Cases by Issue - Federal Question

Grable & Sons Metal Products v. Darue Engineering - Oral Argument

Fri, 09 Jan 2009 14:49:01 +0000

Case:

Grable & Sons Metal Products v. Darue Engineering

Media File:

04-603_20050418-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Eric H. Zagrans

Chief Justice Rehnquist: We'll hear argument now in No. 04-603, Grable & Sons Metal Products v. Darue Engineering.

Mr. Zagrans.

Mr. Zagrans: Mr. Chief Justice, good morning, and may it please the Court:

In Merrell Dow Pharmaceuticals, the Court recognized an important limitation on the Court's prior substantial Federal question cases.

The Sixth Circuit should have followed Merrell Dow rather than ignoring it in deciding whether the presence of a Federal issue in this Michigan quiet title action properly gave rise to Federal question jurisdiction.

According to Merrell Dow, any State law claim that alleges a violation of a Federal statute as an element of the State law cause of action does not state a claim arising under Federal law for section 1331 purposes unless--

Justice O'Connor: Do you take the view that Merrell Dow somehow just silently overruled about five cases dealing with quiet title actions?

Mr. Zagrans: --No, Justice O'Connor, we do not take that position.

We take Merrell Dow--

Justice O'Connor: That seems to be your position.

I mean, I don't think Merrell Dow necessarily had that effect.

Mr. Zagrans: --Agreed.

We believe that Merrell Dow's decision can be synthesized with the holdings in those cases that Your Honor is referring to by reference to the nature of the Federal interest that is at stake and the role that Congress plays.

In the Smith v. Kansas City Title & Trust Company line of cases and in Hopkins v. Walker, both of those are different sorts of cases from Merrell Dow where Congress provided the Federal right that was alleged to have been violated, and the Court held that when Congress provides a Federal statute that is... is serving as an element of a State law claim, then Congress must have intended also to provide a Federal private right of action in order for there to be arising-under jurisdiction.

That's the distinction.

Justice Souter: Haven't we... haven't we got something equally different here?

The... the issue here, as I understand it, is... is not litigation of the State law claim, but a claim under Federal law with respect to the passage of title when property is taken for taxes.

As I understand the... the original plaintiff's claim, it simply is that if he's right, under Federal law he is entitled to a declaration that the property is still his.

If he's wrong, the other side is entitled to property.

But the issue is a Federal issue, and the only way the State has a role in it is that the State provides a mechanism, the quiet title action, analogous maybe to 1983, for getting it into a State court.

So it seems to me that the issue is a Federal issue, not as in Merrell Dow, a... a State cause of action that incorporates by reference a Federal standard.

Mr. Zagrans: Justice Souter, I agree that it is a Federal issue.

I disagree, with respect, that it's different from Merrell Dow because in both that case and this quiet title action under Michigan law, the alleged Federal issue is one element that needs to be alleged and proved in order to make out the State law claim.

Justice Souter: Yes, but I don't... I guess that's where we're parting company.

I don't see that there is a State law claim as distinct from a State law procedure for trying that claim in a State court.

As I... as I said a second ago, it's sort of like 1983.

It doesn't create causes of action, but it provides a... a jurisdictional basis for getting into court if you've got a cause of action.

And in this case, it's a Federal cause.

Mr. Zagrans: I see, Your Honor.

Under Michigan's Compiled Laws and under the rule of procedure that this action was brought under, the plaintiff had to allege and prove four things: that he had title, the alleged nature of the defendant's title.

He had to describe the property with reasonable particularity, and finally, he had to allege why his title was superior to the defendant's title.

Justice Souter: Which was a Federal issue.

Mr. Zagrans: And that is the only Federal issue, just like in Merrell Dow where the Federal... the violation of the Federal labeling standard was alleged to constitute one element of the product liability claim in that case.

Justice Ginsburg: But as Justice Souter pointed out, the State law incorporated the Federal standard and made it its own.

Here you have the Federal tax sale and a very strong Federal interest, which was lacking in Merrell Dow.

Justice Stevens said that.

But here I think there can be no doubt that the Government has a very strong interest in seeing that tax sales convey a secure title.

Mr. Zagrans: No doubt, Justice Ginsburg, but I think it is the wrong emphasis to look to what the State's interest is, which was a... a part of the focus that the Solicitor General's was on.

For purposes of deciding whether or not Congress intended there to be Federal question jurisdiction, I don't believe the focus should be on the State's interest.

Justice Kennedy: Well, my--

Mr. Zagrans: Yes, sir.

Justice Kennedy: --Please, please.

I didn't mean to interrupt you.

Did you finish your answer?

Mr. Zagrans: No, but go ahead, Justice Kennedy, please.

Justice Kennedy: No, please.

Well, my... my initial view of this case was much like Justice Souter's and... and I still think that that may be... may be correct.

But I thought your answer to Justice Souter would be that there are many cases in which there is an antecedent Federal title which then goes down through successive purchasers, mining claims, for instance, and those are always under State law.

I... I thought that would be your answer to Justice Souter and... and also to Justice Ginsburg.

Mr. Zagrans: Justice Kennedy--

Justice Kennedy: And you rely on Merrell Dow, which is fine.

But I thought there was a separate line of cases that support you, as well as Merrell Dow.

Mr. Zagrans: --There are, Your Honor, but I think that to give a... an honest and principled answer to Justice Souter's and Justice Ginsburg's questions, I have to face it in line of Merrell Dow and the cases that Merrell Dow relied on.

Chief Justice Rehnquist: We hope all your answers will be principled.

[Laughter]

Mr. Zagrans: Yes, sir, Mr. Chief Justice.

I hope so too.

Justice--

Justice Ginsburg: Well, Justice O'Connor had asked you about the... the quiet title cases, but Kansas City Title & Trust is still good law.

It wasn't overruled.

Mr. Zagrans: --Yes, Justice Ginsburg, I agree.

It is good law.

And I think the distinction that I am asking the Court to draw between that case and Merrell Dow is this.

Both cases should be decided under the rubric that arising-under jurisdiction depends upon whether a Federal issue in an otherwise State law case provides a... a... an outcome-determinative means of resolving the case, and that... in other words, where the resolution of the case depends upon a substantial question of Federal law.

But the difference between Kansas City Title & Trust and Merrell Dow is the nature of the Federal interest at stake and the different ways they should be applied.

In Kansas City Title & Trust, the interest was... or the alleged violation was a Federal constitutional violation.

Justice Ginsburg: Yes, but the Court didn't make it... the Court's proposition in Kansas City Title & Trust was if it appears from the complaint that the right to relief depends on the construction or application of the Constitution or laws of the United States.

So are you asking us to take out or laws as dictum, or what is your position?

Mr. Zagrans: I believe that the Court in Merrell Dow made a limitation on that phrase that Your Honor is quoting from, and the limitation is where Congress controls the jurisdiction of the Federal courts, such as with Federal statutory law, then the limitation of Merrell Dow that Congress must also have intended to create a Federal private right of action obtains.

I believe that's--

Justice Ginsburg: Well, when does... when does the... when do the words, or laws, in Kansas City Title & Trust have operative effect?

Mr. Zagrans: --When... when, as Merrell Dow says, Congress intended there to be a Federal private right of action for violation of the statute is alleged to be--

Justice Ginsburg: You mean that the... are you saying then in the context of this case that the Federal law would have to create a quiet title action, which is traditionally State law?

Mr. Zagrans: --Yes, Your Honor, that's exactly what we are arguing.

Justice Scalia: But doesn't Congress have to create causes of action for constitutional violations as well, or at least for most of them?

Mr. Zagrans: Your Honor, Congress has not created a jurisdictional statute for Federal constitutional claims, which is why the Bivens doctrine arose, unlike section 1983.

Justice Breyer: Well, maybe this needs... I mean, if were to clarify--

Justice Scalia: Wait.

Justice Breyer: --Sorry.

Justice Scalia: I'm... I'm not sure that I... that I'm satisfied with the answer.

You're... you're trying to give us one rule for constitutional claims and another rule for statutory claims?

Mr. Zagrans: I am, Your Honor.

Justice Scalia: On... on what basis?

I don't understand it.

Certainly in the text of the jurisdictional statute, there's no such distinction.

What... what is the basis for it?

Mr. Zagrans: It derives from footnote 12 of Merrell Dow where the Court was attempting to explain this... this difference that we are discussing.

And in footnote 12 of Merrell Dow, the Court says that the nature of the jurisdictional answer will frequently depend upon the different nature of the Federal interest that is at stake.

And it distinguished between Smith and... and Moore in that case, Smith being a Federal constitutional question, Moore being a Federal statutory question.

Justice Scalia: And you think that that explains all of these cases.

Mr. Zagrans: Well, Your Honor, yes, I do because of the nature of Congress' control over whether or not there should be Federal private rights of action.

It is consistent with the Court's implied private right of action jurisprudence from Alexander v. Sandoval, from the Central National Bank of Denver case, et cetera.

Justice Kennedy: But you can't get anything out of the words of the... of the statute arising under to help you.

Mr. Zagrans: No, Justice Kennedy, I don't believe you can because as many of the cases that this Court has decided point out, those words are broad.

They are the exact same language that the constitutional grant of Article III jurisdiction uses, and therefore, they have to be given content in some other fashion.

Justice Kennedy: So just the strength of the Federal interest is the--

Mr. Zagrans: Clearly the--

Justice Kennedy: --the controlling test?

Mr. Zagrans: --the strength of the Federal interest is important, Justice Kennedy, but as Merrell Dow pointed out, the Federal interest is not deemed to be substantial enough, or the Federal question at stake in the case is not deemed to be sufficiently substantial unless Congress has created a Federal private right of action for violation of the particular statute that is being pled.

Justice Breyer: That's what I... I wanted to follow up on this because I think it's a confusion that's embedded in my mind in some of the cases, exactly what Justice Scalia was asking you.

And I'd like you to comment on whether the confusion, as I see it, that's involved here is the words... arises out of the words, private right of action.

Private right of action is where, A, one private person sues B, a non-Federal person, under a Federal statute.

And the reason that can lead to confusion is because where you have a statute that governs the relation between the Federal Government and a private person, the words private right of action are out of place normally, because an action between the two parties takes place usually under the APA.

Now, that's what it seems to me is at work here because the real question is not whether we have a private right of action or APA review.

The question is whether Congress wanted to allow a private person to use this particular Federal provision as the basis for judicial review in a lawsuit.

And if that's the right question, the answer here is obviously it did.

It happens that we would have titled that normally administrative procedural review under the APA.

But whether you call it private right of action or you call it APA review is beside the point.

In Merrell Dow, Congress did not want actions to come into a court under the statute there at issue.

In this case, Congress doesn't mind at all.

In fact, it expects actions to come into court under this statute.

I'd like you to comment on that thought.

Mr. Zagrans: Justice Breyer, I disagree with the premise of that thought.

Congress in section 7433 did provide what I would like to call a Federal private right of action.

It's an action by a private party against the Government, not another private party, for damages in the event the Government violates Federal law in the tax collection process.

What Congress did not do... and the Solicitor General concedes it did not do... is create a Federal private right of action for quiet title claims in disputes between two private parties.

Justice Scalia: How did Congress... surely Congress did not expect any pronouncement of... of title by the Federal Government to be immune from challenge by private individuals.

If Congress did not anticipate that a wrongful assertion of title through the Federal Government could be challenged by a State action of this sort to clear title, how did Congress expect it ever to be challenged?

I mean, I can't imagine how else you... you would attack somebody who... who claims that he has Federal title.

Mr. Zagrans: You would bring, Your Honor, a State quiet title action, as Grable did in Michigan court, and allege, as the basis for the superiority of plaintiff's title in that case, the violation of Federal statute by the Federal agents.

And therefore, the purchaser at this Federal tax sale, Darue Engineering in this case, does not have superior title.

Justice Scalia: Which is what... is... how does that differ from what happened here?

Mr. Zagrans: That's exactly what happened here.

What--

Justice Scalia: That's exactly what happened here.

Mr. Zagrans: --What differs, Your Honor--

Justice Scalia: And... and is that not precisely what Congress expected?

Did not Congress, in fact, approve this manner of challenging the asserted Federal title?

Mr. Zagrans: --I think without question, Your Honor.

What Congress, we are arguing, did not approve is the removal of that State law quiet title action to Federal court under arising-under jurisdiction merely because of the presence of a Federal issue as an element of the State law claim.

Justice Scalia: Well, I think you... you have to acknowledge there are at least three situations then: number one, where Congress did not create a Federal cause of action and did not expect that the States would create a cause of action to vindicate or challenge the asserted Federal interest; number two, where Congress did create a... a Federal cause of action; and number three, falling between the two where Congress did not create a Federal cause of action but, in the nature of things, must have anticipated that there would be State causes of action resting upon the Federal claim.

Mr. Zagrans: Yes, I agree, Your Honor.

And in Merrell Dow, the Court held that in those middle cases--

Justice Scalia: Why was that a middle case?

Mr. Zagrans: --Why was that a middle case?

Because in Merrell Dow, the State of Ohio had product liability tort law--

Justice Scalia: Congress would not have necessarily anticipated that the States would glom onto a Federal criterion for purposes of their State... of their State tort law--

Mr. Zagrans: --But--

Justice Scalia: --whereas here, Congress must have anticipated that quiet title actions of this sort would be brought.

Mr. Zagrans: --Your Honor, when Congress enacted the Federal Food, Drug and Cosmetic Act and did not provide a Federal cause of action for it and yet laid out Federal standards of conduct for labeling of drugs like Bendectin in that case, Congress must have understood that without it creating a Federal private right of action, the States... the State product liability law, State inadequate warning law would subsume claims--

Justice Ginsburg: But it wasn't necessary.

Mr. Zagrans: --for a violation of that Federal standard.

Justice Ginsburg: It was... that's the difference.

The State in Merrell Dow chose to adopt those Federal standards.

It was a choice.

I don't think a State has the prerogative to ignore the effect of a Federal tax sale.

This is not a matter of State choice, and that, it seems to me, is the large difference between the two cases: one, where the State chooses to recognize Federal standards when it doesn't have to, and here, there's no question that the Federal law governs the security of this title.

It's not an option for the State to ignore it.

Mr. Zagrans: Justice Ginsburg, that's an argument that appears in the Solicitor General's brief as well, and I believe that the Solicitor General's focus on a difference in State interests is misplaced when one is dealing with Federal jurisdictional principles.

Instead, I think the focus should be on the expression of the Federal interest, and the best expression of the Federal interest at stake is congressional intent when one is dealing with acts of Congress, Federal statutory law.

Justice Scalia: Right, except the... except you sort of abandon that for constitutional questions for some inexplicable reason.

Mr. Zagrans: Well, Justice Scalia--

Justice Scalia: No, no.

It's an explicable reason to distinguish other earlier cases.

Mr. Zagrans: --That's exactly right.

That's exactly right.

To... to try to... to try to not have to argue that, as Justice O'Connor's initial question to me supposed, that all of that prior case law, prior to Franchise Tax Board and Merrell Dow, somehow would go out the window sub silentio.

And that's not what we are arguing.

Justice Ginsburg: But you... so you are... you are proposing one way to reconcile Kansas City.

You say, well, that's the constitutional claim.

But why isn't it at least as good a reconciliation to say once you go through... there's... there's a Federal claim... there's a Federal question that's dispositive of this case, and you agree that that's so here.

The whole thing turns on the meaning and effect of that notice provision.

So the Federal question is what determines this case, and you satisfy the well-pleaded complaint standard.

Then at that point, when you satisfy the basic Kansas City Title & Trust provisions, then to see which way to swing, why isn't it appropriate to say is this a case where the State has a large interest and the Federal interest is not significant?

Or, on the other hand, is it a case where there is a large Federal interest in seeing how this comes out?

Mr. Zagrans: Because, Justice Ginsburg, I think the focus is on the substantiality of the Federal question and that's where the difference between the two situations you are positing lies.

With constitutional claims, they are almost always substantial Federal questions.

With Federal statutory violations alleged as part of a State law cause of action, Merrell Dow says they are not substantial enough to confer arising-under jurisdiction unless Congress intended to create a Federal private right of action for the violation of that particular statute.

So--

Justice Ginsburg: So you're saying that Merrell Dow did take out those words, or laws, from the Kansas City Title & Trust.

Mr. Zagrans: --Yes, Your Honor.

I... I suppose that would be the effect of how it would have to be read--

But it's not a question of one Federal interest is less than another.

Anytime Federal law is involved, the Federal interest is great.

The issue is for arising-under purposes, for section 1331 purposes, whether the Federal question is substantial or not sufficiently substantial to confer arising-under jurisdiction.

That's the import in our argument and our submission, the holding of Merrell Dow.

Justice Souter: I take it you would agree that we could leave the... the Kansas City formulation, the oral laws, intact and say that the distinguish... that the distinction between Merrell Dow and this case, which leaves it intact is the distinction between in Merrell Dow's case, the adoption by the State of a Federal standard, though the State did not have to adopt it in its tort law, purely optional, and in this case, the application of Federal law which, under the Supremacy Clause, the State had absolutely no choice but to apply.

If we recognize that distinction, we could leave the language in Kansas City exactly where it is, couldn't we?

Mr. Zagrans: No, Justice Souter, I don't think you could because I think to do that would federalize a great many State law causes of action that just happen to have, as an element of them, a violation of some Federal law that, due to the Supremacy Clause, the States would, of course, be obliged to enforce.

Justice Souter: What... what are the... sort of the... the horribles that you have in mind?

Mr. Zagrans: An example would be anytime a tax preparer makes a mistake of Federal income tax law in... in preparing a return for a client and, as a result of that, the client pays more tax than they otherwise should have and they have a claim against the tax preparer either for common law negligence or professional malpractice under State law, but why did the... the preparer commit malpractice?

Because of an interpretation of Federal tax law.

Justice Souter: Yes, but in... in that case, the action is not enforcing the Federal tax law, whereas in this case, the action is, indeed, enforcing the passage of title statute under the... under the tax code.

Mr. Zagrans: The tax code, section 6338(b) specifically provides that title passes under State law, not under Federal law.

The only issue of Federal law here--

Justice Souter: But Federal law is determinative.

Mr. Zagrans: --The only issue of Federal law here that is determinative is whether or not the agents gave proper notice of the seizure.

And interestingly, Justice Ginsburg made reference to the well-pleaded complaint rule.

There is a secondary issue in this case, and that is that the disputed issue of Federal law was not part of the well-pleaded complaint.

There is no dispute that the IRS failed to give the statutorily required notice of personal notice.

Justice Ginsburg: Wasn't that in the... in the pleading?

Mr. Zagrans: It was, indeed, Your Honor.

Justice Ginsburg: Wasn't that in the complaint?

Mr. Zagrans: In the complaint that they failed to do it.

That is undisputed.

The... the defendant concedes it.

The Government concedes it.

What was disputed was that there's a different statute--

Justice Ginsburg: But the... but the well-pleaded complaint doesn't say it has to be a disputed allegation.

It says it must be.

You couldn't state the claim without having the Federal law in the complaint.

Mr. Zagrans: --Agreed, Your Honor.

But some of the cases suggest that the issue of Federal law, in order to be deemed substantial, must be one that is in good faith disputed.

That is to say, undisputed issues of Federal law are not substantial enough by themselves to confer Federal question jurisdiction.

So I point out that the disputed Federal issue from a different statute, 6339(b)(2), is in the nature of a defense that Darue asserted.

Notwithstanding the strict... the lack of strict compliance with the notice provision, 6339(b)(2) allows substantial compliance.

Justice Kennedy: I know you want to reserve your time.

Just one quick thing.

The Government makes the distinction between an action to remove a cloud on title and an action for possession.

Do you agree that this is a... a action to remove a cloud on title?

Mr. Zagrans: Justice Kennedy, under Michigan law, as I understand it, there is no distinction any longer.

The action to determine title under Michigan Compiled Law 600.2932 seems to telescope and subsume both of those common law causes of action into one.

Unless there are further questions from the Court, I would like to reserve the balance of my time.

Argument of Michael C. Walton

Chief Justice Rehnquist: Very well, Mr. Zagrans.

Mr. Walton, we'll hear from you.

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

This case involves only questions of Federal law.

It involves no questions of fact.

There are no disputes on any of the facts in this case, and without the Federal law, there would be no controversy, there would be no claim, there would be no cause of action.

The plaintiff's right to relief in the case requires resolution of a substantial question of Federal law in dispute between the parties in this case, which implicates substantial Federal interests.

The attempt to distinguish Merrell Dow... Merrell Dow is, in fact, consistent with Smith/Gully/Franchise Tax in establishing that test.

And the language which the Court utilized in Merrell Dow does not, in any way, abandon those cases or indicate that the logic is inappropriate.

The Merrell Dow place in the evaluation... in the... in the kaleidoscopic situations which were described by Justice Cardoza is in a situation where a Federal standard has been incorporated into the State law cause of action.

That's its place here.

It was, I believe, by this Court an attempt to... to illuminate what would occur in that circumstance, and it is limited to that circumstance.

And the... the question, which is set forth at the beginning in Merrell Dow, about the incorporation... and I'm... I'm at page 805.

The question presented is whether the incorporation of a Federal standard in a State law cause of action, when Congress intended there be no Federal private action for violations of that Federal standard, makes one arising under the Constitution, laws, or treaties of the United States, all three.

Justice Kennedy: Suppose that the plaintiff here alleged that the tax deed were forged, that the occupant simply forged the tax deed and was occupied under forgery.

State cause of action there?

Mr. Walton: I believe that that would be a State cause of action, yes.

Justice Kennedy: All right.

Then suppose he alleged not that it was forged, but that this... that the occupier of the land had... had misconstrued the occupier's rights to bid at the tax sale or... or that there... the tax sale should never have been held.

Then that's a Federal--

Mr. Walton: Then I... excuse me, Your Honor.

Then I believe that would be Federal, yes.

That would require resolution... that would require construction of the Federal statute.

Justice Ginsburg: Suppose--

Justice Scalia: What if it doesn't require construction, but... but what if there is a factual controversy?

Suppose there is a factual controversy as to whether notice was given and notice is required under the Federal statute.

Does... does that factual controversy with regard to an essential element of... of Federal law make it a Federal case?

Mr. Walton: If it's... excuse me, Your Honor.

If it still presents a question of Federal law, yes.

Justice Scalia: Well, it doesn't present any question of law, just a question of fact.

Let's say both parties agree about the law, but the fact that is determinative of nothing, except the operation of Federal law, is at issue.

Now, that... that would normally... under 1331, you'd be able to come into Federal court I suppose just where your only dispute is a factual dispute, but it is a factual dispute regarding the operation of Federal law.

What... what if this were just a factual dispute about the operation of Federal law?

What would we do with it?

Does the fact that it's a factual dispute make it not substantial, not a substantial Federal question?

Mr. Walton: I think that it could still be a substantial Federal question because it could implicate a substantial Federal interest.

Justice Souter: Well, you're taking the... I mean--

Justice Kennedy: --Well, and how is that different from the forgery?

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

Justice Kennedy: How... how is that different from the forgery hypothetical?

Mr. Walton: It would... it would then be the same, Your Honor.

Justice Souter: --Well, you're taking the position then, as I understand it... and I... I don't disagree with your... your position necessarily... that its construction or application--

Mr. Walton: Yes.

Justice Souter: --of Federal law.

Mr. Walton: Yes, Your Honor.

That's correct.

Justice Souter: Yes.

Justice Ginsburg: --Suppose the... there was an issue in this case about the plaintiff in the quiet title action having waited too long.

I think here it was 6 years after.

So... so suppose there was a defense of laches under State law.

That could be an issue in an action in this format, quiet title action, which would be governed by State law.

Isn't that so?

Mr. Walton: It would, Your Honor.

Justice Ginsburg: So that case wouldn't be removable then if the... if the defense is laches?

The plaintiff--

Mr. Walton: I believe... excuse me, Your Honor.

Justice Ginsburg: --Yes?

Mr. Walton: I believe that it could be removable because it could still involve the application of the Federal law--

Justice Ginsburg: But you might never get to the Federal law if the determination of 6 years is too long to wait to bring a suit like this.

Then you would remove and you could have an outcome based solely on State law in the Federal court.

You'd have a State claim.

The issue that divides the parties is how long was too long, and the court decides the case on that basis and never gets to the Federal question.

Mr. Walton: --I see, Your Honor, yes.

Justice Ginsburg: So if laches is pleaded as a defense, then it's not removable?

But don't you... well--

Mr. Walton: Your Honor, I'm not certain.

That's... I'm sorry.

I'm not certain.

I believe that it could be removable, still utilizing the application of the Federal law to that circumstance, even in the factual dispute.

Justice Ginsburg: --Well, at what point do you remove the case?

Mr. Walton: I'm sorry.

I don't understand the question, Your Honor.

Justice Ginsburg: A complaint is filed in State court, and you are the defendant and you want to remove that case to Federal court.

Mr. Walton: Yes, Your Honor.

Justice Ginsburg: How much time do you have to remove?

Would it be in advance of your answer?

Mr. Walton: Yes, Your Honor, it would.

Justice Ginsburg: So that in my case, you would remove on the basis of the complaint before you put in your answer, and I think you're--

Mr. Walton: Yes.

Justice Ginsburg: --And then you could get into the Federal court, and the answer could be laches and you're in the Federal court and the only question that's decided is the State law question.

Mr. Walton: Yes, Your Honor.

Justice Scalia: I suppose that happens pretty often in removal... in... in removed cases.

You really don't know what the defense is going to be.

If it's removed on the basis of the well-pleaded complaint, when the defense gets there, it... it may often be a State... a State defense.

Right?

Mr. Walton: That's accurate, Your Honor.

Excuse me.

If there are no additional questions, thank you.

Argument of Irving L. Gornstein

Chief Justice Rehnquist: Very well, Mr. Walton.

Mr. Gornstein, we'll hear from you.

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

An action arises under Federal law not only when Federal law supplies the cause of action, but also when the plaintiff's right to relief under a well-pleaded State law cause of action necessarily depends on a substantial question of Federal law.

That second category of arising-under jurisdiction is... applies here because petitioner's right to relief under its State law quiet title action necessarily depends on the allegation in its well-pleaded complaint that--

Justice Kennedy: Why wouldn't that same rule apply in a State where there's a common law cause of action for ejectment and it's substantively under State law different from a cloud on the title?

You discuss in your brief, very helpfully I think, the... the Hopkins and the Taylor line of cases.

Mr. Gornstein: --Right.

Justice Kennedy: How is your statement that you just made consistent with the Court's holding under the Taylor line of cases?

Mr. Gornstein: In the Taylor line of cases, what is necessary to... to allege in a well-pleaded complaint for common law ejectment is only that I have title and you're wrongfully here.

You do not have to plead the facts that show superiority of title.

Justice Kennedy: So if we had exactly the facts of this case and there's a common law ejectment, you would not say that it goes to Federal court.

It would stay in State court.

Mr. Gornstein: No.

On Taylor v. Anderson you are not.

But the difference, Justice Kennedy, is in that kind of case, the plaintiff wouldn't be eliminating the cloud on his title.

He would just be getting possession of the property.

So there's always going to be an incentive for the plaintiff who's faced with a document, a deed, that--

Justice Kennedy: Well, I... I suppose that--

Mr. Gornstein: --to... to sue for cloud on title.

Justice Kennedy: --in a common law ejectment action that we are supposing that what's going to come up is the tax sale.

Mr. Gornstein: That's true.

Justice Kennedy: Which is just the facts of this case.

And I suppose that if the plaintiff prevails on the common law cause of action for ejectment, he's got a... a res judicata defense if the... if the present occupier then makes another suit based on the tax deed.

Mr. Gornstein: In the common law cause of action, which isn't available in Michigan, but under the common law cause of action, all was... all that was determined was that you had a right to possession at the time the lawsuit was filed.

Justice Scalia: I guess this... this problem is simply a consequence of the well-pleaded complaint rule.

Mr. Gornstein: It... it is, Justice Scalia.

Justice Scalia: If we... we altered that rule, it would make more sense.

Mr. Gornstein: Well, the... the--

Justice Scalia: This... this kind of peculiarity happens all the time.

Mr. Gornstein: --It does.

Justice Scalia: It depends on whether the Federal question has to be pleaded or not.

Mr. Gornstein: That's correct.

And the justification for the well-pleaded complaint rule that the Court has authored is that it provides a quick rule of thumb for determining at the outset of the litigation which cases are most likely to be ones where the Federal law issues are at the forefront.

Justice Scalia: It's quick and dirty.

We haven't tried to slice the baloney too thin in this area, have we?

We... we--

[Laughter]

Justice Stevens: Mr.--

Justice Scalia: It's enough to be pretty close.

Justice Stevens: --But the way you stated the rule, if I heard you correctly, you're contending that Merrell Dow was incorrectly decided.

Mr. Gornstein: No, because Merrell Dow did not involve a substantial question of Federal law, and that was part of the test that I announced.

And the difference between this case and Merrell Dow is twofold.

First, this case falls within the Hopkins line of cases, and second, this... the role of Federal law in Merrell Dow is completely different than it was in this case and in the Hopkins line of cases.

What was going on in Merrell Dow is that the State adopted a Federal standard as presumptive evidence of State law negligence, and when a State adopts a Federal standard into its own State law standard, the... the action remains one that is fundamentally State law in character.

So the Federal question in the case is not regarded as substantial.

But here, the situation is entirely different.

Chief Justice Rehnquist: We do occasionally review that kind of a decision here.

Mr. Gornstein: You do, Mr. Chief Justice.

And the Court in Merrell Dow drew a distinction between what is substantial enough of a Federal question to trigger arising-under jurisdiction as an original matter and what is substantial enough of a Federal question to obtain this Court's review.

And we're dealing here just with the kind of substantiality that's necessary for original jurisdiction under 1331.

Justice Scalia: I assume that a fact in a particular case which affects nobody else in the country, but which is determinative of the Federal question is never a substantial question of Federal law.

Is it?

So you... you would not agree that... that it's not only the... the content, but also the application of Federal law that's--

Mr. Gornstein: Let me draw a distinction between those cases where the cause of action is supplied by Federal law, in which case factual issues are resolved by Federal courts as long as there's a Federal cause of action and cases where there's not a Federal cause of action.

Then you need... the right to relief has to depend on a substantial question of Federal law.

So if the only issue in the case, in that kind of case, is a factual dispute and everybody agrees on the law, then there's no substantial Federal question, no removal jurisdiction.

But if the right to relief depends on Federal law and the meaning of Federal law and there's also a factual issue in the case, that would be removable.

Chief Justice Rehnquist: If there were only a dispute about when the notice was given and not a factual dispute, then it would not have been removable I take it.

Mr. Gornstein: It's... it's removable if the only question was whether notice was given.

But if the question is was sufficient notice given such as to transfer title under Federal law, then that's removable.

Chief Justice Rehnquist: Well, that's a very... sliced baloney very thin.

[Laughter]

Mr. Gornstein: Well, Mr. Chief Justice, that slices the baloney the way this Court's cases have sliced the baloney, and that... that rule is that there has to be a substantial question of Federal law.

There is one when the action depends on the meaning of Federal law, but not one where everybody agrees on the meaning of Federal law and all that's at issue is a dispute about the facts.

Now, this case, as I said, does fall within the Hopkins line of cases, and in each of those cases, the Court held there was arising-under jurisdiction in a quiet title action where the plaintiff's claim that it had superior title to the land in question depended on the meaning of Federal law.

And, of course, that's true here.

The quiet title action provides the mechanism for review of this question, but the question is entirely one of Federal law as to who has the superior interest in the land, the tax sale purchaser or the taxpayer.

If the Court has no further questions.

Rebuttal of Eric H. Zagrans

Chief Justice Rehnquist: Thank you, Mr. Gornstein.

Mr. Zagrans, you have 4 minutes remaining.

Mr. Zagrans: Thank you, Your Honor.

We agree with General Gornstein's statement of the test.

The test is a State cause of action that necessarily depends on a substantial question of Federal law arises under for 1331 purposes.

The difference between my argument and the argument of respondent is the meaning of substantial or what constitutes substantiality.

And in Merrell Dow, the Court held for all Federal statutory purposes the Federal law is not substantial enough to confer arising-under jurisdiction unless Congress created a private remedy along with the statute.

That's where we part company.

Justice Ginsburg: Mr. Zagrans, there is language in Merrell Dow that makes it sound like it's not as clear and certain as you are urging.

I think that the opinion author said that 1331's domain is shaped by the demands of reason and coherence, dictates of sound judicial policy, and common sense.

And if you just take that last question when the only question is, is mail notice good enough to satisfy the Federal statute, or do you have to have in-hand service?

Doesn't common sense say what that section means should be a Federal question, appropriate for a Federal court to decide?

Mr. Zagrans: I agree, Justice Ginsburg, is... it is a Federal question as a common sense matter and every other way.

It does not follow that it should be decided and adjudicated by a Federal court.

State courts can and do--

Justice Ginsburg: I'm simply making the point that you are reading Merrill Lynch... Merrell Dow in a rather rigid way.

And yet, there is this language in it that says in... in... what was before the court in Merrell Dow made perfectly good sense in that tort action to have it going on in State court.

This is quite a different picture.

Mr. Zagrans: --I think, Your Honor, that Merrell Dow's emphasis on making pragmatic, sensitive judgments, judgments that are both principled and common sense, dictated the holding in that case which was when it's an act of Congress that is being inserted as an element of a State law claim, in order then to bootstrap that State law claim into Federal court on removal jurisdiction, there would need to be a substantial Federal question.

Who decides that?

Congress decides that, both as a matter of judicial power and as a matter of common sense application.

And that's the distinction, by the way, with the Hopkins line of cases.

I don't believe that the Hopkins line is any different from the Smith v. Kansas City Title & Trust line in terms of this emphasis on necessarily depending on a substantial question of Federal law.

The difference in Hopkins is that those were competing Federal land claims.

The only thing in the case was Federal law.

Both sides took their entitlement to the property from Federal mining law, and the Federal issues in that case either were exclusive of all the legal issues or so overwhelmingly predominated over the State law issues, that that was the result in those cases.

Justice Ginsburg: I thought that there was no State law issue in this case, that the whole thing turned on what kind of notion... notice was sufficient to convey title.

Mr. Zagrans: There are many State law issues in this case, Your Honor, in terms of the State quiet title action.

The only disputed issue and the issue that the respondent says the State law claim necessarily depends for its resolution is this disputed issue of Federal law over the notice.

Chief Justice Rehnquist: Thank you, Mr. Zagrans.

Mr. Zagrans: Thank you.

Chief Justice Rehnquist: The case is submitted.

Attribution:

The Oyez Project

Featured:

Shalala v. Illinois Council on Long Term Care, Inc. - Oral Argument

Fri, 09 Jan 2009 14:50:15 +0000

Case:

Shalala v. Illinois Council on Long Term Care, Inc.

Media File:

98-1109_19991108-argument.mp3

Related Transcript:

1999_98_1109_argument.xml

Transcript:

Argument of Jeffrey A. Lamken

Chief Justice Rehnquist: We'll hear argument now in Number 98-1109, Donna Shalala v. The Illinois Council on Long Term Care.

