NIXON v. MISSOURI MUNICIPAL LEAGUE

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Argument of James A. Feldman

Chief Justice Rehnquist: We'll hear argument next in No. 02-1238, Nixon v. Missouri Municipal League and Missouri Municipal League against Southwestern Bell.

Mr. Feldman.

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

This case concerns 47 U.S.C., section 253(a) which preempts State laws that prohibit or have the effect of prohibiting the ability of any entity to provide telecommunications services.

Now, it's common ground that section 253(a) preempts State laws that keep private firms from the telecommunications market.

The question presented is whether the law also reaches into the structure of State government and invalidating even a State statute that declines to grant the State's political subdivisions the authority to provide telecommunications.

In Gregory against Ashcroft, this Court held that Federal statutes should not be construed to intrude on core areas of State sovereignty unless Congress has made its intent to do so clear.

Now, in our tradition, political subdivisions are creatures of the State and they have the authority and only the authority that the State has granted them.

Under respondents' interpretation, section 253(a) would be a sharp and unprecedented break with that tradition because it would be a grant of power by the Federal Government to political subdivisions of powers that the State, which was hitherto the sole source of their authority...

Justice Stevens: I don't think that's right.

It wouldn't be a grant of power.

It would be... it would preserve power granted by the State itself.

Mr. Feldman: Well, I don't... I'm not even sure whether that's true.

That actually goes into another difficulty in construing the statute the way the court of appeals did.

Some States create their political subdivisions or some political subdivisions and say you have only the authority that we have given you, and it's not... other States create political subdivisions and say you have any authority you want except...

Justice Stevens: The only... the only thing I question is your statement that the statute itself is a grant of power to a local entity.

It doesn't grant any power to anybody.

The statute doesn't.

Mr. Feldman: Well, I think...

Justice Stevens: It preserves power from being preempted.

Mr. Feldman: Well, perhaps it's a question of semantics, but...

Justice Stevens: It is.

Mr. Feldman: but... but the... but the... the issue here is that in Missouri political subdivisions do not have the authority to provide telecommunications services.

Under the court of appeals' ruling, the statute that... that reaches that result is preempted, and therefore they do have that authority.

In any event, that would be a sharp break with the tradition that because it would be Congress specifying what the authority of a political subdivision is even when a State has chosen not to give it that authority.

Justice Kennedy: Is it your view that in all instances we must interpret this statute so that any entity... that phrase... does not include a local subdivision of the State?

Mr. Feldman: Yes, because under the Gregory rule, if you... if the Court were to construe the statute so that it did include political subdivisions, it would be a intrusion into State sovereignty.

Justice Kennedy: It would be under the circumstances of this case.

Are there other circumstances in which it would not intrude on the right of the State to allocate powers between itself and the localities so that this statute... so that this interpretation would have an effect in some other instance?

Mr. Feldman: The other... I can't imagine cases... and I'm not aware that any have come up in the cases that have addressed the... the question presented here... where there are some other restriction that a State has passed that has nothing to do with political subdivisions.

And the question might arise whether a political subdivision could challenge that... that provision of State law as well as a private party.

And... but, however, since the Court is in the business here of construing the statute and the question is what is the meaning of the word any entity, I think under the Gregory rule, that... that term has to exclude political subdivisions.

And if it excludes it here, I think it... there's no...

Justice O'Connor: Mr. Feldman, do we need to apply the clear statement rule of Gregory v. Ashcroft for you to prevail?

Mr. Feldman: I think it's our understanding... it's our understanding that the rule would apply here.

I guess the rule applies for the reasons I've already given, which is this is an intrusion on State sovereignty.

If that were not the case, the question would be whether a general term like the term, any entity, is whether that would just naturally be construed to extend so far or whether it wouldn't.

Justice O'Connor: Exactly.

Mr. Feldman: And I would say that it raises the question that I was... the... the problem that I was referring to before in responding to Justice Stevens, which is State... the application of 253(a) would depend on the form in which a State chooses to give or not give its power to its political subdivisions.

If it was a State... a home rule State where the cities have all the powers except what's expressly denied them, then a State that tried to pull back the power to provide telecommunications... that would be preempted.

In another State...

Justice Scalia: Are those home rule States established in that fashion by the State constitutions?

Mr. Feldman: I think so sometimes.

Justice Scalia: In which case the language of section 253(a) which says no State or local statute or regulation or other State or local legal requirement may prohibit or have the effect of prohibiting.

I'm not sure that... that would reach a constitutional question.

Mr. Feldman: It would at least be a difficult question to try to figure out whether there is still something that prohibits or has the effect of prohibiting rather than something which just never granted the authority before.

You could consider a political subdivision of a State that's a special purpose water district or fire prevention district that just doesn't have the authority, was never intended to have the authority, and nothing in State law suggests that it should have the authority to provide telecommunications.

It would be hard to find something that should be preempted in that case.

Justice Breyer: Suppose you didn't give that very broad meaning to any entity, but you included State entities that had been in the business and were otherwise authorized by State law to go into this business and then the State changes its law and without having a section (b) requirement, because you have loads of power under section (b), so we assume the entity meets section (b)'s test, but it passes another law which says, by the way, the municipality can't go into it.

And previously they had.

So... so we're not... we're... we're talking about only entities that have proved themselves fit, willing, and able to offer the... the... to offer the business.

Mr. Feldman: I... I don't...

Justice Breyer: Now, why... why would that not be included?

Mr. Feldman: I... I don't think it... because I... I think that there is... it's very difficult to imagine that Congress intended that the... the scope of this statute should turn on the exact historical steps...

Justice Breyer: No, no.

Mr. Feldman: that they once had or...

Justice Breyer: But what we want... we want... we have implicitly there and it would be necessary in the State case but not in the private entity case an entity that is fit, willing, and able.

And... and an entity that is fit, willing, and able can include a municipality.

So what this statute is after is the State passing a new law changing the status of an entity that was previously fit, willing, and able.

Mr. Feldman: But I guess what I was responding to was it's not... the... the definition of what a political subdivision is fit, willing, and able to do is something that... it is a creature of State law.

It's defined by State law, by the State laws that have...

Justice Breyer: That... that's correct, but it's defined by State regulatory law in respect to those entities at least that have previously offered the business.

Mr. Feldman: I think there's actually very few... before 1996, I think there were very few... and I'm not aware of examples.

There may be a few in the amicus briefs.

