Arizona v. United States - Oral Argument

Fri, 27 Apr 2012 20:20:26 +0000

Case:

Arizona v. United States

Media File:

11-182_20120425-argument.mp3

Related Transcript:

11-182_20120425-argument.xml

Transcript:

ORAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE PETITIONERS

Chief Justice John G. Roberts: We'll hear argument this morning in Case 11-182, Arizona v. the United States.

Mr. Clement.

Mr. Clement: Mr. Chief Justice, and may it please the Court:

The State of Arizona bears a disproportionate share of the costs of illegal immigration.

In addressing those costs, Arizona borrowed the Federal standards as its own, and attempted to enlist State resources in the enforcement of the uniform Federal immigration laws.

Notwithstanding that, the United States took the extraordinary step of seeking a preliminary injunction to enjoin the statute as impliedly preempted on its face before it took effect.

The Ninth Circuit agreed with respect to four provisions, but only by inverting fundamental principles of federalism.

The Ninth Circuit essentially demanded that Arizona point to specific authorization in Federal statute for its approach.

But that gets matters backwards.

A State does not need to point to Federal authorization for its enforcement efforts.

Rather, the burden is on the parties seeking to preempt a duly enacted State law to point to some provision in statutory law that does the preempting.

Now, the United States can't really do that here, and the reason is obvious.

There are multiple provisions of the Federal immigration law that go out of their way to try to facilitate State and local efforts to communicate with Federal immigration officials in order to ascertain the immigration status of individuals.

So, for example, 1373(c) specifically requires that Federal immigration officials shall respond to inquiries from State and local officials about somebody's immigration status.

1373(a) goes even further.

That provision says that no Federal agency or officer may prohibit or in any way restrict the ability of State and local officers to communicate with Federal immigration officers to ascertain somebody's immigration status.

Indeed, if the DHS had--

Justice Sonia Sotomayor: Mr. Clement--

Mr. Clement: --Yes.

Justice Sonia Sotomayor: --could I interrupt, and turning to 2(B), could you tell me what the State's view is -- the Government proposes that it should be read on its face one way, and I think the State is arguing that there's a narrower way to read it.

But am I to understand that under the State's position in this action, the only time that the inquiry about the status of an individual rises is after they've had probable cause to arrest that individual for some other crime?

Mr. Clement: That's exactly right, Justice Sotomayor.

So this only operates when somebody's been essentially stopped for some other infraction, and then at that point, if there's reasonable suspicion to try to identify immigration status, then that can happen.

Of course, one of the things that--

Justice Sonia Sotomayor: Can I -- can I--

Mr. Clement: --Sure.

Justice Sonia Sotomayor: --just stop you there just one moment?

That's what I thought.

So presumably, I think your argument is, that under any circumstance, a police officer would have the discretion to make that call.

Seems to me that the issue is not about whether you make the call or not, although the Government is arguing that it might be, but on how long you detain the individual, meaning -- as I understand it, when individuals are arrested and held for other crimes, often there's an immigration check that most States do without this law.

And to the extent that the government wants to remove that individual, they put in a warrant of detainer.

This process is different.

How is it different?

Mr. Clement: Well, it's different in one important respect, Justice Sotomayor, and that's why I don't think that the issue that divides the parties is only the issue of how long you can detain somebody.

Because I think the Federal Government takes the rather unusual position that even though these stops and these inquiries, if done on an ad hoc basis, become preempted if they're done on a systematic basis--

Justice Sonia Sotomayor: No, I understand that's their argument.

I can question them about that.

Mr. Clement: --Okay.

But -- so that's--

Justice Sonia Sotomayor: But I want to get to how -- assuming your position, that doing it on a -- there's nothing wrong with doing it as it's been done in the past.

Whenever anyone is detained, a call could be made.

What I see as critical is the issue of how long, and under -- and when is the officer going to exercise discretion to release the person?

Mr. Clement: --And with respect, I don't think section 2(B) really speaks to that, which is to say, I don't think section 2(B) says that the systematic inquiry has to take any longer than the ad hoc inquiry.

And, indeed, section 2 -- in one of its provisions -- specifically says that it has to be implemented in a way that's consistent with Federal, both immigration law and civil rights law.

So, there--

Justice Sonia Sotomayor: What happens if -- this is the following call -- the call to the -- to the Federal Government.

Yes, he's an illegal alien.

No, we don't want to detain him.

What does the law say, the Arizona law say, with respect to releasing that individual?

Mr. Clement: --Well, I don't know that it speaks to it in specific terms, but here's what I believe would happen, which is to say, at that point, then, the officer would ask themselves whether there's any reason to continue to detain the person for State law purposes.

I mean, it could be that the original offense that the person was pulled over needs to be dealt with or something like that.

Justice Sonia Sotomayor: I'm putting all of this outside of--

Mr. Clement: But -- but if what we're talking about is simply what happens then for purposes of the Federal immigration consequences, the answer is nothing.

The individual at that point is released.

And that, I think, can be very well illustrated by section 6 -- I don't want to change the subject unnecessarily, but there is arrest authority for somebody who has committed a public offense, which means that it's a crime in another State and in Arizona, but the person can't be arrested for that offense presumably because they have already served their sentence for the offense; and then there is new arrest authority given to the officer to hold that person if they are deportable for that offense.

Now, I think in that circumstance, it's very clear what would happen, is an inquiry would be made to the Federal officials that would say, do you want us to transfer this person to your custody or hold this person until you can take custody?

And if the answer is no, then that's the end of it.

That individual is released, because there is no independent basis in that situation for the State officer to continue to detain the individual at all.

Justice Ruth Bader Ginsburg: But how would the State officer know if the person is removable?

I mean, that's sometimes a complex inquiry.

Mr. Clement: Well, Justice Ginsburg, I think there's two answers to that.

One is, you're right, sometimes it's a complex inquiry, sometimes it's a straightforward inquiry.

It could be murder, it could be a drug crime.

But I think the practical answer to the question is by hypothesis there is going to be inquiry made to the Federal immigration authorities, either the Law Enforcement Support Center or a 287(g) officer.

And presumably, as a part of that inquiry, they can figure out whether or not this is a removable offense or at least a substantially likely removable offense.

Justice Anthony Kennedy: If it takes two weeks to make that determination, can the alien be held by the State for that whole period of time--

Mr. Clement: Oh, I don't--

Justice Anthony Kennedy: --just under section 6?

Mr. Clement: --I don't think so, Your Honor, and I think that, you know, what -- in all of these provisions, you have the Fourth Amendment backing up the limits, and I think so--

Justice Anthony Kennedy: What -- what would be the standard?

You're the attorney for the alien, he -- they are going to hold him for two weeks until they figure out whether this is a removable offense, and you say, under the Fourth Amendment, you cannot hold for -- what?

More than a reasonable time or--

Mr. Clement: --Yes, ultimately, it's a reasonable inquiry.

And I think that under these circumstances what we know from the record here is that generally the immigration status inquiry is something that takes 10 or 11 minutes.

I mean, so it's not -- we're not talking about something -- or no more than 10 if it's a 287(g) officer and roughly 11 minutes on average if it's the Law Enforcement Support Center.

Justice Stephen G. Breyer: How do they have -- well, the same question, but -- but I'm trying to think of examples.

Example one is the person is arrested.

Now, it says any person who is arrested shall have the person's immigration status determined before the person is released.

So I wonder if they have arrested a citizen, he's Hispanic-looking, he was jogging, he has a backpack, he has water in it and Pedialyte, so they think, oh, maybe this is an illegal person.

It happens he's a citizen of New Mexico, and so the driver's license doesn't work.

And now they put him in jail.

And are you -- can you represent to us -- I don't know if you can or not -- can you represent to us he will not stay in jail in detention for a significantly longer period of time than he would have stayed in the absence of section 2(B)?

Do you want to represent that or not?

Mr. Clement: I don't want to represent that--

Justice Stephen G. Breyer: All right.

Now, if you cannot represent that -- and I'm not surprised you don't want to -- I mean, I don't know--

Mr. Clement: --Sure, sure.

But what I can represent--

Justice Stephen G. Breyer: --What?

Mr. Clement: --is that he's not going to be detained any longer than the Fourth Amendment allows.

Justice Stephen G. Breyer: Oh, fine.

Mr. Clement: And--

Justice Stephen G. Breyer: But the Fourth Amendment -- for -- I mean, that's another question.

I don't know how long the Fourth Amendment allows.

I don't know on that.

There probably is a range of things.

But we do know that a person ordinarily, for this crime, X, would have been released after a day.

Oh, you know, the Fourth Amendment would have allowed more.

So now what I want to know is what in practice will happen?

From your representation, I think that there will be a significant number of people -- some of whom won't be arrested; it takes 11 minutes for some.

For citizens, it might take two hours, it might take two days.

Okay.

There will be a significant number of people who will be detained at the stop, or in prison, for a significantly longer period of time than in the absence of 2(B).

Is that a fair conclusion?

Mr. Clement: --I don't think it is, Justice Breyer, and here's why it's not.

Because even though there certainly are situations where State authorities will arrest somebody and then release them relatively rapidly, they generally don't release somebody until they can nail down their identity and whether or not they are likely to come to a court hearing at a subsequent--

Justice Antonin Scalia: Anyway, if this is a problem, is it an immigration law problem?

Mr. Clement: --It--

Justice Antonin Scalia: Or is it a Fourth Amendment problem?

Mr. Clement: --Justice Scalia, it is neither--

Justice Antonin Scalia: Is the Government's attack on this that it violates the Fourth Amendment?

Mr. Clement: --No, of course the Federal Government, that also has a lot of immigration arrests that are subject to the Fourth Amendment, is not making a Fourth Amendment claim here.

And it's neither an immigration law concern or something that should be the basis for striking down a statute on its face.

Justice Stephen G. Breyer: That's a different argument--

Mr. Clement: But I do want to -- but I do want to be responsive and make the point that I think the factual premise that this is going to -- 2(B) is going to lead to the elongation of a lot of arrests is not true.

Justice Stephen G. Breyer: --All right.

Can I make the following statement in the opinion, and you will say that's okay.

Imagine -- this is imaginary.

"We interpret" -- imagine --

"we interpret Section 2(B) as not authorizing or requiring the detention of any individual under 2(B), either at the stop or in prison, for a significantly longer period of time than that person would have been detained in the absence of 2(B). "

Can I make that statement in an opinion, and you'll say, that's right?

Mr. Clement: I think what you could say--

Justice Stephen G. Breyer: Can I say that?

Mr. Clement: --I don't think you can say just that.

Justice Stephen G. Breyer: No.

Mr. Clement: I think you can say something similar, though.

I think you probably could say, look, this is a facial challenge.

The statute's never gone into effect.

We don't anticipate that Section 2(B) would elongate in a significant number of cases the detention or the arrest.

I think you could say that.

And the reason is, as I indicated, it's something that happens even without this law that, when you arrest somebody, and there are some offenses that are -- you can arrest and release under State law, but before you release the individual, you generally want to ascertain that that individual is going to show up at the hearing, and that's what really distinguishes those cases where there's arrest and release from those cases where there's arrest and you book somebody.

Now, here's the other reason why I don't think factually this is going to elongate things.

Because already in a significant number of booking facilities in Arizona, you already have the process that people are systematically run through immigration checks when they are booked as part of the booking process.

That's reflected in the record here in the Maricopa County system, that that's done by a 287(g) officer as a matter of routine.

The Federal Government doesn't like this statute, but they are very proud of their Secure Communities program.

And their Secure Communities program also makes clear that everybody's that's booked at participating facilities is -- eventually has their immigration status checked.

And so I don't think that this immigration status check is likely to lead to a substantial elongation of the stops or the detentions.

Now, obviously--

Justice Sonia Sotomayor: --I want to make sure that I get a clear representation from you.

If on a call to the Federal agency, the agency says, we don't want to detain this alien, that alien will be released or -- unless it's under 6, is what you're telling me.

Or under 6, 3, or some -- one other of Arizona's immigration clauses.

Mr. Clement: --Exactly.

Obviously, if this is somebody who was going, you know, 60 miles an hour in a 20-mile-an-hour school zone or something, they may decide wholly apart from the immigration issues, that this is somebody they want to bring back to the station.

But for the purposes of once they make the contact with Federal immigration officials, if the Federal immigration officials say, look, we have no interest in removing this person, we have no interest in prosecuting this person under the Federal criminal provisions, then that's the end of the Federal case--

Justice Sonia Sotomayor: All right.

Then tell me--

Justice Antonin Scalia: You'll concede that the -- that the State has to accept within its borders all people who have no right to be there, that the Federal Government has no interest in removing?

Mr. Clement: --No, I don't accept that, Justice Scalia, but--

Justice Antonin Scalia: That's all the statute -- and you call up the Federal Government, and te Federal -- yes, he's an illegal immigrant, but that's okay with us.

Mr. Clement: --Well--

Justice Antonin Scalia: And the State has no power to close its borders to people who have no right to be there?

Mr. Clement: --Well, Justice Scalia, here's my response, which is all of this discussion, at least as I've understood it, has been about 2(B) and to a lesser extent 6.

Now, section 3 of the statute does provide an authority under State law to penalize somebody who has violated essentially the Federal registration requirement.

So if that's -- as to that provision, there would be a State authority, even under these hypotheticals, to take action with respect to the individual--

Justice Anthony Kennedy: --I think--

Mr. Clement: --but not with respect to the Federal--

Justice Anthony Kennedy: --I think Justice Scalia's question was the -- was the broader one, just as a theoretical matter.

Can we say, or do you take the position that a State must accept within its borders a person who is illegally present under Federal law?

Mr. Clement: --Well, and I think--

Justice Anthony Kennedy: And that is by reason of his alien--

Mr. Clement: --And I think my answer to that is no.

I think the reason my answer is no has more to do with our defense of section 3 and other provisions than it does with respect to the inquiry and arrest authority provisions, 2(B) and 6.

Justice Samuel Alito: Well, before you move on to the registration requirement, could I take you back to an example that's similar to the one that Justice Breyer was referring to.

Let's someone -- let's say someone who is a citizen and a resident of New Mexico, has a New Mexico driver's license, drives across the border, is stopped for speeding, not 60 miles an hour in a 20-mile zone, but 10 miles over the speed limit on an interstate.

And the officer, for some reason, thinks that this person may be an illegal alien.

How would that work out?

If you do the records check, you're not going to get anything back, right, because the person is a citizen?

So what -- where would the officer take it from there?

Mr. Clement: Well, if I can just kind of work back for a second.

I mean, obviously, it's a pretty unusual circumstance where somebody produces an out-of-state driver's license, and that doesn't dispel reasonable suspicion for the officer; but, I'll take the hypo--

Justice Samuel Alito: Why would it dispel reasonable suspicion if it's -- if the officer knows it's a state that issues driver's licenses to aliens who are not lawfully--

Mr. Clement: --And that might be a situation where that's the case, and then -- then it wouldn't dispel the reasonable suspicion.

But, say, in the average case, I think it would.

They would then go further.

And then they would then make the inquiry to the Federal officials.

And then if -- because of the fact that the individual actually is a citizen or something like that, then what would happen is at some point you'd get to the end of a permissible Terry stop, and the officer would release the individual.

Now, it might not be the end of the matter, because, of course, you know, they still have the name, they still have the ability to collect that information and try to continue the check as they move forward, taking down the information on the New Mexico driver's license.

But I think the important thing is that, you know, this statute doesn't authorize them to detain the individual, certainly beyond the -- the Fourth Amendment limits, and it really doesn't authorize them to do anything that the official couldn't do on an ad hoc basis without the statute.

Now it does do--

Justice Samuel Alito: --That may be the case, and I would like to ask General Verrilli about that; but, under the Fourth Amendment, presumably, if the officer can arrest, the state officer can arrest a person simply on the ground that the person is removable, which is what the Office of Legal Counsel opined some years ago, then presumably the officer could continue to detain that individual that I mentioned until they reached a point where the Terry stop becomes an arrest, at which time they would have to have probable cause.

But if they had probable cause to believe the person was removable, then they could hold the person, presumably, until the person's status was completely verified; isn't that correct?

Mr. Clement: --I think that's correct, Your Honor.

Now, as we read section 6, because there's a pre-existing definition of public offense in Arizona law, we don't think this is kind of the full Office of Legal Counsel situation, where you have broad arrest authority for removable individuals.

This is a relatively narrow slice of additional arrest authority that happens to give arrest authority for people that seem to fit the Federal government's priority, because it really is going to apply to criminal aliens.

But I don't -- I don't take any issue with what you're saying.

I do think, though, it's important to understand that 2(B) really doesn't give the officer an authority he didn't otherwise have.

It does do one thing that's very important, though, which it does have the effect of overriding local policies that actually forbade some officers from making those communications and -- because that's one of the primary effects of 2(B).

It just shows how difficult the government's preemption argument is here, because those kind of local policies are expressly forbidden by Federal statute.

1373(a) and 8 U.S.C. 1644 basically say that localities can't have those kind of sanctuary laws.

And so, one effect that 2(B) has is on a state level it basically says, look, you can't have local officers telling you not to make those inquiries, you must have those inquiries.

Justice Sonia Sotomayor: --Counsel, could -- does section 6 permit an officer to arrest an individual who has overstayed a visitor's visa by a day?

They are removable, correct?

Mr. Clement: They are removable.

I don't think they would have committed a public offense -- absent a very unusual situation, I don't think they would have committed a public offense under Arizona law.

So I don't think there actually would be arrest authority in that circumstance, as Justice Alito's question has--

Justice Sonia Sotomayor: What is the definition of public offense?

Mr. Clement: --A public offense definition -- it's actually -- it's a petition appendix -- well, I'm sorry.

The definition is basically that it's something that is a crime in another jurisdiction and also a crime in Arizona.

And so, what makes this kind of anomalous is, normally, if something is a crime in Arizona, there's arrest authority for that directly.

So what this really captures is people who have committed a crime are no longer arrestable for the crime because they have served their sentence or some other peculiarity, but they are nonetheless removable because of the crime.

Chief Justice John G. Roberts: Counsel, maybe it's a good time to talk about some of the other sections, in particular section 5(C).

Now, that does seem to expand beyond the Federal government's determination about the types of sanctions that should govern the employment relationship.

You talk about supply and demand.

The Federal government, of course, prohibits the employment, but it also imposes sanctions with respect to application for work.

And the State of Arizona, in this case, is imposing some significantly greater sanctions.

Mr. Clement: Well, it's certainly imposing different sanctions.

I mean, you know, it's a little bit -- kind of hard to weigh the difference between removability, which is obviously a pretty significant sanction for an alien, and the relatively modest penalties imposed by section 5(C).

But I take the premise that 5(C) does something that there is no direct analog in Federal law.

But I -- but that's not enough to get you to preemption, obviously.

And one of the things that makes 5(C), it seems to us, a weak case for preemption is that it only targets employment that is expressly forbidden by Federal law.

And so, then we look at, you know, essentially the government is reduced to arguing that because in 1986 when Congress passed IRCA, it only focused on the employer's side of the equation and didn't, generally speaking, impose restrictions on employees, that somehow they are going to draw a preemptive inference from that.

Justice Sonia Sotomayor: Counsel--

Justice Anthony Kennedy: --Would you agree that -- would you accept as a working hypothesis that we can begin with the general principle that the Hines v. Davidowitz language controls here, and we're going to ask our principal -- our primary function is to determine whether, under the circumstances of this particular case, Arizona's law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress?

Is that an acceptable test from your standpoint?

Mr. Clement: I think it's an acceptable test.

I mean, Justice Kennedy, you know, there obviously have been subsequent cases, including DeCanas and Whiting, that give additional shape and color to that test, but I don't have any -- I don't have any real quarrel with that test.

And here's why I don't think that--

Justice Anthony Kennedy: But then the government on this section is going to come and say, well, there may be -- this must be -- this -- the enforcement of this statute, as Arizona describes it, will be in considerable tension with our -- with our basic approach; isn't that what I'm going to hear from the government?

Mr. Clement: --It may be what you're going to hear, Justice Kennedy, but I don't think you just take the Federal government for its word on these things.

You know, it's interesting, in DeCanas itself, the SG said that that California statute was preempted.

And in DeCanas, this Court didn't say, well, you know, we've got this language from Hines, and we have the SG tell us it's preempted, that's good enough for us.

They went beyond that, and they looked hard.

And what they did is they established that this is an area where the presumption against preemption applies.

So, that seems one strike in our favor.

We have here a situation where there is an express preemption provision, and it -- it only addresses the employer's side of the ledger.

So the express preemption provision clearly doesn't apply here.

So the only thing they have is this inference--

Justice Sonia Sotomayor: --Well, for those of us for whom legislative history has some importance, there seems to be quite a bit of legislative history that the -- that the idea of punishing employees was raised, discussed and explicitly rejected.

Mr. Clement: --Sure.

Justice Sonia Sotomayor: The preemption language would be geared to what was decided to be punished.

It seems odd to think that the Federal government is deciding on employment sanctions and has unconsciously decided not to punish employees.

Mr. Clement: But, Justice Sotomayor, there's a big difference between Congress deciding not as a matter of Federal law to address employees with an additional criminal prohibition, and saying that that decision itself has preemptive effect.

That's a rather remarkable additional step.

And here's why I think, if you consider the legislative history, for those who do, it really supports us, because here's what Congress confronted.

I mean, they started thinking about this problem in 1971.

They passed IRCA in 1986.

At that point, here's the state of the world.

It's already unlawful, as a matter of Federal law, for the employee to get -- to have this unlawful work; and, if they seek this unlawful work, they are subject to removal for doing it.

In addition, Congress was told that most of the aliens who get this unlawful work are already here -- they illegally entered, so they are already subject to an independent criminal offense.

So at that point, Congress is facing a world where the employee is already subject to multiple prohibitions.

The employer is completely scot-free as a matter of Federal law.

And so at that point, in 1986, they address the employer's side of the equation, they have an express preemption provision that says nothing about any intent of preempting the employee's side of the ledger, and in that I don't think--

Justice Ruth Bader Ginsburg: They did provide -- I mean, your position was the Federal legislation regulates the supply side.

That leaves the demand side open.

But there is regulation, and the question is whether anything beyond that is inconsistent with the Federal -- it's not just that the person is removable, but if they use false documents in seeking work, that's a Federal crime.

So we have the -- what you call the supply side is regulated, but you want to regulate it more.

Mr. Clement: --Two quick responses, and then I'd like to save time for rebuttal, Justice Ginsburg.

The first is that if you look at what they regulate on the employee's side, it's really things that actually assist in regulating the employer's side.

Because what they are worried about is a fraudulent document that then is used essentially to trick the employer into employing somebody who shouldn't be employed.

The second thing is the more that you view IRCA as actually regulating part of the employee's side, then I think the more persuasive it is that the express preemption provision doesn't reach the employee's side of the equation.

Chief Justice John G. Roberts: We'll give you plenty of rebuttal time, but I'd like to hear what you have to say about section 3 before you sit down.

Mr. Clement: Thank you, Mr. Chief Justice.

I appreciate the opportunity to do that.

I do think as to section 3, the question is really -- it's a provision that is parallel to the Federal requirements and imposes the same punishments as the Federal requirement.

So it's generally not a fertile ground for preemption.

But of course, there are cases that find preemption even in those analogous circumstances.

They are the cases that the government is forced to rely on, cases like Buckman, cases like--

Justice Anthony Kennedy: Would double prosecutions be -- suppose that an alien were prosecuted under Federal law for violating basically the terms of 3, could the States then prosecute him as well?

Mr. Clement: --I think they could under general double jeopardy principles and the dual sovereignty doctrine.

Obviously, if that was a particular concern to you, that might be the basis as an as-applied challenge if somebody was already prosecuted under Federal law.

But, of course, this Court has confronted exactly that argument in California against Zook, where you had the statute of California that prohibited somebody operating as an interstate carrier without the ICC license.

It was raised, you know, you have to let just the Feds enforce that law.

Otherwise, there is a possibility of duplicative punishment, duplicative prosecution.

And this Court rejected that argument there.

Justice Ruth Bader Ginsburg: Mr. Clement, it seems that the -- I would think the largest hurdle for you is Hines which said, the registration scheme -- Congress enacted a complete registration scheme which the States cannot complement or impose even auxiliary regulations.

So I don't see the alien registration as a question of obstacle preemption, but appeal preemption that alien -- we don't want competing registration schemes.

We want the registration scheme to be wholly Federal.

Mr. Clement: Well, Justice Ginsburg, I think that's part of the reason why I accepted Justice Kennedy's characterization of the relevant language in Hines.

Because although there is some general discussion there of field preemption, when the Court actually states what its holding is, it does state it in terms of obstacle preemption.

And here's where I think there is a critical difference between what the Court had before it in Hines and what you have before you here.

In Hines, Pennsylvania passed its statute before Congress passed the alien registration statute.

So not surprisingly, you know, they weren't -- they weren't soothsayers in Pennsylvania.

They couldn't predict the future.

So when it got up here, there was a conflict between the provisions of the Pennsylvania registration law and the Federal registration law.

And this Court struck it down on that preemption basis.

Here it's quite different.

Arizona had before it the Federal statute.

It looked at the precise provisions in the Federal statute.

It adopted those standards as its own, and then it imposed parallel penalties for the violation of the State equivalent.

And so I think the right analysis is really the analysis that this Court laid out in its Whiting decision, which says that in these kinds of cases, what you look for is whether or not the State scheme directly interferes with the operation of the Federal scheme.

Justice Sonia Sotomayor: Can I ask you something?

Justice Samuel Alito: Well, in that--

Chief Justice John G. Roberts: Justice Alito.

Justice Samuel Alito: --In that regard, we are told that there are some important categories of aliens who can't obtain registration, cannot obtain Federal registration, and yet they are people that nobody would think should be removed.

I think someone with a pending asylum application would fall into that category.

How would section 3 apply there?

Mr. Clement: I think it probably wouldn't apply.

There's two provisions that might make it inapplicable.

The first question you'd ask is whether that individual in that category would be subject to prosecution under 1304 and 1306.

And if I understand, you know, the Government's position, there are certain people where, you know, they can't really get the registration document because of the narrow class that they are in.

And as I understand it, it is not a violation of either 1304 or 1306 to not get a registration document when you're somebody who can't get one.

So you're not liable for the willful failure to get a registration document, and when you don't have a registration document to carry, you don't run afoul of 1306 in the--

Justice Samuel Alito: Well, of course, if you've entered the country illegally, you can't get a registration.

Mr. Clement: --Well, sure.

Justice Samuel Alito: But--

Mr. Clement: But that's not the narrow class we were talking about.

Justice Samuel Alito: --I understand that.

I understand the distinction you're drawing, that you can't be prosecuted for lack of a registration if you couldn't have gotten a registration.

Mr. Clement: Well, if you're in -- no, if you're in the country lawfully, I mean, you can try to register.

And so somebody who enters illegally -- I mean, they are already guilty of one Federal misdemeanor by the illegal entry.

Justice Samuel Alito: Right.

Mr. Clement: But at the point that they stay 30 days and don't try to register, then that's an independent violation.

So maybe I need to fix what I said and say, look, if you're somebody who -- if you did go to register, would be told: You're fine, but we can't give you a registration document, then that individual is not subject to prosecution under the Federal statute, therefore, wouldn't be subject to prosecution under the State statute.

Chief Justice John G. Roberts: Thank you,--

Mr. Clement.

General Verrilli?

ORAL ARGUMENT OF DONALD B. VERRILLI, JR., ON BEHALF OF THE RESPONDENT

Mr. Verrilli Jr.: Mr. Chief Justice, and may it please the Court:

Chief Justice John G. Roberts: Before you get into what the case is about, I'd like to clear up at the outset what it's not about.

No part of your argument has to do with racial or ethnic profiling, does it?

I saw none of that in your brief.

Mr. Verrilli Jr.: --That's correct.

Chief Justice John G. Roberts: Okay.

So this is not a case about ethnic profiling.

Mr. Verrilli Jr.: We're not making any allegation about racial or ethnic profiling in the case.

Mr. Clement is working hard this morning to portray SB 1070 as an aid to Federal immigration enforcement.

But the very first provision of the statute declares that Arizona is pursuing its own policy of attrition through enforcement and that the provisions of this law are designed to work together to drive unlawfully present aliens out of the State.

That is something Arizona cannot do because the Constitution vests exclusive--

Justice Sonia Sotomayor: General, could you answer Justice Scalia's earlier question to your adversary?

He asked whether it would be the Government's position that Arizona doesn't have the power to exclude or remove -- to exclude from its borders a person who's here illegally.

Mr. Verrilli Jr.: --That is our position, Your Honor.

It is our position because the Constitution vests exclusive authority over immigration matters with the national government.

Justice Antonin Scalia: All that means, it gives authority over naturalization, which we've expanded to immigration.

But all that means is that the Government can set forth the rules concerning who belongs in this country.

But if, in fact, somebody who does not belong in this country is in Arizona, Arizona has no power?

What does sovereignty mean if it does not include the ability to defend your borders?

Mr. Verrilli Jr.: Your Honor, the Framers vested in the national government the authority over immigration because they understood that the way this nation treats citizens of other countries is a vital aspect of our foreign relations.

The national government, and not an individual State--

Justice Antonin Scalia: But it's still up to the national government.

Arizona is not trying to kick out anybody that the Federal government has not already said do not belong here.

And the Constitution provides -- even -- even with respect to the Commerce Clause --

"No State shall without the consent of Congress lay any imposts or duties on imports or exports except. "

it says,

"what may be absolutely necessary for executing its inspection laws. "

The Constitution recognizes that there is such a thing as State borders and the States can police their borders, even to the point of inspecting incoming shipments to exclude diseased material.

Mr. Verrilli Jr.: --But they cannot do what Arizona is seeking to do here, Your Honor, which is to elevate one consideration above all others.

Arizona is pursuing a policy that maximizes the apprehension of unlawfully present aliens so they can be jailed as criminals in Arizona unless the Federal Government agrees to direct its enforcement resources to remove the people that Arizona has identified.

Chief Justice John G. Roberts: Well, if that state does -- well, that's a question of enforcement priorities.

Well, let's say that the government had a different set of enforcement priorities, and their objective was to protect to the maximum extent possible the borders; and, so anyone who is here illegally, they want to know about and they want to do something about, in other words, different than the current policy.

Does that mean in that situation the Arizona law would not be preemptive?

Mr. Verrilli Jr.: I think the mandatory character of the Arizona law and the mandatory character of the obligations it imposes, especially as backed by this extraordinary provision in section 2(H), which imposes civil penalties of up to $5000 a day on any official in the State of Arizona who is not following section 2 or, as we read it, the rest of S.B. 1070, to the maximum extent possible, does create a conflict.

But I do think the most fundamental point about section 2 is to understand its relationship to the other provisions in the statute.

Section 2 is in the statute to identify the class of people who Arizona is then committed to prosecute under section 3 and, if they are employed, also under section 5.

Justice Samuel Alito: Well, I have the same question as the Chief Justice.

Suppose that the Federal Government changed its priorities tomorrow, and it said -- they threw out the ones they have now, and they said the new policy is maximum enforcement, we want to know about every person who's stopped or arrested, we want to -- we want to their immigration status verified.

Would the Arizona law then be un-preempted?

Mr. Verrilli Jr.: No, I think it's still a problem, Your Honor.

These decisions have to be made at the national level because it's the national government and not -- it's the whole country and not an individual state that pays the price--

Justice Antonin Scalia: Do you have any example where -- where enforcement discretion has the effect of preempting state action?

Mr. Verrilli Jr.: --Well, I think we should think about section 3 of the law, Your Honor.

I think it will help illustrate the point--

Justice Antonin Scalia: I'll point out another case of ours where we've said that essentially the preemption of state law can occur, not by virtue of the Congress preempting, but because the Executive doesn't want this law enforced so -- so rigorously, and that preempts the state from enforcing it vigorously.

Do we have any cases--

Mr. Verrilli Jr.: --I think the preemption here -- focusing for a moment on section 3 -- the preemption here flows from judgments of Congress, from the registration system that Congress set up in sections 1301 through 1306, from the decision of Congress in section 1103 in the law to vest the Secretary of DHS and the Attorney General with the authority to make the judgments about how this law is going to be enforced--

Justice Antonin Scalia: --Well, they do that with all Federal criminal statutes.

And you acknowledge that as a general matter, states can enforce Federal criminal law, which is always entrusted to the Attorney General.

Mr. Verrilli Jr.: --They can make -- they can engage in detention in support of the enforcement of Federal law.

That's what the OLC opinion from 2002 says.

It does not say that they can prosecute under Federal law and make their own decisions.

That's a far different matter.

And it really goes to the heart, I think, of what's wrong with section of this Act, in that--

Chief Justice John G. Roberts: Well, but you say that the Federal Government has to have control over who to prosecute, but I don't see how Section 2(B) says anything about that at all.

All it does is notify the Federal Government, here's someone who is here illegally, here's someone who is removable.

The discretion to prosecute for Federal immigration offenses rests entirely with the Attorney General.

Mr. Verrilli Jr.: --That's correct, but with respect to -- and let me address something fundamental about section 2.

That is true, but I think it doesn't get at the heart of the problem here.

Section 1 of this statute says that sections 2 and 3 and 5 are supposed to work together to achieve this policy of attrition through enforcement.

And so what section 2 does is identify a population that the State of Arizona is going to prosecute under section 3 and section 5.

Chief Justice John G. Roberts: Right.

So apart from section 3 and section 5, take those off the table, you have no objection to section 2.

Mr. Verrilli Jr.: We do, Your Honor; but, before I take 3 and 5 off the table, if I could make one more point about 3 and 5, please.

The -- I think -- because I think it's important to understand the dilemma that this puts the Federal Government in.

Arizona has got this population, and they've -- and they're by law committed to maximum enforcement.

And so the Federal Government's got to decide, are we going to take our resources, which we deploy for removal, and are we going to use them to deal with this population, even if it is to the detriment of our priorities--

Chief Justice John G. Roberts: Exactly.

The Federal Government has to decide where it's going to use its resources.

And what the state is saying, here are people who are here in violation of Federal law, you make the decision.

And if your decision is you don't want to prosecute those people, fine, that's entirely up to you.

That's why I don't see the problem with section 2(B).

Mr. Verrilli Jr.: --Here's the other half -- here's the other half of the equation, Mr. Chief Justice, which is that they say if you're not going to remove them, we are going to prosecute them.

And that means that the -- and I think this does get at the heart of why this needs to be an exclusive national power--

Chief Justice John G. Roberts: Only under section 3 and section 5.

Mr. Verrilli Jr.: --Yes, but those are -- but what you're talking about is taking somebody whose only offense is being unlawfully present in the country and putting them in jail for up to 6 months, or somebody who--

Chief Justice John G. Roberts: Well, let's say you're worried about--

Mr. Verrilli Jr.: --or like 30 days, forgive me; 6 months for employment.

Chief Justice John G. Roberts: --There you go.

Right.

For the notification, what could possibly be wrong if Arizona arrests someone, let's say for drunk driving, and their policy is you're going to stay in jail overnight no matter what, okay, what's wrong during that period by having the Arizona arresting officer say, I'm going to call the Federal agency and find out if this person is here illegally, because the Federal law says the Federal agency has to answer my question?

It seems an odd argument to say the Federal agency has to answer the state's question, but the state can't ask it.

Mr. Verrilli Jr.: Well, we're not saying the state can't ask it in any individual case.

We recognize that section--

Chief Justice John G. Roberts: You think there are individual cases in which the state can call the Federal Government and say: Is this person here illegally?

Mr. Verrilli Jr.: --Yes, certainly, but that doesn't make--

Chief Justice John G. Roberts: Okay.

So doesn't that defeat the facial challenge to the Act?

Mr. Verrilli Jr.: --No.

I don't think so, Mr. Chief Justice, because the -- I think the problem here is in that -- is in every circumstance as a result of section 2(B) of the law, backed by the penalties of section 2(H), the state official must pursue the priorities that the state has set, irrespective of whether they are helpful to or in conflict with the Federal priorities.

And so--

Justice Samuel Alito: Well, suppose that every -- suppose every law enforcement officer in Arizona saw things exactly the same way as the Arizona legislature.

And so, without any direction from the legislature, they all took it upon themselves to make these inquiries every time they stopped somebody or arrested somebody.

Would that be a violation of Federal law?

Mr. Verrilli Jr.: --No, it wouldn't be, Your Honor, because in that situation they would be free to be responsive to Federal priorities, if the Federal officials came back to them and said, look, we need to focus on gangs, we need to focus on this drug problem at the border--

Justice Samuel Alito: But what if they said, well, we don't care at your priorities are; we have our priorities, and our priority is maximum enforcement, and we're going to call you in every case?

It was all done on an individual basis, all the officers were individually doing it--

Mr. Verrilli Jr.: --Yes, well--

Justice Samuel Alito: --that would be okay?

Mr. Verrilli Jr.: --Well, if there's a -- if there's a state policy locked into law by statute, locked into law by regulation, then we have a problem.

If it's not--

Justice Sonia Sotomayor: General--

Mr. Verrilli Jr.: --I mean, the line is mandatory versus discretionary--

Justice Samuel Alito: That's what I can't understand because your argument -- you seem to be saying that what's wrong with the Arizona law is that the Arizona legislature is trying to control what its employees are doing, and they have to be free to disregard the desires of the Arizona legislature, for whom they work, and follow the priorities of the Federal Government, for whom they don't work.

Mr. Verrilli Jr.: --But they -- but with respect to immigration enforcement, and to the extent all they're doing is bringing people to the Federal Government's attention, they are cooperating in the enforcement of Federal law--

Justice Anthony Kennedy: But the hypothetical is that that's all the legislature is doing.

Mr. Verrilli Jr.: --Well, except I think, Justice Kennedy, the problem is that it's not cooperation if in every instance the officers in the state must respond to the priorities set by the state government and are not free to respond to the priorities of the Federal officials who are trying to enforce the law in the most effective manner possible.

Justice Sonia Sotomayor: --I'm sorry.

I'm a little confused.

General, I'm terribly confused by your answer.

Okay?

And I don't know that you're focusing in on what I believe my colleagues are trying to get to.

Making the -- 2(B) has two components, as I see it.

Every person that's suspected of being an alien who's arrested for another crime -- that's what Mr. Clement says the statute means -- the officer has to pick up the phone and call -- and call the agency to find out if it's an illegal alien or not.

He tells me that unless there's another reason to arrest the person -- and that's 3 and 6, or any of the other provisions -- but putting those aside, we're going to stay just in 2(B), if the government says, we don't want to detain the person, they have to be released for being simply an illegal alien, what's wrong with that?

Mr. Verrilli Jr.: Well--

Justice Sonia Sotomayor: Taking out the other provisions, taking out any independent state-created basis of liability for being an illegal alien?

Mr. Verrilli Jr.: --I think there are three.

The first is the -- the Hines problem of harassment.

Now, we are not making an allegation of racial profiling; nevertheless, there are already tens of thousands of stops that result in inquiries in Arizona, even in the absence of S.B. 1070.

It stands to reason that the legislature thought that that wasn't sufficient and there needed to be more.

And given that you have a population in Arizona of 2 million Latinos, of whom only 400,000 at most are there unlawfully--

Justice Antonin Scalia: Sounds like racial profiling to me.

Mr. Verrilli Jr.: --And they're -- and given that what we're talking about is the status of being unlawfully present--

Justice Sonia Sotomayor: Do you have the statistics as to how many arrests there are and how many -- and what the -- percentage of calls before the statute?

Mr. Verrilli Jr.: --There is some evidence in the record, Your Honor.

It's the -- the Palmatier declaration, which is in the Joint Appendix, was the -- he was the fellow who used the run the Law Enforcement Support Center, which answers the inquiries.

That -- that declaration indicates that in fiscal year 2009, there were 80,000 inquiries and--

Justice Antonin Scalia: What does this have to do with Federal immigration law?

I mean, it may have to do with racial harassment, but I thought you weren't relying on that.

Mr. Verrilli Jr.: --The--

Justice Antonin Scalia: Are you objecting to harassing the -- the people who have no business being here?

Is that -- surely you're not concerned about harassing them.

They have been stopped anyway, and all you're doing is calling up to see if they are illegal immigrants or not.

So you must be talking about other people who have nothing to do with -- with our immigration laws.

Okay?

Citizens and -- and other people, right?

Mr. Verrilli Jr.: --And other -- and other people lawfully present in the country, certainly, but this is--

Justice Antonin Scalia: But that has nothing to do with the immigration law--

Mr. Verrilli Jr.: --Hines is--

Justice Antonin Scalia: --which is what you're asserting preempts all of this activity.

Mr. Verrilli Jr.: --Hines identified this problem as harassment as -- as a central feature of preemption under the immigration laws because of the concern that the way this nation treats citizens of other countries is fundamental to our foreign relations.

And this is a--

Justice Stephen G. Breyer: Well, let's -- let me just go back, because I think -- I'm trying to get focused the question I think others are asking, and one way to focus it is the same question I asked Mr. Clement.

Think of 2(B), the first sentence.

All right?

Now, I can think -- I'm not saying they are right, but if that means you're going to hold an individual longer than you would have otherwise, I can think of some arguments that it is preempted, and some replies.

So keep that out of it.

Suppose that we were to say, that sentence, as we understand it, does not raise a constitutional problem as long as it is interpreted to mean that the policeman, irrespective of what answer he gets from ICE, cannot detain the person for longer than he would have done in the absence of this provision.

Now, in your view, is there any preemption exemption -- argument against -- any preemption argument against that sentence as I have just interpreted it?

I don't know what your answer is, and that's why I'm asking.

Mr. Verrilli Jr.: --Yes.

We would think it would ameliorate--

Justice Stephen G. Breyer: And if so, what?

Mr. Verrilli Jr.: --it would ameliorate the practical problem; but, there is still a structural problem here in that this is an effort to enforce Federal law.

And the -- under the Constitution, it's the President and the Executive Branch that are responsible for the enforcement of Federal law--

Chief Justice John G. Roberts: It is--

Mr. Verrilli Jr.: --and--

Chief Justice John G. Roberts: --It is not an effort to enforce Federal law.

It is an effort to let you know about violations of Federal law.

Whether or not to enforce them is still entirely up to you.

If you don't want to do this, you just tell the person at LESC -- if that's the right -- is that the right acronym?

Mr. Verrilli Jr.: --It is, Mr. Chief Justice.

Chief Justice John G. Roberts: --LESC, look, when somebody from Arizona calls, answer their question, and don't even bother to write it down.

Okay?

I stopped somebody else, is he legal or illegal, let me check -- it's, oh, he's illegal.

Okay, thanks, good-bye.

I mean, why -- it is still your decision.

And if you don't want to know who is in this country illegally, you don't have to.

Mr. Verrilli Jr.: That's correct.

But the process of -- the process of cooperating to enforce the Federal immigration law starts earlier, and it starts with the process of making the decisions about who to -- who to stop, who to apprehend, who to check on.

And the problem -- the structural problem we have is that those decisions -- in the making of those decisions, Arizona officials are not free--

Chief Justice John G. Roberts: Under 2(B), the person is already stopped for some other reason.

He's stopped for going 60 in a 20.

He's stopped for drunk driving.

So that decision to stop the individual has nothing to do with immigration law at all.

All that has to do with immigration law is the -- whether or not they can ask the Federal Government to find out if this person is illegal or not, and then leave it up to you.

It seems to me that the Federal Government just doesn't want to know who is here illegally or not.

Mr. Verrilli Jr.: --No, I -- I don't think that's right.

I think we want to be able to cooperate and focus on our priorities.

And one thing that's instructive in that regard, Mr. Chief Justice, are the declarations put into the record by the police chiefs from Phoenix and Tucson, both of whom I think explain effectively why S.B. -- the section 2(B) obligation gets in the way of the mutual effort to -- to focus on the priorities of identifying serious criminals so that they can be removed from the country.

Justice Antonin Scalia: Anyway, what -- what's wrong about the states enforcing Federal law?

There is a Federal law against robbing Federal banks.

Can it be made a state crime to rob those banks?

I think it is.

Mr. Verrilli Jr.: I think it could, but I think that's quite--

Justice Antonin Scalia: But does the Attorney General come in and say, you know, we might really only want to go after the professional bank robbers?

If it's just an amateur bank robber, you know, we're -- we're going the let it go.

And the state's interfering with our -- with our whole scheme here because it's prosecuting all these bank robbers.

Mr. Verrilli Jr.: --Well, of course, no one would--

Justice Antonin Scalia: Now, would anybody listen to that argument?

Mr. Verrilli Jr.: --Of course not.

Justice Antonin Scalia: Of course not.

Mr. Verrilli Jr.: But this argument is quite different, Justice Scalia, because here what we are talking about is that Federal registration requirement in an area of dominant Federal concern, exclusive Federal concern with respect to immigration, who can be in the country, under what circumstances, and what obligations they have--

Justice Anthony Kennedy: Now, are you talking about now or--

Mr. Verrilli Jr.: --Yes.

Justice Anthony Kennedy: --or does this argument relate to 2 as well?

Mr. Verrilli Jr.: This is an argument about section 3.

Justice Samuel Alito: Well, could I ask you this about 2, before you move on to that?

How is a -- this is just a matter of information.

How can a state officer who stops somebody or who arrests somebody for a nonimmigration offense tell whether that person falls within the Federal removal priorities without making an inquiry to the Federal Government?

For example, I understand one of the priorities is people who have previously been removed, then that might be somebody who you would want to arrest and -- and remove.

But how can you determine that without making the -- the inquiry in the first place?

Mr. Verrilli Jr.: Well, in any individual case, that's correct.

You -- you would need to make the inquiry in the first place.

It won't always be correct, if you're arresting somebody based on probable cause that they have committed a serious crime, and they -- and they -- the inquiry into whether -- into their status will be enough to identify that person for priority--

Justice Samuel Alito: Well, what if they just, they stop somebody for a traffic violation, but they want to know whether this is a person who previously was removed and has come back or somebody who has just -- just within the last few hours possibly come -- well, let's just -- somebody who's previously been removed?

How can you know that without making an inquiry?

Mr. Verrilli Jr.: --Well, I think -- I think it's correct that you can't, but there is a -- there is difference, Justice Alito, I think, between the question of any individual circumstance and a mandatory policy backed by this civil fine, that you've got to make the inquiry in every case.

I mean, I think it's as though, if I can use an analogy, if you ask one of your law clerks to bring you the most important preemption cases from the last 10 years, and they rolled in the last -- the last hundred volumes of the U.S. Reports and said, well, they are in there.

That -- that doesn't make it--

Chief Justice John G. Roberts: What if they just rolled in Whiting?

[Laughter]

That's a pretty good one.

Justice Stephen G. Breyer: Look, in the Federal statute, it says in 1373 that nobody can prohibit or restrict any government entity from making this inquiry of the Federal Government.

And then it says that the Federal Government has -- any agency -- and then it says the Federal has an obligation to respond.

Now, assuming the statute were limited as I say, so nothing happened to this individual, nothing happened to the person who's stopped that wouldn't have happened anyway, all that happens is the person -- the policeman makes a phone call.

Now that's what I'm trying to get at.

If that were the situation, and we said it had to be the situation, then what in the Federal statute would that conflict with, where we have two provisions that say any policeman can call?

Mr. Verrilli Jr.: --So--

Justice Stephen G. Breyer: What's the -- that's -- that's where I'm trying to push you.

Mr. Verrilli Jr.: --Yes.

Justice Stephen G. Breyer: Because in my mind I'm not clear what your answer is to that.

Mr. Verrilli Jr.: I understand the question.

And I think the answer is this: 1373 was enacted in 1996, along with 1357.

And 1357 is the provision that sets forth the powers and authorities of Federal immigration officials.

It contains 1357(g), which effectively says that Federal -- that the Federal Government, the Attorney General, can deputize state officials, so long as they're -- they obtain adequate training and they are subject to the direction and control of the Attorney General in carrying out immigration functions.

Then the last provision, (g)(10), says that nothing that we've said so far should be read to preclude informal cooperation, communication or other informal cooperation in the apprehension, detention and removal of unlawfully present persons; but, it's the focus on cooperation.

And I think you have to -- so I don't think you can read into 1373 the -- the conclusion that what Congress was intending to do was to shift from the Federal government to the states the authority to set enforcement priorities, because I think the cooperation in this context is cooperation in the service of the Federal enforcement.

Justice Sonia Sotomayor: Can I get to a different question?

I think even I or someone else cut you off when you said there were three reasons why -- 2(B).

Putting aside your argument that this -- that a systematic cooperation is wrong -- you can see it's not selling very well -- why don't you try to come up with something else?

Because I, frankly -- as the chief has said to you, it's not that it's forcing you to change your enforcement priorities.

You don't have to take the person into custody.

So what's left of your argument?

Mr. Verrilli Jr.: So let me just summarize what I think the three are, and then maybe I can move on to sections 3 and 5.

With respect to -- with respect to 2, we think the harassment argument -- we think this is a more significant harassment problem than was present in Hines--

Justice Sonia Sotomayor: Please move--

Mr. Verrilli Jr.: --With respect to -- in addition, we do think that there is a structural accountability problem in that they are enforcing Federal law but not answerable to the Federal officials.

And third, we do think there are practical impediments, in that the -- the result of this is to deliver to the Federal system a volume of inquiries that makes it harder and not easier to identify who the priority persons are for removal.

So those are the three reasons.

Chief Justice John G. Roberts: General, you have been trying valiantly to get us to focus on section 3, so maybe we should let you do that now.

Mr. Verrilli Jr.: Thank you, Mr. Chief Justice.

The -- I do think the key thing about section 3 is that we -- is that section 3 is purporting to enforce a federal registration requirement.

That's a relationship between the alien and the United States government that's exclusively a Federal relationship.

It's governed by the terms of 1301 through 1306.

And the way in which those terms are enforced does have very significant Federal interest at its heart, and there is no state police power interest in that Federal registration relationship.

And I do think -- I think it's very important -- Justice Alito raised the question of these categories of people.

I think it is quite important to get clarity on that.

The -- if you are -- if you have come into the country unlawfully, but you have a pending application for asylum, a pending application for temporary protective status because you would have to be removed to a country to which you can't be removed because of the conditions in the country, if you have a valid claim for relief under the Violence Against Women Act based on your treatment, if you have a valid claim for relief because you are a victim of human trafficking, if you have a valid claim for relief because you are the victim of a crime or a witness to a crime, all of those persons are in technical violation of 1306(a).

And -- and it seems to me they -- they are in violation of 1306(a), so my friend, Mr. Clement, is not correct in saying that those are people who aren't in violation of 1306(a) and, therefore, aren't in violation of section 3.

They are in violation.

Justice Antonin Scalia: Well, maybe 1306(a) ought to be amended, then.

I mean, we have statutes out there that there a lot of people in violation of it and -- well, the Attorney General will take care of it.

Is that how we write our criminal laws?

Mr. Verrilli Jr.: But it's a situation in which no reasonable person would think that the individual ought to be prosecuted; and, yet, very often, the states aren't even going to know.

In fact, about asylum status, they can't know because there are regulations that require that to be kept private to avoid retaliation against the person making the application.

And so, this is -- so this is -- this is, I think, a very strong illustration of why the enforcement discretion over section 3 needs to be vested exclusively in the Federal Government.

Justice Antonin Scalia: Again, I ask you, do you have any other case in which the basis for preemption has been you are interfering with the Attorney General's enforcement discretion?

Mr. Verrilli Jr.: Well, this is--

Justice Antonin Scalia: I think that's an extraordinary basis for saying that the state is preempted.

Mr. Verrilli Jr.: --I think what is extraordinary about this, actually, Justice Scalia, is the state's decision to enact a statute purporting to criminalize the violation of a Federal registration obligation.

And I think that's the problem here.

And they are doing it for a reason--

Justice Antonin Scalia: It's not criminalizing anything that isn't criminal under Federal law.

Mr. Verrilli Jr.: --But -- but what--

Justice Antonin Scalia: It's the bank.

It's the Federal bank example--

Mr. Verrilli Jr.: --Well, no.

Justice Antonin Scalia: --a state law which criminalizes the same thing that the Federal law does.

Mr. Verrilli Jr.: I think it's quite different.

What they are doing here is using 1306(a) to get at the status of unlawful presence.

The only people who can be prosecuted under section 3 are people who are unlawfully present in the country.

That's what the statute says.

And they are using it to get at that category of people to essentially use their state criminal law to perform an immigration function.

And the immigration function is to try to -- to prosecute these people.

And, by the way, you can prosecute somebody, they can be put in jail for 30 days here; but, under Federal law, a violation of 1306(a) is a continuing offense.

So, the day they get out of jail for that 30 days, they can be arrested again, and this can happen over and over again.

And the point of this provision is to drive unlawfully present people out of the State of Arizona.

Justice Anthony Kennedy: Suppose -- suppose -- well, assume these are two hypothetical -- two hypothetical instances.

First, the Federal government has said, we simply don't have the money or the resources to enforce our immigration laws the way we wish.

We wish we could do so, but we don't have the money or the resources.

That's the first -- just hypothetical.

Justice Antonin Scalia: You said that in your brief, didn't you?

Justice Anthony Kennedy: Also hypothetical is that the State of Arizona has -- has a massive emergency with social disruption, economic disruption, residents leaving the State because of flood of immigrants.

Let's just assume those two things.

Does that give the State of Arizona any powers or authority or legitimate concerns that any other state wouldn't have?

Mr. Verrilli Jr.: Of course, they have legitimate concerns in that situation.

And, Justice Kennedy--

Justice Anthony Kennedy: And can they go to their legislature and say, we're concerned about this, and ask the legislature to enact laws to correct this problem?

Mr. Verrilli Jr.: --They -- they certainly can enact laws of general application.

They can enforce the laws of general application that are on the books.

They already -- as a result of 8 U.S.C. 1621, it's clear that they are under no obligation to provide any state benefits to the population.

But I think, most importantly, they can -- and -- not most importantly, but as importantly, they can engage in cooperative efforts with the Federal government--

Excuse me.

I see my--

Chief Justice John G. Roberts: No, keep going.

Mr. Verrilli Jr.: --They can -- they can engage in cooperative efforts with the Federal government, of which there are many going on in Arizona and around the country, in order to address these problems.

Justice Antonin Scalia: General, didn't you say in your brief -- I forget where it was -- I thought you said that the Justice Department doesn't get nearly enough money to enforce our immigration laws?

Didn't you say that?

Mr. Verrilli Jr.: Of course, we have to set priorities.

There are only--

Justice Antonin Scalia: Exactly.

Okay.

So the state says, well, that may be your priorities, but most of these people that you're not going after, or an inordinate percentage of them, are here in our state, and we don't like it.

They are causing all sorts of problems.

So we're going to help you enforce Federal law.

We're not going to do anything else.

We're just enforcing Federal law.

Mr. Verrilli Jr.: --Well, what I think they are going to do in Arizona is something quite extraordinary, that has significant real and practical foreign relations effects.

And that's the problem, and it's the reason why this power needs to be vested exclusively in the Federal government.

What they are going to do is engage, effectively, in mass incarceration, because the obligation under section 2(H), of course, is not merely to enforce section 2 to the fullest possible extent at the -- at the risk of civil fine, but to enforce Federal immigration law, which is what they claim they are doing in section 3 and in section 5.

And so -- so, you're going to have a situation of mass incarceration of people who are unlawfully present.

That is going to raise -- poses a very serious risk of raising significant foreign relations problems.

And these problems are real.

It is the problem of reciprocal treatment of the United States citizens in other countries.

Justice Anthony Kennedy: So you're saying the government has a legitimate interest in not enforcing its laws?

Mr. Verrilli Jr.: No.

We have a legitimate interest in enforcing the law, of course, but it needs to be -- but these -- this Court has said over and over again, has recognized that the -- the balance of interest that has to be achieved in enforcing the -- the immigration laws is exceedingly delicate and complex, and it involves consideration of foreign relations, it involves humanitarian concerns, and it also involves public order and public--

Justice Sonia Sotomayor: --General, when -- when -- I know your brief, you had -- you said that there are some illegal aliens who have a right to remain here.

And I'm just realizing that I don't really know what happens when the Arizona police call the Federal agency.

They give the Federal agency a name, correct?

Mr. Verrilli Jr.: --I assume so, yes.

Justice Sonia Sotomayor: You don't really have knowledge of what--

Mr. Verrilli Jr.: Well, they -- I mean, it can come in lots of different ways, but generally they will get a name and some other identifying information.

Justice Sonia Sotomayor: --All right.

And what does the computer have?

What information does your system have?

Mr. Verrilli Jr.: Yes.

So the way this works is there is a system for -- for incoming inquiries.

And then there is a person at a computer terminal.

And that person searches a number of different databases.

There are eight or ten different databases, and that person will check the name against this one, check the name against that one, check the name against the other one, to see if there are any hits.

Justice Sonia Sotomayor: Well, how does that database tell you that someone is illegal as opposed to a citizen?

Today, if you use the names Sonya Sotomayor, they would probably figure out I was a citizen.

But let's assume it's John Doe, who lives in Grand Rapids.

So they are legal.

Is there a citizen database?

Mr. Verrilli Jr.: The citizen problem is actually a significant problem.

There isn't a citizen database.

If you--

Justice Sonia Sotomayor: I'm sorry, there is or there isn't?

Mr. Verrilli Jr.: --There is not.

If you have a passport, there is a database if you look "passports".

So you could be discovered that way.

But otherwise there is no reliable way in the database to verify that you are a citizen unless you are in the passport database.

So you have lots of circumstances in which people who are citizens are going to come up no match.

There's no -- there is nothing suggesting in the databases that they have an immigration problem of any kind, but there's nothing to--

Justice Sonia Sotomayor: So if you run out of your house without your driver's license or identification and you walk into a park that's closed and you're arrested, you -- they make the call to this agency.

You could sit there forever while they--

Mr. Verrilli Jr.: --Yes, and I--

Justice Sonia Sotomayor: --Figure out if you're--

Mr. Verrilli Jr.: --While I'm at it, there is a factual point I think I'd like to correct.

Mr. Clement suggested that it takes 10 minutes to process these calls.

That's true, but you're in a queue for 60 minutes before it takes the 10 minutes to process the call.

So the average time is 70 minutes, not 10 minutes.

Chief Justice John G. Roberts: I had a little -- wasn't sure about your answer to Justice Kennedy.

Is the reason that the government is not focused on people who are here illegally as opposed to the other categories we were talking about because of prioritization or because of lack of resources?

You suggested that if the -- every illegal alien that you identify is either removed or prosecuted, that that would cause tensions with other governments.

So I -- I don't understand if it's because you don't have enough resources or because you don't want to prosecute the people who are simply here illegally as opposed to something else.

Mr. Verrilli Jr.: Well, it's a little more complicated than that.

I think the point is this, that with respect to persons who are unlawfully present, there are some who are going to fall in our priority categories, there are those who have committed serious offenses, there are those who have been removed and have come back, and there are other priority categories.

Because we have resource constraints and there are only so many beds in the detention centers and only so many immigration judges, we want to focus on those priority categories, find them, remove them.

There is a second category, and that is, individuals who are here in violation technically of 1306(a), but who have a valid asylum application or application for temporary protected status or other -- and with respect to those persons that we think would -- it's affirmatively harmful to think that they ought to be prosecuted.

And then there is an additional category of people who are not in the second category and not priorities and the form -- and we think there, the idea that an individual State will engage in a process of mass incarceration of that population, which we do think is what section 2(H) commits Arizona to do under section 3, raises a significant foreign relations problem.

Justice Antonin Scalia: Well, can't you avoid that particular foreign relations problem by simply deporting these people?

Look, free them from the jails--

Mr. Verrilli Jr.: I really think--

Justice Antonin Scalia: --And send them back to the countries that are -- that are objecting.

Mr. Verrilli Jr.: --This is a--

Justice Antonin Scalia: What's the problem with that?

Mr. Verrilli Jr.: --Well, a couple of things.

First is, I don't think it's realistic to assume that the aggressive enforcement of sections 3 and 5 in Arizona is going to lead to a mass migration back to countries of origin.

It seems a far more likely outcome is going to be migration to other States.

And that's a significant problem.

That's part of the reason why this problem needs to be managed on a national basis.

Beyond that, I do think, you know, the -- it's worth bearing in mind here that the country of Mexico is in a central role in this situation.

Between 60 and 70 percent of the people that we remove every year, we remove to Mexico.

And in addition, we have to have the cooperation of the Mexicans.

And I think as the Court knows from other cases, the cooperation of the country to whom we are -- to which we are removing people who are unlawfully present is vital to be able to make removal work.

In addition, we have very significant issues on the border with Mexico.

And in fact, they are the very issues that Arizona is complaining about in that--

Justice Antonin Scalia: So we have to -- we have to enforce our laws in a manner that will please Mexico.

Is that what you're saying?

Mr. Verrilli Jr.: --No, Your Honor, but what it does -- no, Your Honor, I'm not saying that--

Justice Antonin Scalia: Sounded like what you were saying.

Mr. Verrilli Jr.: --No, but what I am saying is that this points up why the Framers made this power an exclusive national power.

It's because the entire country feels the effects of a decision -- conduct by an individual State.

And that's why the power needs to be exercised at the national level and not the State level.

Chief Justice John G. Roberts: And your concern is the problems that would arise in bilateral relations if you remove all of these people, or a significant percentage or a greater percentage than you are now.

Nothing in the law requires you to do that.

All it does is lets you know where -- that an illegal alien has been arrested, and you can decide, we are not going to initiate removal proceedings against that individual.

It doesn't require you to remove one more person than you would like to remove under your priorities.

Mr. Verrilli Jr.: Right, but the problem I'm focused on -- we're focused on, Mr. Chief Justice, is not our removal decisions, but Arizona's decision to incarcerate, and the foreign relations problem that that raises.

That's why this power has got to be exercised at the national level.

Chief Justice John G. Roberts: And that arises under 3 and 5.

Mr. Verrilli Jr.: Correct.

Chief Justice John G. Roberts: But not 2.

Mr. Verrilli Jr.: Well, 2 identifies the population that's going to be prosecuted under 3 and 5.

I haven't -- I've been up here a long time.

I haven't said anything about section 5 yet.

And I don't want to tax the Court's patience, but if I could spend a minute on section 5.

Chief Justice John G. Roberts: Section 5.

Mr. Verrilli Jr.: The -- I do think the fundamental point about section 5 here is that in 1986, Congress fundamentally changed the landscape.

Congress made a decision in 1986 to make the employment of aliens a central concern of national immigration policy.

And this Court has described the 1986 law as a comprehensive regime.

Now, what my friend, Mr. Clement, says, is that it may be a comprehensive regime for employers; it's not a comprehensive regime for employees.

And therefore, it's -- there ought not be any inference here that the States are precluded from criminalizing efforts to seek or obtain employment in Arizona.

But I really think that's not right.

The -- employment is one problem.

And Congress tackled the problem of employment and made a decision, a comprehensive decision, about the sanctions it thought were appropriate to govern.

And Congress did, as Justice Ginsburg suggested, make judgments with respect to the circumstances under which employees could be held criminally liable, as well as the circumstances under which employers could be held liable.

And I think it is useful in thinking about the judgments Congress actually made--

Justice Antonin Scalia: So field preemption; is that your argument with respect to--

Mr. Verrilli Jr.: --It's both.

I think we're making both a field and a conflict preemption argument here, Justice Scalia.

And the -- I think it's worth examining the specific judgments Congress made in 1986.

On the employer's side -- and, after all, this is a situation in which the concern here is that the employer is in a position of being the exploiter and the alien of being the exploited -- on the employer's side, Congress said that States may not impose criminal sanctions, and even -- and the Federal Government will not impose criminal sanctions for the hiring of employees unless there's a pattern or practice.

It seems quite incongruous to think that Congress, having made that judgment and imposed those restrictions on the employer's side, would have left States free to impose criminal liability on employees merely for seeking work, for doing what you I think would expect most otherwise law-abiding people to do, which is to find a job so they can feed their families.

So I think that's a significant problem.

In addition, Congress made clear in the law that the I-9 form could not be used for any other purpose than prosecutions for violation of the Federal antifraud requirements.

And if Congress wanted to leave States free to impose criminal sanctions on employees for seeking work, they wouldn't have done that, it seems to me.

So that I think there are strong indicators in the text that Congress did make a judgment, and the judgment was this far and no farther.

And it's reasonable that Congress would have done so, for the same kinds of foreign relations concerns that I was discussing with respect to section 3.

It would be an extraordinary thing to put someone in jail merely for seeking work.

And yet that's what Arizona proposes to do under section 5 of its law.

Now, of course, there is an express preemption provision, but the express preemption provision, as this Court has said many times, does not operate to the exclusion of implied preemption, field or conflict.

So we do think those principles apply here.

We think there's a reason why the express preemption provision was limited to the employer's side, which is that after DeCanas laws had been enacted on the employer's side, and with -- Congress was making clear that those were preemptive, there were no laws on the employee's side at the time.

And therefore, no reason for preemption.

Chief Justice John G. Roberts: Thank you, General.

Mr. Verrilli Jr.: Thank you, Mr. Chief Justice.

Chief Justice John G. Roberts: Mr. Clement, 5 minutes.

REBUTTAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE PETITIONERS

Mr. Clement: Thank you, Mr. Chief Justice, and may it please the Court:

I'd like to start briefly with the enforcement issues and then talk about the other provisions.

The last thing I'll say about the enforcement provision, since I do think that the Government's rather unusual theory that something that's okay when done ad hoc becomes preempted when it's systematic, I think that theory largely refutes itself.

But I will say one thing, which is to just echo that there is no interference with enforcement priorities by simply giving the Federal Government information on which to bring their enforcement priorities to bear.

And this is really illustrated by a point this Court made in its Florence decision earlier this month, which is that sometimes you pull somebody over for the most innocuous of infractions and they turn out to be the most serious of offenders.

And so if you preclude officers, as happened in Phoenix, from communicating with the Federal Government, the Federal Government will not be able to identify the worst of the worst.

And if you want an example of this, look at the declaration of Officer Brett Glidewell at Joint Appendix 183 to 186.

He pulled somebody over in a routine traffic stop and was shot by the individual.

Now, the individual it turns out was wanted for attempted murder in El Salvador and was also guilty of illegal reentry into the United States.

He was stopped on three previous occasions and his status was not verified.

Now, if it had been, he certainly would have been apprehended.

In at least two of the stops, his immigration status wasn't checked because of the city policy, City of Phoenix.

Now, if the State, I submit, can do anything, it can at the State level override those kind of local policies and say, that's not what we want.

Community policing is all well and good, but we want to maximize communication with the Federal authorities.

So I think the enforcement policy and priorities argument simply doesn't work.

As to section 3, two points about that.

One is, I respectfully disagree with the Solicitor General as to whether the various things that he led off -- read off, the litany of situations where somebody is -- technically doesn't have registration would be a violation of 1306(a).

And the reason I take that position is that provision says a willful failure to register.

Now, maybe the prosecutors take the view that there is willfulness in those circumstances, but I don't think many judges would.

I think they would say that if you've been told by the Federal Government that you're perfectly fine here and you don't need to register, that that would be good enough to defeat a finding of willfulness.

So I don't think 1306(a) covers this case.

Justice Sonia Sotomayor: You're inviting -- you're inviting the very sort of conflict that he's talking about.

Because what's going to happen now is that if there is no statement by the Federal agency of legality, the person is arrested, and now we're going to have Federal resources spent on trying to figure out whether they have an asylum application, whether they have this, whether they have that, whether they are exempted under this reason, whether the failure to carry was accidental or not -- I mean, you are involving the Federal Government in your prosecution.

Mr. Clement: Well--

Justice Sonia Sotomayor: Now, you may say we're not, because all we're going to show is -- what?

That we got a Federal call -- we got a Federal answer that the person wasn't registered?

Mr. Clement: --No, we're going to say that we communicated with the Federal immigration officials and they told us this is somebody who's perfectly fine and doesn't have to register.

Justice Sonia Sotomayor: No -- no Confrontation -- no Confrontation Clause problem with that?

With relying on a call to a Federal agency and the police officer says, you're arrested, you're charged, it's not an illegal alien -- or it is an illegal alien.

Mr. Clement: My supposition, Justice Sotomayor, is that they would use that call to not bring the prosecution, so the issue wouldn't even arise.

But I do want to be clear about--

Justice Sonia Sotomayor: No, no, no.

How about -- how about they get a response, yes, it's an illegal alien?

Mr. Clement: --And they bring a prosecution under section 3--

Justice Sonia Sotomayor: So how -- where do they get the records that show that this person is an illegal alien that's not authorized to be here?

Mr. Clement: --I--

Justice Sonia Sotomayor: Who do they get it from?

Mr. Clement: --I think they would get it from the Federal authorities.

I think it would be admitted.

There might be a challenge in that case.

I mean, you know, this is a facial challenge.

I'm not going to try to address that potential Sixth Amendment issue.

What I would like to say is two things.

One, if there is some sloppiness in the way the Federal Government keeps its records so that there's lots of people that really should be registered but aren't, I can't imagine that sloppiness has a preemptive effect.

The second thing I would say is that I do think, in thinking about section 3 in particular, the analogy is not the fraud on the FDA claim in Buckman, it's really the State tort law that says that it's a violation of State tort law to not even seek the approval that's needed under the FDA for a device.

Now, States impose tort law for people that market a device without getting the necessary approval, and nobody thinks that's preempted, because it serves the Federal interest.

It doesn't have a deluge of information.

It forces people to get FDA approval.

And in the same way, this State law will force people to register, which is what the Federal Government is supposed to want in the first place, so there is no preemption there.

There is no conflict.

As to the employment provision, I do think it's important to recognize that--

Chief Justice John G. Roberts: Finish your sentence.

Mr. Clement: --before 1986, the Government was not agnostic about unlawful employment by aliens.

The employees were already covered, and they were subject to deportation.

So the Government said, we're going to cover the employers for the first time.

I can't imagine why that would have preemptive effect.

Thank you, Your Honor.

Chief Justice John G. Roberts: Thank you, Mr. Clement, General Verrilli.

Well argued on both sides.

Thank you.

The case is submitted.

Featured:

Match-E-Be-Nash-She-Wish Band v. Patchak - Oral Argument

Fri, 27 Apr 2012 20:20:26 +0000

Case:

Match-E-Be-Nash-She-Wish Band v. Patchak

Media File:

11-246_20120424-argument.mp3

Related Transcript:

11-246_20120424-argument.xml

Transcript:

ORAL ARGUMENT OF ERIC D. MILLER ON BEHALF OF THE PETITIONERS IN NO. 11-247

Chief Justice John G. Roberts: We'll hear argument this morning in Case 11-246, Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak.

Mr. Miller.

Eric D Miller: Mr. Chief Justice, and may it please the Court:

The suit in this case suffers from two independent jurisdictional defects, either one of which provides a basis for reversing the judgment of the Court of Appeals.

The first is that the United States has not waived its sovereign immunity from suits challenging its title to Indian trust lands.

And the second is that Patchak, the plaintiff, lacks prudential standing because the interests that he seeks to vindicate in the suit are not within the zone of interests protected or regulated by section 5 of the Indian Reorganization Act, the provision whose alleged violation forms the basis for his complaint.

Justice Sonia Sotomayor: Could you tell me who you think would have a valid and timely APA action to challenge what the Secretary has allegedly done here, which is to take lands into trust in violation of the statute per our -- I know that the U.S. is challenging that assumption, but let's assume the reality of the allegation.

Who would -- who would be able to challenge it, and in what mechanism?

Eric D Miller: There are -- there are two parts to that.

And taking the timing question first, the claim would have to be brought before the land was taken into trust.

And that's why the regulations set out a 30-day period after the announcement of the intent to take the land into trust before title is actually transferred.

So somebody would have to file during that period, as the MichGO plaintiffs did--

Justice Sonia Sotomayor: That, I understand.

That's why I said timely filed.

Eric D Miller: --And the proper plaintiff for a claim under section 5 -- and, of course, there can be other claims under NEPA or the IGRA -- but under section 5 of the IRA, the proper plaintiff would be a state or local government because those are the entities that are directly affected, directly regulated by the transfer of jurisdiction to the tribe--

Justice Sonia Sotomayor: Let's assume a situation where you first promise the land to one tribe, and then, in the midst of negotiations, another tribe lays claim.

The United States says, I change my mind; I'm going to give the land to the other tribe.

Does the tribe that you have denied the land to have any standing or any rights with respect to challenging that determination?

Eric D Miller: --Yes.

As the beneficiaries of section 5, the parties for whose benefit Congress acted and the Secretary would be acting, I think in that scenario a tribe would have standing to challenge it.

Justice Antonin Scalia: Mr. Miller, you -- you claim on behalf of the government that the decision of whether to take the land into trust has nothing to do with the use to which the land will be put; wherefore, these plaintiffs who are complaining about the use to which it'll be put have no standing.

If that is so, why did the government delay the taking into trust for three years while there was pending a lawsuit which would have prevented the use that the government intended the newly trusted land to be used for?

You delayed for three years because there was a challenge to whether you could use -- whether this land could be used for what you call gaming and I call gambling.

Why did you delay for three years if it's irrelevant.

Eric D Miller: Well, the challenge in that case was -- was not just to the use.

It was to the decision to take title to land into trust.

And the Secretary's policy, as set out in--

Justice Antonin Scalia: Well, wait.

On what basis?

On any basis other than--

Eric D Miller: --There was a NEPA claim, for example.

And the plaintiff in that case, the MichGO organization, alleged that the Secretary had not complied with NEPA, had not adequately considered the environmental consequences of the action to take the land into trust.

Justice Antonin Scalia: --Well, what environmental action consequences are there from the mere decision to take it into trust?

Unless you know what it's going to be used for, you have no idea what the environmental consequences are.

Eric D Miller: Well, that's -- that is true.

And it is also true that NEPA may in some circumstances require consideration of the use for which the land is to be put; but, it doesn't follow that section 5 requires or contemplates protecting the interests of nearby landowners from the use.

Justice Antonin Scalia: But the challenge was to -- was to the transfer, you say.

Eric D Miller: That -- I mean, that was -- the allegation--

Justice Antonin Scalia: Based in part on the use to which it was going to be put, right.

Eric D Miller: --Right, but what -- what MichGO was seeking, what the plaintiff was seeking in that case, was an injunction barring the transfer.

And the Secretary's policy -- the whole point of the 30-day regulation is to allow people who want to challenge the transfer to have a full opportunity to litigate those claims.

And that is why--

Justice Ruth Bader Ginsburg: And that would be true of Mr. Patchak?

Suppose he had filed in the 30-day window.

The Secretary gives notice to affected persons.

So he comes in and he says: I think that you don't have authority to do it because this tribe wasn't under Federal jurisdiction, and so I want you to call -- call it off.

Nothing -- nothing has been transferred within 30 days.

I thought both your brief and the tribe's brief said that the judicial review would be available to any affected person who used that procedure.

Is that -- is that true?

Eric D Miller: --I mean, if they could establish standing, but -- if he had filed within the 30-day period, the Secretary would not take title to the land until there was a full opportunity for judicial review.

Now, in this case, he filed outside the 30-day period.

He was aware--

Justice Ruth Bader Ginsburg: But you said -- you said it was important if.

So the argument is this tribe wasn't under Federal jurisdiction.

I could raise that because I'm an affected person.

Somebody's got to be able to enforce against the Secretary the limitations that Congress put on the Secretary.

So would there be standing in that situation?

Mr. Patchak comes in within the 30-day period, so he's not trying to undo any done deal.

Eric D Miller: --There would not be standing for Patchak as a private individual, but there would be standing for a state or local government or, in the unusual situation that Justice Sotomayor suggested, for another tribe--

Justice Ruth Bader Ginsburg: So then you disagree with the tribe that said in no uncertain terms, in its reply brief, that this case is not about the availability of judicial review.

Judicial review was available in the 30-day window.

Eric D Miller: --I think we don't disagree with that in the context of the discussion of the sovereign immunity issue.

I don't understand that statement in the tribe's brief to have been a concession that there would have been standing.

Justice Elena Kagan: Well, on the standing point, I mean, does the -- the distinction that you're setting up between acquisition of land and use of land -- this goes back to Justice Scalia's question -- that strikes me as artificial, that the question of when land is acquired is all tied up with the question of what use is going to be made of it.

The government doesn't acquire this land with no object in mind.

It thinks about how the land is going to be used.

So that, in the end, this really is a land use statute, isn't it.

Eric D Miller: Well, it is a land use statute in -- in this sense, in the sense that -- and you're right that the regulations do refer to the purposes for which the land is to be used, but that's because--

Justice Elena Kagan: And the statute as well thinks of this as a -- is a statute that's designed to promote economic development, which is dependent on some understanding of how the land is actually going to be used by the tribes.

Eric D Miller: --That -- that is exactly right.

And that's why, in determining whether -- the Secretary has to take account of use in order to determine whether it will, in fact, serve the interest of promoting tribal economic development and self-governance, but it doesn't follow that the effect of that use on bystanders, on other property owners in the vicinity, is within the interests that Congress had in mind--

Justice Antonin Scalia: Why not?

Of course, it doesn't have to be within the interest, it just has to be arguably within the interest.

That -- that adverb is left out in much of the discussion.

But if, indeed, the use of the land is one of the elements to be considered in taking title, why isn't somebody who is affected by the proposed use within the zone of interest.

Eric D Miller: --Because -- I mean, just to take the facts of this case as an example, you know, Patchak's objection is not to the jurisdictional transfer.

It's not to the fact that this is now going to be tribal land rather than land subject to the taxing or regulatory authority of the State of Michigan or Allegan County--

Chief Justice John G. Roberts: Just to interrupt, in other words, it's not just to the title.

Eric D Miller: --Well, I mean -- that is -- the relief he is trying to get is to undo that, but the -- the injury doesn't come from that.

Chief Justice John G. Roberts: I'm sorry.

Eric D Miller: The injury comes from the fact that the land is going to be used for gaming, but in 1934--

Justice Antonin Scalia: You could put that it way, or you could put it the injury comes from the government's taking title for gaming.

Okay?

You could put it that way as well.

Eric D Miller: --But--

Justice Antonin Scalia: Inasmuch as the government always has a purpose in mind when it takes title.

Eric D Miller: --But for the zone of interest test, the question would be are people who may be adversely affected by gaming on Indian land within the zone of interest -- is that interest arguably something that -- Congress was speaking to--

Justice Sonia Sotomayor: I'm a little confused.

Justice Anthony Kennedy: On what date was it -- on what date was it clear that the use would be gaming?

There is some suggestion in the briefs that, oh, well, it could be light industry and it was zoned for economic use generally.

At what point was it acknowledged by all that this would be for gaming?

At the very outset?

Eric D Miller: --I believe that in applying to have the land taken into trust, the tribe said what--

Justice Anthony Kennedy: At the very outset.

Eric D Miller: --it wanted to happen.

Justice Samuel Alito: What would happen if someone filed a challenge within the 30-day period and then the government took title to the land while the litigation was pending?

Do the regulations preclude that from happening while the litigation continues, or is it necessary for the -- the challenger to obtain a stay from a court.

Eric D Miller: The regulations do not address that.

The BIA manual provides that that action, of taking the land into trust, should not be taken while the litigation is pending.

Justice Samuel Alito: Well, is that enforceable?

Eric D Miller: I -- I think that it would not be, but I think that -- I guess I would say two things about that.

The first is that the Secretary enacted these regulations, the 30-day notice rule, precisely for the purpose of ensuring that there would be an adequate opportunity for judicial review and thus removing the constitutional doubt that the Eighth Circuit had found associated with the IRA.

And I think -- so there is every reason to think that the Secretary is going to conscientiously carry out what those regulations provide for, which is allowing judicial review.

And if the Secretary were ever to do that, I think he would find that going forward in every case, courts would enter a stay.

Chief Justice John G. Roberts: Well, they didn't hear.

I mean, when Patchak filed his suit title had not yet passed to the Secretary.

And he sought a stay.

Eric D Miller: And -- and it was -- it was denied, and he could have sought relief from the court of appeals, and he didn't.

Chief Justice John G. Roberts: But nothing -- at that point, you thought nothing prevented the Secretary from moving forward, and in fact the Secretary did move forward even though he had already filed the suit.

Eric D Miller: That -- yes.

Justice Stephen G. Breyer: All right.

Well, then why isn't it like your 30 days?

Eric D Miller: Well, because this was a suit that was not filed within the 30-day period.

The--

Justice Stephen G. Breyer: So what?

Eric D Miller: --They--

Justice Stephen G. Breyer: Can I -- the -- this is exactly the point that I don't understand.

Forget standing for a moment.

I'm just thinking of your quiet title action.

This wasn't an action to quiet title at all.

This was a -- I looked at the complaint, as I -- as I gather from his questions, so did the Chief Justice.

And it is a complaint filed before the -- the property was taken into trust, and it asks for an injunction under the APA, if it wants review of that, before the government has any title to it at all, or at least it hasn't taken it into trust.

So why are we considering quiet title?

What has that to do with this?

Why isn't it exactly what -- now, that's the same as the Chief Justice asked, and I have exactly the same question.

Eric D Miller: --Right.

Well -- and in that period before the land is taken into trust, the APA, everyone agrees, permits, permits that litigation.

Justice Stephen G. Breyer: All right.

Well, why isn't that -- that's the end of that argument, then, isn't it, because this suit was brought seeking an injunction before the land was taken into trust; the district court denies the request for the injunction.

The court of appeals reverses that.

And so there we are.

We're reviewing that action by the court of appeals reviewing a judge who said you are not entitled to an injunction sought before the land was taken into trust.

Eric D Miller: Because at this point the question of whether to enjoin the transfer from taking place is moot.

Because--

Justice Stephen G. Breyer: Oh, I don't know about that.

Well--

Eric D Miller: --The relief that's being sought now -- and this is made clear in Patchak's brief in the court of appeals -- is an order compelling the Secretary to relinquish the title to the land.

And so that--

Justice Stephen G. Breyer: --Well, I don't know how -- how we should treat that.

There was an order.

Suppose that order was wrong.

Suppose they should have granted the injunction.

Then isn't what we should do, send it back because that injunction should have been granted, then have a hearing or trial or whatever you want to have on whether the Act applies, and then figure out how you do relief?

Which I don't know.

Eric D Miller: --No.

The time to seek review of whether to enjoin a not-yet-completed transfer is before the transfer is completed.

Justice Stephen G. Breyer: They did.

Eric D Miller: But -- and if he wanted to appeal the district court's denial of that injunction, he could have done so as of right under--

Justice Stephen G. Breyer: He didn't appeal that.

He appealed--

Eric D Miller: --He did not appeal the denial of the injunction.

Justice Anthony Kennedy: Well, then your -- your argument is just one of timing and not the fact that the reliance is on the -- is on the QTA.

The tribe says, isn't it ironic that if you really have a claim in the land as a property owner you can't sue under the QTA, and this person is much further removed.

Well, that's because he has a different ground for relief.

That's all we're talking about.

Eric D Miller: Well, the--

Justice Anthony Kennedy: So the fact that the QTA suddenly, deus ex machina, pops onto the scene doesn't mean that it -- that that changes his -- his ground for relief that he's -- that he's relying upon.

His ground of relief has always been the same, APA.

Eric D Miller: --With -- with respect, Your Honor, once the land is taken into trust, the -- the only effective relief would be an order taking the land out of trust, and that's what brings this within the scope of the QTA.

Justice Samuel Alito: Well, that depends on whether sovereign immunity is judged as of the time of the filing of the complaint or as of the time of the litigation of the sovereign immunity claim, right?

And you claim -- you don't want us to address that issue.

Eric D Miller: We -- we think it's -- it's not properly before the Court.

But one thing I would just say about that is it is not remarkable, or it often happens that, as the nature of the claims or the identity of the parties changes throughout the course of litigation, sovereign immunity can bar a suit that wouldn't have been barred before.

And one example of that is under the Westfall Act.

Somebody sues an officer of the United States for a tort, that suit can go forward, but if the Attorney General then certifies under the Westfall Act that the employee was acting within the scope of his or her duties, then it gets converted into an action against the United States, which might, if it falls within one of the FTCA exceptions, be brought--

Justice Antonin Scalia: But the Act provides for that.

The Act provides for that, right?

Eric D Miller: --Well, but that -- that's just an example of how, as -- as the parties, or the relief -- here it's the relief -- changes, sovereign immunity can bar an action.

If I could reserve the remainder of my time.

Chief Justice John G. Roberts: Thank you, counsel.

Ms. Millett.

ORAL ARGUMENT OF PATRICIA A. MILLETT ON BEHALF OF THE PETITIONER IN NO. 11-246

Patricia A. Millett: Mr. Chief Justice, and may it please the Court:

When you strip title to land, which is a fact in this case, you strip sovereignty.

You wreak havoc on ongoing governmental operations, you -- on criminal jurisdiction, civil jurisdiction, the backdrop against which contracts were negotiated, investment decisions made and economic development undertaken.

That is why the Congress of the United States and this Court in Coeur D'Alene have never allowed injunctive relief to strip the United States of title that it has.

The essence of sovereign immunity is, right or wrong, you cannot take title away that the United States has.

Justice Antonin Scalia: Well, is -- is that in the -- is that in the Administrative Procedure Act?

I thought the Administrative Procedure Act eliminates the -- the old bugaboo of sovereign immunity and says when it -- when it will stand and when it won't.

Patricia A. Millett: The--

Justice Antonin Scalia: And if you're relying on the Quiet Title Act, that -- that clearly covers only suits which seek to say, I own the land rather than the government, and this is not such a suit.

So I don't see why normal APA principles wouldn't govern.

Patricia A. Millett: --For two reasons, Justice Scalia.

Because the APA itself -- and this is on page 6a of the addendum to our brief -- says that it does not waive sovereign immunity and does not grant relief if another statute expressly or impliedly forecloses the relief that is sought.

And the Quiet Title Act says you cannot have an injunction stripping the United States of land, period, and you cannot have any litigation over title--

Justice Antonin Scalia: No, but the relief to be sought under the Quiet Title Act is title in the plaintiff.

That's the relief ultimately sought.

Patricia A. Millett: --No--

Justice Antonin Scalia: Now, on the way to that, you may -- you may get some injunctive remedy, but the basis for the lawsuit is -- is not: I own the land.

Patricia A. Millett: --With respect, Justice Scalia, you can get no injunctive relief whatsoever even if you are asserting title.

But the Quiet Title Act itself is brought -- it limits relief to monetary compensation, unless the government agrees to a specific relief.

Justice Antonin Scalia: Relief in that kind of suit, yes.

Patricia A. Millett: Yes--

Justice Antonin Scalia: Relief in that kind of suit.

But this is not that kind of suit.

Patricia A. Millett: --But -- no.

Justice Scalia, with respect, on page -- this is 2a of the addendum to our brief, 2409a(a), the type of suit that is addressed, and to which the Indian lands exception applies, is a suit -- and I'm reading here from the second line of a(a): "A civil action --"--

Justice Antonin Scalia: Excuse me.

I guess I've lost you.

Patricia A. Millett: --I'm sorry.

I'm on the addendum to our -- the blue brief, 2a, and this is the Quiet Title Act.

Justice Antonin Scalia: Okay.

Patricia A. Millett: And right -- subsection (a), the second line, all right:

"The waiver of sovereign immunity is for a civil action under this section to adjudicate a disputed title. "

It does not say--

Justice Elena Kagan: Ms. Millett, it also says: "Under this section".

Patricia A. Millett: --Yes.

Justice Elena Kagan: And the section describes the complaint.

It says:

"The complainant shall set forth with particularity the nature of the right, title, or interest which the plaintiff claims. "

So the type of suit that this section has in mind is a suit in which the plaintiff claims a right, title or interest.

And the language that you read, "under this section", well, that's what this section is about, a suit in which a plaintiff claims the right, title or interest.

Patricia A. Millett: No, Justice Kagan, in this respect.

That tells you what you have to do if you are allowed to proceed under the statute to win, the first step of what you have to do; but, what subsection (a) says is what is carved out, what is a wholesale -- and this court said in Mottaz, a retention of immunity, even in the face of arguments that the government has done wrong administratively, as in Mottaz.

What you do -- have done is retain immunity.

When the -- the section here right under the sentence I read, Justice Scalia, about this section does not apply to trust or restricted Indian lands, what that meant was that this -- that Congress, against a backdrop of complete immunity, said: We've looked at lands, we've studied what we're doing, and we are not doing two things, and we're going to be explicit about it.

We are not letting you touch Indian lands.

The United States may not be named--

Justice Antonin Scalia: You can say that again and again, Counsel, but it does say "under this section".

And I don't -- I don't know how you get out from under that.

It says "under this section".

Patricia A. Millett: --This--

Justice Antonin Scalia: And if this section applies only to suits seeking to assert title on the part of a plaintiff, it's not under this section.

Patricia A. Millett: --This section is, I think, defined by what Congress's waiver of sovereign immunity.

And it didn't say we're waiving sovereign immunity for quiet title actions.

It says for a civil action in which the United States' title is disputed.

So quieting U.S. title--

Justice Stephen G. Breyer: But that -- but you don't -- you can't believe that totally because you agree there is some APA review of an action brought before the title shifts where the claim is you cannot take title, Secretary.

You agree with that.

You can bring some.

Patricia A. Millett: --Absolutely.

Before title--

Justice Stephen G. Breyer: Okay.

Once you agree to that, I stop at the words, not just "under this section", but

"to adjudicate a disputed title to real property. "

Then I read his complaint.

His complaint, on 31 to 38, is asking for an injunction, and it's asking for an injunction before they take any title to the property.

And maybe they went ahead and did it anyway, but is there some other complaint that I didn't read?

Is there some amendment to the complaint in the record?

If so, where is it?

Patricia A. Millett: --I think there's a constructive amendment in this sense, because if the only thing with--

Justice Stephen G. Breyer: I don't know about a constructive amendment is.

Patricia A. Millett: --Well, let me see if I can explain.

If I can explain, To be sure, the complaint, which was untimely filed for purposes of the protection of the government's not taking it into -- into trust, but the set -- it did seek to stop the decision from happening.

After that happened, when he did not seek appeal or emergency relief from the district court not giving him the injunction he asked for -- he asked for a preliminary injunction to stop the taking of title.

The district court didn't give it.

It actually sat on it, constructively denied it.

And it's well recognized in courts of appeals, you can appeal a constructive denial of a preliminary injunction.

He didn't do that.

This is the way litigation works.

Title shifted.

Sovereign immunity shifted.

The Quiet Title Act didn't apply, then it did apply because title was in the hand and in the name of the United States Government.

Justice Antonin Scalia: I thought you were going to answer how his -- his complaint constructively changed.

Patricia A. Millett: And so after that, he had two choices.

He can dismiss the action as moot, but what happened is he continued to press -- and this is on page 25 of his brief, his court of appeals brief, at page 26 and 27 -- he wants an injunction now, not to stop title, but to take title out.

And that's when the Quiet Title Act--

Justice Antonin Scalia: I thought you were going to tell us how it constructively changed to be an action seeking to have a decree that title was in him, which is what the QTA covers.

Patricia A. Millett: --No, it was--

Justice Antonin Scalia: Okay.

Patricia A. Millett: --No, because the Quiet Title Act--

Justice Antonin Scalia: So even constructively, it hasn't turned into that.

Patricia A. Millett: --The Quiet Title Act, when it says -- when it says the only way we'll give you a relief is if you can establish that you have an interest in the land, forecloses suits seeking to adjudicate -- adjudicate, excuse me -- disputed U.S. title by those who don't even have an interest.

Justice Sonia Sotomayor: Counsel--

Patricia A. Millett: And against the back -- I'm sorry.

Justice Sonia Sotomayor: --Counsel, you're assuming that the statute was passed against a backdrop of complete sovereign immunity; but, if you look at Larson and Malone, it appears as if prior to the enactment of the QTA people could bring suits to say that an officer had acted beyond his or her statutory authority.

So what the Quiet Title Act did was encapsulate some of that law.

