Cases by Issue - Jurisdiction of Federal Courts

Empire HealthChoice Assurance v. McVeigh - Oral Argument

Fri, 09 Jan 2009 14:48:55 +0000

Case:

Empire HealthChoice Assurance v. McVeigh

Media File:

05-200_20060425-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Anthony F. Shelley

Chief Justice Roberts: We'll hear argument next in 05-200, Empire Healthchoice Assurance v. McVeigh.

Mr. Shelley.

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

Empire's complaint in this case raises a Federal claim.

As a result, it arises under Federal law.

This case involves fringe benefits for Federal employees provided by the Federal Government.

The case involves enforcement of a Federal Government contract.

The same contract is rooted in a Federal statute, and the money collected here will go to the Federal Treasury.

Nonetheless, the court of appeals held that this case belonged in State court to be governed by State law.

The court of appeals should be reversed.

In particular, this case concerns the reimbursement of health benefits by a Federal employee to his Federal Government health benefit plan, which is known as the service benefit plan.

That plan is governed Federal Employees Health Benefits Act, FEHBA, and is established through a Federal Government contract.

In this case, Empire paid approximately $157,000 in benefits for certain injuries suffered by Joseph McVeigh, but the plan conditioned the payment of those benefits on reimbursement in the event that a recovery was made from a third party.

Those terms are part of the Government contract, the reimbursement terms.

Thereafter--

Justice Ginsburg: Can you go back and because the... the parties seem to have different views about it?

I think you said it was required by OPM to have this reimbursement term, and the other side said that there was no requirement from the Government agency that you include the reimbursement term.

Mr. Shelley: --Under the statute... Justice Ginsburg, under the statute, the Office of Personnel Management is charged with selecting the benefits and exclusions for this particular program and for this particular plan.

The statutory section is 8902(d).

And those terms are... OPM has the final authority over those terms and those terms are placed in a statement of benefits which the... which this statute also says shall become part of the contract and are attached and incorporated into the contract.

So the final authority over the benefits and the exclusions--

Justice Ginsburg: But that... all that says is that OPM looked at these terms and it thought they were okay.

It's not... it doesn't show that OPM required these... this as a condition for Empire to serve as the insurer.

Mr. Shelley: --Well, it's... our obligations are through the contract, and our only obligations here are the ones in the contract.

And that contract... that provision is in the contract.

And as a result of that, we were... we were mandated to enforce that provision.

If the Government wanted that provision out, it had the final authority to take it out, and it would only have been included if, as a matter of authorization, OPM wanted it in there.

Justice Scalia: But that's different from putting it in.

I mean, you want to change what you... what you allege, that... that it's mandated by the Government to simply the Government, although it had authority to eliminate, did not do so?

If... you know, that's a different... different assertion.

Mr. Shelley: The... I think it makes no difference.

The fact of the reality is that it's in the contract.

Justice Scalia: I'll assume it's the latter then.

Mr. Shelley: The reality is that the... these reimbursement terms are in all the contracts essentially of the FEHBA carriers, and as a result, I think it can be assumed that it's the policy of the Government that they should be in here.

And the result of them is that they save the Government money.

So it does make good Government policy to have these provisions in... in the contracts to begin with.

Chief Justice Roberts: But this is a fairly indirect way of establishing a Federal cause of action.

I mean, it... it's a preemption provision.

Why isn't it reasonable to assume Congress thought there was no need for a Federal cause of action?

Because it's a contract action.

State courts handle those every day, and they assumed they'd be handled by a State court.

Mr. Shelley: I think the Court's decision in Jackson Transit sets up the framework for that, and that is, that Congress did assume there would be a contract cause of action, but--

Chief Justice Roberts: I noticed you referred in your brief to the Jackson Transit line of authority.

Do you know how many times Jackson Transit has been cited in the last 20 years by this Court?

Mr. Shelley: --It has not been applied again since then, but we would say it's settled law as a result.

Chief Justice Roberts: It's not been cited.

I think it's never been applied and it's not been cited once in 20 years.

So what's the line of authority?

Mr. Shelley: Well, it's four or five cases that Jackson Transit was built on, for instance, the Machinists case v. Central Airlines, which came out of the 1960's.

In those cases, for instance, they... the principle is simple and it's a strong one, and that is that Congress assumes that a... when it calls for the creation of a... a contract in a statute, that it will be enforceable just as with ordinary contracts.

Justice Scalia: Those cases came from the days when we were also quite willing to imply Federal causes of action in statutes that had nothing to do with the Government, you know, 10b-5 and things of that sort.

I thought we had put all of that behind us.

You want us to go back to that bygone age.

Mr. Shelley: No, I don't think so, Justice Scalia.

The... the Court in Jackson Transit specifically differentiated between Congress assuming there was a contract cause of action whenever it calls for the creation of a contract and separately implying a cause of action.

That's different because that... that has to... in doing that, the Court has to create a cause of action in the first place, but Congress is assumed to want contracts to be enforceable when it calls for the creation of the contracts in a Federal statute.

Chief Justice Roberts: We're not talking about the contract between you and the Federal Government.

We're talking about some other agreement between you and an individual employee.

Mr. Shelley: No.

We're talking about the contract between us and the Government because it's that contract that contains the reimbursement terms, and when the enrollee enrolls in the Federal program, he or she takes on the obligation of complying with all the terms of the Government contract.

Chief Justice Roberts: Well, that may give rise to a separate agreement, a related agreement, if you will, between you and the employee.

But it's not... it's not a... you're not the Government.

The employee is not the Government, at least not for these purposes.

So why is it a Government contract?

Mr. Shelley: Because the... the underlying terms are part of the Government contract and--

Chief Justice Roberts: So if the Government says... Congress says, we think OPM should have a recreation center for its employees and it should have all these things, and then OPM enters into a contract with a company that runs recreation centers... okay... that's a contract with the Government.

And then that entity enters into a contract with somebody else to supply the basketball hoops.

Would you say that that last contract is a Government contract?

Mr. Shelley: --The subcontract?

Chief Justice Roberts: Yes.

Mr. Shelley: I would not say it's a contract with the Government, and that's not our situation.

Chief Justice Roberts: Even if the provision... even if at some point Congress said, and besides, you know, the basketball hoops should be... you know, made in America as opposed to somewhere else and, you know, specifies the terms of the subcontract.

Mr. Shelley: It's not a Government contract.

The Government contract is the contract between the party with the Government, and that's what we have here and that's what we're seeking to enforce.

But I would point out that cases like Jackson Transit and the Central Airlines case... the case... the party suing wasn't really suing on the contract even.

It was... the case emanated from the contract, and as a result, the Court, nonetheless, held it arose under Federal... Federal law.

In this case, the... the case is directly on the contract itself.

So it's a much closer connection to the Government terms.

Under the--

Justice Ginsburg: But there's nothing in the statute that speaks about a Federal forum.

And if you look at this entire picture, you're seeking reimbursement, and you're seeking reimbursement based on a tort recovery.

And why wouldn't the most sensible, the most natural thing for a legislature, if they thought about it, be to say, well, that claim for reimbursement ought to come in on the coattails of the tort claim?

You don't need to make a whole separate Federal case out... out of it.

Why would Congress want these claims to be subject to a separate Federal case?

Mr. Shelley: --Justice Ginsburg, every other type of claim under this program is in Federal court already, denials of benefits cases, disputes between the carrier and the United States.

Only a sliver of lawsuits, these reimbursement suits, are... are left.

And it would be anomalous to... for Congress to have wanted those to be in State court.

But even aside from that, a Federal forum offers the--

Justice Ginsburg: Well, it's because there's an anterior lawsuit and everything rides on that State court suit.

There wouldn't be any recovery from which you could claim reimbursement were it not for that State court lawsuit.

Mr. Shelley: --The reality is that a straightforward Federal lawsuit and a Federal rule that these... these reimbursement provisions are straightforwardly enforceable through Federal claims means that they will... the reimbursement will be collected efficiently and correctly.

Chief Justice Roberts: Could you... following up on Justice Ginsburg's question, could you intervene asserting rights of subrogation in the underlying tort suit that your covered beneficiary brought in State court?

Mr. Shelley: Conceivably, but the Federal question statute allows us to raise Federal claims in Federal court, and through it, Congress has determined that if the case turns on Federal law, that the Federal forum is an appropriate forum for that.

Chief Justice Roberts: Well, wouldn't it be more efficient for you to intervene in the pending State suit and get it all resolved at once rather than waiting until your beneficiary gets a recovery and then starting a whole other Federal suit over this somewhat subsidiary subrogation point?

Mr. Shelley: No, because in many States... many States don't allow reimbursement altogether.

They have anti subrogation policies as well, and the reality is, is that what--

Chief Justice Roberts: Well, at that point, you'd be able to assert your argument under the Federal preemption provision that says, in my view somewhat surprisingly, that these contract terms preempt State law.

Mr. Shelley: --Yes, and we've fought many battles on those fronts in the State courts.

And the reality is that the Federal forum with its familiarity with Federal law, its solicitude towards Federal law is the appropriate forum in these cases, more so than the State court.

And what may seem like an efficient--

Justice Ginsburg: But you don't have any such problem here.

There's no conflict between the New York law... you certainly could have gone into that lawsuit and--

Mr. Shelley: --Well, no conflict is required, for instance, under the Jackson Transit analysis.

The analysis is, is this a pervasively Federal regime to start with, and if so, it's a Federal claim whether there's a conflict or not.

And so a conflict is really unnecessary.

But the other point is that with the--

Justice Ginsburg: --I could see if this were... what we were talking about everything is... the insurance of a Federal employee and questions about coverage, questions about benefits, all of that between the employee and the carrier.

But this comes up because we have a third party who enters the picture in an estate law claim.

So I don't think you can just say, well, everything is... this whole thing is... is all a Federal contract.

Mr. Shelley: --Your Honor, there is no... there's no requirement in the preemption provision either for a conflict.

I mean, Congress went back to the... to the drafting table in 1998 and said, we want State law to be preempted whether or not there's a conflict in this particular situation.

So--

Chief Justice Roberts: That would have been a good time for them to say we want a Federal... Federal court jurisdiction over these causes of actions if that's what they had in mind, but they didn't do that.

Mr. Shelley: --Well, first of all, there have... there was no dispute whatsoever that these types of cases could be brought in Federal court in 1998.

Chief Justice Roberts: Oh, there sure was.

For those who like to look at the legislative history, the House report said that... again, it's very curious language.

It said, this change will help strengthen the case in favor of Federal jurisdiction, or something like that.

Mr. Shelley: Yes, Mr. Chief Justice--

Chief Justice Roberts: Well, since when is Congress trying to strengthen... they either decide it's going to be Federal jurisdiction or not.

They don't try to make arguments.

Mr. Shelley: --There had been no dispute about whether reimbursement claims could be brought in Federal court.

The courts... the courts were in agreement on that.

What there was a dispute about was whether denials of benefits cases could be removed from State court to Federal court.

And what Congress did was it followed the ERISA model and changed the preemption provision because the preemption provision was what had been giving the courts problems about the removal issue.

And so Congress did, I think, what the courts told it to do, was get rid of some language in the preemption provision that is hampering Federal jurisdiction.

Congress did that and created Federal jurisdiction.

Nonetheless, now we come up with a new dispute that had never been a problem before--

Justice Scalia: That's sort of queer terminology anyway.

Congress has already decided that there should be Federal jurisdiction.

It would seem very strange for Congress to say this strengthens the case for Federal... what do you mean the case for Federal jurisdiction?

Mr. Shelley: --I don't think--

Justice Scalia: We prescribe Federal jurisdiction.

I... you know, I'm not a fan of legislative history, but I... I don't find that particular piece very much against you.

In fact, it may be just... just the opposite.

It may be... it's lawyers' language, you know.

We don't know whether there's Federal jurisdiction or not, but this will make a better case for... you know, for the other side.

Mr. Shelley: --I think Congress enacted the statute in 1995 against the backdrop of... of settled law that Federal programs are typically litigated in Federal court.

What happened, though, was that the States started... started enacting provisions in the area and Congress went to work in 1978 and enacted a preemption provision to reemphasize what I... what it believed in the first instance.

Then in 1998, after courts continued even to interpret the preemption provision narrowly, they went back to the... they went back to the... to the statute and they strengthened it even further to make it absolutely clear.

So I think what we have is a--

Justice Ginsburg: I thought that the... the purpose of the preemption provision in this statute was related to benefits and coverage.

Some States have mandatory coverage for this or that.

The case that was mentioned is the chiropractor.

And the... in the Federal scheme, the Federal administrator didn't want to be saddled with whatever the particular packages that the States had.

So the coverage and the benefits... those were to be determined on the Federal level, and you weren't supposed to be saddled with whatever the State thought would be good to have in the plan.

Mr. Shelley: --But the provision doesn't read simply that State laws defining benefits shall be preempted.

It reads State laws relating to the extent of coverage or the nature or provision of coverage, benefits, or payments with respect to benefits.

And so it covers a broad array of things other than simply mandated benefit statutes.

Chief Justice Roberts: Is--

Justice Scalia: Yes, but... but... I'm sorry.

Chief Justice Roberts: --Is there any comparable situation where a contract between two private parties has the effect of preempting State law?

Suppose all you have to do in our service benefit plan is agree with your beneficiaries that in the case of subrogation, you're entitled to, you know, 10 times actual damages, if they don't pay up right away or something like that.

And... and that would override all sorts of State law.

You could specify you're entitled to interest at 20 percent and that would preempt State usury laws?

Mr. Shelley: Well, I believe there are many other statutes in the benefits area involving the Federal Government from long term care to miliary benefits which have a similar preemption provision.

I think it--

Justice Scalia: It's a sloppy way to put it, don't you think?

Maybe what Congress should have said, although Congress doesn't always speak precisely, is that any... any State law which contradicts a provision of the contract on these particular subjects is preempted.

Mr. Shelley: --It said that originally, and the courts interpreted that to so narrowly that Congress took that out.

It took the contradiction part out.

There was an inconsistency requirement in the statute.

Congress took it out specifically to knock out even supplementary or--

Justice Scalia: And I'll put it differently.

All State laws relating to subjects that are covered in the contract are preempted.

Mr. Shelley: --And I would say that that's... that Congress, when it enacted the provision, I think intended something on those lines.

The provision is, in fact, the result of several different amendments and it reads the way it does as a result of the amendments.

And if I could reserve the remainder of my time for rebuttal, Mr. Chief Justice.

Argument of Sri Srinivasan

Chief Justice Roberts: Thank you, counsel.

Mr. Srinivasan.

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

An action to enforce the terms of a FEHBA contract is a Federal action because the rights and duties in FEHBA contracts are Federal in nature under the Jackson Transit inquiry.

The Federal nature of the rights and duties comes both from the context in which FEHBA operates and also from the terms of the express preemption provision.

Briefly--

Chief Justice Roberts: Isn't there... isn't that a big leap?

I mean, even if we agree with you that there are Federal rights and duties, is it irrational for Congress to determine, since they arise in a normal breach of contract action, we're going to assume they're going to be brought in State court?

The cause of action is for breach contract that every State recognizes.

Mr. Srinivasan: --Well, I guess that seems like an unlikely outcome, given that under the express terms of the preemption provision, it's clear that the contract terms are matters of Federal law in the sense that Federal law dictates that they govern over State law.

And if we know that Federal law provides a substantive rule of decision with respect to the construction of the contract, it seems anomalous to impute to Congress the intention that those Federal rights and duties should be litigated solely in a State court action.

Chief Justice Roberts: But wouldn't it have been the easiest thing for Congress to say, as it does countless times when it creates Federal rights, that Federal courts have jurisdiction to enforce these rights?

And they didn't do that here.

Mr. Srinivasan: Well, they didn't do that, but I think as Jackson Transit explains, it's... it's different in the contract context than in your standard implied cause of action context for the following reason.

When Congress specifically contemplates the construction of contracts, as it did in FEHBA, it clearly contemplates that those contracts will be enforceable somewhere.

So there is a cause of action for breach.

The only question is whether that cause of action sounds in State law or instead in Federal law.

And on that question, when Congress prescribes, as it did in the preemption provision, that the rights and duties are matters of Federal law, it seems most likely that Congress intended there would be a Federal cause of action that could be brought in Federal court to litigate those terms.

And that's what Congress did in the terms of the preemption provision.

That--

Justice Ginsburg: What... you... you might follow along with that perfectly well if you're talking about the beneficiary, the Federal employee, saying I'm entitled to a certain coverage or I'm entitled to certain benefits.

You would expect that suit to be in Federal court.

But why would you expect what piece of the tort recovery the carrier will get to be in Federal court?

Mr. Srinivasan: --Well, this is part and parcel of benefits, Justice Ginsburg, because you're right that when... and when an employee asks for benefits, you'd expect that issue to be litigated in Federal court.

But this is a condition on benefits.

That's how the reimbursement obligation is framed in the contract.

It's that if you get benefits from the Federal Government and then later on get the same benefits from a third party, a condition on the Government benefits is at that point you have to reimburse the Federal Treasury.

So I don't think one can easily draw a distinction between benefits qua benefits and benefits that are at... at one point issued to the employee but then are subsequently returned pursuant to the terms of the reimbursement obligation.

Justice Scalia: Suppose there's a dispute in the... in the lawsuit about whether a particular benefit to which one party was entitled under the contract has been waived.

Okay?

That's the issue.

Is that issue to be decided by Federal law or by State law?

Mr. Srinivasan: Well, do you mean in an underlying tort action or--

Justice Scalia: Yes.

Mr. Srinivasan: --No.

In the underlying tort action, that generally would be governed by State law.

Now, on the question of whether a benefit is something that the individual is entitled to or, conversely, whether the benefit is obligated to... whether the individual is obligated to--

Justice Scalia: No, I'm not talking about the... I'm talking about the claim, the claim made by an individual against the carrier.

And... and it is asserted that this claim should have been made sooner.

It has been waived by not having been brought forward sooner.

Okay?

That's... that's the hypothetical.

Do... do you think that that... that is governed by Federal law?

Mr. Srinivasan: --I'm not sure--

Justice Scalia: Whether waiver occurred or not.

Mr. Srinivasan: --I... I think that... that when it's a claim for benefits, it probably would be governed by Federal law.

Justice Scalia: Why?

Mr. Srinivasan: But even--

Justice Scalia: I mean, the text... the text only... only says, shall... which relate to the nature, provision, or extent of coverage or benefits.

Extent of coverage or benefits.

I don't know that that relates to any of them.

It relates to whether the benefit that was covered has been waived.

Mr. Srinivasan: --Well, it depends on whether the contract speaks to the issue.

Now, insofar as the contract--

Justice Scalia: Yes.

Mr. Srinivasan: --insofar--

Justice Scalia: It doesn't speak to it.

Mr. Srinivasan: --insofar as the contract doesn't speak to an issue, there obviously would be a stronger argument for the operation of State law.

But that's not--

Justice Scalia: Okay.

So you're not saying that... that Federal law is... is pervasive here, that it covers the... the entire... the entire suit between the claimant and the insurer.

Mr. Srinivasan: --Not necessarily.

Justice Scalia: Okay.

In that respect, doesn't it differ from ERISA?

Mr. Srinivasan: Well, it... it differs from ERISA in the following sense, that in ERISA, ERISA sets forth a cause of action.

And so the Court has concluded that that cause of action is exclusive of State court causes of action.

And we're not taking that position here.

