LIMBACH v. HOOVEN & ALLISON CO.
Legal provision: Article 1, Section 10, Paragraph 2: Export-Import Clause
ORAL ARGUMENT OF RICHARD C. FARRIN, ESQ., ON BEHALF OF THE PETITIONER
Chief Justice Warren E. Burger: Mr. Farrin, I think you may proceed when you're ready.
Richard C. Farrin: Mr. Chief Justice, and may it please the Court:
This case involves the Import-Export Clause of the United States Constitution in Ohio's ad valorem personal property tax which applies to all goods used in business within Ohio regardless of their origin.
This case presents two issues to the Court, both of which involve the scope of this Court's 1976 decision in Michelin Tire Corporation v. Wages.
The first issue is whether the Ohio Supreme Court properly applied and interpreted this Court's decision in Michelin in its holding that the Tax Commissioner was collaterally estopped by this Court's 1945 decision in Hooven & Allison Company v. Evatt from imposing its ad valorem property tax on Hooven & Allison's imported raw materials which were no longer in transit or retained in their original packages and were held for use in manufacturing in Ohio.
Inherent in this issue is whether the original package doctrine upon which Hooven was based retains any validity with respect to Import-Export Clause cases subsequent to this Court's decision in Michelin.
Unidentified Justice: Mr. Farrin, did the Ohio Supreme Court apply state collateral estoppel principles in finding the state precluded by the Hooven & Allison decision?
Richard C. Farrin: Justice O'Connor, the state... the Ohio Supreme Court accepted this Court's limitation on the doctrine of collateral estoppel enunciated in Commissioner v. Sunnen, but found that that limitation being that collateral estoppel is inapplicable where an intervening decision of this Court has changed the legal principles upon which the prior decision was based.
Unidentified Justice: Well, so you think the Court was trying to apply federal preclusion principles.
Richard C. Farrin: Justice O'Connor, I believe the Court was applying federal law on the issue.
I believe it was required to apply federal law--
Unidentified Justice: Thank you.
Richard C. Farrin: --Because it was basing its decision on a decision of this Court.
The second issue--
Unidentified Justice: What is the source, if I may ask you?
What is the source of the federal collateral estoppel law?
Just is there... is there sort of a federal common law, is it, of collateral estoppel that's binding on the states?
Richard C. Farrin: --Justice Stevens, I believe it's inherent in the basic power of a court that it must determine the scope of its own judgment.
The judgment upon which the Ohio Supreme Court based its collateral estopped decision was Hooven & Allison v. Evatt, which was a decision of this Court which dealt solely with the federal constitutional issue; that is, the immunity provided by the Import-Export Clause of the federal Constitution.
I believe this Court has on at least two occasions determined that where collateral estopped is based upon a federal decision that the effect of that decision is a federal question reviewable by this Court.
The second issue--
Unidentified Justice: And what are those cases you're just referring to?
Richard C. Farrin: --Those... those cases... and I apologize; they were not cited in the brief, because I was not aware of them at the time... are Deposit Bank v. Frankfurt at 191 U.S. 499, and Stahl v. Gottlieb, 305 U.S. at 165.
I think this principle is consistent with the restatement of judgments at Section 87 which in effect carries out the--
Unidentified Justice: Do you mind restating what you say those cases stand for?
Richard C. Farrin: --Certainly, Mr. Justice Brennan.
My position is that those cases state that where a federal judge... whether a federal judgment has been given due effect is a decision for this Court to make.
It's a federal question and not a question for the state court to decide.
I believe they point out that it's a fundamental concept that a court must determine the scope and effect of its own judgment.
Unidentified Justice: Well, I thought... the way you stated it previously, was it the meaning, what the Court held in the prior cases a federal question, not the... not the... not the effect that must be given it in a state court.
Richard C. Farrin: Mr. Justice White, I believe what those cases and what the fundamental principle require is that where a... where collateral estoppel is to be applied based on a decision of this Court, that this Court must determine the scope and effect of that decision.
If we're to allow a state court to determine the effect of this Court's decision without review by this Court, we would be left with the result that each of the 50 states might come up with a different interpretation of this Court--
Unidentified Justice: Well, that wouldn't depend on collateral estoppel or anything like that.
That would depend on... on... on correcting a state court's view of what this Court held in the past.
Richard C. Farrin: --Your Honor, I think that this Court in order to assure that the state court properly applies an earlier decision of this Court, particularly where there's an intervening decision of this Court--
Unidentified Justice: Right, right.
Richard C. Farrin: --Is a decision that this Court must make.
Unidentified Justice: Yeah.
That's a little different wording of it which I think--
Richard C. Farrin: I apologize if I confused the issue earlier, Mr. Justice.
