WALTER FLEISHER CO., INC. v. COUNTY OF LOS ANGELES
ORAL ARGUMENT OF GERALD T. MANPEARL, ESQ., ON BEHALF OF THE PETITIONER
Chief Justice Burger: Immediately at 1 o'clock counsel may be ready to take up Fleischer v. County of Los Angeles.
Mr. Manpearl, you may proceed whenever you are ready.
Mr. Manpearl: Mr. Chief Justice, and may it please the Court:
The issue before this Court is whether a state property tax exemption statute so interferes with interstate or foreign commerce that this Court must declare it unconstitutional.
At the outset it should be noted that the state courts have ruled that the statute is a reasonable classification statute and that it does not violate equal protection standards.
Also before this Court is a question of whether the County of Los Angeles has standing to raise a federal constitutional objection to this legislation.
The County of Los Angeles places great reliance on the argument--
Unidentified Justice: Mr. Manpearl, let me ask you, did you argue the Sears case when it was here?
Mr. Manpearl: --No, I did not.
Unidentified Justice: I'd like to ask the same question I asked of counsel there.
The County of Los Angeles is attacking the statute here?
Mr. Manpearl: That is correct.
Unidentified Justice: And I'm impressed by the utter absence of the Attorney General of California.
Mr. Manpearl: In California there is no requirement that the Attorney General appear in cases in which a state statute is under consideration or under attack.
We did not--
Unidentified Justice: Is it not his general duty to defend the statutes of the State?
Mr. Manpearl: --We know of no such duty.
We've had many instances in the state courts... quite honestly, I've been litigating property tax matters in the state courts for over ten years and I have never seen the Attorney General intervene in a case.
Although the Fleisher case was not reported in the official reports, the Sears case was; he was well aware of it.
I assume he was well aware of it.
Unidentified Justice: Well, it isn't your responsibility, in any event.
Mr. Manpearl: No.
Unidentified Justice: But it does seem strange when he is the principal legal officer of the State and he's not here.
Mr. Manpearl: Well, I know there are many states which have procedures requiring notification.
California does not have such a procedure.
Unidentified Justice: It isn't likely that he's unaware, as Mr. Justice Blackmun has suggested.
Mr. Manpearl: Well, Mr. Chief Justice, I have to make the assumption that the Attorney General's Office does read the advance sheets in California and at least is fully aware of the Sears case, although he may not be aware of this case because it is unrecorded.
However, the Department of Economic and Business Development in California, which is a branch of the State administration, was aware of this case, and they were interested and concerned with it.
But I know of no communication between either party or, in the Sears case, regarding the Attorney General.
The County of Los Angeles in this case places great reliance on the fact that the statute before this Court discriminates or makes a distinction between foreign commerce on the one hand and inter and intrastate commerce on the other.
However, a property tax exemption statute by its very definition must discriminate, make a distinction, against those groups that are not similarly exempted.
The issue which must be resolved is not whether there's a distinction; obviously there's a distinction.
The question that must be resolved is whether such distinction is so burdensome, so unreasonable, that it places an undue burden on interstate or foreign commerce and must be struck down under the Commerce Clause.
Unidentified Justice: Is the material involved here in the same relationship in terms of the movement in commerce as material coming from... let me put it another way: is the material that's moving into California or originating in California, destined for interstate commerce, different in some respects from the material coming from Korea or Japan, coming to rest temporarily in warehouses in California, and then going into interstate commerce?
Mr. Manpearl: Well, economics would dictate that there are different types of materials, there's different products and commodities that are manufactured in Korea than are manufactured in California.
But, you know, I assume we could find an example where there might be some similarity, but generally different products come to California from overseas than are manufactured in California.
And to that extent, the goods that are manufactured in California do not receive this exemption, even if they're being shipped out of state, while the overseas goods would receive the exemption.
Unidentified Justice: And the exemption was enacted by the California Legislature, wasn't it?
Mr. Manpearl: Yes, Mr. Justice.
Unidentified Justice: So that whether the Attorney General of California is here or not presumably it's entitled to the benefit of constitutional presumption of validity unless your opponent can show some constitutional defect.
Mr. Manpearl: Yes; we would agree with that.
Yes, Your Honor.
Unidentified Justice: And how are California's counties created?
Are they created by the Legislature?
Mr. Manpearl: Yes.
They are creatures of the State.
Unidentified Justice: So Los Angeles County is nothing more than a creature of the State?
Mr. Manpearl: --That is correct; yes.
It is our contention that as a creation of the State it has no constitutional standing to attack the statute before this Court today, and I would cite this Court to the decision in Williams v. Mayor and City Council of Baltimore, decided by this Court in 1933.
I believe that case is analogous, if not on all fours, with the instant situation.
There Maryland adopted a tax exemption for the Washington, Baltimore, and Annapolis Electric Railroad Company because it was in receivership and it was important to the state because it was the only link between Annapolis and the Capital.
The cities of Maryland and Annapolis proceeded to attempt to impose taxes on the railroad, saying the statute was an unconstitutional exemption under the Commerce Clause and due process.
Justice Cardozo, speaking for this Court, stated,
"A municipal corporation created by a state for the better ordering of government has no privileges or immunities under the Federal Constitution which it may invoke in opposition to the will of its creator. "
Unidentified Justice: Well, Mr. Manpearl, I take it that as far as the courts of California are concerned, they could permit Los Angeles to challenge this statute if they wanted to, and we have no authority to tell the California courts not to entertain a challenge to this statute by Los Angeles County, do we?
