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Capital Bonding Corporation v. New Jersey Supreme Court

January 30, 2001

CAPITAL BONDING CORPORATION, PLAINTIFF,
v.
NEW JERSEY SUPREME COURT, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Simandle, District Judge

HONORABLE JEROME B. SIMANDLE

OPINION

This case calls upon the Court to decide whether it should abstain from considering the merits of a challenge to the constitutional legitimacy of certain efforts by the New Jersey Court to improve the bail bond process within New Jersey. Plaintiff Capital Bonding Corp., a New Jersey company in the business of insuring bail bondsmen who post bail for criminal defendants in New Jersey, seeks to stay New Jersey Court Rule 1:13-3(e) (hereinafter "Rule 1:13-3", or the "new Rule") from going into effect.

This matter is before the Court upon plaintiff Capital Bonding Corporation's motion for preliminary injunctive relief. Rule 1:13-3 precludes entities from engaging in the business of bail bonding under certain circumstances through their removal from the Bail Registry. The defendants, who are the Supreme Court of New Jersey and its members in their official capacities, contend that the new Rule will force those involved in the bail process to be more vigilant in making sure that criminal defendants show up to court, while the plaintiff asserts that the new rule is unduly punitive and contravenes its Due Process rights under the state and federal constitutions. More significantly, the plaintiff asserts that the new rule is a legislative enactment which exceeds the New Jersey judiciary's powers under the State Constitution and which contravenes New Jersey's insurance statutes. For reasons now discussed, the Court will abstain from reaching the merits of this case pursuant to the principles articulated in Burford v. Sun Oil, and this case shall be dismissed.

I. BACKGROUND

New Jersey's courts, like most court systems, permit individuals and companies to post bail bonds for criminal defendants in return for a fee. Once the bondsman posts bail, it then becomes his responsibility to get the defendant to court. If the defendant fails to appear, then the bail posted is forfeited, and the bondsman either becomes responsible for the amount of bail or for ensuring that the fugitive defendant is captured and brought to court. The bondsman's obligation to satisfy the bail in the event the defendant absconds may be underwritten by insurance companies licensed to do business in New Jersey. This case involves the consequence of such a forfeiture to the insurance companies who back the individual bondsmen, which may eventually lead to the removal of an insurance company's licensed insurance producers and limited insurance representatives from the Bail Registry, and hence from the opportunity to write bail bonds acceptable to the New Jersey courts, in the event the insurance company fails to satisfy a judgment or pay a forfeiture or timely request a hearing, all as described in the challenged procedure of Rule 1:13-3(e), as now discussed.

The Bail Registry is a list of licensed insurance producers *fn1 or limited insurance representatives, *fn2 licensed to write bail in the state of New Jersey. Members of the Registry are required to register the names and addresses of each of their insurance representatives authorized to write bail with the Superior Court pursuant to N.J.S.A. 17:22A-16.1. Names of licensed representatives are deleted from the bail registry when the insurance producer notifies the Superior Court that the bail bondsmen has been terminated. The New Jersey courts will not accept bail from bondsmen who are not listed on the Bail Registry. Thus, when a name is eliminated from the Bail Registry, that individual or entity cannot engage in the business of writing bail bonds.

The State of New Jersey has periodically made changes to the regulation of the bail bonding business. The state contends that in the past, bail bondsmen have been less than conscientious in their efforts to produce their clients at trial, allegedly believing that they would suffer little consequence as a result of their dereliction. In the past, if a defendant failed to appear, the courts generally entered a default judgment. If that judgment was not lifted, the bondsman or its insurer was then liable for the forfeited bail. The surety providers suffered no other consequence, and continued to post bail for defendants regardless of their history of default judgments. As a result, it is argued, some of New Jersey's bail bondsmen routinely failed to make their bailees appear in court, and, because there is no additional incentive besides the individual default judgment to impel bondsmen to monitor whether their bailees appear, they have simply incorporated the occasional default judgment as a cost of doing business. The state maintains that as a result of these forfeitures, New Jersey has an enormous number of fugitives from justice who have failed to appear at their scheduled court hearings.

A brief discussion of the bail process in New Jersey helps clarify the origin of the present dispute. Historically, the administration of the bail process was bifurcated between the judiciary and the county clerks. The New Jersey judiciary was only responsible for the financial aspect of the process, i.e., the "posting and discharge" process. On January 11, 1994, the Governor signed into law the New Jersey Judicial Unification Act. Under Judicial Unification, the county clerks' judicial functions were transferred to the judiciary as of January 1, 1995, including the responsibility for the entire bail process. (See Certification of James Rutigliano (hereinafter "Rutigliano Cert.") at 1a-9a.) Thereafter, the judiciary convened an ad hoc committee to consider standardizing the bail forfeiture practice, and the committee reported its conclusions on May 30, 1997.

