waive its immunity from suit for damages in the

federal courts.

The cases, particularly the recent Supreme Court

cases, show that Congress has this power.

Parden v. Terminal Ry. Co., 377 U.S. 184 (1964), is the

most important case.

Alabama operated a common carrier by railroad

engaging in interstate commerce.

The plaintiffs sued under the

*/ There is no provision of the Constitution other than the Ēleventh Amendment that might prevent Congress from providing for the kind of civil damage action in federal courts against issuers of municipal securities and their officials described above. Moreover, there is no federal "common law" doctrine of sovereign immunity for states or their political subdivisions, e.g.,

Markham v. City of Newport News, 292 F.2d 711 (4th Cir. 1961), and even if there were some applicable non-constitutional judicial doctrine of sovereign immunity, it could be overridden by a properly drawn federal statute. Accordingly, this memorandum focuses entirely on the impact of the Eleventh Amendment on Congress' power to create a civil damage action relating to municipal securities like the one Section ll of the 1933 Act creates relating to corporate securities.

Federal Employer's Liability Act ("FELA") to recover for personal

injuries sustained while employed by the Railway.

The lower courts

had dismissed the case because it was against a state.

The Supreme

Court noted that it was facing, for the first time, a state's claim

of immunity against a suit by an individual based on a cause of action expressly created by the Congress. 377 U.S. at 187. This raised, said the Court, two questions: (1) did Congress intend to

subject a state to a suit for damages under FELA, and (2) does

Congress have the power to do so?


The Court reviewed the wording and legislative history

of the FELA and concluded that Congress did intend to subject

"state-owned as well as privately owned common carriers by railroad

in interstate commerce" to the Act.

377 U.S. at 190.

The Court

then rejected the state's contention that Congress "in view of the

immunity doctrine" lacked the power to subject a state to suit.

The Court pointed out that the state could waive its immunity from

suit, and that the determination of whether there had been a waiver

was a matter of federal law.

See, e.g., Petty v. Tennessee

Missouri Bridge comm'n, 359 U.S. 275 (1959). The Court then held

that Alabama "necessarily consented" to the suit for damages author

ized by the

FELA, 377 U.S. at 192:

"By adopting and ratifying the Commerce
Clause, the States empowered Congress to
create such a right of action against
interstate railroads; by enacting the
FELI in the exercise of this power,
Congress conditioned the right to operate
a railroad in interstate commerce upon
amenability to suit in federal court as
provided by the Act; by thereafter opera-
ting a railroad in interstate commerce,
Alabama must be taken to have accepted
that condition and thus to have consented
to suit."

The four dissenters in Parden agreed "that it is within

the power of Congress to condition a State's permit to engage in

the interstate transportation business on a waiver of the State's sovereign immunity from suits arising out of such business." The

dissent went on, 377 U.S. at 198:

"Congress might well determine that
allowing regulable conduct such as
the operation of a railroad to be
undertaken by a body legally immune
from liability directly resulting
from these operations is so inimical
to the purposes of its regulation
that the State must be put to the
option of either foregoing partici-
pation in the conduct or consenting
to legal responsibility for injury

caused thereby. The dissent concluded, however, that the statute and legislative history did not reveal a clear congressional intent to require

states to consent to suits under the FELA.

Based on Parden, there would seem little doubt that

Congress could require that as a condition of engaging in the offer or sale of securities in interstate commerce a state consent to suits for damages in the federal courts. Subsequent Supreme Court cases have reaffirmed Congress' power to do this, but have emphasized that Congress must be very explicit about its intention to require a state to waive its immunity from suit as a condition of engaging in a federally regulated activity.

In Employees of the Department v. Department of Public Health and Welfare, 411 0.s. 279 (1973), for example, the Court

concluded that Congress, in enacting amendments to the Fair Labor

* Standards Act ("FLSA") that applied to state hospitals, had not

intended to "lift the sovereign immunity of the States" or to

"condition] the operation of these facilities on the forfeiture

of immunity from suit in a federal forum."

411 U.S. at 285.


conclusion was based on the available indicia of congressional intent: a review of the statutory language, particularly the fact that the provision of the FLSA creating a private cause of action

was not altered by Congress at the time that the substantive pro

visions of the Act were extended to state hospitals; the fact that

the Secretary of Labor had authority to sue states for unpaid

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minimum wages and overtime, which suggested that "private enforce

[blocks in formation]

was not a paramount objective", 411 u.s. at 286; the

fact that to allow private suits would not just make the citizen

"whole" as in Parden, but would, under the FLSA, "let him recover

double against a State," id.; and the fact that "not a word in

the history of the 1966 amendments" demonstrated a congressional

intent to require a state to waive its immunity, 411 U.S. at 285.

The holdings of Parden and Employees were reaffirmed in

Edelman v. Jordan, 415 U.S. 651 (1974).

The question there was

whether by participating in the federal program of Aid to the Aged,

Blind and Disabled ("AABD"), which involved federal and state funding, the state had waived its immunity and consented to the

bringing of a suit by individuals for back payments withheld in

violation of federal law and regulations.

The Court said, 415 U.S.

at 672:

The FLSA amendments that regulated wages and working conditions had been held valid as applied to the states as an exercise of Congress' power under the Commerce Clause in Maryland v. Wirtz, 392 U.S. 183 (1968).

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