There are very, very few entities in this country of these political subdivisions that offered telecommunications services.

This is a question that has only arisen...

Justice Breyer: You see, in other words, but your argument here is coming down to the difficulty of trying to draw the distinction I'm suggesting.

Mr. Feldman: I think that... I think part of my argument is the difficulty of drawing that distinction, but the most important part of it is that this is an intrusion into a State's understanding of its government and what it wants to do with its authority.

And where a State...

Justice Ginsburg: If the... if the statute were clear, if it said public... it said any entity, public or private... but you're... you're making an argument now that seems to say no matter how clear this was, there would still be a vulnerability.

Mr. Feldman: No.

I don't... I don't think so.

I think there would be interpretive problems that would arise in the statute if it had said... specified any public... any governmental entity or something like that that really would have clearly referred to States and political subdivisions.

Justice Breyer: Well, wouldn't... wouldn't any...

Mr. Feldman: That would have been...

Justice Ginsburg: any entity, public or private, wouldn't that do?

Mr. Feldman: I think it's likely that that would do.

The problem here is that any entity is just the kind of general term without the... the reference to public or private or without specific references to State governments and political subdivisions.

It's just the kind of general term that this Court referred to in Raygor and said that where there's a clear statement rule, that kind of general term is not sufficient to overcome it.

And here, there's nothing in the statute that suggests that Congress thought about, considered, and intended to put into question the issue of State sovereignty that would be... that... the intrusion on State sovereignty that would be raised by construing 253(a) the way the court of appeals did.

Beyond the statute itself, in the legislative history there's... there is a... the committee report repeatedly refers to the private sector deployment of advanced telecommunications as what the bill is designed to achieve.

Not only that, the floor debates... they're cited in, I think, Southwestern Bell's reply brief... show also people consistently referring to the private sector development of advanced telecommunications.

Justice Souter: May I ask you...

Isn't it also the case...

Justice Stevens: May I ask you this one more sort of general question?

As I understand your theory, you read the statute as an anti-monopoly statute.

No State shall grant any exclusive privilege.

Isn't that... you say that's really what it does.

And my question is if that were the purpose, why wouldn't they write it that way that no State shall grant a monopoly or grant exclusive privilege?

Mr. Feldman: It actually is broader than that.

There is another provision which says... I don't remember the number... which says that there can't be exclusive franchises.

This is intended to get at laws not only that would by terms give an exclusive franchise or keep a particular company out of the telecommunications business, but also that would have the effect of doing that by imposing high taxes on one category of... of participants rather than on another category.

There... there's the... in fact, in the Texas case that came before this, the Federal Communications Commission found a couple of provisions of Texas law preempted because they did just that.

And the statute was designed... it is an anti-monopoly law, but it is a little bit broader than just granting exclusive franchises.

It's also favoring one... at one... one company or one class of company or the incumbent telephone company over other new entrants into the field.

Respondents cite the... Lead-Deadwood case as the closest that they can come to this, and I'd just like to point out that that case has a dramatically different question than the one here.

In that case, there was no question of the Federal Government giving authority to local... to political subdivisions that the State itself had not... had not given.

That case would be much closer to this case if, for example, the State there had said we don't want our political subdivisions to be providing education because we do that at the State level, and then the political subdivision had taken the Federal money that was at issue there and said we want to open up a local university or something.

At least that would have presented the question that's presented here of an intrusion of that sort on State sovereignty, but that wasn't before the Court there and therefore the Court didn't apply a clear statement rule.

Justice Ginsburg: What is the United States' position about utilities, public utilities, electric companies?

Mr. Feldman: I'm not sure what you mean.

If you mean by public utilities companies that are in the business...

Justice Ginsburg: To enter this business.

Mr. Feldman: Yes, they certainly can.

Privately owned companies that are in the utility business...

Justice Ginsburg: Suppose it... suppose it's mixed ownership, city and private.

Mr. Feldman: The Federal Communications Commission's position is if, under State law, it's treated as a private entity, the fact that stock, some or even all of the stock, is owned by the political subdivision wouldn't be... it would still be an entity.

It would be... if it's treated under State law as a private company.

In this case, the FCC looked at Missouri law and determined, I think, correctly... it hasn't been challenged here... that this is simply a law that prevents political subdivisions as political subdivisions from providing telecommunications services, and therefore, since it's really operating on the political subdivision itself and not on some other corporation, it's not preempted.

I'd like to reserve the balance of my time.

Argument of Ronald Molteni

Chief Justice Rehnquist: Very well, Mr. Feldman.

Mr. Molteni, we'll hear from you.

Mr. Molteni: Mr. Chief Justice, may it please the Court:

The Eighth Circuit interprets entity to include political subdivisions of the States, and that would mean that Congress has... it would have the effect of Congress giving Missouri's political subdivisions authority that the... the very State that created them has withheld.

And that would intrude drastically on the structure of State government.

A general language term like entity is too broad to meet the Gregory test because it doesn't clearly and unmistakably include State subdivisions.

If... if the general term entity, without a contextual compass, as it appears in 253(a), satisfies the clear and unmistakable test, then clear and unmistakable really has little meaning.

But that standard is important to the States because it gives the States some notice and opportunity to react to proposed legislation that may intrude on State sovereignty, and it requires Congress to be clear in the wording that it uses and to demonstrate cognizance of the impact of legislation on State sovereignty.

Justice Scalia: Why isn't any entity clear?

I mean, what...

Mr. Molteni: Justice Scalia...

Justice Scalia: What do they have to say to make any... any entity clear?

Paren, and we really mean it?

Unidentified Justice: [Laughter]

Justice Scalia: Or it has to say any entity whatsoever?

Would that be clear?

Mr. Molteni: Justice Scalia, there are no magic words, and we're not asserting that there are magic words that need to be there.

There has to be some terminology within the statute that... that demonstrates that Congress was cognizant it intended to intrude on State government.

There are other instances... and I think Southwestern Bell's brief does a nice job pointing out that entity is used 600-and-some times in various statutes.

It's used multiple times even in the Telecommunications Act, oftentimes with a modifier, sometimes without, and oftentimes with a definition, and sometimes the definition is one... it includes just a business context, and sometimes the definition is one that includes government and public and State, private, political...

Justice Stevens: But it's perfectly clear that this statute does intrude substantially on the... on the State's ability to regulate.