From where do we draw the conclusion that the intent was to eliminate every other claim that could be brought under something like the APA or an officer suit?

Patricia A. Millett: To be clear, as Justice Scalia himself then testified before Congress, the law was a mess, and you could not discern anything from Larson, Malone.

And the one area where actually courts have pretty consistently denied relief, as Justice Scalia then said, was in the land area.

And Congress responded to hardship; but, in doing so, it was making a critical balance.

It knew how disruptive to government it is to pull the rug out from under the feet of the Federal Government's operations.

And -- and it said we're going to draw lines, and there's three lines.

It said no suits involving Indian lands, no injunctive relief or coercive injunctive relief at all will be allowed.

If you have a right, you will only get damages unless the government agrees otherwise.

And to prevail, you must have an interest in land.

Now, that is a concerted judgment of Congress that we will not--

Chief Justice John G. Roberts: Could I say, just for a moment, let's suppose the tribe -- the -- Mr. Patchak brings a nuisance action against the tribe for running a casino and imposing all these difficulties on the surrounding previously rural community.

He says this is a nuisance.

And the tribe answers and says: No, we can do this under the Indian Gaming Regulation Act.

And Patchak then says: Well, no, because you don't have valid authority under that Act because the Secretary shouldn't have taken the land into title.

Now, that is not a quiet title action.

That is a nuisance action.

Can he have that adjudicated in that suit?

Patricia A. Millett: --He could -- he could bring a nuisance action assuming the tribe waives sovereign immunity, which would be its own problem.

Assuming -- I'm assuming this is a suit against the tribe and not the Secretary.

Chief Justice John G. Roberts: Right, right.

Patricia A. Millett: And so there would be their own either state law or sovereign immunity questions if he could bring it.

And then if the government tried to raise this -- or, excuse me, the tribe raised it as a preemption defense, then there would be a separate question whether at that point a court could issue, consistent with the Quiet Title Act, a declaratory judgment which would pull the rug out from the government's feet.

Chief Justice John G. Roberts: Right.

But there'd be no--

Patricia A. Millett: Now, to be sure, in the--

Chief Justice John G. Roberts: --question of his ability to sue and put that question at issue.

Patricia A. Millett: --There is no question he coul bring -- assuming tribal sovereign immunity, that he could bring a nuisance action; but, it's also important to remember in that context, the other reason that nuisance action would fail is that the courts have already ruled on this claim about the legitimacy of authorization of gambling, about the environmental effects and esthetic effects in the MichGO litigation.

This is simply recycled through the IRA claims that have already been adjudicated and lost.

Chief Justice John G. Roberts: Well, but that's a question that's not before us.

Patricia A. Millett: But with respect to the question of judicial review that was mentioned earlier and I think would be implicated, obviously, in a nuisance action -- this is sort of being case specific with respect to claim preclusion and issues like that.

Chief Justice John G. Roberts: Thank you, counsel.

Patricia A. Millett: Thank you, Your Honor.

Chief Justice John G. Roberts: Mr. Nelson.

ORAL ARGUMENT OF MATTHEW T. NELSON ON BEHALF OF THE RESPONDENTS

Matthew T. Nelson: Thank you, Mr. Chief Justice, and may it please the Court--

This is a classic APA action.

Mr. Patchak is challenging unlawful agency action.

Mr. Patchak is not asserting a quiet title action where someone asserts an interest in property owned by the government and is trying to get that property back.

And as this Court has already discussed, the best evidence of that is the fact that Mr. Patchak filed this suit before the land was taken into trust.

The fact that the government subsequently took the land did not affect the nature of Mr. Patchak's lawsuit.

Justice Ruth Bader Ginsburg: But he didn't file it within the 30-day window, so that -- that is -- there was a clear track.

He could have filed within 30 days, and at least the government tells us that that would have been subject to judicial review, the ruling made within -- that nothing would go on until that action was cleared.

So why, if he could have sued early, before any title transfer, why isn't that all the relief someone in his position would be entitled to?

Why should he be allowed to wait?

I mean, the whole purpose of the 30-day window is to get people to state their objections.

Matthew T. Nelson: Justice Ginsburg, the 30-day window is a notice period.

Mr. Patchak did in fact file is lawsuit within the 6-year statute of limitations provided by Congress for APA claims.

And the reason that the Secretary adopted the 30-day notice provision is the very argument that we believe is misplaced here, namely that the Quiet Title Act springs up to bar judicial review after the land is taken into trust.

We don't believe that's the case because Mr. Patchak is not asserting a Quiet Title Act action, which is limited to those claims where someone says, this is my property and I want it back or, with regard to the government, at least pay me for it.

Justice Antonin Scalia: You say the 30-day window only applies to quiet title actions.

Matthew T. Nelson: Your Honor, the 30-day window -- yes, if someone was asserting a quiet title action, the 30-day window would apply.

Justice Antonin Scalia: Surely -- surely the 30-day envisions comments by anybody, not just people who claim to own the property, doesn't it?

Matthew T. Nelson: Your Honor, certainly it provides for comments in that people can come and assert their comments absolutely, but it doesn't prevent someone from asserting a lawsuit.

Justice Sonia Sotomayor: Would you have been entitled to file in that 30-day period?

How is your claim, the one that you ultimately made, any different than what you would have done if you had filed within the 30 days?

Matthew T. Nelson: Justice Sotomayor--

Justice Sonia Sotomayor: Same claim, right.

Matthew T. Nelson: --It is the same claim, yes, Your Honor.

Justice Sonia Sotomayor: All right.

Tell me what relief you're seeking that's different than -- are you -- what relief are you seeking?

Aren't you seeking to shed the United States of its title?

Matthew T. Nelson: Your Honor, the relief that--

Justice Sonia Sotomayor: Just the -- what's the -- don't tell me what your cause of action is.

What relief at the end of the day do you want?

Matthew T. Nelson: --Justice Sotomayor, Mr. Patchak is seeking a declaratory judgment that the decision of the Secretary that it can take land into trust for this particular band of Indians is incorrect, and that, therefore, the decision to do so is ultra vires; and as an incident to that relief, now that the government has taken the land into trust, that the land now be taken out of trust.

That does not convert this, though, into a quiet title action because Mr. Patchak is not asserting an interest in the property itself.

The relief of the quiet title action provides -- has two parts.

It both provides for -- that title will be taken from the government and that title will be quieted in the plaintiff.

The relief that Mr. Patchak is seeking does not include quieting title in himself.

Justice Elena Kagan: Mr. Nelson, putting that question aside of whether this is or isn't a quiet title action, there's another question, which is whether sovereign immunity can come into effect after a suit has been filed.

It seems to me a hard question and one that has not been briefed by either party particularly.

So I just ask you, is there case -- are there any cases that you can point to that suggest that sovereign immunity cannot come into effect after a suit has been filed?

Because what the government says is, you know, circumstances change, conditions change on the ground, sovereign immunity can pop up where it didn't exist before.

Is there any precedent that you have to negate that?

Matthew T. Nelson: Your Honor, I am not at this time prepared to say that there is or is not.

I do know that we have cited in the footnote in our brief the -- I believe it's the Grupo Dataflux case that indicates that jurisdiction is decided at the time that the complaint is filed.

Because the D.C. Circuit specifically reserved this issue, we did not believe this issue was before the Court.

Justice Ruth Bader Ginsburg: The government answers that that's in diversity.

You know, you determine citizenship as of the date the complaint is filed.

Citizenship of a party changes, so if it coincides with someone on the other side of the line it doesn't matter.

But do you have cases other than diversity cases where the filing of the complaint -- nothing happens, nothing that can happen after affects the jurisdiction as set as of the time the complaint is filed?

I don't know outside diversity where this principle has applied.

Matthew T. Nelson: Your Honor, I am not at this time aware of any cases.

I'm not, unfortunately, in a position to say that the cases do not exist or do exist.

I believe the issue was addressed in the D.C. Circuit briefing, but I'm not aware at this time of any cases that would -- that address this specific issue.

Chief Justice John G. Roberts: The Solicitor General in footnote 1 of his reply brief says that's the general rule, which I take it there might be exceptions to it.

Matthew T. Nelson: Exceptions.

Chief Justice John G. Roberts: But I'm sure he'll tell us what those are.

Justice Sonia Sotomayor: Counsel, is there any limit to who can bring an APA action under your theory?

It seems to me that what you're saying is that anyone other than a landowner because of the Quiet Title Act can within 6 years attempt to unravel any decision the government has made to take land, because we're not limited now to trust lands.

We're limited -- under your theory, whenever the government takes any kind of land, anyone's entitled to come in and challenge that action under the APA for 6 years and to seek an injunction because it isn't a quiet title action.

It's merely a challenge to the decision to take land.

Is there any limit to your theory as to who can bring that kind of action and--

Matthew T. Nelson: Justice Sotomayor, yes, there is a limit on who may assert these actions, first with regard to this Court's prudential standing analysis would obviously provide a limitation, but second with regard--

Justice Sonia Sotomayor: --In which way?

You're saying anyone who is affected, your niece, your farm owner's niece who comes to visit twice a year or visits the land and walks through it, could presumably say: I'm negatively affected by the government's taking of this land, Indian or not, within the 6 years, and the government improperly took the land; undo it.

Matthew T. Nelson: --No, Your Honor, I don't believe that my -- that my client's niece would have prudential standing because I don't think that you could -- that that person would arguably be within the zone of interests to assert that claim.

I think that the zone of interest test does exclude people who might have Article III standing from asserting these types of claims.

Justice Antonin Scalia: I thought that -- maybe I'm wrong, but the government will correct me if I am.

I thought the government concedes that a NEPA action could -- could be brought when the government is taking land to use for a particular use.

Let's say it's -- it's taking land for a nuclear waste repository.

Certainly a NEPA action would -- would lie.

You don't disagree with that, do you.

Matthew T. Nelson: We don't disagree.

Justice Antonin Scalia: You're supposed to say, yes, sir, good.

[Laughter]

Justice Sonia Sotomayor: No, but my question -- counsel, my question was different.

Under your theory, you could bring this suit after the land has been taken.

NEPA assumes before the land was taken.

I'm talking about under your theory of law, once land has been taken by the U.S., if anyone has a viable legal claim that the land was taken improperly, whether it's Indian trust land or anyone else's land for any other purpose, that person within 6 years can still bring a suit under the APA.

Matthew T. Nelson: Only to the extent that the land is taken as a result of administrative action.

Justice Stephen G. Breyer: No, no, no.

You can't -- I mean--

Justice Sonia Sotomayor: Government land is always taken by administrative action.

Matthew T. Nelson: I'm sorry.

Justice Stephen G. Breyer: --I thought -- I mean -- sorry.

You answer it as you want according to your argument.

There is a difficult question here.

The difficult question is what happens if one brings an ordinary APA suit before land is taken, before that suit can be decided, before that suit can be decided, the government takes the land.

Does that transform it into a quiet title action?

The obvious answer, which isn't obvious at all, is that the answer is that it's a proper APA suit if you bring it before they take it.

And if you bring it after they take it, it's a quiet title action.

And -- and that would seem to me a first blush answer.

But I haven't found -- I mean, that's a question we don't -- I don't know if we have to answer that question.

It seems to be quite difficult.

And I don't know what authority there is.

And is it fully argued in the briefs?

So what -- isn't that what -- you're thinking -- I think Justice Sotomayor is thinking, well, and you just said you can bring it after.

I don't know if you can bring it after.

So go one and answer now--

[Laughter]

And I want to hear what you say.

Matthew T. Nelson: Thank you, Justice Breyer.

The fact that this -- the fact -- the fact that the land is taken into trust does not transform the action into a quiet title action simply because the government--

Justice Sonia Sotomayor: Forget about the trust.

Matthew T. Nelson: --Okay.

Justice Sonia Sotomayor: Because under your theory of what -- what the APA permits you to do, anytime the government takes land, whether into trust or for any other purpose, the APA permits someone within six years, with whatever definition of prudential standing you want to give it, to come in after the taking and challenge that it was ultra vires, that it was done improperly.

That's your theory.

So going back to Justice Breyer's question, why isn't that within the quiet title action prohibition--

Matthew T. Nelson: Your Honor--

Justice Sonia Sotomayor: --once it's in the government's hands.

Matthew T. Nelson: --Once it's in the government's hands, it is -- it does not -- once the government acquires the title, it does not change the nature of the APA action because the Quiet Title Act is limited to--

Justice Antonin Scalia: You're not -- you're answering the question with regard to an argument I don't think you've made and I don't think you would want to make.

You're not asserting that the action can be brought anytime within six years after the government has already taken the land.

You're just asserting that an action brought before the government takes the land does not change its character and become a quiet title action afterwards; right.

Matthew T. Nelson: --Yes, Your Honor.

Justice Antonin Scalia: You're not saying that anybody can bring within six years after the government's taking a suit, are you?

I hope you're not arguing that.

Matthew T. Nelson: Absolutely not, Your Honor.

Justice Antonin Scalia: Thank you.

[Laughter]

Justice Samuel Alito: What would happen now, as a practical matter, if Mr. Patchak were to -- were to prevail?

I take -- I understand the casino's built and running.

So what would happen?

Matthew T. Nelson: Your Honor, what would happen here, to our understanding, is the land would be taken out of trust and would revert to the tribe.

Justice Ruth Bader Ginsburg: But I think the government told us that the land didn't belong to the tribe in the first place.

Matthew T. Nelson: Your Honor, I'm not entirely sure as to what the status of the title was.

Our understanding is that--

Justice Ruth Bader Ginsburg: Well, the government did say that the Band was not the prior owner of the tract.

So where would it go?

Matthew T. Nelson: --Your Honor, the -- it depends in part, I believe, at this -- at that point, based on state law, what the effect of the Court's decision would be.

Would it render the trust status void?

If so, under Michigan law, the land would vest in the intended beneficiary, which is the tribe.

If it -- if it does not, if the entire action would be undone, the land would revert back to the prior owner, which, to the best of my understanding, is a company that involves ownership both by a group of Las Vegas investors and also, to my understanding, the Band itself; although, I could be corrected on that.

Justice Sonia Sotomayor: Was that the -- I thought part of it was agricultural land, and that another part was a business.

I mean, I think -- I thought -- well, the government can correct me.

Matthew T. Nelson: Your Honor, the land itself was partially agricultural and partially light manufacturing.

That was how it was zoned.

Justice Sonia Sotomayor: Right.

Matthew T. Nelson: But it was all owned as a single parcel.

The Bradley tract was, I believe, a single parcel for the purpose of--

Justice Stephen G. Breyer: But your injury, your injury is that it's being used for gambling.

So is there room for relief that could say the government can do what it wants to the land, it just can't let it be used for gambling, if you want.

And that would cure your injury, and it wouldn't require the government to give back the land, and it wouldn't require any unscrambling, and title could rest in the government.

I don't know if that's possible or not possible.

Matthew T. Nelson: --Your Honor, we -- we looked into and wanted to make an argument that somehow you could separate the trust title status and the Federal Government's fee simple interest.

And in looking at the deed itself, it doesn't look like that can be done.

Justice Anthony Kennedy: What were the provisions, if any, in the Indian Reorganization Act itself that how a concern for the kind of standing that you're lleging here?

It seems to me you're talking about nvironmental effects and so forth under the ndian Gaming Act, but yet your primary suit is under he Indian Reorganization Act.

So I don't see -- I understand how that might give you standing, but how oes it give you a cause of action for relief under the Indian Reorganization Act?

Matthew T. Nelson: Your Honor, land--

Justice Anthony Kennedy: The Indian Reorganization Act, just to help pursue the question a little bit further, has a provision about the public interest, but not in the section which you're relying on.

It doesn't say anything about the public interest.

Matthew T. Nelson: --Yes, Your Honor, section 463 of the Indian Gaming Act--

Justice Anthony Kennedy: does, but you're going under 465.

Matthew T. Nelson: --Correct, we're under 465, our Honor.

Justice Kennedy, I would point to the fact that the land is authorized to be taken into trust for Indians; and, when land is taken into trust, it necessarily implicates the use.

And as soon as the use implicated, anyone who is affected by that use -- people who live in close proximity to that land -- are within -- are arguably within the scope of those people who Congress would expect to enforce--

Justice Anthony Kennedy: What is the specific provision of the IRA that you rely on?

You -- do you go back to 463?

Because there's nothing in 465 that answers your -- this question, I don't think.

Matthew T. Nelson: --Your Honor, I agree that section 465 does not specifically reference the public interest.

It does, however -- the intent in 465 is to have land taken into trust.

And I don't believe that you can separate the fact that the land is being taken into trust from the specific use to which it is being put.

Congress authorized the land to be taken into trust for a specific use.

And you can see, in fact, that the government has reached the same conclusion.

When you look at the regulations that the Secretary has adopted in consideration of section 465, they not only address land use, the tribe has to identify the use to which the land will be put, but they also require the tribe to identify any conflicts of land use, which clearly addresses the fact that other people are going to be affected by the land use.

Consequently, those -- and we believe those -- those regulations are subject to Chevron deference because they fall within the scope of the authority delegated to the Secretary, and they don't conflict with the broad delegation there in the -- in section 465.

So--

Justice Anthony Kennedy: That's helpful.

Just a different question, going back to what -- Justice Alito's question.

It does seem that we may be wasting our time.

I'm not suggesting that the state -- that the case is moot, but you did wait for some three years before you brought this suit.

The building was built.

It seems to me there's a considerable laches problem.

I suppose that's just not before us.

Matthew T. Nelson: --Your Honor, in fact, the APA reserves the laches defense, and the laches defense has been asserted here.

But I would point out that the casino hadn't -- the casino did not open and they did not move forward with this until after the land was taken into trust, which was six months after this lawsuit was filed.

At that point, in spite of the knowledge of this Court's decision in Carcieri, they made a reasonable business decision to move forward with this, knowing the risk that they were taking that the entire basis of them being able to operate a casino and engage in class 3 gambling could be overturned.

Justice Elena Kagan: But, Mr. Nelson--

Justice Anthony Kennedy: But that was under the MichGO suit, not yours.

Matthew T. Nelson: No, Your Honor.

They knew that our suit had been filed--

Justice Anthony Kennedy: Oh, your suit had been filed at that point.

Matthew T. Nelson: --Correct.

Justice Elena Kagan: --Mr. Nelson, could I understand the scope of your argument?

Because I had understood -- let's take the timing question aside for a minute.

Let's -- let's assume that you had filed this suit after title had transferred.

I had understood that your argument was, yes, you should be allowed to do that because, even though this was filed after title had transferred, yours is just not a quiet title action, and it's not a quiet title action because you're not seeking title yourself.

Isn't that the question?

Isn't that your argument?

Matthew T. Nelson: Yes, Your Honor.

Justice Elena Kagan: So your argument really has nothing to do with the question of timing.

Your argument would be the same even if title had transferred prior to your filing your lawsuit.

Matthew T. Nelson: Your Honor, we believe that that is a logical result; but, we do not believe that the Court needs to address that issue in this case because our argument is much stronger than that because we did, in fact, file suit before the land was taken into trust.

Justice Elena Kagan: Well, as I understood your brief, 49 pages of it were about one thing, and there's one footnote that's about something else.

In other words, all of your brief is basically saying: Ours is just not a quiet title action, and so we should be allowed to proceed irrespective of when the government acquires title.

And then you have this little additional argument which says: By the way, we started this lawsuit before the government had title anyway.

So, I mean, the briefing in this case is all about what you now say is your weakest point.

Matthew T. Nelson: Your Honor, I would disagree that it is our weakest point, but I do agree that the -- that the logic here of the position that this is not a Quiet Title Act action means that even if the government acquires title to the land while the suit is pending, that, logically, it would then follow that the action remains an APA action, and it is not converted into a quiet title action.

Justice Antonin Scalia: I think you're right.

I pushed you into it.

It's my fault.

You're right.

Chief Justice John G. Roberts: And the proposition would be simply that the government can't go in and -- and moot out a suit that was -- by its unilateral action, right?

Matthew T. Nelson: Yes, Your Honor.

Chief Justice John G. Roberts: I mean, they seem to recognize that it would be a bad thing, since it's only by their grace, they've told us, that they don't do it right away anyway.

They give people 30 days.

Matthew T. Nelson: Correct, Your Honor.

Justice Ruth Bader Ginsburg: Didn't they -- wasn't -- didn't they have some encouragement from a court of--

appeals suggesting there might be a due process problem if they didn't have that notice?

Matthew T. Nelson: Your Honor, there was the Eighth Circuit decision, I believe it was United States v. South Dakota or South Dakota v. United States, in which the court there found that the lack of judicial review pushed towards the conclusion that the Reorganization Act is an unconstitutional delegation of legislative authority.

And that was one of the reasons or that was the reason cited in the Federal Register for why the Department of Interior adopted the 30-day notice provision.

Justice Stephen G. Breyer: I don't think Justice Scalia's argument was a bad argument.

I thought it was a rather good argument.

If in fact you go back and you take the view that any suit filed to review APA is not a quiet title action, people could go upset government title to property years and years later.

And they would say: Oh, well, we're not challenging the title; we're just challenging what happened when it was taken, the title was taken.

That can't be right, it seems to me, first blush.

So, therefore, I thought you -- yours was different because you filed before they took title.

But, as I say, I'm uncertain of that distinction.

Now, your answer suggests you've been going both ways.

Sometimes you think, well, it matters that we filed before, and other times you think, no, it doesn't matter.

Justice Sonia Sotomayor: Is that because you don't have a theory as to why once the government takes it it's not a quiet title action?

Matthew T. Nelson: Your Honor, the Quiet Title Act by its terms requires that the person who is asserting the action had an interest in the property.

Justice Sonia Sotomayor: So answer my question, or the one that Justice Breyer has said.

Then it doesn't -- and the one Justice Kagan repeated yet again -- okay?

What difference does it make that the government has taken title?

Whether the government has title or doesn't, under your theory, since this is not a quiet action -- title action, anyone who is unhappy with the way the government took title could challenge it within 6 years.

Isn't that the bottom line of your theory?

Matthew T. Nelson: Yes, Your Honor.

Anyone--

Justice Sonia Sotomayor: Absent laches.

You say the only defense is laches.

Matthew T. Nelson: --No, Your Honor.

The defenses would be laches, the zone of interest would apply, other -- any other defense--

Justice Sonia Sotomayor: But the bottom line is, under your theory, as long as no landowner, the person most directly affected by the taking, as long as that person can't sue, but anybody who is an indirect person can sue within 6 years, anybody who says, I don't want the land, I just don't want the U.S. to have the land.

Matthew T. Nelson: --No, Your Honor.

There is a distinction I think has to be made there.

The -- someone who has a right, title, or interest in the property, absent there being trust land, can sue to upset the government's title for 12 years under the Quiet Title Act.

They could bring a claim under the APA for up to 6 years to govern the -- or to challenge the government's decision to take the land--

Justice Sonia Sotomayor: But they can't undo the transfer.

They can only get money.

Matthew T. Nelson: --Under the Quiet Title Act they can only -- for the 12-year period they can only undo -- they can -- excuse me.

The government, if they prevail, the government, correct, has the option of deciding whether to pay for the land or to -- to give it up.

Justice Elena Kagan: I think--

Justice Antonin Scalia: Of course the government can fix that.

I mean, if this is indeed an inconvenient situation, that we think the government should not be in doubt for 6 years afterwards, I guess Congress can simply change it, right?

Matthew T. Nelson: Yes, Your Honor.

Justice Antonin Scalia: Totally within the control of Congress.

We -- we -- we don't have to make up some limitation to protect -- to protect the United States.

Matthew T. Nelson: I agree, Your Honor.

Justice Antonin Scalia: Yes.

Justice Elena Kagan: --I suppose the question, Mr. Nelson, though, is whether you can provide us with a reason why Congress would have wanted what you call quiet title suits -- and I agree that your definition is the traditional definition; when somebody -- when the plaintiff is a -- is himself asserting a right or interest -- why those suits should be barred, but your suit involving a third party should not be barred.

What could possibly be the reason to distinguish between those two sets of cases?

Now, you might just say, I don't have to give you a reason, this is what the result of the statute says.

But if I say, just try to provide me with a reason why Congress would have wanted that distinction, what would you say?

Matthew T. Nelson: Your Honor, I guess I would first say that because relief under the APA is different than relief under the Quiet Title Act, someone with a right, title or interest in the property can assert the same claim that Mr. Patchak can, in spite of the fact that they have that right, title or interest, under the APA, as long as they do not seek under the APA to quiet title in themselves.

Second, with regard to why this provision would -- this provision is there -- I'm sorry, Your Honor, I have to acknowledge I've lost track of your question.

Have I responded or can you restate it?

Justice Antonin Scalia: What -- what about this as a reason?

When you prevail in a quiet title action, the only way the government can get off the hook is to give you the land, if it's -- if it's within, what, the 6 years, or pay you money, if it's after 6 years, but within 12.

Whereas in your case, I suppose the government could moot the suit, moot the suit, by simply disallowing gambling.

Can the government do that.

Matthew T. Nelson: Your Honor--

Justice Antonin Scalia: Once it has told the tribe that they can have -- I mean, this suit could be -- could go away so long as the tribe does not run a casino; isn't that right?

That's your -- that's the gravamen of your complaint.

Matthew T. Nelson: --That is the gravamen of the injury, yes, Your Honor.

Justice Antonin Scalia: So I guess you -- you could be a happy fellow if -- so long as the tribe doesn't build a casino, whereas in -- in quiet title cases, the only way you can make a happy fellow out of the plaintiff is to give him the land.

Matthew T. Nelson: Or to pay him for it, yes, Your Honor.

Unless the Court has any further questions, I cede the remainder of my time.

Chief Justice John G. Roberts: Thank you, counsel.

Mr. Miller, you have 4 minutes remaining.

REBUTTAL ARGUMENT OF ERIC D. MILLER ON BEHALF OF THE PETITIONERS IN NO. 11-247

Justice Anthony Kennedy: Mr. Miller, one -- one question, if -- if I may.

The government takes the position -- at least this was the way the Respondent puts it -- that it can basically moot their action by turning this into a quiet title action just by taking title.

And let's assume that that's one characterization of your position.

And the Respondent on the other hand says, oh, well, this is an APA action, we can -- we can wait forever, at least for 6 years.

Is there some midway position that the government can't moot the case too soon, that it must wait a reasonable time?

Or is there no basis in the statute or in the cases for that position to hold?

Eric D Miller: If I understand correctly, you're asking about the case where the -- the lawsuit is filed before the land has been transferred.

Justice Anthony Kennedy: Yes, yes.

Eric D Miller: I don't know of any basis for restricting the government's ability to do that, I mean, short of the plaintiffs obtaining an injunction from the court.

I guess the broader point I would make about that timing question is that the -- the court of appeals--

Justice Anthony Kennedy: Well, in other words you're -- you're sticking with your position.

You say you can basically moot a suit at any point you want just by taking title, so you're -- you're not accepting any qualification to that proposition.

Eric D Miller: --That -- that is our position.

I would just emphasize that that was not the basis of the -- the ruling of the court of appeals.

The court of appeals held that it doesn't matter when the suit is filed, and under the court's analysis--

Justice Anthony Kennedy: All or nothing, okay.

Eric D Miller: --it would be exactly the same, even if it was filed later.

And I think the -- the error in that analysis is -- is that the question here is not whether Patchak's suit is a Quiet Title Act action.

The question is whether the Quiet Title Act expressly or impliedly precludes relief under section 702, and the answer to that question is yes.

And I'd just like to make two points about that.

The first is that the general principle recognized by this Court in Brown v. GSA and a number of other cases is that when you have a narrowly drawn remedial scheme for a particular subject, that that precludes resort to more general remedies.

And here the Quiet Title Act is exactly such a scheme.

It's the mechanism for adjudicating a disputed title to real property in which the United States claims an interest, and it has its own procedures, its own statute of limitation--

Justice Elena Kagan: Well, but -- but in saying that you have just broadened, or arguably you have.

If -- if you think that the quiet title action is really about the narrower set of cases, which is when a person himself claims title, how can you get from that to say that there is an express or an implied refusal of -- of this kind of claim?

Eric D Miller: --I think for two reasons.

And the first is, just that -- that first sentence of 2409a(a), which is, you know, to adjudicate a disputed title to land on which the United States claims an interest.

That's a perfect description of what this case is.

And the second is that the last sentence of section 702 directs our attention to whether the relief is expressly or impliedly forbidden by another statute.

And the relief that is sought here is an order compelling the Secretary to relinquish title on behalf of the United States to this land.

And--

Chief Justice John G. Roberts: Do other consequences other than the ability of the Secretary to take land in trust flow from whether or not a tribe is recognized in 1934?

Eric D Miller: --I -- I'm not aware of any.

I'm not sure that there aren't any others, but--

Justice Antonin Scalia: All right.

Do you have any concern that the government will get hoist by its own petard?

What your argument -- the conclusion to which your argument leads is that this individual or any individual claiming that the government took title incorrectly can sue under the Quiet Title Act, even if they don't claim that title was taken from them.

Are you sure that's good for the government?

Eric D Miller: --Well, this action would be barred under the Quiet Title Act because the Quiet Title Act expressly precludes this relief, where -- where Indian trust land is at issue, where the relief that's sought is an injunction compelling relinquishment of title without the option of paying damages--

Justice Antonin Scalia: Of course, that's not the only time the government takes land, right?

Eric D Miller: --Well, and the Quiet Title Act, section (d) requires in a suit under the Quiet Title Act the plaintiff to identify his interest in the land.

Chief Justice John G. Roberts: Mr. Miller, I mentioned earlier your footnote 1 in your reply brief about whether the time of filing question for sovereign immunity purposes is limited to diversity cases.

Are there -- you cite one case.

Are there others going the other way?

Eric D Miller: I'm not aware of others, but--

Chief Justice John G. Roberts: What--

Eric D Miller: --I can't say with confidence that there aren't any others.

One point I would make on that is just refer you to the Florida Prepaid case from 1998, which was about state sovereign immunity and which explained that a state may condition its waiver of sovereign immunity and may change that in the course of the litigation.

And I think that's another analogy that might be instructive here.

Chief Justice John G. Roberts: --So this suit would come out the other way if the person objecting was just over the border in -- in Indiana, instead of in Michigan?

Because there would be -- it could be brought as a diversity suit.

Eric D Miller: Well, it would--

Chief Justice John G. Roberts: I'm assuming--

Eric D Miller: --It would be still be -- sovereign immunity would still apply.

Sovereign immunity would bar relief, even if the basis for jurisdiction were diversity rather than--

Chief Justice John G. Roberts: --Even if it were a suit against the tribe, it would still be not a diversity action but a Federal cause of action?

Eric D Miller: --Our point is that the reason it's barred is because of sovereign immunity.

When -- the time of filing in diversity cases refers to if the citizenship of the parties changes during the course of the litigation.

That doesn't -- my understanding is that doesn't defeat diversity.

That's the nature of that exception.

Chief Justice John G. Roberts: Okay.

Thank you, counsel.

The case is submitted.

Featured:

RadLAX Gateway Hotel v. Amalgamated Bank - Oral Argument

Fri, 27 Apr 2012 20:20:25 +0000

Case:

RadLAX Gateway Hotel v. Amalgamated Bank

Media File:

11-166_20120423-argument.mp3

Related Transcript:

11-166_20120423-argument.xml

Transcript:

ORAL ARGUMENT OF DAVID M. NEFF ON BEHALF OF THE PETITIONERS

Chief Justice John G. Roberts: We'll hear argument first this morning in Case 11-166, RadLAX Gateway Hotel v. Amalgamated Bank.

Mr. Neff.

Mr. Neff: Mr. Chief Justice, and may it please the Court:

The question presented in this case is whether a secured creditor must be allowed to credit bid when its collateral is being sold under a chapter 11 plan.

The relevant section of the Bankruptcy Code plainly says no.

Section 1129(b)(2)(A) provides that a chapter 11 plan must be fair and equitable to a secured creditor that objects to it.

It then provides three alternatives that the debtor can pursue to satisfy that test.

Any one of these three alternatives can be used when assets are being sold, but only one of them requires the right to credit bid.

Under subsection (i), the plan must allow the creditor to retain its lien and receive payments over time, with the present value equal to the value of its collateral.

Under subsection (ii), the plan must allow the creditor to credit bid when its asset is being sold free of its lien.

But under subsection (iii), the plan must provide the creditor with the indubitable equivalent of its secured claim.

The debtors have chosen to pursue a plan, a plan sale without credit bidding under subsection (iii).

The plain language of the statute permits that result.

Justice Ruth Bader Ginsburg: But how does one determine what is the indubitable equivalent of the creditor's claim?

Mr. Neff: The indubitable equivalent will be determined at the time of plan confirmation, in our case after the sale has been conducted although not yet approved by the court.

So the court will have--

Justice Ruth Bader Ginsburg: The sale -- something -- the sale can't go on without the court's approval.

I mean, the auction has to have the court's approval, right?

Mr. Neff: --Well, here's what happens typically.

The debtor files a motion, as we did in this case, to approve bid procedures.

The court then determines whether those bid procedures are appropriate for the sale.

The sale is then conducted.

Then the debtor goes to plan confirmation; and, at the plan confirmation hearing, aside from establishing the 16 requirements of section 1129 for a plan to be confirmed, the debtor also seeks to confirm the results of the sale.

Justice Ruth Bader Ginsburg: And so what qualifies as indubitably equivalent?

Mr. Neff: The indubitable equivalent must be an amount that is at least equal to the amount of the secured claim.

In essence, it's going to be determined by what the asset's sold for, provided that the sale has generated the best possible price for the asset.

Justice Ruth Bader Ginsburg: Suppose the -- suppose the creditor thinks that the sale was -- undervalued the assets, that it -- it wasn't the equivalent?

Mr. Neff: The creditor has an opportunity at the plan confirmation hearing to raise any issue with regard to the sale process, with regard to the auction that occurred, has the opportunity to raise any other issue that may bear on the price that is received at the sale that occurs.

For instance, it could say, well, they conducted this auction, but I have an appraisal here that says the property is worth much more.

So this can't possibly be -- my--

Justice Samuel Alito: Well, isn't the -- isn't the issue who is going to decide whether something is really the indubitable equivalent?

Is it going to be the judge, which is what you would like, or is it going to be determined through a particular bidding procedure--

Mr. Neff: --Well, it's--

Justice Samuel Alito: --namely, where there can be credit bidding, which is what the -- which is what the Respondent would like?

Mr. Neff: --It's going to be the judge, after reviewing what happens at the sale.

The problem with allowing a creditor the right to credit bid under all circumstances is, in a case like ours, we don't believe we will ever get to an auction because no one else will show up.

Justice Samuel Alito: Well, if the Respondent thought that what the judge would determine would indubitably provide the indubitable equivalent, then there wouldn't be an issue here, right?

The reason why there's an issue is because they don't think that what the judge will decide will indubitably provide the indubitable equivalent.

Mr. Neff: In this particular instance, I would suggest that the -- the creditor simply does not want the asset sold.

It would rather take the asset back and hold it for some time period.

So it's not--

Chief Justice John G. Roberts: Isn't that -- isn't that pretty much what he bargained for when he insisted upon security before giving the loan?

Mr. Neff: --Well, what they bargained for was that the asset be liquidated and all of the proceeds applied to their loan.

And that's exactly what we propose to do under our sale procedure.

Chief Justice John G. Roberts: Well, you're depriving the secured creditor of the opportunity to hold on to the asset, because he thinks it is, for perhaps a short period, unreasonably devalued.

Right?

Mr. Neff: Well, he -- he is denied that right under subsection (i), which is our traditional reorganization, internal reorganization provision of section 1129(b)(2)(A).

Chief Justice John G. Roberts: Did I cut off your answer to Justice Alito?

Mr. Neff: Well, with regard to the indubitable equivalent, clearly the judge is going to make that determination, but that's no different than the judge making a determination under subsection (i) as to what the fair market value of the collateral is for purposes of determining the note that the creditor is going to receive and be paid off over time.

Justice Antonin Scalia: Could the -- could the judge say when the proposal is made to him, the only way I can be sure that it is the indubitable equivalent is to have the sale open to credit bidding, which is what we always do?

Can the judge say that?

Mr. Neff: If there is testimony provided to the judge that that is the way that will maximize the sale proceeds and that in fact you can't get indubitable equivalence unless you allow credit bidding, it would seem to me under that circumstance the judge would have that discretion.

Justice Antonin Scalia: Now, you're--

Justice Sonia Sotomayor: It makes no sense to me what you are saying, because under all circumstances the credit bid, unless the property is valued higher than the credit bid amount, but then another bidder could -- could make -- enter that bid.

Mr. Neff: Well, the problem is when--

Justice Sonia Sotomayor: The maximum value always has to be the value of the credit.

Mr. Neff: --Well, I--

Justice Sonia Sotomayor: If the -- if the -- if the creditor is willing to put it at risk that way.

Mr. Neff: --Your Honor, I would disagree.

I think in a situation like ours, no one else is going to come to bid, because creditors who are -- or potential purchasers who are looking to buy a hotel have multiple opportunities to buy other hotels.

So if they know that they are going to show up at a sale where a creditor is owed substantially in excess of what the property is likely to sell for, they are not going to spend their time and effort doing the due diligence that is required to acquire or make a bid on an asset like a hotel.

Justice Stephen G. Breyer: What's wrong with that?

I mean, a creditor loaned you a million dollars.

For the million dollars, he got an interest, a secured interest in a piece of property.

And that property is worth whatever it was -- whatever it's worth, less than a million.

And he says that's the deal.

I -- I have a secured interest in this; I want the property.

You are better off because you can stretch out the payments over time and maybe you don't have to give it to him immediately, but I don't see anything unfair about saying, give him the property if he wants it.

Mr. Neff: That in essence would be denying chapter 11 relief to a host of debtors where their collateral is worth--

Justice Stephen G. Breyer: Well, in accordance with (i), (ii) and (iii).

I mean, I'm not saying skip those.

Mr. Neff: --What -- the problem is, you are cutting off the bankruptcy process really before it has--

Justice Stephen G. Breyer: I don't understand that.

I mean, as I read it, to put it out on the table, this makes perfect sense.

What they are trying to do is help the debtor a little without mucking up the secured creditor's collateral.

Choice (i) gives the secured creditor his collateral, and there is still a lien on it.

He has what he had before, and the debtor is better off because he can stretch the payments out over time, and that's one and two.

Choice (ii), we give the creditor some new collateral.

Hmm, that's a little risky, but to be sure it's fair, we are absolutely certain, with a few exceptions not relevant, that the creditor can credit bid.

So he has it within his control.

Choice (iii), something else which comes up in different situations, for example, a creditor who is over-secured, see, and they want to sell the piece of property.

And he says, sure, I will let you sell it, but I want something that's the equivalent.

Give me this other property over here that you own that has no liens at all.

And the judge can look at that and say that's fair.

That's what (iii) is basically about, as far as I could understand it.

So it all makes sense to me, and I don't understand why you would want to have a rule saying that (iii) trumps (i) and (ii) and stops credit bidding.

Mr. Neff: --Your Honor--

Justice Stephen G. Breyer: So that's the whole thing as I am seeing it at this moment.

So I'll give you a chance to reply.

Mr. Neff: --Thank you.

Your Honor, I don't see subsection (iii) as having the limiting language that it should have if in fact it was meant to be something other than what is in subsection (i) or subsection (ii).

There is no language that says except as provided for in subsection (i) or (ii).

Relief other than--

Justice Stephen G. Breyer: No, it doesn't have the language, which is why we have a case.

But I mean, trying to interpret it in a way that makes sense, what is wrong with what I said as a way that makes sense?

I mean, why, since we are trying to give the -- the creditor the indubitable value, at the very least -- the best way to do that would be let the creditor credit bid.

Mr. Neff: --Well--

Justice Stephen G. Breyer: So why not?

And you can read it.

You don't have to read it the way that you want.

You could read it the opposite way, too.

Mr. Neff: --If you are looking at it from the perspective of the creditor saying well, this--

Justice Stephen G. Breyer: No, I'm looking at it from the perspective of a bankruptcy system--

Mr. Neff: --Okay.

Justice Stephen G. Breyer: --that is trying to get secured creditors what they have their security in, while giving the debtor the advantage here of being able to stretch out his payments.

Mr. Neff: I agree, and there are other parties and interests in a bankruptcy case, including obviously unsecured creditors, that get nothing if the result is all the creditor gets is the relief from the automatic stay to foreclose on the collateral when you have this great discrepancy between what--

Justice Elena Kagan: Well, how would they get anything, anyway?

I mean, your brief suggests that somehow there are these unsecured creditors in the mix who are going to receive some benefit if your understanding of this statute goes forward.

But you know, in a circumstance like this, doesn't the secured creditor either get the property or get the money from the property and the unsecured creditors are out of the mix regardless?

Mr. Neff: --Well, in our particular instance obviously there are some senior liens that would be paid, including things like mechanic's liens and real estate taxes.

There are other costs that--

Justice Elena Kagan: But those are -- those continue forward, so even if the secured creditor got the property, there would be mechanic's liens on the property, isn't that right?

Mr. Neff: --That's true, although resolving them pursuant to a plan is usually a better resolution for them, by providing more certainty and -- with regard to the result, and a more quicker resolution usually, as opposed to being relegated only to State court to fight them.

In our--

Justice Antonin Scalia: --Mr. Neff, can -- are you done?

I'm sorry.

I didn't want to stop your answer.

Mr. Neff: --I was only going to say that in our particular instance the stalking horse had agreed over a future time after it obtains the property to provide for recovery to general unsecured creditors.

Justice Antonin Scalia: Can I -- let's look at the text.

Little (ii) provides for exactly what you want to do here.

What you want to do under (iii) is precisely what (ii) says, except you want to eliminate subject to section 363(k) of this title.

Right?

Does it -- does it make sense for a provision to say you can do it three ways: number (i), number (ii), you can have this sale subject to credit bidding, and number (iii), after -- after saying that, specifically, oh, you can have this sale not subject to credit bidding?

That's not a very sensible statute.

Why go through that -- that problem of -- of saying number (ii), if you could have left it to number (iii) anyway?

Mr. Neff: Subsection (ii) provides that if you allow credit bidding regardless of the price that's achieved, that that is deemed to be fair and equitable treatment of the secured creditor's claim.

Justice Sonia Sotomayor: But that's just not true from what you just said.

Meaning what you just said is that the buyer obviously is paying other things off, and by definition he's deducting that from the purchase price.

No one gives a purchase price for a piece of property and agrees to pay something else and gives the highest price for the property once they've done that.

So what you're asking for is permission for the debtor to use this property to pay other debts, and that's what I thought a secured interest prevented.

Mr. Neff: With regard to Justice Scalia's question, all I was trying to point out is that in subsection (ii), regardless of the price that is achieved as long as you allow the secured creditor the right to credit bid.

Justice Sonia Sotomayor: So why doesn't he get--

Mr. Neff: That's the fair and equitable--

Justice Sonia Sotomayor: --Why doesn't he get everything that the buyer is promising to everyone else?

For that indubitably is part of the price, because he is giving out money to others, that's part of the value of this property.

So why isn't the creditor, the secured creditor, entitled to all of the proceeds from the property?

Mr. Neff: --The secured creditor will get all the proceeds from the property.

Justice Sonia Sotomayor: Not -- with sales price, but not from all the payments.

Mr. Neff: Right.

With regard to the pavements that are in the future, those are after the -- the sale would be consummated to the stalking horse bidder.

Justice Sonia Sotomayor: You still haven't answered my--

Mr. Neff: There are other benefits that the secured -- that will get, that will increase the -- the price that is received by having sold the property in bankruptcy.

For instance when you sell through a plan, you avoid the payment of transfer taxes.

Justice Antonin Scalia: Yes.

Mr. Neff: So clearly to the extent that the transfer taxes being saved are in an amount that ultimately exceeds what ultimately goes to the unsecured creditors, these--

Justice Sonia Sotomayor: --You still haven't answered my question.

If the buyer had money that he's willing to give up to others, why isn't he putting it in the purchase price?

Why isn't that part of the price?

Mr. Neff: --It would be our obligation to show at confirmation that the creditor is paying the top dollar for the asset.

If the creditor desires to pay a bonus or a premium on top of that, we would have to show that, nonetheless, that the secured creditor is receiving the indubitable equivalent and either have to show by argument that -- a savings on the transfer tax or some other way that this is not causing the secured creditor to not receive the indubitable equivalent.

Justice Sonia Sotomayor: Could you explain what the reasoning is for requiring a credit bid if property is sold during the plan, but not permitting it when it's sold at the plan's--

Mr. Neff: Sure.

Justice Sonia Sotomayor: --Doesn't that delay the bankruptcy in every situation?

I can't actually understand what benefit other than delay of the bankruptcy process that would occasion.

Mr. Neff: Is your question why we always have it under section 363, but not under the plan?

Justice Sonia Sotomayor: Uh-hmm.

Mr. Neff: Section allows the sale of property outside the ordinary course of business during a bankruptcy case.

It can be done as quickly as on 21 days notice, so it can be done on a very truncated basis, or even more quickly if the debtor can show that there is cause, some reason to have an even faster sale.

There is no requirement that you show that any of the plan requirements in section 1129 must be met.

So there are good reasons to have this protection for the secured creditor when you are selling under section 363 outside of a plan context that don't necessarily exist when you are selling in the course of a plan because a plan takes a much longer time period, usually at least 2 months notice, if not much longer.

Justice Antonin Scalia: Mr. Neff, don't you feel sorry for the United States?

The United States is often in the creditor situation, and the United States cannot come up with cash.

Are they going to run to Congress and get an appropriation for each -- each security case it has?

What -- what do you propose we do with the United States?

The United States just can't take any security interests anymore or what?

Mr. Neff: Well, no, I don't think that that is the case.

And I did see that in their brief, and I don't know the extent that in practice that actually occurs because, for instance, they pointed out the SBA loans, those are typically guaranteed loans.

So there would be a motivation, at least by the principals of the debtor, to maximize the return to the SBA.

But as far as them not being allowed to credit bid, there are -- they have the opportunity to have a greater voice in the sale process.

They can seek--

Justice Antonin Scalia: I don't understand.

Mr. Neff: --Well, they can seek from the Bankruptcy Court a greater role when the asset is being marketed for sale to ensure that they are receiving top dollar on their claim.

Justice Sonia Sotomayor: They don't have that right now?

They don't have that right now?

Mr. Neff: Well, when we sell assets the debtor typically has the control over how it's going to be marketed and sold.

They may give some input rights to the secured creditor, but they're usually not going to give the secured creditor the veto power over how to conduct the sale.

But I would suggest that when you have a situation with a creditor that truly cannot bid cash, that there would be an opportunity to impress upon the judge that they need to have a greater role when you are actually marketing and selling the property.

Justice Elena Kagan: Mr. Neff, can I understand how your system would actually work in practice?

Suppose you have an auction and there is the top value was $500, and then you have the secured creditor let's say is in the position of the United States and comes in and says: We couldn't credit bid, but we -- excuse me -- we couldn't pay cash, but we think it's $750.

Mr. Neff: Right.

Justice Elena Kagan: And now the court has to decide whether it's $500 or $750 after the auction has gone forward.

What happens?

Mr. Neff: The court is going to review the process to actually sell the asset, who was -- where was it marketed, who knew about it, who showed up at the auction, how many bids were made.

Justice Elena Kagan: Well, now let's say the court says: You know, I think that the government is right; it's really $750.

But you've already had a sale.

Mr. Neff: Right.

Justice Elena Kagan: And you've sold it for $500.

Mr. Neff: There has been no closing.

The closing doesn't occur until the plan confirmation actually occurs.

And, in fact, that's how you would do it after this Court's ruling in 2008.

Justice Antonin Scalia: But wouldn't the court always say, when it's confronted with this situation, the government comes in and the court says, yes, well, you know, I guess that that price is probably so low because nobody could credit bid.

Wouldn't that always be a -- a frailty of whatever -- whatever price it sold for?

Wouldn't it always be?

Mr. Neff: No, because you are going to have situations where creditors -- secured creditors will credit bid amounts that have no relationship to the fair market value, what we call, for instance, loan-to-own lenders, where their only interest is actually getting the title to the property.

So you are going to have situations that -- where the credit bid does not equate to market--

Justice Antonin Scalia: Well, that might be, but it doesn't -- it doesn't take a genius to figure out that if you allow people to bid for cash or for credit, you are going to get more bids and higher bids than if you allow them to bid for cash only.

Mr. Neff: --The problem is when you are dealing with larger assets, like what we are dealing with, you are not going to get a sophisticated buyer to come in to bid against a lender that can credit bid, particularly in a situation like our case, where the lender has said: I simply want the property back.

Justice Antonin Scalia: That just means that you can't find a buyer who is willing to pay that much.

Mr. Neff: Well, we believe that -- that subsection (iii) allows us to show that the secured creditors receiving the--

Justice Stephen G. Breyer: Look, in subsection (iii), if it applies here -- I assume -- suppose it doesn't apply here.

There is a safeguard against having no bidder.

Bidders who would bid more than what the creditor thinks it's worth, the creditor will want them in this, and if he doesn't want it in, it's because he thinks it's worth more in his own hands.

So what's the problem?

But there is a problem the other way.

The problem the other way, and I'm not saying it's this case, but there are -- is that the insiders say to the stalking horse: We would like you to put this up at a low price and give us a job.

And if they keep the creditor out, well, that's a big incentive.

And they are the ones who know what a hotel is worth.

The judge doesn't know, and there is always leeway.

And so that was worrying me about this fact pattern.

You want -- you want to get rid of my worry?

Mr. Neff: --Yes, I do.

Justice Stephen G. Breyer: Good.

Mr. Neff: The bankruptcy judge sees this in a variety of cases.

Just the natural tension that you have in a bankruptcy, individuals who may be self-interested, yet they are supposed to be fiduciaries for the estate.

It's part of our roles as lawyers to be the fiduciaries as well.

Our particular instance, it's not a concern because the property is being marketed to a wide array of people.

There's no requirement that they keep the management company, and there's every opportunity for any other hotel company to come in or any other strategic buyer--

Justice Stephen G. Breyer: But the concern was, I gather, there is no other bidder, you have said.

You've just found the stalking horse.

You agree to pay the stalking horse a million and a half dollars in case he doesn't get it.

And then the people from the inside are being hired by the stalking horse if he wins.

Now, I'm not -- I'm sure they are acting very honestly, but you would have to say in such a situation that there is an incentive to try to value everything on the low side by the debtor to make sure that stalking horse gets the property.

And that incentive is destroyed, or at least doesn't work, if you allow the creditor bid.

Mr. Neff: --Interestingly, the process actually works a little different than that.

Debtors will go out and their financial advisers will actually go out and try to market the ability to be the stalking horse, to actually try to get the best stalking horse bid.

In this particular instance what we got was the -- ultimately the $55 million.

We are confidently the property ultimately will sell for more.

Justice Samuel Alito: When this procedure is followed, how often does a buyer other than the stalking horse obtain the property?

Mr. Neff: I don't know from a statistical basis.

And, you know, a stalking horse, if they have the -- a break-up fee, they have that built-in cushion.

And in our case, I would point out the judge had not yet approved the break-up fee, but it was a standard 3 percent of the -- of the bid price.

So I don't know what percentage it is, you know, from my own experience.

Justice Antonin Scalia: I didn't realize the judge had to approve--

Mr. Neff: The stalking horse?

Justice Antonin Scalia: --Yes.

Mr. Neff: Yes.

Justice Antonin Scalia: The judge has to approve the stalking horse?

Mr. Neff: That's part of the bid procedures.

And buyers, more sophisticated buyers and when you deal with bigger assets, they're used to the process being this way, that there is going to be a stalking horse and that there is going to be some sort of protection.

Justice Sonia Sotomayor: The vast majority of bankruptcy courts have permitted credit bidding in these situations.

So if the vast majority of bankruptcies have stalking horses, then the norm is working without us having to rule in your favor.

Mr. Neff: I would say the vast majority of cases occur under section 363, where there is no question because of 363(k) that there is the right--

Justice Sonia Sotomayor: And stalking horses still come in.

So it's not as if the 363(k) procedure is failing in maximizing prices.

Mr. Neff: --That is true.

The major difference is that a sale under section 363(k) almost invariably the secured creditor supports, so there is no question but that there is going to be a transaction occurring, whereas--

Justice Antonin Scalia: Say it again?

I didn't -- I didn't understand that.

Mr. Neff: --When you are selling under section 363, because of 363(k) there must be a right to credit bid; and, in most situations, the secured creditor wants the assets sold when you are doing a section 363 sale.

So there is no question in the minds of a buyer but that there is going to be a transaction, and there is a reason to spend your time and effort learning more and doing due diligence about the asset.

Chief Justice John G. Roberts: Well, this is a case, though, where you would not want the asset sold.

In other words, looking at it he thinks for particular unusual situations, this is vastly undervalued; I am holding an asset that is going to appreciate if I hold onto it.

So he doesn't want the asset sold.

Mr. Neff: That's correct.

And -- and it's our belief that the Bankruptcy Code provides the ability in subsection (iii) to conduct the sale and pay the secured creditor the indubitable equivalent of its claim.

Chief Justice John G. Roberts: What is the doubtless equivalent of his claim?

Measured by the current market conditions, or does that include some premium based on the assumption that it's going to increase in value over some period?

Mr. Neff: It's going to be measured by the current market conditions, but to the extent that the secured creditor brings in an appraisal that will invariably be based on what the projections are going to be and take that into account.

If I could reserve the remainder of my time.

Chief Justice John G. Roberts: Thank you, counsel.

Ms. Maynard.

ORAL ARGUMENT OF DEANNE E. MAYNARD ON BEHALF OF THE RESPONDENT

Ms Maynard: Mr. Chief Justice, and may it please the Court:

Secured creditors bargain for the right to be repaid in full or, if not, to foreclose and take the collateral that secures their loan.

When a chapter 11 bankruptcy plan is going to cram down a plan over the objection of a secured creditor, section 1129(b)(2)(A) gives the secured creditor the ability to protect those rights regardless of the proposed treatment of its collateral.

Specifically, when the plan proposes, as here, to sell the collateral free and clear of the secured creditor's liens and give the secured creditor nothing but the proceeds from that sale, clause (ii) entitles the secured creditor to bid what it is owed in the absence of cause to preclude it.

Chief Justice John G. Roberts: Or -- or he is entitled to realize the indubitable equivalent of his claims.

You really do just kind of elide the fact that the statute says "or".

Ms Maynard: No, Your Honor.

We give full meaning to the "or".

We don't dispute that these are three alternative ways to cram down -- down a plan.

The question here is or what?

And the question is the scope of the alternatives and in which circumstances in they apply.

And here Congress turned its attention to precisely the situation at hand and determined what the requirements were, but not just the requirements for a sale free and clear.

It's not like clause (ii) says: If you sell it free and clear and you allow credit bidding, then that's way to go.

It's not just the requirement of credit bidding.

It also sets forth the only exception to credit bidding.

And Petitioners' reading would read clause (iii) to be a much bigger exception.

Now, Petitioners here tried and failed in the Bankruptcy Court to prove cause, and they don't appeal that.

So they are trying to create a much bigger exception to the exception Congress allowed.

Justice Antonin Scalia: They tried and failed to prove what?

Justice Samuel Alito: Cause.

Ms Maynard: Your Honor, cause.

Justice Antonin Scalia: Cause.

Ms Maynard: So under -- we reprint the 1129 clause (ii) is on 20a in the red brief at the back.

And it provides:

"For the sale, subject to section 363(k) of this title, of any property that is subject to liens securing such claims free and clear of such liens. "

And that refers you to 363(k), which is also at the back of our brief.

And 363(k) provides that:

"Unless the court for cause orders otherwise, the holder of such claim may bid at such sale; and if the holder of such claim purchases such property, such holder may offset such claim against the purchase price of such property. "

So my point is, clause (ii) is not just if you let them credit bid then that's one way to go to fair and equitable.

It's you must let them credit bid unless cause is shown.

And they tried in the Bankruptcy Court, Justice Scalia, to prove cause, and the district court found against them on that point, and they don't appeal it.

Chief Justice John G. Roberts: Your -- your friend on the other side suggests that (ii) and (iii) address different ways of protecting the secured creditor.

(ii) is procedural, right?

You can go through these procedures and you can cram down so long as you are going through these procedures, which include credit bidding, or you can cram down if you ensure that he receives the indubitable equivalent, a substantive protection.

What is wrong with that reading?

Ms Maynard: I don't think that's a fair characterization of the three clauses, Mr. Chief Justice, because all three of the clauses have both procedural and substantive components.

And essentially what Petitioners seek to do here is exchange their preferred procedure, which is a sale without allowing us to credit bid followed by a judicial determination of whether whatever number that sale produces is high enough to be our secured claim.

But the whole point is, if the secured creditor is willing to bid one more dollar of what it's owed at the sale, that is the value of our secured claim.

Justice Samuel Alito: Is it correct that really the heart of your argument is that the real value of this property is greater than the value that you think the Bankruptcy Court would assign to it if this were done under subsection (iii)?

Ms Maynard: That is definitely the fear, Justice Alito.

Justice Samuel Alito: Why?

Why do you have that fear?

Ms Maynard: Because valuations are inherently uncertain, and Congress knew that.

And in this Bankruptcy Code Congress tried to move away from judicial valuations for precisely that reason.

Justice Elena Kagan: But doesn't clause (i) depend upon a judicial valuation?

In clause (i) the Court has to say: What is the present value of your property, so that it knows what the right income stream is.

Ms Maynard: That's true, Justice Kagan.

But if you proceed through clause (i), the code provides a secured creditor with a different protection against undervaluation.

So the whole code structure is set up to protect the secured creditor against the risk of undervaluation of its claim.

And that's the section 1111(b) election.

So section 1111(b) election allows the secured creditor who is undersecured and is afraid that their value of their property will be misvalued in a clause (i) to elect to have their entire face value of their claim treated as secured.

So here, the lenders are owed more than $130 million.

If they were to proceed under clause (i), the lenders would have the option to have that whole $130 million treated as secured.

And that would be the value of the secured claim.

And under clause (i), yes, we would then be subject to the judicial determination of the present value of whatever a note paying out $130 million would be, but two protections we would have.

They wouldn't be determining the principal.

The principal, the face value of the note would have to be $130 million; and the lien that we would retain would be $130 million.

Justice Elena Kagan: How about in subsection (iii) where it talks about substitute collateral?

That's completely a judicial valuation, isn't it?

Ms Maynard: That would be true, but I think in that situation we would also have the option to make the 1111(b) election.

And, therefore, they would have to substitute collateral that would be up to the $130 million mark.

So it's true -- and it's true that Congress did leave this other, but it is an other.

And I think another way to -- another point to make that clear is the fact that clause (ii) expressly has a role for clause (iii), and it doesn't come into play until after the sale at which the secured creditor gets to credit bid.

Justice Samuel Alito: What is it about the auction -- what is it about the auction process that you think is likely to produce or creates an unacceptable risk of producing a valuation that is -- that is too low?

Is it because of the use of the stalking horse or -- or what is it about the process?

Ms Maynard: If the secured creditors aren't able to come in and bid their credit, and if the secured creditors can't, as is a real risk, raise enough cash to bid the amount of their credit in cash -- and in some instances, as with the government, they can't, they actually can't.

But in a lot of these complicated loans there is multiple lenders and it would be very difficult to come up with the money to put in, and they are, therefore -- you are taking out of the marketplace one of the most knowledgeable bidders about this property.

And there is no good reason to do that.

These -- it's not like they are bidding funny money.

They have already put in $142 million.

Chief Justice John G. Roberts: Well, but there is, of course, a good reason which is consistent with the policy of the Bankruptcy Code, which is you do want to look out for the other creditors as well.

And if the secured creditor is getting indubitably the value of this security, why don't you weigh in the balance at least the interests of the other creditors?

Ms Maynard: There will be no cash for anyone junior to these creditors unless these creditors are paid in full, regardless of whether everyone bids in cash or we bid in credit.

This property is well under water.

There is no equity in it.

The secured lenders have lent them $142 million--

Chief Justice John G. Roberts: Well, maybe in this particular case, but that's not going to be true in every case and we are asked to issue a ruling that is going to apply in every case.

Ms Maynard: --In every case where the property is under water, there will be -- in every case in which the secured creditor has a lien on the property, the secured creditor takes first.

So until -- so underwater or not, until the secured creditor is paid--

Chief Justice John G. Roberts: Well, I know, but the whole premise of why this problem arises is that the security is worth a lot less than -- than it was obviously when it was purchased.

Or a lot less than -- a lot less than the claim that it was meant to secure.

Ms Maynard: --Everyone agrees that the property is under water, but it's important to note that the valuations in this case that have been filed in the district court in conjunction with the relief from the stay, the appraisals are different by tens of millions of dollars, what the property is worth.

And if you allow that to go to a judge to decide whether it's enough, that's an inherently uncertain process.

And, you know, judicial valuation, the court -- tens of millions of dollars, the judge could decide, and it might not be a fact that we could overturn if that goes to a--

Justice Stephen G. Breyer: I was just guessing before, but, I mean, if you're right, what is the (iii), the indubitable equivalent, what kind of situation does that come up?

I mean, I was guessing it would come up, maybe an over secured creditor, they want to -- they want to sell the property, and he still wants his security, and they have to put in equivalent property that wasn't mortgaged, but I was just guessing.

So -- so what is it really -- what is it really used for, in your opinion?

Ms Maynard: --The legislative history,--

Justice Breyer, suggests two meanings for it.

Justice Stephen G. Breyer: What?

Ms Maynard: Two examples.

And that's what you see in the case.

There aren't very many clause (iii) cases.

There will be many more if this Court holds that this is permissible.

Justice Stephen G. Breyer: Yes, I'm sure.

Ms Maynard: But that -- there aren't very many clause (iii) cases.

And they abandon -- abandonment of the collateral.

So in other words, they could decide just to turn all of the collateral over, and that would be the indubitable -- that would be res ipsa, our secured claim.

I mean, that -- we have collateral in everything they own: The hotel, the garage, all of the proceeds.

Or, as Justice Kagan was suggesting, some of the cases involve providing a substitute lien.

But the courts are--

Justice Stephen G. Breyer: That's what I was thinking.

Ms Maynard: --courts are very hesitant to do that, and it would have to be really -- because it is -- you know, you are stripping our lien; you're supposedly giving us an equal lien.

So, you know, maybe if you can imagine -- maybe if these creditors owned the airport at the Dulles -- you know, a hotel at the Dulles Airport and a parking garage, and one could say it's exactly the same risk factor and everything, and we're going to swap that in for this.

Justice Sonia Sotomayor: Could you tell me what the -- what's the purpose -- if you permit credit bidding, why do you go through the sale at all, if it's always -- if the credit is always going to be higher than the value?

Why don't you just turn over the property under (iii)?

Why do you -- why do you go through the sham of a sale?

Ms Maynard: It's not a sham, Justice Sotomayor, because the creditor -- secured creditors don't often want to run a hotel and parking garage.

They may not want the property.

So what they are interested in doing is maximizing the value, getting back as much as they can of the money that they--

Justice Sonia Sotomayor: So it is the stalking horse dance.

At what point do they credit bid until they get the highest price from someone else and then let that other person have it, is that it?

Ms Maynard: --That's definitely one of the strategies.

And if they -- so they -- so what clause (ii) allows a secured creditor, it allows the secured creditor to choose whether it takes its property, which was the right it had prebankruptcy, or whether it's enough.

But if you leave it to their system -- and he's -- I'm sorry--

Justice Sonia Sotomayor: When do you think under 363(k), what's good -- what would constitute or has constituted in the case law good cause not to permit credit bidding?

What situations have arisen under 363(k) where a court has found good cause?

Ms Maynard: --The cause cases include malfeasance of the creditor in some way--

Justice Sonia Sotomayor: I'm sorry.

What--

Ms Maynard: --Malfeasance of the creditor in some way.

Or whether there might be--

Justice Sonia Sotomayor: --How does a creditor commit malfeasance?

Ms Maynard: --I'm sorry, I can't remember any specific examples.

But another instance, and it's actually one that -- that goes to something Justice Kagan asked earlier, which is, when there's some dispute about priority or whether there might be senior liens.

So in this case, the bankruptcy judge provided at 44(a) and 45(a), because there -- there are some real estate taxes that would be senior to our liens, and there's a debate about whether the mechanic liens are senior or not.

And so the bankruptcy judge provided that -- that -- that here, it would be appropriate for us to either put up cash in that amount, the amount of the potentially senior liens, or to offer, you know, some security to cover those in the event that they turn up.

And that is an example of cause, and that is -- clearly answers the concern that there may be others.

No one junior to these creditors is going to take anything.

And all making us cash bid would do, assuming the secured creditors are able to come up with the cash to bid in this amount, would be to endless -- just to pointlessly cycle money into the estate, and then, if we're the winning bid, through the estate and back to us, at the risk of their siphoning off the money that really shouldn't go to anyone else because we have -- the cash collateral is these secured creditors', the hotel and the parking garage are all these secured creditors' collateral.

Now, the Petitioners say this is going to -- if you let the secured creditors bid, this is going to chill credit bidding.

Well, they tried to prove that in the bankruptcy court, and the bankruptcy court, at pages 43(a) and 44(a), rejected that as a matter of fact.

But, anyway, as a matter of theory, their proposal -- who would bid in their proposal?

Their proposal is, you do the due diligence, you have to prove you have the money, you put up the bid, and then at the back end you know that the secured creditor is going to be able to come in and tell the bankruptcy judge, I would have bid more with my secured credit.

So anyone who bids knows that there's the potential that it's all going to be a waste of time.

And then how do you do it over at that point?

Once everybody has shown their hand, put their bids in, what, are you going to take a mulligan after the -- after the bankruptcy court says no, they're not getting their indubitable equivalent because I find they would have bid more in their security?

Well, that's just -- that -- who's going to bid in that situation?

Chief Justice John G. Roberts: How does it work in practice?

Is this something that is subject of extensive negotiation?

The secured creditor says, well, I'm interested in bidding in a credit bid, but I appreciate that that's going to make it difficult for you to get cash.

And you've got these unsecured creditors who would want -- and so, what?

I'm not going to credit bid, so long as -- or I will only credit bid up to this particular amount; or, let's sit down and work out a deal, negotiate over exactly how we're going to handle my security.

Is that really how it happens, or is that not -- or not?

Ms Maynard: I think all those things are ways that it can happen, Mr. Chief Justice.

And certainly counsel is distinguishing the -- during the plan sale requirement, where he concedes that if you do a 363(b) sale, you know, 363(k) applies, but he says it's not a problem because you can negotiate.

There are actually many negotiations in a plan sale context.

And it would be odd, I would suggest, that you can do a cramdown plan over the secured creditor's objection and have less credit bidding rights than you can when you agree to do it.

And so in the end, there's nothing wrong with the secured creditor coming in and bidding its credit and taking the asset.

After all, they already put in $142 million.

They're owed $130 million.

The debtors have no equity in -- in this process.

Justice Ruth Bader Ginsburg: Wouldn't that be a reason for saying there's no adequate -- there's nothing under (iii) that would be the indubitable equivalent?

In other words, one thing is to say that if you -- if (ii) -- if you fit into (ii), that's it, you don't go to (iii).

Another is to say, well you can go to (iii), but it's most unlikely that there would be the indubitable equivalent of allowing credit bidding.

Ms Maynard: I don't think that latter way would be the better reading of the statute, Justice Ginsburg, because Congress turned its attention to this precise problem and decided that the best way to protect the secured creditor against the risk of undervaluation was to allow it to -- to bid.

And I -- and I think, for the reasons I said earlier, the system that they propose is not a workable system or a good system, and it wouldn't be good to have there be uncertainty about the auction, about whether or not it was going to ultimately, you know, go through.

And as long as the secured creditor is willing to bid at the -- at the auction its secured credit, put its money where its mouth is, that is the value of its -- of its secured claim, and so it could never be the indubitable equivalent to go under (iii), where it's not allowed to bid.

Justice Elena Kagan: The Petitioner suggests that the usual rule that the specific governs rather than the general provision doesn't apply in this case because the specific is not a subset of the general.

What's -- what's your view about that?

Ms Maynard: Well, this Court's never applied the rule in that way.

And I think the Court -- it's always the case that when the Court's looking at these kinds of problems, that the general provision could be read to encompass what the party before the Court is seeking to do.

But the -- when Congress has set up a precise scheme -- and here, I think it's important to realize it's not just the requirements but also the exception to the requirements -- and then also, the way that (ii) is -- refers to (iii), and (iii) doesn't kick in until after the sale--

Justice Antonin Scalia: I lost you.

I lost you.

It's not just the requirements but the exceptions to the requirements.

What are you referring to?

Ms Maynard: --The for cause.

So by reading in 363(k), Justice Scalia, it's not only the requirement of credit bidding, but also the only exception.

But then also, if I could just elaborate this -- the point about how it refers to clause (iii), on 20(a) of our brief, we set forth the text.

The final clause of clause (ii) says that once the sale goes through, the liens attach to the proceeds of the sale, and the treatment of those liens on the proceeds are done under clause (i) or clause (iii) of this subparagraph.

So clause (ii) contemplates that there will be some judicial determination of indubitable equivalence, but only after the amount of the proceeds -- because, after all, what we're trying to determine here is the value of the secured claim.

Chief Justice John G. Roberts: You said earlier we have never said that the specific has to be a subset of the general.

How -- how would it otherwise be specific, and the one general?

It seems if they are not a subset, then they are alternatives.

I don't see how the whole doctrine makes any sense if the specific is not a subset of the general.

Ms Maynard: Well, maybe I misunderstood Justice Kagan's question or misunderstood their point.

I thought their point was looking specifically at the -- the facts of the Speedy Trial Act case and saying because it's a list and it says "includes" and then there are subsets under the list, that's how I understood their argument.

Yes, it's certainly true -- like, take the venue statute case.

You know, the general venue provision clearly covered patent infringement suits, but then there was a specific patent infringement venue statute, and the patent infringement statute didn't say it was the exclusive patent venue statue, and the general venue statute didn't say,

"except as otherwise provided in the code. "

yet this Court said, well, the patent -- Congress turned its attention to patent infringement suits and created this venue, and that's--

Chief Justice John G. Roberts: So when we say our doctrine says the specific controls over the general, the specific is a subset of the general?

Ms Maynard: --Yes, to the extent that I think it's always fair to say that what the party who's claiming they fit within the general does could definitionally possibly fit within the general.

Chief Justice John G. Roberts: Thank you.

Ms Maynard: Thank you.

Chief Justice John G. Roberts: Ms. Harrington.

ORAL ARGUMENT OF SARAH E. HARRINGTON, FOR THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING THE RESPONDENT

Ms Harrington: Thank you, Mr. Chief Justice, and may it please--

Justice Antonin Scalia: --big case for the government, Ms. Harrington, isn't it?

Ms Harrington: --Pardon me?

Justice Antonin Scalia: It is a big case for the government.

Ms Harrington: It is a big case for the government.

As you suggest, the government is in the position of -- that actually many secured creditors are in these days, which is that we have constraints on our ability to cash bid at the sale of our collateral through a bankruptcy, and the detailed cramdown provisions of chapter 11 are designed to protect the rights of secured creditors.

The essence of being a secured creditor, of course, as the Court has suggested, is that the secured creditor has bargained for the right either to get its money back or to get the thing that secures its loan, to get its collateral.

And the type of sale that is contemplated in clause (ii) of section 1129(b)(2)(A) is precisely designed to guarantee that the creditor will get the benefit of its bargain.

Chief Justice John G. Roberts: You have got a whole cadre of U.S. trustees that presumably can look out for the interests of the poor United States.

Ms Harrington: Well, in most chapter 11 cases the U.S. trustee doesn't play a role because it's a debtor in possession, and so the trustee is not in charge of the property of the estate.

The debtor--

Chief Justice John G. Roberts: I thought we were worried about the situation where it's a creditor.

Ms Harrington: --Where the -- where the United States is a creditor.

That -- that's true.

But if there's--

Chief Justice John G. Roberts: In those cases, of course, the trustee's there, right?

Ms Harrington: --The trustee is there, but if the debtor proposes a plan that wouldn't allow the United States to credit bid at an auction that is selling its collateral, then the United States is usually out of luck because the Antideficiency Act prevents us from bidding cash.

Now, I would like to respond to one -- one sort of assumption that has seemed to permeate the conversation here, which is that a secured creditor will always have an incentive to bid the full amount of its claim at an auction of its assets where the auction is supposed to be free of liens.

That is actually not true.

As my friend Ms. Maynard suggested, unless a bank is trying to get into the business of running a hotel or running whatever business is the collateral, the creditor will only want to take the property if it thinks it can make a profit by then turning around and selling the property.

So if there is an auction where there is a cash bid, and the creditor thinks that the value of -- the amount of the cash bid is actually a fair valuation of the property, the creditor has no incentive to bid higher than that in credit, because it has no expectation of getting more money than that when it then takes the property and turns around and sells it.

So allowing the credit bidding won't have the effect of serving as a veto on what would be a fair sale price by a cash bidder.

The secured creditor's incentive is only to bid up to what it -- up to what it views as the value of the property and not a penny more, because it's not trying to take the property just for the property's sake.

In most cases it wants to take the property and then sell the property.

Chief Justice John G. Roberts: Well, but of course it could bid up if it thinks that there are going to be other bidders, right?

It has a lot more flexibility than the other bidders to -- to the extent of its security interest.

Ms Harrington: I mean, it has more flexibility because it has already put up its money.

But every bidder has that incentive that you suggest, which is to try to make that it's -- to sort of game the system a little bit and -- and make everybody put their money where their mouth is.

The Congress gave secured creditors a right to have a role where they get to put their money where their mouth any time there is--

Chief Justice John G. Roberts: That just begs the question.

Congress gave them a right -- I mean, that's what we are deciding, right?

Ms Harrington: --Absolutely.

And -- and Petitioner is certainly correct that the phrase "indubitable equivalent", an unusual phrase in the statute, that that phrase is broad enough to cover any type of disposition of a secured creditor's claim, including the sale of property free of liens.

But Congress also enacted two much more specific provisions right next to clause (iii), and in those provisions, number (i), which governs -- governs the retention of liens on -- on collateral, and number (ii), which the sale of -- the sale of collateral free of liens, there are very specific protections written into clauses (i) and clause (ii).

And this Court's interpretive canon that a specific provision will trump a more general provision where both could apply would seem clearly to apply here.

If a plan proposes a disposition of a claim that is addressed by a clause (i) or a clause (ii), it doesn't make any sense to allow them to strip out protections that are provided in those clauses by purporting to go under the more general standard of indubitable equivalent.

That is especially true because the type of judicial valuation of the property that would take place under Petitioners' type of scheme is not guaranteed to make sure that the creditor gets what it bargained for, which is either its money or its property, but that is exactly what clause (ii), that type of auction, is guaranteed to do.

Justice Ruth Bader Ginsburg: What is the reference?

In clause (ii) we were just told, the last clause refers to

"under clause (i) or clause (iii). "

What -- what is the reference in (ii) to clause (iii)?

What does that mean?

Ms Harrington: Well, the type of sale contemplated in clause (ii) is essentially a liquidation of the secured creditor's lien on a property.

And so you -- the sale would essentially liquidate the lien and then clause (ii) provides that -- that there would need to be a replacement lien on the proceeds of the sale.

That replacement lien would then have to be treated under clause (i) or clause (iii).

I think it's fair to say in most situations what happens is that the proceeds of the sale are handed over to the secured creditor, which is essentially a clause (iii) treatment of the lien on the proceeds, in the sense that if the lien on the proceeds is a lien on the pile of cash, if you hand over the pile of cash, you're surrendering the collateral that is securing that lien, which is the classic example of indubitable equivalent.

That is one of the examples cited in the legislative history and in Judge Hand's opinion in In re Murel.

I think one of the assumptions that permeates Petitioners' brief is that valuation -- that the value of collateral is something we can all know and agree upon.

But valuation is an inherently difficult undertaking, and this Court has recognized that when Congress enacted the code in 1978 it shifted the preference to move from judicial valuation towards market valuations.

And here Congress in clause (ii) expressed its view that -- that the type of market that would value this property would include one of the most interested market participants, who is -- which is the secured creditor who has an interest in the property.

Chief Justice John G. Roberts: Of course, valuing property is what bankruptcy judges do all the time, right?

Ms Harrington: They -- they definitely do.

But I think here Congress provided that this would be a situation where the secured creditor would have a role in valuing the property, and even under -- as Justice Kagan pointed out, even -- I think it was Justice Kagan -- under clause (i) the judge has a role in valuing the property because we have to determine the present day value of the cash stream that the creditor would be owed.

But as judge -- as my friend Ms. Maynard pointed out -- maybe she will be a judge some day--

[Laughter]

--the creditor in that situation has a role in -- in protecting itself against undervaluation because it can make the 1111(b) election, retain the full amount of its claim if it wants, and -- and protect itself going forward.

I think one way that's important is that it protects -- it prevents debtors from cashing out creditors at a low value, at a point where -- in the market where the value of the property is low, because they retain the lien for the full amount.

The same thing is true here.

If this is a particularly low point in the market and the creditor is trying to sell the property at auction -- I'm sorry -- B-the debtor is trying to sell the property at auction, the creditor can come in and take the property and realize any -- any upside down the road.

If there are no further questions?

Chief Justice John G. Roberts: Thank you, counsel.

Ms Harrington: Thank you.

Chief Justice John G. Roberts: Mr. Neff, you have 4 minutes remaining.

REBUTTAL ARGUMENT OF DAVID M. NEFF ON BEHALF OF THE PETITIONERS

Mr. Neff: With regard to the market valuation, we are doing a market valuation, as this Court instructed in the 203 North LaSalle case from 1999, by having an auction, and after that auction still having to prove up that we've given the indubitable equivalent by showing what occurred at that auction.

And if the lenders would like to bring at that point their appraisals and show that we didn't achieve that amount, then we are not going to be able to satisfy the indubitable equivalent standard.

Secondly, with regard to the role that subsection (iii) plays in subsection (ii)--

Justice Antonin Scalia: What you just said is so long as they come in with some appraisals that are above what -- what the property sold at for cash, then it's not the indubitable equivalent?

Mr. Neff: --If they can--

Justice Antonin Scalia: Because you've got to have at least one appraiser who says it's -- it's worth more.

Is that all it takes?

Mr. Neff: --Right.

The question -- it's a very high standard.

Justice Antonin Scalia: Indubitable is indubitable.

Mr. Neff: It's a very high standard.

And as long as--

Justice Antonin Scalia: If you have one honest appraiser who says--

Mr. Neff: --If it is a creditable appraisal and we were unable to achieve that, then we will have a very difficult time satisfying that standard; but, the process will have been allowed to play out, which is extremely important because those of us who have done debtor work know how many times a lender doesn't want to do something, and ultimately you have a sale or otherwise some sort of disposition of assets, the price gets high enough, and they are willing to go along with it.

So with regard to the market test--

Justice Antonin Scalia: --What happens if you go to the judge and the judge says: There is one higher bid, so I can't say it's indubitable?

Then what happens?

Mr. Neff: --Then you would have to provide additional consideration to the secured creditor to get it to the level that the judge would find it to be indubitable.

So it's no different than at any plan confirmation hearing if you say: Judge, my plan is dependent upon the interest rate being set at 5 percent.

The judge says: Well, I find it should be 6 percent.

You have to find a way to bridge that gap.

Justice Elena Kagan: Well, that assumes that you can just pull out a wad of cash from your back pocket, but mostly the debtors are not in that position.

So it just seems like a gigantic waste of time.

Mr. Neff: It's more so that the purchaser would have to come up with that, would have to come up with that or find some other way to bridge that gap.

It's not really a waste of time because again you are allowing the process to play itself out.

Too many times we see with secured creditors they're unwilling to deal with debtors because they have gotten them in the particular situation.

And then when you are able to actually have an auction, they are surprised by how high the bidding gets.

Because bankruptcy auctions are very fulsome events and create -- can create quite a lot of bidding that can really generate very high -- high value for the property.

As far as the role that (iii) plays in (ii), it's a bit convoluted; but, if you pursue a plan sale through subsection (ii), you don't have to show indubitable equivalents as long as they are allowed to credit bid.

But if, in fact, they don't credit bid or they are topped, and you are able to raise cash, that cash must be treated in an indubitable equivalents way or in accordance with subsection (i).

Justice Sonia Sotomayor: Counsel, I'm a person who believes that in the business world the greatest security is just knowledge of what courts will do.

And what the two courts who have agreed with you have done is contrary to what the majority of courts have done for the longest time.

What's the value for us upsetting the norm?

Mr. Neff: Okay.

Justice Sonia Sotomayor: What's the business value for upsetting the norm?

Mr. Neff: With regard to what courts have done for a very long time, for the 30 years that have been referenced have been primarily in section -- with regard to section 363 sales as opposed to plan sales.

Justice Sonia Sotomayor: That it means, because people didn't think they could do it in plan sales.

So why should we upset the expectation?

Mr. Neff: It's also difficult in a bankruptcy situation to keep the case alive long enough to get to plan confirmation, particularly if it's a -- if it's a business that's struggling financially, because the secured creditor has an ability to get relief from the automatic stay.

So that's why we would have more section 363 sales.

But with regard to the benefit, you look at a case like Philadelphia, or a case like the Pacific Lumber out of the Fifth Circuit, which allowed an entire enterprise to be restructured out of a very positive sale of the timberlands, that would not have occurred if in fact the Court had required credit bidding because the lender simply would have taken back that one crucial asset around which the entire enterprise was restructured.

So I think from a debtor's perspective, that is obviously of great--

Justice Sonia Sotomayor: They could have gone under (i) and given the secured lender what he's entitled to, which is a future stream of payment.

Mr. Neff: --If--

Chief Justice John G. Roberts: Please.

Mr. Neff: --They could have gone under (i) if in fact that -- that the lender would have been precluded from making a Section 1111(b) election and also precluded from credit bidding, because credit bidding's not required under subsection (i), and an 1111(b) election does not apply when there is a sale.

Thank you.

Chief Justice John G. Roberts: Thank you, counsel.

The case is submitted.

Featured:

Christopher v. SmithKline - Oral Argument

Mon, 23 Apr 2012 14:52:39 +0000

Case:

Christopher v. SmithKline

Media File:

11-204_20120416-argument.mp3

Related Transcript:

11-204_20120416-argument.xml

Transcript:

ORAL ARGUMENT OF THOMAS C. GOLDSTEIN ON BEHALF OF THE PETITIONERS

Chief Justice John G. Roberts: We'll hear argument this morning in Case 11-204, Christopher v. SmithKline Beecham.

Mr. Goldstein.

Mr. Goldstein: Mr. Chief Justice, and may it please the Court:

In the Fair Labor Standards Act, Congress directed the Secretary of Labor to quote/unquote "define and delimit" the statute's outside salesmen exemption.

By regulation, the Secretary provided that an outside salesman is one who makes sales rather than promoting sales by others.

In further guidance, the Secretary elaborated that nonexempt promotion includes either, one, a conversation where there can be no commitment or, two, one where there would be no exchange with the employer.

Now, everyone agrees that a pharmaceutical detailer engages in promotion.

They tout drugs to doctors.

Everyone agrees that there can't be a commitment to issue a prescription.

Everyone agrees that a prescription is not an exchange with a pharmaceutical company.

But nonetheless, the Respondent argues that pharmaceutical detailers sell drugs directly to doctors as a matter of law.

They say that follows from the fact that the Secretary's regulation incorporates the definition of FLSA, which is in the blue brief in the appendix at page 1.

That definition, which is section 203(k), provides -- it's the second provision on the page --

""sale" or "sell" includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition. "

And what you will not find in that language is anything that contradicts the two points the Secretary has made, which is that there has to be a commitment or that at the very least, there has to be an exchange with the employer.

Justice Samuel Alito: Well, is that consistent with the government's argument?

They argue, quote,

"an employee does not make a sale for purposes of the outside salesmen exemption unless he actually transfers title to the property at issue. "

The statute refers to a consignment for sale.

When that occurs, does -- does the consignor actually transfer title to the property at issue?

Mr. Goldstein: It is an arrangement for transfer of title, and that's why it's critical.

But it says a consignment for sale, the sale being the transfer of title.

But in all events, this case is not a fight about transferring title or some lesser form of exchange, because there's no exchange between the doctor and the--

Justice Samuel Alito: I understand that, but I would appreciate an answer--

Mr. Goldstein: --Yes.

Justice Samuel Alito: --to my question.

Mr. Goldstein: Yes.

Justice Samuel Alito: Is the government's position consistent with the reference to consignment for sale?

When a consignment for sale occurs, is there a transfer of title?

Mr. Goldstein: There is an agreement for a transfer of title, and I believe there--

Justice Samuel Alito: Is there a -- a transfer of title?

Mr. Goldstein: --I apologize.

There is not a transfer of title, but there is an agreement for transfer of title.

They -- just to be clear, the government says the definition of "sale" includes a transfer of title.

And so all I'm pointing out, if I could just go back to the definition -- I apologize for not answering--

Justice Samuel Alito: No, no, I understand.

I understand your position to be different from theirs.

But I--

Mr. Goldstein: --Oh, no--

Justice Samuel Alito: --Perhaps I should ask them about -- about their position.

Mr. Goldstein: --Sure.

Well, I apologize if I've created some kind of--

Justice Antonin Scalia: Excuse me.

I -- I don't agree that there's an agreement for transfer of title.

Where there's a consignment, you give the property to somebody, and he says I will sell it to somebody if somebody will buy it.

Mr. Goldstein: --Yes.

Justice Antonin Scalia: There is no agreement to transfer title.

Mr. Goldstein: There is--

Justice Antonin Scalia: It's purely a future contingency.

If someone will buy it, I will sell them -- sell it to that person on your account.

Mr. Goldstein: --Yes.

I believe -- I will allow you -- I apologize saying "I will allow you".

The--

[Laughter]

You can do, I know, whatever you want.

The government can explain it--

Justice Samuel Alito: No -- but anyway, go ahead.

Mr. Goldstein: --Yes.

All right.

It is -- the statute refers to a consignment for sale.

I believe they're defining a sale in that phrase.

But in all events, the debate over whether it includes or is limited to a transfer of title is not at issue in this case, because what the -- because all the statute requires is that there at the very least be some exchange of some part.

There's going to be an -- a binding agreement, a commitment, and that commitment will involve an exchange with the employer.

What happens in pharmaceutical detailing is that there can't be any commitment to issue a prescription at all--

Justice Ruth Bader Ginsburg: Because -- because the limitation on sale is they can't sell -- by Federal law, they can't sell.

And you're -- you are debating about exchange, sale.

What strikes one about this case is that these are workers -- they work autonomously.

They don't clock in and out.

They work outside the workplace.

After they're trained, they have minimal supervision.

Is there any other category of exempt workers that have that kind of autonomy and yet come under the wage and hours--

Mr. Goldstein: --I'm sorry.

So your premise is that they are exempt to begin with?

There -- I can tell you that there are a large number of employees who do work outside the workplace and are substantially more autonomous than are pharmaceutical detailers, who have to operate from very strict scripts.

There are -- it's literally--

Justice Ruth Bader Ginsburg: --For example, what are the -- that's what I wanted to know.

What are the categories of people that seem to be autonomous, not the type that clocks in and out?

Mr. Goldstein: --Sure.

Well, you can have emergency service workers that are working outside.

There are lots of people -- so, for example, you may well--

Justice Antonin Scalia: I don't -- I don't understand what that is.

Mr. Goldstein: --I apologize.

Justice Antonin Scalia: What's an emergency service worker?

Mr. Goldstein: A police officer or a fireman, an ambulance driver.

They are constantly outside the office.

You can also have lots of different kinds of promotion--

Justice Antonin Scalia: Excuse me.

They're not on duty all the time.

Aren't -- don't they have hours of duty?

My goodness.

Some of them make enormous overtime wages because they've put in hours beyond their regular hours of duty--

Mr. Goldstein: --Well, that -- my--

Justice Antonin Scalia: --These people have no hours of duty.

Mr. Goldstein: --That is not quite right, Justice Scalia.

They are expected -- the joint appendix explains -- to be in the doctors' offices between 8:30 and 5:00 p.m. They work additional time.

The fact that--

Chief Justice John G. Roberts: Doesn't that just -- I mean, that's when the doctors are there.

Mr. Goldstein: --That's -- but that is when they are supposed to be in the doctors' offices.

That's dictated by the company.

Justice Ruth Bader Ginsburg: What about -- what about the extras?

I mean, we're told that part of this job is to have a good relationship with the doctors.

It includes dinners.

It may be conventions.

Entertainment, maybe golf.

If -- if you're right, would the time on the golf course get time and a half?

Mr. Goldstein: Well, a couple things about that, Justice Ginsburg.

[Laughter]

There actually are very strict restrictions.

That kind of activity is under the PhRMA Code, which is trying to interpret Federal law, is actually very heavily restricted.

But whatever it is that the employee is doing to further the employment relationship is going to be hours on duty.

It is really important I think that while it is true that a pharmaceutical detailer has many of the characteristics of an outside salesman, the one they don't have is selling.

And that is the line that Congress drew.

It--

Justice Ruth Bader Ginsburg: You were -- you were giving examples, and we just stopped at--

Mr. Goldstein: --Sure.

Justice Ruth Bader Ginsburg: --emergency service worker.

But you said there are many examples--

Mr. Goldstein: Sure.

Justice Ruth Bader Ginsburg: --of people who are highly autonomous and still come under the hours regulation.

Mr. Goldstein: Sure.

Another example would be insurance adjusters.

There are people who are outside cleaning people that are not -- that don't have any--

Justice Anthony Kennedy: And these are all -- these are all within the Fair Labor Standards Act?

Mr. Goldstein: --Yes.

Yes, Justice Kennedy, they absolutely are.

Justice Anthony Kennedy: Are there any occupations or pursuits that are not covered by the Fair Labor Standards Act because -- on the rationale that they are out, that they're unsupervised, and so forth.

In other words, if you were in the case of the Respondent, would you -- would you have any close analogies to areas that are not -- that are exempt; in other words, that they wouldn't be salesmen, but there'd be some other classifications to fit them?

Mr. Goldstein: I would, but they would all be one of two things.

They would either fall within the administrative exemption, which is, Justice Ginsburg, what is Congress was talking about when it talked about people who have a lot of autonomy, and which is not true of detailers -- or some other exemption.

So, to give an example, certain outside buyers are exempt under the Fair Labor Standards Act.

A good -- that's a good example, because if you're an outside buyer of poultry, then you are exempt, but if you're an outside buyer of meat, you aren't.

It is one of a lot of different places -- there are 50-some exemptions from the Fair Labor Standards Act.

And Congress drew incredibly fine lines.

Justice Antonin Scalia: Congress can draw -- draw even silly lines.

Mr. Goldstein: Yes.

Justice Antonin Scalia: If Congress draws it, it's a line.

But the line you're suggesting here -- both your brief and the government's, as I recall, say, my goodness, if we find for the Respondent here, there'll be so much uncertainty in the future.

I'm not sure there isn't a lot of uncertainty if we -- if we find in your direction.

Now, let me give you an example.

One of my law clerks -- my law clerks supplement my sparse life experience.

[Laughter]

One of my law clerks is familiar with the -- the framing business.

Okay?

Now, salesmen of frames do not sell the frames at the time that they visit the -- the framing company or the framing store.

They get a commitment that in the future, that person will order from the framing company.

Now, is that a sale?

Mr. Goldstein: That is a sale, but the difference here is that there's neither a commitment -- remember, the commitment is illegal as a matter of law.

Justice Antonin Scalia: Well, but there is a commitment.

There is a commitment to -- what they are trying to get is a commitment to consider this drug if it's appropriate for prescription to patients in the future.

That's a commitment.

Mr. Goldstein: Justice Scalia, if that is the commitment, then all of promotion I think is going to be a sale, because every promoter who walks up to you on the street saying, will you try my product, will you go into the store, is trying to get you to say, I'll go in.

