# Appendix — United States Trust Co. of NY v. New Jersey > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_2399%3A03 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1977 - **Citation:** 431 U.S. 1 ## Text . : APPENDIX | nooas, sn.ccent | IN THE Supreme Court of the United States OCTOBER TERM, 1976 No, 75-1687 Unitrep States Trust Company or New York, as Trustee for The Port of Authority of New York and New Jersey Consolidated Bonds, Fortieth and Forty-First Series, on its own behalf and on behalf of all holders of Consolidated Bonds of The Port Authority of New York and New Jersey and all others similarly situated, Appellant, v. Tue State or New Jensvy, brenpan T, Byrne, Governor of The State of New Jersey, and WintuiaM F., Hytanp, Attorney General of the State of New Jersey, Appellees. APPEAL FROM THE SUPREME COURT OF NEW JERSEY VOLUME Il Pages 529a—1149a RS FILED MAY 21, 1976 PROBABLE JURISDICTION NOTED JUNE 28, 1976 INDEX Docket Entries: Superior Court of New Jersey Supreme Court of New Jersey Pleadings: SEED ittinitinteenesscenscce A Answer and Counterclaim Answer to Counterclaim .... a i iatieains Affidavit of Edwin C. Landis, Jr. in Support of Con- sent Order (attachments omitted) .. . Affidavit of J. Sinclair Armstrong, Esq., in Support of Motion to Maintain Class Action -............... Judgments and Opinions: Decision of the Superior Court of New Jersey, May 14, 1975 Judgment of the Superior Court of New Jersey, May 29, 1975 Decision of the Supreme Court of New Jersey, Feb- ruary 25, 1976 Other Parts of the Record: Excerpt From Exhibit P-1—Municipal Credit Report dated December 28, 1961 (Admitted in LEividence at page 44) Exeerpt From Exhibit P-2—Municipal Credit Report dated December 14, 1962 (Admitted in Evidence at page 44) Exhibit P-3—Memo to William H. Morton from John F. Thompson dated February 27, 1974 (Ad- mitted in Evidence at page 88) PAGE l7la 1\78a 1sda PAGE Excerpt from Exhibit P-4—Draft Memo—Port of New York Authority-Mass Transportation Vs. Bondholders Security — in Evidence at page 88) ‘iceeaiiamanmiaaiieaniie 190a Exhibit P-5-—Letter dated June 10, 1974 from John F. Thompson to Norman T. Hurd (Admitted in Evidence at page 102) 194a Exhibit P-7—Article from “The Daily Bond Buyer”, May 17, 1974 (Admitted in Evidence at page 111) 196a Exhibit P-10—Securities Industry Association News Release (Admitted in Evidence at page 111) 198a Excerpt from Exhibit P-36—Address by Austin J. Tobin, April 4, 1962 ........................-- 7 200a Exhibit P-89—Comparison Chart of Dollar Prices Port Auth. of N.Y. & N.J. 6.0% 2/1/2006 and Mass. Port. Auth. 6.0% 7/1/2011 (Admitted in OS GE I CEO hccssessieccsnsinsisinieianitsianiitnniincana 209a Exhibit P-90—Comparison: Port Auth. of N.Y. & N.J. 6.0% 2/1/2006—Mass. Port Auth. 6.0% 7/1/2011 (Admitted in Evidence at page 117) -.. 210a exhibit P-91—Comparison Chart of Dollar Prices 212a Exhibit P-92—Comparison: Port Auth. of N.Y. & N.J. 6.0% 6/1/2008—Mass. Port Auth. 6.0% 7/1/2011 {Admitted in Evidence at page 132) ... 213a Exhibit P-93—Explanation of Charts (Admitted in OUD GD RD TED teveerntttaieenitsiennsitinccenitnsinitniieni 215a Exhibit P-94—-Comparison Chart of Dollar Prices (Admitted in Evidence at page 115) 2.00.0... 2 16a Exhibit P-95—Comparison: Kansas Turnpike 334% 10/1/94—Indiana Toll 344% 1/1/94—-Port Auth. of N.Y. & N.J. 314% 5/1/95—Port Auth. of N.Y. & N.J. 334% 5/1/94 (Admitted in Evidence at ED GED cunntennsscsienncemmentticnciatiielitemibiidaamailiaila 217a PAGE Excerpt from Exhibit P-202—Index—June 14, 1962, and pp. 270-271 entitled “Hudson Tubes Finane- ing; Certification Required by Agreement with Bondholders” (Admitted in Evidence at page STE. asisbteiisistnindcaintininsgiieninslinniiinieesiisislliailiesith iia diitiaaediadtiy 219a P-203—Letter dated March 27, 1961 from Austin J. Tobin to Commissioners of Port Authority (Ad- mitted in Evidence at page 816) -—.........0............. 221a Mxhibit S-i—Article from “The Wall Street Jour- nal”, August 15, 1974 (Admitted in Evidence at TC. Exhibit S-2—Article from “The New York Times”, November 10, 1974 (Admitted in Evidence at ED TEE dccvenninaieinmeninennniainaiananntt 234a Exhibit S-3—Data Sheets: New York-New Jersey Ports 6% 2008 40th Series and Mass. Ports 6% 2011 (Admitted in Evidence at page 171) ............ 243a Exhibit S-4—Letter to the Editor from John F. Thompson, May 1, 1974 (Admitted in Evidence at page 222) a Exhibit S-5——Letter to the Editor from William J. Ronan, May 9, 1974 (Admitted in Evidence at page 253) ..... . 247a Exhibit S-15—Memorandum, “The Municipal Bond Club of New York” (Admitted in Evidence at RD GED scccnmnenesinneiinegeininnmn 249a Exhibit S-16—Letter dated May 29, 1974 from John F. Thompson to Orville H. Schell, Jr. (Admitted in Evidence at pase 346) ....................--ecc-eec-eeceneeenee Hla Exhibit S-29—Municipal Credit Report, February 4, 1972, Supplementary to Report dated October 20, 1971 (Admitted in Evidence at page 780) ........ 252a Exhibit S-31—Municipal Credit Report dated June 14, 1973 (Admitted in Evidence at page 795) ... 263a lv PAGE Lixeerpt from Exhibit S-36—Report of Consolidated Bonds Thirty-Sixth Series (First Installment) by Blyth & Co., Ine., November 16, 1970 (Admitted in Evidence at page SOL) ............cccccccoccesccscseeseeee 279a Exeerpt from Exhibit S-38—Quotations of Author- ity Bonds (Admitted in Evidence at page 823) ... 293a Excerpt from Exhibit S-39—Quotations of Author- ity Bonds (Admitted in Evidence at page 823) ... 293a Excerpt from Exhibit S-40—Publication of U.S. Government Printing Office—1961 Entitled “Hear- ings Before Subcommittee No. 5 of the Committee of the Judiciary, House of Representatives”, 86 Congress, 2nd Session (Admitted in Evidence at SS TERE. oe , until August Service Assurep “Rail transportation for our citizens has thus been assured by contract payments—subsidies, if you will. A definition of subsidy reads: ‘A government grant 603a Excerpts From Stipulation Among Counsel Dated December 20, 1974 to a private enterprise considered of benefit to the public.’ The action taken and the incentive could not be better expressed. “The Highway Department, cognizant of its respon- sibility for the movement of people and of goods by all available means of land transportation, has to date furnished some twelve million dollars from road construction funds for this purpose. “Had the Department not made this sacrifice of the equivalent of two miles of highway (average cost of N.J. modern highways is $6,250,000 per mi.), it would have been faced with a shut-down of rail pas- senger service and the impossible task of making immediately available adequate highways to accom- modate an additional 266,000 passenger trips daily. This just couldn’t be done, either from the stand- point of funds or time. “After a considerable period of successfully avoiding all attempts to involve it in rail transit, the Port of New York Authority was finally persuaded by our Division of Railroad Transportation to assume the acquisition, rehabilitation and operation of the H & M, even though the revitalized line might fail to ree- ord a profit. The Authority still resisted extending its operations beyond H & M’s main stem necessita- ting further forceful negotiations before extensions and rail transfer stations were included. “Rehabilitation of this vital interstate commuter facility must be assured before other programs out- lined herein can be initiated. It would be the height 604a Excerpts From Stipulation Among Counsel Dated December 20, 1974 of folly to proceed