Jurisdictional Statement — Motor Club of America Insurance v. New Jersey

82-1158

Supreme Court of the United. EEE

Ocroser Term, 1982 \——~——————____

MOTOR CLUB OF AMERICA INSURANCE COMPANY,

A Corporation of the State of New Jersey,

Appellant,

Vs.

STATE OF NEW JERSEY, STATE OF NEW JERSEY

DEPARTMENT OF INSURANCE and JAMES J.

SHEERAN, NEW JERSEY COMMISSIONER OF

INSURANCE,

Appellees.

On Appeal from the Supreme Court of New Jersey

Ae ema ARERR RE SAE NAR A SNARES A RN SA

JURISDICTIONAL STATEMENT

8...

Srantey Weiss, Counsel for Appellant

Rosert EK. Turrz

CarPENTER, Bennett & Morrissey,

Attorneys for Appellant, Motor Club

of America Insurance Company,

744 Broac Street,

Newark, New Jersey 07102.

(201) 622-7711

Adams Press Corp., 50 Park Place, Newark, New Jersey 07102—(201) 623-8611

Questions Presented by the Appeal

1. Do the allegations of Appellant’s Complaint* that its

assets and equity have been drastically eroded and its earn-

ing power substantially destroyed by New Jersey’s auto-

aobile insurance regulatory system which, since 1975, has

caused Appellant to incur continuing operating losses and

prohibited its withdrawal from such losing business, state

claims that Appellees have effected a taking of Appellant’s

property for a public use without the payment of just com-

pensation required by the Fourteenth Amendment to the

United States Constitution?

2. If Appellant’s Complaint does state valid claims, have

the Courts below denied Appellant federal due process of

law by depriving Appellant of the opportunity to prove

those claims at a trial?

3. Was it error for the Courts below to preclude a mem-

ber of a regulated industry from ever recovering for past

takings of its property through excessive regulation by

holding that just compensation may only be awarded for

*In addition to Appellant, the parties to the action in the

State court were: James J. Sheeran, Commissioner of Insur-

ance; New Jersey Department of Insurance; and the State of

New Jersey. Subsequent to the institution of the action, Joseph

F. Murphy was named Commissioner of Insurance in place of

James J. Sheeran. Pursuant to R. 4:34-4 of the New Jersey

Court Rules, (A. 135a) Mr. Murphy is deemed to have been sub-

stituted as a defendant in place of Mr. Sheeran.

Appellant’s parent company, subsidiaries (except wholly-owned

subsidiaries) and affiliates are as follows: Motor Club of America;

Motor Club of America Enterprises, Inc. d/b/a Motor Club of

America; Motor Club of America Finance Company; Teachers

Underwriting Agency; Automobile Association of New Jersey;

Modern Care Centers of America, Inc.

ii

takings occurring subsequent to the entry of a declaratory

judgment determining that the regulatory system was

effecting such takings; and was it further error for the

Courts below to hold that Appellant may never seek such

declaratory judgment?

4. To the extent that the judgment below is based upon

the availability, under N.J.S.A. 17:29A-24 (A. 81a), of

judicial review of rate making decisions or implicit find-

ings of laches, waiver, or consent by Appellant; (a) are any

of such grounds legally sufficient to bar Appellant’s claim

for just compensation, and (b) does it not deprive Appel-

lant of federal due process of law to deny it the oppor-

tunity to prove at trial its contention (acknowledged by the

trial court) that the right to judicial review of automobile

insurance rate making may be illusory and its further con-

tentions that a fully developed factual record will not sup-

port findings of laches, waiver, or consent in this case?

TABLE OF CONTENTS

PAGE

Questions PreseNnTED BY THE APPEAL i

PARTIES TO THE PROCEEDING i

TaBLeE oF AUTHORITIES Vv

Oprnions BeLow 1

JURISDICTION 2

ConstituTionAL Provisions, Sratutres, REGULATIONS

anp Court Ru.es

STATEMENT OF THE CASE 5

RatsinG THE F'epERAL QUESTIONS 14

THE QUESTIONS ARE SUBSTANTIAL 16

ConcLusion a 29

APPENDIX:

Opinion and Judgment of the Superior Court of

New Jersey, Appellate Division (June 28,1982) la

Opinion of the Superior Court of New Jersey,

Chancery Division (Honorable William A.

Dreier, J.S.C.) (June 2, 1981) 5a

Order of the Superior Court of New Jersey,

Chancery Division (Honorable William A.

Dreier, J.8.C.) (July 6, 1981) 19a

Order of the Supreme Court of New Jersey

Dismissing Appeal and Denying Petition for

Certification (October 14, 1982) 2la

iv

TABLE Ol’ CONTENTS

PAGE

Notice of Appeal to the Supreme Court of the

United States (December 29, 1982) .................. 23a

Verified Complaint (October 27, 1980) ................ 26a

Exhibit A to Verified Complaint .................... 43a

Exhibit B to Verified Complaint .................... 47a

Affidavit of David Green (November 12, 1980) .. 48a

Order of the Appellate Division in Automobile

Insurance Plans Service Ojfice v. James J.

Sheeran, No. A-1024-77 (April 25, 1978).. ........ 63a

Affidavit of Robert J. Schraeder (November 12,

1980) 65a

Appendix A to Schraeder Affidavit ................ 68a

Appendix B to Schraeder Affidavit ................ 73a

Appendix C to Schraeder Affidavit ................ T4a

Statutory Material, Regulations, and Court Rules 75a

TABLE or AUTHORITIES Vv

PAGE

Table of Authorities

Cases Cited

Aaron v. United States, 311 F.2d 798 (Ct. of Cl. 1963) 2%

Armstrong v. United States, 364 U.S. 40 (1960) ........ 18

Automobil Insurance Plans Service Office v. James

J. Sheeran, No. A-1024-77 April 25, 1978 ................ 10

Board of Pub. U. Comm’rs v. N.Y. Telephone Co.,

SEE PRIS CE EMME: setdicslndsensilaasonnioaiibcn Shcsiciisimtaniceaiiobiseigs 19

Brooks-Scanlon Co. v. R.R. Comm’n, 251 U.S. 396

(1920) 15, 19, 29

Bullock v. Railroad Comm’n, 254 U.S. 513 (1921) ... 19

Federal Power Comm. v. Hope Natural Gas Co., 329

U.S. 591 (1944) 19, 25, 29

Garrity v. New Jersey, 385 U.S. 493 (1967) ................. 26

Hilkovsky v. United States, 504 F.2d 1112 (Ct. of

Cl. 1974) 24

In re Intrastate Industrial Sand Rates, 66 N.J. 12,

327 A.2d 427 (1974) 8, 25

In re N.J. Power & Light Co., 15 N.J. 82, 104 A.

2d 1 (1954) 8, 24

In re Revision of Rates of Toms River Water Co.,

82 N.J. 201, 412 A.2d 430 (1980) 8

In re Valuation Proceedings Under §§ 303(c) and

306 of the Regional Rail Reorganization Act, 439

F. Supp. 1351 (Sp.Ct. RRRA 1977) 28

Insurance Co. of North America v. Howell, 80 N.J.

