FALK v. BRENNAN

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Argument of Herbert V. Kelly

Chief Justice Warren E. Burger: Mr. Kelly, you may proceed whenever you’re ready.

Mr. Herbert V. Kelly: Mr. Chief Justice and may it please the Court.

Briefly as to the factual matters Drucker & Falk is a real estate insurance and property management firm that operates in Eastern Virginia.

It manages one and two-storey apartment projects, the smallest of which is probably in the 30 to 40 unit area and they run up to units that are covered under the act and not a part of this suit.

Each project is separately owned, each owner has an independent contract with Drucker & Falk as to the management of the premises and as its -- as to its services and the contracts generally call for Drucker & Falk to manage through resident -- to manage their property and manage the maintenance by Residents Maintenance Superintendents.

They are all maintenance employees in each project that are on the payrolls of the owner of the project who stay at that project in the main with some very unusual exceptions and in effect, go with the property.

It’s the position of Drucker & Falk in this case, that the Secretary of Labor has taken an illusory and strain definition of the Fair Labor Standards Act to reach down and include the employees of the apartment projects as covered under the Act where they could not reach down, two of them except through the rental agent and that they thereby bootstrapping themselves in the coverage where it does not exist.

Factually as presented here, unless you include the gross rental income as income of Drucker & Falk, there would be no coverage under the Act.

In addition, unless you include the employees who work after projects then there is no coverage of Drucker & Falk under the Act.

It is our position that you have to strain and come up with illusory result in order to include the rental income and include the employees.

It is our position with the first matter of income that income to Drucker & Falk is the gross commission, therefore, our six commissions on the rentals and that that is the measure of their sales.

It’s our position, therefore, that what they are selling is services and that what they get paid for the services is their commission.

And it’s our position that you look at this from two different -- three different directions.

One, you look at the provisions of the statute with regards to what is sales.

You can look at the intent of Congress with regards to what is sale, or you can reach, look at the legal conclusions that you come to after applying common law principles to the facts involved.

First, with regard to the statute itself, the statute has a definition of sale, as the Court is well aware which says that the sale is a sale.

It is in any sale.

It says a sale is any sale, exchange, consignment for sale, shipment for sale, or other disposition.

The statute goes on further to say that an enterprise is covered and that enterprise is any enterprise whose, whose annual sales, and I emphasize the ‘whose’.

Volume of sales meets a test, which in this case is $500,000. Petitioners suggest to the Court that certainly the definition that I’ve read to you of sale does not cover what sale and this instance means.

Now, the Fourth Circuit found some comfort in the last three words which were “or other disposition”.

It’s our position that “other disposition” can only apply to a disposition of what you are selling, and what Drucker & Falk is selling is their services, and the measure of that is the income to them, their commissions for the services, which they are selling.

The gross volume of sales made or business done is what is sold by the agent, his services.

He cannot sell for himself what is not his and what he sells for the owners is the owner’s sale.

And what the Secretary of Labor has tried to do is call the owner’s sale his sale.

So, under that definition, there is no definition which would include the factual situation presented to the Court in this case.

If we turn to the intent of Congress, I don’t think it’s even necessary to argue to the Court that it was -- that the congressional reports and the statements of the Secretary of Labor in amending the statute where such that the intent of Congress was to set the monetary limits with regard to what they felt was impact on commerce, the $500,000 in this particular instance, they felt was sufficient to be an impact on Congress and therefore you had bigness, and it was the intent of Congress to include the big and leave out the small.

If, by way of example, I could say it seems apparent that it was their intent to include the owner and his sales from the owner of the World Trade Center in Chicago, but not to include the owner of the Strip Center in Stony Creek, Virginia.

And it seems to me, you have to strain and reach an illusory conclusion if you conclude that by happenstance, this strip operator in Stony Creek Virginia is employing a branch office of the real estate agent in Chicago who runs the World Trade Center and thereby, he is in commerce.

That’s a strained conclusion which is contrary to the obvious intent of Congress.

Thirdly, if we turn strictly to common law principles, it seems to the petitioner that the rentals do not fit any definition that would say that, that was the gross sales of the agent.

The rentals do not belong to Drucker & Falk; they belong to the apartment project owner.

The Drucker & Falk does not control the property, nor the rentals except as agent.

The rent which is collected is not theirs.

It’s put in a trust account in and out, and they spend it in an even strong -- even more -- a fiduciary position rather than a dead end creditor position, because they hold those sums in trust for the owner whose income is the rentals and not that of Drucker & Falk.

And the sums are the distributed, we would suggest, under the direction and control of the owner and not of Drucker & Falk.

Justice Harry A. Blackmun: On this issue, the Courts of Appeals have given that theory hard going, haven’t they?

Mr. Herbert V. Kelly: Well, yes sir, but I don’t think there was any basis for giving it hard going.

They -- actually the Court of Appeals decided in the main based on the Wirtz versus First National Bank in which they say that in that case, it was concluded that rental income is sales.