Mr. Manpearl: Mr. Justice, I think that that question was exactly--
Unidentified Justice: You may be quite right in saying that we have no... you could be quite right in saying that there is no standing, that Los Angeles would have no standing in this Court, as a constitutional matter.
But I don't know how we could set aside the judgment of a court of appeals in California, and that would leave you behind the 8-ball, wouldn't it?
Mr. Manpearl: --Well, Mr. Justice, I would contend that standing to raise a federal question is itself a federal question.
Unidentified Justice: A Case or Controversy type of thing?
Mr. Manpearl: Yes.
Unidentified Justice: But not in the state courts.
They don't need cases or controversies.
Mr. Manpearl: That's correct, but the question of whether a subdivision of the State has standing to raise a federal constitutional question, I believe, must be a constitutional question in and of itself.
Unidentified Justice: You mean you're asking us not only to... what you're really asking us to do is to vacate the judgments of the California courts?
On the standing ground?
Mr. Manpearl: On the ground that the County of Los Angeles does not have standing to raise a federal constitutional objection.
If it were a state--
Unidentified Justice: In a state court, even?
Mr. Manpearl: --In a state court or a federal court; yes.
Unidentified Justice: Even though you have named the County as a defendant?
Mr. Manpearl: Well, we sued the County for a refund of taxes.
The County defended on a number of grounds.
They defended on the grounds that the interpretation of the statute didn't grant an exemption, and a number of others.
The state courts ruled against the County on all grounds except the federal question, the federal question being the Commerce Clause issue.
Unidentified Justice: If we can segregate these issues, as Justice Blackmun has implied, how can you say they're a party for one purpose but not for other purposes?
Mr. Manpearl: Well, we're not saying that they're not a party.
We believe they are a proper party, they obviously have an interest.
What we're saying as a matter of federal constitutional law, they have no right to raise a federal constitutional objection to a statute on a ground in which they have no direct interest whatsoever.
Unidentified Justice: Well, isn't that a question of state law?
Suppose the state statute said specifically that the counties who are enforcing state property tax laws can... suppose the statute specifically gave the counties standing to challenge the state taxes, state statutes in the state courts, would you be making the same argument here?
I think you would make the same argument as far as your being able to come here; we might not recognize standing.
But I don't know how you could argue that as a matter of state law the County couldn't challenge the State.
Mr. Manpearl: I don't know whether they could or not pass a statute.
I don't think they could, although that's not our specific situation.
Unidentified Justice: Well, in effect, the California courts rejected your standing claim and they said--
Mr. Manpearl: Yes.
Unidentified Justice: --as a matter of California or any other law, at least as a matter of California law, Los Angeles County has standing.
It's just like saying, a state saying that in our state a taxpayer suit can raise a federal constitutional issue.
And that would be wholly acceptable as a matter of state law, although a taxpayer as such might not have standing as a matter of federal law in the federal court, or specifically this Court.
Isn't this the same analogy?
Mr. Manpearl: Mr. Justice--
Unidentified Justice: And many states do recognize taxpayer suits.
The federal courts, generally speaking, do not.
Mr. Manpearl: --But I believe they do under state law.
You could have--
Unidentified Justice: But a taxpayer can raise under state law that recognizes taxpayer suits any sort of federal constitutional claims.
Mr. Manpearl: --I believe that they cannot.
I believe it's analogous to the Williams v. Mayor and City of Baltimore, where this Court said that the cities could not raise such a federal constitutional question in this Court.
Unidentified Justice: Mr. Manpearl, it seems to me that that you may be arguing against your client's interest, because if there is no federal jurisdiction to entertain a federal claim, maybe we have a duty to dismiss the appeal, and maybe we should look at your adversary's argument for that.
It seems to me you've taken opposite positions on the case.
Mr. Manpearl: No, let me very briefly address that question, Mr. Justice.
I don't think that's the case, because generally you have an appellee arguing there is no standing, and relief in those circumstances is to dismiss the action.
Where you have an appellant arguing that there is no standing to raise a particular defense--
Unidentified Justice: Well, you're arguing there is no proper federal question presented in this case--
Mr. Manpearl: --Right.
Unidentified Justice: --which a federal court has power to decide, isn't that correct?
Mr. Manpearl: --I believe there is a federal question and that federal question is the issue, the very issue of whether a county has standing to raise a federal question.
Unidentified Justice: Who presents the federal question to us?
Mr. Manpearl: The County of Los Angeles.
Well, we... the appellant has presented the federal question of whether or not the County has the ability to raise a federal constitutional provision as a defense.
However, I think that the question of standing, the question of the County's interest in this litigation is really as relevant or perhaps more relevant to the question of whether there has been a Commerce Clause violation at all.
I think it goes at the very heart of this very issue before the Court.
Because, if we look at the cases that have come before this Court in recent years under the Commerce Clause, in every case the question has been the extent of the burden of interference with commerce.
Unidentified Justice: But that goes to the merits.
Mr. Manpearl: That goes... yes.
I was saying, Mr. Justice, that I believe this question of the County's interest in the litigation goes not only to the standing question which I've argued, but I believe it goes to the merits of the Commerce Clause question itself.
Unidentified Justice: If the standing question is resolved in your favor and, as Justice Stevens has suggested, we find that the County has no standing to challenge a state statute, we don't then go further and decide the merits of the case.
Mr. Manpearl: Yes, Mr. Justice.
I would agree with that.
At that point I think it would be appropriate for this Court to reverse the holding of the Court of Appeal of California.
Unidentified Justice: How would we do that?
How could we do that?
We could just dismiss; we would just have to dismiss and leave the judgment against you.
