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Driscoll v. Burlington-Bristol Bridge Co.

Decided: December 5, 1950.

ALFRED E. DRISCOLL, GOVERNOR OF THE STATE OF NEW JERSEY, ET AL., PLAINTIFFS,
v.
BURLINGTON-BRISTOL BRIDGE COMPANY, ET AL., DEFENDANTS



Freund, J.s.c.

Freund

This proceeding was brought by the Governor and the Attorney General of the State of New Jersey on behalf of the people of the State, for rescission of the purchase of two toll bridges across the Delaware River from Burlington County, New Jersey, to points in Pennsylvania.

On the morning of October 22, 1948, the Board of Chosen Freeholders of Burlington County, by resolution, created the Burlington County Bridge Commission, a public body, and appointed three bridge commissioners. Minutes after their appointment and organization, these bridge commissioners, without notice to the public, without independent investigation, without independent appraisal, without negotiation or bargaining, without independent counsel or advise, adopted a resolution for the purchase of the two bridges at a price of $12,000,000 to be derived from the issuance of revenue bonds. The same day, in the City of New York, they closed the transaction. The sellers of the bridges, without investing a single dollar, realized a net profit of about $2,000,000. The various stages of the entire transaction down to the smallest detail were planned by the sellers prior to the creation of the Commission. One of them arranged the selection of the commissioners. The sellers' attorney prepared all the papers and documents including the Commission's resolutions, even before the commissioners were appointed. They made the financial arrangements for the Commission. Though this transaction, the subject of this litigation, was formally initiated and concluded by the Commission on the first day of its existence, the arrangements for it by the defendants had extended for a period of about two years, and involved many persons. The proofs establish a course of conduct replete

with chicanery on the part of the sellers and those acting on their behalf.

Viewed in the large and applying legally sanctioned standards relevant to the conduct of governmental affairs to the uncontradicted facts, the conclusion is inescapable that the transaction contravenes sound public policy. From the evidence it cannot be sustained.

The facts are these:

The Burlington-Bristol Bridge was constructed in 1931 and was owned by the Burlington-Bristol Bridge Company. The Tacony-Palmyra Bridge, constructed in 1929, was owned by the Tacony-Palmyra Bridge Company. Both companies were incorporated under Chapter 247, P.L. 1925, R.S. 48:5-13 et seq. This statute reserved to the State of New Jersey the right in conjunction with the Commonwealth of Pennsylvania to acquire the bridges five years after their completion at a prescribed cost formula, and provided for their reversion to the State without cost after 50 years. Appropriate federal laws pertinent to interstate bridges empowered acquisition by New Jersey or Pennsylvania or any political subdivision thereof. Under the cost formula the two bridges would have become available in 1951 for approximately $5,000,000. However, the enactment of Chapter 401, P.L. 1947, R.S. 48:5-18, eliminated the State's right of acquisition of the bridges if they became the property of a public body.

Chapter 318, P.L. 1946, R.S. 27:19-26 et seq. , authorized each county board of freeholders to create a bridge commission with power to acquire bridges, subject to the approval of the freeholders, and the consent of an adjoining state, and to issue bonds secured by the revenue from such bridges. In 1948, this statute was amended by deleting the requirement for the consent of the adjoining state. Chapter 288, P.L. 1948, R.S. 27:19-28.

The legislative background of this case is more fully stated in the opinion of Judge Jacobs in Haines v. Burlington County Bridge Commission , 1 N.J. Super. 163 (App. Div. 1949).

The stock of the Burlington-Bristol Bridge Company from its incorporation in 1928 had been owned by a small group in Pittsburgh, Pennsylvania. The defendant, Theodore R. Hanff, had been for many years a bridge painting contractor and because of his extensive experience in this business, was familiar with the operation of toll bridges and bridge companies. He knew the owners of the bridge company stock. From time to time, he had had transactions with the defendants, Ketcham and Nongard, of Chicago, dealers in bridge securities. In the latter part of 1946, he proposed to them and others of the defendants that they become associated in purchasing the stock of the Burlington-Bristol Bridge Company with the idea of selling it to a public agency. A syndicate was formed, composed mainly of Thomas J. Christensen, a municipal bond dealer; Rickard Parks, an investment security dealer; Robert K. Bell, counsel for a Bridge Commission; and Clifford R. Powell, counsel and former director of the Burlington-Bristol Bridge Company, all of whom are defendants. Hanff was authorized by the syndicate to purchase the stock for not more than $1,500,000. He negotiated with the Pittsburgh stockholders a purchase of their stock at a price of $1,350,000, requiring no cash investment. A loan in the amount of $1,000,000 secured by a purchase money mortgage encumbering the bridge was obtained and the balance of the purchase price, $350,000, was represented by notes of the bridge company secured by the pledge of the stock. The syndicate, however, was required to pay into the company $25,000 for working capital.

