College Savings Bank v. Florida Prepaid - Oral Argument

Argument of David C. Todd

Chief Justice Rehnquist: We'll hear argument now in Number 98-149, College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, et al....

Mr. Todd.

Mr. Todd: Mr. Chief Justice and may it please the Court:

Petitioner seeks reversal of the Third Circuit's judgment.

The 1992 Trademark Remedy Clarification Act made the States liable for Lanham Act violations.

The act was a valid exercise of the Fourteenth Amendment remedial power of Congress.

In the alternative, Florida Prepaid should be deemed to have waived its immunity under the Parden doctrine.

Solicitor General Waxman will argue the Parden issue.

I would like to address abrogation.

The court of appeals found, and Florida Prepaid concedes that Congress has unequivocally expressed its intent to abrogate the State's immunity for violations of section 43(a) of the Lanham Act.

The act was a valid exercise of Congress' power because section 43(a) protects business property rights from unfair competition, including false advertising.

This Court has held that a business is a property right.

That right includes the right to be free of unfair competition.

Chief Justice Rehnquist: The Solicitor General doesn't agree with you on this point, I take it.

Mr. Todd: The Solicitor General does not, Mr. Chief Justice.

Chief Justice Rehnquist: That doesn't mean you're necessarily wrong, certainly.

Unidentified Justice: [Laughter]

Mr. Todd: We like to think the Solicitor General is half right.

[Laughter]

It... the... this Court has clearly found that business is a property right.

The specific property right which College Savings Bank claims in this case is the loss of customers and earnings caused by Florida Prepaid's false advertising.

The court of appeals acknowledged that a business is a property right, and that fact has also been conceded by Florida Prepaid.

Chief Justice Rehnquist: In your view, Mr. Todd, was this property right created by Congress in the Lanham Act?

Mr. Todd: In our view the property right was codified by the Congress in the Lanham Act.

The tort of unfair competition and trademarks has always been... have always been wrongs that have been tied together.

They have long been recognized at the common law, in the common law.

The 1947 Lanham Act tied all these pieces together and created a clear statement of a Federal remedy for unfair competition.

Chief Justice Rehnquist: Well, supposing Congress had never passed the Lanham Act but just felt that organizations such as yours were put at a considerable disadvantage by the sovereign immunity doctrine of the States.

Could Congress have stepped in and said these are property rights created by State law but we don't think the States adequately protect even when they have sovereign immunity?

Mr. Todd: That is our position, yes, Mr. Chief Justice, that the fact is that Congress can step in, having determined that the State remedies are genuinely inadequate and that there is a need to foster interstate commerce, the commerce of this country, for there to be a Federal standard governing these matters.

Chief Justice Rehnquist: But you're in trouble, I think, if you say it's based on interstate commerce, because we've held that Congress can't abrogate sovereign immunity under it's commerce power.

Mr. Todd: Yes, Mr. Chief Justice, I'm certainly aware of that.

The passage of the Lanham Act is clearly based upon the Interstate Commerce Clause.

It is a Commerce Clause exercise of congressional power.

I think it's notable there's never been any question but that this is a valid exercise of Congress' power.

However, the abrogation of the State's immunity, which did not take place until 1992, is an exercise of Congress' section 5 Fourteenth Amendment power.

Florida Prepaid argues that there is no ability on the part of Congress to protect property rights to the extent that they have been created or, I guess in this case, even codified by the Congress.

This is a view of the scope of section... of the Fourteenth Amendment and section 5 powers which finds no support in the text of the Fourteenth Amendment.

Chief Justice Rehnquist: Is it your position that Congress passed this 1992 act to enforce the Due Process Clause of the Fourteenth Amendment?

Mr. Todd: Yes, Mr. Chief Justice, it is our position.

Chief Justice Rehnquist: And therefore they must have concluded that the invocation of sovereign immunity denied your clients their property without due process of law.

Mr. Todd: They certainly decided that there was a need for a standard here, and that given what they found to be an inadequate protection of these rights by the State, they determined that in the exercise of the section 5 power there should be an abrogation.

This Court has found that it is for Congress, at least in the first instance, to determine whether and what legislation is needed in order to secure the rights protected by section 1 of the Fourteenth Amendment.

It is our position that Congress did act pursuant to a valid grant of power under section 5.

Justice O'Connor: Well, Mr. Todd, that assumes, I take it, that the right to be free from unfair competition is a property right to be protected.

Mr. Todd: Yes, Justice O'Connor.

Justice O'Connor: But it certainly is not like any traditional property right.

Can you sell that right, do you suppose?

Mr. Todd: No, but this Court has never narrowed a property right in anything approaching a right to alienate or sell.

The fact of the matter is, this Court has found...

Justice O'Connor: Well, can you exclude others from a right to unfair competition?

I mean, it's so far removed from anything we would think of as a property right.

The mere fact that unfair competition might hurt the business or cause economic harm has never been thought to create a property right.

Every tort would do that, every zoning regulation...

Mr. Todd: Well, but...

Justice O'Connor: would affect the business economically.

Mr. Todd: Justice O'Connor, I think in the first case I would again like to reiterate that this Court has never held a particular set of attributes that must be met in order for a particular interest to be called property.

They have held welfare benefits to be property, a cause of action to be property, a horse trainer's license to be property.

Many of these things are obviously not alienable, and you cannot use the term, right to exclude, as a part of any description of those property rights which have clearly been held to be property rights within the meaning of the Fourteenth Amendment.

Justice Scalia: But those things were all things that belonged to the person asserting the right.

In your presentation you said that the right to do business is a property right.

I'm prepared to concede that, but nothing has stopped your client here from doing business.

What you're complaining about is the fact that a competitor of your client has misrepresented his product.

He has not even misrepresented your product.

He has misrepresented his product, and I find it very difficult to understand how that involves any property right.

Mr. Todd: Well, Justice Scalia...

Justice Scalia: You still are free to do business, as you always have been.

Mr. Todd: Well, Justice Scalia, we have not alleged takings.

