United States Trust Company of New York v. New Jersey―The Contract Clause in a Complex Society
Trust Co. v. New Jersey
United States Trust Company of New York v. New Jersey―The C ontract Clause in a Complex Society
Robert A. McTamaney 0 1
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1 Robert A. McTamaney, United States Trust Company of New York v. New Jersey―Th e Contract Clause in a Complex Society , 46 Fordham L. Rev. 1 (1977). Available at: , USA
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TABLE OF LEADING ARTICLES-AUTHORS
MAYER, DAVID G., The Transfer of Copyright Ownership to Periodicals ............
MULLANEY, THOMAS J., Theories of MeasuringDamages in Security Cases and the Effects
of Damages on Liability ...................................................
O'CONNOR, PETER J., The Nuisance Abatement Law as a Solution to New York City's
Problem of Illegal Sex Related Businesses in the Mid-town Area ..............
SCHWARTZ, BERNARD, National League of Cities v. Usery.-The Commerce Power and
State Sovereignty Redivivus ................................................
COMMENTS AND NOTES
COHEN, NAGEL, AND SCANLON, EDS.: EQUALITY AND PREFERENTIAL TREATMENT. John
E . Nelson I I ............................................................
FRANKEL AND NAFTALIS, THE GRAND JURY: AN INSTITUTION ON TRIAL. William R.
M eagher ..................................................................
Access to EEOC, NLRB,
Adverse publicity in SEC
Employers' rights under FOIA
TORTS See also Products Liability
Defamation: Corporation held a "person"
subject to the Geriz test for determining
liability in defamation actions 1287-1300
Joint and several liability of tortfeasors
Medical malpractice panels 322-49
Noncommercial torts committed by foreign
Nuisance abatement legislation used to deter
sex oriented businesses 57-90
Parole boards have only qualified immunity
for decision to release prisoner 1301-15
Relief for trademark infringement under New York antidilution statute 1315-38
Compared with act of state doctrine 315-316
Counterclaim exception 314-17, 557-58
Foreign Sovereign Immunities Act of
Commercial paper double forgery 1273-86
Express warranties of work of art 954-59
Reclaiming credit seller and bankruptcy
Copeland v. Directors of Minong
Mining Co . ......................... 417
Cort v. Ash ....................... 369
Cousins v. Wigoda ................. 184
Crescent Wharf & Warehouse Co. v.
Commissioner .................... 805
Cupp v. Murphy ................... 155
Curtis Publishing Co. v. Butts ...... 1290
Daeche v. United States ............ 1217
Daily v. Parker .................... 731
Dam v. Kirk La Shelle Co .......... 934
Dexter & Carpenter, Inc. v. Kunglig
Jarnvagsstyrelsen ................. 565
Dixie Pine Products Co. v.
Commissioner ........................... 790
Dr. Priestley's Case ................ 1038
Douglas v. Concord & Montreal
Railroad ............................ 418
Downs v. United States ............ 579
Eliot v. Geare-Marston, Inc .... 927, 935
Elkins v. United States ............. 144
Ernst & Ernst v. Hochfelder .... 374, 537
Escola v. Coca Cola Bottling Co.... 1002
Esplin v. Hirschi .................. 282
Et Ve Balik Kurumu v. B.N.S.
International Sales Corp............... 546
Fahr v. United States Department of
Labor ........................... 236
Faitoute Iron & Steel Co. v. City of
Asbury Park ..................... 32
FTC v. A.E. Staley Manufacturing
Co . ......................... 833, 859
Federal United Corp. v. Havender .. 423
*Federal's, Inc., In re ............ 641-48
Fee v. New Orleans Gas & Light Co. 418
Feit v. Leasco Data Processing
Equipment Corp ....................... 289
Firestone Tire & Rubber Co. v. Kleppe 210
First National City Bank v. Banco
Nacional de Cuba ............ 298, 313
Foley, Hoag & Eliot ............... 1017
Ford Motor Co. v. Commissioner ... 820
Frank v. Wilson & Co.............. 422
Fridrich v. Bradford ............... 291
Fuentes v. Shevin .................. 213
Gaby v. Port Authority ............. 14
Gault, In re ....................... 689
Geisel v. Poynter Products, Inc...... 932
Gerstle v. Gamble-Skogmo, Inc. .. 283, 291
Gertz v. Robert Welch, Inc... 1287, 1291
Gibbons v. Ogden ................. 1118
Pennoyer v. Neff .................. 456
People v. Badgley .................. 1220
People v. Brown ............. 1235, 1239
People v. Cahan ................... 147
People v. Cuozzo .................. 1223
People v. Defore ................... 142
People v. Hennessey ................ 1220
People v. Joyce .................... 1227
People v. Krivda ................... 169
People v. Lytton ................... 1227
People v. Murphy .............. 614, 629
People v. Murray ....... 1206, 1229, 1238
People v. Rooks ................... 1228
Perez v. United States .............. 1223
*Perini Corp. v. First National Bank of
Habersham County ............ 1273-86
Perma Life Mufflers, Inc. v.
International Parts Co ................... 251
Petrol Shipping Corp. v. Kingdom of
Greece Ministry of Commerce,
Purchase Directorate ............. 546, 561
Planned Parenthood v. Danforth .. 620, 759
Planters' Bank v. Sharp ............ 29
Poirier & McLane Corp. v.
Commissioner ........................... 808
Powell v. Texas ................... 685
Price v. Neal ...................... 1276
Pushman v. New York Graphic
Society, Inc . ........................ 950
Queen v. Hicklin .................. 1042
*Reliance Insurance Co. v. Barron's
Republic of Mexico v. Hoffman .. 548, 555
Rich v. Naviera Vacuba, S.A .... 548, 564
Ridgway v. Griswold ............... 418
Rieser v. District of Columbia ...... 1305
Robinson v. California .............. 684'
Roe v. Wade ...................... 719
Rosenblum v. Metromedia, Inc...... 1290
Roth v. United States .............. 1043
Rutledge v. Electric Hose & Rubber
Co . ............................. 866
Sampson, In re .................... 726
San Antonio Independent School
District v. Rodriguez ................ 695
Sarlie v. E.L. Bruce Co............. 287
Savings Bank of Baltimore v. Bank
Commissioner .................... 114q
Scanwell Laboratories, Inc. v. Shaffer 22
Scheuer v. Rhodes ................. 130,
Schluder v. Commissioner ........... 79j
United States v. Anderson .......... 789
United States v. Atchinson .......... 623
United States v. Ballard ............ 629
United States v. Butler ............. 1130
United States v. Calandra .......... 156
United States v. California .... 1127, 1133
United States v. Citizens & Southern
National Bank ............... 253, 844
United States v. Consolidated Edison
Co . ............................. 791
United States v. Container Corp. of
Am erica ......................... 842
United States v. Corley ............. 532
United States v. Cruikshank ........ 401
United States v. Cumberland Public
Service Co .......................
United States v. Darby .............
United States v. Five Gambling
Devices ............................ 1122
United States v. General Electric Co. 357
United States v. Greco ............. 1187
United States v. Harris & Co.
Advertising ............................. 566
United States v. Hollinshead ........ 1185
United States v. Janis .............. 159
United States v. Journet ............ 1248
United States v. Klein .............. 390
United States v. McClain ..... 1183, 1201
United States v. Martinez-Fuerte .... 163
United States v. Masko ............. 532
United States v. Mauro ......... 501, 516
United States v. Mejias ......... 532, 533
United States v. Michaelson ......... 1249
United States v. One Book Called
"Ulysses" . ....................... 1042
United States v. Passavant .......... 579
United States v. Patrick ............ 628
United States v. Peltier ............. 157
United States v. Rabin ............. 1187
United States v. Robinson .......... 155
United States v. Seeger ............. 611
ROBERT A. McTAMANEY*
HE contract clause of our Federal Constitution' prompts thoughts of
Dartmouth College,2 corporate charters with helpful grandfather
provisions, 3 and the Supreme Court cases in the 1930's which invalidated
President Roosevelt's economic legislation through a literalistic
application of a "freedom of contract" under the due process clauses. 4 To
business lawyers dealing specifically with municipal bond finance, the
contract clause has had an importance basic to their practice in that it
traditionally has been considered to protect promises to creditors by
governments, muncipal subdivisions, and public authorities against
abrogation by subsequent legislative bodies. This tenet of municipal
finance has been such a foundation of this area of the law that few if any
practitioners seriously questioned its application.
On April 27, 1977, the United States Supreme Court, in United States
TrustCompany ofNew York v. New Jersey,5 considered the application of
the contract clause to municipal bond covenants for the first time in
almost thirty-five years.6 United States Trust prompted an unparalleled
interest in the municipal finance community, and the Court's holding that
* Member, New York and New Jersey Bars. The author is associated with counsel for
plaintiff in United States Trust.
1. "No State shall. . . pass any... Law impairing the Obligation of Contracts ... " U.S.
Const. art. I, § 10, ci. 1.
2. Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518 (1819).
3. See H. Henn, Handbook of the Law of Corporations and Other Business Enterprises § 340
(2d ed. 1970).
4. See 1 The Constitution and the Supreme Court 298-300 (L. Pollak ed. 1966).
5. 431 U.S. 1 (
6. See Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U.S. 502 (1942). State Courts
had considered the application of the contract clause to municipal bond covenants prior to United
States Trust. E.g., First Nat' Bank v. Maine Turnpike Auth., 153 Me. 131, 136 A.2d 699 (1957).
See generally Flushing Nat'l Bank v. Municipal Assistance Corp., 40 N.Y.2d 731, 358 N.E.2d
848, 390 N.Y.S.2d 22 (1976); Ruano v. Spellman, 81 Wash. 2d 820, S0S P.2d 447 (1973) (en banc).
At least one state court has since cited it with approval. See, e.g., Patterson v. Carey, 41 N.Y.2d
714, 363 N.E.2d 1146, 395 N.Y.S.2d 411 (
a unilateral retroactive cancellation of a material bond covenant
contravened the contract clause was hailed by municipal investors and
obligors alike. 7 This article will detail the fascinating history of United
States Trust (from the point of view of counsel for plaintiff) and its trip
through the courts and consider the modern relevance and application of
the contract clause to a society two centuries more complex than the one
in which it was conceived.
The Port Authority of New York and New Jersey
In 1917 the States of New York and New Jersey established study
commissions to cooperate in making a thorough investigation of the
conditions of the Port of New York, to submit a comprehensive report
recommending the proper policy to be pursued for the development of the
Port, and to determine what legislation was necessary "to the end that
said port shall be efficiently and constructively organized and furnished
with modern methods of piers, rail and water and freight facilities, and
adequately protected in the event of war." 8 The two state commissions
then organized themselves into the New York, New Jersey Port and
Harbor Development Commission (the "Commission') and on December
16, 1920, issued a joint report (the "1920 Report') 9 summarizing its work,
discussing Port conditions, and setting forth a proposed compact and
The 1920 Report outlined the chaotic, diverse, inadequate, and
congested Port facilities existing in 1920 restricting the flow of goods by
railroad, steamship, and motor truck in the Port area. Freight handling
problems of carriers were discussed extensively as were recommended
proposed solutions to the problems involved in the movement of freight
and commodities brought into, out of, and through the Port District.