with such improvements without first taking this essential step. “The Port of New York Authority, its fiscal struc- ture maintained by income from tax-free vehicular crossings of the Hudson River largely at the ‘ex- pense’ of rail transportation, is the proper agency to rehabilitate the H & M and provide suitable exten- sions to connect it with other North Jersey commuter railroads. The Division is negotiating terms of necessary legislation with the State of New York and the Port of New York Authority to accomplish this.” B. Aequisition of the Hudson and Manhattan Railroad Company by the Port Authority 1. In 1908, the Hudson and Manhattan Railroad Com- pany, a privately-owned concern, began operating a rail- road facility between Hoboken and Manhattan. Service between Hudson Terminal and Jersey City commenced in 1909 and the service was extended to Newark in 1911, The Railroad was in financial difficulty for many years, and al- though formal bankruptcy proceedings against it did not commence until 1954, the Railroad was insolvent from the early 1930's. 2. In 1959 the United States District Court for the Southern District of New York approved a reorganization plan which left the company with enough cash to continue operations for two years but without funds to provide needed capital improvements, Jn re Hudson & Manhattan R.R., 174 F. Supp. 148 (S.D.N.Y. 1959), affirmed sub. nom. Spitzer v, Stichman, 278 F.2d 402 (2d Cir, 1960). (Stip, 136- 140), *ee 6050 Excerpts From Stipulation Among Counsel Dated December 20, 1974 3. In 1960, the New Jersey Senate created a bi-partisan committee under the chairmanship of Senator Frank 8, Farley (the “Farley Committee”) to conduct “a full and unlimited investigation” of the Port Authority, The Com- mittee was authorized and directed to study “the entire financial structure and operations” of the Authority and to determine “whether or not the said Port of New York Authority is fulfilling its statutory duties and obligations.” (Senate Resolution No. 2, 1960; Senate Resolution No. 7, 1961) 4. During the Farley Committee hearings, Dwight R. G. Palmer, New Jersey State Highway Commissioner, testified on January 26, 1961 in part as follows: (Stip. 141-42) “There has been a multiplicity of studies, countless commissions and associations engaged in surveys of our metropolitan areas, A perusal of these reports impresses one with the great detail and statistics of the majority of the reports, The supervisors of such compilations undoubtedly were sincere and felt they were pursuing the proper course and yet, years after all these facts were presented, we find ourselves about to go ‘down the drain’ traffiewise. “Most of these plans proposed expenditures that staggered the imagination. The likelihood of ever converting such plans into ‘pay dirt’ and a practical solution had about as much chance as would the fi- nancing of Captain Stormfield’s visit to Heaven, as described by Mark Twain. “So, gentleman, in 1959 our commuter problem was brought into sharper focus by the action of the US. 606a Lacerpts F'rom Stipulation Among Counsel Dated December 20, 1974 Supreme Court permitting the New York Central Railroad to discontinue ferry service from Wee- hawken to Manhattan. This same year a rush of service curtailments and fare inerease petitions flooded our regulatory agencies and one of our busiest New Jersey commuter railroads posted notice that all service would be discontinued. “Governor Meyner then assigned the problem to me, first directing my associates and me to provide vehicles of transportation for those 3,000 odd eom- muters that otherwise would have been stranded when the Weehawken ferry shut down, Within a few months our Legislature responded by establishing the Division of Railroad Transportation. We had adopted a new philosophy; that the job of the High- way Department was one of moving people and goods —not just providing highway alignments for vehicles to travel, This concept was the keystone of the inte- gration of transport facilities in New Jersey, for we recognized that the suburban railroads were essential allies of the Highway Department in meeting the daily peak travel demands of our citizens. We had not worked long with the problem before we realized that the essential ingredient needed to aid in th eolu- tion of our problem was money, Conscious «° the general rejection of the Metropolitan Rapid Ty. «it Commission plan to tax real estate to meet deficits in its proposals, we developed a different approach, An examination of the opgration of the New Jersey Turnpike indicated the availability of sufficient sur- plus funds to take care of rail transportation diffieul- ties as well as other transport needs, and do this after meeting commitments to all holders of Turnpike 607a Excerpts From Stipulation Among Counsel Dated December 20, 1974 securities. However, the public decreed otherwise and denied to us the use of these funds. After the defeat of the referendum we reviewed our studies of the rail passenger situation. The results of these studies were set forth in detail in our report to the Governor and Legislature dated April 4, 1960. This report recommended that in order to forestall a com- plete breakdown of rail services that the carriers be placed under contracts to operate specified trains at established rates. The contracts, we hoped, would assure a continuity of service for our citizens even though they were considered a ‘temporary expedi- ent’ to be pursued, say, for » period of three to five years, during which time a long range improvement plan could be put into effect. “Legislation enabling such contracts was intro- duced in the Senate in May of 1960. It was passed with dispatch in both houses, the legislature exhibit- ing a keen understanding of the problems and the seriousness of the consequences should the State fail to take action to ease the financial burdens of the rail carriers. “In the north metropolitan area our recommenda- tions included consolidation of the Jersey Central and the Pennsylvania passenger services over the New York and Long Branch operating the trains through to Pennsylvania Station, Manhattan and a rerouting of all the main line service of the Jersey Central to Penn Station in Newark. Certain of these suggestions are still under study. We also recom- mended that the Port Authority play a significant part in improving the facilities for the interstate 608a Excerpts From Stipulation Among Counsel Dated December 20, 1974 movement of our citizens. In this regard I am fully aware that there are those who suggest that the Port Authority should take over the financial responsibil- ity and deficits of all commuter railroads in New Jersey and New York even at the risk of jeopardizing the Authority’s credit standing and depleting its reserves below levels set by indenture agreements. “Considerable time has been devoted to reviewing the Port Authority’s capabilities, as well as respon- sibilities, insofar as commuter rail transit is con- cerned. Our conclusion as stated in the April [1960] report was that: ‘The Port of New York Authority should not, in our opinion, be handed New Jersey’s rail prob- lem, nor should it become responsible for the New York subway system or for rail transportation for Westchester or Long Island. We are certain however, that the interstate aspects of the rail movement of persons and goods such as purchase and lease of new Hudson and Manhattan com- muter cars and the purchase of the existing inter- state railroad ferry boats, do come within their obligations. The foregoing fully recognizes the importance of maintaining the Port of New York Authority’s commitments and credit requirements.’ “In other words, we became convinced that the Port Authority’s responsibility in the rail transit field should be concerned principally with the inter- state aspects of the problem as the Authority is an interstate or bi-state agency. Our recommmenda- tions were consistent with that philosophy. 609a Excerpts From Stipulation Among Counsel Dated December 20, 1974 “T arrived at this conclusion relying on years of experience in private enterprise. My career has been one of a business man in the industrial field where the courageous survived—where the com- placent were left behind and where competition took care of the rest. I have had responsibilities of meeting a payroll—a payroll that each year sought to improve the standards for our workers— and to satisfy the demands of shareholders also. The Port Authority in my opinion must make money and accumulate reserves for the rainy day if it is to be equipped to meet the needs of our two states of New York and New Jersey. It does not have gen- eral taxing powers. Its only taxes are the tolls it collects from the users of its facilities. Its share- holders are the public, you and I, and the institu- tions that buy the bonds. Since the cost of financing often determines the feasibility of a project it stands to reason that you and I get more for our toll dollar in the way of modern and safe facilities if we make certain that the credit rating of the Authority re- mains intact. Now let’s talk spevifies for a momert. The Authority has sizeable revenues and reserves to- day. While I don’t have the 1960 figures, reports are that gross revenues in 1959 totaled $105 million and the several reserve funds totaled $71 million. Now as soon as ‘reserve funds’ are mentioned it is assumed by some that such reserves are ‘available’ or uncom- mitted. Such is not the case. These revenues and reserves are pledged and committed by contract to the investors in Port Authority bonds as security for the re-payment of those bonds and for con- tingent liability in connection therewith and they 610a Excerpts From Stipulation Among Counsel Dated December 20, 1974 may not legally be diverted. For instance, to strengthen its credit position the Commissioners of the Authority have adopted a policy to commit re- tention of reserves in an amoun: equal to two year’s debt service. The $71 million in all Port Authority reserve funds at the end of 1959 was just about equal to the following two year’s debt service on all bonds. The Authority is required to hold in re- serves 10% of its outstanding indebtedness—this amount at the end of 1959 was $57 million. Such revenues and reserves cannot be regarded as un- committed funds. Diversion of these funds more- over might jeopardize the carrying out of future work authorized by the Legislatures of New Jersey and New York by inviting higher financing costs. Certainly the consequences of such an effect, from the standpoint of the growth and prosperity of this area, must be carefully considered. “The matter of the pooling of net revenues from all the Port Authority’s facilities, as authorized by the Senate in 1931, has received some attention of late. By pooling the revenues, a credit base was established to facilitate financing of projects like the bus terminal serving New Jersey commuters, the third tube of the Lincoln Tunnel, the Hoboken Piers Port Newark, Port Elizabeth and Washington Heights Bus Terminal which will principally serve New Jersey commuters. Indeed, it is the pooling of such revenues, as I see it, that will permit financ- ing the purchase and rehabilitation of the H & M Railroad. It is clear to me that the action of the New Jersey and New York Legislatures in author. 6lla Excerpts From Stipulation Among Counsel Dated December 20, 1974 izing the pooling of Port Authority revenues and the creation of reserves has made it possible to pro- vide many public transportation facilities that we may not have had otherwise. With the needs for expanded and additional transport projects rearing up in every direction it seems that the principles which enabled the Authority to accomplish so much in so short a time and so efficiently should prevail. “Now most of us realize that the matter of credit is not an exact science. The credit of an organiza- tion depends on quite a few factors; past perform- ance, efficient management and caliber of personnel and markets for the product the institution has to sell; and last but not least—what investors think of the operation as a financial risk. It is, in the final analysis, the practical assessment of being repaid money that they lend to it. This latter reason, I am certain, is why the Port Authority last Septem- ber, in presenting to this Committee the plan to acquire the Hudson and Manhattan Railroad, talked in terms of what might be done rather than to state positively what would be done. You will remember that they said the Port Authority might be able to sell bonds for the acquisition and modernization of the Hudson and Manhattan Railroad and at the same time continue the financing of the States’ vital port development programs, provided investors could be given assurance that investments in rail transit matters would be limited. The Authority also wanted assurance that the key recommendations in our April report would materialize and pointed out that fair financial terms for both the purchase of 612a Excerpis From Stipulation Among Counsel Dated December 20, 1974 the H & M properties and the Pennsylvania Rail- road operating agreements must be obtained. As I see it from my personal point of view acquisition of the H & M is a must. All our plans hinge on it. To insist on terms unacceptable to investors or terms that invite high interest costs might cause delays that will render our efforts ‘too little and too late.’ It gets down to how badly we need the H & M—do we want it on the investors terms or not at all—it seems to me it is almost as simple as that. “The H & M railroad provides a vital link in our interstate transport network. It is essential to both states that it not only continue but that it be re- habilitated to more conveniently serve our citizens. The cost of purchase, renovation and a new fleet of ears may be over $80,000,000. The H & M is in the last phase of reorganization, that when accom- plished, will separate the Manhattan Real Estate from the Railroad properties. The reorganization document now before the I.C.C. provides that suffi- cient cash be transferred to the separated Railroad Company to permit normal operation for a period of only two years. Extraordinary demands on its resources such as a prolonged strike, would substan- tially shorten the period it could operate without public assistance. We did not include the H & M in our contract program because of its interstate nature. We have insisted that it be put under bi-state regulation and that its rehabilitation be a bi-state venture. The Port Authority is the logical agency to do this—it has agreed, as just outlined. 