Unidentified Justice: --But if the earlier case had been Smith against Jones instead of involving Hooven against Allison, you still might have a question of what effect do you give to the decision of this Court.
It's obviously a federal question, but it doesn't depend on any theory of collateral estoppel.
Richard C. Farrin: Mr. Justice Rehnquist, that's correct.
However, if you do not apply the concept to decisions which collaterally estop a party based or a decision of this Court, this Court will never be able to reach the question of whether or not that application of the earlier decision by the lower... by the state court was proper.
Chief Justice Warren E. Burger: We'll resume at 1:00, counsel.
Richard C. Farrin: Thank you.
Chief Justice Warren E. Burger: Mr. Farrin, you may resume your argument.
ORAL ARGUMENT OF RICHARD C. FARRIN, ESQ., ON BEHALF OF THE PETITIONER -- Resumed
Richard C. Farrin: Thank you.
The second issue presented in this case is a broader one; that is, whether Ohio can impose its nondiscriminatory ad valorem property tax on imported raw materials which are retained in their original packages, are no longer in transit, and are held for use in manufacturing within the state of Ohio within the strictures of the Import-Export Clause.
The Tax Commissioner has two contentions in this case.
Initially, the Tax Commissioner contends that Michelin effected a change in the legal principles upon which Hooven & Allison v. Evatt was based, thereby rendering collateral estoppel inapplicable under the limitations enunciated in this Court's decision in Commissioner v. Sunnen.
The second contention of the Tax Commissioner is that Michelin's holding that a nondiscriminatory ad valorem property tax imposed on imported goods no longer in transit is not an impost or a duty, and therefore is not prohibited by the Import-Export Clause, is controlling with respect to the assessment at issue.
The holdings below by both the Ohio Board of Tax Appeals and by the Ohio Supreme Court were that the Commissioner was collaterally estopped by this Court's decision in Sunnen from imposing its ad valorem personal property tax.
The Board's decision reveals no discussion whatsoever of the effect of Sunnen or of this Court's decision in Michelin.
While the Ohio Supreme Court does accept the limitation enunciated in Sunnen, it specifically found that this Court's decision in Michelin neither implicitly overruled nor effected a change in the legal principles upon which Hooven was based.
Unidentified Justice: Let me make sure I understand what you're saying about the holding of the tax... is it the Tax Commissioner you're referring to or the Supreme Court of Ohio?
Richard C. Farrin: Justice Rehnquist, there were decisions initially by the Ohio Board of Tax Appeals.
It's... it's a... or it's a review board which hears appeals from determinations of the Tax Commissioner.
Unidentified Justice: And it... it ruled how?
Richard C. Farrin: It ruled that the Tax Commissioner was estopped from assessing its tax based on this Court's decision in Hooven.
Unidentified Justice: Okay.
So it's the original Hooven decision in the view of the Board of Tax Appeals that collaterally estops the Commissioner in this case.
Richard C. Farrin: Yes, Justice Rehnquist.
And it was also the position of the Ohio Supreme Court that that was the decision that estopped the Commissioner from issuing the assessment.
The facts in this case are rather simple.
Unidentified Justice: No one has passed on the constitutional issue yet?
Richard C. Farrin: Correct, Justice.
The facts are rather simple in this case.
Hooven & Allison is engaged in the manufacture of cordage.
In this manufacturing operation it uses raw materials that are imported from various foreign countries.
They are shipped by ocean-going vessels to U.S. ports and then transported by rail to Hooven & Allison's Ohio plant.
After they are received at the Ohio plant, they are stored in their original packages in that plant until they are used in the manufacturing process; that also takes place in that same plant.
For tax years 1976 and 1977, the Tax Commissioner, relying on this Court's decision in Michelin, issued an assessment against Hooven & Allison which had the effect of including within its taxable property the imported raw material retained in the original packages.
The Tax Commissioner does not dispute that the nature of the goods and the nature of the tax at issue in the present case are the same as those involved in the decision in this Court or by this Court in Hooven & Allison v. Evatt.
The Tax Commissioner will first argue that Michelin effected a change in the legal principles upon which Hooven was based, thereby rendering collateral estoppel inapplicable, and then will argue that the holding in Michelin requires a finding that Ohio's tax is valid under the Import-Export Clause.
Unidentified Justice: Of course, in Michelin the Court overruled Low v. Austin, but it didn't overrule Hooven.
Richard C. Farrin: Justice Blackmun, it did not expressly overrule Hooven.
I would submit that it implicitly overruled Hooven, because Hooven was based on the original package doctrine that was formalized by the Court in the Low v. Austin decision.
