Murdoch v. City of Asbury Park

• Decision Date: 30 July 1942
• Citation: 48 F. Supp. 18
• Parties: MURDOCH v. CITY OF ASBURY PARK.
• Court: U.S. District Court — Southern District of New York

48 F. Supp. 18

MURDOCH v. CITY OF ASBURY PARK.

District Court, S. D. New York.

July 30, 1942.

Thomson, Wood & Hoffman, of New York City (Charles H. Tuttle, Stoddard B. Colby, David M. Wood, John B. Dawson, and Eli Bronstein, all of New York City, of counsel), for plaintiff.

Hawkins, Delafield & Longfellow, of New York City (E. J. Dimock, of New York City, Joseph F. Mattice, of Asbury Park, N. J., and Henry E. Russell, of New York City, of counsel), for defendant, appearing specially for the purpose and only for the purpose of this motion.

COXE, District Judge.

Defendant, a municipal corporation of the State of New Jersey, appearing specially, moves under Rule 12(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, to set aside the service of the process and the levy of attachment, to vacate the order for the service of the process by publication and the warrant of attachment, and to dismiss the action.

The action is brought to recover a balance of $696,582.28, plus interest of $62,147.07 due upon a judgment obtained by plaintiff's assignors against the defendant in the District Court of the United States for the District of New Jersey on February 21, 1935. The judgment was based upon various defaulted bonds and interest coupons, which bonds were issued for the purpose of temporarily financing the construction of a pavilion or building for public resort and recreation and for public exhibitions, lectures and assemblages, including apparatus and furnishings, and for the punctual payment of which the faith and credit of the defendant were pledged. Christmas v. City of Asbury Park, D.C., 10 F.Supp. 22.

Prior to the entry of the judgment, and on January 19, 1935, creditors of the defendant had applied to the New Jersey Supreme Court for relief under the New Jersey Municipal Finance Act, N.J.S.A. 52:- 27-1 et seq., and thereafter, and on March 7, 1935, the New Jersey Municipal Finance Commission was placed in control of the defendant's finances.

Under the laws of New Jersey, the real and personal property of a municipal corporation, held and used for its corporate purposes, is exempt from levy and sale by execution; and a writ of execution is issued simply for the purpose of laying a foundation for a mandamus proceeding, which is the only remedy in New Jersey of a creditor of a municipality for the enforcement of its contract. Hourigan v. North Bergen Township, 113 N.J.L. 143, 172 A. 193, 785; Borough of Fort Lee v. United States ex rel. Barker, 3 Cir., 104 F. 2d 275. Hence a writ of execution was issued out of the New Jersey Federal Court on the judgment, which was returned unsatisfied, and plaintiff's assignors then applied in that court for a peremptory writ of mandamus requiring the defendant to assess and levy, in addition to the regular city taxes, the amount due upon the judgment with interest to the time of payment. A peremptory writ of mandamus was issued on March 15, 1935, but on appeal the order was reversed. City of Asbury Park v. Christmas, 3 Cir., 78 F.2d 1003. The Circuit Court, however, directed the District Court to retain jurisdiction of the petition.

On December 14, 1936, the Municipal Finance Commission certified to the defendant resolutions which provided for the refunding of the defendant's indebtedness, including the bonds upon which the judgment was based, by the issuance of new bonds under a plan calling for a debt service levy in 1937 and each year thereafter sufficient in amount to make available annually for all creditors the sum of $630,000.

Thereafter, and on December 29, 1936, the New Jersey Federal Court, in the pending mandamus proceeding, granted a peremptory writ of mandamus requiring the defendant to budget annually the sum of $87,381, until the principal amount due on the judgment, as well as interest at 6%, was fully paid and satisfied. This sum apparently represented the precise amount that would have been available annually to the holders of the bonds upon which the judgment was based under the proposed refunding plan of the Municipal Finance Commission. After this writ was granted the Municipal Finance Commission applied to the New Jersey Supreme Court for a peremptory writ of mandamus requiring the defendant to make an additional tax levy for the benefit of all other bond holders, which writ was thereupon issued. The result was to put all bond holders on a parity. Rippel v. City of Asbury Park, 118 N.J.L. 45, 190 A. 489.