And that is much more of a direct commitment than you saying, I will consider it in an appropriate circumstance.

The commitment by a doctor is precatory at most.

They do not make any commitment in any instance that can be binding in any way that they will prescribe a drug for anyone.

And remember, there is the second -- the second distinction.

So that's one.

But the second is that, remember, there is a purchase in your hypothetical of framing, a purchase from the framing store.

But the second part of the Secretary's guidance is that when the doctor decides to issue a prescription they are not exchanging anything with the drug company.

There -- nothing is acquired from the drug company.

That is a very significant difference.

Justice Antonin Scalia: It's a peculiar line of commerce.

And -- and you are saying that what constitutes a sale of a salesman cannot take account of the fact that this is a weird line of commerce, where you are selling to people who cannot make a commitment.

Mr. Goldstein: Well, there are two things.

The first is the commitment, and they are not selling anything to the doctor.

Remember, just to frame this industry, the pharmaceutical company sells its products; it sells them to pharmaceutical wholesalers, which sell them to pharmacies -- pardon me -- which sell them to customers, which have a relationship with a doctor, who may or may not have met with a detailer.

There is a sale here in this industry, but it is to a pharmaceutical detailer, and that is a very significant difference.

The critical point as well for purposes of--

Justice Elena Kagan: Mr. Goldstein, doesn't--

Justice Ruth Bader Ginsburg: May I ask you -- may I ask you to follow up on other -- other categories of employee?

You gave me cleaning workers, emergency service workers.

Are any of those categories people who get paid commissions?

Mr. Goldstein: --Ah, those are not, but the example that I gave to Justice Kennedy would be, which is that there are outside buyers who do receive commissions.

And remember, of course, that there are outside salesmen who do not receive commissions but are nonetheless exempt.

Congress didn't write an exemption about commissions; it wrote them about whether it's an outside person who engages in sales.

And the other point I was trying to make is that -- and Justice Scalia echoed it to some extent -- and that is that the FLSA draws very fine lines.

If you work for a movie theater you are exempt, but not a playhouse.

If you work for a small newspaper but not a small magazine, you are exempt.

If you care for the elderly but not the young, you are exempt.

And what Congress said is that there has to be -- you are an outside salesman.

And that, it is true that this is a peculiar industry, but the peculiarity of it is that you don't make sales.

If I could reserve the remainder of my time.

Chief Justice John G. Roberts: Thank you, counsel.

Mr. Stewart.

ORAL ARGUMENT OF MALCOLM L. STEWART, FOR UNITED STATES, AS AMICUS CURIAE, SUPPORTING THE PETITIONERS

Mr. Stewart: Mr. Chief Justice, and may it please the Court: It's common ground in this case that in order to be an outside salesman an employee must make sales, and in theory there are two different ways in which Respondent could have attempted to establish that the PSRs in this case fit that criteria.

Justice Sonia Sotomayor: Could you answer Justice Alito's question?

Your brief to the Second Circuit and the Ninth Circuit suggested that a sale is a -- is a transaction, a transfer of some sort, or at least a promise to purchase.

But your brief here holds IT a much more rigid test, that there has to be a transfer of title.

And he pointed to the language of 3(x) -- 3(k), that says "consignment for sale", which doesn't have a transfer of the title.

So what is the government's position?

Mr. Stewart: Well, the DOL regulations have since 19 -- I believe it's since 1949, have said to make a sale within the meaning of 203(k), the term make -- 3(k) includes a transfer of title.

And in theory the verb "includes" could leave open the possibility that other things could be included as well.

We've never encountered a situation in which DOL has found a sale of goods without a transfer of title, but in direct answer to your question, Justice Alito, about--

Justice Antonin Scalia: Well, excuse me.

Consignment salesmen are -- are not exempt?

Mr. Stewart: --It would be -- with specific respect to consignments for sale, it would have been more precise to say that there has to be a transfer of possession in contemplation of a transfer of title.

Justice Samuel Alito: And what about salesmen who -- whose objective is to obtain a rental?

The lower courts have said that they qualify.

Does the government disagree with that?

Mr. Stewart: DOL believes that they qualify, but not as sales of goods.

And if the -- the Court could look at the appendix to the blue brief on page 4.

This is the pertinent regulation that refers to making sales or obtaining orders.

And it says:

"Section 541.500 requires that the employee be engaged in making sales within the meaning of section 3(k) of the Act or obtaining orders or contracts for services or for the use of facilities. "

and DOL's view is that a rental agreement would be a contract for services or for the use of facilities.

And the way--

Justice Antonin Scalia: Excuse me.

How can they put in number 2?

I -- I thought that 3(k) is 3(k).

Can -- can they supplement 3(k)?

Mr. Stewart: --They have supplemented 3(k) and they did that--

Justice Antonin Scalia: What's the authority to do that?

Mr. Stewart: --The -- this is discussed in the Stein report which was issued in 1940; and what had happened was that the question had arisen -- and the Stein report lays this out in a fair amount of detail -- the question had arisen whether individuals who negotiate for contracts to buy time on the radio or sell time -- sell advertising space in newspapers or sell -- negotiate contracts for a carriage of freight by rail or truck; the question arose whether they were outside salesmen within the meaning of the statute.

And the Stein report explained that the Wage and Hour Division had taken the position that they were not because it interpreted "sales" -- it appears to have interpreted "sales" to refer only to sales of goods, and people who were engaged in those sorts of businesses were not selling goods.

But the Stein report said: However, these people are commonly regarded as salesmen; the contracts they negotiate are treated as sales.

Justice Antonin Scalia: Well, that's wonderful.

Then if you can go beyond 3(k), I guess really the question before us is whether it's arbitrary or capricious for the agency not to extend their -- their -- their power to supplement 3(k) to this situation, which these people look like salesmen to me.

And so if they can do number 2 there, I don't know why -- why the agency couldn't say, oh, and by the way detailers are also included.

Mr. Stewart: Well--

Justice Antonin Scalia: And the issue would be whether it's unreasonable for them not to say that.

Mr. Stewart: --The agency has taken the position that, even though it has construed 3(k) to refer only to sales of goods, that sales of services or contracts for the use of facilities can be covered.

However, there is a big difference between the interaction between a detailer and a physician and the interaction between the -- the person who sells time on the radio.

The person--

Justice Antonin Scalia: Sure there is; sure there is.

But once you -- once you concede that it doesn't have to be within 3(k) and that it's within the power of the agency to grant the exemption anyway, then we -- we really have a different -- a different argument before us here.

Mr. Stewart: --Well, the -- the theory on which the Stein report proceeded was that, even though sales of time on the radio were not sales of goods, they were still customarily regarded as sales and they had the essential attributes of sales, namely an exchange of something valuable that the seller possessed in return for consideration from the buyer.

And you don't have any of that when the detailer deals with the -- the--

Justice Elena Kagan: Mr. Stewart, there is this other regulation which is I guess in the coverage section, 779.241, which says that if an employee performs any work that in a practical sense is an essential part of consummating the sale of the goods, he will be considered to be selling the goods.

So I guess this question is a two-part question.

Do you agree that that regulation does cover the -- these detailers?

And the second part is, if you do, you know, how does it work that we should understand sale one way for purposes of coverage and another way for purposes of exemption?

Mr. Stewart: --Well, the first thing I would say is that we wouldn't agree that this would cover detailers.

That is, if the relevant sales are, as we believe, GSK's sales to -- the transfer of drugs to wholesalers and pharmacies in return for consideration, the detailers don't play an essential role in the consummation of those sales.

They don't participate in those sales.

It's true that their mission is to engage in activities which set in motion a chain of events that will make those sales more likely to occur, but we wouldn't regard them as--

Justice Elena Kagan: But that seems a little bit blind to the way the industry actually works.

The way this industry actually works is the real work is done by the detailer getting the doctor to say, yeah, I'm going to start prescribing this where it's medically appropriate.

The actual sales from the company to the pharmacy just follows from however successful the detailer is.

Mr. Stewart: --But I think much the same thing could have been said about all the promotional workers that DOL has done with -- has dealt with in the past.

That is, the premise, the justification for a company to hire a promotional worker, is that the promotional activities will increase the overall sales of the company, will either directly or indirectly set in motion a chain of events that leads people to buy the product.

But DOL has historically regarded those activities as distinct from selling the product.

Justice Samuel Alito: Well, do those employees work on commissions?

Mr. Stewart: Some employees may work on commission.

Some--

Justice Samuel Alito: Promotional workers do work on commissions?

Mr. Stewart: --It's -- I don't think there is necessarily a uniform rule one way or the other.

The Stein report did say in 1940 that, although it was characteristic for outside salesmen to receive commissions, that was not the test, that that was a quirk of compensation.

The other thing I would say--

Justice Antonin Scalia: Didn't we have detailers in 1940?

Gee, that's a long time ago.

Did we have detailers in 1940?

That's almost a century ago.

Mr. Stewart: --There were detailers in that era, and--

Justice Stephen G. Breyer: That's my point, actually.

That's where I'm sort of bothered, just exactly what Justice Scalia said, that if you look through what I've seen so far by the materials, they're pretty evenly balanced, and there are tens of thousands of people who work in this industry, and there's a history of 75 years of nobody said anything.

So you would think -- and it isn't the only problem that has just been recognized in other industries, too.

If the agency is going to reverse, not reverse, but suddenly do something it hasn't done for years, the right way to do it is to have notice and comment, hearings, allow people to present their point of view, and then make some rules or determine what should happen.

Perhaps they'd say for the future let's do this, but not let's give people a windfall for the past.

Perhaps they'd say some and not others.

Okay?

That's my instinctive reaction, not necessarily legal, but informed by administrative law.

But why shouldn't I try to get there?

Mr. Stewart: --I guess I'd say two things, one general and one specific to detailers.

The general thing is that DOL has consistently drawn a distinction between promotional work--

Justice Stephen G. Breyer: No, I've read those.

Mr. Stewart: --Okay.

Justice Stephen G. Breyer: I've read those, and I find them beautifully ambiguous.

[Laughter]

I'll go back and read them again, and if they're absolutely clear, you win, fine, that's the end of it.

Justice Anthony Kennedy: And it's gone on for years, and you're -- instead of doing a regulation, amended regulation, as Justice Breyer indicates, you're filing amicus briefs quietly in different -- different courts.

It seems to me that's not nearly as fair or straightforward or as candid as -- as an agency ought to be.

Mr. Stewart: Well, with respect to where the industry expectation arose, we have only one data point or at least only one data point that has been identified in the briefs.

That is the National Federation of Independent Small Business Legal Center has filed an amicus brief on Respondent's side, and then -- they identify one DOL opinion letter, of which we were previously unaware, that dates from 1945.

And in the opinion letter.

The employer of the detailer asked for an opinion to the effect that its detailers were covered by the administrative exemption.

That employer didn't request a ruling that these were outside salesmen.

And DOL--

Justice Stephen G. Breyer: You're right about that, and so they're at fault, too.

But on the other hand, their employees might have been satisfied, and this is done to protect the employees.

So I'm asking, not saying, but what is the process here?

How do you know -- at what level was this agency decision made to suddenly go ahead with this?

Who made it?

What was the input?

How do you know they're on your side?

You do know; you're right.

But I mean, what's the process internally?

Mr. Stewart: --Internally, the -- the Solicitor's Office at the Department of Labor would consult with the Wage and Hour Division.

The Solicitor's name went on the briefs both that were filed in the Ninth Circuit and the brief -- I mean, the Ninth Circuit and also the Novartis brief in the Second Circuit.

And the Solicitor's name is on the government's brief in this Court.

The Solicitor is the third-highest-ranking individual within the Department of Labor.

Chief Justice John G. Roberts: Do you -- I'm sorry to interrupt your answer, but does your office review the amicus filings in the courts of appeals by the agencies?

Mr. Stewart: There was SG authorization for the amicus brief to be filed.

Chief Justice John G. Roberts: Is that the normal procedure?

Mr. Stewart: Yes.

Justice Antonin Scalia: But this is part of a regular program that the agency has now instituted, to run around the country and file amicus briefs; is that it?

Mr. Stewart: To clarify -- well, to clarify the agency's view of what the proper understanding of the law is.

And in terms of--

Justice Antonin Scalia: Yes, right, to get -- instead of doing rulemaking, instead of doing adjudication, we're going to file amicus briefs, and the court will accept our view in that amicus brief and, hey, presto, we have made law.

Mr. Stewart: --Well, maybe yes, maybe no--

Justice Antonin Scalia: That's extraordinary.

Mr. Stewart: --Well, in comparison to the alternative step of filing enforcement actions, it's both--

Justice Stephen G. Breyer: Well, did the Secretary of Labor herself or himself, depending on when it was, consider this matter?

Mr. Stewart: --I don't know whether the Secretary--

Justice Stephen G. Breyer: No, we don't.

All right.

So -- so the alternative is not enforcement actions, necessarily.

The alternative is for the agency to focus on the question and decide what it actually wants to do.

Mr. Stewart: --And the agency has regarded the application of its promotion sales regulations to the facts of this case as clear.

That is, if you asked GSK's highest level management why does it make sense to employ detailers, they wouldn't say because they get these commitments from physicians which are of value to the company.

The commitments or the quasi-commitments from physicians in and of themselves are of no value.

Justice Antonin Scalia: There are 90,000 of these people, and you have not -- the agency has not brought any action for these, lo, these many years.

90,000 of them.

And all of a sudden you say -- you come in and say: Oh, you have been in violation of the law in the past, and you're going to have to pay a lot of money for all these people who you didn't give overtime to in the past.

I just think that's extraordinary.

Mr. Stewart: Well, to the extent that there was an industry expectation that was based on anything DOL had said, it was based on, as far as we know, based on the 1945 opinion letter, which said not--

Chief Justice John G. Roberts: Well, but you -- you didn't even know about that.

Mr. Stewart: --Right.

Chief Justice John G. Roberts: And yet you expect the industry to know all about it, and yet it escaped your attention.

Mr. Stewart: Again, our argument is not that they should have known from the -- about the opinion letter.

Our argument is that the proper application of the promotion sales regulation to the facts of this case is pretty clear, and that if GSK's top-level management was asked to defend the use of detailers, they would say these people are important because if they persuade physicians to write more prescriptions and those are filled with GSK products, then pharmacies will reorder the drug and our wholesalers will reorder it from us.

Justice Sonia Sotomayor: Counsel, can I--

Justice Antonin Scalia: So you have been guilty of malfeasance for 70 years, right?

These 90,000 people out there who have been in violation of the law and the agency has done not a blessed thing?

Mr. Stewart: To return to the 1945 opinion letter, the opinion letter was based on the premise that the employees exercised discretion and independent judgment in the performance of their duties.

That's what -- what DOL said in concluding--

Justice Sonia Sotomayor: --Counsel, I thought that this whole system was set up on giving industries the opportunity to ask the government for an opinion letter, correct?

Mr. Stewart: --Right.

Justice Sonia Sotomayor: I saw in the briefing hundreds of opinion letters by hundreds of different industries.

Outside of this 1945 letter, did anybody else, any other pharmaceutical company, ever set out for the government or seek an opinion letter that you're aware of?

Mr. Stewart: I'm aware of only one instance.

I think this is not a matter of public record, but there was one request in, I believe, December of 2007, for an opinion to the effect that the detailers were covered by the outside salesman exemption.

DOL never responded one way or the other.

Justice Antonin Scalia: You don't suggest -- you're not arguing for a rule that if -- if an individual does not seek an opinion letter, he's guilty?

Is that--

Mr. Stewart: No, I'm not arguing for that rule.

The--

Justice Ruth Bader Ginsburg: Mr. Malcolm -- Mr. Stewart, is it -- is it true that that option is no longer available, that the Department of Labor no longer gives opinion letters?

Mr. Stewart: --It does -- it has phased out the opinion letter program and gives other forms of administrative guidance.

That is, DOL's rationale was that the opinion letter program had not been cost effective because often the bottom line -- may I -- often the bottom line answer to the question would turn on factual nuances of a particular employer and wouldn't provide much guidance to others.

And so it's tried to provide forms of guidance that are -- speak to the industry or a class of employees as a whole.

Chief Justice John G. Roberts: Thank you, Mr. Stewart.

Mr. Clement.

ORAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE RESPONDENT

Mr. Clement: Mr. Chief Justice, and may it please the Court:

Petitioners are two pharmaceutical sales representatives.

They were hired for a sales job.

They were given sales training.

They attend sales conferences.

They are assigned to sales territory, and they are evaluated and compensated as sales people.

Chief Justice John G. Roberts: And they don't do sales.

Justice Stephen G. Breyer: That--

Mr. Clement: With respect--

Chief Justice John G. Roberts: Your long list sort of stopped one step short.

They don't make sales.

Mr. Clement: --With respect, Mr. Chief Justice, we disagree.

We think they do make sales in the way that is relevant in this industry, and we do think they make sales in some sense, which is the practical construction the agency has always put on the sales requirement in the--

Justice Sonia Sotomayor: Can you give me what your regulation is going to be?

Mr. Clement: --What's that?

Justice Sonia Sotomayor: And would it exempt everybody from coverage?

Meaning, you seem to be saying if in some sense they make sales, it seems that every promotional person will be a salesman, that all industries have to do is put one or two forms of sales activities involved in the work of their worker, and they are exempt.

Give me your definition?

As long as it's in some sense, that covers everybody's exempt?

Mr. Clement: Yes, but Justice Sotomayor, if I could, there's two important qualifications that avoid the slippery slope concerns you're talking about.

One is it's, I think, common ground among everybody that you -- to qualify for any exemption or certainly all of these relevant exemptions here, it has to be your primary duty.

So you can't just slip in a little sales activity for something and get that person qualified.

The other thing--

Justice Sonia Sotomayor: Well, it seems like the sale here is not the primary duty.

The sale here is to schmooze the doctor and give him information.

That's what you said in one of your briefs, your company said in one of its briefs in a product liability litigation.

Mr. Clement: --With respect, Your Honor, the commitment is very important in this industry.

It is the objective of the sales call.

It's to get a commitment to prescribe when medically necessary.

Now, it is true that there is prologue to that, and there is efforts to promote before you get that particular sale.

But the regulations address that particularly, and they say, as long as you--

Justice Sonia Sotomayor: Primary duty is one of the limiting, and what was the second limiting principle?

Mr. Clement: --The second limiting principle is actually what I'm talking about now, which is if you look at 503, which are the regulations that draw the distinction between promotion and between being outside sales, they do not say that promotion is nonexempt activity.

What they say is it depends who does the promotion.

And as long as the outside salesperson does the promotion in conjunction with his or her own sales or solicitations, then that is exempt activity.

And what they were trying to--

Justice Ruth Bader Ginsburg: But it also says, it also says promotional work incidental to sales made by someone else.

Mr. Clement: --Is not covered.

Justice Ruth Bader Ginsburg: --is nonexempt.

Mr. Clement: You're right.

Justice Ruth Bader Ginsburg: And these, these sales -- I mean, eventually there is a sale to a hospital, to a pharmacy, and that sale is not made by the detailer.

Mr. Clement: But, Justice Ginsburg, I think it's important to recognize that the reason that 503 draws a distinction between promotional activity in conjunction with the salesperson's own sales or promotional activity with respect to somebody else's sales is they are concerned about the consideration where somebody else is going to follow up with the same customer to close the deal.

And if you look at the regulatory commentary, that's what they're concerned -- they don't want to sort of have double counting, where somebody promotes with a sales target and then somebody else follows up to close the sale.

Justice Elena Kagan: Well, that might be one thing that they are concerned about, but it may not be the only thing.

I mean, if you look at these regulations, it seems as though what they are trying to do is draw a distinction between people who actually consummate transactions, transactional people, and people who are pitchmen.

And what the Department of Labor here is saying is detailers are people who make pitches; they are not people who consummate the transactions.

Mr. Clement: Well, Justice Kagan, I really think if you look at the regulations as a whole and the commentary in the Stein Report and the Weiss Report, they are not worried about sorting out the pitchmen because they understand that a classic outside salesperson is a pitchman who then tries to get a commitment to buy or some other commitment from the sales target.

So what they are trying to do is really distinguishing not between pitchmen and sales people, but between what they refer to as missionary men or people who pave the way for somebody else to make the sale.

And I really think that's the focus of the 503 regulation.

And so the government's argument really boils down to the notion that there's nobody in this industry that makes enough of a commitment with the doctor for anybody to be involved in anything but promotion with the doctor.

And that seems--

Justice Elena Kagan: Why isn't that possible?

I mean, your brief seems to suggest that in every industry there needs to be some group of people who would be classified as outside salesmen, and that's not necessarily the case.

There may be some industries, and here it's a result of regulation, or it may be because of other business practices, where there just isn't anybody who's an outside salesman.

Mr. Clement: --Justice Kagan, it's theoretically possible, but it would be odd, especially in an industry that employs 90,000 people, in order to get a commitment to prescribe from the doctor.

And I think if you--

Justice Anthony Kennedy: What is -- what is this commitment?

Is the commitment in writing?

Mr. Clement: --The commitment is generally not in writing, Justice Kennedy.

Justice Anthony Kennedy: Would it be lawful to make it -- put it in writing?

Mr. Clement: I don't know that anything would turn on whether it was in writing or not because what--

Justice Anthony Kennedy: Would it be lawful to put it in writing?

Mr. Clement: --I -- I think the answer is yes.

It's important for the commitment not to be binding because of the nature of the doctor's role.

Nobody wants to go into a doctor's office, let alone these sales people, and say: Look, whoever is the next person who walks in the door, prescribe them the product.

Justice Anthony Kennedy: That sounds to me it's not a commitment, unless the doctor says: Well, I'll look at this, this is interesting; I'll go home and read your material, I'll think about it.

Is that -- is that a--

Mr. Clement: That's not the kind of commitment they are looking for, Justice Kennedy.

They are looking for a commitment that -- sometimes it's the next patient that presents the condition for which the medicine is medically appropriate, that they will prescribe.

And if you think just practically--

Justice Ruth Bader Ginsburg: But it's got to be non-binding.

Mr. Clement: --It has to be non-binding, I agree.

But I don't think that--

Justice Anthony Kennedy: --And that's why it's not in writing.

Mr. Clement: --Well, but you can have a non-binding commitment in writing.

You can have a binding commitment that's oral, as long as it's -- you know, I don't want to get into the Statute of Frauds here.

But it seems to me that the binding nature is not dispositive either.

You can have a situation -- look, if I agree as -- that I am going to buy something, I can often return it.

Sometimes there is a cooling-off period, things like that.

Justice Anthony Kennedy: Well, let me ask you this, and I'm not well versed in all -- in all of the specifics, but my understanding is that the Federal Government has expressed new concerns, has new regulations, new rules about these outside sales.

Does that mean that the nature of the work has changed in the last 5 or 10 years, so that the years we are talking about is not relevant?

Would you comment on that?

Mr. Clement: I would love to, Justice Kennedy.

I think, to the contrary, I think that -- I mean, the government actually ironically says that the 2004 rulemaking, which was the last time there was any rulemaking, didn't change anything substantively.

We think that is wrong.

We actually think there was an important substantive change to the 503(c) regulations and others which addressed the following problem, which is not that the basic role of the outside salesperson has changed, but the technology has changed in such a way that it would be silly to draw a distinction between whether the salesperson actually takes the order and writes it down or gets a form in triplicate, or rather gets a commitment to buy from the sales target who then actually enters the order on a computer on their own.

And that I think is the specific situation that the agency was confronted with.

And in 2004 they said: We don't want things to turn on who enters the order, whether it's the customer on their own computer or the outside salesperson.

Justice Elena Kagan: But, Mr. Clement, I thought that in 2004 there were two proposals, really, and one was the proposal that was changed and the other was the proposal to get rid of this promotional stuff and to allow people who promoted products to qualify as outside salesmen, and the agency specifically rejected that suggestion.

Mr. Clement: Absolutely, Justice Kagan, but there has always been an effort to try to get all promotional people treated as being exempt.

But that is different from what is being asked for here, which is the last person who makes a visit to the person who places the relevant order in the industry and gets the commitment from that person.

That, in contrast to general promotion, often directed at the world at large, has always been the hallmark of a sale in the Department's own flexible approach.

And I think that's really important.

Justice Ruth Bader Ginsburg: But that seems to be inconsistent with this, this opinion letter.

The request is put in by the pharmaceutical company and they want an exemption under administrative employees.

In the Department of Labor's response allowing that exemption, it says that these detailers, and they use the word "detailers", medical detailers, are engaged in a form of promotional or missionary work.

Mr. Clement: Well, Justice Ginsburg, I -- I want to say two things about that.

One is to say obviously that may depend a little bit on how the particular role was described.

If you are reading from the 1945 opinion letter, I mean, that may be somewhat different.

But I do think that what's important here is that promotional activity itself is not problematic.

Promotional activity is exempt as long as its in conjunction with the person's own sales or solicitations is the word of the regulation.

So I don't think that is dispositive.

Justice Ruth Bader Ginsburg: I think the letter goes on to say that these detailers are engaged in a form of promotion not having for its object the making of specific transactions.

Mr. Clement: Well, and again, Justice Ginsburg, we would take issue with that and say, no, there is an interest in getting a specific commitment.

It is commitment to prescribe.

It may be somewhat -- it is non-binding, and it may be somewhat forward-looking, but I don't think that distinguishes this industry from any industry.

It's not--

Justice Ruth Bader Ginsburg: But as far as your years, it's suspect for two reasons.

One is we are told that in the early years, at least, before there were regulations restricting the sale of prescription drugs, that these detailers did two things.

They did have their informational function, but they also did direct sales to pharmaceutical companies, to hospitals.

So for at least 20 years of those 70 years these people were engaged in what the department would call sales.

So that's suspect.

And then when we have the commitment, the opinion letter that says: We have a category for these people; they are engaged in instruction, in information; they are not engaged in sales; but because they are so independent, we rank them as administrative -- in the particular case we rank them as administrative people.

So it's not as though there was a sudden about-face as you suggest.

We have a categorization as -- as administrative employees, but not sales employees, and we have a history of these detailers at one time actually selling.

Mr. Clement: --Well, Justice Ginsburg, let me say -- I mean, certainly as the regulatory environment has changed, the nature of how the sales are transacted in this industry have changed, but I think the focus is very much on the doctors appropriately because they're the ones that placed the order.

But I also want to be responsive to the administrative exemption.

Justice Antonin Scalia: You wouldn't -- you wouldn't mind being exempt as administrative, would you?

Mr. Clement: I wouldn't, Justice Scalia--

Justice Antonin Scalia: Yes.

Mr. Clement: --but I do want to--

Justice Antonin Scalia: But they've changed their -- their view.

Mr. Clement: --They've changed their view on that, too.

And I certainly don't want this Court to think that the industry somehow has the administrative exemption as an ace up their sleeve or in their back pocket.

And it's really the same exact issue, because, once again, the agency has changed their view.

And once again, their view is not based on anything that has to do with label--

Justice Ruth Bader Ginsburg: Did you claim -- did you claim exemption as administrative employee?

Mr. Clement: --We did, Your Honor, in the district court.

It's not before this Court because we got summary judgment in our favor on the outside sales exemption.

But I really would think it would be a -- a mistake for this Court to say--

Justice Ruth Bader Ginsburg: So that would -- then that would be still open if you lose on the outside sales?

Mr. Clement: --It would, Justice Ginsburg.

But you're just deferring the same inquiry, because the government's position once again is after 70 years of having the industry proceed on the assumption that these individuals were exempt, they now have changed their mind.

And, again, their view has everything to do with FDA regulation--

Justice Elena Kagan: Well, Mr. Clement--

Mr. Clement: --and nothing to do--

Justice Elena Kagan: --I'm sorry.

Mr. Clement: --and nothing to do with labor policy, because what they say is that now because of the government's own off-label prosecutions, these outside salespeople have to stick to a script and -- in order to avoid off-label liability.

And because they have to stick to the script, they are told they don't exercise sufficient discretion to come within the administrative exemption.

And the problem here is the Labor Department, instead of looking at this and making a rational judgment about labor policy and whether these individuals who make $93,000 on -- for the median should rationally be the kind of workers that are protected by the Fair Labor Standards Act, instead, they're looking at things that have everything to do with FDA regulation and nothing to do with labor policy.

Justice Elena Kagan: You've suggested--

Justice Stephen G. Breyer: --The--

Justice Elena Kagan: --I'm sorry.

Justice Stephen G. Breyer: --Are they paid commissions?

If they're -- if the salesman or the promotion agent, as the case may be, is successful in his territory in getting doctors to prescribe the drug, does he receive extra pay?

Mr. Clement: He receives incentive compensation.

Justice Stephen G. Breyer: What does that mean?

Does he -- I mean, an outside salesman -- in one document, it says is a person who often obtains a commission on his sales.

Mr. Clement: Right.

Justice Stephen G. Breyer: And now what I'm trying to figure out -- I might not have the right words to ask the question -- are these people, people who in some sense or other receive out -- commissions on their sales?

Mr. Clement: And the answer is -- for the Petitioners on this record, the answer is yes.

They're not the commissions that are a one-to-one correspondence, but what they do is they receive substantial incentive compensation, about 25 percent of the total, and it's based on the sales of the product in their sales territory.

So, if the--

Justice Sonia Sotomayor: How is that different from a bonus that an employee gets?

How is it any different than what most companies do in -- in giving a bonus at the end of the year?

Mr. Clement: --Certainly, based on the facts in this record, it -- at the time of this case, it's much more tied to the performance of the product in the sales territory.

And I don't think that's -- you know, it's not based on the company's overall performance--

Justice Sonia Sotomayor: Mr. Clement, you give me one definition of "outside salesmen", the one that you prefer for us to apply here.

The Department of Labor gives another, and the one they're giving according to them is a bright-line rule.

It's easy to apply.

You have to do some sort of transfer of title.

That's as -- their rule.

Tell me what the -- your argument is that -- why your rule has to win.

Meaning, aren't we supposed to give deference to the expertise of the agency, especially when Congress lets them define--

Mr. Clement: --Justice Sotomayor, two responses to that.

One is you can't defer to the Labor Department's preferred construction, because it's flatly inconsistent with the statute.

This idea that you have to have a transfer of title cannot be squared with 3(k); it cannot be squared, at least as I understand it, with some of the -- the own advice they've given, which is all you need is a commitment to buy.

That's what they've told people since 1949.

There's an example in that Weiss report from involving a jobber where you have a situation where somebody's treated as an outside salesperson even though they never have title over the product.

So they get the commitment to buy from the sales target, and then a jobber who works for a different employer is the one that transfers title.

That's at page 11 of the NFIB brief, if you want to look at it.

So--

Justice Elena Kagan: Mr. Clement, I guess I'm not sure I understand what you just said.

If -- forget the transfer of title business, but if it's just -- we're requiring a transaction here.

And we're drawing a line between people who do transactions and people who just advertise or make pitches or whatever you want to do it.

That's perfectly consistent with the statute, isn't it?

I mean, you can argue about is it the only possible reading; you can even argue about whether it's the best possible reading.

But it's surely a -- a possible reading.

Mr. Clement: --It is a possible reading, Justice Kagan.

But it's not the one that the Labor Department has advanced in their amicus brief.

So you can't defer to that.

I mean, you can decide that it's the best reading of the statute if you want, but--

Justice Elena Kagan: I suppose that that's a question.

For them, I read their amicus briefs to sort of suggest two things.

Sometimes they just talk about transactions, and sometimes they talk about transfer of title.

Mr. Clement: --Well, and with respect, Justice Kagan, that's one of the many problems with deferring to amicus briefs.

Because when an agency gives guidance in an interpretative rule or something, there's one place, and they provide "the" answer.

Now, I don't know if the government wants you to defer to the -- defer to the argument on page 12 or the argument on page 20 or the argument on page 24.

Justice Elena Kagan: Well, I think that they would say that it doesn't make any difference, because they've never really seen a person who makes transactions without transferring title.

So I think that--

Mr. Clement: Well, with respect, they have -- no -- with respect, they have seen that person.

Justice Antonin Scalia: Consignment, for one, which is legitimate--

Mr. Clement: Well, consignment is in the statute.

But this jobber example is right out of the Weiss report in 1949, and the outside salesperson in that case never had title.

The title comes from the jobber who works for somebody else.

So the salesperson in that instance never had title, not even in the chain of distribution.

Yet they say that is a clear case where the person is an outside salesperson and exempt.

Justice Ruth Bader Ginsburg: Did -- did the pharmaceutical companies request -- ever in this period, request a ruling, a rulemaking on the status of these PSRs?

Mr. Clement: Well, I understand from the government that there was a request in 2007 and that the Labor--

Justice Ruth Bader Ginsburg: That was an opinion letter, they said.

I thought they said that was an opinion letter.

Mr. Clement: --It was a request for an opinion letter.

I'm sorry--

Justice Ruth Bader Ginsburg: Yes.

I asked if there was a request from the pharmaceutical companies for a rulemaking on the proper classification in this case.

Mr. Clement: --No, there wasn't, Justice Ginsburg, but I think that actually cuts in our favor, because in 2004, a lot of companies were coming in with things where they thought it was unclear, where they thought there was some doubt, and asking for clarification.

This was so well understood that the outside sales exemption, or perhaps the administrative exemption, covered the outside sales force of this industry--

Justice Anthony Kennedy: What's the case that I cite if this opinion is written the way you -- you propose, and the -- this Court says, well, this has been years, or maybe in 10 years if you take the new regulations as setting a new regime, and the Department has never made an objection, and therefore, it follows that the Department's interpretation is implausible or improper, and then I cite some case from our Court.

What -- how do I write this?

Mr. Clement: --I would -- I would -- I would ask you not to be bound by having to cite a case.

I would ask you to just use the following reasoning, though, which I think is 100 percent -- and there's plenty of cases you could cite as perhaps cf.

Cites.

Justice Anthony Kennedy: Well, I'd like one.

[Laughter]

Mr. Clement: Sure.

Let's start -- let's start with Fox and just the basic notion that in administrative law, if you're going to change your position, you have to acknowledge that you're making a change.

I think at a minimum here, if they're going to impose this kind of massive retroactive liability on this industry--

Justice Elena Kagan: --But, Mr. Clement, this isn't a change.

You've referred to it as a change in a lot of ways -- in a lot of times, but what we have here is an agency that, for some number of years, thought that this was not the most urgent problem on their plate.

Indeed, one would think this is a pretty peculiar Department of Labor if they thought that this was the most urgent problem on their plate.

So they didn't enforce it.

But now the question has come up, and they say we'll look to our regulations.

This falls on one side of the regulation.

Now, you've been given a gift for all these years is one way of looking at it, because -- because you were not their most urgent problem, and so they didn't enforce their own regulations against you.

Mr. Clement: --Justice Kagan, here's the thing.

We can quibble about whether or not there is a change in their position or whether they just didn't have a position before, but I think the important thing is they've imposed, by taking this position in an amicus brief and asking for deference to it, massive liability on this industry.

The PhRMA brief estimates it's billions of dollars.

Now, I--

Justice Ruth Bader Ginsburg: Why would you -- why must you look to an amicus brief?

Why not just look to the regulations that define -- the regulations that define "sale" and that define "promotion".

The 541.503 says promotion work incidental to a sale made by somebody else is not exempt.

Why do we get into the amicus brief when we have in these 541 regulations a definition of sales on the one hand, promotion on the other, and then this statement that promotion work incidental to sale made by somebody else is not exempt?

Why doesn't -- why isn't that the answer to this case?

Mr. Clement: --Here's the answer as to why that's not the answer, and then let me circle back and say why, if you are going to err on one side or the other, you shouldn't err on the side of imposing massive retroactive liability.

The reason that that is not a simple matter of deferring to that is because that same regulation earlier says that promotional work is exempt if it is in conjunction with the individual's own sales or solicitations.

Now, I happen to think it's pretty clear that these -- by getting this commitment, which is the functional equivalent of a commitment to buy, which is what the regulations and regulatory interpretations have always said is a sale in some sense, I think these are sales.

Certainly--

Justice Ruth Bader Ginsburg: Does the pharmaceutical company have a sales force?

I mean, who sells to the wholesalers, the pharmacies, and the hospitals?

Mr. Clement: --It's not this kind of outside sales force.

It's a much less sales-oriented transaction.

The PhRMA amicus brief, for example, gives the example of a company that has 2,000 outside sales reps and 10 people that handle the movement of transfer of product to the wholesalers and the distributors.

If you look at district court's opinion at the page 42a of the petition appendix, the district court addresses this issue and I think gets it exactly right, which is the reason there is not a sales effort focused on the wholesalers and distributors is because their job is to have on stock the kind of medicines that physicians are prescribing.

Justice Ruth Bader Ginsburg: But there are -- there are people who sell to them.

There may be only a few, but--

Mr. Clement: There is a handful of people, Justice Ginsburg, but that's -- I mean, there is nothing anomalous about that.

Most industries have some sales force that operates on the wholesale--

Justice Ruth Bader Ginsburg: --Are they exempt, too?

Mr. Clement: --What's that?

Justice Ruth Bader Ginsburg: The -- the actual sellers from the -- the people on the staff of the pharmaceutical company who sell to the wholesalers, pharmacies, and hospitals, are they exempt?

Mr. Clement: I don't believe so, Your Honor, at least not under the outside sales exemption, in part because they are not outside, in part because they are not really engaged in a sales effort.

It does them no good -- if they can convince some wholesaler or distributor that the GSK product is far superior to a competitor's product and it doesn't make any difference at all because as a result of that -- they need to have product that actual doctors are writing prescriptions for.

That's what drives sales in this industry.

There is nothing anomalous about that.

If you think about any industry, sales activity is always directed at the people who place orders.

In this industry, because of the learned intermediary doctrine, the person who places the order is the doctor, not the ultimate end user.

Chief Justice John G. Roberts: Is there -- let's say the doctor hears the spiel and the doctor says: Okay, yours is the first thing I will think of, you know, when I have a patient with this and this.

I mean, is that a sale?

Mr. Clement: We think it is, Your Honor, but if you have any doubt about that, certainly at the point that the doctor then, when he sees the next patient, writes the prescription, I think at that point I think there's a sale; because again, what the regulations and regulatory history looks for is a -- is a commitment to buy.

That's the relevant commitment to buy.

That's the order in this industry--

Chief Justice John G. Roberts: So what if the doctor, as I suspect a lot of doctors do, they listen to this guy, and they say: Okay, I'll think of -- you know, when it comes up, I'll think of your product.

And the next guy comes in from the other company and he says: Okay, when it comes up I'll think of your product.

Are those two sales or no sale?

Mr. Clement: --I think they are probably two sales, Your Honor.

But you know, it's the same thing -- imagine somebody who's, you know, just sitting in their house and they get an encyclopedia salesperson.

And they say, you know, I'll -- maybe I'll buy that.

That looks good, I'll buy it.

And they say, but you know, maybe the State law has a law that says you have got to wait 24 hours before you put the order in, in the computer.

Chief Justice John G. Roberts: But that's a firmer commitment when they say: I will buy it.

The physician is just saying: I will think of your product when it -- when the need comes up.

Mr. Clement: But -- well, if -- I mean, what I was suggesting is maybe you are talking about a State that has a 24-hour waiting rule or something like that.

So it's a commitment that, sure, I'm going to enter the order in 24 hours.

Well, maybe another encyclopedia salesmen comes in, in 12 hours and he gives another commitment.

One of the two people he is going to put the order in, and one of the two people will certainly have finally had a sale.

I think again--

Justice Elena Kagan: But don't you think that the way this works -- I mean, the way we should all hope it works is that the detailer comes in, the detailer provides information, the doctor says, that's very interesting, I want to think about it, I'm going to think about it.

Then the doctor reads some medical journals; then maybe the doctor goes to a convention and talks to other doctors about the product.

I mean, that's what you would hope that a doctor would do before a doctor decided, I'm going to start prescribing this medicine.

And the detail work is a part of that, but so are many things before the doctor actually decides to do something.

Mr. Clement: --Sure, Justice Kagan.

But you don't want to look at this like it's an isolated, one-time, you know, sort of interaction.

I mean, one of the things that -- that happens in this industry, like other sales industry, is there are multiple trips.

The detailer goes there maybe the first time and lays the ground work.

Then maybe the doctor reads some other information.

Then maybe on the final visit, after all that information is there, finally the detailer gets the commitment to prescribe to appropriate patients.

I think one way to think about the absurdity of making the difference turn on the prescription is to compare this salesperson to another salesperson of medical devices who goes in, but these are medical supplies that the doctor uses in the doctor's office.

Now, they're both hired for their sales experience, they both get sales training, they both have a sales territory.

They're sitting in the same doctor's waiting room, waiting for the same doctor; they have samples in their bags, and they both get a commitment from the doctor.

Now, what sense does it make as a matter of the FLSA and its labor policies to say one of those people is exempt and the other one is not exempt, because for perfectly sensible reasons, we say that one of those products is a prescription where the doctor writes the order and then with that order the end user, the ultimate end user, can make the purchase at the pharmacy, whereas the other one--

Justice Antonin Scalia: --Mr. Clement, I wanted to ask you about section 501 of the regulations, which -- which is on page 4 of the appendix in the blue brief, and was mentioned in the -- in the government's presentation.

It says

"requires that the employee be engaged in, one, making sales within the meaning of 3(k); or, two, obtaining orders or contracts for services or for the use of facilities. "

What authorization is there for the agency to invent number two?

Mr. Clement: --Well, Justice Scalia, you heard the government's explanation and, as you suggest, if the government's explanation is right, then this shouldn't be a matter of just trying to limit things to -- to the 3(k) definition.

I think, even though -- at the 3(k) definition, though, if you look at that definition, it has every hallmark of being broad and functional and flexible.

I would want to make one very important point, though, about the ultimate question here, because ultimately the decision whether to go one way or another on this issue has remarkable significance for retroactive imposition of liability.

We all know that retroactive rulemaking is disfavored.

Well, think about the consequences here.

You have massive liability, between 4 and 6 years of effective time and a half, because of the way that the statute works.

It has time and a half plus liquidated damages.

You are talking about people who are very well paid, close to six figures.

So unlike the classic worker who you might think is covered by the FLSA, who is a relatively low hourly worker, the amounts of damages here are quite significant.

Of course, the effort to try to reconstruct these people's hours, given that they were told they were exempt and they were outside the office, trying to reconstruct how many overtime hours they actually worked is going to be a crapshoot at best.

So if you think about all of that, and then you think about, as Justice Breyer indicated, the other option, which is to--

Justice Stephen G. Breyer: Let's pursue this for a second.

Mr. Clement: --Sure.

Justice Stephen G. Breyer: Because I would like to go back to Justice Kennedy's question, and this is only me speaking.

I don't know how anybody else feels.

If this had come up in 1941, you wouldn't have had a chance.

I would have said look at the statute; it says the Secretary defines it.

You say, well, can you define it in a brief?

Yes, you have to be careful in briefs, but yes; and that's the end of the case.

It's not a question for judges, it's a question for administrators.

But now it's difficult for me because of the passage of 75 years.

And we can blame it in part on the industry or in part on the Secretary.

There is blame to go around.

So the question is, what do I do as a judge?

And partly my instinct is get somebody to decide this other than a lawyer in the Department of Labor, because this is a hard question.

And that's where we come to Justice Kennedy's question, which is he says all right, fine, let's write that and -- and what case do we cite?

And I don't agree with you, overturn Auer.

I think amicus briefs are often helpful, but use them with care.

And then I have the statute here, which talks about the Secretary doing the definition of "outside salesman", and I have lots of rules and regulations and reports, which are fairly ambiguous in my opinion.

So you tell me what to say.

Mr. Clement: I -- may I answer?

Chief Justice John G. Roberts: Certainly.

Mr. Clement: I would start by citing -- I know it's not always in fashion to cite lower court opinions, but I would start by citing Judge Posner's opinion in Yi, because the Seventh Circuit there, a, a very distinguished panel, Judge Posner, Judge Wood, and one other judge, the three of them considered this question -- Judge Sykes, I'm sorry; it slipped my mind, a very distinguished judge.

[Laughter]

The -- it -- the point being that he said along these lines that the 70 years of history makes a significant difference.

And here's the thing.

Just like you expect an agency to confront a change of position, you would at least expect an agency to confront the retroactive consequences and in that sense address them and make sense of it.

And I would just simply say this, which is if you had a rulemaking you could bring in all of the affected parties, including the current sales representatives, who are not the ones bringing these lawsuits, whose jobs are going to be changed, and you could make a comprehensive view, as opposed to just getting one side of an ongoing litigation and then making a decision about an amicus brief.

Thank you.

Chief Justice John G. Roberts: Thank you, counsel.

Mr. Goldstein, 3 minutes.

REBUTTAL ARGUMENT OF THOMAS C. GOLDSTEIN ON BEHALF OF THE PETITIONERS

Mr. Goldstein: Thank you, Mr. Chief Justice.

Three quick points.

First, if you read the transcript, you will see that my friend says that the nature of this job has changed.

And that is an essential part of understanding this case.

And there is an entire amicus brief in addition to our submission on behalf of pharmaceutical representatives, which explains how very much the requirements of pharmaceutical detailers and the restrictions on them have changed dramatically over the last couple of decades in particular.

And that's why the continued references to years are wrong.

The other important part about the FLSA in particular is that there is a statute on this issue, and it says that an employer can request guidance from the agency; and if it doesn't do that, it is not -- it has no defense.

Its job is to ask for guidance.

And there are 50 different exemptions from the FLSA that cover hundreds of different categories of employees.

And if the rule you are going to announce -- because Mr. Clement's view is you shouldn't be bound by any precedent, if the rule you are going to now announce is that there has to be rulemaking with respect to all of those, it's going to be an administrative nightmare.

Two quick further points.

The Department of Labor's position is that there has to be an actual commitment, not a precatory commitment.

And Mr. Clement says, well, that's contrary to the definition of 3(k).

Please read the definition again, and if you find something in there, something that is not a commitment -- it can be an exchange; it can be a commitment that is even a consignment; it can be a traditional sale.

Every one of those things is commitment.

It is impossible to find in the definition of commitment a rule that says -- excuse me, in the definition of sale--

Justice Samuel Alito: Where do they say that that's their test?

Where does the Department of Labor say that's their test, it has to be a commitment.

I thought what they said in their brief was there has to be a transfer of title.

Mr. Goldstein: --There are two different parts to it.

One is that they -- as explained by Mr. Stewart, their view of transfer of title, but the Weiss Report says repeatedly that there has to be a commitment to buy.

That is--

Justice Antonin Scalia: Well, which is it?

I mean, you say, yes, yes, it's both.

Mr. Goldstein: --You have to agree--

Justice Antonin Scalia: Pick one.

Mr. Goldstein: --You have to--

Justice Antonin Scalia: Is it the transfer of title or a commitment?

Mr. Goldstein: --It is the agreement to transfer title.

There are two parts to it--

Justice Antonin Scalia: Ah.

Okay.

Mr. Goldstein: --But there has to be the agreement, a firm agreement.

It's repeated in the 2004 preamble to the regulations as well.

Now, the last critical point I want to make is that Mr. Clement says there are commissions on sales in the sales territory.

And what he is not talking about is any commitment by a physician.

When you look at the transcript and he talks about sales in the sales territory, he is talking about the sales by the pharmacy.

That's where the sale occurs in this industry.

It's to the wholesaler and to the pharmacy and to the customer.

He is not talking about a sale in the sense of getting a commitment to have--

Justice Anthony Kennedy: But the district court here made a finding -- this is at 42(a) of -- of the -- the appendix for the Petitioners:

"Sales volume was directly and exclusively driven by the number of prescriptions written by physicians, and plaintiffs' job was to encourage such prescriptions. "

Mr. Goldstein: --That -- Mr. Justice Kennedy, I don't believe that you can fairly describe that as a finding of fact.

That is the judge -- his view of the summary judgment record.

It is--

Justice Antonin Scalia: It's a finding of logic, for Pete's sake.

These are prescriptions.

You can only get a prescription from a doctor.

Obviously, the number of prescriptions -- drugs sold depends upon the number of prescriptions given by doctors.

Mr. Goldstein: --Two -- two things about that.

First is that a detailer doesn't get a commitment to a prescription.

And then in addition, it's clear that there are numerous influences on what a doctor does.

There's all the advertising--

Justice Antonin Scalia: That's a different point.

Mr. Goldstein: --It is an important point.

It is a different point.

Justice Antonin Scalia: It's not the point you were making.

Mr. Goldstein: Justice Scalia, the point that I will make at bottom is that you have to have a firm commitment.

That's what the Department says.

And there's nothing in the definition in 3(k) that contradicts that.

Chief Justice John G. Roberts: Thank you, counsel, counsel.

The case is submitted.

Featured:

Salazar v. Ramah Navajo Chapter - Oral Argument

Mon, 23 Apr 2012 14:52:39 +0000

Case:

Salazar v. Ramah Navajo Chapter

Media File:

11-551_20120418-argument.mp3

Related Transcript:

11-551_20120418-argument.xml

Transcript:

ORAL ARGUMENT OF MARK R. FREEMAN ON BEHALF OF THE PETITIONERS

Chief Justice John G. Roberts: We'll hear argument this morning in Case 11-551, Salazar, Secretary of the Interior v. Ramah Navajo Chapter.

Mr. Freeman.

Mr. Freeman: Mr. Chief Justice, and may it please the Court:

The funding dispute in the -- in this case is the result of two distinctive features of the ISDA's statutory scheme.

On the one hand, Congress has required the Secretary of the Interior to accept every self-determination contract proposed by an Indian tribe, provided that the contract meets the requirements of the Act, without regard to the total number of contracts into which the Secretary must enter.

Now, on the other hand, in every fiscal year since 1994, Congress has enacted an explicit statutory cap on the amount of money that the Secretary may use to pay contract support costs under the ISDA and under those contracts.

Now, we think under the circumstances, Congress intended the Secretary to resolve these -- the relationship between these provisions in exactly the way that the Secretary has.

Justice Sonia Sotomayor: Excuse me, but could the Secretary have done anything else?

Mr. Freeman: I'm sorry.

I couldn't hear Your Honor.

Justice Sonia Sotomayor: Could the Secretary have done anything else?

There's an allegation that the Secretary in fact pays some contractors more than their pro rata share, that it pays some nothing--

Mr. Freeman: Right.

Justice Sonia Sotomayor: --so that it's in effect acting -- I don't want to use the word "arbitrarily" -- but acting in whatever its best interest is.

So what protects the contracting party from that -- from that conduct, assuming it were to be correct?

Mr. Freeman: Yes, Your Honor.

Well, the Secretary has promulgated a formal nationwide policy.

Justice Sonia Sotomayor: Says it has a policy.

Mr. Freeman: Yes, and--

Justice Sonia Sotomayor: The allegation is, is that it's not following it, that it's choosing to pay people some more than others.

Mr. Freeman: --Right.

And let me address that.

The allegation is, I think, at page 9 to 10 of Respondents' brief.

Those allegations are, as a factual matter, false.

For example, they've given a couple of examples where 0 percent contract support costs were paid.

One of those examples is a contract where it had been entered into in that particular year.

New contracts are paid under a different appropriation.

Another example is they give a case of a tribe that was paid 352 percent of its contract support costs.

And let me explain, because I think it's important to understand how--

Justice Ruth Bader Ginsburg: Before you do that--

Mr. Freeman: --Yes.

Justice Ruth Bader Ginsburg: --It was my understanding that that system, that has been described as arbitrary, was not the one that was applicable to the years in question.

Mr. Freeman: That's right.

At -- at the time of the district court's ruling in this case, from 1994 to about 2006, the Secretary followed a uniform pro rata distribution methodology according to the needs of each of the individual tribes.

Now, that's what we thought the tribes wanted.

We thought that was the fairest way to do it.

Justice Anthony Kennedy: And all within the -- all within the dollar amount that was specified by the Congress in the "not to exceed" language.

Mr. Freeman: That's exactly right, Your Honor.

Yes.

So each tribe has an amount of need.

This is the amount that is estimated.

It's a negotiated figure between the Secretary and each tribe.

And it is undisputed that the amounts that Congress has been -- has appropriated have never been enough to pay 100 percent of each of those figures for each member of the Respondent class.

Justice Antonin Scalia: Didn't we have similar language in Cherokee Nation?

Didn't we say that that language in Cherokee Nation, which was in the general appropriations statute although not on each contract, didn't mean the Secretary could refuse to pay?

Mr. Freeman: No, Your Honor.

We did not have similar language in Cherokee, if you mean the Appropriations Act.

It was under the same--

Justice Antonin Scalia: No, I don't mean the Appropriations Act.

I mean -- I mean the general statute that governed this program.

Mr. Freeman: --That's right.

And maybe it would be helpful if I could--

Justice Antonin Scalia: So why does it mean one thing there and mean something else when -- in the Appropriations Act?

Mr. Freeman: --Well -- I may not be understanding Your Honor's question, but I -- I think it might be helpful if I explain what was at issue in Cherokee.

In Cherokee, the government was not in this Court making Appropriations Clause arguments.

We were here making a very different argument.

It was undisputed in Cherokee that Congress had appropriated enough money for the unobligated available funds, lawfully available funds, for the Secretary to pay all of the contracts that were at issue.

Our argument -- and to be sure, we thought we were right -- our argument was that Congress had in other provisions of the Act allowed us to set aside a certain amount of money that, albeit lawfully available to pay the contracts, we thought we could use to fund the agency's inherent Federal operations.

And the Court said: No, no, no.

These are contracts.

The money was lawfully available for you to pay, and there was no statutory restriction against you paying it, so you had to pay it.

And this case involves the circumstance that--

Justice Sonia Sotomayor: Well, how -- what was our reference and acceptance of the Ferris doctrine?

And the Ferris doctrine was almost identical to this situation, where Congress allotted a certain amount to the building of a particular dam, and the same -- we applied the Ferris principle and said even though they gave it to one type of contract, the dam, they were paying 1 percent less than others.

Mr. Freeman: --No -- no, Your Honor.

Justice Sonia Sotomayor: Where they had an allotment adequate enough to cover that individual.

Mr. Freeman: No.

I think that's not quite an accurate characterization of Ferris.

And it's important to understand what Ferris--

Justice Sonia Sotomayor: I know what the Federal Circuit said.

I don't think the Federal Circuit's right.

If you read Ferris, there was an appropriation for the dam.

Mr. Freeman: --Ferris was an appropriation for -- I think it was 40-some thousand dollars for improvements to the Delaware River.

And the government, the Army Corps of Engineers, let out a contract for $37,000 to dredge the river.

Then after the contract had been let out -- and this is critical.

If you stop the movie at the time the contract was issued, there was sufficient funds to pay that contract.

They were lawfully available.

We obligated them to the -- to the contractor.

And then what happened in Ferris was, after that lawful binding agreement was entered, agency officials decided in their discretion that they'd prefer not to spend the money on that, and they instead built a wharf or something.

And what the Court said in Ferris -- and this is -- we're not -- we have no quarrel with this principle -- is that when the funds are lawfully available and you obligate them to a contractor without some contingency, then you can't just decide to spend it on something else.

That's a breach.

And it's not a defense to the breach that at the end of the -- that at the end, once you've breached the contract, there isn't enough money left in the appropriation to go back and pay them what you should have.

That's different from this case, that there is not enough lawfully available money to pay every--

Justice Antonin Scalia: No, but -- but there wasn't in Ferris either.

I mean, that was the problem.

If the appropriations had been enough to cover that plus the later expenditures, there would have been no problem.

Mr. Freeman: --Your Honor, I think Ferris is correctly understood -- particularly given this Court's subsequent decisions in Sutton, in Bradley, Leiter, and other cases, Ferris is correctly understood as saying -- and this is the proposition, incidentally, for which the Court's cited Ferris in Cherokee.

Ferris is understood as saying if you've got a binding obligation in which you promised to pay money that is lawfully available, Congress gave it to you, then if you, agency officials, do something in your executive discretion--

Justice Antonin Scalia: Available subject to appropriations.

I mean, it was subject to appropriations.

Mr. Freeman: --Well, in Ferris, there were -- in fact, the contract was not made subject to appropriations.

And one of the things the Federal Circuit pointed out was that the

"subject to the availability of appropriations. "

language that is now ubiquitous in government contracts was developed in part to make sure that the Ferris situation didn't later arise.

But I want to underscore, if we know one thing in this case, we know that Congress intended for the Secretary not to pay any more than the amounts in the statutory caps.

Justice Elena Kagan: Mr. Freeman, could I try a hypothetical on you?

And it's -- it really is going to this question of what Ferris means.

So suppose that there's a government program, and it's to purchase airplanes.

And it's -- the authorization language says this is subject to appropriations, in the same way that this language does.

And the government, under this program, enters into 10 contracts of a million dollars each to buy 10 airplanes.

But then it turns out that Congress appropriates only $9 million, not $10 million.

So my question is: Now there are 10 contractors and -- but there's a shortfall of a million dollars--

Mr. Freeman: Right.

Justice Elena Kagan: --do those contractors have contractual rights under Ferris?

Mr. Freeman: I -- Your Honor, it's going to depend on a couple of things.

And let me -- let me explain.

I think, because by hypothesis in your hypothetical we're entering into the contracts in advance of appropriations, there is no right to be paid until the appropriations are made.

Justice Elena Kagan: Yes.

So the appropriation has been made.

It's a $9 million appropriation.

Mr. Freeman: Right.

And in that circumstance, the agency cannot pay more than $9 million, and there is no binding obligation, contractual obligation, on the government to pay more.

Let me add something, though, in response--

Justice Elena Kagan: So -- so either one of these airplane manufacturers is going to not have what he contracted for, or all of them are not going to have what they contracted for, because everybody is going to -- their contract is going to be sliced.

Mr. Freeman: --And, Your Honor, the reason why this is not a problem in real life is that there are other provisions in your ordinary procurement contracts, under the ordinary kind of contracts that this case is not, that take care of that.

And the principal one is--

Justice Elena Kagan: My understanding, Mr. Freeman, is that that is what Ferris said, was that Ferris said in that situation where it turns out that there's a shortfall but where there are contractual commitments, that -- that the government is bound to live up to those contractual commitments.

And if there's a shortfall, then it comes out of the Judgment Fund.

Mr. Freeman: --No.

Your Honor, it -- there are a couple of things there.

But let me first explain why as a practical matter that doesn't happen in circumstances that are -- are not like this scheme where we're required to enter into every contract.

In your ordinary government procurement scheme, there are termination for convenience provisions.

And, in fact, what happens in the circumstances in which Your Honor posits is the government terminates for convenience enough of the contracts to make sure that we have the money to pay.

And if we didn't do that, it would be a violation of the Anti-Deficiency Act.

And this Court has said many times--

Justice Sonia Sotomayor: So do the tribes have the right to stop providing the services--

Mr. Freeman: --Yes.

Justice Sonia Sotomayor: --that they've contracted to?

Mr. Freeman: Yes.

Justice Sonia Sotomayor: How do they know that until they know what they're getting?

Mr. Freeman: Well--

Justice Sonia Sotomayor: Meaning they don't know what they're getting.

Mr. Freeman: --Well, they do know.

Justice Sonia Sotomayor: They signed a contract that says you're going to pay them for their services to their members and for their administrative costs.

They incur that cost, and then at the end of the year, the government now says to them you've honored your part, but we're not going to honor ours.

Mr. Freeman: No -- no, Your Honor.

That's -- that's not correct, and let me explain why.

First, every contract that the -- every member of the Respondent class signed in this case says that the contractor's obligation to perform the services that are at issue is subject to the availability of appropriated funds.

That's Section (1)(c)(iii) of the model agreement that is read into every ISDA contract.

They further have the availability under Section (1)(b)(v) of that model agreement to stop at any point if they are worried that there's not going to be enough money and seek assurances from the Secretary that there will be.

Now, as to whether they know and when they know how much money they are going to get, that was the point of the 2006 distribution policy that the Secretary adopted.

Under the pro-rata system that we used for the first many years, the tribes said, look, we don't know how pro-rata is going to work out.

So, in consultation with the tribes, and, indeed, with the aid of several of the counsel for the Respondent class, we drafted a policy that--

Justice Sonia Sotomayor: What does the system do to the 50-odd contracts that Arctic Slope, in its amici brief, points to that are similar to these?

Does this now mean that moving forward, that every government contractor who has a "subject to appropriations" language takes the risk that at some point in the middle of the contract, the government is going to dishonor its obligation and pay it less than it said it would?

Mr. Freeman: --No.

No, Your Honor.

And this is my--

Justice Sonia Sotomayor: So how do -- how do we differentiate those 50 other contracts?

Mr. Freeman: --Well, I think they were citing a number of different statutes in which the statutes provide that funding is subject to the availability of appropriations.

Now, it's important to underscore, that's why I started with this point, I don't believe in any of those statutory schemes is the government obligated to enter into every contract that comes in the door.

And--

Justice Elena Kagan: Well, but that's partly why I asked you my hypothetical, Mr. Freeman, because I sort of wanted to see whether you would distinguish the hypothetical on that basis--

Mr. Freeman: --Right.

Justice Elena Kagan: --but you didn't.

You said no, it doesn't really matter.

Even if the government is not obligated to enter into contracts, if the government has entered into too many, too bad; we can't make those additional appropriations.

Mr. Freeman: And, Your Honor, it is -- the unique features of this statutory scheme are absolutely important, but I want to -- I took Your Honor's question to be under the general appropriations principles that we are describing, what would the result be?

And I think I'm right, but I should also add, as I said before, there are very strict fiscal controls in 31 U.S.C. 1501, et sequitur, that make clear and prevent the circumstance that Your Honor describes.

Justice Stephen G. Breyer: I'm sorry, I'm not clear on what the hypothetical is.

I thought her hypothetical -- Justice Kagan's -- was a situation where the statute says, Mr. Secretary, you can spend no money beyond what is appropriated.

Mr. Freeman: Right.

Justice Stephen G. Breyer: But the contract doesn't mention it.

That's Ferris.

I thought that the -- the real world is, in contracting, you typically have both a statute that says don't pay more than is appropriated--

Mr. Freeman: Right.

Justice Stephen G. Breyer: --and in the contract it says, subject to appropriation, putting the contracting party on notice.

Mr. Freeman: That's right.

And -- and--

Justice Stephen G. Breyer: So which were you answering?

Mr. Freeman: --I -- with respect to Justice Kagan, I believe we had a colloquy in which I said that because in her hypothetical we were entering into the contract in advance of appropriations, they would have to be made express -- the contracts themselves would have to be subject to the availability of appropriations in the contracts.

Justice Stephen G. Breyer: The words in the contract are "subject to appropriations".

Mr. Freeman: Yes.

And without that, it would be a violation of the Antideficiency Act--

Justice Stephen G. Breyer: Yes.

Mr. Freeman: --yes.

Justice Stephen G. Breyer: Okay.

So in that world -- now we get to the question -- in that world, what happens when 15 people each enter into such a contract for $100,000 each, and the appropriation turns out to be too small to pay all of them, but big enough to pay some?

Mr. Freeman: And, Your Honor, what I was trying to answer is that, in your ordinary contractual scheme, the government solves that problem in a very straightforward way.

We terminate for convenience the contracts -- enough of those contracts to ensure that we have no obligations beyond the available appropriations.

Now, we can't do that here, which is why this is ultimately a question of congressional intent.

Justice Sonia Sotomayor: So why don't we let Congress fix it?

Because there are so many ways that Congress could fix this problem directly.

By doing a line item allocation, it could take away the obligation to enter into these contracts and fully fund.

It could be much more direct--

Mr. Freeman: Your--

Justice Sonia Sotomayor: --than it's being, given the interpretation that you're advancing.

Mr. Freeman: --Your Honor, I think it's important to understand what -- and maybe it would help if I took a minute to explain this -- what Congress was trying to do in this statutory scheme.

Justice Sonia Sotomayor: It was trying -- it was trying to tell the tribes, we are honoring our obligation by paying you the costs, but we are really not going to do it because we are going to let the government give you less?

Mr. Freeman: No.

Look, Congress could--

Justice Sonia Sotomayor: I have to assume Congress intends what it says.

It intends to obligate you to enter into contracts that -- that give -- make you commit to paying their costs, correct?

Mr. Freeman: --Not with -- yes.

But 450j-1(b) says, notwithstanding any provision of this Act, all funding under this Act is subject to the availability of appropriations.

And let me explain why Congress would have wanted to enact this statute that has some unusual features.

Congress, of course, could have said, we want to give every tribe the opportunity to enter -- to provide services in its own name to its own people, but we are going to do this on a regular contract basis, meaning we'll just give us -- some to the Secretary.

The Secretary signs contracts as they come in until he doesn't have any money left.

And then any tribe after that who asks for a -- for a contract, the Secretary says no, we don't have the money to do it.

But Congress chose a -- a different approach.

Congress wanted, as a matter of self-determination, to require the Secretary to give every tribe who wants the ability to do this the opportunity to do it.

But, if it didn't then say, all funding is subject to the availability of appropriations, the result would be that the government would be exposed to a liability that Congress could not estimate, because the ability of these tribes to pay for overhead costs and whatever varies tremendously from tribe--

Justice Ruth Bader Ginsburg: To what extent do you rely on -- you haven't mentioned it up till now, but Congress, in these appropriations, said "not in excess of".

Mr. Freeman: --Yes.

Justice Ruth Bader Ginsburg: It wasn't just a general "subject to appropriations".

It was a specific amount, the Secretary shall not pay in excess of a certain dollar amount for these costs.

Justice Anthony Kennedy: I had exactly the same question.

The "not to exceed" language, which I think is the word, not to exceed, hasn't been mentioned by you yet because -- maybe you haven't had time.

Mr. Freeman: Right.

[Laughter]

That would be it.

Justice Anthony Kennedy: But -- but I thought that was what Judge Dyk said--

Mr. Freeman: Yes.

Justice Anthony Kennedy: --was the critical -- the difference between this and even the Cherokee case.

Mr. Freeman: Right.

Justice Anthony Kennedy: And so my question is -- is the same as Justice Ginsburg's.

Isn't a principal part of your argument that this contract said not to exceed, and then the sums differ from year to year, but let's say $95 million?

Mr. Freeman: That's exactly right, Your Honor.

I mean -- and what I -- what I tried to answer to a question earlier, it is absolutely clear what Congress was trying to do here.

Congress said not to exceed a specific sum from year to year--

Justice Anthony Kennedy: When the Congressional Budget Office, or whatever agency it is that figures out whether there is a deficit and, if so, of how much, do they look at "not to exceed", and do they take that amount seriously?

Or--

Mr. Freeman: --Oh, oh, absolutely, Your Honor.

And--

Justice Anthony Kennedy: --But the -- but the position of the Respondents is that it makes no difference.

Mr. Freeman: --No difference at all.

Justice Anthony Kennedy: Congress is saying nothing at all.

Mr. Freeman: Yes, yes.

Justice Ruth Bader Ginsburg: It really--

Chief Justice John G. Roberts: So the consequence on the ground is that, if I'm a tribe and I want this money, and I figure out that this is going to cost me $80,000--

Mr. Freeman: Yes.

Chief Justice John G. Roberts: --I sign a contract and say, this is going to cost me $100,000, because I know there isn't going to be $100,000; there is only going to be $80,000, and that's what I need, right?

Mr. Freeman: Well, in fact, it can't work that way, Your Honor, because the amounts are limited by statute to the reasonable and allowable costs that are not duplicative of the principal program funds, the funds to run the program--

Chief Justice John G. Roberts: Well, but it's -- well, if 80,000 is reasonable, the only way to get that is to ask for 100?

Mr. Freeman: --Right.

And if a tribe thinks that we haven't put in to the -- we haven't offered them enough money for their contract support costs, they are allowed to decline the offer that we make.

And they can -- unusually, for government contractors, they can file a separate lawsuit before entering into the contract to litigate whether the terms are sufficient.

Justice Ruth Bader Ginsburg: --Mr. Freeman, where did these caps come from?

Did the agency initiate them?

Or, there is a chart -- perhaps I don't understand it correctly.

It's on page 210 of the joint appendix.

It does -- it does seem to indicate that it was the BIA that proposed the cutbacks.

Mr. Freeman: The caps come from Congress, Your Honor.

Respondents have make -- have made an argument at the end of their brief that the government should be liable here notwithstanding the caps because the BIA hasn't requested sufficient funding from Congress -- or, rather, the President hasn't requested sufficient funding from Congress.

That argument, we think, is baseless for a number of reasons.

And just as a factual matter, the GAO has done some studies of this.

There are reports in the joint appendix explaining why BIA has not in every year asked for what turned out to be enough money.

And that's because these -- this funding is done on a prospective estimated basis.

And because we are required to take into -- we are required to accept every contract that comes in the door, BIA may estimate and make its best available estimate, and OMB and the President may accept that if he chooses, but it still turn may turn out not to be enough.

Justice Antonin Scalia: That's not really relevant here anyway, is it?

Mr. Freeman: No, it is not.

It is not relevant, Your Honor.

No.

That's right.

Justice Antonin Scalia: What I don't understand is why the language $900,000.

You mean the world changes if -- if Congress, instead of just appropriating $900,000, authorizes the Secretary to expend not to exceed $900,000?

Why--

Mr. Freeman: I don't think in that circumstance there would be any difference.

Here, the reason why it's different is that this is ultimately a question of what Congress was trying to do.

There is no constitutional argument that Congress can't enact these kind of caps, and we know from the "not to exceed" language that Congress was being as emphatic as it could.

Justice Antonin Scalia: --Well, I -- I think $900,000 is pretty emphatic, if that's all you appropriate.

Mr. Freeman: Right.

And just -- it's just this is the way, as an ordinary matter, that in appropriations Congress expresses an internal cap.

It said--

Justice Elena Kagan: But that runs you right into Ferris.

Then you're saying that there's no difference between the standard Ferris-type appropriation, which is just an amount of money, and this kind of appropriation, which is up to or not to exceed that amount of money.

Mr. Freeman: --Your Honor, Ferris we think is inapplicable just to this type of statutory scheme where we're required to enter into the contracts, and there's a limited sum available.

That's Judge Dyk's reasoning in the Federal Circuit, but let me put that aside for the moment and address Ferris directly.

As I said before, Ferris is about the circumstance in which there are enough available funds in the first instance to pay the contractual obligations.

Now, Ferris does not and cannot stand for the proposition that an executive officer looking at the amount Congress made available in the first instance can bind the Treasury to pay more than Congress has expressly stated he may bind it to.

This Court has said many, many times--

Justice Anthony Kennedy: I take it the Respondents' position is that the contracting officer says, now, this is going to go over the not-to-exceed amount, but not to worry, just sue us under the judgment -- just sue us under the Judgment Act.

Mr. Freeman: --Right.

And there is no reason to think that Congress contemplated such a scheme, which would amount to essentially giving full contract support cost funding, but only for the tribes who have the resources and sophistication to sue, minus litigation costs.

That makes no sense at all.

When Congress says "not to exceed", a certain amount of money may come out of the Treasury--

Chief Justice John G. Roberts: It makes sense if you're looking at the reality of the budgeting process because in one case, that one line item appears on the Department of Interior budget; and in the other case, it appears somewhere else in the Judgment Fund budget.

And they can say it's not our fault.

The Judgment Fund -- the court made us do it--

Mr. Freeman: --Well, I don't think so, Your Honor.

The Judgment Fund is not a new thing.

The Judgment Fund is available only to pay judgments validly entered against the United States.

Now, we don't dispute that it's available to pay breach of contract damages; but, of course, a breach of contract requires a violation of -- a violation, a failure to perform a binding contractual promise.

Now, we think we've performed our promise here because our -- our promise was to pay the sums that Congress made lawfully available.

And we think that, to the extent Respondents think we promised to pay more than Congress explicitly said could be available, the Secretary had no authority to enter into that promise.

Now--

Justice Sonia Sotomayor: But that's true of every contract.

That's where I'm getting stuck on what your theory is.

The Anti-Deficiency Act says you can't spend more than you're given.

Mr. Freeman: --Yes.

Justice Sonia Sotomayor: So every single contractor, under your logic, should know that when they sign a contract, the government can break it because if it doesn't have enough funds, it can't pay.

Mr. Freeman: And, Your Honor, that--

Justice Sonia Sotomayor: But -- so there's no real logic to your argument, other than to say we can't -- we're -- if the contract says "subject to appropriations", let's do away with Ferris, let's do away with Cherokee Nation and--

Mr. Freeman: --No, no--

Justice Sonia Sotomayor: --it just means that we pay you what we can.

Mr. Freeman: --No.

That is emphatically not true.

As -- as an initial matter, as I've tried to explain before, there are very strict requirements in the government's contracting processes, such as the Federal Acquisition Regulation, that limit the ability of the government to make many promises it can't keep, particularly with regard to funding.

Justice Sonia Sotomayor: But what you're saying is you make two promises on the ISDA.

We're going to pay you your support costs, your administrative costs, in full, and we're going to retain the right to break that promise.

That's really what you're saying the ISDA says.

Mr. Freeman: No.

That's not right, Your Honor.

And I -- I'll answer this, and then I'd like to reserve the balance of my time.

The ISDA says our promise is to pay you what Congress lets us pay you.

It's not breaking our promise to limit it to appropriation; it is keeping our promise.

Justice Sonia Sotomayor: So you ignore all the language where it says we're going to pay you X amount, all the law that says you have to be reimbursed -- the tribes have to be reimbursed for all their costs; all of that is going to be ignored?

Mr. Freeman: Well, it's not that it's ignored, it's that section 450j-1(b) says, notwithstanding any other provision of this Act, and we think that's fairly clear.

Chief Justice John G. Roberts: --Thank you, counsel.

Mr. Phillips.

ORAL ARGUMENT OF CARTER G. PHILLIPS ON BEHALF OF THE RESPONDENTS

Mr. Phillips: Thank you, Mr. Chief Justice, and may it please the Court:

I guess I'd like to start on the Ferris doctrine because it seems to me that is the fundamental issue in this case.

And the principle of Ferris -- and it's interesting to me that counsel for the government never once makes any reference to the Comptroller General's interpretation of the Ferris doctrine, which in the Redbook says, as plain as day, that in circumstances like this one, where the government has more contractors than it had -- than one, and those contractors are subject to an appropriation, and it cannot exceed that appropriation -- I think all of that language, frankly, is implied anyway -- the contract--

Justice Anthony Kennedy: So you say -- you say you don't want us to mention "not to exceed" in our opinion--

Mr. Phillips: --Oh, no.

The--

Justice Anthony Kennedy: --other than to say that it's irrelevant?

Mr. Phillips: --No.

"Not to exceed" has a very significant role to play, Justice Kennedy, because--

Justice Anthony Kennedy: Does the Redbook talk about "not to exceed" as being any different from general appropriations?

Mr. Phillips: --The place where "not to exceed", I think, carries particular significance is that in the ordinary situation, we would be entitled to seek injunctive relief to take money from other sources within -- within the budget and get an injunction.

And that's very unique to the -- to this context.

Ordinarily, government contractors cannot seek injunctive relief.

This "not to exceed" language--

Justice Anthony Kennedy: Does the Redbook--

Mr. Phillips: --deprives us of that.

Justice Anthony Kennedy: --Does the Redbook refer to "not to exceed" -- the "not to exceed" language?

Mr. Phillips: I'm sorry, Justice Kennedy?

Justice Anthony Kennedy: Does the Redbook have -- refer to the "not to exceed" language?

Mr. Phillips: The Redbook doesn't -- well, actually, the Redbook does say that all of these phrases are essentially the same, which is that they--

Justice Stephen G. Breyer: I saw -- I read the Redbook.

I might have missed the part that you're about to cite to, because I'd like you to tell me where in the Redbook it says that a contractor who has a contract that says "subject to appropriations" and is then dealing with the law of Congress which says the appropriation will not exceed X million is then entitled to be paid on a contract where he and like contracts do exceed X million.

Where does is say that in the Redbook?

Mr. Phillips: --The Redbook--

Justice Stephen G. Breyer: I couldn't find it.

Mr. Phillips: --Well, the Redbook talks about subject to appropriations; it talks about--

Justice Stephen G. Breyer: I did read it.

I just would like to know what page you want me to read again.

I read the Chamber of Commerce brief.

The Chamber of Commerce brief says everybody knows the contractors are paid in this situation.

So I looked up the authorities that they cited.

Okay?

I read the Redbook.

I read my other case of Cherokee.

I read Ferris.

I read Sutton.

I can't say I'm perfect at reading--

Mr. Phillips: --Okay.

Justice Stephen G. Breyer: --but I couldn't find it.

Mr. Phillips: Justice Breyer--

Justice Stephen G. Breyer: So I would appreciate your referring me to those citations.

Mr. Phillips: --GAO Redbook 6-44--

Justice Stephen G. Breyer: Okay.

Mr. Phillips: --says--

Justice Stephen G. Breyer: I have it in front of me, by coincidence.

[Laughter]

Here it is.

Mr. Phillips: --This is in our brief at page--

Justice Stephen G. Breyer: No, no.

I have the Redbook 6-44.

Chief Justice John G. Roberts: What page, for those of us who don't have it in front of us?

Mr. Phillips: --In my brief, it's on page 31.

Chief Justice John G. Roberts: Thank you.

Justice Stephen G. Breyer: I'm not saying it isn't there.

I just read through these pretty quickly.

I just need a little refresher.

Mr. Phillips: Yes.

If you look at -- I'm sorry -- 2 GAO -- well, I think you can use either of these: 2 GAO Redbook 6-28 to -- 29 talks--

Justice Stephen G. Breyer: Oh, I don't have that.

Mr. Phillips: --talks about "for" followed by a purpose and an amount has the, quote, "same effect as" -- quote --

"'words like "not more than" or "not to exceed". "

So, I mean, what they're saying is that all of this--

Justice Sonia Sotomayor: Could you give me that cite again.

Mr. Phillips: --I'm sorry.

I apologize, Your Honor.

2 GAO Redbook 6-28 to -- 29.

And I think the same--

Justice Stephen G. Breyer: No.

That isn't quite my question.

My question was: I would like the authority for the proposition that when you have a set of contractors, and they read their contract, and it says $4 million, and then you discover that the amount of the contracts of the same kind in this category are more than $4 million, I want to know where in the Redbook it says that they get paid more than $4 million.

That's all.

That's fairly simple.

And if that's -- if that's normal practice, it must be there's a lot of authority for it.

So I just want to know what to read.

Mr. Phillips: --Well, here, 6-45 says, if a contract is but one activity under a larger appropriation, it is not reasonable to expect the contractor to know how much of that appropriation remains available.

Justice Stephen G. Breyer: But they aren't talking about there where it says specifically in the contract "subject to appropriations".

At least, I think they're not.

Now, I would like you right now to tell me, no, you're wrong; it does say that.

Mr. Phillips: Well, it says, if Congress appropriates a specific dollar amount for a particular contract--

Justice Stephen G. Breyer: They're distinguishing Sutton from Ferris.

Mr. Phillips: --I'm sorry?

Justice Stephen G. Breyer: They're trying to use that to distinguish Sutton from Ferris, and it's filled with, well, we're not sure about this because Sutton, which is Brandeis, which comes out the opposite way, did have a line appropriation, and I thought that just refers to the fact that because there's a line appropriation the contractor is on notice.

Mr. Phillips: Right.

Exactly.

Justice Stephen G. Breyer: Exactly.

And when you do business with the government over a period of years, and it says subject to appropriation, not necessarily you but your lawyer, who is a good lawyer, should look up and see what the appropriation is or whether it was made.

I mean, that's what I--

Mr. Phillips: Justice Breyer, as a matter of policy -- you know, if Congress--

Justice Stephen G. Breyer: --No, no, not as a matter of policy.

I'm putting it as a question because that was my first reaction, and I expect you to say, no, Justice Breyer--

Mr. Phillips: --Well, clearly--

Justice Stephen G. Breyer: --you're wrong, and that isn't the practice, and here is what I read to show that isn't the practice.

That's all I'm asking.

Mr. Phillips: --Well, I guess I don't understand exactly how to answer that question, Justice Breyer, because--

Justice Stephen G. Breyer: By showing me where in the law it says -- and I don't want to repeat the question for the third time, but it says--

Justice Antonin Scalia: I wish you would.

I've lost the question.

[Laughter]

Justice Stephen G. Breyer: --Well, here sometimes not everyone pays sufficient attention to these very clear questions.

[Laughter]

Mr. Phillips: --I'm doing my best, Justice Breyer.

Justice Stephen G. Breyer: Where -- Look, hypothetical, four people, four identical contracts, the words appear, "subject to appropriation".

Mr. Phillips: Right.

Justice Stephen G. Breyer: Each is for a million dollars.

Then you read the appropriation that was later made, and in that statute it says, "we hereby appropriate three million", and -- it is,

"the payments are not to exceed three million. "

Okay?

Something like that.

Mr. Phillips: Right.

Justice Stephen G. Breyer: All I want is the authority that says each of those four people can come in and get the $1 million, totaling four million.

I want the authority that says that.

Mr. Phillips: I mean, I would read Ferris.

Justice Stephen G. Breyer: No.

It did not say anything about it in the contract.

Mr. Phillips: Well, I mean, Ferris has a limitation.

The government has already told us that subject to appropriation is implicit in every -- in every agreement anyway, so there's nothing special about putting in the words "subject to appropriation".

Justice Stephen G. Breyer: Oh, there certainly is.

Putting in the words gives the lawyer notice.

Mr. Phillips: Well, again, the only notice it gives is that there has to be enough money when you look at the appropriation to cover your contract.

Justice Antonin Scalia: Ferris did not say, as I recall, that you can't expect the contractor to have notice that appropriations have been limited.

It said you can't expect them to have notice as to how much of the expenditures under that appropriated act have been spent.

Isn't that the only thing it required notice of?

Mr. Phillips: Right.

That's--

Justice Antonin Scalia: I would think, if you sign a contract, you better be sure that there are appropriations for it.

Mr. Phillips: --Clearly.

And that -- I mean, and, Justice Breyer, the Court's opinion in Cherokee said that the primary purpose of the subject to availability clause is to deal with the situation where you enter into the agreement ahead of the fiscal year, and so everybody knows that if Congress, for whatever reason, decides not to appropriate any money, there is no deal, and nothing happens.

Justice Anthony Kennedy: So, in your view, if the Tribe comes to the government, and they say, look, we've been looking at what you've done with the other tribes, you've appropriated $95 million, and the appropriation says,

"not to exceed $95 million. "

but go ahead and make this contract with us, anyway, no one cares.

And you say, go ahead and make it.

Right?

Mr. Phillips: Well, I mean, it seems to me it's the government's problem to sort it out.

Justice Anthony Kennedy: That's your position, isn't it?

Mr. Phillips: Right.

But, again, put it in the context, Justice Kennedy, of the individual tribe.

Justice Ruth Bader Ginsburg: You can't get it from Cherokee.

I mean, yes, there's Ferris, and then Cherokee--

Mr. Phillips: Right.

Justice Ruth Bader Ginsburg: --is relying on Ferris; but, Cherokee is very careful to point out that there were funds to cover--

Mr. Phillips: No question about it, Justice Ginsburg.

I don't think this case is controlled by Cherokee.

I do think Cherokee answers the question of how far can you carry the "subject to availability" language.

I don't think it gets the government anywhere near home.

And then the question is, what do you do with the "not to exceed" language.

And I would suggest there is that, that's no different, frankly, from Ferris or any other situation, because what the -- Congress operates against the backdrop of Ferris, which is a 120-plus-year-old doctrine that has been allowed to stay in place by Congress for that entire time.

And as the Chamber of Commerce tells us, this is a rule that every contractor takes as an article of faith in dealing with the United States Government.

Justice Antonin Scalia: Well, am I correct that what the government is arguing is that the fact that this limitation was included in the particular contract makes it different from Ferris?

Mr. Phillips: Well, it's hard to make that argument because the "not to exceed" language, at least, that comes out of the -- that's in the appropriations provision.

That's not in the contract itself.

The contract itself simply says subject to appropriations.

Justice Antonin Scalia: Which Ferris did not.

Did the Ferris contract say that?

Mr. Phillips: It's -- Ferris doesn't have the "subject to appropriation", but the Ferris contract says the appropriation limit is X.

Justice Stephen G. Breyer: It does?

Where do you get -- I couldn't find the contract.

The language in Ferris is,

"a contractor who is one of several persons to be paid out of an appropriation is not chargeable with knowledge of its administration. "

True.

Now, Dyk says, in his opinion, that one difference from Ferris is they wrote the idea into the contract, saying you're subject to appropriation to get -- to make that lawyer chargeable with knowledge.

And the second thing in Ferris is that it was an individual who went off on his own in the administration and paid money that he shouldn't have paid.

It should have been over here for the contract.

In this case, it is an instance where Congress itself required the money to be paid, as it was paid, and didn't provide enough.

Okay.

So that's where I am with Ferris, which is a big question mark.

And I guess you can talk about that, but all I wanted to know is what is well established in this field.

Mr. Phillips: Well--

Justice Stephen G. Breyer: I don't want to write something that suddenly upsets what is well established.

Mr. Phillips: --Okay.

Well, I take this, then, straight from the Red Book again.

"It is settled that contractors paid from a general appropriation are not barred from recovering for breach of contract, even though the appropriation is exhausted. "

And so even though -- and there is nothing in -- there's no limitation--

Justice Stephen G. Breyer: --as it says in the contract, you are barred, you are barred from recovering if we don't appropriate enough money.

Should it say that wouldn't matter?

Is that right?

Mr. Phillips: --Well, it would say that if you don't appropriate enough money for the specific contract, yes.

I think that's clearly what Sutton holds.

Is that if -- if Justice Scalia and I have an agreement, and the appropriation goes to $100 for our agreement, and the contract says $500, I'm out of luck for the extra $400.

Justice Sonia Sotomayor: Mr. Phillips, this is an unusual situation with the tribes because in the normal "not to exceed" appropriation by Congress, the government rightly says we have the power to not contract.

And in military contracts and others, we have a for convenience cancellation.

We have all sorts of things that protect us from the deficiency.

But this is a unique situation because the government, on the one hand, despite their protestations to the contrary, are forced to accept these contracts.

Mr. Phillips: Right.

Justice Sonia Sotomayor: And on the other hand, Congress is saying, don't pay more on them.

We are telling you to accept more payment than we are going to give you.

Mr. Phillips: Right.

Justice Sonia Sotomayor: Should we create a special rule for this -- why shouldn't we create a special rule for this unique situation?

Mr. Phillips: Because, essentially, what you're doing is putting the backs of this problem -- putting the burden of this problem on the backs of innocent contractors who--

Justice Antonin Scalia: Well, is it--

Mr. Phillips: --Who entered into in good faith these agreements.

Justice Antonin Scalia: --Well, is it just a question of our creating a new rule; or, rather, is the proposition whether the tribes, when they entered into this, should have realized that because of the peculiarity of these contracts, that they had to be entered into, that the rule which otherwise would apply does not apply?

It ought to be a question of expectation of the tribe, should it not?

Mr. Phillips: Well, I would -- I would suggest a couple things about that.

I mean, I think in general it's reasonable to look for the -- obviously, the intent of the parties and the expectations of the parties.

This case went off on summary judgment that we lost, I mean, even on a -- so we didn't have an opportunity for any analysis of this.

But the reality is, is that from the Tribe's perspective, they recognize, because of Ferris, and because of the way the Comptroller General has interpreted Ferris, that they are under a duty to make sure that there is an appropriation that covers this contract, that the amount, purpose, time requirements are all satisfied with enough money to accomplish that.

And then, of course, we have the obligation to perform, which, of course, that's the other half of the equation here.

And, Justice Sotomayor, that's why I wouldn't say--

Justice Ruth Bader Ginsburg: --But you don't -- you don't have the obligation to perform.

I mean, right?

In a term of the contract, that if there are lack of sufficient appropriations, performance by either party is excused.

Mr. Phillips: --Well, that -- yes, Justice Ginsburg.

But the problem is, we don't know the answer to that until after the year of performance is done, or at least months into the performance.

And sometimes, literally, after we've already performed.

Justice Anthony Kennedy: Suppose you did know.

Suppose the Tribe knew that the 95 million -- let's assume that that's the not to exceed amount -- had already been obligated.

Could the Tribe then go ahead and make the government -- a contract with the government, and would the government have to make that contract, in your view?

Mr. Phillips: I mean, that is the Southern Ute case.

And I -- and, certainly, you can make an argument to that.

The government has an argument on the other side.

Justice Anthony Kennedy: Is it your argument that the answer to that is yes?

Mr. Phillips: The argument is, it appears that Congress intended to require them to enter into that agreement.

You know, the idea of Congress requiring an official to enter into an agreement that violates a criminal statute is at least a difficult concept to sort of wrap your mind around.

Justice Anthony Kennedy: Isn't this more specific language than the general language?

Doesn't this specific language, not to exceed, supersede the general obligation to make the contract?

Otherwise, it's meaningless.

The "not to exceed language" is meaningless.

Mr. Phillips: No, but--

Justice Anthony Kennedy: You say it's meaningless.

Mr. Phillips: --No, Justice Kennedy.

I told you what the meaning of the "not to exceed" language is.

The BIA or anyone else at the Interior and say, give us money from another source in order to pay for our contract.

And we can't use the injunctive relief that's otherwise available to us for that purpose.

So that language has very significant importance in limiting what our options are--

Justice Ruth Bader Ginsburg: Mr. Phillips--

Mr. Phillips: --in a circumstance where we are not being paid enough under the -- the agreement.

Justice Ruth Bader Ginsburg: --do I understand your position to be that, yes, the cap has meaning, because in order to exceed the cap, the tribe has to sue; so, any tribe that sues, for any tribe that sues, the cap is meaningless?

It's only for the ones who are not sophisticated enough to sue.

They are just stuck with what Congress said.

So it seems to me that would be a very bizarre scheme to say that; that you have a cap, but the cap is meaningless if you bring a lawsuit.

Mr. Phillips: No.

I -- I mean, I -- it seems to me that we can't -- I mean, aside from bringing a lawsuit, I mean, we -- we could go to the Secretary and say, we don't have enough money to satisfy our contract, would you take money from some other source in order to accomplish that.

Because, in the ordinary course, that's not uncommon to re -- re-jigger the appropriation.

Justice Antonin Scalia: Do you think it protects these -- these unsophisticated tribes who don't know enough to sue by not allowing anybody to sue?

Mr. Phillips: Well, that -- yes, there is--

Justice Antonin Scalia: Does that make their situation better somehow?

Mr. Phillips: --To be sure, that would not make our situation any better, but--

Justice Ruth Bader Ginsburg: My question is whether the cap was meaningless.

And I think your answer is, yes, for anyone who sues, the cap is meaningless.

Mr. Phillips: --No.

No.

It -- I don't -- I don't think it does that.

It -- it -- it places inherent limitations -- I mean, it says specifically that the Secretary is not authorized to shift money around in order to take care of this particular problem in this particular year that otherwise would be available to us.

Justice Anthony Kennedy: You just go to the judgment--

Mr. Phillips: I'm sorry?

Justice Anthony Kennedy: --You just go to the judgment fund--

Mr. Phillips: Of course.

Then, we--

Justice Anthony Kennedy: --which makes it meaningless.

Mr. Phillips: --Well, ultimately, it means that the burden of it will not fall on the tribes.

It is -- it does mean that.

But -- and let's be clear about this.

The judgment fund -- this is not simply going to the judgment fund and asking for our contract support costs to be paid.

Our argument here is that there has been a breach of contract, and we are entitled to the damages for the breach of contract, whether those are reliance damages or restitutionary damages, whether we -- whether we are supposed to get what we expected out of the deal or put back in the position we would have been in.

Justice Elena Kagan: Mr. Phillips, if you look at this situation, it seems pretty clear that Congress did want to do something, which was to limit the amount of money that was going to the tribes under these contracts.

Do you think that there is a way that Congress can do that--

Mr. Phillips: Oh, sure.

Justice Elena Kagan: --consistent with this scheme that's set up by the statute?