A review of both decisions reveals that the identical portions of Brown v. Maryland and the license cases were relied on by the Court in Low and by the Court in Hooven.
Those were the provisions that this Court in the Michelin decision specifically found that Low had misread.
Unidentified Justice: Suppose we agree with you on the collateral estoppel issue.
Should we remand the case for the Ohio court to pass on the constitutional issue, or should we decide it here?
Richard C. Farrin: Justice Blackmun, I would submit that it would be appropriate to decide the issue here.
While this Court's decision on the collateral estoppel issue would resolve the specific issue determined by the court below, I believe this case presents an appropriate vehicle for this Court to dispel any questions with respect to the scope of its decision in Michelin.
Unidentified Justice: Well, what... Mr. Attorney General, what would... what do you suppose your... the state court would have done if... if in Michelin we had specifically said that not only Low but Hooven is... are... is overruled?
Richard C. Farrin: I feel confident that our court, in light of such a decision, would have upheld the imposition of Ohio's tax.
Unidentified Justice: Even though... even though it involved the same party that had had a favorable decision below... before.
Richard C. Farrin: --Justice White, I think it's clear that if this Court had specifically overruled Hooven, that the Ohio Supreme Court would not have applied collateral estoppel.
Unidentified Justice: Well, let's assume that in... let's assume that in... let's assume that in Michelin the Court had said we overrule Low against Austin, but whether Hooven should be overruled we save for another day.
Then what should your courts have done?
Richard C. Farrin: Justice White, I believe our court should have read the decision in Michelin and looked at the... the basic principles that were adopted in that decision.
Michelin adopted a fundamentally different approach to Import-Export Clause cases.
And under this Court's decision in Sunnen, it clearly affected it.
Unidentified Justice: You don't think it would have been required to... to say just what it did at... at Hooven... if Hooven 1 is overruled, it's going to have to be by the Supreme Court since it saved for itself that question for another day?
Richard C. Farrin: Mr.... Or Justice White, I think it may have done so.
And in a reading of the court's decision below, there are alternative... there is alternative language in that decision which I think leaves it unclear as to exactly what it would do.
It accepted the principle of Sunnen that a change in a legal principles renders the doctrine inapplicable--
Unidentified Justice: Right.
Richard C. Farrin: --But then it also quoted some language from a lower court decision in the Penfield case, indicating that it was not within the province of a lower court to guess at what this Court might do.
I think in light of the nature of this... this Court's decision in Michelin that that particular language quoted by the court was in applicable.
It's the Tax Commissioner's position that the decision of this Court in Michelin so clearly controls this case that--
Unidentified Justice: But if... but if we had said in Michelin we put... we put off to another day the decision of Hooven, whether Hooven is overruled, would you think it would be... that that... would you be arguing that Ohio was constitutionally disentitled to apply collateral estoppel in this case?
Richard C. Farrin: --Justice White, I think it would... it would have depended on the language that this Court used in... in... in--
Unidentified Justice: Well, I just gave you the language.
Richard C. Farrin: --If that were the only difference in the Michelin case, it would still be the Tax Commissioner's position that the Ohio Supreme Court should have refused to apply collateral estoppel.
Unidentified Justice: That may be so, but as a matter of federal constitutional--
Richard C. Farrin: As a matter of... Justice White, I think it's more a matter of applying the decision of this Court in Commissioner v. Sunnen and determining whether or not Michelin v. Wages changed or effected a growth or modification in the legal principles.
By applying collateral estoppel, the Court of Appeals... or the Ohio Supreme Court did not even reach the constitutional issues.
And I suggest that that is the problem.
Sunnen doesn't say that simply because there's a growth in the legal principles that you have to find against the party relying on collateral estoppel on the merits.
Unidentified Justice: --But in my example it is... the Court says remember, fellows, Hooven isn't overruled by this case.
Richard C. Farrin: If the Court specifically stated that Hooven was not overruled and simply didn't say that we don't reach the question, I believe that the lower court would properly have applied collateral estoppel.
Unidentified Justice: Well, collateral estoppel and the constitutional issue are kind of blended together, aren't they, because the Sunnen case says if there's been a change in the law, collateral estoppel doesn't apply; and the argument here is whether there's been a change in the law.
Richard C. Farrin: I think that's correct, Justice Rehnquist.
I believe that... I believe the issues are interrelated.
In order to determine whether or not collateral estoppel was properly applied, I believe the Court has to determine, as it did in Sunnen, whether or not the principles upon which the earlier case... and in this case because they were constitutional issues... it has to be determined whether those constitutional issues have remained unmodified or unchanged.