Mr. Lamken.

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

The Medicare Act provides a special mechanism for judicial review in section 405(d).

The principle that governs this case is that claims that can be raised through that judicial review procedure must be.

Section 405(h) bars efforts to circumvent that procedure by singling out particular legal issues and seeking judicial resolution before the Secretary applies those rules to the claimant in a final decision.

That conclusion flows from the text of the statute and this Court's decisions in Weinburger v. Salfi, Heckler v. Ringer, and Bowen v. Michigan Academy.

Under the Medicare Act, nursing homes that meet the Secretary's minimum health and safety requirements may voluntarily enter into contracts with the Secretary to provide services to medicare beneficiaries.

The Medicare Act makes the same mechanisms for administrative and then judicial review that are applicable to beneficiaries also applicable to nursing homes that have or seek to enter into those contracts.

In particular, section 1395cc(h) provides that any nursing facility that is dissatisfied with the determination, that does not meet the minimum health and safety requirements, and is subjected to a remedy as a result, is entitled to, first, a hearing before the Secretary under section 405(b) and, second, to judicial review of the Secretary's final decision following that hearing.

Justice O'Connor: Mr. Lamken, I guess what respondents really want is preenforcement review of the regulations.

Mr. Lamken: Yes, that's correct, and--

Justice O'Connor: And is that possible, in your view, under this scheme?

Mr. Lamken: --No, Your Honor, it is not.

The structure of the scheme in section 405(h) specifically exclude preenforcement review.

That comes from the language of section 405(h) in particular, the third sentence of which says that no action against the United States, the Secretary, or any employee shall be brought under the general Federal question statute, which is section 1331, to recover on a claim arising under the Medicare Act.

Justice O'Connor: And so what... in your view, the nursing homes have to wait for a deficiency citation?

Mr. Lamken: That's precisely correct, Your Honor.

Justice O'Connor: But if they then try to raise administratively some constitutional claim, for example, about the regulations, that can't be decided administratively before the level of the Secretary, I assume.

Mr. Lamken: That's correct.

As the Court noted in Weinburger v. Salfi, the Secretary typically will not address constitutional claims in the administrative proceedings, but in Salfi itself there was a facial constitutional challenge to a provision of the statute.

Accordingly... but the Court nonetheless held that even constitutional claims, facial constitutional challenges to the statute, must be channeled through the specific review mechanism provided by the act, and that the party could not bypass that mechanism by seeking a declaratory judgment under the general Federal question statute in advance.

Justice Souter: Mr. Lamken, assume for the sake of argument that I don't agree with you that the text of the statute, the text of the sentence that you referred to, is dispositive, so that there would be some, at least practical point to this question.

The question is this.

Is it possible for a provider who wants to challenge the regs as vague or beyond legal authority or what-not to carry that challenge all the way through to the point where they could be heard, i.e. to the district court and court of appeals level for that matter, this Court, without risking the possibility that if the provider loses, the provider would be terminated, or subject to termination by the Secretary as a provider.

Is it possible, in other words, to challenge the regulations without at the same time assuming liability for the most draconian of possible results, which is exclusion from the provider scheme?

Mr. Lamken: The answer is yes, although we don't believe that this case presents that type of problem.

Justice Souter: I realize.

Mr. Lamken: And although the Secretary ordinarily would not impose termination or expose medicare providers to extreme risks, because it's a voluntary program, they don't have to--

Justice Souter: But that's a matter of grace.

I mean--

Mr. Lamken: --Correct.

Justice Souter: --the Secretary may, the Secretary may not.

Is there a way for this kind of challenge to be made without risk that the Secretary may?

Mr. Lamken: Termination is an extreme remedy that is reserved for the most extreme circumstances and violations.

What normally occurs when a provider violates the statute is, the Secretary or the surveyors issue a letter which specifies the remedies that will be imposed on a time schedule, including denial of payments after... if the remedy is--

Justice Souter: All right.

May I interrupt you--

Mr. Lamken: --Yes.

Justice Souter: --there just for a second?

I take it from what you're saying that the Secretary could right up front say, one of the remedies that I'm going to impose, if you lose at the end of this process, is termination.

Now, if the Secretary did not say that up-front, would the Secretary be foreclosed from terminating at the end of the process if the provider lost?

Mr. Lamken: I don't believe so, Your Honor, no, but the ordinary--

Justice Souter: So the risk would always be there.

Any provider would know, whatever the odds might be, that at the end of the process, if the provider lost, the provider in effect could be eliminated from the benefit, or the administrative scheme entirely.

Mr. Lamken: --It's true that the absence of declaratory relief does subject them to some risk, but it is not the case that there is an extreme risk of termination for a provider that actually does nothing more than preserve his right to appeal.

Justice Souter: But there is some risk.

Mr. Lamken: I could not... I... we would consider it a... the... an abuse of the Secretary's decision to terminate a provider for doing no more than necessary to preserve its right to appeal.

What the provider ordinarily would do would be--

Justice Souter: No, but we... I think--

Mr. Lamken: --to violate the statute, draw some remedy, and then the Secretary... and then it would come into compliance following that and dispute only the remedy, and if a provider comes into compliance shortly after the remedy is imposed, it ordinarily would not be terminated.

Justice Souter: --Okay, but one of the provider's arguments is that the risks can be so extreme that there really isn't a proper challenge scheme on your view of the law, because any provider is going to knuckle under rather than take the risk of being terminated at the end of the day.

And so the... I think your colleague on the other side would say, well, sure, we may commit a compliance before the end of the day, but the reason we might commit a compliance is that the risk of losing is not merely the risk of losing a legal challenge, but the risk of losing our provider status entirely, and that, in fact, they're saying is not a legitimate appeal mechanism, and it ought to influence the way we read this statute.

Mr. Lamken: In fact, Your Honor, we believe that that risk has been overstated in the way the Secretary implements it.

In fact, providers do not have to risk termination in order to bring their challenges, but this is about--

Justice Ginsburg: Mr. Lamken, as I read Judge Easterbrook's opinion, he essentially agreed with what you're saying now, but he put it on a ripeness point.

He said, these regulations are brand new.

We don't know how they're going to be applied.

We don't know what the Secretary will do, and we don't know whether a court might say, at the end of the line, that what the Secretary... he said they need fleshing out.

So I think on this point Judge Easterbrook said, well, they won this victory, but they may lose the war, because... well, they may even have no permanent victory here because of the ripeness question, that the regulations have been untried, untested.

Mr. Lamken: --I think that's correct.

I think Judge Easterbrook concluded that some of the claims were unripe for that reason.

In fact, because it's not clear that any of the regulations will ultimately be applied, these are merely enforcement regulations that are being challenged, not anything that's... requires the providers to change their behavior immediately.

Justice Ginsburg: But there is something to the point that the Seventh Circuit made that Michigan Academy, that what you are essentially asking the Court to do is to declare Michigan Academy passe because part B regulations are now subject to judicial... part B rulings are subject to judicial review.

If that had been the case, Michigan Academy never would have been decided the way it was.

But that's what the Seventh Circuit said, that Michigan Academy stands in the way of cutting out altogether preenforcement review.

Mr. Lamken: I... Michigan Academy we don't believe is passe in the sense that for the category of claims that Michigan Academy identified, claims that could not be raised through the express judicial mechanism, but for which Congress did not express a clear and unambiguous intent to preclude the review altogether, that remains good law, and that remains applicable to cases that fall into that category.

What Congress did when it restructured the act is, it took one particular set of claims out of that category, and those claims were challenges to the methodology used in determining the amount of part B--

Justice Scalia: Oh, but I didn't understand Michigan Academy to be written that way, that, you know, there is preenforcement review with respect to those claims that can't be challenged otherwise, although there may not be with respect to claims that can be challenged otherwise.

I mean, I think we were interpreting 405(h) and 1395ii, and we said... we said there is no pre... there is preenforcement review.

Mr. Lamken: --No--

Justice Scalia: Now you're telling us that there isn't.

Mr. Lamken: --If, in fact--

Justice Scalia: Because of no change in the... no change in either the language of 405(h) or the language of 1395ii.

Mr. Lamken: --That construction, Your Honor, would place Michigan Academy in direct conflict with Ringer, for example, Heckler v. Ringer, for example, which specifically held that an individual may not slice off one individual issue bearing on... one individual legal issue and seek its resolution in advance.

What the Court did in Michigan Academy was, it distinguished Ringer by saying... noting the respondent's argument that it's possible to construe section 405(h) as not applying for those claims that can't be raised under its neighbor, section 405(g).

Justice Scalia: Well, in particular, these claims.

Mr. Lamken: In particular, the claims that were at issue there under the statute as it then existed, but when Congress went and restructured the statute, it took certain... the claims that were at issue there and--

Justice Scalia: It's an interesting question of statutory construction.

The review provision in Michigan Academy was interpreted a certain way and, it said, there is review.

Now, you're telling us that without any modification of that section, just because another section has now been altered to allow judicial review in some other fashion, the section now has a different meaning.

Mr. Lamken: --No, Your Honor, we don't believe its meaning's changed.

The only ambiguity the Court noted in section 405(h), without discussing the language, the only possible ambiguity it noted was the possibility that it might only preclude review for those claims that can be raised under section 405(g).

If that's the holding of the Michigan Academy, and that is the only ambiguity, or only aspect of the language in 405(h) it addressed--

Justice Scalia: Now, is that the... you contend that's the holding of Michigan Academy?

Mr. Lamken: --To the extent Michigan Academy addresses the language of section 405(h), that is the only potential ambiguity identified.

Justice Scalia: Where does it say that?

Where does it say that... I mean, I understand that that was its rationale for the interpretation of the section, but does it say in so many words that the section only permits judicial review where there is no other review available?

Mr. Lamken: It does not actually hold that that is the language of the statute, but what it does is, it first says... there's two possible interpretations that are posited to us.

The Government's position, that it's so clear that it bars review altogether, and respondent's view, which... and I'm going to quote... which the Congress' purpose was to make clear that whatever specific procedures it provided for judicial review of final action by the Secretary were exclusive, and could not be circumvented by resort to the general jurisdiction of the courts.

The Court then went on and said, whichever may be the Ringer... better reading of Ringer and Salfi, we need not pass on the meaning of 405(h) in the abstract.

We're not going to address the language.

Section 405(h) does not apply by its terms to part B of the program, and the legislative history... and then it went into the legislative history, showing that Congress did not have a clear and unambiguous intent to exclude judicial review altogether.

Justice Stevens: But the first part of what you read referred to review in an administrative agency, I think, and there is no such review in this case.

Mr. Lamken: Your Honor, the way the structure, the statute is structured is that all claims are channeled through a review in the administrative agency.

Justice Stevens: Well, all claims... all of these cases really turn on the meaning of the words, to recover on any claim arising under this subchapter within the meaning of 405(h), don't they?

Mr. Lamken: That's correct, they do turn on that, and in fact--

Justice Stevens: Some have been held to be such claims, and some have not been.

Those that have been held to be such claims are all claims that could have been decided by the administrative agency, and this is not such a claim.

Mr. Lamken: --No, that's not correct, Your Honor.

Justice Stevens: Which one could not have been decided--

Mr. Lamken: Weinburger v. Salfi could not have been decided by the administrative agency.

Justice Stevens: --The claim that the class representative in Salfi had been presented to the agency, and it could have been presented to the agency.

Mr. Lamken: Right, but the--

Justice Stevens: Not on behalf of the whole client.

Mr. Lamken: --constitutional challenge to the statute, and they sought pure declarative relief in the abstract as an alternative remedy, could not be decided by the Secretary.

It was identical to this claim.

Heckler v. Ringer, there was a challenge to the Secretary's rule, that it was promulgated in violation of the APA, and that the rule was invalid.

That, again, was not something that an ALJ could address, yet this Court held that that challenge had to be channeled through the administrative agency and be... that rule could only be challenged on judicial review of the administrative agency's final decision applying that rule to Mr. Ringer.

Justice Scalia: It seems to me that language setting forth a particular manner of judicial review is either exclusive or it's not exclusive.

I don't know how we... you're putting it to us in every case to interpret legislative language as exclusive in some cases, not exclusive in other cases.

It's too much of a headache.

If Congress wants to amend it and have it exclusive in some and not exclusive in the other, it can say that.

Mr. Lamken: Your Honor, we believe that the language of 405(h) is clear, and that as the Court applied it in Ringer and Salfi, any claim that can be raised through 405(g) must be.

In Michigan Academy, this Court recognized in the fact that it would not apply the literal language of the statute--

Justice Scalia: You admit that these claims, if by claim you mean the gravamen of the complaint, the constitutional issues can't be raised in the administrative process.

Mr. Lamken: --Right, but they can be raised on judicial review through 405(g), exactly like the constitutional--

Justice Breyer: All right, suppose in that respect that you have... let's not take this case, where I think probably the issues are not ripe, but let's imagine one that would be plainly ripe.

Suppose the Secretary has a completely unreasonably regulation.

Every nursing home has to build its entire home on 10-inch thick steel girders, and then it says, and any nursing home who doesn't comply with this is deprived of their eligibility forever.

All right, completely unreasonable rule, and moreover they're put to the choice of either complying or not.

At enormous expense they comply, or they run the risk.

Now, that's a ripe, preenforcement review issue.

In your opinion, how would... if that were the reg, how would they get review?

Mr. Lamken: --Although the Secretary would never be able to impose that kind of rule, because participation is strictly voluntary, and she would drive all the providers out of the program and have nobody to provide--

Justice Breyer: No, no, but I'm simply trying to get an example of a rule that's ripe.

Mr. Lamken: --but assuming the argument that there is such a grossly unreasonable rule--

Justice Breyer: Yes.

Mr. Lamken: --providers, sometimes the absence of declaratory relief can impose difficult choices for a providers, just as it does for beneficiaries.

In Ringer, for example, this Court held that Freeman Ringer had to bring his claim through section 405(g), even though he asserted first that he could not... he wanted a medical procedure.

He asserted he could not afford it, and because the Secretary had a rule providing... prohibiting payment for it, he claimed that he could not obtain the procedure absent a declaratory ruling--

Justice Breyer: Why wouldn't the following be a fairer result?

Mr. Lamken: --Pardon?

Justice Breyer: Why wouldn't it be fairer and consistent with all the statutes simply to say, you've just mixed up ripeness and exhaustion?

Their claim is ripe.

405(g) is an exhaustion statute.

They don't have to violate the reg to exhaust.

They're... if it's ripe, it's preenforcement and ripe.

Exhaustion means, you give the Secretary a chance to pass on it, so you write the Secretary a letter and say, Dear Secretary, I think your reg is out to lunch, but you have a chance to pass on it first, so pass on it.

And then, having done that, they bring the results to court, without having to violate the statute.

There, we have both ripeness and exhaustion.

What's wrong with that?

Mr. Lamken: Two things.

First, I should note that there has been no presentation in this case that that's what's missing for... under 405(g), so--

Justice Breyer: So, but they... you're saying that they have to violate.

That's what they don't want to do.

Mr. Lamken: --Right.

Justice Breyer: And so they could go and present without violating by writing the Secretary a letter.

Mr. Lamken: That's one--

Justice Breyer: All right.

Is that ripe, though?

That's why I'm putting this to you.

Are you saying that's what they should do?

Mr. Lamken: --As an initial matter, that's one thing they would have to do, but we do not believe that would be... that's a necessary but not a sufficient condition.

We believe we also have to violate the statute and then--

Justice O'Connor: In order to present a claim, they have to violate the statute and present it to the Secretary?

Mr. Lamken: --That's right.

As this Court explained in Ringer, the requirement--

Justice O'Connor: That's where members of the Court are a little hung up, why you have to do both.

Why isn't it enough to just go to the Secretary?

Mr. Lamken: --Because the statute provides a specific mechanism under 405(g), and that mechanism says that you have to challenge a determination by the Secretary that you're not in compliance.

That's the only mechanism for bringing review under the statute, and the statute... as Heckler v. Ringer points out, this is not merely a provision that requires exhaustion.

Justice Breyer: But then you've made... you've turned it into a ripeness statute, whereas Ringer and Salfi and Bowen and everyone else have considered it an exhaustion statute, and Easterbrook and everybody say, we're not discussing ripeness, and so what I'm thinking is, suppose it really is ripe, it's really ripe.

What you happen to have are cases where maybe it isn't ripe, but suppose it really were?

Mr. Lamken: Even where it's ripe, the way the... because of the enormous size of the administrative program and the enormous number of potential legal issues it could raise, Congress established a system where all challenges, the challenges of beneficiaries and the challenges of medicare providers who voluntarily contract to the Secretary, are channeled through what is in essence a quasi-adjudicative system, and as... you get a final decision of the Secretary, and that is how you challenge the rule, is by challenging the final decision of the Secretary.

For example,--

Justice Ginsburg: If you made it ripeness, that would certainly be contrary to Salfi, because Salfi was a fully ripe claim, and the Court said you couldn't do it under 1331, even though it's clear that the Secretary cannot rule on the only issue in dispute.

Mr. Lamken: --That's correct.

It would... if it were a ripeness statute, it would be contrary to Salfi; Mathews v. Eldridge as well.

It was a clear procedural challenge thing that we needed predeprivation review.

This Court held that the only way the claim could be raised was under section 405(g).

Now, it said that you could get... you could determine the Secretary's denial of predeprivation review was a final decision, and you could immediately go and get review in the courts, but it said the only mechanism for review, even though it was purely procedural and clearly ripe, was under 405(g) itself.

Justice Breyer: So Salfi didn't involve this issue.

Salfi... the person whom they permitted to proceed in Salfi was a person who had exhausted.

The person whom they did not permit to proceed were the group of class action plaintiffs who hadn't exhausted.

So there's no problem with Salfi, and Bowen is an effort to get the people who don't have any other route an appeal, a way of proceeding, and consistent with both of those two would be to say, if you're ripe, you exhaust... you know.

I don't want to repeat myself.

Mr. Lamken: No, I... we believe that it's... the statute is more than a mere exhaustion statute.

It channels everything through a quasi-adjudicative process, even in claims like Freeman Ringer, who said that he could not actually channel his claim thorough the administrative process because he couldn't have the surgery first and then submit a claim to the Secretary.

Justice Scalia: Well, you don't say it's just an exhaustion statute, either.

I mean, your point is not that it has to be presented to the Secretary, but that it has to be presented in this unique fashion and in no other fashion.

Mr. Lamken: Absolutely, Your Honor, that's correct.

Justice Scalia: So it's much more than an exhaustion statute.

Mr. Lamken: That's correct.

Justice Scalia: It's a channeling statute.

Mr. Lamken: Exactly our position, and the reason for that is, Congress not only needed to channel these things to give the Secretary the opportunity to eliminate any possible way of avoiding these legal issues and eliminate overloading the courts with potentially millions of claims for beneficiaries and nursing homes that participate alike, but it also ensures that all the claims arise in the most concrete factual context possible--

Justice Kennedy: Earlier on in your discussion with Justice Souter, in answering his questions, you began to say that the provider need not risk termination, but then you didn't get to complete that.

Why is that, or did I misunderstand you?

Mr. Lamken: --No, that's correct.

Justice Kennedy: What's the reason for that?

Mr. Lamken: As the Secretary implements the statute, as the Secretary implements these requirements, termination is only imposed as the first remedy when serious extreme health and safety requirements are violated, when basically the health and safety of the beneficiaries--

Justice Kennedy: Is there a way for the provider to test termination as being an abuse of discretion?

Mr. Lamken: --Yes.

If the Secretary's procedures did place them in such an extreme consequence that it violated the Constitution, for example, that would be precisely the kind of claim that could be raised under 405--

Justice Kennedy: Again, but only in the context of making a specific claim for reimbursement?

Mr. Lamken: --Only in the context of a specific application, yes.

There would be two opportunities to do that, Your Honor, I should point out.

The first is, if the person immediately... if the facility immediately corrected, and the Secretary said, because you immediately corrected I'm not going to impose a remedy but I'm going to deny you a hearing, the provider could say, no, because you've put me to this choice that I had to correct, you coerced me to correct, you have to give me a hearing even though there's no remedy, the Constitution requires it, that claim could be raised under 405(g) and, in fact, that claim has been raised under 405(g) by several providers.

Justice Kennedy: Well, as to that part of your prong, then the only way he can avoid... the provider can avoid the risk is to comply.

Mr. Lamken: That... Congress specifically--

Justice Kennedy: Now you're going to talk--

Mr. Lamken: --Yes.

Justice Kennedy: --tell me about a second route that he has.

Mr. Lamken: And the second is, if it would violate the Constitution, and we do not believe that our applying 405(h) would violate the Constitution, given the voluntary nature of the program.

But a court would always have jurisdiction under section 1331 to decide whether applying section 405(h) would violate the Constitution and, obviously, if it were unconstitutionally applied, section 405(h), because it put the providers to too great a risk... it would effectively foreclose judicial review altogether... the Court would not apply 405(h) but would proceed and adjudicate the claim directly, but we should--

Justice Kennedy: Well, you're reading any claim, to recover on any claim as a term of art.

You would... would you concede that much?

Mr. Lamken: --No, Your Honor.

We believe that to recover on a claim--

Justice Kennedy: You don't concede even that?

Mr. Lamken: --To recover on a claim... no, we don't.

To recover on a claim, to recover simply means to obtain relief, and on a claim means, in respect to a legal demand, and you can tell that it doesn't mean, for example, to recover money, because Congress specifically incorporated that provision into several sections that have nothing to do with the recovery of monetary benefits.

For example, it incorporated it into a provision that has to do with excluding providers from the program for the commission of certain crimes, which would be section 1320a-7.

It incorporated it into provisions that have to do with imposition of civil money penalties, so it's clearly not a term of art related to the statute that means the recovery of monetary benefits.

It's also clear from the fact that even when Congress meant--

Justice Breyer: So if it doesn't, to go back to Justice Scalia for one second, I don't see any problem with sending them through 405(g) and (h).

Fine, do it.

But I don't see any language in 405(g) and (h) that says you can go that route only if you first refuse to comply with the reg.

I mean, we could send him through 405(g)-(h) reinforcement.

We could do that.

You would have complied with the language.

Most of it would be a waste of time, but--

Mr. Lamken: --The language, Justice Breyer, appears in 1395cc(h).

Justice Breyer: --cc(h).

Mr. Lamken: And that's going to be on page 14, 15--

Justice Breyer: Yes, I have it in front of me.

I have it in front of me.

Mr. Lamken: --Okay.

And that language basically establishes when providers are entitled to review, and that... it states that the provider is entitled to review.

If the Secretary determines that it's not a provider of services, which means that it doesn't comply with the health and safety requirements, or there's a determination described in subsection (2) of the section--

Justice Breyer: Yes.

Mr. Lamken: --which are certain other determinations.

Now, what that means is, the way you can get into 405(g) is when there's a determination by the Secretary.

Absent a determination by the Secretary, you can't get through 405(g), and that was precisely what happened to Freeman Ringer, the beneficiary, and he could not get through 405(g) because he couldn't afford to have the service himself, and the Secretary had a rule that barred payment for the procedure.

And he claimed that in the absence of declaratory relief, that the Secretary's payment-barring rule was invalid on procedural grounds.

He could not have the surgery and could never submit a claim.

This Court held, nonetheless, that his only mechanism for review of the rule was to have the surgery first, submit the claim to the Secretary, and then challenge the Secretary's refusal to pay the claim.

I should also point--

Justice Souter: Mr. Lamken, may I go back to Justice Kennedy's question.

You raised the point that you're implying... or you're using the language of (h) as... to include a term of art.

As I understand... and you've said, of course, you're not, but as I understand it, you're reading that last sentence in (h) as if the words to recover were not even there.

You'd come out the same way without the words recover, I think, because the statute... the sentence would then read, shall be brought under section 1331, 1336 of title 28 on any claim arising, and you're reading it that way, as if the words recover were not... the words to recover were not there, isn't that right?

Mr. Lamken: --No, that's not correct, for two... well, first, as the statute was initially enacted in 1939, it was clear that to recover meant to get money, because that was the only thing at issue, was merely social security benefits.

But as incorporated into the Medicare Act, it's clear that to recover does not mean to get money, because it's incorporated into provisions like the civil money penalties provisions and the exclusion provisions that have nothing to do with recovery of monetary benefits, but--

Justice Souter: That's why I think you're reading it as if the words to recover simply were not there.

Mr. Lamken: --It means to obtain relief, but even if you had to obtain money or obtain some sort of benefit or entitlement, the court interpreted that provision in Ringer as precluding parties from slicing off individual, potential legal barriers to their recovery of money, or to recover--

Justice Souter: But in Ringer also, I mean, one of the claims in Ringer, as I recall, was an individual benefit claim, so that--

Mr. Lamken: --No.

Specifically--

Justice Souter: --No?

Mr. Lamken: --Well, for some of the other beneficiaries, perhaps.

Freeman Ringer specifically disclaimed any right to demand that he get a judgment entitling him to the procedure at issue there, or payment for it.

All he did was seek a declaration that the Secretary's rule prohibiting payment for that procedure was invalid, among other things on APA grounds.

Justice Souter: But there was also a procedural basis for getting him the relief in connection with a claim which would fall under the natural meaning of to recover.

Mr. Lamken: And that's precisely that same basis here under 1395cc(h).

Justice Souter: Oh, I don't see the same basis here.

Mr. Lamken: Any time there's a--

Justice Souter: It's a preenforcement claim.

There's... the word to recover has got to be read out of the statute to make this particular claim fit within it.

Mr. Lamken: --Ringer sought... brought a preenforcement claim as well, and he sought to eliminate one particular legal barrier to his potential recovery.

That's precisely what respondent attempts to do here.

It is challenging the Secretary's enforcement of the requirements of participation.

The Secretary cannot pay, and cannot allow its members to participate in this program, unless they meet the requirements of participation.

And so what they've done is, they've singled out the requirements of participation and said, these are potential legal barriers to our being paid and to our participating in the program, and they have attacked them preenforcement to try and eliminate those barriers.

That is precisely what Freeman Ringer did with respect to the rule that prohibited payment for his procedure.

Justice Souter: May I go back to another answer you gave Justice Kennedy?

You mentioned that the termination remedy was reserved for quite egregious cases.

Is the restriction to the egregious cases in a regulation somewhere?

Mr. Lamken: No, Your Honor.

That's simply a matter of administrative practice.

The Secretary is for--

Justice Souter: A matter of grace by the Secretary?

Mr. Lamken: --That's correct.

Justice Scalia: Do you think the Secretary can be reversed for abuse of discretion?

Mr. Lamken: Yes.

If the Secretary were to implement the statute in a manner that was unconstitutional, or an extreme abuse of discretion--

Justice Scalia: Terminating for a violation that couldn't be appealed here?

Mr. Lamken: --Yes.

That would be reversible error I believe, yes.

Argument of Kimball R. Anderson

Chief Justice Rehnquist: Thank you, Mr. Lamken.

Mr. Anderson, we'll hear from you.

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

I'd like to begin with the question that seems to be troubling the Court, and I think Justice Souter began the dialogue with the question this morning of whether it was possible for a provider to make a challenge to the regulations or the Secretary's rulemaking authority without suffering a termination, and Mr. Lamken initially answered that question yes, and then he said, well, maybe no, and maybe it's discretionary.

I would suggest that the answer is unequivocally no under the statute.

If you have your appendix before you, on page 14a and 15a of appendix A to the Secretary's brief--

Chief Justice Rehnquist: Of the petition or the brief?

Mr. Anderson: --The petitioner's brief, Your Honor.

Chief Justice Rehnquist: The petitioner's brief?

Justice O'Connor: The petitioner's brief?

Mr. Anderson: Yes, the petitioner's brief on the merits... we see that on page 15a of the petitioner's brief on the merit, on the... in their appendix, we see under section 1395cc(h) that this is the really only route for a provider to eventually arrive at the doorsteps of a 405(g) court.

You see in the middle of that paragraph (h)(1), and to judicial review of the Secretary's final decision after such hearing as provided in... as such hearing is provided in section 405(g).

Now, what kind of determination gets us there?

We see that in the preceding sentence.

There has to be a determination by the Secretary that the provider is not a provider of services... in other words, he's not even in the class of institutions eligible to participate... or (2) a determination has been made--

Chief Justice Rehnquist: You say the previous sentence.

It looks like all one sentence to me.

Am I wrong?

Mr. Anderson: --You're correct.

There's two parts to that first sentence, though.

It says, an institution or agency dissatisfied with a determination by the Secretary that it is not a provider of services, or with the determination described in section (b)(2) of this section, shall be entitled to a hearing under 405(b) and to judicial review under 405(g).

You then look over on the preceding page, which we see on page 14a of the appendix.

We see that under (b)(2) the determination there specified is a determination that the Secretary has refused to renew a provider agreement, or has terminated a provider agreement for one of the reasons set forth in (2)(A), (B), or (C).

That statutory language we believe indicates clearly that for an individual provider to assert the kind of constitutional challenge here, we have to basically fall on a sword, subject ourselves to termination or extinction, let our patients be displaced, and then subject ourselves to an administrative process that--

Justice Scalia: Not just subject yourself to it, you have to incur it.

Mr. Anderson: --That's right.

We have to incur it.

Justice Scalia: It's not just that you're exposed to it.

What you're saying is, there has to actually be a termination or a refusal to renew.

Is that your--

Mr. Anderson: That is our only route to a 405(g) court, which the Secretary argues is our adequate remedy, and I think we also have to look at the administrative process that the Secretary would urge we have to be channeled through.

It is the bizarre... would be... it's the most bizarre administrative review process, where the critical factual issues are not heard, the issues in the case are not narrowed, the adjudicator cannot hear or adjudicate your claim, and where the adjudicator has no particular expertise in your claim, and then on--

Justice Ginsburg: --Mr. Anderson, on this argument, the Seventh Circuit said, well, we don't know about any of that.

These regulations are hot off the press.

We have no idea how they're going to be applied and interpreted.

So what you're describing is something that may be, but maybe not, and my question to you is, is there really a significant difference between the Seventh Circuit's bottom line... that is, your vagueness challenge, your not-possible-to-administer-equally challenge... that they wouldn't hear any of those claims because they were not ripe.

Is the bottom line significantly different?

What do you get from the Seventh Circuit decision, apart from the manual, that would be different if the Government had prevailed?

Mr. Anderson: --Well, I think the Government's position is, first of all, these kinds of constitutional claims can never be brought by a trade association, so we would get, under the Seventh Circuit's view, the benefits, the resources--

Justice Ginsburg: But your members could, and you could join your... you could then intervene, so that's not a large--

Mr. Anderson: --Well, even the... even our members cannot individually bring this claim, because this claim is not a claim for benefits, it's not a provider reimbursement claim, it is just a wholly untethered--

Chief Justice Rehnquist: --But how, then, does an association get the right... I thought associational standing depended upon the right of at least one member.

Mr. Anderson: --Well, I think it depends on the fact that at least one member has been injured and has a ripe claim, and I think the Seventh Circuit said at very least our APA claim challenging the fact that the Secretary has promulgated, under the guise of a State operations manual, a rule that--

Chief Justice Rehnquist: But I thought one of your answers to Justice Ginsburg's question was that your members could not have... no individual member could have brought this claim.

Was I wrong in thinking that?

Mr. Anderson: --No, I'm saying that the Secretary's administrative review scheme does not allow this kind... there's not a mechanism for us to bring this claim before the Secretary.

That's why we believe we can bring it directly to the district courts under 28 U.S.C. section 1331--

Justice Ginsburg: But that isn't responsive to... my question is that the Seventh Circuit said, we're not going to throw you out because you sued under 1331, but we're not going to listen to your claim about vagueness, we're not going to listen to your claim predicting inconsistent application, because we don't know how these things are going to work.

Mr. Anderson: --Well, I think what the Seventh Circuit said, that the APA claim was ripe, and that our claim that the regulations effect a deprivation of rights without a proper hearing of the timing and type demanded by the Constitution may or may not be ripe, and remanded that back to the district court, if I recall, for--

Justice Ginsburg: What the Seventh Circuit said was exactly, an industry subject to a battery of new regulations cannot ask for an all-at-once review, but must wait until the agency has worked through the process in administrative adjudication.

That sounds like most of what you're complaining about you could not bring before the court now on ripeness grounds.

Mr. Anderson: --Well, the... here's what the court actually said.

It said, to the extent the council believes that the regulations fail to provide predeprivation hearings at the time and in the form the Constitution demands, the claim may be ripe for decision.

They go on to say that they're going to leave it to the district court for the resolution of that ripeness issue, and then they go on to say that under any circumstance the APA-based objection to the adoption of the manual is within the district court's jurisdiction and should be addressed on the merits.

Justice Ginsburg: That was the only claim that they said was ripe?

Mr. Anderson: As a matter of law, yes.

Justice Breyer: They didn't say... they said may, which is what is bothering me about this.

I mean, I'm not sure you have a ripe claim, and so if you don't have a ripe claim there's just no problem.

You'd simply go through the regular process.

Don't we have to decide that first?

Mr. Anderson: Well--

Justice Breyer: What are we supposed to do, assume that you have a ripe claim and then decide hypothetically?

Mr. Anderson: --Well, certiorari was not granted on the ripeness issue, but I think that we clearly do have a ripe claim as to the APA objection, and as to the remainder I think the Seventh Circuit is correct that it should be left to the district court to determine whether or not ripeness--

Justice Breyer: So if you assume it's a ripe claim, and you do have the language you just quoted at the beginning of your argument, that language seems to say, well, we're sorry, this is an antipreenforcement review statute.

That's what the language does.

So even if it's ripe, you've got to go suffer this penalty because that's what it says.

Mr. Anderson: --I think that's correct, but I think we're--

Justice Breyer: Your response to that is what?

Mr. Anderson: --Well, I think the response to that is, we're really by that issue with Bowen v. Michigan Academy, with--

Justice Breyer: Well, you say Bowen... Bowen was interpreting not... it didn't interpret (h).

They said it interprets 1395ii.

What the court there said is, mutatis mutandis, and so we don't have to reach, it says, the interpretation of (g) or (h).

We have to interpret what the words mutatis mutandis meant, i.e., the equivalent language in ii, and so that's what they were interpreting there.

We're not talking about ii, we're talking about cc.

We're talking about something else, or (g) or (h).

Mr. Anderson: --Well, I think we're really talking about that third sentence of section 405(h).

The Court in Bowen v. Michigan Academy squarely held that the Government was contending that that third section prevented resort to the ground of Federal question jurisdiction under 28--

Justice Breyer: I know there's no doubt the Government was talking about that in Bowen, but the... in Bowen, Michigan Academy, but what the Court said was, we don't have to reach an interpretation of (g) or (h), because we can deal with this by interpreting the equivalent of mutatis mutandis language in ii, and that made it applicable to the instance where, in the absence of the Court's interpretation of ii, there would be no review at all.

Mr. Anderson: --Well, I--

Justice Breyer: This is different, says the Government, because you get review eventually.

