Appeal from the District Court of the United States for the District of New Jersey; Guy L. Fake, Judge.
Before MARIS, JONES, and GOODRICH, Circuit Judges.
The Central Railroad Company of New Jersey operates an interstate railroad in part within the State of New Jersey. It has been in reorganization in the District Court for the District of New Jersey under section 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, since October 30, 1939. The State of New Jersey filed proofs of claim for property taxes assessed against the debtor for the years 1932 to and including 1939 and for interest thereon. Taxes for 1940 were not included in these claims since they accrued when the debtor was in the process of reorganization and were therefore an administration expense. In the tax claims, which were executed and verified by the State Comptroller, the Attorney General was designated as the attorney authorized to represent the state. The State of New Jersey was the claimant. Issues raised by the debtor and its trustees as to these claims were referred to a special master, but by the order here appealed from this reference was revoked.
On July 22, 1941 a railroad tax settlement act (P.L., 1941, chap. 290) became effective. The New Jersey legislature therein offered to settle the state's tax claims for the years 1932 to and including 1940 against all delinquent railroad companies, including the debtor, at a sum equal to the principal amount of the claim, payable over a period not to exceed twenty years and to waive the bulk of interest penalties which had accrued. This offer could be accepted only upon condition that the debtor waive its rights to appeal from all assessments prior to 1941 and discontinue pending tax litigation. In addition the debtor had to file a written undertaking with the Comptroller in a form to be approved by the Attorney General. The trustees of the debtor having procured an order from the district court on August 8, 1941, authorizing them to accept the offer upon the terms and conditions set forth in the statute, tendered the required documents and checks. The Attorney General declined to approve them and the Treasurer declined to accept any tenders.
On September 4, 1941, the Attorney General filed a civil information suit in the New Jersey Court of Chancery to contest the constitutionality of the tax settlement act, naming the treasurer of the state as sole defendant. That suit is still pending and undecided. Subsequently the legislature passed a second railroad tax settlement act, effective May 21, 1942, P.L., 1942, chap. 241, N.J.S.A. App. A: 4-7.1 et seq. This Act relieved the Attorney General of the duty and right to approve the form of the settlement documents. It waived all interest penalties. Acceptance of the offer of settlement had to be on or before June 15, 1942, and had to be accompanied by the stipulated documentary waivers, payment in full and without protest of a franchise tax for 1941 and by a first payment upon the principal of the tax.
On May 21, 1942, the effective date of the second tax settlement act, the Attorney General filed an amended civil information in his pending chancery suit so as to put at issue the constitutionality of the second act, and the same day upon petition of the Attorney General the Court of Chancery enjoined the Treasurer from accepting any documents or payments made in reliance upon the terms of the two tax settlement acts. This restraining order is extant and the constitutionality of the acts is still undetermined by the Court of Chancery.
On June 2, 1942, the trustees petitioned the district court for instructions as to their compliance with the terms of the second tax settlement act.At the same time they obtained an order upon the Attorney General, the Comptroller and the Treasurer to show cause why the amount of the tax claims against the debtor for the years 1932 to 1939, both inclusive, should not be fixed at the principal amount of taxes alleged to be due, payable as prescribed by the second tax settlement act, and the interest penalties be disallowed. After hearing upon the petition and order to show cause the district court entered Order No. 163, paragraphs 4, 5 and 6, of which read as follows:
"4. That the Trustees of the Debtor should not be required to comply with Chapter 241 of the Laws of New Jersey of 1942 without a simultaneous order by this Court adjudicating the amounts for which the aforesaid claims of the State of New Jersey, for the years 1932 to 1939, inclusive, and the balances in dispute for 1940 should be allowed.
"5. That, since a determination must be made prior to June 15, 1942, as to whether or not the Trustees should accept the provisions of Chapter 241 of the Laws of 1942, since, further, it is not possible for the Court in the short time available before that date to try the issues of fact raised by Claims Nos. 34 to 38, inclusive, and the objections filed thereto and determine accurately the amounts now legally due; and since the Court, as a matter of law, has concluded that the offer of settlement officially tendered by the claimant through the enactment of Chapter 241 is a valid and subsisting offer made to carry into effect a public policy set forth in said act, at least so far as a debtor railroad in reorganization under the Bankruptcy Act is concerned, the Court hereby adjudicates the amount for which said claims of the State of New Jersey against the Debtor's estate (including the balances in dispute for 1940) should be and they are hereby allowed as follows:
Name of Company Allowable