We... we don't say that the Federal action is the only action... excuse me... that's available.

State court actions for breach of contract might also be available.

But--

Justice Scalia: Well, you're gong to make a lot of trouble for us.

We're going to have to sort out which of these things are covered by State law and which aren't.

Mr. Srinivasan: --Well, I don't know that it's going to be a... a terribly difficult inquiry because of the precision with which the terms of the preemption provision speaks.

And it's certainly not difficult with respect to the reimbursement obligation because it fits--

Chief Justice Roberts: Well, ERISA has a very clear preemption provision too, and that's generated a fair amount of work for us.

Mr. Srinivasan: --It has, but in terms of... in terms of the relate to requirement, that's true, and I think the Court would apply exactly the same standards that it applies in ERISA.

Justice Stevens: Do you think there's any constitutional difficulty with the preemption provision in this statute?

Mr. Srinivasan: I don't.

I think--

Justice Stevens: You can make a contract preempt State law.

Is there any precedent for that?

Mr. Srinivasan: --Well, I think Boyle somewhat stands for the same proposition in this--

Justice Stevens: You don't have Boyle for that.

Mr. Srinivasan: --I'm sorry?

Justice Stevens: I didn't think Boyle went that far.

Mr. Srinivasan: Well, Boyle at least establishes that the terms of a contract preempted State law because it was a procurement contract and the idea was that by complying with the terms of the procurement contract, the contractor asserted essentially a federally compelled defense to the State court action.

Justice Kennedy: Well, I thought... I thought it defined a duty.

I... I agree with Justice Stevens.

I... I've never seen it... are there other statutes where the contracting parties can decide whether or not they're going to oust Federal law... or State law?

Mr. Srinivasan: I don't know that there are other statutes, but what this particular... particular provision indicates is that Congress thought it was very important that FEHBA contracts would control over State law, and I don't think there's any constitutional limitation on Congress' ability to do that.

After all--

Justice Scalia: I... I wrote Boyle and what I thought I was saying was that the common--

[Laughter]

--was that the common law, Federal common law precluded, preempted any State law which contradicted this contract.

Now, you can... you can put that in a sloppy fashion by saying that the contract preempted State law, but it wasn't--

Mr. Srinivasan: --But--

Justice Scalia: --that we thought it was the contract that preempted State law.

It was Federal common law which said that the contract... that any provision in State law which contradicts the contract is preempted by Federal common law.

And you can read this statute the same way.

It's a sloppy way of putting it, but what it means is Federal law preempts any State provision that is contrary to a provision of the contract--

Mr. Srinivasan: --That... that--

Justice Scalia: --which... which is certainly constitutional.

Mr. Srinivasan: --Absolutely that's constitutional, and that's... that's what I mean to be saying because it's Federal law--

Justice Scalia: Congress isn't always precise, is it?

Mr. Srinivasan: --No, they're not.

Justice Breyer: Is there any significant variation among the different carriers as to the terms of the contracts they use in different places for Federal employees?

Mr. Srinivasan: On which particular--

Justice Breyer: Under this program.

Mr. Srinivasan: --There's... there's variation, sure.

Now, on... on--

Justice Breyer: Is there a lot or a little?

Mr. Srinivasan: --Well, there's... it depends on what you're talking about.

Justice Breyer: What I'm thinking of is a statute.

The statute has fairly close detail as to what the contracts must contain.

It gives authority to OMB or... to write regs.

And they have written regs that have very detailed provisions as to what the contracts must contain, and then there is the contract with the individual carried... when the... when the carrier is implementing these rules, regulations, and statutes.

Mr. Srinivasan: Well--

Justice Breyer: And I'm trying to figure out is--

Mr. Srinivasan: --The statute doesn't give a great deal of specific--

Justice Breyer: --It gives some.

Mr. Srinivasan: --direction on the terminology.

Justice Breyer: It gives some.

Mr. Srinivasan: It gives some, but it's only bare bones, Justice Breyer.

Justice Breyer: Yes, I know, but I'm trying--

Mr. Srinivasan: But I think that's important because what... what Congress has done is essentially to leave it to OPM to negotiate the terms of these contracts.

Justice Breyer: --Insofar as the individual carriers write contracts with their covered employees, i.e., me and you and other people, and there's a lot of variation, I would say there's a lot of private going on.

But insofar as those contracts are dictated by what OPM says, then it looks more to me like a regular Federal program.

Mr. Srinivasan: Well, those--

Justice Breyer: And I'm trying to get a handle on that.

Mr. Srinivasan: --The contracts between the individual and the carrier are dictated by OPM in some sense because OPM negotiates the terms that bind the individual.

The contract that you and I enter into when we sign on for health insurance is a part of the... of the program, if you will, that's negotiated by OPM with the carrier.

Justice Breyer: So in other words, when I sign a contract, or anyone who's a Federal employee, it's OPM who effectively sets those terms?

Mr. Srinivasan: That's right in negotiating with the carrier, and a statement of benefits is essentially the program.

It tells you what benefits you're entitled to and it tells you what obligations you're encumbered by when you take on those benefits.

And one of the obligations that you're encumbered by under the clear terms of this contract is the obligation to reimburse the carrier in the event--

Justice Breyer: No, I understand.

Mr. Srinivasan: --that you receive benefits and then subsequently receive benefits from a third party.

And one thing that I don't want to lose sight of is that ultimately this concerns money that will be reimbursed to the Federal Treasury.

And so the fact that this case happens to involve litigation between two private parties shouldn't obscure the strength of the Government's interest in the area, given that Federal funds are involved.

Argument of Thomas J. Stock

Chief Justice Roberts: Thank you, Mr. Srinivasan.

Mr. Stock.

Mr. Stock: Mr. Chief Justice, may it please the Court--

I must confess that I continue to be perplexed by the claim that Congress intended reimbursement claims of this type to be handled and... and to be dealt with in the Federal courts when that same Congress, in enacting the FEHBA statute, did not provide for that cause of action or that right in the first instance.

Justice Breyer: It's quite possible no one in Congress thought about this--

Mr. Stock: It... it--

Justice Breyer: --which is common.

So if it is common, why is it that we would not use the same approach that the Court used in Clearfield Trust, in Kimbell Foods, and really look to the nature of the contract?

Whereas here, the rights at stake are really those of the United States in that they are going to get the money.

We have a statute.

We have all those things I just listed.

It covers only Federal employees.

Should... there are strong interests in uniformity throughout the Nation, et cetera, et cetera.

So what is the difference between this case, other than a technical difference?

I concede that one.

The title is not United States.

It's Blue Cross Blue Shield or whatever.

Mr. Stock: --No.

Justice Breyer: Empire, et cetera.

But aside from that, why is it different?

Mr. Stock: Because, Your Honor, in the first instance, number one, uniformity really is not a... a legitimate claim in this... in this instance by Blue Cross and Blue Shield.

Justice Breyer: Why... why?

Mr. Stock: Because--

Justice Breyer: The obvious reason for uniformity would be you are a Federal employee, whether you're in Alaska or whether you're in Virginia.

Mr. Stock: --That's correct, Your Honor.

Justice Breyer: And it's unreasonable to think Congress would want the rights of those different Federal employees to differ just because of where they live.

And so what's the answer to that?

Mr. Stock: It... the fact of the matter is, is the way Blue Cross has written this reimbursement provision, they will differ.

The reimbursement provision, which... by the way, to start with, the reimbursement provision that is in the Blue Cross Blue... Blue Cross Blue Shield contract with the employees is different than the reimbursement provisions which are described in the contract between OPM and Blue Cross Blue Shield.

It is markedly different in several ways, the first way being that, with respect to procurement costs and the issue of this $157,000, who pays to obtain that.

In the OPM Blue Cross Blue Shield contract, it provides for attorney's fees and disbursements to be paid by the Government and the... and the claim... the reimbursement claim could be reduced by that.

In the Blue Cross Blue Shield version of that between Blue Cross Blue Shield and the... the litigant here, that provision is changed.

And this is why I say they then undercut their own claim for uniformity.

They basically say that we'll allow you attorney's fees if we feel like it in a particular case.

That's not a uniformity provision.

Justice Souter: Well, you're saying that there is a uniformity between a master contract between the United States and Blue Cross on the one hand, and Blue Cross and the subscriber on the other hand.

But doesn't the United States approve the latter contract?

In other words, doesn't it... well, I forget the initials... OPM or whatever it is.

Doesn't it have a... a requirement of approval going to the terms of the contract between Empire and... and the employee before that contract goes into effect?

Mr. Stock: I'm not sure what the mechanics are of it, Your Honor.

Justice Souter: But isn't that... isn't that crucial, though, in your answer to Justice Breyer?

Because if the United States... if OPM approves the Empire employee contract, maybe you can say, well, gee, there's something strange going on at OPM if they don't require exactly the same terms in the contract with the employee that they... that they require in their master contract with... with Empire.

But it doesn't say anything one way or the other about the interest of the United States in having uniformity in which the... in the... in the interpretation and application of contracts, which they do approve, between Empire, other Blue Cross Blue Shield entities, and their employees.

Mr. Stock: Well, I think when we're talking about uniformity, Your Honor, because this is a statute designed to benefit Federal employees, that we're talking about uniformity in the context of all Federal employees are treated the same.

The provision that Blue Cross Blue--

Justice Souter: And the United States is treated the same in relation to all Federal employees.

I mean, there's... there's an interest in uniformity for fairness among employees, and there's an interest in the United States in having the same expectation, in this case a reimbursement expectation, no matter where the employee is.

Mr. Stock: --That's correct.

But in... in terms of uniformity, the provision that Blue Cross... several provisions that Blue Cross Blue Shield has added to this reimbursement clause undercut the uniformity aspect of it.

And when you say in a particular case, we'll decide, well, the fellow from Alaska... we'll give him his attorney's fees and disbursements, but the fellow from New York, we won't give it to, you undercut any... any--

Justice Scalia: That's uniform in both Alaska and New York, they are subject to the... to the Blue Cross waiver of attorney's fees or not.

They're being treated uniformly.

I don't see that that's disuniform.

What is disuniform, it seems to me, is that you have an employee who wins a judgment in Alaska and he gets to keep all his money because Alaska law says the reimbursement provision is... is invalid, and then you have a Federal employee in Texas who... who gets a... wins the same tort lawsuit, and he has to turn over to Blue Cross all the... the portion of his recovery that would cover the outlay that Blue Cross has made.

That's disuniformity.

Mr. Stock: --The... the uniformity which we're seeking, relative to these benefits, and the... and the argument as to uniformity I would submit to you, at least as to how we treat the Federal employees, is illusory in this case because no matter how this Court decides in this particular case, whether there's Federal jurisdiction here or not, the employees are being treated differently State to State based upon the provision that Blue Cross Blue Shield has enacted.

Chief Justice Roberts: And I suppose that the preemption provision would apply equally if this were brought in State court or Federal court.

Correct?

Mr. Stock: Yes, Your Honor.

Justice Breyer: But I'm curious--

Justice Souter: Your... your answer to... to Justice Scalia... I'm sorry... just did not register.

I don't understand--

Mr. Stock: Well, it was incomplete, Your Honor, because I... I had turned around to answer the Chief Justice.

The... the way they have this set up with the right of reimbursement and the... and the kickers that Blue Cross Blue Shield puts in the statement of benefits creates a situation.

They... they add that these rights of reimbursement apply no matter how the cause of action for damages is delineated, in other words, whether it's seeking damages for medical benefits or damages for pain and suffering.

And what Blue Cross Blue Shield has introduced is that... that kicker.

And... and what that does, in effect, from State to State is change the outcome for the employee because, for instance, in New York where we have a collateral source rule by statute that says, you may not prove medical damages in a personal injury case for which you've collected insurance.

So, for instance, in Denise McVeigh's case, I can't prove her medical bills.

Yet, Blue Cross Blue Shield is going to come in and pick Denise Finn's pocket on her claim for pain and suffering for the $157,000 in medical bills that they say they've paid.

Whereas, if I go across the river... and I don't know the law in New Jersey, but assuming that New Jersey uses the older rule where, if I had the good sense to buy myself medical insurance and I collected medical insurance for the benefits that were... if I collect the medical payments for the medical bills, I can still go into court and prove those medical bills as against the tortfeasor.

In that particular instance, Blue Cross Blue Shield comes in and it takes money at least that I've gotten from the other side as opposed to in New York where they take money that I haven't gotten from the other side.

Justice Souter: --Yes, but do they take money in New York that you haven't gotten from the other side?

Mr. Stock: Absolutely.

They're looking to assert a claim.

I don't have a claim for medical benefits in the underlying court--

Justice Kennedy: But... but there's uniformity because the Government wins in both cases.

Mr. Stock: --I'm sorry, Your Honor?

Justice Kennedy: There's uniformity because the Government wins in both cases.

[Laughter]

Mr. Stock: I have to concede that that's true, and if that is the uniformity that we seek and the only--

Justice Kennedy: I mean, that's the kind of uniformity the Government loves.

Mr. Stock: --I'm sure they do.

[Laughter]

Justice Breyer: --I... I wasn't thinking of that kind of uniformity.

[Laughter]

Mr. Stock: I assure you, Your Honor, that Denise Finn doesn't.

Justice Breyer: I was thinking of the contract... the contracts that the carriers enter into with the individual Federal employees in different places.

And I'm trying to get an idea of whether those contracts all read the same or they don't.

And so far, you have found one example of where they read differently.

Some contracts apparently say when you reimburse us, you can subtract attorney's fees, and others say when you reimburse us maybe you can subtract attorney's fees, depending on how we feel about it.

And I grant you that is a difference.

And I am curious, as was Justice Souter, as to whether you have to get OPM approval for that difference or whether OPM can tell you, knock it off, we want the same.

And also I'd like other examples.

What I'm trying to do, to be clear about it, is I'm trying to see how similar this is to the instance of the Federal employee checks, which this Court many, many years ago said, when you pay your Federal employees and you write a check, it's Federal law that's going to govern the interpretation of the endorsement.

I want to see how similar it is and how different.

I have two differences.

One is the name on this case is Empire, not United States, and the second difference is the one you just mentioned about may rather than must.

Now, are there others?

Mr. Stock: There are differences in my understanding, Your Honor, from State to State between the different Blue Cross entities.

I couldn't tell you what exactly those differences are, but my understanding is that these Blue Cross policies vary from State to State.

Do they vary... I... I think, Your Honor, although it supports my contention, that you may have misunderstood what I said about the... the difference between the reimbursement clauses, honestly.

What I... what I indicated was the... the reimbursement clause that is in the OPM/Blue Cross contract is different from what Blue Cross then enters into with its members.

That differs.

I was not asserting that it differs from State to State.

What I'm saying is that the effect of that differs from State to State certainly.

Justice Stevens: May... may I ask this?

Because I think your example overlooks the fact that at least your opponent claims that the Blue Cross contract provision would preempt the New York law that denies your client recovery for health benefits.

Mr. Stock: It does--

Justice Stevens: I think that would be their answer to your example.

Mr. Stock: --It... it would be in error, I believe, Your Honor.

Justice Stevens: Well, if we... if we think Congress can provide that a contract provision would preempt a State law, it seems to me the example you've given is the precise example that that statute was intended to cover.

Mr. Stock: The... at the... at the very essence of that, I don't believe that a contract can preempt State law.

The constitutional laws of the United States can preempt State law.

If somehow you can bootstrap a contract into that by some theory, I suppose you could argue that it... that it--

Justice Stevens: But if... if it does, it would eliminate the lack of uniformity on which you rely.

Mr. Stock: --It... it would not, Your Honor, in this instance because the... the operation of that statute does not affect their right to reimbursement under their contract provision.

It affects the--

Justice Stevens: No, but it affects the amount that your client can recover.

And they would say that they... because it assumes an absence of... it assumes a payment by the carrier, and under... I... I think they would take the position that they have, in fact, the... they have not, in fact, paid that insurance cost.

Mr. Stock: --Your Honor, I don't think we would ever--

Justice Stevens: I'm not stating it very well, but I--

Mr. Stock: --The... the situation with the... the term of New York law that I am... that I had indicated would occur during a trial of the case and in terms of my cause of action.

It would not affect Blue Cross' lawsuit against my client.

Justice Stevens: --No. But the defendant would say, we don't have to pay those damages because they're covered by insurance.

And the response would be, well, they're not... they... they are only covered by insurance if they can be reimbursed.

I don't want to take up too much of your time on this.

Mr. Stock: Yes, they wouldn't be a party to that suit at that time, though, Your Honor, in... in terms of raising that issue.

Chief Justice Roberts: But... but the preemption provision, at least with respect to the rights of Empire, would ensure uniformity.

In other words, if the contract terms preempt State law, then any impediment to recovery by Empire that varies from State to State would be overridden.

Mr. Stock: Right, but that wouldn't affect... that wouldn't override the net... the net effect on the... on the person.

The... the real world effect on Denise Finn and other people like her would still be different.

Chief Justice Roberts: No, I understand that.

But to the extent people are concerned about disuniformity from the point of view of the Federal recovery, the preemption provision is going to apply whether this action is in State court or Federal court.

Mr. Stock: That's correct.

Justice Alito: What's your--

Mr. Stock: And if the only... if the only interest in uniformity we have, again, is whether the... whether the Federal Government gets its... its money back, then... you know, then the uniformity argument may fly.

But if we're also interested in the... in the uniformity argument in the manner in which Federal employees are treated and in the manner in which ladies who... such as Denise Finn are treated, then uniformity is... is out the window under these... under this--

Chief Justice Roberts: But the only question that we're considering today is whether or not Federal question jurisdiction exists to authorize bringing this suit in Federal court.

Mr. Stock: --And I would submit to Your Honor it clearly does not because this case, involving Blue Cross suing Denise Finn for these benefits involves not issues of the construction or interpretation of a Federal statute, but issue... the issues involved in our case are whether they're entitled to collect the money that they paid three times to the same doctor for the same service on the same day.

They paid a particular Dr. Brown $17,500 for the same service on three occasions.

In addition, our dispute involves whether or not some of the benefits that they claim they paid and which were medically a result of this accident were in fact or whether they were taking other benefits they paid and trying to be a little cute and collect those under saxony.

Those are the issues.

Those issues--

Justice Breyer: Well, I would have thought the issue is whether Federal law governs this--

Mr. Stock: --Well, yes, but--

Justice Breyer: --and they come to Federal court.

So what is clearly... maybe I... maybe you've... I don't think you've said this.

We know this.

If the United States issues checks to all of its employees throughout the country and then it seeks to recover from one of the drawees or one of the people who endorsed the check on the ground it was fraudulent, we know that it is Federal law that must govern those checks.

Right?

From Clearfield.

Mr. Stock: --Yes, Your Honor, which--

Justice Breyer: All right.

Now, what is the difference in this case?

In this case, we have a private administrator of this Federal... of this... of this Federal program.

There are Federal employees throughout the country.

They are supposed to receive uniform... reasonably uniform health insurance, and the private administrator wants to obtain money that it thinks it's entitled to to put into the Federal Treasury.

Now, aside from the name, what's the difference?

Mr. Stock: --The difference is, is in the instance of Clearfield Trust, you had the Government involved in a dispute over their own commercial paper that they issued and a uniquely Federal interest and a uniquely Federal item.

Here, these... Federal employees aren't the only employees in America who get health benefits, and they are... these disputes that arise under this statute are most frequently not of the... not seeking to answer the grand questions.

They're most frequently involved in dealing with issues such as we have here.

