author: Froessel, J. Dye, J.

text:
    In the Matter of New York Telephone Company, Respondent, against Public Service Commission of the State of New York, Appellant, and City of New York et al., Intervenors-Appellants.
    Argued November 29, 1955;
    decided February 17, 1956.

      Kent H. Brown, George H. Kenny, Joseph J. Doran, Lawrence M. De Vore, Charles B. Gibson and Martin L. Barr for appellant.
    I. While the traditional formula — rate base x rate of return = return — still has general acceptance as an approach to the problem of arriving at just and reasonable rates, the so-called “ fair value ” rate base has been thoroughly discredited and repudiated. (Smyth v. Ames, 169 U. S. 466; Consolidated Gas Co. of N. Y. v. Newton, 267 F. 231; McCardle v. Indianapolis Co., 272 U. S. 400; Lindheimer v. Illinois Tel. Co., 292 U. S. 151; Dayton P. & L. Co. v. Commission, 292 U. S. 290; West v. Chesapeake & P. Tel. Co., 295 U. S. 662; Southwestern Tel. Co. v. Public Service Comm., 262 U. S. 276; Power Comm. v. Pipeline Co., 315 U. S. 575; Power Comm. v. Hope Gas Co., 320 U. S. 591; Cities Service Gas Co. v. Federal Power Comm., 155 F. 2d 694.) II. The Public Service Law requires the commission to establish and permit the imposition of ‘ ‘ just and reasonable ” rates —nothing more, nothing less. It does not prescribe any exclusive method or process by which such rates shall be determined. (Matter of Village of Saratoga Springs v. Saratoga Gas, Elec. Light & Power Co., 191 N. Y. 123; Purcell v. New York Central R. R. Co., 268 N. Y. 164; Matter of International Ry. Co. v. Public Service Comm., 264 App. Div. 506, 289 N. Y. 830; Power Comm. v. Hope Gas Co., 320 U. S. 591; Onondaga Co. Water Auth. v. New York Water Service Corp., 285 App. Div. 655; Pittsburgh Glass Co. v. Board, 313 U. S. 146; Panhandle Co. v. Power Comm., 143 F. 2d 448, 324 U. S. 635; Cities Service Gas Co. v. Power Comm., 155 F. 2d 694, 329 U. S. 773; Board v. Hearst Publications, 322 U. S. 111; National Broadcasting Co. v. United States, 319 U. S. 190.) III. Nothing in the legislative, judicial or administrative history of utility regulation and rate making in this State supports the holding below that the commission is required to adopt the formula approach exclusively and in so doing must use a “ fair value ” rate base. (Prendergast v. New York Tel. Co., 262 U. S. 43; Matter of Bronx Gas & Elec. Co. v. Maltbie, 271 N. Y. 364; Matter of Consolidated Edison Co. v. Maltbie, 300 N. Y. 196; Northwestern Co. v. Power Comm., 321 U. S. 119; American Tel. & Tel. Co. v. United States, 299 U. S. 232; United States v. New York Tel. Co., 326 U. S. 638; Matter of Rochester Gas

      & Elec. Corp. v. Maltbie, 271 App. Div. 202; Matter of Staten Is. Edison Corp., 60 P. U. R. [N. S.] 385; Matter of New York Tel. Co., 84 P. U. R. [N. S.] 267; Matter of New York Tel. Co., 91 P. U. R. [N. S.] 231.) IV. The commission did not err in excluding the reproduction cost estimates and other evidence solely designed to compute the company’s “ fair value ” rate base. The proffered evidence was of no other import.

      Peter Campbell Brown, Corporation Counsel (Morris Handel, Leo A. Larkin and Morris Einhorn of counsel), for City of New York, intervenor-appellant.
    I. The Public Service Law directive to determine just and reasonable telephone rates, modified by a procedural prescription for due regard to a return upon the “value” of the utility’s property, evinces no legislative intent to require rates to be determined, as a matter of substantive law, on the basis of the procedural doctrine of 1 ‘ fair value ’ ’ or any of its offshoot theories, or on the basis of market or exchange value. (Power Comm. v. Pipeline Co., 315 U. S. 575; Smyth v. Ames, 169 U. S. 466; West v. Chesapeake & P. Tel. Co., 295 U. S. 662; Southwestern Tel. Co. v. Public Service Comm., 262 U. S. 276; Sword Line v. Industrial Comr. of State of N. Y., 212 F. 2d 865; Willcox v. Consolidated Gas Co., 212 U. S. 19; Matter of Bronx Gas & Elec. Co. v. Maltbie, 271 N. Y. 364; People ex rel. Consolidated Water Co. v. Maltbie, 275 N. Y. 357; Railroad Comm. v. Pacific Gas Co., 302 U. S. 388; McCardle v. Indianapolis Co., 272 U. S. 400.) II. The clear purpose and manifest policy of the Public Service Law, as indicated by subsequent legislative enactments, refutes the applicability of market or exchange value to rate making. (Surace v. Hanna, 248 N. Y. 18; Group of Investors v. Milwaukee R. R. Co., 318 U. S. 523; Southwestern Tel. Co. v. Public Service Comm., 262 U. S. 276; Matter of International Ry. Co. v. Public Service Comm., 264 App. Div. 506; New England Tel. & Tel. Co. v. State, 95 N. H. 353; Matter of Consolidated Edison Co. v. Maltbie, 300 N. Y. 196; Driscoll v. Edison Co., 307 U. S. 104; St. Joseph Stock Yards Co. v. United States, 298 U. S. 38; Bronx Gas & Elec. Co. v. Maltbie, 268 N. Y. 278; RKO-Keith-Orpheum Theatres v. City of New York, 308 N. Y. 493; Matter of Mounting & Finishing Co. v. McGoldrick, 294 N. Y. 104.)

      Ira M. Millstein, Frank L. Weil and Milton Haselkorn for Abraham & Straus and others, intervenors-appellants.
    I. The company did not offer any competent proof of facts necessary to be proved in order to authorize a determination as to the reasonableness of (a) the business-residence relationship in charges as contained in its proposed rates, and (b) the charges for its various types of service; and, accordingly, the proposed rates were not justified by the company as required by law. (City of Rochester v. Rochester Gas & Elec. Corp., 233 N. Y. 39; Northern Pac. Ry. v. North Dakota, 236 U. S. 585; Norfolk & W. Ry. v. West Virginia, 236 U. S. 605; Banton v. Belt Line Ry., 268 U. S. 413.) II. Petitioner’s contentions are without merit. (Securities Comm. v. Chenery Corp., 332 U. S. 194; Durkin v. Wagner Co., 115 F. Supp. 118; Universal Camera Corp. v. Labor Bd., 340 U. S. 474; Webb Constr. Co. v. National Labor Relations Bd., 196 F. 2d 841; Matter of Village of Tupper Lake v. Maltbie, 257 App. Div. 753.)

      Jacob K. Javits, Attorney-General (James 0. Moore, Jr., John R. Davison and Sidney Kelly, Jr., of counsel), amicus curice, in support of appellant’s position.
    I. The petition is framed under subdivision 6 of section 1296 of the Civil Practice Act which presents for review the question “ whether there was any competent proof of all the facts necessary to be proved in order to authorize the determination.” Yet, the opinions and briefs below disclose that the sole question there litigated and determined was whether the commission, in excluding evidence of the theoretical cost of reproducing the petitioner’s property, violated an alleged rule of law claimed to arise out of subdivision 1 of section 97 of the Public Service Law. It would seem, therefore, that the petition should more properly be cast under subdivision 5 of section 1296 of the Civil Practice Act to present for review the question of ‘ ‘ whether, in making the determination, any rule of law affecting the rights of the parties thereto has been violated to the prejudice of the petitioner. ’ ’ II. The majority of the Appellate Division, in construing subdivision 1 of section 97 of the Public Service Law, failed to apply the time-tested rules of construction applicable to such legislation. (Power Comm. v. Hope Gas Co., 320 U. S. 591; Smyth v. Ames, 169 U. S. 466; United States v. Moore, 95 U. S. 760; Board v. Hearst Publications, 322 U. S. 111; Matter of Mounting & Finishing Co. v. McGoldrick, 294 N. Y. 104.) III. The restricted and artificial interpretation adopted by the majority of the Appellate Division raises grave constitutional questions and introduces chaos into the field of public utility regulation. (Merchants Refrig. Co. v. Taylor, 275 N. Y. 113; Aerated Products Co. v. Godfrey, 290 N. Y. 92; Feyler v. Mortimer, 299 N. Y. 309; Borden’s Co. v. Baldwin, 293 U. S. 194; Hartford Co. v. Harrison, 301 U. S. 459; United States v. Rumely, 345 U. S. 41.)

