DEPT. OF EMPLOYMENT v. U.S.
Legal provision: 28 U.S.C. 2281
Argument of James D. Mckevitt
Chief Justice Earl Warren: No. 78, Department of Employment, et. al., appellants versus United States, et al.
Mr. James D. Mckevitt: Mr. Chief Justice, may it please the Court?
This is a direct from a three-judge court sitting in the United Stated District Court in and for the District of Colorado.
There are three questions presented to this Court.
No. 1 is whether the District Court had jurisdiction over the parties in the subject matter to this action; the second question is whether the American National Red Cross is an instrumentality or agency, and I use the words interchangeably, of the United States Government; and the third question is if the Court finds that the American National Red Cross is an agency of the United States Government, has Congress waived its immunity from taxation by its 1960 Amendments to the Federal Unemployment Tax Act which became effective, January 1962.
This action arose, and I go on way of background, that because of the proviso of the Amendment to the Colorado Employment Security Act which is set forth in Chapter 82, 1963 CRS (Colorado Revised Statutes) which taxes all non-profit organizations in the State of Colorado.
For example, we tax hospitals, churches; there are clerical exemptions, etcetera but other organizations such as the Salvation Army, the Colorado Bar Association, etcetera, are covered under the Colorado Employment Security Act.
Colorado is one of three states which taxes non-profit corporations under its Colorado Employment Security Act.
The other two states are Alaska and Hawaii.
Now two of these states, namely: Colorado and Alaska elected to tax the American National Red Cross under the Employment Security Acts and as a result, this action was brought in the Colorado District Court, United Stated District Court, seeking a permanent injunction against the Colorado Department of Employment and its executive director, Bernardi Tist, from assessing further taxes against the American National Red Cross.
The Department of Employment appeared and moved to dismiss the action and moved to strike the United States of America as a party-plaintiff to this action and the appellee moved for a summary judgment.
These matters were argued to a three-judge court in the United States District Court and upon hearing of oral arguments, the United State District Court denied the Motion for Summary Judgment, denied our Motion to Dismiss and granted our Motion to Strike the United States Government on the grounds that they had failed to state an adequate claim for relief.
Then, the matter was heard on its merits and upon the conclusion of the trial, the United States District Court so ruled that the American National Red Cross is an instrumentality or agency of the United States Government.
They reinstated the United States as a party-plaintiff on this matter and this matter is now on appeal to this Court on a direct appeal.
Now, directing my argument to these three issues, I would like to direct my argument primarily first of all to the second question because it has near relation to question no. 1.
We submit that the American National Red Cross is not an instrumentality or an agency of the United States Government.
It is a creature of Congress under Title XXXVI and so is the Boy Scouts, there is the American Revolution, the American Historical Society, reference of foreign works, etcetera.
But Congress has manifested and expressed intent that the American National Red Cross is an agency or instrumentality of the United States Government.
In fact, looking at the Act itself in Title XXXVI and referring also to Title X, Congress conveys fact that this is a private organization rendering voluntary assistance to the United States Government when it is requested to do so.
Now, under Title X, for example, there are two provisos in there which I think are significant in construing the legal status of the American National Red Cross.
One is the fact that refers to the power of the President to accept the assistance of the American National Red Cross.
It never speaks about a duty for the American National Red Cross to comply with federal request.
In fact, all of these matters in which the Red Cross assists the United States Government are bilateral agreements and of a voluntary nature.
The second matter, which is of importance in Title X is the fact that Congress specifically provided in Section 2602 (e) that Red Cross employee should not be considered as Federal employee or employees of the United States Government.
Now, there are -- in other -- in actions in the past, some of which I do not submit as precedent, and I’m sure counsel for the other side would not as submit as precedent, there are ceremonies of proclamations by former Presidents of the United States which say that, “It is a quasi organization or an instrumentality or agency of the United States Government”.
On the other hand, the Secretary of Labor in 1944 passed a regulation stating that Red Cross and Salvation Army were not instrumentalities of the United States Government.
Internal Revenue Code has made rulings on this matter, but Congress has spoken once again in Title XLII under the National Disaster Act.
And, of course, one of the roles of the American National Red Cross, it has four-fold purposes: one, is to assist the Armed Forces; two, is to give disaster relief; three, is to conduct fund appeals and four, is to interpret the Red Cross to the local community and these are brought out by the testimony on page 100 of the record.
But one of their -- as their assistance to the Armed Forces or, excuse me, under the -- so far as the National Disaster is concerned under the Title XLII, under the National Disaster Act, it specifically provides in defining federal agencies that the American National Read Cross shall not be considered an agency of the United States Government.
Now, looking to the charter so to speak for the enabling statute for the American Red Cross, there are other manifestations of Congress which show that the United States has not exerted a power or a controlling power over the American National Red Cross.
For one, the President has the power to appoint 8 to a board of 50 members.
In of this, none fit into the executive committee.
Then the Act refers to voluntary relief, voluntary assistance etcetera and then once again and by previous actions of the Red Cross, and by the evidence in the record it shows that these are agreements where they meet, they enter into a bilateral agreement and they carry these matters up.
The Red Cross would point out that they are the sole agent who disperses problems or supplies in times of disaster and yet the Salvation Army has brought up, by the evidence also, renders valuable assistance even though they may not be the recognized dispersing authority.
The Salvation Army plays just as important role so far as the National Disasters are concerned and yet, the Salvation Army is taxed under the Colorado Employment Security Act.
It does not rule itself out as an instrumentality or an agency of the United States Government.
The President of the United States has only the power to accept the assistance of the Red Cross in other words, and I submit that that Red Cross works only in a private sector and not a public sector.