In this case I'd argue they've... they've... the constitutional principle was specifically repudiated, and it's a much stronger case for the application of the limitation in Sunnen.
Unidentified Justice: If we just say here, well, under... reread Michelin and reread the old Hooven, and we think Michelin fatally wounded Hooven, Hooven won, and so Hooven is overruled, that's all we need to say.
Then we remand, don't we?
Richard C. Farrin: Justice White, I believe that that would resolve the case.
Unidentified Justice: Yes.
Richard C. Farrin: And I believe if that was--
Unidentified Justice: We needn't say anything about collateral estoppel then.
We just say--
Richard C. Farrin: --I... I think that's probably correct, Justice White.
I... I'm not... I'm sure if this Court said it were overruled, the Ohio Supreme Court would... would no longer upon remand attempt to apply collateral estoppel.
Unidentified Justice: --Yes, but that brings up my question, which I thought you answered, as to whether we go ahead and decide the constitutional issue.
Richard C. Farrin: Justice Blackmun, I believe if this Court held that Hooven was overruled that it would, in effect, decide the constitutional issue, because by overruling Hooven it would have specifically answered the second issue we present; that is, whether Ohio's tax can be constitutionally applied to imported raw materials, as well as imported goods held for resale, regardless of whether those goods were retained in their original package.
I... it's... I would... the Respondent has raised issues in his brief regarding the Commerce Clause and the Import-Export Clause and its effect on the validity of the tax at issue.
These issues were not raised in any notice of appeal within this process, nor was a cross-petition raising these issues filed by the Respondent.
I would submit that those issues are not properly before this case, having simply been argued by the Respondent in the briefs filed in the Ohio Supreme Court and in this case.
Unidentified Justice: Well, but they were raised and argued, were they?
Richard C. Farrin: They... these... the... at the Ohio Supreme Court these matters were argued in the briefs.
I would suggest, though, under the Ohio scheme of appeals regarding tax cases, the issue was not properly raised.
In the Ohio statutes in order to raise an issue on appeal, that particular issue must be specified in the notice of appeal unlike--
Unidentified Justice: Ordinarily, as you know, a respondent may support a judgment here on grounds raised and argued below.
You don't think that principle would apply here because of your Ohio rule?
Richard C. Farrin: --Mr.... or Justice Brennan, I don't believe that... or I do believe that the Ohio... that the failure to follow Ohio provisions with respect to raising those issues would preclude him raising those issues before this Court, even though I admit that those issues were specifically argued in the briefs in this matter and in oral argument before the Ohio Supreme Court.
Unidentified Justice: Well, could we independently conclude that they were sufficiently raised for our purposes, notwithstanding your Ohio rule?
Richard C. Farrin: I believe this Court has that authority, Justice Brennan.
Unidentified Justice: Well, you say they weren't properly before the Ohio Supreme Court.
Richard C. Farrin: They were not properly before the Ohio Supreme Court, Justice White, because they were not specified in the notice of appeal to that court.
Unidentified Justice: I thought it... I thought it was the... I thought the... the Hooven & Allison was the appellee in the Supreme Court of Ohio.
Richard C. Farrin: It was the appellant and cross-appellee, Justice Rehnquist.
The Board of Tax Appeals decided the collateral estoppel issue, refused to consider the constitutional issues.
Hooven & Allison appealed the refusal of that Board to resolve the constitutional issues that it had raised before the court.
We appealed the Board's decision on the collateral estoppel issue.
Therefore, we were both appealing from the decision of the Board of Tax Appeals.
The... the notice of appeal did raise one issue, I should clarify, with respect to the Foreign Commerce Clause and the Import-Export Clause, and that was the argument by Hooven & Allison that imposition of the tax would impair the federal government's exclusive right to regulate foreign commerce.
The other issues... multiple taxation, free flow of goods among the states, and the possibility that the federal government's exclusive right to imposts from imports and duties would be impaired were not raised in that notice of appeal.
I would like to reserve the remainder of my time to respond to the arguments of Hooven & Allison regarding these constitutional issues.
Chief Justice Warren E. Burger: Very well.
Richard C. Farrin: Thank you.
Chief Justice Warren E. Burger: Mr. Nims.
ORAL ARGUMENT OF MICHAEL NIMS, ESQ., ON BEHALF OF THE RESPONDENT
Michael Nims: Mr. Chief Justice, and may it please the Court:
I'm a bit mystified by the position the Tax Commissioner is taking upon the procedural posture in which this case arrives at this Court, and I think it needs to be straightened out.
If you look in the appendix in the cert petition, it is very clear at page 17 in the appendix to the cert petition that the Board of Tax Appeals specifically noted that Hooven & Allison was raising not only collateral estoppel issues, but going beyond that and saying, and if, for some reason, you no longer think Hooven does state the law, you have to reach the constitutional questions.