Whether the--

Justice Alito: --If the Federal Government were running this program itself, would you make the same argument?

Mr. Stock: --I'm sorry, Your Honor.

I missed the first--

Justice Alito: If the Federal Government were running this program itself, rather than having private entities administer the program for it, would you make the same argument?

Mr. Stock: --I don't know that I would, but I think the caveat to that is if the Federal Government were running it themselves, pursuant to a different statute than we have here, the first thing I think I would look at is what jurisdiction or what the Congress had to say about where they wanted cases arising from that.

It may well be--

Chief Justice Roberts: Well, they've already said that.

I mean, there would be Federal jurisdiction there because the Federal Government would be a party to the case.

Right?

Mr. Stock: --Yes, Your Honor.

But they're not a party to this case.

Justice Breyer: That's exactly what I'm trying to find out.

That's... that's what I'm... I'm trying to figure out in my mind how close this is to the Federal Government running a uniform program.

I mean, everybody agrees Federal law governs questions involving the rights of the United States--

Mr. Stock: Yes.

Justice Breyer: --arising under nationwide Federal programs.

And here, we have not the United States.

We have Empire.

And so how close is Empire to being simply an instrument of the United States in this respect, and how close is it to being really an independent company that sets up its own insurance contracts?

That's what I'm trying--

Mr. Stock: Interestingly enough, the Government has told us that.

And what they told us... and it's at page 4 of... and in a footnote number 3 from the amicus curiae's briefs from Cruz.

And the Government has told us in Cruz's pending certiorari petition that that... Blue Cross Blue Shield carriers do not perform outsourced Government tasks, are not agents of the Government, and do not act on behalf of OPM.

Rather, they function as independent economic entities that offer and run their own health insurance plans, performing a role that is not governmental in nature.

Justice Breyer: --That's quite good.

What are you reading from?

Mr. Stock: I'm sorry, Your Honor?

Justice Breyer: What are you reading from there?

Mr. Stock: We're reading from the footnote number 3 of the amicus curiae's brief at... at page 4.

Justice Scalia: The Government... the Government as amicus?

The Government as amicus.

Mr. Stock: No, no.

The... the amicus from the... representing Cruz.

Justice Souter: Isn't... isn't that--

Mr. Stock: And their... but it is--

Justice Souter: --isn't that... isn't that--

Mr. Stock: --their statement in their... in the... this is the Government's statement.

This is the Department of Justice's concession that Blue Cross has sole authority over reimbursement decisions, and that is their language.

That's the way they describe--

Justice Souter: --At the end of the day, the money, every penny collected, minus any service fee, is going to go into the Federal Treasury.

Isn't it?

Mr. Stock: --That's true.

Justice Scalia: Of course, you could say the same about... about any recovery, that a certain percentage in taxes will go to the Federal Treasury I... I--

Mr. Stock: Well, we can also say... we can also say that irrespective of whether the Federal courts collect it or the State courts collect it, it's still going to end up in the Federal Treasury, and that these are--

Justice Souter: But whether it's collected or not may... indeed, may vary depending on whether State law or Federal law applies.

And if Federal law applies, then you have the jurisdictional consequence.

Mr. Stock: --The problem in this case, in terms of asserting arising under jurisdiction, is... and... and in terms of Boyle also, is that the... the petitioner has failed to point out any difference in how it would occur.

There is absolutely no difference pointed out by the petitioner as to how the law would differ--

Justice Souter: Well, presumably it didn't do that because the preemption provision does not rely upon conflict.

Mr. Stock: --The preemption provision doesn't apply to reimbursement provisions either, Your Honor.

It applies to--

Justice Souter: Well, it doesn't apply to reimbursement provisions, you say, but it does apply to benefits.

And... and the value of a benefit is going to vary from the... the policy limit to zero depending, in a case like this, on whether a third party payment has to be given to the Government with... with... isn't... isn't that a question of benefit?

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

And with all due respect, this Court has consistently held that words used in one place in the statute should mean the same thing as in other places in the statute.

Coverage and benefits, as it's defined in this statute, does not include reimbursement claims, and to stretch that preemption clause--

Justice Souter: Will you quote the language that you're referring to?

Mr. Stock: --If I can find it, Your Honor, sure.

I'm sorry, Your Honor.

Justice Souter: I... I don't want to take up too--

Mr. Stock: Yes, I'm sorry, Your Honor.

I'm flipping around.

I have it here.

Justice Souter: --My... my concern simply is that you've made a conclusory statement that elsewhere there's a definition that doesn't--

Mr. Stock: There is.

Justice Souter: --And... and--

Mr. Stock: And it's--

Justice Souter: --After the argument, just give me a cite so I know exactly what you're... you're getting at.

Mr. Stock: --No problem, Your Honor.

The... the punch line to it is or to paraphrase it, you know, benefits are described as payments for medical... medical payments for this, that kind of thing.

But there is a very specific description of what benefits means in the plan.

It doesn't include reimbursement.

And I... and I think it really stretches it to include reimbursement as a... under that benefit setting.

Justice Ginsburg: But how do you answer the question that I think Justice Breyer was... was getting at, that it's... it's a... the... what's in it for the carrier?

Nothing.

As... if... if every penny that the carrier collects is going to go into the U.S. Treasury, then why does the carrier care?

Mr. Stock: Being a cynic, I'm not so sure of that, Judge.

But... Your Honor.

I'm sorry.

I'm not so sure of that because early on in the... in Blue Cross Blue Shield's summary of the facts, they indicate that Blue Cross' fees in the matter are determined based upon performance.

I don't know what performance means, but I suspect it has something to do with how much money ultimately ends up being spent.

I don't think it's necessarily relevant to the inquiry that we're involved in.

The fact that... that all of the money may ultimately got to the Government, though, I don't think changes the issue as to whether or not this Court should confer subject matter jurisdiction upon the district courts in this case.

There... the... the issues here can be resolved in the State courts and more efficiently than in the Federal courts.

And certainly I think that the Federal courts would not look forward to an influx of cases dealing with issues in... in essentially personal injury issues involving whether or not particular doctors were paid properly, whether or not particular payments need to be made in connection with and are reimbursable to the Government, or the types of issues that we have here.

And to be perfectly honest, most of the cases are not of the magnitude of this one where we're talking about $150,000.

Most of the cases involve $5,500 and $6,500 and things like that.

The Government--

Justice Stevens: Yes, but this is a claim for $150,000 out of a settlement of $3 million or $4 million.

Mr. Stock: --Yes, Your Honor.

Justice Stevens: What was your defense on the merits?

Mr. Stock: To this claim?

Justice Stevens: Yes.

Mr. Stock: Our defense on the merits to this claim, were we to get there, is that the Government has paid the same doctor $17,500 three times for the same service, and that Denise Finn should not be required to reimburse Blue Cross Blue Shield when they have incompetently, in effect, paid out more money than they should have.

The second defense involves the fact that some of the benefits which Blue Cross Blue Shield is seeking reimbursement for are not connected to the accident that injured Mr. McVeigh.

They're part of his normal health care type of services which wouldn't fall under the reimbursement claim.

Those claims are... are not the type of things that I think that the Federal district courts want to deal with.

This case--

Justice Kennedy: But I take it you're not foreclosed from making your defense or your claim in the Federal court.

Mr. Stock: --No, absolutely not.

But--

Justice Souter: Mr.... Mr. Stock, we have one loose end.

I think we do.

Both Justice Breyer and I have... have asked the question whether OPM has to approve of the terms of the contract between Blue Cross and... and the... the insured.

Is... does OPM have to approve?

Mr. Stock: --I don't believe they do, Your Honor.

I think the terms of OPM and Blue Cross' contract provide that Blue Cross will enter into a... a contract with the... with the policyholders that is consistent with its contract with OPM.

But I don't... I don't believe... and... and honestly, I... I did not look before we... we talked about this.

I don't believe it requires their approval.

They don't get a copy of the contract and read it over.

Justice Souter: Assuming the consistency term, that supports an argument that the Government has an interest in... in uniformity of... of interpretation, doesn't it?

Mr. Stock: Only if the... if in uniformity of interpretation of the contract?

Justice Souter: Yes, yes.

Mr. Stock: I think the Government has an interest in uniformity of the manner in which the... the employees are ultimately treated, and I think when we talk about uniformity, that that's what we ought be talking about.

Justice Scalia: --Well, I guess you can be... depending upon how detailed the OPM contract is, you can be consistent with that contract and still have an enormous amount of variation from one to another.

It depends entirely upon whether the OPM contract is entirely comprehensive.

If it covers every jot and tittle, then I guess you can't be consistent with it and different.

But if it's... if it's sort of bare bones, you... you could be consistent with that and have a lot of variation, couldn't you?

Mr. Stock: Yes, absolutely.

And... and my understanding is that... is for that reason that OPM does not review the contracts and approve the contract language of Blue Cross Blue Shield.

Justice Souter: But if... if--

Mr. Stock: But I don't know that.

Justice Souter: --if, in fact, there were consistently only in this remote sense so that the interests which are meant to be protected in the... in the OPM Blue Cross contract aren't being protected at the next level, then OPM could bring an action against... against Blue Cross saying it's not consistent enough, couldn't it?

Mr. Stock: It could.

Justice Souter: Yes.

Mr. Stock: It could.

But in this particular instance, the contract provisions that Blue Cross are... and Blue Shield are seeking to enforce, as regards reimbursement, are markedly different.

I mean, it's... it's not a small variation.

It's a very substantial manner in terms of, first, the procurement costs and, second, in terms of what kind of a cause of action Blue Cross Blue Shield can take the money from.

But that's an... an incidental.

That goes to the heart of... of the matter.

If there's no other questions, Your Honors, thank you.

Rebuttal of Anthony F. Shelley

Chief Justice Roberts: Thank you very much, Mr. Stock.

Mr. Shelley, you have 4 minutes remaining.

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

Chief Justice Roberts: I wonder if you could focus on one question for me.

If you have a State law cause of action and the law to be applied to some aspects of that cause of action is Federal law, is that sufficient to establish Federal question jurisdiction or not?

Mr. Shelley: It is, Your Honor, under the Grable case that the Court issued last year.

A State law claim that turns on the construction of Federal law, a substantial question of Federal law, is removable to Federal court and arises under Federal law in the first place.

I wanted to address Justice Souter's question of whether OPM does approve the contract.

There's no individual contract... excuse me... between Blue Cross and any individual enrollee.

The statement of benefits is part of the Government contract.

It is attached at appendix A and the terms of the contract, the master contract, specifically say that in sections 2.2 and 2.5, that the benefits shall be... and... and reimbursement terms as well... shall be consistent with and incorporated by the statement of benefits, which is attached.

And so it is part of the contract.

There's no separate contract here.

It's one--

Justice Breyer: You mean everybody in the entire United States gets the same piece of paper.

Mr. Shelley: --The same brochure.

Justice Breyer: So it's identical.

There is no difference between every individual's contract, every Federal employee's... I guess it's a contract with the Federal employee.

Isn't it? I mean, he's bound by it you say.

Mr. Shelley: They... by enrolling, they bind themselves to the contract.

Justice Breyer: All right.

So I am... in Alaska, Virginia, everywhere, they get the same piece of paper.

They enroll and then they're bound by it.

Mr. Shelley: Absolutely.

Justice Breyer: And the question here is whether that should get different interpretations possibly in different places.

Mr. Shelley: Under State law, and it should not.

And we are... it is a uniform system across the country, and the... the carrier is bound to apply those terms, particularly the reimbursement terms, consistently and ethically across the country.

Chief Justice Roberts: Counsel--

Mr. Shelley: Section 4.1 of the contract says that.

Chief Justice Roberts: --the... the Grable case said, though, that the Federal question had to be a necessary element of the State law cause of action.

That's not always the case in these cases, is it?

Mr. Shelley: Well--

Chief Justice Roberts: It's only... the... the Federal question comes up only on issues of preemption.

They may or may not be presented in a particular case.

Mr. Shelley: --In the first instance, our claim is an enforcement claim for the contract.

The contract itself and the common law that surrounds it are... are Federal law, and as a result, we--

Chief Justice Roberts: Well, that kind of... that begs the... that's not the question I asked and it sort of begs the question.

I mean, you have the State law cause of action to enforce your contract claim, and if there's some State law that's asserted against you that's inconsistent with the contract, then you have the Federal question issue.

But that's the only Federal question I see in the case.

Mr. Shelley: --Well, but there are, for instance, seven States that wouldn't allow us to bring the cause of action in the first place, and that's why we need to go back to the question of whether the claim itself is Federal in nature.

And under the Jackson Transit or Clearfield Trust analogies, the law at the start, the cause of action, the claim itself is Federal in nature, and you don't need to get to the question of whether the vessel of a State law claim--

Chief Justice Roberts: My hypothetical that I started with was assuming you have a State law claim, a State law cause of action.

So do you have any authority other than Grable for the proposition that a State law cause of action which... in which the law to apply may or may not turn on Federal law in particular aspects presents a Federal question?

Mr. Shelley: --Well, the contract itself is Federal law.

It... it is a... it is tantamount to a regulation that the Government has selected the terms of, and as a result, it should be treated as Federal law.

And... and cases, Franchise Tax Board, on which... on which Grable relies and the earlier cases... we... we would say those reach a similar result.

One other point I wanted to address was this issue of whether this attorney's fees question is different in the master contract or the statement of benefits.

It's not.

The master contract addresses the question of whether we can deduct our own attorney's fees from the recovery before we give the money to the Federal Treasury.

The statement of benefits governs the question of whether we... we will deduct for attorney's fees when we collect the claim from the subscriber.

Chief Justice Roberts: Thank you very much, Mr. Shelley. The case is submitted.

Attribution:

The Oyez Project

Featured:

Marshall v. Marshall - Oral Argument

Fri, 09 Jan 2009 14:48:58 +0000

Case:

Marshall v. Marshall

Media File:

04-1544_20060228-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Kent L. Richland

Chief Justice Roberts: We'll hear argument next in 04-1544, Vickie Lynn Marshall v. E. Pierce Marshall.

Mr. Richland.

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

This is a bankruptcy case, but it is a bankruptcy case in which the Ninth Circuit has made... come to the extraordinary conclusion that the Federal bankruptcy court has no jurisdiction over the chief assets of the bankruptcy estate.

That asset, a... a tort cause of action, was to be the main source of the payment to the creditors.

And the Ninth Circuit came to this conclusion because it gave a very broad interpretation of the so-called probate exception to Federal jurisdiction.

As I will explain, the Federal bankruptcy jurisdiction statutes are incompatible with the concept of having adopted a probate exception to Federal jurisdiction, particularly to Federal bankruptcy jurisdiction.

Justice Scalia: Any exception whatever.

Mr. Richland: That's correct, Your Honor.

There is no exception to that.

The... the statute itself is structured in such a way that its jurisdiction of the bankruptcy court depends on the relationship of the matter to the bankruptcy estate.

Justice Scalia: So if... if the contention in the... in the bankruptcy proceeding is that the will which has been probated by the State probate court is, in fact, not the true will and that under the true will, the bankruptcy estate would get money, you think the bankruptcy court would... would have jurisdiction to probate the will.

Mr. Richland: Yes, Your Honor.

Now, the question is, of course, that's an attack on a probated will, I believe, and I think that this Court's jurisprudence also supports the notion that--

Justice Scalia: All right.

Well, I'm willing to... to move it back.

I mean, that's... that's even harder for you.

But let's assume that the will is in probate but has not yet been probated.

Do you think the bankruptcy court has jurisdiction to decide which will is the true will?

Mr. Richland: --Well, the... the bankruptcy jurisdiction statute states that--

Justice Scalia: Yes or no.

Mr. Richland: --The answer is yes, it does, and it must have that power to be able to do so because the bankruptcy jurisdiction statute states that the court has jurisdiction, in rem jurisdiction, exclusive in rem jurisdiction--

Justice Ginsburg: What if the rem--

Mr. Richland: --over all assets of the--

Justice Ginsburg: --what if the rem is in another court before the bankruptcy begins?

What if the res is within... is in another court?

Mr. Richland: --Yes, yes, Justice Ginsburg.

28 U.S.C., section 1334(e) states the bankruptcy court shall have exclusive jurisdiction, in rem jurisdiction, over the bankruptcy estate, and that has been interpreted by the courts as meaning that it has paramount jurisdiction in the sense that the normal in custodia legis doctrine does not apply where it is a bankruptcy court case.

Justice Ginsburg: So even... even if property is in the custody of another court in the probate proceeding and the bankruptcy proceeding comes later, the bankruptcy proceeding would sweep whatever assets are before the probate court into the bankruptcy.

Mr. Richland: That... that is correct, Your Honor, and there have been courts that have held that with respect--

Justice Scalia: Do you want to stand on this position, Mr. Richland, or do you have a lesser position--

Mr. Richland: --Well, it's certainly not--

Justice Scalia: --that... that might cause you to win?

Because--

[Laughter]

Mr. Richland: --Well, it certainly is not necessary, of course, to... to... for us to prevail in this case.

However, I think it is an important principle to interpret the... the bankruptcy jurisdiction statute, look at the language of that statute, and determine what Congress intended from that.

And... and I think it also is a dangerous thing to get into, implying exceptions into that statute.

But... but let me state this.

Obviously, in this case we have an action, the... the in rem jurisdiction of the bankruptcy court over the chose in action, that is... is miles away from the probate of... of a will.

The particular cause of action involved here was an interference with an inter vivos gift.

And I think it's important to realize that that was intended to be a gift that would be complete during the lifetime of the decedent.

That fact means that this case really has almost nothing to do with probate or probate jurisdiction.

Chief Justice Roberts: But you did file a challenge to the probate of the will, didn't you, in Texas?

Mr. Richland: There was a challenge filed to the probate of the will originally by the... the brother of the respondent in this case, and eventually yes, our client did join that some years later after it was first filed.

So that would have been an alternative.

Chief Justice Roberts: And wasn't the ground for that that it would be inconsistent with the inter vivos trust that you are asserting in the bankruptcy court proceeding?

Mr. Richland: No, that was not the case, Your Honor.

The... the grounds for that was the belief that there had been undue influence with respect to the will.

But the inter vivos gift claim... a tortious interference with inter vivos gift claim... that was added only many years later in the year 2000.

That was 3 years, 3 and a half years after that same action was pending in the bankruptcy court.

And the only reason it was raised at that time was that respondent went to the Federal court and said... and interposed the probate exception and argued at that time there is no jurisdiction here.

Therefore, out of an excess of caution, our client went to the Texas probate court and said, well, I will... I will make this... this claim here.

In fact, once there was success in the bankruptcy court and the bankruptcy court said, now I have made a determination on that claim, our client did dismiss claim and dismissed all affirmative claims with respect to the probate estate.

I think the important thing to realize here, with respect to both this particular claim and with respect to the bankruptcy jurisdiction statute in particular, is that the... that the breadth of the... what that statute does is, it... it announces that rather than having jurisdictional preclusions, there will be preclusions based on abstention.

It has broad abstention provisions in section 1334(c), and indeed section 1334(c)(2), which is the mandatory abstension--

Justice Breyer: You like this... apparently you like this argument, although you say you're miles away from probate.

Well, if you want to get into that argument, I guess the strongest argument against keeping it... for keeping it is bankruptcy jurisdictional statutes shouldn't be interpreted differently than diversity jurisdiction or any other statute, and Markham at least recognizes that there is such a thing as the probate exception and that Congress implicitly adopted it, just as they did the domestic relations exception.

