On appeal from the Hudson County Court to the Appellate Division of the Superior Court, certified by this court on its own motion while pending there.
For reversal -- Chief Justice Vanderbilt, and Justices Burling, Jacobs and Brennan. For affirmance -- Justices Heher, Oliphant and Wachenfeld. The opinion of the court was delivered by Vanderbilt, C.J. Heher, J. (dissenting). Mr. Justice Oliphant and Mr. Justice Wachenfeld join in this opinion.
Defendant Frank Hague moved, without supporting affidavit, to dismiss the complaint "for failure to state a claim upon which relief can be granted" and the trial court granted the motion. The plaintiff appealed to the Appellate Division of the Superior Court and we certified the case on our own motion while it was pending there.
I. THE FACTS OF THE COMPLAINT
No principle of pleading is better established, not only under our rules of court but under the practice that preceded it, Kelly v. Hoffman, 137 N.J.L. 695 (E. & A. 1948), 41 Am. Jur., Pleading, § 336, that on an attack on a complaint all the facts and all the reasonable inferences and implications therefrom are to be considered most strongly in favor of the plaintiff since the remedy sought by the defendant is
a drastic one. It is with this necessary principle in mind that the complaint is to be read.
The first count of the complaint alleges that (1) the plaintiff is a municipal corporation; (2) the defendant Frank Hague was mayor of Jersey City from 1917 to 1947; (3) the defendant Frank Hague Eggers was mayor from 1947 to 1949 and a member of the board of commissioners from 1942 to 1949; (4) the defendant John F. Malone was deputy mayor from 1917 to 1949, and
"5. The defendants Hague, Eggers and Malone were political associates, and close political confederates and collaborators, and closely associated together in the government of the City of Jersey City continuously for at least twenty-five years prior to May 17, 1949.
6. From May 15, 1917 to May 17, 1949, the defendants, acting at times singly and at other times in combination with each other, in their capacities as individuals and as officials of the plaintiff City, did steal and did unlawfully, fraudulently, corruptly and with gross breach of trust, extort and appropriate to themselves property of the City, to wit, money, in the amount of not less than fifteen million dollars ($15,000,000.). The said thefts and defrauds of moneys of the City were accomplished by the means of the extortion from employees of the City of three percent (3%) of the annual salary of each said employee during each year from 1917 to 1949 as aforesaid. The said thefts, defrauds, and extortions were committed in such manner and at such times as to have constituted, in law, thefts, defrauds and extortions from the city payroll funds, which were the property of the City, in that the three percent of salary of each city employee was extorted by threats and force by the defendants from the said city employees on a systematic annual basis, and was made payable to and was taken by the defendants directly out of the salary moneys paid or payable by the City to the said employees for services. The systematic basis on which the said thefts, defrauds and extortions were organized and carried out by the defendants, amounted in law to an unlawful charge upon, and theft, defraud and extortion from, the City's treasury and budgeted appropriations for each such year, in the amount of three percent of City treasury funds and budgeted appropriations set aside or held or appropriated for salaries of City employees."
The second count of the complaint repeats the allegations of the first six paragraphs of the first count of the complaint and then states:
"2. Under the laws of New Jersey and the ordinances and resolutions of the City of Jersey City in force during the period May 15,
1917 to May 17, 1949, it was unlawful for any paid employee of the City of Jersey City to give or pay to any person any money or other valuable consideration by way of bribe, 'Kick-back' or otherwise as a condition of obtaining or holding such City employment or of obtaining City funds as salary therefor. All such moneys extorted by the defendants from City employees under defendants' three percent extortion scheme were and are subject to be forfeited to the City for its own use and benefit, or as trustee for the use and benefit of the defrauded employees (or their heirs and administrators) from whom such moneys were extorted. Defendants are required to forfeit all such moneys to plaintiff, in the amount of $15,000,000. as aforesaid."
The complaint then concludes:
"Wherefore, plaintiff demands judgment against the defendants, jointly and severally, in the amount of $15,000,000. plus interest; and for the impressment of a trust in the amount of $15,000,000. plus interest, upon the property and assets of the defendants for the use and benefit of the plaintiff as beneficiary or in the name of plaintiff as trustee for the use and benefit of all employees (or their heirs and administrators) of the plaintiff from whom the defendants extorted payroll percentage amounts as alleged herein; and for the costs of this suit; and for such other relief as may be just, equitable and proper."
The complaint will be examined first with respect to the substantive law and then in its procedural aspects.