And they state that specifically in their opinion, which is printed at page 17 of the appendix in the petition for cert.--
They went on to find that the collateral estoppel arguments were well taken, because Hooven did remain the law, not having been reversed by this Court, which was the only court with the power to reverse it; and they noted that they lacked authority to decide constitutional issues as an administrative tribunal anyway; and they ruled in favor of Hooven & Allison's position on collateral estoppel that the state could not in fact collect the tax it was seeking to assess.
In order to protect its position before a court which could rule upon constitutional issues, Hooven & Allison did file a notice of appeal in the Ohio Supreme Court which specifically stated that the Board erred in failing to find that the tax being sought was proscribed by the Import-Export Clause and the Commerce Clause of the United States Constitution--
Unidentified Justice: Were you... were you just reading from your brief in the Supreme Court of Ohio?
Michael Nims: --I was reading from the notice of appeal filed in the Ohio Supreme Court by Hooven & Allison.
And those arguments were made before the Ohio Supreme Court, briefed before the Ohio Supreme Court--
Unidentified Justice: I'm sorry.
Is that the one at A-17 and 18?
Michael Nims: --Well, the appendix A-17 and 18 is the opinion of the Board of Tax Appeals.
The notice of appeal filed by Hooven & Allison in the Ohio Supreme Court is not part of the appendix, but I was reading from the notice of appeal which was filed.
Unidentified Justice: But it's in the record of the Court?
Michael Nims: It is in the record, yes.
And finally, I note that in the Supreme Court of Ohio's opinion, the last thing they said in the final paragraph before holding that the decision of the Board of Tax Appeals is firm, that finding that the tax is barred by the doctrine of collateral estoppel, we decline to address the constitutional issues raised by Hooven in its appeal.
And that's... that's printed at appendix A-9 of the cert petition.
So I think it is very apparent that the procedural posture in which the case arrives at this Court is one in which Hooven has argued all along below that this Court decided in 1945 that this very tax the State of Ohio now wants to exact and collect was unconstitutional, it has not been overruled, we never denied that Michelin required one to review the opinion and determine whether Hooven had been overruled.
We said we read the opinion; we don't think Hooven has been overruled.
The Court clearly has left that decision for another day, and it remains the law.
Unidentified Justice: Well, now, Mr. Nims, does something, in your view, turn on the question of whether when this Court says we leave the question of whether Hooven & Allison I is still good law for another day, does that mean that this Court meant that only this Court was free to disavow that case in the light of Michelin, or perhaps, on the contrary, that any court having jurisdiction to consider constitutional questions could look at Michelin alongside Hooven & Allison and say certainly the Supreme Court of the United States did not expressly overrule, but it's nonetheless clear that Michelin is inconsistent with Hooven & Allison, and therefore, we decide that Hooven & Allison I is no longer good law?
Michael Nims: I think a court could do that.
Courts are obviously hesitant to predict what this Court would do on constitutional issues, but they clearly will do it if they believe they have an adequate basis for predicting it.
But what turns upon that is the fact that the Tax Commissioner below didn't give the court any facts upon which to predict what this Court would do if it looked at the facts in the Hooven, because the Tax Commissioner chose below a different strategy.
It said I'm not going to try and convince you, Ohio Supreme Court, that if you look at all the facts and examine the three policies behind the Import-Export Clause which Michelin said were important, and look at how this tax is applied, that you will find that this tax does not prevent the state or the nation from speaking with one voice on import-export policy.
You'll find that this tax does not deprive the federal government of the opportunity to collect the duties and imposts on imports.
You'll find that this tax does not create an opportunity for disharmony among the states.
They didn't do those things that they had to do if their position was let's look at the facts in Hooven and try and predict what the United States Supreme Court will do if it were given those facts and asked to apply the Michelin analysis.
Unidentified Justice: When you... when you say look at the facts of Hooven, you're not talking about the facts of the present case but the facts of Hooven I?
Michael Nims: No.
I'm talking about the facts of the present case.
Unidentified Justice: So you say there's nothing in the record that shows what factually happened in this case?
Michael Nims: The only thing you know is that Ohio is seeking to assess an ad valorem personal property tax on imported raw materials which Hooven & Allison subsequently will incorporate into its manufacturing processes.
You don't have any facts about how that tax impacts, how it interacts with federal policy on dealing with Third World countries, on exporting raw materials.
You don't have the facts.
Unidentified Justice: Well, is that something the Board... the Ohio Tax Commissioner is apt to have a great deal of expertise?
