Borough of Fort Lee, NJ v. United States

• Decision Date: 06 May 1939
• Docket Number: No. 6840.,6727,No. 6726,6726,6840.
• Parties: BOROUGH OF FORT LEE, N. J., et al. v. UNITED STATES ex rel. BARKER et al. UNITED STATES ex rel. BARKER et al. v. BOROUGH OF FORT LEE, N. J., et al. SAME v. BROSNAHAN, Borough Tax Collector, et al.
• Court: U.S. Court of Appeals — Third Circuit

104 F.2d 275 (1939)

BOROUGH OF FORT LEE, N. J., et al. v. UNITED STATES ex rel. BARKER et al. UNITED STATES ex rel. BARKER et al. v. BOROUGH OF FORT LEE, N. J., et al. SAME v. BROSNAHAN, Borough Tax Collector, et al.

Nos. 6726, 6727, No. 6840.

Circuit Court of Appeals, Third Circuit.

May 6, 1939.

COPYRIGHT MATERIAL OMITTED

E. J. Dimock, of New York City, for appellants in No. 6726.

Arthur T. Vanderbilt, of Newark, N. J. (Frederick W. Hall, of Newark, N. J., and David M. Wood and John B. Dawson, both of New York City, of counsel), for relators.

Lawrence A. Cavinato, of Fort Lee, N. J., William A. Stevens, of Red Bank, N. J., and E. J. Dimock, of New York City., for respondents-appellees.

Before BIGGS, MARIS, and BUFFINGTON, Circuit Judges.

MARIS, Circuit Judge.

The relators, Edwin H. Barker and others, recovered in the District Court for the District of New Jersey a judgment for $575,924.66 and costs against the Borough of Fort Lee in an action brought upon certain overdue bonds and coupons issued by the borough and held by the relators. Thereafter relators caused an execution to be issued on the judgment and served on the borough. It was returned nulla bona and was thereupon served upon the tax-assessing officials of the borough and of the county in which it is situated. Those officers having failed to add to the tax levy an amount sufficient to pay the judgment, the relators on March 12, 1937, obtained from the court below a rule to show cause why a peremptory writ of mandamus should not issue commanding those officials (the appellants in No. 6726) to levy, collect and pay over to the United States Marshal a tax sufficient to satisfy the judgment.

On the return day of the rule Walter R. Darby, David T. Wilentz and J. H. Thayer Martin, constituting the Municipal Finance Commission, a state agency created by New Jersey law for the supervision of financially embarrassed municipalities of the state, made application for leave to intervene in the proceeding, averring that they had been functioning in the borough since June, 1933. Their application was denied by the court below. At the hearings on the rule held in April and November, 1937, the following situation was disclosed:

The Borough of Fort Lee is situated in Bergen County, New Jersey, on the Hudson River, at the western end of the George Washington Bridge. Its population in 1930 was 8,759. There is a coterminus school district.

In 1933 the borough and school district defaulted in the payment of principal and interest of their obligations. On January 1, 1938, the principal of borough and school district obligations was in default to the amount of $3,187,200 and interest to the amount of $1,105,475.25, or a total of $4,292,675.25. In addition there were unmatured bonds amounting to $918,741, making a total debt on that date of $5,211,416.25. The assessed valuation of the taxable property in the borough in 1937 was $13,095,050 and it had been approximately this amount in each of the preceding years since 1931.

A large part of this indebtedness had been incurred for improvements to vacant property in the borough made in the hope that development of the vacant property would follow which would increase its value sufficiently to enable it to yield the taxes necessary to pay the debt. The taxes assessed upon a large part of this vacant property have become delinquent and tax liens have accumulated, many of which have been foreclosed by the borough. On November 8, 1937, the borough held tax title liens amounting to $2,809,589.47 and property bought in at foreclosure sales representing tax title liens of $517,335.32.

During the period from 1932 to 1937 the total tax levy had declined from $856,872.30 in 1932 to $606,339.10 in 1937, and during that period the tax rate had declined from 5.98 to 4.38. The amount of the tax levy actually collected in the current year had remained substantially constant, however, during that period at approximately 50%. In the years 1933 to 1937 inclusive appropriations aggregating $1,076,653.61 were made out of the annual tax levies for debt service by the borough. No payments to bondholders were made after the fall of 1933, however, due in large part to the fact that other appropriations included in the budgets were given priority out of the tax funds actually collected. On November 1, 1937, the borough had on hand the sum of $329,255.78 in cash.