And I have no problem with that at all.

I agree with that.

It’s a question of whose sales.

Justice Harry A. Blackmun: I don’t mean just the Fourth Circuit; I mean all of Courts of Appeals who have been decided, didn’t have go the other way, am I correct or not?

Mr. Herbert V. Kelly: No.

Well, it’s honorably set by two in the Wirtz on the same principle, yes sir.

That -- the case is that a number of cases, which I would suggest do not apply in this case, have ruled and if you look at either one of the cases, you see that they summarily dispose of it by saying, it has already been decided in the such and such case that rental income is sales.

And I have no argument that at all.

There’s no question about that.

The question is whose sales.

And we are saying that it’s the sales of the owner, not the sales of the petitioners in this case.

Justice Byron R. White: Well, does the rental agent’s activity constitute an enterprise within the meaning of the Act?

Mr. Herbert V. Kelly: I think that you have decided that it did on the Arnheim & Neely I think that the --

Justice Byron R. White: Yes; yes, and so the real question is what the income of the enterprise is.

Mr. Herbert V. Kelly: Yes sir and the question is whether the rental income is sale.

It’s not a question of income.

You’re covered if your total sale is in excess of $500,000 and the statute says whose sales.

And you’ve got to conclude for that to be liability that this is a sale on the part of Drucker & Falk as versus the sale on the part of the owners.

And where the Courts of Appeals --

Justice Byron R. White: He made the sale.

He earned the commission for making a sale.

Mr. Herbert V. Kelly: Yes sir.

His sale -- what he sells, the owner is selling his premises.

He signs the lease.

What it gives to the tenant is --

Justice Byron R. White: Well, the rental agent made a sale and he earned -- and he earned the commission.

Mr. Herbert V. Kelly: Yes sir and what he sold was his services.

Justice Byron R. White: He sold the owner’s property.

Mr. Herbert V. Kelly: Sir?

Justice Byron R. White: He sold the owner’s property, in a sense?

Mr. Herbert V. Kelly: Well, he -- He is an advisor and assistant to the owner in selling his property, yes sir.

Chief Justice Warren E. Burger: How did he sold his own services?

Mr. Herbert V. Kelly: He sold his services as advisor and assistant as well he’s selling.

But you certainly carry that is far as Mr. Justice White is going say in effect by advising, he’s helping him to sell.

But he’s selling his product which is his services and his sale is service.

His advisory help -- may help the owner to get his sales in but the Courts of Appeals went off on these cases saying, we’ve already decided that this is sales and did not consider the question of whose sales and the statute says, an enterprise who sales.

And you have got to define those sales and we suggest on the common law principles that these sales or selling what you have to offer which in the case of Drucker & Falk is its services as a managing agent.

Now, the other position that we have taken in the case is that, it was improper to consider the employees who were working at the projects as maintenance people maintaining the project employers of Drucker & Falk.

It is our position that they are employees of the owner.

They work for the owner.

He is their -- he pays their bill, their wages.

He keeps their records.

He turns in the reports that need to be taken and that the employee is the employee of owner, of project, and not the employee of Drucker & Falk.

And we say this knowing that there is a definition in the statute which says that an employer includes any person acting directly or indirectly in the interest of an employer in relation to an employee.

And we do not deny that Drucker & Falk fits that definition.

They are an employer under that definition.

But you must go further than that under the Act. Because that’s just the definition what the access is under the 6 (a) and 6 (b), every employer shall pay to each of his employees.

Under 7 (a), shall employ any of his employees and we suggest to you that the way -- we admit that he fits the definition of employer, but we say to you that he is not -- the employee is not his employee when you are talking about Drucker & Falk.

He is his employee with reference to the project where he works.

And there is nothing so unusual about this argument.

Otherwise, we come to a strange conclusion in the law that a great multitude of people would be liable under this Act for compliance with the Act.

Because under that definition, anyone who acts directly or indirectly in the interest of the employer you would include every supervisor that you include under the National Labor Relations Act case.

A supervisor under the Act is one who has the right to effectively hire or fire or vote or otherwise.

And all those sort of people are acting fit to definition includes any person who acts directly or indirectly in the interest of an employer in relation to an employee.

Justice Potter Stewart: And each of those were required to pay the employee, the sum specified in the statute, the employee would have pre-hire pay, wouldn’t he?

Mr. Herbert V. Kelly: Yes sir and certainly would and that the point I am making is that if you say just because he fits the definition of employer, that it is his employee that you take for instance in the Gamet with General Motors, you’ve got the President of General Motors as his employer.

The head of stenographic pool who runs the pool and may have the right to hire and fire.

The ladies in the stenographic pool would fit the definition of employer, but I do not think that Congress intended that she would be considered as an employer under the definition his employee under the Act.

Justice Thurgood Marshall: Your argument is that in General Motors, a man -- every employee would have a thousand employers?

Mr. Herbert V. Kelly: Yes sir.

