Before Goodrich, Frank, and McLAUGHLIN, Circuit Judges.
McLAUGHLIN, Circuit Judge.
These matters have to do with taxes allegedly due and owing the State of New Jersey from the Central Railroad Company. As such, they are a part of a long line of litigation which has for several years occupied the Federal Courts and both the judicial and other branches of the State Government.*fn1
In order to better understand the present matter it might be well to outline what has gone before.
(A) The State Litigation.
In regard to its assessment for the year 1931, the Company complained to the State Board of Tax Appeals as to certain valuations and assessments "because the average rate of taxation for the year 1931 of prosecutor's property is thereby higher than it should be." The Board dismissed the complaint. The Company thereupon appealed to the New Jersey Supreme Court, which refused to disturb the assessment as it stood. The New Jersey Court of Errors and Appeals unanimously affirmed that judgment.
The Company appealed the assessment for the year 1932 to the State Board of Tax Appeals, which, after hearing, affirmed the assessment. There was no attempt to have the judgment reviewed.
The Company also appealed the 1933 assessment to the State Board of Tax Appeals. The Board, after hearing, affirmed the assessment. An appeal was taken to the Supreme Court, which sustained the Board, holding that the method of assessment was legal and that the Company had not been wronged thereby. Central R. Co. v. Thayer-Martin, 114 N.J.L. 69, 175 A. 637.
The Company appealed the assessments for the years 1934, 1935 and 1936 to the State Board of Tax Appeals urging that: (a) The properties were assessed in excess of their true value; (b) the method of valuing was erroneous and improper; and (c) the assessment of railroad property was discriminatory. The Board, after reviewing extensive evidence as to the above, affirmed the assessments for all three years. There was no appeal from those judgments.
The Company appealed the assessments for the years 1937 and 1938 to the State Board of Tax Appeals. On that appeal, in addition to numerous other points, the Company urged: (a) Deprivation of property without due process of law, in violation of the Fourteenth Amendment to the Federal Constitution: (b) A denial of equal protection of the laws in violation of Article IV, Section 7, Paragraph 12 of the New Jersey Constitution; (c) a denial of equal protection of the laws in violation of the Fourteenth Amendment to the Federal Constitution; (d) a burden upon interstate commerce in violation of Article I, Section 8, of the Federal Constitution. After a lengthy hearing involving some 4600 pages of testimony and 450 exhibits the Board affirmed the assessments. There was no appeal from that decision.
The State Tax Commissioner, after making the 1939 assessments, revised them downward. The City of Jersey City appealed to the State Board of Tax Appeals, which, after a hearing at which the Company, the State and the City of Jersey City adduced testimony, restored the original valuations. Jersey City v. Martin, 26 A.2d 733, 20 N.J.Misc. 283. No review of that judgment was sought in the State Courts. As will be mentioned, infra, however, the Bankruptcy Court later set aside the judgment in its Order No. 171; this latter order was itself set aside by the Third Circuit Court of Appeals as reported in 1943, 136 F.2d 633.
(B) The Federal Litigation Preceding Bankruptcy.
The Company petitioned the United States District Court for the District of New Jersey for a permanent injunction restraining the collection of taxes assessed against it for the years 1932 and 1933. In its petition the Company alleged a denial of due process of law, denial of equal protection of the laws and subjection of interstate commerce to an undue burden. The District Court held that the charges were not established by the evidence and denied the relief sought. Lehigh Valley R. Co. v. Martin, 1936, 19 F.Supp. 63 (opinion by Judge Forman). The Company appealed to the Circuit Court of Appeals for the Third Circuit which affirmed the judgment of the District Court. 100 F.2d 139 (opinion by Judge Biggs). The Court held, inter alia, that the evidence had not supported the Company's allegations and that the question of violation of Federal Constitutional guarantees was res adjudicata, having been decided by the New Jersey Supreme Court in 1933 in the case of Central Railroad Co. v. Thayer-Martin, 114 N.J.L. 69, 175 A. 637, supra. The United States Supreme Court denied certiorari. Central R. Co. of New Jersey v. Martin, 306 U.S. 651, 59 S. Ct. 592, 83 L. Ed. 1049, rehearing denied 1939, 306 U.S. 670, 59 S. Ct. 785, 83 L. Ed. 1063.