We are not contending that our property as a whole has been taken.

We are alleging a deprivation, and we do have possession of something.

We have possession of customers and earnings from those customers which are very much threatened by the false advertising, and it makes no difference whether the false...

Justice Scalia: Anything that takes away customers takes away a property right of yours?

Mr. Todd: If it is proscribed by law, yes, I would say so, Mr.... Justice Scalia.

Justice Stevens: Mr. Todd, I don't know anything about your business, but there are a lot of businesses where customer lists are sold.

Is that true in your case?

For example, I know in the dairy business they sell customer lists all the time, and so if you take away custom you're taking away part of something that's saleable, but that's not true here, I gather.

Mr. Todd: Justice Stevens, in the context of this case, no.

I think customer lists are really not an issue.

It is perfectly clear, however, that...

Justice Stevens: And is it... I want to be sure of one other thing.

You're not claiming an infringement of your trademark?

Mr. Todd: We are not.

Justice Stevens: No, okay.

Justice Kennedy: In the case of McDaniels v. Williams, where the prisoner falls down the stairway and there's a question of whether there's a constitutional tort, we said that the Constitution, and the Fourteenth Amendment particularly, concerns the large concerns of governance, and that it is not designed to supplant tort law.

It seems to me that the same observation could be made with reference to your case.

Mr. Todd: Justice Kennedy, I think the cases are not at all closely related.

In Daniels, you had a State employee leaving a pillow on the stairs.

It was a random act of a given employee.

Here, we have a deliberate action by an agency created by the State of Florida.

There's nothing random about this.

This is not a tort of negligence.

The State of Florida...

Justice Kennedy: There's a difference in negligence and intent, but the observation still, it seems to me, has force in this case, that you're using the Constitution to make a constitutional violation out of what is generally concerned to be a tort that is actionable within the concepts of tort law but not under the Constitution.

Mr. Todd: I would suggest two things, that I think that this Court clearly has found... they have never found a case... I have no case specifically on point.

However, this Court has found that this kind of a right represents a property right, the International News Service.

The position of petitioner is that a property right is a property right, and it is not constitutionally permissible to begin parsing property rights which are protectable under the Fourteenth Amendment and property rights which are not protectable, and to say that a business is property standing alone really doesn't mean anything unless you can give some enforcement power to that concept.

A business is obviously more than a building and desks and chairs.

A business consists of goodwill, a going concern value, and a business as a property right is meaningless unless there is the ability to protect that business from this kind of injury.

Justice Scalia: That argument might get you somewhere if the claim in this case was that your goodwill had been taken or destroyed.

If your competitor had misrepresented your product, I think that argument might have some weight, but the competitor hasn't done that.

He's misrepresented his product.

Your goodwill has not at all been affected.

You've been affected in no way, except that you lost customers.

Mr. Todd: Well, Justice Scalia, the harm to the business from a competitor misrepresenting his own goods and services is identical to the harm caused by a misrepresentation of the competitor's...

Justice Scalia: It may be, but is it a deprivation of property?

I assume, then, that if it's a deprivation of property, in addition to being a tort, it would be some sort of larceny.

You ought to be able to get this fellow on a criminal charge for misrepresenting his product, because he's taken away some of your property.

Mr. Todd: Well, Justice Scalia, with respect, there is nothing in the jurisprudence in this Court which suggests that property interests are limited to those things which would be deemed to be larceny if stolen.

Welfare benefits, a horse trainer's license, and a driver's license aren't property interests... are property interests, but they're not susceptible to that kind of a test.

Justice Scalia: Is that right, if it were possible to take away a horse trainer's license, as you say it's possible to take away your customers?

If it's property, it's property.

Mr. Todd: Well...

Justice Scalia: This doesn't seem to me to be property.

You might say that your goodwill is a sort of property and, I suppose, if he were slandering you, I could see that there's some property in there, but he's just gone off and is competing unfairly by misrepresenting his product.

Mr. Todd: Justice Scalia, the entire business of College Savings Bank is threatened by this kind of false advertising, and I would like to close and save some time for rebuttal just by stating that neither the court of appeals nor Florida Prepaid has cited a single decision by this Court in which an economic interest has not been found to be property.

Mr. Chief Justice...

Justice O'Connor: Mr. Todd, I have a question, though.

Are there not other remedies that your client could have?

Could you not bring an Ex parte Young type injunction against Florida Prepaid and say, stop what you're doing?

Mr. Todd: Justice O'Connor, we believe that an Ex parte Young action would lie.

It would not make us whole.

Justice O'Connor: Are there State remedies for various State causes of action that could result in damages if you're correct?

Mr. Todd: There are not adequate State remedies across the board.

Even in Florida the adequacy of the State remedy is dubious, at best.

Argument of Seth P. Waxman

Chief Justice Rehnquist: Thank you, Mr. Todd.

General Waxman, we'll hear from you.

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

In Parden v. Terminal Railway all nine Justices agreed that at least where Congress has made its intent clear the voluntary participation by a State in a commercial business that has traditionally been engaged in not by States but rather by private parties for profit will establish consent to private suits out of that business in Federal court.

This case...

Chief Justice Rehnquist: General Waxman, most constitutional rights where you talk about waiver, it requires a very explicit, fully informed waiver, which I don't think what you just described would meet that test, do you?

Mr. Waxman: I think... I don't, and I think that the... well, to the extent that Congress has made its intent clear is where that test is met.

This Court, in the abrogation context in Atascadero and in the Parden waiver context in Welch v. Texas Transportation made it clear that in order for there to be a loss by a State of its constitutional Eleventh Amendment right, the national legislature must speak with unmistakable clarity.

Now, waiver and abrogation are sometimes confused and, before this Court's decision in Seminole Tribe, it's understandable why they were, but they're very different concepts, as we think this Court recognized in Seminole Tribe.

Abrogation is the unilateral act of power by the national legislature, acting within its constitutional scope.

Waiver requires the voluntary consent of the State, whether it's waiver by express language, or waiver by conduct and, Mr. Chief Justice, the act of waiver following notice must be such that it reflects a voluntary knowing waiver of a constitutional right.