This was brought out by the testimony of Mr. Dermet (ph), who was former Director of the Office of the Emergency Planning and his testimony is set forth in folios or pages 79 and 86 of the record.
So in essence, the Red Cross gives voluntary relief to private needs and from private funds.
Now, another interesting facet -- is the fact that the American National Red Cross is one of various national organizations which belongs to the International Red Cross Conference.
And as brought out also in the testimony on the record, the International Red Cross Conference, which is worldwide, requires in its charter that its member organizations remain autonomous, by that I mean that they remain autonomous from the government with which it works.
There is no doubt that the role of the American National Red Cross is a noble one and a humanitarian one.
And the interesting part of the testimony is the fact that it's not national humanitarian; it's international humanitarianism.
In other words, as brought out by the testimony, they assist Armed Forces of enemy countries as well as those of our country.
So they have this international humanitarian scheme.
Of course, the Salvation Army renders the same service.
Justice Abe Fortas: What are the particular respects which to your mind most clearly differentiate the Red Cross and National Banks for purposes of this question, the legal issue here?
Mr. James D. Mckevitt: Mr. Justice Fortas, my answer to that is Title X or, excuse me, Title XXII and that is this: that Congress has set forth a great number or many more controls over the instrument of National Banks.
They have the power to pass on their mergers, appoint receivers, to pass on the or approve on the stock that they issue and that brief – they would take -- there are number ones which I have set forth in my Brief but they explicitly have (voice overlap) much more authority.
Justice Abe Fortas: You have this in your Brief?
Mr. James D. Mckevitt: Yes, I do, Your Honor.
I think it is in Title XXII.
I would like to point out, for example the inside operation of the American National Red Cross.
Yes it's true that they do have their national headquarters here on the United States Government land and interestingly enough, the next building to the South is the Daughters of the American Revolution.
But at the same time, let's go to the Trade Michigan where they have a commercial building which they operate for a profit which the money goes back into the operation of the National Red Cross.
Let's take for example the fact that through out the country, they retain private legal counsel.
They have a private public accounting firm.
They have two audits every year and one is conducted at their expense by asking themselves certified public accountants and the other is conducted by the Department of Defense and they are required to reimburse the Department of Defense for the audit.
Now, this is one of the checks that the United States Government makes upon, but at the same time, the interesting point is that the United States Government does not give them any money.
In fact, the Red Cross over the years has prided themselves on the fact that they receive no money from the United States Government.
The Red Cross does not have a title so to speak in the American National Red Cross and in fact, looking at their motor vehicles, they are titled in the name of the American National Red Cross.
Through out the states, they have -- they title their vehicles in their respective state registration requirements.
There are nurses who are subject to local and state registrations and they subject themselves to withholding tax, for example, in the State of Colorado and another states.
These matters are also set forth in the record.
Now, counsel points out this case of Standard Oil versus Johnson, which this case is previously entered as decision in 316 US and which is set forth in both Briefs and, I think that that case is not controlling so far as this case is concerned.
In fact, I think, it is easily distinguished.
In that case, we talked about an army post exchange, a situation or a post exchange that was run by a member of the military service where the money is originally appropriated from the treasury to run the post exchange where salaries are paid by the United States Government for employees to run this and in the event that it closes up, the reversion of profits or balance goes back to the treasury.
I submit another or in fact a better test insofar is the question on these matter is concerned is the case of Unemployment Compensation Commission of North Carolina versus Wachovia Bank and Trust, this is North Carolina case which is set forth on my Brief.
And in there, the Court, the North Carolina Supreme Court, stated five elements to determine what constitutes a government instrumentality or agency.
One was, did the government create it?
Well, that's applicable here.
No. 2, is that wholly owned by the government?
This is not true here because it is not even partially owned by the government.
Three, was it operated for profit?
Well, this would be applicable here, the Red Cross is a non-profit organization.
Is it engaged primarily in the governmental function is the forth test and we submit, the evidence was substantiated, that this is not their primary function.
This is one of their functions, but this is not their major function.
And the fifth and most important test is whether the proposed tax such as the Colorado Employment Security Act tax, which would come out of that Act, would that impose an economic burden on the Government of the United States?
And I submit that this would not be the case.
The United States Government would not be subject to this tax or would it create a burden on the United States Government in this regard.
And this comes to – one of the key issues, I think the point is, that the reason the instrumentality exemption is set forth is to prevent a burden, undue burden on the United States Government.
There would be no tax imposed.
The United States Government would not be obligated in anyway for the payment of this tax and for such reason I think that that's the key test along with the other onus in the Wachovia case to show that Red Cross does not qualify as an agency of the United States Government.
I've already pointed out the four functions of the American National Red Cross.
I would like to refer to another case, that's Miller versus City of Greenbelt and in that – it cites also Grace versus New York, 306 US 466.
In the language of the Court there, I'm referring to Grace versus New York, says that, “when the National Government lawfully acts through a corporation which it owns and controls, those activities are governmental functions entitled to tax immunity”.
That is not the situation here.
Concluding on this particular point, I think that the status of the Red Cross is best defined by Mr. Basal O'Conner, who was National Chairman of the American National Red Cross in 1946 and this is set forth in his quotation in the appellee's-plaintiff Exhibit “8” -- “18” which is the 1946 American Annual or American Red Cross Annual Report.
Mr. O'conner stated “the International Red Cross Committee has always maintained that the National Societies, while cooperating closely with their own government and with other agencies but at the same time remain independent.
This explains to a certain extent the unique position of the American Red Cross in the light of the country.
Cooperating closely with the government it is in no sense a part of the government.