Nevertheless, the 1920 Report did not deal with plans for passenger
The 1920 Report advocated the adoption of a compact between the
two states, establishing a Port District and creating a Port Authority. It
included an extensive discussion of the legal precedents concerning
congressional and state powers over interstate commerce and concluded:
"It is hoped, of course, by securing congressional approval of any plan
which may be adopted, to avoid future conflict with the Federal authority
over interstate unification and control of the Port. But for the present the
States may act alone." 1 0
In response to the recommendations of the 1920 Commission,
commissioners of both states were appointed with authorization to enter
into an agreement or compact in the form specified in the statute and
to seek the consent of Congress in respect of the agreement. 1 On April
30, 1921, the Compact between the two states (the "Compact") relating
to the Port Authority of New York and New Jersey (the "Port
Authority") 12 was actually signed. 13 Congressional consent to "each
and every part and article" of the Compact was obtained effective
August 23, 1921.14
Certain provisions of the Compact were to be of importance in
United States Trust, particularly those which emphasized the
character of the new agency as an independently financed entity without call
on the tax power or credit of either state. The preamble of the
Compact stated that "[t]he future development of such terminal,
transportation and other facilities of commerce will require the
expenditure of large sums of money, and the cordial cooperation of the states
of New York and New Jersey in the encouragement of the investment
of capital, and in the formulation and execution of the necessary
physical plans . . . . "IsArticle II of the Compact created the Port of
New York District comprising an area of about 1500 square miles in
both states centering about the Statue of Liberty in New York
harbor. 16 Article mEI established the Port Authority as "a body corporate
and politic, having the powers and jurisdiction hereinafter
enumerated, and such other and additional powers as shall be conferred upon
it by the legislature of either state concurred in by the legislature of the
other, or by act or acts of congress ....,,i7 Article VI of the Compact
vested in the Port Authority "full power and authority to purchase,
construct, lease and/or operate any terminal or transportation facility
within" the Port District and authorized the Port Authority
"to borrow money and secure the same by bonds or by mortgages
.... ,"18 Article VII provided that the Port Authority "shall have such
additional powers and duties as may hereafter be delegated to or
imposed upon it from time to time by the action of the legislature of
either state concurred in by the legislature of the other" and further
provided: "The port authority shall not pledge the credit of either state
except by and with the authority of the legislature thereof."' 9 Article
XV of the Compact provided that "[u]nless and until... revenues...
are adequate to meet all expenditures, the legislatures . . . shall
appropriate . . . such sum or sums as shall be recommended by the
port authority . . . but each state obligates itself hereunder only to the
extent of one hundred thousand dollars in any one year."'20
In 1922 a Comprehensive Plan for the development of the Port of
New York was adopted by the New Jersey and New York
legislatures2 I and received the consent of Congress.2 2 The Comprehensive
Plan set forth the development program initially envisioned for
implementation by the Port Authority. Unification of terminals,
consolidation of shipments, adaptation and coordination of existing facilities,
improvement of commercial facilities, and other freight handling
improvements were set forth as principles to govern the development of
the Port District. The Comprehensive Plan proposed to establish direct
freight connections between New Jersey and Manhattan to furnish
"the most expeditious, economical and practicable transportation of
freight, especially meat, produce, milk and other commodities
comprising the daily needs of the people. '23 Section 8 of the Comprehensive
Plan denied the Authority the power to levy taxes or assessments. It
provided, however, that the bonds or other securities issued by the
Port Authority would "at all times be free from taxation by either
state, ''24 an important inducement for potential investors.
Pursuant to the Compact, Comprehensive Plan, and subsequent
amendments and supplements thereto, the Port Authority operates all
of the interstate vehicular tunnels and bridges in the Port District, the
metropolitan area's three international airports, and many freight,
marine and bus terminals. The Port Authority also owns and operates
the Port Authority Trans-Hudson system ("PATH") and the World
Trade Center. 25
B. Port Authority Participationin Rail Transit Prior to 1962
The modern vision of the Port Authority as an agency intended since
its inception to assume passenger transit duties 26 does not survive
historical analysis. Throughout the first forty years of the agency's
existence, the states made various efforts to solve the passenger transit
problem without reference to the Port Authority. As early as 1921 New
York created a commission to prepare "a preliminary plan and report,
including estimates, for the combination, improvement and extension
of existing rapid transit railroads, street surface railroads, and . . .
omnibus lines and any railroad used for local service, operating
between a point or points within the city of'27New York and a point or
points within the county of Westchester.
In 1922 New Jersey established a commission to study and report
upon plans for providing a comprehensive scheme of rapid transit
between various communities in northern New Jersey and the City of
New York. The legislation which established the commission
acknowledged that the Port Authority's Comprehensive Plan "in its
consideration of transportation problems does not include the problem of
passenger traffic in the territory covered by said port development plan
In 1926, the New Jersey Legislature continued the existence of the
North Jersey Transit Commission and authorized this body to
negotiate and study in cooperation with New York authorities the
legal, financial and interstate aspects of a rapid transit plan.2 9 On
February 20, 1928, the North Jersey Transit Commission issued its
1927 report to the New Jersey Legislature. The Commission stated:
"[G]rave questions arise whether [the Port Authority], already charged
with the important work of coordinating freight operations of the Port
District and in addition
detailed labor of financing and
coofntshterucptaisnsgenngoerlestsratnhsaint sfiotuuratiinotnersthtaeterebqruidisgietes, tcimane barnindg attotetnhteiosnt.ud'3y0
With respect to the financing of the proposed rapid transit system, the
Commission recommended public financing backed by the full faith
and credit of the transit district coupled with a benefits assessment for
local improvements. 3 1
In 1927 the New Jersey Legislature, purportedly acting "[u]nder
and pursuant to the provisions of the [Port Authority] compact,"
authorized and directed the Port Authority "to make such plans.., as
will provide adequate interstate and suburban transportation facilities
for passengers traveling to and from one State to the other within the
said district, and from one part of the said district to another,
sometimes referred to as commuter or suburban passenger traffic.
. .-"32 The Port Authority was also directed to "submit, as part of its
report, a legal plan for the financing of the said improvements through
the Port of New York Authority as the corporate municipal
instrumentality of the two States or otherwise . . . ,,33 This legislation was
signed by Governor Moore of New Jersey and was approved in 1928
by the New York Legislature but was vetoed by Governor Alfred E.
Smith, who said in support of his veto: "I am entirely unwilling to
give my approval to any measure which at the expense of the solution
of the great freight distribution problem will set the Port Authority off
on an entirely new line of problem connected with the solution of the
suburban passenger problem. '34
As was later found by the trial court, despite repeated studies, 35 the
Smith veto "to all intents and purposes ended any legislative effort to
involve the Port Authority in an active role in commuter transit for the
next 30 years."'36
In the 1958 session of the New Jersey State Legislature, Assembly
Bill No. 16 was introduced which provided that the Port Authority
would take over and financially develop, improve, and operate
interstate passenger rail transportation between New Jersey and New
York. In response to this bill, the Port Authority submitted a
statement by its Commissioners on November 24, 1958, which argued that
would conclude that the subsidized Port Authority operation was only a first step in a
process of involvement, and that an attempt to divert the reserves and revenues of the
Authority would be certain to follow. No investment counsellor who has heretofore
advised his clients to purchase Port Authority bonds on the basis of its record of
self-support could so counsel them again in the face of this threat.3 7
This summary was made with reference to the statement by the
Commissioners of the Port of New York Authority dated November
24, 1958, which said in part:
Obviously, [the] market analysts would regard any Port Authority involvement in
rapid transit as a financial disaster. If the Port Authority can be compelled to assume a
deficit operation of any sort, even one not approaching the rail transit deficit in size,
investors would have a right to assume that the Authority was becoming the dumping
ground for deficit operations of all types. The Authority's credit could not survive such
a breach of its investors' present confidence that the Port Authority will restrict its
operations to facilities which it believes can eventually be made self-supporting. The
importance of this lies in the fact that it transcends arguments as to the size of the
present transit deficit. To investors it would make no difference whether the proposal
was to force a $2,000,000 or a $12,000,000 or a $20,000,000 annual deficit on the Port
Authority. Confidence is the essence of credit and it would be gone. 38
In 1959, with congressional consent, 39 the states of New Jersey and
New York entered into a compact which created the New York-New
Jersey Transportation Agency to "serve as a public agency of the states
of New York and New Jersey dealing with matters affecting public
mass transit within and between the two states. '40 This seemed to
acknowledge once again that no extant agency such as the Port
Authority had that responsibility.
In the same year the legislatures of the two states provided that
"[u]pon the election by either State . . . the Port Authority shall be
authorized and empowered" to purchase and own railroad cars for the
purpose of leasing them to commuter railroads within the electing
state.4 1 The statutes expressly prohibited the Authority from
borrowing money for the purchase of such cars until the electing state
37. Letter from Port of New York Authority to Hon. Martin Kesselhaut & Hon. J. Edward
Crabiel (Nov. 24, 1958).
38. Port of N.Y. Auth., Statement by Commissioners of the Port of New York Authority
with Respect to Assembly No. 16 Before the Committee on Federal and Interstate Relations and
Committee on Highways, Transportation and Public Utilities of the House of Assembly of the
State of New Jersey 4, 9-10 (Nov. 24, 1958).
39. Ch. 13, 1959 N.J. Laws; ch. 420, 1959 N.Y. Laws.
40. Ch. 420, 1959 N.Y. Laws; accord, ch. 13, 1959 N.J. Laws (substantially the same).
41. Ch. 25, 1959 N.J. Laws; ch. 638, 1959 N.Y. Laws.
And for the state:
No hard and fast distinction is appropriate between legislative power over State
contracts and power over private ones, and the Supreme Court has never drawn one.
The reality is that in many cases, including this one, the practical necessity for on-going
relationships with the community arguably disadvantaged by legislative modification
of prior State promises assures that their claims receive especially close attention.
Precisely because the legislature has to weigh the competing interests of the bondholder
community closely in deciding whether repeal is necessary, the judgment is one
warranting maximum judicial respect. In summary, on this point, under the balancing
test applicable here, the repeal of the covenant, a matter collateral to the obligation of
the bonds, does not materially impair any obligation of the contract.'