We definitely agree with that.

Justice Scalia: General Waxman, do you really think there's a difference between what you call a unilateral act of the Government, the Government saying, the State shall be liable for any damages arising from its operation of a railroad... unilaterally, the State's liable if it operates a railroad... and the Government saying on the other hand, the State shall be liable for any damages from the operation of a railroad if it should operate a railroad...

Mr. Waxman: That is...

Justice Scalia: and the latter... the latter said, well, it's a choice to the State.

If you want to operate a railroad you'll be liable for damages.

We're not acting unilaterally.

You waived it by operating a railroad.

Mr. Waxman: The test... there is a distinction between unilateral abrogation and consent, and the test really boils down to, as it does in the Tenth Amendment cases this Court has decided, like FERC v. Mississippi and United States v. New York, in terms of whether the State is exercising a genuine, reasonable choice and is not being coerced.

Now, in the specific context of the Eleventh Amendment, where this Court has always recognized the viability and applicability of the concept of waiver and consent, this Court, subsequent to Parden, in Missouri Employees qualified Parden in the way in which I just articulated.

That is, it's not just, if you run a railroad, or if you choose to run a railroad, it's that the Parden doctrine, that is, voluntariness will be imputed and applied to the State if what the State... if the activity is not something that States traditionally have done but instead is something that private parties have done and for profit.

That's the test that we understand this Court substituted for Parden and therefore qualified Parden in Missouri Employees.

Justice Breyer: Is there a third...

Justice Ginsburg: General Waxman, I was surprised that we're talking throughout about consent, which is to some extent a fiction, and you didn't make an argument that I thought you might have made, which was, there's no sovereign immunity here at all.

After all, with respect to foreign countries we have a restrictive notion of sovereign immunity, and if a foreign sovereign engages in business they will be liable to answer in our courts.

If we don't apply that same notion to our own States we are attributing to our States a kind of super sovereignty that we don't afford to any foreign nation, and that seems to me rather strange.

Mr. Waxman: Well, I think... I haven't made it expressly, but I think in the foreign sovereign immunities context we apply that rule in the context of, it is a consent.

It is a waiver.

That is, we have enacted a law, the Foreign Sovereign Immunities Act, which says... one of the elements of the act is, if you... if a foreign sovereign engages in commercial activity within the personal jurisdiction and subject matter jurisdiction of the United States courts, you are subject to those courts, and it's that same principle that applies here.

Now, there are...

Justice Scalia: This Court didn't develop that principle.

We didn't feel free ourselves to restrict traditional notions of sovereign immunity, even as to foreign countries, much less as to States of the Union.

It was done by legislation of Congress.

Mr. Waxman: The legislation of Congress simply permits, Justice Scalia, what we think is an operation here, which is the operation of a principle whereby if the legislature makes clear, unmistakably clear, the conditions under which engaging in a truly voluntary activity, commercial activity, the truly voluntary act of subsequently doing that, amounts to consent by conduct, and the general principle...

Justice Scalia: That applies to the United States as well, I assume, right?

Mr. Waxman: Excuse me?

Justice Scalia: If you want to buy Justice Ginsburg's notion, I assume it would apply not only to the States but also to the Federal Government, that when the Federal Government acts in any private capacity, it will be subject to suit.

I'm surprised that the SG's office would be attracted by that... by that prospect.

Mr. Waxman: Well, we're attracted by any notion where... any principle the logic of which carries us to the result we think is just, but...

[Laughter]

Chief Justice Rehnquist: Any port in a storm.

Mr. Waxman: But I think, Justice...

Justice O'Connor: General Waxman...

Mr. Waxman: I think, Justice Scalia, if I can just respond to you for a moment, I think there are some important bedrock principles in the law that this Court has recognized that doesn't require any stretching for this Court to say that the Parden doctrine as a concept of waiver by consent with adequate notice and truly voluntary conduct is not one that should be abandoned.

There are perhaps more difficult questions about whether the facts of this case qualify, but there has always been a principle at the law that one may consent by knowing and voluntary conduct.

Justice Souter: Does that principle assume that in this case the National Government could prevent the activity entirely?

Mr. Waxman: I think you could never have... a State choice would never be voluntary if one of the... you know, if the quid was something that the Government couldn't possibly do.

In other words, if the Government...

Justice Souter: So that would distinguish the case that we're talking about from Justice Scalia's case then, wouldn't it?

Mr. Waxman: Yes, and in fact...

Justice Souter: There's no super legislature that in effect would be able to bar the United States.

Mr. Waxman: I think for me at least a useful way of thinking about the continuity of the Parden principle as it's been qualified following this Court's decision in Union Gas and Seminole Tribe is to think about those cases themselves.

If in Seminole Tribe, for example, Congress had said, look, the Supreme Court decided in Cabazan Band that States can't regulate Indian... gaming by Indian tribes, but we're going to allow you to regulate gaming by Indian tribes so long as you consent to subject to Federal court dispute private party actions concerning the conduct of that regulation and your own gaming regulation, the States would have a choice to say, no, no, no, we're very happy not regulating, or undertake the regulatory regime.

Justice Scalia: But we don't allow waivers of constitutional rights whenever the Government has the ability to take away one thing in exchange for another.

The Government can't say, you may go into the financial market so long as you agree to waive your right against self-incrimination with respect to any activities.

Mr. Waxman: That's right, and one of... for... that's why one of the... in the Spending Clause context one of the four... the last of the four factors in South Dakota v. Dole is, it can't impose a condition that is itself prohibited by the Constitution.

But for example, Congress didn't have the authority in South Dakota v. Dole consistent with the Twenty-First Amendment to say from now on the drinking age will be 21.

Justice Scalia: But the condition here is prohibited by the Constitution as well, just as the Federal Government has no power to coerce testimony against the defendant, so, also, the Government has no power to revoke the sovereign immunity of the State.

Mr. Waxman: The...