In 1933 the Municipal Finance Commission was called upon to function in the borough pursuant to Chapter 340 of the New Jersey Municipal Finance Commission Act, New Jersey Laws of 1931, as amended, N.J.S.A. 52:27-1 et seq. Thereafter a group of New Jersey bondholders commenced mandamus proceedings in the Supreme Court of that state pursuant to that chapter to compel the assessment, levy and collection of taxes. In that proceeding which was brought for the benefit of all creditors of the borough the Supreme Court determined that the utmost amount which could be included in the 1936 budget and tax levy of the borough for debt service was $132,000. In the same proceeding the court later fixed the amount for 1937 at $156,560. The amount fixed for 1937 was determined with the consent of the present relators in connection with a proposed refunding plan which had been approved by the borough. After the writ was issued by the Supreme Court the borough withdrew its approval and the present relators shortly thereafter filed their petition for a writ of peremptory mandamus in the present proceeding.

On December 13, 1937, the court below issued the writ directing a series of fifteen annual tax levies beginning with the year 1938 sufficient for the payment of relators' judgment. The borough and its officials have appealed from the order issuing the writ, and the members of the Municipal Finance Commission have appealed from the order denying their petition for intervention. This appeal has been designated No. 6726 on our docket. From the order issuing the writ the relators have also appealed, objecting to its terms. Their appeal is No. 6727.

The writ of peremptory mandamus issued by the court below fixed the tax levy to be made for the year 1938 at $37,920, and this sum was included in the tax ordinance for that year. The writ commanded respondent Thomas Brosnahan, the Tax Collector of the Borough, to "collect said tax in each of said years, at the same time and in the same manner, in lawful money of the United States of America only, and under the same conditions, restrictions and regulations as taxes for other purposes are required to be collected, and to pay, on June 5th and December 5th of each year, all of the proceeds of said tax levies, plus Marshal's fees thereon, to the United States Marshal for the District of New Jersey * * *."

On May 16, 1938, the court below directed the Tax Collector and the borough to segregate and impound the collections of the tax required to be levied by the writ until the date the first installment was payable to the Marshal and to use the same for no other purpose than prescribed by the writ. Pursuant to this order the amounts collected were segregated and kept separate, the amount being computed out of each payment of tax received by taking therefrom the proportion of the payment represented by the ratio which the mandamus tax levy of $37,920 bore to the total levy. The proceeds thus computed and segregated amounted on June 4, 1938, to $10,297.25. On June 6th the Marshal made demand on the respondent Tax Collector for these proceeds. The latter tendered him a borough check in the above amount which, however, was not countersigned by the auditor for the Municipal Finance Commission and consequently could not be honored. The relators thereupon obtained a rule to show cause why the respondent Collector should not be held to be in contempt of court, which after hearing was discharged by the court below by an order entered July 7, 1938. From this order the relators have appealed in No. 6840.

As will be seen from the foregoing fact recital this case presents a picture of the serious financial embarrassment of a municipality. It involves the character and extent of the remedies available to judgment creditors for the collection of their claims. It is undisputed that the relators' remedies are only those provided by New Jersey law. The determination of the questions raised by these appeals accordingly depends upon that law. We, therefore, turn to its consideration.

By the supplement to the "Act respecting executions" approved March 27, 1878, P.L. p. 182, 2 Comp.St.1910, p. 2255,¹ it was provided that when an execution issued upon a judgment against a borough is returned unsatisfied a copy of the same shall be served not only on the collector of the borough, but also upon the assessor thereof and upon receipt of the copy it shall be the duty of the latter official "to assess and levy, in addition to the regular taxes, the amount due upon the said execution, with interest to the time when the same shall be paid to the officer serving such process, upon all the property within such * * * borough * * *; and this tax shall be assessed and collected at the same time and in the same manner and under the same conditions, restrictions and regulations as taxes for other purposes are required to be assessed and collected in such * * * borough * *, and when collected shall be paid over to the officer serving the said process." From the time of its passage this act provided the normal remedy of a judgment creditor for the collection of his debt from a municipal corporation and it was early held by the New Jersey courts that if the procedure set forth in the act was not followed by the municipal officials the judgment creditor was entitled as of right to a writ of mandamus to compel them to perform their duty thereunder. Rahway v. State ex rel. Munday, 44 N.J.L. 395. Indeed, it has come to be recognized that a writ of execution against a municipality is not issued...