Therefore, if we are going to find for you on this ground, we'd have to go back and overrule that case and a lot of other water that's flowed over... under the bridge or wherever the water flows.

[Laughter]

And we ought to take what's given as given, whatever the true meaning of ecclesiastical courts having jurisdiction over certain probate matters or not in the 18th century.

Mr. Richland: --Well, of course, if one looks at 1334(c)(2), one sees that Congress itself contemplated that there would bankruptcy jurisdiction under circumstances where there was no diversity jurisdiction and when there was no Federal question jurisdiction.

So it... it certainly is true that rolled into the whole notion of mandatory abstention is the possibility that the bankruptcy court will have before it matters over which there would be no diversity jurisdiction.

Justice Scalia: But you could say the same thing about diversity jurisdiction, that Congress contemplated that there would be diversity jurisdiction where there was no bankruptcy jurisdiction and no Federal question jurisdiction.

I mean, I don't see what that proves.

Mr. Richland: Well, excuse me, Justice Scalia, but what I think it does prove is that when Congress enacted in 1978 the rather comprehensive change that it made to the bankruptcy statutes, that it intended to exercise as broad a jurisdiction as possible so that the bankruptcy courts would be able to control the bankruptcy estate and make determinations as to how the creditors could best be protected.

Let me... let... yes.

I'm sorry.

Justice Scalia: I'm just saying no more so than... than when Congress enacted diversity jurisdiction.

It intended it to apply, you know, uniformly.

Mr. Richland: To... to apply very broadly according to its terms.

Justice Scalia: Yes.

Mr. Richland: And, of course, this Court in... first in Lear v. Armstrong said, yes, this applies very broadly.

However, there is an exception and the exception is purely the probate of a will... the probate of a will and that alone.

And this Court has really hewn very closely to that very narrow limitation since that point in time.

Justice Scalia: That's true.

Mr. Richland: I do think that it's important, however, to realize that if one examines this Court's probate exception jurisdiction over the years, it has consistently determined that the... the narrowness of that exception must be confirmed, and as late as the Markham case, this Court has held that... that Federal courts have jurisdiction to decide all kinds of issues with respect to wills, all kinds of issues with respect to trusts.

Certainly this Court has said that it can determine questions such as how to interpret the provision of a will.

It has even held that Federal courts can determine whether a will is invalid.

It can make that determination if the--

Justice Souter: But none... none of this has to be done for you to win this case, does it?

Mr. Richland: --You are absolutely correct.

Justice Souter: Then I... I wish we'd stick to this case.

Mr. Richland: Well, I'm happy to do that, Your Honor.

This case is an outlier.

I believe that is true.

This case is so far from the potential of any probate exception that, although I felt that it was important to be able to explicate the... the principles involved here, I--

Justice Scalia: You want to look moderate.

Mr. Richland: --Oh--

Justice Souter: Does this case involve anything more than the enforcement of an in personam tort judgment if you are to win?

Mr. Richland: --It... it would not.

That is all that's involved.

Justice Kennedy: Well, it did involve, at least the bankruptcy court thought, the judgment invalidating the inter vivos trust.

Was that necessary to the decision?

Or am I... correct me if I'm--

Mr. Richland: I... I don't believe--

Justice Kennedy: --correct me if I'm wrong about that.

Mr. Richland: --That is... that is incorrect, Justice Kennedy.

It did not invalidate the inter vivos trust.

What it held was that as part of the evidence that it was considering, in terms of the intent, the donor's intent, that one portion of that inter vivos trust, an amendment to it, had been forged, but it did not invalidate it.

In fact, it... it expressly held that the... the inter vivos trust is valid, and that was a basis for its conclusion that, indeed, this particular claim was also valid.

This claim was a cause of action for interference with an inter vivos gift.

Justice Breyer: I guess what you're going to hear in 5-10 minutes--

Mr. Richland: Yes.

Justice Breyer: --you might as well deal with it now--

Mr. Richland: Yes.

Why not?

Justice Breyer: --is that the inter vivos... a... a claim for a... the Texas tort of interference with inter vivos gift, according to Texas law, must be brought at the time of the probate proceeding.

And for that reason, it is bound up with probate, and for that reason, they didn't have jurisdiction.

Mr. Richland: Well, A... A, we do not interpret Texas law as so providing.

Justice Breyer: All right.

Now, let's suppose you're--

Mr. Richland: But... but assuming--

Justice Breyer: --suppose they're right about their interpretation.

Mr. Richland: --Assuming that they're right for that... by their interpretation, this Court has repeatedly said that it... that a... a State court cannot... by simply assigning matters that otherwise would be heard by Federal courts to the probate court, that it can, in effect, shield those--

Justice Breyer: And the strongest case for you on that is?

Mr. Richland: --Oh, I think Hess--

Justice Breyer: You said this Court has repeatedly said.

So what--

Mr. Richland: --Said it over and over, but Hess v. Reynolds from 1885, which says that merely the convenience of a... a State court to, you know, assign matters to... to its probate court.

That was a case in which a debt--

Chief Justice Roberts: But... but this case involves a lot more than convenience.

It involves a substantial amount of assets that is either going to pass to one person under probate or is not going to be available for passing to that person because of the inter vivos gift.

That seems to be more closely related to the core probate matters.

Mr. Richland: --But in fact, Chief Justice Roberts, I don't believe that's the case.

Nothing passed by way of probate in this case.

The... there were no assets in the probate.

What happened here was that all of the assets... and the record shows this, and I don't believe it's... that there is any dispute here.

All of the assets had passed to the respondent in this case before the will and the trust were actually submitted to the probate court.

Once again, this is a tort claim and it's a tort claim only for an interference.

If those assets had never gone to respondent in this case, there would, nevertheless, still be a good tort claim.

If, for example, those assets had been passed to respondent's child or to another brother, the interference itself--

Justice Ginsburg: Mr. Richland--

Mr. Richland: --Excuse me, Justice--

Justice Ginsburg: --what seems to me to be involved here is what is not uncommon in our Federal system, that is, two proceedings, both dealing with the same or closely related subject matter.

It is not infrequent that you have parallel proceedings in Federal court and State court, and then the one that gets finished first... that judgment is binding on the other.

And as I understand it, the probate proceeding concluded first before the district judge reviewed the bankruptcy judge's opinion.

Mr. Richland: --Justice Ginsburg, you're quite correct that issues... that... that the principles of preclusion ordinarily would deal with the kinds of issues here, and... and we think that that... those... that should be what governs this case.

But I don't believe that it is correct to say that the probate court judgment preceded that of the bankruptcy court.

The bankruptcy court judgment came first.

A year later the probate court judgment then--

Justice Ginsburg: Well, I'm... I'm assuming... and correct me if I'm wrong about this... that the bankruptcy court makes a proposed opinion.

It doesn't become a binding opinion until it's affirmed by the district court.

Mr. Richland: --Unless it's a core matter.

Justice Ginsburg: Yes.

Mr. Richland: And here we claim that it is a core matter.

Justice Ginsburg: Well, if it isn't a core matter.

I think you lost on that in the district court.

Mr. Richland: If it isn't a core matter, then in any event the district court here held that there was no preclusion, and it held it for a number of reasons.

Justice Ginsburg: But that was not reviewed by the Ninth Circuit.

Mr. Richland: That's correct.

That was not reviewed by the Ninth Circuit.

But that would be the... the appropriate manner of review.

Justice Ginsburg: That would... that would be the... if you... if you're correct about the limits of the probate exception, that issue would be open for review by the Ninth Circuit.

Mr. Richland: It certainly would, Justice Ginsburg.

We agree with that.

And if I may reserve the rest of my time for rebuttal.

Chief Justice Roberts: Thank you, counsel.

Mr. Richland: Thank you.

Argument of Deanne E. Maynard

Chief Justice Roberts: Ms. Maynard.

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

Two independent principles require reversal of the Ninth Circuit's decision.

First, the probate exception to Federal jurisdiction is a will-specific rule and it does not apply beyond the context of wills to other types of will substitutes like inter vivos trusts.

Second, even with respect to wills, it is a very narrow exception that is no bar to deciding the rights to a decedent's estate, construing a will, or determining the testator's intent.

There are only three things under this Court's precedent that a Federal court cannot do.

The first is to probate a will, that is, to determine the formal key requisites of the validity of a will; second, to annul an already probated will; and three, to take in rem jurisdiction over a res over which a State court has already taken in rem jurisdiction.

But that is it, and none of those are applicable here.

The justifications for the probate exception do not apply to will substitutes.

The... the probate exception is based on the peculiar nature of a will, that is, that unlike inter vivos trusts, unlike the current modern will substitutes, a will is not valid... it has no legal effect.

This Court's opinions have said that on several occasions... unless it is probated.

Therefore, a will must be probated even if there is no dispute about its validity before any title can pass.

Not so with trusts.

In fact, that is the whole point that people engage in the modern world substitutes is to avoid the necessity to go to the probate court in order to have their assets passed to their heirs.

The second ground for this Court's probate exception is the historical one based on the Court's understanding of the limits of the equity courts in England.

Whatever the merit of that historical analysis, it has not application to trusts, which have always been the problems of equity.

The Federal Government has a strong interest in the Court not expanding the Federal exception... the... the probate exception to Federal jurisdiction, particularly in the sweeping manner that the Ninth Circuit has done.

It is not uncommon for the tax consequences of an estate planning instrument, such as a trust, to turn on whether or not the trust is valid or invalid.

And the Congress has provided Federal jurisdiction to the United States to bring its... most of its disputes in the Federal court system.

Secondly, more generally, Congress has determined what types of disputes should be in the Federal courts and has passed broad statutes providing the courts with Federal jurisdiction that the courts have an obligation to exercise, if it exists.

Chief Justice Roberts: Except if it's a will... will-specific.

In other words, you... it seems to me you're in for a penny and in for a pound.

You recognize the existence of this exception in certain cases, and then you argue against it by saying, well, Congress wrote the statutes broadly.

The latter argument disproves your first point.

Ms Maynard: I don't believe it does, and perhaps I'm... I'm... I wasn't making clear what my argument is.

The Court has adopted a very narrow probate exception with respect to the probating of the will and annulling a probated will, but that is it.

And that analysis was based on a... the historical... the Court's view of the historical limits of courts of equity and therefore was an interpretation of the Federal diversity statute.

Under the logic of Ankenbrandt, one can assume... one may... the Court may assume that's carried forward.

But certainly that... for the reasons I've said, that rationale, those justifications, for that narrow will rule do not apply to trusts, which have always been the province of equity, and especially given the questionable historical underpinnings of the exception, even the narrow exception that does appear to exist, there's no justification for expanding that beyond its current confines.

As this Court recognized in Ankenbrandt, the lower courts had taken the... the so-called domestic relations exception beyond this Court's very narrow limits, and this Court brought... brought it back to its origins.

And... and the Federal Government believes that... that the same would be appropriate here with respect to the probate exception.

Justice Stevens: Ms. Maynard, it's my understanding that a lot of this law developed out of the dicta in the Markham case.

Do you think the dicta in the Markham case was an accurate description of the prior history?

Ms Maynard: It was probably not a very precise history, Justice Stevens.

I do think one can read Markham, however, especially if one reads it in the context of the cases it cites for its principles, to hold what we are saying now, which is that Federal courts have no jurisdiction over pure probate matters, that is, no jurisdiction to probate a will.

And its interference language, I believe, was its statement of the in rem v. in rem jurisdiction principle, which in fact isn't really a probate jurisdiction principle at all.

Justice Scalia: What do you mean by no jurisdiction to probate a will?

Could... could... does that exclude the possibility of a bankruptcy court deciding for itself where there are contested wills that in its in view the... the right... the valid will is a certain one and that, therefore, the bankruptcy estate includes this fund or doesn't include this fund?

Is that probating the will?

Ms Maynard: The... the United States hasn't taken a position on the broader argument about whether or not the--

Justice Scalia: Well, if that isn't probating a will, the exception for probating a will doesn't... doesn't amount to a hill of beans, does it?

Ms Maynard: --If... if the question you're asking me is what does it mean to probate a will--

Justice Scalia: Yes.

Ms Maynard: --the... the probate of a will requires determining that it has the appropriate formal prerequisites, which in most States is appropriate number of signatures that the testator was coherent, competent to make a will and that there was no undue influence.

Justice Scalia: Well, and that this is... that this is the... the last will and testament and that there is not some other one.

Ms Maynard: That's true, yes, that there's no competing will.

Justice Scalia: Okay.

Now, can... can the bankruptcy court determine that, that the... that the proper will and testament of this decedent is this one?

We're not probating it.

No, no.

Ms Maynard: The--

Justice Scalia: We don't pretend to probate it.

We're just saying that this happens to be the true will and testament.

Ms Maynard: --It's conceivable that if that determination went to a... an element of, for example, a tort claim and that the person were not... were not seeking to take under the will, it is possible.

This Court's precedent doesn't address that precise question.

The United States hasn't taken a position on whether or not bankruptcy jurisdiction, ala the logic in Ankenbrandt, encompasses the narrow probate exception that we concede exists because it's not necessary to decide this case.

The... the petitioner's claim is far beyond anything that the probate exception has ever applied to.

The respondent suggests that States have an overriding interest in having one forum resolve all probate-related disputes.

This Court has repeatedly, for over 150 years, rejected that exact proposition... Justice Breyer, Payne v. Hook, Hess v. Reynolds, McClellan v. Carland, which this Court cited last term in Exxon Mobil... and it was the basis of Markham's reversal of the Ninth Circuit decision that the Federal jurisdiction is not determined by the scope and extent of the State's decisions with respect to where to send its own citizens with respect to disputes that don't otherwise have a basis for Federal jurisdiction.

The only place in this--

Justice Ginsburg: Ms. Maynard, you said at one point it's not necessary for you to decide this, but there is vast confusion in the lower courts about the extent of the probate exception.

And so I take it that your... what you began... what you began with is... I wrote them down.

That's it?

Ms Maynard: --That's what the United States believes the limit of the exception is, and the... let me be clear.

The United States has a strong interest in having this Court clarify the exception.

That is where the confusion lies in the court of appeals.

That is where the United States feels like its interests are at risk.

So although the petitioner's claim is well outside the exception, the United States' interests lie in having the Court clear up the confusion and reject the sweeping and expansive view of the probate exception that the Ninth Circuit has announced.

Justice Ginsburg: And in addition to Markham, what other case of this Court do you think spells out the proper bounds?

Ms Maynard: I... I think the... Waterman has a... has a good summary of the... of the limits.

I think even the two cases on which the respondent principally rely, Sutton and O'Callaghan, lay out the proper scope of the rule.

Those... both of those cases involved a claim that depended on having a will that had been probated declared invalid, and that is within the narrow confines of the exception.

But it is a will-specific rule.

The... and, Justice Stevens, back to your question.

The one thing about Markham is that there's no general interference principle, and that's where the--

Justice Stevens: We know there are a lot of scholars who think that Markham is the source of most of the confusion, and so that's why I was asking whether you think we should... to clear up, which you're suggesting we should do, we should reexamine some of that dicta or we should just stick to the holding.

Ms Maynard: --I would... I would... you can... it would be helpful to... to clarify what the Court meant in Markham.

I think the holding in Markham is correct.

Chief Justice Roberts: With... with new dicta of our own?

[Laughter]

Ms Maynard: It will probably be necessary, to... to rule on the case, to make some holding about what the scope of the exception is, Your Honor.

And the... the... but, Justice Stevens, the--

Justice Scalia: We could just say whatever its scope is it ain't this.

I mean, couldn't we do that?

Ms Maynard: --The Court certainly could resolve it that way, Your Honor.

But, Justice Stevens, the... the... Markham, I do think, makes clear what interference is and is not by its holding.

And on page 494 of Markham, it says, where the final judgment does not undertake to interfere with the State court's possession, save to the extent that the State court is bound by the judgment to recognize the right adjudicated by the Federal court.

So that is not the type of interference that runs afoul of the rule.

Argument of G. Eric Brunstad, Jr.

Chief Justice Roberts: Thank you, Ms. Maynard.

Mr. Brunstad.

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

The probate exception exists precisely to prevent what happened in this case, a Federal court enjoining ongoing probate proceedings in the middle of a probate trial, a Federal court determining that the decedent's estate plan was invalid, a Federal court's reallocation through a damage claim of the decedent's assets, contrary to the value of the estate plan, a Federal court's creation of a novel cause of action--

Justice Stevens: Well, is it... is it correct... I just want to be sure I follow you... that they determined that the estate plan was invalid?

Mr. Brunstad: --Correct, Justice Stevens.

At petition appendix 123 to 126, the district court determined that the... that J. Howard's living trust was a forgery, that there were pages that were substituted--

Justice Breyer: But this is all... this has nothing... I mean, I... you have the total differently... different understanding than I do of this case, and I did read Judge Carter's opinion.

I thought that case simply held that because your clients had interfered with an effort by J. Howard to give quite a few millions of dollars to Vickie Marshall... because of that interference, they had committed the tort of inter vivos interference with a gift, and they had to pay damages.

Now, they said a lot of things by way of what the evidence was.

Indeed, they did say, as you point out, that your clients forged three pages of the will.

But that was simply evidence of their bad intent, and it did not invalidate anything in the probate proceeding, as I read it.

Now, what have I said that's not right?

Mr. Brunstad: --Justice Breyer, the answer to your question, I think, depends upon the fact that opposing counsel has studiously avoided actually reviewing what his claim is.

I think we have to focus on the... her exact claim.

As a matter of fact and as a matter of law, she did not prevail--

Justice Breyer: I'm not interested in what he said.

I'm interested in what Judge Carter said--

Mr. Brunstad: --Correct, Your Honor.

Justice Breyer: --because that, it seems to me, is... and what is it that Judge Carter did that was wrong in this respect?

Mr. Brunstad: Judge... Judge Carter understood quite clearly that in order for her claim to proceed as a matter of fact and as a matter of law, he had to invalidate her living trust.

And let me explain why that was so.

That was so because her claim is that J. Howard intended to give her a catchall trust.

The argument is that Pierce blocked the catchall trust from being funded by rendering the living trust irrevocable in July of 1994.

Judge Carter found that the catchall trust was drafted in December of 1994.

She can only have a claim... now, all of J. Howard's assets were in the living trust.

She can only have a claim... the catchall trust could only have been funded or prevented from being funded if the living trust was, in fact, validly rendered irrevocable.

To prevent... to... to counter that, she says, no, the living trust was invalid.

As a matter of fact, she can have no claim unless the living trust is rendered invalid.

Judge Carter understood that and he expressly concluded that it was a forgery.

Now--

Justice Souter: Isn't... isn't it the case that she can have her claim and she can prove her claim, but she may not be able to collect the judgment unless the living trust is invalid?

But that's not what we're litigating here, is it?

Mr. Brunstad: --Your Honor, as a matter of law, she cannot have her claim because the two cases we rely on, Neill v. Yett and Thompson v. Deloitte, the two Texas cases, establish as a predicate to any tortious interference claim, she must demonstrate that the estate plan, the living trust, was invalid as a matter of Texas law.

And that is exclusively under Texas law for the Texas probate court to decide.

Now--

Justice Souter: Why does she have to show that is invalid as distinct from showing that another trust, favorable to her, was not created and it was not created because of the tortious conduct of your client?