Justice Scalia: And to coerce the one by saying we're not going to let you do... run a railroad is no different, it seems to me, from coercing the other by saying we're not going to let you enter the financial market.

Mr. Waxman: If there were coercion here, Justice Scalia, I would agree, but I think the facts of this case are quite similar to the facts in Reeves v. Stake, which was one of the trilogy of cases this Court decided under the market participant principle.

If the Court will recall, South Dakota was concerned that there were no cement producers in the region and that it was adversely affecting the infrastructure of the State and commercial development in the State.

Now, South Dakota had a number of means by which it could have remedied that.

It could have...

Justice Kennedy: Are you saying that when States do research, that this is not governmental?

Mr. Waxman: No, no, not at all.

I'm say... I'm...

Justice Kennedy: The whole point of Reeves v. Stake was that it was a cement plant.

It wasn't a governmental activity.

The State was engaging in private business.

Mr. Waxman: Right.

The test... the test that this Court articulated in those cases is, is this a market participant or a market regulator.

Now, we are not... the test that we advocate under Parden doesn't make that distinction.

It's much narrower than that.

But the point is that when this Court decided the market participation cases, what it said is, because... a premise of releasing the State of South Dakota from what otherwise would be certain obligations and restrictions under the Commerce Clause if it were acting as a State pursuant to a core State function was that as a... it was acting as a private participant in a market where people engage in for profit and therefore... and this Court said, therefore it is subject to the same benefits and legal burdens that other private participants are.

Justice Scalia: But some people have thought that States ought to get involved in the market.

I mean, there's a whole theory of, you know, socialist economies.

Now, if the State of Minnesota should decide that it's just as important for the State to take an active part in the management of businesses, ownership of many things that used to be... and they think that that's a necessary part of a State's function, who are we to say that that particular thing cannot be done.

I don't know where you derive out of the Constitution your line between traditionally conducted State functions and State entry into the marketplace.

Mr. Waxman: The entire force of my argument and logic of my argument is, the Government is not saying it can't be done, period.

That is, it involves an activity which, because States haven't traditionally done it but private parties have for profit, the State has a free and voluntary choice, and there is no constitutional principle, we submit, that entitles or ought to entitles a party like Florida Prepaid to participate voluntarily in a commercial market engaging in commercial advertising under the enjoyment of the Lanham Act's protections, and yet to spurn the reciprocal obligation or condition clearly imposed by Congress of amenability to the remedial provisions of the act in order to ensure the fairness to all who compete in the market.

Chief Justice Rehnquist: General Waxman, the law for a long time, and maybe it still hasn't made a distinction between governmental functions of a Government and proprietary, and I think a lot of courts just felt that didn't work, that it was just too hard to tell which was which.

Doesn't your distinction offer some of the same problems?

Mr. Waxman: It does offer some of the same problems, but it's a distinction this Court was prepared to make and I think is prepared to make in the market participation, market regulation field that I just talked about, and even...

Justice Ginsburg: We do make it with respect to foreign sovereigns.

That's exactly the line which doesn't, by the way, emerge from Congress in 1976.

It was the Government's position for years...

Mr. Waxman: And...

Justice Ginsburg: that there was no immunity once you engage in a market activity.

Mr. Waxman: That's right, and we also... the courts also make it, Mr. Chief Justice, in other contexts.

For example, the legal status of the United States or States as litigants in, I think it's United States v. California, the question was, is the United States appearing in court in a sovereign function or as a subrogee of a private party or representing some proprietary interest, and I think it's...

Justice Breyer: Why...

Mr. Waxman: I was going to say, I mean, obviously the... I would say the culmination of this Court's frustration in trying to distinguish between traditional Government functions and nontraditional Government functions was probably expressed by this Court in Garcia in the context of a substantive Tenth Amendment regulation and I would simply say in regard to that that what we have here is, number 1, this isn't the Garcia test.

This is a test the parameters of which have been quite specific by Missouri Employees.

It's also a test under the Eleventh... may I finish my sentence?

Chief Justice Rehnquist: Yes.

Mr. Waxman: A test...

Justice Scalia: Assuming it's a short one, yes.

Unidentified Justice: [Laughter]

Mr. Waxman: I won't put any dependent clauses in it... a test under the Eleventh Amendment which...

Justice Kennedy: Which...

Unidentified Justice: [Laughter]

Mr. Waxman: I won't put two dependent clauses in... which presupposes the existence of a principal of consent or waiver.

Thank you for your courtesy.

Chief Justice Rehnquist: Thank you, General Waxman.

Unidentified Justice: [Laughter]

Argument of William B. Mallin

Chief Justice Rehnquist: Mr. Mallin, we'll hear from you.

Justice Souter: Am I pronouncing your name correctly?

Mr. Mallin: Yes sir, Mr. Chief Justice, and may it please the Court:

The right to be free of false advertising is not a property right protected by the Fourteenth Amendment.

Thus, the 1992 amendment to the Lanham Act that purported to abrogate sovereign immunity of the States cannot be saved by the Fourteenth Amendment.

This was the position accepted by the court of appeals, by the district court, and concurred in by the Solicitor General.

What petitioner CSB claims is that property is some loss of revenue that could occur as a result of the alleged false advertising.

This is rather new...

Justice Stevens: That's not an unusual suggestion, is it?

As I remember, the Sherman Act provides that one who's injured in his property can recover damages, and he's injured in his property if he loses a lot of business.

Why isn't the word property, as used in the Sherman Act, right on what we've got here?

Mr. Mallin: I think the use of property in the Sherman Act is for particular antitrust purposes.

Its use in the Fourteenth Amendment has a constitutional dimension which has been spelled out in the jurisprudence of this Court.

Justice Stevens: Well, all I'm suggesting is, it's not a totally novel thought to say that someone whose business is destroyed, or seriously harmed through loss of profits, loss of revenue, loss of customers, has suffered an injury to his property.

Mr. Mallin: Yes, and...

Justice Scalia: You agree with that.