      Henry J. Friendly, Ralph W. Brown, Eric B. Nelson, Robert W. Doyle, Edward L. Friedman, Jr., and Jack A. Haner for respondent.
    I. The mandate of section 97 that the commission shall give due regard to a reasonable average return upon the value of the telephone company’s property actually used in the public service requires the commission to hear and consider evidence showing that the value of the property differs from its depreciated original cost. (People v. Broadway R. R. Co., 126 N. Y. 29; United States v. Mine Workers, 330 U. S. 258; Fogarty v. United States, 340 U. S. 8; Cleveland, C., C. & St. Louis Ry. Co. v. Backus, 154 U. S. 439; Smyth v. Ames, 169 U. S. 466; San Diego Land & Town Co. v. National City, 74 F. 79, 174 U. S. 739; Cotting v. Kansas City Stock Yards Co., 82 F. 850, 183 U. S. 79; San Diego Land & Town Co. v. Jasper, 189 U. S. 439; Stanislaus Co. v. San Joaquin C. & I. Co., 192 U. S. 201; Willcox v. Consolidated Gas Co., 212 U. S. 19.) II. The courts of every one of the nine sister States where the problem has arisen have held that, despite the Supreme Court’s decision in the Hope case, statutes which by their terms or established construction direct a commission to consider the value of a utility’s property in fixing rates require the admission of evidence of value such as that offered here. (Solar Elec. Co. v. Public Utility Comm., 137 Pa. Super. Ct. 325; Peoples Natural Gas Co. v. Public Utility Comm., 153 Pa. Super. Ct. 475; Philadelphia Transp. Co. v. Public Utility Comm., 155 Pa. Super. Ct. 9; City of Pittsburgh v. Public Utility Comm., 158 Pa. Super. Ct. 229, 171 Pa. Super. Ct. 187, 174 Pa. Super. Ct. 4; Northern States Power Co. v. Board of R. R. Comrs., 71 N. D. 1; Public Service Comm. v. Indianapolis Rys., 225 Ind. 30; East Ohio Gas Co. v. Public Utilities Comm., 133 Ohio St. 212; City of Marietta v. Public Utilities Comm., 148 Ohio St. 173.) III. Other New York statutes afford no basis for reading the rate base provisions of section 97 of the Public Service Law in a manner contrary to their natural sense. (Smith v. Western Pacific Ry. Co., 203 N. Y. 499; Hamilton v. Rathbone, 175 U. S. 414; Helvering v. City Bank Co., 296 U. S. 85; People ex rel. Westchester Fire Ins. Co. v. Davenport, 91 N. Y. 574; People ex rel. Bockes v. Wemple, 115 N. Y. 302; Brewster v. Gage, 280 U. S. 327; Matter of Brooklyn, Queens & Suburban R. R. Co., 185 N. Y. 171; Matter of Tiffany, 179 N. Y. 455; Naramore v. State of New York, 285 N. Y. 80; Cimo v. State of New York, 306 N. Y. 143.) IV. The issue sought to be raised by the department store intervenors is not properly before this court. (Securities Comm. v. Chenery Corp., 318 U. S. 80, 332 U. S. 194; Matter of Barry v. O’Connell, 303 N. Y. 46; Ten Ten Lincoln Place v. Consolidated Edison Co., 190 Misc. 174, 273 App. Div. 903, 273 App. Div. 973; People ex rel. Public Service Comm. v. New York Tel. Co., 262 App. Div. 440, 287 N. Y. 803.)

      Edmund B. Naylon, George Foster, Jr., and Edward F. Huber, for Long Island Water Corporation, amicus curies, in support of respondent’s position.
    I. The Public Service Law entitles all public utilities in this State to rates based on the fair value of their property. (Cummings v. Board of Educ. of City of N. Y., 275 App. Div. 577, 300 N. Y. 611; Matter of Village of Saratoga Springs v. Saratoga Gas, Elec. Light & Power Co., 191 N. Y. 123; Matter of Rates of Queens Borough & Elec. Co., 2 P. S. C. R. [1st Dist., N. Y.] 544; Matter of Baltz v. Brooklyn Borough Gas Co., 2 P. S. C. R. [1st Dist., N. Y.] 620; National Waterworks Co. v. Kansas City, 62 F. 853; Moritz v. Edison Elec. Illuminating Co. of Brooklyn, 7 P. S. C. R. [1st Dist., N. Y.] 175; People ex rel. Kings Co. Lighting Co. v. Willcox, 210 N. Y. 479; Smyth v. Ames, 169 U. S. 466; San Diego Land Co. v. National City, 174 U. S. 739; Knoxville v. Water Co., 212 U. S. 1.) II. The long and consistent administrative, legislative and judicial constructions of the rate-fixing provisions of the Public Service Law, as requiring utility rates to be based on fair value, preclude a contrary construction. (Matter of New York Tel. Co., 91 P. U. R. [N. S.] 231; Power Comm. v.
      Hope Gas Co., 320 U. S. 591; Matter of Kolb v. Holling, 285 N. Y. 104; Grimmer v. Tenement House Dept. of City of N. Y., 205 N. Y. 549; Cummings v. Board of Educ. of City of N. Y., 275 App. Div. 577, 300 N. Y. 611; People ex rel. Public Service Comm. v. New York Tel. Co., 262 App. Div. 440, 287 N. Y. 803; People v. Dilliard, 252 App. Div. 125; Kings Co. Lighting Co. v. City of New York, 176 App. Div. 175, 221 N. Y. 500; Matter of Otis v. Board of Higher Educ. of City of N. Y., 199 Misc. 157; Matter of Dobess Realty Corp. v. Magid, 186 Misc. 225.) III. The Hope case does not support the commission’s attempted rejection of the fair value rate base. Other States have struck down similar administrative attempts to use the Hope case as an excuse for changing their rate-making standards. (Power Comm. v. Pipeline Co., 315 U. S. 575; Illinois Bell Tel. Co. v. Illinois Commerce Comm., 414 Ill. 275; Northern States Power Co. v. Public Service Comm., 73 N. D. 211; Equitable Gas Co. v. Pennsylvania Public Utility Comm., 160 Pa. Super. Ct. 458; Peoples Natural Gas Co. v. Pennsylvania Public Utility Comm., 153 Pa. Super. Ct. 475; Utah Power & Light Co. v. Public Service Comm., 107 Utah 155; Matter of Consumers Power Co., 82 P. U. R. [N. S.] 97; Public Utilities Comm. v. Michigan State Tel. Co., 228 Mich. 658; Matter of Michigan Bell Tel. Co., 85 P. U. R. [N. S.] 327.) IV. As interpreted, the several rate-making sections of our Public Service Law must be construed as prescribing that the same standards be applied for all utility rate making. (Matter of Doyle, 257 N. Y. 244; Techt v. Hughes, 229 N. Y. 222; People ex rel. Chadbourne v. Voorhis, 236 N. Y. 437; Smith v. People, 47 N. Y. 330; Matter of O’Sullivan v. Feinberg, 201 Misc. 658; Matthews v. Matthews, 240 N. Y. 28; People ex rel. Standard Oil Co. v. Saxe, 179 App. Div. 721, 222 N. Y. 545; People ex rel. Doscher v. Sisson, 222 N. Y. 387; Matter of Chatlos v. McGoldrick, 302 N. Y. 380; Matter of Meyer, 209 N. Y. 386.)
   Froessel, J.

The single narrow issue presented on this appeal is whether or not the Public Service Commission, in a telephone rate proceeding under section 97 of the Public Service Law, erred in refusing to receive evidence offered by petitioner of the reproduction cost less depreciation of its physical plant. The weight to be given such evidence, as we shall indicate later, is quite another matter.

Until the 1944 decision of the Supreme Court of the United States in Federal Power Comm. v. Hope Natural Gas Co. (320 U. S. 591), the resolution of the issue before us would have required consideration of constitutional principles as enunciated in the frequently cited case of Smyth v. Ames (169 U. S. 466) decided in 1898. There the Supreme Court held that in determining reasonable rates upon the fair value of a utility’s property used in the public service, regulatory bodies must take into consideration various factors, including both original costs and reproduction value. However, in 1944, that court determined that the Constitution did not mandate consideration of reproduction cost or any other specific factor in fixing rates, provided the end result — the rate fixed — be just and reasonable (Federal Power Comm. v. Hope Natural Gas Co., supra).