On April 8 and 9, 1975, the case was argued before Judge
Gelman. 183 At various points during the argument it became evident that
Judge Gelman seemed satisfied, as a practical matter, with the basic
bondholder protections and viewed the Covenant as arguably
superfluous to the basic objective of protection of principal and interest.' 8 4
It seemed then that the court would be unwilling to find any blow less
than mortal an impairment of contract. Once again defendants raised
the hypothetical supposition of a fare increase, with the "new"
revenues going to mass transit, as a rational plan which the Covenant
precluded.185 It was also clear that the court had the greatest interest
in W.B. Worthen Co. v. Kavanaugh1 8 6 and its application. 18 7
On April 10, 1975, the day following conclusion of oral argument,
the Port Authority made an announcement that turned the case around
in mid-stream. It proposed a toll increase on the Hudson crossings
expected to net $39 million in additional annual revenues to the
agency, to be used for four mass transit-related projects: (I) the
expansion of the Port Authority Bus Terminal; (2) the extension of
PATH to Plainfield; (
) the rail link to Kennedy Airport; and (4) direct
rail service for Erie Lackawanna trains into Penn Station, New
York.1 88 The agency almost seemed to be quoting from the state's
briefs in its press release announcing the toll increases: "The new toll
structure is in line with efforts to reduce inefficient and unnecessary
automo8b9ile usage, highway congestion, air pollution, and to conserve
What had been mere supposition and hypothesis in the state's
briefs1 90 was now reality. Where before diversions of revenues for rail
purposes in violation of the Covenant clearly would have required
diversion of current revenues, now the state was free to argue, as it did
hypothetically in its trial briefs, that only "new" revenues would be
called on to finance the proposed rail projects.
The Superior Court Decision
One month following announcement of the toll increases the superior
court upheld the retroactive repeal of the 1962 Covenant. 19 1 In its
ninety-five page decision the court combined its findings of fact from
the February trial with its resulting conclusions of law.
With respect to bondholders' reliance on the Covenant the superior
court, apparently with an eye to dicta in City of El Paso v.
Simmons, 192 found that the Covenant was not the "primary consideration"
for the purchase of the bonds, "for no witness testified that purchases
would not have been made without the covenant, but only that they
would not have purchased or recommended the purchase of the bonds
'at the price which they were then offered.' "193
With respect to secondary market damage, the court found a
problem in the proofs presented by plaintiff in that "they [did] not
show that the adverse effect attributable to the covenant repeal was
permanent, ' 194 since it happened that the spread between the
comparison bonds at the time of trial had closed to where it stood just prior
to repeal.19 s The court also found that certain newspaper articles
adverse to the Port Authority which had been entered into evidence by
defendants "unquestionably" contributed to the adverse price
differential. 196 The court concluded:
The bottom line of plaintiffs proofs on this issue is simply that the evidence fails to
demonstrate that the secondary market price of Authority bonds was adversely
189. Id. at 2.
190. See text accompanying notes 176 & 185 supra.
191. United States Trust Co. v. State, 134 N.J. Super. 124, 338 A.2d 833 (L. Div. 1975), ff'd
per curiam, 69 N.J. 253, 353 A.2d 514 (1976), rev'd, 431 U.S. 1 (
192. 379 U.S. 497, 514 (1965).
193. 134 N.J. Super. at 179, 338 A.2d at 864. This conclusion was flatly contradicted by the
record. John F. Thompson had testified in part: "Q. If you knew that the covenant would later be
repealed would you have recommended the Port Authority bonds during the '60s? A. No."
Record, supra note 119, at 86.
194. 134 N.J. Super. at 180, 338 A.2d at 865.
195. Id. at 180-81, 338 A.2d at 865.
196. Id. at 181, 338 A.2d at 865.
affected by the repeal of the covenant, except for a short-term fall-off in price, the effect
of which97has now been dissipated insofar as it can be related to the enactment of the
Notwithstanding its conclusions with respect to reliance and
secondary market damage, on the issue of impairment the court agreed that
"[tlo the extent that the repeal of the covenant authorizes the Authority
to assume greater deficits for such purposes, it permits a diminution of
the pledged revenues and reserves and may be said to constitute an
impairment of the states' contract with the bondholders."1 98 Thus
finding an impairment in the potential diminution in security, but also
concluding that the Covenant was not the "primary inducement" for
the purchase of the bonds and that the secondary market damage was
ephemeral, the superior court set forth an analysis of the origins and
development of the contract clause. 199 As indicated during oral
argument, 200 the court placed primary reliance on W.B. Worthen Co. v.
Kavanaugh,20 1 reading the case as follows:
As the language of the court in the cases cited above makes manifest, not every
impairment of a contract obligation or security for its performance runs afoul of the
Contract Clause; a state acting under its reserved police powers may alter its remedial
processes and thereby diminish contractual security provided it does not destroy its
quality as "an acceptable investment for a rational investor." 20 2
The line of demarcation between Blaisdell and Kavanaugh may be expressed as one
of degree: The states' inherent power to protect the public welfare may be validly
exercised under the Contract Clause even if it impairs a contractual obligation so long
as it does not destroy it. 20 3
Conceding the existence of some impairment of bondholder security as a result of the
repeal, has the action of the states destroyed the quality of their security as an
"acceptable investment for a rational investor"? 204
It is the judgment of this court that the repeal legislation was a reasonable and hence
Cvlaaluidse exoefrceiisteheorf tthhee Fsetadteersa'l poorlictehepoSwtaetre wChoincshtitiustionno.t2 0p-Srohibited by the Contract
197. Id. at 181-82, 338 A.2d at 866.
198. Id. at 183, 338 A.2d at 866 (footnotes omitted).
199. Id. at 184-93, 338 A.2d at 867-72.
200. See text accompanying note 187 supra.
201. 295 U.S. 56 (1935).
202. 134 N.J. Super. at 187, 338 A.2d at 869.
203. Id. at 190, 338 A.2d at 170-71.
204. Id. at 195-96, 338 A.2d at 873-74.
205. Id. at 197, 338 A.2d at 874. Since it upheld the repeal, the court never reached the issue of
the constitutional validity of the Covenant. The Gaby complaint was dismissed. 134 N.J. Super.
at 198, 338 A.2d at 875 (citing Wagner v. Ligham, 37 N.J. Super. 430, 117 A.2d 516 (App. Div.
THE NEW JERSEY SUPREME COURT
The day following the superior court decision the secondary market
for Port Authority 6% consolidated bonds fell by more than three
points ($30 per $1,000 principal amount of bonds); this one day of
market loss represented six months' interest on the bonds. 20 6 The Port
Authority, which had been considering its first bond issue since
October of 1973, put those plans back on the shelf, thus continuing the
longest period in modern Port Authority history without a long-term
debt issuance. 207
On May 16, 1975, counsel for United States Trust filed a motion and
supporting papers with the New Jersey Supreme Court seeking to skip
the intermediate appellate level and secure direct and expedited review
of the superior court decision by the Supreme Court of New Jersey. 20 8
It was felt that the court which decided the New Jersey Sports20 9 and
the Sills 210 cases would not stand for the abrogation of an important
Only hours after the papers requesting direct certification and
expedition were filed, the New Jersey Supreme Court met in an
emergency session in Morristown, New Jersey, where the justices were
attending a judicial conference, and granted the speedy review
requested. 2 11 Chief Justice Hughes announced at that time that he would
recuse himself since he was Governor of New Jersey when the
Covenant was enacted. 21 2
The swift action of the supreme court had a decidedly calming effect
on the market for Port bonds, and it was widely thought that the quick
decision on the appeal procedure was a sure sign that the court was
disposed toward reversal. One interested bondholder was so optimistic
that it published a rave analysis of the Port Authority on the eve of
filing of the appellate briefs. This was Barr Brothers, the municipal
bond dealer firm from which United States Trust had chosen one of
its expert witnesses, Lester Murphy. On June 12, 1975, Barr Brothers
published a Port Authority investment analysis titled The Reports of
My Death are Greatly Exaggerated,21 3 which said, in part, that
withstanding the superior court decision the Port Authority continued
to be "one of the finest revenue credits in the country"2 14 and that "[a]t
these depressed levels, . . . [the2 1b5onds presented] an outstanding and
secure value for the investor."
To one familiar with the municipal bond industry the Barr Brothers
report was wholly understandable since the supreme court had just
acted so quickly on the appeal papers and Barr Brothers, as a Port
bond dealer, had in-house massive inventories of the bonds with heavy
paper losses-it had to act to bolster the market or see its position
continue to decline. But to an outsider unfamiliar with the day-to-day
operations of the market the report seemed to be directly contradictory
to the expert trial testimony with respect to the importance of the
Covenant to bondholder security.
The state reacted to the Barr Brothers report as one might expect. A
copy was attached as Exhibit A to the state's appeal brief 2 16 and the
brief itself was sprinkled liberally with references to it.2 17
United States Trust's brief on appeal took issue with many of the
superior court's findings, but the key concept which the brief
attempted to impress on the court was the trial court's apparent misreading of
the Worthen21 8 case:
Thus, although in Kavanaugh the Court was careful to state that the destruction of
the quality of a security "as an acceptable investment for a rational investor"
constituted the "outermost limits" of the bounds of which a state may not transgress,
the Trial Court adopted these outer limits as its sole standard for determining the
constitutionality of the 1974 Legislation. According to the Trial Court, any
transgression by the State which falls short of the "outermost limits," is constitutionally valid.
TmhaeximTurimal iCntoourat rheaqsuitruerdnemdinwi mhautmtodethmeonSsutrparteimone. 21C9ourt was an unconstitutional
For some reason the state did not make any reference to Worthen in
its main brief on appeal and in its reply brief referred to Worthen only
in a footnote,2 2 0 making no attempt to justify the superior court's
interpretation of the case. This tactic proved to be well-founded, since
after a desultory oral argument on October 7, 1975, the New Jersey
Supreme Court, on February 25, 1976, affirmed the judgment, per
curiam, "substantially for the reasons set forth in the opinion of Judge
217. Id. at 2,50, 75.
218. 295 U.S. 56 (1935).
219. Brief for Appellant at 68, United States Trust Co. v. State, 69 N.J. 253, 353 A.2d
514 (1976), revzd, 431 U.S. 1 (
) (citations omitted).
220. Reply Brief for Defendants-Respondents and Cross-Appellants at 20, United States Trust
Co. v. State, 69 N.J. 253, 353 A.2d 514 (1976), rev'd, 431 U.S. 1 (
Gelman. '' 221 Justice Pashman dissented in part, not with respect to
the validity of the repealer, which he heartily endorsed, but because
he thought the court should go even further, as requested by the Gaby
plaintiff, and order the Port Authority to formulate a plan for
development of mass transit facilities. 222
United States Trust announced immediately that it would appeal the
affirmation to the U.S. Supreme Court.2 23 The jurisdictional
statement was filed May 21, 1976.224 The state moved to dismiss the
appeal225 and the Court noted probable jurisdiction on June 28,
At this point the Gaby case fell by the wayside.227 Both United
States Trust 228 and the Port Authority229 urged the Court to reach the
merits in Gaby and finally settle the issue of the Covenant's
constitutional validity, but the Court dismissed the appeal for want of
jurisdiction, apparently because the Gaby issues had not been reached below.