Mr. Mallin: In the sense that that person has a claim for the injury, but the question is whether this property, this revenue that's never been received, and the only way you could recover damage is by showing false advertising, causation, the fact of damages, and damages with a reasonable certainty is all contingent, and that kind of a right, a right to be free of false advertising for Fourteenth Amendment purposes, hasn't been looked upon by property.

On March 3, this Court decided American Manufacturers Insurance v. Sullivan, where in the context of Workman's Compensation benefits in the State of Pennsylvania a beneficiary who had already been determined to be eligible was held not to have a property right in the continuation of payment of medical expenses because there was a requirement that the medical expenses had to be necessary and reasonable, and that had to be determined later, so that that kind of property doesn't raise a Fourteenth Amendment problem.

Otherwise...

Justice Stevens: Do you think... may I ask another question?

Do you think goodwill is property?

Mr. Mallin: Goodwill is likely to be property.

Justice Stevens: And if so, if one's goodwill is taken away, has that person been deprived of property?

Mr. Mallin: If goodwill is taken away...

Justice Kennedy: Or destroyed.

Mr. Mallin: Destroyed, which is a hard concept to grab a hold of, I think that there would be a problem of turning the tort that was involved into...

Justice Stevens: My question is very simple.

If one's goodwill been destroyed, has the person been deprived of property?

Mr. Mallin: I think if one's goodwill has been destroyed, it is likely the person has been deprived of property.

Justice Scalia: But you don't... you assert that didn't happen here.

Mr. Mallin: No.

There is... clearly was destruction of goodwill.

Justice Scalia: There was no trade libel...

Mr. Mallin: The allegation here is that Florida Prepaid misdescribed its own property and as a result, says the plaintiff in the case below, I lost some business that I would have gotten, some revenue that I would have gotten, for which...

Justice Stevens: It's similar to a case under...

Mr. Mallin: there would be a tort claim for damages.

Justice Stevens: Similar to a claim under the Robinson-Patman Act if the competing sellers sold below cost for a long period of time, causing a plaintiff to lose a lot of business.

That's sometimes thought of as a loss of property, but you're saying it's not.

Mr. Mallin: Yes.

It's usually thought of as a loss of profits, and future profits, which have an element of speculation in them, which is quite different from the kind of property rights that this Court has found on a case-by-case basis in its jurisprudence under the Fourteenth Amendment.

If we pause to consider the effect of treating this kind of a right as a property right under the Fourteenth Amendment, then the Fourteenth Amendment becomes a wide charter for legislation on any subject, going beyond the First Amendment, and really makes it relatively easy for the National Government to abrogate sovereign immunity.

Chief Justice Rehnquist: Well, I think part of the Government's argument, your opponent's argument here, Mr. Mallin, is that Congress can perhaps write with a broader sweep than just strict definitions of property previously, along the lines of the Religious Freedom Restoration Act that was involved in the City of Boerne.

Were there findings by Congress here as to deprivations of property by the...

Mr. Mallin: When it comes to false advertising, unfair competition prong of the Lanham Act and the amendment to the Lanham Act there were no findings by Congress, no discussion from Congress, no suggestion that there's any kind of problem out there with the States doing this, or that there's any inadequacy of remedy.

There was nothing in the legislative record.

There's nothing in the judicial record.

There is no reason to think that Congress is addressing any kind of a due process problem that relates to false advertising by States of any kind whatsoever, and what this amounts to is federalizing the law of torts so that... the law of business torts in particular, and...

Justice Stevens: Yes, but you don't question the power of Congress to do that if the defendant were not a State.

Mr. Mallin: Pardon me, Your Honor?

Justice Stevens: You do not question the power of Congress to enact this legislation providing remedies against non-States, against private defendants.

Mr. Mallin: That's absolutely correct, Your Honor.

Justice Stevens: They can federalize to that extent.

Mr. Mallin: this is not a challenge to the constitutionality of the Lanham Act.

Justice Stevens: No, just the application to the States.

Mr. Mallin: Of Eleventh... through the Eleventh Amendment.

Justice Scalia: Right, and your argument...

Mr. Mallin: We're not even challenging whether the law applies to the States.

There could be Ex parte Young to enforce it.

What we're challenging is that there is not a basis to abrogate the Fourteenth Amendment.

Justice Stevens: But your argument would not apply if they'd asserted an infringement of their trademark, would they?

Mr. Mallin: Well, the argument in the case of the trademark would be a different set of arguments.

The trademark area, again there's no showing of lack of remedies at the State.

You don't have a due process problem just by interfering with property.

Justice Breyer: Well, is it your argument that Congress...

Mr. Mallin: There must be lack of revenue.

Justice Stevens: Is it your argument that Congress didn't make the appropriate findings?

Obviously they thought there was some purpose in the legislation.

Mr. Mallin: Well, I'm sure they did, and at the time they passed the legislation it was before Seminole Tribe.

Justice Stevens: Right.

Mr. Mallin: And Congress was under the impression that under the Commerce Clause they could simply abrogate it.

Justice Stevens: Right.

Mr. Mallin: And that's what they tried to do.

Justice Stevens: But they thought there was a reason to do so, or they wouldn't have passed the statute.

Mr. Mallin: Yes, but the reason had... the reasons have nothing to do with the constitutional dimensions...

Justice Stevens: Well, they have...

Mr. Mallin: of the Eleventh Amendment.

Justice Stevens: If you're arguing, though, that there were not adequate findings you're in effect saying they should have made different findings, aren't you?

Are you not... is that not your argument?

Mr. Mallin: Well, I don't think this Court has required findings from Congress.

Findings can be very helpful if there is the right kind of findings to know which way to go.

Justice Stevens: Let me just ask one, to be sure I understand...

Mr. Mallin: But there's got to be a basis...

Justice Stevens: Let me ask you a question, please.

Mr. Mallin: Yes.

Justice Stevens: If Congress had said, we have studied the matter at great length and we think there's a problem that Florida has a couple of hundred patents out there and other... there's all sorts of patent infringement, trademark infringement going on by States, because they've accepted the suggestion that Justice Scalia made, they've decided to go into business all over the place where they didn't before, and we think there's a real problem, and therefore we're enacting this statute, would that have made any difference?

