text:
    MOTOR FINANCE CORPORATION, PETITIONER-RESPONDENT, v. DIRECTOR, DIVISION OF TAXATION, RESPONDENT-APPELLANT.
    Superior Court of New Jersey Appellate Division
    Argued January 21, 1974
    Decided June 10, 1974.

      Before Judges Handled., Meanoe and Kole.

      Mr. Harry Haushalter, Deputy Attorney General, argued the cause for appellant (Mr. William F. Hyland, Attorney General of New Jersey, attorney; Mr. Stephen Skillman, First Assistant Attorney General, of counsel).

      Mr. Joseph Lunin argued the cause for respondent (Messrs. Pitney, Hardin & Kipp, attorneys).
   The opinion of the court was delivered by

Handler, J. A. D.

Petitioner Motor Finance Corporation paid its New Jersey corporation business tax for the years 3962 to 1967, inclusive, and then filed a timely claim for refunds pursuant to N. J. S. A. 54:49-14. The bases for the refund claims were: (1) liability was computed by including in the net worth the excess of market value of marketable securities over the book value thereof; (2) in determining that excess, the anticipated capital gains tax attributable thereto was not recognized, and (3) in determining the mean market value of such securities, no recognition was given to “blockage” resulting from the extent of petitioner’s holdings of said securities. The Director of the Division of Taxation denied the refund claims. Petitioner then appealed to the Division of Tax Appeals which determined that the Director was entitled to revalue marketable securities to reflect market values but that such valuation must recognize related future tax liabilities and the “blockage” effect on the market value of the securities.

The Director filed a notice of appeal contesting the determination as to the method for computing fair market value of petitioner’s securities. Petitioner cross-appealed, challenging the judgment that the Director had the power to value marketable securities according to their listed market values rather than book value.

We treat first the issue of whether the Director of the Division of Taxation has the power to revalue marketable securities by disregarding the cost or book value thereof and utilizing instead their listed stock market prices. The language of the Corporation Business Tax Act, N. J. S. A. 54:10A-1 et seq., is the primary reference point. The critical provision is N. J. S. A. 54:10A-4(d), viz:

“Net worth” shall mean the aggregate of the values disclosed by the boohs of the corporation. * * *
If in the opinion of the commissioner [i. e., Director], the corporation’s books do not disclose fair valuations the commissioner may make a reasonable determination of the net worth which, in his opinion, would reflect the fair value of the assets * * *' carried on the books of the corporation, in accordance with sound accounting principles, and such determination shall be used as net worth for the purpose of this act. [Emphasis supplied]

It has often been underscored that the tax imposed via the Corporation Business Tax Act is not an ad valorem property tax or a disguise for a tax upon underlying assets. United States Steel Corp. v. Director of Div. of Tax., 38 N. J. 533 (1962); Werner Machine Co. v. Director of Div. of Tax., 17 N. J. 121 (1954), aff’d 350 U. S. 813, 76 S. Ct. 46, 100 L. Ed. 729 (1955). It “is an excise (privilege) impost rather than a property tax.” F. W. Woolworth Co. v. Director of Div. of Tax., 45 N. J. 466, 473 (1965). While the “excise, tax may gather the hue of a property tax * * * it is the franchise to do local business that is being valued rather than any specific piece of property devoted to it.” Household Finance Corp. v. Director of Div. of Tax., 36 N. J. 353, 358, app. dism. 371 U. S. 13, 83 S. Ct. 41, 9 L. Ed. 2d 49 (1962) (construing the analogous Financial Business Tax Law, N. J. S. A. 54:10B-1 et seq.).

Subject to standards of accounting, the Director has the statutory authority to revalue the various components of net worth in order to reach fair value. F. W. Woolworth Co. v. Director of Div. of Tax., supra 45 N. J. at 473. The Director is not bound by a company’s bookkeeping; he may conclude that corporate books do not disclose the fair valuation of the elements of net worth under accounting principles which are sound for purposes of the tax statute. United States Steel Corp. v. Director of Div. of Tax., supra, 38 N. J. at 541. R. H. Macy & Co. Inc. v. Director of Div. of Tax., 77 N. J. Super. 155, 164 (App. Div 1962), aff’d 41 N. J. 3 (1963).

In Brookchester Inc. v. Director of Div. of Tax., 113 N. J. Super. 570 (App. Div.), cert. den. 58 N. J. 392 (1971), the court upheld the Director’s revaluation of certain real estate assets which had been carried on the taxpayer’s books at depreciated cost. The values used by the Director were the unpaid balances of the mortgages on the properties. The court noted that such mortgage balances exceeded depreciated costs and were therefore an “indicia of minimum fair values” and were required by sound accounting to be disclosed on the books of the taxpayer. The revaluation of these underlying assets in this manner was itself “sound and administratively feasible.” Id. 113 N. J. Super, at 575.

In the present matter it is rather clear that the book values or costs of petitioner’s marketable securities, while in accordance with conventional or orthodox accounting practices, do not approximate fair value. Thus, to the limited end of evaluating corporate net worth for the purpose of admeasuring the franchise for doing business in the state, the Director properly concluded that the petitioner’s own books were not sufficient.

It may be observed that in other instances where the Director has revalued assets by rejecting book or cost values, he has used different values which were otherwise reflected in the books or financial records of the taxpayer itself. E. g., Brookchester, Inc. v. Director of Div. of Tax., supra; R. H. Macy & Co. Inc. v. Director of Div. of Tax., supra. While, in this case, the Director has not obtained corrected values for the listed securities by resort to other information disclosed in the taxpayer’s own books or records, but rather by reference to an outside source, i. e., the stock market, this technique is nonetheless administratively feasible and simple to apply.

Any remaining doubts as to the statutory power in the Director to revalue marketable securities for corporate franchise tax purposes are effectively dissipated by the legislative history of the Corporation Business Tax Act as well as the consistent and continuing administrative application of the statute. Thus, at. the inception of this corporation franchise tax, administrative adjustments to net worth valuations based upon increases to the market values of stocks and securities were explicitly recognized in the Second Report of The Commission on State Tax Policy, at 84-86 (March 24, 1947). Additionally, the current regulations of the Director provide that the fair value of regularly traded stocks and securities is the “mean between the highest and lowest selling prices.” N. J. A. C. 18:7-6.7(a). This administrative construction is long-standing and is evidential of the intent of the Legislature. Cf. J. B. Williams v. Glaser, 114 N. J. Super. 156, 160 (App. Div. 1971).

The next issue is whether the Director, by increasing the book value of marketable securities by attributing stock market selling prices as their fair value, is required to recognize an off-setting reserve for future or anticipated taxes..

It must be conceded that in an area so highly specialized as accounting for particular purposes substantial deference must be accorded the testimony of experts. Expert testimony on the question of what constitutes sound accounting principles in the revaluation of net worth assets carried on the books of a corporation is extremely important. Brookchester Inc. v. Director of Div. of Tax., supra 113 N. J. Super. at 575; American Can Co. v. Director of Div. of Tax., 87 N. J. Super. 1, 4-7 (App. Div.), certif. den. 44 N. J. 587 (1965). Here the testimony of petitioner’s experts in support of its position that the upward revaluation of its marketable securities entailed an off-setting reserve for taxes was persuasive and uncontradicted. The Division was quite correct in relying upon that testimony and basing its conclusion thereon.

The Director nevertheless argues that “[t]he going concern concept * * * requires that marketable securities be valued for net worth purposes based on their present value without reduction for hypothetical capital gains expenses to be incurred only when the securities are actually sold.” It is by no means indisputable that a “going concern” approach to valuation would justify the disallowance of a reserve for additional taxes where there has been a concomitant increase in the value of assets. In fact, the disallowance of such a reserve for future taxes might be more consonant with a financial statement structured for purposes of a liquidation or the sale of assets, rather than one designed to depict the status of the corporation as a continuing concern for purposes of assessing its franchise or privilege to conduct its business in the next ensuing year. See American Can Co. v. Director of Div. of Tax., supra 87 N. J. Super. at 10-11.

The recognition of a theoretical potential tax liability because of an assumed increase in corporate assets is not improper, as suggested by the Director, because the tax obligation is hypothetical in the sense that its occurrence can be controlled or timed by the taxpayer itself. Petitioner’s expert concluded that the reserve for increased taxes was required. He relied in part on Accounting Principles Board Opinion No. 11, “Accounting for Income Taxes” at 6579-94 (December 1967), which was said to show that the increased valuation of marketable securities by the Director would be more properly categorized as a “timing” difference. Such a “timing” difference in his opinion required the establishment of an off-setting reserve for future taxes.

We see no sound reason to disturb the conclusion of the Division, based in part upon this expert testimony, because the Director now argues on this appeal that other authority, Accounting Principles Board Opinions Nos. 28, “Accounting for Income Taxes — Special Areas,” jfjf 7-14 at 6715-17 (April 1972), and 24, “Accounting for Income Taxes,” at 6731-34 (April 1972), published after the hearing below and which was not part of the record, would imply that the differences were “permanent” rather than “timing” and, therefore, would not justify the creation of a corresponding reserve for future taxes. It is not evident that these publications are clearly or directly applicable and they would not, therefore, be conclusive. Moreover, the Director did not in any reasonable timely fashion at the administrative level seek to request a rehearing or a reopener after the determination below in order to supplement the record.

Aside from these considerations, it has been recognized that consistency is as important as the theoretical contingency of the tax liability. American Can Co. v. Director of Div. of Tax., supra 87 N. J. Super. at 12-13. According to the experts, the necessity for establishing such a reserve for future taxes stems from the Director’s decision to depart from the books of the corporation. In an analogous case involving the revaluation of a taxpayer’s inventory it was observed that “[s]ince the Director has departed from actual book inventory for present franchise tax purposes, he must assume, for such purposes, the hypothetical state of facts in relation to the taxpayer’s income tax liability which sound accounting principles, according to the evidence in this case, would require to be reflected on the taxpayer’s books concomitantly with a substitution of [quoted market prices] for [book cost] inventory figures.” American Radiator & Stan dard Sanitary Corp. v. Director of Div. of Tax., 104 N. J. Super. 322, 323-324 (App. Div. 1969).

The final issue is whether the Division properly concluded that the “blockage” principle should be applied in determining the market value of the assets. The securities involved were approximately 130,000 shares of the Fidelity Union Trust Co., or 10% of all of the outstanding shares. Petitioner offered the testimony of an expert who was of the view that, because of the extent of petitioner’s holdings of this particular bank stock, these securities would have a particular average price per share for each of the tax years involved, a price per share less than that ascribed by the Director.