You just get it under a certain hardship.

Mr. Anderson: --Well, we get it only if we fall on a sword, and let's talk about what type of review we get under section 405(g).

Section 405(g) courts are courts of very limited jurisdiction.

Chief Justice Rehnquist: You're talking now about the district court?

Mr. Anderson: Yes, I am.

Chief Justice Rehnquist: Okay.

Mr. Anderson: Yes, I am.

Let's assume that we go through this kind of, what I call a Kafkaesque administrative proceeding, where the hearing officer won't hear or adjudicate our claim.

Chief Justice Rehnquist: Which the Seventh Circuit said they just... they didn't know enough about it to agree with you or not, is that right?

Mr. Anderson: I didn't read it that way--

Chief Justice Rehnquist: How did you read it?

Mr. Anderson: --Your Honor.

I just read it to say that our APA claim was ripe, and that as far as the claim that the regulations provide... fail to provide predeprivation hearings, that that would be left to the district court for further factual resolution.

I think that our claim... let's take our APA--

Justice Ginsburg: What you refer to as your APA claim, to be clear on what that was, was that the manual... you contended that the manual required notice and comment, and there had been no notice and comment, so that was a discrete, concrete issue.

Mr. Anderson: --That's correct.

Justice Ginsburg: Unlike your prediction of how these hearings would work.

Mr. Anderson: That's correct.

There's two pieces, but let's take the APA claim for a moment, and let's say we have to channel that through the administrative exhaustion mechanism of section 405(b).

Now we're presenting a claim, an attack on the validity of the Secretary's rulemaking.

We're presenting it to an adjudicator who has no expertise in the area, is barred by the Secretary's instructions from hearing or adjudicating the claim, and then, after we go through this kind of bizarre procedure, then we are before a district court, theoretically, after we've fallen on our sword and been terminated.

Now we're before a district court that is vested with jurisdiction only under section 405(g).

Chief Justice Rehnquist: But your notice and comment claim is really out of the mainstream of this kind of litigation.

In other words, I mean, I don't think the Government's fear is that we're going to have a whole lot of notice and comment claims go to the district court.

It's the substantive challenges to the regulations that are the real problem, so it seems to me that perhaps one could split off the notice and comment claim from the rest of the things, and I'm sure that wouldn't please you.

Mr. Anderson: No, it wouldn't please me, and I don't think it would be... I don't think that it would be justified under the statutory language.

I don't see any congressional intent to split off those kinds of claims, and I think that the legislative history and the statutory structure has already been reviewed--

Chief Justice Rehnquist: But when you rely on the notice and comment claim, you're putting the administrative procedure in its least appealing light, it seems to me.

I mean, certainly I thought the Seventh Circuit said we just don't know how the review procedure will go, because these things are brand new, on the substantive claims.

Mr. Anderson: --Well, let me talk about challenge to the regulations for a moment, because that seems to be a concern.

The regulations that the Secretary is adopted we were challenging in part because they preclude even administrative review of significant, potentially harmful events to our members.

They preclude review of certain survey and enforcement determinations, including the issuance of deficiencies without a remedy, they preclude any administrative review of the Government's choice of remedy, so you get... you can get terminated, or you can get fined, or you could have State monitoring.

You have no latitude or permission by the Secretary to challenge the choice of remedy, and there is no administrative review regarding the determinations regarding the level of noncompliance.

We say that these regulations are beyond the Secretary's statutory authority, and are also unconstitutional.

Now let's say we are--

Chief Justice Rehnquist: How could they be unconstitutional?

I mean, your client is free to run the nursing home and give up the Federal support.

Mr. Anderson: --Well, that's an interesting constitutional question of whether the Secretary can allow us to participate and then inflict reputational injury, which I'll talk about in a moment, and other harm without a predeprivational hearing.

One of the reputational harms we allege is the fact that these determinations, which I've outlined here, and that are nonreviewable in certain circumstances unless you fall on a sword, have to be published.

They stay on your record.

They have to be put on a Web site.

They have to be posted to the State agencies.

They have to be posted to residents and patients.

The Secretary's agents are allowed to characterize the institution as a poor performing-facility, or a deficient facility, and we have alleged that these kinds of events causes reputational injury, financial injury, which the Secretary, by her instructions to her agents, has prohibited any kind of administrative review unless you're willing to fall on the sword and suffer a termination.

Justice Kennedy: But you suggest no limitations for your theory.

Your answer to the Chief Justice's question indicates to me that if we rule in your favor the current regime of not attacking the regulations except in a disputed claim will be completely displaced.

I see no limitation on your theory.

Mr. Anderson: I think the limitation is the one... you know, I think the scheme that I propose is the one that Congress has intended, that when you have a statutory or constitutional challenge to the Secretary's rulemaking or regulations that is completely untethered to a claim for benefits, or completely untethered to a claim for provider status, termination or nonrenewal, then those types of claims do not have to be channeled through the Secretary's administrative--

Chief Justice Rehnquist: But if a claim is completely untethered, what is the standing to bring it?

Mr. Anderson: --The standing is the fact that these rules and regulations that I've described are actually being enforced, and they are actually causing harm to our members.

Chief Justice Rehnquist: Well then, that suggests that there may be... might be someone who could bring a so-called tethered claim.

Mr. Anderson: Yes.

You tether it to a termination.

You fall on... the provider says, okay, I'm just not going to comply with this.

I'm going to suffer a termination, and then I will tether it to a termination claim under section 1395cc(b).

Chief Justice Rehnquist: But your argument is that you should bring what you call an... you can bring what you call an untethered claim, that without having suffered any injury, kind of an advanced declaratory judgment, is that correct?

Mr. Anderson: No.

I would not agree that we could bring that without suffering any injury, and I would suggest that we have alleged in our complaint and, indeed, we submitted to our district court evidence in the form of affidavits of actual injury.

Justice Ginsburg: How does it differ from the situation of the one plaintiff in Ringer who said, I can't have post-review because I haven't got the money to get the procedure and be denied the benefit, so I want an up-front declaratory ruling that I'm entitled to reimbursement?

Mr. Anderson: I think the answer is that Ringer itself and its progeny has characterized that case as one that is at bottom a claim for benefits, so there you had a claim that was not, as I said, totally untethered from an individual claim for benefits.

Justice Breyer: Do you have any client--

Mr. Anderson: This is the--

Justice Breyer: --Don't you have any... what I don't understand as a practical matter is, there must be somebody, in all the clients that you have, that could violate some minor provision of this thing and incur a fine of 2.50 dollars and make all the claims that you want to make in the context of litigating the legality of that fine.

Why can't you do that?

Mr. Anderson: --Well, for the reason I attempted to address at the outset, which is, civil monetary penalties are not reviewable by a section 405(g) court.

To get to a section 405(g) court... I'm using that to refer to the judicial review described in section 405(g) of the Social Security Act.

You only get there, for a provider, through section 1395cc(f).

Justice Breyer: What I... I thought it was 1395x.

Is there some provision... I mean, it has three things, you know, which you can't tell what they are, on the opposite page, on page 14a, and in looking at those things it looked as if some of them might be sort of minor things you could violate, incur a fine, and get all this raised.

Mr. Anderson: Yes, but as I read that, there have... paragraph (2) goes hand-in-hand with (A), (B), (C).

In other words, you have to have a refusal, or a renewal, or a termination after the Secretary has made one of those determinations.

Do you see, Your Honor, the words, after the Secretary?

Unknown Speaker: 0 [offmike.]

Mr. Anderson: Okay.

Unknown Speaker: 0 [offmike.]

Mr. Anderson: Yes.

Well, the whole thing is very dead.

Justice Kennedy: Does the Secretary have any record of wishing to cooperate with providers for little test cases?

Mr. Anderson: Not that I'm aware of, but you know, that's exactly what the Sixth Circuit did in the... in its decision in Michigan, the Michigan association case that is the other half of the split that brought us here, the Michigan association case.

There, the Court candidly acknowledged that the practical difficulties that the nursing homes face is pretty much the same catch-22 that the Supreme Court addressed in McNary v. Haitian Refugee, and they said that that really didn't trouble them.

We are confident that at least one of its members will find a test case worth pursuing through which the association's constitutional and statutory claims have been heard.

I say that's ridiculous, and bad policy, that without, you know, a scintilla of evidence in the legislative history or the statute, we would arrive at a conclusion urged by the Secretary where our member... we cannot bring these claims at all through an association, and our individual members can only bring them if we fall on our sword.

We put--

Justice Ginsburg: On the question of cooperation, Salfi itself was an example of that, wasn't it, because as I understand that claim, it hadn't gone the entire administrative route, but the court said, the Secretary can waive the exhaustion part of it.

What can't be waived is going in that 405 (g) and (h) door, but they hadn't come to the end of the line before the administrator in Salfi, and yet the court said that judicial review under 405(g) and (h) would be okay if the Secretary waives going through to the end.

Isn't that correct about--

Mr. Anderson: --Well, I think--

Justice Ginsburg: --that there was cooperation to that extent in Salfi?

Mr. Anderson: --I think for Mr. Salfi, he had come to the end in the sense that he had been finally denied the benefit he had claimed but, to be sure, Your Honor is correct that he had not--

Justice Ginsburg: She had not.

It was--

Mr. Anderson: --You may be right.

Justice Ginsburg: --Mrs. Salfi.

Mr. Anderson: She had not completely exhausted her administrative remedies, and the court said that exhaustion could be excused.

It was discretionary with the Secretary.

Justice Breyer: Do you have any... I can understand you're upset about the concern that you have to be terminated from the program before you can test its legality.

Is there any other concern?

Is there... I mean, what I mean by that is, you... suppose that you could have preenforcement review, but you had to exhaust procedure before the Secretary before you got it.

That is, you had to write to the Secretary, or ask the Secretary for a hearing, or ask the Secretary to consider changing the regs, or present your objections, get a decision from the Secretary.

Mr. Anderson: Yes--

Justice Breyer: Do you have any objection to those normal kind of exhaustion requirements?

Mr. Anderson: --Yes, I do have some other concerns, because the normal kind of exhaustion requirements are bizarre as applied to this situation.

We... the Secretary would have us incur the expense and time, which often takes months or years, to go through an administrative process where the hearing officer ALJ is barred from hearing our evidence, commenting on it, or adjudicating it.

And then, as I was trying to explain, if we go through that process without an adjudication, without any fact-finding, without any clarification of the issues, now we finally have the right to review under a district court--

Justice Breyer: What... I get that.

Mr. Anderson: --Okay.

Justice Breyer: Now, what happens under a... you happen... in criminal cases even, you do this all the time.

You say, Secretary, I don't want to comply with A, B, C, and D. The Secretary says, you have to.

You say, okay, we'll make a stipulation here.

We'll do it under protest.

You may refuse to enter into the agreement, you see, because we're not complying with A, B, C, D.--

Now, we'll agree... we'll appeal all that, whether you're right, you have to do it or not, and in the meantime, we'll go ahead.

All right, you see... in other words, you do it the same way like a suppression of evidence case or something.

They say, we're going to convict you, but we get to appeal the suppression of evidence.

Isn't there a way of doing that, making an agreement?

The answer is, you don't know.

Mr. Anderson: I don't know, and I don't think there's any history of the Secretary being so benevolent.

I also want to comment, if I may... you said do I have any additional concerns, and I've tried to articulate the falling on the sword, the futility of the administration of the exhaustion remedy, but I have an additional concern about the constraints that section 405(g) puts on a district court when one of these claims... hypothetically it's now gone through months, if not years.

Now this claim arrives at the doorsteps of the district court vested with jurisdiction only under section 40... 405(g).

That court's hands, I would suggest, are really tied.

That court is sitting as basically a court of review.

Section 405(g) says it may affirm, modify, or reverse the Secretary's decision.

The Secretary herself has taken the position that the district courts, sitting pursuant to section 405(g), have no fact-finding ability, that they are sitting literally as courts of appeal.

She took that position in a case called Grant v. Shalala.

It's a Third Circuit decision, and the Third Circuit sustained the Secretary's position, finding that the district courts had no fact-finding ability.

The district court then is presented with an inadequate factual record, because the ALJ couldn't hear it, and the district court, if you read 405(g) literally, can only remand to the Secretary, that as we know from this Court's decision in the Nelconyan case, its powers to remand are very limited.

It can remand only if the claimant has presented new evidence, and by count of a rule 60 burden has to demonstrate that the new evidence didn't exist and couldn't have been presented to the Secretary, and that good cause exists for not presenting it to the Secretary on the way up through the administrative process.

So I would suggest that first of all we have the falling on the sword, then we have the futility of presenting your claim to an ALJ who won't hear it or rule on it, and then you get to a court who the Secretary has persistently maintained has very limited powers to sit merely as a court of review.

I suggest that that is absurd, to impute that intent to Congress with nary a scintilla of evidence in the legislative history--

Justice Stevens: But I thought the Secretary had conceded in this case that you could make your record in the district court.

Am I wrong on that?

Mr. Anderson: --I haven't heard that concession from the Secretary.

I think that she's certainly taken the position in other cases that the district court is constrained.

Justice Stevens: I'll look through the briefs again.

Justice Ginsburg: As to questions over which the Secretary has no confidence, like constitutional questions, then the district court is the first instance decider.

Mr. Anderson: Yes, but how can the district court... the district court is going to be constrained, because sitting as a court of review, it is not going to enjoy the benefit of a fully developed factual record that may be necessary to resolve the constitutional claim and so you have kind of a bizarre ping pong match, where the case comes up to the district court without an adequate record and the district court, trying to comply with 405(g) and this Court's decision in Nelconyan, says well, I have to remand it to the Secretary's ALJ who--

Justice Scalia: Not a problem.

Mr. Anderson: --can't hear the claim.

Justice Scalia: Not a problem.

We can just disagree with the Secretary that the district court can't take evidence.

I mean, if this were a court of appeals, I can understand that position.

But you have a district court.

They're used to taking evidence.

Mr. Anderson: You could.

I'm just suggesting that the Secretary herself has blocked us at the outset, in the middle, and at the end.

Justice Scalia: Oh, I have no doubt that she has not been benevolent.

Unknown Speaker: [Laughter]

Mr. Anderson: I'd like to just comment briefly, before I sit down, on one final point about whether or not Bowen v. Michigan Academy has any remaining vitality, or has lost its precedential force.

The Secretary suggests that it does.

I suggest that if that's the case, I think that point's been lost on this Court, which has repeatedly cited it for the proposition that I think it stands for, that section 405(h)'s preclusive effect does not reach to collateral challenges to the validity of the Secretary's--

Justice Ginsburg: Do you think the Court would have reached that conclusion if part B determinations had been subject to judicial review the way part--

Mr. Anderson: --Yes.

Justice Ginsburg: --D were?

Mr. Anderson: Yes.

I think the linchpin of the decision was a straightforward statutory construction. I don't believe the linchpin was the presumptions, or creating an exception to the statute, because--

Chief Justice Rehnquist: Thank you. Thank you, Mr. Anderson.

Mr. Anderson: --Thank you.

Chief Justice Rehnquist: The case is submitted.

Attribution:

The Oyez Project

Featured:

Exxon Corp. v. Central Gulf Lines, Inc. - Oral Argument

Fri, 09 Jan 2009 14:49:43 +0000

Case:

Exxon Corp. v. Central Gulf Lines, Inc.

Media File:

90-34_19910415-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Armand Maurice Pare, Jr.

Chief Justice Rehnquist: We'll hear argument next in Number 90-34, the Exxon Corporation v. Central Gulf Lines, Inc.--

Mr. Pare.

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

On October 26, 1983, petitioner effected, that is it arranged under its contracts, advanced its credit and paid for a supply of bunker fuel oil at Jeddah, Saudi Arabia.

3 weeks earlier it had effected a similar supply in New York.

At all relevant times the vessel, William Hooper, was operating in the maritime commerce of the United States.

The district court and the court of appeals held that with respect to Exxon's delivery in New York, Exxon was entitled to admiralty jurisdiction, it was entitled to a lien, and it was entitled to summary judgment.

However, with respect to Exxon's delivery at Jeddah, Saudi Arabia, the district court and the court of appeals held that that case was outside admiralty jurisdiction.

The district court's opinion and the court of appeals' opinion was based on this Court's 1855 decision in Minturn v. Maynard.

Minturn stands for a per se rule that the services provided by general agents are outside admiralty jurisdiction.

Unknown Speaker: Mr. Pare, before you go any further, do you... what do we have before us here?

The question whether there is admiralty jurisdiction or the question whether there is an admiralty lien, or both, or is the one automatically subsumed within the other?

Mr. Pare: Your Honor, the primary question is whether there is admiralty jurisdiction.

The suit--

Unknown Speaker: Can I find that there is admiralty jurisdiction and say that I don't know whether there's a lien or not?

Is that possible?

Mr. Pare: --It is possible to find that, Your Honor.

However the evidence on this subject, as we will get to later, is crystal clear that on the facts of this case Exxon should be, but for the Minturn rule, entitled to a lien.

Since Minturn there has been a transformation in the legal thinking--

Unknown Speaker: Well, will there be cases in which there is admiralty jurisdiction but no lien when the cause of action is to recover for the furnishing of money or supplies?

Mr. Pare: --For the furnishing of--

Unknown Speaker: Of money or supplies.

Mr. Pare: --There, in such cases there will be, presuming the necessary ingredient is admiralty jurisdiction, but whether there is a lien will depend perhaps on, to some extent on the status of the party providing the lien involved.

But if there is a particular clause in the contract, such as there is in this case, then clearly under the existing law that party should be entitled to a lien.

Not all admiralty jurisdiction cases give rise to a lien.

Unknown Speaker: No, because there are admiralty collision cases, et cetera.

But will there be cases in which there are suit brought for recovery of monies on account of monies or supplies advanced to the shipper where there will be admiralty jurisdiction but no lien?

Mr. Pare: Your Honor, I could certainly conceive of... I would believe that in the area of physical supplies of necessaries to vessels, in most cases that I can conceive of right now that should probably give rise to a lien.

Unknown Speaker: Of course they could recite in the contract I am relying exclusively upon the solvency of the owner.

If they recited that in the contract there wouldn't be an implied lien, right?

Mr. Pare: That is correct, Your Honor.

Unknown Speaker: But it would still be an admiralty contract.

Mr. Pare: That is correct, Your Honor.

Unknown Speaker: So it would be resolved in an admiralty court--

Mr. Pare: That is correct.

Unknown Speaker: --but without a lien.

Mr. Pare: That is correct, and there is--

Unknown Speaker: Is it a correct... is it a correct statement of the law to say that not every maritime contract action gives right... gives rise to a maritime lien?

Mr. Pare: --Absolutely, Your Honor.

In fact, for instance, in the case of the payment of insurance premiums.

They do not give rise to a lien and are not considered necessaries under the lien act.

Unknown Speaker: Nonetheless admiralty jurisdiction would entertain that sort of suit?

Mr. Pare: Absolutely.

This Court's decision in Insurance Co. v. Dunham.

Since Minturn there has been a transformation in the legal thinking with respect to jurisdiction.

First, a contract, in order to be maritime, need not be performed substantially on the sea.

Secondly, this Court has recognized that at the heart of admiralty jurisdiction is maritime commerce.

The Minturn rule excludes the services provided by general agents, which all agree are critical to maritime commerce.

It is for that reason that the commentators and the courts, including the Second Circuit, have urged that this Court reject the Minturn rule.

Respondent argues that to reject the Minturn rule will open up the Federal courts to suits by all agents of all types.

We submit that this is incorrect.

First, Minturn itself is a discrete rule.

As the commentators, and I make particular reference to Gilmore and Black at pages 22 and 29 of their treatise, have indicated that in other areas of jurisdictional... in other jurisdictional areas the jurisdiction is fairly well defined.

Secondly, there is a rational jurisdictional boundary that has already been offered.

This Court has never ruled on the so-called preliminary contract doctrine.

However, in the recent decision in the Second Circuit of Ingersoll Milling v. Bodena, which is found at 829 F. 2d 293, specifically at page 302, that court has offered a jurisdictional rationale which seems to make sense and is consistent with the commentators.

Unknown Speaker: Well, why isn't the preliminary contract rule adequate for differentiating contracts within and without admiralty jurisdiction?

Mr. Pare: Your Honor--

Unknown Speaker: It seems to have been employed quite extensively.

Mr. Pare: --I think a redefined preliminary contract rule, as apparently exists in Bodena, would be an acceptable way to delimit admiralty jurisdiction.

Specifically in the Bodena case there was an agent involved.

That was a freight forwarding agent.

The freight forwarding agent performed certain services.

Specifically he arranged and he prepared bills of lading.

Under the old preliminary contract rule such services would be considered preliminary because they were preliminary to the actual marine contract, i.e. the bill of lading.

The Bodena court, however, did not so hold, and it held that the services provided by the freight forwarding agent were themselves, quote, "essential to the voyage", unquote, and on that basis held that those services were not preliminary services.

Unknown Speaker: Well, that's kind of a modification, is it, of that preliminary contract rule.

Now here you have a contract to make some phone calls to provide fuel in bunkers.

How is that a maritime contract, do you suppose?

Mr. Pare: Well, Your Honor, we submit that the essence of what is going on in here, as this Court has recognized, you don't look to what is going on physically on the vessel but you look at the essence of the transaction in a maritime contract.

And what was going on here was that Exxon was not only arranging under its contracts, but it was advancing its credit and it was paying for the fuel.

Without Exxon's involvement that physical delivery never would have taken place.

Perhaps more importantly, to answer Your Honor's question, the key here should be that what is being done is there is a performance of a service that is essential to the operation of the voyage.

And that, I think, would be the key to any jurisdictional rationale.

Unknown Speaker: Well, I wanted to ask you, you want the Court to overrule Minturn, but I'm curious exactly what rule you would have us adopt?

The scholarly writing on the subject suggests several different ones, and it's a little hard to understand what your proposal is.

Anything that your, would enable your client to win, or do you have--

Mr. Pare: No, Your Honor.

And in fact--

Unknown Speaker: --a more specific rule in mind?

Mr. Pare: --In fact, your Honor, we believe that rejecting the Minturn rule itself should enable any general agent to have admiralty jurisdiction.

That is not inconsistent, and in fact it is perfectly consistent with what we are saying with respect to other agents.

If you have a traditional maritime agent, such as a freight forwarder, who performs services which are essential to the operation of the voyage, not perhaps the general business of shipping but the operation of the voyage, then such services should be considered within admiralty jurisdiction.

Unknown Speaker: What about a travel agent who gets the passengers for a cruise line?

Would that be an admiralty contract?

I mean, I assume if you're carrying passengers they're just as essential for your voyage as if you're carrying freight.

I have trouble... you know, it's the devil we know is maybe better than the one we don't know.

I don't know where we're going if we--

Mr. Pare: Well, Your Honor, the devil that we do know has led to mass confusion--

Unknown Speaker: --He's a pretty bad devil, yes.

Mr. Pare: --as we have indicated in our brief.

To answer your, Your Honor's question specifically, certainly, if I may step back and take the cargo setting, if somebody performs services that lead to cargo being put on board the vessel the argument would perhaps be the same, that the cargo is the service.

I would submit that the physical operation of the vessel is a higher degree, or a stronger degree, of what is going on, and you could make a rational distinction and keep both cargo, the cargo broker and the passenger or the reservation people out, but yet keep people who run the vessel, people who provide fuel, people who provide the crew, people who provide what is necessary for navigational activity in.

Unknown Speaker: Well, Mr. Pare, you say some agents would be kept out by your rule, the general agent would be put in.

What's the difference between the general agent and the freight forwarder and the passenger agent?

Mr. Pare: Well, Your Honor, it's almost by definition that a general agent performs key services on behalf of the vessel.

And it's almost by definition that the general agent should be in because he is performing services which are essential to the voyage.

Unknown Speaker: Well, is that actually how a general agent is defined, is that he performs services that are essential to the voyage?

Or is that simply your equation of the two things?

Mr. Pare: There are several definitions of what a general agent is.

I believe in this case the district court and the court of appeals agreed the definition should really key off continuity of service.

So to answer Your Honor's question, there may conceivably be some situations in which a general agent does not provide services that are critical to the operation of the voyage, but right now I cannot conceive of any such situations.

Unknown Speaker: If the general agent in a particular case did not provide services that were essential to the operation of the voyage, would that part of the general agent's services nonetheless be subject to admiralty jurisdiction?

Mr. Pare: It would depend on what they were, Your Honor.

Unknown Speaker: So the fact you have a contract of general agency doesn't get you an admiralty jurisdiction automatically?

It depends on the nature of the services to be provided?

Mr. Pare: I would think so, but certainly in the normal course of the way the steamship business runs, as I say, I cannot conceive of a situation where a general agent would be performing services which were not essential to the voyage.

Unknown Speaker: May I ask you a question, Mr Pare?

In your view was Exxon a general agent?

Mr. Pare: Well, that certainly was something that we opposed at the court of appeals level, but lost, and we take that finding for what it is.

Unknown Speaker: So all the talk about general agents doesn't really decide this case if Exxon is not a general agent?

Mr. Pare: No, Your Honor, but the corollary or the other part of what we're arguing here is really one and the same, because if... certainly Exxon is performing an essential maritime service.

And--

Unknown Speaker: Well, I can understand an argument that an agent that performs... services essential to the voyage be the kind of relationship that supports admiralty jurisdiction.

I'm a little puzzled about all the argument about the status of general agents, and why that is relevant to this particular case.

Mr. Pare: --Well, simply because the finding, the final finding in this case, is that Exxon was a general agent.

Unknown Speaker: Was a general agent?

Mr. Pare: Yes.

And under the doctrine--

Unknown Speaker: Holding of Minturn that general agents are per se excluded from admiralty jurisdiction.

Yeah.

Mr. Pare: --That is the per se rule of Minturn, yes.

Unknown Speaker: Well, was this case even within the Minturn rule?

Mr. Pare: Well, that's what the court of appeals found, Your Honor.

Unknown Speaker: Well, do you agree with that?

Mr. Pare: Well, if you take the proposition that a general agent is one who provides continuity of service, which is what the restatement on agency provides, then we are a general agent and we are therefore covered by the Minturn rule.

Unknown Speaker: You couldn't make the argument that in Minturn there was a wide variety of services, and here just the supply of fuel?

Mr. Pare: We made that argument in the court of appeals and we lost.

Unknown Speaker: The court of appeals really thought that if you supplied napkins to the ship regularly for 20 years you become a general agent?

Is that it, just continuity?

It doesn't matter subject matter at all?

Mr. Pare: Well, I perhaps would be not speaking fairly about the court of appeals if I were to say that they would agree with that.

I believe that they would probably still be looking for some finding of an essential marine supply.

And certainly in the run-of-the-mill Minturn, Peralta, Binnings-type cases there is no question about the fact that a general agent provides key maritime services, and not simply napkins.

I have never seen such a case in the general agency setting.

Unknown Speaker: Under Minturn we know that general agents are excluded from admiralty jurisdiction.

Does it follow a fortiori from that case that freight forwarders and passenger agents are also excluded from admiralty jurisdiction?

Mr. Pare: It does not follow a fortiori.

And in fact it is only by virtue of the fact in Second Circuit, that the Second Circuit has fused the general agency rule with the preliminary contract rule, that they have cited cases like Minturn in nongeneral agency cases.

Unknown Speaker: So your position would be that you're not asking us to move admiralty jurisdiction outward all the way in a sense?

Mr. Pare: Not at all, Your Honor.

We're only asking that you overrule the per se arbitrary rule in Minturn.

And there is no danger there in setting any greater boundaries for admiralty jurisdiction because the rule simply would be that any services that are performed by a traditional maritime agent that are essential to the operation of the voyage would be entitled to admiralty jurisdiction.

Unknown Speaker: The thing that bothers me is I don't understand, you are not arguing that even if Minturn continues to state the correct rule for general agents, you should nevertheless win because you're the kind of agent that provided essential services and therefore should support admiralty jurisdiction?

Mr. Pare: If it were still within our power to argue that we weren't a general agent we would certainly argue that in the alternative.

Unknown Speaker: I see.

You think you're beaten by the findings of the lower court on that?

Mr. Pare: Yes, Your Honor.

We certainly have not urged those arguments here.

The logical corollary to this rule would be that any agent in the maritime area who provides essential maritime services and who advances his credit and pays for them is entitled to a lien.

That is consistent with the commentators and that is, I would refer the Court specifically to Gilmore and Black at pages 31 and to Benedict at section 183.

It is also, of course, consistent with the goal of admiralty jurisdiction, which is the protection and the promotion of maritime commerce, and not the lining up of contracts along a chain.

In this case Exxon, but for Minturn, should have a lien.

That is true under the decisions in the Golden Gate and it is also true by virtue of the fact that Exxon advanced its credit under Panamanian Flag Barge.

There should be no remaining issue before this Court.

We have indicated in our brief why any other points that have been urged by Central Gulf are insubstantial.

Unknown Speaker: It isn't entirely clear to me that you have even raised the lien question in your questions presented for certiorari.

It seems to me they pertain mostly to jurisdiction.

Mr. Pare: Well, Your Honor, for purposes of judicial economy and also for purposes of clarity in this confusing area, we respectfully submit that it would be appropriate and in keeping for the Court to pass on the lien question and direct the lower court below to enter judgment in favor of Exxon.

I would like to reserve the rest of my time for rebuttal.

Unknown Speaker: Very well, Mr. Pare.

Mr. Nightingale, we'll hear now from you.

Argument of Stephen L. Nightingale

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

The Second Circuit disposed of this case its per se rule that agency contracts cannot give rise to obligations enforceable within the admiralty jurisdiction.

As the briefs demonstrate, that rule has been widely criticized by other courts, by commentators, and indeed by the Second Circuit itself in the Peralta case.

Perhaps even more important, the rule produces very anomalous results.

Two firms furnishing essentially the same goods or services, assuming the same risk of nonpayment, and occupying essentially the same relationship to maritime commerce are treated differently based solely on the legal label that is given to the relationship as a whole.

Unknown Speaker: Well, what is the label that is given to the firm that is allowed to recover in your two examples?

Mr. Nightingale: Your Honor, we believe that the test should be--

Unknown Speaker: No, I'm not asking what the test should be.

You say that the Minturn rule produces an anomaly because two people doing basically the same thing one loses and the other wins.

What is the doctrine espoused by the courts which let the second person win under the Minturn?

Mr. Nightingale: --Your Honor, this case is the perfect example.

Exxon--

Unknown Speaker: Well, this person lost.

Mr. Nightingale: --Exxon, with respect to one of the deliveries at issue, the New York delivery, it was characterized as a seller and it won.

It got a lien as xx the fuel supplied in New York because the court concluded that in that, with respect to that transaction, it was wearing its seller hat.

Unknown Speaker: So it's the intervention of an agent, basically.

Mr. Nightingale: That's correct.

The Second Circuit's rule is whether or not the agent is a so-called special agent, a general agent, or an agent under a so-called managing agreement.

That individual or that firm is out of court under admiralty jurisdiction regardless of the substance of what it does for the ship owner or the shipping industry.

And we think that's an anomalous rule.

Our--

Unknown Speaker: Now, normally someone who supplies necessaries to a vessel in reliance on the credit of the vessel is entitled to a maritime lien?

Mr. Nightingale: --That's correct, Your Honor, with this qualification.

Under the Federal Lien Act it's not necessary for that claimant to prove reliance on the credit of the vessel.

The statute establishes a presumption which unless waived by means of a showing that--

Unknown Speaker: But because of the application of Minturn that relief is denied if the supplier is characterized as a general agent?

Mr. Nightingale: --That is true, again, I'm sorry, with one qualification.

In some circuits the general agent rule is viewed as a rebuttable presumption.

In the Third, Fourth, and Fifth Circuits a general agent is allowed to come forward with an express or implied agreement showing reliance on the credit of the vessel and establish a lien.

The Second Circuit holds that the status of an agency forecloses a lien altogether.

And that is a very significant, incidentally, doctrinal difference--

Unknown Speaker: And what do you think the test should be?

You started to say.

Mr. Nightingale: --We believe that the test should be, should depend on the nature of the goods or services furnished, regardless of the legal label.

There are a number of cases that show those sorts of services that have been considered traditionally within admiralty.

Provision of fuel to a vessel is a traditionally... is a traditional necessary.

It is the sort of service that has traditionally been considered within admiralty jurisdiction.

Unknown Speaker: Would that include some general broker in the oil business who could just buy and sell oil all over the world, and just happened to fill a contract in one place?

Mr. Nightingale: My understanding, Your Honor, is that the admiralty jurisdiction extends only to those contracts providing goods or services for a particular vessel.

In other words, if the contract is I'll fill your tank every 2 months, and some of it may go into your vessels and some of it may go into your office buildings, that that would not be a contract within admiralty jurisdiction.

Unknown Speaker: What about a spot purchase just for a particular vessel?

Then it would be covered, I guess, even if just through a general broker?

It's the only contact he ever had with the company, but he arranged a purchase to fill up the ship when it left Saudi Arabia or wherever it was.

Mr. Nightingale: An owner engages someone to make a spot purchase, that person pays for the fuel, puts it... it is put aboard the vessel, whether by the spot purchaser or someone else, we believe that's within agency... I mean within, excuse me, admiralty jurisdiction.

It depends again on the substance of what happened, how closely related is the service or the provision of goods in relation to the maritime commerce.

Unknown Speaker: I take it--

--Did you understand the rule suggested by Mr. Pare, is that the same rule that you suggest or are there differences between you?

Mr. Nightingale: I don't understand there to be any differences, Your Honor.

Mr. Pare operates as an admiralty lawyer.

I don't.

He operates, I believe, with an understanding of what it is that a general agent traditionally does, and works with the understanding that a general agent is a husbanding agent who buys necessaries.

That is the central function of a general agent.

I don't believe that Mr. Pare would suggest that if, as clause 10 of a general agency contract it was agreed that the agent would build an office building, that that would be within admiralty jurisdiction.

Unknown Speaker: Tell me if I'm right.

I understand it to be the case that the question whether there's a lien and whether there's maritime jurisdiction are separate questions, but because of this Maritime Lien Act they tend to merge, because maritime jurisdiction is important not just because you get before a maritime court but because if it... if there is maritime jurisdiction the Maritime Lien Act applies and you get the lien on much more liberal terms than you otherwise would.

You don't have to show all sorts of things that you would otherwise have to show.

Is that what's going on here?

Mr. Nightingale: Yes, Your Honor.

I think it's important--

Unknown Speaker: They don't really care what court they get into, whether it's a maritime court or not.

They want the lien, right?

Mr. Nightingale: --In this particular case it's essential.

In other cases it may assure access to a Federal forum.

Let me discuss briefly the relationship between the statute and the lien, because I understand that is one of respondents' principal points in opposition to the result we suggest.

Respondents suggest that the statute forecloses adoption of the rule that we advocate here.

The statute does not speak to what causes of action are within the admiralty jurisdiction.

If, for example, Exxon had brought an in personam action, I don't believe it could fairly be argued that the lien act would foreclose admiralty jurisdiction.