Michael Nims: No, they're not, but the point is that if you were to ask the Board of Tax Appeals or the Ohio Supreme Court to predict what this Court would do applying a Michelin analysis to Hooven facts, you've got to give it some facts.
Unidentified Justice: Well, but, you know, how do we know anything more about the Ohio... than the Ohio Board of Tax Appeals about how a certain tax impacts on the Third World or something like that?
Michael Nims: You don't out of this record because the Tax Commissioner chose consciously not to put anything on this record and argued Hooven in I has been implicitly overruled.
Unidentified Justice: Well, do we know all that much of our own knowledge in Michelin or in Hooven-Allison I?
These are really basically not factual arguments that you're suggesting should have been made, but kind of rough judicial notice arguments, aren't they?
Michael Nims: Well, they're facts.
Admittedly, one has to take judicial notice.
But there are a lot of differences between the tax you were looking at in Michelin when you, by looking at the facts, applying whatever judicial notice you wanted to apply, decided that tax would not contravene any of the policies that you saw behind the Import-Export Clause.
There are a lot of differences between that analysis involved in that tax and the analysis that would be made in looking at the Hooven & Allen tax... the Hooven & Allison tax.
Michelin, you had a situation in which Michelin, major competitor of domestic tire manufacturers, has got all its tires stored in Georgia.
They're ready for sale.
The only thing that remains to be done is selling.
And the question you were faced with, if those are still imports under the original package doctrine, the State of Georgia can never tax them, because the next thing that's going to happen is Michelin is going to sell them, and the State of Georgia can never tax them.
And does that really make any sense when you look at the policies behind the Import-Export Clause?
But we have a very different situation when we start talking about importing raw materials, for which there's no domestic source, which are going to be incorporated into a manufactured product.
Those raw materials are going to be taxed.
That's not at issue, whereas it was at issue in Michelin.
The question is when are they going to be taxed and how often are they going to be taxed.
They come in as raw materials.
They're not sitting there, held, ready to be sold, and as soon as Hooven & Allison sells them, the state of Ohio will lose its opportunity to tax them.
They're sitting in a warehouse for a period one, three, six months, depending upon how much backlog Hooven & Allison keeps on their raw materials, and then they're moved onto the manufacturing floor, opened up, and become work in process.
At that point, the full value, the full value of those imported raw materials goes into the tax equation and Ohio collects.
What the State of Ohio is trying to do is say wait a minute, we don't have to wait until you put those raw materials into your manufacturing process.
We'll start taxing them as soon as they hit your storage warehouse.
They don't have to be work in process.
As soon as they hit your storage warehouse, we can tax them, and that's okay now because Michelin said it's okay.
Michelin didn't say that was okay.
Michelin didn't deal with that factual situation.
You even pointed out in Michelin that you weren't dealing in Michelin with tubes which Michelin was going to later put into tires and which would be taxed when Michelin put them into tires; you were dealing with tires.
And that was the tax that you had to juxtapose against the policies that you saw behind the Import-Export Clause.
Unidentified Justice: Are there customs warehouses available for you to store your raw materials in before you take them out for incorporation into your product?
Michael Nims: I believe... you're... you're getting a little beyond the knowledge I'm sure of.
I believe there is a federal customs duty-free warehouse in Columbus, but Columbus is quite a ways from Xenia.
Hooven & Allison is not General Motors.
Transporting materials is not as easy for little Hooven & Allison, which makes rope.
It would work a... it would have a major impact on how it gets its goods.
Unidentified Justice: Well, I'm not asking... I just... I just wondered is there a customs warehouse system available for... to protect against these kinds of duties until they're taken out for local consumption?
Michael Nims: Like I say, I believe there is a duty-free warehouse--
Unidentified Justice: All right.
Michael Nims: --In Columbus, but I'm not sure.
But the point is, the point is to the extent that all of your Commerce Clause analysis, to the extent that your Import-Export Clause analysis has had as a backdrop your concern that somebody dealing in imported goods paid his fair share and that you allow a tax to be assessed, the only effect of which is to be properly apportioned and cause him to pay his fair share for those services he uses, that's not this situation at all, because Hooven & Allison is going to do that.
Every penny that goes--
Unidentified Justice: Well, what if you were located... what if you were located in Cleveland?
What if Hooven & Allison were located in Cleveland and could have used the customs warehouse and didn't?
Do you think that's some kind of congressional suggestion that no federal policy is going to be infringed if you don't use the customs warehouse?
Michael Nims: --No, I don't think so at all.
I think, as we point out in our brief, in general, American tariff policy on dealing with raw materials from undeveloped nations has been to allow them in duty-free as part of an overall economic policy to help underdeveloped nations maximize their development and achieve what they can.