How could Congress do that?

You know, if -- if -- if they can't do it this way, how could they?

Mr. Phillips: Well, the easy way would be to impose specific limitations in -- in every one of the contracts, which -- which, frankly, if you read appropriations bills, which I hate to say I have occasionally done--

Justice Elena Kagan: When you say specific limitations, what would that look like?

Mr. Phillips: --It would look like -- for the agreement between the United States and Ramah Navajo for -- for contract support costs in this particular -- for taking over the police department, the contract support costs shall not exceed $150,000, period.

That's the total appropriation.

And if we look at our contract -- and there is a specific number in the contract -- and that contract says $174,000, then we know that we are out of luck for the $24,000.

We've been put on specific notice--

Justice Samuel Alito: For any particular year, are they all entered into it at about the same time?

Mr. Phillips: --What's that, Justice Alito?

Justice Samuel Alito: For any particular fiscal year, are all of these contracts entered into by a particular date?

Mr. Phillips: Yeah, nothing is all that easy, obviously.

Some of them enter into it on a fiscal year basis.

Some of them enter into it on a -- on a -- on a calendar year basis.

And, frankly, the -- part of the problem is when does the government get around to signing these agreements.

And, also, there are 12 regions.

I mean, part of the reason -- I would like to spend a second talking about the comment that, you know, we have this fair and equitable scheme in place in which we are allocating moneys out, when the reality is, is that there is substantial evidence in the record, even though we have not had an opportunity to make a full record, that the -- that the -- that the Bureau makes mistakes in 40 percent of these contractual arrangements.

And I know my -- my colleague is going to dispute that, but the truth is we've known that for years.

They just make mistakes, and people get impaired -- their contract rights are impaired on that basis.

This is not some kind of an inequitable scheme that's operating here.

There are 12 different regions operating in 12 different ways.

Some people get money, some people get 300 percent of theirs, some people get zero percent of theirs.

Justice Sonia Sotomayor: Mr. Phillips, how does Congress do this without upsetting the entire scheme?

Knowing that these contracts are not all signed on one day, that there are 12 regions, that the negotiations go over time, how could Congress achieve the scheme that the government wants now?

How would it write this contract?

Mr. Phillips: Right.

Well, the easy way would be to take away the requirement that the government has to enter into all of these contracts at the request of the tribe.

And -- and -- and that's clearly available.

If they want to go down that path, they can do that in a heartbeat.

And then they have all of the discretion they want -- they want to apply under these circumstances.

So, I mean, there's -- obviously, there is a bit of, as we said in the brief, schizophrenia.

And I have some misgivings about describing Congress that way, but there is some schizophrenia in how they approach this problem.

Justice Antonin Scalia: Do you have to solve it contract by contract?

Couldn't there be a -- a provision in the -- in the law which -- which says that, where appropriated funds are inadequate to cover the totality of -- of -- of costs under this statute, it will be apportioned as follows?

Mr. Phillips: Yes.

Congress could--

Justice Antonin Scalia: Or the Secretary will apportion it?

That's all it would take.

You wouldn't even have to do it contract by contract; right?

Mr. Phillips: --Right.

I -- I mean, I think that would--

Justice Antonin Scalia: You would prefer contract by contract for your clients.

Mr. Phillips: --Well, I just think it's been noted--

Justice Antonin Scalia: Oh, absolutely--

Mr. Phillips: --but, you know, I don't disagree with that.

Look, and as we argued in our brief, there are three or four different ways that Congress can fix this problem going forward, but -- and that's -- and that's the message, I thought, from Justice Sotomayor, is why don't we let Congress fix the problem and allow the background principles of Ferris, as interpreted by the Comptroller General, to apply in this case in order to resolve the contract dispute that's properly, obviously, before the Court at this point.

I'm sorry, Mr. Chief Justice.

Chief Justice John G. Roberts: I think -- I think this may have been asked, and I'm not sure of the -- I understood the answer.

This is -- is this on an ongoing, forward looking basis?

In other words, you enter into the contracts, and then you wait and see whether there are appropriations?

Mr. Phillips: Yes.

Typically, what happens is you enter into the agreement sometime just before the appropriation comes down.

It's -- it's -- it's usually pretty close, because--

Chief Justice John G. Roberts: Well, so doesn't it make -- I mean, doesn't the system that the government is operating under make a lot of sense?

Because let's say the tribe says, look, we need a million dollars.

The Secretary agrees to it.

And then I assume the two of them get together and say, well, we'll try to get the appropriation for it.

You know, you understand we may not get it, but this is how much you need, we'll go back and get it.

If you get it, that's great; if you don't, well, then that's--

Mr. Phillips: --And -- and, Mr. Chief Justice, if they did that on a -- on a tribe-by-tribe, contract-by-contract basis, I -- I wouldn't have any problem with that, because then you're on notice.

But when they say to you, okay, fine, here's -- you know, this is -- there is your contract support cost provision, there is a specific number in there, 1.3.78 dollars and 63 cents, that's what you ought to get, and we get an appropriation that comes back in that says the government will -- that, you know, we have appropriated $100 million for contract support costs.

There are 330 other tribes out there potentially with contracts that are involved here.

It is -- and -- and just to put it in context, we are talking about -- you know, many of these tribes are in incredibly remote situations.

They don't have access to all the other information about what's going on.

And the real question is, should you impose--

Chief Justice John G. Roberts: --Are you suggesting that--

Mr. Phillips: --that on the tribes.

Chief Justice John G. Roberts: --Are you suggesting that Congress has to go through each of those contracts and say, this is how much we are going to appropriate, this is how much?

Mr. Phillips: I think that's -- I actually think that would be the fairer way to do it.

And I don't think it would be as burdensome as -- as your question implies because, again, what else does staff have better to do than to sit down and put all those appropriations together.

Chief Justice John G. Roberts: Well, the question is whether it's the staff in Congress that's going to do it or the staff at the Department of the Interior?

Mr. Phillips: Well--

Chief Justice John G. Roberts: And I suppose Congress can reasonably determine that the people at Interior know better about how to do it than we do.

Mr. Phillips: --Right.

But then -- then they could do it by -- by -- expressly by reference.

I mean, if, in fact, Interior has set it out that way and has it all done, then they can just incorporate it into the statute anyway.

I mean, there are simple ways to do it.

There are broader ways to do it.

And as I said to Justice Sotomayor, clearly Congress could simply, you know, absolve the government of its responsibility to enter into any contract that a -- that a -- when an Indian tribe shows up at their doorstep.

All of those seem to me preferable than saying to the tribes, after they have fully performed their side of the deal, okay, I'm sorry, we are not going to pay you.

The -- the other thing that's odd about this--

Justice Sonia Sotomayor: I'm sorry.

You keep saying that, but I thought in your earlier answer you said that the contracts are generally signed by the time of the appropriation.

Mr. Phillips: --Right.

Justice Sonia Sotomayor: Where is that in the cycle of performance?

Is that at the beginning of performance?

Mr. Phillips: That's at the beginning of performance.

But -- but what we find out about the notices that we are -- that we've later received is at some point, we're sending you 75 percent in some situations, or we're going to send you exactly the same amount of money you got last year, even though that won't cover it.

Justice Sonia Sotomayor: So the tribes -- even when the appropriation comes out, they don't know how much the Department has contracted with other tribes.

Mr. Phillips: Right.

We haven't--

Justice Sonia Sotomayor: So they're performing until they get that notice later on.

Mr. Phillips: --Exactly.

And, candidly, assume that -- either one of two things will happen.

Either we will ultimately be paid in full, which has happened -- I mean, the last year, they were in fact paid in full.

Or alternatively, that they will have access to the judgment fund in order to -- to get the recovery they are otherwise entitled to.

Justice Elena Kagan: Mr. Phillips, do you think -- and the long question here is what did Congress want.

And what -- one answer might be Congress wanted exactly what the government says it wanted.

But another answer might be something different, that actually, Congress wanted there to be unlimited funds for these tribes, but that it wanted to shift the costs of some of those funds to the judgment fund outside of the Interior budget.

Mr. Phillips: Right.

Justice Elena Kagan: Do you -- I mean, do you contest the government's view of what Congress wanted here?

And if so, how?

Mr. Phillips: Well, I think the question is it's unclear what Congress really wanted in this case, and therefore, you ought to construe the -- the scheme in a way that is most favorable to the tribes.

And if that means that the scheme operates so as to protect the integrity of the appropriations process and the spending process for a particular year, and prevents us from being able to seek relief outside of this contract support cost appropriation limitation, that makes perfect sense to me, leaving open obviously the availability of the judgment fund at the end of the day so that the tribes do not in fact have to bear the full burden of -- of this arrangement as opposed to -- as opposed to anyone else.

I mean, that's -- again, we do provide -- we've performed the services.

We don't know.

We do it in good faith.

Under those circumstances, it seems to me that's the classic situation in which we should receive full compensation.

If there are no further questions, Your Honor, thank you.

Chief Justice John G. Roberts: Thank you, Mr. Phillips.

Mr. Freeman, you have 4 minutes remaining.

REBUTTAL ARGUMENT OF MARK R. FREEMAN ON BEHALF OF THE PETITIONERS

Mr. Freeman: Thank you--

Justice Sonia Sotomayor: Do you dispute Mr. Phillips' statement that the tribes don't know how much they're getting until some point further into the performance cycle?

Mr. Freeman: --In part, Your Honor.

Let me explain.

As I mentioned earlier, for the first many years in this scheme, we did a uniform pro rata distribution methodology.

The tribes came to us and said, look, that's a problem for us because we don't have any budget transparency; we can't see how much we're going to get.

So we adopted this policy in 2006.

And one of the principal elements of that policy is that it guarantees that, if -- as long as Congress appropriates as much money as it did in the previous fiscal year, which it generally has, the tribe will get immediately, like within 2 weeks, the exact amount of money that it received in the previous year.

And that money comes immediately.

They can use it however they want.

It's not subject to apportionment.

Unlike most Federal agencies, we don't dole it out.

They get it right away.

Now, the question then becomes what to do with any additional money that Congress has appropriated, and the policy provides for distribution of that money on what we call a bottoms-up basis.

We give it to the tribes that are the farthest away from 100 percent of funding.

That resolution was negotiated with the tribes and, indeed, with some counsel for Respondents.

It's, we think -- and I might be wrong about this -- but we think that that's the solution that the tribes want, if the caps have any effect.

There are--

Justice Elena Kagan: I guess what I don't understand about the government's argument, Mr. Freeman, is exactly what the contractual rights of the tribes become.

I mean, as I -- this is supposed to be a contract, and we've held that it's a contract, and usually contracting parties have rights to something.

Mr. Freeman: --Yes.

Justice Elena Kagan: So what do they have a right to in your view?

Mr. Freeman: Well, first of all, let's make clear -- let's make sure that we're not--

Justice Elena Kagan: That was -- that was a straightforward question.

[Laughter]

Mr. Freeman: --Well, they have a right, Your Honor, in the first instance to the principal promise that's under any ISDA contract, which is we give the amount of money that the Secretary would have provided for the program funds, for operational--

Justice Elena Kagan: No, but what do they have a right to with respect to these additional overhead costs?

Mr. Freeman: --Contract support costs.

They have a right as a class to the distribution of every dollar that Congress appropriates, and for every contractor--

Justice Elena Kagan: What does each individual tribe have a right to?

Mr. Freeman: --A proportionate share based on the Secretary's policy for the distribution of these in light of the caps.

Let me--

Justice Elena Kagan: So you think they do have a right to a pro rata share?

Mr. Freeman: --We think that--

Justice Elena Kagan: In other words, the Secretary could not say, oh, you know, these tribes have been doing a better job, so we'll give to them; or these tribes need it more, so we'll give it to them.

You think that there's a contractual right to a pro rata share.

Mr. Freeman: --We think there's a contractual right to -- and, in fact, the contracts often reference these policies directly.

For example, page 123 of the joint appendix, one of the contracts in this case says you'll be paid according to the distribution policies adopted by the Secretary.

So in that case, yes, we bound ourselves--

Chief Justice John G. Roberts: I'm sorry.

I didn't think that was responsive.

Does the Secretary -- Justice Kagan can defend her own question -- but does the Secretary have the discretion to adopt something other than a pro rata distribution when there are not sufficient appropriations?

Mr. Freeman: --We think within a range of reasonable solutions after consultation with the tribes, yes.

We don't--

Justice Ruth Bader Ginsburg: You must that question--

Justice Sonia Sotomayor: The system that's in place does not--

Justice Ruth Bader Ginsburg: --You must answer that question "yes"--

Mr. Freeman: --Yes.

Justice Ruth Bader Ginsburg: --because that's exactly what the Secretary did.

Mr. Freeman: Right.

Justice Ruth Bader Ginsburg: You explained that it was pro rata.

Mr. Freeman: That's right.

And--

Justice Elena Kagan: This is a very -- this is a very strange kind of contractual right.

The -- the contracting tribe has a right to have the Secretary to use discretion to decide how much the contracting tribe gets.

What kind of contract is that?

[Laughter]

Mr. Freeman: --Respectfully -- respectfully, Your Honor, that is an exaggeration.

Congress has appropriated since 1994 more than $2.3 billion in contract support cost funds.

We've distributed all of that money to the tribes.

All of the tribes here have gotten substantial sums.

Justice Elena Kagan: No, I'm not contesting -- I mean, clearly you think and the Secretary thinks that there's an obligation to distribute all that money.

Mr. Freeman: Right.

Justice Elena Kagan: And -- and I don't think anybody disagrees with that.

The question is what each individual tribe has a contractual right to.

Mr. Freeman: May I answer the question, Your Honor?

Your Honor, once it is clear the caps control the total amount of money that the Secretary may spend, every further question is a question of allocation.

We think we have the policy that's right -- it was negotiated with the tribes and counsel for Respondents -- but if we're wrong about that, we can have that fight another day.

The question here is whether the caps define the maximum amount of money that the Secretary may spend, and we think they do.

Chief Justice John G. Roberts: Thank you counsel, counsel.

The case is submitted.

Featured:

Dorsey v United States - Oral Argument

Mon, 23 Apr 2012 14:52:39 +0000

Case:

Dorsey v United States

Media File:

11-5683_20120417-argument.mp3

Related Transcript:

11-5683_20120417-argument.xml

Transcript:

ORAL ARGUMENT OF STEPHEN E. EBERHARDT ON BEHALF OF THE PETITIONERS

Chief Justice John G. Roberts: We'll hear argument this morning in Case 11-5683, Dorsey v. United States, and 11-5721, Hill v. United States.

Mr. Eberhardt.

Mr. Eberhardt: Mr. Chief Justice, may it please the Court:

The judges of the Seventh Circuit are unanimous in their belief that this case raises a good question.

And, of course, that good question is: Why would Congress want district courts to continue to impose sentences that were universally viewed as unfair and racially discriminatory?

My colleague sitting on the other side of the podium, I submit to the Court, does not answer that question.

Petitioners feel that the answer to that question can be found in the text of the Fair Sentencing Act.

And while we admit that there is no express answer, the text gives us the required fair implication.

The text in section 8, the text in section 10--

Justice Antonin Scalia: Excuse me.

Is a fair implication enough?

You're talking here about a repealer, essentially, of an earlier provision, section 109.

And our cases uniformly say that it -- it has to be clear implication, unquestionable implication.

Do you think this is really clear and unquestionable?

Mr. Eberhardt: --No, it is not, but the standard from this Court, Justice Scalia, is fair implication, and it has been ever since Great -- the Great Northern case.

It -- these standards began -- I'm sorry -- as a necessary implication in Great Northern, moved to plain and clear implication in Hertz and Woodman, and then Marrero, which is relied on heavily by amicus.

Chief Justice John G. Roberts: Of course, the statute itself says "express", right?

Talking about section 109.

Mr. Eberhardt: That is correct.

Chief Justice John G. Roberts: So we're pretty far removed from the language of the statute, I guess.

Mr. Eberhardt: But, again, ever since 1908, that's a standard that this Court has not accepted.

And this is based on the provision, the well-settled provision, that an earlier Congress cannot bind a later Congress.

Chief Justice John G. Roberts: Oh, and I understand that.

But presumably -- we also have the proposition that Congress, when it enacts legislation, knows the law.

They would have known section 109 required an express statement if they wanted to apply the change retroactively.

So why shouldn't we hold them to that standard?

Mr. Eberhardt: The answer is no, I don't believe that Congress felt that that was the standard.

Again relying on this Court's jurisprudence that said you give us text and if we are able to find that the fair implication and the intent of Congress through that fair implication is that this new statute applies, because an earlier Congress cannot bind the newer Congress--

Justice Anthony Kennedy: Well, on your statement that the--

Justice Ruth Bader Ginsburg: It--

Justice Anthony Kennedy: --one Congress cannot bind a later Congress, do you mean we're not supposed to look at 109?

We're not supposed to look at the Dictionary Act?

Mr. Eberhardt: --Oh, absolutely, the Court is, Your Honor.

And we acknowledge--

Justice Anthony Kennedy: So then -- so then the fact that 109 is on the books is relevant.

And -- and it's not a question of one Congress binding the other.

It's a question of what the second Congress did.

Mr. Eberhardt: --Yes, 109 is relevant, but it's the standard to be employed in determining whether or not there's a fair implication of what the later Congress meant.

Justice Antonin Scalia: I'm really troubled by "fair implication"--

Justice Ruth Bader Ginsburg: --You're right that if you're right--

Chief Justice John G. Roberts: Justice Scalia.

Justice Antonin Scalia: --How many -- how many cases do you have that say "fair implication" as opposed to quite a few that say "clear and unquestionable implication"?

Marrero?

Is that -- is that the one case you rely on?

Mr. Eberhardt: Fair implication from Marrero--

Justice Antonin Scalia: From a footnote in Marrero, right?

Mr. Eberhardt: --Correct.

Justice Antonin Scalia: Yes.

Anything else?

Mr. Eberhardt: Marcello.

Justice Antonin Scalia: Marcello?

Where -- what's the cite for that?

I mean, there are a lot of earlier cases that make it clear when you're repealing a prior statute if it isn't express, it has to be at least a clear implication.

And I'm -- I'm astounded to think that in a footnote, we're suddenly going to change that to simply "fair implication".

Mr. Eberhardt: Yes, Your Honor.

You're correct, a clear or a necessary, but Petitioners contend that not only do we meet the fair implication standard--

Justice Antonin Scalia: Well, that's a different question.

And we can talk about that.

But how did Marrero come out?

Did it -- did it find an overruling or not?

Mr. Eberhardt: --Marrero primarily was based on the fact that there was a specific provision for nonretroactivity.

In an alternate holding, the Court held that 109 would also be relevant to the decision.

Marrero, though, was a habeas--

Justice Antonin Scalia: So it did not find 109 overcome by fair implication, right?

Mr. Eberhardt: --Correct.

Justice Antonin Scalia: So it's entirely dictum, right?

And dictum in a footnote?

Mr. Eberhardt: No, I believe it is an alternative holding, because the primary holding in--

Justice Antonin Scalia: I thought it was the other way.

The holding was that 109 governed.

No?

Mr. Eberhardt: --I'm sorry.

Justice Antonin Scalia: I thought you said the holding was that section 109 governed, that it had not been repealed.

Mr. Eberhardt: 109 was the alternative holding, saying that 109 would also preclude the retroactivity provision.

Justice Antonin Scalia: Exactly.

And, therefore, whatever it said about what is necessary for repeal of 109 was purely dictum, because it held that 109 was not repealed.

So, even if fair implication was the test, it was not the test applied and determinative in the case.

So it's dictum.

And dictum in a footnote.

Mr. Eberhardt: I don't agree, Your Honor.

Justice Antonin Scalia: All right.

Justice Ruth Bader Ginsburg: --So that's true of all of the cases that you -- the cases -- you pointed to two or three that use "fair implication".

The Court in all those cases found that there was no fair implication, so that 109 governed.

Isn't -- isn't that so?

That was true in Marrero.

It was true in Northern Securities.

Mr. Eberhardt: In Marrero, the primary holding was based on the fact that there was a specific provision for nonretroactivity.

Justice Ruth Bader Ginsburg: But in none of the cases that used the fair implication language did the Court say: And, therefore, the old statute no longer governs.

Mr. Eberhardt: Correct.

Justice Ruth Bader Ginsburg: So you're relying on a standard that this Court did -- must have considered appropriate because it deviated from the words of the statute.

It said it a few times.

But in application, it always came out the same way.

Mr. Eberhardt: Well, in application, when the Court applied this in Marcello, when they were weighing the language of the Administrative Procedure Act as opposed to the language of the Immigration and Nationality Act, I think the Court made clear, as it went through the statute there, that there was a fair implication.

And then once you get to the point of fair implication, it necessarily means that there is some kind of an ambiguity.

And then the Court followed up saying that we then did look to the legislative history, and the legislative history backs up the implication that we did find.

Justice Ruth Bader Ginsburg: But that was not true of the 109 cases.

You don't have a 109 case that says the standard is fair implication, and, therefore, the old statute is not enforced.

Mr. Eberhardt: Directly?

I don't believe so.

Justice Elena Kagan: Do you think that--

Justice Samuel Alito: What do--

Justice Elena Kagan: --Do you think that if we stick to the language of the statute, if we are, indeed, looking for an express provision, do you agree that there isn't any here?

Mr. Eberhardt: We agree there is no express provision, but obviously, we also contend that going back to the proposition that an earlier Congress cannot bind the later, that that standard has been rejected even though argued by my colleague to my left.

That is no longer the standard ever since--

Justice Antonin Scalia: Oh, I'm not sure he's arguing that.

I think he acknowledges, as our opinions say, that it can be done by implication, but it has to be clear and unmistakable implication.

I think that's the position he's taking.

Anyway, you want to tell me why this is clear and unmistakable?

Mr. Eberhardt: --When you look at the language of section 8, when Congress has mandated the Sentencing Commission to use their emergency authority to achieve consistency with other guideline provisions and applicable law, it makes clear that Congress meant this needs to take effect as soon as possible.

Congress even said

"as soon as practicable and no later than 90 days. "

This would be meaningless, actually, with regard to the individuals who were in this pipeline to be sentenced, because there would be so few individuals who would be arrested, charged, convicted, and sentenced within that 90-day period that Congress could only--

Justice Samuel Alito: --Well, there might be a few, but there -- but assume that you're drafting this legislation and you want it to apply only to defendants who commit an offense after the enactment of the Fair Sentencing Act, but you also want to do everything that you reasonably can to make sure that when the very first one of those defendants comes up for sentencing, there will be new sentencing guidelines in effect that are geared to the new lower mandatory minimums rather than the old sentencing guidelines in effect.

Would you not provide that the -- would you not require the Sentencing Commission to act as quickly as possible to get the new sentencing guidelines out?

Mr. Eberhardt: --No.

Justice Samuel Alito: No?

Mr. Eberhardt: Because of the--

Justice Samuel Alito: You would say take your time and it doesn't matter if a few -- a few defendants who are -- who commit the offense after the enactment of the Fair Sentencing Act come up and they are -- they're subjected to the old soon-to-be-obsolete sentencing guidelines?

Mr. Eberhardt: --No.

I think it's clear that the average time from charging to sentencing is going to be at least 11 months.

In a case where a defendant goes to trial, it's going to be much more than that.

So there really need be no rush on the part of Congress to condense this down into 90 days.

They could go through their usual 120-day -- or 180-day procedure, submit these to Congress, wait for approval or disapproval, and things like that.

Chief Justice John G. Roberts: Are we just supposed to assume that Congress knows that?

I mean, if you had asked me how long is the usual time from conviction or -- I mean, arrest to conviction, I wouldn't know if it's closer to 90 days or 11 months.

Mr. Eberhardt: I think we do, Chief Justice -- Mr. Chief Justice.

We have to know that Congress -- Congress knows that because these are the individuals who drafted the Sentencing Reform Act.

Chief Justice John G. Roberts: Well, right.

But I mean -- and we assume Congress knows the law.

I don't know that we can readily assume they know details such as that and evaluate their -- what would your position be if the Congress said do this as soon as practical, but in any event, no later than 8 months from now?

Would we then think there's a fair implication that Congress meant it to apply retroactively or not?

Mr. Eberhardt: On just the point of the immediacy placed on by Congress, I think that would take away from the fair implication that Congress meant that it -- the law should be go -- or the law should be effective on the date of the President's signature.

Justice Ruth Bader Ginsburg: Why do you pick the date that the Fair Sentencing Act went into effect, if it -- if what -- if the guidelines are a 90-day period, that the Commission came out with its new guidelines on November 1st, and some time after August 3, which was when the Sentencing Act -- so on -- on your theory, why isn't the right date the date that the Sentencing Guidelines went into effect?

Mr. Eberhardt: The correct date is the August 3rd date, Your Honor, because of the intent of Congress made known through the implication of the language taken in the legal context of the Sentencing Reform Act.

When Congress meant to correct their error, I believe they made it perfectly clear that they meant to correct this error as soon as possible.

This has been an error that had been discussed for 25 years and was finally trying to be corrected.

Mr. Chief Justice, if I might reserve the rest of my time?

Chief Justice John G. Roberts: Thank you, counsel.

Mr. Eberhardt: Thank you.

Chief Justice John G. Roberts: Mr. Dreeben.

ORAL ARGUMENT OF MICHAEL R. DREEBEN ON BEHALF OF THE RESPONDENT IN SUPPORT OF THE PETITIONERS

Mr. Dreeben: Mr. Chief Justice, and may it please the Court:

The Fair Sentencing Act manifests the requisite fair and necessary implication that Congress intended that its new mandatory minimum thresholds apply in all sentencings after the date of the Act.

Justice Sonia Sotomayor: Do you think it's a clear and unmistakable implication--

Mr. Dreeben: First of all--

Justice Sonia Sotomayor: --if we are going to argue about the language?

Mr. Dreeben: --I do, Justice Sotomayor.

Although this Court has not used the words 109, it has used the words--

Justice Sonia Sotomayor: Well, generally the word "express" incorporates "clear".

Mr. Dreeben: --There is no dispute here, I don't think, that there is a -- a lack of an express statement in the Act.

But--

Justice Sonia Sotomayor: So that -- why doesn't that defeat your case?

Mr. Dreeben: --Well, as Justice Scalia explained in his concurring opinion in Lockhart v. United States, one Congress cannot impose standards of how another Congress is to enact legislation.

The subsequent Congress is free to choose how it will express its will in the language or structure that it sees fit.

And I'd like to give an example--

Justice Anthony Kennedy: Well, so then we -- we ignore The Dictionary Act?

Mr. Dreeben: --No, of course not, Justice Kennedy.

But these--

Justice Anthony Kennedy: And can we ignore 109?

Mr. Dreeben: --No.

It provides a background presumption that overcomes the common law rule of abatement, under which, if Congress had amended a statute, all prosecutions under the prior statute would be deemed to be a nullity and they would not--

Justice Anthony Kennedy: Well, why doesn't it -- why doesn't that bring us right back to what 109 says?

Mr. Dreeben: --This Court has made clear in not only the section 109 cases, but I think, as my colleague mentioned in Marcello v. Bonds, that there are no magical passwords that Congress has to use to explain itself.

And let me give an example because I think that it will help to put in focus why I think the Fair Sentencing Act does contain the requisite implication.

If Congress had written in the Fair Sentencing Act

"Henceforth after the date of this Act, probation officers shall prepare pre-sentence reports and submit them to courts in which they shall calculate the mandatory minimum penalties under the standards announced in this Act. "

I think this Court would draw the structural inference that it did not intend that probation officers prepare that information for nothing.

They intended that it be prepared so that sentencing courts would use those new mandatory--

Justice Antonin Scalia: Exactly, and I think we would come out that way.

I think you are entirely right.

But the accelerated -- the direction to the Guidelines Commission to promulgate the guidelines on a -- on an emergency basis is not, as you just put it, for nothing.

It has--

Mr. Dreeben: --I agree with that, Justice Scalia.

Justice Antonin Scalia: --As Justice Alito was suggesting, it has some effect.

Mr. Dreeben: No, I -- I don't disagree with that.

Justice Antonin Scalia: So it -- it's not comparable to -- to what you've just said.

Mr. Dreeben: Well, I think it is because there is a piece of the -- that -- that section that I would like to draw the Court's attention to, because I think that it critically explains what the Sentencing Commission was supposed to do.

Section 8 is all over the briefs, but I have it in the government's gray brief at page 10a.

This is the section that directs the Sentencing Commission to promulgate new guidelines and to exercise its emergency authority -- and I'm going to quote here --

"to make such conforming amendments to the Federal Sentencing Guidelines as the Commission deems necessary to achieve consistency with other guidelines provisions. "

--and here's the critical phrase -- "applicable law".

That phrase, 2 and 3 of the Fair Sentencing Act, which are the provisions that increased the thresholds of quantities necessary to trigger the mandatory minimum sentences.

Justice Antonin Scalia: That's fine.

But -- but it -- they apply that applicable law to those, as you say, admittedly few people who have been prosecuted, convicted, and are now being sentenced under that applicable law.

Mr. Dreeben: But--

Justice Antonin Scalia: There may not be many of them, but it does not -- it does not deprive that language of all meaning.

Mr. Dreeben: --Well, Justice Scalia, I want to put this in the structural context of the Sentencing Reform Act.

The Sentencing Reform Act directs courts to apply the version of the Sentencing Guidelines that is in effect on the day of sentencing.

It's not a time of offense rule; it's a time of sentencing rule.

And there -- that means that everybody who comes before the sentencing court after the date of the Fair Sentencing Act when the new guidelines are in place will have those guidelines applied to those defendants.

Those guidelines are supposed to be conformed to applicable law.

The only applicable law that there could be is the new mandatory minimum standard.

Justice Antonin Scalia: Well, no, you are begging the question.

The -- the law applicable to pre -- pre-statute offenses continues to be the prior law, and the applicable law to offenses that have occurred after the enactment date is -- is the--

Mr. Dreeben: But that would mean, Justice Scalia, that the guidelines would not be conformed to applicable law for the defendants who are sentenced after the FSA.

They would be conformed to inapplicable law.

And Congress knew when it set up section 3553(a) that the guidelines that would be applied are the ones that are in force at the time of sentencing.

Chief Justice John G. Roberts: So why -- why 90 days?

I mean, the Commission basically just took the ratio under the new Act and applied it, didn't they, throughout?

They took the mandatory minimum formula that had been changed and changed it throughout the -- the sentencing provisions?

Mr. Dreeben: Well, it was a little bit more complex than that, because what -- what the FSA did was two things: it lowered of the mandatory minimums by increasing the crack thresholds, and it targeted role in the offense of the defendant for increased sentencing and mitigating factors for decreased sentencing.

And the Commission had to translate that into new guidelines.

It acted quickly.

It was told to act as soon as practicable.

It was entirely possible under the statute, and probably would have been desired by Congress, that new guidelines would have gone into effect on August 4th.

At that point the only people in front of the sentencing court would have been pre-FSA offenders.

Justice Stephen G. Breyer: Yes, but how -- how many are we talking about?

Say, a 3-month period?

How many people commit -- most people -- everybody pleads guilty, they are caught quickly--

Mr. Dreeben: Not necessarily.

Justice Stephen G. Breyer: --I know not necessarily.

That's why I want your estimate of how many we are talking about.

Mr. Dreeben: Well, roughly speaking, there has been historically been about 5,000 crack offenders a year.

So that means that, come--

Justice Stephen G. Breyer: And how -- how long historically, roughly, if you know, does it take from the time the person's caught till the time he's sentenced, when he pleads guilty?

Mr. Dreeben: --We put in the brief the figures from the Administrative Office of the U.S. Courts, which indicate that the median figure is around 11 months, but--

Justice Stephen G. Breyer: 11 months?

Mr. Dreeben: --Yes.

Justice Stephen G. Breyer: But how many of -- you see what I'm trying to get at.

I'm trying to get at a guess, if you like, of how many people we are talking about.

The two numbers that I can't find in the briefs are roughly -- if your opponent is correct, and it only applies to new people, this thing -- that's the applicable law -- in other words, you are assuming the answer in your answer to Justice Scalia, you are assuming the answer.

I haven't heard an argument for it, except that there are very few people that his interpretation or the opposite interpretation would catch.

And how many were there.

Mr. Dreeben: I'm reluctant to guess, Justice Breyer.

Justice Stephen G. Breyer: About?

I mean, is it more like 10, or is it more like 50, is it more like 100?

Can you make a guess at all?

Mr. Dreeben: Well, let me put it this way, Justice Breyer--

Justice Stephen G. Breyer: All right--

Mr. Dreeben: --I think that there -- there will probably be thousands of crack defendants who will be sentenced under the old mandatory minimums that Congress repealed because they were perceived as being racially disparate and unfair, and--

Justice Stephen G. Breyer: --Now, isn't it obviously what I'm trying to get at?

Mr. Dreeben: --Well--

Justice Stephen G. Breyer: You -- you see what I'm trying to get at?

I guess--

Mr. Dreeben: --I don't think that Congress balanced numerically--

Justice Stephen G. Breyer: --No, no, but you are saying it would be absurd to think that this section 8 has to do only with prior -- the pre-enactment offenses.

Absurd, all right?

If there is just likely to be one person, I tend to buy your absurdity argument.

If there is likely to be 500 or 1,000, I'm much less certain.

Mr. Dreeben: --I'm not making an absurdity argument, Justice Breyer.

The argument that I'm making is that when Congress directed the Commission--

Justice Stephen G. Breyer: Yes.

Mr. Dreeben: --to conform the guidelines to applicable law, the only applicable law that it could have had in mind--

Justice Stephen G. Breyer: No, that argument -- of course, they could have had both in mind.

They could have had applicable law for the new people is our new statute; applicable for the old people, you don't need any amendment, we're not talking about that, just apply the old law.

Mr. Dreeben: --But they don't--

Justice Stephen G. Breyer: That makes perfect sense.

Mr. Dreeben: --But the Sentencing Reform Act -- it doesn't make perfect sense, because the Sentencing Reform Act is set up to apply new guidelines to people based on date of sentencing.

Justice Antonin Scalia: --New guidelines to what people?

That's the issue.

Mr. Dreeben: Everybody.

Justice Antonin Scalia: If it's only new -- you're--

begging the question again.

Mr. Dreeben: No, I don't believe so, Justice Scalia.

Justice Antonin Scalia: If it's -- if it's only to people who have committed their offenses after that Act, then you have one set of applicable guidelines for those people, and you leave in effect, for people who committed their offense before the -- the enactment date, the prior guidelines.

I don't think there's anything necessarily implied by -- by this provision to the effect that--

Mr. Dreeben: Justice Scalia--

Justice Antonin Scalia: --there is only in the future one set of guidelines applied, you know, one guideline fits all.

I don't think that's--

Mr. Dreeben: --Let me refer to the statute because the statute answers this question differently than the way Your Honor has assumed it works, okay?

On page 30a of our appendix we reproduce section 3553(a), and 3353(a)(4) establishes that when a--

Justice Antonin Scalia: --Excuse me.

30a?

Mr. Dreeben: --30a -- I'm sorry, 39a.

Justice Antonin Scalia: 39a.

Mr. Dreeben: Sorry about that.

The -- the Sentencing Reform Act provides that the applicable set of guidelines that will be applied are those that are in effect on the date that the defendant is sentenced.

This is 3553(a)(4)(A)(ii).

And that provision has been in the Sentencing Reform Act since the -- since the time the Sentencing Reform Act was enacted.

And Congress explained, for those who read legislative history, that it wanted -- and I am going to quote here from the legislative history:

"The guidelines and policy statements to be applied are those in effect at the time of sentencing. "

Congress's reason for that was it wanted the most sophisticated statements available that will most appropriately carry out the purposes of sentencing, and to impose a sentence under outmoded guidelines will foster irrationality in sentencing and would be contrary to the goal of consistency in sentencing.

So--

Justice Antonin Scalia: What is section 3742(g), which is--

Mr. Dreeben: --That provides that if a case is reversed on appeal and sent back for resentencing, the original set of guidelines that were applied at the date of the initial sentencing shall be used.

It's an exception to the general rule.

Justice Samuel Alito: Could I ask you this about your argument?

Because I do think the one you're stressing now is a -- is a good argument and your best one.

But what troubles me is that an earlier bill, H.R. 265, which contained the provision that says

"There shall be no retroactive application of any portion of this Act. "

contains the very language that you're stressing now.

So how do you reconcile that?

Mr. Dreeben: Well, first of all Justice Alito, what that bill would have done is postpone the effective date for 180 days so that there could be synchronicity between the guidelines and the new mandatory minimums.

The retroactivity that it was concerned about would have reopened final sentences.

There's no question here about reopening final sentences.

So that bill was explicit: We don't want to reopen final sentences.

The government is not asking for reopening of final sentences.

Justice Samuel Alito: No, I understand that.

But wouldn't you want -- the problem that you're -- maybe -- I understand your argument to be that the language you're stressing now will mean, if this applies only to post-enactment offenders, that there will be defendants who will be sentenced to -- under the -- under old -- under the old mandatory minimums but the new guidelines.

Mr. Dreeben: Correct.

Justice Samuel Alito: Would that not occur under the -- clearly occur under H.R. 265?

Mr. Dreeben: No, I don't think so, because that bill was designed to postpone the effective date for 180 days.

I think everyone in Congress understood that these guidelines had undermined the credibility of the criminal justice system for years.

The Sentencing Commission had four times submitted reports to Congress that bemoaned the fact that they were not only inconsistent with the purposes of--

Justice Antonin Scalia: --Okay.

But I mean -- yes, that's very nice, but let's talk about text, not what about the emotions of Congress.

This section that you quoted, (a) -- what, (4)(A)(ii)--

Mr. Dreeben: --Yes.

Justice Antonin Scalia: --of section 3553(a)--

Mr. Dreeben: Yes.

Justice Antonin Scalia: --Is that in the new statute?

Mr. Dreeben: No.

That's part of the Sentencing Reform Act from the beginning of the guidelines.

It was--

Justice Antonin Scalia: It was in effect--

Mr. Dreeben: --Yes.

Justice Antonin Scalia: --It was not the amendment.

Mr. Dreeben: No, no.

Justice Antonin Scalia: Congress didn't insert that--

Mr. Dreeben: It was--

Justice Antonin Scalia: --when it made this amendment.

You're just saying that that is the incidental effect of the provision that Congress did adopt?

Mr. Dreeben: --No, I'm saying that the background principle that our legislators are familiar with the law surely applies to sentencing law; and Congress understood that once the new guidelines were in effect, which it wanted to happen as soon as practicable, they would be applied to all defendants in the system based on time of -- of sentencing, not time of offense.

And it wanted those guidelines to be conformed to applicable law.

And it is very strange to say that it wanted new guidelines in effect to be conformed to inapplicable law such that there would be the incongruous result that the new guidelines that finally fixed this egregious problem in the criminal justice system would be irrelevant for many defendants because they would still be living under the 100-to-1 racially disparate effect of the guidelines, of these--

Justice Sonia Sotomayor: Mr. Dreeben, almost any law that repeals a prior penalty is doing so because the legislature determines that that prior penalty is unjust in some way, because why do you eliminate a penalty unless you think it is necessary to do so and that it is injust or unjust in some way?

So what makes this repeal particularly different so that the exception doesn't swallow the rule, because you can argue in almost any situation that the repeal is of something that's unjust?

Mr. Dreeben: --Mr. Chief Justice, may I answer the question?

Chief Justice John G. Roberts: Certainly.

Mr. Dreeben: Justice Sotomayor, what's unique about this context is that there's a confluence between the way that the guidelines treated crack and the way that the statutes treated crack.

And for years the Sentencing Commission had said: We can't fix this problem with the guidelines alone; we need the help of Congress to alter the mandatory minimums.

And once you do that, give us emergency authority so that we can put new guidelines into place that will work hand-in-glove with the new mandatory minimums, as the Chief Justice explained, so that all defendants who come before the Court will not be subject to the discredited crack policy that Congress had repealed.

Chief Justice John G. Roberts: Thank you, counsel.

Mr. Estrada.

ORAL ARGUMENT OF MIGUEL A. ESTRADA, COURT-APPOINTED AMICUS CURIAE, IN SUPPORT OF THE JUDGMENTS BELOW

Mr. Estrada: Thank you, Mr. Chief Justice, and may it please the Court:

I think this is a difficult case for public policy but is not a difficult case for legal doctrine.

Fairness is on both sides--

Justice Sonia Sotomayor: Mr. Estrada, what's so difficult for a legal doctrine to say that when Congress has made a finding that a law has a discriminatory impact -- because I always thought that when discrimination was at issue, that we should do as speedy a remedy as we could, because it is one of the most fundamental tenets of our Constitution, as has been repeatedly emphasized in case after case, that our laws should be -- should be enforced in a race-neutral way.

Once Congress has said this law's not being enforced in a race-neutral way, we want to fix it, why shouldn't our presumption be that the fix is immediate rather than delayed?

Mr. Estrada: --Because I think it would be wrong to assume that the passage of the Act reflects Congress's concession of intentional discrimination.

I think it does recognize that there were members of Congress that had concerns about the disparate impact of the law.

Justice Sonia Sotomayor: Mr. Estrada, I've been a judge for nearly 20 years, and I don't know that there's one law that has created more controversy or more discussion about its racial impact than this one.

Mr. Estrada: Absolutely.

Justice Sonia Sotomayor: I don't think there is any other law that had as much conversation about its racial implications than this one.

Mr. Estrada: Justice Sotomayor, that is absolutely right.

But it is very significant that for 20 years we had this argument.

The Sentencing Commission, as the government points out, went to Congress again and again and again to say we don't agree with this, this makes no sense.

And for 20 years, Congress could not bring itself to change it because there was no agreement on the part of the lawmakers that the public policy was that easy.

And the fact is you have a whole assortment of bills that were considered by Congress in the last several sessions.

For people who believe legislative history is significant, they're all very instructive.

Most of them did a variant of the same thing.

Most of them have very identical language, even some of the language that's at issue here.

They had different proposals.

There was one for 24: 1, another one -- there were many one to one.

It was clear that Congress couldn't bring itself to an agreement as to what the right answer was.

Justice Sonia Sotomayor: Well, but this--

Justice Elena Kagan: Mr. Estrada, I mean, that's true, that it took Congress a long time to decide to do this, and the question is, once having decided to do this, what did it decide to do; and whether it would make sense, once having decided to do this, to have the guidelines be the new guidelines, but the mandatory minimums be the old mandatory minimums.

And what everybody understood was that if that were the case, if the new guidelines and the old mandatory minimums sort of -- both applied together, it would lead to ridiculous disparities in the way people were sentenced.

And so the question is, once having decided to do this, can't we assume that Congress decided to do it?

Mr. Estrada: No.

Let me give three answers to that.

I think, you know, one of the fundamental points here is that a premise of the law is to treat like people alike.

And people who committed the same offense on the same date and may have done so with each other we would expect to get comparable punishment if they were comparable situated as to criminal history, and the -- that the solution that's being urged undermines that even though that is exactly what section 109 says.

Justice Ruth Bader Ginsburg: But you have to draw a line someplace and that's inevitable that some people are going to fall on one side.

But the point about the guidelines and statute working together, wasn't there a time when the Sentencing Guidelines -- they wanted to do away with this distinction and Congress said, no, Sentencing Commission, you can't do it, you can't do it to the guidelines when we don't do it to the statute?

Mr. Estrada: There are two points about the guidelines that I think we have to keep in mind, Justice Ginsburg.

The first one is that they are guidelines, especially in the world after Booker, which is the world that confronted Congress in 2010.

They are guides that must be considered by the judge to inform judicial discretion.

So in the nature of the guidelines there is nothing inherent in saying that we must have new ones that also implies a new obligation of statutory law to people whose offense conduct occurred earlier.

The second aspect of it is that it has been part of the nature of a guidelines system for two decades that it has been consistent with the decision by Congress in some areas to constrain the exercise of discretion with mandatory minimums.

And this Court has recognized that in multiple occasions in Kimbrough, in Neal, in DePierre, any number of cases, and the guidelines themselves in section 5G1 recognize that the mandatory minimum may trump a lower guideline.

So when you have a long history in 2010 of rulings from this Court acknowledging, as you said in your opinion in Kimbrough, that this may lead to cliffs, et cetera, and you also have a recognition by the Commission itself that they have to integrate this reality of sentencing law into their own guidelines, there is very little basis for an inference that Congress in providing new guidelines would have contemplated that the effective date of the law would change--

Justice Ruth Bader Ginsburg: But Congress did say: Sentencing Commission, you conform your new guidelines to applicable law.

The applicable law has got to be the new law, because if it were the old law, there is nothing to conform.

There is nothing that they need to change.

It's only that this section (a)(2) makes sense only if the applicable law is the new law.

Otherwise the Commission doesn't have to do anything to achieve consistency.

Mr. Estrada: --Justice Ginsburg, I am prepared to admit for purposes of this case, and I think it's probably the right answer, that Congress intended that the guidelines had to line up with the penalties of the FSA.

The question is cui bono: For whose benefit.

And Congress clearly contemplated for some of the reasons that you outlined that the system in the change in the statute would not do any good for people coming to be sentenced 6 months later if they still had higher guidelines.

But much has been said here today about the 90-day window.

The 90-day window is irrelevant.

The really relevant window is the comparison of what the new guidelines would have been and when they would have come out absent the emergency authority.

Absent any emergency authority, new guidelines would have come out November 1, 2011, which would have been a good 15 months after the passage of the FSA.

And even under the government--

Justice Sonia Sotomayor: --Mr. Estrada, even without the guideline amendment, for those defendants who committed crimes after the effective date of this Act, they would not have had -- new offense, not old offense -- if the day after this Act they committed the offense, they wouldn't have had a mandatory minimum that required their imprisonment for a certain amount of time, because the Act had already done away with the mandatory minimum, correct?

Mr. Estrada: --A--

Justice Sonia Sotomayor: Or changed the guide--

Mr. Estrada: --Changed some of them.

Justice Sonia Sotomayor: --Changed it, Lowered the amounts.

Mr. Estrada: Some of them may drop from 10 to 5, for example, as one of the -- as one of the particulars.

Justice Sonia Sotomayor: Exactly.

So those people would not have been bound to a mandatory minimum.

And since district courts were not bound to the guidelines anyway, even if there had been no amendment to the guideline, the judges would have known they weren't bound to the mandatory minimum, and probably not bound to guidelines that hadn't been amended yet either.

Mr. Estrada: That's correct on both counts.

Justice Sonia Sotomayor: So it would have benefited these defendants no matter what.

Mr. Estrada: That's correct on both counts, but that -- but that I -- you know, it sort of assumes that the guidelines are systemically irrelevant in all cases, because after an appropriate analysis--

Justice Sonia Sotomayor: No, only in cases like this, where we know they have to change because Congress has directed they be changed.

Mr. Estrada: --But look.

I mean, one of the interesting aspects about these cases is that one of the Petitioners, for example, got the benefit of being sentenced at the time that the post-FSA guidelines, the new emergency guidelines, provided a sentencing range of him of 110 to 137.

That's -- that's Mr. Hill.

These are the new guidelines.

He was sentenced to a mandatory minimum of 10, which is on the lower end of that guideline.

The only reason that case is in the U.S. Supreme Court is because, even after the new statute, the judge was of a mind that he wanted to use a one-to-one ratio.

And that's why there is a controversy There.

But that highlights, you know, the point that I am trying to make and that the Court made in Kimbrough, which is that the mandatory minimums tend to enforce a species of uniformity in a world in which the guidelines are advisory, and they do help uphold, you know, the principle that people that committed comparable offenses will have some lost comparability.

Justice Elena Kagan: But that begs the question--

Justice Sonia Sotomayor: But the problem I started with, with you, which is if we know that this new Congress has already determined that those -- that mandatory minimum is discriminatory in the way that it had been constructed, what would be the purpose of delaying implementation?

Mr. Estrada: If Congress had made that finding, Justice Sotomayor, I would fully expect them as a citizen to cut the sentences of everybody who is already serving the sentence irrespective of finality.

And the fact that Congress did not do that, which is a proposition on which everybody agrees, I think is powerful evidence that the assumption that this necessarily reflects a conclusion that the previous system was indisputably discriminatory as opposed to arguably discriminatory--

Justice Antonin Scalia: I would find that extraordinary, that they say it's racist but we are going to leave in effect all of the sentences that have previously been imposed.

That seems to me very unlikely.

Mr. Estrada, I would like you to explain the effect of 353(a)(4)(A)(ii) which -- which does seem to -- to be sure, it's not in the new legislation, but it's the background against which the new legislation was adopted, and it seems to require that the Court use the guidelines in effect at the time of sentencing.

Mr. Estrada: --Right.

This is a fight about competing background rules.

Section 109 is one of them and it says: The old law shall be applied to people who committed their offenses while the old law was in force.

It is a directly applicable statute to the situation at hand.

This purported competing background rule is a rule that simply says a judge shall consider the guidelines then extant.

And this is part of the advice that he gets.

It implies nothing about the duty to apply--

Justice Sonia Sotomayor: Mr. Estrada--

Mr. Estrada: --I'm sorry?

Justice Stephen G. Breyer: Suppose you are wrong about that.

I mean, I think when they -- they meant do it, not consider.

Does that change?

Mr. Estrada: I think it would be a radical understanding.

Justice Stephen G. Breyer: No.

I mean, I think that when they wrote this 3553, they were thinking those were the guidelines that are going to apply.

Do it.

Now, I'll look into that.

But if I -- if I reach the conclusion I reach -- competing background briefs--

Mr. Estrada: Justice Breyer--

Justice Stephen G. Breyer: --The applicable law doesn't help us, because -- all the time, there are two different sets of guidelines that apply depending upon when you committed the crime.

That's very common.

All right.

So I agree with you that far.

But now I'm worried about -- the last question Justice Scalia asked does, I think, focus this question, because we have not only 109, we have also the -- the one we're talking about now, and that says, normally, you will apply the guidelines in effect even to people who committed the crime before the new statute.

Mr. Estrada: --Okay.

Justice Stephen G. Breyer: Now, do we have any analogies?

Has this ever happened before?

Is there -- I can't find out how many people we're talking about.

I'd like to know at least are there many other occasions when Congress amended mandatory minimums so there's some precedence?

Any?

Mr. Estrada: Justice Breyer, this is a staple of what has happened in the lower courts in the routine application of section 109.

Justice Stephen G. Breyer: Yes.

Mr. Estrada: My best example -- and please do not think I'm pandering -- is a case called U.S. v. Smith from the Second Circuit, which was authored by then-Judge Sotomayor.

And it was a comparable case in which Congress had dropped the severity of a penalty.

Justice Stephen G. Breyer: Yes.

Mr. Estrada: It had to be -- you know, the penalty that deals with supervised release.

And Congress had gone from a world in which a violation of supervised release had to be subject to a mandatory sentence, to a world in which the statute had been changed, to say that it was up in the discretion of the judge.

By the time the offender came to court, he had violated his supervised release.

And his argument, which was actually a lot more plausible than this one, was that before he violated, the law had changed, and he was now in effect now coming to the court for a new sentencing.

Which is exactly analogous to this.

The Second Circuit had no trouble in saying that a routine application of section 109 killed that claim because the offense was considered completed at the time it was committed.

And, therefore, this was a -- a claim that simply was not tenable in light of the language of section 109.

And that, too, is a -- is a case where somebody could have said the law that now applies is the one that applies to my new sentencing under the new applicable guidelines.

Now, I will say another two logical points about, you know, the competing rule that the government is urging.

Justice Elena Kagan: --Mr. Estrada, before you do, if I can understand your argument as it relates to Justice Scalia's questions -- I just want to make sure I understand it.

There's a person who has 4.99 grams of crack cocaine.

And you do not dispute, do you, that that person would be subject to the new guidelines, which are based on the 18-to-1 ratio rather than the 100-to-1 ratio?

Mr. Estrada: I do not.

And--

Justice Elena Kagan: Okay.

So you do not dispute that.

So -- so then we're living in a world in which the person who has 4.99 grams of cocaine is getting the 18-to-1 ratio, and a person who has 5 grams is getting the 100-to-1 ratio that's embedded in the mandatory minimums.

Mr. Estrada: --That is absolutely right, and that was the -- the paradox, if you want to call it that -- that the government brought you in Kimbrough.

And the Court accepted that that was the case.

It said, yes, this leads to cliffs.

It leads to a lack of a straight line in between all of the possible penalties.

We accept all of that.

It is an artifact of the fact that Congress at certain points, but not on a continuous line, has chosen to constrain sentencing discretion with the rough tool of a quantity threshold.

It is all set out in the Kimbrough case.

Justice Elena Kagan: Now, when Judge Easterbrook talked about this anomaly -- and he, of course, adopted the position that you adopted.

But he just said, look, there is no earthly reason for this.

It's just that we can't find a clear enough statement in the statute.

I guess the question I would ask you is: Can you do better than Judge Easterbrook?

Can you find an earthly reason for why Congress would have wanted to create this weird halfway system in which you if you have 4-1/2 grams of cocaine, one rule applies, but if you have 5 grams, another rule applies?

Mr. Estrada: I don't think that that's what he found inexplicable.

I think the -- you know, the whole notion of changing it up to a point was more what he's saying.

I can think that Congress has at least the rational reason that the Court ascribed to the system in its post-Booker way at the top of page 108, I think, in the Kimbrough case, where it is that now that we have a system in which so much depends on the discretion of the individual sentencer, it is actually salutary to have a few points of confluence that work as an enforced, although rough, uniformity in the sentences of comparably situated offenders.

If I go back--

Justice Anthony Kennedy: But the government is arguing, and the Petitioner is arguing, for a uniform rule, the rule that the time of sentencing controls.

Mr. Estrada: --Right.

Justice Anthony Kennedy: So that uniformity doesn't quite answer it, unless I misunderstood.

Mr. Estrada: No, I think that there are competing visions of fairness and of uniformity in this case, Justice Kennedy.

I am trying to hold, you know, the government to the one they had in the McNeill case last year, because the identical argument was made to them in the -- on the other side, that it was somewhat irrational to apply the better sentence to the person 1 day later versus the person 1 day earlier.

Justice Anthony Kennedy: But Justice Kagan's question concerning what interest is served by your position has -- has particular force when we're talking about the sentencing judge.

The hardest thing -- as we know in the judicial system, one of the hardest things is sentencing.

And you're saying that a sentencing judge who knows the law has been changed, who knows the law has been criticized, is nevertheless bound and determined that it's fair for this person to be sentenced to the longer term.

That's a very difficult--

Mr. Estrada: But if I could--

Justice Anthony Kennedy: --position to put the judge in.

Now, I would--

Mr. Estrada: --If I could take the other -- I'm sorry, Justice Kennedy.

Justice Anthony Kennedy: --Go ahead.

Mr. Estrada: If I could take, you know, the other side of that argument.

One of the reasons why I think, you know, the Court should accept that Congress contemplated new guidelines but not necessarily take up, you know, the government's view that this is actually called for by the very end of that section, applicable law, is that the government looks at this as a world in which Congress has now intervened and in effect compelled a -- a more linear function of sentencing.

So that, henceforth, I guess the Commission has to conform to the 18-to-1 ratio, and it would no longer be open to the Commission, for example, to do what it did in 2007, which is we changed our mind; there's a mandatory minimum that constrains us, but in light of the most recent scholarship, we think the ratio should be 16 to 1.

And -- and one of the reasons why I am reluctant to urge you to accept, you know, the government's construction, which I can see how they would be helped by in future cases, is that I think it's very implausible for Congress to have considered this, as they say, the centerpiece of the statute and have -- have it be the last depending clause of section 8.

Justice Stephen G. Breyer: Wait, wait.

This is -- just tell me if maybe the light is dawning, and maybe I'm just at the same question Justice Kagan asked.

Think of before the statute.

There were two sets of people: those people subject to the mandatory minimum and those crack people who -- the mandatory minimum didn't matter, but the Commission wrote amendments consistent with.

So they were tough amendments, so the law didn't require it--

Mr. Estrada: Right.

Justice Stephen G. Breyer: --to produce consistency.

Now the statute's passed.

Now we have some of the pre-Act offenders.

Because of the two sets of things, section 8 on the one hand and the 3553(g) on the other, in respect to those people who were not governed by the mandatory minimum previously but were subject to the then-conforming amendments, now will have to be subject to new conforming amendments that conform to the new thing.

And that -- because that'll have to be because of the combination of the two sections that Mr. Dreeben read, the -- all right.

Now, if that's so, we get to the cliffs that Justice Kagan is talking about.

And if I'm right so far, we're now back at the probation officer example, and it's so odd and so peculiar that it is not just a fair -- do you see where I'm going?

Mr. Estrada: Frankly, no.

But--

Justice Stephen G. Breyer: Is that too complicated?

[Laughter]

I don't blame you, frankly.

But I--

Mr. Estrada: --But let me -- let me say two things--

Justice Stephen G. Breyer: --All right.

Mr. Estrada: --You know, the--

Justice Stephen G. Breyer: I don't blame you.

I don't blame you.

Mr. Estrada: --The simple point I was trying to make, Justice Breyer, is that the whole thing that the guideline system now has to conform with applicable law, which, you know, the government reads as the new ratio and could extend to other things, could potentially disable the Commission from adopting its own ameliorating amendments that depart from the regime of -- of the mandatory minimums.

And so whereas there are mandatory minima that are troublesome and give rise to cliffs, there are also occasions in which the Commission is able to do things that are not consistent with the statute.

Let me give one example that was mentioned by the Court in DePierre.

As the statute was interpreted in DePierre, cocaine base is cocaine base; it gets you a mandatory minimum if it's chemically based.

The Commission thinks that you only get the enhanced penalties if the cocaine base happens to be crack.

Similarly under the Neal case, you get to weigh the carrier medium for the LSD, but, you know, the Commission thinks that you give it a presumed weight that is probably lower than the actual medium.

In both of those cases, the Commission comes up with guidelines that are lower than the methodology that is contemplated under the statutory analysis.

Were you to adopt the applicable law on the assumption that the Congress has now dictated that these things have to line up and never to have cliffs again because they are bad, you could end up having untoward consequences as to what it is that the Commission can do in the future in order to deal with other inequalities--

Justice Sonia Sotomayor: --Mr. Estrada, I'm not sure I follow--

Chief Justice John G. Roberts: I--

Justice Sonia Sotomayor: --I'm sorry.

Chief Justice John G. Roberts: --Go ahead, Justice Sotomayor.

Justice Sonia Sotomayor: I'm not sure I follow your example.

I think that the guideline regulation is that the guideline -- the Sentencing Commission always has to be -- pass guidelines consistent with the mandatory minimum.

And if the statute says that the mandatory minimum requires the -- the carrying medium to be included, the guidelines can't change that.

The mandatory minimum would apply.

Mr. Estrada: --For -- for purposes of the mandatory minimum, but not for the sentences in between.

Justice Sonia Sotomayor: But defendant -- I don't know that I know of one guideline scheme that changes whatever Congress has statutorily required.

Mr. Estrada: I just gave you two examples: The LSD guideline that was at issue in Neal and the crack guideline that was not at issue, but was discussed in connection with the statutory interpretation in -- in DePierre.

You know, my point -- I don't want to overstate the point.

My point is there is reason to believe that Congress intended the new guidelines to be available for new offenses.

The fact that Congress gave emergency authority so that that would be possible makes perfect sense because in the absence of emergency authority, the new guidelines would--

Justice Sonia Sotomayor: No, no.

You have to -- what you are arguing is not that the guidelines would be available for new offenses.

What you are arguing is that they would be available for everybody except the cliffhangers.

That's -- that's what you're arguing.

Mr. Estrada: --Except for?

I'm sorry?

Justice Sonia Sotomayor: Everyone but the cliffhangers, because, as Justice Breyer pointed out, those people who were subject to the old guideline at a higher rate above the minimum now have the benefit of a lower rate, and so they're going to get sentenced to a lower amount because they are not bound by the mandatory minimum.

Mr. Estrada: But there are -- there are two alternative worlds under the FSA, Justice Sotomayor.

In the first one guidelines don't change for 15 months.

People who committed the crime after the FSA come to the court for sentencing 10 months later and they get the new mandatory minimum, but it doesn't matter because the old guidelines are higher.

It is possible that the judge would intervene and use Booker discretion, but not necessarily so.

And the alternative world which Congress did give us is you change the guidelines as soon as you can; if you come to the bar of the court with a pre-FSA offense, it doesn't matter, because the new guidelines, like every guidelines book since the beginning, say that if a mandatory minimum applies, that controls over the then-current guidelines, which is one of the fundamental reasons why the alternative view of the world and the alternative rule of construction the government proffers makes no sense.

As a prosecutory construction matter and for those members in the Court who give weight to legislative history, I will point out that the emergency authority section that the government thinks is dispositive on this point was in every version of this bill -- Senate 1711, Senate 1383, you know, the House versions that they cite -- even when those statutes, as Justice Scalia pointed -- I'm sorry -- as Justice Alito pointed out earlier, provided an effective date for the new statute of 6 months hence.

It is--

Justice Samuel Alito: Well, along those lines, could I -- could I ask you this question, which is intended to explore the -- the issue whether the argument about bringing the guidelines into consistency with applicable law doesn't assume the -- the answer that is -- that one attempts to get from it.

Suppose the -- the -- the Fair Sentencing Act said expressly, this applies only -- the new mandatory minimums apply only to post-Act offenders, but it also contained a provision that says the Sentencing Commission has to bring the guidelines into consistency with applicable law.

I assume there what they would have to do would be to say that the new guidelines apply only to post-enactment offenders, so that the Fair Sentencing Act would trump this previous provision in the Sentencing Reform Act.

Wouldn't that be correct?

Mr. Estrada: --Correct.

And I think that that would be true here as well.

And the reason why I was highlighting the earlier bills is because each and every one of them had the same, almost word for word, "conform with applicable law" emergency authority.

All of them uniformly said the new mandatory minimums will not apply for another 6 months after the enactment.

As a logical proposition, if Congress thought that the identical language made sense to bring the guidelines into conformity with a law that would not take into -- that would not kick in for another 6 months, having it kick in sooner does not have any more logical import in saying that therefore, you know, the guidelines now mean that previous offenses get a different sentence.

Justice Elena Kagan: But could I understand what you are saying, Mr. Estrada?

Because if Justice Alito is right, then the new guidelines that the Sentencing Commission has in fact promulgated should not be being applied right now to those who committed crimes before the enactment date.

And that's not what's happening now on the ground, is it?

Mr. Estrada: Justice Kagan, it is not happening in that manner, because the guidelines, every book of the guidelines, I believe since 1987, which is the first one, has had, like, 5G1.1, which says these are the guidelines, but 5G tells you if a mandatory minimum applies, for whatever reason, you apply that and that becomes the mandatory sentence.

And so there has never been any reason to have two sets of guidelines to account for cliffs or andatory minimums, because every guidelines book has had a built-in solution to that problem, which is we understand that there are cliffs, we understand that there is a world of mandatory minimums; we can't fix those, this is our guideline sentence.

If somehow, for some reason -- because it occurred, you know, before or whatever -- there is a mandatory minimum that applies, the guidelines say the mandatory minimum becomes the guideline sentence.

So in that sense, a Congress that knew the law would understand that saying you have to have new guidelines had no logical force in saying that therefore the effective date of mandatory minimums or any other factor that bore on the application of mandatory minimums would be changed.

Chief Justice John G. Roberts: Thank you, Mr. Estrada.

Mr. Estrada: Thank you, Mr. Chief Justice.

Chief Justice John G. Roberts: Mr. Eberhardt, you have 3 minutes.

REBUTTAL ARGUMENT OF STEPHEN E. EBERHARDT ON BEHALF OF THE PETITIONERS

Mr. Eberhardt: Thank you, Mr. Chief Justice, and may it please the Court:

Obviously this Court recognizes the difficulty of those district court judges sitting and asking themselves: What do I do with this defendant as opposed to another defendant?

And after listening to my colleague, Mr. Estrada, I still have to ask the Court to consider the question that the Court has been asking: What possible reason could Congress have to want a district court judge to have to sit back 5 years after the date of enactment of the Fair Sentencing Act and impose mandatory minimums that everyone agrees at this point are racially discriminatory?

Justice Antonin Scalia: Of course, you could say that about any statute that runs afoul of -- of section 109.

I mean, that's what section 109 says: Even though we have decided that this old law is bad and the penalty should be lesser, even though we have decided, when we do that you continue to apply the bad old penalty to people who committed a crime before the amendment.

Isn't that what -- what 109 says?

Mr. Eberhardt: It can be, but, as Justice Sotomayor recognizes, there has never been a situation such as this basically in the history of criminal law and criminal law sentencing in our--

Justice Stephen G. Breyer: I'd imagine you would find disagreement with that.

You know -- you know -- you know as a matter of fact in the year that these took effect, think of the sentences that were not governed by mandatory for crack, not governed by the mandatory minimum.

Did the guidelines provide, let's call it a low sentence, disproportionately low?

Mr. Eberhardt: --Congress ultimately felt that they did, yes.

Justice Stephen G. Breyer: And did they change those non-mandatory part when they wrote new ones?

Mr. Eberhardt: The guidelines changed in different respects with regard to different amounts.

The new--

Justice Stephen G. Breyer: I'll look it up.

I will look it up.

Mr. Eberhardt: --I suggest the Court -- we admit that 109 has to be considered in the case, but I think to find what was really meant by Congress, after the Court looks to section 109, the Court does have to look to the 3553 sentence, or 3553 section, that makes it very plainly clear, ever since the Sentencing Reform Act, that the date of sentencing clearly is the important date, as opposed to the date of the commission of the crime.

Chief Justice John G. Roberts: All those arguments have nothing to do with the provision about the Sentencing Commission is supposed to act quickly or any of that, right?

Your argument is what rational reason could Congress have had to -- given the urgency of the problem, the seriousness, why wouldn't they have wanted the provisions to apply as you urged they should?

Mr. Eberhardt: But it goes hand-in-hand with the mandate from the Sentencing Commission to put the new guidelines in place as soon as practical, as well as provisions of section 10.

Thank you very much.

Chief Justice John G. Roberts: Thank you, Mr. Eberhardt.

Mr. Estrada, at the invitation of the Court, you have briefed and argued this case as an amicus curiae in support of the judgment below.

You've ably discharged that responsibility, for which the Court is grateful.

The case is submitted.

Featured:

Regents of the University of California v. Bakke - Oral Argument

Sun, 08 Apr 2012 12:58:49 +0000

Case:

Regents of the University of California v. Bakke

Media File:

76-811_19771012-argument.mp3

Related Transcript:

76-811_19771012-argument.xml

Transcript:

Argument of Archibald Cox

Chief Justice Warren E. Burger: First case on today's calendar is number 76-811, Regents of University of California against Bakke.

Mr. Cox, you may proceed whenever you're ready.

Mr. Cox: Mr. Chief Justice, may it please the Court.

This case here on certiorari to the Supreme Court of California presents a single vital question.

Whether the State -- whether a state university which is forced by limited resources to select a relatively smaller number of students from a much larger number of well-qualified applicants is free voluntarily to take into account the fact that a qualified applicant is black, Chicano, or Asian, or Native American in order to increase the number of qualified members of those minority groups trained for the educated professions and participating individual, professions from which minorities were long excluded because of generations of pervasive racial discrimination.

The answer which the court gives was determined perhaps for decades whether members of those minorities are to have the kind of meaningful access to higher education in the profession which the universities have accorded them in recent years ought are to be reduced to the trivial numbers which they were prior to the adoption of minority admissions programs.

The three facts realities which dominated the situation that the Medical School of Davis had before it and which I think this control the decision of this Court.

The first is that the number of qualified applicants for the nation's professional schools is vastly greater than the number of places available.

That is a fact and an inescapable fact.

In 1975, 1976, for example, there were roughly 30,000 qualified applicants for admission to medical school, a much greater number of actual applicants and there were only about 14,000 places.

At Davis, there were 25 applicants have received in 1973.

In 1974, the ratio was risen to 37 to 1.

So the problem is one of selection among qualified applicants, not of ability to gain from a professional education.

The second fact which is no need for me to elaborate but it is a fact for generation's racial discrimination in the United States, much of it stimulated by unconstitutional state action.

Isolated certain minorities condemn them to unfairer education and shut them out of the most important and satisfying aspects of American life including higher education and the profession.

And the greatest problem is the Carnegie on Higher Education noted more than 10 years ago.

The greatest problem in achieving racial justice was to draw those minorities into the professions that place on important part in our national life.

And then there's one third factor.

There is no racially blind method of selection which will enroll today more than a trickle of minority students in the nation's colleges and professions.

These are the realities which the University of California, Davis Medical School faced in 1968.

In which I say I think the Court must face when it comes to its decision.

Until 1969, the applicants of Davis as it most of the medical schools were chosen on the basis of scores on the medical aptitude test, their college grades, and other personal experiences and qualifications as revealed in the application.

The process excluded virtually almost all members of minority groups.

Even when they were fully qualified for places because there scores by enlarge were lower on the cognitive test and in college grade point averages.

Alright, there were no black students and no Chicanos in the class entering Davis in 1968.

If one puts to one side the predominately black medical schools, Howard and Meharry lasted off 1%, eight-tenths of 1% of all medical students in the United States were black in the year 1968, 1969.

In 1969, the faculty at Davis concluded the drawing in the medical college, qualified members of minorities, minorities long victimized by racial discrimination would yield important educational professional and social benefits.

It then chose one variant of the only possible method of increasing number.

It established what came to be known as the Task Force Program following the name of then program established by the Association of American Medical Colleges, which would select there were only 50 in the entering class at that time, which would select eight educationally but fully qualified -- select eight educationally or economically disadvantaged but fully qualified minority students for inclusion among the 52 in the entering class.

Justice Lewis F. Powell: Mr. Cox, is there something in the record indicating who -- who proposed or adopted the Task Force Program?

Mr. Cox: It's indicated then it was adopted by the faculty in the school.

It was voted by the faculty.

That appears from Dean Lowrey's testimony and it also appeared --

Justice Lewis F. Powell: But he wasn't -- he wasn't there then, was he?

Mr. Cox: No.

I guess he must have learned when he came somewhat later.

There's nothing -- there nothing more than his testimony gained and -- I may say, I have seen the minutes but --

Justice Lewis F. Powell: Is there anything in the record indicating the approval of the Regents other than the fact they're defendant – they are defendant --

Mr. Cox: No, because the Regents had delegated to each faculty of each school, the responsibility for admissions.

Justice Lewis F. Powell: Thank you.

Mr. Cox: So, this was left to the different colleges and very wisely, I think because autonomous institutions, each trying to solve this problem in their own way.

You may give all of us the benefit of the experience trial and error, creativity.

That's the virtue of not constitutionalizing the problems in this kind.

The number was increased to 16 when the size of the class was increased to a 100.

And it was the -- this step was taken as part of the movement led by the Association of American Medical Colleges which brought the number of black students studying at predominantly white medical schools from less than 1% to more than 5%, from 211 to 3,000 in a period of 10 years.

I want to emphasize that the designation in 16 places was not a quota at least as I review is that were.

Certainly it was not a quota in the older sense of an arbitrary limit put on the number of members of the non-popular group who would be the admitted to an institution which was looking down its nose at.

Unknown Speaker: It did put a limit on the number of white people, isn't it?

Mr. Cox: I think that it limited the number of non-minority and therefore essentially white, yes, but there two things to be said about that.

One is that this was not pointing the finger at a group which had been marked as inferior in any sense and it was undifferentiated that operated against a wide variety of people.

So I think it was not stigmatizing in the sense the (Inaudible) was stigmatizing in any way.

Unknown Speaker: But it did put a limit on their number?

Mr. Cox: It --

Unknown Speaker: In each class?

Mr. Cox: I'm sorry.

Unknown Speaker: It did put a limit on the number of not minority people in each class.

Mr. Cox: It did put a limit.

No question about that and I don't mean to evade that and I direct myself to it a little later if I may?

Justice Lewis F. Powell: Do you agree then that there was a quota of 84?

Mr. Cox: Well, I would deny that it was the quota.

We agree that there were 16 places set aside before qualified disadvantaged minority student.

Now, if that number -- if setting aside the number, the amount of result of --

Justice Lewis F. Powell: Now, the question is not whether the 16 is a quota.

The question is whether the 84 is a quota?

What is the answer to that?

Mr. Cox: I would say -- I would say that neither is properly defined as a quota.

Justice Lewis F. Powell: And then why not?

Mr. Cox: Because in the first place -- because of my understanding in the meaning of quota and I think the decisive things are the facts.

And the operative facts are this is not something imposed from outside as the quotas are in the employment or the targets are unemployment sometime today.

It was not a limit on the number of minority students.

Other minority students were in fact accepted for the regular admissions program.

It was not a guarantee of a minimum number of minority student because all of them had to pay him the testimony is that all of them were fully qualified, alright.

It did say that if there are 16 qualified minority students and were also disadvantage.

Then 16 places shall be failed by them and only 84 places will be available to others.

Justice John Paul Stevens: Mr. Cox --

Mr. Cox: And so that --

Justice John Paul Stevens: Mr. Cox, the facts are not in dispute the -- does it really matter what we call as program?

Mr. Cox: No.

I was -- I quite agree with Mr. Justice.

I was trying to emphasize that the facts here have none of the aspect that there are not of the facts that lead us to think that quota as a bad word.

What we call this doesn't matter and if we call it a quota, knowing the facts and deciding according the operative facts and not influence by the semantic couldn't matter less.

Some people say this was a target.

I prefer not to call it either because target is taken off kind of thing.

But I would emphasis that it doesn't point the finger at any group.

It doesn't say to any group you are inferior.

It doesn't promise taking people regardless of their qualifications, regardless of what they promise society and promise the school.

I don't know what qualities they have and I think those things ended it is not forced that was really a decision by the school as to how much of its assets.

What part of its assets?

It would allocate to the purposes that it felt were being fulfilled of -- by having minorities in the student body and increasing the number of minorities in the profession.

Justice Stevens let me -- let us suppose that the student must not -- that the school was much concerned by the lack of qualified general practitioners in Northern California.

As indeed it was, but I want to exaggerate the illustration a little bit and they told the admissions committee, get people that come from rural communities if they're qualified and to express the intention of going back there.

And the dean of admissions might well say, well, how much importance -- how much importance could give this?

And the members of the faculty might say by vote her otherwise we think it's terribly important.

As long as they're qualified try and get 10 in the group.

I don't think I would say there was a quota of 90 students or others.

And I think this while it involves race, of course and that's why we're here, or color really is essentially the same thing.

The decision of the University was that there are social purposes.

Purposes aimed into the end of eliminating racial injustice in this country and in bringing equal -- equality of opportunity.

There will be purposes served by including minority student.

Well, how important you think it is?

Justice Harry A. Blackmun: Mr. Cox, is it the same --

Mr. Cox: We think it's this important?

Justice Harry A. Blackmun: Mr. Cox --

Mr. Cox: And that's the significance of --

Justice Harry A. Blackmun: Mr. Cox, is it the same thing as an athletic scholarship?

Mr. Cox: Well, I --

Justice Harry A. Blackmun: So many places reserve for athletic scholarships?

Mr. Cox: In the -- I don't like to liken it to that in terms of its importance but I think that there a number of places that may be set aside for an institutions of different aims.

And the aim of some institutions does seem to be -- to have athletic prowess.

So that in that sense, this is a choice made to promote the schools, the faculty's choice of educational, the aim of mutual and professional objectives so I think there is a parallel.

Justice John Paul Stevens: Yes, it's the aim of most institutions, isn't it?

Not just some?

Mr. Cox: Yes.

But they have of athletic?

Justice John Paul Stevens: Yes.

Mr. Cox: Well, I come from Harvard sir.

I don't know whether it's our aim but we don't do very well.

Justice John Paul Stevens: But I can remember the time when -- Mr. Cox, I can remember the time when you did if --

Mr. Cox: Yes.

Yes, you're quite right.

Well, --

Chief Justice Warren E. Burger: Mr. Cox --

Mr. Cox: Maybe I better stop.

I can almost too.

Chief Justice Warren E. Burger: Mr. Cox, along that line is there -- I suppose athletic scholarships are largely confined if not entirely confined to undergraduates schools largely perhaps.

Is there a difference between the problems that you're presenting with respect to undergraduate schools and professional graduate schools?

Mr. Cox: Well, I point it of course that was -- it's because the purpose of the athletic and social purposes of an undergraduate school are different for those of professional schools that I'm frank from pressing the analogy too far.

Although, I think it's logical accurate and that it helps ones thinking.

Well, the proofs of the objectives of undergraduate education are somewhat broader, somewhat harder to define.

On the other hand, it's clear to me that the inclusion of minorities and undergraduate college may be at least as important as that a professional school.

And the date of course they're got to get to professional school they have to be there.

But I think when -- I think one finds that the objectives of these programs apply in large part to undergraduate colleges as well as professional schools, certainly the objective of improving education through greater diversity or is perhaps even more important than an undergraduate school that it is in professional school.

But I wouldn't minimize its importance of the professional school and I would emphasize its important when it comes to membership in the professions, so that the professions will be aware of all segments to the society.

I think the objective of breaking down isolation which is one of the greatest problems of achieving racial justice in this country is served by including minorities I would say about equally involved.

The objective that impresses itself on my mind, partly because Dean Lowrey testified it, and partly because I am at least in part an educator is the importance of including young men and women at both undergraduate colleges and the medical schools, so that the other younger boys and girls may see, yes, it is possible for a black to go to University of Minnesota or to go Harvard or Yale.

I know Johnny down the street and I know Sammy's father, he became a lawyer and John's father became a doctor.

This is essential if we're ever going to give true equality in a factual sense to people because the existence or non-existence of opportunities and surely we all know shapes people's aspirations when they're very young, it shapes the way they behave, it shapes in a most pedagogical sense, I suspect whether they do or don't read a book in the afternoon whether they do or don't read at school.(Voice Overlap)

So, I think all these applied to both Mr. Chief Justice very strongly.

Justice William H. Rehnquist: Mr. Cox, what if Davis Medical School had decided that since the population of doctors in the -- among minority population of doctors in California was so small, instead of setting aside 16 seats for minority doctors, they would set aside 50 seats until that balance were redress and the minority population of doctors equal that of the population as a whole, would that be any more infirm than the program that Davis has?

Mr. Cox: Well, I think my answer is this.

It's one which I draw upon Judge Hastie for an excellent essay he wrote on this subject.

That so long as the numbers of chosen, he said with and they're shown to be reasonably adapted to the social goals.

And I'm thinking of the one you mentioned Justice Rehnquist; then there is no reason to condemn a program because of the particular number chosen.

I would say that perhaps there reas -- I don't think I have to press for a reasonably related test.

I think that here there is a much better showing than that.

I would say that as the number goes up, the danger of invidiousness or the danger that this is being done not social purposes but to favor one group as against another group, the risk if you will of a finding of an invidious purpose to discriminate against is greater and therefore I think it's a harder case but I would have to put the particular school in the context of old schools.

There are programs of which are designed for example to train Indians, to go back and teach at Indian reservations and nobody else is talking those programs.

I don't think it's unconstitutional when you see it the total context.

But I think that as the number goes up it raises this dangers, fears, and the possibility of an adverse finding on what might be the factually dispositive question of intent.

Justice Lewis F. Powell: Mr. Cox, along the same line of discussion, would you relate the number in any way to the population and if so, the population of the nation, the state, the city or to --

Mr. Cox: Well, I -- I've -- the number 16 here is not in any way linked to population in California.

Justice Lewis F. Powell: 23% I think of --

Mr. Cox: And this was 16 --

Justice Lewis F. Powell: Yes.

Mr. Cox: Oh, I think it to -- as the number, I think I would only say as the number gets higher.

I think that it's undesirable to have the number late to population.

I'd be quite frank to say that I think one of the things which causes all us concern about this programs is a danger that they will give some -- give rise to some notion of group entitlement to numbers regardless either of the ability of the individual or of which not always related to inability -- ability in the narrow sense, all of their potential contribution to society.

And I think that if the program were begin to slide over in that direction or I would first as a faculty member criticizing and opposing as a constitutional lawyer and the farther it went the more doubts I would have.

But I think it's quite clear that this program was not of that character and in fact of course for speaking in what's going to happen to educational all over the country.

In fact, the numbers have not come anywhere but minorities submitted to professional schools have not come anywhere near their actual percentage in the population.

Justice Harry A. Blackmun: Mr. Cox, is it relevant do you think to the question we have to decide how the benchmark rating system operates at Davis in the two programs?

Mr. Cox: No, I think it is not at all relevant.

Justice Harry A. Blackmun: Is there anything in the record which tells us exactly how race is taken into account in the benchmark ratings in the special --

Mr. Cox: There's nothing that tells how it is taken into account.

In the benchmark ratings, I would infer from the bench, actual benchmark ratings that it was not taken into account in the benchmark ratings at all.

Justice Harry A. Blackmun: In the special program?

Mr. Cox: That the -- nothing was added to a benchmark rating because one was a member of a minority.

Justice Harry A. Blackmun: Well, does that suggest that the benchmark ratings in the two programs are comparable?

Among the --

Mr. Cox: They may -- I -- there's neither -- there's nothing in the record about that if I understood your question.

That is to say, there's nothing to show whether people were being rated on the same standards when they were in the Task Force Program or when they were in general pool.

It's in the past, I don't know whether anyone could ever find out quite frankly, --

Chief Justice Warren E. Burger: Mr. Cox --

Mr. Cox: Yes.

Chief Justice Warren E. Burger: -- the 23% that or if you haven't finished answering Mr. Justice Brennan, please --

Mr. Cox: I was going on --

Chief Justice Warren E. Burger: Go ahead.

Mr. Cox: -- just little further.

Alright.

There wasn't any occasion to put them on the same scale.

Because the -- if you were qualified minority and disadvantage then you are eligible for one of the 16 places and there was no occasion for you to be compared with anyone in the general pool.

Now if I may -- I wanted to go on just another step in that answer.

Chief Justice Warren E. Burger: Please, go ahead.

Mr. Cox: It is fair to say Mr. Justice and I don't want to – I don't want to slide away from the fact.

The Task Force Program reduced the opportunity of a non-disadvantaged, non-minority applicant who was someone near the borderline or below it to get into Davis because there were certain number of places which were allocated for this purpose just as a certain number of places might be allocated for people who would deliver medical services as general practitioners in the minority area in a rural area.

The other thing I was going to say and then I'm through Mr. Chief Justice is that while it is true that Mr. Bakke and some others on the conventional standards for admission would be ranked above the minority applicant.

I want to emphasize that in my judgment and I think in fact that does not justify saying that the better, generally better qualified people are excluded to make room for generally less qualified people.

And nothing that chose would ask in the first two years of medical school of the grade point averages will make the minority students, poor medical students and still less to show that it makes them poorer doctors or poorer citizens or poorer people.

Its quite clear that for some of the things that a medical school wishes to accomplish and this medical school wish to accomplish that the minority applicant they have qualities to there superior to those of his classmate who is not minority.

You certainly would be more effective in bringing it home to the young Chicano that he too may become a doctor.

He too may attend graduate school.

He may be far more likely to come back to such a community to practice medicine or his native, forgive me, --

Chief Justice Warren E. Burger: Mr. Justice Powell referred to a figure of 23% minority does that conclude Orientals in California?

Mr. Cox: I think it does, yes.

Chief Justice Warren E. Burger: It is there -- is there anything -- is there specific finding in this record that Orientals as one identifiable group have been disadvantaged?

Mr. Cox: Well, I think that the decisions of this Court shall perhaps better than anything else that they have been the victim of the jury discrimination over the years.

Chief Justice Warren E. Burger: And what particular holdings do you refer to that?

Mr. Cox: Well, I had -- I had in mind to Oyama, I think that's most known.

It's not the most recent case but Takahashi is such a case.

They go back to Yick Wo and I'm sure there's three or four more Your Honor will think off quickly.

Chief Justice Warren E. Burger: In terms of the -- In terms of the professions Mr. Cox, is there anything in this record to show that there are nonetheless substantial number of Orientals in medicine and teaching in the law?

Mr. Cox: There are no --

Chief Justice Warren E. Burger: Probably hire them and in any of the other categories.

Mr. Cox: I don't think there any figures in the record and there are very few figures on minority participation in the professions published except with the respect to black doctors and black medical students.

The others, there's submitting full figures on Chicanos but the others are various gathered, and they not --

Justice Lewis F. Powell: Mr. Cox, may I ask you a question of the trial court found a violation of Title VI of the 1964 Civil Rights Act.

Do you think we have to consider the Title VI question before getting to the constitutional question?

Mr. Cox: No, because the Supreme Court of California ruled only on the federal constitution and I would think the other questions were not before this Court.

Justice Lewis F. Powell: Do you think it's not before the Court even though the trial court made a finding?

Mr. Cox: I think that the trial court's ruling has no more importance within a potential ground for state ground or here statutory ground for decision that the plaintiff urges which is ruled out in anything.

Justice Lewis F. Powell: Two of the amicus argued -- two of the amicus argue the Title VI -- Title VI question you know.

Mr. Cox: I realize they do but it wasn't -- it wasn't included in any of the questions presented or it wasn't --

Justice Lewis F. Powell: Do you think is it necessary when a ruling one way would support the judgment below?

Mr. Cox: Well, I believe the court has indicated that it is necessary for it to be raise in the --

Justice Lewis F. Powell: Well, couldn't the respondent – couldn't the respondent urge it to support the judgment?

Mr. Cox: My understanding is that the -- while that was the earlier role that the Court has recently change and indicated that the respondent cannot support an additional ground which is not been brought to the court's attention at the time of the petition.

Justice Harry A. Blackmun: I'd be interested in that case if you have a citation.

Unknown Speaker: He has it.

(Inaudible)

Mr. Cox: I don't have it on the top my -- but I may be mistaken.

I was familiar with the older rule but was corrected Mr. Justice and I'm repeating to correct that the --

Justice Potter Stewart: Was it clear on the record that the -- this institution is within the coverage of Title VI?

Mr. Cox: All medical schools get grants including one in effect grants per student.

So we can't seriously deny it.

I don't think that it was proved in the record but it is a fact.

Justice Harry A. Blackmun: There's a finding to that effect.

Mr. Cox: It's not -- it's in the respondent of course doesn't press this argument here.

And there are number of questions, Mr. Justice, lurking if this is to be explored.

For example there's some question whether an individual may sue under Title VI.

There's a decision of the Seventh Circuit not under Title VI but under an analogous situation dealing with discrimination against women holding that an individual cannot sue and it would seem by analogy to be up here.

Neither there a lot of points that haven't --

Justice William H. Rehnquist: Mr. Cox --

Mr. Cox: -- been adequately covered because we didn't think it was in the case.

Justice William H. Rehnquist: Neither not -- neither may not be a difference in fed -- whether we're reviewing a federal court decision and a state court decision as to whether the statutory question should be decided by us, 1257 just gives us jurisdiction over a federal question in which a decision of the highest court of a status been had; whereas our jurisdiction on certiorari review Courts of Appeals judgment as anything in the Court of Appeals.

Mr. Cox: It could be that the -- I must plead inability to assist that just by later letter Mr. Justice.

I'm not -- I have this case on the top --

Justice Byron R. White: But do you perhaps you know whether the Title VI question was presented to the California Supreme Court --

Mr. Cox: It was pleaded.

It was pleaded.

Justice Byron R. White: Well, to the -- in the California Supreme Court, was it argued in there?

Mr. Cox: Yes.

Well, the briefs do in composite very briefly.

Justice Byron R. White: It was presented but just not decided.

Mr. Cox: That is correct and it would remain like the state ground.

It would remain open on remand.

When I say like the state ground the results of fine -- a ruling by the trial court.

If there was a violation of the California Equal Protection Clause and that of course would remain open.

If this we hope this case reverses and depends.

That's -- that's always true of undecided state questions on which the respondent may hope to retain his judgment.

Justice John Paul Stevens: May I go back --

Mr. Cox: Yes, Mr. Justice.

Justice John Paul Stevens: -- Mr. Cox to what it was our colloquy about benchmark ratings, do I now understand that the -- your submission is that in both programs the benchmark ratings were only a measure of qualifications and that none at least in the special program was loaded as for the purpose of compensating before a past discrimination?

Mr. Cox: That is my understanding --

Justice John Paul Stevens: There's a record --

Mr. Cox: But I do not wish to mislead Your Honor and say that that clearly appears on the record anyway.

But it should push it in the logic of the situation.

Remember that the task force applicants were being considered by the Task Force Subcommittee.

Incidentally, it's the majority of the faculty were not minority.

There was one minority there.

Its function was to admit up to 16 qualified minority and educationally are disadvantaged applicants.

It wasn't comparing them -- it wasn't charge with comparing them with anyone else and therefore the benchmarks it put on them were only for the purpose of comparing them with each other.

Justice John Paul Stevens: And so as it operated.

It had the effect of someone with a higher benchmark rating in the regular program, losing a place?

Mr. Cox: Yes, but whether that -- it's certainly yes, as the numbers were scored whether in fact the numbers are comparable, I don't know.

I do want to stress that as we see the case.

This is not a matter of a contest to be judge according to certain standards of performance on grades or a price to be awarded that the institution has important of broader educational professional and social purposes.

So that for purposes of all of these.

It may be more important to have a qualified member of a minority there.

That it is to have somebody whose benchmark was higher and this is the kind of judgment that has to be made.

I would like to direct my attention, if I may, to one important point and that's again the significance of the number 16.

We submit first that the Fourteenth Amendment does not outlaw race-conscious programs where there is no invidious purpose or intent where they are aimed at offsetting the consequences of a -- our long tragic history of discrimination and achieving greater racial equity.

And we think that these --

Justice Harry A. Blackmun: Mr. Cox, may I interrupt you with question that's always troubled me.

Is the use of the term invidious which have all has difficulty really understanding? You suggested in response to Mr. Justice Rehnquist that the number were 50 rather than 16.

They'll be a greater risk of a finding of invidious purpose.

How does one -- how does a judge decide when to make such finding?

Mr. Cox: Well, I think he has to consider the all the facts.

They were most recently laid out in Justice Powell's opinion in the Arlington Heights case.

The sort of thing that he thought the court should consider.

If Your Honor is asking me what do I mean by invidious, I mean primarily, stigmatizing, marking as inferior.

Justice Harry A. Blackmun: Let me -- let me make my --

Mr. Cox: Shutting out of participation --

Justice Harry A. Blackmun: Mr. Cox, let me make my question a little more precise.

Can you give me a test which would differentiate the case of 50 students from the case of 16 students?

Mr. Cox: I would have to make this turn on a subjective inquiry I think but I would also have to look and see what the fifth significance of the 50 students was in the overall context of the community its educational system in the state.

And I would -- I suppose I would be governed partly by purpose and partly by effect but that would leave me back to purpose.

Justice Lewis F. Powell: But in Mr. Justice Rehnquist example, he was assuming precisely the same motivation that is present in this case, the desire to increase the number of black in minority doctors and the desire to increase the mixture the student population.

Why would not -- not that justify the 50?

Mr. Cox: Well, if the finding is that this was reasonably adopted to the purpose of increasing the number of minority doctors or and that it was not in arbitrary, capricious, selfish, setting and that would have to be decided in the light of the other medical schools in the state and the needs of the state.

But if it's a solidly based then I would say 50 was permissible.

Just as in my example, I said that educating only Indians in a program tailored to training, teachers to go back to Indian reservations.

It seems to me to be constitutional and there are such programs that both private and state institutions.

Chief Justice Warren E. Burger: Are you going to address the question of other alternatives Mr. Cox?

Mr. Cox: I will and should, yes.

In our view, the other alternative suggested simply won't work.

One is to build more medical schools.

Well, Davis was a middle medical school and it did not have any, until it adopted this program, virtually no blacks or Chicanos were admitted.

One would have to increase the number of medical schools out of all reason before that would produce substantial numbers of minorities under the conventional admissions test.

Second suggestion is better recruiting.

