Opinion ID: 1567838
Heading Depth: 1
Heading Rank: 4

Heading: The Application of R.S. 14:3-15, N.J. S.A., in the Case at Bar, So-Called Retroactive Provisions Aside.

Text: Without regard to the question whether the New Jersey statute creates a substantive right or is merely remedial we conclude that the statute is applicable in the case at bar, the so-called retroactive effect of R.S. 14:3-17 aside, [6] because it states an important public policy of the State of New Jersey. The way to our conclusion was pointed out by the Supreme Court in People of Sioux County, Neb. v. National Surety Co., 1928, 276 U.S. 238, 48 S.Ct. 239, 72 L.Ed. 547. The principle of the Sioux County case was strengthened by Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, and by Griffin v. McCoach, 313 U.S. 498, 61 S.Ct. 1023, 85 L.Ed. 1481, 134 A.L.R. 1462, as exemplified by Guaranty Trust Company of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079, 160 A.L.R. 1231, culminating perhaps [7] in Angel v. Bullington, 330 U.S. 183, 67 S.Ct. 657, 91 L.Ed. 832. In the Sioux County case the Supreme Court held that a Nebraska statute which provided that in actions on guarantees and specified insurance contracts an attorney's fee should be [276 U.S. 238, 48 S.Ct. 240] taxed as part of the costs, was to be given effect in a federal court in a suit against a guarantor. The guarantee had been entered into after the Nebraska Act, Neb.Comp.Stat.1922, § 7811, had been passed. The Supreme Court of Nebraska in Nye-Schneider-Fowler Co. v. Bridges, Hoye & Co., 98 Neb. 863, 155 N.W. 235, a suit on an insurance contract entered into apparently before the statute's enactment, designated the Nebraska Act as remedial or as a costs statute thereby avoiding the impact of the Contract Clause. At page 867 of 98 Neb., at pages 236, 237, of 155 N.W. the Supreme Court of Nebraska stated: If the question that we are considering was now presented for the first time, we would hesitate to say that this statute does not create and add to the contract a legal liability which would not exist under the contract prior to the enactment of this statute. The fact that the attorney's fee is to be taxed as costs in the case is not of itself decisive of the question. In the Sioux County case Mr. Justice Stone, after quoting the foregoing statement of the Nebraska Supreme Court, went on to say: But the question before the Nebraska court in the cases cited was not that with which we are now concerned. Whether this liability for an attorney's fee, assumed by entering into an insurance contract after the enactment of the statute providing for the liability, may be enforced in the federal courts does not depend on any nice distinctions which may be taken between the right created and the remedy given. Disregarding mere matters of form it is clear that it is the policy of the state to allow plaintiffs to recover an attorney's fee in certain cases, and it has made that policy effective by making the allowance of the fee mandatory on its courts in those cases. It would be at least anomalous if this policy could be thwarted and the right so plainly given destroyed by removal of the cause to the federal courts. In Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, the Supreme Court laid down the fundamental principle, overruling the doctrine of Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865, and depreciating the rule of law which sanctioned different results in litigation if tried in a federal court as distinguished from a State tribunal, and concluded that, except where the Federal Constitution or Acts of Congress required otherwise, the law to be applied in any case is the law of the State. Mr. Justice Brandeis, Id., 304 U.S. 64, at page 71, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, referred to the Rules of Decision Act, 28 U.S.C.A. § 725, [8] as determining the question whether the Pennsylvania rule of law which imposed liability on the owner of premises only for wilful and wanton injury to a trespasser was applicable. There would be little profit in discussing in this opinion whether the Pennsylvania rule was one of substance or went only to the remedy but using the ancient tests we may conclude that the rule of law was probably substantive in its nature as that quoted term has been usually employed. We think it must be gathered from Erie R. Co. v. Tompkins, supra, that the Supreme Court required district courts of the United States to stand bound upon the public policy of the individual States as declared by the decisions of the State courts. Erie R. Co. v. Tompkins, supra, declared a major doctrine of constitutional law. In Griffin v. McCoach, 313 U.S. 498, 61 S.Ct. 1023, 85 L.Ed. 1481, 134 A.L.R. 1462, after citing Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L. Ed. 1477, for the proposition that the rules of conflict of laws governing a federal court in diversity cases are those of the State in which the federal court sits, the Supreme Court held that the public policy of Texas as to the existence or non-existence of an insurable interest under a life insurance contract must be determined by the Texas decisions, the courts of the United States being compelled to effect the law of Texas in this respect. This decision stems clearly from Erie R. Co. v. Tompkins, supra. In Guaranty Trust Company of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079, 160 A.L.R. 1231, the Supreme Court indicated that that doctrine of constitutional law, expressed in the Erie R. Co. case and in Griffin v. McCoach, supra, implicit in the Sioux County decision, required federal courts sitting in diversity cases to apply any statute of a State which might effect a substantial difference in the respective rights or statuses of the parties. In short, the Court ruled that the litigant who comes into a federal court should have the substantial rights which he would