So to the extent that federal policy is important, and as we read Michelin, you didn't say anywhere in Michelin, federal policy is no longer important; indeed, you said federal policy is very important.
What's no longer important is original package.
Let's look at what the tax does and how it impacts on federal policy.
To the extent federal policy is important, federal policy is a very definite policy in dealing with underdeveloped nations exporting raw materials.
There's simply no doubt that the economic reality... and it's shown in Mr. Bucks' affidavit which is contained as an appendix to the brief of the Respondent... economic reality is that the sources from which Hooven & Allison can obtain these natural fibers to make rope are charging either almost exactly the same price to sell Hooven & Allison the raw material as to sell it the finished good, or in some cases, even a higher price to buy the raw material than the finished goods.
And the obvious reason for that, they want Hooven & Allison and other companies to put their manufacturing facility in Mexico, and in Bangladesh, and in the Philippines, and employ their nationals.
Unidentified Justice: Mr. Nims, may I interrupt you for a moment?
Michael Nims: Certainly, Your Honor.
Unidentified Justice: You're arguing a lot of facts that say this case is different from the original Hooven & Allison case, is that right?
Michael Nims: Yes.
Unidentified Justice: And are all those--
Michael Nims: Well, and it's different than Michelin, more importantly.
Unidentified Justice: --Well, but first of all we start with Hooven & Allison.
Is this the same or a different case than Hooven & Allison number I?
Michael Nims: It is the same case, the same tax, the same facts as Hooven I.
The question is, looking at those facts and putting this supposed change in legal principles that came along in Michelin, do you reach a different constitutional result with the same facts?
What I'm suggesting is the answer is no.
Unidentified Justice: If we start from the premise that they're the same facts, then we really... we can just look at the record in that case and find all the facts we need, can't we?
Michael Nims: Yes.
In deal... in dealing with 1940 sources, 1940 prices, there are some facts in that record, but they deal in 1940s economic terms.
Unidentified Justice: Well, to the extent that you think there are additional 1982 facts or '81 or whenever the tax was assessed, are those facts now in the record?
Michael Nims: No.
Unidentified Justice: Why not?
Didn't you have the burden to explain why the tax couldn't properly be assessed?
Michael Nims: No.
As far as we're concerned, this Court has already said the tax can't be assessed.
The state came along and said this Court--
Unidentified Justice: Yeah, but if we rely on that reason--
Michael Nims: --This Court would now say differently given Michelin.
It was their burden to show that.
Unidentified Justice: --But if we rely on the reason that this is a different case, then I suppose... you say they have to put in the facts why they go... I don't understand you.
Michael Nims: They--
Unidentified Justice: Procedurally.
Michael Nims: --They took the position, Your Honor--
Unidentified Justice: And they won, yeah.
Michael Nims: --That collateral estoppel wasn't important, and the reason it wasn't important is even though the Supreme Court of Ohio... or excuse me... the Supreme Court of the United States had previously said in 1945 that the very tax they want to collect is unconstitutional, you can ignore that, and the reason you can ignore it is because if you read Michelin, you'll find that the Supreme Court of the United States has implicitly overruled Hooven.
Unidentified Justice: But--
Michael Nims: --No.
You'll find that they haven't overruled Hooven, and if the State of Ohio wants to tell you that if you look at the facts and apply a Michelin analysis, you can predict that the United States Supreme Court will now reach a different result than the one it reached, let 'em prove it to you, because we think if you look at those facts, you'll find the Supreme Court of the United States will reach the same result.
But they chose we don't have to do that.
Look at Sunnen.
Michelin is a new change in atmosphere.
Unidentified Justice: --But insofar as we're working with a change in the law as to whether the law is different after Michelin, it seems to me we just assumed the case is on all fours with the prior case.
At least that's what I've done in looking at it.
And if I think that Michelin--
Michael Nims: Assume that--
Unidentified Justice: --Overruled Hoover I, that's all I have to decide.
What... why do I have to go into all these other facts?
Michael Nims: --Because--
Unidentified Justice: If you didn't put them all in the record?
Michael Nims: --But, Your Honor, you would be putting on us the burden to put in the record to show that a case we've already run we're still ripe on.
And it seems to me at the very least, hawing already won it, we ought to be entitled to have the burden put on the party who says it's now going to be reversed.
Unidentified Justice: Well, but usually res judicata or collateral estoppel is an affirmative defense, and the burden is on the party pleading.
Michael Nims: Yeah, but... but we met the burden by proving that Hooven I remains unreversed.
They're the ones who want the Supreme Court of Ohio to predict that that won't happen again.