That suggestion seems to us to overlook the extensive recruiting efforts that were made during the late 60's that are describe in Odegaard minorities in medicine which incidentally is probably the best reference spoke on this subject and other references in our brief.

It also assumes that there are out there a lot high test score, high college grade, members of minorities that haven't applied or been found by any law school, any medical school, or any graduate school.

It just seems --

Chief Justice Warren E. Burger: But what about a -- what about a make up?

What about an additional year to make up for all people who might be --

Mr. Cox: Well then the next suggestion is that something be done for all disadvantaged.

That won't meet this -- I don't want to keep anything from disadvantaged or to talk down any program that was rather disadvantaged.

But I've -- that would not meet the specific needs for which these programs are tailored for two reasons.

First, the minorities are only a minor fraction of all disadvantaged.

Second, all the study show whatever the explanation that minority students do worst among the students of families who are economic dis -- economically disadvantaged, just as they do worst when you take total ratio of applicant so that the program for the disadvantaged would not bring substantial numbers of minorities into the school.

The other suggestion that has been made is that we should not use the word race.

We should talk about choosing people for admission to medical colleges who are most likely to go to those communities that have been the victims of discrimination and the need better medical care.

But don't ever say the word or that we should get those who will be role models for the communities in which the past is denied the ambition to young people, certainly, ambition to this kind of role in the community.

Those I submit are circumlocutions, they're euphemisms, or if we're talking about realities, race is a fact.

It is something that all kinds of social feelings, context, a vision one's opportunity is related to.

And if one is going the meaningfully direct these programs in social objective it's simply still defying to disregard a reality that we hope will stop having significance in these areas and which will have more sig -- in which we have a best chance of depriving of its present unfortunate significance, if these programs are permitted to continue and succeed.

May I save, Mr. Chief Justice, the few minutes I have left?

Chief Justice Warren E. Burger: You have very little left if we've taken a good deal of your time, so we'll enlarge your time five minutes and enlarge Mr. Colvin's time accordingly.

Mr. Cox: Perhaps I should better use it in rebuttal and I can see what the court is focusing on.

Chief Justice Warren E. Burger: I'll give you probably about seven minutes altogether.

Mr. Cox: Thank you very much.

Chief Justice Warren E. Burger: Mr. Solicitor General.

Argument of Mccree

Mr. Mccree: Mr. Chief Justice, may it please the Court.

The interest of the United States of America is amicus curiae stands from the fact that the Congress and the executive branch have adopted many minority sensitive programs.

They take race or minority status into account in order to achieve the goal of equal opportunity.

The United States is also concluded that voluntary programs to increase the participation of minorities in activities throughout our society.

Activities previously close to them should be encouraged and supported.

Accordingly, it asks this Court to reject the holding of the Supreme Court of California if race or other minority status may not constitutionally be employed in affirmative action and special admissions programs properly designed and tailored to eliminate discrimination against racial and ethnic minorities as such discrimination exist today or to help overcome the effects of past years of discriminations.

This Court does not require a recital of the extent in duration of racial discrimination in America from the time it was enshrined in our very Constitution in the three-fifths comprise, in the fugitive slave provision and in the provision preventing the importation of such persons prior to1808.

And it continues until the present day as the over burden dockets of the lower federal courts and indeed of this Court will indicate where there's been non-compliance with the decisions of this Court that it rediscovered and are still rediscovering the true genius of the Fourteenth Amendment.

Indeed, many children born in 1954, when Brown was decided are today 23 years later the very persons knocking on the doors of professional schools seeking admission about the country that they are persons who in many instances have been denied the fulfillment of the promise of that decision because of resistance to this Court's decision that was such a landmark when it was handed down.

And this discrimination has not been limited just to persons of African ancestry.

We all know too well the Asian Exclusion Acts that have discriminated against Asian-American citizens.

The sad history of our native American-Indian population and the treatment of our Hispanic population sometimes called Chicano.

This is what prompts the interest of the United States in seeing that this Court shall overturn the ruling of the California Supreme Court, the race or minority status may not be taken into consideration in formulating remedial programs.

A Professor Zimmer at the University of Illinois has written, if the ultimate social reality is the irrelevancy of race, the present reality is that race is very relevant.

Accordingly, it would be appear that to be blind to race today is to be blind to reality.

Now as we've argued in our brief, a school district may take race into account in formulating voluntary plans of integration.

We've argued and this Court has held that it need not to await litigation and it may take into account not only its own discrimination but also the consequences of discrimination elsewhere in our society because the impact of discrimination is not limited by source or locality.

Chief Justice Warren E. Burger: Mr. Solicitor General, is there any evidence in this record that this University its medical school at Davis has ever engaged in any exclusion or discrimination on the basis of race?

Mr. Mccree: There is no evidence in the record that this University has and indeed, I would be surprised to have found it in according to the state of this record.

However, this Court is aware to its decisions of discrimination in the State of California.

In many cases involving the school districts of Los Angeles, of Pasadena, of San Francisco and indeed, there is census data revealing that about 40% of the black students in California or black persons of school age in California grew up and spent harder of their growing years in states where there was de jure segregation.

Until it was stricken down in 1954 and where it persisted and still it seems to elude efforts to extra pay their root and branch.

And this is -- the significance of my statement that the school need not be restricted to eliminating the effects of its own acts of discrimination but may take into account society's discrimination because of the pervasiveness of its impact.

Chief Justice Warren E. Burger: Including -- do you include in that conduct outside the State of California?

Mr. Mccree: I would include conduct throughout the nation because we are the nation without barriers to travel.

And indeed California seems to have been -- seems to be currently one of the principal recipients of the flow of population from other parts of the country.

And many of them bring with them the handicaps imposed upon them by conditions to which they were subjected before they went west.

We suggest that it is not enough merely to look at the visible wounds imposed by unconstitutional discrimination base upon race or ethnic status because the very identification of race or ethnic status in the America today is itself a handicap.

And it is something that the California University at Davis Medical School could and should properly consider in affording a remedy to correct the denial of racial justice in this nation.

And we submit that the Fourteenth Amendment instead of outlawing this.

Indeed should welcome it as part of its intent or purpose.

There were limited opportunities for professional and graduate education and as my brother, Mr. Cox, has pointed out.

There is a problem faced by every school which has to apportion scarcity of making decisions how it shall employ these resources and United States submits that this is a decision best left to the professional judgment of the faculties of those schools so long as this apportionment is not motivated by invidious racial purposes.

Justice William H. Rehnquist: General McCree does the United States really care whether the decisions made by the faculty, by the President or the Board of Regents?

Mr. Mccree: The United States should not care about that.

It -- I was referring to that facts of this case where it appears that it was made by the faculty there's a reference to a faculty resolution which unfortunately does not appear in this as far as record.

Justice William H. Rehnquist: Do you think it would be any different if it have been made by the Board of Regents rather than by the faculty or by the legislature?

Mr. Mccree: I would think the result should be the same, Your Honor.

Justice Harry A. Blackmun: Mr. Solicitor General, you suggest on this question of invidiousness that there should be a remand to take further evidence to find out among other things why the Asian-Americans were included in the program.

Supposing the evidence shows that the reason they were included was because they had in the past been the victims of discrimination.

What inference should we draw up in that kind of conclusion, would that mean the program is good or bad?

Is that a sufficient justification?

Mr. Mccree: Well, we submit that a remedy is intended to right or wrong.

And we think that the Court should scrutinize the use of race to make certain that it is being used to remedy a wrong and our reference to Asian-Americans here, certainly was not to suggest that they are not entitled to consideration within the program, but just to indicate that the sparseness of this record makes it difficult if not impossible to determine the extent of continuing -- the continuing impact of racial discrimination upon that segment of our society.

If I may continue in this answer, it would appear that the Asian-American population isn't monolithic anymore than any other categorical segment of American population.

And certainly in addition to Chinese and Japanese, there are Korean, Philippine, Cambodian, Laotian, Indonesian, and the impact upon these varying segments is not known and doesn't appear from the record except where we make a reference, I believe on page 40 of our brief to some census statistics concerning you.

And we think this Court should and Court should appropriately make certain that programs that have a racial component are indeed remedial and this is the reason for the suggestion of our remand because of the state of this particular record.

Justice William H. Rehnquist: What does this record lack with respect to Asian-Americans that it has with respect to the other minorities who are included in the program?

Mr. Mccree: Well among other things, this record -- well, it isn't so much the record, let me correct that answer, is it is available data in the form of statistics, census data which will show for example and that black physicians comprise something like 2.4 that's an approximation of all the physicians that the native American figure, I believe, is less than 1% that the Hispanic or Chicano figure is approximately 2%, and we just don't know the impact of that within the Asian-American community.

And we think that this could be determined if it was sent back for this purpose.

Chief Justice Warren E. Burger: Does the record show the number of the doctors, lawyers, engineers who are of Asian ancestry and partial Asian ancestry in California?

Mr. Mccree: There is a reference, I believe its page 42 of my brief that has a census figure that has a grow statement of the number of professional of the number of professional persons within -- may correct that, its page 42 and it is the footnote and there's a reference.

29.1% of Asia-American persons held professional managerial and administrative positions then it goes on to speak of laboring positions and so forth.

But there's no breakdown in this professional managerial to professional and particularly including medical or legal practitioners.

Chief Justice Warren E. Burger: 29% is substantially higher than their proportion of the total population is that so?

Mr. Mccree: This would appear to be so but it would be significant only if it were monolithic community.

It might turn out that among Koreans, the figure was less than one or two percent or among Taiwanese or among Cambodians or Laotians and at such a generic category of Asian-Americans that we submit that this is something that a court might want to look at.

Chief Justice Warren E. Burger: But on its face, the 29% hardly would support any ready conclusion that there's pervasive discrimination against people of Asian ancestry, is that so?

Mr. Mccree: On this record, this is possible but we know how sparse this record is.

We know that this was submitted solely on declaration of Dr. Lowrey and the discovery deposition with and the pleadings was no testimony taken at all about the statistics or the demographic statistics of California.

And the interest for United States as amicus curiae is in the principle that there may be remedial voluntary remedial programs that are race-conscious minority aware.

They take these factors into consideration in order fairly to evaluate credentials of persons who may have suffered from this.

And were interested in having this principle cleared and the Supreme Court of California has said that race of -- the race of an applicant or of other applicant may not be taken into consideration for any purpose.

Justice Lewis F. Powell: May I ask Mr. Solicitor General, do you agree with Mr. Cox that the we ought not to address the Title VI question?

Mr. Mccree: I believe that Title VI of the Civil Rights Act of 1969 states no principle, no substantive principle different from the Fourteenth Amendment.

Justice Lewis F. Powell: Well, that goes to the merits.

Should we or should we not address it?

Mr. Mccree: Well, I disagree with him in one respect.

This Court has held that a -- a ground not urged below may be urged here in support of a judgment.

The question becomes whether it is urged here.

There's a reference to it in the reply brief of respondents whether it is -- that is an assertion in support of the judgment or not is something that I think is debatable.

I would like to argue that it is not, that it is a passing reference.

But it can be urged --

Justice Lewis F. Powell: Of course he may -- he may still urge it.

Mr. Mccree: He may and unfortunately he follows that.

I would like to conclude that undoubtedly he shall.

I would like to conclude that this is not the kind of case that should be decided just by extrapolation from other precedents that we are here asking the Court to give us the full dimensions of the Fourteenth Amendment that was intended to afford equal protection and we suggest that the Fourteenth Amendment should not only require equality of treatment but should also permit persons who were held back to be brought up to the starting line where the opportunity for equality will be meaningful and this Court has reasoned on other occasions to challenges like this because we will never forget that when it hears the real cases.

It is a Constitution, it is expounding.

Thank you.

Chief Justice Warren E. Burger: Thank you Mr. Solicitor General.

Mr. Colvin.

Argument of Reynold H. Colvin

Mr. Colvin: Mr. Chief Justice and members of the Court, I think that the Honorable Wade McCree's last remark was something of a prediction that I might not disappoint him and I will try not to.

It seems to me that the first thing that I ought to say to this Honorable Court is that I am Allan Bakke's lawyer and Allan Bakke is my client and I do not say that in any formal or perfunctory way, I say that because this is a lawsuit.

It was a lawsuit brought by Allan Bakke, up at Woodland in Yolo County, California in which Allan Bakke from the very beginning of this lawsuit in the first paper we ever filed, stated the case and he stated the case in terms of his individual right.

He stated the case in terms of the fact that he had twice applied for an admission to the medical school of Davis and twice he had been refused, both in the years 1973 and the year 1974.

And he stated in that complaint what now some three and a half years later, proves to be the very heart of the thing that we're talking about at this juncture.

He stated that he was excluded from that school because that school had adopted a racial quota which deprived him of the opportunity for admission into the school and that's where the case started.

It started with a suit against the University.

He stated three grounds upon which he felt that he had been deprived of the right to admission to that school, the Equal Protection Clause of the Fourteenth Amendment, the privileges and immunities portion of the California Constitution, and Title VI 42 of the United States Code 2000 (d) and those were the three grounds upon which he placed this complaint from the very beginning.

The University --

Justice Potter Stewart: You spoke Mr. Colvin of the right to admission; you don't seriously submit that he had a right to be --

Mr. Colvin: I wanted to get to that and I quite agree and let me say it now so that it's out of the way.

We have no contention here that Allan Bakke has a constitutional right or even a statutory right to be in a medical school.

As a matter of fact, I am sure that if the Regents of the University of California had decided to close the medical school at Davis that Allan Bakke couldn't stand up here through his lawyer or even get beyond the first demurrer in the superior court of Woodland and say I have a right to go to the medical school.

That is not Allan Bakke's position.

Allan Bakke's position is that he has a right and that right is not to be discriminated against by reason of his race and that's what brings Allan Bakke to this Court.

Now, let me go on for just a moment with what happened in the lawsuit because it's very important that we follow this step by step.

The University at the very beginning did several things.

First, they denied that it was -- that they had a racial quota.

I think that's disappeared from the case.

Secondly, they denied that Mr. Bakke would have been admitted even have there been no racial quota and as I will indicate at some length I hope later on, that's disappeared in the case.

They admitted, speaking of the scope of Section 2000 (d), they admitted that they were a federally funded institution but they did more than that.

They did more that.

They then filed a cross-complaint against Allan Bakke and within the cross-complaint, they sought their own kind of relief and the relief which they sought was the relief that their program be declared constitutional, not only constitutional buy constitutional within the federal sense and within the California sense and something else, that it also be declared constitutional within the meaning of 2000 (d), that is Title VI and so the issue was joined.

Now, bear in mind, bear in mind the whole scope of what we're talking about in this lawsuit.

Here we are in September -- in June of 1964, we filed a complaint, the name of the game is not to represent -- is not to represent Allan Bakke, as a representative of a class.

We are not representing Allan Bakke as a representative of some organization.

This is not an exercise in a law review article or a bar examination question, this is a question of getting Mr. Bakke into the medical school and that's the name of the game and we have to do that in order to be effective as lawyers and we humbly tried to be effective as lawyers, sometime between June of 1974 and the entering class of September of 1974 and if you read the record, you will see the frantic efforts we make to get before the Court and we tried to get before the Court on a question of injunction, on a questions of mandamus, on a question of a declaratory relief, each of them moving the thing forward on the calendar.

Justice William H. Rehnquist: But no one is charging you with laches here, Mr. Colvin.

Mr. Colvin: No but I -- I'm relieved to hear but that wasn't exactly my point if I may just continue for the moment.

I wanted to continue for the moment to discuss the dimension of the record because that's part of what has been said here and in order to indicate the record and why the record is in the posture that the record is in.

The first thing that we did within the record was to take the deposition of Dr. Lowrey and after we took the deposition of Dr. Lowrey, Dr. Lowrey's deposition was further bolstered by Dr. Lowrey's declaration prepared no doubt with the assistance of his counsel.

Now, where do we find --

Justice Thurgood Marshall: Am I correct that Dr. Lowrey was not dean when this --

Mr. Colvin: No.

Justice Thurgood Marshall: He was not dean when all this occurred, was he?

Mr. Colvin: No, that is not -- it's true and it's not true.

May I explain, sir?

Justice Thurgood Marshall: But was he dean when this regulation was put into effect.

Mr. Colvin: The answer to that is no but the answer to the question --

Justice Thurgood Marshall: Well, my point is -- if I may finish point.

Did you put on any evidence as to what happened?

Mr. Colvin: No, we accepted --

Justice Thurgood Marshall: All you had was hearsay.

Mr. Colvin: Well, it was hearsay by the Dean of Admissions who was administering a program and if I may just say this I will not attempt to get into a discussion of what is hearsay and what is not hearsay but the fact of the matter is that it was Dr. Lowrey who was administering the program by both in 1973 and in 1974 and more than that, it was Dr. Lowrey himself who had reviewed and interviewed Mr. Bakke in 1974.

So the point that I'm trying to make is that we were not exploring to the testimony of some official who was 200 miles away as to what had happened.

Dr. Lowrey was there on the seat.

Justice Marshall, you are correct in this respect that at the time that the faculty adopted the resolution, Dr. Lowrey was elsewhere.

I believe from my recollection of the deposition that he was at the University of Michigan.

I may be mistaken on that that but that is my recollection.

Justice Thurgood Marshall: Did you take a deposition of anybody who knew what happened.

Mr. Colvin: What we think and was quite clear.

Let me answer that.

I am satisfied.

Justice Thurgood Marshall: Well, you couldn't answer that simply by yes or no.

Mr. Colvin: My answer is yes.

My answer is that Dr. Lowrey was the Dean of Admissions that he brought with him to the deposition, every piece of paper for which we had asked for that he had personally interviewed Mr. Bakke and as a matter of fact, the record of the interview are between Dr. Lowrey --

Justice Thurgood Marshall: Well, what was the decision of the committee of the faculty?

Mr. Colvin: The doctor -- Mr. Bakke was turned down for admission --

Justice Thurgood Marshall: No, no.

I mean, when the rules were set up.

What were the rules?

Mr. Colvin: The rules were simply that 8% -- that 16% of the entering class.

Justice Thurgood Marshall: But what about the 8% --

Mr. Colvin: No, no 8% is the number.

I'm sorry --

Justice Thurgood Marshall: Well, 8% was before and now it's 16.

Mr. Colvin: May I start over again?

It was always 16%.

In the early years, --

Justice Thurgood Marshall: No, no 16 people.

16 people.

Mr. Colvin: No, in the early years of the school there were just 50 admitted in the entering class.

Justice Thurgood Marshall: Well, does the rule say 16%?

Mr. Colvin: The rule says 16%.

Justice Thurgood Marshall: Oh, 16.

Mr. Colvin: 16%

Justice Thurgood Marshall: Where is the rule in the record?

Mr. Colvin: Well, I --

Justice Thurgood Marshall: It's in Dr. Lowrey's --

Mr. Colvin: In Dr. Lowrey's deposition.

Justice Thurgood Marshall: But there's no other thing there except that?

Mr. Colvin: That's where we find it yes.

Justice Thurgood Marshall: And that's hearsay.

Mr. Colvin: In my judgment -- in my judgment, it would only be hearsay in the sense that it relates to the historical origin of the rule but it is not hearsay as it relates to the way the rule was imposed in the two years that Dr. -- that Mr. --

Justice Thurgood Marshall: My only point I say is that we don't know how the rule came about.

Mr. Colvin: Well, we do know that it came about by faculty vote.

That is in the record.

Justice Thurgood Marshall: Right.

Mr. Colvin: That is in the record.

Justice Thurgood Marshall: And what else do we know?

Mr. Colvin: Well, we also -- we also know that statistics were kept and they are in the record for each of the --

Justice Thurgood Marshall: Now what criteria was set down for disadvantaged?

Mr. Colvin: That question was asked of Dr. Lowrey.

In the deposition of Dr. Lowrey -- I asked Dr. Lowrey two questions.

The first question was, “Was there any definition of the term educationally disadvantaged?”

The answer was no.

And the second question was, “Was there a definition of the term economically disadvantaged?”

Then the answer was no.

Justice Thurgood Marshall: He's talking about the present time when he was testifying.

Mr. Colvin: Yes, yes.

Justice Thurgood Marshall: Well, I'm trying to find out what happened when it was adopted.

I guess I -- there's no way for me to find that out with this record.

Mr. Colvin: I don't believe -- I don't believe there was.

Other that -- except that I may say -- if I may say most respectfully then I do have the feeling as a lawyer that a -- that you have two things in the record.

You have the deposition of Dr. Lowrey the dean of admissions.

You have the declaration of Dr. Lowrey, the Dean of Admissions and I think that a fair reading of both of those documents lays out pretty well what the situation was.

I -- whether something was technically hearsay, I really couldn't argue that point.

Justice Lewis F. Powell: There's no -- no controversy between counsel as to the existence of the plan or as kind to those or what it provided, is there?

Mr. Colvin: Well, we believe -- yes, we believe that there is a very important kind of controversy which is involved here and that is precisely the controversy over the concept of quota.

Justice Lewis F. Powell: But is it a factual controversy or --

Mr. Colvin: Well, we think -- we think in general, yes.

We think there are a lot of factual elements to it.

Let me make a distinction on this quota question if I may, Your Honor.

There are many points in the University's brief where somehow in order to take the sting out of the word quota, the word goal is used.

This is not a quota they say but it is a goal.

We find that to be a real misuse of language.

Justice William H. Rehnquist: Mr. Colvin, to follow up a minute Justice Powell's question.

That really is a matter of characterization rather than strictly a fact.

As I understand it, there were 16 places set aside for minority applicants and the -- you're certainly free to argue from that what you want to about quotas and goals but that really goes beyond the strict factual matter.

Mr. Colvin: Although the factual question if I may respond to that just briefly arises in somehow in a different way and let me illustrate it this way because it is a factual -- there is a factual circumstance involved and let me try to spell out what I believe that factual circumstance to be.

Normally, if we have a goal, -- if we have a goal.

If we're going to get a number of people in, we select a standard and then above that standard, we admit people in order to -- in order to qualify.

Precisely the opposite is true here.

In this case, we have to follow what the factual situation is.

Here we have a quota where the number is first chosen and then the number is filled regardless of the standard and let me say precisely from the record what I mean.

When we take Dr. Lowrey's deposition, one of the very first questions asked Dr. Lowrey is this question, what is the standard for admission to the school?

And Dr. Lowrey's response is that the standard is that we will interview no one who has a grade point average below 2.5.

Now, let's look at the record on that point.

In the year 1973, the people within the quota or special admissions program have overall grade point averages which run all the way down to 2.21 in -- that's in 1974.

In 1973, they run all the way down to 2.11 but the science grade point averages for that group and I am not giving you averages.

I mean to say range.

The range runs all the way down to 2.02, that's the grade point average side.

Justice Lewis F. Powell: Yes, but Mr. Colvin, you do not dispute the basic finding that everybody admitted under the special program was qualified.

Mr. Colvin: I certainly do.

We certainly do dispute it not upon the ground -- not upon the ground that Mr. Bakke is attempting to tell the school what the qualifications are nor upon the ground that we as his counsel can somehow set up a rule which will tell us who is qualified to go medical school.

Chief Justice Warren E. Burger: Mr. Colvin, don't get too far away from the microphone if you want to stay on the record.

Mr. Colvin: I'm sorry, sir.

I sometimes think of it as a retreat.

The -- but the point that we are making now, is this that the rules as to admission were fixed neither by Bakke nor his attorneys but were fixed by the school itself.

They were the ones who chose grade point averages and they were the ones who chose MCAT scores as a basis for judging admissions and let me say this about the MCAT scores because it relates again to the question that I was answering as to the difference between a goal and a quota.

Justice Lewis F. Powell: But there's nothing in the record to indicate that they chose the 2.5 figure because they felt that anyone with a lesser score would not be qualified either to do the academic work or to practice medicine.

Mr. Colvin: No, but that was their rule.

That was their rule and I think there's a fair inference from the record that there was a reasonable basis for Dr. Lowrey stating that that was the rule of the school.

Justice Lewis F. Powell: Yes, it was an administrative basis.

Mr. Colvin: It was an administrative basis but at least, it was their basis.

Justice Lewis F. Powell: Well then, but how does that go -- why do you disagree with the proposition that there's nothing in this record to show that any of the special people were qualified to study and to practice.

Mr. Colvin: We simply say that we do not agree, we do not agree that there is a showing that they were qualified.

We are not making the argument that they disqualified but we are saying taking the school's own standards, taking the very thing that the school was talking about, they simply do not measure up on that point.

But let me finish if I may because it is hard to -- it's hard to finish all of these things and I do want to comment about the same thing as it applies to the MCAT scores.

You will recall that in Dr. Lowrey's deposition, Dr. Lowrey says, we would be hard pressed.

We would be hard pressed to admit people to the school if they had MCAT, Medical College Aptitude Test percentiles in science and in verbal which were below 50 but look at the record in the case.

Look at the record in the case.

In 1973, the average, not the range but the average of the people of the special admissions group was in the 35th percentile in science and in the 46th percentile in verbal.

In 1974, the percentile in science and this is an average and not a range was 37 and in verbal 34.

Allan Bakke -- Allan Bakke took the test only once and his record is there.

You will find it on page 13 of our brief.

He scored in the 97th percentile in science and in the 96th percentile in verbal.

The ultimate fact in this case no matter how you turn it is that Mr. Bakke was deprived of an opportunity to attend the school by reason of his race.

This is not a matter of conjecture.

This is a stipulation by the Regents of the University of California.

Justice Byron R. White: Well, for purposes of this argument though, you don't -- do you need to go any farther than to assert and convince somebody that he was deprived of an opportunity to compete for one of the six teams seats because of his race.

Will he go farther than that?

Mr. Colvin: Well, yes.

I think I'm afraid that -- I'm afraid that I ought to.

Justice Byron R. White: If you don't need to go any farther, you simply are taking up a lot of your time.

Mr. Colvin: Well, I don't want to take up my time except to say that there is within this record the stipulation of the Regents of the University of California that Mr. Bakke was deprived of the opportunity to attend the University of California Medical School at Davis because of the use of the 16 places by the special admissions program.

Justice William O. Douglas: Mr. Colvin, may I follow up on Justice White's observation.

Certainly as I view this record, the University doesn't deny or dispute the basic facts, they are perfectly clear.

We are here, at least I'm here primarily that to hear our constitutional argument, you devoted 20 minutes belaboring of facts, if I may say so.

I would like to help.

I really would on the constitutional issue.

Could you address that please?

Mr. Colvin: Yes, I would like to address the problems that arise with quota and the problems that arise with race, and I would like also to address the alternative which the University suggests.

We have the deepest difficulty in dealing with this problem of quota and many, many questions arise for example there is a question of numbers.

What is the appropriate quota -- what is the appropriate quota for a medical school?

16, 8, 32, 64, 100?

On what basis -- on what basis is that quota determined and there is a problem, a very serious problem of judicial determination.

Does the -- does the Court leave open to the school the right to choose any number at once in order to satisfy that quota?

Would the Court be satisfied to allow an institution such as the University of California to adopt a quota of 100% and thus deprive all persons who are not people within selected minority groups?

Justice Byron R. White: Well, what's your response to the assertion of the University that it was entitled to have a special program and take race into account and that under the Fourteenth Amendment there was no barrier to it doing that because of the interest that were involved.

Now what's your response to that because of the interest that was involved?

Mr. Colvin: Our response to that is fundamentally that race an improper classification in this situation.

As a matter of fact, the Government in its own brief makes that very point.

Justice Byron R. White: Well, do you disagree with the California Supreme Court when it said that -- when it identified the interest that it understood the University was taking into account in this special program and agreed with the University's submission that these were compelling interests.

Mr. Colvin: The California Court made those assumptions arguendo.

Justice Byron R. White: Well, do you agree with them or not?

Mr. Colvin: Well, we think -- we think that we need not disagree with them that they are fair -- that they are fair assumptions but if went much further.

Justice Byron R. White: Well then you -- you agree that -- you don't disagree then that these interests they're asserting are compelling interests?

Mr. Colvin: We assume as the Court did that those specific interests, not all of them but that those specific interests are compelling interests.

Our problem is --

Justice Byron R. White: But do you agree then -- then you also agree that if they are compelling, and if there were no alternatives, if there were no alternatives that the fact that -- would you agree that the racial classification could be upheld?

Mr. Colvin: We might someday come to that.

But I don't think we come to it in this case and I think that --

Justice Byron R. White: So you -- part of your submission is even if things are compelling interests, even if there is no alternative, use of the racial classification is unconstitutional.

Mr. Colvin: We believe that it's unconstitutional, we do.

Chief Justice Warren E. Burger: It's not because it's limited rigidly to 16?

Mr. Colvin: No, not because it's limited to 16 but because the concept of race itself as a classification becomes in our history and in our understanding an unjust and improper basis upon which to judge people.

We do not believe that intelligence, that achievement, that ability are measured by skin pigmentation or by the last surname of an individual whether or not it sounds Spanish or --

Chief Justice Warren E. Burger: Well, do you mean by that as to the 16 places, the allocation was dominantly by race?

Mr. Colvin: Oh!

There's no question about what the 16 places was dominantly by race and I have to go back to the record, if I may just to reach that point.

There were no non-minority people who were ever admitted to the special admission program and I do not mean that that was for the lack of trying.

In the years 1973 and 1974, 245 people whom the University itself classified as economically -- as white economically disadvantaged sought admission into those places.

And there were none admitted either in those two years or in any years and that was more than a third of all of the people who sought to get into the program but they could not and so that you had a program at the University of California Medical School at Davis where people were shut out from 16 of the places and our belief in this case is that this is done essentially because the universities will not follow, will not follow the suggestion of the California Supreme Court and the --

Justice Byron R. White: Well, I take it then that if we disagreed with you that that racial classification is invalid even if there are compelling interests and even if there's no alternative.

I get -- you then support the California Court's conclusion that there were alternatives in fact.

Mr. Colvin: Well, we do support the conclusion that there were alternatives and I would like to comment on that face of the case.

One of the -- one of the suggestion which the California Supreme Court made was that the universities looked at people in terms of disadvantaged, looked at people individually in terms of disadvantaged.

Now, I know and we all know that there are cases that are deemed to be societal discrimination where millions and tens of million people are involved particularly people, particularly cases dealing perhaps with social security, cases dealing with women.

That is not this case.

There were 100 people who were enrolled each year into the Davis Medical School.

It may have been administratively difficult.

It may have been administratively difficult for people for the administrators of the school to look at the hundred and to select those who may would have admit upon the basis of disadvantaged.

The problem is that the University has become quota happy.

Justice William H. Rehnquist: Mr. Colvin, what if the University says, “We don't want to just aim at the disadvantaged.

We want to increase the number of black doctors who are practicing in California” to the -- is that a permissible goal on the part of the University?

Mr. Colvin: To the extent that the judgment is made on whether those doctors are disadvantaged, it is a legitimate means to the extent and the univer -- and the Supreme Court of California says this to the extent that the preference is on the basis of the race, we believe that it's an unconstitutional advantage.

Justice William H. Rehnquist: But do you say then that it is not a permissible goal on the part of the University to increase the number of black doctors practicing?

Mr. Colvin: We say it is a permissible goal and if --

Justice William H. Rehnquist: If it's a permissible goal, why on earth beat around the bush?

Why not simply make a race-oriented selection process?

Mr. Colvin: Because the University -- because the Supreme Court says to the University, you cannot lead to the quota system.

What you must first do is to undertake to meet the question of disadvantaged where it exists if it exists.

Justice William H. Rehnquist: But the University comes back and says we're not interested in disadvantaged as such, we're interested in blacks.

Mr. Colvin: Yes, but the Supreme Court comes back to the University and says what you are doing is skipping one step.

You are not -- the reason, what is the reason?

What is the reason for this goal?

What is the reason why people are saying we want more Chicano doctors, more black doctors, more oriental doctors, the reason is because we claim that there was disadvantaged.

The difficulty is with the racial classification is that we are engaging in these broad generalizations that everyone of a given race has suffered the same advantage, or the same disadvantage, the same welfare or the same poverty, the same education or the same lack of education.

The prob -- the event -- there are two benefits for the University to look at the question of advantage and the first of those benefits is that it does not run into a constitutional difficulty and the second advantage or the second benefit of looking at the question of disadvantaged is that it meets the problem where it exists.

It meets it at the point of the individual.

It does not generalize.

It is not true that all members of a given race have exactly the same experience, the same wealth, the same education and that's the point that Justice Mosk is making in the California Supreme Court.

He says it is inappropriate.

It is inappropriate whatever your goal is to jump to the question of making these racial discriminations and particularly inappropriate we say, particularly inappropriate we say because the thing that happens is that it keeps Mr. Bakke out of medical school not because of somebody else's race or anything else but because of Mr. Bakke's race, he becomes ineligible himself to enter the medical school and Mr. Bakke's individual state in this matter is an important state and I started with the proposition that I am Mr. Bakke's lawyer and Mr. Bakke is my client.

He has a right to that protection.

He has a right.

He desires to show that he is one of those who is entitled to enter that medical school to keep him out because of his race we submit is an impropriety.

The whole point --

Justice Thurgood Marshall: Your client did compete for the 84 seats, didn't he?

Mr. Colvin: Yes, he did.

Justice Thurgood Marshall: And he lost.

Mr. Colvin: Yes, he did.

Justice Thurgood Marshall: Now would your argument be the same if one instead of 16 seats were left open?

Mr. Colvin: Most respectfully, the argument does not turn on the numbers.

Justice Thurgood Marshall: Would -- my question is would you make the same --

Mr. Colvin: Yes, I would make.

If it was one and if there was an agreement as there is in this that he was kept out by his race, whether it's one, 100, 2 --

Justice Thurgood Marshall: I didn't say, anything about him being, I said that the regulation said that one seat would be left open for an underprivileged minority person?

Mr. Colvin: Yes.

Justice Thurgood Marshall: You would argue that?

Mr. Colvin: We don't think we would -- we'd ever get to that point within any --

Justice Thurgood Marshall: So numbers are just not important.

Mr. Colvin: The numbers are not important.

It is the principle of keeping a man out because of his race that is important.

Justice Thurgood Marshall: You're arguing about keeping somebody out and the other side is arguing by getting somebody in?

Mr. Colvin: That's right.

Justice Thurgood Marshall: So it depends on which way you look at it, doesn't it?

Mr. Colvin: It depends on which way you look at the problem.

Justice Thurgood Marshall: It does?

Mr. Colvin: The problem --

Justice Thurgood Marshall: It does?

Mr. Colvin: If I may finish.

Justice Thurgood Marshall: It does?

Mr. Colvin: The problem is --

Justice Thurgood Marshall: You're talking about your client's rights, don't these underprivileged people have some rights?

Mr. Colvin: They certainly have the rights to compete to -- they have the right to compete, they have the right to equal competition.

They even have another right which was given them by the California Supreme Court.

They have the right to compete not only upon the basis of grades, they have the right to compete upon the basis of disadvantaged.

The fact -- the University of course says we will have nothing to do with that.

If we can't have a quota then there's no place for us to go.

Bear in mind, bear in mind that the Supreme Court of the State of California is entirely explicit in its opinion.

It says we are not, emphasized, we are not telling the California -- the University of California Medical School that it has to take the 100 people with the highest point grade average of the highest MCAT scores or whatever it is.

The selection --

Justice Lewis F. Powell: May I ask you a question that I think is relevant to your last statement.

Mr. Colvin: Yes.

Justice Lewis F. Powell: The case before us involves essentially a two-track admission system with separate committees.

Let's assume you have a university, a medical school with a single admission committee and with no allocation of seats to any particular ethnic or other group of applicants but that it had a long list of factors or elements that the admissions committee fairly considered and assumed further that race and sex and geographical location and economic background and urban-rural and all of the other factors that academicians do consider in admitting people at the college and to professional schools.

Assume that type of system and further assume that your client had not been admitted, would your argument be the same that the constitutional matter?

Mr. Colvin: Our argument would be the same to the extent -- to the extent that race itself was the crucial matter in the admission situation.

Justice Lewis F. Powell: My hypothetical listed race as one of eight or ten factors or elements that a committee might fairly waive in the interest of diversity of the student body for example.

Would that be unconstitutional in your opinion?

Mr. Colvin: In our opinion -- in our opinion, at this point in the California situation, with the rule of the Supreme Court before it, Supreme Court of California that race itself is an improper ground for selection or rejection for the medical school.

Now, there are all kind of other factors of economic and educational diversity.

We have no quarrel whatever with that.

The problem -- well, the problem really is that as we look at the Fourteenth Amendment and as we look at 2000 (d), the fact of the matter is that it is race itself, it is the discrimination on the ground of race itself which is -- which is forbidden.

2000 (d) just for as the matter of refreshment, refreshing says, “No person in the United States shall on the ground of race, color or national origin be excluded from participation in, be denied the benefit of, or be subjected to discrimination under any program or activity receiving federal financial assistance” and we think that the particular scheme to the extent that race becomes a crucial in a court matter certainly flies in the face of this.

Justice Byron R. White: Well, I take it if we -- if we didn't agree with the California Supreme Court on the federal issue, and reverse them, I take it you would pursue the other grounds that you had in the California Supreme Court, the state grounds and the federal statute ground.

Mr. Colvin: May I just say a word about the record on that.

The record on that as I have indicated is that when Mr. Bakke filed his complaint up at Woodland, he listed the state ground and the statutory ground as well as the constitutional ground.

Number two, when the University filed its cross-complaint up at Woodland, it listed both the state constitutional ground and the statutory ground as part of its declaratory relief point three when Judge Macar (ph) who was the trial judge made his findings and conclusions in this case, his conclusion was that the program was improper both -- not only under the constitutional and state ground but also under 2000 (d) and more than that number 4, the very judgment in this case as it exists is a judgment, is a judgment that a --

Justice Byron R. White: On all those grounds.

Mr. Colvin: On all of those grounds.

Justice Byron R. White: Now, where those grounds all taken to the Supreme Court of California?

Mr. Colvin: There were all -- there were all probably attention to the Supreme Court of California, it is true that by that time, the University had written a brief basically under the Fourteenth Amendment and it is true that the California Court ignored and elected not to.

Justice Byron R. White: Well, they ignored it but if we reverse the California Supreme Court on the federal -- on the ground that it did decide, what would be the upshot in the California Supreme Court?

I suppose that the other issues that would have to be faced then in the California Supreme Court, namely the federal statutory ground and the state constitutional ground.

Mr. Colvin: My own judgment if I may be so bold is that that becomes almost an idle act because if the basis of reversal is telling the California Court, look at this from the point of view of 2000 (d) or look at this from the point of view of the privileges and immunities clause of the California Constitution then and I say this respectfully and without having the stature to make this statement, I say respectfully that as I read the Fourteenth Amendment and I read 2000 (d), it seems to me that 2000 (d) is even stronger than any --

Justice Byron R. White: I think it's certainly possible that the Fourteenth Amendment wouldn't -- might permit or wouldn't forbid what Congress could forbid in the statute and Congress has often done that and it -- technically, it could be that that the Civil Rights Act forbids things that the Fourteenth Amendment itself wouldn't.

Mr. Colvin: Yes.

Justice Harry A. Blackmun: Are you asking us then Mr. Colvin to decide the federal statutory grounds?

Mr. Colvin: I'm asking this Court to decide.

Justice William J. Brennan: Well we can't -- obviously, we can't pass on the state constitution.

Mr. Colvin: I understand that.

Justice William J. Brennan: Well, I'm asking you then yes or no.

Do you want us to decide the state and federal constitutional ground?

Mr. Colvin: We believe that this case is right and ready for decision on the constitutional ground and on the statutory ground.

We believe that what we have here --

Justice William J. Brennan: Well, ordinarily, we don't decide constitutional questions if we can affirm which is what you ask us to do on a federal statutory ground.

Mr. Colvin: I understand that Justice Brennan and I am -- I am not at any point in this argument attempting to place myself where I do not belong and that is at the decision making.

Justice William J. Brennan: But all you're asking us --

Mr. Colvin: I am asking this Court to affirm the California Supreme Court on both grounds and I am suggesting to the Court, I am suggesting to the Court, I am suggesting to the Court that the California Supreme Court had before it as have been indicated by Mr. Cox a very difficult sensitive issue that it handled it in a very pragmatic and a very practical and valuable sense.

It laid down no harsh rules.

It required no one to discriminate.

Chief Justice Warren E. Burger: Do you think it's arguable that the California Supreme Court should have decided the statutory question for reaching the constitutional question?

Mr. Colvin: I've heard that argument made.

I think that --

Chief Justice Warren E. Burger: And you think it's been pressed today except that our inquiries are aimed at it.

Mr. Colvin: Yes, I've heard that argument made.

I happen to believe -- I happen to believe that the California Supreme Court felt that it was on perfectly sound, round and reaching in the federal constitution and that that is the way the case ought to go.

I of course was not a party to their other deliberation.

Justice Byron R. White: Can I ask you one more question?

In one of the amicus brief, it is asserted that in November 1976, the California Constitution was further amended to say that no person shall be debarred admission to any department of the University on the count of race.

Now, that has -- that of course isn't the case but I suppose that would come up in the case if it were, if we reverse it.

Mr. Colvin: I suppose that there were new case that that would come up.

The fact of the matter was that California has a system that the Court probably knows where the Constitution of California can be amended by a popular plebiscite and that's what happened.

The fact of the matter is that that amendment to the California Constitution occurred approximately a month after the California Supreme Court decision below was final.

Justice Byron R. White: Thank you.

Justice William H. Rehnquist: Mr. Colvin, my brother Powell a moment ago asked you a question suggesting that a university's admission policy took into effect, took into account a number of considerations, one of which was race.

Your response to him was that so long as race is a crucial factor, it's bad under the Fourteenth Amendment.

I want to refine that question but suppose the question where race is taken into account but it is not a crucial or dispositive factor as you referred to it in your answer to him, is that permissible under the Fourteenth Amendment or not?

Mr. Colvin: In my judgment, the use of race as a basis for admission to a medical school or the exercise of other rights is an improper measure, that is my answer to the question.

Justice William H. Rehnquist: Whether crucial or not.

Mr. Colvin: Whether crucial or not except in this situation and that is to the extent, to the extent that the identification of race may give further inquiry to the admissions committee as to whether there has been actual disadvantaged economic educational persecution or whatever but then the decision is to be made on those factors and not the factor of race itself.

That's my position on the matter.

Justice Byron R. White: Well, if it increase -- if taking race into account increases a person's chance of getting in, it's inevitable whether it's going to be crucial at some point.

Mr. Colvin: That was --

Justice Byron R. White: Or at any point.

Mr. Colvin: I think that was the answer that I made.

I think that that was the answer that it was permissible to the extent, to the extent that it gave some clue to the admissions committee that it ought to consider in terms of this individual applicant out of the 100 that it was talking about whether there was a prior history of economic, educational or whatever deprivation, persecution or whatever it may be.

Chief Justice Warren E. Burger: I think you had argued earlier that this record shows that race -- this was your argument at least that race was the dispositive factor here.

Mr. Colvin: Yes, that's our argument.

Chief Justice Warren E. Burger: I think you said, I think the Regents agreed with that.

I think you said also the Regents agreed with that although --

Mr. Colvin: I don't think I said that because I know of no record that there was an explicit approval by the Regents of this system at the day it was --

Chief Justice Warren E. Burger: Well, when I say the Regents, I mean, your adversary.

Mr. Colvin: Oh!

Yes.

Chief Justice Warren E. Burger: I'm identifying the regents as such.

Mr. Colvin: Yes, and what we are saying in that regard -- what we are saying in that regard that on the facts of this case, there was no non-minority person in any of the years covered by the statistics here that was ever admitted to the special admission program.

There was no definition of what was meant by educationally or economically disadvantaged and what I said before and I repeat now is that in the very two years that Mr. Bakke applied, there were 245 people who were deemed by the school to be white economically disadvantaged who tried to get into the program, more than a third of those who tried and not in.

And I also called to the Court's attention one other fact, that in the year 1973 when the application was handed out, the application said, are you applying as a member of a disadvantaged group, economically or educationally.

That was not the question in 1974.

In 1974, the school had gone to the MCAT system which is the general application system used by half the medical schools in the United States.

The question in 1974 which triggered consideration by the special admissions group was this, are you applying as a member of a minority group?

So on its face, on its face the program becomes not even the pretense of a disadvantaged group, the program becomes a program which is designed as a racial proposition and that is what Mr. Bakke is complaining of, it is that which deprives Mr. Bakke of his full opportunity to 100 places in the class.

Justice William H. Rehnquist: The University stipulated after the judgment of the Supreme Court of California didn't that it could not sustain the burden of proof and if he would have not been admitted under a different system.

Mr. Colvin: Yes, that is true.

There was not only a stipulation but what happened was that the Supreme Court of the State of California decided the case.

It had -- it decided the unconstitutionality of the quota.

We have argued back and forth through the trial court and through the Supreme Court the question of burden of proof.

Did Mr. Bakke have the burden of proving that he would have qualified or to the University at the burden of proving that he would not have qualified?

The original decision of the Supreme Court of California was a decision which said -- which agreed with this finding, and said, yes the burden of proof is on the University.

It's a -- it's a -- just like Franks versus Bowman Transportation, once you prove the discrimination, then the University has to prove that Mr. Bakke would not have been admitted even there though there had not been no such quota.

And the University then entered into a petition for rehearing and in the petition for rehearing, it entered into a stipulation and the stipulation is filed before the California Supreme Court and the stipulation is very brief, very brief.

It is hereby stipulated by the Regents of the University of California (the University) that it has produced all of the evidence available to it.

On the question of whether Mr. Bakke's failure to be admitted for the class -- entering the School of Medicine at the University of California Davis in September 1973 resulted from the operation of the Special Admissions Program.

The University concedes that it cannot the meet the burden of proving, the Special Admissions Program did not result in Mr. Bakke's failure to be admitted and without your taking your time, I will tell you that this is carried over to the petition for hearing, the stipulation is in exhibit to it and then the California -- the University says, the University has produced all of the evidence it has on the question and concedes as set forth in the attacked stipulation of Donald L. Reidhaar that it will not attempt to meet that burden of proof.

Mr. Bakke was a highly qualified applicant and came extremely close to admission in 1973 even with the special admissions program being in operation.

It cannot be clearly demonstrated that the special admission program did not operate to deny Mr. Bakke admission in that year and then upon receipt of the petition for rehearing with the stipulation attached to it, the California Supreme Court then did the logical thing instead of remanding the matter to Woodland and Yolo County for Judge Macar (ph) to make this determination and ordered Mr. Bakke into the medical school, he is presently ordered into the medical school and where it not for the stay in this case of course, he would be in the medical school.

Chief Justice Warren E. Burger: Your time is now expired, Mr. Colvin.

Mr. Colvin: Thank you very much.

Chief Justice Warren E. Burger: Mr. Cox, do you have something further?

Rebuttal of Archibald Cox

Mr. Cox: Chief Justice.

Justice Lewis F. Powell: Mr. Cox, before you commence your argument, may I inquire whether you agree with my understanding of the Solicitor General's position that it is -- the record is inadequate for the constitutional decision and should be remanded?

Mr. Cox: I do not agree.

I disagree and I develop the reasons if I may that was one of the points that I plan to address myself to.

I think perhaps I can be most helpful by trying to put the very particular points we covered in my argument, within a larger framework of my basic thinking.

The first main proposition that I would assert is that the racially conscious admissions program at Davis and any racially conscious admissions program designed to increase the number of minorities to their profession school, is fully consistent with both the letter and the spirit of the Fourteenth Amendment and I simply want to add one footnote to say that when I use the word race or racially conscious, I'm not speaking of race the way one would speak of a red-headed man, or a man that has some other mark that is sheer happenstance, that isn't the quality of race in our society today, and I'm really talking about all the things that have gone with race and the remnants of those things in terms of current soulful problems, that race is a shorthand for expressing.

Now, that main proposition the way it would develop and I'd simply state them in three points.

We say first that there is no perceived rule of color blindness incorporated in the Equal Protection Clause.

We say second that the educational, professional and social purposes accomplished by a race conscious admissions program are compelling objectives or to put it practically, they are more than sufficient justification, for those losses, for those problems that are created by the use of race.

We don't minimize them but we say that the cost is greatly outweighed by the gains.

And third, as I said my argument, we submit that there is no other way of accomplishing those purposes.

Now, this brings me to the point that the Supreme Court of California was wrong, that its judgment should be reversed because it said that under present circumstances, we may not take race into account, that's what Mr. Colvin pitched his case on, that's the proposition he presented below, he presented here, Justice Powell, he doesn't need any more facts on then.

He's either right or wrong as a matter of constitutional law or a statutory law if he goes back to the court below.

There is a further question, is there something about the use of the number 16 that renders this program peculiarly valid?

There are a lot of educational institutions that pursue minority admissions program but the admissions committee has instructed to get a good number, get a substantial number, get within the range of 10 to 20%.

Now, we submit that the method of putting the general policy into actual practice, the level at which somebody reduces into numbers is not a matter of constitutional dimension and for like reason, we say that the questions raised in the Solicitor General's brief are not matters of constitutional dimension.

They are details of admission programs and in both instances we urge that the -- this Court should not get the lower federal courts into being the supervisors of the admissions policies of certainly state and perhaps private institutions.

Justice Byron R. White: You wouldn't say that if the admissions committee suddenly decided that they wouldn't admit any black people.

Mr. Cox: No, but I'm suggesting that the details to which I was addressing myself where of a different order of magnitude, you have to decide whether we are right in saying that race may be taken into account for proper purposes, of course you will.

I do stress and even with respect to the main question but I think it's more important as one gets down to what I regard as detail such as this specific number.

I do stress two things.

One is the judicializing or constitutionalizing, the drawing of courts in, the writing of monolithic rules tends to dampen one of the great -- abandon one of the greatest sources of creativity in this country the opportunity in dealing with delicate sensitive and often painful.

It's not easy to turn down young men and women, and in dealing with those problems, we are wise to take advantage of the fact that there are 50 states, were wise to take advantage so far as the legislatures will allow it, of the fact that different campuses or different faculties are allowed to make up their own minds, and I think that to set a lot of rules that would draw the federal courts into scrutinizing the details of what is done would invite constant litigation and as I say it would abandon a source of creativity, it would destroy important autonomy in wrestling which with I argued and I'm sure all court recognize as an extraordinarily sensitive and difficult problem but a search for justice to all to which this country has always been committed and to which I'm sure is still is.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.

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The Affordable Care Act Cases - Argument (Medicaid Expansion)

Wed, 28 Mar 2012 19:01:31 +0000

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The Affordable Care Act Cases

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Transcript:

ORAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE PETITIONER

Chief Justice John G. Roberts: We will continue argument this afternoon in case 11-400 Florida v. Department of Health and Human Services.

Mr. Clement.

Mr. Clement: Mr. Chief Justice, and may it please the Court:

The constitutionality of the Act's massive expansion of Medicaid depends on the answer to two related questions: First is the expansion coercive and second does that coercion matter.

Justice Elena Kagan: Mr. Clement, can I ask you just a matter of clarification?

Would you be making the same argument if instead of the Federal government picked up 90 percent of the cost the Federal government picked up 100 percent of the cost.

Mr. Clement: Justice Kagan, if everything else in the statute remained the same, I would be making the exact same argument.

Justice Elena Kagan: The exact same argument.

So that really reduces to the question of why is a big gift from the Federal government a matter of coercion?

In other words, the Federal government is here saying, we are giving you a boatload of money.

There are no -- there's no matching funds requirement, there are no extraneous conditions attached to it, it's just a boatload of Federal money for you to take and spend on poor people's healthcare.

It doesn't sound coercive to me, I have to tell you.

Mr. Clement: Well, Justice Kagan, let me -- I mean, I eventually want to make a point where even if you had a stand alone program that just gave 100 percent, again 100 percent boatload, nothing but boat load -- well, there would still be a problem.

Justice Elena Kagan: And you do make that argument in your brief, just a stand alone program, a boatload of money, no extraneous conditions, no matching funds, is coercive?

Mr. Clement: It is.

But before I make that point, can I simply say you built into your question the idea that there are no conditions.

And of course, when you first asked it was what about the same program with 100 percent matching on the newly eligible mandatory individuals, which is how the statute refers to them.

And that would have a very big condition.

And the very big condition is that the States in order to get that new money, they would have to agree not only to the new conditions but the government here is -- the Congress is leveraging their entire prior participation in the program--

Justice Elena Kagan: Well, let me give you a hypothetical, Mr. Clement.

Mr. Clement: --Sure.

Justice Elena Kagan: Now, suppose I'm an employer and I see somebody I really like and I want to hire that person.

And I say Im going to give you $10 million a year to come work for me.

And the person says well, I -- you know, I've never been offered anywhere approaching $10 million a year, of course I'm going to say yes to that.

Now we would both be agreed that that's not coercive, right.

Mr. Clement: Well, I guess I would want to know where the money came from.

And if the money came from--

Justice Elena Kagan: Wow, wow.

I'm offering you $10 million a year to come work for me and you are saying this is anything but a great choice?

Mr. Clement: --Sure, if I told you actually it came from my own bank account.

And that's what's really going on here in part.

And that's why it's not--

Justice Elena Kagan: But, Mr. Clement -- Mr. Clement, can that possibly be.

When a taxpayer pays taxes to the Federal government, the person is acting as a citizen of the United States.

When a taxpayer pays taxes to New York, a person is acting as a citizen of New York.

And New York could no more tell the Federal government what to do with the Federal government's money than the Federal government can tell New York what to do with the moneys that New York is collecting.

Mr. Clement: --Right.

And if New York and the United States figured out a way to tax individuals at greater than 100 percent of their income then maybe you could just say it's two separate sovereigns and two separate taxes.

But we all know that in the real world that to the extent that the Federal government continues to increase taxes that decreases the ability of the States to tax their own citizenry and it's a real tradeoff.

Justice Sonia Sotomayor: Well, is that a limit on the Federal government's power to tax?.

Mr. Clement: What's that.

Justice Sonia Sotomayor: Are you suggesting that at a certain point the States would have a claim against the Federal government raising their taxes because somehow the States will feel coerced to lower their tax rate?

Mr. Clement: No, Justice Sotomayor, I'm not.

What I'm suggesting is that it's not simply the case that you can say, well, it's free money, so we don't even have to ask whether the program's coercive.

Justice Sonia Sotomayor: Now, counsel, what percentage does it become coercive?

Meaning, as I look at the figures I've seen from amici, there are some states for whom the percentage of Medicaid funding to their budget is close to 40 percent, but there are others that are less than 10 percent.

And you say, across the board this is coercive because no state, even at 10 percent, can give it up.

What's the percentage of big gift that the federal government can give?

Because what you're saying to me is, for a bankrupt state, there's no gift the federal government could give them ever, because it can only give them money without conditions.

No matter how poorly the state is run, no matter how much the federal government doesn't want to subsidize abortions or doesn't want to subsidize some other state obligation, the federal government can't give them 100 percent of their needs.

Mr. Clement: And, Justice Sotomayor, I'm really saying the opposite, which is not that every gift is coercive, no matter what the amount, no matter how small.

I'm saying essentially the opposite, which is there has to be some limit.

There has to be some limit on coercion.

And the reason is quite simple, because this Court's entire spending power jurisprudence is premised on the notion that spending power is different, and that Congress can do things pursuant to the spending power that it can't do pursuant to its other enumerated powers precisely because the programs are voluntary.

And if you relax that assumption that the programs are voluntary, and you are saying they are coercion, then you can't have the spending power jurisprudence--

Justice Sonia Sotomayor: What makes them coercive; that the state doesn't want to face its voters and say, instead of taking 10, 20, 30, 40 percent of the government's offer of our budget and paying for it ourselves and giving up money for some other function?

That's what makes it coercive--

Mr. Clement: --Well--

Justice Sonia Sotomayor: --that the state is unwilling to say that?

Mr. Clement: --Maybe I can talk about what makes it coercive by talking about the actual statute at issue here and focusing on what I think are the three hallmarks of this statute that make it uniquely coercive.

One of them is the fact that this statute is tied to the decidedly nonvoluntary individual mandate.

And that makes this unique, but it makes it significant, I think.

I will continue.

I thought you had a question.

I'm sorry.

The second factor, of course, is the fact that Congress here made a distinct and conscious decision to tie the state's willingness to accept these new funds, not just to the new funds but to their entire participation in the statute, even though the coverage for these newly eligible individuals is segregated from the rest of the program.

And this is section 2001A3 at page 23A of the appendix to the blue brief.

Justice Ruth Bader Ginsburg: Isn't that true of every Medicaid increase?

That each time -- I mean, and this started quite many years ago, and Congress has added more people and given more benefits -- and every time, the condition is, if you want the Medicaid program, this is the program, take it or leave it.

Mr. Clement: No, Justice Ginsburg, this is distinct in two different directions.

One is, in some of the prior expansions of the program, but not all, Congress has made covering newly eligible individuals totally voluntary.

If the states wants to cover the newly eligible individuals, they will get additional money; but, if they don't, they don't risk any of their existing participation programs.

The 1972 program was a paradigm of that.

It created this 209(b) option for states to participate.

This court talked about it in the Gray Panthers case.

There were other expansions that have taken place, such as the 1984 expansions, where they didn't give states that option; but, here's the second dimension in which this is distinct, which is, here, Congress has created a separate part of the program for the newly eligible mandatory individuals.

That's what they called them.

And those individuals are treated separately from the rest of the program going forward forever.

They are going to be reimbursed at a different rate from everybody who's covered under the preexisting program.

Now, in light of that separation by Congress itself of the newly eligible individuals from the rest of the program, it's very hard to understand Congress's decision to say, look if you don't want to cover these newly eligible individuals, you don't just not get the new money, you don't get any of the money under the--

Justice Stephen G. Breyer: Where does it say that?

I'm sorry, where does it say that?

Mr. Clement: --It says -- well, it -- where does it say what, Justice Breyer?

Justice Stephen G. Breyer: What you just said.

You said, Congress said, if you don't take the new money to cover the new individuals, you don't get any of the old money that covers the old individuals.

That's what I heard you say.

Mr. Clement: Right.

Justice Stephen G. Breyer: And where does it say that?

Mr. Clement: It says it -- there's two places where it says it.

Justice Stephen G. Breyer: Yeah, where?

Mr. Clement: The 2001A3 makes it part of my brief.

Justice Stephen G. Breyer: Where is it in your brief?

Mr. Clement: That's at page 23 A--

Justice Stephen G. Breyer: In the blue brief?

Mr. Clement: --Blue brief.

Justice Stephen G. Breyer: 23A.

Okay.

Thank you.

Mr. Clement: And this makes not the point about the funding cutoff.

This makes the point just that these newly eligible individuals are really treated separately forevermore.

Justice Stephen G. Breyer: I want the part about the funding cutoff.

Mr. Clement: Right.

And there, Justice Breyer--

Justice Stephen G. Breyer: And that cite section is what?

Mr. Clement: --I don't have that with me--

Justice Stephen G. Breyer: Well, I have it in front of me--

Mr. Clement: --Great.

Perfect.

Thank you.

Justice Stephen G. Breyer: --And I will tell you what I have, what I have in front of me, what it says.

Mr. Clement: Right.

Justice Stephen G. Breyer: And it's been in the statute since 1965.

Mr. Clement: Exactly.

Justice Stephen G. Breyer: And the cite I have is 42 U.S.C. Section 1396(c).

So are we talking about the same thing?

Mr. Clement: If that's the -- if that is the provision that gives the secretary--

Justice Stephen G. Breyer: Yeah, okay.

Mr. Clement: --among other things--

Justice Stephen G. Breyer: And here's what it says at the end.

Mr. Clement: --the authority to cut off all participation in the program, yes.

Justice Stephen G. Breyer: It says,

"The secretary shall notify the state agency. "

--this is if they don't comply --

"that further payments will not be made to the state or, in his discretion, that payments will be limited to categories under or parts of the state plan not affected by such failure, which it repeats until the secretary is satisfied that he shall limit payments to categories under or parts of the state plan not affected by such failure. "

So, reading that in your favor, I read that to say, it's up to the secretary whether, should a state refuse to fund the new people, the secretary will cut off funding for the new people, as it's obvious the state doesn't want it, and whether the secretary can go further.

I also should think -- I could not find one case where the secretary ever did go further, but I also would think that the secretary could not go further where going further would be an unreasonable thing to do, since government action is governed by the Administrative Procedure Act, since it's governed by the general principle, it must always be reasonable.

So I want to know where this idea came from that should state X say,

"I don't want the new money. "

that the secretary would or could cut off the old money?

Mr. Clement: And, Justice Breyer, here's where it comes from, which is from the very beginning of this litigation, we've pointed out that what's coercive is not the absolute guarantee that the secretary could cut off every penny, but the fact that she could.

Justice Stephen G. Breyer: All right.

Now, let me relieve you of that concern, and tell me whether I have.

That a basic principle of administrative law, indeed, all law, is that the government must act reasonably.

And should a secretary cut off more money than the secretary could show was justified by being causally related to the state's refusal to take the new money, you would march into court with your clients and say,

"Judge, the secretary here is acting unreasonably, and I believe there is implicit in this statute, as there is explicit in the ADA, that any such cut-off decision must be reasonable. "

Now, does that relieve you of your fear?

Mr. Clement: It doesn't for this reason, Justice--

Justice Stephen G. Breyer: I didn't think it would.

Mr. Clement: --Well, but here's the reason.

Here's the reason, Justice Breyer, it doesn't.

One is, I mean, I don't know the opinion to cite for that proposition.

Second is, we have been making in this litigation since the very beginning this basic point, the government has had opportunities at every level of this system, and I suppose they will have an opportunity today to say,

"fear not, States, if you don't want to take the new conditions, all you will lose is the new money. "

Justice Stephen G. Breyer: And I said -- I said because it could be, you know, given the complexity of the act, that there is some money that would be saved in the program if the States take the new money, and if they don't take the new money there is money that is being spent that wouldn't otherwise be spent.

There could be some pile like that.

It might be that the secretary could show it was reasonable to take that money away from the states, too.

Justice Antonin Scalia: Mr. Clement--

Justice Stephen G. Breyer: But my point is, you have to show reasonableness before you can act.

Justice Antonin Scalia: --do you agree -- do you agree that the government has to act reasonably?

Do we strike down unreasonable statutes?

My God.

Mr. Clement: And, Justice Scalia, I mean--

Justice Antonin Scalia: The executive has to act reasonably, that's certain, in implementing a statute; but, if the statute says, in so many words, that the secretary can strike the whole -- funding for the whole program, that's the law, unreasonable or not, isn't it?

Mr. Clement: --That's the way I would read the law, Your Honor.

Justice Stephen G. Breyer: Yeah, but I have a number -- all right.

Mr. Clement: And if I could just add one thing just to the discussion is the point that, you know, this is not all hypothetical.

I mean, in -- there was a record in the district court, and there is an Exhibit 33 to our motion to summary judgment.

It is not in the joint appendix.

We can lodge it with the Court if you'd like.

But it's a letter in the record in this litigation, and it's a letter from the secretary to Arizona, when Arizona floated the idea that it would like to withdraw from the CHIP program, which is a relatively small part of the whole program.

And what Arizona was told by the secretary is that if you withdraw from the CHIP program, you risk losing $7.8 billion, the entirety of your Medicaid participation.

So this is not something that we've conjured up--

Justice Stephen G. Breyer: All right.

Justice Elena Kagan: Mr. Clement--

Justice Stephen G. Breyer: To make you feel a little better, I want to pursue this for one more minute.

There are cases and many, of which Justice Scalia knows as well, which uses the Holly Hill, uses the same word as this statute: In the Secretary's discretion.

And in those cases this Court has said, that doesn't mean the Secretary can do anything that he or she wants, but rather, they are limited to what is not arbitrary, capricious, and abuse of discretion in interpreting statutes, in applying those statutes, et cetera.

End of my argument; end of my question.

Respond as you wish.

Mr. Clement: --Well, Justice Breyer, I'm not sure that the Court's federalism jurisprudence should force States to defend on how a lower court reads Holly Hill.

I think that really right here what we know to an absolute certainty is that this Secretary -- this statute gives the Secretary the right to remove all of the State's funding under these programs.

Think about what that is, just--

Justice Sonia Sotomayor: Mr. Clement, do you think that the Federal Government couldn't, if it chose, Congress, say, this system doesn't work.

We are just simply going to rehaul it.

It is not consistent with how -- what we want to accomplish.

We're just going to do away with the system and start a new health care plan of some sort.

And States, you can take the new plan, you can leave them.

We are going to give out 20 percent less, maybe 20 percent more, depending on what Congress chooses.

Can Congress do that?

Does it have to continue the old system because that is what the States are relying upon and it's coercive now to give them a new system?

Mr. Clement: --Justice Sotomayor, we are not saying we have a vested right to participate in the Medicaid program as it exists now.

So if Congress wanted to scrap the current system and have a new one, I'm not going to tell you that there is no possibility of a coercion challenge to it, but I'm not going to say--

Justice Sonia Sotomayor: That's what I -- I want to know how I draw the line, meaning--

Mr. Clement: --Well, can--

Justice Sonia Sotomayor: --I think the usual definition of coercion is, I don't have a choice.

I'm not sure what -- why it's not a choice for the States.

They may not pay for something else.

If they don't take Medicaid and they want to keep the same level of coverage, they may have to make cuts in their budget to other services they provide.

That's a political choice of whether they choose to do that or not.

But when have we defined the right or limited the right of government not to spend money in the ways that it thinks appropriate?

Mr. Clement: --Well, Justice Sotomayor, before -- I mean, I will try to answer that question, too.

But the first part of the question was, what if Congress just tried to scrap this and start over again with a new program?

Here's why this is fundamentally different and why it's fundamentally more coercive, because Congress is not saying we want to scrap this program.

They don't have a single complaint, really, with the way that States are providing services to the visually impaired and the disabled under pre-existing Medicaid.

And that's why it's particularly questionable why they are saying that if you don't take our new money subject to the new conditions, we are going to take all of the money you have previously gotten, that you have been dependent on for 45 years and you are using right now to serve the visually impaired and the disabled--

Justice Ruth Bader Ginsburg: Mr. Clement, may I -- may I ask you -- question another line.

You represent, what, 26 States?

Mr. Clement: --That's right, Justice Ginsburg.

Justice Ruth Bader Ginsburg: And we are also told that there are other States that like this expansion and they are very glad to have it.

The relief that you are seeking is to say the whole expansion is no good, never mind that there are States that say, we don't feel coerced, we think this is good.

You are -- you are saying that because you represent a sizeable number of States, you can destroy this whole program, even though there may be as many States that want it, that don't feel coerced, the States, thinking that this is a good thing?

Mr. Clement: Justice Ginsburg, that's right, but that shouldn't be a terrible concern, because if Congress wants to do what it did in 1972, and pass a statute that makes the expansion voluntary, every State that thinks that this is a great deal can sign up.

What's telling here, though, is 26 States, who think that this is a bad deal for them, actually are also saying that they have no choice but to take this because they can't afford to have their entire participation in this 45-year-old program wiped out, and they have to go back to square one and figure out how they are going to deal with the visually impaired in their State, the disabled in their State--

Justice Antonin Scalia: Mr. Clement, I didn't take the time to figure this out, but maybe you did.

Is there any chance at all that 26 States opposing it have Republican governors and all of the states supporting it have Democratic governors?

Is that possible?

Mr. Clement: --There's a correlation, Justice Scalia.

Justice Antonin Scalia: Yes.

Justice Ruth Bader Ginsburg: Let -- let me ask you another thing, Mr. -- Mr. Clement.

Most colleges and universities are heavily dependent on the government to fund their research programs and other things.

And that has been going on for a long time.

And then Title IX passes, and a government official comes around and say -- says to the colleges, you want money for your physics labs and all the other things you get it for, then you have to create an athletic program for girls.

And the recipient says, I am being coerced, there is no way in the world I can give up all the funds to run all these labs that we have, I can't give it up, so I'm being coerced to accept this program that I don't want.

Why doesn't your theory, if your theory is any good, why doesn't it work any time, something -- someone receives something that is too good to give up?

Mr. Clement: Well, Justice Ginsburg, there is two reasons that might be different.

One is this whole line of coercion only applies -- is only relevant, really, when Congress tries to do something through the spending power it couldn't do directly.

So if Congress tried to impose Title IX directly, I guess the question for this Court would be whether or not Section 5 of the 14th Amendment allowed Congress to do that?

I imagine you might think that it did and I imagine some of your colleagues might take issue with that, but that's -- that's the nature of the question.

So one way around that would be if Congress can do it directly, you don't even have to ask whether there is something special about the spending power.

That's how this Court resolved, for example, the Ferra case about funding to -- to colleges.

Justice Ruth Bader Ginsburg: I'm trying to understand your coercion theory.

I know that there are cases of ours that have said there is a line between pressure and coercion, but we have never had, in the history of this country or the Court, any Federal program struck down because it was so good that it becomes coercive to be in it.

Mr. Clement: Well, Justice Ginsburg, I'm going -- to say the second thing about my answer to your prior question was just, I also think that, you know, it may be that spending on certain private universities is something again that Congress can do, and it doesn't matter whether it's coercion, but when they are trying to get the States to expand their Medicaid programs, that's--

Justice Ruth Bader Ginsburg: Let's take -- let's take public colleges.

Mr. Clement: --Okay.

Then there -- then there may be some limits on that -- I mean, but again, I'm not sure even in that context there might not be some things Congress can do.

It's a separate question.

But once we take a premise, which I don't think there is a disagreement here, that Congress could not simply as a matter of direct legislation under the commerce power or something say, States, you must expand your Medicaid programs.

If we take that as a given, then I think we have to ask the question about whether or not it's coercive.

Now, you -- in your second question you ask, well, you know, I mean, where's the case that says that we've crossed that line.

And this is that case, I would respectfully say.

Justice Stephen G. Breyer: Then the government can reply as well to the 1980 extension to children 0 to 6 years old, 1990 requiring the extension for children up to 18, all those prior extensions to me seem just as big in amount, just about as big in the number of people coming on the rolls, and they are all governed by precisely the same statute that you are complaining of here, which has been in the law since '65.

Mr. Clement: Justice Breyer, I don't think that our position here would necessarily extend to say the 1984 amendments, and let me tell you why.

You know, I'm -- I'm I am not saying that absolutely that's guaranteed that's not coercive, but here's reasons why they're different.

The one major difference is of the size of the program.

I mean, the expansion of Medicaid since 1984 is really breathtaking.

Medicaid, circa, 1984 the Federal spending to the States was a shade over $21 billion.

Right now it's $250 billion, and that's before the expansion under this statute.

Justice Elena Kagan: --Well, if you are right, Mr. Clement, doesn't that mean that Medicaid is unconstitutional now?

Mr. Clement: Not necessarily, Justice Kagan.

And again, it's because we are not here with a one trick pony.

One of the factors -- we point you to three factors that make this statute uniquely coercive.

One of them is the sheer size of this program.

And, you know, if you want a gauge on the size of this program, the best place to look is the government's own number.

Footnote 6, page 73--

Justice Elena Kagan: So, when does a program become too big?

I want you to give me a dollar number.

Mr. Clement: --$3.3 trillion over the next 10 years.

That's -- that--

Justice Stephen G. Breyer: I'll tell you this number, which I did look up, that the amount, approximately, if you look into it -- as a percentage of GDP, it's big, but it was before this somewhere about 2-point-something percent, fairly low, of GDP.

It'll go up to something a little bit over 3 percent of GDP.

And now go look at the comparable numbers, which I did look at, with the expansion that we're talking about before.

The expansion from 0 to 18 or even from 0 to 6.

And while you can argue those numbers, it's pretty hard to argue that they aren't roughly comparable as a percentage of the prior program or as a percentage of GDP.

If I'm right on those numbers or even roughly right -- I don't guarantee them -- then would you have to say, well, indeed, Medicaid has been unconstitutional since 1964.

And if not, why not?

Mr. Clement: --The answer is no, and that's because we're here saying there are three things that make this statute unique.

Justice Antonin Scalia: What are your second and third?

I'm on pins and needles to hear your ----

[Laughter]

Mr. Clement: One is the sheer size.

Two is the fact that this statute uniquely is tied to an individual mandate which is decidedly nonvoluntary.

And three is the fact that they've leveraged the prior participation in the program, notwithstanding that they've broken this out as a separately segregated fund going forward, which is not--

Justice Elena Kagan: So on the third -- on the third, suppose you had the current program and Congress wakes up tomorrow and says

"we think that there's too much fraud and abuse in the program, and we're going to put some new conditions on how the States use this money so we can prevent fraud and abuse, and we're going to tie it to everything that's been there initially. "

Unconstitutional?

Mr. Clement: --No, I think that is constitutional because I think that's something that Congress could do directly.

It wouldn't have to limit that to the spending program.

And I think 18 U.S.C. 666 is -- is a statute -- it's in the criminal code, it may be tied to spending, but I think that's -- that's a provision that I don't think it's constitutional; I think it's called into question.

Justice Elena Kagan: I guess I don't get the idea.

I mean, Congress can legislate fraud and abuse restrictions in Medicaid, and Congress can legislate coverage expansions in Medicaid.

Mr. Clement: Well, Justice Kagan, I think there's a difference, but if I'm wrong about that and the consequence is that Congress has to break Medicaid down into remotely manageable pieces as opposed to $3.3 trillion over 10 years before the expansion, I don't think that would be the end of the world.

But I really would ask you to focus on specifically what's going on here, which is they take these newly eligible people -- and that's a massive change in the way the program works.

These are people who are healthy, childless adults who are not covered in many States.

They say okay, we're going to make you cover those.

We're going to have a separate program for how you get reimbursed for that.

You get reimbursed differently from all the previously eligible individuals.

But if you don't take our money, we're going to take away your participation in the program for the visually impaired and disabled.

If I may reserve the balance of my time.

Chief Justice John G. Roberts: Well, I'm -- I'm not sure my colleagues have exhausted their questions, so--

Justice Sonia Sotomayor: I guess my greatest fear, Mr. Clement, with your argument is the following: The bigger the problem, the more resources it needs.

We're going to tie the hands of the Federal government in choosing how to structure a cooperative relationship with the States.

We're going to say to the Federal government, the bigger the problem, the less your powers are.

Because once you give that much money, you can't structure the program the way you want.

It's our money, Federal government.

We're going to have to run the program ourself to protect all our interests.

I don't see where to draw that line.

The uninsured are a problem for States only because they, too, politically, just like the Federal government, can't let the poor die.

And so to the extent they don't want to do that, it's because they feel accountable to their citizenry.

And so if they want to do it their way, they have to spend the money to do it their way, if they don't want to do it the Federal way.

So I -- I just don't understand the logic of saying States, you can't -- you don't -- you're not entitled to our money, but once you start taking it, the more you take, the more power you have.

Mr. Clement: Well, Justice Sotomayor, a couple of points.

One is, I actually think that sort of misdescribes what happened with Medicaid.

I mean, States were, as you suggest, providing for the poor and the visually impaired and disabled even before Medicaid came along.

Then all of a sudden, States -- the Federal government says look, we'd like to help you with that, and we're going to give you money voluntarily.

And then over time, they give more money with more conditions, and now they decide they're going to totally expand the program, and they say that you have to give up even your prior program, where we -- first came in and offered you cooperation, we're now going to say you have to give that up if you don't take our new conditions.

Secondarily, I do think that our principle is not that when you get past a certain level, it automatically becomes coercive per se.

But I do think when you get a program and you're basically telling States that look, we're going to take away $3.3 trillion over the next 10 years, that at that point, it's okay to insist that Congress be a little more careful that it not be so aggressively coercive as it was in this statute.

And I would simply say that -- we're not here to tell you that this is going to be an area where it's going to be very easy to draw the line.

We're just telling you that it's inceptionally important to draw that line, and this is a case where it ought to be easy to establish a beachhead, say that coercion matters, say there's three factors of this particular statute that make it as obviously coercive as any piece of legislation that you've ever seen, and then you will have effectively instructed Congress that there are limits, and you have laid down some administrable rules.

Justice Antonin Scalia: Mr. Clement, the Chief has said I can ask this.

Chief Justice John G. Roberts: --He doesn't always check first.

Justice Antonin Scalia: As I recall your -- your theory, it is that to determine whether something is coercive, you look to only one side, how much you're threatened with losing or offered to receive.

And the other side doesn't matter.

I don't think that's realistic.

I mean, I think, you know, the -- the old Jack Benny thing, Your Money Or Your Life, and, you know, he says "I'm thinking, I'm thinking".

It's -- it's funny, because it's no choice.

You know?

Your life?

Again, it's just money.

It's an easy choice.

No coercion, right?

I mean -- right?

Now whereas, if -- if the choice were your life or your wife's, that's a lot harder.

Now, is it -- is it coercive in both situations?

Mr. Clement: Well, yes.

It is.

Justice Antonin Scalia: Really?

Mr. Clement: I would say that.

Justice Antonin Scalia: It's a tough choice.

And -- and--

Justice Anthony Kennedy: I thought you were going to say

"the statute is your money and your life. "

Mr. Clement: And well -- it is.

But I mean -- I might have missed something, but both of those seem to be coercion.

Justice Antonin Scalia: --No, no, no.

To say -- to say you're -- when you say you're coerced, it means you've been -- you've been given an offer you can't refuse.

Okay?

You can't refuse your money or your life.

But your life or your wife's, I could refuse that one.

Justice Sonia Sotomayor: Mr Clement.

He's not going home tonight--

Chief Justice John G. Roberts: Let's leave the wife out of this--

Justice Antonin Scalia: I'm talking about my life.

I think -- take mine, you know?

Mr. Clement: I wouldn't do that either,--

Justice Antonin Scalia: I won't use that example.

example.

Forget about it.

Chief Justice John G. Roberts: --That's enough frivolity for a while.

But I want to make sure I understand where the meaningfulness of the choice is taken away, is it the amount that's being offered, that it's just so much money, of course you can't turn it down, or is it the amount that's going to be taken away if you don't take what they're offering?

Mr. Clement: --It's both, Your Honor.

And I think that that's -- I mean, there really is -- I -- there really is, you know, three strings in this bow.

I mean, one is, the sheer amount of money here makes it very, very difficult to refuse, because it's not money that, you know, that's come from some -- you know, China or, you know, the -- the -- the export tariffs like in the old day.

It's coming from the taxpayers, so that's part of it.

The fact that they're being asked to give up their continuing participation in a program that they've been participating in for 45 years as a condition to accept the new program, we think that's the second thing that's critical--

Chief Justice John G. Roberts: Well, why isn't that a consequence of how willing they have been since the New Deal to take the Federal government's money?

And it seems to me that they have compromised their status as independent sovereigns because they are so dependent on what the Federal government has done, they should not be surprised that the Federal government having attached the -- they tied the strings, they shouldn't be surprised if the Federal government isn't going to start pulling them.

Mr. Clement: --With all due respect, Mr. Chief Justice, I don't think we can say that, you know, the States have gotten pretty dependent, so let's call this whole federalism thing off.

And I just think it's too important.

Because again, the consequence -- if you think about it -- if -- the consequence of saying that we're not going to police the coercion line here shouldn't be that well, you know, it's just too hard, so we'll give the Federal Congress unlimited spending power.

The consequence ought to be, if you really can't police this line, then you should go back and reconsider your cases that say that Congress can spend money on things that it can't do directly.

Now, we're not asking you to go that far.

We're simply saying that look, your spending power cases absolutely depend on there being a line between coercion--

Justice Sonia Sotomayor: --But could you tell me--

Mr. Clement: --and voluntary action.

Justice Sonia Sotomayor: --I don't understand your first answer to Justice Kagan.

You don't see there being a difference between the Federal government saying we want to take care of the poor.

States, if you do this, we'll pay 100 percent of your administrative costs.

And you said that could be coercion.

All right.

Doesn't the amount of burden that the State undertakes to meet the Federal obligation count in this equation at all?

Mr. Clement: It -- it certainly can, Justice Sotomayor.

I didn't mean to suggest in answering Justice Kagan's question that my case was no better than that hypothetical.

I mean, but if in the nature of things that I do think the amount of the money even considered alone does make a difference, and it's precisely because it has an effect on their ability to raise revenue from their own citizens.

So it's not just free money that they are turning down if they want to.

It really is--

Justice Sonia Sotomayor: Counsel, if we go pack to the era of matching what a State pays to what a State gets, Florida loses.

It's citizens pay out much less than what they get back in Federal subsidies of all kinds.

So you can't really be making the argument that Florida can't ask for more than it gives, because it's really giving less than it receives.

Mr. Clement: --Well then--

Justice Sonia Sotomayor: You don't really want to go to that point, do you?

Mr. Clement: --Well, then I will make that argument on behalf of Texas.

But it's not, it's not what my argument depends on.

And that's the critical thing.

It's one aspect of what makes this statute uniquely coercive.

And I really think if you ask the question: What explains the idea that if you don't take this new money you are going to lose all your money under what you have been doing for 45 years to help out the visually impaired and disabled?

Nobody in Congress wants the States to stop doing that.

They are just doing it, and it's purely coercive to condition the money.

It's leverage, pure and simple.

Justice Anthony Kennedy: If the inevitable consequence of your position was that the Federal government could just do this on its own, the Federal government could have Medicaid, Medicare, and these insurance regulations.

Assume that's true.

Then how are the interests of federalism concerned?

How are the interests of federalism concerned if in Florida or Texas or some other objecting States there are huge Federal bureaucracies doing what this bill allows the State bureaucracies to do.

I know you have thought about that.

I would just like your answer.

Mr. Clement: I have, and I would like to elaborate that the one word answer is "accountability".

If the Federal government decides to spend money through Federal instrumentalities and the citizenry is hacked off about it, they can bring a Federal complaint to a Federal official working in a Federal agency.

And what makes this so pernicious is that the Federal government knows that the citizenry is not going to take lightly the idea that there are huge, new Federal bureaucracies popping up across the country.

And so they get the benefit of administering this program through State officials, but then it makes it very confusing for the citizen who doesn't like this.

Do they complain to the State official because it's being administered in the State official in a State building?

Justice Elena Kagan: Mr. Clement, that is very confusing because the idea behind cooperative Federal/State programs was exactly a federalism idea.

It was to give the States the ability to administer those programs.

It was to give the States a great deal of flexibility in running those programs.

And that's exactly what Medicaid is.

Mr. Clement: Well, that's exactly what Medicaid was.

The question is: What will it be going forward?

And I absolutely take your point, Justice Kagan.

Cooperative federalism is a beautiful thing.

Mandatory federalism has very little to recommend it because it poses exactly the kind of accountability--

Justice Elena Kagan: Cooperative federalism does not mean that there are no Federal mandates and no Federal restrictions involved in a program that uses 90 percent here, 100 percent Federal money.

It means there is flexibility built into the program subject to certain rules that the Federal government has about how it wishes its money to be used.

It's like giving a gift certificate.

If I give you a gift certificate for one store, you can't use it for other stores.

But still you can use it for all kinds of different things.

Mr. Clement: --I absolutely agree that if it's cooperative federalism and the States have choices, then that is perfectly okay.

But when -- that's why voluntariness and coercion is so important.

Because if you force a State to participate in a Federal program, then -- I mean, as long as it's voluntary then a State official shouldn't complain if a citizen complains to the State about the way the State's administering a Federal program that it volunteered to participate in.

But at the point it becomes coercive, then it's not fair to tell the citizen to complain to the State official.

They had no choice.

But who do they complain at the Federal level?

There's nobody there, which would be -- I'm not saying it's the best solution to have Federal instrumentalities in every State, but it actually is better than what you get when you have mandatory federalism and you lose the accountability that is central to the federalism provisions in the Constitution.

Chief Justice John G. Roberts: Thank you, Mr. Clement.

General Verrilli?

ORAL ARGUMENT OF GENERAL DONALD B. VERRILLI, JR., ON BEHALF OF THE RESPONDENTS

Mr. Verrilli Jr.: Mr. Chief Justice, and may it please the Court:

The Affordable Care Act's Medicaid expansion provisions will provide millions of Americans with the opportunity to have access to essential health care that they cannot now afford.

It is an exercise of the Spending Clause power that complies with all of the limits set forth in this Court's decision in Dole, and the States do not contend otherwise.

The States are asking this Court to do something unprecedented, which is, to declare this an impermissibly coercive exercise.

Justice Antonin Scalia: What do you think we meant in those dicta in several prior cases where we've said that the Federal government cannot be coercive through the Spending Clause?

What -- what do you think we were -- give us a hypothetical.

Mr. Verrilli Jr.: Yes.

First, if I could just try to be a little more precise about it, Justice Scalia.

I think what the Court said in Steward Machine and in Dole is that it's possible that you might envision a situation in which there's coercion--

Justice Antonin Scalia: Okay.

Mr. Verrilli Jr.: --And the courts didn't say much more.

But I can think of something.

One example I could think of that might serve as a limit would be a Coyle type situation, in which the condition attached was worth a fundamental transformation in the structure of State government in a situation in which the State didn't have a choice but to accept it.

But -- and so--

Justice Antonin Scalia: Anything else, so long as you--

Mr. Verrilli Jr.: Well, but--

Justice Antonin Scalia: --You are talking about situations where they have to locate their State house in some other city--

Mr. Verrilli Jr.: Or you may have a legislature--

Justice Antonin Scalia: --And they have no choice.

But short of that, they can make the State do anything at all?

Mr. Verrilli Jr.: --No, no.

Dole -- the Dole conditions are real.

The germaneness condition in Dole is real, for example, and so those--

Chief Justice John G. Roberts: None of those have addressed the coercion question.

Mr. Verrilli Jr.: --Right.

Chief Justice John G. Roberts: So then you think it would be all right for the Federal government to say -- same program: States, you can take this or you can leave it.

But if you don't take it, you lose every last dollar of Federal funding for every program.

Mr. Verrilli Jr.: I think that would raise a germaneness issue, Mr. Chief Justice, but it's not what we have here.

Chief Justice John G. Roberts: But there's no coercion question at all.

Mr. Verrilli Jr.: Well, but I think -- I think they are related.

I think that the germaneness inquiry in Dole really gets at coercion in some circumstances, and that's why I think they are related.

But we don't have that here.

And if I could, I would like to address--

Chief Justice John G. Roberts: No, I know we don't have that here.

How does germaneness get -- get to coercive?

Mr. Verrilli Jr.: --Because it gets to be harder to see what--

Chief Justice John G. Roberts: That's germane if there's no--

Mr. Verrilli Jr.: What the connection is between getting you to do A and the money you are getting for--

Chief Justice John G. Roberts: --So it fails because it is not germane.

But you are saying it would not fail because it was coercive.

Mr. Verrilli Jr.: --Why -- I think that -- as I said, I think they are really trying to get at the same thing, and I -- but I do think it's quite different here, and I would like to, if I could, take up each of the--

Chief Justice John G. Roberts: No, I know -- I know it's different here.

I'm just trying to understand if you accept the fact or regarded as true that there is a coercion limit, or that once the Federal government -- once you are taking Federal government money, the Federal government money -- can take it back, and that doesn't affect the voluntariness of your choice.

Because it does seem like a serious problem.

We are assuming under the Spending Clause the Federal government cannot do this.

Under the Constitution it cannot do this.

But if it gets the State to agree to it, well, then it can.

And the concern is, if you can say: If you don't agree with this, you lose all your money, whether that's really saying the limitation in the Constitution is -- is largely meaningless.

Mr. Verrilli Jr.: --Well, but I don't think that this is a case that presents that question.

Chief Justice John G. Roberts: No, no, I know.

I know this.

I don't know if I will grant it to you or not.

But let's assume it's not this case.

Do you recognize any limitation on that concern?

Mr. Verrilli Jr.: I think the Court has said in Steward Machine and Dole that this is something that needs to be considered in an appropriate case.

And we acknowledge that.

But I do think it's so dependent on the circumstances that it's very hard to say in the abstract with respect to a particular program that there is a--

Justice Antonin Scalia: You can't imagine a case in which it is both germane and yet coercive, is what you are saying.

There is no such case as far as you know.

Mr. Verrilli Jr.: Well, I am not prepared to -- to say right here that I can -- that--

Justice Antonin Scalia: --I wouldn't think that is a surprise question, you know?

Mr. Verrilli Jr.: --Congress has authority to act and--

Justice Antonin Scalia: I can't think of one.

I'm not blaming you for not thinking of one.

Mr. Verrilli Jr.: --But I do think -- I really do think that it's important to look at this, an issue like this.

If you are going to consider it, it has got to be considered in a factual context from which it arises.

Justice Samuel Alito: Let me give you a factual context.

Let's say Congress says this to the States: We have got great news for you; we know your expenditures on education are a huge financial burden, so we are going to take that completely off your shoulders; we are going to impose a special Federal education tax which will raise exactly the same amount of money as all of the States now spend on education; and then we are going to give you a grant that is equal to what you spent on education last year.

Now, this is a great offer and we think you will take it, but of course, if you take it, it's going to have some conditions because we are going to set rules on teacher tenure, on collective bargaining, on curriculum, on textbooks, class size, school calendar and many other things.

So take it or leave it.

If you take it, you have to follow our rules on all of these things.

If you leave it, well, then you are going to have to fine -- you are going to have to tax your citizens, they are going to have to pay the Federal education tax; but on top of that, you were going to have to tax them for all of the money that you are now spending on education.

Plus all of the Federal funds that you were previously given.

Would that be -- would that reach the point -- would that be the point where financial inducement turns into coercion?

Mr. Verrilli Jr.: No, I don't think so--

Justice Samuel Alito: No.

Mr. Verrilli Jr.: --because they do, the States do have a choice there, especially as a -- as a going-in proposition.

The argument the States are making here is not that they're -- that -- this is not a going-in proposition.

Their argument is that they're -- they are in a position where they don't have a choice because of everything that has happened before.

But--

Justice Samuel Alito: You might be right.

But if that is the case then there is nothing left. 27198812723016

Mr. Verrilli Jr.: Well, but as a--

Justice Samuel Alito: --of federalism.

Mr. Verrilli Jr.: --As a practical matter, I disagree with that, Justice Alito.

First of all, as a practical matter there is a pretty serious political constraint on that situation ever arising, because it's not like the Federal Government is going to have an easy time of raising the kinds of tax revenues that need to be -- needed to raised to work that kind of fundamental transformation, and that is real.

And political constraints do operate to protect federalism in this area.

Justice Antonin Scalia: I would have thought there was a serious political strain -- constraint on the individual mandate, too, but that didn't work.

What you call serious political constraints sometimes don't work.

Mr. Verrilli Jr.: But -- but with respect to a situation like that one, Justice Scalia, the -- the States have their education system, and they can decide whether they are going to go in or not.

But here, of course, I think it's important to trace through the history of Medicaid.

It, it is not a case, as my friend from the other side suggested, that the norm here is that the Federal Government has offered to the States the opportunity either to stay where they are or add the new piece.

We can debate that proposition with respect to 1972 one way or another, the States have one view about that; we have a different one.

But starting in the 1984 expansion, with respect to pregnant women and infants, it was an expansion of the entire program; States were given the choice to stay in the entire program or not.

1989 when the program was expanded to children under 6 years of age, under 133 percent of poverty, same thing.

1990, kids 6 to 18 and 100 percent of poverty, same thing.

In fact, every major expansion, same thing.

And so I just think the history of the program, and particularly when you read that in context of 42 U.S.C. 1304, which reserves the right of the Federal Government to amend the program going forward, shows you that this is something that the States have understood all along.

This has been the evolution of it, and with respect to--

Chief Justice John G. Roberts: Could you give me some assurance?

We heard the question about whether or not the Secretary would use this authority to the extent available.

Is there circumstances where you are willing to say that that would not be permissible?

I'm thinking of the Arizona letter, for example.

I mean, if I had the authority and I was in that position, I would use it all the time.

You might -- you want some little change made?

Well, guess what; I can take away all your money if you don't make it.

I win.

Every time.

It seems that that would be the case.

So why shouldn't we be concerned about the extent of authority that the government is exercising, simply because they could do something less?

