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April 6, 1949

B. J. VAN INGEN & CO., Inc.

The opinion of the court was delivered by: FORMAN

This is a motion to restrain the plaintiff from further prosecuting a declaratory judgment suit filed in this court and to stay the suit until there is a final disposition of an action now pending in the Superior Court of New Jersey, Law Division, Burlington County wherein the present defendants Henry S. Haines and Richard J. Lippincott are plaintiffs and the present defendant Burlington County Bridge Commission and the plaintiff B. J. Van Ingen & Company are named as defendants.

This suit is based upon a complaint for a declaratory judgment alleging that on October 22, 1948, the defendant Burlington County Bridge Commission adopted a resolution authorizing the acquisition of the Tacony-Palmyra and Burlington-Bristol Bridges spanning the Delaware River and connecting Burlington County, New Jersey with the Commonwealth of Pennsylvania and the issuance of Bridge Revenue Bonds for the purpose of financing the cost of acquisition of the said bridges in the principal amount of $ 12,400,000 and to sell same for cash, at the principal amount plus accrued interest from October 1, 1948 to Ketcham & Nongard, a partnership; that this resolution was duly approved on October 22, 1948 by the Board of Chosen Freeholders of Burlington County and the bonds were issued and sold as aforesaid to Ketchum & Nongard; that subsequent to the above transaction the plaintiff, in good faith, and in reliance upon the validity and binding effect of the bonds and the resolution under which they were bought and sold, and without notice of any infirmity in the bonds or defect in the title of the seller negotiating the same to the plaintiff, or of any other facts or circumstances which might in any way affect the validity or binding effect thereof, and before any payment thereon had become due, purchased $ 6,200,000 aggregate principal amount of the bonds by paying $ 6,022,145 (the principal amount less normal underwriting discount), plus accrued interest to the date of payment therefor, in cash; that on or about October 26, 1948 the plaintiff sold $ 4,712,000 principal amount of these bonds to others and now owns $ 1,488,000 principal amount thereof. The plaintiff further alleged that the defendants Haines and Lippincott brought a tax payers' suit in the Superior Court of New Jersey, Law Division, Burlington County, to enjoin the defendant Bridge Commission from performing its obligations and agreements under the resolution and that temporary restraints have been issued. Therefor the plaintiff was informed and believed that the Bridge Commission failed, refused and will continue to fail to make payments contrary to the resolution by reason of the restraints issued by the State court; that Haines and Lippincott and the Bridge Commission are estopped from attacking the validity of the resolution and the bonds under New Jersey law found in N.J.S.A. 27:19-2; and that the state court suit has impaired the value and marketability of the plaintiff's bonds. The plaintiff prays that this court adjudge: (1) that the resolution under attack in the state court was validly and legally adopted and binding in accordance with its terms; (2) that the bonds were validly and legally issued according to their terms; (3) that the Bridge Commission is obligated to perform all covenants, obligations and agreements under said resolution and bonds; (4) that the plaintiff is a holder in due course of the bonds it owns; and (5) that the defendants are estopped to attack the validity and effectiveness of the resolution and bonds. In addition it prayed that upon declaring judgment as above that Haines and Lippincott be enjoined by this court from prosecution of their suit in the state court.

 The answer of the defendant Burlington County Bridge Commission to the plaintiff's claim admitted all the essential facts as contended in the complaint with minor exceptions as follows. It left the plaintiff to its proof that it was without knowledge of the infirmity on the bonds purchased and that it hypothecated the bonds as alleged but stated that it believed that the plaintiff had pledged the bonds as collateral security. The Bridge Commission further answered that its counsel advised it that it is estopped to challenge the validity of the bonds because of the provisions of N.J.S.A. 27:19-2 and that it could not meet its obligations on the bonds because of the restraining order obtained in the state court as a result of the suit initiated there by the defendants Haines and Lippincott.

 The defendants Haines and Lippincott filed an answer in which they set forth among other defenses that they had initiated a tax payers suit in the Superior Court of New Jersey, Law Division, Burlington County against the Burlington County Bridge Commission and others including the present plaintiff and alleged that in this suit there were raised identical issues as those presented in their state court action. See Haines et al. v. Burlington County Bridge Commission et al., N.J. Super. A.D., 63 A.2d 284. They also filed a counterclaim against the present plaintiff and a cross-claim against the Burlington County Bridge Commission incorporating the allegations set forth in their answer to the main complaint herein and in their suit in the state court.

 In filing this motion to stay proceedings in this court the defendants Haines and Lippincott, contended that the state action which they initiated involves a grave question of state policy and that 'the interests of the appropriate relationship between federal and state authorities functioning as a harmonious whole' would best be served by such stay. They urged that the pendency of the injunction issued out of the New Jersey court and the existence of entirely unadjudicated questions of New Jersey law as to matters of great public importance dictate the abstention of the application of federal jurisdiction pending the disposition by the New Jersey court of those questions.