Mr. Manpearl: I would submit that that would leave a plaintiff an appellant in the position of Walter Fleisher Company without relief to an improperly raised federal question.
I believe where an appellant is entitled--
Unidentified Justice: You're really saying one party to the controversy has a forum and the other party doesn't.
Is that what you're saying?
Mr. Manpearl: --No, Mr. Chief Justice.
I believe we're saying that the very issue, the very issue of who may raise a federal question is a federal question itself, and you can resolve that issue in favor of the appellant, and reverse the holding of the Court of Appeal saying, as a matter of federal law the County of Los Angeles does not have standing to raise a federal Commerce Clause question.
Unidentified Justice: But in our other cases regarding standing such as Arlington v. Village of Metropolitan Heights, and the one we decided the year before, we haven't gotten to the merits of the claims.
We have simply said there was not sufficient standing, and therefore we wouldn't decide them.
Mr. Manpearl: --Well, I believe, Mr. Justice, you could do the same in this case, but the form of relief would then have to take a reversal.
Unidentified Justice: It could be a vacation.
You'd vacate the judgment because you would argue that the state courts had no jurisdiction to decide the federal question--
Mr. Manpearl: Yes, Mr. Justice.
Unidentified Justice: --despite the fact that under state law the County would have power to challenge the statute.
Mr. Manpearl: Well, I think the state court has ruled on a question of federal constitutional law.
Unidentified Justice: And a question of standing?
Mr. Manpearl: Yes.
Unidentified Justice: But we are not bound under federal law by their rulings as to standing.
Mr. Manpearl: I would agree with that, Mr. Justice; yes, sir.
If I may proceed to the merits of the Commerce Clause question itself, I think this case stands in contrast to the numerous cases that have come before this Court in the last ten years on the Commerce Clause.
I think in the cases that have come before this Court, the major distinguishing factor is that in every single case we had a party standing before this Court saying, I have been injured by the Commerce Clause violation.
In this case the County of Los Angeles is not saying, I have been injured by the Commerce Clause violation.
Clearly the County of Los Angeles is losing tax money.
They clearly have an interest.
They are not, however, an injured party under the Commerce Clause violation.
They are the champion of some hypothetical manufacturers that are not receiving a similar exemption.
They are saying, we are protecting the rights of others albeit we are doing it so we can save taxes or collect more tax money.
They are championing somebody else and that, I would submit, is a major distinction between all the cases that have troubled this Court in the last ten years.
Unidentified Justice: You think they're not doing both?
Mr. Manpearl: I don't believe they are saying, we are a victim of the Commerce Clause violation.
They are the champion for someone else.
And I would submit, that's a major distinction between cases that have come before this court, like Lewis v. BT Investments, where you had Florida trying to prevent out-of-state investment advisors, and you had before this Court a New York corporation saying, Florida can't keep us out.
In Raymond Motor Transport you had an interstate transport carrier coming before this Court and saying, I'm injured by the statutes of Wisconsin which prevent trucks that are over 55 feet in length; I'm injured.
And this Court looked at the statute and said, not only was there no basis for the statute, but there was a favoritism of Wisconsin truckers vis-a-vis out-of-state truckers.
Unidentified Justice: What if the trucking company had simply been a subsidiary and a creature of the State of Wisconsin?
Mr. Manpearl: You mean, involved in a--
Unidentified Justice: Supposing Wisconsin decided, we're going to socialize our trucking industry, and the trucking company was simply an arm or a creature of the State of Wisconsin, and it didn't like what... it lost the fight in the Wisconsin Legislature and so it came here?
Mr. Manpearl: --I think you would have... similarly, you would have a case where somebody is injured, somebody is fighting.
You would have a case similar to Reeves v. State, where the South Dakota Cement Commission attempted to sell their proprietary product only to South Dakota manufacturers or users.
But you would have before this Court a party saying, I am injured by the Commerce Clause violation, I am the victim.
I think you've had that in every case.
Unidentified Justice: But in my hypothetical the person who would be saying it is a creature of the state just like the Baltimore case in 1933.
Mr. Manpearl: Mr. Justice, I agree that that would certainly go to the standing question again.
As to the merits, I think the merits would be no different.
On the standing issue, you would have the same problem you have here.
You would have a creature of the state attacking the state statute.
In Reeves v. State you had no such problem, because it was the Wyoming consumer that was objecting to the Commerce Clause injury.
My analogy was not as to the standing question but as to the merits themselves.
On the merits we don't have a party before this Court that is saying, look, I'm the victim of this Commerce Clause violation, I am being injured because of something the State of California has done to interfere and burden commerce.
Unidentified Justice: But that's the meaning of standing, what you have just said.
Mr. Manpearl: I totally agree, but I also would submit that such considerations go equally to the merits of the Commerce Clause question, because ultimately, assuming that this Court finds against me on the standing question, that simply gets us to the merits of the case.
Now, on the merits of the case I would submit that we still must find under all of the decisions of this Court in the last ten years, we must find, first, whether there is a burden on interstate commerce.
And if the Court finds that there is a burden on interstate commerce, that burden then has to be balanced against the state interest, the state needs, and the Commerce Clause considerations for free and unhindered commerce among the states and foreign countries.
And I submit that the question of the county's interest goes as much to the merits as anything else, because without a party standing before this Court saying, I am injured, I have been hurt, where is the burden on interstate commerce?
Where has the County of Los Angeles shown a burden as the regional stock exchanges did in Boston Stock Exchange v. the Tax Commissioner?
Where is the burden that someone is showing, as the cantaloupe grower did in Pike v. Bruce Church, Inc., where he said the Arizona regulations preventing me from having my cantaloupes packaged in California are a burden?