With the constitutional barrier thus removed, public utility rate making in this State remained nonetheless subject to our statutory mandate. Section 97 of the Public Service Commission Law, which is the governing statute in telephone rate proceedings, provides: the commission shall, with due regard, among other things, to a reasonable average return upon the value of the property actually used in the public service and to the necessity of making reservation out of income for surplus and contingencies, determine the just and reasonable rates ”. (Emphasis supplied.)

The telephone company contends that the above language requires the commission to give due regard to a reasonable return upon a rate base consisting of the present value of its plant, and has offered evidence before the commission as to its current reproduction cost. The commission, however, has refused to receive the “ bulk ” of such evidence, taking the position that it would use a 1 ‘so-called investment rate base: one based on original cost less the actual depreciation reserve ”, and that the language of the statute is not mandatory, or that, even if it were, it would not require the commission to accept proof of reproduction cost. The majority of the Appellate Division has rejected the position of the commission, and ruled that the proffered evidence of reproduction cost was improperly refused. In our view, this conclusion is inescapable in light of the history and clear language of the Public Service Law.

The legislative history of section 97 and related sections is set forth adequately in the prevailing opinion below, and it will serve no useful purpose to review it here. In sum, it clearly obviates any mere accident of language in the various statutes whence the commission derives its authority to fix rates for specific utilities. There can be no doubt that the Legislature, in enacting the Public Service Law, intended the difference between those factors which the commission shall consider “ among other things ” when determining (1) telephone and railroad rates [a just and reasonable return ‘ ‘ upon the value of the property actually used in the public service ” (telephone corporations: § 97; railroad corporations: § 49, both of which embrace large territories in the State)] and (2) those of other utilities [a just and reasonable return upon “ capital actually expended” (omnibus corporations: § 63-b; gas and electric corporations: § 72; steam corporations: § 85; waterworks corporations : § 89-j, utilities more local in scope) ].

There is additional evidence that the language of section 97 was deliberately chosen. By chapter 134 of the Laws of 1921, the Legislature amended sections 49 and 97 of the Public Service Law which then provided that the commission “ shall, with due regard, among other things, to a reasonable average return upon the value of the property actually used in the public service * * * determine the just and reasonable ” rates, by causing shall ” to read “ may ” and by inserting the words “ in its discretion ” before “ determine ”. However, promptly following requests made by Governor Miller (his Papers, 1921, pp. 92-94), the Legislature, among other things, deleted the amendments and restored sections 49 and 97 to their previous mandatoiy form (L. 1921, ch. 335), which is also their present form.

Indeed, for many years, the commission construed section 97 as requiring a finding of “value ”, and recognized that, under the statute, aside from constitutional considerations, “ value ” was something very different from original cost, as, e.g., Matter of Stone v. New York Tel. Co. (26 N. Y. St. Dept. Rep. 235 [1921]); Matter of Buck v. New York Tel. Co. (26 N. Y. St. Dept. Rep. 455 [1921]); Matter of New York Tel. Co. (29 N. Y. St. Dept. Rep. 1 [1923]); Matter of New York Tel. Co. (34 N. Y. St. Dept. Rep. 621 [1926]).

Moreover, in its rule IV governing rate proceedings, after providing that “ the utility shall establish by competent evidence the original cost of the property used and useful in the service * * * and the accrued depreciation thereon ” (subd. 8), the commission also provided: “ Evidence of reproduction cost need not be submitted but if presented it shall be shown by * * * [a prescribed method] and the corresponding original cost and book cost of the property ” is also required to be shown if the book cost differs from the original cost (subd. 10). Subdivision 11 further provides: “ If evidence of reproduction cost is submitted, the accrued depreciation * * * shall be shown * * *. Reproduction cost without accrued depreciation is not an element in determining the value of the property for the purpose of computing a return and will not be accepted as such ” (Buies of Procedure of Public Service Comm., eff. July 1, 1943, as amd., rule IV; 4 N. Y. Official Compilation of Codes, Bules & Begulations, pp. 6-7; all emphasis supplied). Thus, by its own rules, it clearly indicates that such evidence may be submitted.

Despite its interpretation of section 97 over the years, and its own rules which were in effect prior to the Hope case (supra), and still are, the commission now takes the view that the same statute and said rules authorize it to bar proof of reproduction cost less depreciation as some evidence of the value of the company’s property actually used in the public service. It took this view, it says, for the first time in 1945, one year after the Hope case, in Matter of Staten Is. Edison Corp. (60 P. U. R. [N. S.] 385, 421).

But the Hope case, of course, could not amend our statute. Only the Legislature may do that. Since it has not chosen to do so, although well over a decade has elapsed since the Supreme Court removed the aforesaid constitutional barrier, section 97 continues to require that the commission shall “determine the just and reasonable rates ” “with due regard, among other things ”, to a reasonable average return upon the present value of the company’s plant, i.e., “property actually used in the public service ” (emphasis supplied).

The concept of value, of course, is quite different from that of cost, and the expression “ actually used ” connotes a present use. Thus the commission is required to receive proof of reproduction cost less depreciation as some evidence of present value in the case of utility property which, due to the unique restrictions placed upon it by law, cannot readily be valued by other usual methods, such as so-called “market”, “sales” or “ exchange ” value.

This is not to say that the rates must be based upon reproduction cost less depreciation. As the commission itself states, it is under no statutory or other obligation to confine itself to consideration of any particular one of the various alternative rate bases. All that the statute says is that the commission shall “ determine the just and reasonable rates ” with “ due regard, among other things, to a reasonable average return upon the value of the property actually used in the public service ”. “ Due regard ” to one factor “ among other things ” requires consideration of that factor. It is by no means controlling. While price indices rise in some periods, in others the general level of prices declines. What consideration is to be given to “ value ” “ among other things ” is for the commission to decide, having in mind that the overriding principle governing its primary duty is that it shall determine ‘ ‘ just and reasonable rates ”.

“ Due regard ”, as the Supreme Court of the United States has said, “ calls for the exercise of discretion ” (Opp Cotton Mills v. Administrator, 312 U. S. 126, 151). “ To give due consideration to a particular factor necessarily means to give such weight or significance to it as under the circumstances it seems to merit, and this, of course, involves discretion ” (United States ex rel. Maine Potato Growers & Shippers Assn. v. Interstate Commerce Comm., 88 F. 2d 780, 783, certiorari denied 300 U. S. 684). In Railroad Comm. v. Pacific Gas Co. (302 U. S. 388), Chief Justice Hughes said (p. 398): “While the Court has frequently declared that 1 in order to determine present value, the cost of reproducing the property is a relevant fact which should have appropriate consideration, ’ we have been careful to point out that ‘ the Court has not decided that the cost of reproduction furnishes an exclusive test ’ and in that relation we have emphasized the danger in resting conclusions upon estimates of a conjectural character.’ ” (See, also, People ex rel. Consolidated Water Co. v. Maltbie, 275 N. Y. 357, appeal dismissed on the ground that “ no substantial federal question is presented ”, 303 U. S. 158.)

If, then, as we believe, the statute has a clear and definite meaning by its plain language and in the light of its .legislative history, neither the commission nor the courts may presume to say that its meaning must now be changed because it reflects an approach to rate making which may currently be unpopular with some experts. Although it is urged that the language of the statute represents the survival of a theory of rate making which is unsound and outmoded, it may here be noted that the element of reproduction cost, which was introduced for the protection of the public as a means of avoiding rates based upon an excessive and unreasonable capital structure, may also serve as a potential safeguard for the public in times of recession. Nor is it without some significance that, after much debate, the 1938 Constitutional Convention recommended, and the People of the State subsequently approved — forty years after Smyth v. Ames (supra) — a provision guaranteeing to municipally owned utilities a fair return on “ the value of the property used and useful in such public utility service ” (N. Y. Const., art. Ill, § 18; emphasis supplied).

In any event, if indeed the advocates for a prudent investment or any other theory are correct and it is time for a change, that decision is not ours to make. The function of the judiciary is not to choose between different theories of rate making on the sole basis of their alleged merits. All arguments concerning such matters should properly be addressed to the Legislature which, within constitutional limits, may adopt or favor one over the other — as it did in 1934 (L. 1934, ch. 287) in section 114 of the Public Service Law, relating to the fixing of temporary rates — or may rely upon the expertise of the commission by empowering them to employ methods and procedures reflecting current trends in economic thought. Neither we, nor any other court, have the power to amend the law as written (Meltzer v. Koenigsberg, 302 N. Y. 523).

The department stores, intervenors-appellants, urge that we uphold the commission on the basis of the alleged invalidity of rates for business service, as proposed by the telephone com-pony, in that the company failed to sustain its proposed rates as to business service. Since the question of allocation of rates was never reached below, this is a matter which must be reserved for the commission upon rehearing.