Thus, the "final judgment" element of a section 1257 appeal 230 was
Main briefs were filed over the summer of 1976, with United States
Trust continuing to argue that the case was wrongly decided because
of an unwarranted expansion of Worthen:
If only those acts of the State which resulted in the destruction of a contract as an
acceptable investment were constitutionally impermissible, virtually no covenant or
combination of covenants in a bond resolution or statute would be safe from
abrogation. There are innumerable covenants and provisions in bond resolutions and
statutes, the abrogation of which would not "destroy" the bond's security, but which
obviously would result in material impairment of it. Even measured by the "outermost
limits" of Kavanaugh repeal of the Covenant is constitutionally offensive. There the
229. Defendants' Motion to Dismiss Appeal, Gaby v Port Auth., 427 U.S. 901 (1976).
230. 28 U.S.C. § 1257 (1970).
basic legislation remained; here the States' pledge has been unilaterally wiped from the
statute books. Further, the "rational investors" who testified below all said that to
them and their customers Port Authority bonds without the Covenant were not an
As it did in the New Jersey Supreme Court, the state all but ignored
Worthen in its main brief in the U.S.
Supreme Court, saying only:
In addition, the legislation must not reveal a "studied indifference" to the interests of
persons seeking to enforce contractual obligations. W.B. Worthen Co. v. Kavanaugh,
295 U.S. 56 (1935).
While appellant tries at length to read error into the trial court's discussion of
Worthen v. Kavanaugh, supra, A.B. 58-59, that court's treatment is perfectly
consistent with this Court's analysis in FaitouteIron & Steel Co. v. City of Asbury Park, 316
U.S. 502, 515 (1942), where the Court inquired whether the legislature had been guilty
of "studied indifference" to private interests.3
Oral argument before the U.S. Supreme Court is invariably a
fascinating scene, and it was no different on November 10, 1976, when
United States Trust was called. The first few moments of argument
were discouraging when Justices Stewart and Powell, whose judicial
philosophy was thought to be favorable to the United States Trust
side, left the bench. Justice Stewart returned almost immediately and
heard argument, but did not take part in the decision.
Devereux Milburn, for United States Trust, led off with a factual
history of the case 23 3 and then discussed the traditional predicate of an
emergency to ground an exercise of the police power:
Now, what justifies the use of the police power?
In such a case as we have here, if it can be justified-... Blaisdell and its progeny
established that it must be an emergency.
Now, Blaisdell had a real emergency. They had mobs in the Middle West. They
QUESTION: You mean something like the Minnesota Aortgage moratorium?
MR. MILBURN: This was it, yes. That was the statute in Blaisdell, and there
231. Brief for Appellant at 59, United States Trust Co. v. New Jersey, 431 U.S. 1 (
The Securities Industry Association, a trade association of investment bankers, underwriters,
brokers, dealers, and bond departments of banks, filed an amicus curiae brief in support of the
Supreme Courts hearing the appeal. Securities Industry Association's Motion for Leave to File
Brief Amicus Curiae (Aug. 12, 1976) at 1-2, United States Trust Co. v. New Jersey, 431 U.S. 1
); Securities Industry Association's Brief of Amicus Curiae (June 4, 1976), United States
were riots and there were mobs, and something had to be done. The statute was
passed, and Mr. Justice Hughes' opinion in th2a34t case refers again and again and again
to emergency. He also refers to temporary.
QUESTION: So-well, was there an emergency about mass transit? 1 guess you
would say there isn't any more than there always had been?
MR. MILBURN: Well, I go back to 1921, if you'd like, and come all the way
through, there's always been an emergency-well, why use that word? Because I don't
think it's as chronic a situation.
An emergency to me is a house on fire.
If you came around a corner, you were the mayor of the town, and you see a house
on fire, what are you going to do? You will put it out. You're not going to go to your
desk and draft legislation to get a new fire department, which is going to come Into
existence ten years from now, and put the next fire out. The emergency is-an
emergency to us is something immediate.
And here we have a drop in the bucket, even when it works, all the Port Author2i3ty
could do is a drop in the bucket of the transit problem on the Eastern Seaboard. "
Counsel for the state opened his argument with eloquence: "Of all
the hundreds of cases alleging contract impairment that have come
before this Court in two centuries, none has involved public ends as
vital as those sought to be served by the State here, and few have
involved contract infringements so inconsequential. '236
The Court then went straight to the heart of the case-questioning
counsel for the state closely with respect to the nexus between repeal of
the Covenant and the emergency conditions it was allegedly intended
QUESTION: Well, are there any methods of, just if you concentrate on that one
feature, limiting the amount of traffic coming across the bridge--are there any ways
that that could be done without tampering at all with the New York Port Authority?
With the bond holder structure.
Couldn't you close the bridge for a couple of hours a day?
[ANSWER]: You could, Your Honor. I do believe Mr. Milburn would be here
maintaining that that was a violation of covenants with bond holders. I do believe that
the police power does entitle the State to do that.
QUESTION: Is it possible . . .that closing the bridges down and doing some of
these other things that were suggested by Justice Stevens were politically unpalatable?
[ANSWER]: Well, there's no question about that, Your Honor, that neither
QUESTION: The voices of those people would be heard more widely than the
voices of the bond holders in the public arena, wouldn't they?
[ANSWER]: Well, there's no question about it237
The Court was also evidently concerned in its questions to counsel
234. Id. at 14-15.
235. Id. at 18-20.
236. Id. at 24.
237. Id. at 27, 32.
for the state with the possible alternatives to repeal which would have
been less intrusive on bondholders' rights but politically less popular.
QUESTION: -I understand. But, nevertheless, if the State had wanted to-if the
States had wanted to commit their own credit rather than the Port Authority's, they
could have had the Port Authority go into mass transit as a separate single venture.
QUESTION: Yes, Well, that's what I'm asking you. Wasn't this some-this
certainly was a feasible and less intrusive way of going about it.
[ANSWER]: I'm afraid it wasn't feasible. And
QUESTION: Well, it wasn't feasible, but it was less intrusive, as far as the bond
do[nAe NiSt WthEaRt ]:waNy.o2 3q8uestion the bond holders would have been happier had the States
Justice Marshall was clearly willing to look down the road to the
future losses which a mass transit operation would produce:
QUESTION: Well, mass transit is not going to bring in any profit.
[ANSWER]: That's absolutely correct, Your Honor, but lots of other projects are.
And this enterprise has always operated a number of deficit facilities,
andQUESTION: And it's always stayed out of mass transit.
[ANSWER]: Well, that's not true, Your Honor. One of the fascinating things is
their peculiar belief
QUESTION: Did anything in the record come up about San Francisco's mass
[ANSWER]: There's nothing in the record, Your Honor.
[ANSWER]: The recent-I saw a recent report that suggests it isn't doing so well,
abuvt,eroyf cwouelrls-er,unit rwaailsrno'atdr.u2n39ning very well, either. Everybody agrees that the PATH is
The Chief Justice was also concerned
questions to counsel for the state:
with future losses in his
QUESTION: Well, I suppose the change in the risk here is not an immediate risk,
it's rather the risk that after the several years that are required to build the extension of
the railroad, they finally get it done and, like they did out in Oakland-and all, that
then you start losing larger sums of money than were anticipated, instead of it being a
$5 million deficit, it's $100 million deficit.
That's the kind of risk that I suppose is at stake here.
[ANSWER]: But it is a very hypothetical risk, Your Honor. The arrangement
QUESTION: Well, isn't there some factual basis for assuming that it can happen?
[ANSWER]: Oh, that it is possible? Yes, Your Honor.
QUESTION: Well, don't you have experience with this one railroad that you've
taken over, that its losses were much greater than anticipated?
[ANSWER]: Yes, but this deal does not contemplate the Port Authority paying
operating deficits. The arrangements that have been made will use the
Port238. Id. at 34.
239. Id. at 44-45.
QUESTION: Well, but the covenant would permit you to do-I mean, the repeal
would permit you to do so, wouldn't it?
[ANSWER]: The repealer would, but the State's legislation, and the implementing
administrative actions, have provided that the Port Authority is responsible only for
the debt service: a knowable defined
QUESTION: But those various actions could be changed, if things get a little worse
and you need more money some place else, you change things one at a time, wouldn't
[ANSWER]: Well, conceivably yes, Your Honor; although it is-the Port Authority
has, on many occasions, made its own promises to bond holders, without
StateQUESTION: It has no obligation to keep them, apparently.
QUESTION: What do you suppose a referendum among the bond holders, on
whether the covenant should be repealed, would bring?
[ANSWER]: Well, I have no doubt, Your Honor, that they don't like it.
QUESTION: But you're just saying that they can still sell some bonds, but the
people buying bonds now are taking their risk.
[ANSWER]: What I'm suggesting to Your
HonorQUESTION: The old bond holders didn't think they were taking any risk.240
On rebuttal counsel for United States Trust summed up the
Why can't the States do something, except abrogate out [sic] contract? That's what I
would like to know. I don't know the answer to that kind of question.
Now, Mr. Justice Marshall, you mentioned a new deficit going into PATH. We've
got a beauty, we'll all admit that. We've got one running about $28 million. It was
supposed to run six, it's running 28.
Let's put another one in there, and let's say that the Commissioners are wrong
again, are wrong by a factor of five again, and let's say we've got another $30 million
deficit in there, and, in the meantime, PATH has gone up. We're talking about $70
million deficit. Let's have a little depression, let's have our airports slack off a little bit,
and they are going to default on the bonds.
canT'htastt'sopwhity bweecaduosne'titwcaonmtaestreinmeansdoaubsanbeywadnedficiitt ignrtoowtsheinPtoortaAguitahnotr.i2t4y1, and you
All the hard questions had been asked, and the feeling was that the
Court expressed a sense of dissatisfaction with the repeal, almost a
sense of outrage, that would never be apparent from the pages of the
transcript. Justice Marshall was thought to be one of the Justices most
upset by the repeal; some of his questions to counsel for the state
bordered in tone on sarcastic. The Chief Justice seemed equally
unhappy with the failure of the state to examine any course but
outright repeal, and Justice White repeatedly asked whether less
intrusive alternatives could not have accomplished the states'
objectives, a concern shared by Justices Stevens and Rehnquist and, to a
240. Id. at 47-48, 50, 51.
241. Id. at 55-56.
lesser extent, by Justice Blackmun. The two imponderables were
Justices Brennan and Stewart, who took little part in the argument,
but were thought to be on opposite sides of the issue because of their
positions in other cases.
United States Trust is thus an excellent example of the fact that you
cannot tell very much from oral argument.