Where is the burden that was shown in Hunt v. Washington Apple Advertising Company?
Unidentified Justice: Mr. Manpearl, are you saying that if this case had been brought by a competing importer of personal property... I don't know just what your client warehouses... that all the goods came from Arizona instead of from across the Pacific Ocean somewhere, and that person said, well, I can't make as much money, because he gets his tax exemption and therefore there's no profit margin left for me, that he would prevail?
Mr. Manpearl: Mr. Justice, I'm not saying he'd prevail, but I'm saying--
Unidentified Justice: Then what's the point of your argument that the--
Mr. Manpearl: --Well, I'm saying that at least at that point he'd have someone before this Court that was saying, I am injured, and the Court would be in a position to make the judgment as to whether there's a burden on interstate commerce.
We have nobody showing--
Unidentified Justice: --You're really arguing standing again, as Mr. Justice Rehnquist just indicated, then.
Mr. Manpearl: --I don't believe so.
I believe I'm arguing the merits of whether--
Unidentified Justice: But do the merits depend on who was raising the claim?
Mr. Manpearl: --Well, no, the merits may not.
But they do in terms of trying to evaluate the burden.
We haven't... I don't believe the County of Los Angeles has shown any burden on interstate commerce.
Unidentified Justice: Well, supposing we're talking about automobiles being imported from Japan, and all the competing automobile companies said, well, they get a tax exemption.
That enables us to undersell them in the automobile market throughout the State.
Would they have a different case than your client here?
Mr. Manpearl: I certainly think they would have standing.
I think there'd be no question that they would have standing to raise this objection.
But the objection would come in the form of them objecting to the California legislation that imposes the tax on them.
They wouldn't come before this Court or the California court and say, tax the Japanese manufacturers.
Unidentified Justice: In other words, you're saying, the only relief is not to take away the exemption but to grant the exemption to everybody?
Mr. Manpearl: Well, it would be one alternative the California court had.
I would submit that in Boston Stock Exchange that's exactly what happened.
We would have this type of case if the Tax Collector of New York said, I'm going to collect the higher tax from everybody who transfers.
We would never be able to see the burden.
Instead, we have it in a proper context in the Boston Stock Exchange, where the regional stock exchanges came into court and said, imposing a higher tax rate on transfers, stock transfers on the regional exchanges vis-a-vis the New York stock exchanges, is a burden on interstate commerce.
Unidentified Justice: Mr. Manpearl, supposing the exemption instead of being for goods of foreign source, said, for all goods of foreign source and from all states east of the Mississippi River.
Would there be any burden there?
Mr. Manpearl: --I don't know whether there would or not, Mr. Justice.
There may very well be a burden, or more importantly, I think it might be considered an unreasonable classification.
And if the--
Unidentified Justice: That's what they say we've got here.
Mr. Manpearl: --No, Mr. Justice, they do not.
The State of California court conceded that if we were talking about equal protection as--
Unidentified Justice: Oh, I see.
Mr. Manpearl: --a classification, they conceded it was a reasonable classification.
And historically the differentiation between imported goods and--
Unidentified Justice: Well, then instead of all goods east of the Mississippi River, all goods that don't have their origin in the State of California.
Say, the exemption for all goods that are shipped, that do not originate in California, then.
Would there be no discrimination--
Mr. Manpearl: --I think we would be getting back to a very classic equal protection argument as we had in Allied Stores v. Bowers.
The basis... they judged a very similar exemption statute.
They had an exemption statute similar to that.
They exempted the warehoused goods, Ohio did, exempted the warehoused goods of all out-of-state warehousing activities but not Ohio companies.
And this Court said, that was not a violation of equal protection.
That's the question that ought to be raised in these type of cases, not a Commerce Clause violation, but the question ought to be whether the classification is reasonable and sustainable under the Equal Protection Clause of the Constitution.
Mr. Chief Justice, I would reserve the balance of my argument for rebuttal, if I may.
Chief Justice Burger: Very well, Mr. Manpearl.
ORAL ARGUMENT OF PHILIP H. HICKOK, ESQ., ON BEHALF OF THE RESPONDENTS
Mr. Hickok: Thank you, Mr. Chief Justice, and may it please the Court:
I think Mr. Manpearl and the Court have noted the primary issue in this case as a threshold issue that must be addressed, and that is the standing issue.
It is our position that if this standing issue is not favorably resolved in favor of the County of Los Angeles, potentially devastating results will result to public entities as we know them now.
This is because Article III jurisdiction for this Court, requires Case or Controversy standing as an aspect of that.
It's a plaintiff-oriented concept.
The complaining party must have that requisite degree or stake in the outcome of the decision which guarantees that the issues are sharpened and presented in the proper manner to this Court.
There are other aspects that are applicable to defendants, but standing is not one of them.
The Court has further found that true Article III jurisdiction requires injury in fact to be shown by a plaintiff.
The zone of interest concept that was talked about in the Data Processing and Warth cases is, as Justice Powell pointed, more of a prudential concern of this Court should jurisdiction be taken; not, is jurisdiction available?
We have in this case a prudential jurisdiction, a prudential standing case.
Unidentified Justice: Counsel, what if the State of California permitted friendly bondholder suits to establish the validity of bonds so that someone who was simply a person with no intention of buying a particular water bond issue but simply said he was a plaintiff and wanted to find out whether these bonds were valid or not, he could sue the district and the California courts would permit that case to be litigated up through them?
Do you think that that would confer jurisdiction in any way upon this Court?
Mr. Hickok: If the plaintiff in that case suffered actual or injury in fact; yes.
