Chamber of Commerce v. Brown - Oral Argument

Argument of Willis J. Goldsmith

Chief Justice Roberts: We'll hear argument next in Case 06-939, Chamber of Commerce versus Brown.

Mr. Goldsmith.

Mr. Goldsmith: Mr. Chief Justice, and may it please the Court: In AB 1889, California defunded employer speech about union organizing because the State's labor policy is that such speech interferes with employee free choice.

The Federal policy is that employer speech enhances employee free choice.

California's labor policy is designed to discourage exactly what the NLRA promotes.

The fact that California implemented its labor policy as an exercise of its spending authority is irrelevant under Gould.

If the--

Justice Scalia: Why do you say the labor policy promotes it?

It certainly permits it, but what... what--

Mr. Goldsmith: --Well, Your Honor, I think that if you look at the exceptions to the policy, in particular those that allow State funds to be spent for things that clearly facilitate union organizing, for example, that it's not prohibited under AB--

Justice Scalia: --No, I'm talking about the... the Federal policy.

You say the Federal policy promotes this employer speech.

Why do you say it promotes it?

It clearly permits it.

It clearly does not discourage it, but is that the same as promoting it?

Mr. Goldsmith: --I think... I think it is, Your Honor.

I think that the cases of this Court and the cases of the NLRB have made clear that free, open, robust debate is important on all matters having to do with the union/employer relationship.

That was certainly what the Court noted in Linn.

The fact that employer speech is, I think, absolutely critical to an employee being well-enough informed to make an informed judgment about whether to say yes or no to a union, further underscores the point.

A union election or any situation involving a contest of any sort between a union and an employer is something on which both parties should have the right to speak, and to speak in a noncoercive way, and I think that clearly the National Labor Relations Act promotes that.

Justice Ginsburg: Then why did Congress in several statutes have a provision from which California copied when it enacted this measure?

In several statutes, the Congress has said this Federal money will go to the grantee, if the grantee says it will not use any money that we give them to assist, promote, or deter union organizing.

Mr. Goldsmith: Your Honor, those are three statutes that the court below and Respondents rely on heavily.

Those statutes, first of all, I don't think in any way reflect the meaning or the sense of Congress that employer speech is to be inhibited in connection with union organizing.

Those in no way, I think, reflect the overall intent of Congress.

More ever, nothing in those statutes, in any way, undercuts the basic principles of the--

Justice Ginsburg: But they run against that principle because they say at least under these programs... I think there were more than three.

Wasn't Medicare--

Mr. Goldsmith: --Medicare was the fourth, I believe.

It was a regulation not a statute.

But certainly in doing that, Congress didn't in any way modify the NLRA.

There's nothing in the legislative history of those statutes that suggests that this Court's principles, as laid down in Machinists and Garmon, were in any way to be inhibited.

And, moreover, what Congress can do certainly doesn't mean that the States have the same right.

But--

Justice Ginsburg: --Those... those grantees would be subject to the NLRA.

So, as to them, it is modified.

Mr. Goldsmith: --Well, it's not modified in the same way that AB 1889 modifies it, Your Honor.

First of all, under those statutes there is no requirement that funds be segregated.

There is no possibility of litigation, treble damages to follow.

There is no possibility of attorneys' fees to the prevailing party.

So those statutes are, I think, are really unique and don't in any way change the basic principle that I think all labor lawyers would agree, and that is that, under the National Labor Relations Act, all parties to a union election or any issue between a union and an employer have the right to speak in a noncoercive way.

Justice Breyer: Say: Speak, go ahead, speak, speak.

Just not on our nickel.

Mr. Goldsmith: Well, I think that's clearly what they say, but it's not that simple given the way this statute operates, Your Honor.

Justice Breyer: And they also say... by the way, that you answer this, I'd keep this in mind... you may be right about it being too much of an administrative burden, the treble damages et cetera, but they've made major concessions here, and they say that's a matter to be worked out on remand.

And it may be that they have to be very careful about inhibiting your speech.

So let's go back over those administrative provisions one by one.

They are suggesting to us, as I read it, don't do that now.

Mr. Goldsmith: If I may respond to both questions, Your Honor.

First of all the notion that one can use your own money, to use the vernacular, and use it to speak, doesn't answer the most basic question that the statute presents, and that is that whether you can or you can't... and I'll get to that in a moment... the fact is that California has regulated, used its spending power to make labor policy, something that this Court has made clear, in Gould and various other cases, it cannot do.

But even getting past that, which I think is the end of the case, there are certain employers, certain Petitioners here who are a hundred percent funded by the State.

They have no ability, as a result... when I say "funded by the State" I mean they depend for their income on State programs, let's say... they have no ability, none, to speak to employees.

Chief Justice Roberts: Well--

Mr. Goldsmith: The State has effectively--

Chief Justice Roberts: --That's not the State's fault.

Mr. Goldsmith: --Well, the State's argument to that, Mr. Chief Justice, is that that's a free-market choice.

They can either do business in California or not.

And I would refer the Court--

Chief Justice Roberts: Well, they can do business with other entities beside the State.

Mr. Goldsmith: --They can, Your Honor, that's true, but that doesn't answer the question because for those that... because of the service that they provide, such as under Medi-Cal, they have chosen to be in business with the State.

They are being forced to make an election between doing business with the State or giving up an NLRA protected right.

That is--

Justice Breyer: If you have... you have a park service of the State and have you a hotdog stand there, it runs the hotdogs, it's private, but the State pays for everything.

The State pays for everything.

And it happens that, in the grant, they have no place for talking about the union.

You're saying they are required to add to the legislation, a special grant, so that the employer can speak of the union?

Mr. Goldsmith: --Well, a grant presents a slightly different problem.

Justice Breyer: Why?

Why?

Because they say here we are talking about 100 percent money that comes out of the State treasury and all we are saying is use that money for the State purposes, and those purposes do not include talking one way or the other about the union.

Mr. Goldsmith: Well, that may be the case for a particular program or a particular grant, but that's not what AB 1889 does, Your Honor.

AB 1889 affects on an across-the-board basis every single contractor, every single employer doing business with the State of California.

So if... if the State could show that it were making that... it was making that policy decision for some fiscal purpose, then there might be an argument.

But that's concededly not the case here, whereas--

Justice Ginsburg: I thought you... you are bringing a facial challenge, and I thought that you must show, not that the State must show, and the State... the simple argument is look we are paying for certain things, and we want to get what we paid for.