Just even if it just does what you say, it's a significant impairment of the State's ability to run its own affairs.

Mr. Molteni: It's a... Justice Stevens, it's a significant restriction on the State's ability to... to impact commerce.

Justice Stevens: To regulate private companies.

Mr. Molteni: But this Court has held in the Gregory v. Ashcroft case that Congress has to use more than the general language.

It has to be clear and unmistakable.

And, Justice Stevens, in... in the... the Leadwood case that... that Mr. Feldman brought up, your... the dissent that... that you wrote affirms some of the principles that... that we've cited in our brief regarding Hunter and... and the City of Trenton case that the States control the... the creations that they have, that they've made, all their political subdivisions, and... and that is... is something that this Court has always honored.

Chief Justice Rehnquist: You're saying that it's one thing for the Federal Government to supersede State regulation substantively, but another thing to say... to tell the State not only do we do that, but we're going to change the relationship you have with your local subdivisions.

Mr. Molteni: That's exactly right, Mr. Chief Justice.

That's exactly right.

Justice Breyer: Suppose they... they did... is it totally Ashcroft you're relying on?

Gregory v. Ashcroft?

The... suppose you looked at the statute as saying it doesn't prohibit States from enacting all kinds of laws that have the effect of prohibiting people to enter the business.

Tax laws, for example, might leave them without money to do it.

It's only talking about specific laws aimed at saying you can't enter.

And if it's aimed at specific laws saying you can't enter this business, then couldn't you say where a State's entity otherwise would have the authority to enter, then the State cannot pass a law that says in those circumstances you cannot enter telecommunications such as municipality as well as private company?

Now, what's wrong with that interpretation?

What I'm doing is I'm trying to deal with what I thought of myself and they confirm is the major objection that this can't be administered once we start down the path I'm just starting down.

Mr. Molteni: Justice Breyer, I think it would create an anomalous situation where if a State's political subdivisions had been providing telecommunications prior to 1996, they would be treated differently under the... under 253(a).

Justice Breyer: No, no.

It would be... the question would be whether they had the authority to do it.

If they had the authority to do it, then the State... what it could not do is it could not pass a law which aims at primarily... aims at primarily their authority to enter telecommunications.

They could do all kinds of other things including removing authority as long as it were general, and then there would be middle cases where the authority, you see, is...

Mr. Molteni: But I... I still think, Justice Breyer, that what that does is it make... it divides the States into two categories and makes the Federal statute treat the States in two different ways so that if a State had granted authority prior to 1996, the... they... they may never... that State is never allowed to change its mind about...

Justice Breyer: It's a one-way ratchet.

Mr. Molteni: about the scope of authority that it grants its own political subdivisions.

Justice Scalia: I... I suppose it would also allow States to adopt a... a system of chartering corporations which charters the corporations according to various categories, mining, manufacturing, and it just does not happen to name the category of telecommunications.

And that would not be touched by... by this type of an interpretation enabling the State to create a monopoly... well, to... to exclude any... any telecommunication company.

Mr. Molteni: Justice Scalia, I believe that I agree with you, although I think the more and more we talk about what States authorize and don't authorize their political subdivisions do... to do, the more and more that becomes really the... a State issue and... and really what I... what I would call an intramural issue that would... that would be a matter litigated between the States and their political subdivisions at the State court level.

And what... what I really think this case is about is an application of 253(a) that, because of the general language that... that Congress used, won't be presumed and cannot meet the clear and unmistakable standard in Gregory to... to allow or at least have the effect of... of Congress' intruding into the structure of State government.

Justice Kennedy: So suppose that a State says that no political subdivision in this State shall have the telecommunications facility that does interactive television unless the carrier that it contracts with pays the city a fee of $1 million.

Could the State do that?

Mr. Molteni: I believe...

Justice Kennedy: And you'd say... in other words, it's conditioning the ability of its subdivisions to engage in this by demanding that it extract certain financial consideration, and suppose that this is prohibitive.

Mr. Molteni: If... if the State were addressing that in terms... through the private sector, I don't think there would be... I'm not sure I understand exactly where your question is going, Justice Kennedy.

But the... could... the State can't create barriers to entry to private sector competitors.

Justice Kennedy: Well, suppose... suppose...

Mr. Molteni: That's clearly preempted by the Commerce Clause and... and it's prevented specifically by 253(a).

And I think what... what that derives from, if one looks at the purpose of the Federal Telecommunications Act of 1996 and you look at the... the history of what was going on, huge swatches of the country were provided service by regional Bell operating companies and they were granted the exclusive franchise in... in areas.

And the whole purpose of the '96 act was to accelerate private sector deployment and... and to... to take these... these swatches of territory that regional Bell operating companies maintained monopolies on and encourage private sector deployment and people would come in and utilize either those... the... the facilities that... that were provided... that... that exist that the regional Bell operating companies had or unbundle network elements or to... to resell and... and hopefully even the encouragement of... of building their own facilities base.

But that's all... that all ends up being a red herring discussion in terms of the clear language of 253(a) because 253(a) uses those general terms.

Now, the FCC's reading of entity won't bar States from entering commercial phone business through their... through their political subdivisions because the FCC's reading allows that States who want to go into the phone business... they'll be able to do that.

But States like Missouri that want their political subdivisions focused on core missions will be able to make that choice if this Court allows the FCC's reading.

Justice Ginsburg: Do we know how many States allow their municipalities to enter this business?

Mr. Molteni: How many States allow their own...

Justice Ginsburg: Yes.

In other words, you're arguing for a position it's up to the State.

They can let the municipalities enter or not if they choose.

So in... in fact, what has happened across the country?

Mr. Molteni: Justice Ginsburg, I... I do not know that.

I have not surveyed which States allow their political subdivisions to... to enter the commercial phone business and... and which, like Missouri, have made that choice to have... made the choice to have their... their political subdivisions focus on their core missions.

Another problem that's created with the respondents' reading of... of entity is that it literally means the State cannot regulate itself, and that... that creates an anomaly and... and it doesn't make a lot of linguistic sense or a lot of public policy sense.

The clear and unmistakable standard requires more of Congress than this use of general language and where there is doubt, States are entitled to the benefit of that doubt.

If the Court has no further questions, Missouri would respectfully request that the Court reverse the Eighth Circuit and preserve the ability of the State of Missouri to determine the functions of its own political subdivisions.

Argument of David A. Strauss

Chief Justice Rehnquist: Thank you, Mr. Molteni.