I don't think it would.

Mr. Mallin: No.

There has to be a basis for what it's doing.

Justice Stevens: Well, I'm assuming there was a basis factually for what they did, but nevertheless, wouldn't you argue they're without power to take care of that problem?

Mr. Mallin: On that... first of all, on the property right, since there's no property right, yes, I would argue that they're without par, and since the record shows that there are remedies on the State level, I would...

Justice Stevens: It seems to me that's totally irrelevant, because you're saying even if Congress had found there were no remedies, the result would be the same.

Mr. Mallin: Well, if Congress had found there were no remedies and there were no remedies, and deference is... Congress is entitled to deference on its findings...

Chief Justice Rehnquist: Well, in the City of Boerne case I think the Court said that where Congress seeks to go beyond the strict coverage of the amendment itself and perhaps wants to have... file a... classified as enforcement legislation, that the fact that Congress had found that there were a number of abuses, it could be of some importance in deciding whether Congress could go that extra step.

Mr. Mallin: Yes.

In that case, it indicated that Congress has discretion, and the fact that they had some findings would be significant, but in the end Congress can't change the Constitution to redo what the remedy is, and if there's a constitutional wrong the remedy has to have a proportionality and congruence to what the alleged constitutional wrong is.

Now, in the false advertising, there's no indication that there's any problem whatsoever from the Congress, or from the literature, or on any basis.

Justice Ginsburg: Mr. Mallin, may I switch you to the other prong on this argument, and I would like to return to the question that I asked General Waxman.

As I understand what's called the restricted notion of sovereign immunity it isn't a matter of consent.

It is a matter of how we define sovereign immunity, restricted doesn't include commercial activities, and that notion is codified in the Foreign Sovereign Immunities Act.

There is a certain anomaly, is there not, to say that States are not suable in Federal court because of their sovereign immunity when any foreign nation would be?

Mr. Mallin: With all respect, Justice Ginsburg, I do not see that anomaly.

Sovereign immunity for foreign countries I believe is a matter of the will of Congress that could be created on whatever...

Justice Ginsburg: Well, Congress codified what had been a doctrine of common law, Federal common law doctrine that had been around many, many years before the Foreign Sovereign Immunities Act.

Mr. Mallin: Well, the point I'm making, it is not constitutional, so Congress could massage it the way it wanted to.

Foreign Governments are not...

Justice Ginsburg: It was a definition of what does sovereign immunity mean?

I mean, what... it all goes back to, you can't sue the King, and what was the scope of that immunity, and I thought the idea was, well, it isn't... doesn't cover everything that a sovereign does, only some things.

Mr. Mallin: Your Honor, I would tend to think that Congress made a policy decision there with regard to foreign Governments.

The Eleventh Amendment covers States.

States are covered by it as a constitutional matter, and there's never been anything in the jurisprudence of this Court to suggest that sovereign immunity doesn't apply to States when States are doing something that's arguably commercial.

Justice Kennedy: Well, that's true except when a State is in the court of another State, the Nevada v. Hall case.

Does Nevada have sovereign immunity from suit in a California court?

Mr. Mallin: A suit between States and States?

Justice Kennedy: No, a suit by a citizen of California against the State of Nevada in a California court.

Mr. Mallin: A California State court?

Justice Kennedy: Yes.

Mr. Mallin: I don't think that's...

Justice Kennedy: In this case, for instance, could the Florida entity have been sued in the State courts of another State?

Mr. Mallin: That would depend on the law of those other States.

The Eleventh Amendment doesn't address that problem.

The Eleventh Amendment is a limitation on the judicial power of...

Justice Kennedy: Yes, but it might indicate that the sovereign immunity of the State is subject to some qualification.

If the State could be sued in the courts of another State, what would be the policy against prohibiting suit in the Federal court?

The object of the Eleventh Amendment is the State ought to be sued in its own courts, if at all, but if it can be sued in the courts of another State, and there's jurisdiction in that other State, why should the State care if it goes to a Federal court in New Jersey as opposed to a State court in New Jersey?

Mr. Mallin: The question of whether a State can be sued in another State is first a question of State law and it might raise constitutional dimensions but they would not be Eleventh Amendment...

Justice Kennedy: Well, let me put it this way...

Mr. Mallin, do you think...

Let's assume... let's assume that the Florida entity here could be sued in a State court in the State of New Jersey.

Let's assume that.

What is the interest in insisting on a State court of another State as opposed to a jurisdiction of a Federal court?

What would be the purpose of that?

Mr. Mallin: Well...

Justice Kennedy: Other than the words of the Eleventh Amendment, which...

Mr. Mallin: Yes.

That's... what I was... when you say the entity...

Justice Kennedy: If we probe the reason for it...

Mr. Mallin: The reason for it is that the Eleventh Amendment is a limitation on the judicial power of the United States, and it represents a concern that the States had from the very beginning of being hauled into the courts of the new National Government and subjected to the will of the new National Government in their courts.

Justice Scalia: Mr. Mallin, do you think that lending and borrowing money can fairly be described as a commercial activity?

Mr. Mallin: Well, in some contexts, yes, it could be described as commercial...

Justice Scalia: In any contexts, could it not?

I mean, isn't most of the prototypical commercial activity lending and borrowing money?

Mr. Mallin: I think it's a very...

Justice Scalia: And what was the Eleventh Amendment directed against, primarily?

What kind of suits were they worried about?

Mr. Mallin: Well, the suit that created the great controversy was a suit on a note, on a debt.

Justice Scalia: They were worried about suing for debts that they had contracted in order to fund the war, isn't that right?

Mr. Mallin: Right.

That was one of the great worries, but the Eleventh Amendment has never been so limited, and...

Justice Breyer: Is it the case that if a State decides it's going to go in the ice cream business and it sells shirts, decides to open their own coffee bars, run grocery stores, that Federal commercial regulation is just out the window insofar as Federal commercial regulation involves giving individuals who are hurt private actions in a Federal court.