Exactly.

Justice Thurgood Marshall: Why -- you’re not telling me that is anybody goes that far, are you?

Mr. Herbert V. Kelly: No sir.

I am not telling you anybody goes that far.

Justice Thurgood Marshall: Or will anybody go that far?

Mr. Herbert V. Kelly: Yes sir, I am saying to you that the Court of Appeals in concerning this matter in Arnheim said that the definition in this statute says an employer is so and so and therefore there is coverage and that the --

Justice Thurgood Marshall: But do you take that Court or any other Court will go that far as to say one employee has a thousand employers?

Mr. Herbert V. Kelly: No sir.

I am saying to you they would go that far and stop and find coverage here when they should have kept on going to determine whether it was his employee or not.

I am saying to you, if you please that the foreman and his employee in the event of bankruptcy will be looking both to that company that went bankrupt for their wages.

They are not employers.

Justice Thurgood Marshall: Well, a lot of companies I know go bankrupt but the foreman retire?

Mr. Herbert V. Kelly: Yes sir.

The Fourth Circuit in deciding case Mr. Justice Marshall took care of this, decided on the basis that there were some cases which had found liability on part of the agent and cited one or two and these are the cases that are cited in the Government’s brief where they say this has already been decided.

I suggest that in each of those cases, that question of whether the agent is an employer, whether they are his employees has not been decided.

In all of those cases, the party’s defendant included the owner of the premises.

And secondarily, included the rental agent, and in each case, the Court disposes of the rental agency after finding liability on the part of the owner by saying, if the owner is liable, the derivative agency liability applies and the agent is liable just the same as the owner.

But in our particular case, there has been no proceedings against the owner and therefore, we haven’t found any liability.

As a matter of fact, I assume it is pretty well conceded by the Government that there is no liability on the owner of these projects.

Justice William H. Rehnquist: So, it against the owner would it fail?

Mr. Herbert V. Kelly: Yes sir.

Because he didn’t need it.

So, what they have done is use an illusory coverage to reach down the end in boot scrap off these people who wouldn’t be covered by saying that the people worked for Drucker & Falk and by saying that the income of Drucker & Falk, the sales of Drucker & Falk is the rent.

And I say to you, if you please that you just don’t have an act, where an owner can control whether he is covered by the act or not because if that be so, this man can go in and out of agents four times a year.

He can be in an out of coverage just as often as he wants to get a new agent and we suggest that, that was not the intent of the Congress, nor was it the intent of the statute.

And I would save the time I have if i may.

Chief Justice Warren E. Burger: Very well, Mr. Kelly.

Mr. Frey.

Argument of Andrew L. Frey

Mr. Andrew L. Frey: Mr. Chief Justice and may it please the Court.

To begin with I’d like to point out in line with what Mr. Justice Blackmun noted earlier that both of the issues that are here before the Court today, have been before four different Courts of Appeals.

And in each instance, there have been unanimous decisions in favor of the Government’s position.

Obviously, in the case below in the Fourth Circuit on both issues and Arnheim & Neely in the Third Circuit on both issues.

With respect to the rent commissions issue in the First National Bank case in the Tenth Circuit and in Jernigan case in the Fifth Circuit, unanimous decisions holding that you don’t look simply at the commissions that are earned but at the rentals or on in the case of Jernigan the ticket sales of bus tickets.

In the case of the employment issue, you have the Second Circuit’s decision in Arsenal Building and you have rather significant decision of the DC circuit in the Herbert Harvey case which I will get to when I discuss the employment issue.

I’d also like to point out that we are not dealing here with a small business.

Drucker & Falk manages 30 apartment projects and they employ, that is, they hire, supervise, and discharge over a hundred persons in connection with this venture.

They procure annual rentals and excess of eight million dollars.

We’re not talking about any mom and pop operation.

Now, taking up the rent and commissions issue first, I have no difficulty with the --

Chief Justice Warren E. Burger: That has significance only when you reach the conclusion that it’s one enterprise, doesn’t it?

Mr. Andrew L. Frey: Well, no the Court has decided in Arnheim & Neely that the management company conducts a single enterprise which consists of its building management operations.

Chief Justice Warren E. Burger: That flows from Arnheim.

Mr. Andrew L. Frey: That was decided in Arnheim & Neely.

Now, the question on the rent commission’s issue for instance is how do you determine the size?

How do you measure the dollar volume?

Chief Justice Warren E. Burger: Let us assume Mr. Fry that you have a gross sales taxes of some kind in a State which was three percent of the gross income of an enterprise.

On what would that three percent tax rests in this circumstance?

Mr. Andrew L. Frey: Well, it would rest on income and of course, that is very significant distinction because this case does not turn in any way on the enterprises income.

The congressional test was not put on the basis of income.

For on the basis of income, Penn Central or Lockheed or people like would not have to pay the minimum wage.