The order below should be affirmed.

Dye, J.

(dissenting). , I dissent and vote to reverse the order of the court below and to confirm and reinstate the determination of the Public Service Commission, with costs in all courts, on the ground that the cost of reproducing the petitioner’s multimillion dollar plant is not material or relevant in the computation of a value rate base. Subdivision 1 of section 97 of the Public Service Law, as I read it, does not mandate the Public Service Commission to employ any exclusive method or process for the determination of a just and reasonable value rate basis, nor does it require such commission to deal differently with separate types of utilities, but rather it requires it to use any fair and reasonable method or process to ascertain a just and reasonable value base, as long as it gives “ due regard * * * to a reasonable average return upon the value of the property actually used in the public service ” (§97, subd. 1). Upon this record, I am satisfied it did so here, particularly as the petitioner does not claim that the rates allowed are either unjust or unreasonable. (See Federal Power Comm. v. Hope Natural Gas Co., 320 U. S. 591.)

Conway, Ch. J., Desmond and Van Voorhis, JJ., concur with Froessbl, J.; Dye, J., dissents in a memorandum; Ftjld and Burke, JJ., taking no part.

Order affirmed.


source: Caselaw Access Project

author: Conway, Ch. J.

license: Public Domain

text:
    David J. Connolly et al., as Receivers to Collect a Judgment in Favor of Burlington County Bridge Commission, et al., Respondents, v. Robert K. Bell et al., Defendants, and Theodore R. Hanff et al., Appellants.
    Argued November 14, 1955;
    decided February 17, 1956.

      Frederick W. R. Pride, Donald J. Nugent and Robert M. Lane for appellants.
    I. Either triable issues are presented as to the scope and extent of appellants’ defenses or the allegations concerning them must be accepted as true. (Di Menna & Sons v. City of New York, 301 N. Y. 118; Werfel v. Zivnostenska Banka, 287 N. Y. 91; Curry v. Mackenzie, 239 N. Y. 267; Gravenhorst v. Zimmerman & Forshay, 236 N. Y. 22; General Investment Co. v. Interborough R. T. Co., 235 N. Y. 133.) II. Appellants’ affirmative defenses are sufficient as a matter of law. (Munday v. Vail, 34 N. J. L. 418; Reynolds v. Stockton, 43 N. J. Eq. 211, 140 U. S. 254; Perkins v. Guaranty Trust Co., 274 N. Y. 250, 276 N. Y. 553; Clapp v. McCabe, 155 N. Y. 525; Walrath v. Hanover Fire Ins. Co., 216 N. Y. 220; Lamphere v. Lang, 213 N. Y. 585; Wright v. Delafield, 25 N. Y. 266; McNeil v. Cobb, 186 App. Div. 177, 230 N. Y. 536; International Photo Recording Machines v. Microstat Corp., 269 App. Div. 485; McCarthy v. Troberg, 275 App. Div. 139.) III. The judgment here sued upon, by its terms, does not purport to impose liability against the appellant partnership of Ketcham & Nongard for the damages sought by respondents in this action.

      A. Donald MacKinnon, Rebecca M. Cutler and Michael F. Orr for respondents.
    I. There is no triable issue of fact and summary judgment is proper. (Franklin v. Lee, 233 App. Div. 592, 259 N. Y. 532.) II. The New Jersey judgment was not lacking in due process. (Valentine v. Richardt, 126 N. Y. 272; International Photo Recording Machines v. Microstat Corp., 269 App. Div. 485; Post v. Browne, 279 App. Div. 922, 304 N. Y. 610; Hall v. Ames, 190 F. 138; Standard Oil Co. v. Missouri, 224 U. S. 270; Milliken v. Meyer, 311 U. S. 457; Bell Tel. Co. v. Utility Comm., 309 U. S. 30; Schenck v. State Line Tel. Co., 238 N. Y. 308; Reynolds v. Stockton, 140 U. S. 254; Oliphant v. Burns, 146 N. Y. 218.)

      William J. McDonald, Jr., Charles S. Bannerman and Covington Hardee for B. J. Van Ingen & Co., Inc., amicus curice, in support of respondents’ position.
    I. This suit is an action of debt upon a judgment rendered in another State. Under the United States Constitution that judgment is entitled to full faith and credit. Collateral attack upon a foreign judgment on grounds of lack of jurisdiction is precluded when the jurisdictional issue was or could have been determined in the rendering forum. (Treinies v. Sunshine Mining Co., 308 U. S. 66; Thompson v. Whitman, 18 Wall. [U. S.] 457; Christmas v. Russell, 5 Wall. [U. S.] 290; Milliken v. Meyer, 311 U. S. 457; Fauntleroy v. Lum, 210 U. S. 230; Sherrer v. Sherrer, 334 U. S. 343; Stoll v. Gottlieb, 305 U. S. 165; Chicot Co. Dist. v. Bank, 308 U. S. 371.) II. The New Jersey judgment herein sued upon may not be collaterally attacked on jurisdictional grounds. Full faith and credit precludes such an attack since the jurisdictional issue was or could have been determined in New Jersey. (Driscoll v. Burlington-Bristol Bridge Co., 8 N. J. 433; Davis v. Cohen & Co., 268 U. S. 638; Central New England Ry. Co. v. Boston & A. R. R. Co., 279 U. S. 415.)
   Conway, Ch. J.

This is an action upon a judgment of the Supreme Court of New Jersey. The following is a summary of the background of the litigation.

Sometime during 1946 a group of men — the defendants Bell, Christensen, Banff, Ketcham, Nongard, Parks and Clifford R. Powell (but not the partnership of Ketcham & Nongard as such, and not the individual defendant Murray) — organized themselves as a syndicate to acquire two bridges across the Delaware River: the Burlington-Bristol Bridge and the TaconyPalmyra Bridge, both of which were then owned by private corporations. In December, 1946, arrangements were made to purchase the stock of the Burlington-Bristol Bridge Company (hereinafter called Bridge Company) for $1,350,000 — financed by placing a $1,000,000 mortgage upon the bridge, and by giving to the sellers notes for $350,000 secured by the Bridge Company stock. In order to remove a potential obstacle to the syndicate’s plans, a bill was introduced in the New Jersey Legislature and passed with the aid of Powell — one of the members of the syndicate — which provided, in effect, that if a bridge became the property of a public body then the State of New Jersey would lose a right which it previously had to acquire that bridge by condemnation at a price regulated by statute (see Rev. Stat. of N. J., § 48:5-22). Thereafter, on October 29, 1947, the syndicate members and their nominees took over the Burlington-Bristol Bridge Company and became its sole stockholders. Although the syndicate advanced no- cash of its own at the time of this purchase, it was subsequently necessary for the syndicate members to contribute some $50,000 to the Bridge Company for working capital and expenses. The partnership firm of Ketcham & Nongard acquired a one-quarter interest in the stock of the Bridge Company and contributed one quarter of this sum.

In the spring of 1948 Ketcham and Banff began negotiating for the acquisition of the stock of the Tacony-Palmyra Bridge Company. With the aid of the Sarjem Corporation, an Illinois corporation which dealt in the purchase and sale of bridges and other public utilities, options were acquired for the purchase of 80% of the stock of this bridge company at approximately twice the price at which it was then being sold on the Philadelphia Exchange. The total offer by the Sarjem Corporation for all the stock of the Tacony-Palmyra Bridge Company was $6,487,500. On October 6, 1948, it was agreed that the Bridge Company (now owned and controlled by the syndicate) would purchase from the Sarjem Corporation all the stock of the Tacony-Palmyra Bridge Company for $6,700,000, plus certain expenses, provided that the entire transaction was completed by October 22, 1948. Thus the total cost to the syndicate of the two bridges was $8,050,000, plus the expenses referred to in connection with the Tacony-Palmyra Bridge and the $50,000 contributed to the Burlington-Bristol Bridge Company by the purchasers.