Working hand in hand with many agencies, it still retains its freedom of action.
And now, Your Honors, I would like to address my next remark issue no. 1 and that is the jurisdiction so far as the United States District Court is concerned.
First of all – sir?
Chief Justice Earl Warren: Before you get to that, do you have any comment to make on the colloquy between Congressman Ikard and Congressman Mills, the chairmen of the Committee that reported the Bill out in which Mr. Mills said, “the gentlemen have very clearly stated when I say the understanding that I have of the Bill in this respect.”
Certainly, this statement is a very clear reflection and he said that similarly it is not the intention of the Bill to remove the present exemption of Red Cross employment from the State Unemployment Compensation.
Mr. James D. Mckevitt: Mr. Chief Justice, I was going to answer that question, my third argument but I'll answer briefly now.
I have submitted on page 41 of my Brief three decisions of this Court which I feel would defeat any significance to be given by that testimony or statements by members and committee because of the fact, if that was such a vital concern, Congress had the power to expressly exempt the American National Red Cross from coverage under the 1960 Amendment.
And the 1960 Amendment makes specific language which specifically exempts only certain organizations or a certain type of organization.
And, I submit on the basis of the Aldridge Case, the Pennsylvania Railroad Case, in the United States versus Trade Association that this could not be given construction in determining the intent of Congress.
Does it answer your question, Mr. Chief Justice?
Chief Justice Earl Warren: Well, it states your position.
Mr. James D. Mckevitt: Alright, sir.
So far as the jurisdiction of the US District Court in Denver's concern, Your Honors, we based our objection and feel that the doctrine of abstention should have applied in this regard in that the US District Court should have refused to accept jurisdiction of the matter because of Title XXVIII, Section 1351 which as Your Honor is well aware provides that the Courts shall not enjoin the assessment of state taxes when the relief may be had in state courts.
Now, we submit that the United states or should I say (Inaudible) that the American National Red Cross had an adequate remedy in the Denver District Court under the provisions of Chapter 82 Article IX and Section 9 of the 1963 and then the 1953 Colorado Revised Statutes.
They simply had to ask for a refund, have an objection applied or refusal thereto and immediately file suit in the Denver District Court for an interpretation or for a judicial ruling on their entitlement or non-entitlement to a refund under the Colorado Employment Security Act.
Justice Potter Stewart: Well, the United States (Inaudible) to one side was made a party to this case, wasn't it?
The United States America --
Mr. James D. Mckevitt: Yes, Mr. Justice Stewart, they were.
Justice Potter Stewart: And according to the counsel for the United States, that statute has been held many times not to be applicable to the United States.
Do you accept those authorities with --
Mr. James D. Mckevitt: My answer to that is this.
I think that it touches upon a gray area because they touch – they mentioned first of all the Arlington case and the Livingstone case.
Now, those cases don't just give unqualified authority on applicability or non-applicability of 1341 whether is the United States named as a party because in the Arlington case, they refer to it not being applicable where the United States has the proprietary function.
And this was a case where Bottomly, a naval officer his taxes were involved.
The Livingstone case referred to the question of whether the United States has a pecuniary interest.
And I submit, perhaps that this is a fine point, but I submit that in neither of these cases, that the United States have a proprietary interest or a pecuniary interest.
In fact, they did not even allege in their complaint nor did they prove it.
The unique part is that they were dismissed throughout the trial and then they reinstated at the end of the trial from the motion to strike.
And for such reason, I submit that the Arlington and the Livingstone case, although being warm on the subject, are not absolute authority for this premise.
I would also point out the fact that proprietary insofar as Webster is concerned, is one who has exclusive title or ownership in something and this is certainly not the case with the United States Government.
Now, there a question also arises that would they have an adequate and speedy remedy at law?
There's no doubt the United States has presented cases here which have merit upon this point, but there are also cases to the contrary.
And, I submit that -- of course, I will submit that these cases; one of them is the Toomer versus Witsell case, the previous decision of this Court and I submit that Matthews versus Rogers, although it's not the case in point, has language which has significance as to the reasoning behind it.
And, I cite the Washington case of State versus Police Court of Seattle and they say there is not a general rule; it depends upon the facts.
The interesting point of this case is the US District Court made no ruling on the question of interest so that they say they were not entitled to interest on the refund.
That's as far as they went.
And, I question the logic of -- and perhaps this is through my ignorance, Your Honors, but why this would have so much bearing so far as the awarding of interest is concerned on a plain and adequate and speedy remedy at law.
Because the main thing is, as the Washington case points out and also the Matthews versus Rogers decision of this Court, it goes into a much greater significance so far as the reasonable remedies which they have.
For example, one of the cases that talks about - I think it's the Matthews case, that talks about where there were four hearings involved instead of two and they said that regardless to that fact that there would still be -- this would not deprive them of a speedy and adequate remedy.
Now the Toomer case for example is where the Georgia Fishermen sought to enjoin the South Carolina Tax Commission for taxing for fishing in South Carolina territory and in that case, there was no discussion about refund one way or the other, but there's no language by the court to show that a refund of interest would have been paid and yet, this Court held that there was jurisdiction there in the state court.
Now, I'd like to answer lastly the third question and that is, if this Court is to rule that the American National Red Cross is an agency or instrumentality of the United States Government, has Congress waived its immunity?
And in doing so, I'd like to go into background once again and that is the Federal Unemployment Tax Act which is set forth in Title XXVI, Section 3301 in sequence, and the Federal Unemployment Tax Act, I think has to be understood from its basic roots to understand what Congress did in 1960 and that has thrown exception in the 1930s.