So what the lien act does, as Your Honor suggested, is to provide that when admiralty jurisdiction is otherwise available, the lien act is potentially available as a means of providing a lien.

It is not even the exclusive source of a lien, incidentally.

It does not purport to occupy the field or exclude other arguments for a lien.

There are liens that exist independent of the statute.

A second point in opposition to the rule that we suggest is that it would undercut the stability and certainty in an area of jurisdiction.

The devil we know is better than the devil we don't know.

First of all, it's clear that the Minturn has not... the rule of the Minturn has not provided stability in this area.

There is disagreement among the circuits as to whether special agents are outside the rule, as to whether managing operators are outside the rule, even within the confines of general agents as to whether this rule is a presumption or a conclusive rule of law.

Secondly, this Court, of course, could select from among those approaches, choose one, and make it the national rule.

But we submit that so long as the rule depends on status and not function, that the rule will continue to generate uncertainty.

The lines between agents, special agents, managing agents, are not clear.

That's point number 1.

Second point, so long as those distinctions don't line up with the substantive considerations underlying admiralty jurisdiction they will be the subject of continuing controversy.

They are traps for the unwary, as presently constructed, as the Court indicated.

Exxon might have had trouble anticipating that it would be considered indistinguishable from Mr. Minturn.

Thirdly, it is not the case that the shipping industry is less important now than in the 1850's.

This is an industry whose importance is growing.

The grant of admiralty jurisdiction to this Court reflects, first, that... this Court and the Federal courts reflects first the national importance of that industry, and second, we believe, the judiciary's responsibility for seeing that that jurisdiction is exercised in a rational fashion, in cases like the Maret and the Genesee, in which the Court extended admiralty jurisdiction to the inland lakes and waters.

In other cases, the Court has not hesitated to reconsider decisions that have spawned uncertainty and have resulted in anomalous limitations on jurisdiction.

Thank you very much.

Unknown Speaker: Thank you, Mr. Nightingale.

Mr. Montbach, we'll hear now from you.

Argument of Francis A. Montbach

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

The issue before this Court is whether the rule of law that an agency contract is not a maritime contract should be overturned.

The district court below declined to grant admiralty jurisdiction to Exxon's claim, holding that preliminary services are not within such jurisdiction.

While preliminary services may relate to maritime services and are often helpful for the operation of a vessel, they are essentially nonmaritime in nature.

They are shoreside services.

There is nothing inherently maritime about these services.

There is nothing in the nature of preliminary contracts that distinguishes them from other shoreside contracts or warrants the extra security of a lien upon a vessel.

In this instance the vessel--

Unknown Speaker: Why can't... wow.

I thought we were talking about agency contracts, general agencies, and now we're talking about preliminary versus nonpreliminary.

Why can't we adopt that rule, I mean, the rule that preliminary contracts don't make it, but no rule that agency contracts as a class don't make it at all?

Is every agency contract involved with preliminary contract?

Mr. Montbach: --Your Honor, we submit that an agency contract is, by its very nature, a preliminary contract.

It is--

Unknown Speaker: Why?

Mr. Montbach: --It is no different from any other non-maritime contract.

In this instance you had a, they were providing for a supplier.

They were not supplying themselves.

Exxon in this instance placed an order a number of weeks beforehand, in fact took over an order that had been placed beforehand, typical of an agency, and then sat back, did nothing with regard to the actual supply... someone else did that, someone that they had a separate arrangement with... and then a week or so afterwards found out that the order had actually been fulfilled and then did their other administrative function of a collection.

So that we don't think that the rule should be changed at this time.

In a commercial context it is known that agency contracts, general agency contracts, are not within admiralty jurisdiction.

Unknown Speaker: I take it, would you say that the... when Exxon itself is furnishing the fuel, such as in New York, would that contract to that extent be within maritime jurisdiction?

Mr. Montbach: At that... in their status as a physical supplier in New York, our position was that they were not entitled to a lien, but as far as being a maritime contract, as a physical supplier, as Justice O'Connor said--

Unknown Speaker: So that you think--

Mr. Montbach: --They had the--

Unknown Speaker: --that contract to that extent would be within maritime jurisdiction?

Mr. Montbach: --When they had that hat on, yes.

When they had their agency hat on to procure somebody else or to provide for somebody else, be it themselves--

Unknown Speaker: Well, didn't they do a little bit more in this case?

They not only... they not only got somebody else to furnish the fuel, but it became necessary for them to pay the supplier.

And they paid it.

It was just like they bought the oil and then sold it to the vessel, isn't it?

Mr. Montbach: --No, Your Honor.

In this instance... in fact, their contract was applied... it provided that Exxon did not buy the fuel.

Unknown Speaker: Well, yeah, but... it may not buy it, but it became necessary for Exxon to pay the supplier itself.

Mr. Montbach: That was part of their longstanding relationship, their agency relationship--

Unknown Speaker: Well, I know, but nevertheless Exxon in this case paid the supplier for the fuel that the supplier furnished to the vessel.

Mr. Montbach: --Eventually, yes, Your Honor, they did.

Unknown Speaker: Well, eventually, just as soon as it was billed it paid.

Mr. Montbach: Yes.

They were billed a number of weeks later on, Your Honor.

But this was part of the longstanding--

Unknown Speaker: You think that's legally a distinction from what its status is in New York?

Mr. Montbach: --Yes, I do, Your Honor.

I think it is because they are doing this as part of their agency relationship.

It is not an advancement, like the normal situation would be.

Unknown Speaker: You used the term, and counsel have used the term for other things... agency relationship.

Agency relationship as distinguished from what?

Mr. Montbach: From a direct supplier.

Unknown Speaker: From someone who has a direct contract with the ship or the ship's owner?

Mr. Montbach: Direct contract... contact with the navigational operation or a direct juridical contact with maritime commerce.

In this instance--

Unknown Speaker: Well, what does a direct juridical contact with maritime commerce mean?

Mr. Montbach: --I had to look up juridical myself, Your Honor.

Unknown Speaker: Well, I don't want to suggest I don't know what juridical means--

Mr. Montbach: I understand.

[Laughter]

Unknown Speaker: --but I don't understand what the phrase means.

Mr. Montbach: It means that they had to be involved in the maritime environment.

It was something that had to have a... almost a hands-on relationship with the supply.

In this instance--

Unknown Speaker: Like selling oil to the ship.

Mr. Montbach: --Pardon me?

Unknown Speaker: Like selling fuel to the ship.

Mr. Montbach: They were not selling it, Your Honor.

They were arranging for someone to sell it to the ship.

Unknown Speaker: I know, but in New York they are selling it.

Mr. Montbach: Yes, Your Honor, they were.

Unknown Speaker: And that is a direct enough connection with the ship to--

--The claimant owns the oil and supplies it directly to the ship--

Mr. Montbach: And then bills directly for that, yes.

Unknown Speaker: --and bills direct.

That is not an agent, that is a seller?

Mr. Montbach: That is a supplier, yes.

Unknown Speaker: Supplier.

Mr. Montbach: There's a direct relationship.

Unknown Speaker: But an agent is someone who is a step removed from that?

Mr. Montbach: A step removed, yes.

It is a... there is a preliminary nature.

And this is why Peralta, Binnings, and the recent case in Planned Premium Services talks about the step backwards, even though the service may be essential, not quite essential but necessary.

And a convenient usage in the maritime industry is the step backwards.

It is not a maritime contact itself.

Unknown Speaker: May I ask this question, Mr. Montbach?

Supposing Exxon had not paid the Saudi Arabian retailer, whatever, the Arabian Marine or whatever its name was--

Mr. Montbach: Arabian Marine.

Unknown Speaker: --Would Arabian Marine have had a lien on the ship?

Mr. Montbach: It is my understanding that they would have, possibly under Saudi law.

Unknown Speaker: So if looking at it from the point of view of general creditors wondering when the ship is subject to a lien, they could assume normally the supplier would have a lien, but then they'd realize they'd have these cases where there's an indirect relationship which would be excluded from what would otherwise be the general lien for fuel?

Mr. Montbach: As far as Saudi is concerned, they would not have a lien under the U.S. lien statute, because they specifically relied... I mean, Arabian Marine--

Unknown Speaker: Because they relied on Exxon.

Mr. Montbach: --They relied on Exxon's credit.

Unknown Speaker: But it's only the terms of the contract between Arabian and Marine and Exxon that brings that about, something which the other general creditors wouldn't be aware of.

Mr. Montbach: Well, Your Honor... that's true, Your Honor, but also Arabian Marine specifically in this instance said they would not supply the vessel--

Unknown Speaker: Without getting paid first.

Mr. Montbach: --They would not supply it at all unless Exxon said we will guarantee.

Unknown Speaker: Yeah, I understand.

Mr. Montbach: So they specifically relied on the credit of Exxon.

Unknown Speaker: Eventually they did, in your own words.

Mr. Montbach: I'm sorry, Your Honor?

Unknown Speaker: Eventually they relied on--

Mr. Montbach: No, they came to Exxon and said we will not supply this vessel.

Unknown Speaker: --Exactly.

Mr. Montbach: And then Exxon said we will take over the credit, the guarantee.

They relied upon Exxon's promise and not on Waterman's promise.

Unknown Speaker: Originally Arabian was furnishing oil directly to the vessel--

Mr. Montbach: Yes, they were.

Unknown Speaker: --without relying on Exxon's credit.

Mr. Montbach: For about a year-and-a-half period.

Unknown Speaker: Yes.

And then it turned out that the vessel wasn't good for it, I guess.

Mr. Montbach: No, it turned out that Waterman--

Unknown Speaker: Yeah.

Mr. Montbach: --They thought Waterman was not good for it.

Unknown Speaker: Yes, yes.

And so they relied on Exxon.

Mr. Montbach: Yes.

Unknown Speaker: And Exxon said, well, so we'll pay you.

Mr. Montbach: Yes.

Unknown Speaker: And they did.

Mr. Montbach: And they did, yes.

Unknown Speaker: And you say that doesn't change the situation at all--

Mr. Montbach: Well, it doesn't change the--

Unknown Speaker: --with respect to Exxon?

Mr. Montbach: --With respect to Exxon, no, Your Honor, it doesn't.

Because Exxon was doing so as part of their longstanding 4-year-old relationship with Waterman.

Unknown Speaker: Yes, but you haven't made anything about that.

I have not understood your... it doesn't seem to me you can equate what we're talking about here with simply proximity to maritime commerce, because the fact is that it doesn't matter if you're an agent.

You have to be a general agent to come within the disqualifying rule.

So that if the ship company had come to Exxon and simply said on a one-shot deal, had no continuing relationship with Exxon, just said, either give me oil yourself or get somebody else to give me oil, if they had said that just for this one occasion, Exxon wouldn't be a general agent.

And even if Exxon acted as an agent and got someone else to provide the oil, they wouldn't be barred from the lien, would they?

Mr. Montbach: If they had paid for it, Your Honor, then they would possibly fall within--

Unknown Speaker: Possibly?

Mr. Montbach: --within the advance theory.

Unknown Speaker: I thought it's just general agents that are covered, and I wouldn't consider that a general agent.

What does general--

Mr. Montbach: No, as a one term, as a one shot, one vessel--

Unknown Speaker: --Right.

Mr. Montbach: --one port proposal, there have been some exceptions to this Minturn rule on the basis of the--

Unknown Speaker: So it doesn't have anything to do with proximity.

It has to do with general agency.

Mr. Montbach: --It has to do with whether the contract that is entered into is a maritime contract.

The Fifth Circuit last... a week or so ago came down with a decision saying we can't look at the quantitative/qualitative aspects of this in a particular service and a particular instance.

We have to have a general rule which will serve the national interest of securing a stable, uniform rule applicable to--

Unknown Speaker: Yeah.

I thought your rule made a lot of sense.

I could figure that one out.

Is it direct?

You know, are you putting the oil on the boat or not.

But it turns out that's not the rule.

You don't have to put the oil on the boat.

It's just whether you're--

Mr. Montbach: --Some courts have held it as the exception under the preliminary contract doctrine which is part of this general agency rule, or the general agency rule is subsumed within it.

If you are not a direct supplier, you're not doing something directly or operationally involved in the maritime commerce and the navigation of the vessel, then you are not entitled to admiralty jurisdiction.

You have other forums you can go to, Your Honor.

And we need a stable rule here, not as the Second Circuit said, hair splitting a case by case.

The--

Unknown Speaker: --What do you want us to do?

You want us to reaffirm Minturn or do you want us to adopt your rule, which is--

Mr. Montbach: --We want you to reaffirm Minturn.

Unknown Speaker: --Well, but that's not the rule you have been talking about.

It doesn't have anything to do--

Mr. Montbach: Minturn, as it is part of the preliminary contract rule, yes.

Unknown Speaker: --Well, you don't have to be... it can be a preliminary contract so long as you're not a general agent, so long as you don't do this regularly.

It can still be a preliminary contract.

Mr. Montbach: Preliminary contracts do not of necessity have to be general agency rules, but general agency rules, contract, excuse me, are preliminary contracts.

Unknown Speaker: That's true.

Mr. Montbach: Just as you can have... if you don't have a maritime lien you don't have admiralty jurisdiction.

But you can have admiralty jurisdiction without having a maritime lien.

Your Honor, it is our feeling that there has to be, and based upon what this Court has said in the past, substantial justification that's apart from stare decisis.

This is a long-established rule.

It has been in effect for 135 years at least.

Exxon says it's anomalous but it doesn't effect its status.

The fact that the Minturn decision may have gone the opposite direction in 1854 doesn't change its status.

The fact is it has been a rule of law for 135 years.

Commerce has gone on for years, for 135 years on the basis of this rule of law.

If Congress at some point in time decides to change it, then it will do so prospectively, not retrospectively.

Unknown Speaker: How can Congress change it?

Can Congress change it?

Mr. Montbach: Congress has looked at this area four times.

Minturn has been the rule for 135 years.

Unknown Speaker: There's no equation between what the Constitution means by admiralty jurisdiction and what the statute does?

Mr. Montbach: Your Honor, there is an equation, yes.

And this Court can address admiralty jurisdiction.

But we're saying in this instance we'd have to take our guidance from Congress.

Congress has looked at what constitutes--

Unknown Speaker: You don't expect Congress to pass a statute... would Congress responsibly be passing a statute that ignores Minturn?

Could it do that?

Mr. Montbach: --If Congress wants to change the rule, as they did in 1910 and in 1920 to allow beneficiaries... in this instance change the Minturn rule, allow general agents to have liens... they can do so.

Unknown Speaker: To be within admiralty jurisdiction?

How can Congress--

--Congress is... our Court held in 1825 that admiralty jurisdiction was limited to tidal waters.

Congress passed a law saying no, it extends to the Great Lakes, and in the Genesee Chief we upheld that.

Mr. Montbach: Yes.

I'm saying that the Congress can add a group of beneficiaries, in effect expand the jurisdiction to include a class within admiralty jurisdiction, and include a class that will get a lien.

Congress did that in 1920 when they amended the lien act to include towage.

This Court and other courts between 1910 and 1920 said no, the lien act does not provide for towage.

Therefore--

Unknown Speaker: We're not talking the lien act, we're talking about admiralty jurisdiction.

Mr. Montbach: --I think they're mixed.

The action is based upon the lien act in part, Your Honor.

The action is based upon the lien act and traditional maritime law.

This Court has repeatedly said, and other courts have agreed with this, that maritime liens are to be interpreted strict to Uris, and that the only source is either statute xx traditional maritime law.

And if a lien did not exist under the statute or did not exist under traditional maritime law, then courts should not grant such liens.

Unknown Speaker: Are agency contracts somehow to be discouraged because they are not promotive of sound growth for admiralty and for maritime commerce?

Mr. Montbach: No, they are not, Your Honor.

They're not to be discouraged.

The point is should they be included with a group of services or groups of beneficiaries who are entitled to lien of vessel, to put a secret lien on a vessel that travels with that vessel.

If Congress or--

Unknown Speaker: Well, it's a secret lien, but the last in time always prevails, this odd rule in admiralty, so that it's not really so bad either, is it?

Mr. Montbach: --It does, but it's still secret to anyone who isn't aware of it.

If this vessel was sold--

Unknown Speaker: Well, if anybody provides services and they're last in time, then they collect.

Mr. Montbach: --If the vessel was sold subsequent to that last provision of services the new buyer has no idea that there is a lien on this vessel.

Other jurisdictions, England and Canada, create an in rem lien for someone who supplies bunkers, but that lien does not follow the vessel.

It's an in rem statutory lien.

Unknown Speaker: It's an in rem against what?

Mr. Montbach: Against the vessel, but it does not follow the vessel once the vessel is sold.

It's a statutory in rem lien, a right to an in rem action.

I shouldn't say lien.

It's an in rem action.

Unknown Speaker: Would our courts have authority to do that, or would that contradict the existing statute?

Mr. Montbach: I think the courts would have the... not the courts, Congress would have the ability--

Unknown Speaker: No, would our courts have the authority to--

Mr. Montbach: --To create a lien?

Unknown Speaker: --adopt such a rule that the lien is in rem but doesn't follow the vessel, or would that contradict the existing statute?

Mr. Montbach: I think it would contradict the existing statute.

I think the courts should not expand liens, create liens, either by analogy, this is a strict to Uris doctrine, Your Honor.

Unknown Speaker: Counsel, what's the significance of any, of the provision in the contract for a lien?

There is one, isn't there?

Mr. Montbach: Well, Your Honor, there is a general provision in Exxon's boilerplate contract which says that they reserve a right to lien--

Unknown Speaker: For what?

Mr. Montbach: --For the provision of fuel, themselves.

Unknown Speaker: And so you think that provision would only apply to situations like in New York?

Mr. Montbach: I think as far as Exxon is concerned it applies to them when they supply themselves.

It also provides that the supplying company has a lien when they supply.

Unknown Speaker: So does that add anything to maritime law?

Mr. Montbach: I don't think so, no, Your Honor.

It does not.

Unknown Speaker: Then you might as well leave it out?

Mr. Montbach: In this instance, yes.

Unknown Speaker: Yeah, but here they say they would have a lien on the vessel, wouldn't they?

You would have a lien on the vessel.

Mr. Montbach: They say they have a lien on the vessel.

Unknown Speaker: And that seems... they certainly were contemplating... both sides were, I suppose, that this would be subject to maritime law.

Mr. Montbach: I don't think both sides were contemplating that.

Remember, there are three sides here.

We have Exxon entering into a contract with Waterman, and we have Exxon now trying to enforce that against Central Gulf Lines, the owner of the vessel.

Unknown Speaker: I see.

Mr. Montbach: Central Gulf Lines had a contract with Waterman that said don't put any liens, we prohibit you from putting any liens on this vessel.

But we once again have in Exxon's instance a boilerplate global contract they use for all of their customers, and they have been using this for 40 years.

I don't think it is specific enough to show a common intent on the part of Exxon and Waterman to put a lien on the vessel involved herein.

In effect what it's saying to Waterman and Exxon, Exxon knowing full well what the financial situation of Waterman was, knowing that one supplier has already said I'm not going to advance anything to this vessel on any credit... Waterman any credit... Exxon can say it's all right, I'll loan you the money as part of our ongoing relationship.

I'm in effect making an investment in you to keep you going, because a third party over there who knows nothing about this will pay me.

They were aware this was a chartered vessel.

They had known it for 3 years.

This is the type of situation based upon this long standing agency relationship, that Exxon in effect could be considered an investor in Waterman, almost a part owner with Waterman.

They had $4 million worth of credit outstanding before this lifting.

They increased it by $1.5 million, more than the value of this lifting at that time, knowing full well of the financial condition of Waterman.

Now, going into the contract itself, Your Honor, the contract provides that Exxon has nothing to do with the navigation of the vessel, and really nothing to do with maritime commerce.

As I said before, Exxon in this instance confirmed an order that had been placed by Waterman.

But in the normal instance they take an order, they put it on a telegraph or a fax machine or a telex machine, pass it on to Arabian Marine in this instance, in general terms at least 7 days beforehand, and they want nothing else to do with this.

They say you, buyer, are responsible for letting the local person know when your vessel is going to be there exactly.

You are responsible for any mistakes you make in that.

You, buyer, are responsible for everything that has to do with loading the vessel with this fuel.

You, buyer, are responsible with everything afterwards.

You have to pay for all your permits and everything.

The next time Exxon has anything to do with this is a week or two later when the bill comes in.

They are totally an administrative, shore side, and in this instance we submit, if we're going to make a difference between a preliminary and a general agency contract, a preliminary contract situation.

So that we feel, Your Honor, that the rule in Minturn individually should be upheld or affirmed.

Any problems as far as the so-called splits in the circuit, our brief shows that the circuits are not at odds as far as the general agency rule.

As recently as a week and a half ago the Minturn holding was cited with approval in the Planned Premium Services case--

Unknown Speaker: Mr. Montbach, supposing they had constructed a little different kind of legal relationship between the marine company in Saudi Arabia and Exxon pursuant to which they had said we, Exxon, want to buy 100,000 gallons of oil to be resold to the ship owner of the ship--

Mr. Montbach: --To Waterman.

Unknown Speaker: --and then in effect said well, title will pass to us as soon as you pump it through the pipe and then it will pass from us to the ship owner 10 seconds thereafter, and you will be our agent for delivering our oil while we own it and while you're delivering it to the other.

So that they got title to the oil, you know, Exxon.

They would then have a lien, I guess, wouldn't they?

Mr. Montbach: In effect the argument could be made that they were a fictional, or legally fictional... a supplier themselves.

Because... and I think the cases that were cited for, by the other side and the Solicitor General, where they're saying someone who doesn't physically supply has been given a lien, if you... we don't have the benefit of those cases.

But in some of them they did say that there was a chain sale, the typical petroleum... and you talked about the brokerage, I don't know if it was you, sir... but the brokerage thing.

A chain sale.

Title does pass, so that this becomes a direct supplier.

Unknown Speaker: Yeah.

Mr. Montbach: Even though it is for 10 seconds.

Unknown Speaker: Yeah.

Mr. Montbach: So that we feel that this rule should be upheld.

It will continue the stability in this area of law.

Justice Scalia spoke about, cited Mr. Black's Columbia Law Review article in Sisson v. Ruby and your concurrence about the irregular verbs that are better learned rather than changing the whole grammar around.

Industry has gone along very well, with a few exceptions, and there are not a lot of exceptions to this general rule.

There has to be some special justification for overturning this rule, not just that a couple of commentators think it's an anomaly.

A ship-building contract certainly is subject to the same arguments that are being made with regard to Minturn.

It was the same court that handed down the People's Ferry case.

Unknown Speaker: Well, do you really think that all the courts of appeals that have dealt with this matter see eye to eye with you?

Mr. Montbach: I think as far as the general agency rule is, yes.

Some have carved out some exceptions, but they have recently--

Unknown Speaker: Pretty good ones, too.

Mr. Montbach: --The exceptions, Your Honor, have to do with--

Unknown Speaker: I mean pretty substantial ones.

Mr. Montbach: --The exceptions have to do with entities that are involved with the operation, the physical operation of the vessel.

The Hadjipateras case in the Fifth Circuit, which... the Fifth Circuit still follows the general agency rule... dealt with some, an entity that was involved with the physical operation of the vessel.

The Hinkins in the Ninth Circuit, Your Honor, dealt with an entity on a one-port, one-call situation where they had people down there overseeing, being involved in the physical service that was being provided.

We don't have that in this instance, and in the general rule you don't have that with husbanding agents or general agents per se.

They contact somebody.

It's basically having a black... a telephone book.

Well, if you're in Jeddah, see so and so.

If you're in Rotterdam, see somebody else.

There is no direct link with the navigation of the vessel or in maritime commerce.

It wasn't done in a maritime environment.

So the circuits are not really in disarray or discord as to the applicability of Minturn.

There have been some exceptions, but recent cases, even Justice Brown in the Fifth Circuit again restates the general agency rule with--

Unknown Speaker: What are the time limitations on enforcing a lien?

Mr. Montbach: --There are none.

It follows the vessel.

Unknown Speaker: Just laches, or--

Mr. Montbach: I think there is some laches, yes.

If a vessel comes into, leaves the United States and comes back five times and you don't catch it here, I assume... and has been sold... at some point in time the courts can apply laches to it.

And they do, have done it at times.

The statute of limitations also would apply.

Unknown Speaker: --Is it your submission that overruling of Minturn would be detrimental to the commerce of the purchase and sale of vessels?

Mr. Montbach: I think it would be detrimental to that area.

It would be detrimental in commerce in general because you would create a whole new group, just if we're talking agents alone, of all sizes, types, would be able to go into courts now and to... before they... go into courts, and seize a vessel in the United States, wherever it is in the United States.

That certainly would impede commerce.

It might get them their money, but it would impede commerce.

Unknown Speaker: Well, I don't know that that's the submission of the other side.

I thought they, I thought if they overruled Minturn you would nevertheless, you still would have to sort out all sorts of contracts to see which have enough connection with maritime commerce.

Mr. Montbach: If you overrule Minturn you're still going to have the vessel seized and an action in the admiralty courts, and then you would have the sorting out of the preliminary contract.

It's not a question of bringing an action and sorting it out and seeking if you're entitled to a lien, and then enforcing the lien.

In this instance Exxon was ready to seize the vessel.

Everybody knew of it because of the Waterman bankruptcy and a side arrangement was put up.

Typically when somebody seizes a vessel, the vessel will... the owner will bond it or put up an undertaking of some sorts.

But you're still having this continually... somebody... the marshall going out and seizing these vessels for any and every type of agent.

If we open it up for an agent we have the passenger agent.

We open it up for the cargo brokers.

We open it up for other types of agents.

Unknown Speaker: Well, I don't know--

--Yes, but aren't those statutory questions?

I mean, the lien statute doesn't necessarily cover all those.

It seems there are two different issues, one, where there's a maritime jurisdiction, and even if there is it may well be the statute doesn't cover all these different kinds of agents.

Mr. Montbach: Yes, Your Honor, if we limit ourselves to the statute.

But in this instance the action is based not only on the Maritime Lien Act, it's based on traditional maritime law.

Unknown Speaker: And you do argue, don't you, that even if there's maritime jurisdiction that the terms of the lien act don't cover this particular facts?

Mr. Montbach: Yes, Your Honor.

We're saying that the lien act in and of itself does not provide for a maritime lien for a general agent.

Or in this instance a preliminary contract.

Unknown Speaker: Or for this agent even.

Mr. Montbach: Or for this.

Specifically not this agent, Your Honor, yes.

Thank you, Your Honors.

Unknown Speaker: Thank you, Mr. Montbach.

Mr. Pare, do you have rebuttal?

You have 3 minutes.

Rebuttal of Armand Maurice Pare, Jr.

Mr. Pare: Yes, Your Honor.

First, with respect to the reference to the Columbia Law Review article by Professor Black, I believe that that article quite clearly states in the critique section that there are a list of irregular verbs that seem to have no principle, but I also believe that what the Professor says there is that in that article that is how he reads the present cases.

However, at pages 261 and then again at 273 and beyond he goes on to suggest that should not be the case.

It happens to be the case now.

Central Gulf has raised the point and says that all agency contracts are preliminary contracts.

That depends on your definition of a preliminary contract.

We have urged the definition provided by the Bodena court, provided by Benedict, and provided by Gilmore and Black, that makes sense.

It's not a mechanical lining up of the contracts.

Secondly, Exxon in this case supplied bunkers.

That is the key ingredient to make a vessel propelled... be propelled in maritime commerce.

It is the classic service.

As the decision by the Ninth Circuit in the Golden Gate indicated, it is not necessary for the physicial supply to be made by the plaintiff.

In that case the supply was made by a third-party supplier.

That is precisely the case here.

Exxon did not make the physical supply, but that should not matter.

Furthermore, clearly, under any analysis Exxon's involvement here was not preliminary.

The proof shows that the local supplier refused to make the supply.

If Exxon had not jumped in and put its contract on the line the supply would not have happened.

Exxon's involvement was essential to the voyage.

The proof also shows that Exxon advanced its credit and it paid for the fuel.

In fact it remained involved in this case by virtue of the fact that the contract provides if there was an oil spill Exxon reserved the right to clean that spill up.

Also, the contract provides that, if there was a quality or quantity claim, Waterman came to Exxon for that, not to Arabian Marine.

The Fifth Circuit case of Planned... Preplanned Premium Services does not address the general agency Minturn issue.

In fact it only involves insurance premiums, and those insurance premiums are not essential to the operation of any voyage.

In fact, as I already indicated, they do not give rise to a lien, and they are not essential services.

Unknown Speaker: Well, Exxon... Minturn has been around for a long time, yet Exxon had this sort of a contract.

Mr. Pare: Well, Your Honor, Minturn was never applied to the Exxon contract, and I think it came as... well, I know it came as quite a shock to me to see Minturn in this case.

Thank you.

Chief Justice Rehnquist: Thank you, Mr. Pare.

The case is submitted.

Unknown Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.

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Argentine Republic v. Amerada Hess Shipping - Oral Argument

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Argentine Republic v. Amerada Hess Shipping

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1988_87_1372_argument.xml

Transcript:

IN THE SUPREME COURT OF THE UNITED STATES

ARGENTINE REPUBLIC, Petitioner v. AMERADA HESS SHIPPING CORPORATION, et al.

No. 87-1372

December 6, 1988

The above-entitled matter came on for oral argument before the Supreme Court of the United States at 10:05 o'clock a.m.

APPEARANCES:

BRUNO A. RISTAU, ESQ., Washington, D.C.; on behalf of the Petitioner.

CHARLES FRIED, ESQ., Solicitor General, Department of Justice, Washington, D.C.; as Amicus Curiae supporting the Petitioner.

DOUGLAS R. BURNETT, ESQ., New York, New York; on behalf of the Respondent.

PROCEEDINGS

10:05 a.m.

CHIEF JUSTICE REHNQUIST: We'll hear argument first this morning in No. 87-1372, Argentine Republic v. Amerada Hess Shipping Corporation.

Mr. Ristau, you may proceed whenever you're ready.

ORAL ARGUMENT OF BRUNO A. RISTAU ON BEHALF OF THE PETITIONER

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

This case tenders for review by this Court the issue whether an American court is competent to hear tort claims asserted by aliens against a foreign state for a claimed infraction of international law committed by the foreign state's armed forces on the high seas in the course of hostilities with another state. The issue is unprecedented in this Court and, for that matter, unprecedented in any municipal court anywhere in the world.

The predicate facts are taken from the allegations of the complaint because the case was dismissed on motion by the United States District Court for the District -- Southern District of New York.

Respondents United Carriers and Amerada Hess are two Liberian corporations. United Carriers was the owner of a tanker registered in Liberia and flying the Liberian flag. Amerada Hess was the charterer of the tanker. The tanker was engaged in transporting crude oil from Alaska around the Cape to a refinery located in the Virgin Islands.

During the Malvinas/Falkland Island War between the Petitioner and the United Kingdom, it is alleged that aircraft of the Argentine Republic attacked the tanker in the South Atlantic causing damages. The tanker thereafter diverted to a Brazilian port where it was found that an undetonated bomb was lodged in one of the holds of the tanker. After remaining for about six weeks off the coast of Brazil, the owners of the tanker decided to scuttle the vessel in the mid-Atlantic along with its load of bunker oils belonging to Amerada Hess.

QUESTION: Was there any loss of life, Mr. Ristau?

MR. RISTAU: No, sir. No injury, no loss of life.

Three years later in 1985 both Respondents brought suit against Argentina in the district court in New York. United Carriers sued for the value of the tanker which --

QUESTION: Wasn't -- wasn't there interim litigation in the courts of Argentina?

MR. RISTAU: No, sir.

QUESTION: Do I get a misimpression from reading the briefs as to the --

MR. RISTAU: There was no interim litigation in the courts of Argentina, Justice Blackmun. The attorneys in their affidavits made of record in this Court assert one of them sought to retain Argentine counsel, but they were turned down because of conflicts that Argentine counsel perceived. They were also representing Argentina.

The other set of attorneys met with the legal adviser of the Argentine foreign office, and the reference to that, Your Honor, is in our -- in the Joint Appendix, page JA 87. The legal adviser in March of 1985 rendered the opinion that they ought to bring suit in Argentina. The legal adviser further advised them that the statute of limitations in his view was 10 years.

Two months later the Respondents resolved that they probably would not get an adequate remedy in Argentina. They came New York, filed their suit under the so-called Alien Tort Act invoking the jurisdiction of the Alien Tort Act which provides an essential --

QUESTION: Let me see if I understand that, that there was a determination there was not an adequate remedy in Argentina?

MR. RISTAU: By the attorneys for the Respondents, Your Honor.

QUESTION: Do you have any suggestion as to where they might go for a remedy?

MR. RISTAU: To begin with, my suggestion is, Your Honor, they should have tried to bring suit as they were advised by the Argentine official in the courts of Argentina.

If, on the other hand, it were to turn out that no remedy can be obtained under the domestic law of Argentina as, as Your Honor knows, under analogous circumstances, it couldn't be obtained against the United States in the courts of the United States under the Federal Tort Claims Act, then since they are nationals of a foreign state of Liberia, they ought to try the traditional international route of having Liberia espouse their claims against the Republic of Argentina. But they ought not to be able to bring these claims into a domestic forum of a third country where there is absolutely no connection between the underlying cause of action, the parties and the foreign state.

QUESTION: I understand your position. Where would Liberia assert its claim then on behalf of the shipowners?

MR. RISTAU: Liberia presumably, Your Honor, is -- has diplomatic relations, as I do know they do with Argentina, and they communicate that kind of an espousal through channels of diplomacy, the time-honored channels, in which states assert claims against each other.

QUESTION: So, you would relegate them then to diplomatic channels entirely.

MR. RISTAU: I would relegate them to diplomatic channels and such remedies as are obtainable under preexisting, traditional, and customary international law between two sovereign states.

Now, the Alien Tort Act --

QUESTION: I'm trying to avoid the cynicism of your answer, but go ahead.

MR. RISTAU: I apologize, Your Honor, if you -- if it came through badly.

The Alien Tort Act provides in relevant part that the district courts have jurisdiction to hear suits by an alien only -- by an alien for a tort only committed in violation of the Law of Nations or a treaty of the United States. The Respondents invoked that jurisdiction as the predicate for their suit in the Southern District.

One of them, Amerada Hess, also asserted that the district court could hear their claim under traditional admiralty jurisdiction, and in the further alternative, they claimed that the court could hear the case under some notion of universal jurisdictions, the universal jurisdiction which in their view any municipal court possesses in order to redress egregious violations of international law committee anywhere in the world by anybody.

Both Respondents expressly disclaimed reliance on the 1976 Foreign Sovereign Immunities Act as the jurisdictional basis for their suit, although both of them used the Foreign Sovereign Immunities Act's built-in service provision to serve the summons and complaint on the Minister of Foreign Affairs of Argentina in Buenos Aires.

