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State v. Otis Elevator Co.

Decided: March 16, 1953.

STATE OF NEW JERSEY, BY THEODORE D. PARSONS, ATTORNEY-GENERAL OF THE STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
OTIS ELEVATOR COMPANY, A CORPORATION, DEFENDANT-APPELLANT, ABRAHAM GRENTHAL, SUBSTITUTED RECEIVER OF J. B. SKEHAN & CO., DEFENDANT-RESPONDENT, AIDA M. RHODES, INDIVIDUALLY AND AS EXECUTRIX OF THE WILL OF FRANK C. RHODES, DEFENDANT



On appeal from the Chancery Division of the Superior Court; certified by the Supreme Court on its own motion while pending in the Appellate Division of the Superior Court.

For reversal -- Chief Justice Vanderbilt, and Justices Oliphant, Wachenfeld and Burling. For affirmance -- Justices Heher and Jacobs. The opinion of the court was delivered by Vanderbilt, C.J. Jacobs, J. (dissenting). Heher, J. (dissenting).

Vanderbilt

[12 NJ Page 3] The State of New Jersey instituted this action in the Chancery Division of the Superior Court pursuant to the provisions of the Escheat Act (L. 1946, c. 155, as amended and supplemented; N.J.S.A. 2:53-15 to 32; now N.J.S. 2 A:37-11 to 28), alleging that the Otis Elevator Company had in its custody or possession certain personal property, described in general terms only, that had escheated to the State. As provided in N.J.S.A. 2:53-21, the Otis Elevator Company was ordered by the court to answer the complaint, to retain all escheatable personal property then in its custody or possession until the further order

of the court and to disclose to the plaintiff in its answer such information regarding such escheatable personal property as was pertinent and would cause a speedy determination of the action. After successive stipulations extending the time to answer until the final disposition by this court of the test case of State v. Standard Oil Co., 5 N.J. 281 (1950), affirmed 341 U.S. 428, 71 S. Ct. 822, 95 L. Ed. 1078 (1951), the Otis Elevator Company filed its answer setting forth all the information called for by the order of the court, including detailed schedules showing the names and last known addresses of the record owners of all unclaimed personal property in its custody or possession together with the nature and amounts of such property. In addition in its answer the Otis Elevator Company asserted various defenses relating to the jurisdiction of the court, the constitutionality of the Escheat Act, and the applicability of the statute of limitations.

According to the answer of the Otis Elevator Company, the bulk of the unclaimed personal property in its custody or possession consisted of stock registered in the name of Frank C. Rhodes. Claim to this stock was made by Abraham Grenthal, substituted receiver of the firm of J.B. Skehan & Co., in an independent action instituted in New York against the Otis Elevator Company and Mrs. Frank C. Rhodes, as executrix of the estate of her deceased husband. The institution of the New York action occasioned an amendment of the complaint filed in this escheat proceeding so as to include Grenthal and Mrs. Rhodes as parties defendant; an amendment of the answer filed by the Otis Elevator Company setting forth as an additional defense the possibility that it might be subject to double liability; and the filing by Grenthal of an answer to the amended complaint claiming the Rhodes' stock. Default was entered against Mrs. Rhodes for failure to answer. At the hearing the Grenthal claim was fully litigated, but the Otis Elevator Company, although it had raised various defenses in its answer, did not contest the escheat of any of the personal property sought by the State.

The judgment of the court entered on March 3, 1952, disallowed the Grenthal claim; declared all the personal property reported by the Otis Elevator Company in its answer to have escheated to the State and directed that it be turned over to the State Treasurer; discharged the Otis Elevator Company of all liability with respect to the escheated property; and directed that the State Treasurer pay out of the escheated property a counsel fee of $7,000 plus costs and disbursements to the attorney who had prosecuted the action for the State, a fee of $2,788.30 as a reward to the escheator, and a fee of $100 to the officer appointed by the court to take depositions. The request of the Otis Elevator Company for the allowance of reasonable counsel fees and disbursements was denied. So much of this judgment as disallowed the claim of Grenthal to the Rhodes' stock has been affirmed by this court on a separate appeal, State v. Otis Elevator Company, 10 N.J. 504 (1952). The present appeal by the Otis Elevator Company seeks a review of only that portion of the judgment denying its request for the allowance of counsel fees and disbursements.

Two main questions are presented on this appeal: may an allowance of counsel fees be made to a defendant in proceedings under N.J.S.A. 2:53-15 et seq. to escheat personal property and, if so, should an allowance have been made to the defendant Otis Elevator Company?

I.