Unidentified Justice: Yes, but supposing we disagree and say it was reversed?
Then that's the end of the ballgame.
Michael Nims: If you say we had intended to reverse it; we're surprised you didn't find it reversed; we reverse it, there is no doubt it'll go back and the State of Ohio will say it's reversed, and we will then... we will then have the affirmative burden to say all right, by gosh, we're going to win it again.
We're going to win it on new constitutional principles.
But it's our position--
Unidentified Justice: You are if Ohio says you can... you can have a second bite at the apple.
If they say that, you can, yeah.
Michael Nims: --Sure we can.
So, too, can the state.
The state tried to shortcut it by saying forget facts; facts are irrelevant.
Michelin controls all.
If we want to have a personal property tax, we can have one.
And that... that shortcut isn't available, we don't believe.
I think I've said all I need to say.
Chief Justice Warren E. Burger: Mr. Farrin, do you have anything further?
ORAL ARGUMENT OF RICHARD C. FARRIN, ESQ., ON BEHALF OF THE PETITIONER -- REBUTTAL
Richard C. Farrin: Mr. Chief Justice, and may it please the Court:
Just a few matters in rebuttal.
The Tax Commissioner's position was initially that collateral estoppel did not apply because the controlling legal principle upon which Hooven was based had been repudiated or at least changed by this Court's decision in Michelin.
There was no necessity for the Tax Commissioner to present any factual evidence with respect to that claim.
The only facts necessary for that determination are that the same tax... the same type of tax was involved... that is, a state nondiscriminatory ad valorem property tax... and that the imported goods upon which that tax was attempted to be imposed were no longer in transit.
Michelin specifically held that such attacks on those goods is not an impost or a duty.
If it's not an impost or a duty, it was not immune, or it was not prohibited by the Import-Export Clause.
The Respondent's attempt to put some burden on the Commissioner to prove its case is, I think, a disingenuous attempt to get this Court to ignore the clear ruling of the Michelin decision.
The... the Respondent in this case actually waived its right to an evidentiary hearing before the Board and chose obviously to rely on its collateral estoppel attack and abandon any attempt to actually prove any constitutional violation by the imposition of a tax in the present case.
I would point out with respect to a couple of statements made by the Respondent regarding the notice of appeal and what was raised by the Respondent.
As I indicated in my opening argument, the Respondent did raise in his notice of appeal the Commerce Clause aspect regarding the federal regulation of foreign commerce.
That is the only portion of the Commerce Clause that was raised in the notice of appeal as the... as the decision of the Board of Tax Appeals at page A-17 of the petition for cert appendix reveals.
With respect to Justice Rehnquist's question regarding custom-bonded warehouses, I believe that such warehouses would only protect imported goods from the imposition of a state tax if those goods are subsequently re-engaged in foreign commerce; that is, transported out... out of the state.
If those goods are removed from a custom-bonded warehouse to some domestic source, those goods are subject to the tax in the jurisdiction in which those goods are located.
Unidentified Justice: While they were in the warehouse.
Richard C. Farrin: --When removed from the warehouse, it--
Unidentified Justice: How about for the period they were in the warehouse?
Richard C. Farrin: --Well, under the... under the customs-bonded warehouse statutes, it's my understanding that as long as they're put in those warehouses, they are presumed to be intended for use later in foreign commerce.
Only when they are then removed are they subject to tax.
Unidentified Justice: So if Hooven put their fibers in bonded warehouses and only took the fibers out when they were about to make some rope out of them, you would have some problems?
Richard C. Farrin: Justice White, I don't believe--
Unidentified Justice: For... for the period of time that the fibers were in the warehouse.
Richard C. Farrin: --Justice White, I don't think they would have been allowed to put their materials within that warehouse--
Unidentified Justice: Unless they--
Richard C. Farrin: --If... if they had stated they were going to use them in foreign commerce.
Another point that I would make is that the tax at issue here is not a tariff, it's not a duty on the right to bring goods into the country.
It's a property tax that is imposed on goods after those goods have come to rest within Ohio.
It merely is a method by which Ohio apportions to the individuals who do business within the state the fair share of the cost of the government services provided to those particular businesses and individuals.
In order to allow an exemption for Hooven & Allison in the present case would require others within the state who are subject to the tax to subsidize the cost of those services provided to Hooven & Allison.
That is a requirement that Michelin specifically said was not required by the Import-Export Clause, and I don't believe that this Court should allow the Respondent in the present case to avoid paying its fair share of the cost of the government services that Ohio provides to it by paying a tax on the goods that it has in its Ohio warehouse awaiting its intended use in business.
Chief Justice Warren E. Burger: Thank you, gentlemen,--
The case is submitted.