The opinion of the court was delivered by: CLARK
Counsel for the Trustee of the New York, Susquehanna and Western Railroad is petitioning the Court which appointed him for instructions. He desires binding advice on the part he should play in certain litigation now pending between the State of New Jersey and various railroads. His petition is filed as the result of his receipt of a rather remarkable document. That document (dated and filed December 6, 1940) is a petition addressed to the Circuit Court of Appeals for the Third Circuit. It is filed by a firm of Philadelphia lawyers. It asks for an extension of time of 30 days in which to file petition for rehearing in the case of Central Railroad Company of New Jersey v. Martin, et al., 3 Cir., 115 F.2d 968, decided November 27, 1940. It contains the following paragraph:
"The Trustees of the said Railroads in reorganization under Section 77 of the Bankruptcy Act, [ 11 U.S.C.A. § 205] desiring to join in the proposed petition to your Honorable Court for a rehearing will require the permission of the District Courts of their appointments for permission to join therein and in any other proceedings connected with the said appeals and your petitioners will require further time for the preparation of the said petition for rehearing and for securing such permission on behalf of the said Trustees." Para. 5 of the Petition (italics ours).
At any rate, if our Trustee shares the "desires" of the Court that appointed him, he will have no wish to have anything to do with the exhausting litigation in the Third Circuit. We happen to have a long time familiarity with that legal marathon. In 1933, the Central Railroad (now in bankruptcy) and the Lehigh Valley Railroad sought from us an injunction against the imposition by the State of the statutory taxes.
The ground then was that of discriminatory, and so unconstitutional, assessment. "It is agreed", to quote from our opinion at page 477 of 3 F.Supp., "that for many years the taxing authorities of New Jersey have indulged in the amiable practice of assessing railroad property at 100 per cent. and the property of all its other citizens (sic) at 80 per cent". We dismissed the bill because we considered and consider that the railroads had mistaken their route. We thought and think that in a Federal system the method appropriate for the consideration of this type of constitutional question is through resort to the highest State Court and then by appeal to the United States Supreme Court. The railroads and other corporations have been freely criticized for their tendency to "rush into" the lower Federal Courts. In fact, that eagerness has given an impression of some hope of a greater sympathy therein and so has lessened the confidence that goes with judicial impartiality.
The Circuit Court of Appeals of that day did not approve of our position and in two months reversed us "with directions to proceed in due course". Central R. Co. of New Jersey v. Martin, 3 Cir., 65 F.2d 613, 615. It might be observed that the railroad's principal contention of refusal by the State Courts to heed the direction against discrimination given them by the United States Supreme Court was untrue in fact. We quoted from an opinion by Mr. Justice Katzenbach (surely no radical) speaking for our Supreme Court. It reads: "The purpose of this act was to prevent just such discrimination as the prosecutor complains of. There is nothing in the record which shows that the prosecutor took such action before the county board of taxation. It has refused to avail itself of the remedy afforded it by our legislation to correct the evil of which it complains. One cannot claim a deprivation of constitutional rights by ignoring the remedy provided." Hackensack Water Co. v. State Board, 104 N.J.L. 48, 50, 139 A. 410, 411. This opinion had not been cited by counsel and mirabile dictu the learned Circuit Court of Appeals used its first two sentences in support of their position and omitted the rest which was introduced by the words, "It is unnecessary to consider at length this proposition, because".
Furthermore, the highest court of New Jersey subsequently and on December 7, 1933, did exactly what the Circuit Court of Appeals prophesied it would not do.
They acknowledged the Supreme Court rule against discriminatory assessement and suggested that the railroads stop asserting it and begin proving it.
After their triumph at our expense, the Central and the Lehigh did not "proceed in due course". They indulged themselves in the old and evil American legal practice of judicial shopping. In plain violation of our venue rule
they proceeded in the Trenton part of our District. They found, however, that they had come to the wrong shop, for the learned District Judge dismissed their bill.
In these hearings they had broadened their base and attacked the taxes not only for discrimination but on all points. The Court held that they still had failed to prove the discrimination that they had so often been asked to show. It also found their proof "of error, in assessing the value of railroad property, so fundamental as to violate the due process clause" inadequate. This decision found favor with the same appellate court which had given previous heed to the railroad complaints and it was affirmed.