The Federal Unemployment Tax Act was set up as a sort of a guideline to the states saying that you will pass laws if you wish to tax in your states, certain employers but we will provide minimum standards.
They used to be, for example, eight or more employees for a period of 20 weeks.
Now, one of the minimum standards is four more employees for 20 calendar weeks in one year.
And so they set forth these minimum standards and the states go along and they have different discretions on certain matters.
For example, Alaska, Colorado and Hawaii tax non-profits; the rest of them do not.
Congress has not stated that you have to tax non-profits, but they say -- they don't also say that you cannot, excuse me -- they don't say that you can't tax non-profit organizations.
So this is a discretionary matter with the states, but the reason 3306 (c) (6) of Title XXVI comes into play here is the fact that Congress has made it very clear that they don't want the states to tax Federal employees because they are already covered by the United States Government.
In other words, civil service employees of the United States Government are covered under the Federal Unemployment Tax Act.
And when a person is laid off or has a claim for unemployment benefits, he files a claim and the claim is filed through the state agency who acts as a dispersing agent only and yet it is governed under the Federal Unemployment Tax Act.
And so, my point is this, that in referring to this law, the state, and I would like to point before my argument is closed, I noticed just recently that in page 38 of my Brief, Section 3305 has the old laws instead of the new laws and the new laws are set forth in the appendix, and my apologies to the Court for this error by the printer and also by myself.
But taking these, was briefly in sequence, 3301 is the start of the Federal Unemployment Tax Act.
Then 3306 was amended and it provides that the legislature of the states my tax instrumentalities of the United States Government in certain instances.
And then, in fact, it's set forth in the appendix of my Brief, page 45, it says, “The legislature of any state my require any instrumentalities of the United States other than an instrumentality to which Section 3306 (c) (6) applies.
And that is the only specific exception set forth by the Congress of the United States and so we have this enabling legislation in 1960, effective of 1962 and the State of Colorado already have a law on the books which is set forth on my Brief, enabling the Department of Employment to tax instrumentalities.
And so, we look to the language of 3306 (c) (6) and in there, and this is the only exception which Congress has not waived its immunity, its service in the employ of the United States Government or an instrumentality of the United States which is wholly or partially owned by the United States.
This is not applicable to the American National Red Cross.
The other exception is (b) where it says, “Exempt from the tax imposed by Section 3301 by virtue of any provision of law which specifically refers to such Section or the corresponding section of prior law in granting such exemption.
It's also is not applicable to the American National Red Cross because there is no specific reference to 3301.
And for such reason, I submit, Your Honors, that Congress' intent in setting up this 3306 exception was to say, “you may tax instrumentalities, but do not tax our employees.
We already cover them as a self-insured so to speak and for such reason it would be ridiculous.
That completes my argument.
Thank you very much.
Justice Abe Fortas: Are you satisfied that this is a proper case for a three-judge court? You have not briefed that point, have you?
Mr. James D. Mckevitt: I addressed my matters to the Court in the beginning of my Brief and I appreciate you bringing that point up.
I submit that it's a two-fold situation.
The Court must first of all find that this – the American National Red Cross is an instrumentality and that the United States Government had a proprietary or pecuniary interest in this matter before it can go back to this question of jurisdiction.
If it finds that it's not an instrumentality of the United States Government, then it would follow that it would defeat the jurisdiction of the United States District Court as well, but it would probably resolve the matters in entirety by that ruling and that's why, Mr. Justice Fortas, why my opening argument was the question on instrumentality.
Have I answered your question?
Justice Abe Fortas: Well, if it works the other way around though and we think that the Red Cross is an instrumentality of the United States then what would your position based as to whether three-judge -- this is a proper case for three-judge court?
Mr. James D. Mckevitt: Well, my position, it was in all candor I think it's hard though as an officer of this Court to openly advocate to say that the Livingstone case and the Arlington case don't resolve it because in effect, by dictum they probably do and in this Court would have jurisdiction and so would the US District Court, but there is a fine distinguishing factor there.
I mentioned this as a part of this argument.
Chief Justice Earl Warren: Mr. Levin?
Argument of Jack S. Levin
Mr. Jack S. Levin: Mr. Chief Justice, may it please the Court.
We have dealt with the jurisdictional issues at some length in our Brief and I would be happy to answer any specific questions, but if there are none, I would pass on to the merits of the case.
The American National Red Cross, the organization which is here in issue is, we submit, an organization which is formed by the Federal Government and which performs a large number of important Federal duties in close coordination with the other Federal agencies.
We agree to a certain extent with the argument that counsel for the appellant has made.
The employees of the American National Red Cross are not the employees of the United States, any more than the employees of the National Bank are the employees of the United States, but we don't believe that that is a lone determinative here.
We think that it is necessary to look at the operation of the American National Red Cross, the functions it performs, the degree to which it performs them in close coordination with the United States and the extent to which the American National Red Cross is provided with services, facilities, supplies, etcetera by the United States Government.
Justice Potter Stewart: Fact that it was created by the Federal Government is of course not dispositive, is it?
Mr. Jack S. Levin: No, it is not dispositive.
As counsel of the appellant points out Title XXXVI of the United States Code contains the charters of a number of federally incorporated organizations.
The Congress, of course, never put the Red Cross as charter in Title XXXVI, the revisers did and Congress has never approved that, but Congress has recently enacted a statute that we think is helpful in this regard and it's not mentioned in our Brief.
Section 1101 of Title XXXVI provides that the following corporations,” and then it contains a list, are constituted as “private corporations established under Federal Law, Private Corporations”.