Super. 236, 193 A.2d 386 (App. Div. 1963) ................ 8

vi TABLE OF AUTHORITIES

PAGE

In the Matter of Jersey Central P & L Co., 166 N.J.

Super. 540, 400 A.2d 128 (App.Div. 1979) .............. 25

Johnson v. Zerbst, 304 U.S. 458 (1938) ...........--..000- 26

Marbury v. Madison, 1 Cranch 137 (1803) ................ 17

Matthews v. Huwe, 269 U.S. 262 (1925) 2.00.02... 3

Monongahela Navigation Co. v. United States, 148

U.S. 312 (1892) 25, 29

New Haven Inclusion Cases, 399 U.S. 392 (1970) ...... 19

North Countries Hydroelectric Cv. v. U.S., 118 F.

Supp. 375 (Ct. of Cl. 1954) 22

Penn Central Transportation Co. v. New York City,

438 U.S. 104 (1978) 18

Pennsylvania Coal Company v. Mahon, 260 U.S. 393

(1922) 18, 22

Railroad Comm’n v. Eastern Texas R.R., 264 U.S.

79 (1924) 19

Regional Rail Act Cases, 419 U.S. 102 (1974) ..15, 19, 20, 29

San Diego Gas & Electric Co. v. San Diego, 450

U.S. 621 (1981) 19, 20, 29

Sheeran v. Nationwide Mutual Ins. Co., 80 N.J. 548,

404 A.2d 625 (1979) 7

Smyth v. Ames, 169 U.S. 466 (1898) decree modified

171 U.S. 361 (1898) 18, 19

Sullivan v. Texas, 207 U.S. 416 (1908) 3

Tumey v. Ohio, 273 U.S. 510 (1927) 23

Tyson and Brother v. Barton, 273 U.S. 418 (1922) ...... 22

Union Pacific R. Co. v. Public S. Comm. of Mo.,

248 U.S. 67 (1918) 26, 29

United States v. Dickinson, 331 U.S. 745 (1947) ....22, 24, 29

TABLE OF AUTHORITIES vii

PAGE

United States Constitution Cited

Fifth Amendment 4

Fourteenth Amendment i, 3, 4,15

New Jersey Constitution Cited

Article I, Paragraph 20 3, 4

Statutes Cited

28 U.S.C. §1257(2) 3

N.JS.A. 2A:14-1 4, 21

N.J.S.A. 17:29A-1(f) 4,9

N.J.S.A. 17:29A-2 4,9

N.J.S.A. 17:29A-3 4,9

N.J.S.A. 17:29A-6 4

N.J.S.A. 17:29A-7 4,8

N.J.S.A. 17:29A-14 4,8

N.J.S.A. 17:29A-24 ii, 4

N.J.S.A. 17:29D-1 4,7

N.J.S.A. 17:30-8 4,12, 15

N.J.S.A. 17:30C-1 through 30C-31 4, 12, 15, 27

N.J.S.A. 17:30C-3 13

N.J.S.A. 17:30C-4 13

N.J.S.A. 17:30C-9a 13

viii TABLE OF AUTHORITIES

PAGE

N.J.S.A. 17:30C-9b 13

N.J.S.A. 17:30C-15 2,13

N.J.S.A. 17:300-17 13

N.J.S.A. 17:32-13 4,11

N.J.S.A. 39:6A-1 through 6A-20 6

N.J.S.A. 39:6A-3 4,7

N.J.S.A. 39:6A-4 5, 7

N.J.S.A. 39:6A-4a 7

N.J.S.A. 39:6A-4b-4e 7

N.J.S.A. 39:6A-8 5, 7

N.J.S.A. 39:6A-10 5, 7

L. 1975, C. 113, § 31 4,12

Regulations Cited

N.J.A.C., Title 11, Ch. 3 7

N.J.A.C. 11:3-1.13 5, 7

N.J.A.C. 11:3-1.16 5, 9, 26

N.J.A.C. 11:3-8.1 5, 7

New Jersey Court Rules Cited

R, 2:2-1(a) (1) 2,5

R. 4:34-4

i, 5

TABLE OF AUTHORITIES ix

PAGE

Other Authorities Cited

Conning & Company, Regulatory Review Property &

Casualty Industry, pp. 5-24, October, 1980 .............. 6

Soulor, “Subsidization of Insurance—1979,” Alliance

of American Insurers, p. 11, September, 1981 .......... ll

NO.

In THE

Supreme Court of the United States

Octoser Term, 1982

’"

MOTOR CLUB OF AMERICA INSURANCE COMPANY,

A Corporation of the State of New Jersey,

Appellant,

vs.

STATE OF NEW JERSEY, STATE OF NEW JERSEY

DEPARTMENT OF INSURANCE and JAMES J.

SHEERAN, NEW JERSEY COMMISSIONER OF

INSURANCE,

Appellees.

On Appeal from the Supreme Court of New Jersey

A.

wv

JURISDICTIONAL STATEMENT

Opinions Below

The opinion of the Superior Court of New Jersey, Chan-

cery Division, and that of the Superior Court of New Jer-

sey, Appellate Division, which are not reported opinions,

appear in the appendix hereto (A, 1a through A. 18a). The

Supreme Court of New Jersey did not write an opinion in

this case.

2

Jurisdiction

In October, 1980, Appellant Motor Club of America In-

surance Company, a New Jersey insurance carrier, com-

menced this action in the Chancery Division of the Superior

Court of New Jersey against Appellees, the State of New

Jersey, the State Department of Insurance, and the Com-

missioner of Insurance. Appellant sought just compensa-

tion for the taking of its property by New Jersey’s system

regulating the automobile insurance industry in that state

and certain other relief.” Appellant contends that the cumu-

lative impact of the regulatory system on Appellant since

1975 has been to cross the constitutional perimeter of per-

missible regulation and to take Appellant’s property with-

out the payment by Appellee, State of New Jersey, of con-

stitutionally mandated just compensation in violation of

the State and Federal Constitutions.

In October, 1982, without a prior trial or other proceed-

ing for the development of the facts, the New Jersey Su-

preme Court entered Orders which summarily dismissed

Appellant’s appeal and denied Appellant’s petition for cer-

tification.** The effect of the Orders was to allow to stand

the June 28, 1982 judgment of the Appellate Division of

the New Jersey Superior Court, which required the dis-

missal of Appellant’s Complaint in its entirety for failure

* Appellant also sought to enjoin Appellees from commencing

(on the grounds of capital impairment) delinquency proceed-

ings against it which under N.J.S.A. 17:30C-15 (A. 94a), would

lead to the appointment of Appellee, Commissioner, as receiver.

** Appellant appealed as of right to the Supreme Court of New

Jersey on the basis that the case involves substantial questions

arising under both the Federal and State Constitutions (N.J.

Court Rules 2:2-1(a)(1)) (A. 135a). Appellant also, as a matter

of caution, sought review in the State Supreme Court by filing

a Petition for Certification.

3

to state a claim upon which relief may be granted, and

which denied Appellant leave to amend that Comp’ int.

The New Jersey Supreme Court’s order which dis-

missed Appellant’s appeal to that Court was necessarily

grounded upon that Court’s determination that no substan-

tial constitutional issue was presented by that appeal.