THE SUPREME COURT DECISION
On April 27, 1977, the U.S. Supreme Court, 4-3, reversed the New
JnearnsteyasSuvpiorleamtivee Coofutrhteancdonstrtarucctkcldauoswen otfhetherepFeeadleroafl
tCheon1st9i6tu2tioCno.v2e42Mr. Justice Blackmun wrote the majority opinion,743 concurred in by
Justices Rehnquist and Stevens and by the Chief Justice, who also filed
a concurring statement.24 4 Justice Brennan dissented, joined by
Justices Marshall and White. Justice Stewart took no part in the decision,
and Justice Powell took no part in the consideration or decision of the
Justice Blackmun first reviewed the establishment of the Port
Authority "as a financially independent entity, with funds primarily
derived from private investors,"24 5 and referred to the trial court's
finding that the agency was not originally intended to assume
passenger transit responsibilities. 246 He then outlined the fiscal policy of
the Port Authority, noting the trial court finding that after the
Consolidated Bond Resolution of 1952 the agency's self-supporting facility
concept "ceased to have the significance previously attached to it."124 7
Reviewing the renewed interest in mass transit, Justice Blackmun
characterized as a "retaliation" to mass transit proposals the institution
of the section 7 certification by the agency and also referred to the 1959
commuter car program. 248 Then the Court summarized the H&M
takeover, quoting the trial court conclusion that "it was necessary to
place a limitation on mass transit deficit operations to be undertaken
by the Authority in the future so as to promote continued investor
242. United States Trust Co. v. New Jersey, 431 U.S. 1 (
243. Id. This had been expected by veteran Court-watchers who know that Justice Blackmun
is one of the slower authors on the Court. By April, five months after argument, he was running
several opinions behind his pace of a year earlier and it was concluded that United States Trust
was one of the cases occupying his time.
244. Id. at 32.
245. Id. at 4.
246. Id. at 5 n.6.
247. Id. at 7 n.8 (quoting 134 N.J. Super. at 143, 338 A.2d at 843).
248. Id. at 8.
confidence in the Authority. ' 249 The Court then described the
The terms of the covenant were self-evident. Within its conditions the covenant
permitted, and perhaps even contemplated, additional Port Authority involvement in
deficit rail mass transit as its financial position strengthened, since the limiftuantido.n5 0of the
covenant was linked to, and would expand with, the general reserve
The Court then discussed the increasing PATH deficits in the face of
static tolls, despite recommended increases, 25 1 and the 1973
prospective repeal of the Covenant, 25 2 which did not result in the expected
It soon developed that the proposed PATH expansion would not take place as
contemplated in the Governors' 1972 plan. New Jersey was unwilling to increase its
financial commitment in response to a sharp increase in the projected cost of
constructing the Plainfield extension. As a result the anticipated federal grant was not
Finally, the Court briefly recounted the retroactive repeal of the
Covenant and the subsequent toll increases to augment the agency's
mass transit financing abilities. 25 4
At the threshold of his legal discussion Justice Blackmun
acknowledged the preeminence of the contract clause as a significant limit on
state power during our nation's first century and the fourteenth
amendment's preeminence during the second. 255 The Court then
reviewed Blaisdell and El Paso as representing the Court's view of the
"present role of the Contract Clause, ' 256 concluding:
Both of these cases eschewed a rigid application of the Contract Clause to invalidate
state legislation. Yet neither indicated that the Contract Clause was without meaning
in modern constitutional jurisprudence, or that its limitation on state power was
illusory. Whether or not the protection of contract rights comports with current views
of wise public policy, the Contract Clause remains a part of our written Constitution.
249. Id. at 9 (quoting from 134 N.J. Super. at 178, 338 A.2d at 863-64).
250. Id. at 11. The Court noted without comment the unsuccessful constitutional attack on the
legislation containing the Covenant: Courtesy Sandwich Shop, Inc. v. Port Auth., 12 N.Y.2d
379, 190 N.E.2d 402, 240 N.Y.S.2d 1, appeal dismissed, 375 U.S. 78 (1963); see Kheel v. Port
Auth., 331 F. Supp. 118 (S.D.N.Y. 1971), aff'd, 457 F.2d 46 (2d Cir.), cert. denied, 409 U.S.
983 (1972). The Court then went on to say that "[w]ith the legislation embracing the covenant
thus effective" the Port Authority took over the H&M. 431 U.S. at 11. This is a strong indication
that the Gaby issue, if ever reached by the Court, would be disposed of summarily.
251. 431 U.S. at 11-12.
252.- Id. at 13.
253. Id. at 13.
254. Id. at 13-14.
255. Id. at 14-15.
256. Id. at 14-16.
We therefore must attempt to apply that constitutional provision to the instant case
with due respect for its purpose and the prior decisions of this Court. 257
This expressed the first tenet of United States Trust: there is no per
se rule of contract clause application-no automatic invalidation of an
impairment of any specific type of contract, no matter how carefully
conceived or callously abrogated. The post-Civil War depression
cases, 258 which were thought not to survive Blaisdell, clearly do not
survive United States Trust insofar as they suggest literal
constitutional protection of bond covenants.
Justice Blackmun then turned to the basic claim that a contract had
been impaired, saying on the one hand that the contract clause applies
to state as well as private contracts 259 and on the other that the clause
did not affect the states' general power to repeal or amend statutes or
to give legislation retroactive effect. 260 Finding that the 1962 Covenant
"has been properly characterized as a contractual obligation of the two
States '261 the Court considered the arguments made with respect to
the value of the Covenant to bondholders, concluding.
The fact is that no one can be sure precisely how much financial loss the bondholders
suffered. Factors unrelated to repeal may have influenced price. In addition, the
market may not have reacted fully, even as yet, to the covenant's repeal, because of
the pending litigation and the possibility that the repeal would be nullified by the
In any event, the question of valuation need not be resolved in the instant case
because the State has made no effort to compensate the bondholders for any loss
sustained by the repeal. As a security provision, the covenant was not superfluous; it
limited the Port Authority's deficits and thus protected the general reserve fund from
depletion. Nor was the covenant merely modified or replaced by an arguably
comparparbolveisisoencuarintyd ptrhouvsisiiomnp. aiIrtesdouthtreigohbtlirgeapteioanl tooftaltlhye eSlitmateinsa'tecdonatnracitm.2p62ortant security
Thus the Court found that because a material security device was
cancelled there was no need to reach the further issue of claimed
damage to the secondary market.
At this point the second principal teaching of United States Trust is
expressed in a footnote. 263 Contract rights, notwithstanding the literal
257. Id. at 16.
258. See note 155 supra and accompanying text.
259. 431 U.S. at 17 (citing Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 137-39 (1810), and
Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518 (1819)).
260. Id. at 17.
261. Id. at 18.
262. Id. at 19 (footnotes omitted). This was precisely the same ground of impairment found
by the trial court. See text accompanying note 198 supra.
263. 431 U.S. at 19 n.16 (citing Contributors to the Pa. Hosp. v. City of Philadelphia, 245
U.S. 20 (1917), and City of El Paso v. Simmons, 379 U.S. 497, S33-34 (196S) (Black, J.,
phrasing of the contract clause, are a form of property which, as with
other property, can "be taken for a public purpose provided that just
compensation is paid. '264
In a municipal bond case the compensation issue raises enormously
complex problems. If a security device is "taken for a public use" how
is compensation to be determined? By reference to the value of the
investment without it? By reference to whether the obligation to pay
principal and interest has been materially affected? By reference to
market reaction? As part of the "compensation" element one
presumably would have to consider comparable alternative security devices or
additional security pledged in lieu of the cancelled promise. These
issues will have to await another day.
Now that the Court had a contract and an impairment it considered
"whether that impairment violated the Contract Clause,' 26s and
promptly discarded, as noted above, any concept of a per se rule:
Thus, a finding that there has been a technical impairment is merely a preliminary step
in resolving the more difficult question whether that impairment is permitted under the
Constitution. In the instant case, as in Blaisdell, we must attempt to reconcile the
strictures of the Contract Clause with the "essential attributes of sovereign power,"
necessarily reserved by the States to safeguard the welfare of their citizens.
The trial court concluded that repeal of the 1962 covenant was a valid exercise of New
Jersey's police power because repeal served important public interests in mass
transportation, energy conservation, and environmental protection. Yet the Contract
Clause limits otherwise legitimate exercises of state legislative authority, and the
existence of an important public interest is not always sufficient to overcome that
limitation. "Undoubtedly, whatever is reserved of state power must be consistent with
the fair intent of the constitutional limitation of that power." Moreover, the scope of
the State's reserved power depends on the nature of the contractual relationship with
which the challenged law conflicts. 2 66
The Court freely acknowledged the state's broad power to regulate
without concern for destruction of private contracts, since private
arrangements could not have the effect of securing immunity from
state regulation. 267 But even this broad power is not
unrestrictedlaws regulating existing private contracts "must serve a legitimate
public purpose": 268
264. Id. at 19 n.16.
265. Id. at 21.
266. Id. at 21-22 (citations omitted).
267. Id. at 22 ("One whose rights, such as they are, are subject to state restriction, cannot
remove them from the power of the State by making a contract about them.") (citing Hudson
Water Co. v. McCarter, 209 U.S. 349, 357 (1908)).
268. Id. at 22 (citing Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 444-45 (1934)).
A State could not "adopt as its policy the repudiation of debts or the destruction of
contracts or the denial of means to enforce them." Legislation adjusting the rights and
responsibilities of contracting parties must be upon reasonable conditions and of a
character appropriate to the public purpose justifying its adoption. As is customary in
reviewing economic and social regulation, however, courts properly defer to legislative
judgment as to the necessity and reasonableness of a particular measure. 269
Here was the third principle of United States Trust: While the
states' power to regulate where private contracts are infringed or
destroyed is broad, it is not without limits, and will be tested by the
reasonableness of the legislation in the light of all the circumstances.
The factors to be assessed, which "cannot be regarded as essential in
every case, '270 include (
) the existence of an emergency, and (2) the
duration of any relief.27 1
Putting aside the private contract issue, Justice Blackmun turned to
a state's impairment of its own contract, where "the reserved power
doctrine has a different basis." 272 He first discussed the ability of a
state to make a contract limiting its power to act in the future; for if
the state lacked power ab initio to create an irrevocable undertaking,
then the issue of the reasonableness of its subsequent impairment
would never be reached.2 73 "In short, the Contract Clause does not
require a State to adhere to a contract that surrenders an essential
attribute of its sovereignty.1 274
Historically the police power and the power of eminent domain were
considered inalienable, while the state could commit itself with respect
to future taxes or spending:275
Such formalistic distinctions perhaps cannot be dispositive, but they contain an
important element of truth. Whatever the propriety of a State's binding itself to a
future course of conduct in other contexts, the power to enter into effective financial
contracts cannot be questioned. Any financial obligation could be regarded in theory as
a relinquishment of the State's spending power, since money spent to repay debts is not
available for other purposes. Similarly, the taxing power may have to be exercised if
debts are to be repaid. Notwithstanding these effects, the Court has regularly held that
the States are bound by their debt contracts.27 6
Turning back to the case in issue, the Court crossed the threshold,
holding: "The instant case involves a financial obligation and thus as a
threshold matter may not be said automatically to fall within the
reserved powers that cannot be contracted away. '2 77
But the Court continued, "Not every security provision . . . is
necessarily financial,' '2 7 8 positing a revenue bond secured by a promise
to operate the facility producing the revenues, with residual power in
the state to close the facility "for health or safety reasons. ' 279 But with
respect to the 1962 Covenant:
The security provision at issue here, however, is different: the States promised that
revenues and reserves securing the bonds would not be depleted by the Port
Authority's operation of deficit-producing passenger railroads beyond the level of "permitted
deficits." Such a promise is purely financial and thus not necessarily a compromise of
the State's reserved powers.