have in a State tribunal. There was qualification to this principle but it is not pertinent here. [9] It should be borne in mind that in the Guaranty Trust Company case the question before the Supreme Court was whether a statute of limitations of New York should operate to bar the plaintiff's suit. We venture to suggest that prior to this decision few members of the bar had doubted that a statute of limitations was procedural and not substantive. But the Supreme Court required the New York statute to be applied by a district court sitting in equity despite the fact that the jurisdiction of district courts of the United States so sitting traditionally had corresponded to that of the English Court of Chancery. Michoud v. Girod, 4 How. 503, 561, 11 L.Ed. 1076. Mr. Justice Frankfurter said Id., 326 U.S. at page 108, 65 S.Ct. at page 1469:    since a federal court adjudicating a state-created right solely because of the diversity of citizenship of the parties is for that purpose, in effect, only another court of the State, it cannot afford recovery if the right to recover is made unavailable by the State nor can it substantially affect the enforcement of the right as given by the State. And so the question is not whether a statute of limitations is deemed a matter of `procedure' in some sense. The question is whether such a statute concerns merely the manner and the means by which a right to recover, as recognized by the State, is enforced, or whether such statutory limitation is a matter of substance in the aspect that alone is relevant to our problem, namely, does it significantly affect the result of a litigation for a federal court to disregard a law of a State that would be controlling in an action upon the same claim by the same parties in a State court? It is therefore immaterial whether statutes of limitation are characterized either as `substantive' or `procedural' in State court opinions in any use of those terms unrelated to the specific issue before us. Erie R. Co. v. Tompkins [supra], was not an endeavor to formulate scientific legal terminology. It expressed a policy that touches vitally the proper distribution of judicial power between State and federal courts. In essence, the intent of that decision was to insure that, in all cases where a federal court is exercising jurisdiction solely because of the diversity of citizenship of the parties, the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the outcome of a litigation, as it would be if tried in a State court. Any statute of limitations declares a public policy of a State to set a period after which suits may not be brought. Angel v. Bullington, 330 U.S. 183, 67 S.Ct. 657, 91 L.Ed. 832, again makes plain the insistence of the Supreme Court that a federal court sitting in a diversity suit must enforce State law and State policy. In the Angel case a statute of North Carolina, c. 36, Public Laws 1933, Michie's Code, § 2593, precluded recovery of a deficiency judgment in North Carolina for unpaid notes secured by a mortgage. The Supreme Court of North Carolina, 220 N. C. 18, 20, 16 S.E.2d 411, 412, 136 A.L.R. 1054, had held that The statute operates upon the adjective law of the state, which pertains to the practice and procedure, or legal machinery by which the substantive law is made effective, and not upon the substantive law itself. It is a limitation of the jurisdiction of the courts of this state. Bullington did not appeal the decision to the Supreme Court of the United States but brought a new action for a deficiency judgment in the District Court of the United States for the Western District of North Carolina. He recovered judgment, the decision being affirmed, 4 Cir., 150 F.2d 679. The Supreme Court of the United States, reversing, stated that it was necessary for the federal courts in diversity cases to give effect to the public policy of the States. Mr. Justice Frankfurter said 330 U.S. at page 191, 67 S.Ct. at page 661 It is suggested that the North Carolina Supreme Court construed the North Carolina statute to close only the North Carolina State courts but not the federal court sitting in North Carolina. In the first place, the North Carolina Supreme Court said no such thing. It construed the statute expressive of State policy and spoke only of the jurisdiction of the State courts because it was concerned only with the State courts. Secondly, it is most incongruous to attribute to the legislature and judiciary of North Carolina the imposition of a restriction against all its citizens from suing for a deficiency judgment, while impliedly authorizing citizens of other States to secure such deficiency judgments against North Carolinians. Thirdly, a North Carolina statute, upheld by the highest court of North Carolina, is of course expressive of North Carolina policy. The essence of diversity jurisdiction is that a federal court enforces State law and State policy. If North Carolina has authoritatively announced that deficiency judgments cannot be secured within its borders, it contradicts the presuppositions of diversity jurisdiction for a federal court in that State to give such a deficiency judgment. North Carolina would hardly allow defeat of a State-wide policy through occasional suits in a federal court. What is more important, diversity jurisdiction must follow State law and policy. A federal court in North Carolina, when invoked on grounds of diversity of citizenship, cannot give that which North Carolina has withheld. Availability of diversity jurisdiction which was put into the Constitution so as to prevent discrimination against outsiders is not to effect discrimination against the great body of local citizens. Now it must be conceded in the case at bar that the right to security given to Beneficial by R.S. 14:3-15 is not a part of and is legally unconnected with the causes of action asserted by the plaintiff against the