Mr. Strauss, we'll hear from you.

Mr. Strauss: Thank you, Mr. Chief Justice, and may it please the Court:

Our position in this case is straightforward and I can state it very simply.

Gregory against Ashcroft applies in circumstances where the statutory language is ambiguous.

The Court has said that three times, including in Gregory itself.

And the language of 253(a), any entity, is not ambiguous.

It's not... it's not as if Congress had said, for example, any corporation, which might leave some doubt whether Congress meant only private corporations and not municipal corporations.

Justice Breyer: But it doesn't mean any fish, for example.

I mean, there are a lot of things it doesn't mean.

Mr. Strauss: I... I wouldn't... I wouldn't... I guess it doesn't mean any fish, Justice Breyer, but of the... I think it has a very broad meaning.

I think it means any entity and...

Chief Justice Rehnquist: When you... when you say the statute has to be ambiguous, the Gregory rule as put forth in the opinion is that there has to be a clear statement covering the Federal... Federal aspect of the thing.

And it seems to me that that cuts away from the idea it has to be ambiguous.

Mr. Strauss: What the Court... the Court said in Gregory that the statute has to be ambiguous and it reiterated that in Salinas and more recently in Yeskey.

Justice Scalia: It depends on what you mean by... by ambiguous.

What... what... the... the language in Gregory was... was employees, wasn't it?

Mr. Strauss: Well, the unambiguous language in Gregory was employee.

The ambiguous language was at the policymaking level.

In Gregory itself... it's a... it's an important point, Justice Scalia.

In Gregory itself, the Court thought it was unambiguous that employee, State employee, included State judges.

Now, it seems to me linguistically to say that State employee includes State judges is more of a stretch than saying any entity includes local governments, but that's what...

Justice Scalia: In your view does...

Of course, you're... you're into State already.

I mean, the... the State versus non-State was not at issue in Gregory.

It was just how far into the State you go.

I mean, it... the whole thing applied to State... State employees, but not at the policymaking level.

What about Atascadero?

The... the language there was any recipient of Federal assistance.

Mr. Strauss: Yes.

Atascadero, Justice Scalia, I think the Court has applied a different, stronger, much stronger, form of a clear statement rule in the State sovereign immunity cases where it has required specificity in the Court's words.

Justice Scalia: I think there are various levels of... of clear statement rules.

Mr. Strauss: Well, I think the... the best illustration of that is the contrast between the Court's decision in Raygor and the Court's decision in Jinks which have the advantage of focusing on exactly the same statutory language, any claim asserted in a supplemental jurisdiction statute.

In Raygor, the issue was whether that language overrode State sovereign immunity, and the Court said no.

In Jinks, the question was whether that language overrode a State's decision to immunize its subdivisions, and the Court said, yes, it did.

The same language.

Jinks is the case like this.

In fact, Jinks is more of an intrusion because the Congress was taking away a power that the State wanted to confer and the locality wanted to have, and the Court just very unanimously and with no difficulty said Congress can do that with the language, any claim asserted.

Raygor was a State sovereign immunity question.

The Court analyzed it differently.

And I think that makes the point that the kind of rigor the Court expected in cases like Atascadero does not apply in Gregory cases.

In Gregory cases, if it's unambiguous, that's the end of the case.

Justice Kennedy: Does the word, any entity, cover the State itself?

Mr. Strauss: Yes, I think it covers the State itself.

Justice Kennedy: So if the Governor is about to sign a contract to... to allow the State to enter into communications facilities and the legislature instructs him not to, that statute is void?

Mr. Strauss: No, that statute is not void, Justice Kennedy.

I think that statute... analytically that situation is exactly the same as if a board of directors of a private corporation decided not to go into the telecommunications business and the CEO defied it.

And the solution is the State can say under our neutral principles of corporate governance, the CEO can't do that not because the corporation is not an entity.

Justice Kennedy: Why don't neutral principles of corporate governance apply to the relations between the State and its subdivisions?

Mr. Strauss: They...

Justice Kennedy: Suppose there's a constitutional provision.

Mr. Strauss: They absolutely do if they are truly neutral principles.

If it's a provision of State law that says, for example, subdivisions may not engage in any commercial activity and there's no argument that that's just a subterfuge to keep them out of telecommunications, it's a truly neutral provision, States can absolutely enforce that.

Justice Kennedy: But you say that it can't be made precise to telecommunications.

Mr. Strauss: That's right.

Justice Kennedy: That was my example in the State hypothetical, in the first hypothetical.

Mr. Strauss: Well, the... what's... what's operating there is the general rule that Governors have to do what the State legislature tells them to do.

Justice Kennedy: Well, here it was operating as a general rule that subdivisions have to do what the State tells them to.

Mr. Strauss: Well, when this...

Justice Kennedy: I don't see why the general rule applies in one instance and not the other, given your definition of entity.

Mr. Strauss: Because in the... in the case like this one, what the State has done is to enact a specific, targeted rule not competitively neutral... that issue is, strictly speaking, not before the Court yet... a targeted rule that keeps an entity out of the telecommunications business.

And a municipality is an entity in the same way that a private firm is an entity.

Congress' language was any entity.

That language is simply not...

Chief Justice Rehnquist: Yes, but Raygor had any entity too and we said that was not conclusive there.

Mr. Strauss: Raygor said any claim.

That's right.

That's right, Mr. Chief Justice.

But Raygor was a case decided in the shadow of State sovereign immunity.

The Court said a constitutional doubt was created by principles of State sovereign immunity.

As I... as I said to Justice Scalia, Jinks interpreted exactly the same language, any claim, to be sufficient to allow Congress to deprive local governments of an immunity that States wanted to grant them.

Justice Scalia: Well, that was not the only difference.

Chief Justice Rehnquist: No.

Justice Scalia: I mean, there were other factors in Jinks besides... besides just the language, any claim.

Chief Justice Rehnquist: And also the fact that sovereign immunity had never extended... a State Eleventh Amendment immunity had never... had never been extended to counties.

Mr. Strauss: Well, that's of course right, Mr. Chief Justice.

And in fact, that is the reason I want to take exception with the picture painted by petitioners that what... our position would here would lead to some dramatic, unprecedented intrusion on State authority.

It's actually quite familiar for Federal law to interfere, quote/ unquote, with the relations between State and local governments.

Section 1983 imposes liability on local governments.