There are a lot of other things that we could have paid for, but we... we want to get, say, a training program for elementary schoolteachers.

And that has nothing to do with union organizing.

We don't want to pay for union organizing.

Mr. Goldsmith: --That might be an argument that the State could advance credibly if in fact this statute had anything to do with saving money.

It doesn't.

The court below unanimously concluded that this was not anything that had anything to do with the fiscal issues; it had solely to do with making labor policy.

And as far as a facial challenge is concerned, Your Honor, the fact is that this statute was applied to the Petitioners.

The Petitioners--

Justice Ginsburg: Where did the lower court say it has nothing to do with the State getting what it is paying for and not paying for things it doesn't want to pay for?

Mr. Goldsmith: --Well, Your Honor, that's, of course, my vernacular for--

Justice Ginsburg: That in--

Mr. Goldsmith: --what the court said, but what the court did say was that the State passed... legislature passed and the governor signed AB 1889 solely for labor policy purposes, and that's clear from the preamble to the statute.

The preamble to the statute says, it is the policy of the State of California... in so many words... that employer speech interferes with employee free choice.

There's nothing in the record.

There's no attempt at all to suggest that anything achieved by 1889 saves the State a dime.

That's an argument--

Justice Ginsburg: --So it would come out... it would come out differently if the statute has said, we want to get what we pay for and we don't... we choose not to pay for labor relations?

Mr. Goldsmith: --Well, if the State could establish that it was acting as a proprietor, within meaning of this Court's decision in Boston Harbor, and establish as a proprietor that it was doing something to advance a fiscal purpose, then perhaps a statute so worded would survive the pre-emption challenge.

But that is clearly not what happened here.

There's no evidence that that happened, and that is not the purpose or the effect of AB 1889.

And as to the facial challenge issue, if I could answer both Justice Breyer and Your Honor, the fact is that this statute was applied to the Petitioners.

The Petitioners went into district court and they said, this applies to us, it's burden some for us to do... to do what the statute purports to require us to do.

The district court granted an injunction and so on.

But whether it's a facial challenge or as-applied challenge I think really makes no difference here.

The Ninth Circuit found that AB 1889 was not pre-empted as a matter of law.

Our position is that AB 1889 is pre-empted as a matter of law.

The purpose and effect are clear.

Sending this back to remand to develop facts or trying to sort this out and whether it's a facial or as-applied challenge really doesn't change the basic fact that the court below, as I said, decided this as a matter of law and NLRA pre-emption generally raises purely legal issues.

The legal issue is whether or not the Federal scheme has been interfered with, and I think that any fair reading of this statute makes it abundantly clear that that's exactly what happened.

California was very open about it.

The preamble says precisely that: We believe that employer speech interferes with employee free choice.

So that they passed a statute that is designed to and does severely inhibit an employer's ability to speak.

That's what they wanted to do; that's what they did; and that interferes with the Federal policy.

Justice Ginsburg: Did they say something different from what Congress said in those three or four statutes that were mentioned earlier?

Mr. Goldsmith: In terms of using the words assist, promote and deter, those words appear in those statutes in that Medicare regulation, or statute, component of the Medicare statute, and those appear also in, in AB 1899.

But, you know, again, Your Honor, from my perspective I think, you know, it's clear that nothing in those statutes changed the fundamental policy that speech, free speech, for both employers and for unions is something to be encouraged in the context of a union organizing drive for a number of reasons, not the least of which employees are allowed and entitled to hear both sides of the picture before being put in the position where they have to make a choice.

California believes that employer speech is a bad thing.

AB 1899 is a reflection of that.

They believe it's bad because it interferes with employee free choice.

Justice Alito: If you take the example of a nursing home that participates in the Medi-Cal program, what does this require?

They have to segregate the funds that they get from the State, and they can't use... is it the case they can't use any of those funds for union-related speech or just the portion that does not represent profits?

Mr. Goldsmith: They can't use any of those funds.

The notion that profits... the statute doesn't say a word about profits, and, of course, if the statute were to say something about profits, it would make segregation of accounts problem in the statute even worse than it already is.

But what a nursing home has to do is to track every single possible circumstance under which an employee of the nursing home engaged in speech that was designed to assist... which don't happen very often, presumably... promote or deter union organizing.

And let me try to bring it down to what really happens in the union organizing campaign.

This is, by and large, a seven-day-a-week, 24-hour a day operation.

There are any number of encounters during the course of the union organizing drive that the employer responsible for complying with AB 1899 may never even know about.

So, for example, if an employee goes to his supervisor and says union X is trying to organize nursing home, what do you know about union X?

And the supervisor says, well, the only thing I know about union X is they used to represent the nursing home across the street, and then that nursing home is now closed.

Now, that may be a purely factual statement, purely true statement.

That's certainly what the employer would argue.

What the union might argue is that no, no.

You have to put that in context, and that was a statement designed to deter the employee from voting for union X.

Now, if the employer guesses wrong on that issue, that is the employer says, well, this is factual, it's not something designed to deter union organizing, he is subject under the statute to litigation for not having segregated... and I don't know what he would really segregate; the statute is unclear.

Do you segregate the time?

Do you account for the time that the employer spent talking--

Justice Scalia: Even if he guesses right, he is subject to the litigation.

Mr. Goldsmith: --I'm sorry.

Justice Scalia: You said if he guesses wrong, he is subject to litigation.

He is subject to the litigation even if he guesses right.

Mr. Goldsmith: That's correct, Your Honor, and unlike the prevailing party as the defendant, or the prevailing party will of course... the prevailing plaintiff and the prevailing intervenors will recover reasonable costs of attorney's fees, the prevailing defendant under this statute does not.

There is... there is no question that it's even impossible for an employer under the situation that I described to effectively account for that encounter that I describe between an employer and employee.

Do you take the 30 seconds that it took and allocate 30 seconds of the salary?

Do you take the overtime for the week that the supervisor might have worked?

There is really no way that the statute allows for that to happen, and it I think underscores the degree to which this statute interferes dramatically with NLRA protected rights.

If there are no further questions, I'd like to reserve the rest of my time for rebuttal.

Chief Justice Roberts: Thank you, counsel.

You've got a friend on the other side still.

Mr. Goldsmith: I'm sorry, Your Honor.

