Legal Updates & News
Legal Updates
The Manifest Justice of the Manifest Injustice
Doctrine: The Time Has Come to Invoke the Ex Post
Facto Clause to Bar Retroactive Tax Increases
December 2008
by Paul H. Frankel, Amy F. Nogid
In Oberhand,[1] the New Jersey Supreme Court infused new vitality into the manifest injustice
doctrine. The question remains, however, as to whether manifest injustice is a separate doctrine, as
the plurality decision held or, rather, as Justice Barry Albin contends in his concurring decision, a
proxy for a violation of constitutional rights to due process. In either case, however, there was an
attempt by the New Jersey Supreme Court to do justice, which is, one hopes, the fundamental goal
of all courts. As Alexander Hamilton said: “Justice is the end of government. It is the end of civil
society. It ever has been and ever will be pursued, until it be obtained, or until liberty be lost in the
pursuit.”[2]
Oberhand addresses whether New Jersey’s enactment of retroactive legislation, which decoupled
certain New Jersey estate tax provisions from federal provisions increasing the amount of taxable
estates, was manifestly unjust. On June 7, 2001, Congress increased the threshold of estate
taxability from $675,000 to $1 million for decedents dying in 2002 and 2003. Although the New
Jersey Legislature had six months prior to the time the federal provisions would have become
effective to pass a decoupling provision, it failed to pass legislation until July 1, 2002. The legislation
was made retroactive to January 1, 2002.
The decedents of the two estates involved in the case, those of Cynthia Oberhand and Eugene
Seidner, died during the six-month retroactivity period of the legislation. Each of the estates
contributed in excess of the $675,000 old federal and State taxability threshold, but less than the
new $1 million federal threshold, to the family credit-shelter trust. The Division of Taxation assessed
each estate for estate tax based on the excess amount transferred to the credit-shelter trust.
The estates had argued that, by the plain language of the legislation, the only estates impacted by
the legislation were those that would have had to pay an estate tax if the date of the decedents’
death were December 31, 2001 or earlier. Each of the courts that heard the case rejected that
statutory argument, although the New Jersey Supreme Court agreed that the estates’ argument was
“plausible,” but would yield an “absurd result.”
In their appeal to the Appellate Division, the estates abandoned their argument that the retroactivity
of the statute was unconstitutional, instead arguing only that it would be manifestly unjust to apply
the statute retroactively, since the decedents could not revise their wills to address the legislation
that had been passed after their deaths.
Citing Gibbons, [3] the plurality decision of Justice John Wallace Jr., which was joined by Justices
Jaynee LaVecchia and Roberto Rivera-Soto, set out the “fundamental principle of jurisprudence”
that prospective legislation is favored over retroactive legislation.[4] The plurality then recognized
that if the intent of the Legislature were clearly to enact a retroactive statute, then it should be given
that effect unless retroactive application would: (1) be unconstitutional; or (2) result in manifest
injustice. Manifest injustice, according to the plurality, focuses on “‘unfairness and inequity,’” but
does “‘not necessarily violate any constitutional provision.’”[5]
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