613a Excerpts From Stipulation Among Counsel Dated December 20, 1974 “T feel certain that you genti:cmen of the Legisla- ture have been and will be increasingly in touch with our transportation needs. I am also convinced that the Port Authority’s responsibilities will be better met by preserving a sound credit base. (Stip. 142- 48) ees “Q. By Senator Fartey: And taking a hypotheti- cal case—if perchance the Port were in a position financially to handle the commuter service, what would happen to the railroads involving passenger and freight service in this particular area of north- ern New Jersey? Would they go bankrupt? “A. Well, the Port Authority has gone on record as feeling that mass transportation’s maintenance is absolutely essential. That is contrary to some of the references that I have seen recorded. The "ort Authority in itself, with its bridges and its tunnels, and its H & M could, under no circumstances in our considered opinion—although we are not experts, sir —meet the needs of our State insofar as transporta- tion is concerned, and in our opinion their efforts should be confined to the bi-state, interstate aspects, and we, with the carriers themselves, energizing the assistance in each state, would not certainly from our state interest in the Port Authority wish to see them engage in taking over the Long Island Rail- road, the New Haven that comes into Manhattan, and the New York Central with all the extentuating circumstances. (Stip. 149-50) * * ° “Q. By Senator DuMont: Commissioner, when the Port Authority made its proposal in September, 6l4a Excerpts From Stipulation Among Counsel Dated December 20, 1974 at our hearings then, to take over the Hudson & Manhattan Tubes, they surrounded their proposal with certain restrictions which, so far as I could tell, were designed to eliminate any real obligation on the part of the Port Authority beyond taking over the Hudson & Manhattan Tubes, at least so far as the railroad field was concerned. Do you consider those restrictions that they surrounded this proposal with as reasonable ones? “A, Yes, I do. And T have so stated in my pro- posal and I do it purely on the basis of what experi- ence I may have had in the field of finance and industry, and of what we are hoping to obtain and acquire in the future in the expansion of facilities that the Port can supply. “Q. So that you feel if they were to carry out this proposal and purchase the Hudson & Manhattan and do all the rehabilitation that’s necessary, they would be doing a, shall we say, satisfactory job, at least in your opinion so far as carrying out their obligation in the railroad field? “A. I would say this: 1. That they would be doing a fabulous job and accomplishing something that has been talked about for 40 years and which no one as yet has had the courage to tackle and which now is within our grasp. My feeling also is this, in talking with various Commissioners and talking with people in the financial district, that this is not a decision of the Port Authority as such, of a rebellion against going further into transportation, but of the investor, you and I if you will, although we are not 615a Excerpts From Stipulation Among Cownsel Dated December 20, 1974 investing this morning whether or not we are willing to loan money to finance obligations that have such distressing characteristics as the present situation. And even the Hudson & Manhattan, which some believe can be brought into a position of profit, which with what little I know I greatly doubt,—it is presently contemplated that there will be a loss of at least some $5 million a year in that operation, and probably e total laying in of risk capital of some $80 million. And it seems impossible, from all of my direct—and not through any other channels — [46] A. The situation in mass transit in those years was such that most facilities of this sort were operating at defi- cits. The Hudson & Manhattan Tubes which later became PATH were at that time bankrupt. There was a general recognition, I think, that the pressures on mass transit to keep fares down and the upward pressures on expenditures through union demands and threats of strikes were espe- cially—were especially conducive to continued deficit oper- ations and to lack of confidence in this type of operation as a vehicle for investment. Q. What— The Court: When you say there was a general recognition, by whom? The Witness: In the investment community, your Honor. I guess I intended to imply that. The Court: All right. [47] Q. What [projections] were being made for the future of rail mass transit at that time. 855a Excerpts from Testimony of John F. Thompson Mr. Sovern: By whom, your Honor? Q. What projections that came to your attention were being made and would you then also answer Mr. Sovern’s question, by whom? A. Certainly, the projection for the H and M, you didn’t have a projection, you had a bank- ruptcy. I think then in the investment community that any project[ion] of what would happen in the mass transit was that it could only operate at a deficit. Q. Do you recall any specific projections, in other words, can you point to anything specific or are you speaking from your general recollection? A. I am speaking from my gen- eral knowledge at that time. | Q. And you mention specifically the Hudson and Man- hattan. In 1961, did it come to your attention that the Port Authority was proposed to take over the Hudson and Man- hattan? A. Yes, this was a discussion and a proposal which was very much in the news in those days. Q. What was vour reaction to that? A. Well, my reac- tion to the Port Authority getting into that or other mass transit was one of concern be- [48] cause the Port Author- ity has always gone into projects which it could reasonably ascertain that they would become self-supporting, at least within a period of a few years of development and this seemed to be a different tact for the Port Authority to start on. T 46-3 to 48-5. s s @ Q. Did you look on the step as the final step of the Port Authority towards mass transit, the final step of the Port Authority towards mass transit? A. No, I think in com- mon with the investment view of most things, anticipation is a key factor and if one step were made into mass transit, the question arose in the minds of most participants in the 856a Excerpts from Testimony of John F. Thompson investment community, what comes next, what other pro- jects in mass transit will next be undertaken, or projects. Q. And did you have specific concern of the [49] Port Authority in your work at that time? A. Certainly in this respect, yes. A concern that the Port Authority might be pulled away from the revenue producing type of under- taking which it had up until then, into things that would get it into difficulty. Q. Were you specifically involved in making recom- mendations towards clients of your firm with regard to Port Authority bonds at that time? A. I am sure I was, yes. I am sure I was. Q. And what prospect did you see at that time for bonds of the Port Authority, both new issue and, if you will, the bonds that had already been sold by the Port Authority? T 48-16 to 49-13. s . s [50] The Court: Do you have any specific recol- lection of some definite time period in 1961 when you might have considered what the prospects were for the Port Authority bonds? The Witness: I do not think I recall a specific time period that far back, your Honor. I do recall that in 1961, this whole concern was being discussed and there were the beginnings of a discussion of what became the 1962 covenant as a device to uphold the credit of the Port Authority, but I do not think I can pinpoint it down as to the specific dates, The Court: All right. Q. What did you see at that time as the prospect for the sale of Port Authority bonds if the Hudson and Manhattan was taken over by the Port Authority? A. Well, it depend- ed on what sort of overall restrictions were put on a situa- t 857a Excerpts from Testimony of John