This is the first case in which it has been contended that counsel fees are a matter of substantive law. From the outset in New Jersey, following English precedents, the allowance of costs and counsel fees had been uniformly considered by the courts of this State to be a matter of procedure rather than of substantive law. Rader v. Southeasterly Road District, 36 N.J.L. 273 (Sup. Ct. 1873); Murphy v. Brown & Co., 91 N.J.L. 412 (Sup. Ct. 1918); Igoe Brothers v. National Surety Co., 112 N.J.L. 243 (E. & A. 1934); Robinson v. Jackson, 14 N.J. Misc. 866 (C.P. 1936);

Savitt v. L. & F. Construction Co., 124 N.J.L. 173 (E. & A. 1940), affirming 123 N.J.L. 149 (Sup. Ct. 1939). In accordance with this uniformly accepted view the Supreme Court, in the exercise of the rule-making power over practice and procedure granted it by Article VI, Section II, paragraph 3 of the Constitution of 1947, promulgated Rule 3:54-7 relating to counsel fees to be effective September 15, 1948, coincidentally with the Judicial Article of the Constitution. Rule 3:54-7 in its original form provided that no fee for legal services should be allowed in the taxed costs or otherwise, except in (a) matrimonial actions, (b) out of a fund in court, (c) in uncontested actions for the foreclosure of mortgages, or (d) "as provided by these rules or by law with respect to any action, whether or not there is a fund in court." On January 21, 1949, paragraph (d) of the rule was amended by adding the qualification that "the authority, heretofore vested in the Court of Chancery for the granting of counsel fees in causes generally, is hereby superseded."

In the case of John S. Westervelt's Sons v. Regency, Inc., 3 N.J. 472 (1950), the Supreme Court first had occasion to consider the constitutionality, meaning and effect of the rule. It there unanimously held (at pp. 477-478):

"The rule as originally written is not ambiguous when considered as a whole. It was adopted in the exercise of the rule-making power relating to practice and procedure conferred upon the Court by Article VI, Section II, paragraph 3 of the Constitution of 1947. It was plainly designed to be self-contained and exclusive. The cited amendment [of paragraph (d)] of the rule makes clear the purpose to supersede in this regard the powers of the old Court of Chancery, not the statutory authority lodged in the Chancery Division of the Superior Court by force of subdivision (d) of the rule as appellant would construe it. The amendment was but a clarification of the original purpose, not an amendment of that purpose. * * * The phrase 'by law' is operative in futuro; it has no retrospective significance; it was not intended that the conflicting preexisting statutes should remain in force. The rule covers the field to the exclusion of all else."

The next case dealing with the rule was Katz v. Farber, 4 N.J. 333 (1950), where it was held "There is a fund in court 'where the court has jurisdiction over the fund or

estate'" (at p. 344). Then came Liberty Title & Trust Co. v. Plews, 6 N.J. 28 (1950), where we held (at p. 44):

"In Rule 3:54-7 this court has specifically enumerated the types of actions in which allowances to counsel may be made, and the discretion of the trial court is limited to the granting or denying of allowances in such actions."

As of the time of the decision in Liberty Title & Trust Co. v. Plews, supra, in addition to permitting an allowance of counsel fees in the types of actions and situations hereinbefore specifically mentioned in paragraphs (a), (b), (c), and (d) of Rule 3:54-7, an allowance of counsel fees was also permitted by Rule 1:2-28 on appeals in certain cases (made applicable to the Appellate Division of the Superior Court by virtue of Rule 4:2-6); by Rule 2:12-1 providing for the allowance of reasonable compensation to assigned counsel in murder cases; and by Rule 5:2-5, providing for the allowance of counsel fees on workmen's compensation appeals. Shortly after Liberty Title & Trust Co. v. Plews, supra, was decided, the Supreme Court on December 7, 1950 again amended Rule 3:54-7 by deleting from paragraph (d) the words "or by law." The effect of that amendment was to bar an allowance of counsel fees in all cases except those specifically provided for in the rules themselves, thereby completely eliminating any statutory basis for such an allowance. It is readily apparent, therefore, that authority for the allowance of counsel fees is to be found exclusively in Rule 3:54-7. For the sake of completeness it should be noted that Rule 3:54-7 was last amended effective January 1, 1952, by the addition of paragraph (e) dealing specifically with the allowance of counsel fees in probate actions.

That Rule 3:54-7 now constitutes the exclusive source of authority for the allowance of counsel fees was most recently reiterated by the Supreme Court in Driscoll v. Burlington-Bristol Bridge Co., 8 N.J. 433 (1952), where it was stated (at p. 495):

"But even if there were no statutory obstacle to the allowance of counsel fees to the plaintiffs, none can be granted in this case

because the allowance of fees is a matter of procedure governed by rule of court and there is here no 'fund in court' or other basis within the provisions of Rule 3:54-7 warranting an allowance."