The Ad Hoc Committee found that while most bail forfeitures were not contested, there was a significant variance from county to county in the method of enforcement. The Committee suggested that "lax enforcement has led to a higher fugitive rate and reduced revenues." (Report to Conference of Criminal Presiding Judges from Ad Hoc Committee on Bail Forfeiture, May 30, 1997 (hereinafter "Ad Hoc Committee") at 6, Rutigliano Cert. at 20a.) Among the Ad Hoc Committee's recommended solutions for these problems were that the bail process should be standardized state-wide, and that the judiciary should take the lead in this effort. (Rutigliano Cert. at 24a.) The committee also recommended that the courts should know who has the authority to act as a surety for a bail company, and that the courts should adopt a policy of preventing surety companies with an outstanding bail forfeiture due from writing bail anywhere in New Jersey. (Id. at 31a.) Shortly after the committee issued its recommendations, the New Jersey Legislature enacted N.J.S.A. 17:22A-16.1, effective February 18, 1998. That statute specifically granted to the New Jersey judiciary the duty to keep a statewide Bail Bond Registry, and obligated the courts to set the requirements for the registry.

On March 24, 1998, the Chief Justice of the New Jersey Supreme Court issued an order implementing the Legislature's mandate to revise the bail process. The Clerk of the Supreme Court notified insurance companies involved in the bail process of the rule change in April 1998. (Rutigliano Cert. at 88a-89a.)The judiciary's next step was to ensure that the plan was implemented uniformly. To this end, on June 25, 1998, the Clerk of the Superior Court sent information to the state's Trial Court Administrators about implementing the coordinated Superior Court Bail Bond Registry. Under the Superior Court's plan, the judiciary was obliged to have procedures to register and keep track of insurance producers and limited insurance representatives with authority to write bail bonds. The registry plan did not empower the Courts to license insurers, but did grant the judiciary the authority to register and accept bonds from Department of Insurance-licensed sureties and limited insurance representatives. (Id. at 4a.)Next, the New Jersey Supreme Court amended the New Jersey Rules of Court to incorporate the Ad Hoc Committee's recommendations. *fn3 Although the New Jersey Court Rules are enactments of the judicial branch, the Rules are constitutionally imbued with the power of legislation. As New Jersey's Appellate Division noted in the context of attorney discipline (another area within the New Jersey Supreme Court's exclusive jurisdiction), when the New Jersey Supreme Court promulgates the Court Rules, it does not act as an administrative agency exercising powers delegated to it by the Legislature. Rather, it is exercising powers which the New Jersey constitution vested in it as one of the three branches of the government. Thus, the adoption of a new Court Rule, although the action of the judicial branch, is "`legislative in nature.'" American Trial Lawyers Assoc. v. New Jersey Supreme Court, 126 N.J. Super. 577, 589, aff'd, 66 N.J. 258 (1974) (quoting Lathrop v. Donahue, 367 U.S. 820 (1961)).

Effective September 1, 1998, the court amended New Jersey Court Rule 3:26-6 to streamline and standardize bail forfeiture practice. The amended Rule 3:26-6 allows a court to order forfeiture "on its own motion", provided that it provides affected party appropriate notice. See Kinsella v. Kinsella, 150 N.J. 276 (1976); New Jersey Transit Corporation v. Borough of Somerville, 139 N.J. 582 (1995). The Rule provided for a 45-day waiting period between notice of intent to order forfeiture and the actual entry of such an order. In practice, this 45-day period means that the defendant is given 45 days to turn himself in, or alternatively to object to the notice of default.

Even after the implementation of Rule 3:26-6, *fn4 the forfeiture process remained disorganized as to the consequences for "repeat offenders"--specific surety providers with a history of repeated bail forfeitures. In an effort to discourage repeated forfeitures, the New Jersey Supreme Court promulgated the Court regulation at issue here: Court Rule 1:13-3(e). This rule works in tandem with Rule 3:26-6, and provides for deterrent consequences even beyond the forfeiture of bail.