Therefore, that Order is a final judgme.t affirming the Ap-

pellate Division’s June 28, 1982 judgment, T'umey v. Ohio,

273 U.S. 510, 515 (1927); Matthews v. Huwe, 269 U.S, 262

(1925). It is therefore the Dismissal Order of the New

Jersey Supreme Court, filed on October 14, 1982, which

is now presented to this Court for Review.*

The Notice of Appeal to this Court (A. 23a) was filed

in the New Jersey Supreme Court on December 29, 1982.

Because Appellant’s claim drew into question, under both

the State and Federal Constitutions, the validity of several

important New Jersey statutes and the regulatory scheme

thereunder as applied to Appellant, and because the deci-

sion of the New Jersey Supreme Court necessarily up-

held the validity, as applied, of those statutes and the

regulatory system, Appellant seeks review in this Court

by direct appeal pursuant to 28 U.S.C. § 1257(2).**

*Had Appellant sought review in the New Jersey Supreme

Court only by means of its petition for certification, and not

by direct appeal, the denial of the petition for certification would

not have consti’ ‘ted a final judgment, subject to review by this

Court. Instead, the earlier judgment of the Appellate Divi-

sion would be reviewable here, Sullivan v. Texas, 207 U.S. 416

(1908).

** We respectfully contend that the interpretation by the Courts

below of New Jersey’s Constitutional provision prohibiting the

taking of private property for public use without just compen-

sation, N.J. Const. Art. I, {[20, also places that provision in

direct violation of the Fourteenth Amendment of the Federal

Constitution,

4

Constitutional Provisions, Statutes, Regulations and

Court Rules

Fifth Amendment, United States Constitution:

... nor shall private property be taken for public

use, without just compensation.

Fourteenth Amendment, United States Constitution:

.. nor shall any State deprive any person of life,

liberty, or property, without due process of law.

Article I, 20, New Jersey Constitution:

Private property shall not be taken for public use

without just compensation...

New Jersey Laws*:

N.WJS.A, 2A :14-1

N.J.S.A. 17:29A-1(f)

N.J.S.A. 17:29A-2

N.J.S.A. 17:29A-3

N.J.S.A. 17:29A-6

N.J.S.A. 17:29A-7

N.J.S.A. 17:29A-14

N.J.S.A. 17:29A-24

N.J.8S.A. 17:29D-1

N.J.8.A. 17:30-8

Laws of 1975, Ch, 113, § 31

N.J.8S.A. 17:30C-1 through 300-31

N.JS.A. 17:32-18

N.wWJ.S.A. 39:6A-3

*The Statutory Material, Regulations, and New Jersey Court

rae reproduced in the Appendix hereto at A. 75a through

|

N.J.S.A. 39:6A-4

N.J.S.A. 39:6A-8

N.WJ.S.A. 39:6A-10

Regulations:

N.J.A.C, 11:3-1,13

N.WJ.A.C, 11:8-1.16

NJAC, 11:3-8.1

New Jersey Court Rules:

R, 2:2-1(a)

R, 4:34-4

Statement of the Case

Appellant, the major subsidiary of Motor Club of

America (“MCA”), was incorporated in New Jersey in

1928, and has, throughout its history, been principally

engaged in insuring New Jersey automobile risks.* Ap-

pellant has been managed for its entire business existence

by members of the family which founded it and its cor-

porate parent, and, through the early 1970s, it prospered

as a relatively small, stable, and profitable company. ‘Thus,

at year-end 1973, its surplus as to policyholders was $21,-

026,296 on a statutory insurance accounting basis, and

its stockholders’ equity was $26,098,990 on the basis of

generally accepted accounting principles (A, 5la, 52a,

58a).

However, beginning in the year 1975, and continuing,

without interruption, beyond the filing of the Complaint

*By way of example, in 1979, more than 77% of Appel-

lant’s net premiums were on account of New Jersey automobile

policies and 90% of its net premiums were on account of all

New Jersey policies (A. 27a).

6

herein in October, 1980, Appellant has suffered massive

losses from its automobile business, During the years

1975 through 1979 those losses aggregated $31,634,621

(A. 56a). Thus, despite capital contributions of $10,-

250,000 to Appellant between 1976 and 1979 by its cor-

porate parent, MCA, and by other companies affiliated

with MCA, Appellant’s surplus to policyholders at De-

cember 31, 1979 had been eroded to $3,209,0c) on a statu-

tory basis and its stockholders’ equity reduced to $10,038,-

000 on a GAAP basis (A, 53a), But for the $10,250,000

contributed to Appellant (A. 58a) (and absent any con-

sideration of the value of the present claims of Appellant)

Appellant would have been insolvent,

Appellant contended and was prepared to prove that the

drastic, adverse turn in its circumstances between 1975

and October, 1980, was directly caused by sweeping

changes, introduced in the 1970s, in the system governing

the automobile insurance business in New Jersey—changes

which have brought massive operating losses to all auto-

mobile insurers in New Jersey and have marked New Jer-

sey’s regulatory system as the most oppressive and unsue-

cessful in the nation,*

In large measure the fundamental changes to the regula-

tory system were accomplished with the 1972 enactments

of New Jersey statutes requiring compulsory liability in-

surance and “no-fault” insurance after January 1, 1973,

N.J.S.A. 39:6A-1 through 6A-20, Those laws set forth cer-

tain mandatory provisions which must be included in all

automobile policies or made available at the insured’s op-

*A 1980 industry poll taken by Conning & Company in-

dicated that 100% of the responding companies listed New Jersey

as the worst state in the Union in which to do automobile in-

surance business (Conning & Company, Regulatory Review Prop-

erty & Casualty Industry, pp. 5-24, October, 1980),

7

tion, ¢.g., no fault personal injury protection benefit fea-

tures which include unlimited medical protection (N.J.S.A.

39:6A-4a) (A, Lila, 112a); mandatory and additional in-

come continuation benefits, essential service benefits, sur-

vivor benefits, and funeral expense benefits (N.J.S.A. 39 :6A-

4b through 4e; N.J.S.A. 89:6A-10) (A. 112a-1l5a); and

compulsory liability coverage in the amounts of $15,000/

30,000/$5,000 (N.J.S.A. 39;6A-3) (A. 110a). Despite the no-

fault features, the statute provides only a token exemption

from tort. liability for personal injuries in the form of a

$200 medical bill threshold, N.J.S.A. 39:6A-8 (A, 113a).

The governing statutes further require that every owner

or registered owner of a car registered or principally gar-

aged in New Jersey have such automobile insurance, (N.J.

S.A. 39:6A-3; 6A-4; GA-10), They also direct that the New

Jersey insurance industry, through the Automobile Insur-

ance Plan,* provide that coverage, regardless of the suit-

ability of » narticular person as a risk from an underwrit-

ing perspective, N.J.S.A. 17:29D-1 (A, 82a). Furthermore,

New Jersey automobile policies are cancellable only on

limited grounds, and (with unimportant exception) are sub-

ject to indefinite renewal despite their demonstrable un-

profitability, Sheeran v. Nationwide Mutual Ins. Co., 80

N.J. 548, 404 A.2d 625 (1979); N.J.S.A. 39:6A-3 (A. 111a);

N.J.A.C, 11:3-8,1°* (A, 127a).