Such, then, was the state of the law with respect to the allowance of counsel fees on March 4, 1952, when the court below entered its judgment in the instant case denying the request of the defendant Otis Elevator Company for the allowance of reasonable counsel fees and disbursements. It should be noted in this regard that the allowance of costs and counsel fees, being a matter of procedure, is governed by the state of the law at the time of the entry of the judgment, John S. Westervelt's Sons v. Regency, Inc., supra (at p. 479); Liberty Title & Trust Co. v. Plews, supra (at p. 44).

Before proceeding to a consideration of the question as to whether Rule 3:54-7 authorizes an allowance of counsel fees to the defendant Otis Elevator Company in the instant case it is necessary to consider the meaning and effect of N.J.S.A. 2:53-23. The pertinent portions of this section of the Escheat Act provide as follows:

"Before so depositing the proceeds of said escheated property in the public fund, he [the Treasurer of the State of New Jersey] shall deduct therefrom five per centum (5%) of the moneys so received and shall pay the same to the escheator as a reward for having supplied the information and evidence upon which the escheat has been successfully prosecuted and shall pay such other fees and costs as the decree shall direct.

The Court of Chancery [now the Chancery Division of the Superior Court] shall, in its final decree, fix the fees and expenses of the attorney or counsellor who shall have prosecuted the escheat in the Court of Chancery [now the Chancery Division of the Superior Court]. The fees and expenses shall be deducted from the moneys received by the State Treasurer or from moneys realized by him from the sale of said personal property and shall be paid by him as directed by said decree."

It is the contention of the State that this statute provides the necessary authorization of an allowance of counsel fees to the attorney specially appointed by the Attorney-General to prosecute the escheat, but that it fails to authorize an allowance to counsel for the defendant and, therefore, none

can be awarded to him. This argument is obviously without merit, for it is based upon the premise, previously demonstrated herein to be false, that the allowance of counsel fees is a matter of statute rather than exclusively a matter within the rule-making power of the Supreme Court.

N.J.S.A. 2:53-23, however, is not without its effect. Chapter 20 of the Laws of 1944 (N.J.S.A. 52:17 A -1 et seq.) establishing a Department of Law in the State Government (N.J.S.A. 52:17 A -2) administered by the Attorney-General, imposed on the department the duty, among others, to "Attend generally to all legal matters in which the State * * * is a party or in which its rights or interests are involved" (N.J.S.A. 52:17 A -4 g). It provided that no member of the department "shall receive any compensation, fees or costs in addition to his regular salary for or by reason of any service performed by him for the State * * * except by allowance or appropriation by the Legislature" (N.J.S.A. 52:17 A -10). It further provided that "No special counsel shall be employed for the State * * * except by authority of the Attorney-General, and then only with the approval of the Governor, and provided that appropriations have been made therefor, unless the matter be of such an emergency and shall be so declared by the Governor" (N.J.S.A. 52:17 A -13). Thus, when the Escheat Act was adopted two years later (L. 1946, c. 155), unless special provision had been made therein the Attorney-General would have been without authority to appoint special counsel to prosecute proceedings thereunder and he or his representatives would have been prohibited from receiving any allowance of fees that the former Court of Chancery might otherwise have been empowered to award, see Driscoll v. Burlington-Bristol Bridge Co., supra (at p. 494). N.J.S.A. 2:53-23, while it cannot constitute the basis for the award of counsel fees in escheat proceedings, does have the effect of removing the statutory obstacles theretofore existing so as to permit the court to make an award of fees to counsel for the state in escheat proceedings in the event that such an award is authorized by Rule 3:54-7.

Does Rule 3:54-7 authorize an allowance of counsel fees in proceedings under the Escheat Act? Quite obviously it does not unless there is a "fund in court" within the meaning of paragraph (b) of the rule. This court has had several occasions to consider the question of when there is a "fund in court," Katz v. Farber, supra; Farley v. Manning, 4 N.J. 571 (1950); Milberg v. Seaboard Trust Co., 7 N.J. 236 (1951); Driscoll v. Burlington-Bristol Bridge Co., supra; In re Koretzky, 8 N.J. 506 (1951); Haines v. Burlington County Bridge Commission, 8 N.J. 539 (1952); Janovsky v. American Motorists Insurance Co., 11 N.J. 1 (1952). None of these cases, however, is immediately dispositive of the question in the instant case.

In construing Rule 3:54-7 and paragraph (b) thereof it is to be borne in mind that the purpose of the rule limiting the kinds of cases in which counsel fees might be allowed was to eliminate the abuses of the power to grant counsel fees that prevailed under the former practice in the Court of Chancery. As pointed out in Janovsky v. American Motorists Insurance Co., supra, in promulgating the rule "this court adopted the philosophy, long accepted in the federal courts, that the interests of sound judicial administration will be best advanced by having every litigant bear his own counsel fee except in a few specially designated situations." And in Liberty Title & Trust Co. v. Plews, supra, this court stated (at p. 44):

"It was not contemplated that the rule would or could be completely dispensed with in individual cases under the provisions of Rule 3:1-2."