Justice Kennedy: But those are all under the Fourteenth Amendment where the Thirteenth... Fourteenth Amendment altered the Federal balance with reference to those.

That's not what's involved here.

Mr. Strauss: Well, I understand that the Fourteenth Amendment has special significance for purposes of State sovereign immunity.

I've never known the Court to say that the Fourteenth Amendment has special significance for purposes of Gregory against Ashcroft.

I don't... I don't think that... that is a... a...

Justice Breyer: If... if for purposes of... will you assume with me... and I may be the only one who thinks this.

But I think when you use words like any entity or the word any, that there's an implicit scope, and since I think there's an implicit scope, I'm trying to define that scope.

So I don't want to... I mean, it's not going to help me for you to say, well, it's clear because I don't think it's clear.

But at that point, I now want to... to find out whether... explore what you said that, well, if we did apply this to the States and their municipalities, all we would really be doing is targeting laws.

Now, I did my best to pose some questions along those lines, but I was met with the answer which strikes me as a pretty good answer.

There's just no way to do what you're suggesting.

It's going to be a nightmare.

Justice Scalia suggested one reason it was a nightmare.

And I'd add that in the case of private companies, this statute is designed to give the private company the right to enter or the right to quit.

Once you apply it to a municipal entity, it has the right to enter, but it could never quit.

Now, that would be bizarre.

Mr. Strauss: No.

Justice Breyer: So given the... the sovereign immunity... you know, the sovereign... all... all the things we've been talking about in general, given the difficulty of drawing a line, which seems virtually impossible or very hard, and given the one-way ratchet I just described, it can't be that Congress intended to include municipal entities within the scope of the word, any entity.

What... what is your... that's... I'm trying to get to the merits.

Mr. Strauss: Yes.

Justice Breyer: What's your response to that?

Mr. Strauss: Yes.

I don't agree that there's a one-way ratchet at all, Justice Breyer.

I think the... the purpose of 253(a) is to eliminate barriers to entry.

It's not to force anyone, private or governmental, to go into the telecommunications business or stay in the telecommunications business.

And if a... if a local government unit decides of its own accord to enter and then decides of its own accord to leave, it is not prohibited anything.

Justice Scalia: The State... the State cannot tell it not to enter.

Mr. Strauss: The State cannot tell it not to enter by a targeted, non-competitively neutral provision.

Justice Scalia: I don't understand.

Why does it matter whether it's targeted or not?

Suppose it lists counties can enter into the following commercial businesses.

It lists seven or eight.

It does not list telecommunications.

Mr. Strauss: It... the reason why it's targeted... targeted is what I'm using to embrace the notion stated in 253(b) which preserves an enormous realm of regulatory authority to the States.

States may enact competitively neutral regulations that satisfy certain other criteria.

And that's an important part of this picture because if you had 253(a) in isolation, that would... that would certainly be draconian.

That would certainly be a... a remarkable...

Justice Scalia: Well, what... what's your answer to the hypothetical I give you?

Is that targeted or not?

Mr. Strauss: Well, I think that would be... if it... if it specified certain commercial activities but not others, I think that would be a difficult question.

The question would be is that a gerrymander...

Justice Scalia: That's why I asked it.

I mean...

Mr. Strauss: Well, the question... the question would be a 253(b) question for the FTC in the first... FCC in the first instance.

Justice Scalia: Well, it had nothing to do with whether it's competitively neutral.

It's competitively neutral.

Nobody can enter except these fields.

Justice Kennedy: I mean...

Mr. Strauss: If it... if it were a gerrymander designed to keep... really just designed to keep entities out of telecommunications, it would be unacceptable.

Justice Scalia: So we're going to have to get into inquiring into whether State legislatures... well, of course... of course, they didn't want it.

It was designed to keep them out of telecommunications because it said these are the only fields you can get into.

Mr. Strauss: That's... that...

Justice Scalia: If your question is whether it was designed to keep them out of telecommunications, the answer is unquestionably yes.

Mr. Strauss: This... I agree...

Justice Scalia: But... but if you say it's okay if they not only keep them out of telecommunications, but they keep them out of a lot of other stuff as well, does that make it okay?

Mr. Strauss: This is the question that would have to come up when the FCC applied 253(b) to a public or a private entity...

Chief Justice Rehnquist: But why should we...

Mr. Strauss: public or private.

Chief Justice Rehnquist: Why should we interpret a statute in that awkward way, that the FCC has to make this kind of factual inquiry in every case?

Mr. Strauss: I think the FCC is in that business with respect to private entities anyway.

A State...

Justice Scalia: What is the... I don't even understand what the factual inquiry is.

Justice O'Connor: What is it...

Mr. Strauss: Well, the inquiry...

Justice Scalia: that the FCC would be looking for?

Mr. Strauss: The inquiry... it's 253(b).

It says States may enact measures that are competitively neutral and necessary to promote certain public objectives.

That's a savings clause.

It's not...

Justice Scalia: So the FCC is going to decide what is necessary to promote...

Mr. Strauss: That's...

Justice Scalia: Missouri's public objectives?

Mr. Strauss: That is the business... that is unquestionably the business Congress put the FCC in with respect to private entities.

There is no disagreement about that.

Justice Breyer: I see the answer to that part, which is you're saying they have to do it anyway, and I understand that.

Whether... I'm not sure I agree, but I understand it.

What about the part that it's a one-way ratchet?

And there I think that local governments unlike local private businesses act through regulation, at least normally.

And so the statute talks about a requirement, a local requirement or a local regulation, and therefore, a State, State A, that does not permit its municipalities to go into the business, then passes a statute that does permit it, then the local council passes a regulation that says we'll do it, which is now a requirement, and when either tries to repeal either, they run right straight into your... to this statute forbidding it as you interpret it.

And now, that's why I say it's a one-way ratchet in respect to municipalities, but not a one-way ratchet in respect to private businesses.

Mr. Strauss: The reason it's not a one-way ratchet, Justice Breyer, I think turns on the word prohibit.

This isn't... the statute 253(a) says State and local regulations that prohibit the entry.

If... if I decide not to go skiing, I've not prohibited myself from going skiing.

I've simply made a decision not to do something.

If a local government decides not to enter the telecommunications business, it hasn't prohibited itself.

It simply made a decision.

Justice Breyer: But the State could not repeal the statute.