Mr. Brunstad: --Because, Justice Souter, under Texas law when the... the probate court determines the validity of an estate plan, it forecloses, as a matter of law, all expectancies contrary to those that are part of the estate plan.

Justice Souter: Well, let me... let me stop you there because this is something I didn't understand in the brief.

You speak of the Texas probate court determining the validity of an estate plan.

Mr. Brunstad: Correct.

Justice Souter: I take it the Texas probate court determined the validity of a will here.

Mr. Brunstad: Correct.

Justice Souter: It determined the validity of... of a pourover trust.

Is that correct?

Mr. Brunstad: Yes, Your Honor, it did.

Justice Souter: All right.

Mr. Brunstad: The living trust.

Justice Souter: All right.

Isn't it the case that the two Texas determinations can be respected and still, in the Federal court, enter a judgment for tort liability against your client?

Mr. Brunstad: No, Justice Souter, and the reason why is because her cause of action is a State law cause of action, and under Texas law, putting aside the fact that no Texas court has ever recognized a cause of action for tortious interference--

Justice Souter: That's in... you may be right on that, but that's not what... what we're here for.

Mr. Brunstad: --Right.

Putting that aside, under Texas law... and the Deloitte case and the Neill v. Yett case conclusively established this, and there's no contrary decisions in Texas... that once the probate court determines an estate plan is valid, it conclusively determines the universe of persons with legitimate expectancies.

Justice Souter: But when you speak of estate plan, you are... you seem to be talking in global terms; i.e., that there could have been no other disposition of assets by the decedent or on behalf of the decedent except those which the Texas court is recognizing, the trust, the will.

Is that what the Texas court does, or does the Texas court say, the will is good, the trust is good?

Mr. Brunstad: The Texas courts have conveniently described for us Justice... Justice Souter--

Justice Souter: In other words, is it preclusive of everything else?

That's what I'm getting at.

Mr. Brunstad: --Yes, exactly so, Justice Souter.

And in the Thompson case itself, the... the Texas court says, when the probate court admitted the 1989 will to probate, it necessarily found that Mr. Thompson signed the will with testamentary capacity and that it reflected his intent, was not the result of coercion or under influence, and was valid.

And the court continued, as a matter of law, the final probate court judgment bars any claim that appellees tortiously interfered with any--

Justice Breyer: But that... that sounds to me like a matter of preemption, but... but... or not preemption but, you know, res judicata.

But just out of curiosity or... because I think it is relevant, did the Texas probate court have in front of it the documents among the lawyers that the district judge, Judge Carter, relied upon in showing that there was an intent to create the catchall trust?

Mr. Brunstad: --Yes, Justice Breyer.

Justice Breyer: It had all those documents.

Mr. Brunstad: Yes, Justice Breyer.

Everything that the district court had and more was examined, adjudicated in the 5-and-a-half-month jury trial in the Texas probate court exhaustively.

Chief Justice Roberts: So why isn't that, as Justice Breyer prefaced his question, an issue of preclusion rather than, as you frame it, an issue of jurisdiction?

Mr. Brunstad: Chief Justice Roberts, the probate exception has always been jurisdictional, and the reason why it can't be subsumed by res judicata or collateral estoppel... we believe we win on those grounds, but the reason why the probate exception can't be subsumed within those doctrines is because it applies even before you have a State court judgment.

It prevents a Federal court from determining an estate plan from being invalidated--

Justice Ginsburg: Why should it?

The probate exception is court-created.

Congress passed no law that said it.

Congress gave the Federal courts jurisdiction in certain categories of cases and expected them to exercise that jurisdiction.

Since our jurisdiction is statutory and the probate exception was made up by the courts, shouldn't we interpret it as narrowly as possible, perhaps even do away with it because it lacks any statutory basis?

Mr. Brunstad: --Justice Ginsburg, the probate exception, like the domestic relations exception, is best conceived as a presumption that when Congress establishes a font of Federal jurisdiction, it does not intend that jurisdiction to be extended to interfere with probate proceedings.

That is properly a jurisdictional doctrine in this case because it is never appropriate for a bankruptcy court to invalidate or validate a will and... or an estate plan.

And that is a necessary element of Vickie's claim.

Justice Kennedy: Well, you say... you say an... an estate plan.

Most people would think insurance policies are part of their estate plan, and if it's alleged that there was a fraudulent alteration of the beneficiary designation in the insurance policies, is that within the Texas probate court jurisdiction?

Mr. Brunstad: Justice Kennedy, no.

Here we have... when I say estate plan, I mean the living trust and the will operating together.

Justice Kennedy: Well, there's... there's a further irony here in that revocable trusts are always promoted on the grounds that it keeps us out of probate.

And now you're... you're insisting that it has to be in probate.

Mr. Brunstad: Well, Justice Kennedy, the living trust here did two things that a will does.

It provided for the succession of J. Howard's property upon his death, and it provided for the payment of his last... last illness expenses and his... his debts.

It is quintessentially a will substitute in the sense that it also provides for the succession of his property.

In this case--

Justice Scalia: But it isn't probated.

That's... it is, indeed, a will substitute.

The whole purpose of doing it is to avoid probate.

Mr. Brunstad: --But in this case, Justice Scalia, the will and the... the living trust acted together.

The probate court had exclusive jurisdiction over both of them and the challenges to them.

Vickie challenged the living trust, even before J. Howard died.

Those proceedings continued on in the probate court, and--

Justice Kennedy: Well, but as Justice Breyer indicated, can't you just, for purposes of understanding the cause of action as asserted by Vickie Marshall here, just say, we will assume the trust is valid, we will assume the will is valid?

All we're saying was that there's a tort and he's going to be liable to us in tort.

Mr. Brunstad: --Because, Justice Kennedy, again, the critical element of her cause of action is the invalidity of the trust as a matter of fact and law.

Justice Breyer: Why?

Why?

That is to say, what the finding is, is that there was a different matter, a catchall trust, and he told the lawyers, go draw it up so I can give gifts to her, the increase in the value of my property during the 13 months we're married, do it, and they never did it.

Now, that seems to have nothing whatsoever to do with the GRAT trust or with the will.

It just happens that those are evidentiary, what went on there, of what likely happened with the catchall trust.

So I don't see why those are necessary.

I don't see why they're more than evidentiary, and I don't see whether or not those are barred, those particular facts have anything to do with this, as far as jurisdiction is concerned.

Now, explain to me why I'm wrong.

Mr. Brunstad: Certainly, Justice Breyer.

First of all, Texas has the right to prescribe the elements of its own causes of action, and under Texas law, her cause of action depends upon two critical things, a legitimate expectancy J. Howard intended to do this for her, and the second, tortious conduct of some kind.

Her claim... she tries to meet those two critical elements by showing two things.

One, that J. Howard intended to give me this... this gift in the form of this... this trust, and that it was tortiously interfered with because the living trust was rendered irrevocable.

Justice Breyer: Well, that's just one of the things.

Mr. Brunstad: But it's--

Justice Breyer: Among other things that went on were they hired private detectives to go after Vickie from the bed.

I mean, you've read that opinion and they're like about 30 things in there.

And I grant you that one of those things is the fact that three pages of the living trust, according to the judge, were created after the event of that trust and slipped in without his knowledge.

I mean, it's quite a story.

Mr. Brunstad: --Of course, Your Honor--

Justice Breyer: And... and so I... but as I read it, there were many, many, many things involved here, and this is just one of them.

So how can Texas say that you have to prove this particular one as... as opposed to proving a lot of others?

Mr. Brunstad: --Justice Breyer, of course, as an aside, we went to great pains in the Ninth Circuit to demonstrate why all those findings were clearly erroneous and not based on the evidence.

But assuming them to be so, which we dispute, again, looking at her claim, that is the critical element of her claim.

If, in fact, there... if, in fact, the living trust was made revocable, then at any point in time, he could have funded, if... if he had it as revocable until his death, he could have funded her gift that she alleges and she would have no damage claim.

It is because of the trust becoming irrevocable that he was prevented from doing it.

That is her claim.

Justice Souter: Yes, but her claim is assume it's been made irrevocable.

I just want some money from this guy.

Mr. Brunstad: Correct.

Justice Souter: That's all she's saying, as I understand it.

She... she can... as I understand her cause of action, it can proceed on the assumption the will is valid, the... the trust is valid.

Just give me the money that I would have had.

Mr. Brunstad: Justice Souter, as a matter of Texas law, she cannot establish a legitimate expectancy.

Again, once the probate court... and the probate court alone has the right to determine the validity of an estate plan.

Once the probate court has determined that as a matter of Texas law, all claims about expectancies contrary to those provided in the... in the plan are foreclosed.

That's the Thompson case and the Neill case.

Justice Ginsburg: You're arguing a preclusion question, and if the Ninth Circuit thought it had jurisdiction, it could have tested what you say about Texas law.

There's no finding in this record of what Texas law is other than what you have just told us, and perhaps you're right and perhaps you're not.

But the Ninth Circuit said the Federal door is closed to this probate exception, and that's what we're here to decide.

Mr. Brunstad: Justice Ginsburg, preclusion will also not work.

Res judicata and collateral estoppel will also not work because the parties in the Federal proceeding are merely a subset of the parties in the probate court.

The probate court's judgment is unique because it has a binding-against-the-world effect.

Federal courts cannot pull chunks of the critical issues into the Federal courts because doing so creates an inconsistency of judgments potentially.

Where the Federal court only has part of the parties before it, the Federal court has all... the probate court has all the parties before it.

The probate court's judgment is binding against the world--

Justice Ginsburg: I think it... it may be that there's another side to that story.

For example, I think the bankruptcy court was heard from first.

Arguably, that's binding on the Texas court.

Whether the bankruptcy court was right or wrong, it would get full faith and credit.

That's one argument.

Another is perhaps you can explain to me how this all started because I thought that there was a claim made against her in the bankruptcy court for defamation.

Then the claim that she asserts is a compulsory counterclaim.

She has to make it there or she'll lose it.

Mr. Brunstad: --No, Justice Ginsburg, the claim was not a compulsory counterclaim.

The action which was... that Pierce commenced in the... in the bankruptcy court was merely to ask the bankruptcy court to decide that if he had a debt against... if he had a claim against her she owed him money, it would be nondischargeable in bankruptcy.

She then used that opportunity to pursue this tortious interference claim against Pierce that she was already pursuing in the probate court.

So because there was a prior pending proceeding where she had made the claim--

Justice Ginsburg: I... I didn't understand the pleading to say if I have a claim, it would be nondischargeable.

I thought he made a claim.

He made... filed a claim for defamation in the bankruptcy proceeding.

Mr. Brunstad: --Justice Ginsburg, Pierce did not ask the bankruptcy court to decide the claim.

He only... he only asked for the bankruptcy court to decide whether it was nondischargeable or not.

But even so... even so, I think it's important to recognize--

Justice Ginsburg: He would have to say I have a claim because the bankruptcy court is not going to decide a hypothetical if he has a claim.

He has to at least assert I have a claim.

Mr. Brunstad: --But bankruptcy judges do that, Justice Ginsburg.

They decide only the nondischargeability aspect of claims rather than the claims themselves.

Justice Ginsburg: It has to be a real claim.

It can't be if I have a claim.

Mr. Brunstad: No, Justice Ginsburg, because the nondischargeability jurisdiction in bankruptcy is unique.

You allow the claim to be determined in a proper court of competent jurisdiction, and then the bankruptcy court decides whether it's nondischargeable or not.

That's how it should proceed particularly where, as here, her claim requires, as... in order for it to... to be valid, to determine the validity or nonvalidity of J. Howard's estate plan.

Now, the United States--

Chief Justice Roberts: Counsel, I don't... I don't see how the interference with the probate court that you're articulating is any greater than the interference in Markham.

In Markham, it was a decision by the Federal court that these claimants were not going to claim under the will.

Why is... isn't that even greater than the interference you're complaining of?

Mr. Brunstad: --No, Chief Justice Roberts.

You can readily divide the Court's precedents into categories, those where there was impermissible interference and therefore no jurisdiction, and those where there isn't.

On the impermissible interference side, you have a case like a Federal court cannot determine the validity of an estate plan, Armstrong, Gaines v. Chew.

A Federal... a Federal court cannot determine--

Justice Scalia: Was it an estate plan or a will?

Mr. Brunstad: --In Sutton--

Justice Scalia: I mean, you... you... you're stretching the probate concept from determining whether the will is valid or invalid and who inherits under the will to also determining what goes into the probate estate, that is, the insurance policies, the trust, and so forth.

That to me is... is something quite different from probating a will.

Mr. Brunstad: --Justice Scalia, the probate exception protects the integrity of the succession process.

If the documents you're looking at deal with the succession of the property, as the living trust and will do in this case, it is encompassed within the probate exception in Sutton--

Justice Souter: No, I don't... I don't see your... your logic there.

Of course, it protects the succession process, but it does not follow that everything that implicates a succession process falls within the probate exception.

Mr. Brunstad: --Correct.

Correct, Justice Souter.

But here the succession was determined under the living trust, and in Sutton v. English, that's exactly the same scenario.

Moses Hubbard left a--

Justice Souter: If... if there had been a joint bank account, the succession would have been determined based on the validity of the joint bank account, and that certainly wouldn't have fallen within the probate exception.

Mr. Brunstad: --Because the joint... where you have the equivalent of tenancies in the entirety, I'd say that's a separate issue.

Here, however, the living trust performed all the functions of a traditional will, unlike a joint bank account.

In the Sutton case, you had both a will and a trust, just like in this case.

There, Moses Hubbard left a will and a trust.

Mary Jane Hubbard enjoyed the benefits of the trust for her life.

Justice Souter: Does... does Texas law provide that a... a living trust must be executed and administered with the formalities of a will?

Mr. Brunstad: Not quite the same, Justice Souter.

Not quite the same.

Justice Souter: Then... then you have to get beyond our probate exception cases to cover the living trust.

Mr. Brunstad: But in Sutton v. English, there was both a will and a trust, exactly the same as here.

The plaintiffs were just going after the property.

We just want the assets.

We're saying we're not touching the trust and the will.

This Court held... this Court held, wait a minute.

Only the Texas probate courts may determine whether these instruments are valid or not.

Chief Justice Roberts: Yes, but she's not... she's not even going after the assets in this case.

She's asserting an in personam claim against the individual.

Correct?

Mr. Brunstad: She is, but that's exactly the same as Broderick's Will, Chief Justice Roberts, an in personam claim against the beneficiaries of the allegedly invalid estate plan to impose a constructive trust on them to get the money.

No matter how you dice it or splice it in this case, she is doing an end run around the probate proceeding.

Justice Breyer: I don't think they're going to impose a constructive trust, are they?

All... all they're going to say is pay her the money.

Mr. Brunstad: But why are they going to say pay her the money?

Justice Breyer: They're going to say it because they make a finding that through a whole variety of various devices, all of which were listed, that J. Howard, who wanted to give her money through something called the catchall trust was prevented in about 15 ways.

And even if you're right that there's a Texas finding that those three pages weren't slipped in, well, how do we know?

Maybe it was a valid GRAT trust, but if only they hadn't tried to isolate J. Howard from contact with her, J. Howard would have figured out what had happened before he died and he would have told his lawyers, hey, cut this out.

Do what I want.

Revoke it.

But all that is just hypothetical.

I'm just using that to show you why I think this is evidentiary not a matter of what the elements of the crime are... or the elements of the tort are.

Mr. Brunstad: What's not evidentiary, Justice Breyer, is the fact that in order to prove a legitimate expectancy, she must establish that the validated estate plan is in fact invalid.

And under Texas law, that can only be done in the probate court.

Justice Breyer: What's the cite on that that I... that I need for--

Mr. Brunstad: Well, in our brief we cite to many, many cases, Your Honor.

I would... I would specifically refer you to--

Justice Breyer: --You're saying you can't bring an inter vivos trust... an inter vivos... interference with an inter vivos gift action in Texas unless you show that a will, for example, is invalid.

Mr. Brunstad: --That's correct, Your Honor, and those are the Neill v. Yett and the Thompson... Thompson v. Deloitte cases, which I was reading to before.

And the Court said as a matter of law, the final probate court judgment bars any claim that appellees tortiously interfered with any inheritance expectancy because, in light of the final invalid probate court judgment, appellant has--

Justice Scalia: But that... but that's res judicata.

I mean, that... that isn't necessarily a... an application of... of any probate exception.

Mr. Brunstad: --Justice Scalia, it is not res judicata for the following reason.

Not only may a Federal court not determine the validity or invalidity after the probate court, it may no do so before the probate court has had a chance--

Justice Scalia: You say that, but that case doesn't say that.

Mr. Brunstad: --That case doesn't say that.

Justice Scalia: What... what case do you have that says that?

Mr. Brunstad: The cases... there is no specific case where someone has tried to litigate a tortious interference claim in Federal court before the probate court has had... has had its say.

Under Texas law, however, because of the preclusive effect of that determination, Vickie would be able to come to the probate court and say, look, J. Howard intended to give me this.

It's a finding of intent.

That's preclusive on the probate court.

The probate court would be perhaps prohibited from saying, oh, I can't determine under... that the valid estate plan gives the intent to somebody else.

Justice Scalia: But the mere fact that you have jurisdiction to say something does not mean that if... if some other court says the same thing first, you won't be bound by that.

Mr. Brunstad: The problem, though, Justice Scalia, is that the probate court is supposed to make that finding in a judgment good against the world.

But all of a sudden, part of the world who has done an end run around the probate proceeding has now gone to some other court for a critical determination of fact that the probate court must decide and always must decide in determining the validity of an estate--

Justice Ginsburg: You... you are suggesting an extraordinary setup with a State court being able to preclude other courts from dealing with related, not identical matters, and that's just not the way our system works.

You can bring duplicative proceedings in different courts.

One will finish first and that will bind the others.

But I... I never heard of a State court being able to say, because we are a probate court, that you... you couldn't bring a tort case someplace else.

Mr. Brunstad: --Justice Ginsburg--

Chief Justice Roberts: The... the only court I've heard of that can do that is the Federal bankruptcy court.

Mr. Brunstad: --Just as a Federal bankruptcy court is in rem and executes and enters some judgments good against the world with respect to some issues, a probate court does the same thing.

You have exactly the same reason why the probate court does it as in the bankruptcy court.

Now, this Court has recognized in Tilt v. Kelsey, for example, that the State has a sovereign interest in deciding the scope of its probate procedure that the State may, this Court said in Broderick's Will, provide for the probate court to enter a judgment good against the world, whether the person was a party to the proceeding or not.

If a... if a Federal court can predetermine--

Justice Ginsburg: That's the definition of an in rem judgment, but she's suing for an in personam judgment an individual, not an estate, just for a plain old money judgment.

Mr. Brunstad: --But in a race to judgment, Your Honor, if the Federal court gets to decide this critical issue of intent before the probate court, it preempts the probate court from doing its core probate function of validating or invalidating an estate plan.

That would render our probate system unworkable.

That is why--

Justice Stevens: Mr. Brunstad--

Mr. Brunstad: --this is a jurisdictional doctrine.

Yes, Justice Stevens.

Justice Stevens: --May I ask you two questions?

First, if there were no such animal as the probate exception, would there have been bankruptcy court jurisdiction over your claim?

Mr. Brunstad: We argue no, Justice Stevens, because as we argued in the Ninth Circuit, there was not even bankruptcy jurisdiction because the other side never responded to our argument that the outcome of this case would not result in any money going to creditors of her estate.