I forgot about that.

Argument of Thomas G. Hungar

Chief Justice Roberts: Mr. Hungar.

Mr. Hungar: Thank you, Mr. Chief Justice, and may it please the Court: The National Labor Relations Act manifests congressional intent to encourage free debate on issues dividing labor and management.

State laws that restrict speech regarding unionization frustrate that fundamental national policy and are therefore pre-empted, as this Court held in Linn.

Chief Justice Roberts: What about the spending clause question?

You... the Federal Government has a lot of programs where they use their own money and they come with a lot of conditions, and you... your office frequently argues that those are justified under the spending clause.

Why isn't what California is doing here similarly justified?

Mr. Hungar: Well, first of all, obviously, Your Honor, the National Labor Relations Act does not constrain Congress' ability to impose particular restrictions.

It does constrain the State's ability to use their spending power to regulate, as this Court held in Gould and in Nash.

Chief Justice Roberts: How do we tell whether they are using their spending power to regulate as opposed to simply attaching conditions to what's done with State funds?

Mr. Hungar: The Court has identified several factors that it has used to distinguish regulatory from proprietary conduct, first and foremost, as this Court said in Boston Harbor.

It looks to whether the State is acting in order to effectuate policy or is instead seeking to achieve cost savings program efficiency and the like.

In addition, the Court looks to whether the measure--

Chief Justice Roberts: On a case like Rust versus Sullivan, is the Federal Government acting to promote policy, or is it simply acting in a proprietary capacity?

Mr. Hungar: --Well, of course, that question did not come up in Rust against Sullivan because there was in a NLRA pre-emption issue there, and the question that the State was--

Chief Justice Roberts: I'm talking about spending power versus regulatory power in general.

Mr. Hungar: --But what the Court did say in Rust is that the government has a legitimate policy interest in advancing its preference for life, in that case, that the Congress was entitled to advance.

The problem here is that the policy interest that the State is advancing, a policy interest that says employer speech regarding unionization interferes with employee free choice, is a policy that is directly contrary to the Federal policy under the Act as Congress and the board have repeatedly recognized, and that this Court has repeatedly recognized.

So, there is no legitimate interest supporting what the State is doing here, it's an interest directly contrary to Federal policy, unlike in Rust and other First Amendment cases.

Chief Justice Roberts: Well, give me an example of a spending clause provision that would be acceptable, not necessarily in this context, but in general, because you would say, well, that's not trying to implement a policy at all.

Mr. Hungar: Well, if the... one of the amicus briefs in this case points to a rule that the State has adopted recently apparently in the Medi-Cal context, which says that they will only reimburse administrative costs of hospitals up to the 50th percentile of costs incurred by similar facilities.

That's obviously not attempting to regulate any particular labor speech or any other type of conduct.

It's simply saying we are only going to regulate this category, this broad general category of costs to a certain level.

It's not targeted at a specific category of disfavored speech because the State disfavors that speech.

It's simply attempting to save money.

That clearly would not be pre-empted, even though it might have a disproportionate impact on a particular hospital that's engaged in a costly--

Justice Breyer: Would your answer be the same if... if... and I hide contrary to fact, perhaps, that a magic administrative scheme were invented so that there was no administrative problem, we could identify with the greatest of ease each penny that came from a State and which did not?

And then the State said, you know, we do have a policy here.

We actually favor labor unions in our State, and some other State might have a different policy.

But we think it best that the State officials involved when their company... when their department is being organized, to say nothing.

We think it best that the employers that we pay a hundred percent to, given their... their strong funding by the State, that they got to find some money elsewhere, and those we pay 50 percent to better use the private money, not use our money.

Now, no administrative burden whatsoever, but that's the policy.

Now, is there some rule or statute that would make that unlawful or pre-empted that policy?

Mr. Hungar: --Justice Breyer, I think... I'm assuming in your hypothetical that this hypothetical law, in addition to posing no administrative burdens also doesn't have the strict liability of treble damages.

Justice Breyer: No, on all these things which I think they are asking us on the other side to leave for another day, none of them exist.

They all work perfectly.

It's only the magic system has been developed to, without any extraneous burden, segregate the State money from the non-State money.

And the only rule is don't use the State money when you speak.

That's the only rule.

Mr. Hungar: Justice Breyer--

Justice Breyer: By the way, other states have exactly opposite rules, they are right-to-work states.

They give you extra State money.

So... but one State has this rule and--

Mr. Hungar: --Obviously that would be a very different case.

Justice Breyer: --Ah, well, if it's a very different case, then why aren't they right to say this is a facial challenge, leave that very different case which raises all the issues to be worked out when we discover whether this is--

Justice Scalia: Why do you say it's a very different case Mr. Hungar?

I don't really understand it.

Mr. Hungar: It's a very different case in the sense that in this case it's... from every one of the factors that this Court has looked to, to determine regulatory versus proprietary... and this case cuts fairly in favor of the conclusion of the unanimous court of appeals, all 15 judges, that this is regulatory.

It's punitive; it's government-wide; it's not program... or contract-specific; it's not the kind of conduct that private entities engage in.

All of the factors... and it's expressly as well as obviously, in effect, intended to disfavor a particular kind of speech that Congress favors.

So everything cuts in favor of it being regulatory; whereas, in your hypothetical, most of those considerations would not.

However, I think it's still the case that in that hypothetical, what the State is doing is regulating... for labor policy reasons it's disfavoring a particular type of speech.

The State does not have any obligation under the Act to fund unionization speech, but what it can't do under the Act is deny a government benefit because of a... a labor policy.

That's what this Court held in Nash.

Justice Breyer: --Is my right-to-work example equally... equally pre-empted?

Mr. Hungar: Yes, I think it would be.

But, again--

Justice Breyer: So, they could not say in Utah, to take a State at random, the... here we have government grants and there's overhead, and we would like you to spend this overhead; indeed, you're certainly free to spend this overhead in speaking as much as you want, should there be an organizing campaign.

Don't worry about spending the government part.

Can they do that?

You say no, they couldn't?

Mr. Hungar: --Well... I took your... the Utah example to be one where the State was somehow mandating this particular expenditure.

Justice Breyer: No.

Mr. Hungar: If the State is simply... is not taking... is taking a hands-off approach, it's hard to characterize it as regulation.