Now, that is an example also where you can look at the defendant.
Is it a collusive lawsuit?
Is it a friendly lawsuit?
That might well be a collusive lawsuit.
If you take our current case and have an interstate shipper as the plaintiff against the County of Los Angeles, that also would be a collusive lawsuit.
Both the parties would be raising the same issues.
The county would agree with the interstate shipper that it's a violation of the Commerce Clause.
Unidentified Justice: How do you distinguish the Baltimore case that your opponent relies on?
Mr. Hickok: Williams v. the City of Baltimore... first of all, I think it's 50 years old.
Second of all, it involved a public entity bringing, initiating a lawsuit in federal court against the state.
It also raised Fourteenth Amendment grounds, Equal Protection.
It did not... the federal question involved is not the Commerce Clause.
Our suit has to be looked at from the fact that it began as a taxing event at the local level.
The County Assessor denied an exemption for goods under 225.
Walter Fleisher asked for that exemption.
Walter Fleisher submitted a formal claim for a refund to the County.
The Board of Supervisors of the County denied that claim.
Unidentified Justice: Counsel, at that point, are members, individual members of the Board also defendants here?
Mr. Hickok: No, they are not, Your Honor.
The state statute is a procedural.
It requires the lawsuit for refund of taxes only to be brought against the taxing authorities.
It's a procedural statute in the State of California.
Unidentified Justice: Well, who are these "Does" that are mentioned in the complaint?
Mr. Hickok: They were never identified and I believe that if normal practice was followed, they were dismissed... at the time of trial.
Unidentified Justice: So that the only defendants are the City and the County?
Mr. Hickok: That is correct.
They represent the only taxing authorities before this Court, the only defendants.
Unidentified Justice: Then they are both attacking a statute passed by the State Legislature, the same legislature which created them?
Mr. Hickok: No.
Unidentified Justice: Well, it may be a different legislature in time, but the same body which created them.
Mr. Hickok: --The County of Los Angeles was established by the California Constitution, not the California Legislature.
The counties within the State of California are different from counties on the East Coast and in other areas of the nation.
They are the largest political subdivision of the State; they have corporate powers to sue and to be sued; the Legislature cannot restrict and has not restricted the counties' ability to sue the State.
Counties in California have independent grounds to sue the State of California and its various state agencies and officials.
Unidentified Justice: Well, didn't we reject that distinction several years ago in a civil rights case involving 1988, where the State was claiming its counties were different than the--
--Reitman v. Mulkey.
Mr. Hickok: An analogy under the Civil Rights Act is also an excellent reason why the County has to be allowed to have this prudential standing.
It is now a person under the Civil Rights Act; the Court in Monell held that.
Now this Court is also saying that counties are strictly liable for any official actions taken by it or its officials which happen to deny the person's constitutional rights.
That was your Owen decision, earlier this year.
If the County is not allowed to stand before you and argue standing, argue the constitutionality--
Unidentified Justice: And argue that my duty is to obey the Federal Constitution and that that's what it means.
Mr. Hickok: --Federal and state.
What I'm saying is, we'll be in the Catch-22 situation.
Under an Owen theory, we would be strictly liable should the statute as we believe be declared unconstitutional.
Under a prudential standing decision, we'd go back to our local superior court; we could not raise the constitutionality of the statute as defense; and judgment would be entered against the County there also.
We have 88 lawsuits pending, in excess of $10 million, currently, and that's just the tip of the iceberg.
There are at least that many claims pending in front of the Board of Supervisors.
If we have to sit in this untenable position of being strictly liable if we follow the statute and strictly liable if we disobey the statute, the resulting financial damage suits could be devastating.
Unidentified Justice: But the reason for the lawsuits is a statute passed by your own legislature.
Mr. Hickok: That is correct.
It is an exemption to a taxing, to the ad valorem tax system.
Unidentified Justice: Was a declaratory judgment open to either Los Angeles or the taxpayers?
Mr. Hickok: At that time, no.
We could... California now has enacted a section in the Revenue and Taxation Code which gives specific authority to the local assessors to bring a declaratory judgment action against the State regarding state tax policies.
It was not done and that statute was post... post case--
Unidentified Justice: Mr. Hickok, at one time there was some legislation pending in Sacramento which would have provided refunds of this type.
What is the status of that?
Mr. Hickok: --It is still pending, Your Honor.
And that is exactly... that is at least a second reason why there has to be standing in this case, to resolve the issue, because the Sacramento Legislature cannot, I don't believe, enact that refund legislation.
I think that we have a California Court of Appeals that has declared the section unconstitutional.
If Sacramento enacted refund legislation, it would be in violation of our constitution, the California Constitution, being a gift of public funds.
Therefore there is no reason for this Court to not invoke its Article III jurisdiction.
There is no danger that you're going to be intruding into an area more appropriately addressed by other governmental bodies.
This is the only forum left to resolve this issue.
Unidentified Justice: Well, no litigant in guaranteed a forum.
Mr. Hickok: That would be fine from the County standpoint, Your Honor.
If no standing was found here, we would retain the monies.
However, the precedential value of this Court deciding the County has no standing in a situation like this is far-reaching.
Who is to say that tomorrow this precedent might be applied to a non-tax--
Unidentified Justice: Well, the Baltimore case has stood on the books for 50 years, as you've said.
Mr. Hickok: --That's correct, Your Honor.
The county, the public entity in that case was the initiator.
It was the plaintiff in federal court.
It had to meet federal standing, Article III standing requirements.
Article III standing requirements have been met in this case.
The plaintiff has suffered injury in fact.