Chief Justice Warren E. Burger: But it would -- and it would be the answer to the question I suppose you’d have to say it progressed on the commission.

Mr. Andrew L. Frey: The income would of course be the commissions.

Chief Justice Warren E. Burger: And not only total rentals.

Mr. Andrew L. Frey: No question about that, but that’s not the statutory standard for coverage.

Chief Justice Warren E. Burger: And probably gross income, the gross sale tax would rest on the --

Mr. Andrew L. Frey: Would rest on the sales.

Chief Justice Warren E. Burger: The owners in terms of what they receive, I suppose if the tax is brought and --

Mr. Andrew L. Frey: Not at all.

If you had -- suppose you have a consignment store which sell goods on consignment or suppose you have a jeweler which usually does not own the jewelry that they’re selling but has it on what's called on memorandum from some larger jeweler.

When he sells that, he collects the full sales tax and he is responsible for paying that full sales tax to the taxing department.

Unknown Speaker: He also collects the full purchase process?

Mr. Andrew L. Frey: He collects the full purchase price and then he must remit --

Unknown Speaker: Sure.

Mr. Andrew L. Frey: The portion that belongs to the original owner of the piece of jewelry or the consigned merchandiser.

Justice William H. Rehnquist: Mr. Frey, I am trying to understand your response to the Chief Justice's question in terms of if the gross income were the case in Penn Central and Lockheed wouldn’t have to pay the minimum wage.

So, certainly they have the gross income that would bring them within the status, do they not?

Justice Byron R. White: We're talking about net income like that?

Mr. Andrew L. Frey: Well, I suppose that’s true but in any event income is not standard.

Justice William H. Rehnquist: But it's gross sales and --

Mr. Andrew L. Frey: It’s gross sale.

Yes, its sales that made a business stand.

Justice Byron R. White: And many -- in many businesses, gross sales and gross income are pretty close, isn’t it?

Mr. Andrew L. Frey: They could be, yes.

Justice Harry A. Blackmun: But in some businesses however gross income maybe far less than -- no, greater than gross sales?

Mr. Andrew L. Frey: Well that could be also -- I’ll re-track that.

I don’t think it matters in the context of the statute with which we’re dealing here, which is the context in which we must take the case.

Now, nobody disputes that the rental of properties is a sale.

I think that’s conceded.

The question then is who is it who makes these sales.

Is there some sense in which we can say, well this is not Drucker and Falk sale, this is building owner’s sale.

But we submit that -- first of all, we submit that you don’t have to divide it in this way.

You don’t have to say either.

It’s Drucker and Falk’s sale or it is the building owner’s sale because there are many situations as with the consignment sale situation where both parties may have made a sale.

Now, in this case, the building owners might as well be on the moon or on the bottom of the ocean for all that they have to do with selling this rental property.

It’s petitioners who advertise vacant apartments, who interview prospective tenants and negotiate leases, who evict people for non payment of rent, who handle every aspect of the transaction between the building and the tenant.

Justice Byron R. White: Mr. Frey, isn’t the rental agent the agent of the owner?

Mr. Andrew L. Frey: Well, there’s sense in which he is the agent of the owner.

There is a sense --

Justice Byron R. White: Well, isn’t the action on his behalf and doesn’t he have any authority to sign a binding lease on behalf of the owner?

Mr. Andrew L. Frey: Oh, yes!

Justice Byron R. White: Don't you -- you usually talk about the agent’s acts as acts of the principal?

Mr. Andrew L. Frey: Well, I don’t think.

I think it’s --

Justice Byron R. White: Can you say that the acts of whatever principal we have to be acting --

Mr. Andrew L. Frey: Well, if we were asking ourselves the more difficult question of whether we could reach the building owner and attach these sales to him even though he has nothing to do with it, we could say, “yes, he has retained these people as an agent.”

But of course they have an independent business.

They are not purely an agent in a sense --

Justice Byron R. White: I don't think businesses earn their commission and that's why that's their business.

Mr. Andrew L. Frey: Well, their business is to rent property.

Justice Byron R. White: Their business is management.

It's management, selling services --

Mr. Andrew L. Frey: No, no they have -- well, they have two.

Justice Byron R. White: That’s the only thing you said --

Mr. Andrew L. Frey: They sell services -- no, I think we have to make a basic distinction because there are two kinds of sales involved here.

It’s true that they sell their services to the building owners and the property --

Justice Byron R. White: And they act on his behalf in running the property.

Mr. Andrew L. Frey: Well -- but the proper measure of their sale of services to the building owner is unquestionably, their commissions.

We don’t dispute that.

The point is that they also sell the property.

It’s true they do it on behalf of the building owner, but nevertheless, they sell it.

Justice William H. Rehnquist: But they’re not selling their property.

They’re selling somebody else’s property.

Mr. Andrew L. Frey: That’s true but that makes no difference under the statute and in the --

Justice Byron R. White: That is the issue.

Justice William H. Rehnquist: That is the issue, yes.