Justice Stevens: So your... you would prevail even if there were no probate exception in your view.

Mr. Brunstad: That's our argument.

The Ninth Circuit did not address that ground, Your Honor.

Justice Stevens: And my... my second question is I noticed you quoted from a Minnesota Law Review about 250 cases, and the... your opponent pointed out that the... the next sentence of the article said the holdings don't support the generalization.

And I would just like to ask you, apart from the Markham case, what is the case... what holding of a case lends the greatest support to your probate exception argument.

Mr. Brunstad: Justice Stevens, I think that the Sutton case is the closest.

The next closest is Broderick's Will.

Sutton again involved both a trust and a will and was a construction of Texas law, which we say the Court has already decided in Sutton, and Texas law, which is undisputed, has the effects which we say it has in the brief.

They did not contest, Justice Ginsburg, our construction or interpretation of Texas law.

I think also that the Court's decisions in Tarver and Fouvergne and also Ellis and O'Callaghan--

Justice Stevens: I'm not asking you to rank them.

I don't want a list of cases that have a lot of dicta because some of these cases went off on laches, some went off a lot of different grounds than... than... some of them don't even mention probate.

Mr. Brunstad: --Justice Stevens, I think that it's... it would be helpful if I could give you a thumbnail sketch breaking down, what I was trying to do earlier, between those where there's impermissible interference and those where there's not impermissible interference.

The United States' characterization I think is incorrect.

For example, again, this Court has determined there's no jurisdiction for a Federal court to determine the validity of an instrument.

That's the first case in Armstrong v. Lear and also Gaines v. Chew.

Also, this Court has determined there's no Federal jurisdiction to determine the invalidity of an estate plan.

That's Tarver, Fouvergne, and O'Callaghan, Broderick's Will, Sutton, and Ellis.

This Court has determined that Federal courts do not have jurisdiction to administer the probate estate.

That's Byers v. McAuley.

This Court has determined that there is no Federal jurisdiction to take possession of the assets in the probate court.

That is also Broderick's Will.

I'm sorry.

That is Byers v. McAuley.

This Court has determined one may not impose a constructive trust on the beneficiaries as, in essence, a way to get property to them.

That's Broderick's Will and Sutton.

This Court has determined there's no jurisdiction to recover property from the beneficiary because of an alleged invalidity of a will.

That's... that's the Ellis case.

This Court has determined there's no jurisdiction for the Federal court to direct an accounting from the administrator.

That's the Waterman case.

This Court has determined there's no jurisdiction to interfere with the State court's possession of the assets, again Waterman, Williams, Yonley, and Borer.

Now, no jurisdiction.

It's always been a jurisdictional doctrine.

And for the same reasons this Court refused to recharacterize the... the domestic relations exception as a abstention doctrine, the Court should also decline to do so here under the probate exception.

Now, the other side of the schema is when is it permissible for a Federal court to undertake a probate-related matter.

Well, if the State allows the claim, particular claim, to be brought outside its exclusive probate system, then Federal courts may entertain jurisdiction as well.

Justice Breyer: By the way, in Texas if you have to go through all this probate stuff and everything, and they want to claim 15 years ago my mother gave a ring to my cousin who stole it, is that precluded to bring that tort action when the person who, you know, was supposed to get it finds out about it?

Mr. Brunstad: Justice Breyer, all claims of incomplete gift, which Vickie's claim is here, compete with an estate plan.

Justice Breyer: So... so, in other words, if it... when the guy is 2 years... 15 years old, he gives a ring to somebody, and now he dies at age 93, and when they find out about that incomplete gift at age 15, nobody can bring a lawsuit anymore.

You have to go to the probate court.

Mr. Brunstad: If in fact the ring passed under his valid estate plan, yes.

Because the ring passed under the valid estate plan, you have to overturn the estate plan before you say the property goes somewhere else.

Chief Justice Roberts: Thank you, counsel.

Mr. Brunstad: Thank you, Your Honor.

Rebuttal of Kent L. Richland

Chief Justice Roberts: Mr. Richland, you have 4 minutes remaining.

Mr. Richland: Thank you, Your Honor.

Justice Breyer, to answer your question about whether the Texas court had all of the material before it that was before the bankruptcy court, the answer to that can be seen at page 45 of the appendix where the district court judge says that there were 400 boxes of documents.

Justice Breyer: Yes, but did those documents... did those boxes contain the key documents--

Mr. Richland: They did.

Justice Breyer: --about the catchall trust?

Mr. Richland: They did.

They contained the... perhaps the most key documents, which were the billing records that showed that that trust was actually drafted.

The trust, of course, never saw the light of day, but those billing records reflected that.

And none of that was in front of the Texas probate court.

In addition, Justice Breyer, you mentioned that there were a number of other instances of tortious misconduct that were found by Justice Carter, in addition to the forging of the... of the irrevocability point.

Indeed, Justice Carter found that there were massive transfers of J. Howard's assets to Pierce Marshall in his last days, and those asset transfers were made in exchange for notes that were payable years in the future.

This was after J. Howard had been diagnosed with terminal cancer, after he had had a heart attack.

Annuities were used to pay for those as well.

So that he was essentially stripped of all of his assets by the time he was dead.

There was... there were no assets in the probate estate at that time.

Justice Ginsburg, I would refer you to appendix page 42 where the... the district court indicates that both a proof of claim and an adversary complaint were first filed by Pierce Marshall in the bankruptcy court, and that is, indeed, what caused, several months later, the compulsory counterclaim to be filed in a response.

Mr. Brunstad indicated that what happened here was that while the claim was pending in Texas, it was then brought to the bankruptcy court presumably because there was some dissatisfaction on Ms. Marshall's part as to how the Texas probate court was going.

In fact, page 1 of our reply brief details very specifically the fact that the first time that the tortious interference with gift claim was made was in the bankruptcy court as the compulsory counterclaim.

And I would just conclude by stating that the cause of action that was at issue here was really a very common one.

It's the... not in and of itself, but it's common to make a claim against the estate in debt or that a gift was given, and that may, indeed, diminish the estate that is eventually passed.

But that doesn't invalidate any of the estate planning documents.

It simply means that something that might otherwise have been within the estate was not included in the estate.

That's really all that happened here.

The claim was for tortious interference with gift.

That, indeed, may have diminished the amount or may not have since J. Howard was actually quite an active man at the time that he made this... this gift or intended to make the gift, and was still doing business deals.

He may have increased his... his assets enormously at that point in time.

But in any event, what it certainly does not do is, it does not invalidate an estate plan.

It does not invalidate a will, and it certainly didn't invalidate the trust or the will in this case.

If there are any further questions, I'd be happy to answer them.

Chief Justice Roberts: Thank you, counsel.

Mr. Richland: Thank you.

Chief Justice Roberts: The case is submitted.

Attribution:

The Oyez Project

Featured:

Wachovia Bank v. Schmidt - Oral Argument

Fri, 09 Jan 2009 14:48:55 +0000

Case:

Wachovia Bank v. Schmidt

Media File:

04-1186_20051128-argument.mp3

Related Transcript:

2005_04_1186_argument.xml

Transcript:

Argument of Andrew L. Frey

Chief Justice Roberts: We'll hear argument next in Wachovia Bank v. Schmidt.

Mr. Frey.

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

The question in this case is whether, for purposes of Federal diversity jurisdiction, a national xbank is a citizen of every State where it has a branch, or perhaps where it has any physical presence, or only a citizen of the State where it was chartered or, if different, where its main office is located.

The question turns on the meaning of the word located in 28 U.S.C. 1348, which states that national banking associations shall be deemed citizens of the States in which they are respectively located.

Now, before turning to the--

Justice O'Connor: Now, that was enacted, was it not, in 1887?

Mr. Frey: --That's correct.

The law--

Justice O'Connor: And hasn't the... the word hasn't changed--

Mr. Frey: --It hasn't changed.

Justice O'Connor: --in all those years.

And there were no interstate branches in 1887, I assume.

Mr. Frey: I'm... I'm not aware of any.

There may have been a few State banks that had interstate branches, although they would have been citizens only of the State of their incorporation.

Justice O'Connor: So it's a little hard to look for congressional intent.

Mr. Frey: Well, it... it... I don't believe it is, Your Honor, because of the sequence of statutes.

You have to start with the 1882 statute and what the Supreme Court has said.

But... but I'd like to make a preliminary comment before I turn to the substantive points here, which is that nobody has ever suggested, not the Fourth Circuit and not the respondent, any reason why Congress would want the result reached by the Fourth Circuit, in... in 1887 or in 1948 or any other relevant time, to uniquely restrict the access of national banks to Federal diversity jurisdiction.

Indeed, the suggestion is incongruous that Congress would want to do that.

National banks are, after all, federally created and federally regulated instrumentalities.

Justice Scalia: The Congress makes mistakes sometimes.

Mr. Frey: Yes, they... they might have... they might have done that.

And I... I acknowledge that this consideration is not controlling, standing by itself, on the case.

That is, if the statute plainly and unambiguously called for such an implausible outcome, then we might have a debate about whether an absurd outcome that the plain language calls for is one that should be enforced.

But this is a background consideration that I don't think the Court can put aside or deem irrelevant to the outcome of this case.

So the key holding of the Fourth Circuit was that the word located has an unambiguous meaning, and it's... that it's the one adopted by the Fourth Circuit majority and not by the Fourth Circuit dissent, the Fifth Circuit, the Seventh Circuit, the Comptroller of the Currency, or anybody else.

The battle of the dictionary definition seems to me plainly inclusive.

The biggest problem with the definitions is that they are cast in terms of the location of tangible physical things, a table, a lake, a piece of land; whereas we're dealing here with an incorporeal abstraction, a corporation, the location of which is not necessarily tied to any particular physical presence.

Both we and the Government have given Ford Motor Company as an example in the brief.

If you ask somebody where is Ford Motor Company located, I venture to say that most people would say Michigan.

But when you stop and think about it, it's possible that it could be also located every place where it has manufacturing facilities or sales outlets.

The only dictionary definition that I've seen that is specific to the location of an incorporeal entity, and specifically a bank, is the one that's cited in the Chase... JPMorgan Chase amicus brief, which was taken from the 1951 edition of Black's Law Dictionary, roughly contemporaneous with the enactment of current section 1348, which states that a bank is, quote, located, close quote, in the place specified in its organization certificate.

The term also appears many places in the National Bank Act, sometimes meaning a specific headquarters location and sometimes meaning any place where there are physical facilities.

And the Court... this Court itself has given located... the word located various meanings.

In the Bougas case, which is much discussed in the briefs, the Court said that the term has no enduring rigidity, and the Court did not base its decision on the inherent or natural or ordinary meaning of the word located.

In Federal Power Commission v. Texaco, which is 377 U.S. 33, the Court interpreted the words in the venue statute for appeals from Federal Power Commission decisions which said the appeal could be taken to the place where the company seeking review was located.

Texaco said, well, we have substantial facilities in the Tenth Circuit.

This matter that is the subject of this arose in the Tenth Circuit.

And the Court looked at the statute and it said, no, located means where... your place of incorporation.

Now--

Chief Justice Roberts: Counsel, a... a national bank charter typically lists the national bank's principal place of business.

Correct?

Mr. Frey: --Well, it lists--

Chief Justice Roberts: Its main office.

Mr. Frey: --it lists the... the charter location, where it's established.

And until 1994, that would have been synonymous with its principal place of business.

Chief Justice Roberts: But isn't that amended if the principal place of business changes?

The charter is amended.

Mr. Frey: You can... just like a corporation could reincorporate in another State, a bank could move its main office, which I think is the term that's used in 12 U.S.C., section 30.

Chief Justice Roberts: So this would put national banks in a favored position compared to corporations--

Mr. Frey: No.

Chief Justice Roberts: --which are citizens of their State of incorporation and their... their principal place of business.

Mr. Frey: Well, if there's... I don't know whether there's a divergence between principal place of business and... and main office, which is what the Comptroller, I think, considers the equivalent of the place of incorporation.

It is possible.

But remember, at the time all of these statutes were enacted, there would have been complete parity because principal place of business was not--

Chief Justice Roberts: My point is just--

Mr. Frey: --A corporation was not a citizen of... of its principal place of business, only of its State of incorporation.

So there would have been total parity in 1882, 1887, 1911, 1948.

Chief Justice Roberts: --A good bit of your argument is that your friend's interpretation on the other side would put national banks in a disfavored position.

Mr. Frey: Yes.

Chief Justice Roberts: Your argument would put them in a favored position compared to a typical corporation.

Mr. Frey: Well, not necessarily.

You could interpret located to include principal place of business.

This issue doesn't arise in this case because what... what you have to decide is whether the fact that the bank has a branch in South Carolina means they're located in South Carolina.

South Carolina is not Wachovia's principal place of business or--

Justice Kennedy: Well, what would... what would be your view?

I know the question is not before us, but suppose we had a question like the principal place of business.

Mr. Frey: --Our... our view is that it's the main office.

I would defer somewhat to my colleague from the Government who can speak for the Comptroller on this question, but our view would be that it's the main office.

And... and I think it's important to understand that when we're interpreting these statutes, at every time when one of these... when the statute was reenacted, there would have been total parity between our definition of located.

There would have been one place for a national bank.

There would have been one citizenship for a State bank.

Justice Ginsburg: Mr. Frey, in practice, is there, as there often is for a corporation, a divergence between those two places?

You have many corporations incorporated in Delaware with their principal place of business, say, in Michigan.

In the case of a national bank, is there that similar difference that what you call its main office or where it's chartered is different from where it has its principal place of business?

Mr. Frey: It's possible that there would be for some banks, but the main office is the place that... that the Comptroller that... that is in their articles of association, which can be amended to change the main office, and it's approved by the Comptroller of the Currency.

And... and they can move their main office.

Whether it... all... I know that in the case of Wachovia, there is no divergence.

North Carolina is its main office and is its principal place of business.

But I can't speak for everything.

Justice Scalia: You... you would say that the main office is the place where they're established.

Is that what you think the word established refers to?

Mr. Frey: No.

I'm not sure what the word established means.

That would be different.

As the Court said in Bougas, it wasn't going there, and I don't know that we need to go there today.

Established--

Justice Scalia: Well, I... I think we need to go there, at least... it seems strange to me that you have two different words and if, indeed, established means the same thing that you're telling us located means, I'm not going to agree with you.

I mean, they're... they're two different words--

Mr. Frey: --Well, established could, I suppose, mean the place of the original charter location, and located could mean the place where... where the main office is today.

They could mean different things.

Remember that at every... at every enactment of this statute, there was no difference between established and located.

The terms had no different applications because a national bank had only one location, which was the place where it was established.

So as a practical matter, there was total parity with State banks because up until 1958 a corporation was a citizen only of the... the place of incorporation, and there was total parity with national banks because they were... they were confined to their original State.

They could not branch outside their State until 1994.

So we're interpreting statutes that were passed for the purpose of achieving parity and at a time when they succeeded in achieving parity.

And... and the Chief Justice's question and... and your question suggest that today, with the changes in the map of interstate banking, you might have some small lack of total overlap between State banks or other corporations, on the one hand, and national banks.

But that is not a reason to say that national banks are citizens of every place where they have any physical presence.

And one of the problems with the Fourth Circuit's reading is that it injects substantial ambiguity into the question of where a bank is located.

It's... the Fourth Circuit said branches, but what about where it has an office that's not a branch?

What about where it stores... where it has warehouses that store its records?

What about where it has employees?

Justice O'Connor: Or an ATM.

Mr. Frey: What about where it has an ATM.

Justice Scalia: --Well, there I think the Fourth Circuit said we... we had a case that resolved that.

Mr. Frey: Excuse me?

Justice Scalia: I think the Fourth Circuit said that we had a case that... that answered that question, not a case involving this particular provision--

Mr. Frey: I don't... I don't recall.

Justice Scalia: --but a case involving another provision of... of the banking laws.

Mr. Frey: I don't recall that.

I don't recall that, but I think the... I think the question is not at all clear where... where a bank would be located if it's in a State where it has facilities, property, or employees but not a branch.

And as you said in your concurring opinion in Sisson against Ruby, it's not a good idea to have a jurisdictional statute... reading of a jurisdictional statute that creates ambiguities.

Justice Ginsburg: Mr. Frey, remind me of the State bank.

A State bank is, for Federal diversity purposes, a citizen of two... two places or only one?

Mr. Frey: It depends on how it does business.

A State bank is a corporation and it is--

Justice Ginsburg: So it would be the--

Mr. Frey: --the same as any corporation.

Justice Ginsburg: --its place of incorporation and--

Mr. Frey: Same as any corporation.

Justice Ginsburg: --principal place of business if it's different.

Mr. Frey: So in 1958, under... if... if you follow the Chief Justice's question, in 1958 when it became possible for corporations to be citizens of more than one State, maybe the meaning of this statute that was passed in 1948 changed.

I... I don't think that makes sense.

We're... we're trying to interpret a statute that Congress passed in 1948.

At that time, there was complete parity.

The fact that in 1958 Congress perceived a problem which is not a problem with national banks, where there was a divergence, a serious divergence, between the place of incorporation and the principal place of business that Congress saw we've got to deal with this problem.

And so they amended section 1332 in 1958 to deal with that particular problem.

That is not a problem that affects national banks.

So there's been no occasion.

When they enacted Riegle Neal, there was no... no need for them to change--

Chief Justice Roberts: Well, but you're... you're asking us to interpret a statute that they passed in light of events subsequent to the passage of the statute.

Mr. Frey: --No.

Chief Justice Roberts: You're saying that when they passed it, national banks were only in one place.

Well, they were only located in one place--

Mr. Frey: That's true.

Chief Justice Roberts: --even if you adopt the reading of the Fourth Circuit.

Mr. Frey: Well, let me... let's... let's go back and... because Justice O'Connor started me off, and I... I don't want to fail to get to her question.

The first statute was the 1882 statute.

The 1882 statute unambiguously stated that the jurisdiction shall be the same as and not other than the jurisdiction for suits by or against banks not organized under any law of the United States.

So the... the purpose of Congress was to... to give national banks access to diversity jurisdiction on the same basis as State banks.

And that... in the Leather Manufacturers Bank case, that was recognized by the Court.

Then in 1887, Congress went to a different wording totally.

It injected the word location.

And I... I should point out that the 1882 statute was in the Bank Act and the 1887 statute was in the Judiciary Act.

So it was... it's not clear what they thought they were doing with the 1882 statute when they adopted the 1887 statute.

But it is clear what this Court said they were doing in the Petri case.

This Court said no reason is perceived why it should be held that Congress intended that national banks should not resort to Federal tribunals as other corporations and individual citizens might.

It then said further on, on page 651 of 142 U.S., the clause was intended to have and must receive the same effect and operation as that of the proviso to the fourth section of the act of July 12, 1882.

And finally, they close by saying, no limitations in the regard of access to Federal diversity jurisdiction was intended.

Then we have the 1911 codification, and in... and after 1911, we have several Supreme Court cases, including the Mitchell case, which again says that the codification worked no change.

It says, the Court held that as pursuits with... within the specified exceptions, national banks were, by the acts of 1882 and 1887, put on the same basis in respect of jurisdiction as if they had not been organized under an act of Congress.

And then in 1948, you have the reenactment or the codification of the current judicial code, not intended to work any change in the meaning of the statute.

Justice Scalia: And you think a lawyer has to go back, in order to advise a client, and... and when he has a word... two words in... in a provision... one, established; the other, located... he has to go back and figure out every one of these reenactments and inquire into, you know, what Congress meant at the time?