It has paid taxes and it wants to get them back.
That's injury right there.
The plaintiff is also within the zone of interest that surrounds Section 225.
I have to hark back to my initial statement that this is a plaintiff-oriented concept.
Public entities have to be allowed to defend their agents and employees and their actions on constitutional grounds.
If not, another reason would be an anomalous result.
The Boston Stock Exchange case indicated that state courts of general jurisdiction can entertain lawsuits that involve federal questions.
Our Court of Appeal in California did just that.
It rendered a decision declaring the statute to be unconstitutional.
If this Court then finds the public entity has no standing, the decision is nonreviewable by the federal court.
That's an untenable position.
Unidentified Justice: Well, you say it's untenable.
All it means is that the decision of the California Court of Appeal will stand and perhaps in some other litigation this Court will reach the merits.
Mr. Hickok: That would be fine in this case, Your Honor.
We'll just be worried--
Unidentified Justice: Probably by some other litigation.
Mr. Hickok: --Yeah; I would be worried about future litigation myself.
Those are the basic reasons why we feel this standing issue has to be resolved in our favor.
True, Article III jurisdiction is present.
It's present by virtue of the injury to the plaintiff.
The prudential concerns of the Court, the zone of interests, is also present, both on the plaintiff's side and on the County's side.
It's an issue which this Court must resolve.
Unidentified Justice: Well, wouldn't the standing issue be resolved in your favor if we just dismissed this action?
Mr. Hickok: In this case?
Unidentified Justice: Leaving the judgment below upholding your standing intact.
Mr. Hickok: --Probably if the Court said that--
Unidentified Justice: If we just dismissed this appeal for want of jurisdiction, because we didn't think you had standing as a federal matter in this Court, and we just dismissed the appeal, but did nothing to the judgment of the California Court of Appeal, you would win the case.
Mr. Hickok: --We would win the case and lose the war.
Unidentified Justice: Why?
Mr. Hickok: Because if the Court goes on to say that public entities cannot defend the actions of its employees--
Unidentified Justice: No, we didn't say that.
We didn't say that.
Mr. Hickok: --Okay.
If the Court just chose--
Unidentified Justice: We'd just say, if the California courts, if they want to, could still continue to entertain judgments like this, cases like this, defenses like this, as a matter of California law they would let their courts do that.
Mr. Hickok: --In that situation we would win, Your Honor.
Unidentified Justice: You'd be just where you were before an appeal--
Mr. Hickok: Was brought to this Court.
Unidentified Justice: --Before your friend brought you up here.
Mr. Hickok: We should point out, we are not the litigating party.
We were brought here against our will, but we are still, we are here.
Unidentified Justice: You are contending to be litigating.
You are not the initiating party.
Mr. Hickok: That is correct.
We are defending the action of our employees, or our officials.
We are not allowed, the Assessor and the Board are not allowed to sit here.
It is only the County, the public entity, the City and the County.
Unidentified Justice: Under the new statute if that occurred, could your... could the taxpayer bring a declaratory judgment suit and perhaps wind up in the Supreme Court of California and perhaps with a different result?
Mr. Hickok: It's conceivable, Your Honor.
It's conceivable also that the City... or, excuse me, the Assessor could bring a declaratory action against the State with taxpayers joining in as being interested parties.
There's a procedure for that also.
On the merits of the case, on the constitutionality of the statute in question, the Court must first address itself to a threshold question, and that is whether under any situation, under any circumstances, can a state's treatment of foreign commerce ever be discriminatory towards interstate commerce.
Obviously the Congress has the authority to regulate interstate commerce, and a state statute which places a discriminatory burden on interstate commerce is violative of the Commerce Clause.
Here we have a situation where a state statute treats foreign commerce differently from interstate.
Is that constitutional?
Can it ever be unconstitutional?
We feel that a statute that discriminates against interstate commerce and in favor of foreign commerce is just as objectionable as one that discriminates against interstate in favor of local economic interests.
Unidentified Justice: Do you think that statement is consistent with the underlying tone of Japan Lines?
Mr. Hickok: Yes, because in Japan Lines you had the complete auto test, which was the underlying Commerce Clause question.
On top of that a two-pronged foreign commerce test was imposed.
In that situation the four-pronged complete auto test still had to be resolved.
One of the aspects there is whether the statute is discriminatory or not.
Does the statute regulate evenhandedly?
If it does it probably will be upheld unless there is an excessive burden placed on commerce.
In this case, we have a statute which does not regulate even-handedly on its face.
Therefore, the Court of Appeal properly looked at the statute itself as opposed to the interest to be justified by the State.
It did not have the benefit of your decisions in Hughes v. State of Oklahoma, or Lewis v. BT Investments, but it did have before it Boston Stock Exchange.
I think the Court of Appeal correctly interpreted the decision in Hughes.
Hughes talks about an Oklahoma statute which was discriminatory on its face.
That's a conclusionary term.
However, the statute differentiated on its face between commerce interstate and domestic.
This Court found that once you have shown that a statute treats commerce differently, it may fall.
Contrary to the Petitioner's position, it might be per se invalid.
This Court held in Philadelphia v. New Jersey a statute to be per se invalid.
It decided that even admittedly legitimate state interests cannot be achieved through a discriminating means.
Similar, our statute operates the same way.
We have a legitimate means, legitimate interests in California in protecting its port and warehousing trade as a pure economic interest.
It's not health and safety; pure economics.
It cannot justify a discriminatory statute, especially when there are at least two alternatives available to it to achieve this same purpose with no discriminatory impact on interstate commerce.
California could have exempted all business inventory to be shipped out of the State.
