Sovereign Immunity Trumps Forum Selection Clause
The claim arose from the construction of Interstate 99 by the Pennsylvania Department of Transportation (PennDOT). The project required that soil be excavated from one area and used to fill in other areas of the highway. During construction, pyretic rock was exposed that, when exposed to air and water, turns to sulfuric acid. The acid dissolves metals in the rock, which can contaminate waterways when left untreated. Though attempts were made to treat the material, the sulfuric acid could not be neutralized and contained, resulting in substantial environmental damage.
Pennsylvania was insured under a General Contractor's Pollution Liability Policy, and sought coverage for the costs of removal of the material from the environment, estimated to be in excess of $60 million. The insurer investigated the claim, and issued a series of coverage letters, to which the insured responded with a detailed letter of its coverage position. After a meeting between the parties failed to resolve the dispute, the insured’s counsel wrote to the insurer, stating he intended to file a declaratory judgment action; however, since the insurer had requested an opportunity to respond to the insured’s letter before suit was filed, counsel requested a written response no later than January 19. In an apparent race to the courthouse, the insurer did not respond to the letter, but instead filed a declaratory judgment action in New York on January 17. On January 29, Pennsylvania commenced an action of its own in the Court of Common Pleas of Philadelphia County, Pennsylvania, seeking payment of claims under the policy.
Pennsylvania moved to dismiss the New York action, and the insurer cross-moved to enjoin prosecution of the action pending in Pennsylvania. Since the parties agreed to submit to the jurisdiction of any court in the State of New York "for the resolution of any coverage dispute between the parties," the insurer argued that the action was properly maintained in New York. The insured argued that Pennsylvania is immune from suits arising from contract, except where the suit is brought before that state’s Board of Claims.
Rejecting arguments that sovereign immunity applies only to claims for money damages, the court concluded that where a request for declaratory relief serves no purpose other than as a predicate for a damage claim, the claim is within a state’s sovereign immunity. The court also concluded that enforcement of the forum selection clause in this case would be unreasonable, since PennDOT lacked the power to agree that Pennsylvania could be sued in a forum other than the Board of Claims (a power vested only in Pennsylvania’s General Assembly). The court reasoned it would not disregard the constitutional limits upon the power of Pennsylvania's agencies in order to enforce the forum selection clause, especially given that New York has similar constitutional restrictions on its own state agencies.
The court acknowledged that New York courts do not automatically extend sovereign immunity to sister states, particularly where another state has knowingly projected itself into New York to take advantage of its commercial markets. Other than relying on the forum selection clause, however, the insurers failed to demonstrate that Pennsylvania knowingly projected itself into New York. Since New York's policy of enforcing a forum section clause was less compelling than Pennsylvania's interest in maintaining the constitutional limits on the powers of its agencies, the court recognized Pennsylvania's sovereign immunity, and dismissed the claim for lack of subject matter jurisdiction.