II. THE SUBSTANTIVE LAW OF THE COMPLAINT
The complaint in effect alleges that the defendants by force of their official positions systematically extorted from the employees of the plaintiff municipality 3% of their official income from 1917 to 1949 as a condition of their employment and continued employment and retained these funds for their own use. The substantial question before us is whether they can be permitted in law to do this.
We do not have to look far for any answer. In Driscoll v. Burlington-Bristol Bridge Co., 8 N.J. 433, at page 474 et seq. (1952), this court said without dissent:
"The members of the board of chosen freeholders and of the bridge commission are public officers holding positions of public trust. They stand in a fiduciary relationship to the people whom they have been [18 NJ Page 590] elected or appointed to serve. Rankin v. Board of Education, 135 N.J.L. 299, 303 (E. & A. 1947); Trist v. Child, 21 Wall. 441, 88 U.S. 441, 450, 22 L. Ed. 623, 625 (1875); Edwards v. City of Goldsboro, 141 N.C. 60, 53 S.E. 652, 653, 4 L.R.A., N.S., 589 (Sup. 1906); Tuscan v. Smith, 130 Me. 36, 153 A. 289, 294, 73 A.L.R. 1344 (Sup. Jud. 1931); State v. ex rel. Fletcher Naumann, 213 Iowa 418, 239 N.W. 93, 99, 81 A.L.R. 483 (Sup. 1931); In re Marshall, 363 Pa. 326, 69 A. 2 d 619, 625 (Sup. 1949); 42 Am. Jur., Public Officers, § 8, p. 885; 43 Id. § 260, p. 77-78; 67 C.J.S., Officers, § 6, p. 118. As fiduciaries and trustees of the public weal they are under an inescapable obligation to serve the public with the highest fidelity. In discharging the duties of their office they are required to display such intelligence and skill as they are capable of, to be diligent and conscientious, to exercise their discretion not arbitrarily but reasonably, and above all to display good faith, honesty and integrity. City of Newark v. N.J. Turnpike Authority, 7 N.J. 377, 381-382 (1951); Ryan v. [City of] Paterson, 66 N.J.L. 533, 535-536 (Sup. Ct. 1901); Schefbauer v. Board of Township Committee of Kearney, 57 N.J.L. 588, 601 (Sup. Ct. 1895); Ames v. Board of Education of Montclair, 97 N.J. Eq. 60, 65 (Ch. 1925); United States v. Thomas, 15 Wall. 337, 82 U.S. 337, 342, 21 L. Ed. 89, 91 (1873); Paschall v. Passmore, 15 Pa. 295, 304 (Sup. 1850); Cumberland County v. Pennell, 69 Me. 357, 365, 31 Am. Rep. 284 (Sup. Jud. 1879); Speyer v. School Dist. No. 1, 82 Colo. 534, 261 P. 859, 860, 57 A.L.R. 203 (Sup. 1927); 43 Am. Jur., Public Officers, §§ 260-261, pp. 77-78; 43 Id. § 267, p. 82; 67 C.J.S., Officers, § 114, p. 402. They must be impervious to corrupting influences and they must transact their business frankly and openly in the light of public scrutiny so that the public may know and be able to judge them and their work fairly. When public officials do not so conduct themselves and discharge their duties, their actions are inimicable to and inconsistent with the public interest, and not only are they individually deserving of censure and reproach but the transactions which they have entered into are contrary to public policy, illegal and should be set aside to the fullest extent possible consistent with protecting the rights of innocent parties. Brooks v. Cooper, 50 N.J. Eq. 761 (E. & A. 1893); Cameron v. International, &c., Union No. 384, 118 N.J. Eq. 11 (E. & A. 1935); Girard Trust Co. v. Schmitz, 129 N.J. Eq. 444 (Ch. 1941); Allen v. Commercial Casualty Insurance Co., 131 N.J.L. 475, 477-478 (E. & A. 1944); Stone v. William Steinen Mfg. Co., 133 N.J.L. 593, 595 (E. & A. 1946); Pan American Petroleum & Transport Co. v, United States, 273 U.S. 456, 500, 47 S. Ct. 416, 71 L. Ed. 734, 745 (1927); Mammoth Oil Co. v. United States, 275 U.S. 13, 48 S. Ct. 1, 72 L. Ed. 137 (1927); Edwards v. City of Goldsboro, supra, 141 N.C. 60, 53 S.E. 652 (Sup. 1906); Tuscan v. Smith, supra, 130 Me. 36, 153 A. 289 (Sup. Jud. 1931); 43 Am. Jur., Public Officers, § 291, p. 101.