We agree with the Division’s findings and conclusions on this point for essentially the reasons advanced. This result, moreover, would seem to comport with the Director’s own regulations which provide for a different standard of valuation for marketable securities where quoted stock market prices are not appropriate. N. J. A. C. 18:7-6.7(c) provides that

if by reason of the character or extent of the taxpayer’s investment or for any other reason such prices are not truly indicative of value * * * the fair value is ascertained * *' * [i]n the case of shares of stock, on the basis of the issuing corporation’s net worth, earning power, book value, dividends paid, and all other relevant factors * #

Petitioner’s expert, whose testimony was not rebutted, recognized the influence which the quantity of shares held by petitioner exerted upon their market value and considered also the dividend history, rating and earnings of the stocks. This testimony appears to be consonant with the valuation approach contemplated by the Director’s administrative guidelines.

Affirmed.


source: Caselaw Access Project

author: Michels, J. A. D.

license: Public Domain

text:
    LEWIS WEINKRANTZ, PLAINTIFF-APPELLANT, v. HELEN WEINKRANTZ, DEFENDANT-RESPONDENT.
    Superior Court of New Jersey Appellate Division
    Argued April 9, 1974
    Decided June 10, 1974.

      Before Judges Collestee, Lywch and Michels.

      Mr. Monroe Ackerman argued the cause for appellant (Messrs. Rudd & Ackerman, attorneys).

      Mr. Michael R. Fink argued the cause for respondent (Messrs. Hannoch, Weisman, Stern & Besser, attorneys).
   The opinion of the court was delivered by

Michels, J. A. D.

Plaintiff appeals from an order of the Chancery Division directing that he (1) reimburse his wife (defendant) the sum of $1,884.74, which was withheld from her paycheck for income taxes for the year 1972; (2) file a joint federal income tax return with his wife for the year 1972, and (3) hold his wife harmless for all damages, including penalties, interest and additional income taxes which may be imposed by Internal Revenue Service as a result of the filing of a joint return or filing of a separate tax return by plaintiff for the year 1972.

A judgment for separate maintenance was entered by the Chancery Division in favor of defendant on March 11, 1969. Plaintiff had admitted that he had abandoned his wife, and the trial judges found that he had abandoned her without justifiable cause, and that he had separated from her, refusing and neglecting to maintain and provide for her and the two children born of the marriage. Thereafter, defendant moved for an increase in support and maintenance for herself and the two infant children, which was denied by order dated October 17, 1969. However, the Chancery Division provided by that order that the parties file a joint federal income tax return for each calendar year or fiscal year thereafter, “so long as they may do so in accordance with the prevailing law.” The order further provided that the husband “shall be responsible and shall pay all federal income taxes, including federal income surtaxes, due on the plaintiff’s [wife’s] earnings as a result of filing such joint return, including any taxes which plaintiff may owe as a result of support and maintenance payments received by her from the defendant [husband].” Plaintiff refused to file a joint return for the year 1972, and defendant thereupon obtained the order of July 2, 1973 from which this appeal was taken.

Prior to the filing of the notice of appeal plaintiff moved before the Chancery Division for an order staying the order of July 2, 1973, and defendant subsequently moved for an order adjudging plaintiff in contempt for failing to comply with the terms of said order. The trial judge denied the stay and ordered plaintiff to comply with the terms of said order by paying to defendant the sum of $1,884.74, and by filing a joint income tax return with her for the year 1972 no later than August 20, 1973 or be adjudged in contempt of court. Plaintiff applied to this court for a stay of said orders pending the determination of this appeal. We ordered that plaintiff, within ten days of August 20, 1973 reimburse defendant for the taxes withheld from her paycheck for the year 1972 in the amount of $1,884.74. The remaining portions of the order of August 27, 1973 and that portion of the order of July 2, 1973 requiring plaintiff to forthwith take such steps as are necessary to file a joint tax return with defendant for the year 1972 were stayed pending the outcome of this appeal.

Plaintiff contends in this appeal that the trial court erred in ordering him to file a joint income tax return, arguing that since he and defendant are separated and since a judgment of separate maintenance has been entered by the court that he cannot file a joint income tax return.

Section 6013(a) of the Internal Revenue Code of 1954, 26 N. S. C. A., provides that a husband and wife may make a single return jointly of income taxes under subtitle A of the Internal Revenue Code even though one of the spouses has neither gross income nor deductions, except in those instances enumerated therein which are not applicable here. In order to qualify for the filing of a joint return under § 6013, the status as husband and wife of two individuals having taxable years beginning on the same date is determined as of the close of such year. Section 6013(d)(2) of the Internal Revenue Code provides:

For purposes of this section—

* *#■**»**

(2) an individual who is legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married;

The language of section 6013(d)(2) is clear. An individual who is legally separated from his spouse under a decree of separate maintenance is not considered married for the purpose of filing a joint tax return, and consequently may not file such a return. See 2 Fed. Tax. Reg. § 1.6013-4(a) (2) (1974). Cf. Lawatch v. Lawatch, 161 Cal. App. 2d 780, 327 P. 2d 603, 608 (D. Ct. App. 1958); Marriner S. Eccles, 19 T.C. 1049, 1051 (1953), aff’d per curiam sub nom. Commissioner of Internal Revenue v. Eccles, 208 F. 2d 796 (4 Cir. 1953). See also Skoloff, New Jersey Family Law Practice (2d ed. 1973) at 256. Whether plaintiff was ‘legally separated” from defendant “under a decree * * * of separate maintenance” depends upon the nature and legal effect of a judgment for separate maintenance in this State. Separate maintenance in New Jersey is of statutory origin. Lavino v. Lavino, 23 N. J. 635, 639 (1957). N. J. S. A. 2A:34-24 provides:

If a husband, without justifiable cause, shall abandon his wife or separate himself from her and refuse or neglect to maintain and provide for her, the court may order suitable support and maintenance to be paid aud provided by the husband for the wife and her children, or any of them, by their marriage, or to be made out of his property and for such time as the nature of the case and circumstances of the parties render suitable and proper. The court may compel the defendant to give reasonable security for such maintenance and allowance and may, from time to time, make further orders touching the same as shall be just and equitable and enforce such judgment and orders in the manner provided in section 2A :34-23 of this title. During the time such maintenance shall be allowed, the husband shall not be chargeable with the debts cif the wife.

When a husband abandons his wife without justifiable cause, or separates himself from her and refuses or neglects to maintain and provide for her, a judgment of separate maintenance may be entered under N. J. S. A. 2A:34-24. The legal effect of such a judgment is aptly discussed by our Supreme Court in Lavino v. Lavino, supra:

The legal effect of a decree of separate maintenance is much the same as that of a limited divorce because in neither is the marital bond dissolved. Historically, the limited divorce stems from the English ecclesiastical courts where it was termed divorce a mensa et thoro. See Bishop on Marriage and Divorce (3d ed. 1859), see. 676 et seq. Separate maintenance, on the other hand, is of statutory origin. The primary jmrpose in obtaining a limited divorce is to nullify the marital obligations of cohabitation; the primary object of separate maintenance is to enforce the husband’s duty of support. 1 Nelson on Divorce and Annulment (2d ed. 1945), sec. 1.08, p. 19. The statutory philosophy of separate maintenance is to favor a resumption of cohabitation. Walsh v. Walsh, 88 N. J. Eq. 368 (E. & A. 1917); Rhodes v. Rhodes, 92 N. J. Eq. 252 (E. & A. 1920); cf. 10 N. J. Practice, Herr, “Marriage, Divorce and Separation,” sec. 346 (1950). Limited divorce forbids it. 11 Id., sec. 662. This is a distinction of consequence. The marital bond, though not dissolved, is considerably more disrupted by limited divorce than by a decree of separate maintenance. [23 N. J. at 639-640]

A judgment for separate maintenance entered pursuant to N. J. S. A. 2A:34 — 24, sncli as the judgment of separate maintenance dated March 11, 1969 here under consideration, goes no further than to adjudge that the husband without justification abandons and separates himself from his wife and refuses and neglects to maintain her. Such a judgment is actually just a money judgment determining the financial extent of the husband’s duty to support his wife and children, if any. See 10 N. J. Practice (Herr, Marriage, Divorce and Separation (3d ed. 1963), § 525 at 446-447. While a judgment for separate maintenance recognizes the existing de facto separation of the husband and wife, it does not order or provide for such separation, and it does not sanction or authorize it. A judgment of divorce from bed and hoard (limited divorce) obtained pursuant to N. J. S. A. 2A :34-3 is significantly different from a judgment for separate maintenance in this respect. A judgment of divorce from bed and board decrees a judicial separation (Rudin v. Rudin, 104 N. J. Eq. 524, 526 (Ch. 1929); Mueller v. Mueller, 95 N. J. Super. 244, 247 (App. Div. 1967)), as does a judgment of divorce (absolute divorce) obtained pursuant to N. J. S. A. 2A:34-2.

Thus, in view of the nature and legal effect of a judgment for separate maintenance in this State, we hold that plaintiff and defendant were not legally separated under a decree of separate maintenance within the intendment of § 6013(d) (2) of the Internal Revenue Code of 1954, and that they conld therefore file a joint income tax return for the year 1972.

While there does not appear to be any ease directly in point in New Jersey, the Tax Court of the United States held in Russell W. Boettiger, 31 T. C. 477 (1958), that a New Jersey decree for separate maintenance did not give rise to the ‘fiegal separation” required by § 22 (k) of the 1939 Internal Revenue Code. (Similar provisions are now contained in § 71 of the Internal Revenue Code of 1954.) The Tax Court changed its position as to the nature of the separation created by this type of decree, and overruled its prior decision in Dean V. Fuqua, 27 T. C. 909 (1957), wherein it had held that a decree of separate maintenance under Alabama law was the equivalent of a legal separation and, therefore, that the payments made to the wife thereunder were includible in her gross income under § 22 (k) of the 1939 Code, stating:

In John B. Keleher, 25 T.C. 1154, 1158 (1956), where the question of the meaning of the statutory term “legal separation” was also raised, we stated: In order that periodic payments of separate maintenance be includible in the income of a wife and deductible from that of the husband, they must be imposed upon the husband by virtue of a decree of separate maintenance which has the legal effect of sanctioning or legitimizing the living apart of a husband and wife. [Emphasis supplied.] Frank J. Kalchthaler, 7 T.C. 625 (1946) ; Charles L. Brown, 7 T.C. 715 (1946). * * *

The term “sanctioning or legitimizing” indicates that a court decree, in order to be construed as one that effectuates a “legal separation,” must expressly and affirmatively provide that the parties live apart in the future, and thereby alter the original and normal marital relationship.