On April 29, 1938, the refunding plan was approved and authorized by the New Jersey Supreme Court, and this plan was put into operation on June 15, 1938. The plan provided for the refunding of outstanding bonds, including the bonds upon which the judgment was based. The old bonds were to be exchanged by consenting creditors for new bonds, which would be valid and legally binding obligations of the city, the city was given the power and was legally obligated to levy ad valorem taxes upon all taxable property, and the new bonds were to be dated December 1, 1937, and were to bear interest payable semi-annually at the rate of 4% per annum. Article II of the plan provided that in full satisfaction of all unpaid interest upon the bonds to be funded or refunded, the city would pay in cash a sum equal to 3% per annum for the period from January 1, 1934, to December 1, 1937, less any payments theretofore made on account of interest accruing after January 1, 1934.

In 1937 and 1938, the defendant paid $87,381 on the judgment pursuant to the peremptory writ of mandamus. Thereafter, by stipulation filed in the New Jersey Federal Court, the annual payments were reduced to $45,718.79, and it was agreed that after adjustments, and as of June 2, 1938, there was due on the judgment $696,582.28 principal, and $52,895.60 interest. On June 5, 1939, a payment of $45,718.79 was made.

On June 4, 1940, an application for a writ of certiorari, for the purpose of preventing the annual payment due on June 5, 1940, was filed in the New Jersey Supreme Court by two bondholders and a taxpayer, claiming that further payments under the writ were barred by the refunding plan. There is nothing in the papers to show what action was taken on this application, but on June 19, 1940, a payment of $45,718.79 was made, and on June 9, 1941, another payment in the same amount was made on the judgment. No payments have been made since that time.

In the meantime, the defendant, pursuant to the refunding plan, had issued and delivered to the Central Hanover Bank & Trust Company refunding bonds of the aggregate amount of $671,000, for the purpose of refunding or funding the indebtedness of the defendant in that amount, representing the unpaid balance of the judgment, and that portion of the judgment which was apparently based upon the following old bonds of the defendant:

1. $483,000 temporary loan bonds, dated September 1, 1933, payable December 1, 1933.

2. $184,000 temporary loan bonds, dated April 1, 1930, payable April 1, 1934.

3. $4,000 temporary loan bonds, dated June 1, 1929, payable December 1, 1933.

On September 19, 1941, the Court of Errors and Appeals of New Jersey upheld the constitutionality of the composition statute under which the refunding plan had been formulated and approved, and sustained the dismissal by the Supreme Court of New Jersey of a suit brought to recover the face value of old bonds and coupons. Faitoute Iron & Steel Co. v. City of Asbury Park, 127 N.J.L. 239, 21 A. 2d 796. This decision was affirmed by the United States Supreme Court on June 1, 1942. 62 S.Ct. 1129, 86 L.Ed. 1629.

In October, 1941, the City Council of the defendant passed an ordinance authorizing the issuance of new bonds for the purpose of paying, funding or refunding the outstanding obligations and indebtedness of defendant, including the bonds issued pursuant to the 1938 refunding plan, the earlier bonds which had not been exchanged, and the judgment claim of the plaintiff. Section 2 of the ordinance declared that refunding bonds aggregating $185,000 had been issued, but that old bonds aggregating that amount had not been surrendered therefor, and Section 3 recited that refunding bonds in the aggregate principal amount of $671,000 had been authorized for the purpose of refunding the old temporary loan bonds of the defendant evidenced by the judgment, that the refunding plan contemplated and provided that the balance due on the judgment should be refunded or funded by the issuance of the new refunding bonds subject to adjustments provided for in the plan on account of interest accruals on the temporary loan bonds and payments theretofore made with regard thereto, and that the refunding bonds had been duly executed and were then held by the Central Hanover Bank & Trust Company at New York ready to be turned over in accordance with the adjustment plan upon the surrender of the temporary loan bonds and the vacating of the judgment, and upon the making of the appropriate adjustment of interest accruals and previous payments.

The ordinance authorized the issuance of negotiable bonds of the aggregate principal amount of $10,230,000 for the purpose of paying, funding, or refunding $67,500 of tax refunding bonds, and $9,718,200 of refunding bonds, including the bonds and...