individual defendants for the benefit of the corporate defendant. It is as if a little cause of action had been engrafted on the body of the main suit for the benefit of the corporation. There can be no doubt, however, that the New Jersey statute imposes a limitation on the right of the plaintiff to maintain her suit. R.S. 14:3-15 is a kind of legal hybrid, functioning both by way of limitation and creation. It is in some respects an extension of the New Jersey Chancery Act, R.S. 2:29-131, N.J.S.A. 2:29-131, which gives a right to the Court of Chancery of New Jersey to award counsel fees and costs as between party and party, but as was pointed out by Chief Judge Lehman in Shielcrawt v. Moffett, 294 N.Y. 180, 190, 61 N.E.2d 435, 440, 159 A.L.R. 971, in construing Section 61-b of the General Corporation Law of New York, [10] upon which R.S. 14:3-15 was patterned,    the statute [61-b] creates a remedy for a wrong for which previously there was no remedy, and it interferes with the antecedent right of small stockholders to maintain derivative actions in behalf of the corporation and gives to corporations rights which they had not previously enjoyed. [11] But the exact nature of the right given to a corporation need not be determined on this aspect of the case for it is clear that it is a substantial one [12] and that it embodies the public policy of New Jersey. The question for our determination therefore is: Putting the so-called retroactive application of R.S. 14:3-15 aside, can the plaintiff by coming into the District Court of the United States for the District of New Jersey avoid a limitation upon her action which she would be subjected to had she filed suit in the Court of Chancery of New Jersey? In short, can she escape the limitation of the New Jersey statute by entering the federal court house rather than that of the State? We think the answer must be in the negative. [13] If this be a limitation on the jurisdiction of the District Court of the United States for the District of New Jersey it is none the worse for so being. In Angel v. Bullington, supra, the Supreme Court by requiring the District Court of the United States for the Western District of North Carolina to give full effect to the North Carolina statute imposed a limitation upon the jurisdiction of that court and expressly declared, 330 U.S. at page 192, 67 S.Ct. at page 662, Cases like David Lupton's Sons Co. v. Automobile Club, 225 U.S. 489, 32 S.Ct. 711, 56 L.Ed. 1177, Ann.Cas.1914A, 699, are obsolete insofar as they are based on a view of diversity jurisdiction which came to an end with Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487. That decision drastically limited the power of federal district courts to entertain suits in diversity cases that could not be brought in the respective State courts or were barred by defenses controlling in the State courts. In view of what has been said we deem it unnecessary to comment at length on Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 497, 43 S.Ct. 454, 67 L.Ed. 763, relied on in the opinion of the court below. In that case, as is pointed out in note 3 to the opinion in Guaranty Trust Co. of New York v. York, cited to the text at 326 U.S. 99, at page 106, 65 S.Ct. 1464, 89 L.Ed. 2079, 160 A.L.R. 1231, the Supreme Court had to decide whether a Delaware statute, Revised Code of Delaware 1915, Section 3883, had created a new right appropriate for enforcement in accordance with traditional equity practice or whether the Act had given the Chancery Court of Delaware a new kind of remedy. The Supreme Court held that the Delaware statute was remedial and did not create a new interest in a simple contract creditor as distinguished from a secured creditor, applying for a receiver for an insolvent Delaware corporation. With words as cold and sharp as the point of a scalpel the late Chancellor Wolcott cut the ligatures which bound the Hanssen case to the law of Delaware. See Mackenzie Oil Co. v. Omar Oil & Gas Co., 14 Del.Ch. 36, 45, 120 A. 852, 856. But despite the note referred to in Guaranty Trust Co. of New York v. York, supra, we cannot say that the decision in the Hanssen case retains its full potency in the courts of the United States. If, as we have decided, we may not concern ourselves in the case at bar with the ancient diversities between adjective and substantive law, the Hanssen case must be by-passed. If it is to be overruled, it must be by the Supreme Court. The Hanssen case in view of the authorities previously cited may by 1948 have become a signpost on a one-way street leading ultimately to that legal border where substance and procedure will become in law, as in fact, one. We can perceive no reason why the provisions of R.S. 14:3-15 should not be as fully operative in respect to a suit against a foreign corporation, such as Beneficial, as in a suit against a New Jersey corporation. It is the express policy of R. S. 14:3-15 to protect foreign as well as domestic corporations. The fact that Delaware has no statute corresponding to those of New Jersey and New York is immaterial. [14] The New Jersey statute finds its vitality in the District Court of New Jersey by reason of the Rules of Decision Act and the decisions of the Supreme Court in interpreting that Act from the Sioux County case to Angel v. Bullington, supra. The point set up in the able opinion of the court below, 7 F.R.D. at page 356, that R.S. §§ 823, 824, 28 U.S.C.A. §§ 571, 572, [15] prohibits the allowance of the expenses contemplated by the New Jersey statute (for which security is to be required) is fully answered by the Sioux County case, 276 U.S. 238, at page 244, 48 S.Ct. 239, 72 L.Ed. 547. In the cited case it was held that counsel fees under the Nebraska statute though allowed and taxed as part of the costs were not costs in the ordinary sense and not taxable as costs under R.S. §§ 823, 824 in the federal court.