But what this Court held in Nash, what this Court held in Gould, what this Court held in Livadas is, when the State is denying benefits... even though there might be plenty of legitimate reasons that might enable it to deny benefits... if it's denying benefits for the purpose of advancing labor policy in an area where Congress has said there is to be no regulation, that's pre-empted, and that's doubly pre-empted here where the labor policy that the State is advancing is directly contrary to the Federal labor policy that Congress and the Board have enunciated.

And with respect to the facial versus as-applied or the suggestion that somehow because you might be able to craft a statute that would achieve some of the effects of this statute in a nonpre-empted way, that doesn't make this statute not facially pre-empted.

This statute has the punitive provisions with the strict liability, treble damages, the segregation requirement that's virtually impossible to apply in practice, the clear expressive mission of a regulatory policy that's contrary to Federal policy.

This is the statute that is in front of the Court.

This is the statute that is facially unconstitutional, and that's the issue that the Court should decide in order to correct the Ninth Circuit's error, which said it's both facially and as applied immune from pre-emption challenge before it--

Justice Ginsburg: What policy was Congress implementing in the Federal funding statute that California copied?

Mr. Hungar: --Your Honor, California did not copy any Federal statutes.

None of the Federal statutes has a segregation requirement; none of them imposes strict liability, punitive damages.

Justice Ginsburg: But they do say that the money is not to be spent to assist, promote, or deter union organizing.

Mr. Hungar: Yes, there are three Federal statutes that impose use restrictions.

Justice Ginsburg: And why do they do that?

Mr. Hungar: It's not clear why they did that, other than obviously they were choosing not to compensate those particular kinds of costs as well as the others.

Congress is entitled to carve out particular exceptions to the general nonregulatory provisions of the Act, just as it has done in section 8(c), where they have carved out coercive employer and union speech for regulation, even though other speech is to be unregulated.

It's important to understand also that the general policy in Federal grant programs is to the contrary.

There is no such restriction in the vast majority of Federal grant programs involving the vast majority of Federal grant money.

Justice Ginsburg: But you don't... there's no reason, rhyme or reason to what they would have done in these three statutes that you say is flatly contrary to national labor relations policy?

Mr. Hungar: Well, it's not contrary to national labor relations policy, because Congress has chosen to create an exception, and it has the right to do so; the State does not.

Justice Scalia: It was labor policy.

I mean, you have to acknowledge it was labor policy in these other cases, just a different labor policy that the Federal Government wanted, right?

Mr. Hungar: In... in a specific program--

Justice Scalia: Right.

Mr. Hungar: --which obviously the State's law does not apply to those programs; it applies to State spending across the board.

Thank you.

Argument of Michael H. Gottesman

Chief Justice Roberts: Thank you, Mr. Hungar.

Mr. Gottesman.

Mr. Gottesman: Mr. Chief Justice, and may it please the Court: Until this statute was enacted, California was in the anomalous position that it was financing speech on one side of union organizing campaigns but not on the other, because most grants, programs, contracts include employment costs as an allowable cost.

Chief Justice Roberts: Well, so was anyone who hired a company to do any kind of work, right?

Because the Federal policy meant that they couldn't try to restrict what activities the company engaged in with respect to union organizing.

Mr. Gottesman: Yes.

I mean, a private employer could have said the same things that the State said: don't use our money to do this.

And they would not have violated anything by doing that.

Justice Souter: I'm not sure why you characterize California as financing one side of a debate, because... and this I think is sort of the nub of the disagreement between the two sides here... their argument is that a State can determine what it wants to buy with its money, but what California is doing is telling its contractor what it can do with the money after the State has got what it paid for.

Mr. Gottesman: That's not correct, Your Honor.

Justice Souter: And that's the--

Mr. Gottesman: That's what they claim.

Justice Souter: --I understand that is the basic distinction between a case like Rust and a case like this.

Mr. Gottesman: Right.

Justice Souter: They're trying to control their profits as opposed to determining what they get... what you get for your money.

And how do you respond to that?

Mr. Gottesman: Well, that's true if it were the case that the State's statute said: Even after you have earned this money by performing all the service we asked, you still can't... it's therefore now your money; you can't use it.

That is not what the statute means.

That is... the State has been very clear about that.

Justice Souter: Well, is there any case in which California claims that it has not gotten the service that it paid for as a result of the position which an employer... a grantee employer took on... on a unionization issue?

Mr. Gottesman: Well, there haven't been any cases decided under this statute, but what the court of appeals pointed out is that the Petitioners did not move for summary judgment on the ground that you're forbidding us from using our money.

They moved for summary judgment solely on the ground that it was the obligation of the State to give them money that they could use for these purposes.

And that it was wrong--

Chief Justice Roberts: No, that's not quite accurate.

They moved for summary judgment on the ground that what the State was doing was in effect regulating labor relations--

Mr. Gottesman: --Right.

Chief Justice Roberts: --and that that activity was pre-empted.

Mr. Gottesman: Right.

Well, yes, on that core issue, they said to... to tell us that we cannot use State funds for this purpose... well, they are still State funds... is to regulate us.

And we submit that that is wrong.

This is--

Justice Souter: Why do you say

"while they are still State funds. "

--the... the money that the... that any employer is using, I presume, to the extent that it can be identified, is money in the employer's pocket.

And the only claim that California would have, it seems to me from the pre-emption argument, is that in fact we are buying a form of speech or a form of promotion of labor policy when we contract with social service agencies or whatnot.

But I don't understand that to be California's argument at all.

Mr. Gottesman: --No.

Our argument... let's take one of the two provisions that the district court struck down, and that Petitioners argue properly struck down.

It said that when we give you grant money, don't use that money for this purpose.

Now, the State gives them the money up front, before they have provided the services.

And that's true universally.

Justice Souter: Yes, but if they give them grant money... let's say it's a grant rather than a contract, and I assume that's, you know, the point you're making.

When they give them grant money, I assume they're giving them grant money in order to do or to perform whatever kind of service or function the agency is devoted to performing.

Mr. Gottesman: Correct.

Justice Souter: Not to... not to enforce labor policy of one sort or another, but to promote the arts or conservation or whatever the organization does.

And there's no argument here that the organization is... is failing to promote conservation or the arts or whatever, and that for that reason, California isn't getting what it's paying for.