Mr. Andrew L. Frey: Well, I'm -- in the --

Justice Byron R. White: Isn't the issue, yes.

Mr. Andrew L. Frey: Our contention is that it makes no difference under the statute.

In the 1966, --

Justice Byron R. White: But why doesn’t it?

Mr. Andrew L. Frey: -- in the senate report compelling the 1966 Amendments which is set forth the pages 16 and 17 of our brief, the committee explained the dollar volume test and they said that it was intended to measure the size of an enterprise in terms of the business transactions which result from the activities of the enterprise as measured by the purchase price paid by the purchaser.

Now, I find it very hard to dispute the empirical conclusion that these leases of property are business transactions that arise from the activities of petitioner’s enterprise and that is the standard.

And if you look behind it in terms of the congressional policy that underlay setting a dollar volume cut off point, Congress was concerned with the impact on commerce, and whether the building owner himself, if someone owned authority of these buildings, and conducted these sales operation of rental space, or he was acting as an agent for different owners and conducted this sales operation of rental space.

In both cases, you would have the same impact on the flow of goods and men across state lines same impact on commerce.

Congress chose an objective external standard, yes Mr. Chief Justice.

Chief Justice Warren E. Burger: And would a real estate sales organization come within the reach of this Act, say if it has over $500,000 and so forth?

Mr. Andrew L. Frey: Yes, with our -- the position of the administrator would be and it has been held by --

Chief Justice Warren E. Burger: Well, I'll ask these questions to you then.

Suppose that you have a real estate agency as many of them do have, a hundred agents in their operation, selling houses.

How do you -- would it be your view that you would measure the enterprise by the gross sales of houses?

Mr. Andrew L. Frey: Yes, by the dollar amount of the sales.

Yes, certainly.

Now, let me point out that we do make a distinction which I think is relevant here between rental collection agents, and people such as petitioners or businesses such as petitioners.

A rental collection agent, who goes around and collects rents, is only selling his services in collecting rents.

And the Department of Labor would measure his enterprise size by the commission that he earns and that is because he does not sell the rental property.

Justice Byron R. White: What about the insurance agent selling policy is ended over a period of time -- the premiums are going to be certain amount of money and that all he does is earn a commission?

Mr. Andrew L. Frey: That would be the amount of premiums I believe by which you would measure even though some of the premiums are --

Justice Byron R. White: Any agent -- insurance agent who sells insurance policy for the premiums are not more than $500,000 although his commission maybe $20,000 is covered.

Mr. Andrew L. Frey: Yes that’s right.

Justice Byron R. White: Has that been the law, is that?

Mr. Andrew L. Frey: I believe that is consistently the law.

The closest case that I know to it is slightly different is the Montelvo case.

Justice Byron R. White: Wasn’t that the same question as involve here, or not?

Mr. Andrew L. Frey: Well yes, that would be the same question.

It would be the same -- let’s take gasoline service stations which are common example.

Many gasoline stations do not own the gasoline that they sell.

It belongs to the oil company.

It’s consigned to them.

When they sell it, they earn a certain number of cents per gallon on the sale.

The rest of the proceeds belong to the oil company.

Now, under petitioner’s rationale, you would measure the sales of this gas company by the amount of commission it earned and you would ignore what the purchase were paid despite the fact that the Senate Report says that it’s what the purchase paid.

Chief Justice Warren E. Burger: What's the difference when something is placed in the exclusive possession of the dealer on consignments and the management?

Mr. Andrew L. Frey: These buildings are placed in the exclusive possession of Drucker and Falk.

Chief Justice Warren E. Burger: I thought they’re in the possessions of the tenants, by the very definition of tenancy --

Mr. Andrew L. Frey: Oh, yes.

So as the gasoline in the possession of the person who buys it once he buys it.

Chief Justice Warren E. Burger: Well, I don’t see how a buyer makes sense of that.

You were making an analogy between the operator of the refilling station and the manager of this management company.

Mr. Andrew L. Frey: That’s correct.

Chief Justice Warren E. Burger: Now the management company does not have the ownership and the exclusive possession or the exclusive possession or the occlusive possession of the building?

Mr. Andrew L. Frey: Well, it was respect to on rented premises and we will start off with the vacant premise or a new building which is turn over to them and which is empty, they have the exclusive possession of that building for purposes of selling it to tenants, just like the gas station has the gasoline.

Now, when it is sold, that is when the tenant signs a lease and moves in, that they and the building owners both lose their possession of the premises for the term of the lease.

With Drucker --

Chief Justice Warren E. Burger: Going back to the real estate’s analogy if there is any analogy to it, that would -- your theory would bring a very small real estate agency under the reach -- within the reach of the Act because two good men, sometimes one man will sell a million dollars worth of dwellings in one year and certain of two men if they are good at their trade will sell a million dollars worth in a year.

Say, you have a two-man organization with a telephone operator answering the phone would be under the Act, is that you think that reaches the Act?