It uses this term in making certain requirement that they be audited by CPAs etcetera and in listing the corporations which are private corporations established under Federal Law, Congress listed each and every organization within Title XXXVI with four exceptions; three of them are commissions wholly financed by the United States the officers of which are wholly appointed either by the President or Office of the United States Government regulating battle monuments and civil wars, centennials and things like that and the only other organization which is not listed there is the American National Red Cross.
Before 1860, it was not uncommon for an army after a battle to retire from the field, to regroup and press on the battle and leave it wounded and sick soldiers on the field.
Therefore, in 1864 a number of governments convened in Geneva and signed what is the First Geneva Convention.
That Convention, for the first time, imposed upon the member governments, the requirement and the duty that they care for the sick and wounded of both sides in a conflict, both their own and their enemies and they authorized each member government to form a red cross society, a national red cross society.
The United States became a party to that treaty in about 1880 and shortly thereafter, the American National Red Cross was formed.
In 1900, Congress for the first time gave it a national charter.
Now, whatever the status of the Red Cross was up until that time and beyond up until 1905, we submit that in 1905 an Act which Congress passed, made it a Federal instrumentality.
At that time, Congress passed what is referred to extensively in our Brief as the Act of 1905.
It dissolved the existing Red Cross society and it formed what is now the American National Red Cross, the charter for which is in Title XXXVI.
It gave this new Red Cross society, the American National Red Cross, all of the property and delegated to it all of the duties and the word “Duties” was specifically used, of the old Red Cross society and designated it the new American National Red Cross as the organization which is to perform the duties of the United States Government under the Geneva Convention of 1864 and any future convention of similar nature and there have been two: 1920 and 1949.
In the preamble to that Act, the 1905 Act, Congress said this.
“The importance of the work of the Red Cross demands a repeal of the present charter and the reincorporation of the society under government supervision”.
In the Act of 1905, Congress gave the President of the United States the power to appoint two-thirds of the Red Cross' board of directors, including its chairman.
It provided that the Red Cross was to be audited each year by the Department of Defense and the War Department and that the Red Cross was to submit audited statements both the detailed report of its proceedings during the year and a detailed full and complete itemized account of its receipts and expenditures.
Now, the provision regarding receipts and expenditures still remains and each year, the Department of Defense performs an audit.
The Congress subsequently saw fit to reduce the number of appointees which the President makes to the Red Cross' board to less than the majority.
But as Congress has shown in some more recent legislation, specifically a 1956 Resolution or a 1952 Committee Report, it still regards the Red Cross as adequately supervised by the Federal Government even though it no longer has a majority of its board appointed by the President.
And I think that the remainder of my argument would demonstrate that that is adequately briefed.
In the Act of 1905, Congress first designated the Red Cross as having the duty to perform the United States' obligations under the Geneva Conventions.
It also delegated two other functions to the Red Cross, both of which, I submit, are important governmental functions.
First the job of rendering aid to the military services of the United States, all branches of the armed services; and second, the task of carrying on disaster relief in case of national disasters.
I would like to take up in some detail each of these three functions which the Red Cross has since 1905 performed.
First its Geneva Convention duties; these might include such duties are caring for or supervising the care, a medical care given to captured enemy wounded.
It might include the inspection of facilities afforded for either American troops captured by the enemy or given to enemy troops captured by the United States.
It also includes the arranging of communications between US Soldiers in enemy prison camps and their families at home.
It includes the transmitting of food parcels and supplies, medical supplies, clothing from the United States to our troops who were imprisoned abroad.
For example, during the second World War, the Red Cross was instrumental in arranging and through the International Committee of the Red Cross transporting to American troops in Germany, Japan approximately 30 million parcels over the course of that four-year conflict.
It also arranged a large number of communications back and forth between families of US servicemen captured abroad and those servicemen.
All of these activities, of course, require the closest coordination between the American National Red Cross and the American Department of Defense and to some extent, the State Department because contacts with foreign governments both directly and through the International Committee of the Red Cross are certainly of interest to this government.
Justice Byron R. White: Do you say that the exempts to the Red Cross as the instrumentality rests on this Congressional assertion over the exemption or is this or just a judicial idea that federal instrumentalities should be exempt?
Mr. Jack S. Levin: Well, Mr. Justice White, I submit first of all that it is an implied exemption from the Constitution that when Congress creates an organization, gives that important Federal functions to perform, arranges for to do so in close coordination with the United States Executive Agencies including the Military, State Department and when it provides some financial support for it and takes all the steps, which it has done with regard the American National Red Cross, that the Constitution grants it an immunity just as this Court held in McCulloch versus Maryland with regard to the original bank of the United States which, of course, was 80% owned by private shareholders and the 20% by the United States –
Justice Byron R. White: But you don't think that the statute that we're dealing with here attempts to grant any more of an exception for federal instrumentality that would be true under the case law?
Mr. Jack S. Levin: Well, I think that the Constitution is sufficient to achieve the purpose which we are here discussing.
I think, however, that if this Court would have find for some reason, which I cannot at this time conceive, that the Constitution is not sufficient that the statutes here in question would affirmatively grant an immunity.
Justice Byron R. White: You think any entity which performs to any extent as the federal instrumentality if the Federal instrumentality right across the board is short?
Now, let us assume that 95% of the work of Red Cross is a “Case work”, social service work, and it is certainly the Red Cross that it did deal of it, all the private operations.
Let us assume that 95% in this work, does that 5% was billing all these things that you say require such full close coordination [Inaudible] the government?
Mr. Jack S. Levin: I shouldn't think that if an organization did 5% of its work in close coordination with the government and 95% of its work privately that it would become an instrumentality of the United States.
I should think, however, that the facts show, as I will endeavor to prove here, that the Red Cross is not in the category of organizations which you have described.