On motion by Argentina, the district court dismissed the cases on the grounds that the Foreign Sovereign Immunities Act was the exclusive jurisdictional basis for suits brought in the courts of this country against foreign states.

QUESTION: Was that the only basis for the motion?

MR. RISTAU: That was the basis for the motion, Your Honor.

QUESTION: The only basis.

MR. RISTAU: That of subject matter jurisdiction and personal jurisdiction under the Foreign Sovereign Immunities Act.

QUESTION: That -- that was the only ground upon which they sought dismissal.

MR. RISTAU: That is correct, Your Honor.

The district court held that under the Foreign Sovereign Immunities Act, a foreign state was absolutely immune from the jurisdiction of federal and state courts unless the claim fell within one of the specific exceptions of the Act. The only exception that could arguably be drawn an issue here was the tort claims exception of the FSIA. but that required that both the tort and the damages occur in the United States. Here the tort occurred on the high seas thousands of miles away from United States territory, and the damages in all likelihood -- that they did not occur on the high seas. The financial damages occurred in Liberia where the corporations were incorporated.

On appeal, a divided panel of the Second Circuit reversed. The majority held that the Foreign Sovereign Immunities Act was not the jurisdictional -- sole jurisdictional basis for suits against foreign states where, as here, aliens complained that the military forces of a foreign state violated established norms of international law by attacking a commercial vessel on the high seas, the 1976 Foreign Sovereign Immunities Act was inapplicable.

Rather, the majority reached back to the 200-year old Alien Tort Statute and construed it as authorizing these suits. The majority held that even though suit against a foreign state under the Alien Tort Statute may not have been possible 200 years ago when the Alien Tort Statute was enacted as part of the first Judiciary Act, today the evolving standards of international law govern who is within the statute's jurisdictional grant. And the majority concluded that under present day norms of public international law, a foreign state could be subjected to suit in the municipal courts of other states for violations of international law.

The dissenting judge pointed out that although international law is part of the common law of the United States, subject matter jurisdiction in our courts, in federal courts, is not a matter of common law. Rather, jurisdiction exists only to the extent that Congress has expressly bestowed it. The governing jurisdictional statute here, the dissenter said, was manifestly the 1976 FSIA and under that Act, Argentina was absolutely immune from suit.

I submit it to the Court that the dissenting judge was absolutely correct, and that the majority's opinion cannot withstand analysis.

The Foreign Sovereign Immunities Act clearly provides in Section 1602 that claims of foreign states to Immunity should henceforth, meaning after 1976, the effective date of the Act, be decided by all United States courts in conformity with the principles of immunity set forth in that Act. The legislative history of the Act is replete with references that the FSIA was intended to preempt any and all other statutes dealing with the suability or potential suability of foreign states.

Only five years ago this Court unanimously in Verlincen v. Central Bank of Nigeria, in 461 U.S., held that the Act contains a comprehensive and all-embracing set of legal standards governing claims to immunity in every civil action against a foreign state. The majority below disregarded the explicit language of the statute, its clear and unequivocal legislative history, the unanimous decision of this Court in Verlinden in holding that there was some vestige of jurisdiction against foreign states under the 200 year old Alien Tort Statute. This, I submit, was clear error.

QUESTION: I take it you would say that even absent the Foreign Sovereign Immunities Act, there wouldn't have been jurisdiction under the alien provision.

MR. RISTAU: That's correct, sir.

QUESTION: But do you rely on that ground now? Do we have to get to the reach of the Foreign Sovereign Immunities Act?

MR. RISTAU: Well, it is my contention -- it's my principal submission, Justice White, that regardless of what the -- what the law may have been prior to 1976 --

QUESTION: What do you think it was before 1976?

MR. RISTAU: Clearly before 1976 a foreign state was not subject to suit in the municipal courts under the circumstances of this case.

QUESTION: Was that the Act cf State Doctrine or --

MR. RISTAU: No, that was not the Act of State Doctrine. **Both under the traditional sovereign immunity doctrine, the absolute immunity doctrine, which this Court embraced as late as 1926 in its famous case of Veritzl Brothers v. The Steamship Pizarro, the law in this country, as expounded by this Court, was absolute immunity.

QUESTION: So, this was a novel construction of the jurisdictional provision the court of appeals relied on.

MR. RISTAU: It clearly was a novel construction of the jurisdictional provision, Your Honor.

QUESTION: That being the Alien Tort Statute.

MR. RISTAU: That is correct, sir.

Now, the majority's further holding that the Foreign Sovereign Immunities Act, which incorporates the international doctrine -- the international restrictive doctrine of foreign sovereign immunity, did not touch this case because the restrictive doctrine only dealt with the commercial activities of a state.

That holding of the Second Circuit is bottomed on a fundamental misunderstanding of the whole restrictive theory of sovereign immunity because the restrictive theory too starts out with the general predicate that a foreign sovereign is -- is not subject to the jurisdiction of the municipal courts, and it then carves out certain exceptions to that absolute immunity. That is also the fundamental rule spelled out in Section 1604 of the Foreign Sovereign Immunities Act.

And the reason the restrictive theory deals with commercial activities primarily is because those are the exceptions to immunity, but the other leg of the restrictive theory that a foreign state for any other action is absolutely immune for governmental actions, sovereign actions, what is known in international law as activities jure imperil, exertions of the sovereign power, including where the exertion of the sovereign power may conceivably have violated international law. The remedy is not a lawsuit in the municipal courts of the state.

The FSIA, Your Honors should know, had a very long gestation period. It was the result of the most careful scrutiny by officials in the Departments of State and Justice over a period of some eight years. It was reviewed by several advisory groups of distinguished international lawyers and scholars, as well as representatives of the bar.

At no time during this long review was there even the remotest suggestion by anyone that there was jurisdiction -- conceivable jurisdiction against a foreign state under the old Alien Tort Statute. The only statute on the books then that specifically referred to suits against foreign states was the then version of the Diversity Statute. Congress expressly amended the Diversity Statute by taking out the language permitting suits against foreign states in diversity and making it absolutely clear that the sole jurisdictional predicate hereafter shall be the Foreign Sovereign Immunities Act, and under that Act, the Republic of Argentina is manifestly immune from suit for acts performed by its armed forces in the South Atlantic during the Malvinas conflict.

I'd to reserve five minutes for rebuttal, Mr. Chief Justice.

QUESTION: Thank you, Mr. Ristau.

General Fried, we'll hear now from you.

ORAL ARGUMENT OF CHARLES FRIED AS AMICUS CURIAE SUPPORTING THE PETITIONER

MR. FRIED: Thank you, Mr. Chief Justices, and may it please the Court.

First let me say that the recourse to diplomatic means to which reference was made in answer to a question by Justice Blackmun is by no means unavailing. To cite two recent examples, the United States has agreed to make compensation as a result of such representations as a result of the shooting down of the Iran airplane over -- over the Persian Gulf, and the Republic of Iraq has agreed, as a result of such representations, to make compensation to the United States as a result of the Stark incident. So, these are regularly invoked and often quite effective measures.

In any event, the Foreign Sovereign Immunities Act in terms closes the doors of any United States courts to this action. As Judge Kearse said below, immunity is the premise. That's Section 1604. And there is jurisdiction only if the action is grounded in one of the specified numbers of private or commercial acts.

Military action in wartime is, of course, a quintessentially public act. And as this Court said --

QUESTION: Mr. Fried? Mr. Fried, but for the Foreign Sovereign Immunities Act, do you think that jurisdiction might have been appropriate under the old Alien Tort Statute?

MR. FRIED: We do not. First, because prior to the Act and at the time of the Alien Tort Statute and throughout our history, the general rule of our law as the law of all nations is that sovereigns are immune for this kind of action. And it was only in 1952 with the Tate letter that we drew back from that for private and commercial acts.

But moreover, we do not believe that it is appropriate to awaken like Rip Van Winkle a statute of 200 years' age and which had been rarely, if ever, used until about 1980 to a use which it is most unlikely and to circumstances which it is most unlikely the draftsmen of that statute contemplated.

It is not a constitution we are construing there. It is a statute. And that statute probably was intended to cover acts for -- to give aliens a forum for acts which the United States is responsible or for which the Congress, as in the case of piracy, has decided to assume responsibility and not to allow acts by strangers against strangers for acts taking place in foreign ports. So, in our view the Alien Tort Statute would not provide jurisdiction for this -- for this lawsuit for a number of reasons.

But in any event --

QUESTION: So, this isn't a case of partial repealer.

MR. FRIED: Well, I think that Judge Carter in the district court -- or perhaps it was Judge Kearse -- got that just right. This is not a case of -- of repeal by implication. This is a case of a narrowing of jurisdiction at worst, and at best this is a case where, in fact, there was no jurisdiction to begin with. And there's a codification of what was understood to be the law of the United States and of every civilized nation prior to that time.

Now, the Foreign Sovereign Immunities Act, in addition to making a distinction between private or commercial acts and public acts, also sought to -- in order, as this Court said in Verlinden, to prevent our courts from becoming international courts of claims, which is, of course, precisely what plaintiffs are seeking to do here, has required in this Court's words some substantial contact with the United States. Of course, some substantial contact is entirely absent here.

So, Congress did think of this kind of claim and in general terms precluded it. To say they did not focus on this is like saying that a mathematician who speaks of all prime numbers had not focused on 43. I think that's a prime number. And it frustrates Congress' evident intent to prolong this litigation by what Judge Carter below called inventive arguments to invoke the Act's specified exceptions in far-fetched ways, such as suggesting that this was an act of piracy.

The United States condemns violations of international law. But we are troubled by the course on which the Court of Appeals for the Second Circuit has embarked. International relations are characterized by reciprocity. And as we do unto foreign nations in our courts, so very shortly we will be done unto in the courts of other countries.

Moreover, the Department of State is seeking to persuade foreign sovereigns voluntarily to submit to the jurisdiction of our courts under the Foreign Sovereign Immunities Act. That is a project which will not prosper if they can hope to encounter surprising and, I must say, eccentric legal rulings completely out of line with international practice and the plain words of our own legislation. It is striking, after all, that a -- that the United States itself would not be liable for these actions because the -- the Federal Tort Claims Act specifically excludes liability for actions in combatant activities by our armed forces.

We suggest that this lawsuit should terminate and that the evident intention of Congress should be respected.

If there are no further questions, I thank the Court for its attention.

QUESTION: Thank you, General Fried.

We'll hear now from you, Mr. Burnett.

ORAL ARGUMENT OF DOUGLAS R. BURNETT ON BEHALF OF THE RESPONDENTS

MR. BURNETT: Mr. Chief Justice, may it please the Court.

My opponents have omitted facts which decisively affect the outcome of this case. This ship was involved in the U.S. domestic water-borne trade. It traded exclusively between Valdez, Alaska and the U.S. Virgin Islands. The only commodity carried by this ship was Alaskan crude oil, a commodity which by law is prohibited from export. The products refined from this crude oil were consumed at least 83 percent in the continental United States and 17 percent were purchased directly by the United States government.

The warning message by the United States government of June 3, 1982 to both belligerents, the United Kingdom and to the Republic of Argentina, advised the belligerents that the Hercules was a neutral ship engaged in this country's domestic water-borne trade. It advised the belligerents that her neutral status was to be respected. It gave its course, speed and estimated time of arrival. In the same message were listed U.S. flag merchant ships in the South Atlantic.

Argentina's acts were directly responsible for bringing the ship to her destruction. On the prior voyage where the master of the ship deviated from his course to look for survivors from the torpedoed Argentine cruiser, General Belgrano, at that time indirect contact with the Argentine naval forces, there was no indication that on his following voyage the ship would be in danger.

The master, not content to rely on the official messages of the United States government, also sent out on a daily basis on the AMVER, the international lifesaving distress frequency, the ship's position, its course, its speed and its destination. Even on the day of the fatal attacks, two messages were sent to the Argentine Republic. The messages were acknowledge. Had at any time the Petitioner advised the master that his ship would be in danger, this event would never have occurred for although a warship captain may earn his pay by sailing into harm's way, the captain of a merchant ship earns his pay by avoiding harm's way and safely delivering the cargo entrusted to his care.

QUESTION: Mr. Burnett, what does all this have to do with jurisdiction? I mean, it may show great negligence, greater negligence. It may show, you know, gross negligence, but what does it have to do with jurisdiction?

MR. BURNETT: Your Honor, my opponent indicated that there was no injury occurring in the United States. Under Section 1605 --

QUESTION: Radio messages -- repeated radio messages show injury occurring in the United States.

MR. BURNETT: The domestic trade certainly shows that. The AMVER station which coordinates the messages in the United States -- and we have indicated that in our brief on pages 58 and 59.

The Argentine motive for the attack is unknown because the district court made no inquiry. It may be that the intention of Argentina was to take the Hercules as a prize. That would be the logical interpretation of the message following the third attack ordering the ship to come to course 270 and make for Argentine port or be subject to yet another attack. In such a case in an Argentine prize court, Argentina would have no immunity. It would stand in the shoes of an ordinary litigant.

It may well be that the attack was an unprovoked on a neutral ship on the high seas without warning in the same light as those acts for which Admirals Rader and Doenitz were convicted at Nuremberg and for which international law affords no immunity.

QUESTION: Excuse me. Could I -- what do you mean Argentina would have no immunity in Argentine prize court? Could it have been held liable or could it simply have been denied the prize?

MR. BURNETT: The law which we have set out on page 40 -- Argentina would have no immunity in its own domestic prize court. That's the answer to the question, Your Honor.

QUESTION: I don't think it is. Would Argentina have been held liable for damages for having towed it into port, or would it simply be denied the prize?

MR. BURNETT: Under the Law of Nations, which the Argentine prize court would be bound to **pride, Argentina could well be held liable for damages. There have been numerous cases by this Court, by numerous other courts around the world applying the Law of Nations. Even the United States would have no immunity for acts for which Argentina is here before this Court.

QUESTION: Well, then why did you feel the remedy in Argentine courts was inadequate?

MR. BURNETT: Well, it's inadequate because Argentina -- first of all, the decision of the Argentine Supreme Court of September 27, 1983, judgment 85-528 which appears in the record before the Second Circuit at page A-192 indicates that result. In this decision by Argentina's highest court, it states that under its present constitution it has no jurisdiction over acts of the armed forces arising out of the Malvinas War.

This with an opinion from Argentine counsel, one of six we attempted to retain, convinced us of the futility of pursuing the remedy in Argentina. And contrary to my colleague, there is, as is indicated on page 9 of our brief a reference to a official communication by the Ministry of Foreign Affairs dated may 24, 1984 returning the claim of Amerada Hess. And the Argentine attorney commented there is no doubt after this the matter remains in a dead way. We exhausted our remedies in Argentina.

Argentina, under the Laws of Nations, was the proper forum to bring the suit. That is a customary element of international law. There is nothing to stop belligerents from engaging in war, and in wars neutral ships do get sunk or damaged or lost. But the belligerent also has the obligation to convene a prize court or other suitable mechanism to redress the claims of the neutral litigants.

This Court, for example, in its history has decided 192 cases of prize. One hundred and twenty of these cases were decided before 1830. The predecessor of this Court, the Committee on the Case of Appeal and the federal Court of Appeals, decided 117 cases, all of them involving violations of the Law of Nations involving torts committed on the high seas. And the United States is not alone. As we indicated on page 40 of our brief, historically Argentine prize courts had exercised prize jurisdiction in a manner comporting with the customary Law of Nations.

Argentina's complaints about jurisdiction in this country are simply unfounded. Their presence in the U.S. court is self-inflicted. Not only did they refuse to convene a prize court, agree to a private arbitration such as France did with the Rainbow Warrior, such as the United States did in 1933 in the case where the U.S. Coast Guard sank a Canadian vessel accused of turning run, but they have avoided the diplomatic initiatives by the Republic of Liberia. As we indicated on page 8 of our brief -- and the record reflects that fact -- the Republic of Argentina has declined, rebuffed, the initiatives of the Republic of Liberia to pursue this matter diplomatically. We have no qualm that if diplomacy would resolve this dispute, we would be satisfied customary international would have been upheld.

QUESTION: The Republic of Liberia is not a party to this case.

MR. BURNETT: No, Your Honor. They have filed a amicus brief.

QUESTION: What does that have to do with this case?

MR. BURNETT: Just I wanted to bring to the Court's attention that diplomatic initiatives were exhausted as well before we resorted to litigation.

Chief Judge Feinberg's opinion was correct when he states that jurisdiction lies under the Alien Tort Statute and, as indicated in footnote 3 to his opinion, jurisdiction is also consistent with Section 1605(a)(5) of the Foreign Sovereign Immunities Act.

Section 1605 provides recovery for a claim of loss or injury occurring in the United States. However, the definition of the United States, as it's stated in Section 1603 and which is discussed at pages 50 and 53 of our brief --

QUESTION: Are those set forth at pages 50 and 53 -- those sections?

MR. BURNETT: The section, no, Your Honor. Our discussion of those sections is. The sections are set forth in the appendix.

The United States, as defined in Section 1603, states includes all territory and waters, continental and insular, subject to the jurisdiction of the United States. This language --

QUESTION: Where in the appendix are they set forth?

MR. BURNETT: On page 2a at the end of the appendix.

QUESTION: Of your brief?

MR. BURNETT: Yes, Your Honor.

QUESTION: Thank you.

MR. BURNETT: The words "and water, continental and insular" indicate that the high seas are to be included as historically they have always been included in the jurisdiction of the federal courts. Even before this country was established under the general maritime law, this was clearly included.

In a similar case, which is discussed in our brief, Cunard v. Mellon, which was a decision of this Court in 1922 --

QUESTION: Excuse me. Why do they have -- why do they have "continental or insular" in there if -- if they mean the high seas? "All territory and waters, continental or insular, subject to the jurisdiction of the United States."

MR. BURNETT: That indicates the seas that surround the United States, continental and insular, including the high seas.

QUESTION: Oh, I see. That's to make it clear that they mean seas that -- that surround land as opposed to --

MR. BURNETT: Yes, Your Honor.

QUESTION: It doesn't make any sense at all.

QUESTION: That's a strange construction.

QUESTION: It would make some sense if you think it means, you know, the territorial portion around an island or around the continent, that is, the normal territorial jurisdiction. But to think --

MR. BURNETT: Well --

QUESTION: -- it means the high seas is very strange.

MR. BURNETT: Well, Your Honor, I think what may be helpful in considering these words was the holding of the Court in Cunard v. Mellon, a case in 1922 where this Court was called upon to construe language in the Eighteenth Amendment, as well as two prohibition statutes, in a maritime context involving eight foreign ships and two American ships. And the language in the amendment, as we have set forth at our brief on the pages I indicated, page 50 to 53, that amendment only provided for jurisdiction in the United States territory subject to its jurisdiction. The Court concluded that "territory," that word, includes the three-mile territorial limit. Therefore, Congress -- we feel it was logical for Congress to ensure that the high seas were included to add those extra words regarding waters. And the --

QUESTION: But -- but the Mellon -- the Mellon case found only that marginal lands up to three miles --

MR. BURNETT: That's correct, Your Honor.

QUESTION: -- were within. And your case certainly is different from that.

MR. BURNETT: That's correct, Your Honor.

QUESTION: And we do have other statutes, do we not, that use the phrase "high seas"?

MR. BURNETT: We have a multitude of statutes that use high seas. Congress has enacted over seven or eight statutes extending jurisdiction on to the high seas, which is one more point which would indicate that it would be unusual for Congress through silence to disenfranchise American citizens as well as foreign citizens of their historic rights under the general maritime law.

QUESTION: But the section doesn't say high seas. Other statutes do talk about the high seas, don't they?

MR. BURNETT: Some statutes use the word "high seas," and there are other statutes that use the word "waters."

The consequences of -- of accepting the Petitioner's extreme argument that all jurisdiction under the FSIA stops at the three-mile limit are alarming. It cuts off the rights of U.S. citizens, as well as aliens. If the Hercules was a U.S. flag ship and on a voyage from Philadelphia to New York, it was attacked by Argentine armed forces four miles off the coast and those U.S. sailors -- those U.S. shipowners, having gone to Argentina, having exhausted their remedies in Argentina, under the Petitioner's theory, they would then be denied their historic remedies, including those existing under flag jurisdiction, under the general maritime law.

QUESTION: Mr. Burnett, doesn't the United States in some cases claim further than three miles? Don't they claim 200 miles in some cases?

MR. BURNETT: In terms of territorial waters, no, Your Honor. The official recognition of U.S. waters state is three miles for U.S. water. We recognize foreign state claims to 12 miles. We have an economic zone analysis which in certain economic areas confers upon this Court -- upon the United States an interest in waters out to 200 miles. But that is not territorial water. And the Geneva Convention on the High Seas, which is ratified by this country, makes it perfectly clear that the waters beyond the territorial sea, which for the United States is three miles, is the high seas.

QUESTION: Mr. Burnett, I -- I find it difficult to -- to find it so shocking that the United States would not allow suit in United States courts against a foreign country in these circumstances when it appears that the United States would not allow suit against the United States itself in United States courts in these circumstances.

What would have happened if this plane were a United States plane in similar circumstances in a wartime situation and had -- and had on the high seas, or whatever you want to call continental or insular seas, sent down a ship? Would suit -- would suit have been allowed against the United States under the Federal Tort Claims Act?

MR. BURNETT: Well, Your Honor, not under the Federal Tort Claims Act.

And the Solicitor General and the Petitioner are dead wrong on the law. The appropriate statute is the U.S. Prize Statute and in particular, 10 U.S.C. 7652(b) because Argentina and the United Kingdom were at war. The United States, when it is at war, when its naval forces commit torts on the high seas involving seizures of merchant ships, that statute provides jurisdiction. In particular, Section B provides jurisdiction where the ship is lost, destroyed or otherwise unable to come into **court. So, the United States --

QUESTION: After seizure. Before seizure? You mean you sink a ship and that's -- that's a prize?

MR. BURNETT: It's not -- prize is the act of seizure, Your Honor. It is -- in rem may also be present, but the statute makes it clear right in its words. It is divided into three sections. Section A is in rem. Section is jurisdiction when the ship has been destroyed, lost or unable to come into port. Section C is a situation where the prize is in the port of a co-belligerent.

QUESTION: I always thought destroyed, lost or unable to come into port means after you've -- you've taken charge of the ship and it has been lost and being towed in or it -- it has been destroyed in a storm after you've taken possession of it. But you -- you think sinking a ship is taking a prize.

MR. BURNETT: It triggers prize jurisdiction Your Honor, because the act of seizure is what triggers prize jurisdiction.

QUESTION: I'm not talking seizure. I'm talking putting a torpedo into a ship and sinking it. Is that a seizure.

MR. BURNETT: (Inaudible), Your Honor, the neutral has a claim under customary international law for compensation to its ship. Customary --

QUESTION: In prize court?

MR. BURNETT: Yes, Your Honor. That is the appropriate proceeding for that to proceed in.

QUESTION: You -- you have cases on that? That surprises me.

MR. BURNETT: Well, Your Honor, yes, we do. In 1806, Maley v. Shattuck. This was a case where the U.S. Navy attacked a ship, caused its loss, judgment against the United States. There is The Amiable Nancy. The Marianna Flora is another case. The United States Navy, the U.S. Frigate Alligator, in which a ship was attacked unjustly by the United States. Compensation was ordered.

As we have indicated, Justice Story in his Principles and Practices of Prize Law make it perfectly clear that if the ship is destroyed in the process of attempting to capture it or seize it -- if that occurs, the captor is liable and, in fact, a under customary international law, the burden becomes that much more severe on the captor because under customary international law, he's to board the ship, carry out an examination of the ship to determine if there is kind of a maritime equivalent of probable cause.

QUESTION: Are you limiting your -- your principle now to when it sunk in the process of trying to seize it? Is that the principle you're saying? It has to be --

MR. BURNETT: Your Honor, if the United States engages in war, if the armed forces --

QUESTION: Do you have any case where -- where the United States was not trying to seize a ship, but just trying to sink it, where an action in prize court was allowed?

MR. BURNETT: Del Col v. Arnold is a case in which the ship was lost as a result of a seizure. The Imalone was an arbitration with Canada in which the Coast Guard sank a ship and which compensation was awarded.

QUESTION: Trying to seize it or not trying to seize it?

MR. BURNETT: Your Honor, under customary international law, you can't go around sinking neutral ships on the high seas. And if you do so, the remedy under customary international law is you have to convene a prize court. The neutral has a right to transit the high seas.

QUESTION: Do you have any case where, without trying to seize a ship, a ship has been intentionally sunk -- no desire to seize it -- intentionally sunk where there has been a remedy in prize court? Yes or no? Do you know a case like that?

MR. BURNETT: I don't have a case on that point, Your honor.

QUESTION: Could -- could Iran have sued the United States under the Foreign Sovereignties Act or under any other -- the Allen Tort Law for the sinking of the plane?

MR. BURNETT: Well, in terms of jurisdiction, obviously the Foreign Sovereign Immunities Act would not be applicable. Jurisdiction would technically lie under the Allen Tort Statute and under the general maritime law because the seizure of the aircraft took place on the high seas.

QUESTION: Well, then it's a -- you define seizure very broadly. Shooting down a plane is a seizure.

MR. BURNETT: The destruction is a seizure, yes, Your Honor. That is -- Lord Stowell, when he cited the rule in 1819, England's greatest admiralty rule, he said if a captor destroys a neutral ship, the captor or his government is answerable.

QUESTION: The captor, yes.

MR. BURNETT: Argentina was the captor.

QUESTION: If he -- if he has taken possession of it and then sinks it. But if just goes out to sink it, that's a different question. And you tell us you have no case of that sort.

MR. BURNETT: The customary international law permits no destruction of neutral ships, and if there is a destruction of neutral ships, a prize court must be convened. That is the rule under customary international law.

QUESTION: But you -- you have no cases.

MR. BURNETT: I gave several cases to the Court.

QUESTION: Involving -- involving destruction without seizure, without intenced seizure or seizure.

MR. BURNETT: Well --

QUESTION: I mean, you keep saying it again and again, but in fact the only authority you have is that if you try to capture a ship and sink it or you capture it and then it sinks while you're towing it to port, you have an action in prize court.

MR. BURNETT: Well, I would just refer the Court once again to the prize statute. It says for any seizure of the United States, and if the ship is lost or destroyed --

QUESTION: Well --

MR. BURNETT: -- by the armed forces of the United States in the process of seizing the vessel or at whatever point you want to draw the line, the United States would have no immunity for that.

And in the case of the Vinces incident in the Persian Gulf, the -- the nice thing about admiralty and events on the high seas is there has been a tremendous history of jurisprudence. And the Marianna Flora, decided in 1830, is squarely on all fours with a possible suit under -- in that situation. And in that case, the Court, this Court, held that where the warship commander was acting in a reasonable belief to defend his ship and his crew, there is no violation of international law. So, although Iran may conceivably have jurisdiction, the customary international law certainly provides an adequate method for this Court to handle the situation. And what is more important, Iran would never be denied access to the courts to bring the claim.

And that is what makes this case stand out. It's not so much that another ship had been sunk in the course of a naval war, but to our review, this was the only case we could find of such outlaw behavior where a belligerent has refused to convene a prize court on international agreement, diplomatically done nothing. You can do a whole host of things to satisfy your obligation.

QUESTION: Supposing there were no -- you say there is some United States connection here because the ship was transporting oil from the North Slope of Alaska to the Virgin Islands. Supposing that the same cast of characters, but they -- they had no connection whatever with the United States. They were transporting oil from one foreign country to another. Would that make any difference in the way you analyze the case?

MR. BURNETT: Yes, it would, Your honor. Although jurisdiction would technically exist because, once again, there is a tort violation on the high seas, the United States would have no substantial relationship which would warrant this Court making an inquiry into it.

This Court has an interest in protecting the U.S. domestic trade. And if it's a voyage between --

QUESTION: Well, this Court -- this Court has --

MR. BURNETT: -- Kuwait and Japan and that --

QUESTION: Just -- just -- just a minute, Mr. Burnett. This Court doesn't have any -- any interest other -- in doing other than what Congress has said. Maybe you mean the United States has an interest.

MR. BURNETT: Well, Your Honor, I would submit that this Court has an obligation to construe these statutes so as not to violate neutral trade. And that was the holding of this Court in The Charming Betsey. And what we have at stake are those issues. But just because there's a violation of international law around the world does not mean that these Court -- or this Court is going to have anything beyond jurisdiction.

The scenarios which the Solicitor General would like to paint on this Court do not bear up to scrutiny. First of all, most of the scenarios they would envision are going to occur in foreign territory. There the plaintiff has a significant obstacle in the Act of State Doctrine. The Act of State Doctrine does not apply on the high seas because it's not foreign territory, it is the territory of all nations.

There must be a strong U.S. relationship. Here we have an overwhelming U.S. relationship. We have injury occurring in the United States in New York City. In most of those case there will not be that substantial U.S. interest.

Third, there must be denial of even procedural justice by the country involved. As I indicated, that is an exceedingly rare situation in many situations.

Forum nonconvenience would also apply in many of these cases.

And finally, it must be remembered, as Chief Judge Feinberg indicated in his opinion, the Allen Tort Statute, just as it was in its day, was for those special cases of violations of the Law of Nations. Not every violation of international law arises to that level of the Laws of Nations wherein you have jurisdiction under the Allen Tort Statute.

QUESTION: May I just clarify something? The Act of State Doctrine applies only if a state acts within its domestic borders?

MR. BURNETT That is correct, Your Honor.

QUESTION: And what's the cite? And what's your authority for that?

MR. BURNETT: It's just -- I believe we've addressed it. I don't have a citation, but the Act of State Doctrine -- I think in Sabbatino it was also discussed -- only applies --

QUESTION: So that when the United States acts on the act of -- on the high seas, it -- it is not protected by the Act of State Doctrine.

MR. BURNETT: No, Your Honor. The Act of State Doctrine applies for an inquiry by a court in activities which occur in a foreign country's territory. I think it's very illustrative --

QUESTION: Even if the decisions are made within the domestic limits and the consequences of the acts are felt outside the jurisdiction?

MR. BURNETT: Well, if you'll look at the case of KL 707, there the tort occurred over Russian territory, and the Court applied the Act of State Doctrine. That's an example of an event which may be a violation of international law, maybe reprehensible, but wherein the Act of State Doctrine applied because it occurred in the foreign territory.

Whether the Court applies the Act of State Doctrine is a -- is a consideration which is not before this Court because we submit the law is consistent that it must be in a foreign territory.

In the very first Attorney General's letter, which dealt with the Alien Tort Statute in 1795, certainly suggests this result. In that opinion letter by Attorney General William Bradford which involved a complaint against the United States for aiding and abetting an attack on the high seas which plundered an English settlement, there the Attorney General said that under the Alien Tort Statute, there would be no jurisdiction for events or activities which occur in the foreign territory. However, to the extent that they occurred on the high seas, there would be jurisdiction under that statute.

The Allen Tort Statute was primarily designed as a supplement to maritime jurisdiction. Oliver Ellsworth, when he drafted the Alien Tort Statute, as his notes indicate, was concerned with that statute in the maritime context. And as it exists in the maritime context, it is consistent with the Foreign Sovereign Immunities Act with 1605.

QUESTION: Mr. Burnett, what American interest was injured here?

MR. BURNETT: Your Honor, the interests which were injured were the disruption of the energy policies of the United States, the --

QUESTION: The politics of the United States?

MR. BURNETT: The energy policies of the United States whereby it --

QUESTION: The policy.

MR. BURNETT: -- has rights to utilize its natural resources.

QUESTION: The only thing that was injured was the policy.

MR. BURNETT: No, Your Honor. We had also the charter hire payment which was paid in New York City. We had the bunkers which were purchased in New York City, delivered in St. Croix. We had disruption to the Alaskan pipeline. This ship didn't make the voyage obviously --

QUESTION: That would destruct the Alaskan pipeline?

MR. BURNETT: The Hercules is the sea component link of an ocean transportation system which furnishes Alaskan crude oil to the eastern United States. It's analogous to a pipeline. It is the maritime component of that system. And the disruption of that system disrupted the refinery.

QUESTION: That -- that affects the Liberians, doesn't it?

MR. BURNETT: It certainly affects the Liberians, but it also affects the United States.

QUESTION: But the Liberians are **not part of the United States.

MR. BURNETT: That's correct, Your Honor. They are not.

QUESTION: That's right.

MR. BURNETT: But it certainly -- I would disagree with Your Honor that it affects the United States.

QUESTION: So, we'd **hear of every injury on the high seas can come into our courts. You're going to rewrite all the law.

MR. BURNETT: Your Honor, the injuries which occur on the high seas which are torts on the high seas -- by definition this Court held in The Belgenland that a tort, if it occurs in the high seas, this Court has jurisdiction. Whether the Court exercises its jurisdiction is another question. And there you have the question of forum nonconvenience or various other activities. But on the high seas, the United States has as much right as any other country to exercise its judicial jurisdiction to protect its national interests as those --

QUESTION: (Inaudible) could be nothing.

MR. BURNETT: Well, Your Honor, every interest --

QUESTION: Could be.

MR. BURNETT: I believe that every country has an interest in the safe preservation of transportation on the high seas. It is our position that that is why customary international law has evolved on this situation. It's not that --

QUESTION: Only -- it only applied to some countries?

MR. BURNETT: All countries, Your Honor.

QUESTION: I thought international law did apply to all countries.

MR. BURNETT: Yes, Your Honor. And all countries have equal rights on the high seas.

QUESTION: So, you went to Argentina and you couldn't win, so you come here.

MR. BURNETT: Your Honor --

QUESTION: If you don't win here, where will you go next?

MR. BURNETT: Your Honor, this is the court of last resort. Argentina will not consent to jurisdiction in the World Court.

When you indicated that we would not win in Argentina, on the merits we should win. We can't get a court. The rational court says they have no jurisdiction for acts of the Malvinas. Six of the top firms in Argentina say they cannot bring the court. The Ministry of Foreign Affairs sent back the claim. The diplomatic initiatives of Liberia have failed.

Now, this was the court of last resort. If we had brought this suit without going to Argentina, a simple of motion of forum nonconvenience would send us down to Buenos Aires because, once again, under customary international law, the proper forum is the captor's court. There is no ambiguity in international law on that point.

QUESTION: (Inaudible) federal court. Right?

MR. BURNETT: Yes, there's jurisdiction.

QUESTION: Including **?

MR. BURNETT: Well, yes, Your Honor.

Well, I -- I would like to comment on the Solicitor General's position with respect to foreign policy. It has flip-flopped several times since 1980. In 1980 in the Filartiga case, the Solicitor General stated that as an example of the type of action which could be brought under the Alien Tort Statute was the individual shipowner's right for compensation for destruction of his ship on the high seas.

They have now backed off from that. They now indicate that foreign policy is a predominant concern --

QUESTION: Excuse me. They -- they didn't say that that suit could be brought against a foreign sovereign under the Alien Tort Claims Act.

MR. BURNETT: Who else but the sovereign, as we've indicated, would be involved? When you destroy a ship on the high seas --

QUESTION: Only sovereigns can destroy ships on the high seas?