In Dean V. Fuqua, 27 T. C. 909 (1957), we found the required “legal separation,” even though a mere de facto separation existed, on the reasoning that the decree indicated findings that could have justified an absolute or limited divorce. We have again carefully considered this concept and now decide that the mere fact that a separate maintenance decree recognizes an existing de facto separation is in no way determinative of whether there is the actual “legal separation” required by section 22 (k). The added factor that a decree indicates facts that could support a decree for absolute or limited divorce is meaningless, when no such decree was in fact made or entered. Dean V. Fuqua, supra, is accordingly overruled, [at 483]

In Fuqua v. Patterson, 193 F. Supp. 313 (N. D. Ala. 1961), aff’d per curiam 295 F. 2d 509 (5 Cir. 1961), the coirrt held that the decree of separate maintenance referred to in the Tax Court decision of Dean V. Fuqua, supra, did not effect a legal separation within the meaning of § 71(a) of the 1954 Code, which provided, in part, “If a wife is divorced or legally separated from her husband under a decree of divorce or separate maintenance, the wife’s gross income includes periodic payments * * * received after such decree in discharge of * * * a legal obligation which * * * is imposed on or incurred by the husband under the decree or under a written instrument incident to such divorce or separation * * In Alabama, as in New Jersey, the court is vested by statute with jurisdiction to grant an absolute divorce and a divorce from bed and board. In addition, by judicial decisions, the equity courts of Alabama have the power to decree separate maintenance without a divorce being sought or granted. The court noted in the Fuqua case that under Alabama law a decree of divorce from bed and board resulted in a legal separation of the parties which was not the ease under a decree of separate maintenance, stating:

* » * [TJo differentiate the status of the parties under a decree of divorce from bed and board, on the one hand, and a decree for separate maintenance, on the other, the Alabama court cited with approval the following from Williams v. Williams, 33 Ariz. 367, 265 P. 87, 89, 61 A. L. R. 1264:

The action for separate maintenance and the action for divorce a mensa et thoro are not the same. The former has for its object the compelling of a husband, who has willfully deserted or abandoned liis wife or who has committed acts that would give cause for an action for an absolute divorce, to provide a support for his wife and children, if any. It more directly involves the property rights. The judgment does not expressly authorize the wife to live separate and apart from the husband. That is probably what happens, but if so it is not under the sanction of a court decree, whereas under a decree of separation from bed and board the refusal of tbe wife to cohabit with the husband is so sanctioned and authorized. [193 IP. Supp. at 317]

A similar construction was placed on a “support and maintenance” order issued under a Pennsylvania statute which provided a method by which a wife who had been wrongfully deserted by her husband and deprived of support by his neglect could seek judicial assistance for her support and that of her children. In C. I. R. v. Ramkin, 270 F. 2d 160 (3 Cir. 1959), the court held that a husband who had made payments to his wife under such a support order was not entitled to exclude such payments from his gross income under § 23 (u) of the Internal Revenue Code of 1939 which authorized a husband described in § 22 (k) of the 1939 Code to deduct payments made to “a wife who is divorced or legally separated from her husband under a decree of divorce or of separate maintenance.” See also Rev. Rul. 58-321.

Accordingly, we hold that the Chancery Division did not err when it ordered the parties to file a joint Federal income tax return for each calendar or fiscal year after October 17, 1969 “so long as they may do so in accordance with the prevailing law,” and that it did not err when it entered the order of Juty 2, 1973 in aid of defendant’s rights, compelling plaintiff to “forthwith take such steps as are necessary to file a joint tax return with defendant for the year 1972.” We therefore affirm the order of Juty 2, 1973 in all respects, and vacate our stay of those portions of the orders of Juty 2, 1973 and August 27, 1973, requiring plaintiff to forthwith take such steps as are necessary to file a joint tax return with defendant for the year 1972. We modify, however, the order of August 27, 1973 to the extent that the time within which plaintiff shall file with defendant a joint federal income tax return for 1972 is extended 60 days from the date of this decision.


author: Cousodine, J. S. C.

text:
    BERNARD GARLINGER, PLAINTIFF, v. JOYCE GARLINGER, DEFENDANT.
    Superior Court of New Jersey Chancery Division
    Decided May 31, 1974.

      Mr. Monroe Ackerman for plaintiff (Messrs. Rudd & Ackerman, attorneys; Mr. Neil Braun on the brief).

      Mr. Gary Skoloff for defendant (Messrs. Skoloff & Wolfe, attorneys).
   Cousodine, J. S. C.

Judgment of divorce incorporated a settlement agreement awarding alimony, child support and amortization, taxes and interest on the marital home where defendant was to reside with the parties’ child until graduation from high school.

Subsequently a married man moved into the marital home. Plaintiff made a motion to eliminate alimony and sell the home. Defendant cross-motioned for specific performance. Testimony was taken. At the hearing it was admitted that the paramour lived with defendant for several months and while the child was in the house, that he and defendant engaged in sexual intercourse, that he made no payment for room or board and that he moved out after the filing of the notice of motion.

The question is: Is it consistent with the purpose of alimony as defined by our statutes and cases, with justice and with public policy and morality for the husband to continue to pay alimony under these circumstances?

Alimony is the periodic allowance from the husband’s income payable to the former wife for Tier maintenance, as fixed from time to time by the court according to the varying circumstances of the parties. Herman v. Herman, 17 N. J. Misc. 127, 5 A. 2d 768 (Ch. 1939). The distinct objective of alimony is the proper support of the wife, and the wife is not entitled to have more from the husband. O’Neill v. O’Neill, 18 N. J. Misc. 82, 11 A. 2d 128 (Ch. 1940). Alimony is not intended to punish or reward a spouse. Turi v. Turi, 34 N. J. Super. 313 (App. Div. 1955).

In our State pertinent law was set forth in Suozzo v. Suozzo, 16 N. J. Misc. 475, 1 A. 2d 930 (Ch. 1938), which held that post-marital unchastity by an ex-wife is not automatically a bar to her right to alimony. She does not owe a duty of chastity to her ex-husband, nor he to her. However, the ex-husband is not required, as the O’Neill and Herman cases make plain, to pay for the support of one who fornicates or commits adultery with her. Thus, under Suozzo the ex-husband may realize a modification in the amount of alimony. Cf. Grossman v. Grossman, 128 N. J. Super. 193 (Ch. Div. 1974).

Other jurisdictions are divided as to whether gross misconduct by the ex-wife after entry of judgment may in itself justify a reduction or termination of alimony. Compare Stanfield v. Stanfield, 22 Okl. 574, 98 P. 334 (Sup. Ct. 1908); Cariens v. Cariens, 50 W. Va. 113, 40 S. E. 335 (Sup. Ct. 1901); Lott v. Lott, 213 Ga. 559, 100 S. E. 2d 170 (Sup. Ct. 1959), and Bowman v. Bowman, 163 Neb. 336, 79 N. W. 2d 554 (Sup. Ct. 1956) (holding no); with Coggins v. Coggins, 289 Ky. 570, 159 S. W. 2d 4 (Ct. App. 1942); Martens v. Martens, 211 Minn. 369, 1 N. W. 2d 356 (Sup. Ct. 1941); Rubisoff v. Rubisoff, 242 Miss. 225, 133 So. 2d 534 (Sup. Ct. 1961); Rand v. Rand, 56 Misc. 2d 997, 290 N. Y. S. 2d 795 (Family Ct. 1968), and Weber v. Weber, 153 Wis. 132, 140 N. W. 1052 (Sup. Ct. 1913) (holding yes).

The rationale underlying the latter view is that it is unconscionable to compel a husband by his daily labor to support the divorced wife in idleness and immorality. Reasons of justice justify the court in such a case in exercising its general chancery powers, to modify or revoke its former order. Cole v. Cole, 142 Ill. 19, 31 N. E. 109 (Sup. Ct. 1892). The rationale has great force.

The fact that immoral conduct occurs in the home where child or children are present must also be considered. Gotthelf v. Gotthelf, 38 Ariz. 369, 300 P. 186 (Sup. Ct. 1931); Benjamin v. Benjamin, 78 Fla. 14, 82 So. 597 (Sup. Ct. 1919); Otani v. Otani, 29 Hawaii, 866 (Sup. Ct. 1927); Armstrong v. Armstrong, 395 S. W. 2d 484 (Mo. App. 1965). It is a factor here.

Finally, a court of equity will not enforce specific performance of a contract where, from a change of circumstances or otherwise, it would be unconscionable to enforce it. Schiff v. Schiff, 116 N. J. Super. 546 (App. Div. 1971). It is well settled that specific performance of a contract will not be decreed if the specific performance to be compelled is contrary to public policy.. Restatement, Contracts, § 369 at 671 (1932). Cf. Id. §§ 512, 598, 600, 602.

In New Jersey cohabitation without benefit of marriage is contrary to public policy. Weiner v. Weiner, 120 N. J. Super. 36 (Ch. Div. 1972). Furthermore, fornication is a crime. N. J. S. A. 2A:110-1, as is adultery. N. J. S. A. 2A:88-1.

An agreement is against public policy if it is injurious to the interest of the public, contravenes some established interest of society, violates some public statute, is against good morals, tends to interfere with the public welfare or safety, or, as it is sometimes put, if it is at war with the interests of society and is in conflict with public morals. 17 Am. Jur. 2d, Contracts, § 179 at 541. The enforcement of contracts clearly repugnant to sound morality will generally be denied. Veazey v. Allen, 173 N. Y. 359, 66 N. E. 103 (Ct. App. 1903). To compel the ex-husband to contribute to his ex-wife’s support would be, under the circumstances, to use the authority and power of this court to encourage crime and subsidize immorality.

The alimony payable to defendant is suspended from the drst week of November 1973 — the date of the commencement of cohabitation — until further order of the court; the marital home will be sold now rather than in June 1975; child support is continued; the Probation Department will investigate and report on the well-being of the child, and a future hearing will be held in that regard.


author: Kimmelman, J. S. C.

text:
    UNION MINERALS AND ALLOYS CORP., PLAINTIFF, v. PORT REALTY & WAREHOUSING CORP., ET AL, DEFENDANTS.
    Superior Court of New Jersey Chancery Division
    Decided June 3, 1974.

      Messrs. Cole, Berman & Belsky, attorneys for plaintiff (Mr. Morrill J. Cole appearing).

      Messrs. Kirsten, Solomon, Friedman & Cherin, attorneys for defendants (Mr. Harold Friedman appearing).
   Kimmelman, J. S. C.

The compelling facts in this case call for the intervention of the strong arm of equity in order to forestall a breach of a lease covenant requiring possession of the demised premises to be surrendered and delivered up on or before September 30, 1974.

It is undisputed that plaintiff is the landlord under an agreement of lease with defendant Port Realty & Warehousing Corp. as tenant, covering a huge industrial building located in Kearny, New Jersey, on property formerly known as the H. S. Naval Industrial Reserve Shipyard. The demised term was for a period of ten years commencing October 1, 19G4 and ending September 30, 1974. Photographs presented to the court show that all available space on the demised premises has been utilized for the storage of vast quantities of machinery and equipment of such immense size and weight as to dwarf workmen .standing nearby.