The Red Cross doesn't give an incidental amount of its effort to cooperate with the United States.
Justice Byron R. White: But what (voice overlap) -- shouldn't take your time that you're going to cover but I would have – you might address yourself to why it has to be one way or the other.
Does it really have to be either one way or all the other way?
Mr. Jack S. Levin: For what might you said that it is partially tax exempt, the salaries –
Justice Byron R. White: Like a lot of charitable -- in fact laws of the United States, for example, might tax some operations of charitable Foundation than others?
Mr. Jack S. Levin: I certainly think that would be conceivable solution that Congress could enact.
I'm not sure that the present statute do enact that sort of the solution.
Justice Byron R. White: And so you do rely on this statute?
Mr. Jack S. Levin: No.
I rely on the Constitution and the statute would have nothing but a negative effect, a waiver of the Constitutional immunity.
Justice Byron R. White: So you think the constitutional immunity that you're talking, you're relying on that has no room in it for saying that “well, entity was performing for the United States in part and in part it isn't and to the extent it is exempt from paying taxes?
Mr. Jack S. Levin: All I can say is that there had been no of such cases that I know of reaching that conclusion.
I don't think that it would be an inconceivable result.
Certainly, that result could be reached and I submit, Mr. Justice White, that if that is the result this Court reaches, then not 5% but 99.5% of the Red Cross' activities would be covered.
And that –
Justice Byron R. White: Your assertion is that we should not reach the constitutional exemption of instrumentalities, any such construction either are or they aren't?
Would that --
Mr. Jack S. Levin: My position is that you need not reach that question in this case because the Red Cross' activities as I will demonstrate are 99% or 95% directed towards achieving its federal duties and that many of the things which –
Justice Byron R. White: Would you speak with that in Colorado?
Mr. Jack S. Levin: Well, I'm talking about worldwide.
Justice Byron R. White: The record of that performance of the Red Cross in the State of Colorado --
Mr. Jack S. Levin: The record has very little in it about any specific activities within Colorado.
The record has a great deal in it about the general activities of the Red Cross and the purpose for which the local activities take place.
For example, if you're referring to blood collection drives --
Justice Byron R. White: Let us assume that in that State, the Red Cross does a very large amount of work and none of that, however, in that category about this [Inaudible] and all of that activity in the State are wholly private, unconnected, disconnected with the United States Government.
Not a single employee in that – say they got 500 and not single one of them was doing the work --
Mr. Jack S. Levin: I would try to answer your question this way.
I would ask your indulgence to pass on to the next point I've got here and then come back to it because my next point is, many of the activities which the Red Cross performs for the military and in disaster relief which require the existence of State and local chapters and the way in which those State and local chapters are integrated into a nationwide and even a worldwide network which are absolutely essential for the performance of the Red Cross' duties.
I would find your question very difficult were this not the fact. Certainly, if there was no one with any given state performing any federal duties or any federal functions, it would be difficult to say that the employees within that state couldn't be taxed.
But I submit that that's not the case.
Justice Byron R. White: And how come then that we don't need to record evidence about what the situation really is?
Mr. Jack S. Levin: Well, I think we do have record of evidence.
We have testimony among other things from the mid West Region Manager of the Red Cross which includes Colorado and he talked in here about the services which are performed in the mid West Region and in general about the services which the chapters performed.
He did not say, “This Colorado Chapter performs this service”.
The inference is there, it's pregnant.
In every sentence he says that he is not trying to –
Justice Tom C. Clark: May I ask?
I thought basically that the government provision was that this is an instrumentality immune from state taxation and that the immunity has not been waived by the Congress (voice overlap)
Mr. Jack S. Levin: That is correct.
Justice Tom C. Clark: Well, what difference does it make whether everything that it does in Colorado may be outside the -- may be the kind of thing which doesn't have a particular governmental phrase.
If you're right, doesn't the immunity apply that hasn't been waived?
Mr. Jack S. Levin: Yes.
Justice Byron R. White: (Voice overlap) one way or another?
Mr. Jack S. Levin: I would take the position that it's either one way or another, yes.
I could conceive of this Court reaching a different result but I don't think it's warranted either by the facts or by the law or by the cases this Court has decided.
Justice Hugo L. Black: Suppose that when an institution that the government selected, a waiver congressionally thought of coverage [Inaudible] by the Government under the same provision?
Mr. Jack S. Levin: I think that in that case, it could become an instrumentality of the United States and it would depend on the facts, such as the facts I'm here discussing.
One point –
Justice Hugo L. Black: Well, that indicates doesn't that it's not at all one way or the other?
Because you don't think this would [Inaudible] that any time the government creates a corporation?
Mr. Jack S. Levin: No.
Justice Hugo L. Black: -- used in collaboration with the government and it becomes immune from Federal taxation --
Mr. Jack S. Levin: No, of course, not.
But if the government created a new corporation to be engaged in ship building and this organization was a non-profit corporation, some of the officers of which were appointed by the President of the United States and which the United States supplied a great deal of aid to in the form of supplies and services and personnel, transportation, communication, millions of dollars worth of services annually and this organization then built ships solely for the use of the United States Government and naval officers were working in that shipyard hand in hand with the other employees of this non-profit corporation, I think that on those facts, it would be very likely that that corporation would become an arm of the Federal Government just as this Court held –
Justice Hugo L. Black: [Inaudible] institution which the Congress accepts to give tax exemptions [Inaudible]
Mr. Jack S. Levin: Because I think this Court has traditionally held over the years that in the absence of a waiver where the organization is, as I've described it, it has by force of the Constitution itself a portion of the United States' immunity.