Mr. Strauss: The State could not repeal the statute unless it were part of a competitively neutral reorganization of local government or something like that.

Then it could repeal it, but it couldn't enter a targeted repeal of it without running afoul... it seems to me without running afoul...

Justice Scalia: Why... why would Congress design such a strange system where... where the municipality can get in and then get out, but the State can't allow the municipality to get in and then decide, no, we want to allow them to get out?

Mr. Strauss: I...

Justice Scalia: It's just bizarre.

Mr. Strauss: I think it applies... I think for these purposes, municipal corporations and private corporations are simply on a par as, of course, they were for large parts of our history.

That's why municipalities don't have many immunities.

And Congress, for these purposes, simply saw municipal corporations as another source... implicitly saw... and the words, any entity, implicit in that sense, in the... in the ordinary meaning of those words... saw them as another source of competition.

Justice Scalia: Just so I understand you, a State can... can grant certain powers to municipalities, does not have to grant them the power to enter into... into telecommunications activity.

Right?

Mr. Strauss: Yes.

Yes, that's right.

Justice Scalia: It does not have to grant them that power.

Mr. Strauss: Well, the... the restraint is the competitively neutral language which will ordinarily allow municipalities to say... the States to say, look, here's what you can do and here's what you can't do...

Chief Justice Rehnquist: Right.

Mr. Strauss: provided they aren't acting in a way that is competitively non-neutral with respect to telecommunications.

Justice Scalia: Right, but... but once they have let them get into telecommunications, it's... it's only the municipality that can decide to get out of it.

Mr. Strauss: No.

The State could repeal the authority if it does it, again, in a competitively neutral way.

If a State decided, for example, to abolish all units of local government or if a State decides to say, okay, we are assigning special functions to municipal governments.

Justice Scalia: Okay, but... but the municipality itself can say we're going to get out of telecommunications.

Mr. Strauss: Yes.

Justice Scalia: The State cannot say no... no municipality shall do telecommunications.

Mr. Strauss: That's right.

The municipality can decide for itself because then it's not prohibiting anyone from doing anything.

It's simply making a decision.

Justice Souter: Mr. Strauss, may I go back and ask a variant on Justice Breyer's question, assuming that there is some implicit limitation on... on the scope of any entity?

And it relates to what, if I have my facts straight, is the... is the drafting history in this case, and I'd like you to tell me whether I have got the facts straight because I didn't look them up myself.

I just got this out of the briefs.

And if so, what you think the significance is.

As I understand it, at least the Senate version of the original bill had a provision in it that affirmative... expressly provided that any existing utility, whatever its object of service, could go into the telecommunications business.

And this, as... as you point at one point in your brief, this would be... this would be good for your argument because a lot of those utilities are municipal utilities.

As I understand it, in the... in the conference committee, that language was, in fact, removed entirely, and subsequent to its removal in the conference committee report, there were references to any private entity being able to go into the telecommunications business but not the old, pre-conference committee references to... to any... any public as well as private entity.

That suggests to me, the... the combination of the drafting change and the conference committee report, that the implicit scope they were getting at was an implicit scope that says any entity is a reference to private, not public.

What... are my facts straight, and if so, what... what's your response to that argument?

Mr. Strauss: Two points, Justice Souter.

First, I think it is common ground that Congress did envision utilities as among the any entities.

And the... the likely reason Congress didn't spell that out was that it was already included in the notion any entity, and Congress didn't want to begin spelling out specifics and run...

Justice Souter: So you say the... the excision was a redundancy excision.

Mr. Strauss: Yes, that's right.

And I think there is no dispute that not only that utilities are among entities, but that Congress really saw utilities as a primary source of... of competition.

Justice Souter: Okay.

The answer to that I think is in... in part a response to something in your brief.

You mentioned that the original House and the original Senate reports were speaking, among others, expressly of... of public entities.

As I understand it... and again, I didn't look myself.

I just got this from... from one of the briefs.

As I understand it, the conference committee report... after this excision, which is arguably just a redundancy excision, the conference committee report started using the adjective private entities rather than public entities as being subject to this kind of universal preemption.

Doesn't that nix the theory that it was merely a redundancy excision?

Mr. Strauss: The conference committee report, I believe, Justice Souter, used the word private to describe... in describing the sort of competition it believed would be brought about.

That passage from the conference committee report was then incorporated almost verbatim in the preamble to the statute, but the word private was left out when it was transferred to the statute so that the word private that does occur prominently in the conference committee report... I agree with that... dropped out of the statute, which simply talks about encouraging competition.

Justice Scalia: Okay.

Justice Souter: What we're left with, it seems to me, is... is at least... maybe let's call it tension between the conference committee report and the preamble language which was then inserted.

And isn't that a perfect situation to provide... to... to apply a Gregory kind of rule, saying when we're not sure what they meant, we want them to spell it out more clearly before we conclude that they, in effect, are... are limiting the... the power of a... of a State to determine what its municipalities can do?

Isn't this a good situation for a Gregory rule?

Mr. Strauss: I think the ambiguity to which Gregory refers... I mean, I don't think.

I mean, I think it is clear the ambiguities to which Gregory refers is ambiguity in the statutory language.

Justice Souter: I... I think so too.

Mr. Strauss: And...

Justice Souter: And... and maybe what I'm saying is we... we ought to... those of us who would look into the... the legislative history, as I would, maybe ought to take advantage of a slightly broader Gregory rule.

Mr. Strauss: Well, the... the case I think that would stand in the way more than any other perhaps... well, many would I think, but the clearest example I can think of is Yeskey where the... the question in Yeskey whether the ADA, the Americans with Disabilities Act, applied to inmates of State prisons.

The Court assumed that prisons were special and that the Gregory rule applied to legislation that assertedly reached prisons.

The Court also assumed that Congress never specifically contemplated that prison inmates would be covered, and it said, nonetheless, unanimously that if the language... the language is something like State instrumentalities... if the language included prisons, Gregory was satisfied.

Justice Souter: Isn't the difference, though... and I... I see your argument.

But isn't the difference that in that case we didn't have anything in the history either of the drafting or of the legislative consideration of the statute that suggested that there really was an... an argument each way as... as to whether they... they were... they were intending to... to cover the... the prisoners.

They simply didn't deal with... with that situation at all, and they used absolute kind of... of language.

Here, there is an argument to be made because the drafting changed.

The drafting certainly could have significance for... for public utilities.