Each member of the syndicate had his role to play: Hanff, the negotiations with the Pittsburgh stockholders; Ketcham & Nongard, the financing of the purchase, by securing the $1,000,000 mortgage on the bridge; Christensen and Parks were to have sold preferred stock, but this became unnecessary when the sellers accepted notes. Bell's contribution was to be in the rendition of advice in the acquisition and operation of the bridge. Powell's task -- and he so testified -- was the sale to Burlington County. On cross-examination, he

said, "I became interested in getting the bridge to present it to Burlington County."

Since 1914 Powell has been a lawyer with offices in Mount Holly, the county seat of Burlington County. He served in the State Legislature as Assemblyman and subsequently for three terms as Senator. In 1937, he was a candidate for the Republican nomination for Governor of the State. For years he had been generally recognized as the Republican leader of Burlington County. His law firm represented 15 of the 35 municipalities comprising the county, and he had been counsel to the Burlington-Bristol Bridge Company since its incorporation. In addition to his professional and political activities, he had been active in the military service and had been Commanding General of the National Guard. Powell's disclaimer of political influence is, in the light of the known facts, disingenuous, to say the least. His financial contribution to the undertaking was one-fourth of the total sum of $25,000 advanced to the bridge company by the syndicate as working capital; his real contribution consisted of his influence. Its potency was demonstrated in the following episode: The right to acquire the two bridges was reserved to the State by Chapter 247, P.L. 1925, R.S. 48:5-22, 23 and 24. This statutory reservation came to the knowledge of the syndicate after Hanff had completed his arrangements for the purchase of the Burlington-Bristol stock, in the course of Ketcham & Nongard's negotiations for the mortgage. It was necessary to remove this right of the State, lest the whole plan of the syndicate be frustrated. Accordingly, Albert McCay, an Assemblyman from Burlington County, Powell's law partner, introduced a bill, later enacted into law as Chapter 401, P.L. 1947, R.S. 48:5-18, providing that if a public agency acquired the bridges, the State's right of acquisition would be extinguished. To ensure its passage, Powell wrote to the Senator from Burlington County asking his support of the legislation. In the letter dated April 4, 1947, Powell said that the legislation "permits our local bridge companies to sell their bridges either to a private individual or corporation

or to a public bridge commission. This is only a permissive act, and it is desired by the Burlington-Bristol Bridge Company." Significant is the omission of any reference to the further provision which expressly eliminated the State's right to acquire the bridges.

After the enactment of this necessary amendment, the syndicate acquired the stock of the Burlington-Bristol Bridge Company as planned. They elected themselves directors and officers, and thereafter operated the bridge.

Having acquired the Burlington-Bristol Bridge, the syndicate members decided to purchase the Tacony-Palmyra Bridge. The stock of the Tacony-Palmyra Bridge Company was owned by some 1,300 stockholders located in various states. The syndicate was not equipped to negotiate such an acquisition. Ketcham & Nongard knew Robert M. Sherritt, president of the Sarjem Corporation, whose business was the buying and selling of bridges and other utilities. Sherritt had been interested in the purchase of the Tacony-Palmyra Bridge some years before, but had never acquired it. In April or May, 1948, he was introduced to Hanff. Eventually an agreement was reached between Sherritt and the syndicate for the acquisition of the stock of the Tacony-Palmyra Bridge Company. Thereafter Sherritt, without the investment of any money, acquired options, to be exercised not later than November 1, 1948, for the purchase of the stock at $6,487,500. The syndicate agreed to buy from Sherritt for $6,700,000.