No fraud cases, no securities fraud cases, no antitrust price-fixing cases, no Federal Trade Commission cases.

All those cases, even though the States knew... the new Starbucks, they saw money in that.

Unidentified Justice: [Laughter]

Justice Breyer: All Federal regulations out, insofar as it depends upon private people who are hurt bringing causes of action in a Federal court.

Is that your view?

Mr. Mallin: My view is, I don't know where this Court may draw the line.

Justice Breyer: But all what line?

Justice Scalia: What line?

Justice Breyer: I wanted to know, is it all out?

Your answer is either yes or no.

If your answer is yes, I'm going to ask you why did Hamilton and Madison take against Starbucks?

I mean, if you're answer's no, I'm very interested.

I mean, what line?

Mr. Mallin: The line that this Court has drawn so far, the line it drew in the Parden case, as modified, is a line of sometimes called poor Government functions.

this case involves education.

Justice Breyer: So you would say that if, in fact, they do go into a proprietary field, if they do go into the business, a business, then they do waive, then they do waive any rights.

Then you're arguing that this isn't one of those cases.

Mr. Mallin: Well...

Justice Breyer: Which is it you...

Mr. Mallin: they don't waive it simply by going into the proprietary business.

There has to be some statutory setup.

Justice Breyer: Oh, no, no, we'll write the statute.

We'll say, by the way, as Justice Scalia pointed out right...

Mr. Mallin: They'll have to provide something that's...

Justice Breyer: at the beginning, we'll write that in.

Unidentified Justice: [Laughter]

Justice Breyer: That's no problem.

I want to know if you're going to defend this line, nothing proprietary, or if you're going to try to distinguish your case.

Justice Scalia: Which is it?

Mr. Mallin: What I'm trying to do is to say one must be careful about Government activities too quickly to say they're proprietary.

In the modern State, for example, in education, funding education involves all kinds of programs.

Justice Breyer: With Starbucks, if they're out there selling coffee, T-shirts, and bananas, or whatever, then you have no problem with the waiver.

Mr. Mallin: Yes, I have no problem with staying that that's beyond State activities that...

Justice Scalia: Where do you find that in the Eleventh Amendment?

I mean, you just... do you find that in the Eleventh Amendment somewhere?

Mr. Mallin: No, I don't find that in the Eleventh Amendment.

I'm drawing that from the jurisprudence of your Court...

Justice Scalia: Oh, okay.

Mr. Mallin: up until now.

Justice Stevens: A lot of which is hard to find in the Eleventh Amendment.

Unidentified Justice: [Laughter]

Justice Souter: But you are going to make it in effect section 5 doctrine, is that it?

The section 5 power under the Fourteenth Amendment is basically going to have this Parden condition on it, together with a commercial activity condition, so that if the activity, as Justice Breyer said, truly is commercial, and the States truly do have a choice whether or not to get into it, then there is power to protect property under section 5 and, in a case like this, as he put it, if they were selling coffee rather than engaging in tuition funding schemes, it would be within the power of Congress to subject them to the Lanham Act.

Is that your position?

Mr. Mallin: No, I made no such suggestion.

Justice Scalia: All right.

Justice Souter: Now, why is...

Mr. Mallin: No, the Fourteenth Amendment...

Justice Souter: Where do you... you spoke of drawing a line, and I thought you were conceding that that might be the place to draw the line.

Where do... what is the line, and where would you draw it?

Mr. Mallin: There is two issues, one is Parden, and one is the Fourteenth Amendment.

I thought we were talking about Parden.

Justice Breyer: Okay.

Mr. Mallin: The implied waiver.

I have never suggested in any way that under the Fourteenth Amendment, section 5, that this line of Government function and non-Government function has anything to do with it.

The question there, is there property, and I think there's not here, and is there due process of law in the State.

Justice Stevens: Okay.

Mr. Mallin: Which I think there is there.

Justice Souter: So you're saying there is still a vital Parden exception in effect to the limitation announced in Seminole, is that right, as far as you know?

Parden... you concede that Parden is good law if...

Mr. Mallin: No.

Justice Scalia: you've got facts to support it?

Mr. Mallin: No, I do not, and we haven't...

Justice Scalia: You don't?

Mr. Mallin: got to that point.

Many lower courts... strike many.

A number of lower courts have concluded that Parden didn't survive Seminole Tribe.

Justice Scalia: Okay.

Mr. Mallin: Some have questioned it.

Justice Souter: Here's... the thing that I'm trying to get at is, I thought you were conceding that there is some kind of a line to be drawn, that whether we're talking about Eleventh Amendment Article I power, or whether we're talking about the section 5 enforcement power, there are some things that the State can do to subject... that the National Government can do to subject the States to national regulation like the Lanham Act, but certain conditions have to be met, and that is how I thought you were saying you draw the line.

What are those conditions, or did I misunderstand you completely?

Mr. Mallin: On... I'm sorry, Your Honor.

On the Fourteenth Amendment I wasn't suggesting that there's any line to be drawn between commercial, so-called commercial activities of the State or other activities of the State.

That's simply an issue of whether the State has taken property, interfered with property, so there must be property involved, and whether the State has provide due process, there must be due process involved, so...

Justice Souter: So that, for example, if the State does go into a Starbucks operation and it becomes very predatory, it's driving all of its competitors out of business, there is no power under section 5, I take it, under which the Government might act, the National Government might act?

Mr. Mallin: Unless it's taken property.

It's got to go to a property right under normal business torts.

Justice Souter: It's driving its competitors out of business.

Is that taking property?

Mr. Mallin: No, Your Honor, I don't think so.

Justice Souter: Okay.

What if it's hiring thugs to go in and burn its competitors' coffee bars down?

Any possibility of Federal action then, under section 5?

Mr. Mallin: I want to be sure I understand the hypothetical, Your Honor.

Justice Souter: The State goes into the coffee bar business and decides a good way to increase its business would be to burn the coffee bars of its competitors.