Mr. Andrew L. Frey: Yes, I think that’s correct.

And so would let’s say a relatively small car dealership might or grocery store, anything where there is a small profit margin.

A two-man business where let us say both individuals are making $30,000 or $40,000 a year is likely to generate gross sales in excess of $500,000.

And Congress -- that’s what Congress provided.

We’re simply attempting to carry out what we --

Chief Justice Warren E. Burger: You are saying flatly because I simply don’t know and want to know that a one-man real estate office with a secretary having a million dollar sales a year is under the Act?

Mr. Andrew L. Frey: If it’s an enterprise engaged in commerce, yes.

I mean, there has to be the commerce connection also.

It has to have employees engaged in commerce, which is somewhat different problem.

Now in 1961, when Congress adopted the enterprise concept, they referred to real estate firms as one of the businesses that would come within the coverage of the Act and it’s little hard for me to imagine that they were thinking that commissions would be the measure since they were relatively few who would have met the one million dollar standard at that time, but many real estate firms that would have met the $1,000,000.00 as measured by the volume of sales or rentals.

The key is, that this is approach on an empirical basis.

You look at who makes the sale, who physically does the selling operation.

Now, the District Court and petitioners in their brief have attempted to analogize this situation to bank deposits or to loans that maybe closed by lawyers.

Those are completely different.

The banks of volume of business are not in anyway measured by deposits that is not considered a sale by the bank.

What the bank sells is the use of money when it loans money and when the bank makes a loan, we don’t measure, even there, the size of its enterprise by the phase amount of the loan, but rather what they’re selling, which is the units of the money, which is measured by the interest.

Similarly with a law firm, they are not selling the loan.

All they are selling are their services in connection with the loan and therefore, you measure it by their fee.

Now, the fact that a big and a small business are associated together in an enterprise, as here petitioners and their business of managing and renting real property and the building owners and their business of investing money in real estate, it is true that the building owners standing along will be exempt that there is not uncommon to have an exempt, a non exempt person in a joint enterprise, in a joint relationship with an employee and therefore the employee is covered.

The purpose of the Act, is to protect employees who are happen to be employed in enterprises that are large enough to come within the coverage.

The fact that they may also be employed at the same time in a smaller enterprise is no basis for exemption.

That’s established by the Herbert Harvey case for instance which is a Labor Board case, but involved the same issue.

Herbert Harvey managed, I think it was the World Bank and international organization are exempt from the bargaining requirements of the Labor Relations Act.

And the theory of the case was that, these individuals, janitors, and so on, were employees of the management agent which was exactly a management agent just like petitioners are here.

And the DC Circuit held that indeed, these persons were employees of the management agent, for the purposes of the Labor Relations Act.

And that the fact that they were also employees of an exempt organization, did not deprive them of the benefits of the act and the right to engage in collective bargaining.

Justice Byron R. White: Well, technically I suppose if you -- even if you say this is an enterprise, it has an income or has sales above $500,000, and you could say that the building employees aren’t covered.

I mean, that’s the argument?

Mr. Andrew L. Frey: Well, because if we are turning to the employment argument now?

Justice Byron R. White: Yes.

Mr. Andrew L. Frey: Yes, that could be that you would say it’s true that Drucker and Falk is a covered enterprise but these are not their employees, and I will turn that issue now.

Justice Byron R. White: Which would mean -- which would mean that their own employees in their office would be.

Mr. Andrew L. Frey: Would be covered.

Yes and they have treated them as covered and there has been no dispute about the coverage of the Central Office Personnel.

Justice Byron R. White: There has not, why not?

Mr. Andrew L. Frey: Well, I as far as I know they’re paid above the minimum wage.

Justice Byron R. White: Well, Oh!

Well, they haven’t treated them as covered then.

I mean, there's no instruction they were covered.

They wouldn’t be covered if it was not an enterprise (a) and (b), if it was an enterprise where its income was over $500,000.00.

Mr. Andrew L. Frey: Well, you have to look at where they were employed to determine if they were employed in an enterprise engaged in commerce.

Justice Byron R. White: I understand that but what if the -- what if the measure here of sales was commissions, not rents?

Mr. Andrew L. Frey: Well, you have to look at the rest of their business as we submit you have to do anyway.

If we had lost the rents commission issue, and won the employment issue, you'd still have to go back to District Court to look at the other aspects of Drucker and Falk businesses to see whether they --

Justice Byron R. White: Yes, let's just to assume that is all they -- the only income they had were their sales?

Mr. Andrew L. Frey: And they would be exempted and the Central Office Personnel would be exempted also.

Justice Byron R. White: Yes.

Justice Lewis F. Powell: Mr. Frey, before you move on to the other issue, you have intimated in your brief argues that the intent of Congress among other things was to reach enterprises that had a significant impact on commerce.

And as I read your brief of page 18 and that which follows your general discussion suggests to me that you may think that if this rental agent didn’t handle these 30 apartment units that the impact on commerce would be less.