With September 30, 1974 approaching, plaintiff is fearful that unless defendant undertakes appropriate action at this time, the enormity and complexity of the task facing it to remove the machinery and equipment will necessarily consume a period of time which will extend beyond the expiration date of the lease. Plaintiff has formulated plans to construct a steel mill on the demised premises for the production of steel reinforcing bars for the construction industry. That product is said to be in short supply and the subject of great demand. Plaintiff’s plans for the steel mill have progressed beyond the mere drawing board stage, and hence its concern in securing prompt possession of its premises upon termination of the lease.

It is claimed by plaintiff that an officer of defendant stated in December 1973 that it would take almost a year beyond the September 30, 1974 termination date for defendant to remove its property. On the other hand, in response to the application of plaintiff for preliminary injunctive relief, defendant’s principal states:

We liave been actively looking for almost a year for a suitable new location. We expect to have one in sufficient time to effectuate a move which would avoid holding over. The immediate problem that exists is not so much the time to move but the place, expense, and liquidation of inventories.

It goes without saying that the timing of any move depends on what inventory is to be scrapped, what is to be moved to customers, and what is to be relocated in inventory at a new location. But our plans must be integrated. By reason of our accelerated efforts to sell off machinery, we hope to minimize a move to storage. We reiterate that we intend and believe that we can and will in orderly fashion be able to surrender the premises at the expiration of our lease. But we also stress that a precipitous move will destroy our ability to market the machinery and orderly wind up our affairs at this location.

Faced with plaintiff’s expert’s assertion that it would take at least 150 working days to remove the machinery and equipment from the demised premises, which assertion was countered by defendants’ claim that it has every intention of complying with the September 30, 1974 deadline and its argument that an anticipatory breach of the lease should not be assumed, this court ordered that both parties retain the Brennan Company of Kearny, New Jersey, a reliable and independent rigger, for the purpose of advising the court as to the commencement date of the move. Brennan now advises that the machinery and equipment can be removed (assuming the new location is within a radius of 10 to 15 miles) within 12 weeks, based upon five 8-hour working days a week, or within 10 weeks, based upon five 12-hour working days a week. The work should begin not later than July 1, 1974 regardless of which alternative is used, and the planning for the work must be done not later than mid-June.

It is axiomatic that a landlord is entitled to possession of his leased property promptly upon the expiration of the term of the demise. A tenant who fails to quit the premises at the expiration of the term is considered a wrongdoer subject to an action for ejectment and for damages by the landlord. Beach Realty Co. v. Wildwood, 105 N. J. L. 317 (E. & A. 1929); Decker v. Adams, 12 N. J. L. 99 (Sup. Ct. 1830). As part of its use and enjoyment of leased premises every tenant must take timely steps to wind down or tail off its operations so that it will be able to meet the lease deadline. Although the end of the demised term has not yet arrived, the unusual factual circumstances here presented when coupled with the inexorable passage of time compels the court to the conclusion that the breach of the lease clause requiring surrender of possession by September 30, 1974 is most imminent if not already preordained. Unless the defendant takes appropriate action now “with all deliberate speed” it will be physically impossible for the defendant not to breach.

Obviously, where a party so governs Ms conduct as to voluntarily place out of Ms control the power to perform a contract even though the time for performance has not yet arrived, he is guilty of an anticipatory breach of that undertaking and may be held accountable at both law and equity. Internal Water Healer v. Burns Brothers, 114 N. J. L. 368, 373 (E. & A. 1934) ; Miller & Sons Bakery Co. v. Selikowitz, 8 N. J. Super. 118 (App. Div. 1950); Roth Systems v. Linden Dari-Delite, Inc., 35 N. J. 329, 341 (1961); 49 Am. Jur. 2d, Landlord and Tenant, § 178 at 202-203; cf. Dover Shopping Center v. Cushman’s Sons, Inc., 63 N. J. Super. 384 (App. Div. 1960).

Research has not disclosed any reported decision dealing with a court’s power to force a tenant to commence preparations to remove himself at the expiration of a demised term. However, where the facts are compelling, as in the instant matter, mere lack of precedent should not stand as a bar to equitable relief. Fortugno v. Hudson Manure Co., 51 N. J. Super. 482, 501 (App. Div. 1958).

Under all of the circumstances, plaintiff’s complaint is neither fancied nor imagined. Defendant’s appropriation of plaintiff’s property beyond the September 30, 1974 deadline looms larger each day rendering the anticipated or threatened injury very real indeed. Consequently, equitable intervention is required. Hoffmann La-Roche, Inc. v. Weissbard, 11 N. J. 541, 551 (1953).

At this stage of the proceedings the court will entertain an order reciting the following form of relief:

1. Plaintiff has the right to secure possession of the demised premises on September 30, 1974.

2. Defendant shall forthwith make arrangements to secure suitable space capable of accommodating the machinery and equipment which is to be removed from plaintiff’s premises.

3. Defendants shall forthwith make arrangements to dispose of, by way of sale, lease or otherwise, any such machinery and equipment it does not desire to remove to a new location.

4. Defendant shall forthwith make necessary arrangements with a rigging company or other mover to commence removal of the machinery and equipment not later than July 1, 1974.

5. Defendant shall report to this court not later than June 14, 1974 all arrangements made to implement the foregoing.

6. The mandatory provisions of the order shall be subject to amendment or modification upon two days’ notice.

The foregoing shall not be deemed a final disposition of this matter but shall be considered as providing for a preliminary mode of relief, the efficacy of which shall be tested in the light of subsequent events. Cf. Dover Shopping Center v. Cushman’s Sons, Inc., supra. The question of damages, if any, is expressly reserved.


author: Van Tassel, J. C. C.,

text:
    LOUISA COLA, PLAINTIFF, v. SPARTACO V. TERZANO, SIDNEY PACKER, CARVEL A. KLEE, I.I.S. FINANCIAL CORP., A PENNSYLVANIA CORPORATION, INTERAMERICA INVESTORS SERVICES, INC., DEFENDANTS.
    Superior Court of New Jersey Law Division
    Decided June 5, 1974.

      Mr. Leon S. Wolk for plaintiff.

      Mr. Robert Greenberg for defendant Spartaco V. Terzano (Messrs. Greenberg & Reiner, attorneys).

      Mr. Herman B. Packer for defendants Carvel A. Klee, Sidney Packer, I. I. S. Financial Corporation and Interamerica Investors Services, Inc. (Messrs. Packer & Packer, attorneys).
   Van Tassel, J. C. C.,

Temporarily Assigned. This is a case involving the sale of unregistered stock in which the buyer seeks to invoke civil remedies under New Jersey’s Uniform Securities Law, N. J. S. A. 49:3-47 et seq. In this regard it is a ease of first impression in New Jersey.

The complaint and pretrial order sound in fraud and deceit; however, the court is permitting an amendment to conform to proof pursuant to R. 4:9-2, to include the violations of N. J. S. A. 49 :3-47 et seq., since the facts alleged and testimony adduced provided reasonable notice as to the basis upon which relief was sought. See South v. West Windsor. 82 N. J. L. 262, 264 (Sup. Ct. 1912). R. 4:9-3 permits amendments to relate back to the date of the original pleading.

Spartaco V. Terzano was employed as a group manager of Interamerica Investors Services, Inc. (Interamerica) in the Hudson County area. As as agent of Interamerica he was authorized to sell shares of stock in I.I.S. Financial Corp. (I.I.S.). Interamerica, a subsidiary of I.I.S., was a broker-dealer involved in the sale of mutual funds and insurance. Terzano was licensed to sell stock 14 years before the subject sale in this suit. He had attended an Investor’s Planning Corp. formal training program relating to stock sales.

On January 14, 1971 Terzano visited the home of plaintiff Louisa Cola at the request of her son-in-law Ciriaeo DiPalma. Terzano and the DiPalmas were to discuss the prospect of insurance for personal property within their home. Mrs. Cola owned the two-family home and was introduced to Terzano as a friend of DiPalma’s for 20 years. Their discussion of insurance culminated in Mrs. Cola’s purchase of a fire insurance policy on the house. DiPalma also purchased insurance from Terzano.

Thereafter, Mrs. Cola’s nephew Mr. Barrota, who was seated at the living room table along with Terzano, Cola and the DiPalmas, began a discussion about investments in the Oppenheimer Fund. Terzano noted that this was a long-term investment and said that he was familiar with other investments which paid much more quickly. DiPalma then mentioned that Mrs. Cola had been involved in mortgage loans which paid 6% interest. Terzano replied that he knew of a company which “guaranteed” 9% “interest” as opposed to the 6%-7% flowing from mortgage investments. At the trial Terzano insisted that he used the word “dividend” and that plaintiff insisted that he used the word “interest” when discussing the terms of the investment. Terzano also claims that he used the word “return.” He advised the group that his company had great potential, with offices “all over,” and that an investment with his company would prove far more profitable.

Terzano remained at Cola’s residence for approximately %y2 hours during which time Mrs. Cola and Terzano discussed the details of an investment with Terzano’s company. Louisa Cola, a 75-year-old foreign-born widow with no formal education, spoke very little English. She understood only, through her son-in-law’s translation into Italian, that she was investing her money in a Pennsylvania insurance company. She thought she was transacting an interest-bearing loan arrangement whereby she would receive a guaranteed 9% interest semi-annually. She was familiar with this type of arrangement since she had given mortgage investment loans through her attorney, Mr. Delchop, two or three times in the past, and in each had received back her capital and interest. According to her testimony, she was assured by Terzano that she could 'have her money back at any time; that if she died, her children would receive it and that the 9% interest semiannually was “guaranteed.” Terzano’s own testimony corroborates the “guarantee” representation.

That night arrangements were made by Mrs. Cola and Terzano to finalize the deal. The other members of her family were not aware of this or the fact that on January 16, 1971 Terzano drove Mrs. Cola to the Oritani Savings & Loan where she drew a check for $15,000. She endorsed it for deposit only, payable to I.I.S., and gave it to Terzano. He then forwarded it to his home office in Pennsylvania and later received a commission on the sale. On March 16, 1971 Mrs. Cola received a letter from Sidney Packer which acknowledged her purchase of 150 shares of I.I.S. 9% preferred stock at $100 a share. Packer indicated that the shares were to convert to 40 shares of common stock on April 15, 1973 and that the shares were registered in his name until converted. No prospectus, financial statement or brochure of company information had been shown to Mrs. Cola. Only an Interameriea calendar with Terzano’s card attached was produced as to the authenticity of the company and the subject transaction. The card indicated that Terzano was a manager for Interameriea.

Mrs. Cola had never owned or been involved in the purchase of any corporate stock, public or private, and was totally unfamiliar with such sophisticated investments. In March 1972 she sought the assistance of counsel for collection purposes. It was then that she first learned of the legal significance and speculative nature of the January 1971 transaction.