Justice Hugo L. Black: By force of the Constitution or acquiesce?
Mr. Jack S. Levin: By force of the Constitution.
In the Clallam County case decided by this Court a few years ago involving a government corporation formed to build not ships but their airplanes for World War I which was a non-profit organization staffed by the government people at the high levels and the executive positions, this Court held that it had an immunity.
Justice Hugo L. Black: [Inaudible]
Mr. Jack S. Levin: I think that that would be one factor to be taken into consideration.
A profit making --
Justice Hugo L. Black: (Voice overlap) consideration as to whether to constitutionally exempt or whether it's impliedly exempt by Congress, a difference between constitutionally exempt?
Mr. Jack S. Levin: No, I've been using those two terms as meaning the same thing.
Let me define them further.
When I say “Constitutionally exempt”, I mean exempt by the force of the Constitution without Congress saying a word, but Congress can waive that exemption.
It has implied Constitutional exemption and that's just what the Court said in the Clallam County case.
This Court said that the immunity is derived from the Constitution in the same sense and upon the same principle that it would be of expressed in so many words.
Justice Hugo L. Black: While it being a non-profit and a profit corporation?
Mr. Jack S. Levin: It could be.
This Court so held in McCulloch versus Maryland with regard to the bank of the United States which was a profit making corporation, 80% owned by private shareholders.
It could be but I think that that's one factor to be considered.
This Court would be much less likely to conclude that a given organization, if it were a profit-making organization.
Justice Hugo L. Black: But why, on the constitutional basis or on the non-constitutional?
Mr. Jack S. Levin: On the constitutional basis.
The United States doesn't typically form profit-making organizations and make them instrumentalities tax exempt.
Unknown Speaker: What is this Colorado tax?
Mr. Jack S. Levin: This Colorado tax?
Unknown Speaker: Yes, what is it?
Mr. Jack S. Levin: It's unemployment compensation tax.
Unknown Speaker: What is it used for?
Mr. Jack S. Levin: It used partially to pay an employment compensation benefits to the employees of the particular employer who has been discharged.
Unknown Speaker: Does the Red Cross have any other way to – to each of the people of the VP employees to be protected, etcetera?
Mr. Jack S. Levin: The record doesn't speak on that.
But I say that –
Unknown Speaker: Does this mean that the states does not have a right of this kind of fact as this one group of employees in United States who would be left out to picket?
Mr. Jack S. Levin: I'd like to try to answer that in two steps.
In the first place, Your Honor, the State of Colorado does not impose a tax on the Red Cross, directly in proportion to the benefits which its employees received.
As we stated in our Brief, the State of Colorado sought the tax and didn't back tax the Red Cross over $28,000 in the 3 ½ years in Colorado that this suit was in progress.
It paid out during that period $404 in benefits to Red Cross employees, a ratio of $1 benefits for $70 of tax collected.
Unknown Speaker: That's a challenge to the method of taxation and I must forget.
Mr. Jack S. Levin: I think that it goes to the very nature of the tax.
Unknown Speaker: I'm really rather -- I thought that you had a nationwide system taxation of unemployment in this Country.
I didn't know that Red Cross was repealed.
Mr. Jack S. Levin: Well, Congress in 1966 considered a bill to specifically deal with this point.
And (voice overlap)
Unknown Speaker: We recess now.
Chief Justice William O. Douglas: Mr. Levin you may continue your argument.
Mr. Jack S. Levin: Mr. Chief Justice, may it please the Court.
To deal -- replay with just a couple of the items that were raised before lunch and then hopefully to spend the last three or four minutes on the activities of the Red Cross, it is our position, first of all, that if the Red Cross is, as we contend exempt from state taxation that that would include any type of tax on the Red Cross' operations as what this Court said in McCulloch versus Maryland, that's what this Court has reiterated in perhaps in dozen decisions and this would include the tax imposed upon the privilege of employing individuals.
Now, Congress recognized when it enacted the Social Security Amendments of 1960 that this was the result.
We submit that Congress had a very good reason for waiving Red Cross exempt from State Unemployment Compensation Tax.
This reason is demonstrated by the recent bill that came within a hair of passage in the 1966 Congress.
Both houses passed it but they failed to resolve a few minor inconsistencies in conference.
That bill submitted all charities, including the Red Cross although not by name, all charities to state taxation and required all states to impose unemployment compensation taxes on them but specifically required that those taxes be in direct proportion to the benefits paid out to the employees and Congress in the extensive committee reports and hearings that held on those bills recognized that charitable organizations have a much lower turnover rate in employee, in personnel than do most industrial concerns.
And, therefore, Congress took the position that some states in Colorado was specifically mentioned as we set forth in our briefs in this hearings, some states have been taxing charitable corporations in such a manner that the income from the charitable corporations is used to subsidize the benefits paid out to employees of industrial concerns.
They do not give them adequate recognition for their excellent employee and employment records.
Second, with regards to Mr. Justice White's question, we submit that where an organization is predominantly as is this one, engaged in governmental activities in the entire national organization is a – pointed in this direction and intended for this purpose that whether or not a given individual chapter may engage in more or less governmental activity is not the issue.
We also submit that there is some evidence on the record supporting those Colorado activities, not just mid West Region.
For example, there is a discussion by the mid West Regional Direct of the activities at Fit Simons Army Hospital and that institution is in Colorado.
Unknown Speaker: The US owed an awful lot their American military personnel, and the American Friends Committee, and all sort of --
Mr. Jack S. Levin: That's right.
Unknown Speaker: That can't alone be detected.