The court below was of the opinion that there was a fund in court, since the purpose of the Attorney-General in bringing the action in behalf of the State was "to create or preserve a fund for the benefit of a class," the people of New Jersey, citing Cintas v. American Car & Foundry Co., 133 N.J. Eq. 301 (Ch. 1943), modified 135 N.J. Eq. 305 (E. & A. 1944). This conclusion is entirely sound, but one does not need to find a class to support the doctrine of a

fund in court. In United States v. Equitable Trust Co., 283 U.S. 738, 51 S. Ct. 639, 75 L. Ed. 1379 (1930), fees were awarded to the counsel of the next friend of an incompetent Indian whose property had been dissipated with the approval of the Secretary of the Interior; see Katz v. Farber, supra, 4 N.J. 333 (1950), and cases there cited.

There is another equally compelling reason, arising out of the very nature of escheat, for holding that there is here a fund in court. In State v. Standard Oil Co., 5 N.J. 281 (1950), affirmed, 341 U.S. 428, 71 S. Ct. 822, 95 L. Ed. 1078 (1951), this court stated (at p. 297):

"In modern usage 'escheat' signifies the falling of property to the sovereign for want of an owner; and this category embraces not only property which has no other owner, but also property whose owner or whose owner's whereabouts is unknown. Under the common law of England escheats came to be classified as 'another branch of the king's ordinary revenue.' Blackstone's Comm. 302. What was originally an incident of tenure is now an incident of sovereignty. Matthews v. Ward, 10 Gill. & J. (Md.) 443, 451; In re Melrose Avenue, 234 N.Y. 48, 136 N.E. 235, 23 A.L.R. 1233 (1922). The doctrine of escheat, at the early common law operative only upon that which was the subject of tenure, since it related to the reversionary right of the lord to take for want of a tenant, was eventually extended to include personal property, tangible and intangible. The principle was that the right to take that which belonged to no one appertained to the Crown, as jura regalia. Dyke v. Walford, 5 Moo. P.C. 434, 13 Eng. Rep. Full Reprint 557. The Crown steps in to take the property because it is vacant. Property described as bona vacantia is taken or assumed by the State, as its own. Property of this class falls 'to the Crown as a matter of right in the exercise of its sovereign power.' Re Barnett's Trust (1902), 1 Ch. (Eng.) 847, 3 B.R.C. 198. 'In personal estates, which are allodial by law, the King is last heir where no kin.' Lord Mansfield in Burgess v. Wheate, 1 W. Bl. 123, 96 Eng. Rep. Full Reprint 67, 10 Eng. Rul. Cas. 614 (1884). Property escheats to the State as part of the common ownership. Hamilton v. Brown, 161 U.S. 256, 16 S. Ct. 585, 40 L. Ed. 691 (1896); Sands v. Lynham, 27 Grat. (Va.) (1876), 291, 295. 'With tenures abolished, succession is by like right whether the subject of escheat is personal estate or real.' In re Melrose Avenue, supra."

It thus appears that an escheat action is one by which the State comes into court seeking an accounting of property of which it is the residual owner and a judgment as to its

title thereto. The complaint, using the language of the statute (N.J.S.A. 2:53-21), alleges that certain property "has escheated to the State" and seeks discovery and an accounting of all such property in the possession or custody of the defendant. It is well recognized that in an action such as this in the nature of an accounting the property is brought within the control of the court and constitutes a "fund in court" within the meaning of Rule 3:54-7(b). Cintas v. American Car & Foundry Co., 133 N.J. Eq. 301 (Ch. 1943); see Milberg v. Seaboard Trust Co., 7 N.J. 236 (1951).

II.

Having shown that the allowance of counsel fees has always been deemed a matter of procedure in this State, that the sole source of authority for the allowance of counsel fees where there is a fund in court is Rule 3:54-7, and that there is a fund in court, it remains to consider certain arguments advanced by this State.

First it is argued that the rule of Westervelt's v. Regency, Inc., supra, 3 N.J. 472, 478 (1950) ("The rule [3:54-7 as to counsel fees] covers the field to the exclusion of all else."); the rule of Katz v. Farber, supra, 4 N.J. 333, 344 (1950) ("There is a fund in court 'where the court has jurisdiction over the fund or estate'"); and the rule of Winberry v. Salisbury, 5 N.J. 240, 255 (1950) ("The rule-making power of the Supreme Court is not subject to overriding legislation, but * * * is confined to practice, procedure and administration") must give way when the State is a party to the action. In such cases it is maintained the Legislature may prescribe the procedure and that such legislatively prescribed procedure may be in conflict with the rules of court relating to practice, procedure and administration and will override the rules of ...


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