During this same time in the fall of 1948 certain members of the syndicate made contact with Freeholder Snover, an elected official of Burlington County, and told him that they had a proposition which would benefit that county. He was informed that if the freeholders should establish a bridge commission, the syndicate would be able to sell to that commission the two bridges here involved for $12,000,000, to be financed by the issuance of $12,400,000 in bridge revenue bonds. No other freeholders were informed of this transaction until the night of October 20, 1948, when a meeting of the freeholders was called at the home of Freeholder Snover. Snover explained the syndicate’s proposition and submitted to his associates copies of various documents obtained by the syndicate. The freeholders were told that the entire transaction had to be completed within forty-eight hours “as is ” or the proposition would be withdrawn. Before that evening meeting was over, the freeholders had agreed to adopt the syndicate’s plan and offer in all particulars, even to the selection of bridge commissioners. The following day the newly chosen bridge commissioners-to-be met with members of the syndicate and accepted the entire proposition. There was no independent inquiry or investigation made by the commissioners, no outside advice was sought by them, and no change in the syndicate’s proposition was suggested. On the next day, October 22,1948, the scheduled public meeting of the Burlington County Freeholders was held, and as the first order of business it unanimously adopted, without discussion, a resolution establishing the Burlington County Bridge Commission and appointing as its members the men selected two days previously. Within a short time the plan for the acquisition of the two bridges was effected. In the words of the New Jersey Supreme Court, “ By 11:30 a.m., less than an hour from the time their meeting had commenced, the bridge commissioners had organized and put through a $12,000,000 transaction of which they were totally ignorant only 18 hours before and about which they had no information or advice other than that furnished them by the sellers.” (Driscoll v. Burlington-Bristol Bridge Co., 8 N. J. 433, 465). As a result of these transactions, the syndicate realized a net profit of $1,894,637 after payment of $700,000 for promotion fees and expenses, $355,710 for bond discount to the firm of Ketcham & Nongard which was to dispose of the entire issue of bridge revenue bonds, and $100,000 paid in escrow against possible tax liability. After the closing was completed, the firm of B. J. Van Ingen & Co., Inc., organized a syndicate to sell the bonds. A note dated October 27, 1948, in the amount of $11,317,156.40 and signed on behalf of the members of the bond syndicate by B. J. Van Ingen & Co., Inc., and by Ketcham & Nongard as a partnership obligation, was accepted by the Chemical Bank and Trust Company of New York, which made a loan in that amount to the bond syndicate, with the entire issue of bonds pledged with that bank as security, and cancelled certain obligations of Ketcham & Nongard and B. J. Van Ingen & Co., Inc., arising out of loans previously made to facilitate the purchase of the entire bond issue.

On December 3, 1948, the Governor and Attorney-General of the State of New Jersey commenced an action in that State which resulted in the judgment now sued upon in New York and culminated in the present appeal. The original complaint filed in New Jersey alleged the facts substantially set forth above and sought relief in the form of (1) a declaration voiding the resolutions creating the bridge commission, (2) a declaration that all the acts and resolutions of the bridge commission were null and void, (3) a declaration that the deeds transferring the two bridges were null and void, and (4) an order directing that the two bridges be returned to the two companies, respectively, from which the syndicate had purchased them, and such other and further relief as this Court may deem just and equitable in the premises.”

On February 6, 1950, the plaintiffs filed an amended complaint which alleged, inter alla, that as a result of the transactions complained of the State of New Jersey had been deprived of its right to acquire the two bridges for some $5,000,000 via condemnation proceedings. Accordingly, the plaintiffs prayed for the difference between that condemnation price and the price paid for the two bridges — $7,400,000. That cause of action was dismissed by the trial court, and no appeal was taken from that dismissal.

The Superior Court of New Jersey determined that the bridge commission should (1) reconvey title to the two bridges to the Burlington-Bristol Bridge Company; (2) retransfer the stock of that company to the respective sellers thereof; (3) repay the bondholders $400,000 plus the net revenues from the bridges from the date of their acquisition; and (4) return to the Bridge Company, to be held subject to the order of the court, the $550,000 which was in the Bridge Company’s treasury at the time the bridge commission acquired it. The Bridge Company and the members of the bridge-selling syndicate who received the purchase money for the stock of the Burlington-Bristol Bridge Company from the bridge commission were directed to repay the bondholders all moneys received from them, and “ each shall disgorge and be required to repay such part of the purchase price as each received.” The bondholders were given (1) the right to be subrogated to the rights of mortgagees and other lienors of the Bridge Company as of October 22, 1948, to the extent that such encumbrancers were paid off with the bondholders’ moneys, and (2) a lien on the revenues of the bridges until the bonds were paid off, subject to the State’s right of condemnation. A judgment was entered on December 29, 1950, incorporating the terms of the decision, and requiring each individually named defendant to pay a specific sum of money. That judgment provided in part as follows:

3. The members of the bridge sellers’ syndicate (hereinafter referred to as the ‘ judgment debtors ’) shall repay the sum of $3,050,347.00 which they received as the purchase price for their stock in the Burlington-Bristol Bridge Company, and judgments in favor of the Commission are directed as follows:
Against Richard C. Nongard $343,164.03
Against Tuthill Ketcham 343,164.03
Against Rowland H. Murray $ 76,258.68 * * * M

Five things should be noted about this judgment of the lower court of New Jersey: (1) the total of the liabilities of the individually named judgment debtors was $3,050,347; (2) the firm of Ketcham & Nongard, as a partnership, was not named as one of the judgment debtors; (3) the total liability of the three partners of that firm mentioned by name (i.e., Ketcham, Nongard and Murray) was only $762,586.74, and not $3,050,347; (4) the specific liability of each of those partners named in the judgment was not equal: Ketcham and Nongard individually, were adjudged liable for $343,164.03 each, but Murray was adjudged liable for only $76,258.68; and (5) there was no provision as to joint and several liability. That the omission of the partnership of Ketcham & Nongard, as such, was not merely oversight is indicated by the fact that in another part of that same judgment the receivers were given a lien upon such of the bridge revenue bonds as were owned by Ketcham, Nongard and Murray ‘ ‘ individually and as partners trading as Ketcham & Nongard.”

An appeal was taken from that judgment by certain of the defendants to the Supreme Court of New Jersey. A judgment was entered upon the decision of that latter court on March 14, 1952. It differed from the judgment of the Superior Court in this important respect: instead of directing the reconveyance of the two bridges back to the Bridge Company, the return of the stock of that company to its sellers and the repayment of the bondholders by the Bridge Company, the judgment entered upon the decision of the Supreme Court confirmed title to the two bridges in the bridge commission. It then ordered the sellers of the Bridge Company to pay to the bridge commission all profits received from the transaction, and it decreed that all participants in the bond syndicate with the exception of the partnership firm of Ketcham & Nongard were holders in due course of the bridge revenue bonds, and as such “ entitled to enforce the Bonds held by them to the extent of their interest therein and according to the terms thereof.”

Respondents thereafter commenced this action in New York upon the New Jersey Supreme Court judgment. The New York Supreme Court denied respondents’ motion for summary judgment but the Appellate Division reversed and granted that motion. The judgment entered upon the order of the Appellate Division herein included the partnership of Ketcham & Nongard, as such, among those liable for the gross profits of $3,050,347 resulting from the sale to the bridge commission. In justification for such inclusion, the Appellate Division said: ‘ ‘ Lastly, the defendants say that there was no basis for entering a judgment here against Ketcham and Nongard, a copartnership. The judgment in New Jersey defined the selling syndicate to include such a partnership. The selling syndicate was directed to repay the $3,050,347. This would appear to warrant a judgment against the partnership. All partners were sued and served individually as well.

“ There appears to be no valid reason why a judgment should not be entered here as demanded in the complaint.” (286 App. Div. 220, 231.) That partnership was an active party in the litigation in New Jersey and it may be that it could have been adjudged jointly liable with the members of the selling syndicate for $3,050,347. Neither court of that State, however, imposed such liability. The judgments of both courts in that State carefully specified not only who but for how much each named judgment debtor was liable. In addition, the judgment entered upon the decision of the Supreme Court of New Jersey specified that certain of the individual defendants were jointly and severally liable for the full amount of gross profits, while the remaining individual defendants were severally liable only for specific sums. This language which emphasizes the absence of any intention to adjudge the partnership firm of Ketcham & Nongard liable for the total amount of profit, is as follows: The obligation to repay this sum [i.e., $3,050,347] is both joint and several as to Robert K. Bell, Theodore R. Hanff, Tuthill Ketcham, Richard C. Nongard and Clifford R. Powell, but shall be several only as against the remaining sellers in the amounts they each receive specifically: * * *.” (Emphasis supplied.) (See 8 N. J. 501.) It is significant that in adjudging the liabilities of the three partners of Ketcham & Nongard mentioned in this part of the judgment two — Nongard and Ketcham as individuals — were adjudged jointly and severally liable for the entire $3,050,347, whereas the third partner — Murray — was adjudged liable severally only and for but $76,258.68. The partnership of Ketcham & Nongard, however, was not included in the enumeration of parties, defendant adjudged to be either jointly and severally liable or to be severally liable only. Thus, whatever the New Jersey courts may have been warranted in doing in this respect, as far as the partnership was concerned, they did not do it, and we cannot enlarge the New Jersey judgment, but must take it as we find it. A reading of the opinion in Nongard v. Burlington Co. Bridge Comm. (229 F. 2d 622) confirms this. (See pages 624, 626-627 of that opinion.)