In the meantime, the syndicate was proceeding with its plans for the sale of the two bridges to a public agency. Although no such agency had been created and the members of the Board of Freeholders of Burlington County had no knowledge of the syndicate's plan that it should create one, the sellers were meticulously arranging the details of the transaction. To this end, they retained David M. Wood, of New York, an attorney specializing in municipal law, to represent and advise them in connection with the sale of the bridges and the financing thereof. The syndicate, well in advance of the creation of the Commission, ordered and procured

appraisal, traffic and engineering reports from alleged experts in their particular fields. The traffic report was addressed to Messrs. Ketcham & Nongard, but surprisingly, a preliminary appraisal made by the American Appraisal Company, dated October 16, 1948, was addressed to the Board of Chosen Freeholders, although not ordered by them, for as of that date the members of the Board, with one exception, had no knowledge of the transaction.

The one member of the Board of Chosen Freeholders, who, prior to October 20, 1948, knew of the proposed transaction was Frank Snover. On September 7, 1948, while he and Powell were returning from a political meeting, Powell told Snover in confidence that he would shortly disclose to him the details of a project which would be of substantial benefit to Burlington County. On October 3, 1948, Powell and Snover drove to the Hotel Barclay in Philadelphia, where Hanff and Ketcham were introduced to Snover. He was then told that the two bridges were for sale and could be purchased for $12,000,000 by a bridge commission to be created by the Board of Freeholders; that the purchase could be financed by a bond issue of the bridge commission; that the bonds would be neither an obligation of the county, nor of the bridge commission, nor a lien on the bridges, but would be paid solely from the revenues thereof. With respect to the financing, they informed Snover that they would obtain a loan in the sum of $12,400,000, of which $400,000 would provide working capital for the commission. To substantiate the price of $12,000,000, Ketcham said that a report in process of preparation by the American Appraisal Company would value the bridges in excess of $13,000,000. Snover was handed reports on the physical condition of the bridges and a traffic report which estimated the future revenue. He was shown an amortization table, which indicated that in 12 years the revenue would have been sufficient to completely amortize the bonds and leave a surplus of approximately $4,000,000, which would become the property of Burlington County. It was suggested that Snover study the reports and consider the

proposition. He was enjoined to keep the matter confidential and to discuss it with no one but Powell.

Although, subsequently, meetings of the Board of Freeholders were held on October 7th and October 15th, Snover, complying with the admonition, made no mention of the matter to his colleagues on the Board of Freeholders. On October 19th, at the specific request of Powell. Snover called the members of the Board of Freeholders to meet at his home on the following evening, October 20th. Powell and four of the five members of the Board attended. To this group, Snover outlined the project. Then Powell took over the discussion and presented the aforementioned reports. In the course of the meeting, Thomas D. Begley, the County Solicitor, arrived. Powell had called on him that very afternoon and discussed the matter with him. He had left with him the reports which had been prepared for the sellers. Begley advised the group that the freeholders had the legal authority to appoint a bridge commission. Amazing as it may seem, there was presented at this meeting, in addition to the various reports, a 38-page printed proposed resolution authorizing the issuance of the bonds by the not-yet created bridge commission, containing in print the names of Howard R. Yocum and Fred C. Norcross, Jr., as two of the three bridge commissioners, although neither of them was aware of his proposed appointment. The name of the third commissioner was left blank. The printed bond resolution had been drafted by David M. Wood, the attorney for the syndicate. The names of Yocum and Norcross had been supplied to him by Ketcham's secretary, who procured them from Powell, who knew both men to be receptive to a public appointment; also, Yocum had served as General Powell's military aide. Before the meeting closed, it was decided that the third member of the commission was to be David Lichtenthal. But, at the close of the meeting, none of the selectees had any knowledge of his proposed appointment as bridge commissioner. The freeholders were told that the deal was a "take it or leave it" proposition at $12,000,000; that the transaction was to be closed within

48 hours; that haste and secrecy were essential; and that a meeting between the sellers of the bridges and the bridge commissioners-to-be would be held at the Hotel Barclay in Philadelphia, the following afternoon, October 21st.

Between the meeting at Snover's home on the evening of October 20th and the following afternoon, Yocum, Lichtenthal and Norcross first learned of their proposed appointment as bridge commissioners at an annual salary of $3,000 -- Yocum was told by Powell; Lichtenthal, by Snover; and Norcross, by Yocum. Powell had telephoned Norcross to accompany Yocum to Philadelphia; en route Yocum told Norcross what was proposed. The meeting was held in Ketcham's hotel suite. There were present Powell, Ketcham and Hanff, as sellers; their attorney, David M. Wood; Clarence G. Price, one of the freeholders; Begley, the County Solicitor; and Yocum, Lichtenthal and Norcross, the not-yet appointed commissioners of the not-yet created bridge commission.