Thus the Court reached the plateau of finding that the 1962
Covenant was valid when adopted. But here the cofntract clause inquiry
begins rather than ends:
Of course, to say that the financial restrictions of the 1962 covenant were valid when
adopted does not finally resolve this case. The Contract Clause is not an absolute bar
to subsequent modification of a State's own financial obligations. As with laws
impairing the obligations of private contracts, an impairment may be constitutional if
it is reasonable and necessary to serve an important public purpose. In applying this
standard, however, complete deference to a legislative assessment of reasonableness
and necessity is not appropriate because the State's self-interest is at stake. A
governmental entity can always find a use for extra money, especially when taxes do
not have to be raised. If a State could reduce its financial obligations whenever it
276. Id. at 24 (footnote omitted). The Court also noted with approval the specific holdings in
the post-Civil War depression cases that a state could not enable a subdivision to borrow and
then limit its taxing power, thus frustrating repayment. Louisiana v. City of New Orleans, 215
U.S. 170 (1909); Wolff v. City of New Orleans, 103 U.S. 358 (1881); Von Hoffman v. City of
Quincy, 71 U.S. (4 Wall.) 535 (1867). As discussed above in the text accompanying note 258,
however, it did not adopt the per se rule suggested by those cases.
277. 431 U.S. at 24-25 (footnote omitted).
278. Id. at 25.
279. Id. The example was a confusing and unnecessary misstep by the Court. Better to
conclude that the promise to continue operating the facility is a "financial" obligation, as It Is
viewed by municipal bond counsel and investors, and then to consider whether the state could
superimpose the police power in a health or safety emergency. A promise of this type should
clearly satisfy the Court's initial inquiry and fall within the irrevocable category; whether that
promise may be modified if reasonable should be a subsequent inquiry.
280. Id. at 25.
wanted to spend the money for what it regarded as an important public purpose, the
Contract Clause would provide no protection at all.2s8
The Court then began to structure its legal test, and agreed with
counsel for United States Trust that Worthen did not control the case:
The trial court's "total destruction" test is based on what we think is a misreading of
W.B. Worthen Co. v. Kavanaugh, 295 U.S. 56 (1935). In the first place, the
impairment held unconstitutional in Kavanaugh was one that affected the value of a
security provision, and certainly not every bond would have been worthless. More
importantly, Mr. Justice Cardozo needed only to state an "outermost limits" test in the
Court's opinion, id., at 60, because the impairment was so egregious. He expressly
recognized that the actual line between permissible and impermissible impairments
could well be drawn more narrowly. Thus the trial court was not correct when it drew
the negative inference that any impairment less oppressive than the one in Kavanaugh
was necessarily constitutional. The extent of impairment is certainly a relevant factor
in determining its reasonableness. But we cannot sustain the repeal of the 1962
covenant simply because the bondholders' rights were not totally destroyed.
The Court then considered Faitoute Iron & Steel Co. v. City of
Asbury Park,283 the one Supreme Court case in modern times that had
upheld alteration of a municipal bond contract. Faitoute, however,
was not controlling. There the bond alternatives enabled the city to
cure a default, to discharge an obligation, and the market value of the
bonds went up. 284 United States Trust involved "a much more serious
impairment than occurred in Faitoute,"'285 and no one contended that
the states acted to help bondholders or that the secondary market was
enhanced by repeal.
Finally, the Court turned to the claimed defense of repeal: the
argument that harm to bondholders was outweighed by the goals of
mass transit, energy conservation, and environmental improvement
sought to be benefited by repeal. 28 6 Justice Blackmun immediately
declined to engage in the balancing so feared by Justice Black in El
281. Id. at 25-26 (footnotes omitted). In a footnote the Court referred to the stricter standard
applied when the impairment is occasioned by a need for money. Id. at 26 n.25; see Perry v.
United States, 294 U.S. 330, 350-51 (1935); Lynch v. United States, 292 U.S. 571, 580 (1934).
282. 431 U.S. at 26-27 (footnotes omitted). The Court even agreed with the main brief on
appeal that since here an express promise had been cancelled rather than an implied promise as in
Worthen, "the instant case may be regarded as a more serious abrogation of the bondholders'
expectations than occurred in [Wortheni." Id. at 26 n.26.
283. 316 U.S. 502 (1942).
284. 431 U.S. at 27-28.
285. Id. at 28.
286. Id. at 28-29.
287. Id. at 29.
Thus a State cannot refuse to meet its legitimate financial obligations simply because it
would prefer to spend the money to promote the public good rather than the private
welfare of its creditors. We can only sustain the repeal of the 1962 covenant if that
impairment was both reasonable and necessary to serve the admittedly important
purposes claimed by the State. 288
This is the fourth principle of the case and the key to United States
Trust: however reasonable the proposed modification of a state's own
financial obligation, it will not be upheld unless it can be shown that
such action was not only reasonable but necessary to serve important
Where necessity is the test, the availability of other less intrusive
alternatives becomes a critical area of inquiry. Thus Justice Blackmun
considered the state's specific justification for repeal-the plan to raise
bridge and tunnel tolls to discourage auto use and use the revenues to
subsidize commuter rail service. Here repeal was neither necessary to
achieve the plan nor reasonable in the circumstances. The necessity
test was not satisfied because a less intrusive adjustment of the
Covenant, short of total cancellation, would have been enough.
Further, there were obvious alternatives to reach the goals of
inhibiting auto use and improving railroads, 28 9 and the state is not
"completely free to consider impairing the obligations of its own contracts
on a par with other policy alternatives [nor] to impose a drastic
impairment when an evident and more moderate course would serve
its purposes equally well."'2 90
Nor to the Court was .repeal reasonable. Unlike El Paso, where the
effect of a 19th century statute was unforeseen and unintended, both
the need for mass transit and its deficit nature were well known for
years before the Covenant was enacted; in fact, these problems were
the reason for its enactment. 291 Changes between 1962 and the
Covenant's repeal were "of degree and not of kind" 2 92 and thus repeal
was not reasonable in light of the change in circumstances, which was
289. Id. at 30.
290. Id. at 30-31. A somewhat disconcerting note in the Court's opinion suggests that one
alternative might be to limit mass transit diversions to the "new" bridge and tunnel tolls, or to
increase the "permitted deficit" formula, or to loosen the bondholder consent procedures. But this
note was clearly only for the purpose of illustrating that the states had gone too far in their total
cancellation of the Covenant, and the note concluded: "Of course, we express no opinion as to
whether any of these lesser impairments would be constitutional." Id. at 30 n.28; see concurring
statement of Burger, C.J., id. at 32-33.
291. Id. at 31-32.
292. Id. at 32.
the key element in El Paso: "We therefore hold that the Contract
Clause of the United States Constitution prohibits the retroactive
repeal of the 1962 covenant. The judgment of the Supreme Court of
New Jersey is reversed. '293
In his brief concurring statement the Chief Justice read the Court's
opinion as requiring the state to demonstrate that impairment was
essential to achieve an important state purpose and furthermore that
the state "did not know and could not have known the impact of the
contract on that state interest at the time that the contract was
Justice Brennan, dissenting, first reviewed the undisputed
effectiveness of the Covenant in limiting Port Authority mass transit
involvement, and then reviewed the energy and environmental concerns that
were put forth to justify repeal. 295 The dissent expressed puzzlement at
the majority's formulation of the necessity test, concluding that the
alternatives proposed were "simply . . . not responsive" to the Port
District's environmental and traffic problems. 2 96 Nor was Justice
Brennan satisfied with Justice Blackmun's view of reasonableness:
"Nowhere are we told why a state policy, no matter how responsive to
the general welfare of its citizens, can be reasonable only if it confronts
issues that previously were absolutely unforeseen.1 297 The dissent
reviewed at some length the allegedly negligible injury to bondholders
which resulted from repeal, 298 a point effectively refuted by the
majority, which pointed out that if the Covenant in fact meant so little
then surely the states could simply have condemned it and paid the
negligible compensation required. 299 The fact that the states did not
choose this route is almost conclusive evidence in itself of the
Covenant's material importance to investors.
The dissent then reviewed the history of the contract clause,
concluding in essence that the clause today should be viewed as a vestigial
appendage to the Constitution and that courts should defer all but
conclusively to a legislative determination of whether the clause is
offended by retroactive civil legislation. 30 0 In short the dissent was
willing to leave bond purchasers to fend for themselves in the
294. Id. (Burger, C.J., concurring).
295. Id. at 33-41 (Brennan, J., dissenting).
296. Id. at 40 (Brennan, J., dissenting).
297. Id. (footnote omitted) (Brennan, J., dissenting).
298. Id. at 41-44 (Brennan, J., dissenting).
299. Id. at 29 n.27.
300. Id. at 44-62 (Brennan, J., dissenting).
ketplace without a judicial remedy. One must wonder how the
bondholders could have had their voices heard in the present case, where
the states acted without notice, without hearings, without debates, and
with one governor freely admitting that the sole purpose of repeal was
to prompt a court test of the Covenant's validity. 30 1
United States Trust was hailed by the municipal bond community as
establishing almost conclusive constitutional protection for municipal
bond covenants. 30 2 It is not quite that. Opponents, on the other hand,
foretold that the decision would have a profound adverse effect on rail
mass transit in the Port District. 30 3 This is hardly the case. What the
Court said was that public bond contracts will be treated with due
respect and will withstand attempts at abrogation prompted
principally by contemporary political expediency.