 The plaintiff argued that neither as a matter of law or discretion should this court stay its hand for the reason that only an injunction pendente lite is in force in the state court action, that the issues of this suit are not the same as in the state court action, and that it is a stranger to the state court action. It urged that the issues in this case are federal in nature and that this court is the most appropriate forum. It further contended that the present motion is premature for the reason that this case will not actually be reached for trial for a long time, no rights of the defendants Haines and Lippincott will be impaired by permitting the case to remain on the calendar because involved questions of procedure remain to be resolved in other suits, and it is impossible to now fully appraise the scope of the over-all litigation.

 In Meredith v. City of Winter Haven, 320 U.S. 228, 64 S. Ct. 7, 88 L. Ed. 9, the Supreme Court made it plain that a federal court may not avoid a decision of disputed questions of state law upon which there was no authority merely because the interpretation of that law is difficult and involved. The rule is qualified in other cases where the principle is laid down that a federal court will not decide questions of state law where an important state policy is involved. It was stated in Railroad Commission of Texas v. Pullman Company, 312 U.S. 496, at pages 500-501, 61 S. Ct. 643, 645, 85 L. Ed. 971 that: 'Few public interests have a higher claim upon the discretion of a federal chancellor than the avoidance of needless friction with state policies, whether the policy relates to the enforcement of the criminal law, Fenner v. Boykin, 271 U.S. 240, 46 S. Ct. 492, 70 L. Ed. 927; Spielman Motor Co. v. Dodge, 295 U.S. 89, 55 S. Ct. 678, 79 L. Ed. 1322; or the administration of a specialized scheme for liquidating embarrassed business enterprises, (Commonwealth of) Pennsylvania v. Williams, 294 U.S. 176, 55 S. Ct. 380, 79 L. Ed. 841, 96 A.L.R. 1166; or the final authority of a state court to interpret doubtful regulatory laws of the state, Gilchrist v. Interborough Co., 279 U.S. 159, 49 S. Ct. 282, 73 L. Ed. 652; cf. Hawks v. Hamill, 288 U.S. 52, 61, 53 S. Ct. 240, 243, 77 L. Ed. 610. These cases reflect a doctrine of abstention appropriate to our federal system whereby the federal courts, 'exercising a wise discretion', restrain their authority because of 'scrupulous regard for the rightful independence of the state governments' and for the smooth working of the federal judiciary. See Cavanaugh v. Looney, 248 U.S. 453, 457, 39 S. Ct. 142, 143, 63 L. Ed. 354; Di Giovanni v. Camden (Fire) Ins. Ass'n, 296 U.S. 64, 73, 56 S. Ct. 1, 5, 80 L. Ed. 47. This use of equitable powers is a contribution of the courts in furthering the harmonious relation between state and federal authority without the need of rigorous congressional restriction of those powers. Compare 37 Stat. 1013, 28 U.S.C.A. § 380; Judicial Code, § 24(1), as amended 28 U.S.C. § 41(1), 28 U.S.C.A. § 41(1); 47 Stat. 70, 29 U.S.C. §§ 101-115, 29 U.S.C.A. §§ 101-115.'

 See also Chicago v. Fieldcrest Dairies, 316 U.S. 168, 62 S. Ct. 986, 86 L. Ed. 1355; Burford v. Sun Oil Co., 319 U.S. 315, 63 S. Ct. 1098, 87 L. Ed. 1424; Meredith v. City of Winter Haven, supra, 320 page 236, 64 S. page 11, 88 L. Ed. 9; Spector Motor Service, Inc. v. McLaughlin, 323 U.S. 101, 65 S. Ct. 152, 89 L. Ed. 101; American Federation of Labor v. Watson, 327 U.S. 582, 66 S. Ct. 761, 90 L. Ed. 873; In re Central R. Company of New Jersey, 3 Cir., 163 F.2d 44, 47-48, certiorari denied in Gardner v. State of New Jersey, 332 U.S. 810, 68 S. Ct. 112; Note, 54 Harvard Law Review, 1941, 1379; 54 Yale Law Journal, 1944, 788. Cf. Borchard Declaratory Judgments, 2d Ed. 1941, 659.

 In the Meredith case, 320 page 236, 64 S. page 12, 88 L. Ed. 9, the Court said: 'It is the court's duty to do so (stay proceedings) when a suit is pending in the state courts, where the state questions can be conveniently and authoritatively answered, at least where the parties to the federal court action are not strangers to the state action. Chicago v. Fieldcrest Dairies, 316 U.S. 168, 62 S. Ct. 986, 86 L. Ed. 1355.'

 The plaintiff insisted that this is dictum and refers to exceptional circumstances which permit a federal court to stay the exercise of its acknowledged diversity jurisdiction but that such an exception is not applicable to the instant case. But there is further significant language in the Meredith case, wherein the Court comments upon conditions pertinent to this case. It said: 'No litigation is pending in the state courts in which the questions here presented could be decided. We are pointed to no public policy or interest which would be served by withholding from petitioners the benefit of the jurisdiction which Congress has created with the purpose that it should be availed of and exercised subject only to such limitations as traditionally justify courts in declining to exercise the jurisdiction which they possess.' 320 page 237, 64 S. page 12, 88 L. Ed. 9.