Powell, Ketcham and Wood informed the selectees of the plan. It was presented to them as it had been to the freeholders on the preceding evening -- as a "package" deal on a "take it or leave it" basis at $12,000,000. The experts' reports on the bridges prepared for and procured by the sellers were presented. Besides, and most extraordinarily, they were handed prepared contracts between the sellers and the non-existent commission for the sale of the bridges; a contract between Ketcham & Nongard and the non-existent commission whereby the former agreed to buy and the latter agreed to sell the proposed bond issue of $12,400,000; the 38-page printed bond resolution; and a sample printed bond of the yet unborn Burlington County Bridge Commission. Ketcham outlined the financial aspects of the transaction; Wood gave his opinion on the legal details. Questions raised by the commissioners-to-be regarding the various phases were answered by Powell, Ketcham and their attorney, Wood. They were assured and reassured that the transaction could be accomplished, that it would benefit Burlington County and that

eventually the county would net a sizeable amount from surplus revenues. They were urged to keep the matter secret and to act speedily, in order to avoid "nuisance" and "taxpayer's" suits.

It is clear from the testimony that any misgivings which the commissioners-to-be may have entertained concerning the proposal as a whole, and such factors as the price, the haste, the secrecy, that all reports were "sellers'" reports, were set at rest by the assurances of the sellers, and more particularly by the advice of Wood, whose eminence they vouched for. Because of a prejudice against notice and publicity by a governmental agency in the purchase of property, he counselled and directed secrecy in the transaction until its completion. He was opposed to informing the public of a proposed public project until it was concluded, saying "that the reason for secrecy in such transactions is the effort to prevent minority interests from exploiting their nuisance value, thus increasing the cost of the properties to the public agency." In his opinion, the idea of "open covenants openly arrived at" is excellent in theory, but does not work out in practice. In his testimony, he admitted that he did not know of any judicial authority for his philosophy of so conducting public business. To give weight to his advice, he cited experiences from his personal practice. Obviously for the purpose of adding prestige to his opinion and impressing the prospective commissioners, there was produced and circulated a printed copy of a speech Wood had delivered before the American Bar Association in which he had expressed the same views. He produced the proposed contracts and resolutions, advised the commissioners-to-be regarding the legal details of the impending transaction, and instructed them regarding the steps to be taken in the execution of the plan.

Undoubtedly, the presence and influence of Powell to whom they owed their selection for office, their own desire for public appointment, plus the overweight of the sellers' business experience in contrast to their own, swayed the appointees and

produced the result which the syndicate desired -- namely, unqualified acceptance of the entire proposal.

The meeting, which was the dress-rehearsal for the real performance scheduled for the morrow, lasted from midafternoon until about nine o'clock in the evening. The commissioners-to-be were briefed on all the successive steps to be taken the following day, -- from their appointment in the morning by the Board of Freeholders at Mount Holly, to the closing at the Chemical Bank & Trust Company in New York City later that day. It was also agreed that Yocum was to be chairman of the Commission; Lichtenthal, vice-chairman; and Norcross, secretary-treasurer.

According to plan, the next morning, Friday, October 22, 1948, the Board of Freeholders caucused before its scheduled public meeting at Mount Holly. All the freeholders were now present. Snover told Jones, the member who was absent from the meeting at Snover's home on October 20th, about the proposed transaction and gave him the reports and statistical data for his inspection. Jones testified that he was "shocked" at the haste with which a matter of such complexity and magnitude was to be consummated; nevertheless, after a hasty perusal of the reports he too decided to go along.

The Board of Freeholders then proceeded to its public meeting and formally adopted a resolution creating the Burlington County Bridge Commission and appointing as commissioners Yocum, Lichtenthal and Norcross at an aggregate annual salary of $9,000. Forthwith, the appointees, who with County Solicitor Begley had been nearby, awaiting the action of the Board of Freeholders, held their first meeting. It was attended also by Powell, Ketcham and Wood. With remarkable dispatch, the commissioners proceeded to perform each act outlined for them at the previous evening's meeting. With a celerity which can only be attributed to a total abnegation of independent investigation or judgment, they hastened to ...


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