There is a tension between the... the conference committee report and the preamble.

In other words, we've... we've got a... a question sort of affirmatively raised by the history of the drafting and enactment of the statute, whereas there was simply silence in the Yeskey situation.

Mr. Strauss: Justice Souter, I guess the difficulty I'd have with that approach in general would be it has to be common for there to be this sort of uncertainty in legislative history with feints in a certain direction and withdrawals for reasons that are difficult to... to fathom.

Justice Souter: Well, I... I grant you that, but when... when the... when the issue relates to the kind of State sovereignty issue that... that Gregory addresses, that's a good reason for having a Gregory rule.

Mr. Strauss: Well, but as to the legislative history, I think that sort of uncertainty is going to be easy to generate, and what we do have here... in addition to any entity, what we do have here, not just in the legislative history, but on the face of the statute, is, as I said, agreement I think all around that utilities are prominent among the entities that Congress envisioned.

I think that's completely clear.

Justice Stevens: But would you also say that the legislative history makes it pretty clear that there's a distinction in meaning between the term private entity on the one hand and the term entity on the other hand, and the statute used the term entity?

Mr. Strauss: Well, that's true, Justice Stevens.

Of course, they could have said private entity had they meant that.

That's not... I mean, our argument is any entity means any entity.

Justice Breyer: So what does... what does...

Is there any argument for putting... leaving this up to the commission?

That is, can it be done?

Because I can see a complex interpretation that may be workable that you're suggesting and may be helpful competitively, frankly.

And I also can see some good arguments against, assuming Congress intended that complex interpretation.

But under those circumstances, maybe Congress purposely leaves it somewhat ambiguous permitting the commission to go one way or the other, and although you've lost it in the commission so far, maybe in the future, the commission would say, well, we think we want to Chevronize this, in other words.

Mr. Strauss: Well, I think... I think that...

Justice Breyer: What do you think about that?

Mr. Strauss: I think that is the scheme although not under 253(a).

What the commission... we know the commission's views with unusual clarity here.

What the commission said is we think we've got to say the statute is not preempted.

But as far as the purposes of the... of the act go, this is a terrible State law.

All the purposes the State wants to be accomplished can be accomplished in less restrictive ways.

The commission has said that over and over again as emphatically as it can.

And the way to Chevronize, Justice Breyer, to use your term, is by saying that these... that municipalities are entities, but these admittedly somewhat difficult issues about what special problems do municipalities pose, those should be handled under 253(b), which is what Congress had in mind.

That's... of course, the States can enact laws so that there can be licensing requirements and basic fitness requirements and various kinds of regulation...

Justice Scalia: You say... you say that that's... I... I could... I could understand that there's no ambiguity if you simply say any entity means any entity.

But... but to say that the statute... but you're not willing to say that it says that.

You're not willing to say that... that the State cannot prohibit its... its counties from entering into commercial activities.

That would certainly have the effect, which is all this requires... have the effect of prohibiting the ability of counties to provide interstate or intrastate... you're not willing to say that.

You... you insist that we derive this very subtle distinction between the State initially granting it and then taking it away or the county taking it away itself.

I don't think that that is unambiguously within the statute at all.

What's... what the unambiguous choices are are that the States are not included or that the States are included, and that means that... that the States cannot exclude counties or, for that matter, even departments of the State government itself from entering into the telecommunications business.

That would be unambiguous.

But if you're not willing to embrace that, it seems to me you are arguing that the statute is ambiguous.

Mr. Strauss: As... as to 253(a), Justice Scalia, I am absolutely embracing that.

I am absolutely embracing the notion... and maybe I disagree with Justice Breyer about this... that any entity means any entity, and I will go down the line with that.

The reason that doesn't lead to absurd results like the maverick Governor entering the telecommunications business against the will of the legislature is because of 253(b).

Now, 253(b) is filled with ambiguities and complexities and... and problems that the commission will have to take the first crack at.

Justice Souter: impact upon (a).

Justice Scalia: You... you can't use (b) to explain (a) and then say, oh, yes, (b) is ambiguous.

Mr. Strauss: I...

Justice Scalia: If you're using an ambiguous (b) to explain (a), (a) itself is ambiguous.

Mr. Strauss: (b) does not explain (a).

(a) has a very... I agree with you, Justice Scalia.

It has a very clear meaning.

Any entity means any entity, and if... it... it would trivialize Gregory to say that Congress has to say, and we mean any entity whatsoever.

Congress has to come up with a... a definition.

Any entity means any entity.

In answer to the charge that that produces absurd results, I say no.

Congress left a broad scope for State regulation, broad enough not only to deal with absurdities, but broad enough so that these claims about incursions on State sovereignty are, I think, grossly overstated.

I mean, let me draw the comparison to Gregory directly.

In Gregory, Congress passed an anti-discrimination law, an age discrimination law.

The claim was that that law required States to give their judges... their judges life tenure, a major structural issue.

And the Court said, well, if they had stopped at employees, maybe they would be giving judges life tenure, but they said employees at the policymaking level and that's just too ambiguous for us to think Congress was doing such a dramatic thing to the structure of State government.

This is nothing like that.

This... this statute simply says that among the universe of entrants that we want in this robust, wide-open, newly competitive field of telecommunications, if municipal corporations, true to their roots as corporations, want to get into this business, the States can't keep them out except if they're doing the kinds of regulation that States can reasonably do to private and public corporations alike.

That seems to me not only a coherent reading of the statute, not only one that is consistent with what everyone agrees is the very dramatic pro-competitive turn that the 1996 Telecommunications Act took, but also one that really is not a significant incursion on State sovereignty, certainly not an unprecedented incursion on State sovereignty.

When decisions of this Court have held municipalities liable under the antitrust laws, notwithstanding State efforts to immunize them, liable for damages, notwithstanding States' efforts to immunize them, have withdrawn from municipal governments States' efforts to grant them sovereign immunity against State claims in the State court, Congress...

Justice Scalia: It has nothing to do with their authorities, all of those instances you mentioned.

It has nothing to do with their authority.

Mr. Strauss: I'm sorry, Justice Scalia.

With their?

Justice Scalia: Authority under State law.

Mr. Strauss: Well, it has to in a sense... I agree with you, Justice Scalia, it doesn't.

In a sense, those are more intrusive because what we have here are local government bodies who say we want to do this in order to serve the needs of our citizens.