That would have had the same effect in fostering and encouraging the local economic interest.
Or it could have exempted all business inventory within the State.
That too is an available non-discriminatory alternative.
California finally chose the latter course of action.
It amended Section 219, which had the effect of repealing Section 225, the statute in question.
Hence, California has recognized the invalidity of the statute and now has moved to cure it in a manner in accord with other states in the nation.
Only if the Court--
Unidentified Justice: Is that new statute presently effective?
Mr. Hickok: --Yes, it is, Your Honor.
Only if the Court finds that the statute regulates evenhandedly will it usually go to the successive burden test under Lewis, as an example, Pike v. Bruce Church as another example.
Look at the statute.
If it regulates evenhandedly, then look at the excessive burden placed on interstate commerce.
In this particular case the burden which is placed on interstate commerce is easily ascertainable.
It can be derived simply by looking at the benefit to be obtained by foreign commerce.
In this particular case Walter Fleisher stands to benefit by a dollar equivalent of 1.68 percent of the market value of its goods.
The case argued earlier this year, Sears, they stand to benefit by close to 1-1/2 percent of the dollar equivalent of the market value of their goods.
Conversely, a United States businessman shipping his goods through California is burdened by exactly the same amount.
Unidentified Justice: Unless they're going overseas.
Mr. Hickok: Unless they're exporting it.
Unidentified Justice: So the exception does apply to goods going through California that are bound for export?
Mr. Hickok: Yes it does, Your Honor.
If they are exported out of the United States.
However, goods coming from Hawaii on the same boat as Japanese goods to be shipped to Philadelphia do not qualify, even if--
Unidentified Justice: Or goods coming through Los Angeles bound for Hawaii?
Mr. Hickok: --That's correct.
So there's discrimination on the face of the statute.
We don't have to look at the excessive burden placed on commerce.
The statute should be struck down on its face as being invalid, especially when you have at least two available alternatives that would achieve the same legitimate purpose.
Unidentified Justice: Do you think before Michelin Tire that California constitutionally could have levied this kind of a tax on these imported goods?
Mr. Hickok: The goods were not in transit; we had agreed to that.
Unidentified Justice: Do you think the rule before Michelin was just bound to transit goods?
It wasn't, was it?
Mr. Hickok: --No.
I'm sorry, it wasn't, Your Honor.
However, it was--
Unidentified Justice: It was bound in original packages, wasn't it?
Mr. Hickok: --That was the original package concept, overruling of Lowe v. Austin.
Unidentified Justice: And the Export-Import Clause of the Constitution?
Mr. Hickok: Correct.
Unidentified Justice: And then Michelin tire held what?
Mr. Hickok: Michelin held that the states and the local counties can levy an ad valorem property tax on goods coming in, that are in the mass of property within the State.
Unidentified Justice: But it didn't rule that it couldn't exempt them.
Mr. Hickok: No, it did not.
And California has the authority to exempt goods, if it does it in an evenhanded manner.
If the State of California wishes to exempt certain goods, that's fine.
I think they have to exempt them in a manner that treats all goods, be they interstate, intrastate, foreign, they have to regulate evenhandedly.
Unidentified Justice: Well, do you think, before Michelin, if California had just exempted imported goods from the tax, that they would have had to have taxed... they would have had to have exempted all other goods too, from other states, for example?
Mr. Hickok: Well, you get into--
Unidentified Justice: Before Michelin they would have had to exempt goods in their original packages coming from abroad.
Mr. Hickok: --That's correct.
Unidentified Justice: Do you think they would also have had to exempt goods in their original packages from other states bound for other states?
Mr. Hickok: No, Your Honor, we don't because--
Unidentified Justice: Well, that would be a burden on commerce.
Mr. Hickok: --However, we were governed at that point in time by decisional law saying that these foreign commerce goods had to be exempted.
Also, we're talking about a different clause, too; we're talking about the Import-Export Clause.
Here, we're talking about the Commerce Clause.
Analogies are good but they're not conclusive.
Unidentified Justice: Yes, but before Michelin you could have enforced them both by saying, you can't tax the foreign goods, and live up the Export-Import Clause.
And to comply with the Commerce Clause, you should not discriminate against non-international goods.
Mr. Hickok: That's right.
I think the Court specifically left open that question, though, and in Japan Lines the Court also did not address itself to the inter-intrastate argument.
It was a strict foreign commerce case.
All I'm really saying is that a statute, a tax statute which is nondiscriminatory on its face, as is California's ad valorem property tax, can be made discriminatory by enacting certain exemptions that directly affect interstate commerce, as Section 225 does.
Once the court, California or U.S. Supreme Court, finds this difference in treatment, it must invoke the closest scrutiny under the Commerce Clause, to see why the statute should be upheld.
Unidentified Justice: It would seem to me that even if before Michelin, the Export-Import Clause, had required the exemption, you'd still have the same burden on interstate commerce, wouldn't you?
And therefore, really, if your view is correct, prior to Michelin there was a requirement that the exemption be given to all foreign and interstate commerce.
You could have enforced both clauses that way.
Mr. Hickok: That's correct.
Unidentified Justice: What if the State of California had brought this action?
Or did the action--
Mr. Hickok: Against the County?
Unidentified Justice: --No, against Walter Fleisher.
Do you think all of the same answers that you gave to the standing question would be relevant?
The State of California simply says, we don't think the statute our legislature passed was constitutional?
Mr. Hickok: I'm not sure from a practical procedural standpoint how the State would bring the statute against Walter Fleisher.
I could see a situation where--
Unidentified Justice: Well, supposing there was an application for refund--
Mr. Hickok: --with the State.