Effective September 5, 2000, Rule 1:13-3(e) *fn5 provides that within 45 days--or approximately seven weeks--of a default the surety must either come forward with the fugitive, or pay the forfeited bail. This 45-day period does not begin to run until a court gives notice to the defendant to appear. The surety, after failing to produce the fugitive, is then obligated to pay the forfeited bail to the state under the contract formed when the state permitted the defendant to post bail in lieu of pre-trial incarceration. (Rutigliano Cert. at 101a-102a.) Rule 1:13-3(e) adds to Rule 3:26-3 in that, in addition to being required to pay the forfeited bail, the surety, and the insurance producer for which he is employed, will be precluded from writing new bail in the State of New Jersey until the matter is cleared up by producing the fugitive, paying the amount due, or posting an objection to the court giving notice of forfeiture. If the surety fails to do so, its name will be removed from the Bail Registry until the surety or the defendant satisfy the judgment caused by the forfeiture of bail.

The plaintiff in this action, Capital Bonding Corporation, filed the present motion for preliminary injunctive relief pursuant to Rule 65, Fed. R. Civ. P., in this Court on August 23, 2000, less than two weeks before the new Rule was to take effect. Plaintiff, a limited insurance representative, is among the largest bail bond companies in New Jersey, and has a stake in approximately 33% of the relevant market. (Certification of Vincent J. Smith, President of Capital Bonding Corp. ("Smith Cert.") ¶ 5.) Plaintiff asserts that this Court should stay Rule 1:13-3(e) for two main reasons: (1) the new rule violates the New Jersey constitution's separation of powers doctrine because in promulgating the rule New Jersey Supreme Court went beyond the rule-making powers conferred upon it by the New Jersey constitution, and is usurping the legislature's traditional role of regulating insurance; and (2) the new rule violates the federal constitution's Due Process and contracts clauses because it provides inadequate notice of forfeiture and preclusion to all levels of the bail process, and unlawfully interferes with the ability of bail bondsmen to do business with criminal defendants wishing to use their services.

Shortly after plaintiff filed the complaint herein, the New Jersey Supreme Court issued a Supplemental Order *fn6 buttressing the procedures for giving notice under Court Rules 1:13-3(e), supra; 3-26, supra; and 7:45 (affecting municipal court bail) effective January 2, 2001 (hereinafter "Supplemental Order").

Under the procedure outlined in the Supplemental Order, the courts shall provide notice to corporate sureties, licensed insurance producers, and limited insurance representatives at all points in the process after a defendant fails to appear at a scheduled court hearing. The Supplemental Order also clearly states that under Rule 3:26-6 failure to satisfy any default judgment will result in removal from the Bail Registry of the names of all involved corporate surety companies, licensed insurance producers, and limited insurance representatives. As an avenue for relief, the Supplemental Order provides that under Rule 3:26-6, a court shall review timely filed objections on the merits. (Supp. Order ¶ 10.)

The Court granted the parties an opportunity to submit additional briefing concerning the effect of the Supplemental Order. Unsurprisingly, they disagreed over the extent to which the Supplemental Order cured any notice deficiencies in Rule 1:13-3(e). The State argues that this Supplemental Order, coupled with the notice provisions of Rules 1:13-3(e) and 3:26-6, provides ample notice to corporate sureties, licensed insurance producers and limited insurance representatives, and provides an opportunity to be heard prior to their removal from the Bail Bond Registry. Plaintiff acknowledges that the Supplemental Order adds an additional step to the removal procedure, namely, the sending of notice to the surety that a default judgment will within 15 days result in removal of all of the surety's limited insurance producers and limited insurance representatives from the Bail Registry until the judgment is satisfied. (Supplemental Order ¶ 9.) Nevertheless, plaintiff asserts--albeit without citation to supporting authority--that even under the Supplemental Order the notice is inadequate.

II. DISCUSSION

A. Eleventh Amendment Immunity

The State first argues that this motion and complaint should be dismissed because the suit violates the state's sovereign immunity under the 11th Amendment as embodied in the seminal case of Ex Parte Young, 209 U.S. 123 (1908). This argument is misplaced because the plaintiff's suit seeks only injunctive relief.

Although the 11th Amendment bars suit for retrospective or compensatory relief, a plaintiff may sue the state in federal court where the relief sought is a prospective injunction or declaratory relief. See Summit Medical Assoc. v. Pryor, 180 F.3d 1326, 1337 (11th Cir. 1999). Here, plaintiff has sued the New Jersey Supreme Court and its individual Justices claiming that they acted beyond their authority in enacting Rule 1:13-3(e). The suit does not seek monetary or retrospective relief, but instead asks the Court to stay the effect of the new rule pending consideration of its constitutionality. Accordingly, ...


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