In reaching this conclusion the Court established the guidelines for
the modern application of the contract clause in a society infinitely
more complex than the one which prompted the formulation of the
clause. In summary, notwithstanding the literal language of the clause,
there is no per se rule; there are no contracts which will forever be
impervious to subsequent state legislation. Second, all contracts are, as
other property, subject to the states' powers of eminent domain, a
principle which raises enormously complex issues when applied to
municipal bond covenants. Third, where state regulation impinges on
private contracts the legislature will be given broad leeway, but the
legislation nevertheless must be reasonable in light of all the
circumstances, and relevant factors to be considered are the existence of
an emergency and the scope of the relief. Finally, there are areas
where the states are competent as sovereigns to enter into binding
obligations, and financial covenants with state creditors are a classic
example. But even here the promise may not be entirely durable; any
change, however, will be tested by a joint standard of reasonableness
United States Trust presents at the same time a primer for
enactment of an irrevocable financial obligation and a recipe for its
subsequent modification. Neither process should be undertaken
casu301. See text accompanying note 98 supra.
302. E.g., N.Y. Times, May 2, 1977, at 51, col. 3; Wall St. J., Apr. 29, 1977, at 12, col. 1-2;
Am. Banker, Apr. 28, 1977, at 1, col. 1.
303. E.g., Newark Star-Ledger, May 1, 1977, at 1, col. 3.
ally. The case was won (or lost) by the narrowest of margins, and it may
well have been that a properly orchestrated modification of the 1962
Covenant would have withstood constitutional attack. But the
process of adjusting prior bond covenants is an agonizing one at best. In
United States Trust investors suffered paper and actual losses which
may have totalled millions of dollars while the market fluctuated in the
months following repeal. The State of New Jersey suffered in the
minds of potential investors and was forced to pay increased interest
costs when its credit rating was dropped by the principal rating
agency, in part because of the repeal of the Covenant.3 04 The State of
New York suffered as did its agencies when many informed
institutional investors simply crossed New York and New Jersey off their
lists because of the repeal. 30 5 Experts viewed the repeal of the
Covenant as a principal contributing factor to the financial collapse of the
New York Urban Development Corporation 30 6 and the end of the moral
obligation bond as an effective tool of municipal finance. 30 7 The
Port Authority, in every sense a bystander in the conflict between the
states and the agency's investors, saw its financing program stopped
dead in the water for almost three years while the judicial process went
on. In a sense the courts of New Jersey suffered, since bond lawyers
are confident that repeal of the Covenant would never have been
sustained by the New York Court of Appeals, 30 8 and prior to United
States Trust the New Jersey judiciary had been viewed as the most
steadfast advocates in the nation of the rights of municipal
In short, the damage done by the repeal of the 1962 Covenant far
exceeded any possible benefit to the states from a few extra dollars for
mass transit. If there is a practical lesson to be learned from United
States Trust it is that political expediency can never justify in fact the
cavalier repudiation of a sovereign's promises to its investors.
304. See Moody's Investors Service, Inc., Municipal Credit Report, State of New Jersey (June
305. See notes 136-37 supra and accompanying text.
306. See N.Y. State Moreland Act Comm'n on the Urban Dev. Corp. & Other State
Financing Agencies, Restoring Credit and Confidence 161 (Mar. 31, 1976).
307. See note 136 supra; Moody's Investors Service, Inc., Policy Statement (June 23, 1975).
308. See, e.g., Flushing Nat'l Bank v. Municipal Assistance Corp., 40 N.Y.2d 731, 358
N.E.2d 848, 390 N.Y.S.2d 22 (1976); Patterson v. Carey, 41 N.Y.2d 714, 363 N.E.2d 1146. 395
N.Y.S.2d 411 (
309. See, e.g., New Jersey Sports & Exposition Auth. v. McCrane, 61 N.J. 1, 292 A.2d 545,
appeal dismissed sub nom. Borough of East Rutherford v. New Jersey Sports & Exposition
Auth., 409 U.S. 943 (1972); New Jersey Highway Auth. v. Sills, 109 N.J. Super. 424, 263 A.2d
498 (Ch. Div.), supplemented, 111 N.J. Super. 313, 268 A.2d 308 (Ch. Div. 1970), aff'd per
curiam, 58 N.J. 432, 278 A.2d 489 (1971).
The legal lesson of United States Trust is just as clear. The
financially independent public authority represents the modern format
for accomplishing great public purpose projects while not increasing
the general tax burden. Where its covenants and those of states and
their subdivisions are constructed to ensure the financial well-being of
the issuer, then those covenants will be sustained short of a
demonstration that the covenant must yield because that course is not only
reasonable but necessary to effectuate a legitimate state interest. This
is, as it should be, a most difficult test. Hopefully, it is one that will
rarely be applied.
Blonder-Tongue Laboratories , Inc. v. University of Illinois Foundation... 1045
Bodle , Fogel, Julber, Reinhardt & Rothschild ................. 1011 , 1015
Bonham's Case .................... 1084
Bonime v. Doyle ................... 288
Boyd v. United States .............. 140
Boykin v Alabama ................ 1244
Bright v . Philadelphia-Baltimore-Washington Stock Exchange ........... 377
Brown v. Helvering ............ 794 , 803
Bryan v. United States ............. 1258
Buckley v. Valeo .................. 1130
Burton v. Wilmington Parking Authority .............................. 194
Butterman v. Walston & Co ......... 373
Buttrey v. Merrill Lynch , Pierce, Fenner & Smith, Inc ................. 373
Cadena v . United States Dep't of Labor 236
Cadigan v . Texaco, Inc ............. 835
Cady v. Dombrowski ............... 154
Califano v. Sanders ................ 219
California Motor Transport Co. v. Trucking Unltd................... 1110
Caminetti v. United States .......... 535
Cantwell v. Connecticut ............ 613
Carey v. Population Services International .......................... 621
Carnation Co. v. Commissioner ..... 821
Carter v. Sparkman ............ 329 , 338
Cement Manufacturers Protective Association v. United States ......... 841
Chandler v. Judicial Council ........ 539
Chasins v . Smith, Barney & Co .... 287
Chemical Natural Resources , Inc. v. Republic of Venezuela ............ 549
City of El Paso v. Simmons ........ 33
Collins v PBW Stock Exchange , Inc. 380
Comiskey v. Arlen ................. 333
Committee on Masonic Homes v. N LRB .......................... 234
Connor v. Great Western Savings & Loan Association ................. 982
Continental T.V. , Inc. v. GTE Sylvania, Inc. ...................... 270
Coolidge v. New Hampshire ........ 152
Gillis v. United States .............. 792
Giltex , In re ....................... 657
Goldfarb v. Virginia State Bar ...... 1012
Gottlieb v . Saudia American Corp. 284
Grace v. Howlett .................. 343
Great Atlantic & Pacific Tea Co . v, FTC ............................ 867
Green v . Occidental Petroleum Corp. 293
Greenville Coal Co ................ 808
*Grimm v. Arizona Board of Pardons & Paroles ....................... 1301 - 14
G.S. Nicholas & Co. v. United States 581
Guertin's Child, In re .............. 619
Gul Djemal , The .................. 302
Hall v. E.I. DuPont De Nemours & Co. 981
Halpern v. Gozan .................. 333
Hammer v . Dagenhart .. 1119 , 1120 , 1130
Hanberry v. Hearst Corp........... 982
*Handy Andy , Inc ............... 191 - 202
Hannah v. Larche ................. 455
Hanson v. Denkla ................. 476
Harris v. American Investment Co... 282
Harris v. Balk ................. 465 , 481
Harrold v. Commissioner ........... 791
Helenic Lines , Ltd. v. Moore ....... 559
Helvering v. LeGierse .............. 817
Hess v. Pawloski .................. 465
Hilton v. Guyot ................... 309
Holoubek v. United States .......... 554
Home Building & Loan Ass'n v. Blaisdell ............................. 32
Hughes v . Dempsey-Tegeler 362 179
& Co. 377, 380 1025 , 1033 1104
Janigan v. Taylor .................. Cinema Adult Theater ......... 1037 - 47
Mitchum v. Foster ................. 180
Monroe v. Pape ................... 186
Mooney Aircraft , Inc. v. United States 794
Moore v. ' City of East Cleveland .... 768
Moose Lodge No. 107 v. Irvine ..... 194
Morissette v. United States ......... 1186
Mortimer Agency v. Underwriters Trust Co . ....................... 1283
Mount St. Mary's Hospital v. Catherwood ........................... 342
Mullane v. Central Hanover Bank & Trust Co . ....................... 468
NAACP v . Federal Power Commission 199
National City Bank v . Republic of China ....................... 314 , 557
National Broadcasting Co............ 1029
NLRB v Jones & Laughlin Steel Corp. 1118
NLRB v. Mansion House Center Management Corp .................... 191
NLRB v . Sears, Roebuck & Co ... 230
*National League of Cities v . Usery 1115 -34
National Parks & Conservation Association v. Morton .............. 222
New Jersey Highway Authority v . Sills 30
New Jer3ey Sports & Exposition Authority v . McCrane ............... 19
New York v. United States ......... 1129
New York & Cuba Mail Steamship Co. v. Republic of Korea ............. 560
New York Stock Exchange, Inc. v. Sloan ........................... 376
New York Times Co. v. Sullivan ... 1287
O'Connor v . Lee-Hy Paving Corp . 479 , 485
Oklahoma v. United States Civil Service Commission ................. 1131
Oklahoma Bankers Association v. Oklahoma Credit Union League ........ 1147
O'Neill v. Maytag .............. 371 , 375
Open America v. The Watergate Special Prosecution Force ............ 215
Opper v United States ............. 1217
Pacific Grape Products Co. v. Commissioner ........................ 793
Pacific Maritime Association ......... 1023
Paquete Habana , The .............. 310
Parker v. Brown ................... 1013
Paul v. Davis ..................... 456
Pearlstein v . Scudder & German .... 286
Schneckloth v. Bustamonte .......... 154
Schneider v. New Jersey ........... 613
Schooner Exchange v. M'Fadden 315 , 544
Schuessler v. Commissioner ....... 793
Seider v. Roth ............ ....... 482
*Shaffer v. Heitner ............... 459 - 91
Shapiro v. Merrill Lynch , Pierce, Fenner & Smith, Inc................ _.291
Shelley v. Kraemer ................. 194
Silver v . New York Stock Exchange .. 377
Simon v. St. Elizabeth Medical Center ..................... 332 , 335 , 340
Simpson v. Loehmann .............. 483
Smith v. United States ............. 1217
Snyder , In re ..................... 758
South Dakota v . Opperman .. . 164
Southey v. Sherwood ............... 1039
Spratt v. Paramount Pictures ........ 422
Spring Canyon Coal Co. v. Commissioner ..................... ...... 804
ST. Tringali Co. v. The Tug Pemex XV ............................ 566
State v. Lucas .................... 1219
Steward Mtachine Co. v. Davis ...... 1131
Stone v. Powell ..... .......... 160
Summers v. Tice ............... 973 , 985
Telemart Enterprises , Inc., In re .... 656
Texas v. New Jersey ............... 426
Ticon Corp . v. Emerson Radio & Phonograph Corp ................. 571
Tiffaney & Co. v. Tiffaney Productions , Inc. ....................... 1325
*Timberlane Lumber Co. v. Bank of America, N.T. & S.A ........... 354 - 67
Time , Inc. v. Hill ................. 1290
Train v . Colorado Public Interest Research Group, Inc............... 537
Trans World Accounts , Inc. v. Associated Press ..................... 1295
Trinity Constructions Co. v. United States .................... .... 797
Triplett v. Lowell ...... ... ..... 1045
Ultramares Corp. v. Touche ..... 290
Underhill v. Hernandez .............. 295
United Fruit Co ................... 865
United States v. Aluminum Co. of America ........................ 356
United States v. American Linseed Oil Co ............................. 841
United States v. American Trucking Association ...................... 536
United States v. Tirasso ............ 530
United States v . Twelve 200-Ft. Reels of Super 8MM . .................. 1043
United States v. United States Gypsum Co ................. 827 , 848 , 849 , 852
United States v. Wade ............. 394
United States v . Weber Paper Co .... 816
*United States v . Zenith Radio Corp . 572 - 98
*United States Trust Co . of New York v. New Jersey ................... 1 - 56
Utah State University v. Bear, Stearns & Co .......................... 374
Vaage v. Lewis .................... 482
Van Gernert v. Boeing Co .......... 375
Victory Transport Inc . v. Comisaria General de Abastecimientos y Transportes ....................... 553 , 561
Walcot v. Walker .................. 1039
Wall Products Co. v. National Gypsum C o . ............................. 848
Watson v. Employers Liability Assurance Corp ....................... 484
W.B. Worthen Corp . v. Kavanaugh .. 35
Weeks v. United States ............. 141
West Virginia State Board of Education v. Barnette ...................... 613
Wetson's, In re .................... 656
White , Weld & Co ................. 443
Whiteley v. Warden ................ 152
Wien Consolidated Airlines , Inc. v. Commissioner .................... 796
Williams v. North Carolina ......... 489
Wisconsin v. Yoder ................ 759
Wolf v. Colorado .................. 143
Wood v. Strickland ................ 1308
Wright v. Central Du Page Hospital Association ................... 329 , 344
Ybarra v. Spangard ................ 989
Yerger , Ex parte ................... 389
Younger v. Harris ................. 176 7 . E.g., Wall St . J., Apr . 29 , 1977 , at 12, col. 1; American Banker , Apr. 28 , 1977 , at 1, col.