Later certiorari was refused by the Supreme Court.
Nothing daunted by all these reverses, the railroads picked up themselves and their evidence and returned to the fray in Trenton. They obviously had to chose a different tax year but as there were plenty of them around this presented no great difficulty. This second case was decided on November 1, 1939,
and the learned District Judge ended his opinion with this statement: "The preparation of this memorandum was concluded in July of 1938. It was not filed because representatives of both sides to the litigation conceded the possibility that the New Jersey Legislature might intervene in such a manner as to make a judicial determination unnecessary." Central R. Co. of New Jersey v. Martin, D.C., 30 F.Supp. 41, 66. He found the railroads still shy on discrimination but up to the mark on "fundamental error" in valuation. So he restrained the collection of the taxes.
This time the inevitable appeal had to be taken by the State of New Jersey. It was argued on October 21, 1940, to an entirely different judicial personnel and on November 27, 1940, that learned Court disagreed with the Court below upon four grounds. We quote them in reverse order. First, they adopted our own original theory that the remedy, if any, was through the state courts; second, they found the suits were really against the State itself and so in contravention of the Eleventh Amendment; third, they said the attempt to escape res judicata by the use of another taxing year was unsound; and fourth, they expressly disapproved the railroads' contention "that the failure of the state authorities to give effect to declining earnings in making the valuations resulted in assessments so excessive as to violate the due process clause and thus to justify the injunctive relief granted by the district court."
In this last aspect they quoted from, and held themselves bound by, a very recent decision of the United States Supreme Court.
Inasmuch as the railroads and the learned District Judge have relied principally upon a previous decision of that august tribunal, we think it appropriate to requote what the present unanimous majority has to say about their earlier divided effort: "But even assuming that there was an over-assessment, constitutional invalidity would not follow. If the needs of a state require higher taxes, the Fourteenth Amendment certainly does not bar their imposition. The maintenance of higher assessment in the face of declining value is merely another way of achieving the same result. Great Northern Ry. Co. v. Weeks,
297 U.S. 135, 56 S. Ct. 426, 80 L. Ed. 532, does not bar the way. That is the only case, and it was decided by a sharply divided Court, in which a non-discriminatory assessment was struck down simply because it was thought excessive. Plainly, therefore, the case must have rested upon considerations peculiar to its own facts. Those are not the facts now before us. We conclude, therefore, that the Commission's over-assessment of petitioner's property, if over-assessment there was, constitutes no deprivation of any right under the Federal Constitution." Nashville, C. and St. L. Ry. v. Browning, 310 U.S. 362, 370, 60 S. Ct. 968, 972, 84 L. Ed. 1254.
We do not wish, however, to end on this note of helplessness. We have before us an appeal to our conscience as a court of bankruptcy. That appeal places its plea for the reduction of taxes on grounds peculiar to those suffering from the ravages of financial disease. With the generous co-operation of the Attorney General, the State's original claim has been held suspended and awaiting events. It may now be necessary to decide it. In anticipation thereof, it may not be amiss to make some general, and we hope thought provoking, observations. In doing so, what we say is, of course, tentative.
In spite of what seems the plain and mandatory wording of the appropriate statute,
the lower Federal Courts are not in agreement
in their interpretation thereof. The majority,
and we think the better reasoned cases, concede themselves jurisdiction to review tax assessments. They maintain that they are not undertaking to revise an assessment, but are rather endeavoring to ascertain the amount of the tax which may be allowed as a claim against the debtor's estate. It is significant that included among the majority are the only two reported cases involving railroad reorganizations under Section 77, 11 U.S.C.A. § 205.
On the assumption then that we have jurisdiction to revise, what should be the impelling considerations? A well-known advertising slogan might be reversed and made to read, "When more unscientific taxes are imposed, New Jersey will impose them". A comparison of her railroad taxes with those of her sister states makes this quite clear. A table abridged from an article entitled, Does New Jersey Overtax Railroads?, shows that New Jersey railroads are taxed twice as highly as those in any other state. It follows:
State 1931 ...