We don't have a situation in which Congress is thwarting the will of both the States and the localities.

We have a situation in which localities want to do this, in some cases desperately want to do this, believe that Congress, when it said any entity shall be free from barriers, believe that Congress gave them the power to do it, subject of course to reasonable regulation by the State, only to find that Gregory against Ashcroft, the decision that is supposedly designed to ensure that decisions... that government decisions are made at a level responsive to the people... Gregory against Ashcroft is thrown up as an obstacle to their doing what they think is needed to serve their citizens' interests.

And given what seems to me to be the unambiguous language of section 253(a) and the very limited circumscribed focused nature of what Congress has done in this circumstance, it seems to me to be an unwarranted conclusion for the... for the commission to reach.

If the Court has no further questions.

Chief Justice Rehnquist: Thank you, Mr. Strauss.

Mr. Strauss: Thank you.

Rebuttal of James A. Feldman

Chief Justice Rehnquist: Mr. Feldman, you have 2 minutes remaining.

Mr. Feldman: I'd like to contrast this case with the Yeskey case, which came up during Mr. Strauss' argument.

In the Yeskey case, the Americans with Disabilities Act referred to public entities, I think, and then it defined them as including any department of the State.

Once... that meant that in that act, Congress had specifically considered that it was going to intrude deeply, as Justice Scalia said, in State government, and it had made the decisions of how to do it and the whole... in fact, title II of the act is designed to... to tailor that, exactly how Congress wanted to.

In this statute, there's no indication that Congress crossed that initial dividing line and wanted...

Justice O'Connor: Well, Mr. Strauss points to subsection (b) of the statute as indicating Congress did contemplate giving some leeway.

Mr. Feldman: Yes, Congress did contemplate giving some leeway to the States when it was competitively neutral, but the question of what competitive neutrality means in this context is not an easy one.

And... and I'd like to add that if Congress had had to take the... do what it did in Yeskey and... and decide yes, we do want this to apply to the States, it might have occurred to Congress that they were going to have to think about exactly what that means, applying a statute like this to State governments that grant their political subdivisions different kinds of powers in different kinds of ways.

Congress didn't... never made that first choice that it consciously wanted to intrude on State... State sovereignty the way the Eighth Circuit held, and therefore it never answered those other questions.

Justice Ginsburg: What is the rationale for saying a municipal utility, a wholly owned electric company, wholly owned by the city, that's okay?

That doesn't matter... the State can't stop that from going into the telecommunications, but it can stop the municipal corporation.

Mr. Feldman: Well, I mean, that is an issue in this case, but the FCC's rationale is that insofar as under State law you have a thing that is treated just like a private corporation, it's... it's an entity.

That's exactly who Congress was clearly and directly and most importantly targeting this law at.

It's... it's where the... if it's a municipally owned utility that is really treated like the political subdivision of the State, as they are in Missouri, then that would be different because that would raise these other questions, and Congress had never made the decision that it wants to intrude on... really in an unprecedented way, on the authority of the political subdivisions.

States decide to give...

Chief Justice Rehnquist: Thank you, Mr. Feldman.

The case is submitted.

Unidentified Justice: The honorable court is now adjourned until tomorrow at 10 o'clock.

Print this transcript Transcript: 

Argument of Speaker

Mr. Speaker: The opinion of the Court in three companion cases, Nixon versus Missouri Municipal League and others will be announced by Justice Souter.

Argument of Justice Souter

Mr. Souter: These cases come to us on writ of certiorari to the United States Court of Appeals for the Eighth Circuit.

In 1997, the General Assembly of Missouri enacted a statute prohibiting political subdivisions of the State from providing telecommunications services.

The municipal respondents in these cases petitioned to Federal Communications Commission for an order declaring the State statute unlawful and preempted.

Under the provisions of the Telecommunications Act of 1996, the relevant Section 253 of the federal statute provides that no State or local statute or regulation or other State or local legal requirement may prohibit or have the affect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunication service.

After noticing the comment, the FCC refused to declare the Missouri statute preempted.

The agency concluded that the term, ‘any entity,’ in section 253(a) was not intended to include political subdivisions of the State, but rather appeared to prohibit restrictions on market entry that apply to independent entities subject to state regulation.

In so concluding the FCC relied on its own earlier order resolving a challenge to a comparable Texas law, as well as on the affirming opinion of the United States Court of Appeals for the District of Columbia Circuit.

The municipal respondents here appealed to the Eighth Circuit, where a panel unanimously reversed the agency disposition with the explanation that the generic term ‘entity,’ especially when modified by any manifest its sufficiently clear congressional intentional attention to governmental entities, to get pass the plain statement rule of Gregory and Ashcroft.

We granted certiorari to resolve the resulting conflict between the District of Colombia Circuit and the Eighth Circuit.

In an opinion filed today with the Clerk of the Court, we reverse.

The result in this litigation is controlled neither by public policy considerations, nor by any laser like focus on Section 253’s reference to any entity.

As for policy, the municipalities have at the least a respectable position, that state law is fencing governmental entities out of the telecommunications business disserved the public interest, but it does not follow that preempting state or local barriers to governmental entry into the market, would be an effective way to draw municipalities into the business.

In any event the issue here does not turn on the merits of municipal telecommunication services.

Concerning the text, the Eighth Circuit trained its analysis on the words, "any entity," left undefined by the statute, but there is no common practice of omitting modifiers like public and private when both are meant to be covered.

Nor is coverage of public entities reliably signaled by speaking of any entity.

The word ‘any’ can and does mean different things depending upon the setting.

To get it Congress's understanding, it helps if we ask, how Congress could have envisioned the Preemption Clause, actually working if the FCC applied it at the municipal respondents' urging, we think that the strange and indeterminate results of using federal preemption in an effort to free public entities from the State and local limitations is the key to understanding that Congress used "any entity" in a limited sense when it cast the preemption and that in the statute.

The municipal respondents' position hold sufficient promise of futility and uncertainty to keep us from accepting it, and a complementary principle would bring us to the same conclusion.

Our preemption to the state law regulating the conduct of its political subdivisions, retrench on the states' arrangements for conducting their own governance.

The want of any unmistakably clear congressional statement that such an effect was actually intended, would be fatal to the respondents’ reading under the case of Gregory and Ashcroft.

Justice Scalia has filed an opinion concurring in the judgment in which Justice Thomas has joined and Justice Stevens has filed a dissenting opinion.