The argument is that whatever California has to... I'm sorry, whatever the organization has to spend, say, on its labor relations, which is something that is left over from its promotion of the arts, cannot be spent except in accordance with California policy.

Mr. Gottesman: Well, first, if they don't spend all the grant money on the prescribed purposes, they have to give it back to the State because grants aren't profit--

Justice Souter: Yes, but I assume they are entitled to some overhead cost which would include the cost of their employee-related... managing employee relations?

Mr. Gottesman: --Right.

And that's--

Justice Souter: So that wouldn't be money left over.

That would--

Mr. Gottesman: --Right, but that, Your Honor, is where the concern that the State was addressing comes in.

Traditionally, when the State gave grant money, one of the permissible uses of that money was for the costs of employees who had to perform the grant, and without this limitation, that would have included the employer spending the money to combat unions.

That would be... could arguably be a legitimate cost.

Justice Souter: --So, is the argument that the employer in fact... that the employer is in fact devoting less of the grant money to the purpose of the grant, so that it falls within Rust?

Mr. Gottesman: Well... yes.

Well, our position is certainly yes.

That is, the State is entitled to prescribe what it is prepared to pay for in a grant and what not, and it is not required to subsidize the employer's campaign--

Justice Scalia: But the--

Mr. Gottesman: --against a union or for a union, for that matter.

Justice Scalia: --The difference between this and Rust is that the Federal Government in Rust was assuredly following a Federal policy.

Mr. Gottesman: Right.

Justice Scalia: But it was a Federal policy that the Federal Government had every right to implement.

We do not want to support abortions.

Mr. Gottesman: Right.

Justice Scalia: The issue here is whether the policy that California is trying to implement... namely, we do not want the employer to... in its view... disrupt the... the labor management relations by... by opposing union... unionization.

Mr. Gottesman: Right.

Justice Scalia: That... that is the issue, whether that is a policy that California can... can implement.

Mr. Gottesman: That is not the State's policy, and the preamble to the statute does not say: the State disapproves of employers spending money.

What it says--

Chief Justice Roberts: No, but the policy... the policy is they don't want employers to talk about unionization.

Mr. Gottesman: --No.

They don't want them to spend them the employer's money... the State's money to talk about unionization.

Justice Scalia: Why?

Because it's wasting the money or because that is their--

Mr. Gottesman: Because the State wants--

Justice Scalia: --their labor policy?

Mr. Gottesman: --Because the State wants to be neutral, and that... the right--

Justice Souter: Then that... then that, it seems to me, cuts the feet off your argument of a moment ago, that in fact the State's concern is that it's getting less of what it thought it was getting for with its grant, because more is being spent on labor policy.

And now, it seems to me, you're saying no, that's not the case.

It is simply the fact that the time that the employer spends in talking with employees, whatever the subject is, involves a policy that California does not want to support, and, therefore, California prohibits them spending that time for purely policy reasons.

Mr. Gottesman: --Well, it prohibits them using the State's money to do it.

Of course they can use their own money to do it.

Justice Souter: Well, your argument a moment ago is that they were using the State's money because in fact they were providing less of the service that the grant was for and spending that in... in conversation with employees about labor unions.

And it seems to me your answer to Justice Scalia was inconsistent with that.

Your answer to Justice Scalia, as I understood it, was it is simply that they do not want that policy being implemented by anyone who gets any money from the State within that State.

Mr. Gottesman: I don't think I said "inconsistently".

What I said was, previously it was within the permissible scope of a grant to spend money in an organizing campaign, either assisting, promoting, or deterring unionization.

The State is now saying that will no longer be.

We don't really want to spend grant money on that, and our reason is that we think we... the State's money should not be used by either side in that union organizing--

Chief Justice Roberts: How is that... how is that different from saying there's a Federal rule, an OSHA requirement you've got to have certain protective devices or whatever, and the State says, well, we want to get the most out of our money, so our money cannot be used to put in these federally required safety devices; you can use somebody else's money for that.

Why isn't that the same thing here?

You're saying there's a Federal labor policy that allows this, and we don't want our money to be spent implementing that policy or pursuant to that policy.

Mr. Gottesman: --Because there is no Federal labor policy that requires States to use State treasury money to finance a party who is engaged in this debate.

That's why this is just like Rust.

Justice Scalia: Just like... like Gould.

I mean, there is a case where a State used State money, no contracting with any... with any company that's been convicted of unfair labor practices three times.

Strictly State contracting policy, we just don't want to spend our money dealing with such a person.

Mr. Gottesman: Right, but there we're saying we won't deal with you.

That's... that would classically... if the State in this case said, no employer who opposes unions can have a State contract, that would be Gould.

It would also be a violation of the First Amendment.

Justice Scalia: Why wouldn't that be the State's managing its own money?

It's our money.

Mr. Gottesman: Well, But it is not--

Justice Scalia: We just don't want to deal with people who oppose unions.

Mr. Gottesman: --No, there's a huge difference between saying, don't use our money to do something, and saying, we won't deal with you even when you use your own money to do it.

The implication that this is pre-emptive--

Justice Souter: But on your argument, there is no "your own money".

You're saying that everything that the grantee gets in a grant situation is the government's money.

Mr. Gottesman: --Correct.

Justice Souter: But that distinction that you just made in answer to Justice Scalia could not be drawn.

Mr. Gottesman: Well, if they have their own money, they can spend it on that.

They just can't use the State's money.

Justice Souter: No, the hypothesis of this whole argument is that we are talking with a grantee who was fully funded by... I thought fully funded by the State, and I thought that was your strongest argument.

So that this alternative... well, you can use your own money... is an alternative which, you know, by the very hypothesis that we are arguing on, will never exist.

Mr. Gottesman: Well, if we have a grantee who has no other money, that doesn't mean the State has an obligation to provide them money to oppose unionization.

It would be very odd to believe... and this is, after all, implied pre-emption... that it was Congress's intent without mentioning it to say that it is the obligation of States to provide funding to employers to do this.

Justice Stevens: Mr. Gottesman, can I ask sort of a background question to be sure I understand your position?

Am I correct in assuming that if the State of California had its labor relations agency make it an unfair labor practice to engage in this employer speech described here, that that would be pre-empted?

Mr. Gottesman: Employer speech with its own money?

Justice Stevens: Yes.

Mr. Gottesman: Of course that would be pre-empted, absolutely pre-empted.

Justice Stevens: Okay.