 Conversely, there are presently two actions pending in the state court in which the plaintiff in this case is named as a party and identical questions are presented: the action instituted by Governor Driscoll in which the present plaintiff was a petitioner for removal to this court, see Driscoll et al. v. Burlington-Bristol Bridge Co. et al., D.C., 82 F.Supp. 975; and Haines et al. v. Burlington County Bridge Commission et al., a phase of which is reported in 63 A.2d 284.

 In the latter case Haines and Lippincott raised questions under the 1844 and 1947 Constitutions of New Jersey, N.J.S.A., not previously determined by a New Jersey court in attacking certain New Jersey laws which they alleged the defendants therein claimed justified the transactions under attack. The Appellate Division of the New Jersey Superior Court held: 'We are satisfied that within the cited authorities and upon sound reason the plaintiffs' standing should be sustained. They raise constitutional questions and make serious charges of official misconduct affecting the public interest. Plaintiffs instituted their action with dispatch thereby aiding in maintaining the status quo and although the Governor and Attorney General subsequently filed a related information and complaint, they have not evidenced any desire that plaintiffs be displaced in this proceeding. On the contrary, the Attorney General appeared before the Law Division in support of plaintiffs' restraint pendente lite. Considering all of these circumstances and the interlocutory stage of the proceeding, it seems clear that the interests of complete and effective justice to the public as well as the parties require that the defendants' efforts to dismiss the proceeding, on the ground that the plaintiffs have no standing, should fail.' 63 A.2d at page 288.

 In connection with plaintiff's assertion that it is a stranger to the state court action it claimed that it was not named as a defendant until Haines and Lippincott filed a 'further amended complaint' on November 23, 1948. It was on this same day that plaintiff filed its complaint in the present action. The fact that the plaintiff was named in the amended complaint filed on the same date of the filing of the complaint herein would not bar a stay of proceedings in this court where the question affects state policy. In Spector Service, Inc. v. McLaughlin, 323 U.S. 101, 65 S. Ct. 152, 89 L. Ed. 101, the federal district court was directed to withhold action pending determination in a state court of a question of local law involving state policy although the state action had not been initiated and the court cited the Pullman and Meredith cases. 323 page 105, 65 S. Ct. 152, 89 L. Ed. 101.

 The plaintiff further argued that there is a marked distinction existing between this suit and the suit brought by Haines and Lippincott in the state court. It cited, for example, that it has sought a declaration that the bonds are valid and binding and that it is a holder in due course. It insisted that these issues are not present in the complaint in the state court and that a comparison of the state court complaint and the pleadings filed herein demonstrate conclusively the disparity between the issues presented in each case and the kind of questions involved. There is no disparity between the issues in each case for the validity of the resolution and bonds had been directly drawn into issue by paragraphs 10 and 12 of the amended complaint filed November 12, 1948 in the Superior Court of New Jersey which alleged as follows:

 '10. Plaintiffs show and allege that defendants, Board of Chosen Freeholders of the County of Burlington, and the members of the Burlington County Bridge Commission, in taking the various actions referred to hereinabove respecting the creation of the Burlington County Bridge Commission and the resolutions for acquisition of the Burlington-Bristol and Tacony-Palmyra bridges and the issuance of bonds for the financing thereof, were acting not in the exercise of their own individual judgment and volition, but under the improper influence, direction, control and solicitation of the defendant, Clifford R. Powell, and others, who at that time had a personal pecuniary interest in the effectuation of said transactions. For said reasons, as well as for the reasons additionally set forth in the complaint and in this amended complaint, all of said transactions were contrary to public policy, and illegal and void.'

 '12. The defendants, Tuthill Ketchum, Richard Nongard, and R. H. Murray, individually and as the firm of Ketchum & Nongard, in arranging for the issuance and then purchasing of the Bridge Revenue Bonds, issued by the Burlington County Bridge Commission, as aforesaid, were fully cognizant of all of the circumstances preceding, attending and surrounding the said transactions, as more particularly hereinabove recited, and neither their rights, equities, titles or interests, nor those of any person, firm or corporation who may have purchased any of said bonds from them, nor those of the stockholders of Burlington-Bristol Bridge Company represented herein, may or do have any priority over those of the State of New Jersey and the County of Burlington in and to the Tacony-Palmyra and Burlington-Bristol bridges hereinafter in this amended complaint more fully recited and set forth.'

 Allegations of a similar tenor were brought home to the plaintiff herein in the 'further amended complaint' in the state court action filed November 23, 1948.

 In further extension of its claim that it is a stranger to the state court procedure the plaintiff contended that since the bonds are not secured by a mortgage on the bridge properties but are payable solely out of the revenues of the bridges, only a debtor creditor relationship is involved which renders the action in the state court in personam, and the plaintiff, as a non-resident of New Jersey, is immune from being drawn into the state court suit. It argued that if the action should be in rem or quasi in rem, it would still be a stranger to the state court action since Haines and Lippincott failed to allege that the plaintiff has or claims any ...

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