*The Automobile Insurance Plan is set forth in the New

Jersey Administrative Code, Title 11, Chapter 3 (“N.J.A.C., Title

ll, Ch, 3”).

**In the case of assigned risk policies under the Automobile

Insurance Plan, the insurer is obligated to keep the risk for

three years, after which the risk returns to the pool for re-

assignment if other insurance is not available (which is vir-

tually always the case), N.J.A.C, 11:3-1.13 (A, 115a). The drop-

ping of particular assigned risks after three years (or the can-

cellation of policies for nonpayment of premium during the three

year period) does not alleviate the burden upon the insurer be-

cause new assigned risks necessarily replace the old ones as

a matter of course.

8

In addition to mandating the nature and content of the

automobile insurance policy and its required purchase by

all New Jersey automobile owners, the statute vests Appel-

lee, Commissioner of Insurance, with control over the ap-

proval of rates and premiums to be charged for those poli-

cies, N.J.S.A. 17:29A-7, N.J.S.A. 17:29A-14 (A. 79a, 80a).

This control, exercised by a required prior approval of

changes in rates, is of particular significance in light of the

massive and continuing increases in the actual cost of the

product which the State requires to be sold. Because all

vehicle owners must purchase the product, irrespective of

their ability to pay premiums which would cover those costs

and which would be compensatory to the insurers, Appel-

lees have considerable motivation, and through the Com-

missioner’s control of rate approvals, the opportunity to

keep rates and premiums at a minimum. Moreover, the

statutory scheme provides no built-in protection against

“regulatory lag,” i.¢., there are no provisions authorizing

interim rates while rate applications are pursued, and there

is no provision limiting the time within which rate deci-

sions must be made.* Furthermore, in New Jersey rates

may be set prospectively, only, In re N.J. Power & Light

Co., 15 N.J. 82, 104 A.2d 1 (1954); In re Intrastate Indus-

trial Sand Rates, 66 N.J. 12, 23, 327 A.2d 427, 433 (1974).

They cannot be put into effect retroactively, even to the date

of the application, Jn re Revision of Rates of Toms River

Water Co., 82 N.J. 201, 412 A.2d 430 (1980) ; and this is so

even if the regulatory lag is unreasonable, id, 213, 214.

“The provision in N.J.S.A. 17:29A-7 which requires the Com-

missioner to act within 90 days of the filing of a rating system,

applies only to filings of original systems. It does not apply

to filings seeking approvals of rate changes, Jnsurance Co. of

North America v. Howell, 80 N.J. Super. 236, 193 A.2d 386

(App.Div. 1963).

9

With respect to both the voluntary market and the resi-

dual market, Appellant is a subscriber or member of

statutorily recognized rating organizations, N.J.S.A. 17:

29A-1(f) ; 29A-2; 29A-3 (A. 75a, 76a, 77a), which file and

prosecute rate change applications on behalf of their mem-

bers and subscribers.* For reasons which we discuss, infra,

pp. 26-27 Appellant lacks the power to effectively chal-

lenge the determinations which are periodically made as a

result of the ratin,: organizations’ filings, and those deter-

minations have, in the main, established the rates and pre-

miums charged by Appellant.

In practice, this rate making system resulted in sub-

stantial abuses under the Appellee, Commissioner Sheer-

an, who routinely not only delayed and severely cut

legitimate applications for rate changes but also coerc-

ively conditioned his grants of relief upon the withdrawal

of pending applications and the substitution in their stead

of new applications for the lesser amounts he was pre-

pared to grant rather than the greater amounts to which

the applicants were entitled.

* Appellant is a: subscriber to Insurance Services Office (“ISO”)

which files for its subscribers and members rate applications ap-

plicable to the voluntary market. Appellant is a subscriber to

Automobile Insurance Plan Services Office (“AIPSO”) which

makes similar filings for rate approvals applicable to the residual

market. With respect to the voluntary market, insurers may

file rate applications, individually. While some of the larger

insurers do make such individual filings, smaller companies such

as Appellant cannot, on an actuarial basis, produce information

upon which they could base individual filings. Unlike the case

of the voluntary market, all insurers must be subscribers to

AIPSO for purposes of the residual market and be bound by

the uniform rates set as the result of AIPSO filings. N.J.A.C.

11:3-1.16 (A. 116a).

10

We contend that what typically occurred was as fol-

lows: <A rating organization applied for an increased

rate, and the Commissioner, after substantial delay, ad-

vised that he would grant a considerably smaller in-

crease but only if the application were withdrawn and

a new one for the lesser amount filed. If the new ap-

plication were not filed for the lesser amount, the Com-

missioner would then deny the application in its en-

tirety. The industry almost always complied, taking what

it could get “up front,” rather than foregoing any in-

crease at all during a period of protracted litigation

which, if won, would lead to a better rate, but which

would apply only prospectively from the date of favor-

able court action and would therefore be largely rend-

ered inadequate by the inflation occurring during the

pendency of the matter before the Department and the

courts. Because the original application had been with-

drawn and a new one filed for the relief actually granted,

attempts to secure judicial review have been dismissed

as moot.*

That the New Jersey automobile regulatory system

has thus operated coercively and is clearly diseased can-

not be denied. Symptoms of the disease and its effect

upon the New Jersey automobile insurance industry fill

the public record. For example, as the studies of A.M.

Best Company, Inc. show,** in the year 1979 the fifteen

* See, e.g., unpublished Order of the Appellate Division of

the Superior Court of New Jersey in Automobile Insurance Plans

Service Office v. James J. Sheeran, No. A-1024-77, April 25,

1978 (A. 63a).

** See November 7, 1980 Affidavit of Robert J. Schraeder,

Vice President of A.M. Best Company, Inc. (particularly 6),

filed in this case on November 12, 1980 in support of Appel-

lant’s application to the Superior Court of New Jersey, Chancery

Division, for the entry of an interlocutory injunction (A. 65a,

66a).

11

largest New Jersey automobile insurers paid out $201

million more in automobile accident claims than they

collected in premiums. As against that underwriting loss

the industry realized investment income and gain allo-

cable to New Jersey automobile insurance business of

$63,200,000 for a net New Jersey automobile loss of

$137,800,000. In prior years the comparable losses to

the industry were $109,900,000 in 1978; $63,300,000 in

1977; $145,500,000 in 1976; and $168,600,000 in 1975, In

aggregate the fifteen largest carriers lost 625,100,000 as

the result of New Jersey automobile insurance business

between 1975 and 1979. As a consequence, companies

doing business in the State will not write new policies

in the “voluntary” market, with the result that new

business goes into the residual market which the com-

panies must service at huge losses under the Automo.

bile Insurance Plan. These market distortions have led

to a situation in which in 1979, New Jersey, alone, ac-

counted for fully 33% of the nationwide automobile resi-

dual market losses! (Soulor, “Subsidization of Insur-

ance—1979,” Alliance of American Insurers, p. 11, Sept.,

1981).