The sale of corporate stock and securities is a sophisticated business which requires regulation in the public interest. Those who deal in these transactions must be held to high standards. Higgins v. N. J. Bureau of Securities, 100 N. J. Super. 266 (App. Div. 1968). The Securities Laws were intended to protect the uninitiated and to prevent frauds on the public at large. Stevens v. Liberty Packing Corporation, 111 N. J. Eq. 61 (Ch. 1932). Historically, the Securities Act was purely preventative and not redressive. Its sanctions were imposed only through the criminal courts. Stevens v. Home Brewery, Inc., 112 N. J. Eq. 513, 517 (Ch. 1933).

In 1960 New Jersey provided for civil actions m connection with the sale of securities. In the 1967 amendments the Legislature added a fourth basis upon which to predicate civil liability. This section reads:

(a) Any person who (1) offers or sells a security in violation of sections 8(b) (unlawful representation concerning registration), 9(a) (broker dealers, agent or investment advisor; registration requirement), or 13 (registration of securities; requirement) of this act... is liable to the person buying the security from him, who may sue to recover the consideration paid for the security, together with interest at (>% per year from the date of payment and costs, less the amount of any income received on the security, upon the tender of the security and any income received on it, or for damages if he no longer owns the security.

N. J. S. A. 49:3-71 (b) provides:

(b) Every person who directly or indirectly controls a seller liable under paragraph (a), every partner, officer, or director of such a seller, every person occupying a similar status or performing similar functions, every employee of such a seller who materially aids in the sale, and every broker-dealer or agent who materially aids in the sale are also liable jointly and severally with and to the same extent as the seller, unless the nonseller who is so liable sustains the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable.

The language of this 19-67 amendment is clear that liability attaches “by operation of lav” to the sale by any person of any nonexempt, unregistered security. N. J. S. A. 49:3-71; N. J. S. A. 49:3-60; see also, State v. West, 29 N. J. 327, 331 (1959); 96 N. J. L. J. 305, 324. Cf. Data Access Systems, Inc. v. State, 63 N. J. 158, 163 (1973); In re Information Resources, 126 N. J. Super. 42 (App. Div. 1973). With regard to the liability of “non-sellers,” such as officers, directors and “control persons,” other jurisdictions have interpreted statutes similar to N. J. S. A. 49:3-71 (b) and have based liability on minimal participation in the sale. Moerman v. Zipco, Inc., 302 F. Supp. 439 (D. E. D. N. Y. 1969), aff’d 422 F. 2d 871 (2 Cir. 1970); Goelitz v. Lathrop, 286 Ill. App. 248, 3 N. E. 2d 305 (App. Ct. 1936). Abrams v. Love, 254 Ill. App. 428 (App. Ct. 1928); see generally, 44 A. L. R. 3d 588. Guidance from these and other sister state decisions in this area is particularly appropriate. These decisions should be followed, especially where, as here, the purpose of the Uniform Securities Law, insofar as adopted by N. J. S. A. 49:3-47 et seq., is to promote uniformity and standardization of transactions thereunder. State v. Russell, 119 N. J. Super. 344, 350 (App. Div. 1972); State v. Weissman, 73 N. J. Super. 274, 281 (App. Div. 1962); see also, 2 Sutherland Statutory Construction (3d ed. Horack 1943), § 5211 at 557 (similar construction to be given to comparable statutes).

Kneeland v. Emerton, 280 Mass. 371, 183 N. E. 155 (Sup. Jud. Ct. Mass. 1932), was the first decision in Massachusetts under its Sale of Securities Act. In that case plaintiff sued to recover the purchase price of stock based on the seller’s failure to comply with statutory requirements similar to our registration requirements. The court held that the seller’s failure to comply with the securities laws justified rescission by the buyer. This civil remedy is also available for other violations of the Massachusetts Securities Laws. See Giordano v. Auditore, 355 Mass. 254, 244 N. E. 2d 555 (Sup. Jud. Ct. 1968).

In Moerman v. Zipco, supra, the purchaser alleged violations of the Federal securities laws and Connecticut Blue Laws. The court gave judgment for the plaintiff and allowed for the recovery of the purchase price with interest, plus costs and attorney’s fees. The court said:

Tlie only facts necessary to establish liablity under the Connecticut statute are that stock was sold, and that it was not registered. * * * [302 F. Supp. at 440]

On rehearing, 430 F. 2d 362 (2 Cir. 1970), the court held that ignorance of the Connecticut statute was no defense. The statute provided for recovery of the purchase price plus interest from:

* * eyery person who directly or indirectly controls a seller liable under subsection (a) of this section every partner, officer or director of such a seller, every person occupying a similar status or performing similar functions, every employee of such a seller who materially aids in the sale and every broker or dealer or salesman who materially aids in the sale shall be liable jointly and severally with and to the same extent as the seller * * * if the person charged thereunder knew or could have reasonably determined that the securities had not been registered. * * * [at 363]

The court notes the similarity of N. J. S. A. 49:3-71(b) to the Connecticut statute.

In Richardson v. MacArthur, 451 F. 2d 35 (10 Cir. 1971), the court found a corporation liable as a “controlling person” within § 20(a) of the Security Exchange Act of 1934. The court said:

Liability under § 20(a) is not restricted by principles of agency or conspiracy. The statute is remedial and is to be construed liberally. It has been interpreted as requiring only some indirect means of discipline or influence short of actual direction to hold a controlling person liable.

See Myzel v. Fields, 386 F. 2d 718 (8 Cir. 1967) cert. den. 390 U. S. 951, 88 S. Ct. 1043, 19 L. Ed. 2d 1143 (1968), and Moerman v. Zipco, Inc., supra.

The corporation was liable in Richardson v. MacArthur, supra, because it had selected the seller to develop the corporation in another state, to handle its affairs within that state, and had regularly received reports from him as to his corporate dealings in that state.

The court again notes the similarities of N. J. S. A. 49:3-71 (b) to the statute construed.

In Miller v. Griffith, 196 N. E. 2d 154 (Ohio Sup. Ct. 1961), the purchaser of stock brought an action for the purchase price against officers of a corporation on the grounds of Securities Act violations. The court noted that the. burden of proving that the securities were exempt from registration was on the corporation and that the failure to register the stock or obtain an exemption gave rise to an action for the price not only against the corporation but also against every officer or person who participated in the sale in any way. The court held the corporation’s president, who did not directly participate in the sale but who had signed the stock certificates, liable to return the purchase price of the stock because of the violation of the Securities Act. See also, Arnold v. Mixon, 194 S. E. 2d 307 (Ga. Ct. App. 1972).

In Young v. Kwock, 474 P. 2d 285 (Hawaii Sup. Ct. 1970), the purchasers of unregistered notes sold in violation of state “Blue Sky” laws, brought an action against several officers of the selling corporation to rescind the sale. The court said that when unregistered securities are sold in violation of secui'ities law, the “seller” is automatically liable in statutory rescission. It said that this remedy extends to officers, directors and agents who aid or participate in the unlawful sale. They are charged with knowledge of “Blue Sky” registration requirements and are liable in rescission for any contribution or knowledgeable assistance in the distribution of unregistered securities.

It is clear from the foregoing authority that liability attaches by operation of law to sales of securities transacted in violation of state securities laws. N. J. S. A. 49:3-60 and portions of the New Jersey Administrative Code require prior registration of nonexempt securities. There is ample evidence in this case demonstrating that the stock was unregistered. No proof was offered as to the availability of any exemption under N. J. S. A. 49:3-60 or 49:3-50. Consequently, the court finds the sale of this stock violated the above statutory provisions and gives rise to an action for rescission against all those who participated in the sale; N. J. S. A. 49:3—71. Miller v. Griffith, supra; Young v. Kwock, supra.

There can be no doubt as to Terzano’s liability under N. J. S. A. 49:3-70(a). He was the actual seller who negotiated with Mrs. Cola, made the representations in question, and participated in the actual transfer of funds from Mrs. Cola to I.I.S. During the first quarter of 1971 sales of I.I.S. stock had reached the $200,000 level. Terzano himself had invested $1,000 in I.I.S. stock in July of 1970. He was also generally familiar with the fact that unregistered stock was restricted to certain investors although he denied familiarity and training in “private placement” stock sales and denied familiarity with “fending capability.” It is significant that Terzano, as a manager, had five or six persons as salesmen under him. He attended meetings of managers at which Carvel Klee presided, received bulletins which discussed in great detail the different investment possibilities they should pursue and sell, including the very stock which he sold to Mrs. Cola. It is also admitted that he had not revealed to Mrs. Cola the fact that any dividends to he paid hy the corporation were conditioned on the board of directors declaring such dividends, nor did he tell her that the stock was restricted as to sale and distribution and could not be transferred or disposed of without an opinion of counsel.

Sidney Packer, who was on the same level as Terzano, was a managing agent in Clifton, New Jersey. He too received bulletins, attended sales meetings and had men working under him. Testimony also reveals that Packer purchased large quantities of I.I.S. stock and sold large quantities to his relatives. His letter acknowledging the purchase and his being the nominee of Mrs. Cola’s stock warrants a similar finding against him. Miller v. Griffith, supra; Young v. Kwock, supra.

Carvel Klee, the resident vice-president of I.I.S., was the person to whom all checks and payments were sent. He was formally associated with Investors Planning Corp. and was familiar with the securities laws since at one time he was licensed to sell stock. Klee became associated with Interamerica in January 1969, after leaving a manager’s position in the New Jersey branch of Wadell & Reed, a broker-dealer in mutual funds.

In April 1970, when all shares of Interamerica were exchanged for shares of I.I.S., he became a director of Interamerica. Thomas Lehe then became president of both corporations. Klee knew Lehe from Wadell & Reed, and through discussions with Lehe and Morris Forer he helped set up I.I.S. and devise the nominee distribution system of I.I.S. shares throughout the nation. Forer was corporate counsel to Lehe and a former director of I.I.S. He expressed his concern with the requirements of various “Blue Sky” and federal securities laws. He sent numerous letters to Lehe in this regard and discussed these problems with Lehe and Klee. Additionally, there is ample testimony supporting this court’s finding that each was aware that the sale of I.I.S. stock was not a purely intrastate offering, to persons who could “fend” for themselves or to persons possessed with requisite skills in securities investments. Specifically, the court finds that Klee, like Packer, was a nominee and held shares of stock for the benefit of more than 20 non-resident purchasers. Furthermore, the stock sold was restricted as to resale and was so stamped.

