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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
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.
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).
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
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.
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.
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
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
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
minimum wages and overtime, which suggested that "private enforce
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.
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).