The larger companies have been able to offset their

New Jersey auto losses by auto profits earned in other

states and by profits from other lines of business in

New Jersey and elsewhere, A significant number of

foreign insurers, which are not limited by any prohi-

bition against voluntarily ceasing business operations,

have surrendered their certificates of authority under

N.J.S.A. 17:32-138 (A. 109a) and have simply withdrawn

from the state. Appellant, on the other hand, has had

to bear the full brunt of the coercive system. Its con-

centration on the New Jersey auto insurance market

has precluded the offset of profits from other states

or lines; and the fact that it is a domestic carrier has

12

precluded its withdrawal from New Jersey.* This pre-

clusion was brought about by statutory developments

in 1975 when the New Jersey legislature totally abrogated

the right of a New Jersey incorporated insurance com-

pany to voluntarily cease operations, dissolve, and li-

quidate. That right had been previously enjoyed, at

least in theory,** and had been set forth in N.J.S.A.

17:30-8 (A. 82a). In 1975 that statute was repealed

by L. 1975, ¢. 113, § 31, (A. 84a), effective June 3,

1975, and the legislature simultaneously enacted the Re-

habilitation and Liquidation Act, N.J.S.A. 17:30C-1

through 30C-31 (A, 84a), also effective June 3, 1975,

and which provides in pertinent part:

(a) “Delinquency proceedings pursuant to this Act shall

constitute the sole and exclusive method of liqui-

* As stated in the August 4, 1980 edition of Best’s Insurance

Management Reports (Appendix B to the Affidavit of Robert

J. Schraeder, Vice President of A.M. Best Co., Inc., A. 65a):

Despite the pullout of a number of companies from

New Jersey and the glaring need for an adequate rate

and reform of the no-fault law, Commissioner Sheeran

has evinced little concern for the plight of the automo-

bile insurers in his jurisdiction. The rationale appears

to be that the underwriting profits from other lines and

other states can carry the New Jersey burden. ...

_. .. In the case of the Motor Club [Appellant], with

auto insurance as the primary business and with 40%

of that business coming in as assigned risks, the con-

sequences have been disastrous.

ee ae

. . . Unlike Geico, Nationwide, SAFECO and others

that have done so, MCA has no option to withdraw from

the State (A. 73a).

** See footnote, p. 15 infra.

13

dating, rehabilitating, reorganizing or conserving

an insurer, and no ceurt shall entertain a petition

for the commencement of such proceedings, or any

other similar procedure, unless the same has been

instituted by the Commissioner” (17 :30C-3) ;

(b) “The Commissioner shall commence any such pro-

ceeding by an application...” (17:30C-4) ;

(c) “Whenever under the laws of this State a receiver

is to be appointed in delinquency proceedings for

a domesic insurer, the Court shall appoint the Com-

missioner as such receiver” (17 :30C-15) ;

(d) “An order to rehabilitate a domestic insurer shall

direct the Commissioner forthwith to take possession

of the property of the insurer and to conduct the

business thereof” (17 :30C-17) ;

(e) “An order to liquidate the business of a domestic

insurer shall direct the Commissioner forthwith to

take possession of the property of the insurer, to

liquidate the business, to deal with the insurer’s

business and property in his own name as Commis-

sioner or in the name of the insured . . .” (17:30C-

9a) ;

(f) “The Commissioner may apply under this act for

an order dissolving the corporate existence of a do-

mestic insurer.” (17 :30C-9b).

The effect of these 1975 enactments has been to abolish

Appellant’s right to voluntarily cease operations and to

close all forums to any applications by Appellant for

that purpose, even in the face of continuing unabated

losses. As a result the statute has granted the Com-

14

missioner the sole power to decide whether and on what

terms liquidation should occur, The trial court stated

its agreement with this conclusion (A. 6a, 7a, 17a), al-

though the Appellate Division stated that it was unneces-

sary for it to reach the question in view of its other

determinations (A. 3a)

Raising the Federal Questions

Appellant commenced this action to prove, inter alia,

that the cumulative impact of the regulatory systenf ‘

effected a taking of its property for which it is entitled to

just compensation. The federal questions were raised

at the outset by Appellant’s Verified Complaint (A. 26a

through 47a). Specifically, in Count I Appellant set forth

in detail New Jersey’s statutory and regulatory enact-

ments of the 1970s, which dramatically changed the sys-

tem regulating the automobile insurance industry and

which caused the true costs of the compulsory “no-fault”

and liability policy to skyrocket. Appellant further de-

tailed the confiscatory regulatory policies and determina-

tions of Appellees and asserted:

13. The continuing losses... [of Appellant] ...

have been caused by New Jersey’s confiscatory

statutory and regulatory framework and the con-

fiscatory regulatory policies and decisions of de-

fendant, Commissioner. By virtue of the foregoing

[Appellant’s] property has been taken by the State

of New Jersey for a public use without just com-

pensation in violation of the Fourteenth Amend-

ment of the United States Constitution and .. .

(A. 32a, 33a).

15

In Count IT (A. 38a) Appellant asserted that because

of its continuing loss operations, it had a federal con-

stitutional right to cease its business operations and with-

draw its assets from the losing venture, citing Brooks-

Scanlon Co, v. RR, Comm’n, 251 U.S, 396, 399 (1920).

It further asserted that the 1975 enactment of the In-

surance Company Rehabilitation and Liquidation Act,

N.J.S.A. 17:30C-1 through 17:30C-30 and the simultaneous

repeal of N.J.S.A. 17:30-8, deprived New Jersey incor-

porated insurers of their previously enjoyed right to

voluntarily cease business, dissolve, and liquidate, Ap-

pellant accordingly contended that the statutory abroga-

tion® of its “Brooks-Scanlon” withdrawal rights in the face

of its continuing losses amounted to an “erosion taking”

of its property in violation of the Fourteenth Amendment

of the United States Constitution, and entitling it to com-

pensation therefor under the principles enunciated by this

Court in the Regional Rai: Act Cases, 419 U.S. 102 (1974).

Appellees moved to dismiss the Verified Complaint for

failure to state a claim upon which relief may be granted,

After extensive briefing of the federal constitutional (and

other) issues and oral argument, the trial judge entered an

order (A, 19a): (a) dismissing all of Appellant’s claims

for compensation set forth in Counts I, IT, and IIT; (b)

refusing to dismiss Count I insofar as it seeks declaratory

relief as to the unconstitutionality of the insurance regula-

tory system; (¢) dismissing Counts IT and IIT in their en-

tirety based upon a finding that Appellant had never sought

*In Count III (A. 35a) Appellant made the same allegations

as in Count II with the following difference. In Count IIT

Appellant stated that even prior to the statutory abrogation of

its withdrawal rights in 1975, those rights were largely illusory

because of the restraints imposed thereon by the regulatory sys-

tem governing Appellant's business operations, ¢.g., restricted can-

cellation and nonrenewal rights.

16

to cease its business operations in the past;* and (d) grant-

ing Appellant leave to amend Counts IT and IIT to affirma-

tively assert a desire by Appellant to cease business,**

Upon appeal, the Appellate Division of the Superior

Court of New Jersey affirmed the trial Court’s Order to the

extent that the trial Court’s order had dismissed portions

of the Verified Complaint; it reversed the remainder of

the trial Court’s Order; and it directed the trial Court to

dismiss the Verified Complaint in its entirety (A. 2a).