The New Jersey judgment entered upon the Supreme Court decision decreed that all but one of the participants in the bond syndicate — including the Chemical Bank & Trust Company as well as B. J. Van Ingen & Co., Inc. — were holders in due course of the bridge revenue bonds and were entitled to enforce them as such. The sole exclusion was the partnership firm of Ketcham & Nongard, as to which the New Jersey judgment decreed that the bonds held by it were null and void “ except to the extent that the Chemical Bank has an interest therein as pledgee.” If and in the event that the Chemical Bank & Trust Company exercised its rights as the pledgee of the bridge revenue bonds owned by the partnership firm of Ketcham & Nongard, “ so that the Bridge Commission either pays or remains obligated to pay principal or interest thereon the Bridge Commission shall be subrogated to all the rights of the Chemical Bank against Ketcham and Nongard arising out of the note dated October 27, 1948 of the bond syndicate which, the Bonds were pledged to secure.” The firm of Ketcham & Nongard owned $1,240,000 of the bridge revenue bonds, and was obligated to the extent of $1,131,715.66 on the note of October 27, 1948. By its check dated December 1, 1948, the partnership firm of Ketcham & Nongard had paid the sum of $350,000 in reduction of this liability. Between April 3, 1952, and February 15, 1954, the Burlington County Bridge Commission paid off the entire balance of $781,715.66 remaining due as Ketcham & Nongard’s liability on the note of October 27, 1948, together with interest in the sum of $104,676.87, a tota7 of $886,392.53.

In the second cause of action in the plaintiff’s amended complaint in the Supreme Court of New York, the plaintiffs demanded monetary damages against the partnership of Ketcham & Nongard based upon those payments made to the Chemical Bank & Trust Company by the Burlington County Bridge Commission. From the language of the New Jersey judgment which carefully specified the dollar liability of each of the three partners mentioned, as well as from the language of the New Jersey Supreme Court, however, it is obvious that it was never intended to impose upon this partnership the liability for $3,050,347 in addition to the liability for $886,392.53 claimed as recited above. Accordingly, it was error on the part of the court below to have directed the inclusion of the firm of Ketcham & Nongard among those liable for the gross profits of $3,050,347. The only liability of that partnership, under the New Jersey judgment, was to the bridge commission for such sums as that commission might pay to the Chemical Bank & Trust Company as pledgee of those bonds owned by Ketcham & Nongard which had been pledged with the bank by that partnership to secure its obligations under the note dated October 27, 1948. Those sums were set forth in the plaintiffs’ amended complaint in the New York action, and are contained in the judgment entered upon the order of the Appellate Division.

It was suggested that certain liability imposed upon the defendant partnership was beyond the jurisdiction of the New Jersey court, and hence that the judgment of that court was not entitled to be enforced in New York. In Reynolds v. Stockton (140 U. S. 254), however, the Supreme Court stated that “ The requirements of that section [i.e., U. S. Const., art. IV, § 1] are fulfilled when a judgment rendered in a court of one State, which has jurisdiction of the subject matter and of the person, and which is substantially responsive to the issues presented by the pleadings, or is rendered under such circumstances that it is apparent that the defeated party was in fact heard on the matter determined, is recognized and enforced in the courts of another State.” (140 U. S. 264; emphasis supplied.) In the present case no one argues that either the defendants or the subject matter — i.e., the cause of action for equitable relief based upon fraudulent conduct in the acquisition and sale of the bridges — were not before the New Jersey courts. The relief finally awarded was, in the judgment of the New Jersey court, the only equitable relief possible in this case. As the court said in Nongard v. Burlington Co. Bridge Comm. (supra): “ The New Jersey Supreme Court fashioned a comprehensive remedy to correct the wrong inherent in the entire scheme and did not undertake to deal with it piecemeal. ’ ’ The test established in the Stockton case (supra) was therefore met. Furthermore, many years after the Stockton case, in Milliken v. Meyer (311 U. S. 457), the Supreme Court decreed that where the court of a sister State had jurisdiction of the parties and the subject matter as it did in the present case, “ the full faith and credit clause of the Constitution precludes any inquiry into the merits of the cause of action, the logic or consistency of the decision, or the validity of the legal principles on which the judgment is based.” (311 U. S. 462.)

It is not necessary to go into the reasoning of the New Jersey court, the logic or consistency of its reasoning, or the legal principles upon which its decision was based. Thus, even if there were legal error committed when the partnership of Ketcham & Nongard was required to pay to the bridge commission any moneys which that commission might pay to the bank with which the bonds owned by the partnership had been pledged, that is not a matter subject to review in this State. It was open to the New Jersey Court to decide as it did under the equitable cause of action.

The original complaint in the New Jersey action recited the facts substantially as found by the courts of that State. The specific relief sought by that complaint was rescission of the entire transaction and the dissolution of the bridge commission. Of those transactions the New Jersey Supreme Court wrote that “ One cannot read the record in the instant case fairly without being forced to the conclusion that the members of the selling syndicate through the medium of their political influence or professional prestige knowingly and intentionally for their private profit and without regard to their obligations as citizens induced the chosen freeholders and the bridge commissioners to violate their public trust by blindly agreeing to the syndicate’s proposal.” (8 N. J. 479.) Accordingly, the New Jersey court concluded that the transactions initiated by the defendants-appellants herein might not be permitted to stand. Appellants do not question that conclusion. Their primary argument is that in decreeing the specific relief to be afforded under the circumstances of this case the New Jersey court exceeded its jurisdiction by awarding a form of relief different from that prayed for in the complaint.

It is important to note that the premise underlying this argument is the constitutional requirement of due process of law. In Standard Oil Co. v. Missouri (224 U. S. 270) the United States Supreme Court considered a similar argument and concluded that it had no merit, writing that ‘ ‘ In civil suits the pleadings should no doubt contain a prayer for judgment so as to show that the judicial power of the court is invoked. The rules of practice also may well require that the plaintiff should indicate what remedy he seeks. But the Prayer does not constitute a part of the notice guaranteed by the Constitution. The facts stated fix the limit of the relief that can be granted. While the judgment must not go beyond that to which the plaintiff was entitled on proof of the allegations made, yet the court may grant other and different relief than that for which he prayed.” (224 U. S. 285.)

In Milliken v. Meyer (311 U. S. 457, supra), the Supreme Court of the United States reversed a decision of the Supreme Court of Colorado which had in turn reversed a judgment of the court of Wyoming upon the ground that the Wyoming judgment was void because of an inconsistency between the findings and the decree. That was held to be a violation of the .full faith and credit clause of the Federal Constitution, which “ precludes any inquiry into the merits of the cause of action, the logic or consistency of the decision, or the validity of the legal principles on which the judgment is based.” (311 U. S. 462.)

The judgment here sued upon in New York is a judgment entered upon the decision of the Supreme Court of New Jersey. Appellants do not contest the general equitable jurisdiction of that court, nor do they contest that it had in personam jurisdiction over themselves. We shall not repeat here the findings of misconduct made by the New Jersey court, but those findings were unquestionably adequate to warrant a rescission, and this the appellants do not contest. The Supreme Court of New Jersey could, if the factual allegations Avere established, decree such relief as the case warranted. The factual allegations constitute the notice required by the Federal Constitution, and the appellants have not shown that any other type of notice is required in New Jersey. Those factual allegations presented and defined the issues which the New Jersey court had jurisdiction to decide; and any inconsistency which might exist — and we think that there was none — between the factual issues as decided and the relief granted by the decree is not a matter for review in the courts of a sister State.

