In re Central R. Co. of New Jersey, 8095

• Decision Date: 27 May 1943
• Docket Number: 8171.,No. 8095,8095
• Citation: 136 F.2d 633
• Parties: In re CENTRAL R. CO. OF NEW JERSEY. Appeals of STATE OF NEW JERSEY et al.
• Court: U.S. Court of Appeals — Third Circuit

136 F.2d 633 (1943)

In re CENTRAL R. CO. OF NEW JERSEY. Appeals of STATE OF NEW JERSEY et al.

Nos. 8095, 8171.

Circuit Court of Appeals, Third Circuit.

Argued November 20, 1942.

Decided May 27, 1943.

Rehearing Denied July 15, 1943.

COPYRIGHT MATERIAL OMITTED

Joseph Weintraub, of Newark, N.J., (David T. Wilentz, Atty. Gen., for State of New Jersey, Joseph Lanigan, of Trenton, N.J., and Milton B. Conford, of Newark, N.J., on the brief), for State of New Jersey.

Charles Hershenstein, of Jersey City, N. J. (Charles A. Rooney, of Jersey City, N. J., on the brief), for City of Jersey City.

Alexander H. Elder, of New York City (Shelton Pitney, of Newark, N.J., and Howard L. Kern, of New York City, on the brief), for debtor.

Before MARIS, JONES, and GOODRICH, Circuit Judges.

MARIS, Circuit Judge.

The Central Railroad Company of New Jersey operates an interstate railroad in part within the State of New Jersey. It has been in reorganization in the District Court for the District of New Jersey under section 77 of the Bankruptcy Act, 11 U.S. C.A. § 205, since October 30, 1939. The State of New Jersey filed proofs of claim for property taxes assessed against the debtor for the years 1932 to and including 1939 and for interest thereon. Taxes for 1940 were not included in these claims since they accrued when the debtor was in the process of reorganization and were therefore an administration expense. In the tax claims, which were executed and verified by the State Comptroller, the Attorney General was designated as the attorney authorized to represent the state. The State of New Jersey was the claimant. Issues raised by the debtor and its trustees as to these claims were referred to a special master, but by the order here appealed from this reference was revoked.

On July 22, 1941 a railroad tax settlement act (P.L., 1941, chap. 290) became effective. The New Jersey legislature therein offered to settle the state's tax claims for the years 1932 to and including 1940 against all delinquent railroad companies, including the debtor, at a sum equal to the principal amount of the claim, payable over a period not to exceed twenty years and to waive the bulk of interest penalties which had accrued. This offer could be accepted only upon condition that the debtor waive its rights to appeal from all assessments prior to 1941 and discontinue pending tax litigation. In addition the debtor had to file a written undertaking with the Comptroller in a form to be approved by the Attorney General. The trustees of the debtor, having procured an order from the district court on August 8, 1941, authorizing them to accept the offer upon the terms and conditions set forth in the statute, tendered the required documents and checks. The Attorney General declined to approve them and the Treasurer declined to accept any tenders.

On September 4, 1941, the Attorney General filed a civil information suit in the New Jersey Court of Chancery to contest the constitutionality of the tax settlement act, naming the treasurer of the state as sole defendant. That suit is still pending and undecided. Subsequently the legislature passed a second railroad tax settlement act, effective May 21, 1942, P.L., 1942, chap. 241, N.J.S.A. App. A:4-7.1 et seq. This Act relieved the Attorney General of the duty and right to approve the form of the settlement documents. It waived all interest penalties. Acceptance of the offer of settlement had to be on or before June 15, 1942, and had to be accompanied by the stipulated documentary waivers, payment in full and without protest of a franchise tax for 1941 and by a first payment upon the principal of the tax.

On May 21, 1942, the effective date of the second tax settlement act, the Attorney General filed an amended civil information in his pending chancery suit so as to put at issue the constitutionality of the second act, and the same day upon petition of the Attorney General the Court of Chancery enjoined the Treasurer from accepting any documents or payments made in reliance upon the terms of the two tax settlement acts. This restraining order is extant and the constitutionality of the acts is still undetermined by the Court of Chancery.