Appellant thereafter sought review in the Supreme Court

of New Jersey (a) by direct appeal premised on the pres-

ence of substantial questions arising under the Federal and

State Constitutions, and (b) by means of a petition for

certification. By final Orders of October 12, 1982, filed Octo-

ber 14, 1982, the New Jersey Supreme Court summarily

dismissed the appeal and denied Appellant’s petition for

certification (A, 21a).

The Questions are Substantial

This case raises the question of whether a state can be

held accountable to pay just compensation where the cumu-

lative impact of its regulatory system has been to take the

* We respectfully submit that this determination is wholly with-

out foundation in the record, Appellant never conceded that it

hadn't tried to stop operating and offered to prove the con-

trary. Moreover, it contended that, as a matter of law, it

had no obligation to either “desire” or attempt to do a futile

act.

** The Court’s opinion stated: “If Appellant amends its

complaint to assert a desire to quit operating, then, and from

that time forward only, a cause of action is stated... (A.

18a).

17

assets of a member of a regulated industry. Appellant con-

tends that New Jersey, in furtherance of the public weal,

undertook a new social experiment in the regulation of the

automobile insurance business. It mandated the sale of an

extremely expensive insurance product; it required that the

product be sold to all vehicle owners; it required that the

product be sold below cost; and it impeded the ability of

all insurers to stop selling the product and seized control

of the rights of domestic insurers to decide whether to with-

draw from such business, as well as to control the terms

and incidents of any such withdrawal.

The experiment failed; and in its course, it destroyed the

assets, net worth, and earning power of Appellant which

had been nurtured over a generation of conscientious ef-

fort. New Jersey has now told Appellant, for reasons that

are less than clear in the opinions below, that it has no

remedy and is not entitled to a trial of its claim that its

assets have been taken for a public use without the pay-

ment of just compensation. Whatever might be said for

the practicality of the result, it is unprincipled and it is in-

consistent with the many opinions of this Court which have

sought to define the constitutional balance between the

power of the sovereign and the rights of the property

owner,

What is demonstrably the most coercive, unfair, and

clearly unworkable insurance regulatory system in the

country has been placed beyond the law and the Cons‘itu-

tion and has been insulated from any comprehensive chal-

lenge by aggrieved citizens claiming past or threatened

future injury. Such a result ignores the observation in

Marbury v. Madison, 1 Cranch 137, 163 (1803) that “the

very essence of civil liberty certainly consists in the right

of every individual to claim the protection of the laws,

whenever he receives an injury.” It disregards the long

18

established proposition that harsh regulation may, if it

becomes sufficiently onerous, cross the constitutional line

between legitimate regulation and a taking of property.

See, e.g., the statement of Holmes, J. in Pennsylvania Coal

Company v. Mahon, 260 U.S, 3938, 415, 416 (1922) that:

“... while property may be regulated to a certain extent,

if regulation goes too far it will be recognized as a taking.”

It denies the right of Appellant to prove that “in all fair-

ness and justice,” Appellee, State of New Jersey, on be-

half of the public, rather than Appellant, should bear

the financial burdens of the diseased New Jersey auto-

mobile regulatory system, see Armstrong v. United States,

364 U.S. 40 (1960). The question of how far is “too far”

is not an easy one. As stated by Justice Brennan, writing

for the Court in Penn Central Transportation Co, v. New

York City, 488 U.S, 104, 124 (1978) “this Court, quite

simply, has been unable to develop any ‘set formula’ for

determining when ‘justice and fairness’ require that eco-

nomic injuries caused by public action be compensated by

the government, .. .” Justice Brennan noted that a deter-

mination of the issue involved “essentially a1 hoe, factual

inquiries,” and he identified “economic impact,” interfer-

ence with “distinct investment-backed expectations” and

“the character of the governmental action” as particu-

larly significant factors to be considered in deciding whether

a taking had oceurred as the result of that government

action.

Under the circumstances, what proper justification is

there for denying Appellant the opportunity to prove its

case? It cannot be that it has failed to state a claim that

a taking has occurred. The Complaint alleges a denial

of the opportunity to earn a fair return; and even a

regulated industry must be allowed such opportunity,

however a “fair return” is defined, Smyth v. Ames, 169

19

U.S. 466 (1898) decree modified 171 U.S, 361 (1898) ; Board

of Pub. U., Comm'rs v. N.Y. Telephone Co., 271 U.S, 28

(1926); FPC v. Hope Natural Gas Co., 329 U.S, 591 (1944).

The Complaint also alleges that Appellant’s right to with-

draw from loss operations was destroyed; and this Court

has repeatedly recognized that such a right is entitled

to constitutional protection, Brooks-Scanlon Co. v. RR.

Comm'n supra; Bullock vy. Railroad Comm'n, 254 U.S, 518

(1921); Railroad Comm’n v. Eastern Texas R.R., 264 U.S.

79, 84 (1924); New Haven Inclusion Cases, 399 U.S, 392

(1970) ; Regional Rail Act Cases, supra.

The Complaint therefore alleges cognizable claims of

regulatory takings, The remedy it seeks of the payment

of just compensation for such takings is strongly sup-

ported by further opinions of this Court. San Diego

Gas & Electric Co. vy. San Diego, 450 U.S. 621 (1981)

involved the question of whether the Fourteenth Amend-

ment permitted limiting the remedy for a regulatory

taking to declaratory relief. The majority declined to

reach the merits of the question, holding that the Court

lacked jurisdiction because of the absence of a final

judgment below. Four members dissented on the juris-

dictional holding and concluded on the merits that just

compensation was required—a view expressly endorsed

as well by Justice Rehnquist, a member of the majority.

In an earlier, and even closer case to the present one,

Regional Rail Act Cases, supra, it was held that the

availability of a just compensation award under the Tuck-

er Act for any potential erosion taking that might oceur

in the future justified rejecting a challenge to the facial

constitutionality of the Regional Rail Reorganization Act.

This holding sought to accommodate the publie’s need

for a different type of social experiment with the con-

stitutional protection afforded to property rights that

20

might be taken in the course of it; and the holding

provides compelling authority for Appellant’s present

claim. The Regional Rail Act Cases, supra, along with

the indications in the San Diego Gas & Electric Co.

case, supra, stand in sharp contrast with the views stated

below that just compensation is not an appropriate rem-

edy for erosion takings of the property of regulated

industries that oceur before entry of a declaratory judg-

ment that the regulation effects such takings."

There is an undefinable measure in which the opinions

below seem based upon other considerations, reflecting

the view that Appellant’s own conduct precludes its re-

covery or even the opportunity to prove what that con-

duct was or its justification. The opinions assume that

Appellant waited too long in filing this suit, that it

may have consented to the takings (or waived its rights)

by failing to raise its issues at administrative or judicial

levels of rate making proceedings, or that it failed to

express the desire, or take other steps, to withdraw

from business.** None of the assumed facts is sup-

*There is nothing in the language of the Constitution or

prior cases to justify the distinction drawn in the Trial Court's

opinion between the protection afforded real property owners and

that afforded to the property interests of members of regulated

industries (A, 1l3a-15a). Moreover, the Trial Court's conclu-

sion that the latter have greater control over the taking process

is unsupported and contrary to the theory of Count I of the

Complaint which the Trial Court generally accepted.