The Company again brought suit in the Federal District Court seeking an injunction against the collection of the taxes as assessed for 1934, 1935 and 1936. The District Court sustained most of the Company's contentions and issued an injunction prohibiting the State from collecting more than 60% of these taxes until the property in question should be re-valuated in a manner consistent with the opinion of the District Court. Central R. Co. v. Martin, 30 F.Supp. 41 (Opinion by Judge Forman). The injunction was later modified to 70%. The Circuit Court of Appeals reversed that judgment. 115 F.2d 968 (opinion by Judge Maris). The Court held that the evidence did not establish the contentions of the Company and that the question of the validity of New Jersey's method of taxing railroad property was res adjudicata by virtue of Central Railroad Co. v. Thayer-Martin, 114 N.J.L. 69, 175 A. 637, supra.
(C) Federal Litigation after Bankruptcy.
On October 30, 1939, the Central Railroad Company filed its petition under Section 77 of the Bankruptcy Act, 11 U.S.C.A. 205.The Company then owed balances on its taxes for the years 1932 to 1939 inclusive. The Comptroller of New Jersey filed proofs of claim for those taxes with the Bankruptcy Court, and, notwithstanding the decisions of this Court adverse to the Company as reported in Lehigh Valley R. Co. v. Martin, 3 Cir., 100 F.2d 139, certiorari denied 306 U.S. 651, 59 S. Ct. 592, 83 L. Ed. 1049, and Central R. Co. v. Martin, 3 Cir., 115 F.2d 968, certiorari denied Lehigh Valley R. Co. v. Martin, 313 U.S. 568, 61 S. Ct. 943, 85 L. Ed. 1527, the Trustees of the Debtor once again raised the same issues as to the same years, before the Bankruptcy Court.
Meanwhile, the New Jersey Legislature passed the so-called Settlement Acts, which sought to forgive the railroads part of their indebtedness to the State. These Acts were contested by the Attorney General of New Jersey and declared unconstitutional by the New Jersey Chancery Court, Wilentz v. Hendrickson, 133 N.J.Eq. 447, 33 A.2d 366, affirmed by the Court of Errors and Appeals, 135 N.J.Eq. 244, 38 A.2d 199. While this litigation was pending the Bankruptcy Court issued its Order No. 163, fixing the amount due the State from the Debtor as the amount fixed in the Settlement Acts. On appeal to this Court, Order No. 163 was set aside. In re Central Railroad Co., 3 Cir., 136 F.2d 633 (opinion by Judge Maris).
On August 12, 1944, following the decision of the New Jersey Court of Errors and Appeals declaring the Settlement Acts unconstitutional, the Trustees petitioned the Bankruptcy Court to adjudicate "the relative rights, claims, liens and priorities" in the assets of the Debtor. The State, through its Attorney General, appeared specially and moved for the dismissal of the petition "insofar as the liens of the State for taxes and interest are sought in anywise to be altered, affected, modified or destroyed," contending that the Bankruptcy Court was without jurisdiction, in the premises, to bind the State in that matter. The Bankruptcy Court refused to pass on this jurisdictional question, referring it, together with the matters which had already been extensively litigated as outlined above, to a Special Master. The Court did this in its Order No. 250, from which an appeal is pending in this Court.
The Special Master started hearings on December 19, 1944. The Master did not seem to be disposed to hear argument on the jurisdictional question but upon protest by the State he did so. Upon conclusion of the argument he stated that he would proceed the following day with a hearing on the merits, before he decided the jurisdictional matter. On January 17, 1945 he filed an interim report, stating that the Bankruptcy Court is "the proper Court to determine the validity and amount of the tax claims of the State of New Jersey and the incidental liens alleged to affect the property in the custody of the Court." The State thereupon protested that the Master had not squarely met its objections to the jurisdiction of the Bankruptcy Court. On February 7, 1945 the State requested a decision on this matter from the District Judge. Notice was then given that the hearing would proceed before the Master; the State again protested that no hearing should be had on the merits until the District Judge had decided the question of jurisdiction. On February 20th these arguments were made to Judge Fake and the next day the Judge informed the State that he had determined he did have jurisdiction. He made a finding confirming the Master's interim report.
The State thereupon petitioned this Court, praying for a writ of prohibition forbidding the Bankruptcy Court from making any adjudication in connection with the tax liens of the State that was intended to be binding on the State. That petition is one of the matters now before us. In the meantime, the District Court, again over the strenuous objections of the State, issued its Order No. 271 confirming the Master's Report. The State has appealed from Order No. 271 and that appeal is also before us.
The problem confronting us is substantially: Whether a District Court, in the course of its general supervision of a Section 77 Debtor, can make an adjudication concerning the validity of tax liens which had attached to the property of the Debtor prior to the filing of the petition in Bankruptcy, when those assessments upon which the liens are based have previously been held valid upon appeal by the taxing authority of a State and when the highest Court of the State and the ...