Is that correct?

Mr. Andrew L. Frey: Well, it’s the question of the impact of an enterprise on commerce, Justice Powell and --

Justice Lewis F. Powell: But the substance really is the effect on commerce and these rental units, presumably, would be rented by the owners whether or not they were a rental agent?

Mr. Andrew L. Frey: Well, but of course, there are differences still.

Even the terms of the impact on commerce because the petitioners for instance purchase all the supplies.

They do all the hiring and on a unit basis, that is their enterprise, carries for all 30 of these separate projects.

It has all the efficiencies of scale that are here.

Justice Lewis F. Powell: That might make the impact less rather than having 30 separate people who purchased the supplies?

Mr. Andrew L. Frey: Well, that goes to the underlying purpose of Congress was distinguished on the basis of the impact of an enterprise on commerce, not the impact of unrelated business activities.

What they said was if you had related business activities which taken together have a sufficient impact on commerce to meet our dollar volume test then the employees and all those activities will be protected.

If you split it up, fragment it into a series of separate enterprises then you do not have an enterprise which itself has a sufficient impact on commerce to meet the test.

Justice Lewis F. Powell: But in terms of economic reality, the impact on commerce is likely to be pretty much the same you said in the rental of apartment has it?

Mr. Andrew L. Frey: Well, I suppose that if General Motors were divided into 10 companies, each of which had a share of the market equivalent one-tenth of General Motors' share, you might suppose that in some senses, the impact on commerce would be the same.

But there are also senses in which the fact that it is General Motors all together in one piece makes a difference in terms of the impact on commerce.

But I don’t think Congress was suggesting that the level of national business activity has to be changed, but rather that it was picking out for coverage employees who are in enterprises which themselves had a sufficient impact on commerce.

Now, on the employment issue, it’s conceded that these people are employed, that the petitioners are employers of these employees.

What Mr. Kelly did not point to which we also attach considerable weight to is the definition of employ in Section 3 (g), which is to suffer or permit to work.

Now, who is it who suffers or permits these employees to work?

It’s perfectly clear that its petitioners again, the building owners are off at the bottom of the ocean.

They have nothing to do with these people.

The only connection that they have with these people is approval of an overall labor budget.

As far as the record discloses and from the contract that appears, they don’t even have the right to exercise a veto over the hiring and firing and so on as was the case in Arnheim & Neely.

Justice William H. Rehnquist: Don't you think that they pay them has some connection?

Mr. Andrew L. Frey: There is some connection, again, if we were here with the difficult case of whether these were employees of the building owners, which we would contend, they are but in a secondary sense, we would rely on the fact that the services they perform benefit the building owners and payment comes out of the building owner’s funds.

But when you say who pays them, the arrangement that the building owners have with the management company happens to provide for their payment by the building owners.

We do not in any sense suggest though or concede that has a common law matter as between the employees and petitioners, that petitioners are not responsible for their salaries.

Justice William H. Rehnquist: But in fact, the money that used to pay their salaries is that of the owners and not that of petitioners?

Mr. Andrew L. Frey: That’s right.

But it’s never been viewed either in the social legislation cases before this Court or in common law cases that payment of money alone, is the governing indicia of an employment relationship although it maybe sufficient.

Justice William H. Rehnquist: Well, I quite agree.

I just questioned your statement that the owners had virtually no connection with the employees and you’re not mentioning the fact that, it was their money that paid them which may not be overwhelming, but it seems at least a factor.

Mr. Andrew L. Frey: I’m not sure they would be materially different case if the employees were paid by the management company which in turn took off cost plus kind of a fee to do it.

In our view, that would make no significant difference on the case.

Now, well we’ve – I’ve adverted to the reality of the economic relationship between the management company and the employees.

I’d like to point out which is very important that these people are not simply employed in the building owner’s enterprise which is real estate investment.

They were also employed in a very real sense in petitioner’s enterprise which is the management of buildings for others.

Petitioners could not conduct their enterprise, if they did not have these janitors, these elevator operators, these maintenance personnel.

So, to say that they are not employed in a meaningful sense in petitioner’s enterprise, I think it is completely incorrect.

Now, I think the Court was troubled or perhaps at least petitioner’s counsel was troubled by the notion that you might have all these different employers under the definition of employer in the Act.

Now, I think that a case could be made out that Congress intended to permit multiple liabilities not in the sense, Justice Stewart that you could recover more than once for the statutory liability but in the sense that there might be several jointly liable individuals.

However, the McKay case, carved out which is the Eighth Circuit case which is discussed in both briefs.

Carved out what in effect is the fellow servant exception that says that “Well, if the person who you are looking to does not have his own independent business enterprise, but is simply an employee, that is a supervisor or head of the personnel office or somebody like that, you cannot hold him independent liable."

We’re not dealing with that case at all here.

We’re dealing with an independent business enterprise to which these employees are vital.

