United States Trust Company of New York v. New Jersey

PETITIONER: United States Trust Company of New York
RESPONDENT: New Jersey
LOCATION: United States Trust Co. of New York

DOCKET NO.: 75-1687
DECIDED BY: Burger Court (1975-1981)
LOWER COURT: New Jersey Supreme Court

CITATION: 431 US 1 (1977)
ARGUED: Nov 10, 1976
DECIDED: Apr 27, 1977

ADVOCATES:
Devereux Milburn - for the appellant
Michael I. Sovern - for the appellees

Facts of the case

New York and New Jersey had established a Port Authority to enhance water-bound business between the two states. In 1974, the states repealed a 1962 bond agreement which limited the Authority to administer commercial and passenger railroad subsidies.

Question

In repealing the 1962 agreement, did the states violate the Contract Clause?

Media for United States Trust Company of New York v. New Jersey

Audio Transcription for Oral Argument - November 10, 1976 in United States Trust Company of New York v. New Jersey

Audio Transcription for Opinion Announcement - April 27, 1977 in United States Trust Company of New York v. New Jersey

Warren E. Burger:

The judgment and opinion of the Court in 75-1687, United States Trust Company against New Jersey and others will be announced by Mr. Justice Blackmun.

Harry A. Blackmun:

This case comes to us on appeal from the Supreme Court of New Jersey.

It is one of those infrequent cases that centers in the Contract Clause in Article I of the Constitution of the United States and that Clause provides that, "No state shall pass any law impairing the obligation of contracts."

In 1921, New Jersey and New York with the consent of the Congress as the Constitution requires, entered into a bistate compact, and through that compact of 55 years ago, the Port Authority of New York and New Jersey was established and given enumerated powers.

It was conceived as a financially independent agency.

It developed and came to operate some of the famous bridges in the New York area as well as the Hammond Tunnel and in due course its outstanding bonds purchased by private investors came to be secured by a pledge of the authorities' general reserve fund.

Lurking in the background, however, was the serious problem of mass transit in the area.

Suggestions were made and oppose that the Port Authority operate the financially troubled transit systems between New Jersey and New York City.

And out of this, he merged a statutory covenant by the two States in 1962.

The covenant was part of bistate legislation authorizing the Port Authority to acquire and construct, and operate the World Trade Center and the Hudson and Manhattan Railroad.

And by the covenant, the two States agreed with each other and with the holders of bonds issued by the Port Authority, that so long as any of those bonds remained outstanding, neither the States nor the authority would apply any of the tolls that has been pledges security for the bonds for any railroad purposes whatsoever other than permitted purposes here and after set forth.

With those permitted purposes are detailed and there's no need to describe them here, but all these served as a practical matter to freeze the bridge and tunnel revenues to specific purposes other than the provision of mass passenger transportation in the metropolitan area.

Ten years later, in 1972, the two States by legislation repeal the covenant prospectively so that it no longer applied to authority bonds thereafter issued.

And then finally, in 1974, proposals for the retroactive repeal of the 62 covenant were passed by the legislature of each state and signed by its governor.

It is that retroactive repeal that is under constitutional attack in this case.

The attack is mounted by a trust company as holder and as trustee, a Port Authority bonds.

Two of the well-known cases that concern the Contract Clause are Home Building and Loan Association against Blaisdell decided in 1934 concerning the Minnesota Moratorium and Mortgage Moratorium law enacted during the depths of the Great Depression, and El Paso against Simmons decided in 1965 concerning the 1941 Texas statute which limited to a five-year period, the theretofore almost unlimited reinstatement rights of an interest defaulting purchaser of land from the State of Texas.

And each of those cases upheld the challenge legislation in the face of a Contract Clause attack.

In the present case, the New Jersey trial court dismissed the trustee's complaint.

It held that the statutory repeal was a reasonable exercise of New Jersey's police power and was not prohibited by the Contract Clause, and this was affirmed by the State Supreme Court in a per curiam opinion.

We reversed.

We hold that the retroactive repeal of the 1962 covenant totally eliminated an important security provision and impaired the obligation of the contract the two States have made.

This security provision was purely a financial obligation.

It was not a mere compromise of the States reserved powers that cannot be contracted away.

An impairment of contract such that it is involved in this case can be upheld only if it is both reasonable and necessary to serve an important public purpose.

Here, the impairment was neither necessary to achieve the State's plan to encourage private automobile users to shift to public transportation nor reasonable in the light of change circumstances.

Total repeal was not essential since the States' plan could have been implemented with less drastic modification of a covenant.

Further, without modifying the covenant at all, the States could have adopted alternative means of achieving their twin goals of discouraging automobile use in improving mass transit.

The Chief Justice, while joining the opinion, has filed a brief separate concurring statement.

Mr. Justice Brennan has filed a dissenting opinion and is joined in that by Mr. Justice White and Mr. Justice Marshall.