MR. BURNETT: Well, with the limited exception of pirates.

QUESTION: I didn't know there was that rule.

MR. BURNETT: Well, it's just logic, Your Honor. By principal analogy and reason, the principal violators of neutrality are going to be sovereigns either through their navies or by privateers acting under their letters of mark.

QUESTION: Thank you. Thank you, Mr. Burnett. Your time has expired.

Mr. Ristau, you have one minute remaining.

REBUTTAL ARGUMENT OF BRUNO A. RISTAU

MR. RISTAU: Thank you, Mr. Chief Justice. I would just like to try to answer your question, Your Honor.

The United States would not be subject to suit under the Federal Tort Claims Act with respect to the incident that happened over the Gulf for the simple reason, as this Court has many times declared, the Federal Tort Claims Statute does not apply to torts committed by the United States extraterritorially.

QUESTION: May I ask if there would have been prize court jurisdiction if instead of just sinking the ship, they had tried to capture the ship and pulled it into port, and then it was sunk on way into port?

MR. RISTAU: Under traditional prize law, Justice Stevens, yes. But you'll recall we haven't had and prize courts in this country since before the First World War. Argertina hasn't had any prize courts --

QUESTION: There would have been no claim of sovereign immunity on those facts. Is that right?

MR. RISTAU: That's correct. Traditionally, prize courts were established by belligerent powers to determine the lawfulness of a capture. The sine qua nor, as Justice Scalia indicated, was the res, that the thing be brought, either the vessel or the cargo to be adjudicated as a lawful prize of war. Absent the res, no prize court jurisdiction.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Ristau.

The case is submitted.

(Whereupon, at 11:02 o'clock a.m., the case in the above-entitled matter was submitted.)

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Merrell Dow Pharmaceuticals Inc. v. Thompson - Oral Argument

Fri, 09 Jan 2009 14:48:34 +0000

Case:

Merrell Dow Pharmaceuticals Inc. v. Thompson

Media File:

85-619_19860428-argument.mp3

Related Transcript:

1985_85_619_argument.xml

Transcript:

ORAL ARGUMENT OF FRANK C. WOODSIDE, III, ESQ., ON BEHALF OF THE PETITIONER

Chief Justice Burger: We Will hear arguments next in Merrell Dow Pharmaceuticals against Larry James Christopher Thompson.

Mr. Woodside, you may begin whenever you are ready.

Mr. Woodside: Mr. Chief Justice, and may it please the Court, in order to understand the pendent and federal question jurisdictional issues involved in this matter, it is first necessary to briefly understand the history of this litigation.

Bendectin was a medicine manufactured by Merrell Dow Pharmaceuticals in the United States which was for the treatment of morning sickness in pregnant women.

There are several counterparts.

There is Canadian bendectin.

There was Debendox, which is an equivalent product manufactured in Scotland.

In this particular instance the petitioners are Scottish and Canadian individuals.

The litigation involving the American claims was originally consolidated pursuant to multi-district rules before the Honorable Carl Ruben in Cincinnati, Ohio.

At approximately the same time there were a series of cases filed by foreign plaintiffs which had originally been filed in the United States District Court for the Southern District of New York.

Those cases were transferred to 1404 transfer, Judge Briotz to Judge Ruben, after the cases had been... after the foreign cases had been transferred to the Southern District of Ohio, a motion to dismiss on the basis of forum non conveniens was renewed.

That motion was granted and subsequently approved by the United States Court of Appeals for the Sixth Circuit in a case called Ballen versus Richardson Merrell, Inc. Richardson Merrell, Inc., is a predecessor corporation to Merrell Dow Pharmaceuticals, and for all intents and purposes they are the same company.

After Judge Ruben had dismissed the foreign cases... there were a series of approximately 12 on a forum non conveniens basis... the instant cases were filed.

And they were filed in state court on September 1st, 1983.

As I have indicated previously, one of the plaintiffs is from Scotland, took Debendox, the other plaintiff was from Canada and took Canadian Bendectin.

In the complaints which these two plaintiffs filed, and by the way they are virtually identical and were filed by the same counsel, there are six causes of action asserted.

In these complaints there is implication that the drug which was used was the American version of Bendectin, and the American defendant, Merrell Dow Pharmaceuticals, Inc., the American company was the defendant.

The fourth cause of action states that the petitioner in the instant action is liable for violations of a breach of the Food, Drug, and Cosmetic Act, and that as a result it is presumptively negligent.

When those cases were filed, a removal petition was placed of record, and the cases were transferred to Judge Ruben in the Southern District of Ohio for the filing in Hamilton County, Ohio, in the Court of Common Pleas.

After they had been removed, two things happened.

One, the respondents filed a motion to remand, and the petitioner filed a motion to dismiss based upon the document and forum non conveniens.

Judge Ruben ruled that the right to relief asserted by the plaintiffs in their fourth cause of action depended upon application of the laws of the United States, and he then determined there was federal question jurisdiction, therefore overruled the motion of the respondent to remand the cases and then dismissed the cases on the basis of forum non conveniens.

After that dismissal, the cases were then appealed by the respondents to the United States Court of Appeals for the Sixth Circuit.

The Sixth Circuit ruled that... actually, what the Sixth Circuit did is, they did not take issue... I am not saying they agreed with it... they did not take issue with Judge Ruben's determination that there was a federal question.

Instead what they did was, they stated that the various causes of action, of which there were six, should be considered collectively.

Now, the first cause of action in these particular cases is a regular negligence cause of action which alleged that Merrell Dow was negligent in the design, manufacture, sale, and distribution of the product.

The Court of Appeals ruled that since the fourth cause of action stated... strike that.

The Court of Appeals ruled that the sixth... excuse me... the fourth cause of action was a negligence action, a negligence per se action in which the respondents had stated that there was negligence per se because of violation of the Food, Drug, and Cosmetic Act of this country.

The Court of Appeals said that since the first cause of action was also a negligence action, that... and since the respondents could recover fully and completely for negligence on that first cause of action, that because of this parallel pleading, it was not necessary for there to be a resolution of the substantial federal... question of federal law in order for the plaintiffs below to prevail on a negligence theory, and therefore it determined that there was no federal question of jurisdiction, and reversed the decision of Judge Ruben and remanded the cases back to the state court, and then we filed the petition for writ of certiorari.

Now, it is our position in this litigation that the plaintiff's right to relief under the fourth cause of action necessarily depends on the resolution of a substantial question of federal law.

Unidentified Justice: Why do we have to decide that if all the Court of Appeals held, as you have said, is that we do not need to decide anything about the fourth cause of action because of the first, because they could recover on a state cause of action?

Mr. Woodside: Yes, sir, that--

Unidentified Justice: Apparently you wouldn't be satisfied with our just reversing that holding.

Mr. Woodside: --Well, let me respond this way.

In point of fact, the situation is, one way to respond would be to say that the consideration by the Court of Appeals that pleading alternative causes of action creates a situation where there is no federal jurisdiction is not in accord with the Franchise Tax Board decision.

See, what the Court of Appeals--

Unidentified Justice: Well, suppose it isn't.

What if we just reversed the Court of Appeals insofar as it held that just because there was a state cause of action stated, they didn't need to determine if there was a federal one?

Mr. Woodside: --Your Honor, in all candor, I am not certain I understand the question.

If you do that, then the action would be, if the Court of Appeals reversed--

Unidentified Justice: Well, we would just tell the Court of Appeals it should have decided whether the fourth cause of action stated a federal question.

Mr. Woodside: --Oh, I understand.

Unidentified Justice: Which it didn't decide, did it?

Mr. Woodside: Well, we don't know for certain.

I think they probably had to to have done that, although they didn't say so in their opinion, because, Your Honor, if they hadn't done that, then it would not have been necessary to determine that there were parallel claims... for instance, if they had determined that the fourth cause of action did not state a federal claim, if they had so ruled, they would not have gotten to the basis for their decision.

They would have... so that there was implied in the decision--

Unidentified Justice: I just don't understand that at all.

They could easily say, even if the fourth cause of action states a federal question, the fact that there is a first cause of action stated in the complaint means that there is no federal jurisdiction.

Mr. Woodside: --But you see, Your Honor, under the Franchise Tax Board decision, the court has to consider each of the individual claims for relief.

Unidentified Justice: I agree with you.

Mr. Woodside: Maybe you and I agree.

I think the situation is, if that happened, then the case would be reversed and the dismissal on the basis of forum non conveniens would be reinstated, which would be fine... the forum non conveniens decision was never appealed to the Court of Appeals.

See, but more importantly, I think, the federal question involved here... there are several federal questions involved.

In this particular situation, where faced with a set of facts wherein the drug which was allegedly ingested by the two mothers, the drug which allegedly caused the problem, was not manufactured, was not distributed, was not sold by the defendant.

It was sold by independent subsidiaries.

While the plaintiffs below allege that the activities of companies in the United Kingdom, Scotland, and the activities of companies in Canada are subject to the regulations and the statutes of the Food, Drug, and Cosmetic Act, that, the federal question there is whether or not there is then an extraterritorial imposition on companies abroad of the safety statutes of this country.

Unidentified Justice: Mr. Woodside.

Mr. Woodside: Yes, sir.

Unidentified Justice: It seems to me I can remember as long ago as I was in law school, which is a long time ago, reading a case involving some sort of a maritime collision, but it wasn't an admiralty case, it was a diversity case in a federal court, and the claim was that the operator of the boat hadn't steered the boat well, and also that it violated a Coast Guard standard.

And there was no thought in that case that there was any federal jurisdiction other than by diversity.

You plead negligence and you say the want of due care, and you say violation of a state statutory standard, you say violation of a federal statutory standard.

Is your position that every time you invoke the violation of a federal statutory standard to prove negligence you have stated a federal claim?

Mr. Woodside: Absolutely not, Your Honor.

In point of fact, we submit that there are very, very few situations in which an allegation of negligence based upon a violation of a safety statute would create federal question jurisdiction.

What we state is that the plaintiff's right to relief must necessarily depend on resolution of a substantial question of federal law.

Now, if you take the situation you have talked about, or if you talk about the numerous decisions of trial courts and courts of appeals and even this Court to some extent, in which there are allegations in the complaint of negligence based upon violations of the Safety Appliances Act.

Now, you see, the Safety Appliances Act, for instance, it usually comes up, of course, in FELA cases, it is only a factual question.

The statutes are simply... there is a... the law concerning them is well settled, so the question simply is, did the person violate that statute.

We don't have that situation here.

Unidentified Justice: So federal question jurisdiction depends on whether the federal statute to which you refer in your negligence claim has a settled construction or an unsettled construction?

Mr. Woodside: Well, to some extent.

What I believe the case law says is this.

If you have a situation where there is settled construction, so that really there is left to the jury simply a factual determination as to whether or not the statute was violated, then in that situation we would not take the position that there is federal question jurisdiction, but in this particular situation here you do not get to that question very easily.

You do not get to the question of what the court should charge the jury on because first of all you have got to determine several federal questions.

First of all, is there an extraterritorial application of the Food, Drug, and Cosmetic Act.

Second of all, are foreign citizens, citizens in this case of Canada or Scotland, are they within the zone of individuals who are protected?

At best their position in that regard would be tenuous.

Unidentified Justice: May I interrupt you there for a moment?

How does that bear on the case?

You do not claim there is a private cause of action.

Mr. Woodside: Absolutely not, but you see, in this particular situation, it is alleged that Merrell Dow Pharmaceuticals, Inc., violated the provisions of the Food, Drug, and Cosmetic Act, and as a result of those violations the company is presumed to be negligent, a rebuttable presumption, and that as a result of that violation, the plaintiffs have sustained damages.

So the first question that must be addressed--

Unidentified Justice: How is that different from the case Justice Rehnquist asked you about?

Mr. Woodside: --Oh, because in the case that he asked me about, the law is settled.

Let me go back and pose a little bit different situation, if I may, but it is right on point.

In some of the railroad cases involving the Safety Appliances Act, it is alleged in the complaints there are violations of those Acts, and as a result of that the defendant is liable.

Now, some of those alleged violations are because the railroad cars don't have the appropriate coupling devices, and so the judge merely charges the jury... didn't violate this... we don't have that situation, because here it has to be a judicial determination as to whether or not the provisions of the Food, Drug, and Cosmetic Act even apply--

Unidentified Justice: But even if you assume they do apply, where does that get you?

Doesn't that just get you to the threshold of your safety appliance cases where everybody acknowledges the statute applies, but proving a violation doesn't establish a right to relief.

Mr. Woodside: --Well, Your Honor, the problem is, you can't just presume it applies.

That is the federal question.

The federal question is whether or not that statute or the provisions of that statute were applied.

It is not a mere factual situation where the trial court can charge the jury.

This is a situation that they violated the Safety Appliances Act dealing with couplers, they are negligent because that would be an American case with American companies.

This is a situation where we are alleged to be liable for a drug we didn't make, we didn't distribute, and we didn't sell.

And what the plaintiffs have really done is export federal statutes to situations involving foreign countries, and in essence import foreign litigation and then take the position that Merrell Dow, the petitioner in this matter, is liable for violation of a statute which it didn't have anything to do with.

Unidentified Justice: It is not liable for violation of the statute.

It is liable for negligence if it is liable at all.

Isn't that right?

Mr. Woodside: Your Honor--

Unidentified Justice: I thought you agreed a moment ago there is no private cause of action for a violation of the federal statute.

Mr. Woodside: --That is absolutely correct.

In response to your question, or your statement, let me compare the first and the fourth cause of action.

The first cause of action is very simple.

It does say we are alleged to be negligent in the manufacture, sale, design, and distribution of drugs.

Classic negligence.

In the fourth cause of action, it is stated that we, Merrell Dow has violated the provisions of the Food, Drug, and Cosmetic Act.

As a result, it is alleged that injury occurred because of the violation of the Act.

It doesn't say that because we were negligent in manufacture, sale, and distribution.

Negligence per se is not the same as negligence in the ordinary sense, and therein lines--

Unidentified Justice: Yes, but if they prove a violation of the Act and they fail to prove negligence, they cannot recover unless there is a cause of action under the Act, can they?

Mr. Woodside: --No, sir, I don't believe that that's--

Unidentified Justice: You concede they can recover for a violation of the statute--

Mr. Woodside: --No.

Unidentified Justice: --without proving negligence?

Mr. Woodside: No, but let me tell you why.

We don't... I don't mean to be sarcastic, but it is our position that the regulations don't govern this... excuse me, that the Food, Drug, and Cosmetic Act does not govern this situation, and that since it is not our drug, we couldn't be liable under any circumstances.

Nevertheless, there are significant federal questions raised by the complaint, and it is because of the questions that are raised by the complaint that federal question jurisdiction is proper.

Now, our position would be, if this matter has to be tried somewhere, that we are not liable, and that there is no presumption of negligence, and we didn't violate the statute.

Nevertheless, the situation in which we presently find ourselves is, we have to deal with the allegations which are raised in the complaint, and under the well proved complaint rule there is in fact--

Unidentified Justice: Why would this be any different than if you had a Canadian railroad or something like that, and they said you have violated the Federal Safety Appliance Act, and we allege the federal statute applies in Canada, and that is a federal question, and as a result of that violation we are going to recover for negligence?

Why is that case different?

Mr. Woodside: --It might not be, but let me go back and respond to the first part of your question, that first, where there would be the federal question would be, is the Canadian railroad subject to the FELA Act.

Now, if they are operating in the United States, they might be, but this is... we are not in an analogous situation.

We are not operating in Canada.

We are not operating in Scotland.

The question is whether or not there is going to be a federal question raised, and the--

Unidentified Justice: Mr. Woodside, is your answer to Justice Stevens hypothetical about the Canadian railroad that there is or is not federal question jurisdiction?

Mr. Woodside: --It depends on whether the railroad was operating in the United States.

If the railroad was operating in the United States--

Unidentified Justice: No, he says the railroad was operating in Canada, and it is pleaded that the federal law applies in this particular situation in Canada, as I understood it.

Mr. Woodside: --If that were the situation, I would say there is also a federal question created there because in order for the plaintiffs in that case to recover they would have to demonstrate that the FELA or whatever the federal statutes would be would be applicable to a Canadian railroad doing things in Canada.

It is that first question, which would be the federal question.

Unidentified Justice: In my example earlier about the boating accident, I suppose if it was pleaded that the coast guard regulation applies even though it is doubtful whether these waters are navigable, if one can conceive of a pleading like that, that that would make it a federal question jurisdiction.

Mr. Woodside: Your Honor--

Unidentified Justice: You are turning the whole thing just into a case by case analysis, it seems to me.

Mr. Woodside: --Well, to some extent I am, but the point I want to make is, it is a small number of cases.

This is not a situation where we would be opening the federal courts to a floodgate of litigation.

This type of situation is not going to arise very often.

Now, let's assume in your Coast Guard situation the question will be whether the Coast Guard regulations apply to something that happened in South America.

That might be a federal question.

This doesn't happen very often.

For instance, in the Bendectin... lots of cases... this is the only time that I know of where these particular claims have been made.

Unidentified Justice: Well, Mr. Woodside, if it doesn't happen very often, then isn't that a good reason to steer away from saying it is a federal question under the assumption that we could resolve a serious federal question by way of certiorari review from the state court?

Mr. Woodside: In point of fact, Justice, that is probably a good point, except for one thing.

If we do it on a state by state basis, we don't know what the individual states are going to do.

Before it would get reviewed, it may well be that a good number of plaintiffs determine that they want to file cases in various state courts in this country.

Without being too sarcastic, the United States has become a haven for foreign plaintiffs.

We have lots of situations, even in the Bendectin litigation, they filed lots of cases here, and so that what happens is, we allow it to be determined on a state by state basis.

Some of them may never get to the Supreme Court, or if it is, it may be several years down the road, and during that period of time the floodgates of the state court may have been opened.

Unidentified Justice: But it is also true you may have 50 different state decisions, and in this country you have probably 12 different circuit decisions.

It is not as if every federal court case gets reviewed by this Court.

Mr. Woodside: Your Honor, that is quite correct, but in point of fact we are now before this Court, and it seems to me that this is now the time to rectify the situation and determined that based upon the Franchise Tax Board, that we have a situation where there is in fact a significant federal question involved, and there is in this circumstance federal jurisdiction, because when that happens, then the cases, the forum non conveniens decision of the trial court will be upheld, and the cases will be transferred back to either Canada or Scotland.

Unidentified Justice: Mr. Woodside, how do you reconcile the different approaches, or can you, taken by this Court in the Moore decision and in the Smith decision and the language subsequently in Franchise Tax Board?

Is there some way to reconcile all those cases, in your view?

Mr. Woodside: I believe there is, Justice O'Connor.

The situation is this.

In Moore, for instance, you had... both a federal and a state statute were alleged to be violated.

And the situation there is that you do not end up having a situation where the right to relief necessarily depends on resolution of a substantial federal question.

The most... I didn't write down too many quotes, but I will refer to one in a minute.

In Franchise Tax Board, the following language appears.

"Under our interpretations, Congress has given the lower federal courts jurisdiction to hear originally or by removal from the state court only those cases in which a well pleaded complaint establishes either, one. "

--the one is mine...

"that federal law creates a cause of action, or, two, that the plaintiff's right to relief necessarily depends on the resolution of a substantial question of federal law. "

If you look at Moore, and if you look at an innumerable number of Court of Appeals and District Court decisions, most of them involving allegations of railroad liability, we very seldom, if ever, have the situation where the plaintiff's right to relief on one of the claims relies necessarily on resolution of the basic substantial federal question.

In point of fact, most of those cases are the situation where you have the question of whether or not there is a... there is a factual question, was the statute violated, so they never get to the issue.

Unidentified Justice: Well, you put a great deal of load bearing weight on the word "substantial" in your argument.

Mr. Woodside: Yes, ma'am.

Unidentified Justice: And as Justice Rehnquist says, that would require a case by case review just to answer that question.

It certainly wouldn't provide any very clearcut lines for the practitioners, would it?

Mr. Woodside: There are a number of cases, some from this Court, dealing with what the definition of substantial is.

If something is substantial, that means it is not obviously without merit, or not foreclosed by Supreme Court precedent, or not made solely to obtain jurisdiction, for instance.

It is, in fact, true that you may have to look at this on a case by case basis with certain exceptions.

For instance, most of the instances in which this question arises are on the railroad litigation, and I mean, I am not a railroad lawyer, but reviewing the cases, it becomes obvious that the courts have determined through a period of time that there are virtually always only factual questions.

You don't have to reach the question of whether there is a substantial federal question, because the law is well settled.

I notice that my little light is on.

With the permission of the Court, I will reserve the rest of my time for rebuttal.

Chief Justice Burger: Mr. Chesley.

ORAL ARGUMENT OF STANLEY M. CHESLEY, ESQ., ON BEHALF OF THE RESPONDENTS

Mr. Chesley: Mr. Chief Justice, and may it please the Court, I believe that Justices Rehnquist and Powell have put the finger on the issue.

There is no way to surgically excise two Bendectin cases out from the well established standard that there need to be either a private cause of action, and both sides admit that there is no private cause of action.

As a matter of fact, the legislative history shows that that was one of the options, to give a private cause of action to FDAC, Federal Drug and Cosmetic cases, and that was deleted by Congress.

So then the question is, is there a federal question, and while my worthy opponent would like to surgically excise two Bendectin cases, we cannot take case by case, because historically there is presently sitting a stay order on 235 American cases in which the Honorable Judge Ruben, after the Bendectin trial, took the 235 cases that could not be removed because they were residents of Ohio, Merrell Dow being a resident of Ohio, it's a 1441(b) scenario.

The court took these 235 American cases and put them back to the state court, remanded them to the state court, and has withheld his order pending the determination of this issue.

Unidentified Justice: And all those cases, have they gone to judgment?

Mr. Chesley: No, Your Honor, they have not.

What happened was, they had gone to judgment in the federal court, and after the verdict, Judge Ruben held sua sponte that the 235 of them, there was inappropriate jurisdiction, and sent them back--

Unidentified Justice: But they had gone to a verdict for the defendant.

Mr. Chesley: --They had gone... but he said these are exempted from the verdict.

He has exempted them from the verdict, but has not put his order on pending the outcome of this case.

Unidentified Justice: Kind of a lucky strike, isn't it?

Mr. Chesley: Very lucky.

No question, Your Honor.

As a plaintiff, I would say to you that it is more than a lucky strike.

The point that I am making is that Mr. Woodside, my opponent, was talking historically, and I am indicating here that it isn't an issue of two or three foreign cases.

There is an inconsistency.

If the position is that the FDAC does not apply to Canadian cases and Scottish cases, then I think it is inappropriate to come before this bench and state categorically that it is a federal issue because there was a pleading of negligence.

I would agree totally with Justice Powell that it is a negligence case, and that you are talking about a standard of conduct and a violation of the FDA is at best a violation of a standard which can be introduced in evidence by experts, and is done all the time.

In response to a question by Justice Rehnquist, I would say as a plaintiff's counsel there is no way but to open the floodgates of litigation, and just as an example, the following cases would then become all federal issues.

The Safety Appliances Act, which is more.

Federal Civil Aeronautics Act, the Rivers and Harbors Appropriation Act, ERISA, just the simple Flammable Fabrics Act.

In other words, everyone, we are very familiar with the flammable fabrics.

There is a federal statute.

Therefore every flammable fabrics case which would mention whether or not there was a violation of the Act, whether it met the standard, would then be a federal case.

Packers and Stockyards Act, United States Warehouse Act, Federal Meat Inspection Act, Urban Mass Transportation Act, the Ladman Trademark Act, Emission Standards Act for automobiles, and recently in the agent orange, the Second Circuit, a case I am familiar with, 635 Fed 2nd 987, held that the bend rule, it is FIFRA, which is the Federal Fungible Insecticide Act, was not an issue for federal, or a federal substantial law issue.

Quite simply, I think that the Sixth Circuit addresses the issue, I think, very clearly.

Clearly there is agreed no private right of action by those injured by violations of the FDCA, and that, two, the plaintiff's right to relief does not depend necessarily upon a finding of a violation of the FDCA, and you could still find negligence, and this is consistent with the rulings by all other circuits and the Supreme Court.

I believe circuits have already addressed, most circuits have already addressed... I know the Seventh Circuit has, and other circuits, and we indicate that on Page 13 and 14 of our brief, and I don't want to track our brief before this Court.

I believe that at best this Court would have to take a position, because I don't believe that the Court would ever want to take the position that all of these are federal Acts... pardon me, are federal issues of law, every one of these, because that would be an impossible floodgate of litigation.

The next question that this Court would have to address is, does this Court want to take FDAC and make it a private cause of action, and I do not see anything in the preceding cases, whether it be franchise or more, that would lead one to believe that it is the intent of this Court to make the FDAC a private cause of action, and of course this Court can change it, can change that rule and make it a private cause of action.

I advocate that it should not.

I advocate that the state courts, whether it be Ohio or Kentucky, can clearly apply the law, and it does not take only the wisdom of a federal district court to apply the law.

Simply stated, the FDAC is a very simple statute.

Misbranding is misbranding, and the best example I can give you is that Ohio has an exact parallel statute on misbranding which is word for word.

I would suggest or submit that not only would it open the floodgates, as we have indicated, but it would, I believe, create an impression that of course Merrell would like.

It would create an impression that any and all federal drug cases must or become dominanted by a federal court.

I suggest that from the recent cases I have had an opportunity to review, the intention, because of the backlog of the federal judiciary, is not to encumber federal trial judges with more litigation, what with Title 7, Social Security cases, Speedy Trial Act cases, not to encumber the federal court with more cases, because I think as succinctly stated on the last page of our brief, and I would indicate that I think it is very well stated by Ms. Smith, who wrote that portion, on the point that you would have a situation whereby every time there was an allegation of a federal violation or a federal statute, then the defendants could remove it to federal court if they didn't have diversity, and likewise, every plaintiff could dress up a federal violation and make it a federal case.

Unidentified Justice: If there is no private cause of action in this case for misbranding, which I guess both sides agree that there is not, may a plaintiff nevertheless just go into a state court and sue for misbranding?

Mr. Chesley: What would happen, Your Honor, the only place they could sue for misbranding as a practical consideration would be in the state of Ohio, because they would remove the person.

Unidentified Justice: There is no private cause of action, and if it were brought in a federal court, there just wouldn't be any private cause of action.

Isn't that right?

Mr. Chesley: I am sorry, Justice White.

I don't--

Unidentified Justice: Well, what does it mean that there is no private cause of action for violation of this misbranding provision?

Mr. Chesley: --What it means, as I understand it, is that an individual plaintiff cannot address that... does not have a right, a private right of litigation based upon a violation of that statute.

Unidentified Justice: So if he goes into state court and says, the defendant has violated this federal statute, this misbranding provision, and I want relief, he will get dismissed in the state court.

Mr. Chesley: Well, he may use it as a piece of evidence.

Unidentified Justice: No, that is all he says.

Mr. Chesley: I believe that he would, Your Honor, under the--

Unidentified Justice: He would be dismissed.

Mr. Chesley: --I believe if that is the only thing you have, that I am here because they violated, you are not protected.

In other words, myself as an individual, Ms. Smith as an individual does not have a right to sue on that alone, but you certainly would have a right to sue on negligence.

Unidentified Justice: Yes, which... you would have a right under state law to sue for negligence.

Mr. Chesley: Yes, Your Honor, and the question is, was it the negligence of the misbranding that was the proximate cause, and in using this evidence, your experts or whatever, you could utilize as a standard of conduct the misbranding statute under 302 et sec of the--

Unidentified Justice: Well, suppose in the state cause of action for negligence based on this misbranding, it becomes clear that the misbranding that is claimed has been held by a federal court in an action by the Food and Drug Administration that this is not misbranding at all.

One circuit has held that it is misbranding, and another circuit has held that it isn't, and obviously then a construction of the federal statute was involved.

Mr. Chesley: --If I understand your question, yes, there is a construction of the federal statute which is part of the evidence mechanism, but as I can give a real true analogy, a case cited by the plaintiff... pardon me, by the defendants is a case that we had, which is the best example of what happens relative to private right.

It is the Griffin case.

It is the E. Farrell.

There was a total breakdown in the system of the FDA.

How that could even have been put on the marketplace without it even being looked at by the FDA is the best example I could give this Court of the total breakdown of the system.

Yet our trial judge, Judge Spiegel, in... and it cited the Griffin case in the defendant's brief, held that there was no right to come into the federal court because there was no private right to utilize the FDA.

While I disagreed with Judge Spiegel, being on the other side of that case, that decision, I happen to concur with him, and that is my understanding of what is meant by private right.

That in no way precludes me from bringing the case against the defendant in the state court on the same allegations of negligence as Justice Stevens indicated.

I have nothing further in my argument.

I guess I am supposed to... I don't think I have to wait for the white light, and unless the Court has any questions of me, I think... it is seldom that I am in a position to support... come as an appellee, but I would support the decision as written by the Sixth Circuit and indicate that I believe that that is appropriate.

Chief Justice Burger: Do you have anything further, Mr. Woodside?

ORAL ARGUMENT OF FRANK C. WOODSIDE, III, ESQ., ON BEHALF OF THE PETITIONER -- REBUTTAL

Mr. Woodside: I have only one or two brief remarks.

On the federal... or the private cause of action issue, while we do not believe that there is a private cause of action, and Mr. Chesley apparently now also so believes, nevertheless, in the fourth and fifth causes of action of the complaint, it has asserted that there is in fact a private cause of action.

Now, I think the law is... I think this is accurate... jurisdiction is not defeated by the possibility that the affirmance might fail to state a cause of action.

What happens is, the Court has to first say, yes, we have jurisdiction, and then dismiss the private right claims.

Now, in the Griffin case about which Mr. Chesley spoke, that is, the E. Farrell case in Cincinnati, what happens is, the Court had jurisdiction and then struck those claims.

In the Bendectin situation, involving the use of foreign products by foreign plaintiffs, the trial court, in this case Judge Ruben, bypassed the necessity of striking the claims and simply dismissed the actions based upon the forum non conveniens doctrine.

He had jurisdiction to do that because of the fact that the plaintiff's complaints in these... do in fact allege a private cause of action.

It would not ultimately withstand a motion to dismiss.

Nevertheless, it was not necessary for the court to do that because the court dismissed these cases based upon the doctrine of forum non conveniens.

Unidentified Justice: Mr. Woodside, would your Bell v. Hood argument go so far as to say every time a plaintiff alleges that there is a private cause of action on some federal statute, even though it was pretty clear there was not, that there nevertheless would be jurisdiction to decide whether or not that was a good plan?

I mean, if we agree here there isn't any private cause of action, you are saying, even though we know what the answer is, there was jurisdiction over the whole case.

Mr. Woodside: I believe the situation is that if that allegation is made, the Court then has jurisdiction to determine that there is in fact no cause of action stated.

Yes, sir, I believe that is correct.

Unidentified Justice: So you could always defeat removal by... I mean, as long as that kind of allegation is in the complaint, a plaintiff could always sustain federal jurisdiction.

Mr. Woodside: Well, let's look at it the other way around.

The defendant could always remove on that basis.

Unidentified Justice: If the plaintiff is foolish enough to have such an allegation in the complaint.

Mr. Woodside: Yes, sir.

Unidentified Justice: Yes.

Mr. Woodside: So I think that is another reason why there is in fact federal jurisdiction here.

Unidentified Justice: Even though if the suit had been brought in the federal court here, the federal court would have dismissed it on what ground?

Mr. Woodside: Forum non conveniens, as it did many before and several since.

Unidentified Justice: Well, forget forum non conveniens for a moment.

You just go into federal court and sue for misbranding, and you are going to get dismissed, aren't you--

Mr. Woodside: Yes, sir.

Unidentified Justice: --because there is no private cause of action.

Mr. Woodside: Yes, sir.

Unidentified Justice: But not because there isn't jurisdiction.

Mr. Woodside: Well, it would depend upon what all the allegations of the complaint were.

Unidentified Justice: Well, that is the only allegation there is, that there was misbranding, and I want relief.

Mr. Woodside: If that were the only allegation in the complaint, what in fact would happen would be, a motion to dismiss for failure to state a cause of action would be granted and the entire case would be dismissed.

Unidentified Justice: And the reason is because there is no private cause of action.

Mr. Woodside: Correct, and the court always--

Unidentified Justice: That is not a jurisdictional ruling, you say.

Mr. Woodside: --The Court always has jurisdiction to determine whether or not--

Unidentified Justice: Yes.

Mr. Woodside: --there is a cause of action stated.

Unidentified Justice: Yes.

Mr. Woodside: And so the Court would have jurisdiction to say, there is no private cause of action, therefore the lawsuit is dismissed.

Unidentified Justice: But you say that this case should not be remanded to the state court because even though there is no private cause of action there was jurisdiction to entertain this suit on removal.

Mr. Woodside: Correct.

That is correct.

And that is because of the substantial nature of the federal question presented, which is the application of the Food, Drug, and Cosmetic Act to a situation involving a drug which is manufactured by a company other than defendant, sold by a company other than defendant, in a country where it was manufactured and sold by other companies who themselves were subject to their own regulatory scheme, and not to the regulatory scheme of the United States, and the plaintiffs themselves were foreign consumers of that product.

Therefore one of the substantial federal questions is, does the federal Food, Drug, and Cosmetic Act apply to Merrell Dow Pharmaceuticals in this particular situation.

That is not a factual question.

That is a significant federal question to be determined in the first instance by the Court.

Thank you.

Chief Justice Burger: Thank you, gentlemen.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Verlinden B. V. v. Central Bank Of Nigeria - Oral Argument

Wed, 18 Feb 2009 07:11:07 +0000

Case:

Verlinden B. V. v. Central Bank Of Nigeria

Media File:

81-920_19830111-argument.mp3

Related Transcript:

81-920_19830111-argument_transcript.xml

Transcript:

ORAL ARGUMENT OF ABRAM CHAYES, ESQ., ON BEHALF OF THE PETITIONER

Chief Justice Burger: We will hear arguments first this morning in Verlinden against Central Bank of Nigeria.

Mr. Chayes, you may proceed whenever you're ready.

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

The question in this case may appear at first glance to be a technical and abstract one, but it touches directly and deeply the power of the national government to regulate and protect the foreign relations of the United States.

Congress in 1976, acting in the exercise of its powers over foreign affairs and foreign commerce, enacted the Foreign Sovereign Immunities Act which was comprehensive legislation establishing circumstances and conditions in which suit may be brought in the courts of this country against foreign sovereigns and the procedures regulating such suits.

The question here is whether as an aspect of this legislation Congress can, within the meaning of Article III of the Constitution, ensure that all such suits against foreign sovereigns may be brought in the federal courts, the courts of the nation.

The court below, the Second Circuit, held that there was an impenetrable constitutional barrier to this congressional choice.

Why?

The plaintiff here, petitioner in this Court, is Verlinden B. V., a Dutch corporation.

Thus, the suit is between a foreign corporation and a foreign sovereign.

The diversity clauses of Article III do not cover such a suit.