In summary, the evidence is abundantly clear that these officers and directors were aware of the potential violations of “Blue Sky” laws and yet failed to effectively comply with the statutes. Hnder these circumstances the court charges Klee and Lehe, as the president of I.I.S. and Interamerica, with knowledge and violations of N. J. S. A. 49:3-71(b). State v. Russell, 119 N. J. Super. 344, 351 (App. Div. 1972); Cf. Budelman v. White’s Exp. & Transfer Co., 49 N. J. Super. 511 (App. Div. 1958); Abeles v. Adams Engineering Co., 64 N. J. Super. 167 (App. Div. 1961), mod. 35 N. J. 411; Singer Mfg. Co. v. Sun Vacuum Stores, Inc., 192 F. Supp. 738 (D. C. N. J. 1961); K & J. Clayton Holding Corp. v. Keuffel & Esser, 113 N. J. Super. 50 (Ch. Div. 1971); see also, Miller v. Griffith, supra, and Young v. Kwock, supra; and Smith v. Crawford, 288 Ky. 420, 15 S. W. 2d 249 (Ct. App. 1929); Chamber v. Beckwith, 247 Mich. 255, 225 N. W. 605 (Sup. Ct. 1925); McWhirter v. Holmes, 49 Ga. App. 536, 176 S. E. 153 (App. Ct. 1934); Mary Pickford Co. v. Bayly Bros., 68 P. 2d 239, (Cal. D. Ct. App. 1937), mod. 12 Cal. 2d 501, 86 P. 2d 102 (Sup. Ct. 1939); Strahan v. Rodney, 97 Cal. App. 2d 448, 217 P. 2d 711 (D. Ct. App. 1950); Perkins v. Dole, 240 Ill. App. 20 (App. Ct. 1926); Cleland v. Smart, 321 Mich. 46, 32 N. W. 2d 42 (Sup. Ct. 1948); Ferar v. Hall, 330 Mich. 214, 47 N. W. 2d 79 (Sup. Ct. 1951).

There are also allegations of fraud and deceit in this ease. The court finds that the essential element of scienter on the part of Terzano is lacking. His representations as to the financial position of I.I.S. and Interamerica were not proved to be made with knowledge of their falsity. His testimony was, to his knowledge (and he had no reason to believe otherwise), that the corporations were exceedingly prosperous. However, there is no doubt that his representations as to corporate worth, the “guarantee” of 9% interest and the assurance of the return of capital, induced Mrs. Cola into a transaction into which she would not have entered except for her misapprehension as to its basic nature. She expended $15,000 understanding it to be a loan and consequently lost at least the going commercial interest rate on her money. These circumstances also entitled plaintiff to rescind the transaction on the basis of equitable fraud. See Foont-Freedenfeld v. Electro-Protective, 126 N. J. Super. 254 (App. Div. 1973). Marx v. Jaffe, 92 N. J. Super. 143, 147 (App. Div. 1966), certif. den. 48 N. J. 140 (1966); Merchants Ind. Corp. v. Eggleston, 37 N. J. 114, 130 (1962). See also Prosser, Torts (3d ed. 1964), § 100, and Restatement, Restitution, § 28, wherein fraud is treated with mistake.

There will be judgment in favor of Mrs. Cola for the purchase price of the stock with interest running from the date of payment plus costs. The relief on the cross-claims is denied. See Young v. Kwock, supra. In view of the fact that Mrs. Cola has received no return on her investment, has been unable to recoup her principal and was compelled to retain counsel to pursue the matter in court, an award of a counsel fee of $1,000 is warranted. See Moerman v. Zipco, supra.

        . J. S. A. 49:3-19

        . J. S. A. 49:3-71

      See N. J. A. C. 13:13-9.14; 13:13-10; 13:13-11.20; 13:13-15 (Bureau of Securities).

      The following- legend was stamped in the upper left-hand corner of the stock certificate issued to Sidney Packer to be held by him for Mrs. Cola:
      “The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares represented by this certificate have been taken by the registered owner for investment, and without a view to resale or distribution thereof, and may not be transferred or disposed of without an opinion of counsel satisfactory to the issuer that such transfer or disposition does not violate the Securities Act of 1933, as amended, or the rules and regulations thereunder.”


author: Matturri, J. J. & D. R. C.

text:
    STATE OF NEW JERSEY IN THE INTEREST OF M. S.
    Juvenile and Domestic Relations Court of Essex County
    May 10, 1974.
    Addendum to Opinion May 31, 1974.

      Mr. Robert J. Schenkman, Assistant Prosecutor, for the State (Mr. Joseph P. Lordi, Essex County Prosecutor, attorney; Ms. Sara A. Friedman, Assistant Prosecutor, on the brief).

      Mr. Thomas S. Smith, Assistant Deputy Public Defender, for the juvenile (Mr. Stanley G. Van Ness, Public Defender, attorney; Mr. Michael Degnan, Assistant Deputy Public Defender, on the brief).

      Mr. Robert A. Rubenfeld, Deputy Attorney General, for amicus curiae (Mr. William F. Hyland, Attorney General, attorney; Mr. Rubenfeld on the brief).
   Matturri, J. J. & D. R. C.

The question presented in this ease is whether the unauthorized departure of a juvenile in need of supervision from the Essex County Shelter (hereinafter referred to as the Shelter) where she was placed by court order pending permanent placement constitutes escape. The issue is one of first impression in this State. In order to understand how this complex issue arose, a brief recitation of the juvenile’s background is necessary.

The case involves M. S., a 13-year-old girl with an extensive history of runaways from various juvenile facilities. The initial complaint filed against her (J-6530-72) alleged that she absconded from the Shelter on four separate occasions. She was charged with being an habitual runaway, a ground for adjudication of delinquency under N. J. S. A. 2A:4 — 14 (1959), the old Juvenile Court statute then in effect. Since she failed to appear in court on the scheduled date, a bench warrant for her appearance was issued. Upon her return she was placed in a foster home.

On September 5, 1973 a second delinquency petition (J-84-73) charged M.S. with running away from her foster home and incorrigibility, pursuant to N. J. S. A. 2A:4-14 (1) (f) (1959). After the detention hearing she .was remanded to the Youth House. Only two days later, on September 8, 1973, she again fled. Later that day she was returned by her mother. Due to her unstable home situation, M.S. was presumably unwilling to even remain with her. She could give no reason justifying her absence; she had no complaints about her treatment at the institution. As a result of this incident a third complaint was issued (J — 178-73) charging her with escape.

Upon her own admission M.S. was adjudicated delinquent for being a runaway and incorrigible (J-84-73) on October 1, 1973. The two remaining complaints for being an habitual runaway (J-6530-72) and escape (J-178-73) were dismissed upon the prosecutor’s motion. The Division of Youth and Family Services was ordered to investigate placement possibilities and report its findings to the court. Thereupon, she was placed in a foster home. Meanwhile, arrangements were made to have appropriate psychological, psychiatric and physical examinations performed. Due to extreme behavioral problems, however, she was removed to the Shelter on October 12, 1973. On October 27, 1973 she once more left the Shelter, thereby interrupting the testing process. After her return on November 28, 1973 she was again remanded to the Youth House. She was transferred by court order to the Shelter on March 1, 1974, the effective date of the new Juvenile Court statute, awaiting permanent residential placement to be reported by the Division.

Within five days, on March 6, 1974, M.S. staged another exodus from this temporary abode. After a nine-day absence, she was remanded to the Youth House, where she has been detained due to her numerous prior runaways. In light of her chronic background she was charged with juvenile delinquency for escape in violation of N. J. S. A. 2A :104-6 (1934) under the complaint in issue (S-33). This latest flight allegedly comprised her eighth runaway (six from the Shelter) over an eight-month period, all occurring while she was still 12 years old.

The child’s psychological and psychiatric testing indicated a good deal of “street savvy,” as demonstrated by her frequent successful runaway incidents. In her psychological interview she readily confessed to smoking pot, “snorting” and drinking, as well as stabbing others and attempting suicide. She was diagnosed as a “hysterical personality with passive-aggressive features.” Her behavior was classified as unmanageable, disruptive and oppositional. A distinct likelihood of “sexual acting out” during her runaway escapades was noted. This is supported by her admission of casual sexual relationships with five boys since age 9, and her preoccupation with having a baby of her own. Closely supervised, structured residential placement was strongly recommended by the examining psychologists, the social worker, as well as the caseworker from the Division of Youth and Family Services.

The facts in this case are not in issue. As stated in defendant’s brief, “the juvenile left the grounds of the Shelter.” The only question to be resolved is whether her actions constitute escape within N. J. S. A. 2A:104-6 (1934).

It is argued that as a JINS, M.S. may not be placed in a physically confining environment. The contention is made that running away from a nonrestrictive facility, such as the Shelter, cannot be penalized as escape under N. J. S. A. 2A.104-6 (1934) since such a charge would contravene the philosophy of the new Juvenile Act.

N. J. S. A. 2A:104-6 (1934) defines escape thusly:

Any person imprisoned or detained in a place of confinement, or being in the lawful custody or control of a penal or correctional institution or of an officer or other person, upon any charge, indictment, conviction or sentence for any crime, or upon any writ or process in a civil action or proceeding, or to await extradition, who by force or fraud escapes or attempts to escape from such place of confinement or from such custody or control, or leaves the building or grounds of his place of confinement without the consent of the officer in charge, is guilty of a misdemeanor. (Emphasis added)

As originally enacted in 1898, this statute only prohibited escape from incarceration. State v. Frost, 95 N. J. Super. 1 (App. Div. 1967). The 1931 amendment extended its coverage to include escape from the custody or control of the sheriff or any other officer. The present version, enacted in 1934, further broadened its scope to criminalize escape by one detained via civil “writ or process.” State v. Frost, supra. Though entitled by the headnotes as “Prisoners escaping or attempting to escape,” it is clear that the provision also encompasses flight by non-prisoners from “lawful custody or control” in civil proceedings. It is well established that head-notes are not part of the Revised Statutes and “no implication or presumption of a legislative construction is to be drawn therefrom.” In re J. W., 44 N. J. Super. 216, 224 (App. Div. 1957), certif. den. 24 N. J. 465 (1957).

Various analogous statutes also proscribe unauthorized departures from situations not involving strictly criminal incarceration. Unsanctioned absence by a judicially committed patient from a mental institution has been characterized as escape. N. J. S. A. 30:7B-5 (1956); N. J. S. A. 30.4-116 (1924). See State v. LeVien, 82 N. J. Super. 29 (Law Div. 1963), in which the court intimated that any attempt to leave the institution by a judicially committed mental patient would be met by force. See also. Drew v. Thaw, 235 U. S. 432, 35 S. Ct. 137, 59 L. Ed. 302 (1914); Slagle v. State, 243 Md. 435, 221 A. 2d 641 (Ct. App. 1966); Cf. Frazier v. United States, 119 U. S. App. D. C. 246, 339 F. 2d 745 (D. C. Cir. 1964); Zimmer v. State, 247 N. E. 2d 195 (Ind. Sup. Ct. 1969); contra, State v. Burris, 346 S. W. 2d 61 (Mo. Sup. Ct. 1961). For cases finding defendant guilty of escape upon absconding from a hospital to which he was transferred from prison, see United States v. Perez, 457 F. 2d 555 (6 Cir. 1972); Tucker v. United States, 251 F. 2d 794 (9 Cir. 1958); State v. Adams, 4 Ariz. App. 298, 419 P. 2d 739 (Ct. App. 1966); People v. Armstrong, 188 Cal. App. 2d 745, 10 Cal. Rptr. 618 (D. Ct. App. 1961); Best v. Warden, 235 Md. 633, 201 A. 2d 490 (Ct. App. 1964); contra, Goodman v. State, 96 Ariz. 139, 393 P. 2d 148 (Sup. Ct. 1964).