** Appellees’ principal argument in the Courts below was that

Appellant's action constituted a collateral attack upon prior rate

making decisions, The Trial Court rejected that argument (A,

lla-13a), and nothing in the Opinion of the Appellate Divi-

sion suggests that that Court disagreed with the Trial Court

on the issue,

21

ported by record proof. Each of them is contravened

by Appellant which contends that, given the opportunity,

it ean show at trial, or even by affidavit (i) that the

timing of the filing of the suit was reasonable; (ii)

that it never had any realistic opportunity to present

the issues raised by the suit in another forum and has

not waived the constitutional rights which it asserts

here; and (iii) that, prior to the filing of the suit, it

made various unsuccessful efforts to cease writing poli-

cies, to wind down its business and to dispose of its

assets in a manner protective of the interests of its

creditors, policyholders, and shareholders. The Courts

below were obliged on a motion to dismiss to accept

that Appellant might make such showings. Instead, they

assumed the contrary and imposed what are, in effect,

irrebutable presumptions against Appellant as to the

facts in question. Moreover, their decisions passed over

important legal issues which bear heavily on the sig-

nificance of those facts and which require resolution

in any proper consideration of the matters. The need

for such consideration is demonstrated by the follow-

ing:

(a) On timeliness.

First, Appellant’s claim for compensation is a legal claim,

not an equitable one; and its timeliness vel non is gov-

erned by the applicable statute of limitations,* not by the

equitable concept of laches.

* Although Appellees never asserted the defense of the sta-

tute of limitations, and the issue of what is the proper sta-

tute was never before the State Courts, we submit that the

proper limitations period is six years from the accrual of Ap-

pellant’s claim, N.J.S.A. 2A:14-1 (A. 75a).

22

Second, and more important, the issue of when Appel-

lant’s claim arose, which is, of course, a question of fact,

North Countries Hydroelectric Co. v. U.S., 118 F. Supp. 375

(Ct. of Cl. 1954), is a subtle one, requiring a determina-

tion of when the cumulative impact of the regulatory sys-

tem effected a taking of Appellant’s property. As Justice

Holmes pointed out in Pennsylvania Coal Company v.

Mahon, supra, 413, 415, 416, and in his dissent in Tyson

and Brother v. Barton, 273 U.S, 418, 445-446 (1922), Appel-

lant was clearly required to absorb losses of some severity

over a period of time before a taking of its property could

be recognized to have occurred. Appellant is prepared to

introduce evidence of the cumulative impact on it, over

time, of the regulatory system, evidence which will permit

a court to determine when the effect became severe enough

to effect a taking of Appellant’s property. Thus, to the ex-

tent that the Trial Court’s dismissal of the compensation

claims, affirmed by the Appellate Division and State Su-

preme Court, was based upon the erroneous premise that

Appellant was under a duty, at its peril, to promptly deter-

mine when its cause of action arose and to immediately

bring suit, that dismissal cannot be sustained. See, United

States v. Dickinson, 331 U.S. 745 (1947) where this Court,

speaking through Justice Frankfurter, stated:

The Government could, of course, have taken ap-

propriate proceedings to condemn as early ag it

chose both land and flowage easements. By such pro-

ceedings it could have fixed the time when the prop-

erty was “taken.” The Government chose not to do

so. It left the taking to physical events, thereby put-

ting on the owner the onus of determining the deci-

sive moment in the process of acquisition by the

United States when the fact of taking could no

longer be in controversy.

23

The Fifth Amendment expresses a principal of fair-

ness and not a technical rule of procedure enshrin-

ing old or new niceties regarding “causes of action”

—when they are born, whether they proliferate, and

when they die. We are not now called upon to de-

cide whether in a situation like this a landowner

might be allowed to bring suit as soon as inundation

threatens. Assuming that such an action would be

sustained, it is not a good enough reason why he

must sue then or have, from that moment, the stat-

ute of limitations run against him. If suit must be

brought, lest he jeopardize his rights, as soon as his

land is invaded, other contingencies would be run-

ning against him—for instance, the uncertainty of

the damage and the risk of res judicata against re-

covering later for damage as yet uncertain. The

source of the entire claim—the overflow due to rises

in the level of the river—is not a single event; it is

continuous. And as there is nothing in reason, so

there is nothing in legal doctrine, to preclude the law

from meeting such a process by postponing suit until

the situation becomes stabilized. An owner of land

flooded by the Government would not unnaturally

postpone bringing a suit against the Government for

the flooding until the consequences of inundation

have so manifested themselves that a final account

may be struck.

When dealing with a problem which arises under

such diverse circumstances procedural rigidities

should be avoided, All that we are here holding

is that when the Government chooses not to con-

demn land but to bring about a taking by a con-

tinuing process of physical events, the owner is

not required to resort either to piecemeal or to

premature litigation to ascertain the just compensa-

24

tion for what is really “taken.” 331 U.S. 745, 747,

748, 749.

See also Hilkovsky v. United States, 504 F.2d 1112, 1114

(Ct. of Cl. 1974); Aaron v. United States, 311 F.2d 798,

800, 801 (Ct. of Cl. 1963).

(b) On the opportunity to present the issues in other

forums and waiver of rights.

The Appellate Division, while denying Appellant’s rights

to just compensation for the reasons indicated by the

trial court, went on to also deny Appellant’s rights to

declaratory relief as to the unconstitutionality of the sys-

tem, based upon its conclusion that: “The asserted delays

in the administrative process or other allegedly improper

regulatory practices can only appropriately be presented

and considered in the context of a rate proceeding.”* (A.

3a, 4a). Such conclusion is clearly erroneous for the

reason that the issues raised by Appellant in this action

for past takings are not cognizable in a rate-making pro-

ceeding and are wholly different from those which may

be raised in such proceeding.

In New Jersey the issue involved in rate-making is the

fairness of a rate which is designed to operate in the

future, In re NJ. Power & Light Co., 15 N.J. 82, 104

A.2d 1 (1954)—not whether past rates afforded a com-

pensable return to the company. And rates, so established

*To the extent that this statement can be read to apply to

past rate making proceedings, the principles of United States

v. Dickinson, supra, discussed under the prior heading dealing

with timeliness, as well as the principles now discussed, show

why the statement is incorrect and why Appellant should not

be foreclosed from maintaining this action for failure to seek

review of such prior rate making decisions.