F. Thompson tion in that respect. We all knew that the move to take over the Hudson and Manhattan was at least politically related to the construction of the World Trade Center and it could therefore turn out to be an isolated instance, but there was concern that it might not be, and I think this is what [51] eventually developed in the convenant. Q. If there had been no covenant, what would have been the effect upon the bond market? Mr. Sovern: Objection, your Honor, if there had been no covenant, there conceivably would have been all sorts of terms and conditions which would have varied and the question as[ks] for an abstract and speculative answer. Mr. Landis: The question as[ks] for the witness’s opinion, it is hypothetical, but I think it is appropri- ate for an expert. Mr. Sovern: The effect, I submit, has to do with the failure to specify, if you will, the hypothesis. As the witness testified, hundreds of conditions go into deals of this character. If there had been no cove- nant, we don’t know what Mr. Tobin might have said about the absence of a covenant. Mr. Landis: I think that is appropriate for cross- examination and Mr. Sovern will have the opportu- nity— The Court: I would like to have all of the fact[s] or assumed facts in the hypothetical set forth in the record. In other words, are you asking him to assume that all of the conditions [52] of the consolidated bond resolution, the General Funding Statutes, the reserves required to remain in effect; are you also asking him to assume that the Port Authority would be continued to be managed by the same personnel 858a Excerpts from Testimony of John F. Thompson with whom he had experience in evaluating over the years, et cetera, et cetera, and are you asking him to assume also that legislation had been [con ]currently pas[sed] by both States authorizing the takeover of the Hudson and Manhattan and the construction of the World Trade Center without any other conditions being imposed? Mr. Sovern: May I add one condition, your Honor, to submit for your consideration, it is that the Executive Director of the Port Authority in whom he had such confidence at the time, he said the covenant was necessary. Had it not been enacted, it is entirely possible he would have taken a different view, so some specification of the question as to what Mr. Tobin was advising the community on this hy- pothesis seems to be called for. The Court: I think you really ought to expand upon the question that you have asked in order to give it any meaning and also so that he [53] knows exactly what you are asking for the purpose of his cross-examination. Mr. Landis: I will be glad to rephrase the ques- tion. [54] Q. Mr. Thompson, if the Port Authority had been directed to take over the Hudson and Manhattan and build the World Trade Center without the covenant restriction of further involvement in rail mass transit, but assuming all other things have been constant and as they are, what would be the prospect for subsequent Port Authority bond offerings after that legislation? Mr. Sovern: Actually, your Honor, on that hy- pothesis we know the answer. The stipulation reveals 859a Excerpts from Testimony of John F. Thompson the Commissioners would have refused to issue the section 7 certification, and that offering would have had to be renegotiated again on some other term. Mr. Landis: Your Honor I submit we do not know the answer from the stipulation. I think there was speculation and representations made, but the question never reached the Commissioners. They never had to vote on the question. And ix is not stipulated that they did vote on the question. And I would ask that the question be answered. The Court: I am not certain that the stipulation actually would cover the answer which he hopes to elicit from the witness. Maybe he will get it and maybe he won't. Do you understand the question? [55] The Witness: I think so your Honor. The Court: Then I will overrule the objection. You may answer the question. A. All other things remaining equal and the authoriza- tion for the PATH takeover and the Worid Trade Center without the covenant would have resulted in my opinion in a less favorable market for the Port Authority bonds and a higher interest for the Port Authority bonds. Q. Again if you will, although maybe it is repetitive, what was the reason for your opinion? A. The possibility of massive deficit operations getting into the Port structure. Q. And what you referred to as a possibility, in fact was that concern borne out over the years since 1961 in terms of the deficits of rail mass transit? A. It certainly has been. I think it can be stated to be a proposition with tremendous foresight. The deficit of PATH was estimated at the time to be about five million dollars a vear. As I understand it, it is running five times thui. 860a Excerpts from Testimony of John F. Thompson The operating deficit of the New York City Transit Sys- tem during the current year will be $450 million to which must be added if we are to compare it in this context some $160 million of debt service on transit bonds, for a total deficit of $610 million. That is just the [56] Transit Sys- tem in New York. And I think this indicates that the fears of the invest- ment community were well taken. In transit you are con- stantly—as the Port Authority recently found when they hoped to increase the PATH fare to cut the deficit of PATH down a little; great pressure was put on them by the two governors not to do it. There is a type of pressure that is ever present in this mass transit business that just does not exist in other activities. Q. Of course Mr. Thompson we all know that the Port Authority did in fact take on the Hudson and Manhattan, and the Port Authority did covenant the issuance of bonds in the 60s after 1962, and the interest rates in fact did reflect great faith in the Port Authority credit. How did that all come about? A. It came about by the adoption of the covenant by the two states in which they convenanted and agreed with each other and with the holders of all affected bonds, subject only to bond holders’ consent for any change—and this is in the statute—that no deficit pro- ducing mass transit facilities would be undertaken save for certain permitted purposes; and those permitted purposes are measured by a fraction of the General Reserve Fund which today has already been exceeded by the deficit of PATH; that is the general reserve fund is 170 odd million, the [57] covenant would permit $17 million deficits, including PATH, for new projects, and the PATH deficit is in excess of that. So that there is no room there. I think it was the result of this covenant not to go further in this field that upheld the credit and horrowing power of 86la Excerpts from Testimony of John F. Thompson the Port Authority over these years, and that was its pur- pose. It was not to give some bounty to the bond holders. It was to uphold the borrowing power of the Port Author- ity as an agency of the two States for the enterprises which the two States had assigned to it. T 50-3 to 57-10. The Court:... Do you know if anyone knew the terms of the cove- nant, aside from yourself? [58] The Witness: Yes sir. And as far as inves- tors are concerned, certainly the investors that were advised by Seutter, Stevens and Clark; but I can’t say whether they in their own minds were acting on the basis of from my knowledge of the covenant. I remember very well in information meeting at the time I think of the first bond issue to be sold after the adoption of the covenant when this was explained not only to the dealers and underwriters, but to investor representati.es, because I was then with Seutter, Stevens & Clark and was invited to this information meeting; and the covenant was ex- plained in very great detail as something that investors could rely on and should rely on. Tt was explained to them as a legally enforceable contract between the two States and themselves if they became bondholders. And certainly the institutional investor had every opportunity to know about this; every offering state- ment, every official statement of the Port Authority since that time in the offering of bonds has contained a very well expressed explanation of the covenant and what it meant to the bondholder. 