3; Daily News , Apr. 28 , 1977 , at 3, col. 1 . 8. Ch. 130 , 1917 N.J. Laws ; accord, ch. 426 , 1917 N.Y. Laws (substantially the same). 9 . N.Y., N.J. Port & Harbor Dev . Comm'n, Joint Report with Comprehensive Plan and
Recommendations (Dec. 16, 1920 ). 10 . Id. at 446 . 11. Ch . 151 , 1921 N.J. Laws; ch. 154 , 1921 N.Y. Laws . 12 . Originally named "The Port of New York Authority," the agency's name was changed to
"The Port Authority of New York and New Jersey" effective July 1 , 1972 . Ch. 69 , 1972 N.J.
Laws; ch. 531 , 1972 N.Y. Laws. 13. N.J. Stat . Ann. §§ 32 : 1 -1 to 24 (West 1963 ); N. Y. Unconsol . Laws §§ 6401 - 6423
(McKinney 1961 ). 14 . Pub . Res. No. 17 , 42 Stat . 174 , 180 ( 1921 ). 15. N.J. Stat . Ann. § 32 : 1 - 1 ( West 1963 ) ; accord , N.Y. Unconsol . Laws § 6401 (McKinney
1961 ) (substantially the same ). 16. N.J. Stat . Ann. § 32 : 1 - 3 ( Vest 1963 ); N.Y. Unconsol, Laws § 6403 (McKinney 1961 ). 17. N.J. Stat . Ann. § 32 : 1 - 4 ( Vest 1963 ); N. Y. Unconsol . Laws § 6404 (McKinney 1961 ). 18. N.J. Stat . Ann. § 32 : 1 - 7 ( West 1963 ); N. Y. Unconsol . Laws § 6407 (McKlnney 1961 ). 19. N.J. Stat . Ann. § 32 : 1 - 8 ( West 1963 ); N. Y. Unconsol . Laws § 6408 (McKinney 1961 ). 20. N.J. Stat . Ann. § 32 : 1 - 16 ( West 1963 ); N. Y. Unconsol . Laws § 6416 (McKinney 1961 ).
The states paid the expenses of the Port Authority through 1934; not until 1935 did the Port
Authority become self-supporting. 21. Ch. 9 , 1922 N.J. Laws; ch. 43 , 1922 N.Y. Laws . 22 . Pub . Res. No. 66 , 42 Stat . 822 ( 1922 ). 23. N.J. Stat . Ann. § 32 : 1 - 29 ( West 1963 ); N. Y. Unconsol . Laws § 6455 (McKinney 1961 ). 24. N.J. Stat . Ann. § 32 : 1 - 33 ( West 1963 ); N. Y. Unconsol . Laws § 6459 (McKinney 1961 ). 25 . 1976] Port Auth . of N.Y. & N.J. Ann . Rep. The Holland Tunnel was constructed by
of Congress. Chs . 49 , 50 , 1918 N.J. Laws; ch. 178 , 1919 N.Y. Laws . In 1930 the Holland Tunnel
Bridges and Inland Terminal No. 1. Ch. 247, 1930 N.J. Laws; ch. 421 , 1930 N.Y. Laws . 26 . See United States Trust Co. v. State, 69 N.J. 253 , 265 - 66 ; 353 A.2d 514 , 520 - 21 ( 1976 )
(Pashman , J., concurring in part and dissenting in part) , rev'd , 431 U.S. 1 ( 1977 ). 27 . Ch . 591 , 1921 N.Y. Laws . 28 . Ch . 104 , 1922 N.J. Laws . 29 . Ch . 157 , 1926 N.J. Laws . 30 . North Jersey Transit Comm'n Ann. Rep . 5 ( 1927 ). 31 . Id . 32 . Ch . 277 , 1927 N.J. Laws . 33 . Id . 34. N.Y. State, Public Papers of Alfred E. Smith 188 ( 1938 ). 35 . The studies are summarized in Stipulation at 1-15 , United States Trust Co. v. State, 134
N.J. Super . 124 , 338 A. 2d 833 (L. Div . 1975 ), aff'd per curiarn , 69 N.J. 253 , 353 A.2d 514 ( 1976 ),
rev'd , 431 U.S. 1 ( 1977 ) [hereinafter cited as Stipulation] . 36 . United States Trust Co. v. State, 134 N.J. Super . 124 , 149 , 338 A ,2d 833 , 846 (L. Dlv .
1975 ), aff'd, 69 N.J. 253 , 353 A.2d 514 ( 1976 ), rev'd , 431 U.S. 1 ( 1977 ). 182 . Defendants' Reply Memorandum, supra note 180, at 41. 183. Transcript of Proceedings, vols. I & 2 , United States Trust Co. v. State, 134 N.J. Super .
124 , 338 A. 2d 833 (L. Div . 1975 ), aff'd per curiam , 69 N.J. 253 , 353 A.2d 514 ( 1976 ), rer'd, 431
U.S. 1 ( 1977 ) [hereinafter cited as Trial Argument Transcript) . 184 . See id . vol. 1 , at 18-30, 45 , 61 - 63 , 66 - 72 , 76 - 82 , 89 - 96 ; vol. 2 , at 4-6. 185 . See id . vol. 1 , at 116, 131 - 33 , 136 - 37 , 153 - 54 ; vol. 2 , at 14- 16 . 186 . 295 U.S. 56 ( 1935 ). 187 . Trial Argument Transcript, supra note 183 , vol. 1 , at 161- 73 . Most of the second day's
argument was devoted to the Gaby case, which the court never reached . Id . vol. 2 , at 43- 234 . 188 . Port Auth. of N.Y. & N.J. , News Release 1-2 (Apr. 10 , 1975 ). 206 . Affidavit by J. Sinclair Armstrong , supra note 94, at 4 . 207. See Letter from Patrick J. Falvey to Hon. Robert B. Meyner (May 15, 1975 ). 208 . Newark Star-Ledger, May 16 , 1975 , at 1, col. 1. 209. 61 N.J. 1, 292 A.2d 545 ( 1972 ). 210 . 58 N.J. 432 , 278 A.2d 489 ( 1971 ). 211. N.Y. Times, May 16 , 1975 , at 41, col. 1 . 212. Newark Star-Ledger, May 17 , 1975 , at 1, col. 1 . 213. Barr Brothers & Co., Inc., The Reports of My Death are Greatly Exaggerated (June 12 ,
1975 ), reproduced in Brief for Defendants-Respondents-Cross-Appellants, State's Supplemental
Exhibit A , United States Trust Co. v. State, 69 N.J. 253 , 353 A.2d 514 ( 1976 ), rev'd , 431 U.S. 1
( 1977 ). 221 . 69 N.J. 253 , 256 , 353 A.2d 514 , 515 ( 1976 ) (per curiam) . The New Jersey court was a
full strength for the case in light of one vacancy and two recusals . 222. Id. at 265-66 , 353 A.2d at 520 - 21 (Pashman, J., dissenting in part) . 223 . Daily Bond Buyer, Feb. 26 , 1976 , at 1, col. 3 224 . The appeal was as of right rather than through certiorari, as it was an appeal from a final
constitutional claim . 28 U.S.C. § 1257 ( 2 ) ( 1970 ). 225 . Appellees' Motion to Dismiss for Want of a Substantial Federal Question , United States
Trust Co . v. New Jersey, 431 U.S. 1 ( 1977 ). 226 . United States Trust Co. v. New Jersey, 427 U.S. 903 ( 1976 ). 227 . Gaby v. Port Auth., 427 U.S. 901 ( 1976 ). 228 . Intervenor-Appellee's Motion to Dismiss Appeal . Gaby v. Port Auth., 427 U.S. 901 269 . Id. at 22-23 (citations and footnote omitted) . 270. Id. at 22 n.19 . 271. Id . The Court invited a comparison of W.B . Worthen Co. v. Thomas, 292 U.S. 426 ,
432- 34 ( 1934 ), and Treigle v. Acme Homestead Ass'n , 297 U.S. 189 , 195 ( 1936 ), with Home Bldg.
& Loan Ass'n v . Blaisdell , 290 U.S. 398 ( 1934 ), Veix v . Sixth Ward Bldg. &Loan Ass'n , 310 U.S.
32 , 39 - 40 ( 1940 ), and East New York Savings Bank v. Hahn , 326 U.S. 230 ( 1945 ). 272 . 431 U.S. at 23 . 273. Id. at 23 . 274. Id. at 23 . 275. Id. at 24. The tax conclusion is very doubtful, but no Supreme Court case has squarely
held that the tax power is within the "inalienable" category . Id. at 24 n.21.