U.S. Trust Co. of New York v. State
| Citation | 338 A.2d 833,134 N.J.Super. 124 |
| Parties | UNITED STATES TRUST COMPANY OF NEW YORK, etc., Plaintiff, v. The STATE of New Jersey, et al., Defendants. Daniel M. GABY, Plaintiff, v. The PORT OF NEW YORK AUTHORITY, et al., Defendants. |
| Decision Date | 14 May 1975 |
| Court | New Jersey Superior Court |
Robert B. Meyner, Newark, and Devereux Milburn, New York City (of the New York Bar) for plaintiff U.S. Trust Co. (Meyner, Landis & Verdon, Newark, Carter, Ledyard & Milburn and Donald J. Robinson, New York City (of the New York Bar), Hawkins, Delafield & Wood, New York City, attorneys).
Michael I. Sovern, New York City (of the New York Bar) and Murray J. Laulicht, Newark, sp. counsel for defendants (William F. Hyland, Atty. Gen., attorney; Harold S. H. Edgar, New York City (of the New York Bar) on the brief).
Theodore W. Kheel, New York City (of the New York Bar) and Howard Stern, Paterson, for plaintiff Daniel M. Gaby (Battle, Fowler, Stokes & Kheel, New York City, and Shavick, Stern, Schotz, Steiger & Croland, Paterson, attorneys).
Joseph Lesser, New York City (of the New York Bar) for defendant Port Authority of New York and New Jersey (Francis A. Mulhern, Newark, attorney; and Patrick J. Falvey, New York City (of the New York Bar), Isobel E. Muirhead, Arthur P. Berg, New York City (of the New York Bar), Vigdor D. Bernstein, Pomona, N.Y., of counsel).
These are consolidated actions which have as their common subject matter the constitutional validity of legislation of this State creating, and later repealing, a covenant between the States of New Jersey and New York and the holders of bonds issued by the Port Authority of New York and New Jersey (Port Authority). 1 The first legislative act in question, chapter 8 of the Laws of 1962, N.J.S.A. 32:1--35.50 (the 1962 covenant), authorized the Port Authority to construct the World Trade Center and to acquire and operate the Hudson & Manhattan Railroad Company. As part of the 1962 legislation the two States enacted a statutory covenant with each other and with the holders of certain Port Authority bonds whereby the States and the Port Authority were precluded from applying the Authority's revenues and reserves for passenger railroad purposes unless permitted by the criteria set forth in the statute. N.J.S.A. 32:1--35.55.
The 1962 covenant and repealed by chapter 25 of the Laws of 1974. 2 The complaint filed by the United States Trust Company challenges the constitutionality of the repeal act of 1974, and the Gaby complaint attacks the validity of the 1962 covenant. We turn, then, to the procedural history of these actions and the issues projected by the respective pleadings.
On May 16, 1972 plaintiff Daniel Gaby filed a class action complaint for a declaratory judgment that the 1962 covenant violated the Federal and State Constitutions. The complaint named as defendants the Port Authority, its commissioners and executive director, and the then Governor of New Jersey, William T. Cahill. On October 25, 1972, on the motion of the Attorney General of New Jersey, the complaint was dismissed as to former Governor Cahill. The Attorney General also moved to dismiss the complaint for failure to name as an indispensable party the Port Authority's bondholders. No disposition appears to have been made of the motion at that time.
The Gaby complaint alleges, among other things, that the residents of the State of New Jersey are dependent upon mass transit facilities and are adversely affected by the deterioration of such facilities within the District serviced by the Port Authority (the Port District). It is alleged that the Port Authority was created by the Compact of 1921 and consented to by the United States Congress 3 to assure 'cooperation of the two states in the future development' of transportation facilities within the Port District, and that by virtue of the 1962 covenant, restricting the Port Authority's power to acquire or operate passenger rail transit facilities, the two states entered into a new 'Compact' without the consent of Congress and in violation of U.S.Const., Art. 1, § 10. The complaint further alleges that the 1962 covenant constitutes an unconstitutional surrender by the State of its sovereign powers 'to protect the health, general welfare and safety of the people,' and that it has impaired and obstructed existing facilities for the transportation of goods in interstate commerce, in violation of U.S.Const. Art. 1, § 8.