They cover suits between a citizen of the United States and a foreign sovereign, but not between an alien and a foreign sovereign.

So recourse must be had to the arising underclause of Article III which grants jurisdiction in a constitutional sense to the federal judiciary over suits arising under the laws of the United States.

But Judge Kaufmann below held that this case does not arise under the laws of the United States, and so he dismissed on the constitutional grounds.

It is our contention here and the main proposition in this case that the case does indeed arise under a law of the United States, and that law is the Foreign Sovereign Immunities Act.

Jurisdiction in this--

Unidentified Justice: Absent that act what would be the situation in this case?

Mr. Chayes: --Absent that act we don't believe there would be jurisdiction.

Unidentified Justice: Wouldn't be anything.

Mr. Chayes: No, sir.

Jurisdiction in this case is founded on the special jurisdictional section of the Foreign Sovereign Immunities Act that codified in 28 USC 1330; and that provides for original jurisdiction in the federal courts without regard to a mounting controversy of any nonjury civil action against a foreign state with respect to which the foreign state is not entitled to immunity.

So in order for jurisdiction to attach, the foreign state defendant must be one... must be not entitled to immunity with respect to the claim asserted.

Unidentified Justice: Mr. Chayes, is the absence of sovereign immunity as defined in the act an element of the plaintiff's cause of action, or is it an affirmative defense, in your view?

Mr. Chayes: We believe it is an element of the plaintiff's case, because it is a jurisdictional requirement under 1330 that sovereign immunity must be absent the federal rules, and in the absence of the federal rules, general pleading principles require that the plaintiff plead and prove subject matter jurisdiction in order to establish his case.

We did so in this case.

The situation is such that the defendant cannot waive or concede subject matter jurisdiction, because as we know and as happened in this case, the absence of subject matter jurisdiction can be raised by the court sua sponte or by any party at any time during the course of the case; and that's what happened here.

So... and the act provides, indeed, that in case of a default the court must determine that... on the evidence that the plaintiff is entitled to recover, which means that he must determine that there is no immunity.

And the cases in the lower courts in which there have been defaults have followed that practice.

So that within the narrowest notion of the arising underclause, as Your Honor suggested, the federal question of the sovereign immunity of the defendant is a central element of plaintiff's claim... of plaintiff's case in every instance arising under the act.

But I should say that the act is much more than a jurisdictional statute or a mere authorization to sue.

The Foreign Sovereign Immunities Act represents a major departure in U.S. policy.

Until the act was passed, the ability of a private party to sue a foreign state was totally a matter of the discretion of the executive branch of the national government.

No case against a foreign state could be brought in a state or federal court where the executive branch suggested immunity.

Now, up until--

Unidentified Justice: Why was that, Mr. Chayes?

Mr. Chayes: --Well, that was because of the opinions of this Court.

Unidentified Justice: So it was a... Do you think it was grounded in the Constitution?

Mr. Chayes: No.

The doctrine dates, of course, from the Schooner Exchange, one of Chief Justice Marshall's great opinions, in which, alluding to the fact, which has been a dominant theme in sovereign immunity jurisprudence, that every case against a foreign sovereign touches the dignity of the foreign sovereign, and involves the foreign relations of the country, Justice Marshall established the principle in the Schooner Exchange that foreign sovereigns were absolutely immune.

That is, no case of any kind could be brought against a foreign sovereign in the courts of the United States.

In cases that arose from time to time, for example, when a case was initiated by the attachment of a commercial vessel owned by the foreign sovereign, the sovereign might appeal to the Department of State to suggest immunity.

That is to suggest to the Court that this was a case in which immunity was appropriate.

When the State Department--

Unidentified Justice: Mr. Chayes, before the Foreign Sovereign Immunities Act, there would have been no jurisdictional basis for a federal court to entertain this particular suit, would there?

Mr. Chayes: --It is not clear, Your Honor.

That is, until 1952, there were no in personam jurisdiction against a foreign sovereign.

The cases were begun by attachment of a foreign sovereign's property, but I think you are correct.

It is what... the question that the Chief Justice asked earlier.

Until the Foreign Sovereign Immunities Act was enacted, it does not appear that there was jurisdiction for a suit by an alien versus a foreign sovereign, although I can't say for sure that no such cases were brought.

In 1952, as you know, again, as a matter of executive policy, the United States government adopted the restrictive view of foreign sovereign immunity, and the State Department indicated that it would not suggest immunity in cases growing out of the commercial acts of foreign sovereigns.

But that was an act of grace on the part of the Department of State.

The Department of State was not bound by that, and in fact in some cases involving commercial acts the State Department did suggest immunity.

The jurisprudence of this Court tells us that the Court, this Court, the state courts, and the federal courts were bound by the executive... by the executive suggestion and could not disregard it, and in the absence of a suggestion, the Republic of Mexico versus Hoffman tells us that the Court had to follow the policies enunciated by the State Department.

But as I said, the Foreign Sovereign Immunities Act has changed all of that.

In the first instance, it judicializes the whole field of foreign sovereign immunity, and remits the question of sovereign immunity to judicial determination.

Second, it codifies the restrictive theory of immunity, and subjects foreign sovereigns to suit in cases arising out of commercial transactions, ordinary torts, and that sort of thing, directly parallel, both in concept and language, to the Tucker Act and the Federal Tort Claims Act, by which the United States has consented to sue against itself.

Unidentified Justice: Would you say, Mr. Chayes, that this dichotomy that was developed in 1952 is somewhat analogous to the old concept of proprietary and governmental functions?

Mr. Chayes: Yes.

Exactly so, Mr. Chief Justice.

In fact, we used to talk about it in Latin and call it use imperii and use guesti, but it was the same general kind of distinction.

That is, now the Act doesn't quite take the old line.

It says, when the foreign sovereign makes a contract, it doesn't matter whether it is a contract for guns for the army or for wheat for the starving poor, that is contract, and the government ought to respond according to the laws of contract.

It doesn't matter what the ultimate purpose of the contract is.

Or if the ambassador's car strikes a person, the government ought to be liable, even though that was the ambassador carrying out political functions of the government.

But it's the same general conception, Your Honor.

Unidentified Justice: Assuming that a foreign country had no assets in this country, how would you--

Mr. Chayes: You could not enforce if there were no assets.

Of course, the situation until the enactment of the Foreign Sovereign Immunities Act in 1976 was, you could never get attachment against foreign assets.

One of the major departures of the Act was to provide for enforcement of the judgment by attachment of the assets.

The Act also defined the causes of action which would lie against the foreign sovereign and the extent of liability, so that we see here an extended, comprehensive legislative pattern, legislative structure dealing with the entire range of actions against a foreign sovereign expressly made binding on both state and federal courts as a pre-emptive exercise of federal supreme legislative power.

Now, there is no doubt that this case falls within the statute.

It arises... it is a suit on a contract, a contract for the purchase of cement.

The defendant was... The Central Bank of Nigeria is a foreign sovereign.

It repudiated the letter of credit that financed the contract.

The whole thing was a commercial transaction.

The court below in identical cases involving U.S. corporate plaintiffs held that the contacts with the United States were sufficient to bring this transaction within the purview of Section 1605(a)(2) of the Act dealing with commercial claims.

And second, the Act applies as a matter of interpretation to suits... statutory interpretation, to suits against an alien... excuse me, suits brought by an alien against a foreign sovereign.

The statute says that.

It says any civil action.

Both courts below agreed that the statute extends to suits brought by an alien plaintiff.

The government's brief, which represents the views of the Justice Department and the State Department, the two executive departments that were the draftsmen of the Act, agrees that the statute extends to suits by an alien.

It is the only way that Congress could have fulfilled its twin purposes, which were to provide judicial protection for American business enterprise in the courts in suits against a foreign sovereign, and at the same time to concentrate that litigation in the federal courts.

And finally, I think it makes... it is important to note at this point that there is no problem here of opening the floodgates to a whole series of suits with which the United States has no connection, no interest, no concern.

That would be inappropriate for determination by the federal courts.

Unidentified Justice: --Mr. Chayes, you made the statement that it was the purpose of the Act to concentrate the litigation in the federal courts.

Mr. Chayes: Yes, sir.

Unidentified Justice: As opposed to state court suits?

Mr. Chayes: Yes, indeed, Your Honor.

The court... the Act permits suit in the state court, but subject to a power of removal by the foreign defendant, so any suit begun in a state court may be removed by the foreign defendant at any time.

It is not subject to the usual time limit on removal.

The fact of the matter is, of course, that most actions that have been begun in state courts have in fact been removed, and the Congress in the legislative history stated that the purpose of the removal jurisdiction was to provide for concentration of the suits... of the litigation in the federal courts, for two reasons.

First, to ensure uniformity of decision, and second, to ensure that the delicacy and sensitivity of the question of suits against a foreign sovereign would be recognized in the courts of the nation, the nation being the one that bears international responsibility for the acts of the judicial department.

So, there is no doubt that that was the purpose of the statute.

I do want to say that... what I started, that there is no problem here of a flood of litigation that would be inappropriate for determination in the federal courts.

Congress established a different set of thresholds and limits than the party plaintiff.

It required in 1605(a) and 1605, 6, and 7, the statutes withdrawing... the sections withdrawing immunity, it required that for immunity to be withdrawn, the transaction in suit had to have substantial connection with the United States, as was the case here, where the transaction was financed through the Morgan Bank in New York.

So, the alien will not be able to bring suit unless the transaction has substantial connection with the United States, and once that is so, it seems to me hard to argue that suits against a foreign sovereign are not most appropriate for determination in the federal courts.

That goes all the way back to Alexander Hamilton, who in the 81st Federalist said that since the nation will be responsible for the judgment of its courts in suits touching foreign citizens and foreign affairs, the nation... the courts of the nation should have jurisdiction to hear them.

We maintain that the statute as so construed is constitutional.

It is constitutional for the reason I gave in the answer to Justice O'Connor's question that the plaintiff's case contains a necessary federal element, the absence of immunity, and it is constitutional under the teaching of the Osborn case, which says that where Congress has legislated on a matter within its competence, here the foreign relations of the United States, and has legislated comprehensively, it may grant jurisdiction to cases arising within that... within the ambit of that legislative program, even though the particular case may not be governed on the merits by federal law.

So, for those two reasons, it seems to me the jurisprudence of this Court makes it clear that the statute as construed is constitutional, and this cases arises under the Constitution and laws of the United States within the meaning of Article III.

Unidentified Justice: We don't need to decide the case on any broader basis for you to win than to say that the Congress may vest the decision of any federal question on that.

Mr. Chayes: Yes.

I will... I--

Unidentified Justice: Whether it is in defense or--

Mr. Chayes: --That is correct.

You don't have to decide it on any broader basis than the basis that was involved in my response to Justice O'Connor's question, and we feel that on that basis it is a very easy case.

It is no different than the Federal Tort Claims Act, in which... which this Court has said cases under the Federal Tort Claims Act arise under the Constitution and the laws of the United States.

That is exactly what this is.

And therefore, although it seems to me perfectly clear that the Osborn rationale covers this case, you are quite right, Justice White, that you don't have to go anywhere near that far to decide in our favor.

Unidentified Justice: --Does that still leave you with the question of a substantial connection?

Mr. Chayes: No, Your Honor.

That issue was decided in the consolidated appeal below, with respect to five cases that were identical in terms of substantial connection with this case.

All of those five cases, the court of appeals found, had the substantial connection, in Texas Trading, Texas Milling and Trading versus the Republic of Nigeria.

The only thing that differentiated those five cases from this one was the citizenship of the plaintiff, and the legislative history says that the citizenship of the plaintiff should not constitute a connection, and of course the jurisprudence of this Court under International Shoe suggests the same thing.

I would like, if I may, Your Honors, to reserve the rest of my time for rebuttal.

Thank you.

Chief Justice Burger: Very well.

Mr. Bator?

ORAL ARGUMENT OF PAUL M. BATOR, ESQ., ON BEHALF OF U. S. AS AMICUS CURIAE

Mr. Bator: Mr. Chief Justice, and may it please the Court, it is the government's submission in this case that important diplomatic and foreign relations interests of the United States will be adversely affected if the holding of the court of appeals is affirmed, and if suits by foreigners against foreign countries are relegated to the state courts.

The single most critical proposition relevant to this case is one that oddly enough nobody disputes at all.

That proposition is that it is for Congress to decide, as a matter of federal law, whether and on what conditions a foreign country should be amenable to suit in an American court, whether by a plaintiff or an American... a foreigner or an American citizen.

Nobody argues that this question is reserved to the states or is governed by state law.

Under its regulatory Article I authority, Congress has power to decide as a matter of the diplomatic foreign relations and foreign commerce interests of the United States, whether foreign countries should be amenable to suit.

Unidentified Justice: Well, do you think under Article I Congress could simply pass a statute that said any time a foreign government wants to sue or be... or someone wants to sue a foreign government in this country, we aren't laying down any sort of law at all to govern the suits, but the federal district court shall have original jurisdiction?

Mr. Bator: There would be an antecedent question in that case, Justice Rehnquist, which is whether the transaction sued on has such connection to the United States that it is a legitimate, rational--

Unidentified Justice: Well, supposing Congress said, we don't care whether the transaction had any rational connection.

We want all such suits brought here.

And in this particular case there was no connection at all.

Mr. Bator: --Well, I can conceive of a case where the suit by a foreigner against a foreign country would be so foreign to any substantive American concern whatever that it shouldn't be in an American court at all.

Unidentified Justice: Even though Congress had said it should?

Mr. Bator: It is conceivable that there is a case that has nothing to do with the United States, and where it shouldn't be in an American court at all, but this statute and this case is so far from that extreme problem that really this Court, I think, does not need to be concerned with it.

Unidentified Justice: Under what provision of the Constitution would you determine under Justice Rehnquist's example that it could not be in the federal court?

Mr. Bator: I assume that the relevant question whether it would be a rational judgment by Congress to decide that in regulating the foreign relations and foreign commerce of the United States, the case should be assigned to an American court.

I would say that that would--

Unidentified Justice: You would have to rest it on the federal protective jurisdiction concept.

Is that right?

Mr. Bator: --It may be... it may be that... you see, if the case is going to be in an American court, then it seems to me there clearly must be protective jurisdiction to put it in a federal court.

That is, it seems to me that this question could be divided into two parts.

The first... and the concern in this case might be thought of in two stages.

The first is under what circumstances should an American court have jurisdiction to adjudicate, and that is the question that is subject to Congress's regulatory power.

Now, if that question is answered in the affirmative, that the transaction between the foreigner and the foreign government is sufficiently American to make it legitimate to authorize an American court to adjudicate it, then the question is whether the Constitution requires Congress nevertheless to leave the matter to a state court.

Now, on that point, the diplomatic and foreign relations interest of the United States comes into play, because in this Court's jurisprudence and in the legislative history of this statute, the one thing that was clear was the judgment that a uniform, sensitive national resolution of the question of the amenability of a foreign government to sue in the courts of this country needed a federal national solution.

Unidentified Justice: Under your view, Mr. Bator, as I understand it, then, you think we cannot simply resolve the case by dealing with the arising under question discussed by Mr. Chayes, but in fact have to also discuss the protective jurisdiction question.

Is that right?

Mr. Bator: No, I believe I misspoke if that is the impression I gave.

I think that this is a clear arising under case, and no, the Court does not need to go into fancy problems of protective jurisdiction.

Why?

In this case, Congress has exercised its undoubted Article I regulatory authority to create a regulatory scheme, which is the... the scheme governing the amenability of foreign governments to sue.

Now, if there is one thing clear about the arising under clause, it is that if Congress has an Article I power to create a regulatory scheme, it has a matching Article III power under the arising under clause to call on federal trial courts to apply and interpret and enforce that scheme.

That is, the surprising conclusion of the court of appeals in this case was that although Congress has power as a matter of federal law to regulate the question of amenability, the Constitution requires it to leave the enforcement of its regulatory scheme to a state court.

Now, it is that proposition that turns the Osborn case on its head.

In this case, the Court does not need to worry about some of the more far-reaching conclusions of Chief Justice Marshall in Osborn, just as it doesn't, I think, really need to worry about protective jurisdiction, because this case is within the core of the arising under clause as interpreted in Osborn.

In this case, Congress has enacted a comprehensive statute which governs this important and sensitive diplomatic issue, and now it says the enforcement of that question and the decision of issues under this statute should be in the hands of the federal courts.

Under the opinion of the court of appeals in this case, we are in this really anomalous situation.

That judgment says that this plaintiff must now sue Nigeria in a state court.

What is going to happen in the state court?

Unidentified Justice: Well, in the state court it could be moved rather readily, couldn't it?

Mr. Bator: It could be removed, Mr. Chief Justice?

Unidentified Justice: Yes, could it?

Could it?

Mr. Bator: Well, in order for the case to be removable by the foreign government, it would have to first be determined that it is a case arising under federal law for purposes of Article III.

That is to say, if this statute is unconstitutional in the way it confers original jurisdiction, it would be very hard to see how it is constitutional in allowing a defendant to remove the case to federal court.

Unidentified Justice: Does this case arise under the '76 Act?

Mr. Bator: Yes, Mr. Chief Justice.

This case arises directly, as Chief Justice Marshall explicated the clause, under this Act because in order for this case to be in the court, at the forefront of the case, the district court must decide the applicability and the meaning of this regulatory scheme which Congress enacted pursuant to its Article I power.

And that is what the district court did in this case.

It wrote an elaborate opinion on the question whether Nigeria's contacts in this case were sufficient to lift its immunity.

Unidentified Justice: What did Congress say about state court jurisdiction in the '76 Act?

Mr. Bator: Congress permitted plaintiffs to choose a state court, but Congress very plainly said that in any case where the plaintiff chooses a state court, the defendant foreign government has an automatic right to take it to federal court, and Congress in its reports made it very clear why it wished that removal power to exist.

The report of the Senate and the House says, in view of the potential sensitivity of actions against foreign states and the importance of developing a uniform body of law in this area, it is important to give foreign states clear authority to remove to a federal forum actions brought against it.

Unidentified Justice: Is there any explanation in the legislative history as to why the state court jurisdiction provision was given and... with one hand and taken away with the other?

Mr. Bator: I think, Your Honor, that the Congress did not feel it wanted to cut down on the plaintiff's right to choose a forum if the foreign government agreed to stay in state court.

As a practical matter, I don't think it's very significant, because we are informed by the State Department that it is absolutely routine for foreign countries to remove these cases, because foreign countries themselves have given ample notice that they want suits against them brought in the court of national dignity.

And that was another reason for the enactment of this statute.

Thank you, Mr. Chief Justice.

Chief Justice Burger: Very well.

Mr. Shulman.

ORAL ARGUMENT OF STEPHEN N. SHULMAN, ESQ., BY INVITATION OF THE COURT, AS AMICUS CURIAE IN SUPPORT OF JUDGMENT BELOW

Mr. Shulman: Mr. Chief Justice, and may it please the Court, this is a suit on a letter of credit.

The only federal question or issue in this case is whether the respondent, a foreign sovereign, is immune.

That issue can be decided by a state court.

The Foreign Sovereign Immunities Act applies to courts of the United States or of the states.

A state court can apply the Foreign Sovereign Immunities Act in determining immunity just as it applies the U.S. Constitution in determining the due process limitations on personal jurisdiction.

The case of Texas Trading v.... Texas Trading and Milling Corporation v. Federal Republic of Nigeria, to which Mr. Chayes referred, illustrates this point.

In that case, the Court found that Nigeria's activity in purchasing cement amounted to a commercial activity outside of the United States under the FSIA.

It found that harm to United States companies that were not paid on their letters of credit constituted a direct effect in the United States under the FSIA.

The Court then turned to an analysis of the contacts with the forum necessary to sustain personal jurisdiction.

The Court there found that Nigeria's extensive use of the Morgan Guaranty Trust Company, through which it had advised the letters of credit, constituted a purposeful availing itself of the privilege of conducting activities in the United States under the rule of Hanson v. Denckla and International Shoe.

Now, the fact that the court of appeals cited Hanson v. Denckla and International Shoe and interpreted those decisions did not make this case one that arises under the Constitution of the United States.

By the same token, the fact that the court applied the FSIA in determining whether or not there was commercial activity and a direct effect does not make this case one that arises under the laws or a law of the United States.

The case clearly does not meet the well pleaded complaint rule set forth in the landmark case of Louisville and Nashville Railroad v. Mottley.

This Court should construe the Foreign Sovereign Immunities Act to provide jurisdiction only when the plaintiff is a citizen.

This is the same thing that this Court did in 1800 when it was considering the Judiciary Act providing jurisdiction when an alien was a party.

The Court there in Mossman v. Higginson held that the other party had to be a citizen, and the rule of strict construction set forth in Romero versus International Terminal Operating Company would support this Court in interpreting the statute to require that the plaintiff be a citizen where there is not a federal question, where there is not a case arising under.

Unidentified Justice: The court of appeals didn't agree with you on that point, did it?

I mean, it... I take it it would have liked to construe the statute that way, but it felt it just couldn't.

Mr. Shulman: That is correct, Justice Rehnquist.

I am arguing in support of the judgment below, and this is an additional ground which I believe is available to support the judgment.

The court below did agree with the analysis that Mr. Chayes and Mr. Bator had put on the case, which is that the Congress intended the statute to apply when an alien was a plaintiff.

However, that analysis is not supported by the legislative history of the case.

The legislative history shows that what the statute was designed to do was to adopt a restricted standard of immunity and to have those standards determined judicially rather than politically by the executive department.

It does not show a purpose to expand the jurisdiction of federal courts beyond the diversity and federal question jurisdiction scope that they previously had.

The Congress did contemplate that there would be FSIA cases in federal courts, of course, and normally there will be litigation in the federal courts, because normally the plaintiff will be a citizen of the United States.

The Texas Trading case again illustrates that point.

There were four companies there, all of whom were citizens of the United States.

When the plaintiff is not a citizen, and when the claim at issue is not federal, Article III forecloses federal jurisdiction.

All that the Foreign Sovereign Immunities Act does in those circumstances is to provide authority to pursue the claim.

It is much like the statute which allowed a suit at law but not a summary attachment to collect the Puerto Rican tax in Puerto Rico v. Russell and Company.

It is like the Act of Congress limiting the immunity of national banks from state taxation in Gully v. First National Bank.

The provision of authority to pursue the claim does not constitute the creation of the case arising under the laws of the United States.

Unidentified Justice: But according to Mr. Chayes, to properly plead a case that will entitle you... the district court to have jurisdiction, you have to plead not only that it is a foreign sovereign, but that it is not entitled to immunity.

Mr. Shulman: That is correct, Justice Rehnquist, but the reason why you must plead it is because the federal rules require you to make a statement of the jurisdictional basis of the claim, and that same rule, which I believe is Federal Rule 8, goes on to say that the claim itself is set forth separately.

In fact, the rule shows that the jurisdictional statement is not part of the claim.

Unidentified Justice: And the statute requires it.

The statute requires that there be no immunity.

Section 3, 1330A.

Doesn't it say that?

Mr. Shulman: Your Honor, the statute provides for jurisdiction when the foreign state is not immune.

That is correct.

Unidentified Justice: The state is not entitled to immunity.

Mr. Shulman: That is correct, Your Honor.

Unidentified Justice: Well, if the statute says it, you certainly have to allege it.

Mr. Shulman: You allege it as part of your jurisdictional statement.

Unidentified Justice: The statute says so.

Mr. Shulman: Justice Marshall, let me draw your attention to the legislative history of this statute, which is cited in the brief filed by Guinea as an amicus curiae, and I quote from the House report as follows:

"An implicit waiver would also include a situation where a foreign state has filed a responsive pleading in an action without raising the defense of sovereign immunity. "

We believe that the issue of sovereign immunity is an affirmative defense.

We would answer the question that Justice O'Connor asked Mr. Chayes contrary the way he answered it.

It is true that the jurisdictional allegations in the complaint will refer to the Foreign Sovereign Immunities Act.

It also happens, by the way, that one of the amicus briefs filed in this case urges that the court solve the constitutional difficulty by treating it as if it was not--

Unidentified Justice: In this case, didn't the complaint set forth the reasons against sovereign immunity?

They went into a little detail on it, didn't they?

Or did I read it wrong?

Mr. Shulman: --Well, Your Honor, I do not have the specific complaint of the Verlinden Company in this case.

Unidentified Justice: Well, this is a couple of weeks ago.

Mr. Shulman: But the--

Unidentified Justice: I am trying to see how much of an issue this is.

Mr. Shulman: --It is not... It is not an issue in the sense of arising under.

It is an issue in the sense that it is a decision that needs be made in a case under the Foreign Sovereign Immunities Act.

No one challenges that before a state can be held liable, the state must be held to be not immune.

The standards on which that statement, that decision would be made are federal standards.

That does not mean that that constitutes a case arising under the law of the United States for purposes of original federal jurisdiction.

Unidentified Justice: Well, don't you have to allege all of the jurisdictional elements?

For instance, in a diversity case, I take it you have to allege that A is a citizen of Connecticut, B is a citizen of Rhode Island, and there is more than whatever the jurisdictional amount requirement is in controversy.

Analogously to that, wouldn't you have to allege in your jurisdictional allegations here that this claim is one with respect to which the foreign state is not entitled to immunity?

Mr. Shulman: That is correct, Justice Rehnquist, but the logical extension of that point in terms of the point that Justice Marshall was making would mean that a diversity case was a case arising under a federal law, because you had to plead in your case as an element of your case the diverse citizenship of--

Unidentified Justice: Well, but I think the difference is, diversity, the diversity statute confers jurisdiction only, without any substantive requirement.

Here you do have the substantive requirement that is in effect part of a jurisdictional requirement that the claim of sovereign immunity be not substantively made out under the Act.

Mr. Shulman: --That doesn't vary appreciably from the fact that you have to determine what the citizenship of a corporation is, and the standard, which is that the corporation would be a citizen of the states in which it does business and the state in which it is incorporated, is a substantive law, if you will, in that same sense.

Unidentified Justice: But there has to be a line somewhere.

How about the Federal Arbitration Act?

All you have to allege is that it is a contract, and provides for arbitration.

Mr. Shulman: The Federal Arbitration Act, of course, does not provide jurisdiction.

Unidentified Justice: Oh, yes, it does, doesn't it?

Mr. Shulman: I don't believe so.

Unidentified Justice: I thought it is a basis for federal jurisdiction.

Didn't the Polygraph case, that Bernhard against Polygraph--

Mr. Shulman: Mr. Justice, my impression of the Arbitration Act is that it is not jurisdictional.

Unidentified Justice: --Must the complaint affirmatively recite that the transaction on which the claim is based was a transaction involving the proprietary commercial interests of the sovereign?

Must that be affirmatively stated in the complaint as a basis for jurisdiction?

Mr. Shulman: I think the answer to that question, Mr. Chief Justice, is no.

What the complaint must allege is that there is jurisdiction under Section 1330.

1330 says that the--

Unidentified Justice: You let it go to the proof, the evidence, to determine that it was a proprietary commercial function.

Is that it?

Mr. Shulman: --Because, among other things, that is not the only basis for determining non-immunity.

There is also non-immunity when there has been a waiver of immunity.

And as I read to the Court from the legislative history, one instance in which a waiver takes place is by the foreign sovereign failing in its responsive pleading to assert the defense.

Unidentified Justice: Mr. Shulman, may I ask you another question?

Let me assume that we are over the statutory hurdle.

I understand you rely very heavily on that.

And then to the Constitutional problem.

And then I assume also with you that the allegation under the federal statute is that the immunity question is a defensive question rather than part of the affirmative claim.

Would you nevertheless agree that if the case had been brought in a state court, and the only defense was sovereign immunity, that there would be appellate jurisdiction in this Court to review a state court judgment against the foreign sovereign?

Mr. Shulman: Yes, there certainly would.

Unidentified Justice: Does it not then follow that within the meaning of Article III, that the case arises under the laws of the United States?

Mr. Shulman: No, it does not follow, because Article III requires two things.

One is arising under the laws of the United States, and the other is a case or controversy.

You must have a case or a controversy arising under the laws of the United States.

If this case had been decided in a state court, and the foreign state were held to be not immune, and the state court went on to hold that the letter of credit was not breached, this Court would not review the immunity--

Unidentified Justice: If the letter was not breached, but assume they enter a judgment against the foreign sovereign, is my hypothetical.

Mr. Shulman: --In the case where the judgment was entered against the foreign sovereign--

Unidentified Justice: Right.

Mr. Shulman: --then this Court would review, and in that case you would have a case or controversy.

Unidentified Justice: You would have a case arising under this constitutional or federal law.

Mr. Shulman: That's correct.

That's correct.

Unidentified Justice: Why don't we have that now, then?

Mr. Shulman: Because in the context of original jurisdiction--

Unidentified Justice: But the Article III doesn't draw that distinction.

Mr. Shulman: --The whole basis of the independent state ground rule, Your Honor, is, I believe, that whenever the Court has appellate jurisdiction, it does not necessarily follow that a federal court had original jurisdiction.

Unidentified Justice: I know that is true as a statutory matter, but just confining our attention to the language of the first few words of Article III, Section 2, I am not sure that you don't have a problem.

Mr. Shulman: I believe that is because you are excluding from that confining the words "case or controversy".

Unidentified Justice: But we do have a case or controversy.

Mr. Shulman: Because you do not have a case or controversy under... involving the Foreign Sovereign Immunities Act until that issue is raised and litigated.

You could have a case brought by a plaintiff against a foreign sovereign, let us say in a state court, removed by the foreign sovereign, who does not go on to assert immunity, and the case would go through the federal court without a federal issue ever having come up.

In that case, it would have been an improper exercise of federal jurisdiction.

Conversely, you could have a state--

Unidentified Justice: But that case would not have been reviewable here, either.

If it stayed in the state court, and there was no federal... no defense of sovereign immunity, the only defense was that we paid the bill, or whatever it might be, there would be no federal question for us to review.

Mr. Shulman: --That's correct.

Unidentified Justice: So it seems to me that as long as the sovereign immunity defense is maintained, and if you agree that we would have appellate jurisdiction over a state case which has no other federal question in it, then does it not follow within the meaning of Article III that that case arises under federal law?

Mr. Shulman: No.

It does follow within the meaning of Article III that that case or controversy arises under federal law for purposes of appellate jurisdiction, because at that point in the schedule, you have a case or controversy.

You do not have a case or controversy for purposes of original jurisdiction.

Unidentified Justice: What if on these facts the case had been brought prior to 1976 and before the Act?

What would you--

Mr. Shulman: Prior to 1976, there would be no basis for federal jurisdiction in this case.

Unidentified Justice: --Even if the executive branch raised no objection?

Mr. Shulman: There would have been no way to get into the federal court.

There is no federal coloration to the case.

Unidentified Justice: How about state court?

Mr. Shulman: The case could have been brought in a state court.

Then you would have had a question of whether or not the executive branch would choose to make a suggestion of immunity or not.

And that seems to me to be what the point is.

There is no great unusual aspect to a state court making a decision on a federal question.

Unidentified Justice: But now, in 1976, Congress has said a suit may be brought in states and granting removal jurisdiction to a federal court, has it not?

Mr. Shulman: That's correct, and I believe--

Unidentified Justice: Then does that act... does not that action arise under that statute?

Mr. Shulman: --Mr. Chief Justice, the question of when a claim arises, a claim arises under a statute involves whether or not the source of the right that you are asserting is a federal law or not.

This is the... the fact that there is lurking in the background of the case somewhere a federal issue does not make the case one arising under a federal law.

It makes it a case in which a federal question is presented which may eventually be reviewable by this Court on appellate jurisdiction, because there is then a case or controversy.

But it does not mean that it becomes a matter of original jurisdiction in the district court.

Now, I would like to say a word about the protective jurisdiction concept which has floated about the briefs a bit, and specifically the petitioner's brief raises four areas in which it suggests that there is a protective jurisdiction of some sort here.

Those four areas are the Osborn v. Bank of United States area which Mr. Bator also sought to assert as a basis, the removal of state proceedings against federal officers for actions under color of their office, the authority of a bankruptcy trustee to sue in federal court on a state law claim, and then the National Mutual Insurance Company v. Tidewater Transfer case and the Textile Workers Union v. Lincoln Mills case.

Now, in the first three of those suggested bases of protective jurisdiction, you see the difference between a true federal interest in the ultimate disposition of the case and a collateral federal interest in one question in the issue.

In Osborn, the basic powers of the bank, the rights and liabilities of the bank, the whole aspect of the bank was a matter of federal interest.

In the removal cases, the federal interest was the assurance that federal officers would not be impeded in the performance of their duties by states.

Unidentified Justice: Why is that... Why would you say that is arising under, or why would you say that... certainly the substantive rule of those removal cases isn't necessarily federal law.

Mr. Shulman: That's correct, Your Honor, but the necessity for a federal officer to be able to perform his duties without impediment by the state is a federal matter of... basic to the whole issue.

Unidentified Justice: You don't think the federal government has the same sort of an interest in assuring foreign governments that they can litigate in the right forum?

Mr. Shulman: That is exactly the point that I am trying to get at, Mr. Justice White, and it is that there is a difference between the federal interest in the ultimate issue at stake and the federal interest in an issue along the way, that the issue, the ultimate issue at stake here is whether or not this letter of credit has been breached, and whether or not this letter of credit is enforceable, and the federal government doesn't have any interest in that question at all.

Unidentified Justice: It's got an interest in not making some foreign government made.

It probably has more of an interest than it has in making sure some employee doesn't get mad.

Mr. Shulman: It's interest in making sure that a foreign sovereign does not get mad can be adequately taken care of through appellate review of state court determinations on non-federal issues with non-diverse parties.

Unidentified Justice: That's a long way around the mulberry bush, isn't it?

Mr. Shulman: You know, the state has an interest, the state has an interest in making determinations as to the enforceability of contracts within its state.

The state has an interest in that.

The state... The states kept to themselves the interest to exercise those interests except in those areas where there was a federal case because the action arose under the laws or where there was diversity.

Here you don't have that.

Unidentified Justice: Didn't Congress say that they had an interest in this?

Mr. Shulman: Yes, they did.

Every now and again Congress enacts some constitutional statute.

Unidentified Justice: Well, who better... What better area of government is to determine that, what the federal interest is, than Congress?

Mr. Shulman: Your Honor, Congress clearly in the arm of government to determine what its federal interest is.

Unidentified Justice: And Congress said that in this type of case, the federal courts shall be open to this type of action.

Mr. Shulman: And this Court... Then this Court sits to ensure that the Congress does not open federal courts to cases--

Unidentified Justice: Then it violates the Constitution of the United States, the action of Congress?

Does--

Mr. Shulman: --If it calls for--

Unidentified Justice: --Does it?

Mr. Shulman: --Yes.

Unidentified Justice: It does violate the Constitution--

Mr. Shulman: Yes.

Yes.

Unidentified Justice: --What provision?

Mr. Shulman: Article III of the Constitution which provides that the judicial power shall exist in cases or controversies where there is a case arising under the laws--

Unidentified Justice: Doesn't it also say Congress shall determine the jurisdiction of the federal courts?