25

for prospective applications, may not contain a surcharge

to compensate the company for past losses, In re Intra-

state Industrial Sand Rates, 66 N.J. 12, 23, 327 A.2d 427,

433 (1974). Rate-making therefore raises questions pri-

marily addressed to “due process” considerations, i.e.—

the adequacy of the proofs as to the likely future im-

pact of proposed rates—rather than to considerations

involved under the “taking” clause, see Federal Power

Comm. v. Hope Natural Gas Co., 329 U.S. 591 (1944). In-

deed, the Commissioner, an officer of the Executive Branch,

lacks jurisdiction over the subject matter of claims for

compensation for past takings of private property, Monon-

gahela Navigation Co. v. United States, 148 U.S. 312,

327 (1892); In the Matter of Jersey Central P & L Co.,

166 N.J. Super. 540, 544, 400 A.2d 128, 130 (App. Div.

1979). Since those claims could not have been raised

before the Commissioner in a rate-making proceeding,

they would not have been before a Court reviewing the

results of such proceeding. Appellant is entitled to «

forum in which to try its claims that the cumulative

impact of the system has effected a taking of its prop-

erty; and it is clear that the Commissioner’s rate-m»king

proceedings are not such a forum.

Moreover, as set forth, supra, pp. 5-10 the inherent

nature of the regulatory system and its coercive adminis-

tration by Appellee, Commissioner, discouraged virtually

all judicial review of rate making.* Consequently, as we

now show, failure to challenge rate making determinations

cannot be deemed to be a waiver of the constitutional

* The factual issues, which issues are involved in this case,

of whether the Commissioner did administer the system co-

ercively and whether the effect of such administration was to

discourage virtually all judicial review of rate-making, could

hardly have been raised in any evidentiary hearing before the

Commissioner.

26

rights asserted here by Appellant, Union Pacific R. Co.

v. Public 8. Comm. of Mo., 248 U.S. 67 (1918); Garrity

v. New Jersey, 385 U.S. 493 (1967); Johnson v. Zerbst,

304 U.S. 458 (1938).

The governing bodies of the rating organizations, ISO

and AIPSO, faced with the choice of accepting inade-

quate rate increases which would be approved by the

Commissioner or seeking judicial review of the Commis-

sioner’s denial of any rate increases, have chosen the

former alternative because of their fears that any victory

in a protracted judicial challenge would be a pyrrhic

one,—of little or no economic benefit whatever. Those

fears were realistic because during the pendency of the

review proceedings, no interim increases would be in effect

and because any rates ultimately established as the re-

sult of the review proceedings would only operate pro-

spectively from the date they were established."

Also, Appellant could not have conducted its own fil-

ings because it is not large enough to generate the ac-

tuarial information needed to support them and because,

with respect to assigned risks, such rates must be uni-

form and cannot be different from the AIPSO rates,

see N.J.A.C. 11:3-1.16 (A. 116a). Furthermore, it is not

reasonable to believe that Appellant could sell policies

competitively if, by some means, it could secure rates

significantly higher than the prevailing industry rates

* There is also a serious question of whether Appellant, acting

alone, would have had standing to seek judicial review of rate

determinations in proceedings initiated by ISO and AIPSO, where

those determinations were accepted by those organizations, albeit

(as Appellant alleges) under duress.

27

in the voluntary market.* We therefore respectfully

submit that Appellant, by failing to challenge individual

rate determinations in which the industry acquiesced,

has not waived its constitutional right to just compen-

sation as asserted in this case.

(c) Attempts to withdraw from business.

The Courts below concluded that at no time prior

to the institution of this action did Appellant seek to

withdraw from business (A. 4a, 17a) and utilized that

conclusion as the basis for the dismissal of Counts II

and III of the Compiaint, the Counts premised upon

Appellees’ abrogation of Apvellant’s constitutionality pro-

tected withdrawal rights. The conclusion was improper

for two reasons: (a) it was wrong to prejudge the

factual question of whether Appellant desired or at-

tempted to cease operating without affording Appellant

an opportunity to submit proofs on the issue and (b)

the assumed facts have no legal relevance to Appellant’s

claim because N.J.S.A. 17:30C-1 through C-31 destroyed

Appellant’s withdrawal rights and closed all forums to

Appellant for the purpose of voluntary withdrawal.

With respect to the factual conclusion reached by the

State Courts, we simply do not understand its basis.

We specifically argued to the Trial Court, the Appellate

Division, and the New Jersey Supreme Court, that it

was premature to reach a judgment on the issue at

this time; that tue ultimate determination of the issue

depended upon the interpretation to be placed upon the

*In an attempt to remedy the harsh impact of the system

on Appellant, Appellant was permitted for a time to charge

a rate 7% higher than the prevailing rates with respect to its

voluntary market business.

28

relevant events and a stream of written and oral com-

munications between Appellant and Appellees, the sub-

stance of which are not in the record, but which were

subject to proof at trial; and finally, that upon Ap-

pellees’ motion to dismiss for failure to state a claim,

Appeliant’s factual assertion that it has been compelled

by Appellees to continue its business despite its losses

should be accepted as true.

As for the issue of relevance, the State Courts’ require-

ment that Appellant must allege or demonstrate a “desire,”

or attempt, to cease operating as an element of these claims

is contrary to the decision and reasoning of the Special

Court in In re Valuation Proceedings Under §§ 303(c) and

306 of the Regional Rail Reorganization Act, 439 F.Supp.

1351 (Sp.Ct. RRRA 1977) where Judge Friendly stated:

... the law does not compel the doing of a futile act

and we are convinced that after Congress, on Febru-

ary 9, 1973, called on the Secretary of Transporta-

tion promptly to submit a report which “provides a

full and comprehensive plan for the preservation of

essential rail transporation services in the Northeast

section of the nation,” it was unrealistic to expect

that a reorganization court would have authorized

an application for large-scale abandonment. 439 F.

Supp. 1351, 1373.

Here, as in that case, once the 1975 statutory enactments

deprived Appellant of its voluntary withdrawal rights and

closed all forums to Appellant for pursuing any applica-

tion for that purpose, any “desire” or attempt to withdraw

became futile, and therefore, unnecessary.

29

CONCLUSION

We respectfully submit that the determinations of the

State Courts that Appellant may not recover compensation

for the taking of its property is inconsistent with the hold-

ing of this Court in the Regional Rail Act Cases, supra,

and with the expressed views of a majority of this Court in

San Diego Gas & Electric Co. v. San Diego, supra. To the

extent that the determinations below were based upon no-

tions of untimeliness or laches in the commencement of the

action, they contravene the teachings in U.S. v. Dickinson,

331 U.S. 745 (1947); to the extent that they were premised

upon the assumed availability of alternative forums or upon

waiver, they are in conflict with the principles set forth in

Federal Power Comm. v. Hope Natural Gas Co., supra;

Monongahela Navigation Co, v. U.S., supra; and Union

Pacific R.R, Co, v. Public Service Commission of Mo.,

supra, In addition, the holdings that Counts IT and ITT of

the Complaint did not state claims upon which relief may

be granted is inconsistent with Brooks-Scanlon Co. v. R.R.

Comm'n, supra, and its progeny as well as with the hold-

ings in Regional Rail Act Cases, supra, and the views ex-

pressed in San Diego Gas & Electric Co. v. San Diego,

supra.

Accordingly, we urge the Court to grant plenary con-

sideration of the issues raised by this appeal.

Respectfully submitted,

Stantey Weiss, Counsel for Appellant

Rosert E, Turtrz

Carpentrr, Bennett & Morrissey,

Attorneys for Appellant, Motor Club

of America Insurance Company.

[Aprenvix Foitows]