Mr. Jack S. Levin: I don't mean in any way to deprecate any of the activities carried on by these many fine organizations but the Red Cross is the only organization which is created by active Congress, heavily supported by federal contributions of services and supplies and activities, a number of the directors of which are appointed by Congress which has imposed upon it federal treaty duties, federal duties in disasters, federal duties with regard to aiding the military.
Many of the other organizations such as the Salvation Army of the US owned do perform some such functions.
Unknown Speaker: USO that's its exclusive function, doesn't it to be of help to military personnel and their family?
Mr. Jack S. Levin: Yes, the USO is perhaps the closest organization to the Red Cross but no other organization comes, I should to say, within a country mile of the Red Cross.
The Salvation Army, for example, contrary to what counsel for the appellant said, the record demonstrates over and over again that the Salvation Armies activities in this regard are much less in extent that those of the Red Cross and that in most federal institutions including all military hospitals, the record is the designated as the organization which will coordinate the activities of all other organizations including the Salvation Army –-
Unknown Speaker: What about in French service committee?
Mr. Jack S. Levin: There's no evidence on the record with regard the American French Committee and I'm not sufficiently familiar whether to speak to that subject.
I can tell you though that Salvation Army is a religious organization.
It has been called the “church”.
It engages in much religious activity and I don't think there's any question but it is not an instrumentality of the United States.
It's formed under state law.
Well, that's one factor.
I think the totality of the circumstances with regard to all other organizations with the USO perhaps been the only other organization that is closed.
None of them come near the Red Cross.
I would like at this point, however, briefly deal with some of the services of the Red Cross provides.
And, of course, I won't get through all of it; we set important detail on our Brief.
For example, the Red Cross provides a great deal of a day to day activity, hand and hand with the Military.
It is the only organization which is designated both by regulations, extensive regulations promulgated by the military which are exhibits to this case by Presidential Order and various other instruments that carries on a whole series of investigations and activities for the military.
One example is that, when a soldier receives a letter of notification that his some member of his family is ill or injured or has died, the regular procedure is to refer that sort of recommendation or that sort of a question to the Red Cross.
The Red Cross then, through military communications channels, which are open to it, contacts their local chapter in that area who makes an investigation and through military communication channels are used free of charged, sends the reply back to the local Red Cross man at the scene whether it be Vietnam or Berlin or wherever.
He turns his report over to the military commander who then uses this as one of the pieces of information and acting on a request for compassionate leave, compassionate discharge, compassionate transfer.
At the time of this trial, which is about two years ago or a year and a half ago, the number of communications involved in this sort of compassionate request for running a 2400 per day.
Unknown Speaker: Yeah, but what is the total budget of the Red Cross?
Mr. Jack S. Levin: Total budget of the Red Cross is approximately a hundred million dollars.
Unknown Speaker: And the federal government doesn't contribute a nickel to that.
Mr. Jack S. Levin: That's correct.
The federal government does, however, provide a vast volume which is not evaluated in money terms.
Unknown Speaker: Let's talk about the money.
Mr. Jack S. Levin: The money.
The Red Cross doesn't receive any money from the federal government.
Unknown Speaker: The graces that all lawfully was that it has some fee, some charges for their services.
Mr. Jack S. Levin: Yes, so far as I know, the charges for their services never exceed cost, for example when they supplied blood, they charge only the cost not –
Unknown Speaker: Does your position will be absolutely the same when the Red Cross, in order to raise its fund, the hundred million dollar it needs engaged in cock-making activities?
Mr. Jack S. Levin: No, my position would not be exactly the same.
I don't' think that that would be a much closer question.
Unknown Speaker: (Voice overlap) – let's just test that out.
Say I have an office building that is brand new office building and all its space is leased at a long terms leases and I give it to the Red Cross.
And Red Cross owns it and earns a very handsome profit of the year of the building.
Now, States wants A to tax in come at B at property taxes and C wants an employment compensation tax as all the employees around the building.
Mr. Jack S. Levin: In the first place, the Red Cross does not actually run any business operation.
It leases out a few building.
They have been left to it.
In the second place, the Red Cross takes no quarrel with property taxes.—
Unknown Speaker: Wait a minute.
The Red Cross does own some building?
Mr. Jack S. Levin: Yes.
Unknown Speaker: And lease them out and earn some money, some income but on the leases?
Mr. Jack S. Levin: Yes, one or two.
Unknown Speaker: And those buildings as you say, should not be subject to this local tax?
Mr. Jack S. Levin: No -- Your Honor, with regard to the property tax, it has been established since the time of McCulloch v. Maryland that a state may impose a non-discriminatory property tax on an instrumentality of the United States.
Unknown Speaker: How about the income tax?
Mr. Jack S. Levin: I should think that an income tax would not be appropriate and would probably not, will not in issue in this case.
I should then think that income tax would be permissible.
This incidentally is a test case, as the record shows and as counsel for the appellants admits.
Thank you very much.
Unknown Speaker: Mr. Chief Justice, may It please the Court?
Excuse me, Your Honor.
Unknown Speaker: (Inaudible)
Mr. Jack S. Levin: I would like to summarize in the last minute I have as follows: First of all, the acts of the Red Cross are voluntary.
It contracts with the government like other organizations to perform these services; no. 2, Congress has not specifically exempted it, their speculation as to what they might have done, but Congress has not so acted.
Other organizations of this type are now covered by the Colorado Employment Security Act and the fourth point is that the purpose the Colorado Security Act in taxing non-profit organizations is not to subsidize the rest of the fund.
We have an experience rating and after three years, if it has a good ratio of unemployment, it would be released from a tax depending the amount of paid in and the amount that was paid out.
That's all I have.
Thank you very much.