Mr. Shulman: --No, it does not, Your Honor.

It says Congress shall establish such inferior courts, but the Constitution establishes the judicial power of the United States, not the Congress.

Unidentified Justice: And what in the Constitution decided that you cannot determine this action, this case?

Mr. Shulman: Your Honor, the Article III--

Unidentified Justice: I will make the question simpler.

Mr. Shulman: --Thank you.

Unidentified Justice: What, if anything, is there in the Constitution that says that this case shall not be decided by this Court?

Mr. Shulman: There is nothing in the Constitution that says this case shall not be decided by this Court.

This case should be decided by this Court.

But this case could not have been brought as a matter of original jurisdiction in the district court.

Unidentified Justice: Could not?

Mr. Shulman: Right.

It was, improperly, and this Court will have to decide that.

Unidentified Justice: I know we will.

Mr. Shulman: That is the function of the judiciary, is to determine the constitutionality of legislative encroachments on the judiciary.

Just as this Court can't render advisory opinions, district courts cannot be given original jurisdiction over non-federal cases which are not diverse.

Unidentified Justice: Is the statute unconstitutional?

Mr. Shulman: If it means that the plaintiff does not have to be a citizen, it is unconstitutional, Your Honor.

I believe that the statute can be read to say that the plaintiff needs be an American citizen, in which case the statute would not be unconstitutional.

The statute is also not unconstitutional when the claim at issue is a federal claim.

It is only in the context where it is a state claim that is involved.

Unidentified Justice: Mr. Shulman, in your reference to the protective jurisdiction, you took care of the first three problems, but you didn't get to Tidwater.

Mr. Shulman: All right.

Thank you.

In the Tidewater case, the petitioner's argument is based on what subsequent commentary has shown to be the only defensible basis for the decision, but there was no majority in Tidewater in favor of protective jurisdiction.

And in Lincoln Mills, the petitioner also turns to commentary for support, but the majority of the court in Lincoln Mills premised its decision on the fact that there would be a federal common law applied which is an action arising under, and the federal common law to be applied was on the subject matter that the cases are about, which is the enforcement of collective bargaining agreements, the ultimate issue, the federal issue in the disposition of the case.

Here, the ultimate disposition is simply of a letter of credit.

That is not a matter of federal law.

It is not a matter of federal common law, statutory law, or constitutional law.

The judgment below should be affirmed.

Thank you.

Chief Justice Burger: Thank you.

Mr. Chayes, you have two minutes remaining.

ORAL ARGUMENT OF ABRAM CHAYES, ESQ., ON BEHALF OF THE PETITIONER

Mr. Chayes: Mr. Chief Justice... Thank you.

First, as to your question whether this case could have been brought before 1976, the answer is no.

What happened in 1976 was that the Congress exercised its Article I legislative power, and by doing so created as an essential aspect, as an essential part of the plaintiff's case here the issue of sovereign immunity.

As Justice Marshall suggested, that was pleaded in our complaint.

At 8A in the record, the Jurisdictional paragraph refers to Section 1330, and if you look at Paragraphs 7 to 15... to 12 of the record and then throughout the record, you will see allegations of connections with the United States designed to show that the claim is a proprietary... based on a proprietary rather than a governmental action, and that it falls within 1605(a)(2).

That this is an essential part of the plaintiff's case is proved by the Mine versus Guinea case, the very case that provided the basis of the amicus suggestion of interest.

That case has been dismissed below by the Court of Appeals of the District of Columbia.

Although it raised the same issue that was here, the court of appeals never reached that issue, because it found, examining the issue of immunity, that Guinea was immune in that case, and therefore there was no subject matter jurisdiction, and it dismissed.

It did that not as a matter of defense on the merits, but as a threshold question at the outset of the case, just as we contend and as Justice O'Connor suggested in her question.

Now, I would like to leave with the Court the following point.

These cases will not go away if the Court sustains the court of appeals' opinion.

These cases will not just disappear.

They go to the state courts.

We can imagine a case in which Olympian York Company owns... a Canadian company owns real estate in the city of New York.

An embassy in the U.N. rents real estate from the company, and doesn't pay its rent.

The company has to sue it if the... Judge Kaufman's opinion is right in the housing court of the city of New York.

That is, the foreign sovereign has to be dragged into the housing court of the city of New York and defend its lease.

Unidentified Justice: Well, that is if the operation of an embassy is a proprietary function.

Mr. Chayes: No, because it is a lease, and it would be a commercial contract within the meaning of 1605(a)(2).

And there would be no removal, because, as said before, if there is no original jurisdiction constitutionally, there can be no removal.

Thank you, Your Honor.

Chief Justice Burger: Thank you, gentlemen.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Army & Air Force Exchange Service v. Sheehan - Oral Argument

Thu, 19 Feb 2009 07:43:22 +0000

Case:

Army & Air Force Exchange Service v. Sheehan

Media File:

80-1437_19820223-argument.mp3

Related Transcript:

transcript.xml

Transcript:

ORAL ARGUMENT OF SAMUEL A. ALITO, JR., ESQ. ON BEHALF OF PETITIONER

Chief Justice Burger: We will hear arguments next in Army and Air Force Exchange against Sheehan.

I think you may proceed whenever you're ready, Mr. Alito.

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

This case is here on Writ of Certiorari to the United States Court of Appeals for the Fifth Circuit.

The issue in this case is where a former employee of a military exchange who was appointed to his position and subsequently discharged may sue for money damages under the Tucker Act based upon an alleged contract, the existence of which is inferred solely from personnel regulations in effect at the time of his separation.

The basic facts in this case are as follows.

In 1962 the respondent, Arthur Sheehan, was appointed to a position with the Army and Air Force Exchange Service, an instrumentality of the United States.

The regulations governing Mr. Sheehan's employment by the Army and Air Force Exchange Service, AAFES as it is called, were the very same regulations considered by this Court in United States versus Hopkins in 1976.

In 1967, five years after his initial employment, Mr. Sheehan was designated by the Commander of AAFES for participation in a special program for AAFES executives, called the Executive Management Program.

Under that program, he obtained certain special benefits, but also incurred certain special obligations; principally, the possibility of transfer to any AAFES facility.

He was required to sign a written acknowledgement of the special conditions of Executive Management Program participation.

By 1975, the respondent had achieved an AAFES rank equivalent to a Lieutenant Colonel.

In November of that year he was arrested on drug charges and subsequently pleaded guilty.

The Service then began administrative proceedings which resulted in his discharge.

He appealed the discharge but the appellate authority, the Commander of AAFES, denied the appeal.

Mr. Sheehan then sought reconsideration claiming that he had been denied a fair appeal because the Commander of AAFES who acted as the appellate authority had given prior approval for the initial discharge notice.

As a result of that complaint, Mr. Sheehas was, in effect, granted a new appeal to the next higher authority in the Service, the Chairman of the Board of Directors of AAFES.

His appeal, however, was once again denied.

In the meantime, he had initiated suit in the Northern District of Texas seeking reinstatement as well as compensatory and punitive damages.

He claimed that AAFES had violated its own regulations because of the dual role played by the Commander.

He also claimed that his discharge was arbitrary and capricious, an abuse of discretion, unwarranted by the facts and in violation of various, unspecified statutory and constitutional provisions.

Notably, his complaint did not allege that he had ever been employed pursuant to any contract with AAFES, whether express or implied.

He invoked the court's jurisdiction under the Tucker Act and various other statutes not now at issue.

The Service moved to dismiss his complaint noting that he had been an appointed, non-contract employee.

In response, he did not seek to amend his complaint to allege the existence of a contractual relationship, nor did he adduce any proof whatsoever that he had ever been employed pursuant to contract.

The district court granted the motion to dismiss but the court of appeals reversed.

The court held that jurisdiction existed with respect to his claims for monetary relief under the Tucker Act because AAFES personnel regulations in effect at the time of his discharge were by themselves sufficient to give rise to what the court called a collateral implied-in-fact contract between the Service and respondent.

The court also held that there was jurisdiction with respect to his claims for non-monetary relief, but that question is not at issue here.

In our view, the decision of the court of appeals with respect to respondent's claims for monetary relief is clearly wrong.

It is inconsistent with this Court's decisions in Hopkins and Testan.

It is a patent attempt to circumvent the decision of Congress excluding employees of AAFES and the military exchanges from the coverage of the Back Pay Act, which is, of course, the provision of federal law providing a waiver of sovereign immunity for back pay claims by regular federal officials... federal employees, I should say.

The decision of the court of appeals is also contrary to basic principles of contract law, and if the court's reasoning were widely accepted it would have far-reaching and clearly unacceptable consequences.

The basic principles governing this case are well-established and I don't believe they are disputed by respondent.

The United States is immune from suit unless Congress consents.

A waiver of sovereign immunity must be expressed rather than implied.

Therefore, a valid waiver may be found only in a constitutional provision, statute or valid regulation that confers the substantive right to recover money damages from the United States, or in a lawful contract, obligating the United States to pay money.

Mr. Alito: What theory do you think... which of those two do you think the court of appeals proceeded on here?

Mr. Alito: I think the court clearly proceeded on the contract theory, although it relied purely upon regulations.

It did so because the regulations at issue do not create the right to recover money damages in court, nor do the statutes.

And the statutes and regulations involved are the very ones that were before this Court in Hopkins.

And in that case, they were not found to supply a waiver of sovereign immunity.

So, the court was relegated to the contract theory.

But in finding the existence of a contract, it relied solely on regulations.

And for that reason, we think the court was wrong.

The decision in this case, though, as Justice Rehnquist's question points out, is whether or not Mr. Sheehan was ever employed pursuant to contract.

And as I said, the court of appeals found what it termed a collateral implied-in-fact contract.

But that simply cannot be correct.

First, it is squarely inconsistent with Hopkins.

In Hopkins, as here, an employee of AAFES brought suit under the Tucker Act for money damages, claiming among other things that his discharge violated AAFES regulations and the due process clause.

This Court carefully analyzed the regulations governing employment by AAFES and concluded not that all AAFES employees work under a collateral implied-in-fact contract; on the contrary, the Court concluded that most AAFES employees... in fact, almost all AAFES employees... are appointed to their positions, just like regular federal employees.

Thus, Hopkins cannot be reconciled with the court of appeals' decision.

The court of appeals' decision is also inconsistent with AAFES' own regulations, even though the court relied solely on those regulations in reaching its conclusion.

AAFES' regulations... again, as noted in Hopkins, expressly prohibit the Service from entering into an employment contract with one of its employees.

Yet, the court of appeals' theory was that even if the commencement of Mr. Sheehan's employment was pursuant to appointment, he subsequently or simultaneously entered into a collateral implied-in-fact contract embodying AAFES discharge regulations.

That simply can't be squared with the AAFES regulations as interpreted in Hopkins.

Third, the court of appeals' decision is contrary to elementary principles of contract law.

The court purported to find the existence of a contract implied in fact.

But it is clear that the obligation it identified was, at best, a contract implied in law, or a quasi-contract.

A contract implied in fact is, of course, a real contract; it is an agreement between the parties, it is based upon a meeting of the minds.

It differs from other contracts only in that its existence is inferred from the parties' conduct rather than being expressed in words.

A contract implied in law, on the other hand, is not a true agreement between the parties; it is merely a legal obligation imposed by a court for the purpose of doing justice, and without reference to the parties' intent.

Here, the court of appeals purported to find a contract implied in fact, but looked to no facts particular to this case.

It looked solely to provisions of law, AAFES' regulations.

The court did not look to anything the parties had said or done or thought in 1962 when Mr. Sheehan became an AAFES employee, or in 1967 when he entered this Executive Management Program, or at anytime during his 14 years' tenure with the Service.

And in fact, there were no facts, there are no facts, concerning any of those matters in the record because Mr. Sheehan failed to allege or even to attempt to prove the existence of a contract when this case was in district court.

Thus, since the court of appeals looked solely to provisions of law and not to any facts particular to this case, it must follow that the obligation it identified was a contract implied in law.

And there is no Tucker Act jurisdiction for such obligations.

Fourth, the implications of the court of appeals' decision are far-reaching, and would clearly be unacceptable.

Because the court looked solely to the existence of personnel regulations in effect at the time of Mr. Sheehan's employment and discharge, I think it is fair to say that the court of appeals' decision stands for the proposition that the mere existence of personnel regulations at the time of a government employee's appointment or during his tenure is sufficient to give rise to a contractual relationship between the employee and his governmental employer.

There is nothing in the court of appeals' decision confining its logic to Mr. Sheehan's case, as opposed to that of any other AAFES employee.

There is nothing in the decision confining its reasoning to regulations concerning discharge procedures, as opposed to any other personnel regulations.

There is nothing in the opinion confining its reasoning to AAFES or the military exchanges or the non-appropriated fund instrumentalities as opposed to any federal department or agency.

And thus, under the court of appeals' logic, whenever any federal employee believes that any federal personnel regulation has been violated, he or she may bring suit for damages under the Tucker Act, claiming a violation of a so-called collateral implied-in-fact contract.

That result, of course, would be inconsistent with Hopkins, it would be inconsistent with Testan, it would render the Back Pay Act superfluous, and it would eliminate large chunks of the federal government's sovereign immunity without Congress' consent.

Mr. Sheehan's briefs, I believe, ask this Court to affirm the decision of the court of appeals on alternative grounds, if the Court concludes that the court of appeals' reasoning was unsound.

Mr. Sheehan asks this Court to find that he entered into an express or an implied contract when he entered the Executive Management Program.

However, as I noted, he failed to allege or even to attempt to prove the existence of this express or implied contract when the case was in district court.

In addition, AAFES regulations, as I noted, forbid the agency from entering into an employment contract with one of its own employees.

Now, since executives, senior executives, entering the Executive Management Program are already AAFES employees, it must follow that a contractual relationship is not formed upon entry into that program or the regulation would be routinely violated.

Third, it is apparent from the fact of the regulations concerning the Executive Management Program, that a contractual relationship is not created.

Those regulations specify that one enters the program by nomination, selection and designation rather than through the formation of a contract.

Mr. Alito: Mr. Alito, if we were to agree with you, do we have to remand the case so that a hearing can be held on whether there was an appointment or a contract?

Mr. Alito: No, I don't think so.

It was... the burden was on respondent, who was the plaintiff below, to prove the existence of Tucker Act jurisdiction when the case was in district court, and he simply failed to do that.

He did not allege that a contract existed, and he did not adduce any facts to prove the existence of a contract.

Now, he argues that a remand should be ordered because one was given in Hopkins, but the situation in Hopkins was significantly different.

There, the employee had alleged the existence of a contractual relationship.

The Court of Claims held that he was a contract employee because under that court's prior precedence, he was not a regular federal employee.

And thus, it held that he was a contract employee almost as a matter of law.

Hopkins, for that reason, had no occasion to introduce in the court of claims whatever proof he might have had that he was a contract employee, in a more conventional sense.

And thus, when this Court reversed the Court of Claims and rejected its reasoning that he was a contract employee simply because he was not a regular federal employee, it was appropriate to remand the case to the Court of Claims so that Hopkins could adduce whatever proof he might have.

Here, Mr. Sheehand did not allege the existence of a contract, he did not introduce any evidence establishing the existence of a contract, and he had the clear need to do so, to substantiate Tucker Act jurisdiction which was what he claimed in the district court.

Mr. Alito: You say introduced evidence to show that he was employed by contract.

Didn't this case go off on a motion to dismiss for want of jurisdiction, or was it actually tried?

Mr. Alito: No, it was not tried, Your Honor, it went off on a motion to dismiss for lack of jurisdiction.

Mr. Alito: Well then you don't ordinarily introduce evidence until you get to at least a motion for summary judgment where you would file affidavits and so forth, or unless you get to trial.

Mr. Alito: Well, that's correct, Your Honor, but I believe that when jurisdiction is challenged by the defendant in a case and a basis... a reasonable basis for the challenge is established... and that was done here because I think Mr. Sheehan will not dispute the fact, and his own complaint suggests, that he was an appointed employee under this Court's analysis of the regulations in Hopkins.

Once jurisdiction is properly challenged by the defendant, the burden shifts to the plaintiff to establish a prima facie case of those facts necessary to establish the court's jurisdiction.

He cannot simply rest on mere conclusory allegations.

And here, there were not even--

Mr. Alito: Well, he may regret it if he does.

Mr. Alito: --And here there were not even conclusory allegations.

There was not even an allegation that he was employed pursuant to contract.

Mr. Alito: There is in this case, as I remember, isn't there a claim also for reinstatement on a different theory than the Tucker Act, which is pending in the district court?

Mr. Alito: That's correct, Your Honor, that is alive and upon remand, the district court may order his reinstatement if it feels that it's appropriate.

Mr. Alito: And in that... under your view of the equitable relief that could be granted in connection with the reinstatement case, could that include back pay or not?

Mr. Alito: It could not include back pay because there has not been a waiver of sovereign immunity with respect to that.

The theory of the Fifth Circuit was that sovereign immunity with respect to claims other than money damages was waived by the 1976 amendment to the Administrative Procedure Act.

And since his claim for back pay would be a claim for monetary relief, that waiver of sovereign immunity would not cover those... would not cover that claim.

I would like to reserve the rest of my time, thank you.

Chief Justice Burger: Very well.

Mr. Tobolowsky?

ORAL ARGUMENT OF IRA E. TOBOLOWSKY, ESQ. ON BEHALF OF THE PETITIONER

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

The ultimate issue to be decided by this Court is, do the regulations of the Army-Air Force Exchange Service, AAFES, as they apply to the termination of employment of respondent, constitute part of an implied-in-fact contract between AAFES and respondent, to confer jurisdiction under the Tucker Act, and a breach of which implied-in-fact contract waives sovereign immunity in the district court.

The allegations in plaintiff's complaint... in the respondent's complaint now... on file is critical to the facts and determinations by this Court.

The respondent alleges that he was first hired in 1962 as a computer programmer; that subsequent, some five years later, he was accepted into a program known as the Executive Management Program, commonly called EMP.

The EMP program had special benefits and special burdens, and these are all alleged in the complaint.

Included within the special benefits are retention priority, longer notice requirements for separation, which is the procedure for termination of employment, greater insurance benefits and supplemental retirement benefits.

The EMP program also provided for special obligations including the obligation to develop certain abilities, the obligation to accept worldwide transfer, and the obligation to accept terms of fully EMP retirement.

Respondent was required to and acknowledged these obligations and benefits in writing pursuant to the regulations of AAFES.

For the next eight years, respondent served as an EMP employee.

In late 1975 respondent was arrested off duty, away from the premises of AAFES, for violations of the state drug law, and in early 1976, he pled guilty to four misdemeanors for violations of state drug laws.

As a result, the Commander of AAFES set forth an investigation pursuant to the regulations and pursuant to these very regulations, the Commander gave the respondent advanced notice of separation.

An investigation was then commenced, pursuant to the regulations and as required by the regulations, and a final decision to terminate the employment of respondent was reached in April of 1976.

Notice was then given to respondent, pursuant to these regulations.

Respondent contested his termination and appealed it, pursuant to these regulations.

The appeal was then perfected and taken in accordance with the regulations.

A hearing examiner was then appointed pursuant to the regulations.

Mr. Alito: Well, how does this relate to the legal question we have before us?

Mr. Tobolowsky: Your Honor, it is in fact the implied contract arises from the understanding between the parties, a tacit understanding, that the regulations would be the basis for the termination of respondent, and further, the tacit understanding that the regulations would control the separation--

Mr. Alito: Where do you allege that in your complaint?

Mr. Tobolowsky: --Your Honor, according to the Rule 8 of the Federal Rules of Civil Procedure, Your Honor, the obligations and benefits are set out in the pleadings, and there is a pleading, Your Honor, to the effect that AAFES has violated respondent's rights and violated the regulations in the termination of respondent from his job.

Mr. Alito: That's a conclusion, is it not?

Mr. Tobolowsky: Your Honor, that is... yes, Your Honor.

There are pleadings, though, that substantiate what his rights are and that the AAFES Commander acted as both the separation authority and the termination authority, which is in clear violation of AAFES regulations.

Mr. Alito: Well, in paragraph 18 you allege that the actions of the Commander violated AAFES regulations and plaintiff's right to a free and impartial appeal.

And then, they violated due process.

Now, that doesn't sound to me like an allegation of an implied-in-fact contract.

Mr. Tobolowsky: Well, Your Honor, under the notice provisions of Rule 8, the Fifth Circuit so construed that as a breach of an implied contract.

And, Your Honor, respondent would submit to this Court that the totality of the pleadings would then constitute sufficient pleadings to allege a violation of an implied-in-fact contract.

That is a determination made by the Fifth Circuit, and that's a determination that this Court will ultimately have to make in this case.

Mr. Alito: Well, are you suggesting that because he may have been given more procedural safeguards and protection than he would have been entitled to as an appointee, that that somehow alters the relationship?

Mr. Tobolowsky: I am suggesting, Your Honor, to this Court that the EMP status may very well be a contract between the AAFES and the respondent, as in the Hopkins case, which must be remanded back to the court for further determination of the facts.

Yes, Your Honor.

During the appellate--

Mr. Alito: Counsel, if the court of appeals' reasoning is correct, then apparently, the district court or the Court of Claims would have jurisdiction over any personnel matter covered by the regulations.

Is that right?

Mr. Tobolowsky: --Your Honor, in the facts in this case, respondent is alleging that there was an implied-in-fact contract arising out of the regulations solely governing the termination of employment.

So, yes, Your Honor, to the extent that there are regulations, then the government agency would be required to follow its regulations.

Mr. Alito: Would you limit your theory just to discharge procedures or to all phases of employment by these people?

Mr. Tobolowsky: Your Honor, the discharge procedures at at... what is issue before this Court.

The Court could limit it to the facts of this particular case, although counsel would argue an overall policy that any regulations that are in effect could be alleged to be breached, and therefore give rise to jurisdiction in district court or the Court of Claims.

Mr. Alito: Well, to the extent that you're relying on use of the federal regulations as creating this implied contract, isn't it really an implied-in-law contract, if there be a contract at all?

Mr. Tobolowsky: No, Your Honor, I am not.

I am suggesting that the Court of Appeals for the Fifth Circuit is correct in its conclusion that it was an implied-in-fact contract.

The tacit understanding that existed between AAFES and the respondent, that the regulations would be the basis of termination and that they would be followed, constitutes an implied-in-fact contract.

Mr. Alito: But there's no way of distinguishing then your client's case from the case of any other federal employee, is there?

Because there are no allegations in the complaint that he had some special understanding with respect to the regulations, that other employees don't have.

Mr. Tobolowsky: Your Honor, there is allegations to the effect that there was special obligations and benefit in the EMP program.

But in regards to termination, Your Honor, the Court may very well construe this decision broadly, as would the government have the Court do so.

In response, Your Honor, Justice O'Connor, that in furtherance of your answer, the law is well settled and as stated by Justice Blackmun in the Court's decision in Morton v. Ruiz, where the rights of individuals are affected, it is incumbent upon agencies to follow their own procedures.

This is even where the internal procedures are possibly more rigorous than otherwise would be required.

So in addition, Your Honor, to there being this tacit understanding, there is also well-established law which says that federal agencies are obligated and bound to follow their own regulations.

Mr. Alito: What conduct do you rely on for the implied-in-fact contract?

Mr. Tobolowsky: All right.

Your Honor, as I was stating in response to Chief Justice Burger's questions concerning why does all of the procedures and regulations, what do they have to do with this matter.

Your Honor, the parties followed the regulations.

There, it is the position and contentions of the respondent in this case that the government, that AAFES, made an offer by setting out regulations which control the rights and protections of the respondent in the termination procedure.

That in fact, this offer was accepted in three parts.

It was accepted when he entered into the employment with the understanding that the government would follow its regulations; when he continued his employment after he acknowledged in writing that he understood these regulations; and thirdly, by following the regulations himself in the appellate process.

That all three of these constitute the acceptance of the offer by the government in its regulations.

And then the final element, the sine qua non, the consideration, is actually the benefits and the burdens which are accepted by both parties in the employment relationship.

Now, there is case law in which a number of cases have held that regulations of federal agencies do, in fact, support the contention that there is an implied-in-fact contract arising out of the regulations.

Such cases include Augusta Aviation, Incorporated versus United States, Aycock-Lindsey Corporation versus the United States,--

Mr. Alito: Are those cases decided by this Court?

Mr. Tobolowsky: --No, Your Honor, none of these cases have been decided thus far by this Court.

Mr. Alito: Where were they decided?

Mr. Tobolowsky: Your Honor, there was a... the Aycock-Lindsey Corporation was a Fifth Circuit decision which is cited in the brief... excuse me, in the decision of the Fifth Circuit in the present case.

The Bodek versus Department of Treasury case was, I believe, a Ninth Circuit decision.

Griffin versus United States was a Court of Claims decision, 1978.

New York Airways, Inc. versus United States was a Court of Claims decision in 1966.

Radium Mines, Inc. versus United States was a Court of Claims decision in 1957.

Spicer versus the United States was a district court case out of Kansas which was affirmed by the Tenth Circuit.

And Wolak versus the United States was a District Court of Connecticut.

All of these cases have held that there was, in fact, an implied-in-fact contract arising out of regulations with a federal government agency.

Mr. Alito: Counsel, if your theory is correct, aren't you, in effect, providing then that the discharge regulations of the agency, in effect, have overruled the congressional Back Pay Act?

Mr. Tobolowsky: No, Your Honor.

If I understand Your Honor's question that perhaps what I am trying to do is get in through the back door which I couldn't get in through the front door--

Mr. Alito: Precisely.

Mr. Tobolowsky: --Your Honor, that question was addressed by this Court itself in the Hatzlachh decision, Hatzlachh versus United States, whereby this same argument was made and the Court said that you should look to the theory presented by the respondent in this case, and that it is no concern of this Court, front door or back door.

If there is a valid contention by the respondent the court should address that issue.

And I believe that Justice Blackmun in his concurring opinion, as I recall, in that case, he discussed the implied-in-law versus implied-in-fact theory.

And I would submit to the court that the Hatzlachh versus United States decision, which is 440 United States 460, may very well answer the concerns of Your Honor in her question to me.

Mr. Alito: Well, wouldn't your theory that anytime there are regulations it means there's an implied contract really have made the decision in Testan quite beside the point, because there were regulations there.

And if they had simply sought to proceed on an implied contract theory, presumably they would have everything going for them that your client has in this case.

Mr. Tobolowsky: The Testan decision, Your Honor, is totally... the petitioner's contentions that Testan is applicable is totally erroneous to the facts of this case.

Your Honor, in Testan, this was an action brought by two government lawyers seeking reclassification from GS-13's to GS-14's, and for back pay during the period of misclassification.

They sought jurisdiction of this Court under the Tucker Act, but they did not seek waiver of immunity based upon implied contract or contract.

Mr. Alito: But if they had recast their complaint without changing any of the facts, simply to say that we also have an implied contract because there were personnel regulations involved, should Testan have gone the other way if they'd done that?

Mr. Tobolowsky: I believe Justice Blackmun gave the hint to that in his decision when he said... and if I may quote from two parts of that, Justice Blackmun stated,

"The respondent did not rest their claim upon contract."

That's at 424 U.S. 399.

"In addition", Justice Blackmun wrote,

"the present action, of course, is not one concerning a wrongful discharge or a wrongful suspension."

I submit to the Court that those are clear indications that had the respondent... that those are clear indications had the respondent so represented or so rested his case upon contract or implied contract, that the decision may have very well been differently.

Or, the opinion may have gone for the respondent in that case.

I think that those two statements not only distinguish Testan but clearly support the position of respondent before this Court today.

I would also like to take a few minutes of the Court's time and direct remarks to U.S. versus Hopkins, which the attorney for petitioner contends is controlling.

It is the position of the respondent that U.S. versus Hopkins is not contrary to the holding of the Fifth Circuit in the case presently before this Court.

In Hopkins, this case granted certiorari to resolve a conflict between the Court of Claims decision, the lower case, the lower court in Hopkins, and a recent decision of the Fifth Circuit in Young versus United States.

The conflict resulted in that the Court of Claims in Hopkins had held that the jurisdiction under the Tucker Act was sufficient to hear claims against AAFES by an employer on a breach of the implied contract.

Whereas, the Fifth Circuit, in Young versus the United States, had concluded that the Tucker Act did not extend jurisdiction to those particular claims.

The Court of Claims in its lower court holding held that, or relied upon its earlier decision of Keetz versus the United States.

In Keetz, the Court of Claims had held that AAFES employees were not federal employees, and therefore, did not serve by appointment but served by contract.

The Keetz decision was a pre-1970 amendment case, and it's interesting to note that in Keetz the United States government was vigorously contending that AAFES employees serve by contract.

However, after the 1970 amendment, the goverment has taken a contrary position and now argues that he serves by appointment.

Hopkins could have answered the question.

This Court remanded the case for the determination, did Hopkins serve by appointment, or did he serve by a contract?

The case was settled prior to the determination by the Court of Claims, and therefore, that question still remains unanswered.

I would submit to this Court that even if Hopkins had been decided that in fact he served by appointment, which I do not and am not willing to concede in my argument today before this Court, but even if it had decided that Hopkins served by appointment, it would not be controlling in this case because in the instant case, Mr. Sheehan, the respondent, was an EMP employee.

And if you use the logic of the Hopkins decision, then this court should remand the case for a determination as to whether or not an EMP employee serves by contract or, in fact, is also an appointed employee.

I think the language in Hopkins is clear that this Court should not make that decision without, as the court says, a development of a fuller record.

I received last Thursday afternoon in the mail a reply brief from the government,... and I would not, or I would object to such late filing... whereby the respondent appears to be pleading that, or stating that my pleadings were deficient.

I would point out--

Mr. Alito: Did you mean the petitioner?

Mr. Tobolowsky: --Pardon me, Your Honor?

Mr. Alito: The petitioner is stating your pleadings are deficient?

Mr. Tobolowsky: Yes, Your Honor, that the petitioner has contended that respondent's pleadings were deficient.

I would ask the Court to consider Siegelman versus Canard-Whitestar wherein Judge, later Justice, Harlan stated under Rule 8, a pleading must contain a short and plain statement of the claim, showing the pleader is entitled to relief.

It is not necessary to set out legal theories on which the claim is based.

In a more recent case,--

Mr. Alito: What about the present Rule 8?

Mr. Tobolowsky: --Yes, Your Honor.

In a more recent decision,--

Mr. Alito: I mean, I don't think we're bound by Rule 8 in the time of Justice Holmes.

Mr. Tobolowsky: --Yes, Your Honor, that is correct.

Mr. Alito: We've had amendments since.

Mr. Tobolowsky: Yes, Your Honor, you are correct, but the recent cases still support and still quote from this language.

In Speed Auto Sales versus AMC, which is a 1979 decision, granted it's out of the District Court for the Eastern District of New York, it said, under federal notice pleadings, it is unnecessary to set out the legal theory upon which a claim is based.

Thus, while it is desirable that the pleadings give notice of some theory supporting recovery, it is unnecessary for the pleader to delineate the theories or choose among alternate theories of relief.

Mr. Alito: I suppose you ought to give us the cites rather than just the names.

Mr. Tobolowsky: Yes, Your Honor, I do.

In Speed Auto Sales, Inc. versus American Motor Corporation it's 477 Fed Sup 1193.

In addition, Your Honor, I would submit to the Court that 2(a) Moore's Federal Practice, Section 8.14 is relevant.

And Bouffers versus United States, 194 Fed 2d l45, which is a court of appeals decision, is also relevant.

And lastly,--

Mr. Alito: Is that Judge Harlan's?

Mr. Tobolowsky: --No, Your Honor, the--

Mr. Alito: You still haven't given us the cite for Judge Harlan.

Mr. Tobolowsky: --For Judge Harlan, it is... for Justice Harlan's decision it is Siegelman versus Canard-Whitestar, 221 Fed 2d 189.

And I would also submit to this court that Powers versus Troy Mills, Inc., 303 Fed Sup 1377 would also be controlling under the present status of Rule 8.

In conclusion, the respondent would submit to this Court that the regulations of AAFES, as they apply to the termination of employment of respondent, constitutes a part of an implied-in-fact contract, which allegations of alleged breach of the contract would waive sovereign immunity, and jurisdiction would rest upon the Tucker Act.

Respondent would further submit that this Court... to this Court that the holdings in Hopkins should be controlling and this case should be remanded to the court for further determination as to the status of the Executive Management Program, and that this Court should not decide the case without a development of the full record.

Mr. Alito: May I ask you just one question?

Do you agree with the government that in your reinstatement case you may not get back pay?

Mr. Tobolowsky: Yes, Your Honor, that is correct.

Thank you, Your Honor.

Chief Justice Burger: Do you have anything further, counsel?

ORAL ARGUMENT OF SAMUEL A. ALITO, JR., ESQ. ON BEHALF OF THE PETITIONER -- Rebuttal

Mr. Alito: I have a very short reply.

Your Honor, first of all, the procedural deficiencies we pointed out in our Reply Brief are not so much that the respondent failed to utter the magic word "contract".

The real deficiency is that he failed to allege any facts from which the existence of a contract could be inferred.

And when the government properly challenged his invocation of Tucker Act jurisdiction, he failed to allege or present in any way whatsoever any facts which would show the existence of a contract.

To send this case back now for an evidentiary hearing as to whether or not he entered into a contract would be an empty exercise.

Mr. Alito: May I ask a question on that?

Supposing in the next case that comes along, the plaintiff alleges the facts that are in this case, and then in addition has a paragraph in which he says, the day I was hired, I asked the hiring officer if they followed their regulations and the man said yes, I do.

And he said fine, I'll be glad to work for you then.

Would that be a different case?

Mr. Alito: I don't think that would be sufficient, Your Honor.

It is expected that the government will follow its regulations with respect to all of its appointees, and the mere acknowledgement that it will abide by the law is not sufficient to give rise to a contractual relationship.

The other point I would like to make concerns the Executive Management Program that respondent has stressed.

He claims that he entered into a contract because he was required to sign a written acknowledgement of the conditions of entry into that program.

And as I mentioned in my opening argument, there are certain special benefits having to do with life insurance and other matters of that type, and also, certain special obligations.

Principally, the possibility of transfer.

First of all, simply signing such an acknowledgement is not proof of a contract.

Many other federal employees who certainly do not work under contract are required to sign similar acknowledgements.

Personnel in the military, for example, must sign enlistment papers, and sometimes agree to incur special obligations such as an extended term of enlistment in exchange for special benefits such as a preferred assignment or training.

The fact that they sign that acknowledgement doesn't mean they have entered into a contract with the Army.

And second, even if those special conditions of the Executive Management Program were a contract, they have nothing whatsoever to do with respondent's claim that his discharge was arbitrary and capricious or an abuse of discretion, et cetera.

We would therefore ask the Court to reverse the decision of the court of appeals with respect to respondent's claims for monetary relief.

Chief Justice Burger: Very well, thank you, gentlemen, the case is submitted.

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