862a Excerpts from Testimony of John F. Thompson Sure there might be an investor somewhere [59] who bought a bond without knowing what he was doing. When I was at Scutter, Stevens we used to find out quite a few of those, because later they became clients and wondered what they had done. But so far as the informed part of the investment community, and given the institutional basis of a large part of the municipal market, a large part of it is informed. As far as the informed part of the investment com- munity certainly they knew about the covenant and relied on it and were importuned to rely on it. Mr. Sovern: Your Honor, I ask that the last sen- tence be stricken as a legal conclusion and unrespon- sive to the question. The Court: I don’t think it was a legal conclusion. Mr. Sovern: That they relied on it. The Court: I think he is expressing it as a fac- tual statement, not legal conclusion, based upon his personal knowledge of his dealings with people in the investment community that bought these bonds. I assume that was the basis of the statement. The Witness: Yes. [60] Q. The speech you referred to, Mr. Thompson, that [was] made by Mr. Tobin, did you, in fact, obtain a copy of that in writing? A. Yes. I found that there was a copy retained through the years of that speech. When I asked my former associates at Scutter, Stevens and Clark to look in their files for things that related to this, and I found a copy of the speech which I know had been in my hands because the Port Authority had not put a date on the speech as it was printed and I pencilled in the date. I recognized my own handwriting of the date on that copy 863a Excerpts from Testimony of John F. Thompson of the speech and that speech, by the way, was made to a combined group of the Municipal Forum of New York, the Municipal Bond Club of New York and Municipal Bond Club of New Jersey which includes probably a thousand professionals in this business. T 57-23 to 60-15 e * sd [61] Q. At the time that you have been testifying with regard to the 1961, 1962 period you have testified as to the speech by Mr. Tobin which has been introduced as P-36 and deseribed by you as the transcript of that speech, was there discussion by parties other than the Port Authority at that time of the covenant and its meaning and its need [62] and meaning. Let me amend that. A. Well, I cer- tainly remember a great deal of discussion within the investment community of this and what it meant and of the necessity for it. Q. Well, perhaps it would be best to refresh ourseives to the interchange in the investment community that took place on a formal anc informal basis. There are trade associations, as I recall your testimony? A. Yes. The trade associations, the Municipal Forum, the Municipal Bond club, but, of course, people in one business come together in many ways. They lunch together, they’re on the phone together in making trades. These things get discussed in the course of the trade. There’s a constant flow of information back and forth that when I was at Scutter and was doing some of the buying, there were several dozen salesmen that would call me from time to time and these things would have been discussed back and forth with them. There’s a constant flow of information between the street and the investment community. Q. So that when you say that the covenant, its need and its meaning were discussed in the community, are those 864a Excerpts from Testimony of John F. Thompson the kind of communicating—communications means that you were referring to? [63] A. Yes, also the covenent, of course, was discussed in reports like this Dunn & Bradstreet report, a credit report on the—T 61-20 to 63-3 ® @ Q. Describe it by number. A. P-1 and P-2. * * es A. These diseuss the covenant and what it meant to the credit of the Port Authority. Q. And— A. Also on the informal discussion, I spoke of this information meeting at which Austin Tobin made the basic presentation. The meeting was not just a formal sit-down meeting. It ended with an informal reception where people moved back and forth and around discussing the subject of the day and I well remember some of those discussions at the time. [64] Q. And when the Port Authority bonds were sold subsequent to the adoption of the covenant do I under- stand your testimony to be that the Port itself made writ- ten representations with regard to the covenant? Mr. Sovern: Objection, your Honor. There’s been no such testimony and the question is leading. Q. Did they, I’ll rephrase the question. A. Yes. I think IT stated in each official statement there was such a repre- sentation, very definitely. : The Court: Unless you’re referring to some other written communication. Q. You’re referring to the official statement? A. Yes. Q. For the identification in the record, a sample of the official statement has been marked in evidence in this stipu- lation. 865a Excerpts from Testimony of John F. Thompson Perhaps it would be best if you would explain at this point, the nature and purpose of an official statement and perhaps some of the synonomous terms that are often used to describe it. A. Well, an official statement is the docu- ment which an issuing body presents to the investment community to fully describe the issue which they are about to offer and in so doing it, if it’s a good official statement they fully describe their financial condition, they fully [65] describe the—either describe or refer to the statutes under which they’re operating. If there are resolutions or ordi- nances which are in fact bond indentures, those are usually put in in full text, they were in the Port Authority official statements, occasionally they are summarized in some offi- cial statements that are done less completely. There are financial tables, there are indications of what the money is to be used for, the whole story about the financing is put into the official statement. Q. What’s the purpose of the official statement? A. The official statement is to inform the investment community about the forthcoming issue. Q. And specifically with reference to purchases of bonds? A. Yes, as dealers in an important bond offering, as dealers we obtain and sent to our major investor customers, copy of the official statement. I might say, your Honor, from time to time, I’ve tried to write up a summary, so that some of the customers wouldn’t have to go through the whole thing. Q. They’re fairly lengthy? A. Yes, an official statement ean be [a] 50, 75 page document at times. A full letter-size. T 63-7 to 65-23. ‘ [67] Q. Getting back to the time in 1962 at the time of the adoption of the covenant, did the acquisition of PATH 866a Excerpts from Testimony of John F. Thompson change your understanding of the Port Authority’s role in the understanding of the two states. ° [674] [By Mr. Landis] Q. Would it be fair to state that the certification requixed under the 1962 covenant is a certification of an amount? The Court: Certification? Mr. Landis: Of an amount. The Court: Which one? Mr. Landis: The certification under the 1962 covenant. The Court: But there are different kinds, self- supporting— Mr. Landis: Whether it is self-supporting or defi- cit, I don’t think in the context of the question it matters. The Court: You say certification of an amount. Mr. Landis: Yes, I am asking if that is a correct characterization of the certification. 