We have to analyze the case on the assumption that that power will be exercised, don't we?

Mr. Verrilli Jr.: --Well, Mr. Chief Justice, it would not be responsible of me to stand here in advance of any particular situation becoming -- coming before the Secretary of Health and Human Services and commit to how that would be resolved one way or another.

But that--

Chief Justice John G. Roberts: No, I appreciate that.

I appreciate that, but I guess -- GENERAL VERRILLI: That discretion is there in the statute, and I have every reason to think it is real, but I do think, getting back to the circumstances here--

Justice Elena Kagan: Well, General, what's the -- been the history of its use?

Has the Secretary in fact ever made use of that authority?

Mr. Verrilli Jr.: --That's correct, Justice Kagan.

It's never been used--

Chief Justice John G. Roberts: --What about the Arizona letter we just heard about today?

Mr. Verrilli Jr.: --It has never been used to cut off -- threaten--

Chief Justice John G. Roberts: It's been used to--

Justice Antonin Scalia: Of course not.

Chief Justice John G. Roberts: --Of course no States would say okay, go ahead but -- make my day, take it away; they are -- they are going to give in.

Mr. Verrilli Jr.: --If we could go to the situation we have here, Mr. Chief Justice, this -- with respect to the Medicaid expansion, the States' argument is, as they said in their briefs, they articulated a little bit different this morning -- this afternoon.

But as they said it in their briefs, was, it's not what you stand to gain, but what you stand to lose.

But I think an important thing in evaluating that argument in this context is fully 60 percent of Medicaid expenditures in this country are based on optional choices; and I don't mean by that the optional choices of the States to stay in the program in '84 or '88 or '89.

But -- but States are given the choices to expand the beneficiaries beyond the Federal minimum and to expand services beyond the Federal minimum.

Justice Anthony Kennedy: And just a small point, and please correct me if I am wrong.

It -- does this Act not require States to keep at the present level their existing Medicaid expenditure?

So some States may have been more generous than others in Medicaid, but this Act freezes that so the States can't go back.

Or am I incorrect?

Mr. Verrilli Jr.: It's much more nuanced than that, Justice Kennedy.

There is something called a maintenance of effort provision which lasts until 2014, until such time as the Medicaid expansion takes place and the exchanges are in place.

That applies to the population.

It says with respect to the population, you can't take anybody out.

It does not apply to the optional benefits where the States still have flexibility, they can still reduce optional benefits that they are now providing if they -- if they want to -- to control costs.

They can also work on provider rates, there's also with respect to demonstration projects by which some States have expanded their populations beyond the required eligibility levels, they don't have to keep them in.

So -- and then there's also, if the State has a budgetary crisis, it can get a waiver of that, as Wisconsin did.

So that is a -- that's a provision I think that does a significant degree less than my friends on the other side have suggested in terms of -- in terms of its effect, and its effect beyond that is just temporary.

I do think with respect to the -- the first of their three arguments for coercion, the sheer size argument, that it's very difficult to see how that is going to work; because if the question is about what you stand to lose rather than what you stand to gain, then it seems to me that it doesn't matter whether the Medicaid expansion is substantial or whether it's modest, or whether there is any expansion at all.

The States, for example -- the Federal Government, for example, could decide that under -- under the current system too much money has ended up flowing to nursing care and that money would be better serving the general welfare if it were directed at infants and children.

But if the Federal Government said we are going to redirect the spending priorities of the Federal money that we are offering to you, the States could say well, Geez, we don't like that; we would like to keep spending the money the way we were, and we have no choice, because this has gotten too big for us to exit.

And so -- and in fact, it seems to me, standing here today before these expansions take place, under their theory, the provision is--

Justice Antonin Scalia: The smaller it, is the bigger the coercion.

Mr. Verrilli Jr.: --well--

Justice Antonin Scalia: The smaller what you are demanding of them, the bigger the coercion to go along.

Mr. Verrilli Jr.: --The more they stand to lose.

And -- and so -- and then it -- I'm sorry, Justice Breyer.

Justice Stephen G. Breyer: I -- just before you leave that, I'd -- I'd appreciate it if you would expand a little bit on the answer to Justice Kagan's question.

For the reason, when I read the cutoff statute, which as I said has been there since 1965 unchanged, it does refer to the Secretary's discretion to keep the funding, insofar as the funding has no relationship to the failure to comply with the condition.

And as I read that, that gives the Secretary the authority to cut off all the money, but the State's refusal to accept the condition means they shouldn't have.

But nothing there says they can go beyond that and cut off unrelated money.

Now there is a sentence says maybe they could do that.

I thought they had to exercise that within reason.

Mr. Verrilli Jr.: Well--

Justice Stephen G. Breyer: I don't know when it be reasonable.

So you have looked into it, and that's what I want to know.

Mr. Verrilli Jr.: --Right.

Justice Stephen G. Breyer: Is there -- I could find no instance where they went beyond the funds that were related to the thing that the State refused to do, or things affected by that.

I would like you to tell me, when you looked into it, that what I thought of in this isolation chamber here is actually true.

Or whether they have run around threatening people that we will cut off totally unrelated funds.

What is the situation?

Mr. Verrilli Jr.: I think the situation is generally as you have described it, but I do want to be careful in saying I -- I don't think it would be responsible of me to commit now that the Secretary would exercise the discretion uniformly in one way or another.

Chief Justice John G. Roberts: Well, but that's just saying that when, you know, the analogy that has been used, the gun to your head, "your money or your life", you say well, there is no evidence that anyone has ever been shot.

Mr. Verrilli Jr.: But--

Chief Justice John G. Roberts: --Well, it's because you have to give up your wallet.

You don't have a choice.

Mr. Verrilli Jr.: But that--

Chief Justice John G. Roberts: And you cannot represent -- you cannot represent that the Secretary has never said,

"and if you don't do it, we are going to take away all the funds. "

They cite the Arizona example; I suspect there are others, because that is the leverage.

Mr. Verrilli Jr.: --But it--

Chief Justice John G. Roberts: I'm not saying there is anything wrong with it.

Mr. Verrilli Jr.: --It's not coercion, Mr. Chief Justice.

Chief Justice John G. Roberts: Wait a second.

It's not -- it's not coercion -- well, I guess that's what the case is.

It's not coercion. 32460063247256

Mr. Verrilli Jr.: It's not coercion.

Chief Justice John G. Roberts: --to say I'm going to take away all your funds, no matter how minor the infringement?

Mr. Verrilli Jr.: But -- But of course--

Justice Stephen G. Breyer: But I don't know if that's so.

And all I asked in my question was I didn't ask you to commit the Secretary to anything.

I wanted to know what the facts are.

Mr. Verrilli Jr.: --I--

Justice Stephen G. Breyer: I wanted to know what you found in researching this case.

I wanted you to, in other words, to answer the question the Chief Justice has: Is it a common thing, that that happens, that this unrelated threat is made?

Or isn't it?

Mr. Verrilli Jr.: --It's -- my understanding is that these situations are usually worked out back and forth between the States and the Federal government.

And I think that most--

Justice Stephen G. Breyer: And you are not privy to what those are.

Mr. Verrilli Jr.: --And I'm not.

But--

Justice Antonin Scalia: And who wins.

Mr. Verrilli Jr.: --Well, I think -- that's what I think is the problem here, Justice Scalia, is it seems to me we are operating under a conception that isn't right.

The reason we have had all these Medicaid expansions and the reason seems to me why we are were where we are now and why 60 percent of what's being spent on Medicaid is based on voluntary decisions by the States to expand beyond what Federal law requires, because this is a good program and it works.

And the States generally like what it accomplishes--

Justice Elena Kagan: And, General Verrilli--

Justice Samuel Alito: Is this discussion realistic?

The objective of the Affordable Care Act is to provide near universal health care.

Now suppose that all of the 26 States that are parties to this case were to say, well, we're not going to -- we're not going to abide by the new conditions.

Then there would be a huge portion -- a big portion of the population that would not have healthcare, and it's a realistic possibility the Secretary is going to say, well, okay, fine, you know.

We are going to cut off your new funds but we are not going to cut off your old funds and just let that condition sit there.

Mr. Verrilli Jr.: --Well, just as I can't make a commitment that the authority wouldn't be exercised, I'm not going to make a commitment that it would be exercised.

But I do think that that -- to try and move away from the first of their argument, the sheer size argument, to the second one, which is that it's coercive by virtue of its relationship to the Affordable Care Act.

I really think that that's a misconception and I would like to be able to take a minute and walk through and explain why that is.

Justice Elena Kagan: --General Verrilli, before you do that, I'm sorry, but in response to the Chief Justice's question -- I mean the money or your life has consequence because we are worried that that person is actually going to shoot.

So I think that this question about are we -- what do we think the Secretary is going to do is an important one.

And as I understand it, I mean when the Secretary withdraws funds, what the Secretary is doing is withdrawing funds from poor people's health care.

And that the Secretary is reluctant and loathe to take money away from poor people's health care.

And that that's why these things are always worked out.

It's that the Secretary really doesn't want to use this power.

And so the Secretary sits down with the State and figures out a way for the Secretary not to use the power.

Mr. Verrilli Jr.: That's correct, Justice Kagan.

That is no--

Chief Justice John G. Roberts: No, what the -- GENERAL VERRILLI: I'm sorry--

--Go ahead.

Mr. Verrilli Jr.: --That's another way of trying to say what I was trying to say to Justice Scalia earlier is that the States and the Federal government share a common objective here, which is to get health care to the needy.

And in the vast majority of instances they work together to make that happen.

Chief Justice John G. Roberts: Well, but the question is not obviously the States are interested in the same objective and they have a disagreement or they have budget realities that they have to deal with.

And States say, well, we are going to cut by 10 percent what we reimburse this for or that for and the Federal government says well, you can't.

And no one is suggesting that people want to cut health care but they have different views about how to implement policy in this area.

And the concern is that the Secretary has the total and complete say because the Secretary has the authority under this provision to say you lose everything.

No one's suggested in the normal course that will happen, but so long as the Federal government has that power, it seems to be a significant intrusion on the sovereign interests of the State.

Now I'm not -- it may be something they gave up many decades ago when they decided to live off of Federal funds.

But I don't think you can deny that it's a significant authority that we are giving the Federal government to say that you can take away everything if the States don't buy into the next program.

Mr. Verrilli Jr.: Well, but what I would say about that Mr. Chief Justice, is that we recognize that these decisions aren't going to be easy decisions in some circumstances.

As a practical matter there may be circumstances in which they are very difficult decisions.

But that's different from saying that they are coercive and that's different from saying that it's an unconstitutional--

Justice Stephen G. Breyer: Why is it different?

Why is it different?

I mean, I thought it might be very unlikely that the State would ever say that the government -- the Federal government would say here's a condition that you have to have a certain kind of eyeglasses for people who don't see.

And by the way if you don't do that we'll take away $42 billion of funding, okay?

I thought such a thing would not happen.

And I thought that if it tried to happen that it's governed by the APA and the person with eyeglasses would say it's arbitrary, capricious, abusive discretion.

And that's so, even though the statute says it's in the discretion of the Secretary but Mr. -- your colleague and brother says no, I'm wrong about the law there and moreover they would do it.

That's what I'm hearing now, that they would do it and they do do it, and -- and, etc.

So I would like a little clarification.

Mr. Verrilli Jr.: --In of the situation described in your hypothetical, Justice Breyer, the Secretary of health and human services would never do it.

But what I'm saying with respect to the Medicaid expansion in this case.

Justice Antonin Scalia: Could never do it or would a prediction, okay.

Mr. Verrilli Jr.: Well, I think it would have to satisfy the administrative procedure, that's a real constraint.

When I don't what I don't feel able to do here is to say with respect to this Medicaid expansion.

Justice Antonin Scalia: Are you willing to acknowledge that the Administrative Procedure Act is a limitation on the secretary's ability to cut off all the funds; she can't do it if it -- if that would be unreasonable?

Are you willing to accept that?

I wouldn't if I were you.

Mr. Verrilli Jr.: So what I'm trying to do here is to -- is to suggest that the secretary does have discretion under the statute, and that that -- and that--

Justice Antonin Scalia: Indeed, part of the discretion is to cut off all of the funds.

That's what the statute says.

Mr. Verrilli Jr.: --and it is possible, and I'm not willing to give that away.

But that doesn't make this--

Justice Elena Kagan: But, General Verrilli, you are not willing to give away whether the APA would bar that; but, the APA surely has to apply to a discretionary act of the secretary.

Mr. Verrilli Jr.: --I agree with that, Justice Kagan, but--

Justice Stephen G. Breyer: What's making you reluctant?

Mr. Verrilli Jr.: --I'm not trying to be -- I'm not trying to be reluctant.

I understand how this works.

I'm trying to be careful about the authority of the Secretary of Health and Human Services and how it will apply in the future.

Justice Antonin Scalia: I wouldn't worry a lot if I were you.

I don't know of any case that, where the secretary's discretion explicitly includes a certain act, we have held that, nevertheless, that act cannot be performed unless we think it reasonable.

I don't know any case like that.

Yes, when there is just a general grant of discretion, it has to be exercised reasonably.

But maybe Justice Breyer knows such a case.

Justice Stephen G. Breyer: Yes, I do.

Justice Antonin Scalia: Give it to me.

Mr. Verrilli Jr.: If I could go back to the sheer size idea, there is, I think, another couple of points that are important in thinking about whether that's a principle courts could ever apply.

Once you get into that business, in addition to the problem I identified earlier, that it basically means that Congress is frozen in place, based on the size of the program, you have got this additional issue of having to make a judgment about in what circumstances will -- will the loss of the federal funding be so significant that you would count it as -- coercive.

Justice Anthony Kennedy: I suppose one test could be -- I just don't see that it would be very workable -- is whether or not it's so big that accountability is lost, that it is not clear to the citizens that the State or the Federal Government is administering the program, even though it's a state administrator.

Mr. Verrilli Jr.: Well, but I think--

Justice Anthony Kennedy: I think that's unworkable.

Mr. Verrilli Jr.: --this is going to come from a withdrawal situation.

Their argument's about it's what you stand to lose and with respect to withdrawal.

I mean, so, does it depend on -- is it an absolute or a relative number with respect to how much of the state budget?

Is it a situation where you have to make a calculation about how hard would it be for that state to make up in state tax revenues the federal revenue they would lose?

Does that depend on whether it's a high tax state or a low tax state.

It just seems to me -- and then, what is the political climate in that state?

It seems to me like--

Justice Anthony Kennedy: In your view, does federalism require that there be a relatively clear line of accountability for political acts?

Mr. Verrilli Jr.: --Yes, of course, it does, Justice Kennedy.

But, here--

Justice Anthony Kennedy: Is that subsumed in the coercion test, or is that an independent?

Mr. Verrilli Jr.: --You know, here, the coercion test, as it's been discussed, I think, for example, in Justice O'Connor's dissent in Dole and in some of the other literature, does address federalism concerns in the sense of the Federal Government using federal funding in one area to try to get states to act in an area where the Federal Government may not have Article I authority.

Justice Anthony Kennedy: Yes.

Mr. Verrilli Jr.: But, as Your Honor suggested earlier, this is a situation in which, while it is certainly true that the Federal Government couldn't require the states, as the Chief Justice indicated, to carry out this program, the federal government could, as Your Honor suggested, expand Medicare and do it itself.

Justice Anthony Kennedy: But do you think that there still is inherent and implicit in the idea of federalism, necessary for the idea of federalism, that there be a clear line of accountability so the citizen knows that it's the Federal or the State government who should be held responsible for a program?

Mr. Verrilli Jr.: Certainly, but I think the problem here is--

Justice Anthony Kennedy: And does coercion relate to that, or is that a separate-- 38433763845959

Mr. Verrilli Jr.: Yes, but I think--

Justice Anthony Kennedy: --is that a separate thought?

Mr. Verrilli Jr.: --Well, I think it relates to it in the opposite way that my friends on the other side would like it to, in that I think their argument is that it would subject us to such a high degree of political accountability at the state level to withdraw ourselves from the program, that it's an unpalatable choice for us, and that's where the coercive effect comes from.

And that's why I think--

Justice Anthony Kennedy: Well, but I think the answer would be that the state wants to preserve its integrity, its identity, its responsibility in the federal system.

Mr. Verrilli Jr.: --And it may -- and, of course, it may do so, and it can make--

Justice Antonin Scalia: May it do so?

Doesn't the question come down to this -- maybe you can answer this yes.

But -- but isn't the question simply: Is it conceivable to you, as it was evidently not to Congress, that any State would turn down this offer, that they can't refuse?

Is it conceivable to you that any State would have said no to this program?

Congress didn't think that, because some of its other provisions are based on the assumption that every single State will be in this thing.

Now, do you -- can you conceive of a State saying no?

And -- and if you can't, that sounds like coercion to me.

Mr. Verrilli Jr.: --I think -- I think Congress predicted that States would stay in this program, but the -- prediction is not coercion.

And the reason Congress predicted it, I think, Justice Scalia, is because the Federal government is paying 90-plus percent of the costs.

It increases State costs--

Justice Antonin Scalia: So what do you predict?

If you predict the same, that 100 percent of the States will accept it, that sounds like coercion.

Mr. Verrilli Jr.: --Prediction is not coercion.

I disagree, Justice Scalia.

That's just an assumption, and if it proves to be wrong, then Congress has time to recalibrate.

And beyond that, I do think if -- I just want to go back to the other part of Your Honor's point -- that with respect to the relationship between Medicaid and the Act, and particularly the minimum coverage provision, my -- my friend Mr. Clement has suggested that you can infer coercion because with respect to the population to which the provision applies, if there's no Medicaid, there's no other way for them to satisfy the requirement.

I want to work through that for a minute if I may, because it's just incorrect.

First of all, with respect to anybody at 100 percent of the poverty line or above, there is an alternative in the statute.

It's the exchanges with tax credits and with subsidies to insurance companies.

So with respect to that, the part of the population at 100 percent of poverty to 133 percent of poverty, the -- the statute actually has an alternative for them.

For people below 100 percent of poverty, it -- it is true that there is no insurance alternative.

But by the same token, there is no penalty that is going to be imposed on anybody in that group.

To begin with, right now, the -- the level of 100 percent of poverty is $10,800.

The -- the requirement for filing a Federal income tax return is $9,500.

So anybody below $9,500, no penalty, because they don't have to file an income tax return.

The sliver of people between $9,500 and $10,800, the question there is are they going to be able to find health insurance that will cost them less than 8 percent of their income.

Justice Samuel Alito: Well, I'm not -- in selling this argument -- take the poorest of the poor.

If there is no Medicaid program, then they're not going to get health care.

Isn't that right?

Mr. Verrilli Jr.: Yes, that's true.

But this--

Justice Samuel Alito: So Congress obviously assumed -- it thought it was inconceivable that any State would reject this offer, because the objective of the Affordable Care Act is to provide near-universal care.

And Medicaid is the way to provide care for at least the poorest of the poor.

So it -- it just didn't occur to them that this was a possibility.

And when -- when that's the case, how can that not be coercion?

Unless it's just a gift.

Unless it's just purely a gift.

Then it comes back to the question of whether you think it makes a difference that the money -- a lot of the money to pay for this -- is going to come out of the same taxpayers that the States have to tax to get their money.

Mr. Verrilli Jr.: --This is -- this is a -- this is -- these are Federal dollars that Congress has offered to the States and said, we're going to make this offer to you, but here's how these dollars need to be spent.

This is the essence of Congress's Article I authority under the General Welfare Clause and the Appropriations Clause.

This is not some remote contingency, or an effort to leverage in that regard.

This is how Congress is going to have the Federal government's money be used if States choose to accept it.

Yes, it was reasonable for Congress to predict in this circumstance that the States were going to -- to take this money, because -- because it is an extremely generous offer of funds: 90-plus percent of the funding.

States can -- can expand their Medicaid coverage to more than 20 percent of their population for an increase of only 1 percent--

Chief Justice John G. Roberts: If it's such a good deal--

Mr. Verrilli Jr.: of their funding.

Chief Justice John G. Roberts: --why do you care?

If it's such a good deal, why do you need the club?

Mr. Verrilli Jr.: --Well, the -- the--

Chief Justice John G. Roberts: It's a good deal, take it.

We're not going to -- if you don't take it, you're just hurting yourself.

We're not going to--

Mr. Verrilli Jr.: That's a judgment for Congress to make about how the Federal -- how Federal funds are going to be used if States choose to accept them, and Congress has made that judgment.

Chief Justice John G. Roberts: That's Congress's judgment to make, and it's -- it doesn't mean that it's coercive.

You have another 15 minutes.

Mr. Verrilli Jr.: --Lucky me.

Justice Anthony Kennedy: But the -- but the point is -- but the -- the point is, there's -- there's no real--

Justice Sonia Sotomayor: Can we go back--

Justice Anthony Kennedy: --There's no real -- there's no realistic choice.

There's no real choice.

And Congress does not in effect allow for an out -- opt out.

We just know that.

And it's--

Mr. Verrilli Jr.: No, I guess I--

Justice Anthony Kennedy: --it's substantial.

Mr. Verrilli Jr.: I would go back, Justice Kennedy--

Justice Anthony Kennedy: I recognize the problem with that test.

Mr. Verrilli Jr.: --I would go back to the fact that 60 percent of the Medicaid spending is now optional.

It's -- it's a result of choices that States have made that -- it's expanded the--

Justice Anthony Kennedy: Even though they're now frozen in, per our earlier discussions, to a large extent.

Mr. Verrilli Jr.: --Well, no -- to a more -- much more modest extent was my point, Justice Kennedy.

For example, optional services where a huge amount of money is spent -- more than $100 billion annually -- the largest component of that is nursing home services.

That remains optional.

It's -- right now, once the minimum -- once the maintenance provision remains in place, States have the flexibility to that -- reduce those numbers.

States have considerable flexibility now and going forward with respect to the way that money is spent.

And I do think in terms of evaluating whether this expansion should be considered coercive has got to be evaluated against the backdrop of the fact that the States are generally taking -- are generally taking advantage of the opportunities of this statute to greatly expand the amount of money that the Federal government spends and the amount of money that they spend to try to make the -- the lives of their citizens better.

I think--

Justice Anthony Kennedy: Of course, they have to do so by hiring a very substantial number of more employees.

There will be State employees.

There'll be substantial State administrative expenses that are not reimbursed.

Mr. Verrilli Jr.: --Well, but -- I would take issue with that, Justice Kennedy.

Part of the Affordable Care Act is that it -- it provides for new streamlined eligibility processes to get people into the system at a -- at a much faster and cheaper rate.

There are going to be costs to set that up.

But under the statute, the Federal government is going to pay 90 percent of those costs, the short-term set-up costs.

And then all of the projections that we have seen suggest that the medium -- to long-term costs once these changes are in place are going to be dramatically lower on the administrative side.

Chief Justice John G. Roberts: Well, what--

--Obviously, the Federal government isn't bound to that.

And what if, after the 90 percent, they say well, now -- from now on, we're going to pay 70 percent?

What happens then?

Where does that extra money come from?

Mr. Verrilli Jr.: Well, I think -- then the States would have a choice at that -- at that point whether they were going to stay in the program or not.

But that isn't what we have here, and--

Chief Justice John G. Roberts: There's no -- they can just bail out -- whenever the government reduces the amount of the percentage that it's going to pay, the States can say, that's -- that's--

Mr. Verrilli Jr.: Well, I'm not saying it would be an easy choice, Mr. Chief Justice.

Justice Antonin Scalia: They'd have to bail out of Medicaid, you're talking about.

Not just there.

Mr. Verrilli Jr.: --Right.

That would be--

Justice Antonin Scalia: The option.

Mr. Verrilli Jr.: --Right.

That that would be the option.

They can leave Medicaid if they decide that that isn't working for them.

I'm not saying this is an easy choice.

I'm also not saying it would happen, because the Secretary does have this discretion--

Chief Justice John G. Roberts: Well, the Secretary has the discretion.

We're talking about something else.

We're talking about fiscal realities, and whether or not the Federal government is going to say we need to lower our contribution to Medicaid and leave it up to the States because we want the people to be mad at the States when they have to have all these budget cuts to keep it up, and not at the Federal government.

Mr. Verrilli Jr.: --That would be true, Mr. Chief Justice, whether this Medicaid expansion occurred or not.

Chief Justice John G. Roberts: I know, but you've been emphasizing that the Federal government is going to pay 90 percent of this, 90 percent of this, and it's -- it's not something they can take to the bank, because the next day or the next fiscal year, they can decide we're going to pay a lot less.

And you, States, are still on the hook, because you -- you don't -- you say it's not an easy choice.

We can say -- ask whether it's coercion.

You're not going to be able to bail out of Medicaid.

You just have to pay more because we're going to pay less.

Mr. Verrilli Jr.: Well, like I said, I -- I agree that it would be a difficult choice in some circumstances.

But that is not to say it's coercion as a legal matter or even as a practical matter.

And I think it would depend on what the circumstances were on how -- and I think trying to think about how a court would ever answer the question of whether it was coercive, it was too difficult as a practical matter for States to withdraw.

Justice Sonia Sotomayor: --General, I'm trying.

--to go back to that.

Because Justice Kennedy asked you whether there is -- I think he said it's -- it's coercion if no one can be politically accountable.

I'm not sure how that could be practically politically accountable, because almost every gift -- if the terms are attractive, it would be an unattractive political alternative to turn it down.

Dole itself was one of those cases.

I think every State raised the drinking age to 21; correct?

Mr. Verrilli Jr.: --Yes, Justice Sotomayor, and this argument was raised in Dole, and the Court rejected it as a--

Justice Sonia Sotomayor: I guess my point is that political accountability has two components: What can I do if I like something, and what can I do if I don't like something.

And if people really like something like Medicaid, they were not going to let you drop it, correct.

Mr. Verrilli Jr.: --Well, the citizens of the State, but that's the citizen of the State acting--

Justice Sonia Sotomayor: Exactly.

That's the whole point that's their choice, right?

Mr. Verrilli Jr.: --in the capacity of the citizens of the State.

And I think that's why I get -- try to get back to the point, that's why I think this is wrong to think about this as coercion, because this is a program that works effectively for the citizens of the State, and States' governments -- and States governments think that and that's why it has expanded the way it has expanded, because it's providing an essential service for millions of needy citizens in these States.

It's providing access to health care that they would not otherwise have.

Chief Justice John G. Roberts: You mentioned the -- the Dole case.

Now, what was the -- the threat in that case, raise your drinking age to 21 -- 21 or what?

Mr. Verrilli Jr.: Or lose a percentage of your highway funds.

Chief Justice John G. Roberts: Do you remember the percentage?

Mr. Verrilli Jr.: Seven percent, yes.

Chief Justice John G. Roberts: Yes.

It's a pretty small amount.

That is really apples and oranges when you are talking about lose all of your Medicaid funds or lose -- I thought it was 5, but 7 -- 7 percent of your highway funds.

Mr. Verrilli Jr.: It's -- I think I agree with Your Honor, that it's -- that it's different, but I don't think that that makes coercion as -- as a legal matter.

As I said, I think that this is a situation in which the -- if the States -- is it -- I'm saying it won't be an easy choice, but the States made the choice, they have made the choice.

And--

Justice Sonia Sotomayor: They made a choice with the stimulus bill, didn't they?

Some governors rejected the stimulus bill--

Mr. Verrilli Jr.: That is -- that's correct, Justice Sotomayor.

Justice Sonia Sotomayor: --and some of -- some of their congressional or legislative processes overturned that--

Mr. Verrilli Jr.: That's right.

Justice Sonia Sotomayor: --and others supported it.

The percentages were smaller, but it's always the preference of the voters as to what they want, isn't it?

Mr. Verrilli Jr.: --That is correct.

Chief Justice John G. Roberts: What was the threat in the stimulus bill, what would the State lose?

Mr. Verrilli Jr.: That answer I don't know, Mr. Chief Justice.

Chief Justice John G. Roberts: Would anything be taken away or would it just lose the opportunity to get the money?

Mr. Verrilli Jr.: I don't know the answer to that.

I don't know the answer to that.

But if I may just say in conclusion that -- I would like to take half a step back here, that this provision, the Medicaid expansion that we are talking about this afternoon, and the provisions we have talked about yesterday, we have been talking about them in terms of their effect as measures that solve problems, problems in the economic marketplace, that have resulted in millions of people not having health care because they can't afford insurance.

There is an important connection, a profound connection between that problem and liberty.

And I do think it's important that we not lose sight of that.

That in this population of Medicaid eligible people who will receive health care that they cannot now afford under this Medicaid expansion, there will be millions of people with chronic conditions like diabetes and heart disease, and as a result of the health care that they will get, they will be unshackled from the disabilities that those diseases put on them and have the opportunity to enjoy the blessings of liberty.

And the same thing will be true for -- for a husband whose wife is diagnosed with breast cancer and who won't face the prospect of being forced into bankruptcy to try to get care for his wife and face the risk of having to raise his children alone and I can multiply example after example after example.

In a very fundamental way this Medicaid expansion, as well as the provisions we discussed yesterday, secure of the blessings of liberty.

And I think that that is important as the Court's considering these issues that that be kept in mind.

The -- the Congress struggled with the issue of how to deal with this profound problem of 40 million people without health care for many years, and it made a judgment, and its judgment is one that is, I think, in conformity with lots of experts thought, was the best complex of options to handle this problem.

Maybe they were right, maybe they weren't, but this is something about which the people of the United States can deliberate and they can vote, and if they think it needs to be changed, they can change it.

And I would suggest to the Court with profound respect for the Court's obligation to ensure that the Federal Government remains a government of enumerated powers, that this is not a case in any of its aspects that calls that into question.

That this was a judgment of policy, that democratically accountable branches of this government made by their best lights, and I would encourage this Court to respect that judgment and ask that the Affordable Care Act, in its entirety, be upheld.

Thank you.

Chief Justice John G. Roberts: Thank you, General.

Mr. Clement, you have 5 minutes.

REBUTTAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE PETITIONERS

Mr. Clement: Thank you, Mr. Chief Justice and may it please the Court:

Just a few points in rebuttal.

First of all we talked a lot about the sort of hallmark of coercion, your money or your life, with somebody with a gun.

I would respectfully suggest that it is equally coercive or certainly not uncoercive if I say your money or your life, and by the way, I have discretion as to whether or not I will shoot the gun.

I don't think that eliminates the coercion.

I also don't think this is a discretion that the Secretary would ever be able to exercise.

And the reason is, we disagree on the details, but the Solicitor General and I agree that over the years Congress has had different approaches to expanding Medicare.

Sometimes, as in 1972, it makes the expansion voluntary; that's also by the way that happened with the stimulus funds, which were voluntary funds.

You didn't lose all your Medicaid funds, which is why 17 States could say no.

Sometimes they take the voluntary approach.

Sometimes, as in 1984, they take the mandatory approach.

If the Secretary exercised the discretion to say you know what, it really isn't reasonable for you to have to give up your funding for the visually impaired and the disabled just to cover these newly eligible people, so we will make it voluntary; we'll make that discretionary -- that would essentially be creating -- converting a 1984 amendment approach to a 1972 amendment approach, and I just don't think that is the kind of discretion that the Secretary has, with all due respect.

Now moving on to the next point, Justice Alito, your hypothetical I think aptly captures the effect on this, based on the fact that these tax dollars are being taken from the State's tax base, and it's not like Steward Machine, where the Federal Government would say, and oh, by the way, if you don't take the option we are giving you, we are going to have a Federal substitute that will go in and we will take care of the unemployed in your States.

Here if you don't take this offer we are giving you, your tax dollars will fund the other 49 States and you will get nothing.

But of course, this situation is much more coercive even than your hypothetical, because it is tied directly to the mandate.

It's also tied to the -- to participation in the preexisting program.

So it is as if there was yet another program for post-secondary education; they gave them exactly your option -- option -- and then they also said, oh, and by the way; you not only -- not get these funds, but you lose the post-secondary fund as well.

It's really hard to understand tying the preexisting participation in the program as anything other than coercive.

The Solicitor General makes a lot of the fact that there are optional benefits under this program.

Well, guess what?

After the Medicaid expansion there will be a lot less opportunity for the States to exercise those options, because one of the things that the expansion does -- precisely because the expansion is designed to convert Medicaid into a program that satisfies the requirement of the minimum essential cover of the individual mandate, things that used to be voluntary will no longer be voluntary.

The perfect example is prescription coverage.

It's a big part of the benefits that some States but not all provide voluntarily now.

It will no longer be voluntary after the expansion, because the Federal Government has deemed that prescription drugs to be part of the minimal essential health coverage that everybody in this country must have after the manned date.

So that option that the State has is being removed by the expansion itself.

The Chief Justice made the point--

Justice Ruth Bader Ginsburg: Mr. Clement, may I ask one question about the bottom line in this case?

It sounds to me like everything you said would be to the effect of, if Congress continued to do things on a voluntary basis, so we are getting these new eligibles, and say States, you can have it or not, you can preserve the program as it existed before, you can opt into this.

But you are not asking the Court as relief to say, well, that's how we -- we -- that's how we cure the constitutional infirmity; we say this has to be on a voluntary basis.

Instead, you are arguing that this whole Medicaid addition, that the whole expansion has to be nullified; and moreover, the entire health care act.

Instead of having the easy repair, you say that if we accept your position, everything falls.

Mr. Clement: --Well, Justice Ginsburg, if we can start with the common ground that there is a need for repair because there is a coercion doctrine and this statute is coercion, then we are into the question of remedy.

And we do think, we do take the position that you describe in the remedy, but we would be certainly happy if we got something here, and we got a recognition that the coercion doctrine exists; this is coercive; and we get the remedy that you suggest in the alternative.

Let me just finish by saying I certainly appreciate what the Solicitor General says, that when you support a policy, you think that the policy spreads the blessings of liberty.

But I would respectfully suggest that it's a very funny conception of liberty that forces somebody to purchase an insurance policy whether they want it or not.

And it's a very strange conception of federalism that says that we can simply give the States an offer that they can't refuse, and through the spending power which is premised on the notion that Congress can do more because it's voluntary, we can force the States to do whatever we tell them to.

That is a direct threat to our federalism.

Thank you.

Chief Justice John G. Roberts: Thank you, Mr. Clement.

And thank you, General Verrilli, Mr. Kneedler, Mr. Carvin, Mr. Katsas, and in particular, of course, Mr. Long and Mr. Farr.

The case is submitted.

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The Affordable Care Act Cases - Argument (Severability)

Wed, 28 Mar 2012 16:29:34 +0000

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The Affordable Care Act Cases

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11-393_20120328-argument-3.mp3

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Transcript:

ORAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE PETITIONERS

Chief Justice John G. Roberts: We will continue argument this morning in Case Number 11-393, National Federation of Independent Business v. Sebelius and case 11-400, Florida v. The Department of HHS.

Mr. Clement.

Mr. Clement: Mr. Chief Justice, and may it please the Court:

If the individual mandate is unconstitutional, then the rest of the Act cannot stand.

As Congress found and the Federal Government concedes, the community rating and guaranteed-issue provisions of the Act cannot stand without the individual mandate.

Congress found that the individual mandate was essential to their operation.

And not only can guaranteed-issue and community-rating not stand, not operate in the manner that Congress intended, they would actually counteract Congress's basic goal of providing patient protection but also affordable care.

If you do not have the individual mandate to force people into the market then community rating and guaranteed-issue will cause the cost of premiums to skyrocket.

We can debate the order of magnitude of that but we can't debate that the direction will be upward.

We also can't debate--

Justice Sonia Sotomayor: Counsel, that may well be true.

The economists are going back and forth on that issue, and the figures vary from up 10 percent to up 30.

We are not in the habit of doing the legislative findings.

What we do know is that for those States that found prices increasing, that they found various solutions to that.

In one instance, and we might or may not say that it's unconstitutional, Massachusetts passed the mandatory coverage provision.

But others adjusted some of the other provisions.

Why shouldn't we let Congress do that, if in fact, the economists prove, some of the economists prove right, that prices will spiral?

What's wrong with leaving it to -- in the hands of the people who should be fixing this, not us?

Mr. Clement: --Well, a couple of questions -- a couple of responses, Justice Sotomayor.

First of all, I think that it's very relevant here that Congress had before it as examples some of the States that had tried to impose guaranteed-issue and community rating and did not impose an individual mandate.

And Congress rejected that model.

So your question is quite right in the saying that it's not impossible to have guaranteed-issue and community-rating without an individual mandate.

But it's a model that Congress looked at and specifically rejected.

And then, of course, there is Congress's own finding, and their finding, of course, this is (i), which is <43{a}of> [= 43(a)of] the government's brief in the appendix, Congress specifically found that having the individual mandate is essential to the operation of guaranteed-issue and community-rating.

Justice Sonia Sotomayor: That's all it said it's essential to.

I mean, I'm looking at it.

The exchanges, the State exchanges are information -- gathering facilities that tell insurers what the various policies actually mean.

And that has proven to be a cost saver in many of the States who have tried it.

So why should we be striking down a cost saver when if what your argument is, was, that Congress was concerned about costs rising?

Why should we assume they wouldn't have passed that information?

Mr. Clement: I think a couple of things.

One, you get -- I mean, I would think you are going to have to take the bitter with the sweet.

And if Congress -- if we are going to look at Congress's goal of providing patient protection but also affordable care, we can't -- I don't think it works to just take the things that save money and cut out the things that are going to make premiums more expensive.

But at a minimum--

Justice Sonia Sotomayor: I want a bottom line is why don't we let Congress fix it?

Mr. Clement: --Well, let me answer the bottom line question, which is, no matter what you do in this case, at some point there's going to be -- if you strike down the mandate, there is going to be something for Congress to do.

The question is really, what task do you want to give Congress.

Do you want to give Congress the task of fixing the statute after something has been taken out, especially a provision at the heart, or do you want to give Congress the task of fixing health care?

And I think it would be better in this situation--

Justice Sonia Sotomayor: We are not taking -- If we strike down one provision, we are not taking that power away from Congress.

Congress could look at it without the mandatory coverage provision and say, this model doesn't work; let's start from the beginning.

Or it could choose to fix what it has.

We are not declaring -- one portion doesn't force Congress into any path.

Mr. Clement: --And of course that's right, Justice Sotomayor, and no matter what you do here, Congress will have the options available.

So if you, if you strike down only the individual mandate, Congress could say the next day: Well, that's the last thing we ever wanted to do so we will strike down the rest of the statute immediately and then try to fix the problem.

So whatever you do, Congress is going to have options.

The question is--

Justice Antonin Scalia: Well, there is such a thing as legislative inertia, isn't there?

Mr. Clement: --That's exactly what I was going to say, Justice Scalia, which is, I think the question for this Court is, we all recognize there is legislative inertia.

And then the question is: What is the best result in light of that reality?

Justice Sonia Sotomayor: Are you suggesting that we should take on more power to the Court?

Mr. Clement: No--

Justice Sonia Sotomayor: Because Congress would choose to take one path rather than another.

That's sort of taking onto the Court more power than one I think would want.

Mr. Clement: --And I agree.

We are simply asking this Court to take on straight on the idea of the basic remedial inquiry into severability which looks to be intent of the Congress--

Justice Antonin Scalia: Mr. Clement, I want to ask you about that.

Why -- why do we look to the -- are you sure we look to the intent of the Congress?

I thought that, you know, sometimes Congress says that these provisions will -- all the provisions of this Act will be severable.

And we ignore that when the Act really won't work.

When the remaining provisions just won't work.

Now how can you square that reality with the proposition that what we're looking for here is what would this Congress have wanted?

Mr. Clement: --Well, two responses, Justice Scalia.

We can look at this Court's cases on severability, and they all formulate the task a little bit differently.

Justice Antonin Scalia: Yes, they sure do.

Mr. Clement: And every one of them talks about congressional intent.

But here's, here's the other answer--

Justice Antonin Scalia: That's true, but is it right?

Mr. Clement: --It is right.

And here is how I would answer your question, which is, when Congress includes a severability clause, it is addressing the issue in the abstract.

It doesn't say: No matter which provisions you strike down, we absolutely, positively want what's left.

Justice Antonin Scalia: All right.

The consequence of your proposition, would Congress have enacted it without this provision, okay that's the consequence.

That would mean that if we struck down nothing in this legislation but the -- what you call the corn husker kickback, okay, we find that to violate the constitutional proscription of venality, okay?

When we strike that down, it's clear that Congress would not have passed it without that.

It was the means of getting the last necessary vote in the Senate.

And you are telling us that the whole statute would fall because the corn husker kickback is bad.

That can't be right.

Mr. Clement: Well, Justice Scalia, I think it can be, which is the basic proposition, that it's congressional intent that governs.

Now everybody on this Court has a slightly different way of dividing legislative intent.

And I would suggest the one common brand among every member of this Court as I understand it is you start with the text.

Everybody can agree with that.

Justice Elena Kagan: So Mr. Clement, let's start with the text.

Then you suggest, and I think that there is -- this is right, that there is a textual basis for saying that the guaranteed-issue and the community ratings provisions are tied to the mandate.

And you said -- you pointed to where that was in the findings.

Is there a textual basis for anything else, because I've been unable to find one.

It seems to me that if you look at the text, the sharp dividing line is between guaranteed-issue and community ratings on the one hand, everything else on the other.

Mr. Clement: Well, Justice Kagan I would be delighted to take you through my view of the text and why there are other things that have to fall.

The first place I would ask you to look is finding J which is on the same page 43 A. And as I read that, that's a finding that the individual mandate is essential to the operation of the exchanges.

But there are other links between guaranteed-issue and community ratings and the exchanges.

And there I think it's just the way that the exchanges are supposed to work.

And the text makes this clear is they are supposed to provide a market where people can compare community rated insurance.

That's what makes the exchanges function.

Justice Elena Kagan: Although the exchanges function perfectly well in Utah where there is no mandate.

They function differently, but they function.

And the question is always, does Congress want half a loaf.

Is half a loaf better than no loaf?

And on something like the exchanges it seems to me a perfect example where half a loaf is better than no loaf.

The exchanges will do something.

They won't do everything that Congress envisioned.

Mr. Clement: Well, Justice Kagan, I think there are situations where half a loaf is actually worse and I want to address that.

But before I do it -- broadly.

But before I do that, if I could stick with just the exchanges.

I do think the question that this Court is supposed to ask is not just whether they can limp along and they can operate independently, but whether they operate in the manner that Congress intended.

And that's where I think the exchanges really fall down.

Because the vision of the exchanges was that if you got out of this current situation where health insurance is basically individualized price based on individualized underwriting and you provide community ratings, then it's going to be very easy for people to say okay, well this is a silver policy and this is a bronze policy and this is a gold policy and we can, you know, I can just pick which insurer provides what I think is going to be the best service based on those comparable provisions.

Justice Elena Kagan: Mr. Clement, you just said something which you say a lot in your brief.

You say the question is the manner in which it would have operated.

And I think that that's not consistent with our cases.

And I guess the best example would be Booker where we decided not to sever provisions, notwithstanding that the sentencing guidelines clearly operate in a different manner now than they did when Congress passed them.

They operate as advisory rather than mandatory.

Mr. Clement: Well, but Justice Kagan, I mean I actually think Booker supports our point as well, because there are two aspects of the remedial holding of Booker.

And the first part of it, which I think actually very much supports our point is where the majority rejects the approach of the dissent, which actually would have required nothing in the statute to have been struck, not a single word.

But nonetheless this Court said, well, if you do that then all of the sentencing is basically going to be done by a combination of the juries and the prosecutors and the judges are going to be cut out.

And the Court said the one thing we know is that's not the manner in which Congress thought that this should operate.

Now later they make a different judgment about the -- which particular provisions to cut out.

But I do think Booker is consistent with this way of looking at it and certainly consistent with Brock, the opinion we rely on because there the Court only reached that part of the opinion after they already found that the must-hire provision operated functionally independent from the legislative detail, so--

Justice Ruth Bader Ginsburg: Mr. Clement, there are so many things in this Act that are unquestionably okay.

I think you would concede that reauthorizing what is the Indian Healthcare Improvement Act changes to long benefits, why make Congress redo those?

I mean it's a question of whether we say everything you do is no good, now start from scratch, or to say, yes, there are many things in here that have nothing to do frankly with the affordable healthcare and there are some that we think it's better to let Congress to decide whether it wants them in or out.

So why should we say it's a choice between a wrecking operation, which is what you are requesting, or a salvage job.

And the more conservative approach would be salvage rather than throwing out everything.

Mr. Clement: --Well, Justice Ginsburg, two kinds of responses to that.

One, I do think there are some provisions that I would identify as being at the periphery of this statute.

And I'll admit that the case for severing those is perhaps the strongest.

But I do think it is fundamentally different, because if we were here arguing that some provision on the periphery of the statute, like the Biosimilars Act or some of the provisions that you've mentioned was unconstitutional, I think you'd strike it down and you wouldn't even think hard about severability.

What makes this different is that the provisions that have constitutional difficulties or are tied at the hip to those provisions that have the constitutional difficulty are the very heart of this Act.

And then if you look at how they are textually interconnected to the exchanges, which are then connected to the tax credits, which are also connected to the employer mandates, which is also connected to some of the revenue offsets, which is also connected to Medicaid, if you follow that through what you end up with at the end of that process is just sort of a hollow shell.

And at that point I think there is a strong argument for not -- I mean, you can't possibly think that Congress would have passed that hollow shell without the heart of the Act.

Chief Justice John G. Roberts: Well, but it would have -- it would have passed parts of the hollow shell.

I mean, a lot of this is reauthorization of appropriations that have been reauthorized for the previous 5 or 10 years and it was just more convenient for Congress to throw it in in the middle of the 2700 pages than to do it separately.

I mean, can you really suggest -- I mean, they've cited the Black Lung Benefits Act and those have nothing to do with any of the things we are talking about.

Mr. Clement: Well, Mr. Chief Justice, they tried to make them germane.

But I'm not here to tell you that -- some of their -- surely there are provisions that are just looking for the next legislative vehicle that is going to make it across the finish line and somebody's going to attach it to anything that is moving.

I mean, I'll admit that.

But the question is when everything else from the center of the Act is interconnected and has to go, if you follow me that far, then the question is would you keep this hollowed-out shell?

Justice Sonia Sotomayor: Well, but it's not--

Justice Anthony Kennedy: But I'm still not sure, what is the test -- and this was the colloquy you had with Justice Scalia with the corn husker hypothetical.

So I need to know what standard you are asking me to apply.

Is it whether as a rational matter separate parts could still function, or does it focus on the intent of the Congress?

If you -- suppose you had party A wants proposal number 1, party B wants proposal number 2.

Completely unrelated.

One is airline rates, the other is milk regulation.

And we -- and they decide them together.

The procedural rules are these have to be voted on as one.

They are both passed.

Then one is declared unconstitutional.

The other can operate completely independently.

Now, we know that Congress would not have intended to pass one without the other.

Is that the end of it, or is there some different test?

Because we don't want to go into legislative history, that's intrusive, so we ask whether or not an objective -- as an objective rational matter one could function without -- I still don't know what the test is that we are supposed to apply.

And this is the same question as Justice Scalia asked.

Could you give me some help on that?

Mr. Clement: Sure.

Justice Kennedy, the reality is I think this Court's opinions have at various times applied both strains of the analysis.

Justice Anthony Kennedy: And which one -- and what test do you suggest that we follow if we want to clarify our jurisprudence?

Mr. Clement: I'm -- I'm a big believer in objective tests, Justice Kennedy.

I would be perfectly happy with you to apply a more textually based objective approach.

I think there are certain justices that are more inclined to take more of a peek at legislative history, and I think if you look at the legislative history of this it would only fortify the conclusion that you would reach from a very objective textual inquiry.

But I am happy to focus the Court on the objective textual inquiry.

Chief Justice John G. Roberts: I don't understand--

Justice Anthony Kennedy: And that objective test is what?

Mr. Clement: Is whether the statute can operate in the manner that Congress -- that Congress intended.

Justice Sonia Sotomayor: --No statute can do that, because once we chop off a piece of it, by definition, it's not the statute Congress passed.

So it has to be something more than that.

Mr. Clement: Justice Sotomayor, every one of your cases, if you have a formulation for severability, if you interpret it woodenly it becomes tautological.

And Justice Blackmun addressed this in footnote 7 of the Brock opinion that we rely on, where he says: Of course it's not just -- you know, it doesn't operate exactly in the manner because it doesn't have all the pieces, but you still make an inquiry as to whether when Congress links two provisions together and one really won't work without the other--

Justice Sonia Sotomayor: So what is wrong with the presumption that our law says, which is we presume that Congress would want to sever?

Wouldn't that be the simplest, most objective test?

Going past what Justice Scalia says we have done, okay, get rid of legislative intent altogether, which some of our colleagues in other contexts have promoted, and just say: Unless Congress tells us directly, it's not severable, we shouldn't sever.

We should let them fix their problems.

You still haven't asked -- answered me why in a democracy structured like ours, where each branch does different things, why we should involve the Court in making the legislative judgment?

Mr. Clement: --Justice Sotomayor let me try to answer the specific question and then answer the big picture question.

The specific question is, I mean, you could do that.

You could adopt a new rule now that basically says, look, we've severed--

Justice Sonia Sotomayor: It's not a new rule.

We presume.

We've rebutted the presumption in some cases--

Mr. Clement: --Right.

Justice Sonia Sotomayor: --But some would call that judicial action.

Mr. Clement: I think in fairness, though, Justice Sotomayor, to get to the point you are wanting to get to, you would have to ratchet up that presumption a couple of ticks on the scale, because the one thing--

Justice Sonia Sotomayor: And what's wrong with that?

Mr. Clement: --Well, one thing that's wrong with that, which is still at a smaller level, is that's inconsistent with virtually every statement in every one of your severability opinions, which all talk about congressional intent.

Justice Elena Kagan: Well, it's not inconsistent with our practice, right, Mr. Clement?

I mean, you have to go back decades and decades and decades, and I'm not sure even then you could find a piece of legislation that we refused to sever for this reason.

Mr. Clement: I don't think that's right, Justice Kagan.

I think there are more recent examples.

A great example I think which sort of proves, and maybe is a segue to get to my broader point, is a case that involves a State statute, not a Federal statute, but I don't think anything turns on that, is Randall against Sorrell, where this Court struck down various provisions of the Vermont campaign finance law.

But there were other contribution provisions that were not touched by the theory that the Court used to strike down the contribution limits.

But this Court at the end of the opinion said: There is no way to think that the Vermont legislator would have wanted these handful of provisions there on the contribution side, so we will strike down the whole thing.

And if I could make the broader point, I mean, I think the reason it makes sense in the democracy with separation of powers to in some cases sever the whole thing is because sometimes a half a loaf is worse.

And a great example, if I dare say so, is Buckley.

In Buckley this Court looked at a statute that tried to, in a coherent way, strike down limits on contributions and closely related expenditures.

This Court struck down the ban on expenditures, left the contribution ban in place, and for 4 decades Congress has tried to fix what's left of the statute, largely unsuccessfully, whereas it would have I think worked much better from a democratic and separation of powers standpoint if the Court would have said: Look, expenditures are -- you can't limit expenditures under the Constitution; the contribution provision is joined at the hip.

Give Congress a chance to actually fix the problem.

Justice Elena Kagan: Mr. Clement--

Justice Stephen G. Breyer: Could I ask you one question, which is a practical question.

I take as a given your answer to Justice Kennedy, you are saying let's look at it objectively and say what Congress has intended, okay?

This is the mandate in the community, this is Titles I and II, the mandate, the community, pre-existing condition, okay?

Here's the rest of it, you know, and when I look through the rest of it, I have all kinds of stuff in there.

And I haven't read every word of that, I promise.

As you pointed out, there is biosimilarity, there is breast feeding, there is promoting nurses and doctors to serve underserved areas, there is the CLASS Act, etcetera.

What do you suggest we do?

I mean, should we appoint a special master with an instruction?

Should we go back to the district court?

You haven't argued most of these.

As I hear you now, you're pretty close to the SG.

I mean, you'd like it all struck down, but we are supposed to apply the objective test.

I don't know if you differ very much.

So what do you propose that we do other than spend a year reading all this and have you argument all this?

Mr. Clement: Right.

What I would propose is the following, Justice Breyer, is you follow the argument this far and then you ask yourself whether what you have left is a hollowed-out shell or whether--

Justice Stephen G. Breyer: I would say the Breast Feeding Act, the getting doctors to serve underserved areas, the biosimilar thing and drug regulation, the CLASS Act, those have nothing to do with the stuff that we've been talking about yesterday and the day before, okay?

So if you ask me at that level, I would say, sure, they have nothing to do with it, they could stand on their own.

The Indian thing about helping the underserved Native Americans, all that stuff has nothing to do.

Black lung disease, nothing to do with it, okay?

So that's -- do you know what you have there?

A total off-the-cuff impression.

So that's why I am asking you, what should I do?

Mr. Clement: --What you should do, is let me say the following, which is follow me this far, which is mandatory, individual mandate is tied, as the government suggests, to guaranteed-issue and community rating, but the individual mandate, guaranteed-issue, and community rating together are the heart of this Act.

They are what make the exchanges work.

The exchanges in turn are critical to the tax credits, because the amount of the tax credit is key to the amount of the policy price on the exchange.

The exchanges are also key to the employer mandate, because the employer mandate becomes imposed on an employer if one of the employees gets insurance on the exchanges.

But it doesn't stop there.

Look at the Medicare provision for DISH hospitals, okay?

These are hospitals that serve a disproportionate share of the needy.

This isn't in Title I. It's in the other part that you had in your other hand.

But it doesn't work without the mandate, community rating and guaranteed-issue.

Justice Samuel Alito: Well, can I ask you this, Mr. Clement?

Mr. Clement: Sure.

Justice Samuel Alito: What would your fallback position be if -- if we don't accept the proposition that if the mandate is declared unconstitutional, the rest of the Act, every single provision, has to fall?

Other -- proposed other dispositions have been proposed.

There's the Solicitor General's disposition, the recommended disposition to strike down the guaranteed-issue and community rating provisions.

One of the -- one amicus says strike down all of Title I, another one says strike down all of Title I and Title II.

What -- what would you suggest?

Mr. Clement: Well, I -- I think what I would suggest, Justice Alito -- I don't want to be unresponsive -- is that you sort of follow the argument through and figure out what in the core of the Act falls.

And then I guess my fallback would be if what's left is a hollowed-out shell, you could just leave that standing.

If you want a sort of practical answer, I mean, I do think you could just -- you know, you could use Justice Breyer's off-the-cuff as a starting point and basically say, you know, Title I and a handful of related provisions that are very closely related to that are -- are really the heart of the Act--

Chief Justice John G. Roberts: --Well, that's--

Mr. Clement: --the bigger volume -- on the other hand -- I mean, you could strike one and leave the other, but at a certain point -- I'm sorry, Mr. Chief Justice.

Chief Justice John G. Roberts: --Finish your certain point.

Mr. Clement: At -- at a certain point, I just think that, you know, the better answer might be to say, we've struck the heart of this Act, let's just give Congress a clean slate.

If it's so easy to have that other big volume get reenacted, they can do it in a couple of days; it won't be a big deal.

If it's not, because it's very ----

[Laughter]

--well, but -- I mean, you can laugh at me if you want, but the point is, I'd rather suspect that it won't be easy.

Because I rather suspect that if you actually dug into that, there'd be something that was quite controversial in there and it couldn't be passed quickly--

Chief Justice John G. Roberts: But the -- the--

Mr. Clement: --and that's our whole point.

Chief Justice John G. Roberts: --the -- the reality of the passage -- I mean, this was a piece of legislation which, there was -- had to be a concerted effort to gather enough votes so that it could be passed.

And I suspect with a lot of these miscellaneous provisions that Justice Breyer was talking about, that was the price of the vote.

Put in the Indian health care provision and I will vote for the other 2700 pages.

Put in the black lung provision, and I'll go along with it.

That's why all -- many of these provisions I think were put in, not because they were unobjectionable.

So presumably what Congress would have done is they wouldn't have been able to put together, cobble together, the votes to get it through.

Mr. Clement: Well, maybe that's right, Mr. Chief Justice.

And I don't want to, I mean, spend all my time on -- fighting over the periphery, because I do think there are some provisions that I think you would make as -- as an exercise of your own judgment, the judgment that once you've gotten rid of the core provisions of this Act, that you would then decide to let the periphery fall with it.

But if you want to keep the periphery, that's fine.

What I think is important, though, as to the core provisions of the Act, which aren't just the mandate community rating and guaranteed-issue, but include the exchanges, the tax credit, Medicare and Medicaid -- as to all of that, I think you do want to strike it all down to avoid a redux of Buckley.

If I could reserve the remainder of my time.

Chief Justice John G. Roberts: Thank you, Mr. Clement.

Mr. Kneedler.

ORAL ARGUMENT OF EDWIN S. KNEEDLER ON BEHALF OF THE RESPONDENTS

Mr. Kneedler: Thank you, Mr. Chief Justice, and may it please the Court:

There should be no occasion for the Court in this case to consider issues of severability, because as we argue, the -- the minimum coverage provision is fully consistent with Article I of the Constitution.

But if the Court were to conclude otherwise, it should reject Petitioners' sweeping proposition that the entire Act must fall if this one provision is held unconstitutional.

As an initial matter, we believe the Court should not even consider that question.

The vast majority of the provisions of this Act do not even apply to the Petitioners, but instead apply to millions of citizens and businesses who are not before the Court--

Chief Justice John G. Roberts: How does your proposal actually work?

Your idea is that, well, they can take care of it themselves later.

I mean, do you contemplate them bringing litigation and saying -- I guess the insurers would be the most obvious ones -- without -- without the mandate, the whole thing falls apart and we're going to bear a greater cost, and so the rest of the law should be struck down.

And that's a whole other line of litigation?

Mr. Kneedler: --Well, I -- I think the continuing validity of any particular provision would arise in litigation that would otherwise arise under that provision by parties who are actually--

Chief Justice John G. Roberts: But what cause of action is it?

I've never heard of a severability cause of action.

Mr. Kneedler: --Well, in the first place, I don't -- the point isn't that there has to be a -- an affirmative cause of action to decide this.

You could -- for example, to use the Medicare reimbursement issue is, one of the things that this Act does is change Medicare reimbursement rates.

Well, the place where someone adjudicates the validity of Medicare reimbursement rates is through the special statutory review procedure for that.

And the same thing is true of the Anti-Injunction Act--

Justice Antonin Scalia: Mr. Kneedler, there -- there are some provisions which nobody would have standing to challenge.

If the provision is simply an expenditure of Federal money, it -- it doesn't hurt anybody except the taxpayer, but the taxpayer doesn't have standing.

That -- that just continues.

Even though it -- it is -- it should -- it is so closely aligned to what's been struck down that it ought to go as well.

But nonetheless, that has to continue because there's nobody in the world that can challenge it.

Can that possibly be the law?

Mr. Kneedler: --I think that proves our point, Justice Scalia.

This Court has repeatedly said that just because there's -- no one may have standing to challenge -- and particularly like tax credits or taxes which are challenged only after going through the Anti-Injunction Act -- just because no one has standing doesn't mean that someone must.

But beyond that--

Justice Antonin Scalia: But -- but those are provisions that have been legitimately enacted.

The whole issue here is whether these related provisions have been legitimately enacted, or whether they are so closely allied to one that has been held to be unconstitutional that they also have not been legitimately enacted.

You -- you can't compare that to -- to cases dealing with a -- a statute that nobody denies is -- is constitutional.

Mr. Kneedler: --This -- this case is directly parallel to the Printz case, in our view.

In that case, the Court struck down several provisions of the Brady Act, but went on to say it had no business addressing the severability of other provisions that did not apply to the people before whom--

Justice Sonia Sotomayor: But--

Justice Stephen G. Breyer: What he's thinking of is this: I think Justice Scalia is thinking, I suspect, of -- imagine a tax which says, this tax, amount Y, goes to purpose X, which will pay for half of purpose X. The other half will come from the exchanges somehow.

That second half is unconstitutional.

Purpose X can't possibly be carried out now with only half the money.

Does the government just sit there collecting half the money forever because nobody can ever challenge it?

You see, there -- if it were inextricably connected, is it enough to say, well, we won't consider that because maybe somebody else could bring that case and then there is no one else?

Is that--

Mr. Kneedler: --Yes, we think that is the proper way to proceed.

Severability--

Justice Ruth Bader Ginsburg: It's not a choice between someone else bringing the case and a law staying in place.

And what we're really talking about, as Justice Sotomayor started this discussion, is who is the proper party to take out what isn't infected by the Court's holding -- with all these provisions where there may be no standing, one institution clearly does have standing, and that's Congress.

And if Congress doesn't want the provisions that are not infected to stand, Congress can take care of it.

It's a question of which -- which side -- should the Court say, we're going to wreck the whole thing, or should the Court leave it to Congress?

Mr. Kneedler: --We think the Court should leave it to Congress for two reasons.

One is the point I'm making now about justiciability, or whether the Court can properly consider it at all.

And the second is, we think only a few provisions are inseverable from the minimum coverage provision.

I just would like to--

Chief Justice John G. Roberts: Before you go, Mr. Kneedler, I'd like your answer to Justice Breyer's question.

I think you were interrupted before that--

Mr. Kneedler: --Yes.

No.

We -- we believe that in that case, the -- the tax -- the tax provision should not be struck down.

In the first place, the Anti-Injunction Act would bar a -- a direct suit to challenge it.

It would be very strange to allow a tax to be struck down on the basis of a severability analysis.

Severability arises in a case only where it's necessary to consider what relief a party before the Court should get.

The only party--

Justice Samuel Alito: Suppose that there was -- suppose there was a non-severability provision in -- in this Act.

If one provision were to be held unconstitutional, then every single -- someone would have to bring a -- a separate lawsuit challenging every single other provision in the Act and say, well, one fell and the Congress said it's all -- it's a package, it can't be separated.

That's your position?

Mr. Kneedler: --The -- the fact that that's such a clause might make it easy doesn't change the point.

Article III jurisdictional problems apply to easy questions as well as -- as hard questions.

If I could just--

Justice Anthony Kennedy: But there's no Article III jurisdictional problem in Justice Alito's hypothetical, that this is a remedial exercise of the Court's power to explain the consequences of its judgment in this case.

Mr. Kneedler: --But -- this Court had said that one has -- has to have standing for every degree of relief that -- that is sought.

That was in Davis, that was Los Angeles v. Lyons.

Justice Antonin Scalia: Mr. Kneedler--

Mr. Kneedler: --Daimler/Chrysler--

Justice Antonin Scalia: --don't you think it's unrealistic to say leave it to Congress, as though you are sending it back to Congress for Congress to consider it dispassionately on balance, should we have this provision or should we not have provision?

That's not what it's going to be.

It's going to be, these provisions are in effect; even though you -- a lot of you never wanted them to be in effect, and you only voted for them because you wanted to get the heart of the -- the Act, which has now been cut out; but nonetheless these provisions are the law, and you have to get the votes to overturn them.

That's an enormously different question from whether you get the votes initially to put them into the law.

What -- there, there is no way that this Court's decision is not going to distort the congressional process.

Whether we strike it all down or leave some of it in place, the congressional process will never be the same.

One way or another, Congress is going to have to reconsider this, and why isn't it better to have them reconsider it -- what -- what should I say -- in toto, rather than having some things already in the law which you have to eliminate before you can move on to consider everything on balance?

Mr. Kneedler: --We think as a matter of judicial restraint, limits on equitable remedial power limit this Court to addressing the provision that has been challenged as unconstitutional and anything else that the plaintiff seeks as relief.

Here the only--

Justice Anthony Kennedy: But in restraint--

Justice Sonia Sotomayor: --Mr. Kneedler would you please--

Chief Justice John G. Roberts: --Justice Kennedy?

Justice Anthony Kennedy: --When you say judicial restraint, you are echoing the earlier premise that it increases the judicial power if the judiciary strikes down other provisions of the Act.

I suggest to you it might be quite the opposite.

We would be exercising the judicial power if one Act was -- one provision was stricken and the others remained to impose a risk on insurance companies that Congress had never intended.

By reason of this Court, we would have a new regime that Congress did not provide for, did not consider.

That, it seems to me can be argued at least to be a more extreme exercise of judicial power than to strike -- than striking the whole.

Mr. Kneedler: --I -- I -- I think not--

Justice Anthony Kennedy: I just don't accept the premise.

Mr. Kneedler: --I think not, Justice Kennedy and then I -- I will move on.

But this is exactly the situation in Printz.

The Court identified the severability questions that were -- that were briefed before the Court as important ones, but said that they affect people who are -- rights and obligations of people who are not before the Court.

Justice Sonia Sotomayor: --Mr. Kneedler, move away from the issue of whether it's a standing question or not.

Mr. Kneedler: Right.

Justice Sonia Sotomayor: Make the assumption that's an -- that this is an issue of the Court's exercise of discretion.

Because the last two questions had to do with what's wise for the Court to do, not whether it has power to do it or not.

Mr. Kneedler: Right.

That--

Justice Sonia Sotomayor: So let's move beyond the power issue, which your answers have centered on, and give me a sort of -- policy.

And I know that's a, that's a bugaboo word sometimes, but what should guide the Court's discretion?

Mr. Kneedler: --Well, we think that matters of justiciability do blend into--

Justice Sonia Sotomayor: Would you please -- I've asked you three times to move around that.

Mr. Kneedler: --blend into, blend into discretion, and in turn blend into the merits of the severability question.

And as to that, just to answer a question that, that several Justices have asked, we think that severability is a matter of statutory interpretation.

It should be resolved by looking at the structure and the text of the Act, and the Court may look at legislative history to figure out what the text and structure mean with respect to severability.

We don't--

Justice Antonin Scalia: Mr. Kneedler, what happened to the Eighth Amendment?

You really want us to go through these 2,700 pages?

And do you really expect the Court to do that?

Or do you expect us to -- to give this function to our law clerks?

Is this not totally unrealistic?

That we are going to go through this enormous bill item by item and decide each one?

Mr. Kneedler: --Well--

Justice Sonia Sotomayor: I thought the answer was you don't have to because--

Mr. Kneedler: --Well, that is, that is the--

Justice Sonia Sotomayor: --what we have to look at is what Congress said was essential, correct?

Mr. Kneedler: --That is correct, and I'd also like to -- going -- I just want to finish the thought I had about this being a matter of statutory interpretation.

The Court's task, we submit, is not to look at the legislative process to see whether the bill would been -- would have passed or not based on the political situation at the time, which would basically convert the Court into a function such as a whip count.

That is not the Court's--

Justice Elena Kagan: And Mr. Kneedler, that would be a revolution--

Mr. Kneedler: --Yes.

Justice Elena Kagan: --in our severability law, wouldn't it?

Mr. Kneedler: It would.

Justice Elena Kagan: I mean, we have never suggested that we were going to say, look, this legislation was a brokered compromise and we are going to try to figure out exactly what would have happened in the complex parliamentary shenanigans that go on across the street and figure out whether they would have made a difference.

Instead, we look at the text that's actually given us.

For some people, we look only at the text.

It should be easy for Justice Scalia's clerks.

Mr. Kneedler: I -- I think -- I think that--

Justice Antonin Scalia: I don't care whether it's easy for my clerks.

I care whether it's easy for me.

Mr. Kneedler: --I think that -- I think that's exactly right.

As I said, it is a question of statutory interpretation.

Chief Justice John G. Roberts: Well, how is that -- what's exactly right?

It's a question of statutory interpretation; that means you have to go through every line of the statute.

I haven't heard your answer to Justice Scalia's question yet.

Mr. Kneedler: Well, I -- I think in this case there is an easy answer, and that is, Justice Kagan pointed out that, that the Act itself creates a sharp dividing line between the minimum coverage provision -- the package of -- of reforms: The minimum coverage provision along with the guaranteed-issue and community rating.

That is one package that Congress deemed essential.

Chief Justice John G. Roberts: How do you know that?

Where is this line?

I looked through the whole Act, I didn't read -- well--

Mr. Kneedler: It is in--

Chief Justice John G. Roberts: --Where is the sharp line?

Mr. Kneedler: --It is in Congress's findings that the -- that the minimum coverage provision -- without it the Court -- the -- Congress said, in finding I, without that provision people would wait to get insurance, and therefore -- and cause all the adverse selection problems that arise.

Chief Justice John G. Roberts: No, no.

That -- that makes your case that the one provision should fall if the other does.

It doesn't tell us anything about all the other provisions.

Mr. Kneedler: Well, I -- I think -- I think it does, because Congress said it was essential to those provisions, but it conspicuously did not say that it was essential to other provisions.

Chief Justice John G. Roberts: Well--

Justice Samuel Alito: May I ask you about the argument that is made in the economists' amicus brief?

They say that the insurance reforms impose 10-year costs of roughly $700 billion on the insurance industry, and that these costs are supposed to be offset by about 350 billion in new revenue from the individual mandate and 350 billion from the Medicaid expansion.

Now if the 350 billion -- maybe you will disagree with the numbers, that they are fundamentally wrong; but assuming they are in the ballpark, if the 350 million from the individual mandate were to be lost, what would happen to the insurance industry, which would now be in the -- in the hole for $350 billion over 10 years?

Mr. Kneedler: I don't -- I mean, first of all, for the Court to go beyond text and legislative history to try to figure out how the finances of the bill operate, it -- it's like being a budget committee.

But -- but we think the, the economists had added up the figures wrong.

If there is Medicaid expansion, the insurance -- and the insurance companies are involved in that, they are going to be reimbursed.

Chief Justice John G. Roberts: --But what if there isn't Medicaid expansion?

We've talked about the individual mandate, but does the government have a position on what should happen if the Medicaid expansion is struck down?

Mr. Kneedler: We don't -- we don't think that that would have any effect.

That could be addressed in the next argument.

But we don't think that would have any effect on the -- on the rest of the -- on the rest of the Act.

Chief Justice John G. Roberts: So if your -- the government's position is that if Medicaid expansion is struck down, the rest of the Act can operate--

Mr. Kneedler: Yes.

Yes.

It's -- in the past Congress has expanded Medicaid coverage without there being -- it's done it many times without there being a minimum coverage provision.

Justice Anthony Kennedy: But I still don't understand where you are with the answer to Justice Alito's question.

Assume that there is a, a substantial probability that the 350 billion plus 350 billion equals 7 is going to be cut in half if the individual mandate is -- is stricken.

Assume there is a significant possibility of that.

Is it within the proper exercise of this Court's function to impose that kind of risk?

Can we say that the Congress would have intended that there be that kind of risk?

Mr. Kneedler: Well, we don't think it's in the Court's place to look at the, at the budgetary implications, and we also--

Justice Anthony Kennedy: But isn't that -- isn't that the point then, why we should just assume that it is not severable?

Mr. Kneedler: --No.

Justice Anthony Kennedy: If we -- if we lack the competence to even assess whether there is a risk, then isn't this an awesome exercise of judicial power?

Mr. Kneedler: No, I don't--

Justice Anthony Kennedy: To say we are doing something and we are not telling you what the consequences might be?

Mr. Kneedler: --No, I don't think so, because when you -- when you are talking about monetary consequences, you are looking through the Act, you are looking behind the Act, rather than -- the Court's function is to look at the text and structure of the Act and what the substantive provisions of the Act themselves mean.

And if I could go past--

Justice Antonin Scalia: Mr. Kneedler, can I -- can you give us a prior case in -- that -- that resembles this one in which we -- we are asked to strike down what the other side says is the heart of the Act and yet leave in -- as -- as you request, leave, in effect, the rest of it?

Have we ever -- most of our severability cases, you know, involve one little aspect of the Act.

The question is whether the rest.

When have we ever really struck down what was the main purpose of the Act, and left the rest in effect?

Mr. Kneedler: --I think Booker is the best example of that.

In -- in Booker the mandatory sentencing provisions were central to the act, but the Court said Congress would have preferred a statute without the mandatory provision in the Act, and the Court struck that but the rest of the sentencing guidelines remained.

Justice Antonin Scalia: I think the reason -- the reason the majority said that was they didn't think that what was essential to the Act was what had been stricken down, and that is the -- the ability of the judge to say on his own what -- what -- what the punishment would be.

I don't think that's a case where we struck -- where we excised the heart of the statute.

You have another one?

Mr. Kneedler: There is no example--

Justice Antonin Scalia: There is no example.

This is really--

Mr. Kneedler: --to our -- to our -- that we have found that suggests the contrary.

Justice Antonin Scalia: --This is really a case of first impression.

I don't know another case where we have been confronted with this -- with this decision.

Can you take out the heart of the Act and leave everything else in place?

Mr. Kneedler: I would like to go to the heart of the Act point in a moment.

But what I'd like to say is this is a huge Act with many provisions that are completely unrelated to market reforms and operate in different ways.

And we think it would be extraordinary in this extraordinary Act to strike all of that down because there are many provisions and it would be too hard to do it.

Justice Stephen G. Breyer: --I don't think it's not uncommon that Congress passes an act, and then there are many titles, and some of the titles have nothing to do with the other titles.

That's a common thing.

And you're saying you've never found an instance where they are all struck out when they have nothing to do with each other.

My question is, because I hear Mr. Clement saying something not too different from what you say.

He talks about things at the periphery.

We can't reject or accept an argument on severability because it's a lot of work for us.

That's beside the point.

But do you think that it's possible for you and Mr. Clement, on exploring this, to -- to get together and agree on ----

[Laughter]

--I mean on -- on a list of things that are in both your opinions peripheral, then you would focus on those areas where one of you thinks it's peripheral and one of you thinks it's not peripheral.

And at that point it might turn out to be far fewer than we are currently imagining.

At which point we could hold an argument or figure out some way or somebody hold an argument and try to -- try to get those done.

Is -- is that a pipe dream or is that a--

Mr. Kneedler: I -- I -- I just don't think that is realistic.

The Court would be doing it without the parties, the millions of parties--

Justice Antonin Scalia: You can have a conference committee report afterwards, maybe.

[Laughter]

Mr. Kneedler: --No, it just -- it just is not something that a court would ordinarily do.

But I would like--

Justice Sonia Sotomayor: Could you get back to the argument of -- of the heart?

Mr. Kneedler: --Yes.

Justice Sonia Sotomayor: Striking down the heart, do we want half a loaf or show.

I think those are the two analogies--

Mr. Kneedler: Right.

And -- and -- and I would like to discuss it again in terms of the text and structure of the Act.

We have very important indications from the structure of this Act that the whole thing is not supposed to fall.

The -- the most basic one is, the notion that Congress would have intended the whole Act to fall if there couldn't be a minimum coverage provision is refuted by the fact that there are many, many provisions of this Act already in effect without a minimum coverage provision.

Two point -- 2 and-a-half million people under 26 have gotten insurance by one of the insurance requirements.

Three point two billion dollars--

Justice Antonin Scalia: Anticipation of the minimum coverage.

That's going to bankrupt the insurance companies if not the States, unless this minimum coverage provision comes into effect.

Mr. Kneedler: --There is no reason to think it's going to -- it's going to bankrupt anyone.

The costs will be set to cover those -- to cover those amounts.

Justice Sonia Sotomayor: --I thought that the 26-year-olds were saying that they were healthy and didn't need insurance yesterday.

So today they are going to bankrupt the--

Mr. Kneedler: Two and-a-half -- 2.5 million people would be thrown off the insurance roles if the Court were to say that.

Congress made many changes to Medicare rates that have gone into effect for the Congress -- for the courts to have to unwind millions of Medicare reimbursement rates.

Medicare has -- has covered 32 million insurance -- preventive care visits by patients as a result of -- of this Act.

Chief Justice John G. Roberts: --All of that was based on the assumption that the mandate was -- was constitutional.

And if -- that certainly doesn't stop us from reaching our own determination on that.

Mr. Kneedler: No, what I'm saying is it's a question of legislative intent, and we have a very fundamental indication of legislative intent that Congress did not mean the whole Act to fall if -- if -- without the minimum coverage provision, because we have many provisions that are operating now without that.

But there's a further indication about why the line should be drawn where I've suggested, which is the package of these particular provisions.

All the other provisions of the Act would continue to advance Congress's goal, the test that was articulated in Booker but it's been said in Regan and other cases.

You look to whether the other provisions can continue to advance the purposes of the Act.

Here they unquestionably can.

The public health -- the broad public health purposes of the Act that are unrelated to the minimum coverage provision, but also that the other provisions designed to enhance access to affordable care.

The employer responsibility provision, the credit for small businesses, which is already in effect, by the way, and affecting many small businesses--

Justice Antonin Scalia: But many people might not -- many of the people in Congress might not have voted for those provisions if -- if the central part of this statute was not adopted.

Mr. Kneedler: --But that--

Justice Antonin Scalia: I mean, you know, you're -- to say that we're effectuating the intent of Congress is just unrealistic.

Once you've cut the guts out of it, who knows, who knows which of them were really desired by Congress on their own and which ones weren't.

Mr. Kneedler: --The question for the Court is Congress having passed the law by whatever majority there might be in one House or the other, Congress having passed the law, what at that point is -- is -- is the legislative intent embodied in the law Congress has actually passed?

Chief Justice John G. Roberts: Well, that's right.

But the problem is, straight from the title we have two complimentary purposes, patient protection and affordable care.

And you can't look at something and say this promotes affordable care, therefore, it's consistent with Congress's intent.

Because Congress had a balanced intent.

You can't look at another provision and say this promotes patient protection without asking if it's affordable.

So, it seems to me what is going to promote Congress's purpose, that's just an inquiry that you can't carry out.

Mr. Kneedler: No, with respect, I disagree, because I think it's evident that Congress's purpose was to expand access to affordable care.

It did it in discreet ways.

It did it by the penalty on employers that don't -- that don't offer suitable care.

It did it by offering tax credits to small employers.

It did it by offering tax credits to purchasers.

All of those are a variety of ways that continue to further Congress's goal, and -- and most of all, Medicaid, which is -- which is unrelated to the -- to the private insurance market altogether.

And in adopting those other provisions governing employers and whatnot, Congress built on its prior experience of using the tax code, which it is -- for a long period of time Congress has subsidized--

Justice Anthony Kennedy: I don't quite understand about the employers.

You're -- you are saying Congress mandated employers to buy something that Congress itself has not contemplated?

I don't understand that.

Mr. Kneedler: --No.

Employer coverage -- 150 million people in this country already get their insurance through -- through their employers.

What Congress did in seeking to augment that was to add a provision requiring employers to purchase insurance--

Justice Anthony Kennedy: Based on the assumption that the cost of those policies would be lowered by -- by certain provisions which are by hypothesis -- we are not sure -- by hypothesis are in doubt.

Mr. Kneedler: --No, I -- I -- I think any cost assumptions -- there is no indication that Congress made any cost assumptions, but -- but there is no reason to think that the individual -- that the individual market, which is where the minimum coverage provision is directed, would affect that.

I would like to say -- I would point out why the other things would advance Congress's goal.

The point here is that the package of three things would -- would be contrary -- would run contrary to Congress's goal if you took out the minimum coverage provision.

And here's why -- and this is reflected in the findings:

If you take out minimum coverage but leave in the guaranteed-issue and community-rating, you will make matters worse.

Rates will go up, and people will be less -- fewer people covered in the individual market.

Justice Samuel Alito: Well, if that is true, what is the difference between guaranteed-issue and community-rating provisions on the one hand and other provisions that increase costs substantially for insurance companies?

For example, the tax on high cost health plans, which the economists in the amicus brief said would cost $217 billion over 10 years?

Mr. Kneedler: Those are -- what Congress -- Congress did not think of those things as balancing insurance companies.

Insurance companies are participants in the market for Medicaid and -- and other things.

Justice Anthony Kennedy: But you are saying we have -- we have the expertise to make the inquiry you want us to make, i.e., the guaranteed-issue, but not the expertise that Justice Alito's question suggests we must make.

Mr. Kneedler: Well--

Justice Anthony Kennedy: I just don't understand your position.

Mr. Kneedler: --that's because -- that's because I think this Court's function is to look at the text and structure and the legislative history of the law that Congress enacted, not the financial -- not a financial balance sheet, which doesn't appear anywhere in the law.

And just--

Justice Ruth Bader Ginsburg: You are relying on Congress's quite explicitly tying these three things together.

Mr. Kneedler: --We do.

That's -- that's -- and it's not just the text of the act, but the background of the act, the experience in the state, the testimony of the National Association of Insurance Commissioners.

That's the -- that's the problem Congress was addressing.

There was a -- there was -- a shifting of present actuarial risks in that market that Congress wanted to correct.

And if you took the minimum coverage provision out and left the other two provisions in, there would be laid on top of the existing shifting of present actuarial risks an additional one because the uninsured would know that they would have guaranteed access to insurance whenever they became sick.

It would make the -- it would make the adverse selection in that market problem even worse.

And so what -- and Congress, trying to come up with a market-based solution to control rates in that market, has adopted something that would -- that would work to control costs by guaranteed-issue and community-rating; but, if you -- if -- if you take out the minimum coverage, that won't work.

That was Congress's assumption, again, shown by the text and legislative history of this provision.

And that's why we think those things rise or fall in a package because they cut against what Congress was trying to do.

All of the other provisions would actually increase access to affordable care and would have advantageous effects on price.

Again, Congress was invoking its traditional use of the tax code, which has long subsidized insurance through employers, has used that to impose a tax penalty on employers, to give tax credits.

This is traditional stuff that Congress has done.

And the other thing Congress has done, those preexisting laws had their own protections for guaranteed-issue and community-rating.

Effectively, within the large employer plans, they can't discriminate among people, they can't charge different rates.

What Congress was doing, was doing that in the other market.

If it can't, that's all that should be struck from the act.

Chief Justice John G. Roberts: Thank you, Mr. Kneedler.

Mr. Farr?

ORAL ARGUMENT OF H. BARTOW FARR FOR COURT-APPOINTED AMICUS CURIAE

Mr. Farr: Mr. Chief Justice and may it please the Court:

At the outset, I would just like to say, I think that the government's position in this case that the community-rating and guaranteed-issue provisions ought to be struck down is an example of the best driving out the good; because, even without the minimum coverage provision, those two provisions, guaranteed-issue and community-rating, will still open insurance markets to millions of people that were excluded under the prior system, and for millions of people will lower prices, which were raised high under the old system because of their poor health.

So even though the system is not going to work precisely as Congress wanted, it would certainly serve central goals that Congress had of expanding coverage for people who were unable to get coverage or unable to get it at affordable prices.

So when the government--

Justice Ruth Bader Ginsburg: One of the points that Mr. Kneedler made is that the price won't be affordable because -- he spoke of the adverse selection problem, that there would be so fewer people in there, the insurance companies are going to have to raise the premiums.

So it's nice that Congress made it possible for more people to be covered, but the reality is they won't because they won't be able to afford the premium.

Mr. Farr: --Well, Justice Ginsburg, let me say two things about that.

First of all, when we talk about premiums becoming less affordable, it's very important to keep in mind different groups of people, because it is not something that applies accurately to everybody.

For people who were not able to get insurance before, obviously, their insurance beforehand was -- the price was essentially infinite.

They were not able to get it at any price.

They will now be able to get it at a price that they can afford.

For people who are unhealthy and were able to get insurance, but perhaps not for the things that they were most concerned about, or only at very high rates, their rates will be lower under the system, even without the minimum coverage provision.

Also, you have a large number of people who, under the Act--

Justice Antonin Scalia: Excuse me, why do you say -- I didn't follow that.

Why?

Mr. Farr: --Because--

Justice Antonin Scalia: Why would their rates be lower?

Mr. Farr: --Their rates are going to be lower than they were under the prior system because they are going into a pool of people, rather than -- some of whom are healthy, rather than having their rates set according to their individual health characteristics.

That's why their rates were so high.

Justice Elena Kagan: But the problem, Mr. Farr, isn't it, that they're going to a pool of people that will gradually get older and unhealthier.

That's the way the thing works.

Once you say that the insurance companies have to cover all of the sick people and all of the old people, the rates climb.

More and more young people and healthy people say, why should we participate, we can just get it later when we get sick.

So they leave the market, the rates go up further, more people leave the market, and the whole system crashes and burns, becomes unsustainable.

Mr. Farr: Well--

Justice Elena Kagan: And this is not--

Mr. Farr: --Certainly.

Justice Elena Kagan: --like what I think.

What do I know?

It's just what's reflected in Congress's findings, that it's look -- it looks at some states and says, this system crashed and burned.

It looked at another state with the minimum coverage provision and said, this one seems to work.

So we will package the minimum coverage provision with the nondiscrimination provisions.

Mr. Farr: Well, in a moment, I'd like to talk about the finding; but, if I could just postpone that for a second and talk about adverse selection itself.

I think one of the misconceptions here, Justice Kagan, is that Congress, having seen the experience of the states in the '90s with community-rating and guaranteed-issue, simply imposed the minimum coverage provision as a possible way of dealing with that; and, if you don't have the minimum coverage provision, then, essentially, adverse selection runs rampant.

But that's not what happened.

Congress included at least half a dozen other provisions to deal with adverse selection caused by bringing in people who are less healthy into the Act.

There are -- to begin with, the Act authorizes annual enrollment periods, so people can't just show up at the hospital.

If they don't show up and sign up at the right time, they at least have to wait until the time next year.

That's authorized by the Act.

There -- with respect to the subsidies, there are three different things that make this important.

First of all, the subsidies are very generous.

For people below 200 percent of the federal poverty line, the subsidy will cover 80 percent, on average, of the premium which makes it attractive to them to join.

The structure of the subsidies, because their income -- they create a floor for -- based on the income of the person getting the insurance, and then the government covers everything over that.

And this is important in adverse selection because if you do have a change in the mix of people, and average premiums start to rise, the government picks up the increase in the premium.

The amount that the person who is getting insured contributes remains constant at a percentage of his or her income.

And the third thing--

Justice Antonin Scalia: And there is nothing about federal support that is unsustainable, right?

That is infinite.

Mr. Farr: --Well, I mean, that's a fair point, Justice Scalia; although, one of the things that happens, if you take the mandate out, while it is true that the subsidies that the government provides to any individual will increase, and they will be less efficient -- I'm not disputing that point -- actually the overall amount of the subsidies that the government will provide will decline, as the government notes itself in its brief, because there will be fewer people getting them.

Some people will opt out of the system even though they are getting subsidies.

But I would just like to go back for one more second to the point about how the subsidies are part of what Congress was using, because the other thing is that for people below 250 percent of the Federal poverty line Congress also picks up and subsidizes the out-of-pocket costs, raising the actuarial value.

So you have all of that, and then you have Congress also, unlike the States establishing -- or I should be precisely accurate -- almost all the States, establishing an age differential of up to three to one.

So an insurance company, for example, that is selling a 25-year-old a policy for $4,000 can charge a 60-year-old $12,000 for exactly the same coverage.

The States typically in the 90s when they were instituting these programs, they either had pure community rating, where everybody is charged the same premium, everybody regardless of their age is charged the same premium.

Some states had a variance of 1.5 to 1.

Massachusetts, for example, which did have good subsidies, but their age band was two to one.

So when Congress is enacting this Act, it's not simply looking at the States and thinking: Well, that didn't go very well; why don't we put in a minimum coverage provision; that will solve the problem.

Congress did a lot of different things to try to combat the adverse selection.

Now, if I could turn to the finding, because I think this is the crux of the government's position and then the plaintiffs pick up on that, and then move -- move from that to the rest of the Act.

And it seems to me, quite honestly, it's an important part because that is textual.

In this whole sort of quest for what we are trying to figure out, the finding seems to stand out as something that the Court could rely on and say here's something Congress has actually told us.

But I think the real problem with the finding is the context in which Congress made it.

It's quite clear.

If the Court wants to look, the finding is on page 42 -- 43A, excuse me, of the Solicitor General's severability brief in the appendix.

But the finding is made specifically in the context of interstate commerce.

That is why the findings are in the Act at all.

Congress wanted to indicate to the Court, knowing that the minimum coverage provision was going to be challenged, wanted to indicate to the Court the basis on which it believed it had the power under the Commerce Clause to enact this law.

Why does that make a difference with respect to finding I, which is the one that the government is relying on, and in particular the last sentence, which says

"this requirement is essential to creating effective health insurance markets in which guaranteed-issue and preexisting illnesses can be covered. "

The reason is because the word "essential" in the Commerce Clause context doesn't have the colloquial meaning.

In the Commerce Clause context "essential" effectively means useful.

So that when one says in Lopez, when the Court says section 922(q) is not an essential part of a larger regulatory scheme of economic activity, it goes on to say, in which the regulatory scheme would be undercut if we didn't have this provision.

Well, if that's all Congress means, I agree with that.

The system will be undercut somewhat if you don't have the minimum coverage provision.

It's like the word "necessary" in the Necessary and Proper Clause clause.

It doesn't mean, as the Court has said on numerous occasions, absolutely necessary.

It means conducive to, useful, advancing the objectives, advancing the aims.

And it's easy to see, I think, that that's what Congress--

Justice Antonin Scalia: Is there any dictionary that gives that--

Mr. Farr: --I'm sorry, Justice Scalia?

Justice Antonin Scalia: --that definition of "essential"?

It's very imaginative.

Just give me one dictionary.

Mr. Farr: Well, but I think my point, Justice Scalia, is that they are not using it in the true dictionary sense.

Justice Antonin Scalia: How do we know that?

When people speak, I assume they are speaking English.

Mr. Farr: Well, I think that there are several reasons that I would suggest that we would know that from.

The first is, as I say, the findings themselves.

Congress says at the very beginning, the head of it, is Congress makes the following findings, and they are talking about the interstate -- you know, B is headed

"Effects on the national economy and interstate commerce. "

So we know the context that Congress is talking about.

It is more or less quoting from the Court's Commerce Clause statements.

But if one looks at the very preceding finding, which is finding H, which is on 42 over onto 43, Congress at that point also uses the word "essential".

In the second sentence it says "this requirement" -- and again we're talking about the minimum coverage provision -- is an essential part of this larger regulation of economic activity, which is, by the way, an exact quote from Lopez, in which

"the absence of the requirement undercuts Federal regulation. "

also an exact quote from Lopez.

But what it is referring to is an essential -- an essential part of ERISA, the National Health Service Act and the Affordable Care Act.

It can't possibly be, even the plaintiffs haven't argued, that those Acts would all fall in their entirety if you took out the minimum coverage provision.

And as a second example of the same usage by Congress, the statute that was before the Court in Raich, section 801 of Title 21, the Court said that the regulation of intrastate drug activity, drug traffic, was essential to the regulation of interstate drug activity.

Again, it is simply not conceivable that Congress was saying one is so indispensable to the other, the way the United States uses the term here, so indispensable that if we can't regulate the intrastate traffic we don't want to regulate the interstate traffic, either.

The whole law criminalizing drug traffic would fall.

So I think once you look at the finding for what I believe it says, which is we believe this is a useful part of our regulatory scheme, which the Congress would think in its own approach would be sufficient--

Justice Sonia Sotomayor: Counsel, the problem I have is that you are ignoring the congressional findings and all of the evidence Congress had before it that community ratings and guaranteed-issuance would be a death spiral -- I think that was the word that was used -- without minimum coverage.

Those are all of the materials that are part of the legislative record here.

So even if it might not be because of the structure of the Act, that's post hoc evidence.

Why should we be looking at that as opposed to what Congress had before it and use essential in its plain meaning. You can't have minimum coverage without, what the SG is arguing, community ratings and guaranteed-issue.

You can't have those two without minimum coverage.

Mr. Farr: --Well, I think that's a fair question.

But the idea that -- that all the information before Congress only led to the idea that you would have death spirals seems to me to be contradicted a little bit at least by the CBO report in November of 2009, which is about 4 months before the Act passed, where the CBO talks about adverse selection.

Now, I want to be clear.

This is at a time when the minimum coverage provision was in the statute, so I'm not suggesting that this is a discussion without that in it.