These obligations are not mere theoretical concepts or idealistic abstractions of no practical force and effect; they are obligations imposed by the common law on public officers and assumed by them as a matter of law upon their entering public office. The enforcement of these obligations is essential to the soundness and efficiency of our government, which exists for the benefit of the people who are its sovereign. Constitution of 1947, art. I, par. 2. The citizen is not at the mercy of his servants holding positions of public trust nor is he helpless to secure relief from their machinations except through the medium of the ballot, the pressure of public opinion or criminal prosecution. He may secure relief in the civil courts either through an action brought in his own name, Tube Reducing Corp. v. Unemployment Compensation Commission, 1 N.J. 177, 181 (1948); Waszen v. Atlantic City, 1 N.J. 272, 276 (1949); Haines v. Burlington County Bridge Commission, 1 N.J. Super. 163, 170-173 (App. Div. 1949), or through proceedings instituted on his behalf by the Governor, Constitution of 1947, art. V, sec. I, par. 11, or by the Attorney General, Public Service Coordinated Transport v. State, 5 N.J. 196, 207-209 (1950). Under the former practice the great prerogative writs, especially certiorari, were generally available to the aggrieved citizen, but by art. VI, sec. V, par. 4 of the Constitution of 1947 the relief theretofore granted in such matters as a matter of judicial discretion became a matter of right, see Ward v. Keenan, 3 N.J. 298, 303-309 (1949). Nonfeasance, misfeasance, malfeasance and corruption in public office cannot prevail against an aroused citizenry who have it in their power to end the misconception of some public officials that their obligations are fully met so long as they obey the letter of the law and avoid its penal sanctions. That the shortcomings of some public officers may not make them accountable in our criminal courts does not mean that their nefarious acts cannot successfully be attacked through the processes of the civil law. * * * It is the potential for evil and not the actual financial loss or other injury incurred that renders a transaction illegal because of an abuse of discretion, McCarter v. Firemen's Insurance Co., 74 N.J. Eq. 372 (E. & A. 1909); Cameron v. International, &c., Union No. 384, supra, 118 N.J. Eq. 11, 30 (E. & A. 1935); Edwards v. City of Goldsboro, supra, 141 N.C. 60, 53 S.E. 652, 655 (Sup. 1906)."
Manifestly the instant case falls within the pattern of the Driscoll case.
Restitution was likewise invoked in such cases as United States v. Carter, 217 U.S. 286, 30 S. Ct. 515, 50 L. Ed. 769 (1910), where the defendant, an army officer in charge of procurement, entered into an arrangement with two contractors by which he exercised his official discretion in such a way as to give them more contracts and more profits. The
court traced his share in this enterprise into the hands of other defendants, who were not purchasers in good faith, and subjected the money to a constructive trust, saying:
"It would be a dangerous precedent to lay down as law that unless some affirmative fraud or loss can be shown, the agent may hold on to any secret benefit he may be able to make out of his agency. The larger interests of public justice will not tolerate, under any circumstances, that a public official shall retain any profit or advantage which he may realize through the acquirement of an interest in conflict with his fidelity as an agent. If he takes any gift, gratuity, or benefit in violation of his duty, or acquires any interest adverse to his principal, without a full disclosure, it is a betrayal of his trust and a breach of confidence, and he must account to his principal for all he has received.
The doctrine is well established and has been applied in many relations of agency or trust. The disability results not from the subject-matter, but from the fiduciary character of the one against whom it is applied. It is founded on reason and the nature of the relation, and is of paramount importance. 'It is of no moment,' said Lord Thurlow, in The York Bldgs. Co. v. Mackenzie, 3 Paton. 378, 'what the particular name or description, whether of character or office, situation or position, is, on which the disability attaches.'" United States v. Carter, supra, 217 U.S., at page 306, 30 S. Ct., at page 520.
The same principles were applied in City of Minneapolis v. Canterbury, 122 Minn. 301, 142 N.W. 812, 48 L.R.A., N.S., 842 (Sup. Ct. 1913):
"We meet these facts: Defendant, while head of the fire department and an agent of the city, intrusted with the discharge of important duties on behalf of his fellow citizens and also acting in an advisory capacity to the committee charged with the responsibility of selecting a site, acquired title to real property and caused it to be conveyed to plaintiff for such use at a material advance in price. The question is: Can plaintiff recover the excess? The doctrine of constructive trust arising from abuse of fiduciary relations is too familiar to require exposition. Some consideration of its underlying principles is necessary, however, in order to determine whether it is applicable. No man can serve two masters, and 'the same person cannot act for himself, and at the same time, with respect to the same matter, as agent for another, whose interest might be in conflict with his'; nor can he be allowed to profit by his own wrong, even if such be only constructive wrong. * * * The instances of application of the rule under consideration to public officers in this state have been where the officer has sought a recovery from the municipality,
and we are now for the first time called upon to determine whether it should be applied by constructing a trust in favor of the municipality upon the misconduct of an officer. The principle is the same, however, and it is settled that, 'if the prohibited or void contract has been executed, the officer becomes a trustee for the municipality, and is bound to account for any profits which he derived from the transaction. 2 Dill. Municip. Corp. (5 th ed.) § 773, p. 1150." (142 N.W., at page 814-815.)