Appellants have also argued that the plaintiffs were not entitled to “ money damages ” because of an alleged “ waiver ” of any claim to such damages. It appears, however, that the only ‘1 waiver ’ ’ of damages took place when the plaintiffs ’ counsel stated that they would not pursue the cause of action for damages set forth in the amended complaint in the New Jersey action. He was not referring to such incidental relief which the court might award as might require the defendants to repay to the bridge commission moneys to which the court might find that the defendants were not entitled. But that is exactly what the court did in fact do: it required the defendants to give up the profits that they had realized by their illegal conduct. The court was not required by the due process clause of the Federal Constitution to allow to the Ketcham and Nongard syndicate moneys or expenses which they had invested in the enterprise from which the bridge commission derived no benefit. Referring to this matter, the Supreme Court of New Jersey decided ‘ ‘ This waiver was relied upon by the defendants in determining what witnesses to call in their defense and accordingly is binding on us as well as on the court below and prevents any assessment of damages based on the amended complaint against the selling syndicate. This waiver does not preclude us, however, from requiring the members of the selling syndicate over whom the court acquired jurisdiction to disgorge the profits which they received from this illegal transaction. Where rescission is prayed for and is warranted by the facts, but cannot be decreed because of the intervening equities of innocent third parties such as the bondholders here, under general principles of equity the court may require the wrongdoers to account for their profits so that as nearly as may be the parties will be protected and equity done * * (8 N. J. 499.) It is clear, therefore, that not only were the factual issues before the New Jersey courts upon which the award of money damages ” incidental to the general equitable relief afforded might he granted, but it is just as clear that those “ damages ” were merely the monetary profits which the defendants had reaped from their illicit manipulation and which, therefore, they were not entitled to retain.

The judgment appealed from should be modified by reversing so much thereof as adjudged the partnership of Ketcham & Nongard as such liable for $3,050,347, less certain deductions and payments and plus interest, totaling $3,283,024.46, and, as modified, affirmed, with costs.

Desmond, Froessel, Van Voorhis and Burke, JJ., concur with Conway, Ch. J.; Dye, J., taking no part.

Fuld, J.,'dissents, in part, and votes to affirm in the following memorandum: Since it is my opinion, as it was that of the unanimous Appellate Division (286 App. Div. 220, 231), that the New Jersey judgment for some $3,000,000 runs against the partnership of Ketcham & Nongard, I am for affirmance of the judgment entered below.

Judgment of Appellate Division modified in accordance with the opinion herein and, as so modified, affirmed, with costs.


author: Fuld, J. Conway, Ch. J.

text:
    John H. Nichols et al., Appellants, v. Item Publishers, Inc., Respondent.
    Argued November 14, 1955;
    decided February 17, 1956.

      Melvel W. Snitow and Sydney Snitow for appellants.
    I. The allegations of the complaint, which also states the publication complained of, must be treated as established facts and defendant, by making its motion, authorizes the court to accept its statements as true. (Schwartz v. Heffernan, 304 N. Y. 474; Tracy v. Kline & Son, 274 App. Div. 149.) II. If either cause of action is good, the complaint should not be dismissed. (Advance Music Corp. v. American Tobacco Co., 296 N. Y. 79.) III. The statement by defendant in its publication to the effect that plaintiff John N. Nichols was not the pastor of plaintiff church, when, in fact, he was, is libelous per se. (Neaton v. Lewis Apparel Stores, 267 App. Div. 728; Matarazzo v. Daily Gazette Co., 276 App. Div. 249, 302 N. Y. 552; Balabanoff v. Hearst Cons. Publications, 294 N. Y. 351; Nih v. Bolman, 307 N. Y. 725.) IY. The statements in defendant’s publication certainly injured both plaintiffs in their highly specialized profession. (Sanderson v. Caldwell, 45 N. Y. 398; Shakun v. Sadinoff, 272 App. Div. 721; Rager v. McCloskey, 305 N. Y. 75; Cassidy v. Gannett Co., 173 Misc. 634; Smith v. Buffalo Times, 124 Misc. 495, 214 App. Div. 759; Mencher v. Chesley, 297 N. Y. 94.) V. The publication of defendant being false for the purposes of this motion and being directed to the highly specialized profession of plaintiffs, the final determination of the effect of that publication is up to a jury and not up to the court. (Cyran v. Finlay Straus, Inc., 302 N. Y. 486; Katapodis v. Brooklyn Spectator, 287 N. Y. 17.)

      Joseph Reeback and Richard Brill for respondent.
    I. The publication does not charge that plaintiff Nichols falsely held himself out as the pastor of the church. II. The publication is not defamatory of plaintiff Nichols. (Reporters’ Assn. v. Sun Print. & Pub. Assn., 186 N. Y. 437; Al Raschid v. News Syndicate Co., 265 N. Y. 1; Rossiter v. New York Press Co., 141 App. Div. 339; O’Connell v. Press Pub. Co., 214 N. Y. 352; McNamara v. Goldan, 194 N. Y. 315; Crashley v. Press Pub. Co., 179 N. Y. 27; Peeples v. State of New York, 179 Misc. 272; Potter v. New York Evening Journal Pub. Co., 68 App. Div. 95; Remsen v. Bryant, 36 App. Div. 240; Quinn v. Sun Print. & Pub. Assn., 55 Misc. 572, 125 App. Div. 900; Curtis v. Argus Co., 171 App. Div. 105.) III. There is no ambiguity or uncertainty in the meaning of the publication and the question whether or not it is defamatory is, therefore, for the court. (Sanderson v. Caldwell, 45 N. Y. 398; Morrison v. Smith, 177 N. Y. 366; Mencher v. Chesley, 297 N. Y. 94; Balabanoff v. Hearst Cons. Publications, 294 N. Y. 351.) IV. The extrinsic facts pleaded by plaintiff Nichols do not avail him, for they do not establish any libel of him and are not accompanied by a plea of special damages. (O’Connell v. Press Pub. Co., 214 N. Y. 352; McNamara v. Goldan, 194 N. Y. 315; Crashley v. Press Pub. Co., 179 N. Y. 27; Brodek v. Jones, 212 App. Div. 247.) V. The publication is not libelous per se of plaintiff church and the second cause of action is, therefore, insufficient for failure to plead special damages. (Demuth v. Griffin, 253 App. Div. 399; Thibaudeau v. City of Niagara Falls, 237 App. Div. 424; Walker Memorial Baptist Church v. Saunders, 285 N. Y. 462.) VI. Certain allegations of the complaint should be stricken out in any event as irrelevant, unnecessary and prejudicial. (Fiorello v. New York Prot. Episcopal City Mission Soc., 217 App. Div. 510.)
   Fuld, J.

This appeal is concerned with the sufficiency of the complaint in a suit for libel. It alleges two causes of action, one on behalf, of the Beverend John H. Nichols, assertedly pastor of the Mt. Zion Baptist Church of Port Chester, and a second on behalf of the church itself. Plaintiffs claim that both were defamed by a news item which appeared in the Daily Item, a Port Chester newspaper owned and operated by defendant. The article purported to report the outcome of certain court actions brought by Beverend Nichols, the church and another person “ against 22 members of the congregation ”. It mentioned, among other things, the jury’s 11 dismissal ” of “ an action for $50,000 brought by the church corporation against the congregation, in which the church claimed it was prevented from holding services ”, and of one brought by Beverend Nichols “ claiming conspiracy to force him out as pastor ”. The article, referring to him as the “ former pastor,” states that, “ In finding for the defendants, the jury also declared the Rev. Mr. Nichols was not pastor of the church ” and that he “was removed as pastor of the Church by the congregation in 1947. On Jan. 25, 1949, after a 36-day trial, Judge George H. Taylor, Jr., found the removal proper, Mr. Young explained. It was alleged that supporters of the Rev. Mr. Nichols held a meeting in March, 1949, in which they recalled him as pastor ‘ for life.’ But the jury decided there had been no legal meeting, and that thus the pastor had not been recalled ” (italics appear in complaint).

The complaint further recites that the article is false and defamatory in that the individual plaintiff is, and has been at all the times mentioned, the pastor of the church, and a copy of the minutes of the jury’s verdict is annexed to demonstrate that it made no finding that he was not pastor or that the 1949 meeting which recalled him was not ‘ ‘ legal. ’ ’ The statement that the action was against 1 22 members of the congregation ’ ’ is also labeled false and defamatory, since the 22 defendants ‘ were riot members of the congregation because they had failed to regularly worship and regularly contribute to the said church ”.

No special damages are alleged, it being claimed that the publication injured Nichols in his capacity as pastor, causing ‘ ‘ great damage to his good name, reputation and professional standing as a pastor and preacher in the community ’ ’. As to the church, the complaint asserts that it was injured in its good name and reputation because the article “ took sides ” with the 22 defendants and “ had an unwholesome effect on the minds of its readers,” causing the church to lose face in the eyes of its congregants with resulting loss in membership, worshippers and income ’ ’. Each of the plaintiffs demands a judgment for $10,000 against defendant.

Defendant moved to dismiss the complaint for insufficiency. The court at Special Term denied the motion, but the Appellate Division reversed and granted dismissal upon the ground that it ‘1 fails to allege words that are actionable per se, and no special damages are pleaded.” Whether that decision was correct is the only question before us.