Is there anything the National Government can do under the property prong of the Fourteenth Amendment?

Mr. Mallin: Yes.

That would be a violation if the State burned property of its competitors.

It would be taking that property.

You still have the question of whether there was a due process right in the judiciary of the State presumably, if State agents burn somebody else's property, and every State that I know of you can bring a suit in a State, in the State courts and get full compensation...

Justice Scalia: So long as...

Mr. Mallin: so the State is not denying due process at all.

Justice Souter: So the National Government could not say, we have our doubts about the effectiveness of that remedy in the courts of the very State that it's burning down the bars.

That would not be open to the National Government.

Mr. Mallin: The National Government has...

Justice Souter: That would not be a basis to section 5 legislation.

Mr. Mallin: Congress has discretion, but that discretion can't change the fact that if the State provides due process of law so that the individual whose bar was burned could bring a suit in the State court and obtain full compensation, the State has not deprived property without due process at all.

Justice Stevens: Yes, but what if they do as some States.

They have a total sovereign immunity.

They don't provide a remedy.

Some States would not provide a remedy in that situation.

Mr. Mallin: Yes.

If...

Justice Scalia: What do you do...

Mr. Mallin: Yes, Your Honor, if it's well-established that the State takes property and doesn't have a remedy for it, that that's lack of due process of law.

In a taking case every State is required to have...

Justice Stevens: Well, given that, doesn't... are you then saying in that situation it would be appropriate to... it would be permissible for Congress to authorize a suite against a State in a Federal court for damages?

Mr. Mallin: Yes, where the State has denied due process of law, but there's nothing in this record...

Justice Scalia: I don't think they have to authorize it.

Wouldn't there be a constitutional...

Mr. Mallin: Yes.

The Constitution requires in a taking case that the State have a remedy, inverse condemnation.

If that remedy is not adequate there can be certiorari to this Court directly out of that proceeding.

Justice Stevens: Yes, but all those cases are before our latest decisions.

You're sure the Eleventh Amendment would not be a defense in those cases.

You're agreeing that that would not be.

Mr. Mallin: Yes.

I'm assuming that it would not be because of the requirement, the constitutional requirement that that remedy be provided.

Justice Scalia: Now, as to the other line, you say there are two arguments, one's the Fourteenth Amendment, the other one is Parden.

I'm not sure what your position is.

Do you favor this distinction between commercial and noncommercial or not?

Mr. Mallin: No.

I...

Justice Scalia: You seem to have gotten yourself into the position of defending it.

I had thought that you thought that Parden was gone.

Mr. Mallin: Yes.

My first position is that Parden is inconsistent with Seminole Tribe, and that this Court should take this occasion to recognize that and overrule Parden.

That's my first position.

Justice Breyer: In other words, you're thinking that Hamilton and Madison and... they... if you'd even asked them, let's imagine you asked them, say we have this State that's gone sort of wild for commercial ventures, and they're acting not like a duck, they're acting like a business, exactly, identical, but you, Mr. Madison, believe that those same rules that affect every other business of the United States that Congress has enacted like antitrust laws should not apply, simply because the name on the... on that business, which is in every other respect identical happens to be the Commonwealth of Massachusetts Shoe Store, or... et cetera.

I mean, let's imagine we ask the Founding Fathers.

I mean, why wouldn't they have said, acts like a duck, treat it like a duck.

Acts like a business, treat it like a business.

Mr. Mallin: If we have an Eleventh Amendment issue, on the Eleventh Amendment the State cannot be sued unless it denies due process or it has a voluntary amendment.

The Federal Government is not without remedies.

The Federal Government can sue.

The Federal Government can pass a spending statute and require certain things that relate to that spending statute to be done by the State, an individual can use ex parte Young to put a stop to that activity, so we're not saying that Federal law can just be ignored, but the private suit by a private individual for money damages is prohibited by the Eleventh Amendment, and it should not be allowed on the basis of a legal fiction that there's been a waiver when there really hasn't been a waiver.

Justice Scalia: Is it your...

Mr. Mallin: In a situation where the waiver is demanded, the waiver is the same as abrogation.

Justice Souter: Mr. Todd, is it your position that there is no sovereign immunity principle operating here which is in addition to or different from the Eleventh Amendment?

You've spoken a number of times of the Eleventh Amendment as being barred.

Is there any sovereign immunity principle aside from the Eleventh Amendment?

Mr. Mallin: Well, the State has its own sovereign immunity principles, and when I say Eleventh Amendment I'm talking about the...

Chief Justice Rehnquist: Well, cognizable... cognizable in a Federal court.

Mr. Mallin: entire bundle that this Court has read into the Eleventh Amendment.

Justice Souter: Cognizable in a Federal court.

Is there any sovereign immunity principle in addition to the terms of the Eleventh Amendment that would be cognizable in a Federal court as a State defense?

Mr. Mallin: Well, I think the Eleventh Amendment, as interpreted by this Court, includes a full bundle of sovereign immunity, so that would be taken into account.

Justice Souter: Well, does it include any concept of sovereign immunity in addition to the strict terms of the Eleventh Amendment itself?

Mr. Mallin: In addition to the Eleventh Amendment?

Justice Breyer: Yes.

Mr. Mallin: Only those things that the Court has interpreted that it be included.

It doesn't include...

Justice Souter: Well, I'm asking you how the Court should interpret it.

A State is defending a Lanham Act suit, say.

Does the State have... and let's assume section 5 is not involved here for a moment.

Does the State have any defense other than a defense consisting of the terms of the Eleventh Amendment itself?

Can the State, in other words, claim a sovereign immunity defense which is broader than the strict terms of the Eleventh Amendment?

Mr. Mallin: The State claims a sovereign immunity defense that goes beyond their specific language of the Eleventh Amendment, to include what was thought to be the original understanding as bound by Hans v. Louisiana and later confirmed by this Court among other places in Seminole Tribe.

Chief Justice Rehnquist: Thank you, Mr. Mallin.

The case is submitted.