But nonetheless, the CBO goes through and talks about adverse selection, and points out the different provisions in the Act, the ones I have mentioned plus one other, actually, where in the first 3 years of the operation of the exchanges those insurance companies that get sort of a worse selection of consumers will be given essentially credits from insurance companies that get better selections.

Justice Anthony Kennedy: So do you want us to write an opinion saying we have concluded that there is an insignificant risk of a substantial adverse effect on the insurance companies, that's our economic conclusion, and therefore not severable?

That's what you want me to say?

Mr. Farr: It doesn't sound right the way you say it, Justice Kennedy.

No, I--

Justice Sonia Sotomayor: But you don't want them to say, either, that there is a death spiral.

Do you want -- you don't want us to make either of those two findings, I'm assuming?

Mr. Farr: --That's correct.

Now, I agree that there is a risk and the significance of it people can debate.

But what I think is -- is lost in that question, and I didn't mean to be whimsical about it, I think what is lost in it a little bit is what is on the other side, which is the fact that if you follow the government's suggestion, if the Court follows the government's suggestion, what is going to be lost is something we know is a central part of the Act.

I mean, indeed, if one sort of looks at the legislative history more broadly, I think much of it is directed toward the idea that guaranteed -- issue and community rating were the crown jewel of the Act.

The minimum coverage provision wasn't something that everybody was bragging about, it was something that was meant to be part of this package.

I agree with that.

But the -- the point of it was to have guaranteed-issue and minimum coverage -- I mean, excuse me -- guaranteed-issue and community rating.

And that's -- under the government's proposal, those would -- would disappear.

We would go back to the old system.

And under what I think is the proper severability analysis, the -- the real question the Court is asking, should be asking, is, would Congress rather go back to the old system than to take perhaps the risk that you're talking about, Justice Kennedy.

Chief Justice John G. Roberts: You're -- you're referring to the government's second position.

Their -- their first, of course, is that we shouldn't address this issue at all.

Mr. Farr: That's correct.

Chief Justice John G. Roberts: I asked Mr. Kneedler about what procedure or process would be anticipated for people who are affected by the change in -- in the law, and change in the economic consequences.

Do you have a view on how that could be played out?

It does seem to me that if we accept your position, something -- there have to -- there has to be a broad range of consequences, whether it's additional legislation, additional litigation.

Any thoughts on how that's going to play out?

Mr. Farr: Well, if the Court adopts the position that I'm advocating, Mr. Chief Justice, I think what would happen is that the Court would say that the minimum coverage provision, by hypothesis of course, is unconstitutional, and the fact of that being unconstitutional does not mean the invalidation of any other provision.

So under the position I'm advocating, there would no longer be challenges to the remaining part of the Act.

The--

Chief Justice John G. Roberts: But if the challenge is what we're questioning today, whether -- if you're an insurance company and you don't believe that you can give the coverage in the way Congress mandated it without the individual mandate, what -- what type of action do you bring in a court?

Mr. Farr: --You -- if the Court follows the course that I'm advocating, you do not bring an action in court, you go to Congress and you seek a change from Congress to say the minimum coverage provision has been struck down by the Court, here is our -- here -- here's the information that we have to show you what the risks are going to be.

Here are the adjustments you need to make.

One of the questions earlier pointed out that States have adjusted their systems as they've gone along, as they've seen things work or not work.

You know, as I was talking earlier about the -- the different ratio for -- for ages and insurance.

The States have tended to change that, because they've found that having too narrow a band worked against the effectiveness of -- of their programs.

But they did -- except for in Massachusetts, they didn't enact mandates.

So to answer -- I think to answer your question directly, [= Mr.] Chief Justice, the position I'm advocating would simply have those -- those pleas go to Congress, not in court.

Now, if one -- just -- just to discuss the issue more generally, if that's helpful, I -- I think that -- that if there were situations where the Court deferred -- let's say for discretionary reasons, they just said -- the Court said we're -- we're not going to take up the question of severability and therefore not resolve it in these other situations, it certainly seems to me that in enforcement actions, for example, if the time comes in -- in 2014 and somebody applies to an insurance company for a policy -- and the insurance company says, well, we're not going to issue a policy, we don't think your risks are ones that we're willing to cover, that -- it seems to me that they could sue the insurance company and the insurance company could raise as a defense that this provision, the guaranteed-issue provision of the statute, is not enforceable because it was inseverable from the decision -- from the provision that the Court held unconstitutional in 2012.

Justice Antonin Scalia: Mr. Farr, let's -- let's consider how -- how your approach, severing as little as possible there -- thereby increases the deference that we're showing to -- to Congress.

It seems to me it puts Congress in -- in this position: This Act is still in full effect.

There is going to be this deficit that used to be made up by the mandatory coverage provision.

All that money has to come from somewhere.

You can't repeal the rest of the Act because you're not going to get 60 votes in the Senate to repeal the rest.

It's not a matter of enacting a new act.

You've got to get 60 votes to repeal it.

So the rest of the Act is going to be the law.

So you're just put to the choice of I guess bankrupting insurance companies and the whole system comes tumbling down, or else enacting a Federal subsidy program to the insurance companies, which is what the insurance companies would like, I'm sure.

Do you really think that that is somehow showing deference to Congress and -- and respecting the democratic process?

It seems to me it's a gross distortion of it.

Mr. Farr: Well, Your Honor, the -- the difficulty is that it seems to me the other possibility is for the Court to make choices, particularly based on what it expects the difficulties of Congress altering the legislation after a Court ruling would be.

I'm not aware of any severability decision that is--

Justice Antonin Scalia: No, I -- that wouldn't be my approach.

My approach would say if you take the heart out of the statute, the statute's gone.

That enables Congress to -- to do what it wants in -- in the usual fashion.

And it doesn't inject us into the process of saying,

"this is good, this is bad, this is good, this is bad. "

It seems to me it reduces our options the most and increases Congress's the most.

Mr. Farr: --I guess to some extent I have to quarrel with the premise, Justice Scalia, because at least the -- the position that I'm advocating today, under which the Court would only take out the minimum coverage provision, I don't think would fit the description that you have given of taking out the heart of the statute.

Now, I do think once you take out guaranteed-issue and community rating, you are getting closer to the heart of the statute.

And one of the -- one of the difficulties I think with the government's position is that I think it's harder to cabin that, to draw that bright line around it.

It's harder than the government thinks it is.

I mean, to begin with, even the government seems to acknowledge, I think, that the exchanges are going to be relatively pale relatives of -- of the exchanges as they're intended to be, where you're going to have standardized products, everybody can come and make comparisons based on products that look more or less the same.

But the other thing that's going to happen is with the subsidy program.

The -- the way that the subsidy program is -- is set up, the subsidy is calculated according to essentially a benchmark plan.

And this -- if the Court wants to look at the provisions, they're -- they begin at page 64A of the Private Plaintiffs' brief -- again, in the appendix.

The particular provision I'm talking about's at 68A, but there's a -- there's a question -- you -- you're looking essentially to calculate the premium by looking at a -- at a standardized silver plan.

First question, obviously, is, is there going to be any such plan if you don't have guaranteed-issue and community rating, if the plans can basically be individualized?

But the second problem is that, in the provision on 68A, the -- the provision that's used for calculating the subsidy, what -- what is anticipated in the provision under the -- the Act as it is now, is that you do have the floor of the income, you would -- you would take this benchmark plan, and the government would pay -- pay the difference.

And as we talked about earlier, the benchmark plan can change for age, and -- and the provision says it can be adjusted only for age.

So if in fact you even have such a thing as a benchmark plan anymore -- if the rates of people in poor health go up because of individual insurance underwriting, the government subsidy is not going to pay for that.

Justice Elena Kagan: Mr. Farr, I understood that the answer that you gave to Justice Scalia was essentially that the minimum coverage provision was not the heart of the Act.

Instead, the minimum coverage provision was a tool to make the nondiscrimination provisions, community rating guaranteed-issue, work.

So if you assume that, that all the minimum coverage is is a tool to make those provisions work, then I guess I would refocus Justice Scalia's question and say, if we know that something is just a tool to make other provisions work, shouldn't that be the case in which those other provisions are severed along with the tool?

Mr. Farr: No.

I don't think so, because there are -- there are many other tools to make the same things work.

That's I think the point.

And if one -- the case that comes to mind is New York v. the United States, where the Court struck down the take title provision but left other -- two other incentives essentially in place.

Even without the minimum coverage provision, there will be a lot of other incentives still to bring younger people into the market and to keep them in the market.

And if -- if my reading of the finding is correct, and that's all that Congress is saying, that this would be useful, it doesn't mean that it's impossible.

Justice Stephen G. Breyer: But would you -- I would just like to hear before you leave your argument, if you want to, against what Justice Scalia just said, let's assume, contrary to what you want, that the government's position is accepted by the majority of this Court.

And so we now are rid, quote, of the true "heart" of the bill.

Now still there are a lot of other provisions here like the Indian Act, the Black Lung Disease, the Wellness Program, that restaurants have to have a calorie count of major menus, et cetera.

Now, some of them cost money.

And some of them don't.

And there are loads of them.

Now, what is your argument that just because the heart of the bill is gone, that has nothing to do with the validity of these other provisions, both those that cost money, or at least those that cost no money.

Do you want to make an argument in that respect, that destroying the heart of the bill does not blow up the entire bill; it blows up the heart of the bill.

I just would like to hear what you have to say about that.

Mr. Farr: Well, Justice Breyer, I think what I would say is if one goes back to the, what I think is the proper severability standard and say, would Congress rather have not -- no bill as opposed to the bill with whatever is severed from it.

It seems to me when you are talking about provisions that don't have anything to do with the minimum coverage provision, there is no reason to answer that question as any other way than yes, Congress would have wanted the--

Justice Anthony Kennedy: The -- the real Congress or a hypothetical Congress?

Mr. Farr: --An objective Congress, Your Honor, not the -- specific not with a vote count.

Justice Antonin Scalia: Why put -- why put Congress to that false choice?

Mr. Farr: Well--

Justice Antonin Scalia: You only have two choices, Congress.

You have the whole bill or you can have, you can have parts of the bill or no bill at all.

Why that false choice?

Mr. Farr: --I think the reason is because severability is by necessity a blunt tool.

The Court doesn't have, even if it had the inclination, doesn't essentially have the authority to retool the statute--

Justice Stephen G. Breyer: I would say stay out of politics.

That's for Congress; not us.

But the, the question here is, you've read all these cases, or dozens, have you ever found a severability case where the Court ever said: Well, the heart of the thing is gone; and, therefore, we strike down these other provisions that have nothing to do with it which could stand on their feet independently and can be funded separately or don't require money at all.

Mr. Farr: --I think the accurate answer would be, I am not aware of a modern case that says that.

I think there probably are cases in the '20s and '30s that would be more like that.

If I could just take one second to raise the economist brief because Justice Alito raised it earlier.

I just want to make one simple point.

Leaving aside the whole balancing thing, if one looks at the economist brief, it's very important to note that when they are talking about one side of the balance -- if may I finish.

Chief Justice John G. Roberts: Certainly.

Mr. Farr: When they are talking about the balance, they are not just talking about the minimum coverage provision.

They very carefully word it to say the minimum coverage provision and the subsidy programs.

And then so when you are doing the mathematical balancing, the subsidy programs are extremely large.

They -- in the year 2020, they are expected to be over $100 billion in that one year alone.

So if you are looking at the numbers, please consider that.

Thank you.

Chief Justice John G. Roberts: Thank you, Mr. Farr.

Mr. Clement, you have four minutes remaining--

REBUTTAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE PETITIONERS

Justice Sonia Sotomayor: --Amicis' point, he says that Congress didn't go into this Act to impose minimum coverage.

They went into the Act to have a different purpose, i.e., to get people coverage jury when they needed it, to increase coverage for people, but this is only a tool.

But other States -- going back to my original point, that are other tools besides minimum coverage that Congress can achieve these goals.

So if we strike just a tool, why should we strike the whole Act, when Congress has other tools available?

Mr. Clement: Mr. Chief Justice, I will make four points in rebuttal, but I will start with Justice Sotomayor's question; which is to simply say this isn't just a tool; it's the principal tool, Congress identified it as an essential tool.

It's not just a tool to make it work.

It's a tool to pay for it, to make it affordable.

And again, that's not my characterization; that's Congress's characterization in subfinding I on page 43a of the government's brief.

Now, that bring me to my first point in rebuttal, which is Mr. Kneedler says quite correctly, tells this Court, don't look at the budgetary implications.

The problem with that, though, is once it's common ground, that the individual mandate is in the statute at least in part to make community rating and guaranteed-issue affordable, that really is all you have to identify.

That establishes the essential link that it's there to pay for it.

You don't have to figure out exactly how much that is and which box -- I mean, it clearly is a substantial part of it, because what they were trying to do was take healthy individuals and put them into the risk pool, and this is quoting their finding, which is in order -- they put people into the market "which will lower premiums".

So that's what their intent was.

So you don't have to get to the -- the final number.

You know that's what was going on here, and that's reason alone to sever it.

Now the government -- Mr. Kneedler also says there is an easy dividing line between what they want to keep and what they want to dish out.

The problem with that is that, you know, you read their brief and you might think oh, there is a guaranteed-issue and a community rating provision subtitle in the bill.

There is not.

To figure out what they are talking about you have to go to page 6 of their brief, of their opening severability brief, where they tell you what is in and what's out.

And the easy dividing line they suggest is actually between 300g(a)(1) and 300g(a)(2), because on community rating they don't -- they say that (a)(1) goes, but then they say (a)(2) has to stay, because that's the way that you'll have some sort of, kind of Potemkin community rating for the exchanges.

But if you actually look at those provisions, (a)(2) makes all these references to (a)(1).

It just doesn't work.

Now, in getting back to the -- an inquiry that I think this Court actually can approach, is to look at what Congress was trying to do, you need look no further than look than the title of this statute: Patient Protection and Affordable Care.

I agree with Mr. Farr that community rating and guaranteed-issue were the crown jewels of this Act.

They were what was trying to provide patient protection.

And what made it affordable?

The individual mandate.

If you strike down guaranteed-issue, community rating and the individual mandate, there is nothing left to the heart of the Act.

And that takes me to my last point, which is simply this court in Buckley created a halfway house and it took Congress 40 years to try to deal with the situation, when contrary to any time of their intent, they had to try to figure out what are we going to do when we are stuck with this ban on contributions, but we can't get at expenditures because the Court told us we couldn't?

And for 40 years they worked in that halfway house.

Why make them do that in health care?

The choice is to give Congress the task of fixing this statute, the residuum of this statute after some of it is struck down, or giving them the task of simply fixing the problem on a clean slate.

I don't think that is a close choice.

If the individual mandate is unconstitutional, the rest of the Act should fall.

Chief Justice John G. Roberts: Thank you, Mr. Clement.

Mr. Farr, you were invited by this Court to brief and argue in these cases in support of the decision below on severability.

You have ably carried out responsibility for which we are grateful.

Case Number 11-393 is submitted.

We will continue argument in Case Number 11-400 this afternoon.

Featured:

The Affordable Care Act Cases - Oral Argument, Part 2 (No. 11-398)

Tue, 27 Mar 2012 17:32:28 +0000

Featured:

The Affordable Care Act Cases - Argument (Individual Mandate)

Tue, 27 Mar 2012 16:56:06 +0000

Case:

The Affordable Care Act Cases

Media File:

11-398_20120327-argument-2.mp3

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11-398_20120327-argument-2.xml

Transcript:

ORAL ARGUMENT OF DONALD B. VERRILLI, JR., ON BEHALF OF THE PETITIONERS

Chief Justice John G. Roberts: We will continue argument this morning in Case 11-398, the Department of Health and Human Services v. Florida.

General Verrilli.

Mr. Verrilli Jr.: Mr. Chief Justice, and may it please the Court:

The Affordable Care Act addresses a fundamental and enduring problem in our health care system and our economy.

Insurance has become the predominant means of paying for health care in this country.

For most Americans, for more than 80 percent of Americans, the insurance system does provide effective access.

Excuse me.

But for more than 40 million Americans who do not have access to health insurance either through their employer or through government programs such as Medicare or Medicaid, the system does not work.

Those individuals must resort to the individual market, and that market does not provide affordable health insurance.

It does not do so because, because the multibillion dollar subsidies that are available for the, the employer market are not available in the individual market.

It does not do so because ERISA and HIPAA regulations that preclude, that preclude discrimination against people based on their medical history do not apply in the individual market.

That is an economic problem.

And it begets another economic problem.

Justice Antonin Scalia: Why aren't those problems that the Federal Government can address directly?

Mr. Verrilli Jr.: They can address it directly, Justice Scalia, and they are addressing it directly through this, through this Act by regulating the means by which health care, by which health care is purchased.

That is the way this Act works.

Under the Commerce Clause, what, what Congress has done is to enact reforms of the insurance market, directed at the individual insurance market, that preclude, that preclude discrimination based on pre-existing conditions, that require guaranteed issue and community rating, and it uses -- and the minimum coverage provision is necessary to carry into execution those insurance reforms.

Justice Anthony Kennedy: Can you create commerce in order to regulate it?

Mr. Verrilli Jr.: That's not what's going on here, Justice Kennedy, and we are not seeking to defend the law on that basis.

In this case, the -- what is being regulated is the method of financing health, the purchase of health care.

That itself is economic activity with substantial effects on interstate commerce.

And--

Justice Antonin Scalia: Any self purchasing?

Anything I -- you know if I'm in any market at all, my failure to purchase something in that market subjects me to regulation.

Mr. Verrilli Jr.: --No.

That's not our position at all, Justice Scalia.

In the health care market, the health care market is characterized by the fact that aside from the few groups that Congress chose to exempt from the minimum coverage requirement -- those who for religious reasons don't participate, those who are incarcerated, Indian tribes -- virtually everybody else is either in that market or will be in that market, and the distinguishing feature of that is that they cannot, people cannot generally control when they enter that market or what they need when they enter that--

Chief Justice John G. Roberts: Well, the same, it seems to me, would be true say for the market in emergency services: police, fire, ambulance, roadside assistance, whatever.

You don't know when you're going to need it; you're not sure that you will.

But the same is true for health care.

You don't know if you're going to need a heart transplant or if you ever will.

So there is a market there.

To -- in some extent, we all participate in it.

So can the government require you to buy a cell phone because that would facilitate responding when you need emergency services?

You can just dial 911 no matter where you are?

Mr. Verrilli Jr.: --No, Mr. Chief Justice.

I think that's different.

It's -- We -- I don't think we think of that as a market.

This is a market.

This is market regulation.

And in addition, you have a situation in this market not only where people enter involuntarily as to when they enter and won't be able to control what they need when they enter but when they--

Chief Justice John G. Roberts: It seems to me that's the same as in my hypothetical.

You don't know when you're going to need police assistance.

You can't predict the extent to emergency response that you'll need.

But when you do, and the government provides it.

I thought that was an important part of your argument, that when you need health care, the government will make sure you get it.

Well, when you need police assistance or fire assistance or ambulance assistance, the government is going to make sure to the best extent it can that you get it -- get it.

Mr. Verrilli Jr.: --I think the fundamental difference, Mr. Chief Justice, is that that's not an issue of market regulation.

This is an issue of market regulation, and that's how Congress, that's how Congress looked at this problem.

There is a market.

Insurance is provided through the market system--

Justice Samuel Alito: Do you think there is a, a market for burial services?

Mr. Verrilli Jr.: --For burial services?

Justice Samuel Alito: Yes.

Mr. Verrilli Jr.: Yes, Justice Alito, I think there is.

Justice Samuel Alito: All right, suppose that you and I walked around downtown Washington at lunch hour and we found a couple of healthy young people and we stopped them and we said,

"You know what you're doing? "

"You are financing your burial services right now because eventually you're going to die, and somebody is going to have to pay for it, and if you don't have burial insurance and you haven't saved money for it, you're going to shift the cost to somebody else. "

Isn't that a very artificial way of talking about what somebody is doing?

Mr. Verrilli Jr.: No, that--

Justice Samuel Alito: And if that's true, why isn't it equally artificial to say that somebody who is doing absolutely nothing about health care is financing health care services?

Mr. Verrilli Jr.: --It's, I think it's completely different.

The -- and the reason is that the, the burial example is not -- the difference is here we are regulating the method by which you are paying for something else -- health care -- and the insurance requirement -- I think the key thing here is my friends on the other side acknowledge that it is within the authority of Congress under Article I under the commerce power to impose guaranteed-issue and community rating forms, to end -- to impose a minimum coverage provision.

Their argument is just that it has to occur at the point of sale, and--

Justice Samuel Alito: I don't see the difference.

You can get burial insurance.

You can get health insurance.

Most people are going to need health care.

Almost everybody.

Everybody is going to be buried or cremated at some point.

What's the difference?

Mr. Verrilli Jr.: Well, one big difference, one big difference, Justice Alito, is the -- you don't have the cost shifting to other market participants.

Justice Samuel Alito: Here--

--Sure you do, because if you don't have money then the State is going to pay for it.

Or some -- to pay.

Mr. Verrilli Jr.: That's different.

Justice Samuel Alito: Or a family member is going--

Mr. Verrilli Jr.: --That's a difference and it's a significant difference.

In this situation one of the economic effects Congress is addressing is that the -- there -- the many billions of dollars of uncompensated costs are transferred directly to other market participants.

It's transferred directly to other market participants because health care providers charge higher rates in order to cover the cost of uncompensated care, and insurance companies reflect those higher rates in higher premiums, which Congress found translates to a thousand dollars per family in additional health insurance costs.

Justice Samuel Alito: --But isn't that a very small part of what the mandate is doing?

You can correct me if these figures are wrong, but it appears to me that the CBO has estimated that the average premium for a single insurance policy in the non-group market would be roughly $5,800 in -- in 2016.

Respondents -- the economists have supported -- the Respondents estimate that a young, healthy individual targeted by the mandate on average consumes about $854 in health services each year.

So the mandate is forcing these people to provide a huge subsidy to the insurance companies for other purposes that the act wishes to serve, but isn't -- if those figures are right, isn't it the case that what this mandate is really doing is not requiring the people who are subject to it to pay for the services that they are going to consume?

It is requiring them to subsidize services that will be received by somebody else.

Mr. Verrilli Jr.: No, I think that -- I do think that's what the Respondents argue.

It's just not right.

I think it -- it really gets to a fundamental problem with their argument.

Justice Ruth Bader Ginsburg: If you're going to have insurance, that's how insurance works.

Mr. Verrilli Jr.: A, it is how insurance works, but, B, the problem that they -- that they are identifying is not that problem.

The -- the guaranteed issue and community rating reforms do not have the effect of forcing insurance companies to take on lots of additional people who they then can't afford to cover because they're -- they tend to be the sick, and that is -- in fact, the exact opposite is what happens here.

The -- when -- when you enact Guaranteed Issue and Community Rating Reforms and you do so in the absence of a minimum coverage provision, it's not that insurance companies take on more and more people and then need a subsidy to cover it, it's that fewer and fewer people end up with insurance because their rates are not regulated.

Insurance companies, when -- when they have to offer Guaranteed Issue and Community Rating, they are entitled to make a profit.

They charge rates sufficient to cover only the sick population because health--

Justice Anthony Kennedy: Could you help -- help me with this.

Assume for the moment -- you may disagree.

Assume for the moment that this is unprecedented, this is a step beyond what our cases have allowed, the affirmative duty to act to go into commerce.

If that is so, do you not have a heavy burden of justification?

I understand that we must presume laws are constitutional, but, even so, when you are changing the relation of the individual to the government in this, what we can stipulate is, I think, a unique way, do you not have a heavy burden of justification to show authorization under the Constitution?

Mr. Verrilli Jr.: --So two things about that, Justice Kennedy.

First, we think this is regulation of people's participation in the health care market, and all -- all this minimum coverage provision does is say that, instead of requiring insurance at the point of sale, that Congress has the authority under the commerce power and the necessary proper power to ensure that people have insurance in advance of the point of sale because of the unique nature of this market, because this is a market in which -- in which you -- although most of the population is in the market most of the time -- 83 percent visit a physician every year; 96 percent over a five-year period -- so virtually everybody in society is in this market, and you've got to pay for the health care you get, the predominant way in which it's -- in which it's paid for is insurance, and -- and the Respondents agree that Congress could require that you have insurance in order to get health care or forbid health care from being provided--

Justice Antonin Scalia: Why do you -- why do you define the market that broadly?

Health care.

It may well be that everybody needs health care sooner or later, but not everybody needs a heart transplant, not everybody needs a liver transplant.

Why--

Mr. Verrilli Jr.: That's correct, Justice Scalia, but you never know whether you're going to be that person.

Justice Antonin Scalia: Could you define the market -- everybody has to buy food sooner or later, so you define the market as food, therefore, everybody is in the market; therefore, you can make people buy broccoli.

Mr. Verrilli Jr.: --No, that's quite different.

That's quite different.

The food market, while it shares that trait that everybody's in it, it is not a market in which your participation is often unpredictable and often involuntary.

It is not a market in which you often don't know before you go in what you need, and it is not a market in which, if you go in and -- and seek to obtain a product or service, you will get it even if you can't pay for it.

It doesn't--

Justice Antonin Scalia: Is that a principal basis for distinguishing this from other situations?

I mean, you know, you can also say, well, the person subject to this has blue eyes.

That would indeed distinguish it from other situations.

Is it a principle basis?

I mean, it's -- it's a basis that explains why the government is doing this, but is it -- is it a basis which shows that this is not going beyond what -- what the -- the system of enumerated powers allows the government to do.

Mr. Verrilli Jr.: --Yes, for two reasons.

First, this -- the test, as this Court has articulated it, is: Is Congress regulating economic activity with a substantial effect on interstate commerce?

The way in which this statute satisfies the test is on the basis of the factors that I have identified.

If--

Justice Ruth Bader Ginsburg: Mr. Verrilli, I thought that your main point is that, unlike food or any other market, when you made the choice not to buy insurance, even though you have every intent in the world to self-insure, to save for it, when disaster strikes, you may not have the money.

And the tangible result of it is -- we were told there was one brief that Maryland Hospital Care bills 7 percent more because of these uncompensated costs, that families pay a thousand dollars more than they would if there were no uncompensated costs.

I thought what was unique about this is it's not my choice whether I want to buy a product to keep me healthy, but the cost that I am forcing on other people if I don't buy the product sooner rather than later.

Mr. Verrilli Jr.: That is -- and that is definitely a difference that distinguishes this market and justifies this as a regulation.

Justice Stephen G. Breyer: All right.

So if that is your difference -- if that is your difference, I'm somewhat uncertain about your answers to -- for example, Justice Kennedy asked, can you, under the Commerce Clause, Congress create commerce where previously none existed.

Well, yeah, I thought the answer to that was, since McCulloch versus Maryland, when the Court said Congress could create the Bank of the United States which did not previously exist, which job was to create commerce that did not previously exist, since that time the answer has been, yes.

I would have thought that your answer -- can the government, in fact, require you to buy cell phones or buy burials that, if we propose comparable situations, if we have, for example, a uniform United States system of paying for every burial such as Medicare Burial, Medicaid Burial, CHIP Burial, ERISA Burial and Emergency Burial beside the side of the road, and Congress wanted to rationalize that system, wouldn't the answer be, yes, of course, they could.

Mr. Verrilli Jr.: --So--

Justice Stephen G. Breyer: And the same with the computers or the same with the -- the cell phones, if you're driving by the side of the highway and there is a federal emergency service just as you say you have to buy certain mufflers for your car that don't hurt the environment, you could -- I mean, see, doesn't it depend on the situation?

Mr. Verrilli Jr.: --It does, Justice Breyer, and if Congress were to enact laws like that, we--

Justice Stephen G. Breyer: We would be--

Mr. Verrilli Jr.: My responsibility -- and I would defend them on a rationale like that, but I do think that we are advancing a narrower rationale.

Justice Anthony Kennedy: Well, then your question is whether or not there are any limits on the Commerce Clause.

Can you identify for us some limits on the Commerce Clause?

Mr. Verrilli Jr.: --Yes.

The -- the rationale purely under the Commerce Clause that we're advocating here would not justify forced purchases of commodities for the purpose of stimulating demand.

We -- the -- it would not justify purchases of insurance for the purposes -- in situations in which insurance doesn't serve as the method of payment for service--

Justice Anthony Kennedy: But why not?

If Congress -- if Congress says that the interstate commerce is affected, isn't, according to your view, that the end of the analysis.

Mr. Verrilli Jr.: --No.

The, the -- we think that in a -- when -- the difference between those situations and this situation is that in those situations, Your Honor, Congress would be moving to create commerce.

Here Congress is regulating existing commerce, economic activity that is already going on, people's participation in the health care market, and is regulating to deal with existing effects of existing commerce.

Chief Justice John G. Roberts: That -- that it seems to me, it's a -- it's a passage in your reply brief that I didn't quite grasp.

It's the same point.

You say health insurance is not purchased for its own sake, like a car or broccoli; it is a means of financing health care consumption and covering universal risks.

Well, a car or broccoli aren't purchased for their own sake, either.

They are purchased for the sake of transportation or in broccoli, covering the need for food.

I -- I don't understand that distinction.

Mr. Verrilli Jr.: The difference, Mr. Chief Justice, is that health insurance is the means of payment for health care and broccoli is--

Chief Justice John G. Roberts: Well, now that's a significant -- I'm sorry.

Mr. Verrilli Jr.: --And -- and broccoli is not the means of payment for anything else.

And an automobile is not--

Chief Justice John G. Roberts: It's the means of satisfying a basic human need, just as your insurance is a means of satisfying--

Mr. Verrilli Jr.: But I do think that's the difference between existing commerce activity in the market already occurring --the people in the health care market purchasing, obtaining health careservices -- and the creation of commerce.

Chief Justice John G. Roberts: And the principle that we are advocating here under the Commerce Clause does not take the step of justifying the creation of commerce.

It's a regulation of the existing commerce.

Justice Ruth Bader Ginsburg: General Verrilli, can we -- can we go back to, Justice Breyer asked a question, and it kind of interrupted your answer to my question.

And tell me if I'm wrong about this, but I thought a major, major point of your argument was that the people who don't participate in this market are making it much more expensive for the people who do; that is, they -- they will get, a good number of them will get services that they can't afford at the point where they need them, and the result is that everybody else's premiums get raised.

So you're not -- it's not your -- your free choice just to do something for yourself.

What you do is going to affect others, affect them in -- in a major way.

Mr. Verrilli Jr.: --That -- that absolutely is a justification for Congress's action here.

That is existing economic activity that Congress is regulating by means of this rule.

Justice Antonin Scalia: General Verrilli, you -- you could say that about buying a car.

If -- if people don't buy cars, the price that those who do buy cars pay will have to be higher.

So you could say in order to bring the price down, you are hurting these other people by not buying a car.

Mr. Verrilli Jr.: That is not what we are saying, Justice Scalia.

Justice Antonin Scalia: That's not -- that's not what you're saying.

Mr. Verrilli Jr.: That's not -- not--

Justice Antonin Scalia: I thought it was.

I thought you were saying other people are going to have to pay more for insurance because you're not buying it.

Mr. Verrilli Jr.: --No.

It's because you're going -- in the health care market, you're going into the market without the ability to pay for what you get, getting the health care service anyway as a result of the social norms that allow -- that -- to which we've obligated ourselves so that people get health care.

Justice Antonin Scalia: Well, don't obligate yourself to that.

Why -- you know?

Mr. Verrilli Jr.: Well, I can't imagine that that -- that the Commerce Clause would -- would forbid Congress from taking into account this deeply embedded social norm.

Justice Antonin Scalia: You -- you could do it.

But -- but does that expand your ability to, to issue mandates to -- to the people?

Mr. Verrilli Jr.: I -- I -- this is not a purchase mandate.

This is a -- this is a law that regulates the method of paying for a service that the class of people to whom it applies are either consuming--

Justice Sonia Sotomayor: General--

Mr. Verrilli Jr.: Or -- or inevitably will consume.

Justice Sonia Sotomayor: General, I see or have seen three strands of arguments in your briefs, and one of them is echoed today.

The first strand that I have seen is that Congress can pass any necessary laws to effect those powers within its rights, i.e., because it made a decision that to effect, to effect mandatory issuance of insurance, that it could also obligate the mandatory purchase of it.

The second strand I see is self-insurance affects the market, and so the government can regulate those who self-insure.

And the third argument -- and I see all of them as different -- is that what the government is doing, and I think it's the argument you're making today -- that what the -- what the government is saying is if you pay for -- if you use health services, you have to pay with insurance.

Because only insurance will guarantee that whatever need for health care that you have will be covered.

Because virtually no one, perhaps with the exception of 1 percent of the population, can afford the massive cost if the unexpected happens.

This third argument seems to be saying what we are regulating is health care, and when you go for health services, you have to pay for insurance, and since insurance won't issue at the moment that you consume the product, we can reasonably, necessarily tell you to buy it ahead of time, because you can't buy it at the moment that you need it.

Is that -- which of these three is your argument?

Are all of them your argument?

I'm just not sure what the--

Mr. Verrilli Jr.: So, let me try to state it this way.

The Congress enacted reforms of the insurance market, the guaranteed-issue and community-rating reforms.

It did so to deal with a very serious problem that results in 40 million people not being able to get insurance and therefore not access to the health care market.

Everybody agrees in this case that those are within Congress's Article I powers.

The minimum coverage provision is necessary to carry those provisions into -- into execution; because without them, without those provisions, without minimum coverage, guaranteed issue and community rating will, as the experience in the States showed, make matters worse, not better.

There will be fewer people covered; it will cost more.

Now the -- so--

Justice Sonia Sotomayor: --So on that ground, you're answering affirmatively to my colleagues that have asked you the question, can the government force you into commerce.

Mr. Verrilli Jr.: --So -- no.

Justice Sonia Sotomayor: And there is no limit to that power.

Mr. Verrilli Jr.: No.

No.

Because that's -- that's the first part of our argument.

The second part of our argument is that the means here that the Congress has chosen, the minimum coverage provision, is a means that regulates the -- that regulates economic activity, namely your transaction in the health care market, with substantial effects on interstate commerce; and it is the conjunction of those two that we think provides the particularly secure foundation for this statute under the commerce power.

Justice Elena Kagan: General, you've talked on -- a couple of times about other alternatives that Congress might have had, other alternatives that the Respondents suggest to deal with this problem, in particular, the alternative of mandating insurance at the point at which somebody goes to a hospital or an emergency room and asks for care.

Did Congress consider those alternatives?

Why did it reject them?

How should we think about the question of alternative ways of dealing with these problems?

Mr. Verrilli Jr.: I do think, Justice Kagan, that the point of difference between my friends on the other side and the United States is about one of timing.

They have agreed that Congress has Article I authority to impose an insurance requirement or other -- or other penalty at the point of sale, and they have agreed that Congress has the authority to do that to achieve the same objectives that the minimum coverage provision of the Affordable Care Act is designed to achieve.

This is a situation if which we are talking about means.

Congress gets a substantial deference in the choice of means, and if one thinks about the difference between the means they say Congress should have chosen and the means Congress did choose, I think you can see why it was eminently more sensible for Congress to choose the means that it chose.

Justice Anthony Kennedy: I'm not sure which way it cuts.

If the Congress has alternate means, let's assume it can use the tax power to raise revenue and to just have a national health service, single payer.

How does that factor into our analysis?

In the one sense, it can be argued that this is what the government is doing; it ought to be honest about the power that it's using and use the correct power.

On the other hand, it means that since the Court can do it anyway -- Congress can do it anyway, we give a certain amount of latitude.

I'm not sure which the way the argument goes.

Mr. Verrilli Jr.: Let me try to answer that question, Justice Kennedy, and get back to the question you asked me earlier.

The, the -- I do think one striking feature of the argument here that this is a novel exercise of power is that what Congress chose to do was to rely on market mechanisms and efficiency and a method that has more choice than would the traditional Medicare/Medicaid type model; and so it seems a little ironic to suggest that that counts against it.

But beyond that, in the sense that it's novel, this provision is novel in the same way, or unprecedented in the same way, that the Sherman Act was unprecedented when the Court upheld it in the Northern Securities case; or the Packers and Stockyards Act was unprecedented when the Court upheld it, or the National Labor Relations Act was unprecedented when the Court upheld it in Jones and Laughlin; or the -- the dairy price supports in Wrightwood Dairy and Rock Royal--

Justice Antonin Scalia: Oh, no, it's not.

They all involved commerce.

There was no doubt that what was being regulated was commerce.

And here you're regulating somebody who isn't covered.

By the way, I don't agree with you that the relevant market here is health care.

You're not regulating health care.

You're regulating insurance.

It's the insurance market that you're addressing and you're saying that some people who are not in it must be in it and that's -- that's difference from regulating in any manner commerce that already exists out there.

Mr. Verrilli Jr.: --Well, to the extent that we are looking at the comprehensive scheme, Justice Scalia, it is regulating commerce that already exists out there.

And the means in which that regulation is made effective here, the minimum coverage provision, is a regulation of the way in which people participate, the method of their payment in the health care market.

That is what it is.

And I do think, Justice Kennedy, getting back to the question you asked before, what -- what matters here is whether Congress is choosing a tool that's reasonably adapted to the problem that Congress is confronting.

And that may mean that the tool is different from a tool that Congress has chosen to use in the past.

That's not something that counts against the provision in a Commerce Clause analysis.

Justice Antonin Scalia: Wait.

That's -- that's -- it's both "Necessary and Proper".

What you just said addresses what's necessary.

Yes, has to be reasonably adapted.

Necessary does not mean essential, just reasonably adapted.

But in addition to being necessary, it has to be proper.

And we've held in two cases that something that was reasonably adapted was not proper because it violated the sovereignty of the States, which was implicit in the constitutional structure.

The argument here is that this also is -- may be necessary, but it's not proper because it violates an equally evident principle in the Constitution, which is that the Federal Government is not supposed to be a government that has all powers; that it's supposed to be a government of limited powers.

And that's what all this questioning has been about.

What -- what is left?

If the government can do this, what, what else can it not do?

Mr. Verrilli Jr.: This does not violate the norm of proper as this Court articulated it in Printz or in New York because it does not interfere with the States as sovereigns.

This is a regulation that -- this is a regulation--

Justice Antonin Scalia: No, that wasn't my point.

That is not the only constitutional principle that exists.

Mr. Verrilli Jr.: --But it--

Justice Antonin Scalia: An equally evident constitutional principle is the principle that the Federal Government is a government of enumerated powers and that the vast majority of powers remain in the States and do not belong to the Federal Government.

Do you acknowledge that that's a principle?

Mr. Verrilli Jr.: --Of course we do, Your Honor.

Justice Antonin Scalia: Okay.

That's what we are talking about here.

Mr. Verrilli Jr.: And the way in which this Court in its cases has policed the boundary that -- of what's in the national sphere and what's in the local sphere is to ask whether Congress is regulating economic activity with a substantial effect on interstate commerce.

And here I think it's really impossible, in view of our history, to say that Congress is invading the State sphere.

This is a -- this is a market in which 50 percent of the people in this country get their health care through their employer.

There is a massive Federal tax subsidy of $250 billion a year that makes that much more affordable.

ERISA and HIPAA regulate that to ensure that the kinds of bans on pre-existing condition discrimination and pricing practices that occur in the individual market don't occur.

Justice Antonin Scalia: I don't understand your point--

Mr. Verrilli Jr.: This is in--

Justice Antonin Scalia: --Whatever the States have chosen not to do, the Federal Government can do?

Mr. Verrilli Jr.: No, not at all.

Justice Antonin Scalia: I mean, the Tenth Amendment says the powers not given to the Federal Government are reserved, not just to the States, but to the States and the people.

And the argument here is that the people were left to decide whether they want to buy insurance or not.

Mr. Verrilli Jr.: But this -- but, Your Honor, this is -- what the Court has said, and I think it would be a very substantial departure from what the Court has said, is that when Congress is regulating economic activity with a substantial effect on interstate commerce that will be upheld.

And that is what is going on here, and to embark on -- I would submit with all due respect, to embark on the kind of analysis that my friends on the other side suggest the Court ought to embark on is to import Lochner-style substantive due process--

Chief Justice John G. Roberts: The key in Lochner is that we were talking about regulation of the States, right, and the States are not limited to enumerated powers.

The Federal Government is.

And it seems to me it's an entirely different question when you ask yourself whether or not there are going to be limits in the Federal power, as opposed to limits on the States, which was the issue in Lochner.

Mr. Verrilli Jr.: I agree, except, Mr. Chief Justice, that what the Court has said as I read the Court's cases is that the way in which you ensure that the Federal Government stays in its sphere and the sphere reserved for the States is protected is by policing the boundary: Is the national government regulating economic activity with a substantial effect on interstate commerce?

Justice Anthony Kennedy: But the reason, the reason this is concerning, is because it requires the individual to do an affirmative act.

In the law of torts our tradition, our law, has been that you don't have the duty to rescue someone if that person is in danger.

The blind man is walking in front of a car and you do not have a duty to stop him absent some relation between you.

And there is some severe moral criticisms of that rule, but that's generally the rule.

And here the government is saying that the Federal Government has a duty to tell the individual citizen that it must act, and that is different from what we have in previous cases and that changes the relationship of the Federal Government to the individual in a very fundamental way.

Mr. Verrilli Jr.: --I don't think so, Justice Kennedy, because it is predicated on the participation of these individuals in the market for health care services.

Now, it happens to be that this is a market in which, aside from the groups that the statute excludes, virtually everybody participates.

But it is a regulation of their participation in that market.

Chief Justice John G. Roberts: Well, but it's critical how you define the market.

If I understand the law, the policies that you're requiring people to purchase involve -- must contain provision for maternity and newborn care, pediatric services, and substance use treatment.

It seems to me that you cannot say that everybody is going to need substance use treatment, substance use treatment or pediatric services, and yet that is part of what you require them to purchase.

Mr. Verrilli Jr.: Well, it's part of what the statute requires the insurers to offer.

And I think the reason is because it's trying to define minimum essential coverage because the problem--

Chief Justice John G. Roberts: But your theory is that there is a market in which everyone participates because everybody might need a certain range of health care services, and yet you're requiring people who are not -- never going to need pediatric or maternity services to participate in that market.

Mr. Verrilli Jr.: --The -- with respect to what insurance has to cover, Your Honor, I think Congress is entitled the latitude of making the judgments of what the appropriate scope of coverage is.

And the problem here in this market is that for -- you may think you're perfectly healthy and you may think that you're not -- that you're being forced to subsidize somebody else, but this is not a market in which you can say that there is a immutable class of healthy people who are being forced to subsidize the unhealthy.

This is a market in which you may be healthy one day and you may be a very unhealthy participant in that market the next day and that is a fundamental difference, and you're not going to know in which--

Chief Justice John G. Roberts: I think you're posing the question I was posing, which is that doesn't apply to a lot of what you're requiring people to purchase: Pediatric services, maternity services.

You cannot say that everybody is going to participate in the substance use treatment market and yet you require people to purchase insurance coverage for that.

Mr. Verrilli Jr.: --Congress has got -- Congress is enacting economic regulation here.

It has latitude to define essential, the attributes of essential coverage.

That doesn't -- that doesn't seem to me to implicate the question of whether Congress is engaging in economic regulation and solving an economic problem here, and that is what Congress is doing.

Justice Samuel Alito: Are you denying this?

If you took the group of people who are subject to the mandate and you calculated the amount of health care services this whole group would consume and figured out the cost of an insurance policy to cover the services that group would consume, the cost of that policy would be much, much less than the kind of policy that these people are now going to be required to purchase under the Affordable Care Act?

Mr. Verrilli Jr.: Well, while they are young and healthy that would be true.

But they are not going to be young and healthy forever.

They are going to be on the other side of that actuarial equation at some point.

And of course you don't know which among that group is the person who's going to be hit by the bus or get the definitive diagnosis.

And that--

Justice Samuel Alito: The point is -- no, you take into account that some people in that group are going to be hit by a bus, some people in that group are going to unexpectedly contract or be diagnosed with a disease that -- that is very expensive to treat.

But if you take their costs and you calculate that, that's a lot less than the amount that they are going to be required to pay.

So that you can't just justify this on the basis of their trying to shift their costs off to other people, can you?

Mr. Verrilli Jr.: --Well, the -- the people in that class get benefits, too, Justice Alito.

They get the guaranteed-issue benefit that they would not otherwise have, which is an enormously valuable benefit.

And in terms of the -- the subsidy rationale, I -- I don't think -- I think it's -- it would be unusual to say that it's an illegitimate exercise of the commerce power for some people to subsidize others.

Telephone rates in this country for a century were set via the exercise of the commerce power in a way in which some people paid rates that were much higher than their costs in order to subsidize--

Justice Antonin Scalia: Only if you make phone calls.

Mr. Verrilli Jr.: --Well, right.

But -- but everybody -- to live in the modern world, everybody needs a telephone.

And the -- the same thing with respect to the -- you know, the dairy price supports that -- that the Court upheld in Wrightwood Dairy and Rock Royal.

You can look at those as disadvantageous contracts, as forced transfers, that -- you know, I suppose it's theoretically true that you could raise your kids without milk, but the reality is you've got to go to the store and buy milk.

And the commerce power -- as a result of the exercise of the commerce power, you're subsidizing somebody else--

Justice Elena Kagan: And this is especially true, isn't it, General--

Mr. Verrilli Jr.: --Because that's the judgment Congress has made.

Justice Elena Kagan: --Verrilli, because in this context, the subsidizers eventually become the subsidized?

Mr. Verrilli Jr.: --Well, that was the point I was trying to make, Justice Kagan, that you're young and healthy one day, but you don't stay that way.

And the -- the system works over time.

And so I just don't think it's a fair characterization of it.

And it does get back to, I think -- a problem I think is important to understand--

Justice Antonin Scalia: We're not stupid.

They're going to buy insurance later.

They're young and -- and need the money now.

Mr. Verrilli Jr.: --But that's--

Justice Antonin Scalia: When -- when they think they have a substantial risk of incurring high medical bills, they'll buy insurance, like the rest of us.

Mr. Verrilli Jr.: But -- that's -- that's--

Justice Antonin Scalia: I don't know why you think that they're never going to buy it.

Mr. Verrilli Jr.: --That's the problem, Justice Scalia.

That's -- and that's exactly the experience that the States had that made the imposition of guaranteed-issue and community rating not only be ineffectual but be highly counterproductive.

Rates, for example, in New Jersey doubled or tripled, went from 180,000 people covered in this market down to 80,000 people covered in this market.

In Kentucky, virtually every insurer left the market.

And the reason for that is because when people have that guarantee of -- that they can get insurance, they're going to make that calculation that they won't get it until they're sick and they need it, and so the pool of people in the insurance market gets smaller and smaller.

The rates you have to charge to cover them get higher and higher.

It helps fewer and fewer -- insurance covers fewer and fewer people until the system ends.

This is not a situation in which you're conscripting -- you're forcing insurance companies to cover very large numbers of unhealthy people--

Justice Antonin Scalia: You could solve that problem by simply not requiring the insurance company to sell it to somebody who has a -- a condition that is going to require medical treatment, or at least not -- not require them to sell it to him at -- at a rate that he sells it to healthy people.

But you don't want to do that.

Mr. Verrilli Jr.: --But that seems to me to say, Justice Scalia, that Congress -- that's the problem here.

And that seems to be--

Justice Antonin Scalia: That seems to me a self-created problem.

Mr. Verrilli Jr.: --Congress cannot solve the problem through standard economic regulation, and that -- and -- and I do not think that can be the premise of our understanding of the Commerce Clause--

Justice Antonin Scalia: Whatever--

Mr. Verrilli Jr.: --this is an economic problem.

Justice Antonin Scalia: --whatever problems Congress's economic regulation produces, whatever they are, I think Congress can do something to counteract them.

Here, requiring somebody to enter -- to enter the insurance market.

Mr. Verrilli Jr.: This is not a -- it's not a problem of Congress's creation.

Justice Antonin Scalia: The problem is that you have 40 million people who cannot get affordable insurance through the means that the rest of us get affordable insurance.

Congress, after a long study and careful deliberation, and viewing the experiences of the States and the way they tried to handle this problem, adopted a package of reforms.

Guaranteed-issue and community rating, and -- and subsidies and the minimum coverage provision are a package of reforms that solve that problem.

I don't -- I think it's highly artificial to view this as a problem of Congress's own creation.

Chief Justice John G. Roberts: Is your argument limited to insurance or means of paying for health care?

Mr. Verrilli Jr.: --Yes.

It's limited to insurance.

Chief Justice John G. Roberts: Well, now why is that?

Congress could -- once you -- once you establish that you have a market for health care, I would suppose Congress's power under the Commerce Clause meant they had a broad scope in terms of how they regulate that market.

And it would be -- it would be going back to Lochner if we were put in the position of saying no, you can use your commerce power to regulate insurance, but you can't use your commerce power to regulate this market in other ways.

I think that would be a very significant intrusion by the Court into Congress's power.

So I don't see how we can accept your -- it's good for you in this case to say oh, it's just insurance.

But once we say that there is a market and Congress can require people to participate in it, as some would say -- or as you would say, that people are already participating in it -- it seems to me that we can't say there are limitations on what Congress can do under its commerce power, just like in any other area, all -- given significant deference that we accord to Congress in this area, all bets are off, and you could regulate that market in any rational way.

Mr. Verrilli Jr.: But this is insurance as a method of payment for health care services--

Chief Justice John G. Roberts: Exactly.

Mr. Verrilli Jr.: --And that -- and that is--

Chief Justice John G. Roberts: And you're worried -- that's the area that Congress has chosen to regulate.

There's this health care market.

Everybody's in it.

So we can regulate it, and we're going to look at a particular serious problem, which is how people pay for it.

But next year, they can decide everybody's in this market, we're going to look at a different problem now, and this is how we're going to regulate it.

And we can compel people to do things -- purchase insurance, in this case.

Something else in the next case, because you've -- we've accepted the argument that this is a market in which everybody participates.

Mr. Verrilli Jr.: --Mr. Chief Justice, let me answer that, and then if I may, I'd like to move to the tax power argument.

Justice Antonin Scalia: Can -- can I tell you what the something else is so -- while you're answering it?

The something else is everybody has to exercise, because there's no doubt that lack of exercise cause -- causes illness, and that causes health care costs to go up.

So the Federal government says everybody has to -- to join a -- an exercise club.

That's -- that's the something else.

Mr. Verrilli Jr.: No.

The -- the position we're taking here would not justify that rule, Justice Scalia, because health club membership is not a means of payment for -- for consumption of anything in -- in a market.

Chief Justice John G. Roberts: Right.

Right.

That's -- that's exactly right, but it doesn't seem responsive to my concern that there's no reason -- once we say this is within Congress's commerce power, there's no reason other than our own arbitrary judgment to say all they can regulate is the method of payment.

They can regulate other things that affect this now-conceded interstate market in health care in which everybody participates.

Mr. Verrilli Jr.: --But I think it's common ground between us and the Respondents that this is an interstate market in which everybody participates.

And they agree that -- that Congress could impose the insurance requirement at the point of sale.

And this is just a question of timing, and whether Congress's -- whether the necessary and proper authority gives Congress, because of the particular features of this market, the ability to impose the -- the insurance, the need for insurance, the maintenance of insurance before you show up to get health care rather than at the moment you get up to show--

Chief Justice John G. Roberts: Right.

No, I think--

Mr. Verrilli Jr.: --show up to get health care.

And that--

Chief Justice John G. Roberts: --unless I'm missing something, I think you're just repeating the idea that this is the regulation of the method of payment.

And I understand that argument.

And it may be -- it may be a good one.

But what I'm concerned about is, once we accept the principle that everybody is in this market, I don't see why Congress's power is limited to regulating the method of payment and doesn't include as it does in any other area.

What other area have we said Congress can regulate this market but only with respect to prices, but only with respect to means of travel?

No.

Once you're -- once you're in the interstate commerce and can regulate it, pretty much all bets are off.

Mr. Verrilli Jr.: --But we agree Congress can regulate this market.

ERISA regulates this market.

HIPAA regulates this market.

The -- the market is regulated at the Federal level in very significant ways already.

So I don't think that's the question, Mr. Chief Justice.

The question is, is there a limit to the authority that we're advocating here under the commerce power, and the answer is yes, because we are not advocating for a power that would allow Congress to compel purchases--

Justice Samuel Alito: Could you just -- before you move on, could you express your limiting principle as succinctly as you possibly can?

Congress can force people to purchase a product where the failure to purchase the product has a substantial effect on interstate commerce -- if what?

If this is part of a larger regulatory scheme?

Was that it?

Was there anything more?

Mr. Verrilli Jr.: --We got two and they are -- they are different.

Let me state them.

First with respect to the comprehensive scheme.

When Congress is regulating -- is enacting a comprehensive scheme that it has the authority to enact that the Necessary and Proper Clause gives it the authority to include regulation, including a regulation of this kind, if it is necessary to counteract risks attributable to the scheme itself that people engage in economic activity that would undercut the scheme.

It's like -- it's very much like Wickard in that respect, very much like Raich in that respect.

With respect to the -- with respect to the -- considering the Commerce Clause alone and not embedded in the comprehensive scheme, our position is that Congress can regulate the method of payment by imposing an insurance requirement in advance of the time in which the -- the service is consumed when the class to which that requirement applies either is or virtually is most certain to be in that market when the timing of one's entry into that market and what you will need when you enter that market is uncertain and when -- when you will get the care in that market, whether you can afford to pay for it or not and shift costs to other market participants.

So those -- those are our views as to -- those are the principles we are advocating for and it's, in fact, the conjunction of the two of them here that makes this, we think, a strong case under the Commerce Clause.

Justice Sonia Sotomayor: General, could you turn to the tax clause?

Mr. Verrilli Jr.: Yes.

Justice Sonia Sotomayor: I have looked for a case that involves the issue of whether something denominated by Congress as a penalty was nevertheless treated as a tax, except in those situations where the code itself or the statute itself said treat the penalty as a tax.

Do you know of any case where we've done that?

Mr. Verrilli Jr.: Well, I think I would point the Court to the License Tax Case, where it was -- was denominated a fee and nontax, and the Court upheld it as an exercise of the taxing power, in a situation in which the structure of the law was very much like the structure of this law, in that there was a separate stand-alone provision that set the predicate and then a separate provision in posing the fees--

Justice Antonin Scalia: But fees, you know, license fees, fees for a hunting license, everybody knows those are taxes.

I mean, I don't think there is as much of a difference between a fee and a tax as there is between a penalty and a tax.

Mr. Verrilli Jr.: --And that, and -- and I think in terms of the tax part, I think it's useful to separate this into two questions.

One is a question of characterization.

Can this be characterized as a tax; and second, is it a constitutional exercise of the power?

With respect to the question of characterization, the -- this is -- in the Internal Revenue Code, it is administered by the IRS, it is paid on your Form 1040 on April 15th, I think--

Justice Ruth Bader Ginsburg: But yesterday you told me -- you listed a number of penalties that are enforced through the tax code that are not taxes and they are not penalties related to taxes.

Mr. Verrilli Jr.: --They may still be exercise of the tax -- exercises of the taxing power, Justice Ginsburg, as -- as this is, and I think there isn't a case in which the Court has, to my mind, suggested anything that bears this many indicia of a tax can't be considered as an exercise of the taxing power.

In fact, it seems to me the License Tax Cases point you in the opposite direction.

And beyond that your -- the -- it seems to me the right way to think about this question is whether it is capable of being understood as an exercise of the tax.

Justice Antonin Scalia: The President said it wasn't a tax, didn't he?

Mr. Verrilli Jr.: Well, Justice Scalia, what the -- two things about that, first, as it seems to me, what matters is what power Congress was exercising.

And they were -- and I think it's clear that -- that the -- the -- they were exercising the tax power as well as--

Justice Antonin Scalia: You're making two arguments.

Number one, it's a tax; and number two, even if it isn't a tax, it's within the taxing power.

I'm just addressing the first.

Mr. Verrilli Jr.: --If the President said--

Justice Antonin Scalia: Is it a tax or not a tax?

The President didn't think it was.

Mr. Verrilli Jr.: --The President said it wasn't a tax increase because it ought to be understood as an incentive to get people to have insurance.

I don't think it's fair to infer from that anything about whether that is an exercise of the tax power or not.

Justice Ruth Bader Ginsburg: A tax is to raise revenue, tax is a revenue-raising device, and the purpose of this exaction is to get people into the health care risk -- risk pool before they need medical care, and so it will be successful.

If it doesn't raise any revenue, if it gets people to buy the insurance, that's -- that's what this penalty is -- this penalty is designed to affect conduct.

The conduct is buy health protection, buy health insurance before you have a need for medical care.

That's what the penalty is designed to do, not to raise revenue.

Mr. Verrilli Jr.: That -- that is true, Justice Ginsburg.

This is also true of the marijuana tax that was withheld in Sanchez.

That's commonly true of penalties under the Code.

They do -- if they raise revenue, they are exercises of the taxing power, but their purpose is not to raise revenue.

Their purpose is to discourage behavior.

I mean, the -- the mortgage deduction works that way.

When the mortgage deduction is -- it's clearly an exercise of the taxing power.

When it's successful it raises less revenue for the Federal Government.

It's still an exercise of the taxing power.

So, I don't--

Justice Elena Kagan: I suppose, though, General, one question is whether the determined efforts of Congress not to refer to this as a tax make a difference.

I mean, you're suggesting we should just look to the practical operation.

We shouldn't look at labels.

And that seems right, except that here we have a case in which Congress determinedly said this is not a tax, and the question is why should that be irrelevant?

Mr. Verrilli Jr.: --I don't think that that's a fair characterization of the actions of Congress here, Justice Kagan.

On the -- December 23rd, a point of constitutional order was called to, in fact, with respect to this law.

The floor sponsor, Senator Baucus, defended it as an exercise of the taxing power.

In his response to the point of order, the Senate voted 60 to39 on that proposition.

The legislative history is replete with members of Congress explaining that this law is constitutional as an exercise of the taxing power.

It was attacked as a tax by its opponents.

So I don't think this is a situation where you can say that Congress was avoiding any mention of the tax power.

It would be one thing if Congress explicitly disavowed an exercise of the tax power.

But given that it hasn't done so, it seems to me that it's -- not only is it fair to read this as an exercise of the tax power, but this Court has got an obligation to construe it as an exercise of the tax power, if it can be upheld on that basis.

Chief Justice John G. Roberts: Why didn't Congress call it a tax, then?

Mr. Verrilli Jr.: Well--

Chief Justice John G. Roberts: You're telling me they thought of it as a tax, they defended it on the tax power.

Why didn't they say it was a tax?

Mr. Verrilli Jr.: --They might have thought, Your Honor, that calling it a penalty as they did would make it more effective in accomplishing its objective.

But it is -- in the Internal Revenue Code it is collected by the IRS on April 15th.

I don't think this is a situation in which you can say--

Chief Justice John G. Roberts: Well, that's the reason.

They thought it might be more effective if they called it a penalty.

Mr. Verrilli Jr.: --Well, I -- you know, I don't -- there is nothing that I know of that -- that illuminates that, but certainly--

Justice Sonia Sotomayor: --General, the problem goes back to the limiting principle.

Is this simply anything that raises revenue that Congress can do?

Mr. Verrilli Jr.: --No.

There are certain limiting principles under the--

Justice Sonia Sotomayor: So there has to be a limiting principle --

Mr. Verrilli Jr.: -- taxing power, and they -- and I think, of course, the Constitution imposes some, got to be uniform, can't be taxed on exports, if it's a direct tax, it's got to be apportioned.

Beyond that, the limiting principle, as the Court has identified from Drexel Furniture to Kurth Ranch, is that it can't be punishment, punitive in the guise of a tax.

And there are three factors of Court has identified to look at that.

The first is the sanction and how disproportionate it is to the conduct; the second is whether there is scienter; and the third is whether there is an -- an -- an administrative apparatus out there to enforce the tax.

Now in -- in Bailey v. Drexel Furniture, for example, the tax was 10 percent of the company's profits, even if they had only one child laborer for one day.

There was a scienter requirement, and it was enforced by the Department of Labor.

It wasn't just collected by the Internal Revenue Service.

Here you don't have any of those things.

This -- the -- the penalty is calculated to be no more than, at most, the equivalent of what one would have paid for insurance if you forgone.

There is no scienter requirement, there is no enforcement apparatus out there.

So, certain--

Justice Samuel Alito: Can the -- can the mandate be viewed as tax if it does impose a requirement on people who are not subject to the penalty or the tax?

Mr. Verrilli Jr.: --I think it could, for the reasons I -- I discussed yesterday.

I don't think it can or should be read that way.

But if there is any doubt about that, Your Honor, if there is -- if -- if it is the view of the Court that it can't be, then I think the -- the right way to handle this case is by analogy to New York v. United States, in which the -- the Court read the shall provision, shall handle the level of radioactive waste as setting the predicate, and then the other provisions were merely incentives to get the predicate met, and so--

Justice Antonin Scalia: You're saying that all the discussion we had earlier about how this is one big uniform scheme and the Commerce Clause blah, blah, blah, it really doesn't matter.

This is a tax and the Federal Government could simply have said, without all of the rest of this legislation, could simply have said everybody who doesn't buy health insurance at a certain age will be taxed so much money, right?

Mr. Verrilli Jr.: --It -- it used its powers together to solve the problem of the market not--

Justice Antonin Scalia: Yes, but you didn't need that. --You didn't need that.

If it's a tax, it's only -- raising money is enough.

Mr. Verrilli Jr.: --providing for the -- It's justifiable under its tax power.

Justice Antonin Scalia: Extraordinary.

Mr. Verrilli Jr.: If I may reserve the balance of my time.

Chief Justice John G. Roberts: Thank you, General.

We'll take a pause for a minute or so, Mr. Clement.

Why don't we get started again.

Mr. Clement.

ORAL ARGUMENT OF PAUL D. CLEMENT, ON BEHALF OF THE RESPONDENTS FLORIDA, ET AL.

Mr. Clement: Mr. Chief Justice and may it please the Court.

The mandate represents an unprecedented effort by Congress to compel individuals to enter commerce in order to better regulate commerce.

The Commerce Clause gives Congress the power to regulate existing commerce.

It does not give Congress the far greater power to compel people to enter commerce to create commerce essentially in the first place.

Now, Congress when it passed the statute did make findings about why it thought it could regulate the commerce here, and it justified the mandate as a regulation of the economic decision to forego the purchase of health insurance.

That is a theory without any limiting principle.

Justice Sonia Sotomayor: --Do you accept your -- the General's position that you have conceded that Congress could say, if you're going to consume health services, you have to pay by way of insurance?

Mr. Clement: That's right, Justice Sotomayor.

We say, consistent with 220 years of this Court's jurisprudence, that if you regulate the point of sale, you regulate commerce, that's within Congress' commerce power.

Justice Sonia Sotomayor: All right.

So what do you do with the impossibility of buying insurance at the point of consumption.

Virtually, you force insurance companies to sell it to you?

Mr. Clement: Well, Justice, I think there is two points to make on that.

One is, a lot of the discussion this morning so far has proceeded on the assumption that the only thing that is at issue here is emergency room visits, and the only thing that's being imposed is catastrophic care coverage; but, as the Chief Justice indicated earlier, a lot of the insurance that's being covered is for ordinary preventive care, ordinary office visits, and those are the kinds of things that one can predict.

So there is a big part of the market that's regulated here that wouldn't pose the problem that you're suggesting; but, even as to emergency room visits, it certainly would be possible to regulate at that point.

You could simply say, through some sort of mandate on the insurance companies, you have to provide people that come in -- this will be a high-risk pool, and maybe you will have to share it amongst yourself or something, but people simply have to sign up at that point, and that would be regulating at the point of sale.

Justice Elena Kagan: Well, Mr. Clement, now it seems as though you're just talking about a matter of timing; that Congress can regulate the transaction, and the question is when does it make best sense to regulate that transaction?

And Congress surely has within its authority to decide, rather than at the point of sale, given an insurance-based mechanism, it makes sense to regulate it earlier.

It's just a matter of timing.

Mr. Clement: Well, Justice Kagan, we don't think it's a matter of timing alone, and we think it has very substantive effects.

Because if Congress tried to regulate at the point of sale, the one group that it wouldn't capture at all are the people who don't want to purchase health insurance and also have no plans of using health care services in the near term.

And Congress very much wanted to capture those people.

I mean, those people are essentially the golden geese that pay for the entire lowering of the premium.

Justice Anthony Kennedy: Was the government's argument this -- and maybe I won't state it accurately -- it is true that the noninsured young adult is, in fact, an actuarial reality insofar as our allocation of health services, insofar as the way health insurance companies figure risks?

That person who is sitting at home in his or her living room doing nothing is an actuarial reality that can and must be measured for health service purposes; is that their argument?

Mr. Clement: Well, I don't know, Justice Kennedy, but, if it is, I think there is at least two problems with it.

One is, as Justice Alito's question suggested earlier, I mean, somebody who is not in the insurance market is sort of irrelevant as an actuarial risk.

I mean, we could look at the people not in the insurance market, and what we'd find is that they're relatively young, relatively healthy, and they would have a certain pool of actuarial risks that would actually lead to lower premiums.

The people that would be captured by guaranteed rating and community issue -- guaranteed issue and community rating would presumably have a higher risk profile, and there would be higher premiums.

And one of the things, one of the things Congress sought to accomplish here, was to force individuals into the insurance market to subsidize those that are already in it to lower the rates.

And that's just not my speculation, that's Finding I at 43A of the government's brief that -- it has the statute.

And that's one of the clear findings.

Justice Ruth Bader Ginsburg: Mr. Clement, doesn't that work -- that work the way Social Security does?

Let me put it this way.

Congress, in the '30s, saw a real problem of people needing to have old age and survivor's insurance.

And yes, they did it through a tax, but they said everybody has got to be in it because if we don't have the healthy in it, there's not going to be the money to pay for the ones who become old or disabled or widowed.

So they required everyone to contribute.

It was a big fuss about that in the beginning because a lot of people said -- maybe some people still do today -- I could do much better if the government left me alone.

I'd go into the private market, I'd buy an annuity, I'd make a great investment, and they're forcing me to paying for this Social Security that I don't want; but, that's constitutional.

So if Congress could see this as a problem when we need to have a group that will subsidize the ones who are going to get the benefits, it seems to me you are saying the only way that could be done is if the government does it itself; it can't involve the private market, it can't involve the private insurers.

If it wants to do this, Social Security is its model.

The government has to do -- has to be government takeover.

We can't have the insurance industry in it.

Is that your position?

Mr. Clement: No.

I don't think it is, Justice Ginsburg.

I think there are other options that are available.

The most straightforward one would be to figure out what amount of subsidy to the insurance industry is necessary to pay for guaranteed issue and community rating.

And once we calculate the amount of that subsidy, we could have a tax that's spread generally through everybody to raise the revenue to pay for that subsidy.

That's the way we pay for most subsidies.

Justice Sonia Sotomayor: Could we have an exemption?

Could the government say, everybody pays a shared health care responsibility payment to offset all the money that we are forced to spend on health care, we the government; but, anybody who has an insurance policy is exempt from that tax?

Could the government do that?

Mr. Clement: The government might be able to do that.

I think it might raise some issues about whether or not that would be a valid exercise of the taxing power.

Justice Sonia Sotomayor: Under what theory wouldn't it be?

Mr. Clement: Well, I do think that--

Justice Sonia Sotomayor: We get tax credits for having solar-powered homes.

We get tax credits for using fuel efficient cars.

Why couldn't we get a tax credit for having health insurance and saving the government from caring for us.

Mr. Clement: --Well, I think it would depend a little bit on how it was formulated; but, my concern would be -- the constitutional concern would be that it would just be a disguised impermissible direct tax.

And I do think -- I mean, I don't want to suggest we get to the taxing power to soon, but I do think it's worth realizing that the taxing power is limited in the ability to impose direct taxes.

And the one thing I think the framers would have clearly identified as a direct tax is a tax on not having something.

I mean, the framing generation was divided over whether a tax on carriages was a direct tax or not.

Hamilton thought that was a indirect tax; Madison thought it was a direct tax.

I have little doubt that both of them would have agreed that a tax on not having a carriage would have clearly been a direct tax.

I also think they would have thought it clearly wasn't a valid regulation of the market in carriages.

And, you know, I mean, if you look at Hilton against the United States, that's this Court's first direct tax--

Justice Stephen G. Breyer: Let me ask -- can I go back for a step, because I don't want to get into a discussion of whether this is a good bill or not.

Some people think it's going to save a lot of money.

Some people think it won't.

So I'm focusing just on the Commerce Clause; not on the Due Process Clause, the Commerce Clause.

And I look back into history, and I think if we look back into history we see sometimes Congress can create commerce out of nothing.

That's the national bank, which was created out of nothing to create other commerce out of nothing.

I look back into history, and I see it seems pretty clear that if there are substantial effects on interstate commerce, Congress can act.

And I look at the person who's growing marijuana in her house, or I look at the farmer who is growing the wheat for home consumption.

This seems to have more substantial effects.

Is this commerce?

Well, it seems to me more commerce than marijuana.

I mean, is it, in fact, a regulation?

Well, why not?

If creating a bank is, why isn't this?

And then you say, ah, but one thing here out of all those things is different, and that is you're making somebody do something.

I say, hey, can't Congress make people drive faster than 45 -- 40 miles an hour on a road?

Didn't they make that man growing his own wheat go into the market and buy other wheat for his -- for his cows?

Didn't they make Mrs. -- if she married somebody who had marijuana in her basement, wouldn't she have to go and get rid of it?

Affirmative action?

I mean, where does this distinction come from?

It sounds like sometimes you can, and sometimes you can't.

So what is argued here is there is a large group of -- what about a person that we discover that there are -- a disease is sweeping the United States, and 40 million people are susceptible, of whom 10 million will die; can't the Federal Government say all 40 million get inoculation?

So here, we have a group of 40 million, and 57 percent of those people visit emergency care or other care, which we are paying for.

And 22 percent of those pay more than $100,000 for that.

And Congress says they are in the midst of this big thing.

We just want to rationalize this system they are already in.

So, there, you got the whole argument, and I would like you to tell me--

Justice Antonin Scalia: We'll get to those questions in inverse order.

Justice Stephen G. Breyer: --Well, no, it's one question.

It's looking back at that -- looking back at that history.

The thing I can see that you say to some people, go buy; why does that make a difference in terms of the Commerce Clause?

Mr. Clement: --Well, Justice Breyer, let me start at the beginning of your question with McCulloch.

McCulloch was not a commerce power case.

Justice Stephen G. Breyer: It was both?

Mr. Clement: No, the bank was not justified and the corporation was not justified as an exercise of commerce power.

So that is not a case that says that it's okay to conjure up the bank as an exercise of the commerce power.

What, of course, the Court didn't say, and I think the Court would have had a very different reaction to, is, you know, we are not just going to have the bank, because that wouldn't be necessary and proper, we are going to force the citizenry to put all of their money in the bank, because, if we do that, then we know the Bank of the United States will be secure.

I think the framers would have identified the difference between those two scenarios, and I don't think that the great Chief Justice would have said that forcing people to put their deposits in the Bank of the United States was necessary and proper.

Now, if you look through all the cases you mentioned, I do not think you will find a case like this.

And I think it's telling that you won't.

I mean, the regulation of the wheat market in Wickard against Filburn, all this effort to address the supply side and what producers could do, what Congress was trying to do was support the price of wheat.

It would have been much more efficient to just make everybody in America buy 10 loaves of bread.

That would have had a much more direct effect on the price of wheat in the prevailing market.

But we didn't do that.

We didn't say when we had problems in the automobile industry that we are not just going to give you incentives, not just cash for clunkers, we are going to actually have ever everybody over 100,000 has to buy a new car--

Chief Justice John G. Roberts: Well, Mr. Clement, the key to the government's argument to the contrary is that everybody is in this market.

It's all right to regulate Wickard -- again, in Wickard against Filburn, because that's a particular market in which the farmer had been participating.

Everybody is in this market, so that makes it very different than the market for cars or the other hypotheticals that you came up with, and all they're regulating is how you pay for it.

Mr. Clement: --Well, with respect, Mr. Chief Justice, I suppose the first thing you have to say is what market are we talking about?

Because the government -- this statute undeniably operates in the health insurance market.

And the government can't say that everybody is in that market.

The whole problem is that everybody is not in that market, and they want to make everybody get into that market.

Justice Elena Kagan: Well, doesn't that seem a little bit, Mr. Clement, cutting the bologna thin?

I mean, health insurance exists only for the purpose of financing health care.

The two are inextricably interlinked.

We don't get insurance so that we can stare at our insurance certificate.

We get it so that we can go and access health care.

Mr. Clement: Well, Justice Kagan, I'm not sure that's right.

I think what health insurance does and what all insurance does is it allows you to diversify risk.

And so it's not just a matter of I'm paying now instead I'm paying later.

That's credit.

Insurance is different than credit.

Insurance guarantees you an upfront, locked-in payment, and you won't have to pay any more than that even if you incur much great expenses.

And in every other market that I know of for insurance, we let people basically make the decision whether they are relatively risk averse, whether they are relatively non-risk averse, and they can make the judgment based on--

Justice Sonia Sotomayor: But we don't in car insurance, meaning we tell people, buy car -- not we, the states do, although you're going to -- I'll ask you the question, do you think that if some states decided not to impose an insurance requirement, that the Federal Government would be without power to legislate and require every individual to buy car insurance?

Mr. Clement: --Well, Justice Sotomayor, let me say this, which is to say -- you're right in the first point to say that it's the states that do it, which makes it different right there.

But it's also--

Justice Sonia Sotomayor: Well, that goes back to the substantive due process question.

Is this a Lochner era argument that only the states can do this, even though it affects commerce?

Cars indisputably affect commerce.

So are you arguing that because the states have done it all along, the Federal Government is no longer permitted to legislate in this area?

Mr. Clement: --No.

I think you might make a different argument about cars than you would make about health insurance, unless you tried to say -- but, you know, we're--

Justice Sonia Sotomayor: Health insurance -- I mean, I've never gotten into an accident, thankfully, and I hope never.

The vast majority of people have never gotten into an accident where they have injured others; yet, we pay for it dutifully every year on the possibility that at some point we might get into that accident.

Mr. Clement: --But, Justice Sotomayor, what I think is different is there is lots of people in Manhattan, for example, that don't have car insurance because they don't have cars.

And so they have the option of withdrawing from that market.

It's not a direct imposition from the government.

So even the car market is difference from this market, where there is no way to get outside of the regulatory web.

And that's, I think, one of the real problems with this because, I mean, we take as a given--

Justice Sonia Sotomayor: But you're -- but the given is that virtually everyone, absent some intervention from above, meaning that someone's life will be cut short in a fatal way, virtually everyone will use health care.

Mr. Clement: --At some point, that's right, but all sorts of people will not, say, use health care in the next year, which is the relevant period for the insurance.

Justice Stephen G. Breyer: But do you think you can, better than the actuaries or better than the members of Congress who worked on it, look at the 40 million people who are not insured and say which ones next year will or will not use, say, emergency care?

Can you do that any better than if we knew that 40 million people were suffering, about to suffer a contagious disease, and only 10 million would get sick--

Mr. Clement: Of course not--

Justice Stephen G. Breyer: --and we don't know which?

Mr. Clement: --Of course not, Justice Breyer, but the point is that once Congress decides it's going to regulate extant commerce, it is going to get all sorts of latitude to make the right judgments about actuarial predictions, which actuarial to rely on, which one not to rely on.

The question that's a proper question for this Court, though, is whether or not, for the first time ever in our history, Congress also has the power to compel people into commerce, because, it turns out, that would be a very efficient things for purposes of Congress' optimal regulation of that market.

Justice Elena Kagan: But, Mr. Clement, this goes back to the Chief Justice's question.

But, of course, the theory behind, not just the government's case, but the theory behind this law is that people are in this market right now, and they are in this market because people do get sick, and because when people get sick, we provide them with care without making them pay.

And it that would be different, you know, if you were up here saying, I represent a class of Christian scientists.

Then you might be able to say, look, you know, why are they bothering me.

But absent that, you're in this market.

You're an economic actor.

Mr. Clement: Well, Justice Kagan, once again, it depends on which market we're talking about.

If we're talking about the health care insurance market--

Justice Elena Kagan: Well, we are talking about the health insurance market, which is designed to access the health care market.

Mr. Clement: --And with respect to the health insurance market that's designed to have payment in the health care market, everybody is not in the market.

And that's the premise of the statute, and that's the problem Congress is trying to solve.

And if it tried to solve it through incentives, we wouldn't be here; but, it's trying to solve it in a way that nobody has ever tried to solve an economic problem before, which is saying, you know, it would be so much more efficient if you were just in this market--

Justice Anthony Kennedy: But they are in the market in the sense that they are creating a risk that the market must account for.

Mr. Clement: --Well, Justice Kennedy, I don't think that's right, certainly in any way that distinguishes this from any other context.

When I'm sitting in my house deciding I'm not to buy a car, I am causing the labor market in Detroit to go south.

I am causing maybe somebody to lose their job, and for everybody to have to pay for it under welfare.

So the cost shifting that the government tries to uniquely to associate with this market, it is everywhere.

And even more to the point, the rationale that they think ultimately supports this legislation, that look, it's an economic decision, once you make the economic decision, we aggregate the decision, there is a substantial effect on commerce.

That argument works here.

It works in every single industry.

Justice Stephen G. Breyer: Of course we do know that there are a few people, more in New York City than there are in Wyoming, who never will buy a car.

But we also know here, and we don't like to admit it, that because we are human beings we all suffer from the risk of getting sick.

And we also all know that we'll get seriously sick.

And we also know that we can't predict when.

And we also know that when we do, there will be our fellow taxpayers through the Federal Government who will pay for this.

If we do not buy insurance, we will pay nothing.

And that happens with a large number of people in this group of 40 million, none of whom can be picked out in advance.

Now, that's quite different from a car situation, and it's different in only this respect.

It shows there is a national problem, and it shows there is a national problem that involves money, cost insurance.

So if Congress could do this, should there be a disease that strikes the United States and they want every one inoculated even though ten million will be hurt, it's hard for me to decide why that isn't interstate commerce, even more so where we know it affects everybody.

Mr. Clement: Well, Justice Breyer, there are other markets that affect every one: transportation, food, burial services, though we don't like to talk about that either.

There also are situations where there are many economic effects from somebody's failure to purchase a product.

And if I could, if I could talk about the difference between the health insurance market and the health care market, I mean, ultimately I don't want you to leave here with the impression that anything turns on that.

Because if the government decided tomorrow that they would come up with a great -- some of these -- some private companies come up with a great new wonder drug that would be great for everybody to take, would have huge health benefits for everybody; and by the way, also if everybody had to buy it, it would facilitate economies of scale, and the production would be great, and the price would be cheaper and force everybody in the health care market, the actual health care market to buy the wonder drug, I'd be up here making the same argument.

I would be saying that's not a power that's within the commerce power of the Federal Government.

It is something much greater.

And it would have been much more controversial.

That's why the important things.

In Federalist 45, Madison says the commerce power.

That's a new power, but it's not one anyone has any apprehension about.

The reason they didn't have any apprehension about it is because it's a power that only operated once people were already in commerce.

You see that from the text of the clause.

The first kind of commerce Congress gets to regulate is commerce with foreign nations.

Did anybody think the fledgling Republic had the power to compel some other nation into commerce with us?

Of course not.

And in the same way, I think if the framers had understood the commerce power to include the power to compel people to engage in commerce--

Justice Elena Kagan: Well, once again though, who's in commerce and what are they in commerce?

If the effect of all these uninsured people is to raise everybody's premiums, not just when they get sick, if they get sick, but right now in the aggregate, and Wickard and Raich tell us we should look at the aggregate, and the aggregate of all these uninsured people are increasing the normal family premium, Congress says, by a thousand dollars a year.

Those people are in commerce.

They are making decisions that are affecting the price that everybody pays for this service.

Mr. Clement: --Justice Kagan, again, with all due respect, I don't think that's a limiting principle.

My unwillingness to buy an electric car is forcing up the price of an electric car.

If only more people demanded an electric car there would be economies of scale, and the price would go down.

Justice Elena Kagan: Not necessarily, Mr. Clement.

And it's different because of the nature of the health care service, that you are entitled to health care when you go to an emergency room, when you go to a doctor, even if you can't pay for it.

So the difference between your hypotheticals and the real case is the problem of uncompensated care which--

Mr. Clement: Justice Kagan, first of all, I do think there -- this is not the only place where there's uncompensated care.

If some -- if I don't buy a car and somebody goes on welfare, I'm going to end up paying for that as well.

But let me also say that there is a real disconnect then between that focus on what makes this different and statute that Congresses passed.

If all we were concerned about is the cost sharing that took place because of uncompensated care in emergency rooms, presumably we have before us a statute that only addressed emergency care and catastrophic insurance coverage.

But it covers everything, soup to nuts, and all sorts of other things.

And that gets at the idea that there is two kinds of cost shifting that are going on here.

One is the concern about emergency care and that somehow somebody who gets sick is going to shift costs back to other policy areas -- holders.

But there is a much bigger cost shifting going on here, and that's the cost shifting that goes on when you force healthy people into an insurance market precisely because they are healthy, precisely because they are not likely to go to the emergency room, precisely because they are not likely to use the insurance they are forced to buy in the health care insurance.

That creates a huge windfall.

It lowers the price of premiums.

And again, this is not just some lawyer up here telling you that's what it does and trying to second-guess the congressional economic decisions.

This is Congress's findings, findings I on page 43 A of the appendix to the government's--

Justice Stephen G. Breyer: All that sounds like you're debating the merits of the bill.

You ask really for limiting principles so we don't get into a matter that I think has nothing to do with this case: broccoli, okay?

And the limiting principles, you've heard three.

First, the Solicitor General came up with a couple joined, very narrow ones.

You've seen in Lopez this Court say that we cannot, Congress cannot get into purely local affairs, particularly where they are noncommercial.

And, of course, the greatest limiting principle of all, which not too many accept, so I'm not going to emphasize that, is the limiting principle derived from the fact that members of Congress are elected from States and that 95 percent of the law of the United States is State law.

That is a principle though enforced by the legislature.

The other two are principles, one written into Lopez and one you just heard.

It seems to me all of those eliminate the broccoli possibility, and none of them eliminates the possibility that we are trying to take the 40 million people who do have the medical cost, who do affect interstate commerce and provide a system that you may like or not like.

That's where we are in limiting principles.

Mr. Clement: --Well, Justice Breyer, let me take them in turn.

I would encourage this Court not to Garcia-ize the Commerce Clause and just simply say it's up to Congress to police the Commerce Clause.

So I don't think that is a limiting principle.

Second of all--

Justice Sonia Sotomayor: Yes, but that's exactly what Justice Marshall said in Gibbons.

He said that it is the power to regulate, the power like all others vested in Congress is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations other than those prescribed in the Constitution.

But there is no conscription in the, set forth in the Constitution with respect to regulating commerce.

Mr. Clement: --I agree 100 percent, and I think that was the Chief Justice's point which was once you open the door to compelling people into commerce based on the narrow rationales that exist in this industry, you are not going to be able to stop that process.

Justice Antonin Scalia: I would like hear you address Justice Breyer's other, other two principles.

Mr. Clement: Well, the other two principles are Lopez -- and this case really is not -- I mean, you know, Lopez is a limit on the affirmative exercise of people who are already in commerce.

The question is, is there any other limit to people who aren't in commerce?

And so I think this is the case that really asks that question.

And then the first point which was I take it to be the Solicitor General's point is, with all due respect, simply a description of the insurance market.

It's not a limiting principle, because the justification for why this is a valid regulation of commerce is in no way limited to this market.

It simply says, these are economic decisions, they have effect on other people, my failure to purchase in this market has a direct effect on others who are already in the market.

That's true of virtually every other market under the sun.

Chief Justice John G. Roberts: And now maybe return to Justice Sotomayor's question.

Mr. Clement: I'd be delighted to, which is -- I mean, I -- you are absolutely right.

Once you're in the commerce power, there is not -- this Court is not going to police that subject maybe to the Lopez limit.

And that's exactly why I think it's very important for this Court to think seriously about taking an unprecedented step of saying that the commerce power not only includes the power to regulate, prescribe the rule by which commerce is governed, the rule of Gibbons v. Ogden.

But to go further and say it's not just prescribing the rule for commerce that exists but is the power to compel people to enter into commerce in the first place.

I would like to say two very brief things about the taxing power, if I could.

There are lots of reasons why this isn't a tax.

It wasn't denominated a tax.

It's not structured as a tax.

If it's any tax at all, though, it is a direct tax.

Article I, Section 9, clause 4, the Framers would have had no doubt that a tax on not having something is not an excise tax but a forbidden direct tax.

That's one more reason why this is not proper legislation because it violates that.

The second thing is I would urge you to read the License Tax case which the Solicitor General says is his best case for why you ignore the fact that a tax is denominated into something other.

Because that is a case where the argument was that because the Federal government had passed a license not a tax, that somehow that allowed people to take actions that would have been unlawful under State law, that this was some special Federal license to do something that was forbidden by State law.

This Court looked beyond the label in order to preserve federalism there.

What the Solicitor General and the government ask you to do here is exactly the opposite, which is to look past labels in order to up-end our basic federalist system.

In this--

Justice Sonia Sotomayor: Would you tell me, do you think the States could pass this mandate.

Mr. Clement: --I represent 26 States.

I do think the States could pass this mandate, but I--

Justice Sonia Sotomayor: Is there any other area of commerce, business, where we have held that there is a concurrent power between the State and the Federal Government to protect the welfare of commerce?

Mr. Clement: --Well, Justice Sotomayor, I have to resist your premise, because I didn't answer yes, the States can do it because it would be a valid regulation of intrastate commerce.

I said yes, the States can do it because they have a police power, and that is the fundamental difference between the States on the one hand and the limited, enumerated Federal Government on the other.

Chief Justice John G. Roberts: Thank you, Mr. Clement.

Mr. Carvin.

ORAL ARGUMENT OF MICHAEL A. CARVIN ON BEHALF OF THE RESPONDENTS NFIB, ET AL.

Mr. Carvin: Thank you, Mr. Chief Justice, may it please the Court: I'd like to begin with the Solicitor General's main premise, which is that they can compel the purchase of health insurance in order to promote commerce in the health market because it will reduce uncompensated care.

If you accept that argument, you have to fundamentally alter the text of the Constitution and give Congress plenary power.

It simply doesn't matter whether or not this regulation will promote health care commerce by reducing uncompensated care; all that matters is whether the activity actually being regulated by the act negatively affects Congress or negatively affects commerce regulation, so that it's within the commerce power.

If you agree with us that this is -- exceeds commerce power, the law doesn't somehow become redeemed because it has beneficial policy effects in the health care--

In other words, Congress does not have the power to promote commerce.

Congress has -- Congress has the power to regulate commerce.

And if the power exceeds their permissible regulatory authority, then the law is invalid.

Chief Justice John G. Roberts: Well, surely--

Mr. Carvin: I'm sorry.

Chief Justice John G. Roberts: --Well, surely regulation includes the power to promote.

Since the New Deal we've said that regulation in -- there is a market agricultural products; Congress has the power to subsidize, to limit production, all sorts of things.

Mr. Carvin: Absolutely, Chief Justice, and that's the distinction I'm trying to draw.

When they are acting within their enumerated power then obviously they are promoting commerce, but the Solicitor General wants to turn it into a different power.

He wants to say we have the power to promote commerce, to regulate anything to promote commerce, and if they have the power to promote commerce then they have the power to regulate everything, right?

Because--

Chief Justice John G. Roberts: I don't -- I don't think you're addressing their main point, which is that they are not creating commerce in -- in health care.

It's already there, and we are all going to need some kind of health care; most of us will at some point.

Mr. Carvin: --I'd -- I'd like to address that in two ways, if I could, Mr. Chief Justice.

In the first place they keep playing mix and match with the statistics.

They say 95 percent of us are in the health care market, okay?

But that's not the relevant statistic, even from -- as the government frames the issue.

No one in Congress and the Solicitor General is arguing that going to the doctor and fully paying him creates a problem.

The problem is uncompensated care, and they say the uncompensated care arises if you have some kind of catastrophe -- hit by a bus, have some prolonged illness.

Well, what is the percentage of the uninsured that have those sorts of catastrophes?

We know it has got to be a relative small fraction.

So in other words, the relevant--

Chief Justice John G. Roberts: Yet we don't know who they are.

Mr. Carvin: --We don't.

No, and we don't know in advance, and -- and -- but that doesn't change the basic principle, that you are nonetheless forcing people for paternalistic reasons to go into the insurance market to ensure against risk that they have made the voluntary decision that they are not -- have decided not to.

But even--

Justice Ruth Bader Ginsburg: But the problem is -- the problem is this they are making the reinvent of us pay for it, because as much as they say, well, we are not in the market, we don't know when the -- the timing when they will be.

Mr. Carvin: --Which is--

Justice Ruth Bader Ginsburg: And the -- the figures that how much more families are paying for insurance because people get sick, they may have intended to self-insure, they haven't been able to meet the bill for -- for cancer, and the rest of us end up paying because these people are getting cost-free health care, and the only way to prevent that is to have them pay sooner rather than later, pay up front.

Mr. Carvin: --Yes, but my point is this.

That, with respect, Justice Ginsburg, conflicts the people who do result in uncompensated care, the free riders.

Those are people who default on their health care payments.

That is an entirely different group of people, an entirely different activity than being uninsured.

So the question is whether or not you can regulate activity because it has a statistical connection to an activity that harms Congress.

And my basic point to you is this: the Constitution only gives Congress the power to regulate things that negatively affect commerce or commerce regulation.

It doesn't give them the power to regulate things that are statistically connected to things that negatively affect the commerce--

Justice Elena Kagan: Well, Mr. Carvin--

Mr. Carvin: --Because -- I'm sorry.

Justice Elena Kagan: --Please.

Mr. Carvin: I was just going to say, because if they have that power, then they obviously have the power to regulate everything because everything in the aggregate is statistically connected to something that negatively affects commerce, and every compelled purchase promotes commerce.

Justice Stephen G. Breyer: In your view, right there -- in your view right there--

Mr. Carvin: Justice Breyer--

Justice Stephen G. Breyer: --Can I just--

Mr. Carvin: --I'm sorry.

Justice Stephen G. Breyer: --I'm just picking on something.

I'd like to just -- if it turned out there was some terrible epidemic sweeping the United States, and we couldn't say that more than 40 or 50 percent -- I can make the number as high as I want -- but the -- the -- you'd say the Federal Government doesn't have the power to get people inoculated, to require them to be inoculated, because that's just statistical.

Mr. Carvin: Well, in all candor, I think Morrison must have decided that issue, right?

Because people who commit violence against--

Justice Stephen G. Breyer: Is your answer to that yes or no?

Mr. Carvin: --Oh, I'm sorry; my answer is no, they couldn't do it, because Morrison--

Justice Stephen G. Breyer: No, they could not do it.

Mr. Carvin: --Yes.

Justice Stephen G. Breyer: They cannot require people even if this disease is sweeping the country to be inoculated.

The Federal Government has no power, and if there's -- okay, fine.

Go ahead.

Mr. Carvin: May--

Justice Stephen G. Breyer: Please turn to Justice Kagan.

Mr. Carvin: --May I just please explain why?

Justice Stephen G. Breyer: Yes.

Mr. Carvin: Violence against women obviously creates the same negative impression on fellow citizens as this communicable disease, but the -- and it has huge effects on the health care of our country.

Congress found that it increased health care costs by--

Justice Stephen G. Breyer: I agree with you that--

Mr. Carvin: --Well, but--

Justice Stephen G. Breyer: --that it had huge negative effects but the majority thought that was a local matter.

Justice Antonin Scalia: I think that's his point.

[Laughter]

Mr. Carvin: --I -- I don't know why having a disease is any more local than -- that beating up a woman.

But -- but -- my basic point is, is that notwithstanding its very profound effect on the health care market, this Court said the activity being regulated, i.e., violence against women, is outside the Commerce Clause power.