The general rule, we stated in Mencher v. Chesley (297 N. Y. 94, 100), is that “ A writing is defamatory — that is, actionable without allegation or proof of special damage — if it tends to expose a person to hatred, contempt or aversion, or to induce an evil or unsavory opinion of him in the minds of a substantial number of the community, even though it may impute no moral turpitude to him.” And to that listing of the defamatory should be added a writing which tends to disparage a person in the way of his office, profession or trade. (See, e.g., Nih v. Bolman, 307 N. Y. 725; Rager v. McCloskey, 305 N. Y. 75, 79; Kleeberg v. Sipser, 265 N. Y. 87; Sanderson v. Caldwell, 45 N. Y. 398, 405; Potter v. New York Evening Journal Pub. Co., 68 App. Div. 95, 99.) The publisher of a libel may not, of course, escape liability by veiling a calumny under artful or ambiguous phrases and, if any common-sense construction of what was written justifies or supports a defamatory meaning, it will be for the jury, not the court on motion, to decide whether the writing was or was not defamatory. (See Mencher v. Chesley, supra, 297 N. Y. 94, 102.) However, on the basis of any reasonable reading of the publication before us, it is impossible to conclude that it says or implies anything that could subject either of the plaintiffs to contempt or aversion, induce any unsavory opinion of them or reflect adversely upon plaintiff Nichols’ work or upon him as pastor of the church or as cleric generally.

That the Reverend Nichols was, in fact, pastor, contrary to the article’s report, only demonstrates its falsity, not its defamatory character. Other than this, it declares only that he was removed in 1947, and that a meeting in 1949 which voted his recall was deemed illegal by a jury, so that, as a result of a court decision, he is no longer pastor of the church. Nothing in the article reflects in any way on his personal or professional integrity or ability. It assigns no reason for his removal or for the opposition to him by the 22 defendants, such as incompetency, misconduct or any other behavior that could be said to disparage him personally or in his profession as a clergyman.

The mere fact of one’s removal from office carries no imputation of dishonesty or lack of professional capacity. (Cf. Thompson v. Hamilton, 229 N. Y. 591; Rossiter v. New York Press Co., 141 App. Div. 339, 344.) It is only when the publication contains an insinuation that the dismissal was for some misconduct that it becomes defamatory. (See Rossiter v. New York Press Co., supra, 141 App. Div. 339, 344; Ramsdell v. Pennsylvania R. R. Co., 79 N. J. L. 379.) The rule is no different for a clergyman, exalted and sensitive though his post may be. A charge against him, to be actionable, must still “be such as, if true, would tend to prove him unfit to continue his calling” (Potter v. New York Evening Journal Pub. Co., supra, 68 App. Div. 95, 99), such as, for example, that he used foul language in a courtroom (see Potter v. New York Evening Journal Pub. Co., supra, 68 App. Div. 95) or that he “ juggled ” moneys taken on the collection plate. (See Curtis v. Argus Co., 171 App. Div. 105.) The suggestion that the article may provoke “ Idle, unfounded and baseless rumors ” that plaintiff is “ anything from ‘ thief ’ to 1 imposter ’ ” (opinion of Conway, Ch. J., p. 603), resting as it does entirely on sheer speculation, furnishes no basis for holding the writing defamatory.

Nor does the church stand in any better position, with reference to the sufficiency of the complaint, than does the individual plaintiff. The only mention of the church itself is the report that its claim against the 22 defendants for preventing it from holding services was dismissed. At its worst, the article conveys to the reader that there is a controversy over control of the church, with 22 insurgent members — or ex-members — challenging, particularly, Reverend Nichols’ claim to the pastorate.

The language is unambiguous. Under no reasonable construction may it be read or regarded as defamatory of either of the plaintiffs. And, quite apart from other considerations, since no “ actual temporal damage ” is alleged, the complaint may not be upheld on any prima facie tort or intentional falsehood theory. (Rager v. McCloskey, supra, 305 N. Y. 75, 80-81.) Accordingly, the complaint was properly dismissed by the Appellate Division.

The judgment appealed from should be affirmed, with costs.

Conway, Ch. J.

(dissenting). We are in agreement with the principles of law stated in the opinion of the majority of this court. Our disagreement lies with the application of those principles to the allegations of the complaint before us. The majority is of the opinion that “it is impossible to conclude that it [the publication here involved] says or implies anything that could subject either of the plaintiffs to contempt or aversion, induce any unsavory opinion of them or reflect adversely upon plaintiff Nichols’ work or upon him as pastor of the church or as cleric generally.” We are of the opinion, on the other hand, that, in view of the peculiarly sensitive position of a clergyman, it may not be said, as a matter of law, that the publication was nondefamatory, that is, in our judgment it would not be unreasonable for a jury to conclude that the publication, which suggests that plaintiff minister was oEciating as a clergyman without the right to do so, and had not been recalled under the proper procedure of his denomination, tends to expose him to contempt or aversion in the minds of a substantial number of the community and tends to hold him up as one to be avoided and looked upon askance. We recently had before us Katapodis v. Brooklyn Spectator (287 N. Y. 17) where no special damages were alleged, but where an article was published by defendant’s newspaper regarding the death of plaintiffs’ infant son which said of the parents that they “ are in dire financial straits ” and they would have “ to let their son go to his final rest in a pauper’s grave ”. We there said (p. 21): “ We think it is not for us to say that the publication of such a piece of news did not hurt the plaintiffs by tending to deprive them of friendly association with a considerable number of respectable members of their community. We believe it is the right of the plaintiffs to have a jury say whether the false words did, in fact, so defame them.” Similarly, we feel here that it should at least be left to a jury to determine whether the written words alleged in the complaint are, when viewed in their entirety, susceptible of a defamatory or innocent meaning.

We do not agree with the majority that Reverend Nichols could not be said to have been disparaged personally or in his profession as a clergyman merely because the article assigns no reason for his removal or for the opposition to him, such as incompetency or misconduct. An article may be all the more vicious by what it fails to say rather than by what it does say. The readers of the article are thus given freedom to speculate and guess as to why the Reverend Nichols had the diEculties he had as pastor. Idle, unfounded and baseless rumors and gossip may flourish and may multiply to such enormous proportions that the Reverend Nichols will be accused of anything from “ thief ” to “ imposter ”. We think that the Special Term Judge put the question presented in proper focus when he said: ‘ ‘ To say falsely and maliciously of a minister of a church, holding himself out as such to the community that he was not in fact, the minister and that a jury had so found and that his congregation had not recalled ’ him cannot be held as matter of law, in my opinion, not to diminish him and do him hurt in his profession. It would, at least, present a question of fact in such respect for a jury. * * * There is also a moral stigma attachable to a minister of religion who falsely holds himself out as being something which he is not or at least a jury might so find.” So in the present case, the article, among other things, falsely stated that a jury found that he was not in fact the pastor of the church and that his congregation had not recalled him. To some readers, this may not necessarily be suggestive of dishonesty, incompetency or other improper conduct on the part of Eeverend Nichols. To others, however, especially in view of the fact that he does belong to an extremely sensitive profession which is always subject to the public scrutiny, many evil and unfounded thoughts may be harbored and many rash conclusions will be drawn. Accordingly, we say again that, in our opinion, the article cannot be deemed nondefamatory as a matter of law, but that a jury should be permitted'to decide whether the article can reasonably permit of a defamatory or innocent inference to the readers in the community.

We pass on now to consider the second cause of action. Here, the Mt. Zion Baptist Church of Port Chester alleged that, because of the article, it had suffered injury. To refer to the “ 22 members of the congregation ” against whom suit had been brought by Eeverend Nichols and by the church itself, could conceivably be deemed defamatory in view of the fact that they were not in fact members of such congregation, and it could reasonably tend to hold up the church to obloquy, ridicule and scorn. A jury could properly find that the import of the entire article generally, with respect to the church, had an unwholesome effect on the minds of the readers in the community, a great many of whom were congregants of the church. Further, because the words set forth in the publication which referred to the Eeverend Nichols as the former pastor of the church were so interwoven with the words which were referable to the church itself, we feel, for the same reasons set forth above, that, with respect to the church’s cause of action, a jury should be permitted to decide whether the publication can reasonably permit of a defamatory or innocent meaning.

Accordingly, in our judgment, the complaint was improperly dismissed by the Appellate Division and the judgment appealed from should be reversed and the motion to dismiss the complaint denied.

Desmond, Van Voorhis and Burke, JJ., concur with Fuld, J.; Conway, Ch. J., dissents in an opinion in which Froessel, J., concurs; Dye, J., taking no part.

Judgment affirmed.