Mr. Gottesman: If not pre-empted, it would certainly be a violation of the First Amendment as well, to punish them for engaging in speech.

Justice Stevens: Well, if they adopted the rule that the Federal labor board applied prior to the Taft-Hartley Act.

Mr. Gottesman: Exactly.

Justice Stevens: That's what I'm asking.

Mr. Gottesman: Exactly.

Yes.

Justice Stevens: That would be pre-empted?

Mr. Gottesman: Of course that would be pre-empted.

Justice Stevens: I want to be sure.

Mr. Gottesman: Our position, however, is that it's quite different to say that the National Labor Relations Act requires the State to pay for these activities.

And--

Chief Justice Roberts: Why--

Justice Stevens: It does require that this... it arguably requires that this area of combat between labor and management be unregulated.

Mr. Gottesman: --Right.

And this is not regulation, for the very reasons that this Court in Regan and Rust and in a whole line of cases had said that it is not regulation to simply say, we the government are not going to pay for this activity.

That's all that California is saying in this case: we are not going to pay for it.

It's the policy of the State not to interfere in these union organizing drives; therefore... and this is the precise words of the preamble...

"for this reason, the State should not subsidize. "

Justice Scalia: I think your reason for not paying for this activity is that you don't like this activity.

Mr. Gottesman: That's not true.

Justice Scalia: I call that... I call that regulating the activity.

Mr. Gottesman: That is not at all the case, Your Honor.

There's nothing in this preamble... the other side keeps characterizing the preamble, which they don't include in their statutory appendix, as saying, we don't like the employer doing it.

That's not what it says; it's on page 3.

Justice Scalia: Well, you allow the employer to engage in all other employee relations, and you're willing... that can be done without... the one thing the employer can't do is speak out against the union.

This isn't because you don't--

Mr. Gottesman: Well, you've got for or against.

This is content discrimination, not viewpoint discrimination; and it is content discrimination whose purpose is to keep the State's funds out of this area of context.

The taxpayers' money should not be spent supporting one side and not the other in these disputes.

This court in the Linn case... and I want to quote this sentence, because this is the key to why a policy of neutrality with respect to the use of the State's money is not, you know, regulated.

We... this was a case in which, to be sure, it was the Federal Government was denying food stamps to strikers.

And the claim was that was a violation of their associational rights under the First Amendment.

Everybody else who satisfies the test for food stamps is entitled to them, but we are not going to give them to strikers.

And when the Federal Government is asked why is that, they said, well, we don't want to get involved.

To be sure if we give them the money, that would make it likely the strike would go on longer.

But we are not being anti-union.

We just want to be hands off.

We want to be... we don't want Federal money spent to help one side or the other in this labor dispute.

And what this Court said was, we have little trouble in concluding that that provision is rationally related to the legitimate governmental objective of avoiding undue favoritism to one side or the other in private labor disputes.

Now, that's the core of what this statute is about.

The labor union--

Chief Justice Roberts: --You're saying it doesn't give favoritism to one side or another?

Mr. Gottesman: --It just takes the State's money out.

Chief Justice Roberts: So that depends, as a practical matter, on the view that there are at least some employers who would be arguing in favor of unionization?

Mr. Gottesman: Well, it wouldn't matter if they were arguing for or against.

The point is that--

Chief Justice Roberts: Yes, but my point is that there are precious few who argue in favor of it.

Mr. Gottesman: --Right.

Well that may well be true, but the point is when they are arguing against the union, until this statute State money was being used to argue against the union, the union was not getting any State money to respond.

The State was funding one side of this dispute.

And the notion that it was an implied purpose of Congress in the National Labor Relations Act to compel States to fund one side of a dispute with a subsidy is... would be remarkable.

Justice Alito: Well, when the State pays a program participant... let's again take the case of a nursing home... for providing services to patients who are covered by Medi-Cal, and money is paid to the nursing home, it's your position that remains the State 's money.

Mr. Gottesman: If this... if the nursing home... there are a number of different ways in which this money is paid to the State.

If the situation is the nursing home first provides the services and when they have done so billed the State for the money, that's not State funds.

Once they receive the money, since they put the money up in front to provide the service, they are being reimbursed for it, that's not the State's funds.

It's the State's funds if the State gives them the money up front.

As is true universally with respect to grants.

We give you this money.

This money now because of this statute its purposes are limited so that they do not include engaging in... one side or the other in union organizing.

If you have your own money, feel free to spend your own money on that, but we are not giving you this money for that purpose.

Justice Kennedy: Let me just be clear.

The statute with reference to State contractors, which is the $50,000 statute, and the statute with reference to private employers, which is the $10,000 statute, in all of those cases, the law is applicable only if the money is paid before all the work is done?

Mr. Gottesman: Yes.

If you look at the contract one, which is not actually before the Court because nobody had standing... the district court ruled to raise it... it says the State funds to assist, promote or defer... union organizing during the life of the contract are not to be spent on this.

So once the contract is done, that is--

Justice Scalia: --Well, the question of when the contract is done is different from the question of when the money is paid.

Mr. Gottesman: --Of course.

Right.

Justice Scalia: He is asking with when the money is paid.

Mr. Gottesman: So when you pay the money up front and you say here is your money to do the contract--

Justice Souter: Well, what about the situation in which the contract runs for a year and you bill monthly?

On your theory the contract is still going on and yet there is no prepayment.

I assume on your argument they would be just as bound by the California policy as if they got a hundred percent payment up front.

Mr. Gottesman: --Well, that's... that's a question about a meaning of a provision that isn't at this issue in this case.

The ones that are at issue in this case--

Justice Souter: Well, do you concede that if they... if all they did under a 12-month contract was... was bill for services rendered every past 30 days, that there would be either no application of the California law or that the application would be pre-empted?

Mr. Gottesman: --That might well be the case.

But we don't have an interpretation of that provision of the California law.

Justice Alito: I'm sorry.

That was an either/or.

[Laughter]

Which might be the case?

Mr. Gottesman: Oh.

I say it might be the case.

Justice Souter: It's like saying yes.

Mr. Gottesman: Yes.

[Laughter]

But again, that issue isn't here.

What we've got here are programs, some of which the State advances the money, and some of which it pays after the services have been completed.

Justice Breyer: So you did on that point on page 27 and 25 and 29 of the "A F L C I O> [=AFL-CIO] brief, I took the statements there, where it would say

Mr. Gottesman: Right.

