United States Trust Co. v. New Jersey, 431 U.S. 1 (1977)

United States Trust Company of New York v. New Jersey

No. 75-1687

Argued November 10, 1976
Decided April 27, 1977
431 U.S. 1

APPEAL FROM THE SUPREME COURT OF NEW JERSEY

Syllabus

A 1962 statutory covenant between New Jersey and New York limited the ability of the Port Authority of New York and New Jersey to subsidize rail passenger transportation from revenues and reserves pledged as security for consolidated bonds issued by the Port Authority. A 1974 New Jersey statute, together with a concurrent and parallel New York statute, retroactively repealed the 1962 covenant. Appellant, both as a trustee for and as a holder of Port Authority bonds, brought suit in the New Jersey Superior Court for declaratory relief, claiming that the 1974 New Jersey statute impaired the obligation of the States’ contract with the bondholders in violation of the Contract Clause of the United States Constitution. The Superior Court dismissed the complaint after trial, holding that the statutory repeal was a reasonable exercise of New Jersey’s police power and was not prohibited by the Contract Clause. The New Jersey Supreme Court affirmed.

Held: The Contract Clause prohibits the retroactive repeal of the 1962 covenant. Pp. 14-32.

(a) The outright repeal of the 1962 covenant totally eliminated an important security provision for the bondholders, and thus impaired the obligation of the States’ contract. Pp. 17-21.

(b) The security provision of the 1962 covenant was purely a financial obligation, and thus not necessarily a compromise of the States’ reserved powers that cannot be contracted away. Pp. 21-25.

(c) The repeal of the 1962 covenant cannot be sustained on the basis of Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U.S. 502, and W. B. Worthen Co. v. Kavanaugh, 295 U.S. 56, simply because the bondholders’ rights were not totally destroyed. Pp. 26-28.

(d) An impairment of contract such as is involved in this case can only be upheld if it is both reasonable and necessary to serve an important public purpose, but here the impairment was neither necessary to achieve the States’ plan to encourage private automobile users to shift to public transportation nor reasonable in light of changed circumstances. Total repeal of the 1962 covenant was not essential, since the States’ plan could have been implemented with a less drastic modification of the covenant, and since, without modifying the covenant at all, the States could have adopted alternative means of achieving their twin goals of discouraging automobile use and improving mass transit. Nor can the repeal be claimed to be reasonable on the basis of the need for mass transportation, energy conservation, and environmental protection, since the 1962 covenant was adopted with knowledge of such concerns. Pp. 28-32.

69 N.J. 253, 353 A.2d 514, reversed.

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and REHNQUIST and STEVENS, JJ., joined. BURGER, C.J., filed a concurring statement, post, p. 32. BRENNAN, J., filed a dissenting opinion, in which WHITE and MARSHALL, JJ., joined, post, p. 33. STEWART, J., took no part in the decision of the case. POWELL, J., took no part in the consideration or decision of the case.