Mr. Frey: Well, I don't think it's so difficult to--

Justice Scalia: He... he has... he has a statute that says established in one part, located in another, and he has a Supreme Court case, which I mentioned, but you apparently disregard, which is Bougas, which--

Mr. Frey: --I don't disregard it.

Justice Scalia: --Well, which... when I asked about it, you... you drew a blank.

I mean, that's the case I was referring to.

And in... which had a similar provision using the word established and located and said that established meant one thing and said what in this case it meant.

Now, it was for a different purpose, to be sure, but if I were a lawyer looking up... and it... you know, it dealt with banks.

And if... if I were a... a lawyer, I would have... I would have said, gee, there it is.

The Supreme Court--

Mr. Frey: Well--

Justice Scalia: --says where you have established and located in... in the same provision, located means where they have a branch.

Mr. Frey: --Well, it didn't say that established meant something different.

It said it would not consider what established meant.

And in deciding what located meant, it didn't say located had some obvious meaning.

It said it was going to look at the purpose, and the purpose was the convenience of the bank.

And what... what the Court did in Bougas was to place national banks in a position of parity with State banks with regard to venue.

State banks could be sued anyplace they had a branch, and under Bougas, national banks could be sued.

Justice Scalia: That may well be.

Mr. Frey: What the Fourth Circuit has done is destroy--

Justice Scalia: And... and whatever... whatever the outcome, whether it was equality or nonequality, and whatever the rationale, whether it was the purpose to be served or something else, the Court held that the word located in a banking statute which had both the words established and located in it--

Mr. Frey: --But--

Justice Scalia: --meant where they have a branch.

And... and that seems to me a very persuasive indication for a lawyer--

Mr. Frey: --I think--

Justice Scalia: --who's trying to figure out how to advise his client.

Justice Ginsburg: In a venue statute, as opposed to a subject matter jurisdiction statute, the venue means where, where... what particular court.

Subject matter jurisdiction is which court system.

They're entirely geared to entirely different things.

Mr. Frey: --Entirely different things and entirely different concerns.

And I don't think... well, I'd like to think that most lawyers would go beyond the logic that Your Honor has suggested, would look at what the Supreme Court had said in its cases interpreting section 1348 and its predecessors, and would look at the mode of analysis that the Supreme Court used in Bougas, and applying that mode of analysis, the Fourth Circuit result is wrong.

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

Argument of Sri Srinivasan

Chief Justice Roberts: Thank you, counsel.

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

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

For purposes of determining its State citizenship under 28 U.S.C. 1348, a national banking association is located in the State in which its main office is found, not every State in which it may maintain a branch office or other form of physical presence.

Justice Ginsburg: What about its principal place of business if it's different from its main office?

Mr. Srinivasan: The--

Justice Ginsburg: Principal place of business.

Mr. Srinivasan: --We... we don't think that a national banking association is a citizen of a State in which its principal place of business is found, insofar as that might be different from the State in which its main office is located.

Justice Ginsburg: So the main office is it, like 1332 before the '58 amendment.

Mr. Srinivasan: That's right, Justice Ginsburg, and in part, that's because of the historical chronology.

The word located was first used in 1887 and the current version of section 1348 was enacted in 1948, which was 10 years before the concept of principal place of business had any jurisdictional salience.

That was the first time that Congress... this was in 1958... that Congress enacted a specific provision dealing with corporate citizenship, and that's the first time that we see the concept of principal place of business having relevance in the jurisdictional context.

Justice Scalia: What did the Government argue in Bougas?

I... I didn't look up the briefs in the case.

Did the Government appear in... in that case?

Mr. Srinivasan: No.

But... but Bougas I think is... shouldn't govern the resolution of this case for several reasons, and one that I think is salient with respect to the points that you were raising earlier, Justice Scalia, is that it really is a happenstance of codification that the terms, established and located, appear together in section 1348.

The paragraph that contained established and the paragraph that contained located were enacted in separate years.

They concerned separate subjects, and they were always treated as separate provisions until the recodification of the judicial code in 1911.

And that recodification stated in its explicit text that the provisions were... were to continue to carry the substantive meaning that they had beforehand and that the arrangement of the provisions were purely... was purely for convenience.

And so I don't think it's fair to say that because established and located happen to appear in the same provision of section 1348 that they necessarily should be given different meanings.

Justice Souter: In Bougas, they were there to... they were put in originally in the original drafting.

They were paired, right?

Mr. Srinivasan: Just about, Justice Souter.

I... the... the paragraph containing established was in there in the 1863 National Banking Law, and... and the provision containing located was added to that provision in 1864.

So the first time that they both appeared, they did appear together, which is another distinction from the circumstance that the Court faces with respect to 1348.

Chief Justice Roberts: Could I... could I get your position again on exactly 1348?

You say main office is where the bank is located?

Mr. Srinivasan: That's right.

Chief Justice Roberts: What about if that's different from the national bank charter?

Mr. Srinivasan: It would still be the main office.

The... the national bank charter... I think it's called the organization certificate under the terms of the statute... is a historic document that documents where the national bank's initial main office was located.

But, of course, a national bank can relocate its main office under 12 U.S.C. 30.

And we think that when a national bank relocates its main office, it's the current main office that's controlling.

Chief Justice Roberts: Even if its charter says something else.

Mr. Srinivasan: Even if its charter says something else.

Chief Justice Roberts: Because I gather you don't have to amend your charter.

Mr. Srinivasan: You don't.

In fact... in fact, there's no provision for amending the charter.

What you have to do is amend your articles of association if you move the main office... if you move the main office outside the city or town in which the main office previously was found.

Chief Justice Roberts: How... how do you tell where a bank's main office is?

Mr. Srinivasan: Well, as I was saying, you'd have to amend the articles of association if you move to a different city.

So you could look at the articles of association, and those are on file with the Comptroller.

So I think where a national bank's main office is located is readily identifiable and it's publicly available information.

Chief Justice Roberts: So its main office would be... be where its articles of incorporation say, even if it has 90 percent of its branches in another State?

Mr. Srinivasan: That's right.

It's... it's... the main office is... is controlled by where the national bank designates its main office to be.

Now, it's a little bit different than corporations in the following sense, that with the main office of a national bank, it at least has to be a place where the bank is conducting the business of banking.

That's required by the statutes.

Whereas with a corporation, you could conceivably have a situation where they were incorporated in one State--

Chief Justice Roberts: So you can have these banks... I don't know... presumably a State that they bear little or no relation to could offer some favorable treatment of them and they could suddenly say, you know, Wachovia's main office is in Wyoming or something, even though it doesn't... it has one... it has one ATM or one branch there.

And that would be all right with you?

That would be where... where they were located?

Mr. Srinivasan: --That's right, for--

Chief Justice Roberts: That would be the only place that they were located.

Mr. Srinivasan: --For purposes of this provision.

There... there are other provisions where the word located encompasses branch locations, but for purposes of this provision, we think location is synonymous with main office.

And I would say that the court of appeals assumed in its opinion, by the way... and this is at pages 8a and 11a of the... of the petition appendix... that it's rarely going to be the case that a national bank's main office will... will deviate from the national bank's principal place of business.

Justice Stevens: If a national bank changes its main office, it must get the approval of the Comptroller to do so?

Mr. Srinivasan: It... in... in some circumstances, yes.

If it changes its main office--

Justice Stevens: What sort of circumstance?

Mr. Srinivasan: --the same city--

Justice Stevens: Does it say want to open a branch in... just a... just a one window branch in Wyoming and make that the main office.

Would there have been any reason why they couldn't do it?

Mr. Srinivasan: --No, because it's a... it's simply a product of where the--

Justice Stevens: So in other words, the... the Comptroller would automatically approve such a change.

Mr. Srinivasan: --I... I think so.

I don't... I'm not aware of any criterion by which... substantive criterion by which the Comptroller limits where a national banking association could designate its main office to be.

Justice Stevens: Does the term, main office, have any significance for... for any purpose other than this jurisdictional issue in this case?

Mr. Srinivasan: Yes.

It... it has significance in a number of provisions.

For example, it determines where the bank is located with respect to what interest rates it might charge under 12 U.S.C. 85, and that's an issue that this Court confronted a few terms ago in the Smiley case and also in the Marquette case.

But there are other provisions that refer to the... the location of a national banking association, and in all of those we think, as a starting point, the location would be the main office, and in some situations, it would also encompass branch locations.

For purposes of this provision, we don't think that the location would encompass branch locations.

And one reason, in particular, is because the subject that section 1348 deals with is the State citizenship of a national banking association.

And the concept of citizenship has always been thought to require a distinctive association with a State and, in particular, has been thought to require something more than mere physical presence in a State.

That's always been the rule with respect to national persons, and of particular significance, it's always been a rule with respect... it's always been the rule with respect to corporations.

And Congress defined national banking associations as, quote, a body corporate, close quote, in 12 U.S.C. 24.

Justice Stevens: May I ask you another question that is really a follow up on the Chief Justice's earlier... for a private corporation, it's located both where it's incorporated and where it has its principal place of business.

Is it your view that a national bank may have two parallel locations or just one?

Mr. Srinivasan: It... it could have a main office that's different from what one would construe to be its principal place of business under the test that applies to corporations under 1332(c), if... if that's what you're asking, so that factual circumstances--

Justice Stevens: It could... it could have a... it could be a citizen of the State where its... its papers say its main office is and also the State where, in fact, its main office is.

Mr. Srinivasan: --No.

Well, I... well, I don't... in fact, its main office is... is a creature of statutory designation, but I think what--

Justice Stevens: Well, I should use a different word.

Where its principal place of business--

Mr. Srinivasan: --Principal place of business.

Justice Stevens: --they have a big operation in New York and a... and a Delaware headquarters in... in Dover.

Mr. Srinivasan: No.

Our view is that it wouldn't be a citizen of a State simply by virtue of the fact that it has its principal place of business there.

Now, I would say, though, that it's not an open and shut case because the Court in a case that specifically raised the issue, which of course this one doesn't, it could construe 1332(c), which is the provision that deals with corporations generally, as also applying to national banking associations insofar as national banking associations are, after all, corporations.

But we think the better reading is that the specific governs the general, and therefore, that section 1348, which specifically deals with the question of national bank citizenship, would govern over the 1332(c) which more generally deals with the question of corporate citizenship.

Chief Justice Roberts: What--

Justice Scalia: And if we did... if we did interpret 1332(c) that way, there wouldn't be any favoritism for national banks.

Mr. Srinivasan: That's right.

It would entirely eliminate favoritism.

But I think it's important to note that the type of favoritism that we're discussing is the potential inequity as between one State and two States; whereas under the court of appeals' interpretation of section 1348, you could have an inequity that... and it's not farfetched to think... that would encompass 50 States in the case of a national banking association and one or two States in the case of a State corporation.

And so we're--

Chief Justice Roberts: --What... what do you mean that national banking associations are, after all, corporations?

I thought they were distinct entities from corporations.

Mr. Srinivasan: --No.

They're... they're not State chartered corporations.

They're federally chartered corporations, but they are corporate in the... as... as distinguished from other sort of forms that an entity, an incorporeal entity, may take.

And Congress specifically provided that in 12 U.S.C. 24--

Chief Justice Roberts: You mean--

Mr. Srinivasan: --when it defined them as, quote, a body corporate, close quote.

So I think it makes sense to apply the normal rules that we apply to corporate citizenship.

Chief Justice Roberts: --They're not incorporated... they're not incorporated under the laws of any State, though.

Mr. Srinivasan: They're not incorporated under the laws of any State, but they're incorporated under... under the National Bank Act.

They're federally chartered corporations like other federally chartered corporations.

And so in that sense, we think it makes sense to apply the normal rules that apply to corporate citizenship to national banks.

Chief Justice Roberts: But... I'm sorry.

Maybe this is something everybody knows but me.

But I would have thought that a national association is distinct from a corporation in a way, for example, that a partnership is distinct from a corporation.

And I wouldn't have assumed that the laws with respect to corporations automatically applied to national banking associations.

But you say they do?

Mr. Srinivasan: If I could just... just briefly.

Chief Justice Roberts: Yes.

Mr. Srinivasan: I think what I'm trying to say is that federally... national banks are federally chartered corporations and they share the salient characteristics of a corporation, i.e., there's limited liability for shareholders... and that's at 12 U.S.C. 64(a)... and they have a perpetual existence in the same way that corporations do, and that's at 12 U.S.C. 24.

Justice Ginsburg: But you did say 1332(c) does not apply to the national bank.

It's only one location.

Mr. Srinivasan: That... that's our view, but again, I'm... I wouldn't characterize it an... as an open and shut case because 1332(c) refers generally to corporations, and so one could reach the conclusion that 1332's reference to principal place of business should also apply to national banks.

Argument of James R. Gilreath

Chief Justice Roberts: Thank you, counsel.

Mr. Gilreath.

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

Mr. Chief Justice, I want to follow up on a point you... you were on about this thing about an association.

Before I do that, I want... I want to say so I'll be sure I don't forget it.

Wachovia, according to... I think we've got it in our papers that we filed in opposition to the petition... has 179 branches in South Carolina.

But it... but it is important, as... as you pointed out, Mr. Chief Justice, that a national bank is not a corporation, but it is a association formed under Federal law.

So there's no State to which this Court can look or anybody can look to determine what their citizenship is.

In fact, in the Langdeau case, they said it was a quasipublic institution, national in character.

So it's not a... it's not a State corporation.

It's got no ties to a State corporation.

So if it's going to have citizenship for diversity purposes, Congress has got to say how we going to figure that out.

And that's what they did in 1448.

This Court, in a series of cases back in the mid-'80's, was faced with the... with the issue of how do you determine the citizenship of a corporation, and it went back and forth but finally came down with a doctrine that said a corporation will be deemed a citizen of the State in which it is incorporated.

And then in 1958, Congress enacted 1332 and added the additional clause of principal place of business.

Now, given that it is a national association and it's not a State corporation, it was necessary for Congress to legislate and enact a statute so we could determine how it would have diversity.

And that's what they did in 28-1448.

And going to the question Justice Scalia asked, do we have to go back and look at all of this statutory history... and you can believe I've been looking at it a lot more than I'd like to have lately.

It kind of ruined my holiday.

[Laughter]

But I think I understand it.

And my answer to your question is that you do not.

When Congress enacts a statute that says you are deemed to be a citizen of a State... let me be sure I read it right here... deemed to be a citizen of the State in which you're respectively located, I don't know how Congress can speak much clearer.

Justice Souter: Let me... let me raise the reality check question.

If... if we assume that that is not the only possible reading of that statute, why in the world would Congress have wanted to impose the... the system that follows from... from your result in which the... the national banks are... are excluded from diversity jurisdiction to a degree that the State banks clearly are not?

Mr. Gilreath: I don't think, when Congress enacted section 1448, that they even knew about branch banking.

The... the... that... that is something that has evolved really since 1994 when the Neal Riegle Act was enacted.

So the statute says--

Justice Souter: But the... I guess the problem is if... if we start with the assumption that I made a second ago that your reading is not a necessity... it's a possible reading.

No question about it.

But if... if we assume that it's not an absolute necessity, we... we try to avoid freakish results, and this seems like a freakish result.

And I take it your answer is it may be a freakish result.

We're not claiming that Congress intended it.

But that still leaves us, I think, with the problem of a... a reading which is not absolutely necessary that does produce a freakish result.

And if that's the case, why shouldn't you lose?

Mr. Gilreath: --Well, that assumes that you want to give the... the... I'm not suggesting that you... you want to do this, but that... that a court would want to give the national banks what I say is a free ticket to the Federal courts, to the--

Justice Ginsburg: No.

The question is why would Congress... let's assume we have a choice between two readings.

Why would Congress want to give the State courts... the State banks... State banks... greater access to Federal courts than it gives national banks?

What earthly reason would there be for Congress wanting to do that?

Mr. Gilreath: --I can't... I can't give you a reason for that.

I... I would suggest that they... they don't want to give greater access one way or the other, but they've got to write a statute.

And when they wrote the statute, nobody had in mind what the branch banking system was going to be today.

And so now what this Court is faced with is they are looking at a statute that, when you read it literally, says that they ought to be deemed to be a citizen of South Carolina if they have a branch in South Carolina.

Chief Justice Roberts: Well, it... it says located.

I mean, do you... what about an ATM?

Does an ATM make them... that's all they've got in Wyoming.

Does that make them located in Wyoming?

Mr. Gilreath: That's a good question.

I... I think you could argue either way.

I... I would say they probably are located there because if--

Justice Breyer: What... what about if we go back to 1880 or whatever and they had a messenger?

You know, they only had one office, but they had depositors in different States, and this messenger went from State to State handing out the cash and collecting a fee.

Would Congress at that time have considered that bank to be located in all the States where the messenger showed up?

Mr. Gilreath: --I'm... I'm not sure that even I could say that located goes quite that far.

I'm not even sure that back then the... the statutes would have allowed them to have had a messenger, but assuming it--

Justice Breyer: Couldn't have a messenger?

He just delivered some mail.

The post office was slow.

Mr. Gilreath: --You make it to... I... I can't... I can't--

Justice Breyer: The Pony Express.

Mr. Gilreath: --with that point.

Chief Justice Roberts: You can have private delivery of mail.

Can you?

Well, that's a... but what... what even more... what about a... a warehouse?

I mean, it's where they keep the... the money bags or whatever.

[Laughter]

That's all that's... that's all that's... and that's all that's in the State.

Are they located in that State?

Mr. Gilreath: They've got a presence there and they're doing business there.

I think they would be deemed located there.

Justice Stevens: May I ask you... call your attention to another word in the statute that seems persuasive to me?

It's the word respectively.

The statute says all national banking associations shall be, for the purposes of all other actions by or against them, be deemed citizens of the State in which they are respectively located, which I would read as saying in which each of them is located.

Isn't that--

Mr. Gilreath: That... that's the way I read it, and we... we discussed that in our brief, that... that word.

We... we said more so that it doesn't take away from the position that we've got, but I... I agree with what you're saying.

It could be each State.

And... and the statute also says States, in the plural, in which they're located.

Justice Stevens: --They're talking about a plural banking associations, not just plural branches of one association.

And it's in which each... in which they are respectively located, which strikes me as saying in... in which each of those national banking association is located, which seems to me to read as though there's only one location for each bank.

Justice Scalia: Well, that... that would be true if it said the State in which they are... in which they are respectively located, but it does say of the States.

Justice Stevens: That's what it does say the States in which they are respectively--

Justice Scalia: Yes, so each one could be in many States.

No?

Mr. Gilreath: I read it, because it says States, that it's referring to more than one State in which they could be located.

Justice Stevens: --And of course, it refers to more than one State because it referred to even more than one national bank association.

It's a plural associations, and then it says, each of them shall be deemed a citizen of the State in which... it says in the plural... in which they are respectively located.

Mr. Gilreath: I think what... what we said in our brief was that the word respectively is... is in there so that you are not talking about all the banks, but talking about each bank.

Justice Stevens: Correct.

That's exactly right.

Mr. Gilreath: If I could move on.

There are many different business entities that anybody can elect to... to do business under.

As I think the Chief Justice raised earlier, a limited partnership, for instance, is deemed to have the citizenship of all of its various partners.

Justice Ginsburg: But not with every State with which it has a close nexus.

Mr. Gilreath: Right.