The same principles are elucidated in two Massachusetts cases decided almost simultaneously. In the first, City of Boston v. Santosuosso, 298 Mass. 175, 10 N.E. 2 d 271, 274 (Sup. Jud. Ct. 1937), the complaint charged the defendants, including Mayor Curley, with using their influence to have a certain claim against the city settled under an agreement by which Curley and other defendants shared in the settlement. The court held:
"The right of the city of Boston as a cestui que trust is preeminently an equitable right, and it arose as soon as the agreement was made and the fund was received by its mayor. When the fund was received under the agreement by the mayor, the defendants held the legal title in trust to pay it over to the city of Boston."
The other Massachusetts case, City of Boston v. Dolan, 298 Mass. 346, 10 N.E. 2 d 275, 277, 281 (Sup. Jud. Ct. 1937), is to the same effect:
"But as city treasurer the defendant was a fiduciary. As such he could be compelled to account in equity like a trustee, regardless of a possible remedy at law, and could not be permitted to retain a secret profit made in transactions conducted for the city. The saying, 'Public office is a public trust,' is more than mere rhetoric. Ashley v. Three Justices of the Superior Court, 228 Mass. 63, 73, 116 N.E. 961, 8 A.L.R. 1463; [ City of ] Boston v. Santosuosso, [298 Mass. 175] 10 N.E. 2 d 271: United States v. Carter, 217 U.S. 286, 306, 30 S. Ct. 515, 54 L. Ed. 769, 19 Ann. Cas. 594; [ City of ] Minneapolis v. Canterbury, 122 Minn. 301, 307, 308, 142 N.W. 812, 48 L.R.A., N.S., 842, Ann. Cas. 1914D, 804; City of Butte v. Goodwin, 47 Mont. 155, 163, 134 P. 670, Ann. Cas. 1914C, 1012; Judevine v. Hardwick, 49 Vt. 180, 185; [ City of ] Milwaukee v. Drew, 220 Wis. 511, 518, 519, 265 N.W. 683, 104 A.L.R. 1387. Toronto v. Bowes. 4 Grant's Ch. 489, affirmed in Bowes v. Toronto, 6 Grant's Ch. 1, 11 Moore P.C. 463. St. 1909, c. 486, § 8; G.L. (Ter Ed.) c. 268, § 9: Dillon, Mun. Corp. (5 th Ed.) § 772; Am. Law Inst. Restatement, Trusts, §§ 170, 205, 206. See, also,
Newburyport v. Spear, 204 Mass. 146, 149, 90 N.E. 522, 134 Am. St. Rep. 652; Carleton & Hovey Co. v. Burns, 285 Mass. 479, 485, 189 N.E. 612; Cann v. Barry, [293 Mass. 313] 199 N.E. 905; and the cases collected in 49 Harv. Law Rev. 559 et seq. "
The case of Reading v. Attorney General (1951), A.C. 507; 1 All E.R. (1951) 612, in the House of Lords, is an even stronger decision in its bearing on the case at bar. Reading, a sergeant in the British Army Medical Corps stationed in Egypt, received about $: 20,000 from a group of smugglers for riding in uniform on various trucks which they were using in their smuggling activities into Cairo, the idea being that the truck would not be stopped by the Egyptian police if a British soldier in uniform was riding upon it. The English government seized the money, and after serving a term in prison Reading brought a petition to recover the money. It is important to the decision of the case at bar to note that the money in question in the Reading case never belonged to the government (here the plaintiff, Jersey City) nor was it in any way out-of-pocket in the transaction. Nevertheless, the House of Lords held that the government was entitled to the money on the ground that Reading obtained it illegally as a result of the misuse of his position as a soldier in the English Army. Lord Porter stated:
"In my opinion any official position, whether marked by a uniform or not, which enables the holder to earn money by its use gives his master a right to receive the money so earned even though it was earned by a criminal act. 'You have "earned"', the master can say, 'money by the use of your position as my servant. It is not for you, who have gained this advantage, to set up your own wrong as a defence to my "claim."' * * *" (p. 619)
"It is often convenient to speak of money obtained as received in the course of the servant's employment, but, strictly speaking, I do not think that expression accurately describes the position where a servant receives money by reason of ...