Justice Breyer: If there are any, or any other non-state moneys they had?

Mr. Gottesman: And we the State responded say the same thing in our brief.

We say it at pages 26 to 27: The State maintains a legitimate interest in program funds until such time as the program participant has provided the State with a service the State has funded.

Justice Breyer: So if you sell them tables and they write you a check, the State, for the tables, at that point the check is yours?

Mr. Gottesman: Of course.

Justice Breyer: All right.

Mr. Gottesman: There is no question about that, because in that case, that would be covered by the contract provision that isn't here.

But it says once the contract is completed, it's your money.

So the concern here only is that they not use our money.

The State's brief also says--

Chief Justice Roberts: What if there is a warranty for another year, say if these tables break you have to replace them?

Mr. Gottesman: --Well, that's a question of... remember, neither of the lower courts has interpreted this statute.

This statute has never been interpreted.

That's... and what the court of appeals said is that's because the argument that you all have been asking me about was not raised in summary judgment by the Petitioners.

Their core argument is the State has an obligation to subsidize our speech.

And that's the only issue they brought up on summary judgment.

Because Judge Beezer in the panel decision said, oh, look at all these, quote, as he called them, horribles that will come from this, Judge Beezer got into all these issues: The accounting would be burdensome, that it's going to be the employer's own money.

And what the majority said is, number one, that's not here.

And number two, they said this... I believe it's on page 34 of the appendix but I'm not certain of the... wait a minute, I can tell you the exact page.

Yes, it's page 34, in a sense the parade of horribles goes far beyond the scope of plaintiff's facial challenge, that is the challenge they brought on summary judgment.

The district court made no findings nor is there evidence that this statute, quote,

"co-ops the payments for goods and services and profits realized under a contract. "

Justice Breyer: What is your recommendation as to... we've heard today, too, in the briefs it's there, I put the thing that I've heard as... well, the example with the tables is an example of it.

When does the profit actually accrue?

Is there treble damage provision that makes this much worse?

Are there administrative requirements that in practice make it impossible?

Is it administered in such a way that the employee we heard about would just not know what to say, the employer's representative?

All those things could be problems, and you say, well, they haven't been dealt with yet.

And your recommendation as to what we should do is what?

Mr. Gottesman: Is affirm, because all the court has said is the motion for summary judgment was improperly granted.

Justice Breyer: And if we did that, how would all these problems be worked out?

I mean, how would the arguments that you... they think are far too burdensome, you think they are not and can be done properly, how does that get worked out?

Mr. Gottesman: Well, first of all, let's talk about the burdens, the accounting burdens, which are actually quite minimal under Medicaid, because they already have to do this because the Federal Medicaid requires them to... to account for which were allowable expenditures and which were not in a very detailed accounting form.

And of course, the Federal Medicaid says that this is not allowable expenditure, so they have to do this anyway, half this money is Federal and half is is State.

Justice Scalia: You're not going to go through all of these one by one, are you?

Mr. Gottesman: Pardon?

No.

I just wanted to give an example of that.

But with respect to each of these, we need to have a record.

For example, on the burdens there is an affidavit from an accounting firm submitted by the defendants that says this is really not burdensome at all.

Justice Scalia: Let me ask you a basic question that doesn't require you to get into one by one.

Suppose you have a State that doesn't want to have its money used to assist unions.

This is an antiunion State and it adopts the same kind of law that you have.

And it simply says, none of... none of this State's... yes, you can recognize unions if you like, but none of the money that we give you--

Mr. Gottesman: Give who.

Justice Scalia: --shall be used... shall be used for collective bargaining or for any... any activities involving unions.

Mr. Gottesman: That would be... that would be the moneys we give to the employer?

Justice Scalia: Same.

Yes.

Mr. Gottesman: I'm not sure which question you're asking.

Justice Scalia: To the employer.

No employer getting money from the State can expend any of our money... the same way yours is... in collective bargaining with unions or in anything else.

Now, we are not stopping employers from doing that.

We just don't like unions, and it's our money and we don't want this employer to use it for unions.

Would that be all right.

Mr. Gottesman: I think that would be problematic but only for this reason.

If the employer is allowed to spend the State's money to... to bargain with nonunion employees and you know medical researchers, whatever, negotiate contracts with them, but the State says you can't do it for collective bargaining, then that is exactly the Livadas case.

That is the case in which the State is saying your entitlement to a State benefit turns on whether you are unionized or not.

In this case we'll let the employer do this with nonunion employees, but not with unionized employees.

But if the State said we don't want to pay for the costs of negotiating--

Justice Scalia: Why does that... why does that make a difference?

If it violates Federal policy, it violates Federal policy.

Livadas said you can't do it because it violates Federal policy, which is to favor unionization, and not to deter.

Mr. Gottesman: --Right.

But this statute neither favors nor deters.

This statute--

Justice Scalia: You could say the same about that other one.

Mr. Gottesman: --This statute simply says we don't want to subsidize either party, and as a practical matter we are only subsidizing one party in union organizing.

Justice Scalia: So does the statute I posit.

Just don't use State money.

You can use all of your own money to deal with unions; just we don't want our money used for it.

Mr. Gottesman: Right.

Justice Scalia: That clearly would be banned and I don't see why yours is any different.

Mr. Gottesman: Well because... it would not be banned if the State had said we don't want you to use State money to negotiate contracts with any of your employees; that would not be banned.

It would be banned if they singled out only unionized employees that you're not allowed to use it with.

You're allowed to use it with nonunion employees.

Chief Justice Roberts: I want to get back to your responses on the procedural costs of the case.

You said we don't know what the regulatory burden would be with respect to accounting rules.

Mr. Gottesman: Yes.

There is a State disputed facts in the district court on that.

Chief Justice Roberts: Does it make any difference if the argument is which is what I understood it to be, that you can't regulate at all?

It's not simply that you can't regulate so long as it's particularly burdensome, but you don't have the authority to regulate in this at all.

Mr. Gottesman: But our argument is that this is not regulation.

To say that the State money is not going to be spent for this is not regulation.

Just as Regan and Rust says--

Chief Justice Roberts: That gets to the--

Mr. Gottesman: --It just says--

Chief Justice Roberts: --That gets to the spending clause question.