Gaby asks for multifarious relief. Aside from seeking a declaration as to the unconstitutionality of the 1962 covenant, he asks the court to declare the covenant to be subject to repeal, and to direct the Port Authority to formulate and submit to the court a plan for the development of mass transit facilities within the Port District.
The Gaby action was pretried on February 22, 1973, at which time it was stipulated that the action could proceed as a class action without formal notice to the class represented by plaintiff. Thereafter both sides moved for summary judgment, and oral argument on the motions was heard on September 26, 1973. At the conclusion of the argument the court directed the parties to submit further briefs on the constitutional issues and on the question whether the bondholders were necessary parties to the Gaby action. Following conferences between counsel and the court, it was agreed the United States Trust Company should be permitted to intervene in the Gaby action as a party defendant to represent the interests of the bondholders in that action. An order to such effect was entered on December 18, 1973, and arguments were rescheduled on the motions for summary judgment.
Prior to the date fixed for the argument the prospects for the adoption of the repeal act became apparent, and further action in the Gaby case was stayed pending future legislative developments.
The New Jersey Legislature completed action on the repeal act on April 22, 1974, and Governor Brendan T. Byrne signed the bill into law on April 30, 1974. On the same day United States Trust Company (U.S. Trust) filed its complaint on behalf of itself as the holder of Port Authority bonds, as trustee for certain designated issues of Port Authority bonds, and on behalf of all holders of consolidated bonds issued by the Port Authority. The complaint names as defendants the State of New Jersey, Governor Byrne and the Attorney General of New Jersey, and seeks a declaratory judgment that the repeal act violated the Federal and State Constitutions.
U.S. Trust alleges that it is the holder (for its own account and in a fiduciary capacity) of $96,000,000 of consolidated bonds issued by the Port Authority; that the Port Authority was intended, under the terms of the Compact approved by Congress, to be a self-supporting public agency whose obligations were to be and are payable from its net revenues and certain reserve funds; that the 1962 covenant was enacted to protect the Port Authority's existing and future bondholders from the diversion of pledged revenues and reserves to finance deficit mass transit facilities and further to preserve the Port Authority's credit standing; that the Port Authority notified prospective purchasers of its bonds of the existence of the 1962 covenant and purchasers relied on the covenant in purchasing bonds issued by the Port Authority, and that the secondary market for the Port Authority consolidated bonds has been adversely affected by the repeal act.
The complaint alleges that the repeal act violates the 'impairment' and 'taking' provisions of the Federal Constitution, U.S.Const., Art. I, § 10 and Amends. V, and XIV, and the equivalent provisions of the New Jersey Constitution, N.J.Const. (1947), Art. IV, § VII, par. 3; Art. I, pars. 1 and 20.
The answer filed by defendants asserts several defenses among which the following may be briefly noted: (1) the repeal act constitutes a reasonable exercise of the police power by the State; (2) the 1962 covenant itself violated the Federal Constitution because of lack of congressional consent; (3) the repeal act does not constitute an 'impairment' of the contract since the obligation of the Port Authority to pay its bondholders remains intact; (4) the bondholders were on notice of the reserved powers of the State to repeal the 1962 covenant, and (5) the repeal act was adopted as a police power measure to meet a transportation crisis affecting the health, safety and welfare of persons residing within the District. Finally, the answer asserts a counterclaim for a declaratory judgment that the repeal act is constitutional.
A consent order was entered pursuant to R. 4:32--1 in the U.S. Trust action directing that the action be maintained and defended as a class action by U.S. Trust on behalf of all holders of consolidated bonds of the Port Authority, and that notice to the class be deemed to have been given by means of the media publicity which was disseminated when the action was instituted. On December 10, 1974 the Gaby and U.S. Trust actions were consolidated by order of the court.
The parties to the U.S. Trust action have filed a 366-page stipulation of facts, accompanied by exhibits covering all phases of the case with the exception of two issues: (1) whether the purchasers of consolidated bonds issued by the Port Authority after the adoption of the 1962 covenant relied in fact upon the existence of the covenant, and (2) whether the repeal of the 1962 covenant adversely affected the secondary market for Port Authority bonds. These issues were the subject of a trial on February 4, 5, 6, 7 and 11, 1975,
and the court's findings on the issues will be set forth
Infra. The Formation, Facilities and Financial
Structure of the Port Authority.
In 1917 the States of New Jersey and New York established the New York, New Jersey Port...
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