On June 2, 1942, the trustees petitioned the district court for instructions as to their compliance with the terms of the second tax settlement act. At the same time they obtained an order upon the Attorney General, the Comptroller and the Treasurer to show cause why the amount of the tax claims against the debtor for the years 1932 to 1939, both inclusive, should not be fixed at the principal amount of taxes alleged to be due, payable as prescribed by the second tax settlement act, and the interest penalties be disallowed. After hearing upon the petition and order to show cause the district court entered Order No. 163, paragraphs 4, 5 and 6, of which read as follows:

"4. That the Trustees of the Debtor should not be required to comply with Chapter 241 of the Laws of New Jersey of 1942 without a simultaneous order by this Court adjudicating the amounts for which the aforesaid claims of the State of New Jersey, for the years 1932 to 1939, inclusive, and the balances in dispute for 1940 should be allowed.

"5. That, since a determination must be made prior to June 15, 1942, as to whether or not the Trustees should accept the provisions of Chapter 241 of the Laws of 1942, since, further, it is not possible for the Court in the short time available before that date to try the issues of fact raised by Claims Nos. 34 to 38, inclusive, and the objections filed thereto and determine accurately the amounts now legally due; and since the Court, as a matter of law, has concluded that the offer of settlement officially tendered by the claimant through the enactment of Chapter 241 is a valid and subsisting offer made to carry into effect a public policy set forth in said act, at least so far as a debtor railroad in reorganization under the Bankruptcy Act is concerned, the Court hereby adjudicates the amount for which said claims of the State of New Jersey against the Debtor's estate (including the balances in dispute for 1940) should be and they are hereby allowed as follows:

                                                     Amount of
                                                       Claim
                  Name of Company                    Allowable
                  The C. R. R. Co. of N. J., as
                   Lessee of Ogden Mine R
                   R. Co.                        $     5,220.69
                  The C. R. R. Co. of N. J., as
                   Joint Operator of The
                   New York & Long Branch
                   R. R. Co.                         318,305.30
                  The C. R. R. Co. of N. J
                   as Lessee of The Dover &amp
                   Rockaway R. R. Co.                 13,636.37
                  The C. R. R. Co. of N. J. as
                   Joint Operator of Bay
                   Shore Connecting R. R
                   Co.                                 5,528.40
                  The C. R. R. Co. of N. J
                   Debtor                         13,438,669.19
                

payable in the manner, at the times, with the interest and upon the terms and conditions prescribed by said Chapter 241.

"6. The Trustees accordingly should be and they are hereby instructed and directed on or before June 15, 1942 to comply and on behalf of themselves and their successors to agree to comply in the future in all respects with said Chapter 241 and to make the payments therein required to be made — all in the manner, at the times, with the interest and upon the terms and conditions therein prescribed; and this Court hereby adjudges that upon full compliance as aforesaid Claims Nos. 34, 35, 36, 37 and 38 will have been fully satisfied and discharged."

The concluding paragraph of the order reads: "Nothing in this order contained shall be construed as passing upon the validity or invalidity of Chapter 290 of P.L.1941 or Chapter 241 of P.L.1942, attacks upon which are now pending in the State Courts."

1. The Motion to Dismiss the Appeal from Order No. 163

The Attorney General appealed in the name of the State of New Jersey from Order No. 163. This appeal was docketed in this court as No. 8095. The trustees moved to dismiss and on October 7, 1942, this Court denied the motion without opinion. The trustees have, however, petitioned for rehearing of their motion to dismiss the appeal. They contend that the Attorney General lacks authority to prosecute the appeal either in his own name or in the name of the State of New Jersey, that the state by its Comptroller had consented to the order and that the issue is moot. We find no merit in any of these contentions.

Among the statutory powers and duties of the Attorney General of the State of New Jersey set out in R.S.N.J. 52:17-2, N.J.S.A. 52:17-2, are the following:

"The attorney general shall, when not incompatible with his other public duties:

* * * * *

"g. Attend generally to all matters in which the state is a party or in which its rights and interests are involved;

"h. Act as adviser or counsel for all state boards, commissions or other state officials, and, in connection with such assistants as may be employed in his department, be the sole legal adviser, attorney or counsel thereof and represent them in all suits or actions of any kind that may be brought for or against them in any courts of this state."

By Order No. 163 the district court has adjudicated the amounts payable by the debtor to the state based upon the assumption that the tax settlement acts are valid. These same acts are now being challenged by the Attorney General's suit in the New Jersey Court of Chancery. If they are declared unconstitutional the adjudication by Order No. 163 will have deprived the state of its right to immediate collection of the whole of the principal and to interest upon the delinquent taxes. It is clear that the "rights and interests" of the state are directly involved since the order under appeal purports to determine the amount of the tax for which recovery may be had and to postpone the period of collection. It follows that if Order No. 163 was erroneous it was not only the...