1083a Excerpts from Testimony of Michael Zarin A. I don’t know, Mr. Landis, whether it is the certification of an amount in the sense that the amount itself would have to be spread on the certification. In order to make the certification you would have to [675] have materials, and certainly which would reveal that amount. I have not myself gone through the process of preparing—as Mr. Sovern indicated, I have not prepared such a certification for a facility. So I am certain it hasn’t been done as yet under this particular statute. In order to make the certification, if you were making it or if you were concurring in it, you would of course have to have documents which would show amounts. But whether the certification itself would say that you want to certify that this complies with Section so-and-so, and so forth, and that would be signed, or whether it would spread forth the entire economic analysis, I don’t know at this point. Q. It would be necessary to come to certain conclusions as to amounts, would it not? A. Yes, sir. Q. Would it be fair to state that the certification required under section 7 would be the certification of an opinion? Mr. Sovern: I think I will object, your Honor, the covenant is explicit and you examined at consider- able length on this subject. The Court: Yes. He apparently has never had to cross that bridge yet. That is what he is telling you. £676] Mr. Landis: I am not sure what the answer is, but I am simply trying to get a characterization of what may appear on the record as a rather confusing discussion. Mr. Sovern: I will withdraw my objection. The text of the resolution says it shall certify its opinion. The Court: The text of— 1084a Excerpts from Testimony of Michael Zarin Mr. Sovern: —of the resolution about which Mr. Landis inquired. Section 7. He asked whether the consolidated bond resolution the series resolution, Section 7, called for a certification of an opinion. I objected. I looked at it. I saw it does. I withdrew the objection. The Witness: You are speaking now of the series resolution itself? Mr. Landis: Yes, the Section 7 of the series. The Witness: Mr. Sovern has read it. Q. Do you subscribe to his answer? A. It says: If the Authority shall eertify at the time of issuance ite opinion. T 674-5 to 676-23. _ @ oe [684] [By Mr. Sovern] Q. * * * Mr. Zarin, tell me again why you regarded little “i” of permitted purposes as an important limitation? The Port Authority has in fact improved the facilities on the line and I thought you testi- fied that had it been but for little “i”, the PATH could have grown like Newark Airport, you would have added more. A. If I on you that assumption, I’m just saying to you that little “i” delimited a particular system and took the PATH system as one—for example, let’s assume that we started with your railroad, that you are talking [685] about B and that was little “i”. We could have improved that railroad as much as we wanted to. Q. Stay with PATH, if you would, please. You said little i was very important. Those weren’t your exact words, but that was your message. Now, what is its importance? A. The importance is under little i, you can improve PATH as a system as far as PATH is concerned. 1085a Excerpts from Testimony of Michael Zarin In contradistinction—and then taking the covenant pro- tection, let’s assume, if I may, and stop me if I am going out of your hypothetical, staying with PATH, you asked me to assume the covenant protections. Let’s for a moment assume only section 7 with respect to little i. Q. I'd really rather not. The Court: Just stick with PATH, and the ques- tion, is really, what does little i mean? A. Little i means that just as you can build a railroad across the George Washington Bridge without reference to the covenant, you may acquire and improve the PATH sys- tem without reference to the covenant. The Court: But you could not add trackage to PATH, extended to— The Witness: Your Honor, that is [686] . cisely so, that is the nub of the— Q. When you said little i was the nub of the covenant, what did you mean? A. I really am trying to explain that, and what I meant was the question to which I was really responding was really all through this thing, is what is the difference, what is the added protection of the covenant and little i illustrates the difference between PATH and say, Newark Airport in the examples I have given today. In the case of Newark Airport, we were able to extend the Airport by agreements and it is in different locations and so on and so forth. Q. If it were not for little i, you could have done that with PATH? A. If it were not for little i we could have done with PATH, right. Q. That is what I thought you said, if you could have done that for PATH. A. Not if it were not for little i, I 1086a Excerpts from Testimony of Michael Zarin beg your pardon. With little i we could do it for PATH. If it were not for the covenant, we could extend PATH as far as—let us put it this way, section 7 would not have to be put into play again with respect to little i as a facility, a railroad facility. Q. If you want to tell me section i is [687] unimportant, I would take that, but I do not think you could have meant to say that it is the heart of the covenant in that it author- ized the greater expenditures on the H&M because if you recall the Judge had just asked you an open-ended question, what else did the covenant do to protect bondholders that the other things didn’t and as you did with me and I assume Mr. Landis, pointed out that little i limits the extent to which the H&M ean grow. A. Mr. Sovern, I don’t believe that I specifically referred in our conversation to little i. I believe that my first reference to that was here on the stand. Q. You are quite right. A. Thank you. Q. I withdraw that reference. I was just collapsing a lot of stuff together. A. What I was intending to say, and I have been very careful today, it is starting to get late, and when I said the heart of the matter, there are so many things that I could have characterized that way, and I am sorry I said the heart of the matter. It demonstrates to me the difference of PATH and the Hudson Tubes by put- ting it into the exceptions and saying it is not subject to the covenant, makes PATH the same kind of thing as other facilities except for one fact, and that is in order to [688] prevent it from being considered the same as those facili- ties, it savs not PATH but—or Hudson Tubes, which is virtually synonymous. It says as authorized and limited on the effective date of this covenant and agreement. Newark Airport on the other hand, does not say Newark Airport as authorized and limited on the effective date of 1087a Excerpts from Testimony of Michael Zarin this covenant and agreement, so that settled PATH in one section and then if you wanted to do anything additional, you have to name it and certify it. Once you named it and certified it, if it meets all of those tests, then it too becomes part of the family but if you want to add to it you have to