Willful failure to remain within the limits of confinement or to promptly return to an assigned facility has also been designated as escape. N. J. S. A. 30:4-91.5 (1969). See Johnsey v. State, 80 Okl. Cr. 84, 157 P. 2d 221 (Ct. App. 1945); Perry v. State, 80 Okl. Cr. 58, 157 P. 2d 217 (Ct. App. 1945). See also United States v. Rudinsky, 439 F. 2d 1074 (6 Cir. 1971); United States v. Coggins, 398 F. 2d 668 (4 Cir. 1968); McCullough v. United States, 369 F. 2d 548 (8 Cir. 1966); Nace v. United States, 334 F. 2d 235 (8 Cir. 1964); People v. Labrum, 25 Cal. App. 3d 105, 101 Cal. Rptr. 602 (D. Ct. App. 1972); People v. Perez, 24 Cal. App. 3d 340, 100 Cal. Rptr. 834 (D. Ct. App. 1972); contra, United States v. Person, 223 F. Supp. 982 (S. D. Cal. 1963).

Absconding from a workhouse, N. J. S. A. 30:8-36 (1877), or from a work release program, N. J. S. A. 30:8—53 (1968), are also punishable as escape. See People v. Smith, 195 Cal. App. 2d 789, 16 Cal. Rptr. 111 (D. Ct. App. 1961); People v. Hadley, 88 Cal. App. 2d 734, 199 P. 2d 382 (D. Ct. App. 1948); Saylor v. Commonwealth, 122 Ky. 776, 93 S. W. 48 (Ct. App. 1906); State v. Putnam, 248 Minn. 182, 79 N. W. 2d 273 (Sup. Ct. 1956); State v. Baker, 355 Mo. 1048, 199 S. W. 2d 393 (Sup. Ct. 1947); State v. McInerney, 53 R. I. 203, 165 A. 433 (Sup. Ct. 1933). See also United States v. Hollen, 393 F. 2d 479 (4 Cir. 1968); People v. Haskins, 177 Cal. App. 2d 84, 2 Cal. Rptr. 34 (D. Ct. App. 1960); Gaskill v. State, 1 Storey 107, 51 Del. 107, 138 A. 2d 500 (Super. Ct. 1958); State v. Rardon, 221 Ind. 154, 46 N. E. 2d 605 (Sup. Ct. 1943); Cutter v. Buchanan, 286 S. W. 2d 902 (Ky. Ct. App. 1956); Shifflett v. State, 4 Md. App. 227, 242 A. 2d 182 (Ct. App. 1968); State ex rel. Johnson v. Warden, 196 Md. 672, 75 A. 2d 843 (Ct. App. 1950); Sweden v. State, 83 Okl. Cr. 1, 172 P. 2d 432 (Ct. App. 1946); contra, Utley v. State, 281 N. E. 2d 888 (Ind. Sup. Ct. 1972). See also, N. J. S. A. 2A:104-10 (1907) prohibiting aiding an escape from a state home or institution for girls or from any employment where a girl is placed by the managers of the home or institution.

A perusal of the above statutes and cases indicates that absence without official permission is an evil to be avoided not merely because of the threat of violence, but also because the judicially sanctioned control is frustrated thereby. The focus is not only on the actual restraint on one’s freedom, but also on the effect that flight will have on the exercise of judicial authority. See State v. Frost, supra, 95 N. J. at 5-6; State v. Hayes, 52 N. J. Super. 178, 187 (App. Div. 1958).

This rationale is equally applicable to the civil writ or process language of N. J. S. A. 2A:104-6 (1934). Although the statute does not define the nature of the custody or control that need be. extended over the individual, the Legislature must have surely intended to inhibit those under official control by noncriminal judicial orders.

In construing allegedly ambiguous sections of any statute, a reasonable interpretation should be made based on the legislative purpose as revealed by the composite thrust of the whole statutory scheme and in the light of its legislative history. [State v. Frost, supra, 95 N. J. at 3-4]

A JINS sent to the Shelter by court order may be correctly described as “in the lawful custody or control * * * of an officer or other person * * * upon any writ or process in a civil action or proceeding” within N. J. S. A. 2A:104-6 (1934). A juvenile action involving JINS may be properly characterized as civil in nature. By segregating JINS from delinquency proceedings under the new statute, the Legislature manifested its intent to distinguish JINS from even the g'wasi-eriminal aspects of delinquency.

• Although “shelter care” is defined by § 2(d) of the new statute as “temporary care of juveniles in facilities without physical restriction pending court disposition,” as opposed to “detention,” which involves physical restriction, it is clear that even the former necessarily impinges on the juvenile’s freedom of mobility. As a residence facility, the Shelter is theoretically operated on an “open-door” basis, in that its inhabitants are not confined by bars or locks. The juveniles therein are not subject to the restraints of a correctional institution. Yet, they are under the constant supervision of houseparents and are assigned to particular groups which they may not leave. They must continually report their whereabouts and are forbidden to depart without permission. As such, JINS judicially placed at the Shelter are in custody or control for purposes of escape therefrom. “(S)ome restraint upon * * * complete freedom” suffices as custody within the meaning of the statutory proscription. United States v. Rudinsky, supra, 439 F. 2d at 1076.

This construction is confirmed by the authority granted by the new statute to take a juvenile “into custody if the law enforcement officer has reasonable cause to believe that [he] is in need of supervision.” N. J. S. A. 2A:4-42 to 67, § 13, subd. b (1973). It would be incongruous to empower an officer to detain a potential JINS under this provision, and yet view her judicial placement at the Shelter as anything but “lawful custody or control.”

Various other jurisdictions have similarly interpreted “custody or control” within the context of escape. Failure to return to a Federal Community Treatment Center which defendant was allowed to leave during the day has been found to comprise escape. United States v. Rudinsky, supra. The same conclusion was reached regarding a State Reception and Diagnostic Center, State v. Gordon, 203 Kan. 69, 453 P. 2d 80 (Sup. Ct. 1969), as well as a Pre-Release Guidance Center (a halfway house), McCullough v. United States, supra; Nace v. United States, supra; contra, United States v. Person, supra. Flight from a Defective Delinquent Institution treatment center has also been held to be an escape, despite the basically civil nature of the commitment procedure. Sas v. Maryland, 334 F. 2d 506 (4 Cir. 1964), on remand, 295 F. Supp. 389 (D. Md. 1969), aff’d 436 F. 2d 1153 (4 Cir. 1971) cert. dism. sub nom. Murel v. Baltimore City Criminal Court, 407 U. S. 355, 92 S. Ct. 2091, 32 L. Ed. 2d 791 (1972); Caparella v. State, 214 Md. 355, 135 A. 2d 311 (Ct. App. 1957); People ex rel. Dickie v. Nenna, 51 Misc. 2d 343, 273 N. Y. S. 2d 253 (Sup. Ct. 1966).

Based on a New York statute closely resembling N. J. S. A. 2A:104-6 (1934), absence without license from a narcotics rehabilitation center upon commitment by court order, is also deemed escape. People v. Bifulco, 64 Misc. 2d 10, 313 N. Y. S. 2d 889 (Sup. Ct. 1969). Even flight from a drug treatment center upon voluntary commitment, effectuated by court order, may be criminalized as escape. State v. Nenna, 57 Misc. 2d 229, 291 N. Y. S. 2d 749 (Sup. Ct. 1968); cf. People v. Malloy, 58 Misc. 2d 538, 296 N. Y. S. 2d 259 (Crim. Ct. 1968), a decision by a lower level court of limited jurisdiction that was rejected by People v. Bifulco, supra. See also, People v. Labrum, supra, and People v. Perez, supra, involving escapes from narcotics treatment detention facilities. In Bifulco, since the addict was placed at the treatment facility by court order, it seemed clear to the court that “his alleged departure * * * falls squarely within the Penal Law’s definition of escape * * People v. Bifulco, supra, 313 N. Y. S. 2d at 891. The court was persuaded by the underlying policy consideration of deterring such escapes.

Addicts would continually attempt to escape * * *. If they are caught they lose relatively little, and if they are not, their illegal end is accomplished. A facility would spend more time concerning itself with these constant attempts than in curing its patients. Successful rehabilitation is difficult, and this sort of atmosphere would make it practically impossible.

* % s¡s sjn s'* ♦ *

Constant escapes are no cure for addiction * * * and the interests of neither society nor the addict are served by running these centers on a revolving door basis. [Id. at 891-892]

This rationale is readily applicable to the instant case. A JINS is clearly in need of some type of treatment within the ambit of the Juvenile Court. M.S.’s sojourn in the Shelter was intended to effectuate this goal, as its objective was to perform the psychological examinations that were critical to the determination of her permanent placement. Her multitudinous absences clearly frustrated this purpose.

Under the above approach it is therefore established that M.S.’s retention in the Shelter by court order fulfilled the statutory requirements of “custody or control * * * upon any writ or process in a civil proceeding” under N. J. S. A. 2A:104-6 (1934), and her flight therefrom comprised escape. It must now be resolved whether a JINS can be charged with delinquency for her unsanctioned absence from the Shelter.

Clearly, under the new statute a juvenile may be charged with delinquency upon the commission of any act that would constitute an adult criminal offense. N. J. S. A. 2A:4—42 to 67, § 3 (1973). The proscription against escape under N. J. S. A. 2A:104—6 (1934) applies equally to juveniles as well as adults. State v. Hayes, supra, held this provision specifically applicable to juveniles, even involving an escape from illegal detention. See also, Hamner v. State, 223 A. 2d 532 (Me. Sup. Ct. 1966). This is not a novel interpretation. See United States v. Kinsman, 195 F. Supp. 271 (S. D. Cal. 1961); Baker v. State, 205 Md. 42, 106 A. 2d 692 (Ct. App. 1954); People v. Goslar, 19 A. D. 2d 912, 244 N. 7. S. 2d 37 (App. Div. 1963); People v. Chesley, 282 App. Div. 821, 123 N. Y. S. 2d 42 (App. Div. 1953); contra, United States v. Sprouse, 145 F. Supp. 292 (N. D. Fla. 1956).

Since a juvenile previously adjudicated delinquent may be liable for escape upon violation of N. J. S. A. 2A:104—6 (1934), one treated as a JINS should be similarly chargeable. The juvenile’s prior record should not be the determinative factor in resolving future complaints. Despite its mandate of segregating JINS from delinquents, nowhere does the new Act prohibit subsequent delinquency petitions against one previously adjudicated delinquent, but treated as a JINS, upon violation of a criminal statute. Otherwise, a JINS could never later be charged with delinquent behavior. Surely, such an incongruous result was not intended by the legislature.