Unidentified Justice: --With the State.
Mr. Hickok: Which was denied by the State.
Unidentified Justice: Which was denied by the State.
Mr. Hickok: Well, the State would then be in a defendant's posture.
Unidentified Justice: Right.
Mr. Hickok: It would be a very similar argument.
Now, I can't see the State simply defending a lawsuit and raising that as an affirmative defense because the State through the Legislature has the power to repeal and revise the statutes.
Unidentified Justice: Well, if the tax collection people have had an opinion from the Attorney General that their exemption was unconstitutional and the State then, because the tax collection people are supposed to listen to the Attorney General, they don't give the exemption.
Mr. Hickok: That's true.
They would have a very similar argument to ours, and I think that the State, also... the State is in a little bit different position from public entities.
However, the same issues and the same arguments regarding standing could and probably would be raised by the State.
Unidentified Justice: Why is the State in a different position from the County in the context of this case?
Mr. Hickok: I'm talking about the State's authority.
First of all, under the Civil Rights Act it is not a person.
Second of all, the State has the authority not to appropriate funds to pay damages.
The counties have no such luxury.
The counties can be held strictly liable, by my Catch-22 analysis.
That's an aside and that should not enter too much into the decision in this case.
I would just like to conclude at this point by saying that the case is a very important one.
However, it's a more important case from a standing issue than it is from a Commerce Clause issue.
The counties have to be allowed to raise the constitutionality of a statute in defending the actions of their employees and themselves.
Owen v. City of Independence taught us that counties have a negative incentive to try and protect all persons' civil rights.
If we are faced with strict liability under an Owen situation and faced with strict liability under a prudential standing situation, there will be no incentive for public officials to attempt to bend over backwards to err on the side of protecting civil rights of others.
They will close their eyes to the Constitution and say, well, we'll take our chances under an Owen theory; we'll go ahead and follow the statute even though we think it's unconstitutional.
Unidentified Justice: Even though we're public officials who are presumably bound by the statute?
Mr. Hickok: That's true because they can always justify their actions on a defense of the state statute.
They relied on a previously valid state statute.
Therefore they are not going to have any individual liability.
The public entity will, but they won't.
And that might be a safer course of conduct for them.
When we talk about a Commerce Clause issue, we're talking about an initial look to see whether the statute regulates evenhandedly.
If it does, it will be upheld unless there is an excessive burden.
If it doesn't regulate evenhandedly, then it can be either struck down as being per se invalid, or invalid because there are available alternatives.
Thank you very much.
Chief Justice Burger: You have two minutes left, Mr. Manpearl.
ORAL ARGUMENT OF GERALD T. MANPEARL, ESQ., ON BEHALF OF THE PETITIONER -- REBUTTAL
Mr. Manpearl: Mr. Chief Justice, and may it please the Court:
I think Mr. Hickok has placed incorrect emphasis on the distinction between interstate goods or intrastate and foreign goods.
I think the real distinction is in the question of whether or not California is discriminating, not against different types of goods, but is attempting protectionist legislation.
Is it attempting to isolate itself?
I would refer this Court to the language of Philadelphia v. New Jersey, in which the Court said,
"The opinions of the Court through the years have reflected an alertness to the evils of economic isolation and protectionism. "
The Court went on:
"The critical inquiry therefore must be directed to determining whether Chapter 363 is basically a protectionist measure. "
I submit that California has not instituted a protectionist measure.
They have instituted a measure which falls evenhandedly on California businesses, U.S. businesses, and foreign businesses.
Unidentified Justice: Well, now, isn't it true, though, that this exemption discriminates between interstate commerce and foreign commerce?
Mr. Manpearl: Yes, Mr. Justice.
Unidentified Justice: And don't you have to just say that the State is empowered to make that kind of a discrimination?
Mr. Manpearl: Yes, I agree, Mr. Justice, and I submit that the Court is empowered to make such discrimination--
Unidentified Justice: The State is.
The State is.
Mr. Manpearl: --the State is, unless it violates equal protection standards, is an unreasonable classification.
But if we're talking about Commerce Clause, we are talking about State attempts at protectionism, at isolation.
We do not have that here.
I think this case is similar to the Exxon v. Maryland case of last year, in which Maryland attempted to prohibit refiners and distributors from owning gas stations.
And this Court pointed out--
Unidentified Justice: Well, suppose California, though, taxed the goods that are bound from Oregon to Utah but didn't tax goods that are bound from Washington for Utah, and both of them came through.
Would you think that would be bad on Commerce grounds, or Equal Protection grounds, or both?
Mr. Manpearl: --Well, I strongly suspect that somebody would be before the courts complaining that they had been injured, and they would be arguing that it's an illogical classification and no good under equal protection laws.
They would also be saying... and demonstrating, not just saying hypothetically... they would be demonstrating how their commerce had been interfered with.
Unidentified Justice: Well, that's true of almost every event that happens, every day, in human life.
Someone is before the court complaining about it.
Mr. Manpearl: Yes, Mr. Justice, I agree that in virtually every case decided by this Court in the last five years, more, there have been protectionist overtones, a State attempt to isolate itself in some economic manner to benefit its citizens, its industry vis-a-vis out-of-state industry.
We do not have protectionist measures here.
There is no attempt by California to isolate itself or its businesses.
The exemption is granted evenhandedly to anybody who wishes to import foreign commodities, or export.
Chief Justice Burger: Your time has expired.
Mr. Manpearl: Thank you for your attention.
Chief Justice Burger: Thank you, gentlemen.
The case is submitted.