Now, there was a question asked to the owner’s liability.

The owners in this case would be considered unquestionably liable, derivatively because they also employ these individuals who are employed in petitioner’s enterprise.

That is if the Court were to conclude that these individuals are covered under the Act by virtue their employment in petitioner’s enterprise which is of sufficient size then the building owners would be liable not for all of petitioner’s employees but for those who were employed at the owner’s own building.

Justice Potter Stewart: But for those whose paychecks, they actually pay?

Mr. Andrew L. Frey: That would be our position although I could see a case here where the building owner would argue that, well the management company maybe liable, but our connection is so remote because we’re not involved in -- we don’t actually employ these people. We don’t suffer or permit them to work except in an indirect sense.

I’m not arguing that point of view but I think we would have harder case.

Justice Potter Stewart: Well, certainly there’s nothing.

It’s a common place I suppose know that under this Act and under its language, there can be a more than one employer of the same person?

Mr. Andrew L. Frey: It’s no doubt that has been recognized.

No question.

It is recognize by this Court in the Labor board context in the Greyhound case.

And its been recognize by numerous Courts of Appeals in cases that we have cited and the amicus brief treat it as though there can only be one employer and they spend all of their time establishing proposition that the building owner is an employer of these employees and our view is that, that gets them nowhere because it is not just mutually exclusive with petitioners also being an employer.

Justice William H. Rehnquist: Will each owner be covered even though he did not himself made the dollar volume test by virtue of the fact that petitioner met the dollar volume test?

Mr. Andrew L. Frey: He would be derivatively responsible with respect to those persons employed at his building.

If they are employed in an enterprise engaged in commerce, by him, then the fact that his enterprise is not big enough.

If you remember in the Arnheim argument, we had the example of the hair dressing salon and the department store with a hair dresser himself may not have a big enough enterprise but if he puts a unit in Woodward & Lothrop and they have a big enough enterprise then those persons employed in the Woodward & Lothrop enterprise hair dresser section would be covered and the hair dresser would be liable for the payment of their wages and Woodward & Lothrop would not unless – that Woodward & Lothrop would be would depend on whether it would be part of Woodward & Lothrop sales also.

But in other words, you do not have to yourself be an enterprise that’s subject to the Act under the dollar volume test in order to have some of your employees for some other reason responsible.

Accordingly, we submit the judgment of the Court of Appeals should be affirmed.

Thank you.

Chief Justice Warren E. Burger: Very well, Mr. Frey.

Mr. Kelly, do you have anything further?

Rebuttal of Herbert V. Kelly

Mr. Herbert V. Kelly: Yes sir, if I may take a moment.

The Court understands that we don’t agree that the First National Bank case or the Jernigan case either one are applicable, though, counsel asserts that they are.

The First National Bank case, the defendant bank owned the building and rented it through a management company that was the wholly owned subsidiary of that company.

As a matter of fact, as I recall the facts, the present company drew $50,000 a year from the bank as salary and $1800 a year for the management firm.

That was strictly an ownership case where they proceeded against the owners of the property.

And the Jernigan case is again a proceedings against the owner.

There, the operator of the restaurant service station facilities with the bus depot owned it and the Court concluded that he spent the greatest portion of his time operating the bus station and that’s where you are with the gasoline cases that counsel refers to.

There, you have sued the owner who is operating and in the business of selling the gasoline.

The problem that I find with the counsel’s argument is that he talks about sales of apartment, space, like you sell them everyday, like you move in a new tenant every, every Monday.

Suppose we had an apartment project where there is no turnover during the entire year the contract of management, what has he sold?

The rents come in each month, has he sold any space?

Same persons there when he was employed and there when he left as managing agent?

What has he sold them, is his services in managing the project and supervising the --

Justice Byron R. White: That would be the rent that was reserved in the lease for a period of time?

Mr. Herbert V. Kelly: Yes sir, the rents then existing as what I say to you.

When they come on as managing agent as an existing lease, they may want for two years.

They don't sell a thing so far as space, they sell their services.

And you could have a project where you would never sell anything, but services if there was no turn over.

That's the problem I have, and I was sit down, is that it seems to me, if you take all these theories of counsel as who is covered, that the judges, example on a District Court level where you had the lawyer who was managing the large estate that bought and sold stocks, bonds, assets, real estate, in the estate, and distributed the money, then had a total gross income that he covered.

Now, that’s not what the Act says and I don’t think it’s the intent of Congress that that be true.

I don’t think it’s the intent of Congress.

That I think it is illusory, I submit to you to say that the impact of a 40-unit apartment project on Warwick Boulevard in the city of Newport News has one with more impact on commerce sitting there, with Drucker and Falk managing it, than would be managing it.

The intact impact of those 40 units sitting on Warwick Boulevard is whatever it is.

And it don't impacted a bit more if I manage it or Drucker and Falk.

It would be just managed not quite as well and we submit that the decision and the Court of Appeals should be reversed.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.