We're not... I mean, we can address that without deciding whether the regulations are particularly burdensome.

You were saying well, the accounting thing is not a big problem.

Mr. Gottesman: --Yes.

Chief Justice Roberts: But it doesn't mean that it's necessarily spending as opposed to regulation.

Mr. Gottesman: Well, we are not regulating whether the employer opposes unions.

What we are regulating is what they do with the State's money.

That's the only regulation that's here.

We are saying don't use our money for this purpose.

The only regulation that's going on is to see whether you use the State's money--

Chief Justice Roberts: That doesn't seem to me to be responsive to my question.

Your point was well, we don't know how burdensome a particular regulation is.

If you lose on the question of whether it's spending or regulation, we don't have to wait to see how burdensome it is if we think you're not entitled to regulate at all.

Mr. Gottesman: --Well, if you say that a State's position,

"we don't want our money to be used-- "

Chief Justice Roberts: You're getting back to the spending question.

Mr. Gottesman: --is regulation--

Chief Justice Roberts: I'm putting that aside.

Mr. Gottesman: --I'm having... the problem I'm having with Your Honor's question is presuming the answer to something.

The... if this is regulation, then there is a serious prospect of its being pre-emptive, but this is not regulation.

Chief Justice Roberts: Regardless of whether... regardless of whether it's burdensome regulation.

Mr. Gottesman: Right.

Chief Justice Roberts: If it's regulation why isn't that appropriate to deal with on summary judgment.

Not the spending question we have... that's a different issue.

But if there is no difference with respect to regulation whether it's burdensome or not, so we don't have to have further proceedings on whether it's burdensome.

Mr. Gottesman: Right.

But the only issue they raised on summary judgment is that to deny us your money, the State's money, is regulation.

And our position is that to deny you the State's money is not regulation, any more than it was in Regan, in Rust, in this whole line of cases where the Court has said the government's choice not to subsidize an activity is not regulation.

Justice Kennedy: But on that point you're in disagreement with the Ninth Circuit, and--

Mr. Gottesman: Yes, we are.

The Ninth Circuit misunderstood Boston Harbor.

It thought Boston Harbor created two boxes that represented the whole world.

You're either a market participant or you're a regulator.

That's not what Boston Harbor said, if you go back and look at it.

What Boston Harbor said, if you regulate you are vulnerable to pre-emption arguments; if you are not regulating, then you are free of pre-emption concerns.

Justice Kennedy: --So the principal rationale for the Ninth Circuit's opinion is incorrect in your view?

Mr. Gottesman: Well, it's not... no.

The Ninth Circuit also talked about the First Amendment and got it right.

It said when it talked about the dissent had said what this State is doing is violating the First Amendment, and the Ninth Circuit's response is no, that's not right.

All this is is withholding a subsidy, and the First Amendment cases are clear: that's not regulation of a speech.

What the Ninth Circuit thought erroneously is that Boston Harbor had denied it the right to take that same view, because it thought that Boston Harbor said that everything is regulation unless it's market participation, and that's not what Boston Harbor said, and this is not regulation.

Rebuttal of Willis J. Goldsmith

Chief Justice Roberts: Thank you, Counsel.

Mr. Goldsmith, you have four minutes remaining.

Mr. Goldsmith: Thank you, Mr. Chief Justice.

I'd just like to make a few comments in rebuttal.

First of all, the preamble of the statute makes it absolutely clear as to what the State's purpose is.

It's at page 3a of the appendix of the petition.

It says it is the policy of the State not to interfere with an employee's choice about whether to join or to be represented by a labor union.

For this reason the State should not subsidize... and so on.

So clearly the State has a labor policy position.

It's a position as I said at the outset that is completely contrary to that of the NLRA.

The NLRA's position is that employers just like unions ought to have the right to speak in a noncoercive way to their employees.

Secondly, it is not our position that the NLRA requires the State to fund activities.

It is our position that the NLRA and the decisions of this Court make it abundantly clear that the States are to stay out of this area altogether, period.

And that would be the case whether it is the kind of statute that Justice Scalia was posing a question about, whether it was in effect anti-union or pro-union.

It doesn't matter.

They are both pre-empted.

The State has no business making labor policy.

The decisions of this Court, the unanimous decisions of this Court in several circumstances I think make that very clear.

And the Ninth Circuit did find that for all practical purposes, the State was regulating by making labor policy.

If I could make two points about neutrality.

First of all, the statute is anything but neutral.

First of all, the State's policy is not one of neutrality.

As I just read from the preamble they have a position; the position is that noncoercive employer speech interferes with employee free choice, and the statute follows that position.

The decision to withdraw funds is not the same thing as being neutral.

Your Honor made a reference to the Hyde amendment.

The Hyde amendment, Congress withdrew funds from... from abortion practitioners.

It was not neutral about abortion.

And California here has made a judgment about noncoercive speech.

Chief Justice Roberts: What about the Lyng case that Mr. Gottesman cited in response to that argument?

Mr. Goldsmith: The Lyng case seems to me to be completely off the point on the pre-emption issue.

But there is no question, Your Honor, Mr. Chief Justice, that Congress can make judgments about what it chooses to fund or not to fund.

That did not open the door to the States to do whatever they wanted to do by way of funding or not funding.

Lyng addressed a constitutional--

Chief Justice Roberts: Well, Lyng said that the... that Congress was being neutral not that it was making a choice on how to spend its funds.

And I understood Mr. Gottesman's point to be that so too, here, California is being neutral.

Mr. Goldsmith: --But California is... is not being neutral, not just because of what the preamble says but because of the add-ons to the statute if you will.

California has taken it much farther than simply withdrawing the subsidy.

California has taken it to the point that you're exposed to treble damages, but then you have minute tracking and segregation of fund details, and California has taken it even one step farther and said on the other hand, if you want to spend State money to facilitate union organizing, that's perfectly fine with us.

You can spend money to give access to union representatives to property.

You can use State money to... to facilitate neutrality agreements of one sort or another.

Anything that would help a union organize employees, that's fine by us.

So California is not neutral in the same way that Lyng was neutral, but again I would suggest that, Mr. Chief Justice, that Lyng didn't open the door, any more than Rust or Regan opened the door to the States to make labor policy by granting or withholding moneys in any way that they saw fit.

Thank you.

Chief Justice Roberts: Thank you, Mr. Goldsmith.

The case is submitted.