So regardless of whether it has beneficial downstream effects, we must say no, Congress doesn't have that power.

Why not?

Because everything has downstream effects on commerce and every compelled purchase promotes commerce.

It by definition helps the sellers of existing--

Justice Samuel Alito: Mr. Carvin, isn't there this difference between Justice Breyer's hypothetical and the law that we have before us here?

In his hypothetical harm to other people from the communicable disease is the result of the disease.

It is not the result of something that the government has done, whereas here the reason why there is cost shifting is because the government has mandated that.

It has required hospitals to provide emergency treatment, and instead of paying for that through a tax which would be born by everybody, it has required -- it has set up a system in which the cost is surreptitiously shifted to people who have health insurance and who pay their bills when they go to the hospital.

Mr. Clement: Justice Alito, that is exactly the government's argument.

It's an extraordinarily illogical argument.

Justice Stephen G. Breyer: Fine.

Then if that's so, is -- let me just change my example under pressure ----

[Laughter]

--and say that in fact it turns out that 90 percent of all automobiles driving interstate without certain equipment put up pollution, which travels interstate -- not 100 percent, maybe only 60 percent.

Does the EPA have the power then to say you've got to have an antipollution device?

It's statistical.

Mr. Carvin: --What they can't do -- yes, if you have a car, they can require you to have an anti-pollution--

Justice Stephen G. Breyer: Then you're not going on statistics; you're going on something else which is what I'd like to know what it is.

Mr. Carvin: --It's this.

They can't require you to buy a car with an anti-pollution device.

Once you've entered the market and made a decision they can regulate the terms and conditions of the car that you do, and they can do it for all sorts of reasons.

What they can't do it compel you to enter the market.

Justice Stephen G. Breyer: Now we -- now you've changed the ground of argument, which I accept as -- as totally legitimate.

And then the question is when you are born, and you don't have insurance, and you will in fact get sick, and you will in fact impose costs, have you perhaps involuntarily -- perhaps simply because you are a human being -- entered this particular market, which is a market for health care?

Mr. Carvin: If being born is entering the market, then I can't think of a more plenary power Congress can have, because that literally means they can regulate every human activity from cradle to grave.

I thought that's what distinguished the plenary police power from the very limited commerce power.

I don't disagree that giving the Congress plenary power to mandate property transfers from A to B would be a very efficient way of helping B and of accomplishing Congress's objectives.

But the framers--

Justice Stephen G. Breyer: I see the point.

You can go back to, go back to Justice Kagan.

Don't forget her question.

Justice Elena Kagan: I've forgotten my question.

[Laughter]

Mr. Carvin: --I -- I was facing the same dilemma, Justice Kagan.

Justice Ruth Bader Ginsburg: Let me -- let me ask a question I asked Mr. Clement.

It just seems--

Justice Elena Kagan: See what it means to be the junior justice?

[Laughter]

Justice Ruth Bader Ginsburg: --It just seems very strange to me that there's no question we can have a Social Security system besides all the people who say: I'm being forced to pay for something I don't want.

And this it seems to me, to try to get care for the ones who need it by having everyone in the pool, but is also trying to preserve a role for the private sector, for the private insurers.

There's something very odd about that, that the government can take over the whole thing and we all say, oh, yes, that's fine, but if the government wants to get -- to preserve private insurers, it can't do that.

Mr. Carvin: Well I don't think the test of a law's constitutionality is whether it more adheres to the libertarian principles of the Cato Institute or the statist principles of someone else.

I think the test of a law's constitutionality is not those policy questions; it's whether or not the law is regulating things that negatively affect commerce or don't.

And since obviously the failure to purchase an item doesn't create the kind of effects on supply and demand that the market participants in Wickard and Raich did and doesn't in any way interfere with regulation of the insurance companies, I don't think it can pass the basic--

Justice Ruth Bader Ginsburg: I thought -- I thought that Wickard was you must buy; we are not going to let you use the home-grown wheat.

You have got to go out in the market and buy that wheat that you don't want.

Mr. Carvin: --Oh, but let's be careful about what they were regulating in Wickard, Justice Ginsburg.

What they were regulating was the supply of wheat.

It didn't in any way imply that they could require every American to go out and buy wheat.

And yes, one of the consequences of regulating local market participants is it'll affect the supply and the demand for the product.

That's why you can regulate them, because those local market participants have the same effect on the interstate market that a black market has on a legal--

But none of that is true -- in other words, you can regulate local bootleggers, but that doesn't suggest you can regulate teetotalers, people who stay out of the liquor market, because they don't have any negative effect on the existing market participants or on regulation of those market participants.

Justice Elena Kagan: That's why I suggested, Mr. Carvin, that it might be different if you were raising an as-applied challenge and presenting a class of people whom you could say clearly would not be in the health care market.

But you're raising a facial challenge and we can't really know which, which of the many, many, people that this law addresses in fact will not participate in the health care market and in fact will not impose costs on all the rest of us.

So the question is can Congress respond to those facts, that we have no crystal ball, that we can't tell who is and isn't going to be in the health insurance market, and say most of these people will be and most of these people will thereby impose costs on the rest of us and that's a problem that we can deal with on a class-wide basis?

Mr. Carvin: No again.

The people who impose the costs on the rest of us are people who engage in a different activity at a different time, which is defaulting on their health care payments.

It's not the uninsured.

Under your theory you could regulate anybody if they have got a statistical connection to a problem.

You could say, since we could regulate people who enter into the mortgage market and impose mortgage insurance on them, we can simply impose the requirement to buy private mortgage insurance on everybody before they have entered the market because we are doing it in this prophylactic way before it develops.

Chief Justice John G. Roberts: No, no, that's not -- I don't think that's fair, because not everybody is going to enter the mortgage market.

The government's position is that almost everybody is going to enter the health care market.

Mr. Carvin: Two points, one of which Mr. Clement's already made, which is the health insurance market is different than the health care market.

But let me take it on full-stride.

I think everybody is in the milk market.

I think everybody is in the wheat product market.

But that doesn't suggest that the government compel you to buy five gallons of meat or five bushels of wheat because they are not regulating commerce.

Whether you're a market participant or not, they are still requiring you to make a purchase that you don't want to do, and to get back to your facial example--

Justice Sonia Sotomayor: I mean, but that's true of almost every product.

Mr. Carvin: --I've sorry?

Justice Sonia Sotomayor: It's true of almost every product, directly or indirectly by government regulation.

The government says, borrowing my colleague's example, you can't buy a car without emission control.

I don't want a car with emission control.

It's less efficient in terms of the horsepower.

But I'm forced to do something I don't want to do by government regulation.

Mr. Carvin: You are not forced to buy a product you don't want.

And I agree with you that since the government regulates all markets there is no limiting principle on their compelled purchase.

When they put these environmental controls on the--

Justice Sonia Sotomayor: They force me to buy--

Mr. Carvin: --I'm sorry.

Justice Sonia Sotomayor: --They forced me to buy if I need unpasteurized foods, goods that don't have certain pesticides but have others.

There is government compulsion in almost every economic decision because the government regulates so much.

It's a condition of life that some may rail against, but--

Mr. Carvin: Let's think about it this way.

Yes, when you've entered the marketplace they can impose all sorts of restrictions on you, and they can impose, for example, all kinds of restrictions on States after they have enacted laws.

They can wipe out the laws.

They can condition them.

But what can't they do?

They can't compel States to enact laws.

They can't compel States to carry out Federal law.

And I am arguing for precisely the same distinction, because everyone intuitively understands that regulating participants after A and B have entered into a contract is fundamentally less intrusive than requiring the contract.

Justice Sonia Sotomayor: --We let the government regulate the manufacturing process whether or not the goods will enter into interstate commerce, merely because they might statistically.

We -- there is all sorts of government regulation of manufacturing plants, of agricultural farms, of all sorts of activity that will be purely intrastate because it might affect interstate activity.

Mr. Carvin: I fully agree with you, Justice Sotomayor.

But I think--

Justice Sonia Sotomayor: So how is that different from saying you are self-insuring today, you're foregoing insurance?

Why isn't that a predecessor to the need that you're eventually going to have?

Mr. Carvin: --The cases you referred to I think effectively eliminated the distinction between participants in the intrastate market vis -- vis participants in the interstate market.

None of those cases suggest that you can regulate people who are outside of the market on both an intrastate and interstate level by compelling them to enter into the market.

And that--

Justice Stephen G. Breyer: What about -- the simplest counter-example for me to suggest is you've undoubtedly read Judge Sutton's concurring opinion.

He has about two pages, it seemed to me, of examples where everyone accepts the facts that under these kinds of regulations the government can compel people to buy things they don't otherwise want to buy.

For example, he gives, even in that farm case, the farmer who was being forced to go out and buy grain to feed to his animals because he couldn't raise it at home.

You know and he goes through one example after another.

So what -- what is your response to that, which you've read?

Mr. Carvin: --Judge Sutton is wrong in each and every example.

There was no -- there was no compulsion in Raich for him to buy wheat.

He could have gotten wheat substitutes or he could have not sold wheat, which is actually what he was doing.

There is a huge difference between conditioning regulation, i.e., conditioning access to the health care market and saying you must buy a product, and forcing you to buy a product.

And that, that -- I'm sorry.

Justice Ruth Bader Ginsburg: I thought it was common ground that the requirement that the insurers -- what was it, the community-based one and they have to insure you despite your health status; they can't refuse because of preexisting conditions.

The government tells us and the Congress determined that those two won't work unless you have a pool that will include the people who are now healthy.

But so -- well, first, do you agree with your colleague that the community-based -- and what's the name that they give to the other?

Mr. Carvin: The guaranteed-issue.

Justice Ruth Bader Ginsburg: Yes.

That that is legitimate Commerce Clause legislation?

Mr. Carvin: Oh, sure.

And that's why -- but we don't in any way impede that sort of regulation.

These nondiscrimination regulations will apply to every insurance company just as Congress intended whether or not we buy insurance.

Justice Ruth Bader Ginsburg: Well then, what about the determination that they can't possibly work if people don't have to buy insurance until they are -- their health status is such that the insurance company just dealt with them on its -- as it will?

I won't insure you because you're -- you're already sick.

Mr. Carvin: It depends what you mean by "work".

It'll work just fine in ensuring that no sick people are discriminated against.

What -- what -- but when you do that -- Congress--

Justice Ruth Bader Ginsburg: But the sick people, why would they insure early if they had to be protected if they get insurance late?

Mr. Carvin: --Yes.

Well, that's -- this is the government's very illogical argument.

They seem to be saying look, we couldn't just force people to buy insurance to lower health insurance premiums.

That would be no good.

But we can do it because we've created the problem.

We, Congress, have driven up the health insurance premiums, and since we've created that problem, this somehow gives us authority that we wouldn't otherwise have.

That can't possibly be right.

That would--

Justice Sonia Sotomayor: Do you think that there's -- what percentage of the American people who took their son or daughter to an emergency room and that child was turned away because the parent didn't have insurance -- do you think there's a large percentage of the American population who would stand for the death of that child--

Mr. Carvin: --One of the most--

Justice Sonia Sotomayor: --They had an allergic reaction and a simple shot would have saved the child?

Mr. Carvin: --One of the more pernicious, misleading impressions that the government has made is that we are somehow advocating that people be -- could get thrown out of emergency rooms, or that this alternative that they've hypothesized is going to be enforced by throwing people out of emergency rooms.

This alternative; i.e. conditioned access to health care on buying health insurance, is enforced in precisely the same way that the Act does.

You either buy health insurance or you pay a penalty of $695.

You don't have doctors throwing people out on the street.

And -- and so the only--

Justice Sonia Sotomayor: I'm sorry, did you say the penalty's okay but not the mandate?

I'm sorry.

Maybe I've misheard you.

Mr. Carvin: --No.

No.

I was -- they create this strawman that says look, the only alternative to doing it the way we've done it, if we condition access to health care on buying health insurance, the only way you can enforce that is making sick people not get care.

I'm saying no, no.

There's a perfectly legitimate way they could enforce their alternative; i.e. requiring you to buy health insurance when you access health care, which is the same penalty structure that's in the Act.

There is no moral dilemma between having people have insurance and denying them emergency service.

Congress has made a perfectly legitimate value judgment that they want to make sure that people get emergency care.

Since the founding, whenever Congress has imposed that public responsibility on private actors, it has subsidized it from the Federal Treasury.

It has not conscripted a subset of the citizenry and made them subsidize the actors who are being hurt, which is what they're doing here.

They're making young healthy people subsidize insurance premiums for the cost that the nondiscrimination provisions have put on insurance premiums and insurance companies.

Justice Sonia Sotomayor: So the--

Mr. Carvin: --and that -- that is the fundamental problem here.

Justice Sonia Sotomayor: --So the -- I -- I want to understand the choices you're saying Congress has.

Congress can tax everybody and set up a public health care system.

Mr. Carvin: Yes.

Justice Sonia Sotomayor: That would be okay.

Mr. Carvin: Yes.

Tax power is--

Justice Sonia Sotomayor: Okay.

Mr. Carvin: --I would accept that.

Justice Sonia Sotomayor: Congress can -- you're taking the same position as your colleague, Congress can't say we're going to set up a public health system, but you can get a tax credit if you have private health insurance because you won't access the public system.

Are you taking the same position as your colleague?

Mr. Carvin: There may have been some confusion in prior colloquy.

I fully agree with my brother Clement that a direct tax would be unconstitutional.

I don't think he means to suggest, nor do I, that a tax credit that incentivizes you to buy insurance creates problems.

Congress incentivizes all kinds of activities.

If they gave us a tax credit for buying insurance, then it would be our choice whether or not that makes economic sense, even though--

Justice Sonia Sotomayor: So how is this different than this Act which says if a taxpayer fails to meet the requirement of having minimum coverage, then they are responsible for paying the shared responsibility payment?

Mr. Carvin: --The difference is that the taxpayer is not given a choice.

It's the difference between banning cigarettes and saying I'm going to enforce that legal ban through a $5 a pack penalty, and saying look, if you want to sell cigarettes, fine.

I'm going to charge you a tax of $5 a pack.

And that's--

Justice Sonia Sotomayor: I think -- I think that's what's happening, isn't it?

Mr. Carvin: --No.

Not--

Justice Sonia Sotomayor: We're paying -- I thought that everybody was paying, what is it, $10 a pack now?

I don't even know the price.

It's pretty high.

Mr. Carvin: --Right.

And everyone understands--

Justice Sonia Sotomayor: I think everybody recognizes that it's all taxation for the purposes of dissuading you to buy it.

Mr. Carvin: --That's precisely my point.

And everyone intuitively understands that that system is dramatically different than saying cigarettes tomorrow are illegal.

It is different.

Justice Stephen G. Breyer: It is different.

It is different.

I agree with that.

But you pointed out, and I agree with you on this, that the government set up these emergency room laws.

The government set up Medicaid.

The government set up Medicare.

The government set up CHIP, and there are 40 million people who don't have the private insurance.

In that world, the government has set up commerce.

It's all over the United States.

And in that world, of course, the decision by the 40 million not to buy the insurance affects that commerce, and substantially so.

So I thought the issue here is not whether it's a violation of some basic right or something to make people buy things they don't want, but simply whether those decisions of that group of 40 million people substantially affect the interstate commerce that has been set up in part through these other programs.

So that's the part of your argument I'm not hearing.

Mr. Carvin: Let me--

Justice Stephen G. Breyer: Please.

Mr. Carvin: --It is clear that the failure to buy health insurance doesn't affect anyone.

Defaulting on your payments to your health care provider does.

Congress chose for whatever reason not to regulate the harmful activity of defaulting on your health care provider.

They used the 20 percent or whoever among the uninsured as a leverage to regulate the 100 percent of the uninsured.

Justice Anthony Kennedy: I agree -- I agree that that's what's happening here.

Mr. Carvin: Okay.

Justice Anthony Kennedy: And the government tells us that's because the insurance market is unique.

And in the next case, it'll say the next market is unique.

But I think it is true that if most questions in life are matters of degree, in the insurance and health care world, both markets -- stipulate two markets -- the young person who is uninsured is uniquely proximately very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries.

That's my concern in the case.

Mr. Carvin: And, Your -- I may be misunderstanding you, Justice Kennedy.

I hope I'm not.

Sure.

It would be perfectly fine if they allowed -- you do actuarial risk for young people on the basis of their risk for disease, just like you judge flood insurance on the homeowner's risk of flood.

One of the issues here is not only that they're compelling us to enter into the marketplace, they're not -- they're prohibiting us from buying the only economically sensible product that we would want.

Catastrophic insurance.

Everyone agrees the only potential problem that a 30-year-old, as he goes from the healthy 70 percent of the population to the unhealthy 5 percent.

And yet Congress prohibits anyone over 30 from buying any kind of catastrophic health insurance.

And the reason they do that is because they needed this massive subsidy.

Justice Alito, it's not our numbers.

CBO said that injecting my clients into the risk pool lowers premiums by 15 to 20 percent.

So, Justice Kennedy, even if we were going to create exceptions for people that are outside of commerce and inside of commerce, surely we'd make Congress do a closer nexus and say look, we're really addressing this problem.

We want these 30-year-olds to get catastrophic health insurance.

And not only did they -- they deprived them of that option.

And I think that illustrates the dangers of giving Congress these plenary powers, because they can always leverage them.

They can always come up with some public policy rationale that converts the power to regulate commerce into the power to promote commerce, which, as I was saying before, is the one that I think is plenary.

Justice Elena Kagan: Mr. Carvin, a large part of this argument has concerned the question of whether certain kinds of people are active participants in a market or not active participants in a market.

In your test, which is a test that focuses on this activity/inactivity distinction, would force one to confront that problem all the time.

Now, if you look over the history of the Commerce Clause, what you see is that there were sort of unhappy periods when the Court used tests like this -- direct versus indirect, commerce versus manufacturing.

I think most people would say that those things didn't really work.

And the question is, why should this test, inactive versus active, work any better?

Mr. Carvin: The problem you identify is exactly the problem you would create if you bought the government's bogus limiting principles.

You'd have to draw distinctions between the insurance industry and the car industry and all of that.

We turn you to the Commerce Clause jurisprudence that bedeviled the Court before the 1930s, where they were drawing all these kinds of distinctions among industries; whereas our test is really very simple.

Are you buying the product or is Congress compelling you to buy the product?

I can't think of a brighter line.

And again, if Congress has the power to compel you to buy this product, then obviously, they have got the power to provide you -- to compel you to buy any product, because any purchase is going to benefit commerce, and this Court is never going to second-guess Congress's policy judgments on how important it is this product versus that product.

Justice Samuel Alito: Do you think they are drawing a line between commerce and everything else that is not commerce is drawing an artificial line, drawing a line between Congress and manufacturing?

Mr. Carvin: The words "inactivity" and "activity" are not in the Constitution.

The words "commerce" and "noncommerce" are.

And again, it's a distinction that comes, Justice Kagan, directly from the text of the Constitution.

The Framers consciously gave Congress the ability to regulate commerce, because that's not a particularly threatening activity that deprives you of individual freedom.

If you were required, if you were authorized to require A to transfer property to B, you have, as the early cases put it, a monster in legislation which is against all reason in justice, because everyone intuitively understands that regulating people who voluntarily enter into contracts in setting changing conditions does not create the possibility of Congress compelling wealth transfers among the citizenry.

And that is precisely why the Framers denied them the power to compel commerce, and precisely why they didn't give them plenary power.

Chief Justice John G. Roberts: Thank you, Mr. Carvin.

remaining.

General Verrilli, you have four minutes--

REBUTTAL ARGUMENT OF DONALD B. VERRILLI, JR., ON BEHALF OF THE PETITIONERS

Mr. Verrilli Jr.: Thank you, Mr. Chief Justice.

Congress confronted a grave problem when it enacted the Affordable Care Act.

The 40 million Americans who can't get health insurance and suffered often very terrible consequences.

Now, we agree, I think -- everyone arguing this case agrees that Congress could remedy that problem by imposing the insurance requirement at the point of sale.

That won't work.

The reason it won't work is because people will still show up at the hospital or at their physician's office seeking care without insurance, causing the cost shifting problem.

And Mr. Clement's suggestion that they can be signed up for a high risk pool at that point is utterly unrealistic.

Think about how much it would cost to get the insurance when you are at the hospital or at the doctor.

It would be -- it would be unfathomably high, that will never work.

Congress understood that.

It chose a means that will work.

The means that it saw work in the States and in the State of Massachusetts and that, and that it had every reason to think would work on a national basis.

That is the kind of choice of means that McCulloch says that the Constitution leaves to the democratically accountable branches of government.

There is no temporal limitation in the Commerce Clause.

Everyone subject to this regulation is in or will be in the health care market.

They are just being regulated in advance.

That's exactly the kind of thing that ought to be left to the judgment of Congress and the democratically accountable branches of government.

And I think this is actually a paradigm example of the kind of situation that Chief Justice Marshall envisioned in McCulloch itself, that the provisions of the Constitution needed to be interpreted in a manner that would allow them to be effective in addressing the great crises of human affairs that the Framers could not even envision.

But if there is any doubt about that under the Commerce Clause, then I urge this Court to uphold the minimum coverage provision as an exercise of the taxing power.

Under New York v. United States, this is precisely a parallel situation.

If the Court thinks there is any doubt about the ability of Congress to impose the requirement in 5000A(a), it can be treated as simply the predicate to which the tax incentive of 5000A(b) seeks accomplishment.

And the Court -- as the Court said in New York, has a solemn obligation to respect the judgments of the democratically accountable branches of government, and because this statute can be construed in a manner that allows it to be upheld in that way, I respectfully submit that it is this Court's duty to do so.

Chief Justice John G. Roberts: Thank you, General.

Counsel, we'll see you tomorrow.

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The Affordable Care Act Cases - Argument (Anti-Injunction Act)

Mon, 26 Mar 2012 17:14:09 +0000

Case:

The Affordable Care Act Cases

Media File:

11-398_20120326-argument.mp3

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11-398_20120326-argument.xml

Transcript:

ORAL ARGUMENT OF ROBERT A. LONG ON BEHALF OF THE COURT-APPOINTED AMICUS CURIAE

Chief Justice John G. Roberts: We will hear argument this morning in Case Number 11-398, Department of Health and Human Services v. Florida.

Mr. Long.

Mr. Long: Mr. Chief Justice, and may it please the Court:

The Anti-Injunction Act imposes a pay first, litigate later rule that is central to Federal tax assessment and collection.

The Act applies to essentially every tax penalty in the Internal Revenue Code.

There is no reason to think that Congress made a special exception for the penalty imposed by section 5000A.

On the contrary, there are three reasons to conclude that the Anti-Injunction Act applies here.

First, Congress directed that the section 5000A penalty shall be assessed and collected in the same manner as taxes.

Second, Congress provided that penalties are included in taxes for assessment purposes.

And third, the section 5000A penalty bears the key indicia of a tax.

Congress directed that the section 5000A penalty shall be assessed and collected in the same manner as taxes.

That derivative triggers the Anti-Injunction Act which provides that

"no suit for the purpose of restraining the assessment or collection of any tax may be maintained in any court by any person. "

Justice Antonin Scalia: Well, that depends, as -- as the government points out on whether that directive is a directive to the Secretary of the Treasury as to how he goes about getting this penalty, or rather a directive to him and to the courts.

All -- all of the other directives there seem to me to be addressed to the Secretary.

Why -- why should this one be directed to the courts?

When you say in the same manner, he goes about doing it in the same manner, but the courts simply accept that -- that manner of proceeding but nonetheless adjudicate the cases.

Mr. Long: Well, I think I have a three-part answer to that, Justice Scalia.

First, the text does not say that the Secretary shall assess and collect taxes in the same manner; it just says that it shall be assessed in the same manner as a tax, without addressing any party particularly.

Justice Antonin Scalia: Well, he's assessing and collecting it in the same manner as a tax.

Mr. Long: Well, the assessment -- the other two parts of the answer are, as a practical matter, I don't think there is any dispute in this case that if the Anti-Injunction Act does not apply, this penalty, the section 5000A penalty, will as a practical matter be assessed and collected in a very different manner from other taxes and other tax penalties.

There -- there are three main differences.

First, when the Anti-Injunction Act applies, you have to pay the tax or the penalty first and then litigate later to get it back with interest.

Second, you have to exhaust administrative remedies; even after you pay the tax you can't immediately go to court.

You have to go to the Secretary and give the Secretary at least 6 months to see if the matter can be resolved administratively.

And third, even in the very carefully defined situations in which Congress has permitted a challenge to a tax or a penalty before it's paid, the Secretary has to make the first move.

The taxpayer is never allowed to rush into court before the tax -- before the Secretary sends a notice of deficiency to start the process.

Now if -- if the Anti-Injunction Act does not apply here, none of those rules apply.

That's not just for this case; it will be for every challenge to a section 5000A penalty going forward.

The -- the taxpayer will be able to go to court at any time without exhausting administrative remedies; there will be none of the limitations that apply in terms of you have to wait for the Secretary to make the--

Justice Anthony Kennedy: Why -- why will the administrative remedies rule not be applicable -- exhaustion rule not be applicable?

Mr. Long: --Well, because if the Anti-Injunction Act doesn't apply there is -- there is no prohibition on courts restraining the assessment or collection of this penalty, and you can simply--

Justice Anthony Kennedy: Well, but courts apply the exhaustion rule.

I mean, I know you've studied this.

I'm just not following it.

Why couldn't the court say well, you haven't exhausted your remedies, no injunction?

Mr. Long: --Well, in -- you could do that, I think as a matter of -- of common law or judicially imposed doctrine, but in the code itself which is all -- I mean, the Anti-Injunction Act is an absolutely central statute to litigation--

Justice Anthony Kennedy: Yes, yes.

Mr. Long: --about taxes.

And the code says, first it says you must pay the tax first and then litigate.

So that's the baseline.

And then in addition it says you must -- I mean, it's not common law; it's in the code -- you must apply for a refund, you must wait at least 6 months.

That's -- many of these provisions are extremely specific, with very specific time limits--

Chief Justice John G. Roberts: They would apply even if the rule is not jurisdictional.

The only difference would be that the court could enforce it or not enforce it in particular cases, which brings me to the Davis case, which I think is your biggest hurdle.

It's a case quite similar to this in which the constitutionality of the Social Security Act was at issue, and the government waived its right to insist upon the application of this Act.

Of course, if it's jurisdictional, you can't waive it.

So are you asking us to overrule the Davis case?

Mr. Long: --Well, Helvering v. Davis was decided during a period when this Court interpreted the Anti-Injunction Act as simply codifying the pre-statutory equitable principles that usually but not always prohibited a court from enjoining the assessment or collection of taxes.

So that understanding, which is what was the basis for the Helvering v. Davis decision, was rejected by the Court in Williams Packing and a series of subsequent cases -- Bob Jones.

And so I would say effectively, the Davis case has been overruled by subsequent decisions of this Court.

Justice Ruth Bader Ginsburg: Mr. Long, why don't we simply follow the statutory language?

I know that you've argued that the Davis case has been overtaken by later cases, but the language of the Anti-Injunction Act is "no suit shall be maintained".

It's remarkably similar to the language in -- that was at issue in Reed Elsevier:

"No civil action for infringement shall be instituted. "

And that formulation, "no suit may be maintained", contrasts with the Tax Injunction Act, that says the district court shall not enjoin.

That Tax Injunction Act is the same pattern as 2283, which says

"courts of the United States may not stay a proceeding in State court. "

So both of those formulas, the TIA and the no injunction against proceedings in State court, are directed to "court".

The Anti-Injunction Act, like the statute at issue in Reed Elsevier, says "no suit shall be maintained", and it has been argued that that is suitor-directed in contrast to court-directed.

Mr. Long: Right.

Well, I mean, this Court has said several times that the Tax Injunction Act was based on the Anti-Injunction Act.

You are quite right, the language is different; but we submit that the Anti-Injunction Act itself, by saying that no suit shall be maintained, is -- is addressed to courts as well as litigants.

I mean, after all, a case cannot go from beginning to end without the active cooperation of the court.

Justice Ruth Bader Ginsburg: But how is that different from no civil action for infringement shall be instituted -- "maintained and instituted"?

Anything turn on that?

Mr. Long: Well, it's -- I mean -- perhaps a party could initiate an action without the act of cooperation of the court, but to maintain it from beginning to end again requires the court's cooperation.

And -- and even if -- I mean, if the Court were inclined to say as an initial matter if this statute were coming before us for the first time today, given all of your recent decisions on jurisdiction, that you might be inclined to say this is not a jurisdictional statute.

A lot of water has gone over the dam here.

The Court has said multiple times that this is a jurisdictional statute.

Congress has not disturbed those decisions.

To the contrary--

Justice Sonia Sotomayor: Counsel--

Justice Samuel Alito: Well, Congress said that many times, but is there any case in which the result would have been different if the Anti-Injunction Act were not viewed as jurisdictional but instead were viewed as a mandatory claims processing -- rule?

Mr. Long: --There -- there are certainly a number of cases where the Court dismissed saying it is jurisdictional.

As I read the cases, I don't think any of them would necessarily have come out differently, because I don't think we had a case where the argument was, well, you know, the government has waived this, so, you know, even -- if it's not jurisdictional--

Justice Samuel Alito: Well, the clearest -- the clearest way of distinguishing between the jurisdictional provision and a mandatory claims processing rule is whether it can be waived and whether the Court feels that it has an obligation to raise the issue Sua Sponte.

Now, if there are a lot of cases that call it jurisdictional, but none of them would have come out differently if the Anti-Injunction Act were simply a mandatory claims processing rule, you have that on one side.

And on the other side, you have Davis, where the Court accepted a waiver by the Solicitor General; the Sunshine Anthracite coal case, where there also was a waiver; and, there's the Williams Packing case, which is somewhat hard to understand as viewing the Anti-Injunction Act as a jurisdictional provision.

The Court said that there could be a suit if -- there is no way the government could win, and the Plaintiff would suffer irreparable harm.

Now, doesn't that sound like an equitable exception to the Anti-Injunction Act?

Mr. Long: --No.

I think the -- I think the best interpretation of the Court's cases is that it was interpreting a jurisdictional statute.

And, indeed, in Williams Packing, the Court said it was a jurisdictional statute.

But, again, even if you have doubt about simply the cases, there is more than that because Congress has -- has not only not disturbed this Court's decision stating that the statute is jurisdictional, they've passed numerous amendments to this Anti-Injunction Act.

Chief Justice John G. Roberts: Well, it seems -- you can't separate those two points.

The idea that Congress has acquiesced in what we have said only helps you if what we have said is fairly consistent.

And you, yourself, point out in your brief that we've kind of gone back and forth on whether this is a jurisdictional provision or not.

So, even if Congress acquiesced in it, I'm not sure what they acquiesced in.

Mr. Long: Well, what you have said, Mr. Chief Justice, has been absolutely consistent for 50 years, since the Williams Packing case.

The period of inconsistency was after the first 50 years, since the statute was enacted in 1867.

And there was a period, as I said, when the Court was allowing extraordinary circumstances exceptions and equitable exceptions, but then, very quickly, it cut back on that.

And since -- and since Williams Packing, you have been utterly consistent--

Justice Elena Kagan: Well, even since Williams Packing, there was South Carolina v. Regan.

And that case can also be understood as a kind of equitable exception to the rule, which would be inconsistent with thinking that the rule is jurisdictional.

Mr. Long: --Well, again, I mean, I think the best understanding of South Carolina v. Regan is not that its an equitable exception, but it's the court interpreting a jurisdictional statute as it would interpret any statute in light of its purpose, and deciding in that very special case, it's a very narrow exception, where the--

Justice Sonia Sotomayor: --Mr. Long, in Bowles, the Court looked to the long history of appellate issues as being jurisdictional, in its traditional sense, not as a claim processing rule, but as a pure jurisdiction rule, the power of the Court to hear a case.

From all the questions here, I count at least four cases in the Court's history where the Court has accepted a waiver by the Solicitor General and reached a tax issue.

I have at least three cases, one of them just mentioned by Justice Kagan, where exceptions to that rule were read in.

Given that history, regardless of how we define jurisdictional statutes versus claim processing statutes in recent times, isn't the fairer statement that Congress has accepted that in the extraordinary case we will hear the case?

Mr. Long: --No.

No, Justice Sotomayor, because in many of these amendments which have come in the '70s and the '90s and the 2000's, Congress has actually framed the limited exceptions to the Anti-Injunction Act in jurisdictional terms.

And it's written many of the express exceptions by saying notwithstanding Section 7421--

Justice Sonia Sotomayor: But doesn't that just prove that it knows that the Court will impose a claim processing rule in many circumstances, and so, in those in which it specifically doesn't want the Court to, it has to be clearer?

Mr. Long: --Well, but Congress says, notwithstanding 7421, the Court

"shall have jurisdiction to restrain the assessment and collection of taxes in very limited-- "

Justice Sonia Sotomayor: Could you go back to the question that Justice Alito asked.

Assuming we find that this is not jurisdictional, what is the parade of horribles that you see occurring if we call this a mandatory claim processing rule?

What kinds of cases do you imagine that courts will reach?

Mr. Long: --Right.

Well, first of all, I think you would be saying that for the refund statute, as well as for the Anti-Injunction Act -- which has very similar wording, so if the Anti-Injunction Act is not jurisdictional, I think that's also going to apply to the refund statute, the statute that says you have to first ask for a refund and then file, you know, within certain time -- so it would be -- it would be both of those statutes.

And, you know, we are dealing with taxes here, if people--

Justice Sonia Sotomayor: That wasn't my question.

Mr. Long: --I'm sorry.

Justice Sonia Sotomayor: My question was if we deem this a mandatory claim processing rule--

Mr. Long: Right.

Justice Sonia Sotomayor: --what cases do you imagine courts will reach on what grounds?

Assuming the government does its job and comes in and raises the AIA as an immediate defense--

Mr. Long: Well, that's--

Justice Sonia Sotomayor: --where can a Court then reach the question, despite--

Mr. Long: --That would certainly be the first class of cases, it occurs to me, where, if the government does not raise it in a timely way, it could be waived.

I would think plaintiffs would see if there was some clever way they could get a suit going that wouldn't immediately be apparent that--

Justice Sonia Sotomayor: --Assumes the lack of competency of the government, which I don't, but what other types of cases?

Justice Antonin Scalia: Mr. Long, I don't think you are going to come up with any, but I think your response is you could say that about any jurisdictional rule.

If it's not jurisdictional, what's going to happen is you are going to have an intelligent federal court deciding whether you are going to make an exception.

And there will be no parade of horribles because all federal courts are intelligent.

So it seems to me it's a question you can't answer.

It's a question which asks

"why should there be any jurisdictional rules? "

And you think there should be.

Mr. Long: --Well, and, Justice Scalia, I mean, honestly, I can't predict what would happen, but I would say that not all people who litigate about federal taxes are necessarily rational.

And I think there would be a great--

Justice Stephen G. Breyer: I just don't want you to lose the second half of your argument.

And we have spent all the time so far on jurisdiction.

And I accept, pretty much, I'm probably leaning in your favor on jurisdiction, but where I see the problem is in the second part, because the second part says

"restraining the assessment or collection of any tax. "

Now, here, Congress has nowhere used the word "tax".

What it says is penalty.

Moreover, this is not in the Internal Revenue Code "but for purposes of collection".

And so why is this a tax?

And I know you point to certain sentences that talk about taxes within the code--

Mr. Long: --Right.

Justice Stephen G. Breyer: --and this is not attached to a tax.

It is attached to a health care requirement.

Mr. Long: Right.

Justice Stephen G. Breyer: --so why does it fall within that word?

Mr. Long: Well, I mean, the first point is -- our initial submission is you don't have to determine that this is a tax in order to find that the Anti-Injunction Act applies, because Congress very specifically said that it shall be assessed and collected in the same manner as a tax, even if it's a tax penalty and not a tax.

So that's one--

Justice Stephen G. Breyer: But that doesn't mean the AIA applies.

I mean -- and then they provide some exceptions, but it doesn't mean the AIA applies.

It says "in the same manner as".

It is then attached to chapter 68, when that -- it that references that as "being the manner of".

Well, that it's being applied -- or if it's being collected in the same manner as a tax doesn't automatically make it a tax, particularly since the reasons for the AIA are to prevent interference with revenue sources.

And here, an advance attack on this does not interfere with the collection of revenues.

I mean, that's -- you have read the arguments, as have I. But I would like to know what you say succinctly in response to those arguments.

Mr. Long: --So specifically on the argument that it -- it is actually a tax, even setting aside the point that it should be assessed and collected in the same manner as a tax.

The Anti-Injunction Act uses the term "tax"; it doesn't define it.

Somewhat to my surprise, "tax" is not defined anywhere in the Internal Revenue Code.

In about the time that Congress passed the Anti-Injunction Act, tax had a very broad definition.

It's broad enough to include this exaction, which is codified in the Internal Revenue Code.

It's part of the taxpayers' annual income tax return.

The amount of the liability and whether you owe the liability is based in part on your income.

It's assessed and collected by the IRS.

Justice Antonin Scalia: There -- there is at least some doubt about it, Mr. Long, for the reasons that Justice Breyer said, and I -- I thought that we -- we had a principle that ousters of jurisdiction are -- are narrowly construed, that, unless it's clear, courts are not deprived of jurisdiction, and I find it hard to think that this is clear.

Whatever else it is, it's easy to think that it's not clear.

Mr. Long: Well, I mean, the Anti-Injunction Act applies not only to every tax in the code, but, as far as I can tell, to every tax penalty in the code.

Justice Ruth Bader Ginsburg: Mr. Long, you -- you said before -- and I think you were quite right -- that the Tax Injunction Act is modeled on the Anti-Injunction Act, and, under the Tax Injunction Act, what can't be enjoined is an assessment for the purpose of raising revenue.

The Tax Injunction Act does not apply to penalties that are designed to induce compliance with the law rather than to raise revenue.

And this is not a revenue-raising measure, because, if it's successful, they won't -- nobody will pay the penalty and there will be no revenue to raise.

Mr. Long: Well, in -- in Bob Jones the Court said that they had gotten out of the business of trying to determine whether an exaction is primarily revenue raising or primarily regulatory.

And this one certainly raises -- is expected to raise very substantial amounts of revenues, at least $4 billion a year by the--

Justice Sonia Sotomayor: But Bob Jones involved a statute where it denominated the exaction as a tax.

Mr. Long: --That's--

Justice Sonia Sotomayor: Here we have one where the Congress is not denominating it as a tax; it's denominating it as a penalty.

Mr. Long: --That's -- that's absolutely right, and that's obviously why, if it were called a tax, there would be absolutely no question that the Anti-Injunction Act applies.

Justice Sonia Sotomayor: Absolutely.

But even the section of the Code that you referred to previously, the one following 7421, the AIA, it does very clearly make a difference -- 7422 -- make a difference between tax and penalties.

It's very explicit.

Mr. Long: Yes, that's -- it does, that is correct, and there are many other places in the Code where--

Justice Stephen G. Breyer: The best collection I've found in your favor, I think, is in Mortimer Caplin's brief on page 16, 17.

He has a whole list.

All right.

So -- I got my law clerk to look all those up.

And it seems to me that they all fall into the categories of either, one, these are penalties that were penalties assessed for not paying taxes, or, two, they involve matters that were called by the court taxes, or, three, in some instances they were deemed by the Code to be taxes.

Now what we have here is something that's in a different statute that doesn't use the word AIA reason, which is to say to the Solicitor General, we don't care what you think, we, in Congress, don't want you in court where the revenue of a state -- Tax Injunction Act -- or the revenue of the federal government is at stake, and, therefore, you can't waive it.

Now I got that.

Here it's not at stake and here are all the differences I just mentioned.

So I ask that because I want to hear your response.

Mr. Long: --Well, I mean, there are penalties in the Internal Revenue Code that you really couldn't say are related in any -- in any close way to some other tax provision.

There is a penalty -- it's discussed in the briefs -- for selling diesel fuel that doesn't comply with EPA's regulations, you know.

So there are all kinds of penalties in the Code, and I think it's -- it could be--

Justice Elena Kagan: Mr. Long, aren't there places in this Act -- fees and penalties -- that were specifically put under the Anti-Injunction Act?

There is one on health care plans, there is one on pharmaceutical manufacturers, where Congress specifically said the Anti-Injunction Act is triggered for those.

It does not say that here.

Wouldn't that suggest that Congress meant for a different result to obtain?

Mr. Long: --Well, I mean, Congress didn't use the language the Anti-Injunction Act shall apply--

Justice Elena Kagan: No, but it -- it in section 9008 and in section 9010--

Mr. Long: --Right.

Justice Elena Kagan: --it specifically referred to the part of the Code where the Anti-Injunction Act is.

Mr. Long: Right, all of subtitle F, which picks up lots of administration and procedure provisions, but those -- those are fees, and they are not -- Congress did not provide, you know, in the sections themselves that they should be paid as part of a tax return.

So they were free-standing fees, and by using that subtitle F language, Congress plugged in a whole set of rules for how to collect and administer the fees, and it went not just to assessment and collection -- and the IRS has recognized this -- but to examination, privacy, a whole series of additional things.

So I think it would be a mistake to look at that language and say,

"oh, here's Congress saying they want the Anti-Injunction Act to apply. "

They are actually doing more than that.

And, yes, I grant you, you could look at section 5000A, the individual coverage requirement, and say, well, they could have been clearer about saying the Anti-Injunction Act applied, and that's certainly true, but, again, they were trying to accomplish a lot.

Maybe--

Justice Anthony Kennedy: It's easier to talk about this case if we just forget the words

"for the purpose of restraining assessment and collection. "

In a sense, that brings the jurisdictional question and Justice Breyer's question together.

It seems to me -- maybe you could just comment on that language.

Is that sort of language usually contained in a jurisdictional provision?

I mean, you often don't know the purpose of a suit until after the thing is underway.

I can see it with malicious prosecution and some civil rights cases.

Does it strike you as somewhat unusual to have this provision in a jurisdictional case?

Mr. Long: --It does strike me, honestly, as a bit unusual, but this is an old statute.

I mean, this -- the core language is essentially unchanged since 1867, and, you know, I think that's part of the explanation for it.

And, again, it's, you know, become the center of a series of provisions that very carefully control the circumstances in which litigation about federal taxes can take place.

Justice Ruth Bader Ginsburg: Mr. Long, there's another argument that has been made that I would like you to address, and that is all this talk about tax penalties is all beside the point because this suit is not challenging the penalty.

This is a suit that is challenging the must-buy provision, and the argument is made that, if, indeed, "must-buy" is constitutional, then these complainants will not resist the penalty.

So what they're seeking is a determination that that "must-buy" requirement, stated separately from penalty, that "must-buy" is unconstitutional, and, if that's so, that's the end of the case; if it's not so, they are not resisting the penalty.

Mr. Long: Well, I think that argument doesn't work for two reasons.

I mean, first, if you look at the Plaintiff's own complaint, they clearly challenge both the minimum coverage requirement and the penalty.

At page 122 of the Joint Appendix they challenge the requirement that the individuals obtain health care coverage or pay a penalty.

Justice Samuel Alito: Why is that?

Justice Ruth Bader Ginsburg: If that's -- if that's the problem, it's easier to amend the complaint.

They can just take that out of the complaint.

So it can't turn on that.

Mr. Long: Well, yes, I mean, it's -- or another complaint would be filed, but, still, I think that's a serious problem.

But even if they had filed a different complaint, I don't think you -- in this case I don't think you can separate the minimum coverage requirement from the penalty because the penalty is the sole means of enforcing the minimum coverage requirement.

So -- so, first, I mean, I think these Plaintiffs would not be satisfied if the Court were to render a judgment saying the minimum coverage requirement is invalidated; the penalty, however, remains standing.

Anybody who doesn't have insurance has to pay the penalty.

Then they would have to pay a penalty equal to the cost of insurance and they wouldn't even have insurance.

So I don't think that would be--

Justice Samuel Alito: Well, they say they want to obey the law, and they say that your argument puts them in the position of having to disobey the law in order to obtain review of their claim.

And what is your answer to that?

Mr. Long: --Well, I mean, first of all, I can't find that in the record, in their declarations.

I don't see a statement that they will, you know, never incur a penalty under any circumstances.

But -- but even if that were so, what this Court has said in Americans United is the Anti-Injunction Act bars any suit, not just to enjoin the collection of your own taxes, but to enjoin the collection of anyone's taxes.

And so even if it were really true that these plaintiffs were not interested in the penalty and would never pay the penalty, if they were to succeed in this case in striking down the minimum coverage requirement the inevitable result would be that the penalty would fall as well, because the government couldn't collect the penalty for failing to follow an unconstitutional requirement, and so it would still be barred because it would be a suit that would prevent the collection of some of the--

Justice Samuel Alito: Well, let me take us back to Justice Kennedy's question about the "for the purpose of" language.

I take it you interpret the statute to mean the following: "For the purpose of" means having the effect of.

Is that correct?

Mr. Long: --Well -- -- well, I mean, this Court in the Bob Jones case, where a similar kind of argument was being made by the plaintiff in that case, said: Look, you know, where the -- where it's inevitable that this is what the suit is about, they're sort of two sides of the same coin, that clearly is a primary purpose of the suit.

And it's -- and you can't by clever pleading get away from that.

That's just the nature of the situation.

Justice Elena Kagan: But, Mr. Long, aren't you trying to rewrite the statute in a way?

The statute has two sections.

One is the you have to have insurance section and the other is the sanction.

The statute has two different sets of exceptions corresponding to those two different sections.

You are trying to suggest that the statute says: Well, it's your choice; either buy insurance or pay a -- or pay a fee.

But that's not the way the statute reads.

And Congress, it must be supposed, you know, made a decision that that shouldn't be the way the statute reads, that it should instead be a regulatory command and a penalty attached to that command.

Mr. Long: Well, I would not argue that this statute is a perfect model of clarity, but I do think the most reasonable way to read the entire statute is that it does impose a single obligation to pay a penalty if you are an applicable individual and you are not subject to an exemption.

And the reason I say that, if you look at the exemptions from the penalty, the very first one is you are exempt from the penalty because you can't afford to purchase insurance.

And it just doesn't seem reasonable to me to interpret the statute as Congress having said, well, you know, this person is exempt from paying a penalty because we find they can't afford to buy insurance, however they still have a legal obligation to buy insurance.

That just doesn't seem reasonable.

So I -- so I do think, although it's -- I certainly wouldn't argue it's clear -- that that's the best way to understand the statute as a whole.

But again, I would say, you know, that's not essential to the question we're discussing now of whether the Anti-Injunction Act applies.

Again, you know, I think--

Justice Sonia Sotomayor: Could you tell me why you think the Solicitor General's reading creates a problem?

Mr. Long: --Well, in going back to -- so if the result were to say simply, this is not -- oh, I'm sorry.

The Solicitor General's reading.

So now it's not--

Justice Sonia Sotomayor: That it is a jurisdictional bar, but there's an exemption for those items that Congress has designated solely as penalties that are not like taxes.

Mr. Long: --Right.

Well, I mean, I think the Solicitor General's reading would probably create the fewest problems, as I understand it.

I mean, my -- my main objection to the Solicitor General's reading is I don't think it makes a whole lot of sense.

I mean, basically the Solicitor General says every penalty in the Internal Revenue Code, every other penalty in the Affordable Care Act is--

Justice Sonia Sotomayor: But that's not -- that's carrying it too far, because he says if a penalty is designated as a tax by Congress then it's subject to the AIA, and that's most of the code, the tax code.

And he says for those portions of the Affordable Care Act that designate things as taxes, the AIA applies.

So it's only -- and I haven't found another statute.

I'm going to ask him if there's another one.

It's only for those statutes in which Congress has designated something solely as a penalty.

Mr. Long: --Right.

Justice Sonia Sotomayor: And not indicated that it is a tax.

Mr. Long: Right.

Justice Sonia Sotomayor: They don't fall within the AIA.

Mr. Long: I think my -- my take on it is if you adopted the Solicitor General's approach there are probably three penalties for alcohol and tobacco-related offenses at 5114(c), 5684, and 5761 that I think would be very difficult to distinguish from this one, and possibly the 527(j) penalty for failure to disclose political contributions.

If there are no further questions, I would like to reserve my time.

Chief Justice John G. Roberts: Thank you, Mr. Long.

General Verrilli.

ORAL ARGUMENT OF DONALD B. VERRILLI, JR., ON BEHALF OF THE PETITIONERS

Mr. Verrilli Jr.: Mr. Chief Justice and may it please the Court:

This case presents issues of great moment, and the Anti-Injunction Act does not bar the Court's consideration of those issues.

That is so even though the Anti-Injunction Act is a jurisdictional limit that serves what this Court described in Clintwood Elkhorn as an exceedingly strong interest in protecting the financial stability of the Federal Government, and even though the minimum coverage provision of the Affordable Care Act is an exercise of Congress's taxing power as well as its commerce power.

Congress has authority under the taxing power to enact a measure not labeled as a tax, and it did so when it put section 5000A into the Internal Revenue Code.

But for purposes of the Anti-Injunction Act, the precise language Congress used is determinative.

And there is no language in the Anti-Injunction Act -- excuse me, no language in section 5000A of the Affordable Care Act or in the Internal Revenue Code generally that provides a textual instruction that--

Justice Samuel Alito: General Verrilli, today you are arguing that the penalty is not a tax.

Tomorrow you are going to be back and you will be arguing that the penalty is a tax.

Has the Court ever held that something that is a tax for purposes of the taxing power under the Constitution is not a tax under the Anti-Injunction Act?

Mr. Verrilli Jr.: --No, Justice Alito, but the Court has held in a license tax cases that something can be a constitutional exercise of the taxing power whether or not it is called a tax.

And that's because the nature of the inquiry that we will conduct tomorrow is different from the nature of the inquiry that we will conduct today.

Tomorrow the question is whether Congress has the authority under the taxing power to enact it and the form of words doesn't have a dispositive effect on that analysis.

Today we are construing statutory text where the precise choice of words does have a dispositive effect on the analysis.

Justice Sonia Sotomayor: Well, General, you also have the Bailey child labor tax cases, because there the Court said that the tax, which was a prohibitory tax alone, was a tax subject to the AIA, and then it said it was beyond the Court's taxing power in a separate case, correct?

Mr. Verrilli Jr.: Yes.

I do think, Justice Sotomayor, that, with respect to one of the arguments that my friend from the NFIB has made in the brief, that Bailey v. George is a significant problem because I think their argument on the constitutionality under the taxing power is essentially that the Affordable Care Act provision is the same thing as the provision that was held unconstitutional in Bailey v. Drexel Furniture Company.

Justice Sonia Sotomayor: That's a different issue--

Mr. Verrilli Jr.: But on the same day -- right, but on the same day as Bailey v. Drexel Furniture, the court issued Bailey v. George, which held that the Anti-Injunction Act did bar a challenge to that provision, even though the Court had concluded that it was invalid under the tax power.

So -- and I think the reason for that has been -- is clear now after Williams Packing and Bob Jones, in that in order to find that the Anti-Injunction Act doesn't apply to something that otherwise would be a tax that triggers it, you have to conclude essentially that there is no substantial argument that can be made in defense of it as a tax.

We don't have that here, so I don't think you can get around the Anti-Injunction Act if the Court were to read it, as the amicus suggest it should be read, on that theory.

But.

Justice Ruth Bader Ginsburg: Mr. Verrilli, a basic question about your argument.

If you are right about the second part, that is for purposes of the statute, the anti-injunction statute, this penalty does not constitute a tax, then does the Court need to decide whether the Anti-Injunction Act in other cases where it does involve a tax is jurisdictional?

Mr. Verrilli Jr.: No.

I -- I apologize if I'm creating confusion about that, Justice Ginsburg.

We think by far the better route here is to understand the statute as we have proposed that it be construed as not applying here.

From the perspective of the United States -- and if I could, I'd like to take a minute on this -- the idea that the Anti-Injunction Act would be construed as not being a jurisdictional provision is very troubling, and we don't think it's correct.

And I -- I would, if I could follow up on a question, Justice Ginsburg, that you asked Mr. Long in terms of the language of the Anti-Injunction Act 7421(a), which can be found at page 16A of the appendix to our brief.

I -- I'd ask the Court to compare that to the language of the very next provision in the code, which is on the next page of our statutory appendix, 17A, which is the refund statute which we've talked about a little bit so far this morning, 7422(a).

The refund statute this Court held in Dolan was jurisdictional, and the Court in both Dolan and Brockamp held that the statute of limitations that applies to the refund statute cases is jurisdictional.

The language in 7422(a) is virtually identical to the language in 7421(a)--

Justice Anthony Kennedy: That -- that is correct, although in the refund context, you have the sovereign immunity problem, in which we presume that has not been waived.

Mr. Verrilli Jr.: Right.

Justice Anthony Kennedy: But I -- 7421(a) -- were the same--

--The language is quite parallel.

Mr. Verrilli Jr.: --And -- originally, they were the same statutory provision.

They were only separated out later.

So I do think that's the strongest textual indication, Justice Ginsburg, that -- that 7421(a) is jurisdictional.

Justice Ruth Bader Ginsburg: But then, General, what I asked you is, if you're right that this penalty is not covered by section 7421, if you're right about that, why should we deal with the jurisdictional question at all?

Because this statute, correct, the way you reading -- read it, doesn't involve a tax that's subject to the Anti-Injunction Act.

Mr. Verrilli Jr.: Yes, that is exactly our position.

And the reason we don't--

Justice Ruth Bader Ginsburg: So -- so you -- you agree that we would not -- if we agree with you about the correct interpretation of the statute, we need not decide the jurisdiction.

Mr. Verrilli Jr.: --There would be no reason to decide the jurisdictional issue.

Justice Anthony Kennedy: Don't you want to know the answer?

[Laughter]

Mr. Verrilli Jr.: Justice Kennedy, I think we all want to know the answer to a lot of things in this case.

But -- but I do -- I do think that the prudent course here is to construe the statute in the manner that we read it.

Justice Anthony Kennedy: But -- but you indicated -- there was a discussion earlier about why does the government really care, they have competent attorneys, et cetera.

But -- and you began your argument by saying it would be very troubling to say that it's not jurisdictional.

I'd like you to comment on that -- it's not for us to tell a party what's in its best interests.

It would seem to me that there might be some instances in which the government would want to litigate the validity of a tax right away and would want to waive.

But you say it's -- that's not true; that it's very troubling.

Mr. Verrilli Jr.: I think there are two problems.

One is the problem that Justice Scalia identified, that if it's not jurisdictional, then courts have authority to craft equitable exceptions.

And it may seem from where we stand now that that authority is or could be very, very tightly cabined, but if -- if this Court were to conclude that it isn't jurisdictional, that does empower courts to find other circumstances in which they might find it equitable to allow cases to go forward in the absence of -- of -- despite the existence of the Anti-Injunction Act.

And second, although I certainly am not going to stand up here and disparage the attorneys from the United States in the slightest, the reality is that if this isn't jurisdictional, then it's -- the argument -- it's open to the argument that it's subject to forfeiture by a simple omission in failing to raise it in an answer.

And that -- and that's a troubling prospect.

by--

Justice Sonia Sotomayor: --How, if you're troubled--

Justice Ruth Bader Ginsburg: Can I ask--

Chief Justice John G. Roberts: Justice Ginsburg.

Justice Ruth Bader Ginsburg: --How -- how likely is it -- I mean, the government is going to be defending these suits, how likely is it that the government will overlook the Anti-Injunction Act?

It seems to me that this is arming the government by saying it's waivable at the government's option.

Mr. Verrilli Jr.: --That's -- that is not our assessment of the institutional interests of the United States, Justice Ginsburg.

And we do think that the -- the right way to go in this case is to read the statute as not applying to the minimum coverage provision of the Affordable Care Act.

Chief Justice John G. Roberts: It was -- it was the calculation of the interests of the United States that your predecessor made in the Davis case.

There, the -- the Solicitor General exercised the authority that we sanctioned to waive the -- the Anti-Injunction Act.

And of course, that couldn't be done if it were jurisdictional.

Mr. Verrilli Jr.: That's true, Mr. Chief Justice.

Several points about that, though.

We do agree with Mr. Long's analysis that Davis occurred in -- during a time in -- which under the Standard Nut case, the Court had interpreted the Anti-Injunction Act as doing no more than codifying the traditional equitable principles which allowed courts discretion to conclude that in certain circumstances, a case could go forward.

Williams Packing repudiated that analysis, and Bob Jones v. Simon again repudiated that analysis and said, no, we're no longer abiding by that.

It is true that the Davis case has not formally been overruled, but we do think it's fundamentally inconsistent with the Court's understanding now of--

Justice Stephen G. Breyer: Davis was the case where a shareholder sues the corporation.

Mr. Verrilli Jr.: --Yes.

Justice Stephen G. Breyer: And the remedy is that the corporation shouldn't pay the money to the tax authority.

Now, it's a little technical, but that isn't actually an injunction against the tax authority collecting.

He's not -- they're not restraining the collection of tax.

They're saying to the taxpayer, don't pay it.

Mr. Verrilli Jr.: Yes.

And--

Justice Stephen G. Breyer: I don't know how far that gets you.

Mr. Verrilli Jr.: --Well, in fairness, Justice Breyer, the United States did intervene in the -- in the Davis case and was a party, and so -- not as far as I'd like, I guess is the answer.

Justice Antonin Scalia: Don't do it again, because I think that goes too far.

I don't think that's restraining the collection of a tax.

It's restraining the payment of a tax.

Mr. Verrilli Jr.: Well--

Justice Antonin Scalia: You -- you don't want to let that bone go, right?

Mr. Verrilli Jr.: Our view here is that it is jurisdictional.

Justice Antonin Scalia: Because it's jurisdictional as this Court understands jurisdiction now, it's not waivable.

And therefore, we don't think that -- that that part of the Davis decision is good law.

Justice Elena Kagan: General, can I ask you about Reed Elsevier?

Justice Ginsburg suggested that the language was very similar in Reed Elsevier as it is here, but there are even further similarities.

Reed Elsevier pointed out that the provision in question wasn't in Title 28.

Here, too, it's not in Title 28.

In Reed Elsevier, it was pointed out that the provision there had numerous exceptions to it.

Here, too, there are numerous exceptions that we find that have been created by the courts over the years.

In Reed Elsevier, the question was essentially one about timing.

Come to court after you file your registration.

Here, too, the question is one about timing.

Come to court after you make -- after you pay your taxes.

So Reed Elsevier seems in multiple respects on all fours with this case.

Why is that wrong?

Mr. Verrilli Jr.: --I don't think so, Justice Kagan.

First, we think -- I guess I'm repeating myself and I apologize, but -- we think the closest analogue is the very next provision in the United States Code, 7422(a), which this Court has held is jurisdictional, and is phrased in exactly the same way as 7421(a).

In fact, as I said, they were the same provision back in the earlier days.

That's the closest analogue.

This isn't -- and it's actually 7422 that's a statute that says do something first.

But this -- this statute is just a flat-out command that no suit shall be maintained to restrain--

Justice Elena Kagan: I take the point--

Mr. Verrilli Jr.: --the assessment or collection.

Justice Elena Kagan: --but if you would comment on the similarities of Reed Elsevier to this case.

How do you think it's different, if at all?

Mr. Verrilli Jr.: --Well, because the -- the -- I think the best answer to that is there are no magic words.

And that history and context matter, as the Court said in Henderson.

And the history and context here is that 7422 and 7421 function together to protect an exceedingly strong interest that -- that the Court has held with respect to 7422 sufficiently strong that it -- it explains the jurisdictional nature of that.

The same interest applies here.

This isn't just a matter of do X and then you can -- and then you can come to court.

It's just a fundamentally different set of interests at stake.

So we -- we do think that that makes a big difference.

And--

Justice Ruth Bader Ginsburg: Why, in Reed Elsevier, you were dividing jurisdiction from claims processing, says you have to register before you can sue.

There are a lot of things you have to do before you can sue.

So why isn't Reed Elsevier like you have to pay a filing fee before you can file a complaint?

Mr. Verrilli Jr.: --It is -- we do think it's very much in -- in that nature and different from this case, Your Honor.

And one -- one way I think it's helpful to -- to get at this is -- is to look at the history.

We've cited a string of court of appeals cases in a footnote in our opening brief, and over time, it's been very consistent that the courts of appeals have treated the Anti-Injunction Act as a jurisdictional provision.

Again, if the Court agrees with our statutory construction, you don't need to reach this issue.

But they have -- in fact, one of those cases, the Hansen case, the district court in that case had dismissed the complaint under Federal Rule of Civil Procedure 12(b)(6).

The Court of Appeals vacated and sent it back with instructions to dismiss under 12(b)(1), which is the subject matter jurisdiction provision.

So I do think that, to the extent this issue is before the Court, it is jurisdictional, but it doesn't need to be before the Court because of the statutory construction argument that we had offered.

Justice Ruth Bader Ginsburg: On your statutory construction argument, is there any other exaction imposed under the Internal Revenue Codes that would not qualify as a tax for Anti-Injunction Act purposes, or is 5000A just out there all by itself?

Mr. Verrilli Jr.: It's not quite out there all by itself.

There are other provisions that fall outside of subchapter B of chapter 68 and, therefore, wouldn't be governed by the instruction in Section 6671(a), which answers the question about the applicability of the act for most penalties.

The ones that we've identified, and I may be overlapping a little bit with Mr. Long here, one is 26 U.S.C. 857, which poses certain penalties in connection with the administration of real estate investment trusts.

There are provisions that Mr. Long identified in his brief, Sections 6038(a) through (c) of the Code, which impose certain penalties with respect to reporting requirements for foreign corporations.

We have, in addition, in footnote 22 at page 36 of our brief, identified three provisions that Mr. Long also identified about -- about alcohol and tobacco.

Now--

Justice Sonia Sotomayor: --Could we address, General, the question of whether there are any collateral consequences for the failure to buy -- to not buy health insurance?

Is the only consequence the payment of the penalty?

The private respondents argue that there are other collateral consequences such as for people on probation who are disobeying the law, if they don't buy health insurance they would be disobeying the law and could be subject to having their supervised release revoked.

Mr. Verrilli Jr.: --Yes.

That is not a correct reading of the statute, Justice Sotomayor.

The only consequence that ensues is the tax penalty.

And the -- we have made a representation, and it was a carefully made representation, in our brief that it is the interpretation of the agencies charged with interpreting this statute, the treasury department and the Department of Health and Human Services, that there is no other consequence apart from the tax penalty.

And I do think, if I could talk for a couple of minutes about the argument that was discussed as to whether this can be conceived of as a suit just challenging the requirement, which is entirely stand-alone based on inferences drawn from the exemptions.

I really don't think that's right.

And if I could spend a minute on it, I think it's important.

The exemptions in section 5000A, it is true that there are two categories of exemptions.

There are exemptions to the penalty and exemptions to the subsection (a) requirement.

But the -- but I think, not only as a practical matter, but as a textural indication and even as a legal matter, they -- both function as exceptions to the requirement.

First, as a practical matter, one of those exemptions is a hardship exemption.

And if the Court will just bear with me for one minute here, it's at page 11A of the appendix to our brief.

It provides that a person can go to the secretary of HHS and obtain a hardship exemption for -- which would, as a formal matter here, excuse compliance with the penalty.

It seems to me to make very little sense to say that someone who has gone to an official of the United States and obtained an exemption would, nonetheless, be in a position of being a law breaker.

We think another way in which you can get to the same conclusion slightly differently is by considering the provision on the prior page, 10A, which is 5000A -- 5000A(e)(3), members of Indian tribes.

Members of Indian tribes are exempt only from the penalty as a formal matter under the structure of the statute here; but, the reason for that is because members of Indian tribes obtain their healthcare through the Indian Health Service, which is a clinic-based system that doesn't involve insurance at all.

It's an entirely different system.

They were taken out of this statute because they get their healthcare through a different system.

And it doesn't make any sense to think that persons getting their health care through the Indian Health Service are violating the law because -- exempt only from the penalty, but still under a legal obligation to have insurance, when the whole point of this is that they're supposed to be in a clinic-based system.

Justice Sonia Sotomayor: Is your whole point that this was inartful drafting by Congress; that, to the extent that there is an exemption under the penalty, it's an exemption from the legal obligation?

Mr. Verrilli Jr.: I guess what I would say about it, Your Honor, is that the way in which this statute is drafted doesn't permit the inference that my friends from the NIB are trying to draw from it.

Justice Sonia Sotomayor: And there is an additional textural indication of that, which one can find at page 13 of our reply brief.

This is a provision that is 42 U.S.C. A, section 18022(e).

This is a provision that provides for a certification that certain individuals can get.

And it's the paragraph starting with the words "other provisions", contains the quote.

And it says:

"An individual with a certification that the individual is exempt from the requirement under section 5000A, by reason of section 5000A(e)(1) of such code, is entitled to a certificate that allows for enrollment in a particular program for this category of people. "

But you can see here, Congress is saying it's an exemption from under 5000A(e)(1), which is the exemption from the penalty, and not the underlying requirement is, as Congress says, an exemption from the requirement of section 5000A.

Justice Samuel Alito: Sub-section A says directly,

"an applicable individual shall ensure that the individual has the minimum essential coverage. "

And you are saying it doesn't really mean that, that if you're not subject to the penalty, you're not under the obligation to maintain the minimum essential coverage?

Mr. Verrilli Jr.: That's correct.

And we think that is what Congress is saying, both in the provision I just pointed to, Your Honor, and by virtue of the fact -- by virtue of the way the exemptions work.

I just think that's the -- reading this in context, that is the stronger reading of the statute.

Chief Justice John G. Roberts: Suppose it makes it easy for the government to drop the other shoe in the future, right?

You have been under the law subject to this mandate all along.

You have been exempt from the penalty, so all they have to do is take away the penalty.

Mr. Verrilli Jr.: I don't -- I don't think so, Mr. Chief Justice.

I don't think it makes it easy for the government in the future.

We think this is the fairest reading of the statute, that the -- that the -- you cannot infer from the fact that someone is exempt from the penalty, that they are still under an obligation to have insurance.

That's just not the fairest reading of the statute.

Justice Elena Kagan: Could I--

Justice Samuel Alito: I'm sorry, go ahead.

Justice Elena Kagan: --The nature of the representation you made, that the only consequence is the penalty, suppose a person does not purchase insurance, a person who is obligated to do so under the statute doesn't do it, pays the penalty instead, and that person finds herself in a position where she is asked the question, have you ever violated any federal law, would that person have violated a federal law?

Mr. Verrilli Jr.: No.

Our position is that person should give the answer "no".

Justice Elena Kagan: And that's because.

Mr. Verrilli Jr.: That if they don't pay the tax, they violated a federal law.

Justice Elena Kagan: But as long as they've paid the penalty.

Mr. Verrilli Jr.: If they pay the tax, then they are in compliance with the law.

Justice Stephen G. Breyer: Why do you keep saying tax?

Mr. Verrilli Jr.: If they pay the tax penalty, they're in compliance with the law.

Justice Stephen G. Breyer: Thank you.

Mr. Verrilli Jr.: Thank you, Justice Breyer.

Justice Stephen G. Breyer: The penalty.

Mr. Verrilli Jr.: Right.

That's right.

Justice Samuel Alito: Suppose a person who has been receiving medical care in an emergency room -- has no health insurance but, over the years, goes to the emergency room when the person wants medical care -- goes to the emergency room, and the hospital says, well, fine, you are eligible for Medicaid, enroll in Medicaid.

And the person says, no, I don't want that.

I want to continue to get -- just get care here from the emergency room.

Will the hospital be able to point to the mandate and say, well, you're obligated to enroll?

Mr. Verrilli Jr.: No, I don't think so, Justice Alito, for the same reason I just gave.

I think that the -- that the answer in that situation is that that person, assuming that person -- well, if that person is eligible for Medicaid, they may well not be in a situation where they are going to face any tax penalty and therefore--

Justice Samuel Alito: No, they are not facing the tax penalty.

Mr. Verrilli Jr.: --Right, right.

Justice Samuel Alito: So the hospital will have to continue to give them care and pay for it themselves, and not require them to be enrolled in Medicaid.

Mr. Verrilli Jr.: Right.

Justice Samuel Alito: Will they be able to take this out and say, well, you really should -- you have a moral obligation to do it; the Congress of the United States has said, you have to enroll?

No, they can't say?

Mr. Verrilli Jr.: I do think it's -- I think it's certainly fair to say that Congress wants people in that position to sign up for Medicaid.

I think that's absolutely right.

And I think the statute is structured to accomplish that objective; but, the reality still is that the only consequence of noncompliance is the penalty.

Justice Sonia Sotomayor: General, but I thought the people who were eligible for Medicaid weren't subject to the penalty.

Am I wrong?

I could be just factually wrong.

Mr. Verrilli Jr.: Well, it all -- the penalty is keyed to income.

Justice Sonia Sotomayor: Yes.

Mr. Verrilli Jr.: And it's keyed to a number of things.

One is, are -- are you making so little money that you aren't obligated to file a tax return.

And if you're in that situation, you are not subject to the penalty.

It's also if the cost of insurance would be more than 8 percent of your income, you're not subject to the penalty.

So there -- there -- there isn't necessarily a precise mapping between somebody's income level and their Medicaid eligibility at the present moment.

That will depend on where things are and what the eligibility requirements are in the State.

Justice Sonia Sotomayor: But those people below.

Mr. Verrilli Jr.: But as a general matter, for people below the poverty line it's almost inconceivable that they are ever going to be subject to the penalty, and they would, after the Act'sMedicaid reforms go into place, be eligible for Medicaid.

Justice Stephen G. Breyer: So is your point that the tax -- so, what we want to do is get money from these people.

Most of them get the money by buying the insurance and that will help pay.

But if they don't, they are going to pay this penalty, and that will help, too.

And the fact that we put the latter in brings it within the taxing power.

And as far as this Act is concerned about the injunction, they called it a penalty and not a tax for a reason.

They wanted it to fall outside that, it's in a different chapter, et cetera.

Is that what the heart of what you are saying?

Mr. Verrilli Jr.: That's the essence they called it a penalty.

They didn't give any other textural instruction in the Affordable Care Act or in the Internal Revenue Code or that that penalty should be treated as a tax for the Anti-Injunction Act purpose.

Chief Justice John G. Roberts: You agree with Mr. Long, and, in fact, you just agreed with Justice Breyer that one of the purposes of the provision is to raise revenue.

Mr. Verrilli Jr.: It will -- well, it will raise revenue.

It has been predicted by the CBO that it will raise revenue, Your Honor.

But even though that's the case, and I think that would be true of any -- of any penalty, that it will raise some revenue, but even though that's the case, there still needs to be textural instruction in the statute that this penalty should be treated as a tax for Anti-Injunction Act purposes, and that's what is lacking here.

Justice Samuel Alito: After this takes effect, there may be a lot of people who are assessed the penalty and disagree either with whether they should be assessed the penalty at all, or with the calculation of the amount of their penalty.

So under your interpretation of the Act, all of them can now go to court?

None of them are barred by the Anti-Injunction Act?

Mr. Verrilli Jr.: Those are two different things, Justice Alito.

Justice Samuel Alito: I think for reasons that Justice Kennedy, I think, suggested in one of his questions to Mr. Long, all of the other doctrines that are an exhaustion of remedies and related doctrines would still be there.

The United States would rely on them in those circumstances.

And -- and so, I don't think the answer is that they can all go to court, no.

Justice Sonia Sotomayor: Well, why is it--

Justice Samuel Alito: Two former -- two former commissioners of the IRS have filed a brief saying that your interpretation is going to lead to a flood of litigation.

Are they wrong on that?

Mr. Verrilli Jr.: Yes.

We don't -- you know -- we've -- we've taken this position, after very careful consideration, and we've assessed the institutional interests of the United States and we think we are in the right place.

Justice Sonia Sotomayor: --But tell me something, why isn't this case subject to the same bars that -- that you list in your brief?

The Tax Court, at least so far, considers constitutional challenges to statutes, so why aren't we -- why isn't this case subject to a dismissal for failure to exhaust?

Mr. Verrilli Jr.: Because we don't -- because the exhaustion would go to the individual amount owed, we think, and that's a different situation from this case.

If the Court has no further questions.

Chief Justice John G. Roberts: Thank you, General.

Mr. Verrilli Jr.: Thank you.

Chief Justice John G. Roberts: Mr. Katsas.

ORAL ARGUMENT OF GREGORY G. KATSAS ON BEHALF OF THE RESPONDENTS

Mr. Katsas: Mr. Chief Justice, and may it please the Court:

Let me begin with the question whether the Anti-Injunction Act is jurisdictional.

Justice Ginsburg, for reasons you suggested, we think the text of the Anti-Injunction Act is indistinguishable from the text of the statute that was unanimously held to be non-jurisdictional in Reed Elsevier.

That statute said no suit shall be instituted.

This statute says no suit shall be maintained.

No--

Justice Ruth Bader Ginsburg: They are different things.

This said the Reed Elsevier statute says immediately after instituted unless a copyright is registered.

Mr. Katsas: --Unless the copyright is registered.

And this goes -- this goes to the character of the lawsuit.

The statute in Reed Elsevier says, register your copyright and then come back to court.

Justice Ruth Bader Ginsburg: Why isn't that like a filing fee, before you can maintain a suit for copyright infringement, you have to register your copyright?

Mr. Katsas: It -- it's a precondition to filing suit.

The -- the analogous precondition here is pay your taxes and then come back to court.

The point is--

Justice Sonia Sotomayor: No -- that -- that -- that's not true.

The suit here has nothing to do with hearing the action.

It has to do with a form of relief that Congress is barring.

It's not permitting -- it is not a tax case, you can come in afterwards.

It's not permitting the court to exercise what otherwise would be one of its powers.

Mr. Katsas: --It -- it has to be the same challenge, Justice Sotomayor, or else South Carolina v. Regan would say the Anti-Injunction Act doesn't apply.

You are right that once you file -- once you pay your taxes and then file the refund action, the act of filing the taxes converts the suit from one seeking prospective relief and to one seeking money damages.

And in that sense, you could think of the statute as a remedial limitation on the courts.

But whether you think of it as an exhaustion requirement or a remedial limitation, neither of those characterizations is jurisdictional.

In Davis v. Passman you said that a remedial limitation doesn't go--

Justice Sonia Sotomayor: It does seem strange to think of a -- a law that says no court can entertain a certain action and give a certain remedy as merely a claim processing rule.

What the -- the Court is being ousted from -- from what would otherwise be its power to hear something.

Mr. Katsas: --The suit is being delayed, I think is the right way of looking at it.

The jurisdictional apparatus in the district court is present.

Prospective relief under 1331, money damages action under 1346.

If the Anti-Injunction Act were jurisdiction-ousting, one might have expected it to be in Title 28 and to qualify those statutes and the to use jurisdictional limits.

Justice Sonia Sotomayor: How do you deal with this case and our Gonzalez -- our recent Gonzalez case where we talked about--

Mr. Katsas: Right.

Justice Sonia Sotomayor: --the language of the COA statute that no appeal will be heard absent the issuance of?

Mr. Katsas: Gonzalez -- Gonzalez v. Thaler rests on a special rule that applies with respect to appeals from one Article III court to another.

That's -- that explains Gonzalez and it explains Bowles before it.

You have five unanimous opinions in the last decade in which you have strongly gone the other direction on what counts as jurisdictional.

Justice Sonia Sotomayor: There is an argument that we should just simply say that Bowles applies only to appeals, but we haven't said that.

Mr. Katsas: No, you came very close.

In Henderson, Justice Sotomayor, you said that Bowles, which is akin to Thaler is explained by the special rules and understandings governing appeals from one Article III court to another.

And you specifically said that it does not apply to situations involving a party seeking initial judicial review of agency action, which is what we have here.

So while you're right, the text in Bowles and Thaler are not terribly different, those cases are explained by that principle.

Under Henderson it doesn't apply to this case.

The text in this case speaks to the suit, the cause of action of the litigant.

It doesn't speak to the jurisdiction or power of the Court.

The Anti-Injunction Act is placed in a section of the tax code governing procedure.

It's not placed in--

Justice Sonia Sotomayor: Counsel, all of those -- all of that in particular--

Mr. Katsas: --You did rely on that in Reed Elsevier as one consideration.

Justice Sonia Sotomayor: --And we haven't relied on it in other cases.

Mr. Katsas: And another -- another consideration in Reed Elsevier that cuts in our favor is the presence of exceptions.

You said three in Reed Elsevier cut against jurisdictional characterization.

Here there are 11.

And--

Justice Sonia Sotomayor: Many of which themselves speak in very clear jurisdictional language.

Mr. Katsas: --Well, some of them have no jurisdictional language at all, and not a single one of them uses the word "jurisdiction" to describe the ability of the Court to restrain the assessment and collection of taxes, which is what one would have expected--

Justice Stephen G. Breyer: Basically it begs the difference -- language is relevant, there are a lot of relevant things.

But one thing that's relevant in my mind is that taxes are, for better or for worse, the life's blood of government.

Mr. Katsas: --Yes.

Justice Stephen G. Breyer: And so what Congress is trying to do is to say there is a procedure here that you go through.

You can get your money back, or you go through the Tax Court, but don't do this in advance for the reason that we don't want 500 Federal judge -- judges substituting their idea of what is a proper equitable defense of when there should be an exception made about da, da, da for the basic rule.

No.

Okay?

And so there is strong reason that is there.

You tried to apply that reason to the copyright law.

You can't find it.

Registration with the copyright register is not the life's blood of anything.

So the reasoning isn't there.

The language -- I see the similarity of language.

I've got that.

But it's the reasoning, the sort of underlying reason for not wanting a waiver here that -- that is -- has a significant role in my mind of finding that it is jurisdictional.

Plus the fact that we have said it nonstop since that Northrop or whatever that other case is.

Mr. Katsas: Justice Breyer, as to reasoning, you -- you give an argument -- you give an argument why as a policy matter it might make sense to have a non-jurisdictional statute.

But of course this Court's recent cases time and again say Congress has to clearly rank the statute as non-jurisdictional in its text and structure.

It seems to me a general appeal to statutory policies doesn't speak with sufficient clarity--

Justice Stephen G. Breyer: That's fine.

I just wanted to ask the question in case you wanted to answer the policy question.

Mr. Katsas: --As to policy -- as to policy I think Helvering against Davis is the refutation of this view.

It is true that in most cases the government doesn't want and Congress doesn't want people coming into court.

But Davis shows there may be some cases including, for instance, constitutional challenges to landmark Federal statutes where the government sensibly decides that its revenue-raising purposes are better served by allowing a party to come into court and waiving its defense.

That's what the Solicitor General did in Davis, and this Court accepted that waiver.

As for prior cases, we have the holding in Davis and the holding in all of the equitable exception cases like Williams Packing.

The government--

Justice Sonia Sotomayor: So why don't we say -- why don't we say it's jurisdictional except when the Solicitor General waives?

Mr. Katsas: --You have used--

Justice Sonia Sotomayor: Why would that not promote Congress's policy of insuring -- or Congress, explicitly--

Mr. Katsas: --It's jurisdictional except when the Solicitor General waives it?

Justice Sonia Sotomayor: --Yes.

It's a contradiction in terms.

I don't disagree.

Mr. Katsas: It is a contradiction in terms.

All of your cases analyze the situation as if the statute is jurisdictional, then it's not subject to waiver.

If you were to construe this as such a one-of unique statute, it seems to me we would still win because the Solicitor General with full knowledge of the Anti-Injunction Act argument available to him affirmatively gave it up.

This is not just a forfeiture where a government lawyer is -- through inadvertence fails to raise an argument.

This is a case where the government--

Justice Sonia Sotomayor: They raised it and then gave it up.

Mr. Katsas: --They made it below.

They know what it is; and not only are they not pursuing it here, they are affirmatively pursuing an argument on the other side.

Justice Elena Kagan: Mr. Katsas, is your basic position when we are talking about the jurisdiction of the district courts a statute has to say it's jurisdictional to be jurisdictional?

Mr. Katsas: I wouldn't go quite that far.

I think at a minimum it has -- it has to either say that or at least be directed to the courts which is a formulation you have used in your cases and which is the formulation that Congress used in the Tax Injunction Act but did not use in this Statute.

Justice Elena Kagan: Well, how would -- I mean, I suppose one could try to make a distinction between this case and Reed Elsevier by focusing on the difference between instituting something and maintaining something, and suggesting that instituting is more what a litigant does, and maintaining, as opposed to dismissing, is more of what judge does.

Mr. Katsas: I don't think so, Justice Kagan, because we -- we have an adversarial system, not an inquisitorial one.

The parties maintain their lawsuits I think is the more natural way of thinking of it.

If I could turn -- if I could turn to the merits question on the AIA before my time runs out.

The purpose of this lawsuit is to challenge a requirement -- a Federal requirement to buy health insurance.

That requirement itself is not a tax.

And for that reason alone, we think the Anti-Injunction Act doesn't apply.

What the amicus effectively seeks to do is extend the Anti-Injunction Act, not just to taxes which is how the statute is written, but to free-standing nontax legal duties.

And it's just--

Chief Justice John G. Roberts: The whole point -- the whole point of the suit is to prevent the collection of penalties.

Mr. Katsas: --Of taxes, Mr. Chief Justice.

Chief Justice John G. Roberts: Well prevent of the collection of taxes.

But the idea that the mandate is something separate from whether you want to call it a penalty or tax just doesn't seem to make much sense.

Mr. Katsas: It's entirely separate, and let me explain to you why.

Chief Justice John G. Roberts: It's a command.

A mandate is a command.

If there is nothing behind the command.

It's sort of well what happens if you don't file the mandate?

And the answer is nothing.

It seems very artificial to separate the punishment from the crime.

Mr. Katsas: I'm not sure the answer is nothing, but even assuming it were nothing, it seems to me there is a difference between what the law requires and what enforcement consequences happen to you.

This statute was very deliberately written to separate mandate from penalty in several different ways.

They are put in separate sections.

The mandate is described as a 20 times, three times in the operative text and 17 times in the findings.

It's imposed through use of a mandatory verb "shall".

The requirement is very well defined in the statute, so it can't be sloughed off as a general exhortation, and it's backed up by a penalty.

Congress then separated out mandate exceptions from penalty exceptions.

It defined one category of people not subject to the mandate.

One would think those are the category of people as to whom Congress is saying: You need not follow this law.

It then defined a separate category of people not subject to the penalty, but subject to the mandate.

I don't know what that could mean other than--

Chief Justice John G. Roberts: Why would you have a requirement that is completely toothless?

You know, buy insurance or else.

Or else what?

Or else nothing.

Mr. Katsas: --Because Congress reasonably could think that at least some people will follow the law precisely because it is the law.

And let me give you an example of one category of person that might be -- the very poor, who are exempt from the penalty but subject to the mandate.

Mr. Long says this must be a mandate exemption because it would be wholly harsh and unreasonable for Congress to expect people who are very poor to comply with the requirement to obtain health insurance when they have no means of doing so.

That gets things exactly backwards.

The very poor are the people Congress would be most concerned about with respect to the mandate to the extent one of the justifications for the mandate is to prevent emergency room cost shifting when people receive uncompensated care.

So they would have had very good reason to make the very poor subject to the mandate, and then they didn't do it in a draconian way; they gave the very poor a means of complying with the insurance mandate, and that is through the Medicaid system.

Justice Elena Kagan: Mr. Katsas, do you think a person who is subject to the mandate but not subject to the penalty would have standing?

Mr. Katsas: Yes, I think that person would, because that person is injured by compliance with the mandate.

Justice Elena Kagan: What would that look like?

What would the argument be as to what the injury was?

Mr. Katsas: The injury -- when that person is subject to the mandate, that person is required to purchase health insurance.

That is a forced acquisition of an unwanted good.

It's a classic pocketbook injury.

But even if I'm wrong about that question, Justice Kagan, the question of who has standing to bring the challenge that we seek to bring seems to me very different -- your hypothetical plaintiff is very different from the actual plaintiffs.

We have individuals who are planning for compliance in order to avoid a penalty, which is what their affidavits say.

And we have the States, who will be subject no doubt to all sorts of adverse ramifications if they refuse to enroll in Medicaid the people who are forced into Medicaid by virtue of the mandate.

So we don't have the problem of no adverse consequences in the case.

And then, we have the separate distinction between the question of who has Article III standing in order to maintain a suit and the question of who is subject to a legal obligation.

And you've said in your cases that even if there may be no one who has standing to challenge a legal obligation like the incompatibility clause or something, that doesn't somehow convert the legal obligation into a legal nullity.

Finally, with respect to the States, even if we are wrong about everything I've said so far, the States clearly fall within the exception recognized in South Carolina v. Regan.

They are injured by the mandate because the mandate forces 6 million new people onto their Medicaid rolls.

But they are not directly subject to the mandate, nor could they violate the mandate and incur a penalty.

Justice Elena Kagan: Could I just understand, Mr. Katsas, when the States say that they are injured, are they talking about the people who are eligible now but who are not enrolled?

Or are they also talking about people who will become newly eligible?

Mr. Katsas: It's people who will enroll, people who wouldn't have enrolled had they been given a voluntary choice.

Justice Elena Kagan: But who are eligible now.

Mr. Katsas: That's the largest category.

I think there could be future eligibles who would enroll because they are subject to a legal obligation but wouldn't have enrolled if given a voluntary choice.

But I'm happy to -- I'm happy to focus on currently eligible people who haven't enrolled in Medicaid.

That particular class is the one that gives rise to, simply in Florida alone, a pocketbook injury on the order of 500 to $600 million per year.

Justice Elena Kagan: But that does seem odd, to suggest that the State is being injured because people who could show up tomorrow with or without this law will -- will show up in greater numbers.

I mean, presumably the State wants to cover people whom it has declared eligible for this benefit.

Mr. Katsas: They -- they could, but they don't.

What the State wants to do is make Medicaid available to all who are eligible and choose to obtain it.

And in any event--

Justice Ruth Bader Ginsburg: Why would somebody not choose to obtain it?

Why -- that's one puzzle to me.

There's this category of people who are Medicaid eligible; Medicaid doesn't cost them anything.

Why would they resist enrolling?

Mr. Katsas: --I -- I don't know, Justice Ginsburg.

All I know is that the difference between current enrollees and people who could enroll but have not is, as I said, on the -- is a $600 million delta.

And--

Justice Ruth Bader Ginsburg: But it may be just that they haven't been given sufficient information to understand that this is a benefit for them.

Mr. Katsas: --It's possible, but all we're talking about right now is the standing of the States.

And the only arguments made against the standing of the States -- I mean, there is a classic pocketbook injury here.

The only arguments made about -- against the standing of the States are number one, this results from third-party actions.

That doesn't work, because the third-party actions are not unfettered in -- in the sense of Lujan; they are coerced in the sense of Bennett v. Spear.

Those people are enrolling because they are under a legal obligation to do so.

The second argument made against the States' standing is that the States somehow forfeit their ability to challenge the constitutionality of a provision of Federal law because they voluntarily choose to participate--

Justice Sonia Sotomayor: I'm -- I'm a little bit confused.

And this is what I'm confused about.

There -- there is a challenge to the individual mandate.

Mr. Katsas: --Yes.

Justice Sonia Sotomayor: All right.

What is -- the fact that the State is challenging Medicaid, how does it give the State standing to challenge an obligation that is not imposed on the State in any way?

Mr. Katsas: The -- the principal theory for State standing is the States are challenging the mandate because the mandate injures them when people are forced to enroll in Medicaid.

Now, it is true they are not directly subject to the mandate, but--

Justice Sonia Sotomayor: Yes.

That's what I'm--

Mr. Katsas: --Okay.

Let me -- let me try to--

Justice Sonia Sotomayor: --I'm confused by it.

Mr. Katsas: --Let me try it this way -- may I finish the thought?

Chief Justice John G. Roberts: Go ahead.

Mr. Katsas: In South Carolina v. Regan, the State was not subject to the tax at issue.

The State was harmed because -- as the issuer of the bonds, and the bond holders were the ones subject to the tax.

So the State is injured not because it is the direct object of the Federal tax, but because of its relationship to the regulated party as issuer/bond holder.

Chief Justice John G. Roberts: Thank you, Mr. Katsas.

Mr. Katsas: Thank you, Mr. Chief Justice.

Chief Justice John G. Roberts: Mr. Long, you have 5 minutes remaining.

REBUTTAL ARGUMENT OF ROBERT A. LONG FOR COURT-APPOINTED AMICUS CURIAE

Mr. Long: Everyone agrees that the section 5000A penalty shall be assessed and collected in the same manner as taxes.

And the parties' principal argument why that does not make the Anti-Injunction Act applicable is that, well, that simply goes to the Secretary's activities.

And I would simply ask, if -- if you look at chapters 63 and 64 of the Internal Revenue Code which are the chapters on assessment and collection, they are not just addressed to the Secretary.

There are many provisions in there that are addressed to courts and indeed talk about this interaction, the very limited situations in which courts are permitted to restrain the assessment and collection of taxes.

There was a statement made that there aren't -- and many of the exceptions to the Anti-Injunction Act are in the assessment and collection provisions -- there was a statement made that none of these directly confer jurisdiction to restrain the assessment and collection of taxes.

That's not true.

In footnote 11 of our opening brief, we cite several.

I'll simply mention section 6213 as an example.

That says -- I quote:

"Notwithstanding the provisions of section 7421(a), the making of such assessment or the beginning of such proceeding or levy during the time that such prohibition is enforced, may be enjoined by a proceeding in the proper court, including the Tax Court. "

"The Tax Court shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for redetermination of the deficiency has been filed, and then only in respect of the deficiency that is the subject of such petition. "

Justice Stephen G. Breyer: And all that's going to really what I think Congress's intent was meant to be in sticking the collection thing into chapter 68, and -- and it's certainly an argument in your favor.

The -- the over-arching thing in my mind is it's -- it's up to Congress within leeway.

And they did not use that word "tax", and they did have a couple of exceptions.

And it is true that all this language that you quote -- you know, the first two sentences and so forth, it talks about the use of tax in the IRC.

It talks about the penalties and liabilities provided by this subchapter.

And we look over here and it's a penalty and liability provided by a different law, which says collect it through the subchapter, and it has nothing to do with the IRC.

See?

So we've got it in a separate place, we can see pretty clearly what they're trying to do.

They couldn't really care very much about interfering with collecting this one.

That's all the statutory argument.

Are you following me?

You see?

I'm trying to get you to focus on that kind of argument.

Mr. Long: I mean, I think I'm following you, but -- but the fact that it's not in the particular subchapter for assessable penalties in my view makes no difference, because they said it's still clearly -- it's assessed and collected in the same manner as the penalty in that subchapter, and those penalties are collected in the same manner as taxes.

Justice Stephen G. Breyer: Yes, yes.

Mr. Long: And so that's -- I think it's -- it's rather detailed, but I think it's a rather clear indication that the Anti-Injunction Act applies.

The -- the refund statute that does specifically refer to penalties, that has nothing to do with this argument that it's assessed and collected in the same manner as a tax.

That would simply go to the point that well, you can't just call it a tax, because they've referred to it as a penalty.

And finally, on jurisdiction, you know, I think the key point is we have a long line of this Court's decisions that's really been ratified by Congress with all these exceptions in jurisdictional terms.

As I read Bowles and John R. Sand & Gravel, the -- the gist of these decisions was not any special sort of rule about appeals, it's that when we have that situation, which I would submit applies as much to Federal taxes as it does to appeals from Federal district courts when we have this degree of -- of precedent, including precedent from Congress in the form of amendments to this Anti-Injunction Act, that should be -- the presumption should be that this is jurisdictional.

If there are no further questions.

Chief Justice John G. Roberts: Mr. Long, you were invited by this Court to defend the proposition that the Anti-Injunction Act barred this litigation.

You have ably carried out that responsibility, for which the Court is grateful.

Mr. Long: Thank you.

Chief Justice John G. Roberts: We will continue argument in this case tomorrow.

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