United States Trust Company of New York v. New Jersey―The Contract Clause in a Complex Society

Fordham Law Review, Dec 1977

By Robert A. McTamaney, Published on 01/01/77

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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 0 This Article is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Law Review by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information , please contact 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 - Article 1 THEODORE N. FARRIS Articles Editor SHARON L. WORTHING Articles Editor MARGARET HOLIHAN Commentary Editor NICHOLAS J. JOLLYMORE Commentary Editor MARY ANNE WIRTH Commentary Editor WENDY E. COOPER ELIZABETH H. W. FRY JAMES J. Rizzo Editor-in-Chief DENNY CHIN Managing Editor ASSOCIATE EDITORS CHARLES G. LA BELLA ERNEST J. T. Loo MEMBERS ZACHARY B. KASS GRETA GLAVIS JOHN J. KELLY, JR. RICHARD W. LYNN GLENN F. MCNAMARA ANN M. MATHIS CHRISTOPHER B. MEAD JULIAN S. MILLSTEIN BARBARA M. NORMAN HENRY PITMAN STAFF SUSAN A. GLOVER CHERYL GREENBAUM DANIEL GURFEIN WILLIAM HARTNETT KAREN SCHNEIDER HERZOG ANNE HINTERMEISTER MARY BARNES JENKINS MICHAEL WILLIAM KELLY THEODORE LAPIER JOSEPH J. LAROCCA JOHN P. MCCAHEY PATRICK W. McGOVERN SUZANNE T. MARQUARD BRIAN J. MORRIS ANN V. SULLIVAN Business Secretary GARY GROOT Articles Editor WILLIAM j. COMISKEY Commentary Editor RANDALL H. JENSEN Commentary Editor MICHAEL D. UTEVSKY Commentary Editor HELEN HADJIYANNAKIS Writing & Research Editor JOSEPH I. LOONAN PETER M. MAZER ERIC D. RAM NORMAN M. ROBERTSON STEPHEN F. RUFFINO EDWARD F. SEAVERS, JR. NAOMI SIIEINER CLAUDIA L. TAFT A. WILLIAM URQUHART THOMAS J. WEBER STEPHEN G. WOLFE LINDA H. YOUNG RICHARD A. NARDI FREDERIC L. NEUSTADT NEIL NOVIKOFF JOHN A. OCCHIPINTI ROBERT P. OPPENHEIM DON L. PITT JULIAN PRAGER CANDICE SINGER RAM KEVIN P. SIMMONS RICHARD H. STERNBERG GEORGENE M. VAIRO MARGARET VAUGHAN DAVID WEST BONNIE WILKINSON ALLEN WOOSTER EDITORIAL AND GENERAL OFFICES Lincoln Center, 140 West 62nd Street, New York, N.Y. 10023 Published six times a year-October, November, December, March, April and May. Member, National Conference of Law Reviews. Printed by the Heffernan Press Inc., Worcester, Massachusetts. Second class postage paid at New York, N.Y. and at additional mailing offices. SUBSCRIPTION PRICE $12.00, SINGLE ISSUE $3.50. Make checks payable to FORDHAM LAW REVIEW. Subscription renewed automatically unless notified to contrary. For price of :volumes and single issues prior to Volume XLII please inquire of William TABLE OF LEADING ARTICLES-AUTHORS 641 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 BOOK REVIEWS 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 .................................................................. 277 57 1115 LAW AND CONSTITUTIONAL LAW ADMINISTRATIVE AGENCIES Access to EEOC, NLRB, uments Adverse publicity in SEC procedure Employers' rights under FOIA OSHA REMEDIES members of 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 9781006 Medical malpractice panels 322-49 Noncommercial torts committed by foreign states 554-55 Nuisance abatement legislation used to deter sex oriented businesses 57-90 Parole boards have only qualified immunity for decision to release prisoner 1301-15 TRADEMARKS Relief for trademark infringement under New York antidilution statute 1315-38 SOVEREIGN IMMUNITY UNIFORM COMMERCIAL CODE Compared with act of state doctrine 315-316 Counterclaim exception 314-17, 557-58 Foreign Sovereign Immunities Act of 1976 543-72 Commercial paper double forgery 1273-86 Express warranties of work of art 954-59 Reclaiming credit seller and bankruptcy trustee 641-68 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 1105 419 838 459 1146 144 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 12871300 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 ............. 611 819 1120UNITED OF NEW STATES YORK TRUST V. NEW COMPANY JERSEY THE CONTRACT CLAUSE IN A COMPLEX SOCIETY ROBERT A. McTAMANEY* I. INTRODUCTION T 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 ( 1977 ). 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 ( 1977 ). 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. II. BACKGROUND 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 comprehensive plan. 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 transportation facilities. 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 1977] 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 1977] 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 "28 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 with the 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 prospective investors 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. TRUST 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.' 8 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; ( 3 ) 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 fuel.",' 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. E. 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 ( 1977 ). 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 repeal. 1 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. 1955)). 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 bond covenant. 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 not1977] 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 214. Id. 215. Id. 216. Id. 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 ( 1977 ) (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 ( 1977 ). 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 THE UNITED STATES SUPREME COURT 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, 1976.226 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 absent. 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 (1976). 229. Defendants' Motion to Dismiss Appeal, Gaby v Port Auth., 427 U.S. 901 (1976). 230. 28 U.S.C. § 1257 (1970). TRUST 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 231 acceptable investment. 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 had 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 ( 1977 ). 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 ( 1977 ); 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 to alleviate: 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 Legislature 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 it QUESTION: Well, it wasn't feasible, but it was less intrusive, as far as the bond holders go. 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 that QUESTION: Did anything in the record come up about San Francisco's mass transit brainstorm? [ANSWER]: There's nothing in the record, Your Honor. QUESTION: Okay. [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 between the Port 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 figure 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 you? [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 bondholders' case: 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 case. 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 ( 1977 ). 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 Covenant, concluding: 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 transit improvements: 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 approved. 25 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 courts. 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., dissenting)). 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 ( 1 ) 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 280 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. 28 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 Paso:2-s 7 281. 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 state purposes. 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 288. Id. 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 made.1 294 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 mar293. Id. 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 VII. CONCLUSION 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 plus necessity. 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 investors. 309 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 23, 1975). 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 ( 1977 ). 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.

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Robert A. McTamaney. United States Trust Company of New York v. New Jersey―The Contract Clause in a Complex Society, Fordham Law Review, 1977,