Consequently, if the statutory elements of N. J. S. A. 2A:104-6 (1934) are met, an adjudication of delinquency for escape from the Shelter by a JINS would not contradict the legislative policies expressed in the new statute. A contrary conclusion would, in effect, divest the court of the necessary flexibility to effectuate the rehabilitation of juveniles and would negate judicial power to enforce orders regarding their placement. There undoubtedly comes a time when the juvenile can no longer be treated as a JINS. Upon the commission of what would comprise an adult criminal offense, the juvenile may be charged with delinquency if the JINS approach proves fruitless. The court is required by the new statute to act in a manner that would best further the rehabilitation of the juvenile. N. J. S. A. 2A:4-42 to 67, § 1(b) (1973). Inherent in its jurisdiction is the power to proceed via a JINS action, even though a delinquency petition may be proper. Yet, when delinquency in the form of a criminal statutory violation is alleged, the court need not pursue the JINS approach. It may utilize a delinquency route, where otherwise statutorily supported, in order to employ the more stringent dispositional avenues only thereby available under § 20(h) of the new statute. The juvenile has no vested

right to insist on being treated as a JINS, when the complaint would support a delinquency adjudication resulting from a statutory violation.

Indeed, Vann v. Scott, 467 F. 2d 1235 (7 Cir. 1972), addressed itself to this very issue. In that case juveniles were adjudged in need of supervision as runaways from their families or foster homes. Upon their violation of a court order not to further engage in such activity, they were charged with delinquency.

The court held that inclusion of runaways in the same statutory category as more blameworthy delinquents was not constitutionally infirm.

[\V]e cannot say that there is no rational basis for the General Assembly’s definition of delinquency. The broad classification [of runaways as delinquents] serves the legislative purpose of lessening the stigma that attaches to the youth who has committed a serious offense but is nevertheless an eligible candidate for complete rehabilitation. If the classification were to be narrowed, the stigma associted with the finding would increase.

The purpose of the classification is not primarily to label or to conceal the character of a child’s misconduct. It is to afford the State an adequate opportunity to rehabilitate and safeguard delinquent minors rather than to punish them. Tragic though the plight of the chronic runaway may be, we cannot say that it is irrational to conclude that the same kind of correctional treatment may be appropriate for him as for another youth who has already engaged in more serious antisocial conduct, lid. at 1239]

The Vann court concluded that institutional commitment of a chronic runaway upon a delinquency finding would not violate the Eighth Amendment’s prohibition against cruel and unusual punishment.

As the Illinois Supreme Court has held, in some circumstances the State’s interest in safeguarding the lives and welfare of minors, or possibly its interest in seeking to deter repetition of undesirable though not criminal conduct, may justify the temporary incarceration of a chronic runaway. [Vann v. Scott, supra at 1241]

Similarly, in the case at bar, a JINS may be adjudicated delinquent and institutionalized for escaping from the Shelter. Any other approach would hamstring the court in its efforts to resolve a chronic runaway problem. Clearly, after flight, the escapee should be removed to a place of greater security. See State v. Baker, supra.

The court therefore holds that a JINS may be charged with and found delinquent for escaping from the Shelter where she was placed by court order.

ADDENDUM TO OPINION

On May 31, 1974, a dispositional hearing was held regarding M.S. The Court has determined that the Division of Youth and Family Services is to effectuate her placement. She is remanded to the Youth House pending permanent placement.

         N. J. S. A. 2A :4-14 (1959) (hereinafter referred to as the old Juvenile Court statute) provides as follows:
      Except as stated in section 2A:4-15 of this Title, the juvenile and domestic relations court shall have exclusive jurisdiction to hear and determine all cases of juvenile delinquency.

        Juvenile delinquency is hereby defined as the commission by a child under 18 years of age
      (1) of any act which when committed by a person of the age of 18 years or over would constitute:
      a. A felony, high misdemeanor, misdemeanor, or other offense, or
      b. The violation of any penal law or municipal ordinance, or
      c. Any act or offense for which he could be prosecuted in the method partaking of the nature of a criminal action or proceeding, or
      d. Being a disorderly person, or
      (2) of the following acts:
      e. Habitual vagrancy, or
      f. Incorrigibility, or
      g. Immorality, or
      h. Knowingly associating with thieves or vicious or immoral persons, or
      i. Growing up in idleness or delinquency, or
      j. Knowingly visiting gambling places, or patronizing other places or establishments, his admission to which constitutes a violation of law, or
      k. Idly roaming the streets at night, or
      l. Habitual truancy from school, or
      m. Deportment endangering the morals, health or general welfare of said child.
      But the commission of any act which constitutes a violation of the provisions of chapters 3 or 4 of Title 39, Motor Vehicles, of the Revised Statutes, or of any amendment or supplement thereof, by any child who is the holder of a valid license to operate a motor vehicle under the laws of this or any other State, shall not constitute juvenile delinquency as defined in this section. [As amended L. 1959, c. 73, p. 188, § 1]
      The statute was supplanted by N. J. S. A. 2A:4L42 to 67 (1973) (hereinafter referred to as the new Juvenile Court statute) which became effective on March 1, 1974.

       Although M. g. was adjudicated delinquent for runaway and incorrigibility under the old statute (N. J. S. A. 2A:4-14(1) (f) (1959)) which did not distinguish juveniles in need of supervision (hereinafter referred to as JINS) from delinquency, under the new statute (N. J. S. A. 2A :4-42 to 67 §§ 3, 4 (1973)) the same complaint would only suffice for a JINS adjudication.
      In retroactive application of the new statute, juveniles who were previously detained at the Youth House under charges which would only support JINS petitions within the present statute, were transported to the Shelter. Consequently, M. S. is being treated as a JINS for purposes of the new statute, despite her delinquency adjudication under the old statute.

       The new Juvenile Act defines delinquency as follows:
      3. Definition of delinquency.
      As used in this act, “delinquency” means the commission of an act by a juvenile which if committed by an adult would constitute:
      a. A homicide or act of treason;
      b. A high misdemeanor or misdemeanor;
      c. A disorderly persons offense; or
      d. A violation of any other penal statute, ordinance or regulation. In contrast, JINS are characterized thusly:
      4. Definition of “juvenile in need of supervision”.
      As used in this act, “juvenile in need of supervision” means:
      a. A juvenile who is habitually disobedient to his parent or guardian;
      b. A juvenile who is ungovernable or incorrigible;'
      c. A juvenile who is habitually and voluntarily truant from school; or
      d. A juvenile who has committed an offense or violation of a statute or ordinance applicable only to juveniles.
      Evidence of conduct which is ungovernable or incorrigible may include but shall not be limited to:
      (1) habitual vagrancy,
      (2) immorality,
      (3) knowingly visiting gambling places, or patronizing other places or establishments, the juvenile’s admission to which constitutes a violation of law,
      (4) habitual idle roaming of the streets at night,
      (5) deportment which endangers the juvenile’s own morals, health or general welfare. IN. J. S. A. 2A:4-42 to 67, §§ 3-4 (1973)]

      The New York Penal Law proscribes escape where one is detained “pursuant to an order of a court.” N. Y. Penal Law § 205.00 (1) (d) (McKinney’s Consol. Laws, c. 40, 1965).

       20. Disposition of delinquency cases.
      If a juvenile is adjudged delinquent the juvenile and domestic relations court may order any of the following dispositions:
      * *{* *
      (h) Commit the juvenile to a suitable institution maintained for for the rehabilitation of delinquents for an indeterminate term not to exceed 3 years; except, that, any time an adjudication of juvenile delinquency is predicated upon an offense which, if committed by a person of the age of 18 years or over would constitute any form of homicide as defined in N. J. S. A. 2A:113-1, 2A:113-2, 2A:113-4 or 2A:113-5 then the period of confinement shall be indeterminate and shall continue until the appropriate paroling authority determines that such person should be paroled; and, except that in any case the period of confinement and parole shall not exceed the maximum provided by law for such offense if committed by a person of the age of 18 years or over.
      Any juvenile committed under tills act who is released on parole prior to the expiration of his maximum term may be retained under parole supervision for a period not exceeding the unserved portion of the term. [N. J. S. A. 2A:4-42 to 67, § 20(h) (1973)]
      All of the dispositional remedies except institutionalization are available in JINS actions. N. J. S. A. 24:4-42 to 67, § 21(a) (1973).

      Violation of a lawful court order was a ground for a delinquency adjudication under the Illinois Juvenile Court Act. See Ill. Rev. Stat. c. 37, § 702-2(b).


author: Per Curiam.

text:
    JOHN MAYER, NORMAL MacQUAIDE AND THOMAS J. SMITH, PETITIONERS-APPELLANTS, v. JOHN E. RUNNELLS HOSPITAL, RESPONDENT-APPELLEE.
    Superior Court of New Jersey Appellate Division
    Argued October 2, 1973
    Decided October 12, 1973.

      Before Judges Carton, Seidman and Goldmann.

      Mrs. Mary B. Gillon argued the cause for appellants (Messrs. Gorrin & Ironson, attorneys for appellant Mayer; Messrs. Pollis, Williams, Pappas & Billon, attorneys for appellant MacQuaide; Messrs. Shevick, Ravich & Koster, attorneys for appellant Smith; Mr. Joseph G. Barbieri, of counsel and on the brief).

      Mr. Gerald W. Conway argued the cause for respondent (Messrs. Brause, Callaghan & Coyle, attorneys).
   Per Curiam.

Petitioners’ three claim petitions were dismissed by the compensation judge, who held that the accident did not fall within any of the exceptions to the so-called “going and coming” rule. On this appeal they argue that the accident arose out of and in the course of their employment because they were serving respondent’s interests at the time. They also urge that existing law be re-examined and the “going and coming” rule eliminated as a bar to the recovery of compensation where no direct public transportation to the employer’s premises is available.

On the dajr in question petitioner Smith was transporting petitioners Mayer and MacQuaide, together with two other employees of respondent, in his ear on their way to work at the hospital. Four of the employees, including Smith, lived in Elizabeth; the fifth lived in nearby Cranford. Petitioners were injured when the Smith car left the road and struck a tree.

There was public transportation available from Elizabeth as far as Scotch Plains. At that point employees using the bus would be taken up the hill to the hospital by a hospital bus. However, petitioners chose not to use public transportation; it would Shave taken from 10 to 15 minutes more for them to reach the hospital had they done so. Petitioners received no allowance for traveling expenses, nor were they paid for traveling time. The hospital in no way dictated how they were to travel.

This case does not fall within any known exception to the “going and coming” rule. The rule still persists. See Hornyak v. Great Atlantic and Pacific Tea Co., 63 N. J. 99, 105 (1973).

Affirmed.