certify more to that. Now, if that is not the heart of the matter, it has—maybe it is not and it has some importance. Q. The paragraph at the end of the covenant says in the third sentence, “Each certification by the Port Authority hereunder shall be made at the time of the issuance of its first bonds,” et cetera. Now, I would suppose that that applies to PATH. A. No, sir, it says, “In connection with a proposed other railroad facility,” is what I have been trying to point to permitted purposes for. Any other railroad facility. I assume this has nothing to do with PATH. [689] Q. I wasn’t fully—precise. I would assume it would apply to an effort to extend PATH beyond its present houndaries? A. Yes. [690] Q. All right. So that paragraph, if you read it that way, would require a fresh certification if PATH was sought to be extended beyond its present boundaries. A. Precisely so. 3 Q. What does a little “i” do for the bondholders? A. Oh, little “i” doesn’t help the bondholders. Little “i” is what we got. Q. Okay, fine. I thinkI— A. We got— we got that. ve got that. We got the ability to put all that money into this system. That’s what this whole statute was about. T 684- 16 to 690-13. 1088a Excerpts from Testimony of Michael Zarin [711] Q. I take it there is no question, is there, Mr. Zarin, the bonds in the 40 and 41st series do not have the covenant in their contract? A. They do not have the covenant in their contract with respect to those obligations, right. I think the official statement— The Court: That is your answer, that is sufficient. Q. Now, second, I don’t want to go into a long list, but you had not finished your answer— A. Well, your Honor, the official statement is put together in very careful terms with respect to the 40th and 41st series of bonds and states on page 17 in the statutory covenant against dilution of pledged revenues and reserves by additional passenger rail- road facilities, remains in effect with respect to affected bonds and remains binding on the Authority, although it does not apply to the bonds of the present offering. T 711-2 to 711-19. 1089a Excerpts from Testimony of Austin F. Fitzgerald [721] AUSTIN F. FITZGERALD, 53 Central Avenue, Glen Rock, New Jersey, sworn. Direct Examination By Mr. Landis: Q. By whom are you employed and in what capacity, Mr. Fitzgerald? A. I’m employed by Weeden & Company, and at the present time I’m vice-president in charge of dollar bond deposits and I am also in charge of the corporate bond trading department, and have the responsibility for our activities in the long government bond area. , Q. What is your educational background? A. I’m a graduate of Saint Peter’s College in Jersey City where I received a Bachelor of Arts degree with a pre-med major. I have also taken courses in NYU Graduate School of Business Administration. Q. How long have you worked in the area of municipal bonds? A. For approximately 20 years. I came out of service in 1954, joined James H. Olyphant & Company, became a registered representative. I think I then switched to the firm of [722] Meaney and joined Weeden & Company in 1957. Q. What did you do when you first joined Weeden? A. At that time, I was in the stock area of the firm. I then moved into the municipal dollar bond trading area. From 1958 to 1962 I worked with another fellow in the department. At that time I became responsible for running the depart- ment, and by 1970 I was responsible to, allowed by the firm to commit up to 30 million during any one trading day. In August of 1973 I also assumed my additional respon- sibilities in the corporate and government area. 1090a Excerpts from Testimony of Austin F. Fitzgerald Q. Were you what is commonly known as a trader dur- ing that period of time? A. Yes. At this time I was a trader, which meant I would purchase and sell bonds for the benefit of the firm’s account. Q. At the present time what are your responsibilities? A. All right. At the present time I actively supervise the trading of bonds. Previously I was actively engaged each day in terms of the trading [723] responsibilities. At this time I now have the overall supervision of the dollar bond trading department as well as the corporate trading and our government activities. In this I will confer with Allen Weeden, to whom I am directly responsible, as the president of the company. Q. And what is the involvement of Weeden and the scope of that involvement in the municipal bond area? A. In terms of this Weeden is a major dealer, in terms of underwriting of securities, we also are participants in the secondary market and are major market makers in terms of this. Weeden itself has approximately 500 employees. We have eight offices, which are located in San Fran- cisco, Los Angeles, Chicago, Philadelphia, Boston, New York and London. Of our business, it’s broken approximately into the bond business is approximately 60 percent in the municipal bond area, 40 percent in the corporate and government area. Of our business in the municipal area two-thirds of this is done in the secondary market. We will take a position in a dollar bond area of, as I had said earlier, [724] of approximately as high as 30 million. We would have transactions in Port of New York Authority bonds one given day, probably in the area of four to six hundred thousand. 1091a Excerpts from Testimony of Austin F, Fitzgerald We also would de business in the dollar bond area of between approximately two to three million in purchases and sales. Our total business in the firm for the year would come to approximately 25 billion. [725] Q. Has Weeden been involved in underwriting Port Bonds? A. Yes, we have. We have been a major in the underwritings of most of the Port issues. We also have been managers of several of the competitive bidding deals and the ones that we have not been involved in, those where we were lost out in the competitive. Q. How many different issuers of bonds are you familiar with? A. Approximately one hundred. Q. That is on a personal basis? A. Yes. Q. And what kind of clients does your firm deal with? A. We deal primarily with institutions and dealers. Institu- tions would be composed of such as banks, insurance com- panies, public and private pension plans, municipalities, trusts, ete. Q. And are the dealings of Weeden in the Revenue Bonds on a national basis? A. Yes, [they are]. Q. Is that true also of deals specifically with Port of New York Bonds? A. Yes, it would be. [726] Q. Who are the major dollar bond dealers in the business today? A. The major ones would be Salomon Brothers, Barr Brothers, Merrill Lynch, Park Ryan, and ourselves. Q. Specifically with reference to the dollar bonds that we are involved with here in this litigation, the Port Authority Bonds, who are the major dealers in those bonds? A. It would be Barr Brothers and ourselves. Q. How long has your firm been making a market in deal- ing in Port Bonds? A. I guess about 25 years. 1092a Excerpts from Testimony of Aust F. Fitzgerald Q. Do you consider yourself to be familiar with the sec- ondary market of Consolidated Bonds of the Port Author- ity? A. Yes, I would. Q. How do you base that judgment, what do you base that judgment on? The Court: On everything he has just told me. Mr. Landis: Fine. I would then offer him as an expert dealer. The Court: Any questions with respect to his qualifications as an expert? Mr. Sovern: No questions. We accept [727] him as a expert. Q. You are aware, are you not, Mr. Fitzgerald, of the subject matter of this litigation? A. Yes. Q. And you have heard of the 1962 covenant?