Justice Ginsburg: So, in other words, the partnership... we have a corporation where it's incorporated and Congress said a principal place of business.

We have a partnership where each partner is located.

I don't know of any instance where for subject matter jurisdiction, that is, which court system you go to, as distinguished from personal jurisdiction or venue, you have a notion that someone is a citizen of every place where it does the business.

Is there... is there any other example?

It's certainly not true of a partnership.

It isn't true of... of a corporation.

Is there any other entity that would, for subject matter jurisdiction purposes--

Mr. Gilreath: I don't know of any.

It's the... it's the same for a limited liability company as it is for a partnership I believe, that you have to... you have to look through it.

Justice Ginsburg: --Its members.

Mr. Gilreath: But the point... the point I was making is that it... it doesn't necessarily have to be the same rule that it is for a corporation, and... and that... that's what this Court decided in the Carden case.

Justice Ginsburg: Yes, but the question that I asked you is, in the realm of subject matter jurisdiction, that is, which court system, Federal or State, as distinguished from where can I grab this person for personal jurisdiction purposes, what are my venue choices, is there any other example in all of title 28 where, for subject matter jurisdiction purposes, this... every place where it's located counts?

Mr. Gilreath: Not... not that I know of.

Chief Justice Roberts: Do we owe any degree of deference to the Comptroller's interpretation of the provision?

Mr. Gilreath: There... there is some authority that I think is cited in their brief or somebody's brief that the Court should give deference to... to their interpretations.

But this Court is not bound by their interpretations.

If... if this Court concludes that their interpretation is... is clearly incorrect, then it's not... it's not bound by it.

Justice Scalia: This is not a matter of... of... over which the Comptroller has administrative responsibility, is it?

I mean, this is just a matter for the courts as to what court these associations can be... can be sued in.

And I don't see how the Comptroller has any business in that area.

Mr. Gilreath: Well--

Justice Scalia: I mean, I... I guess he deals with these associations all the time, so we should... we should listen to him, but... but he... he is not authoritative as to... as to who comes into court, is he?

Mr. Gilreath: --No.

I would agree.

In fact, Congress has the final say so, and then this Court has got to look at what Congress says to interpret it.

And Congress said, I say very simply, that they're deemed a citizen of any State wherever they are located.

Chief Justice Roberts: What do you do with their... their hypothetical in both your friend's brief and the Government's brief about Ford Motor Company, not in terms of 1332 but common parlance?

If you ask somebody where Ford Motor is located, they're likely to respond by saying, well, what do you mean?

Do you mean their headquarters?

Do you mean the... the plant down the street?

Do you mean the dealership?

It does suggest that located doesn't have the clear meaning that you rely on.

Mr. Gilreath: You... you can make that argument, but it... it depends on, like you say, what... what do you mean when you ask that question.

If you're going out to buy a Ford car, then you obviously would want to know where it's located other than in Michigan.

You'd want to know where the nearest Ford dealership is.

Located, obviously, can have several meanings, but that's one of the points, I think, that Judge Luttig made in his opinion, is you've got to look at it in the context in which it is said in the statute.

And looking at the statute, in the context in which the word located is there, it says where... in... in the States where it's located.

Now, there are other places in the statute, which I'm sure they will argue or have argued in their brief, that... that say, you know, it's located, when they're talking about a bank... a branch bank where you can do insurance or whatever, that it can... it can sell insurance in any branch where... where it's located, and that means another meaning to locate.

But you've got to look at locate in the context in which it's used, and--

Justice Scalia: But the... the argument here is... is in the context of deciding which citizen an entity is a citizen... which State an entity is a citizen of, we normally don't think that entities are citizens of multiple States.

Just as you wouldn't think if... if you're asking, you know, where does the Ford Motor Company manage its... its operations from, you wouldn't think from multiple States.

So here when you're talking about citizenship, why doesn't this argument of context cut precisely against you?

We're talking about citizenship.

People aren't citizens of... of 50 States.

I mean, that... that's an extraordinary result to reach.

Mr. Gilreath: --I... I agree.

A citizen is a citizen.

Justice Scalia: So we should be looking for one State or maybe two States at most.

Mr. Gilreath: Well, we... I... I contend... I can understand why you say that, but if you read the... the statute the way it's worded and you... and you look at what's going on out there, I don't see any problem with this Court construing that they are a citizen of a State like South Carolina where they've got 179 branches.

The... according to the brief by, I think, the ABA or one of the amicus, they've got something like 3,600 branches.

Now, they come into South Carolina, they're taking... if I bank with them, they're taking my money and the... and the money of other millions of South Carolinians and... who... who are entrusting their money to them, as opposed to entrust it to a State court, and if I'm banking with them, I've got to go sue them in... in Federal court.

Whereas, if I'm banking with a--

Justice Ginsburg: In South Carolina.

It's not... it's not as though you're being sent to some other place.

The only question is whether they would have access to the Federal court.

But as far as personal jurisdiction is concerned, you have it in South Carolina.

Mr. Gilreath: --No.

I think if... if we... if this Court adopts the position the petitioner wants, they would be deemed a... a citizen of North Carolina, not South Carolina.

And if I had... if I got into a controversy with them about something in my account, I would have to go file court... file suit in a Federal court to bring them to South Carolina where I would be drawing a jury from 8 or 10 counties as opposed if they were a State bank or--

Justice Ginsburg: But it would still be in South Carolina.

Mr. Gilreath: --It would still be in South Carolina.

Chief Justice Roberts: And the same would be true if you were dealing with a State bank incorporated in North Carolina with its principal place of business in Virginia that had 50 branches in South Carolina.

The same thing--

Mr. Gilreath: That's... that's true.

Chief Justice Roberts: --would still be true.

Mr. Gilreath: That's exactly true.

Chief Justice Roberts: And that's the parity that Congress has... that has been the guiding principle of Congress' enactments in this area since 1882.

Mr. Gilreath: Well, I don't... I don't know whether I necessarily agree with that or with this parity argument that they've got.

I wanted... I want to address that just briefly, if I could, is the parity argument... and... and all of this parity argument they get they get from... from these 1882, 1885, 1887 statutes.

All of those statutes have been repealed.

The parity argument is gone.

If... if Congress had wanted parity, then where is parity in section 1448?

It's not there.

It was there in 1882, 1885 and '87, but those statutes have been repealed.

Parity is not some doctrine or something in the Constitution.

So I think--

Justice Stevens: May I go... may I go back to the textual argument that Justice Scalia was suggesting a little while ago?

If we presume that normally a citizen is a citizen of only one place... there are multiple... there are other situations where you have a dual citizen... and that you would normally assume they're only a citizen in one place, then Congress, in order to solve the problem of corporate headquarters in the private commercial world, corporate headquarters, a main piece of business, went out of its way to say corporations shall be deemed to be a citizen of two places... they made a special statute when they could be a citizen of two places, which overcomes the presumption that it's a citizen of only one place.

But there's nothing to overcome the presumption that in 1348 they're assuming each citizen has only one place of citizenship because that statute just used the word respectively.

It talks about many banks but in... respectively citizens of... of different States.

But I think that's fully consistent with the notion, sort of the basic background notion, that one person has one... one citizenship; one corporation has only one place of citizenship.

Mr. Gilreath: --I can't... I can't argue with the logic that you've got.

But I... I still come back to the language of the statute.

Justice Stevens: Well, this... I'm... I'm relying strictly on the statutory language in making this argument.

Mr. Gilreath: Are you talking about 1448?

Justice Stevens: Yes, because it doesn't say anything about anybody being a... capable of being a citizen of two different places, whereas 1332 does, which is the unusual situation.

Mr. Gilreath: I agree that it says they shall be deemed citizens of the States in which they are respectively located.

Justice Stevens: Respectively.

Mr. Gilreath: The statute says State... says citizens, which to me says the statute is allowing you to find that they can be a citizen of more than one State.

Justice Stevens: See, but it's clearly unusual to say you can be a citizen of two places.

And to do that, you had a special statute in 1332.

To say you can be a citizen of 40 or 50 States simultaneously, there really is no precedent for that.

Mr. Gilreath: I... I can't argue with you, but I... I still come back, you know, to the statute.

I... I think... I think the real problem here is that you've got a statute that was enacted in 1948 that really, if you go back and look, it goes back to 1911.

And obviously, in 1911, nobody knew the proliferation of branch banking that was going to take place.

Nobody knew the proliferation of branch banking that was going to take place in... in 1948 when it was enacted.

And I think the real decision that this Court has got to make is whether you... you read the statute and apply it or either whether you're going to leave it to Congress to... to make that change.

I'm not... and... and you may... you may apply it the way I'm arguing, and I hope you do.

And it may be... and... and if you do, then the national banking associations, with all the clout they've got, can go over here across the street to Congress and they can get it changed.

And you can bet they probably will be trying.

But I think the real question is... is are you going to read the statute for what it says or are you going to, you know, give it the reading they want by going back in all this history and twisting and turning to get to the point they want to get to.

They even... I think this is one point I want to make is if you look at their brief, right at the last page of their brief... and I think this highlights the... the problem that you've got is they say you don't need to go so far as to determine two places.

They just want you to determine one place.

And I think that highlights the fact of how far they're trying to stretch the rubber band on this word to... to get the... get the meaning that they want.

They... they say that ought to be left for another day.

And so I come back that the... the ordinary meaning of the word located should... should put it in each State.

The... I... I think this... I come back and I think the statute is unambiguous.

And that leads me to the... the Bougas case, which was talked about a little bit.

It's not very often that you have a statute where this Court has already ruled, as it did in Bougas some 28 years ago, a... a virtually identical statute dealing with the banking laws.

They... they try to say, well, the in pari materia doctrine ought not to apply, but I mean, you've got a statute there that's a... a banking statute, admittedly dealing with venue, where this Court found the same meaning that we would like for it to find here.

The courts... and... and their argument about established and located completely goes away because the Court said whatever the reason behind the distinction in those two words, it does exist and we recognize it.

And... and even if you say, well, in pari materia doesn't apply... and that's what they argue.

Judge Luttig said, well, it... it's... still there's some authority that similar statutes should apply.

And here, we have a decision that's construing an almost identical statute.

It reaches the conclusion that... that we would like.

In summary, kind of the way I look at it it's kind of like in 1948 the Congress tailored a citizenship suit of clothes for national banks, and... and that suit of clothes, a pattern of which was laid out even back into the... the 19th century, still fits the bill today.

It's old.

It's a 57-year-old suit of clothes, and... but it still... it can still work.

It may not work the way the banks want it to work, but it will work.

And if the banks want to get a new suit of clothes for jurisdiction, then they need to go over across the street here to Congress and let it make that enactment.

If you have no further questions, that concludes my argument.

Rebuttal of Andrew L. Frey

Chief Justice Roberts: Thank you, counsel.

Mr. Frey, you have 2 minutes remaining.

Mr. Frey: Thank you, I'll try to speak quickly.

I just have a couple of points.

One is with regard to the spread of national banks.

There is a comparable spread of State banks.

For instance, Sun Trust is a bank that's comparable in scope to Wachovia.

It has operations in many States.

It has many branches, I assume, in South Carolina.

And yet, it is a citizen only of its home State, its State of incorporation, or principal place of business.

If there were a problem of abuse of relocation, which I think the Court was a little bit worried about, Congress would deal with it the way they dealt with the abuses of corporate... stated place of incorporation by passing 1332(c).

So let me--

Chief Justice Roberts: No, but if there were the problems that you hypothesize here, Congress could have dealt with them by enacting something that dealt with the proliferation of branch banks rather than interpreting the 1948 statute in light of 1980's--

Mr. Frey: --It could have, but it saw no need.

There was a statute that had been consistently on the books for a century that meant the same thing, which is surely what Congress wanted.

Why would Congress bother when it enacted Riegle Neal and allowed interstate branching, to say, by the way, just like State corporations which conduct business in many States, you know, the rule that we... we've adopted that banks are located in their main office or their charter location, still applies?

That would--

Chief Justice Roberts: --Well, but that's not a rule that they've adopted.

All they say is that they're citizens of wherever they're located.

Mr. Frey: --But it's been interpreted by the Court.

It's... it's been... you have a series of statutes, and each time the Court says it doesn't change from the original 1882 meaning.

You have the 1882 statute and you have 1887, and the Court says this means the same thing as 1882.

Then you have 1911.

The Court says this means the same thing as 1911.

Then 1948.

I think Langdeau says it means the same thing there.

Let me just, in the brief time I have left, on in pari materia, which is at the heart of Justice Scalia's question about the Bougas case.

Let me just cite two cases to the Court that I think are instructive on this, United States against Granderson, 511 U.S. 39, and Fort Stewart Schools, 495 U.S. 641, both refusing to apply the in pari materia doctrine where you had quite comparable statutes.

Thank you.

Chief Justice Roberts: Thank you, counsel.

The case is submitted.

Attribution:

The Oyez Project

Featured:

Lincoln Property Co. v. Roche - Oral Argument

Fri, 09 Jan 2009 14:48:57 +0000

Case:

Lincoln Property Co. v. Roche

Media File:

04-712_20051011-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of David C. Frederick

Chief Justice Roberts: We'll now hear argument in Lincoln Property v. Roche.

Mr. Frederick.

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

This is a routine diversity case that went seriously awry in the court of appeals.

The original defendants in... named in the complaint, Petitioners State of Wisconsin Investment Board, which I'll refer to as SWIB, and Lincoln Property Company, are completely proper and diverse parties.

SWIB owned the apartment complex, and Lincoln managed it through agents.

The fourth circuit, nonetheless, embarked on a search for affiliates of Lincoln that it thought would be more appropriate party defendants, what the court deemed, quote, "real parties in interest".

The fourth circuit's holdings are fundamentally flawed, in two respects.

First, because the named defendants are proper parties, the court erred in holding that Lincoln had not carried its burden of proof by failing to establish that some non named putative defendants might possibly destroy complete diversity, and that the remedy for such a possibility was dismissal of the action from Federal court.

Second, the court erroneously engrafted a, quote, "very close nexus" requirement onto the test for require... for determining the citizenship of a limited partnership.

Now, with respect to the first issue, a number of black letter legal principles govern a court's consideration of non named parties.

Let's start with the statutory text.

The diversity statute, at section 1332(a), talks about civil actions, and a "civil action" is defined as the naming of a plaintiff and a defendant.

A civil action does not encompass those that are not named in the lawsuit.

That language is tracked in the removal statute, section 1441(a), which also speaks of civil actions, and in... mirrored in 1441(b), which says that a defendant may remove, where it is properly joined and served.

Justice Souter: Well, I thought (b) simply enacted a special necessary condition when you had a local defendant.

I thought it was not an eligibility provision.

I thought it was a limitation provision.

Mr. Frederick: It is, Justice Souter, but what... my argument is that that language, properly joined and served, simply tracks the civil action requirement under the original diversity statute, as well as the removal provision of 1441(a).

But what the court--

Justice Souter: Well, it's consistent with it, but I... it seems to me that it's a bit of a stretch to say that anyone who is properly joined and served, at least in a formal sense, is, therefore, the only person who may be considered in a... in a diversity inquiry.

Mr. Frederick: --What the court of appeals did, and where we think it got off track, was it took the... to... the phrase "parties in interest", and it... and it took cases from this Court that have used the phrase "real parties in interest" to determine what are proper party plaintiffs, and it used that concept on the defendant's side of the ledger.

And none of the cases from this Court talk about "real parties in interest" as being defendants.

The explanation given by the court for doing it on the plaintiff's side is to ensure that a defendant is not going to be subjected to multiple suits.

But there are many purposes--

Chief Justice Roberts: So, I take it your answer to Justice Souter is yes.

In other words, if the mistake that the court made was relying on 1441(b), it was a similar mistake for you, in your opening brief, to put such weight on that language in 1441(b).

Mr. Frederick: --Our position, Your Honor, is that the phrase "parties in interest"... we were seeking to find out where the court could have applied that phraseology on the defendant's side.

And the only place that we could find, in the statutes or the rules, was in 1441(b) and the explanation for removal, that we were not a "proper party in interest".

And that's why we focused--

Justice Ginsburg: Mr. Frederick, what about cases where a plaintiff sues two defendants... one is diverse, and the other is not diverse... and there is a motion by the defendants to dismiss for want of diversity?

The plaintiff then says,

"Oh, but only one of those defendants is the "real party whatever", and I can drop the other one, because the other one is not the "real party in interest"? "

Now, that's a situation where courts, even if this court has never had that problem, have said,

"If the second defendant, the non diverse defendant, is a "real party", you can't get rid of the case that way, but if it's not... if it's not, you can keep the... just drop it and keep the case going against the "real party in interest". "

There are such cases.

Mr. Frederick: --There are, Justice Ginsburg.

And the analysis goes to whether or not... how far along in the proceeding the litigation has occurred before the plaintiff makes that choice.

Of course, a plaintiff can voluntarily drop defendants, without any consequences, and the courts have fairly uniformly held that it... that it is no jurisdictional bar for a plaintiff to drop a non diverse defendant in order to ensure that diversity would be present.

Had this complaint been brought in Federal court, there is no doubt that the court would have had original jurisdiction, because, on the face of the complaint, the two named defendants were completely diverse.

Justice Ginsburg: Ah, but the plaintiff said,

"This is a complicated real estate business, and I want to discover whether there is... whether the 'true defendant' is a Virginia citizen, as I am. "

So, on the face of it, it looks like there's complete diversity, but, in fact, the diverse defendant is hiding the "real party".

I think that's the position that the plaintiff was taking.

Mr. Frederick: And that position is incorrect, both as a factual matter and as a legal matter.

As a factual matter, Lincoln is a completely proper party.

Its name is on the lease.

It was the employer of Mr. Roche, who was one of the plaintiffs in the suit.

It issued the mold policies that are at issue in the case.

All of its advertising is alleged to have been fraudulent in the original complaint.

And it was the director and manager of the agents whose acts were alleged to have been negligent here.

There's--

Justice Ginsburg: The plaintiff--

Mr. Frederick: --no question--

Justice Ginsburg: --the plaintiff points to two offices of the defendant, who's... the defendant is described by defendant as a Texas corporation... but there was one witness... Chaney, was it +/?

who said that Lincoln is not a corporation.

It is a partnership.

No corporate board.

Mr. Frederick: --Well, Mr. Chaney's testimony has to be viewed in contact... in context, Justice Ginsburg.

He was not called as a 30(b)(6) witness as a corporate... for a corporate form and structure.

The testimony that was being elicited was to see whether Lincoln had other entities and ownership of properties in Virginia so that they could attempt to prove that there was a problem that the parent company, Lincoln Property Company, knew about.

There was a high degree of imprecision in the deposition questions, and it's fairly clear, I think, that the lawyer and the witness did not understand what each other were talking about.

Yet in the discovery process, not a single question was presented that would get at the organizational structure of Lincoln.

There was not any attempt to get behind the management documents between SWIB and Lincoln Property.

It was one very small snippet of a deposition which has been taken out of context and, we would submit, blown out of proportion by the respondents in their submissions in this case.

Justice Ginsburg: Well, they thought they got closer with a witness named Franzen, who was a Virginia resident, and who also described Lincoln as a partnership, and himself as a partner.

Mr. Frederick: Well, Justice Ginsburg, as the Real Estate Roundtable brief demonstrates, and is unrebutted, the real estate industry operates through many very complicated structures for perfectly legitimate finance and tax related reasons.

And Mr. Franzen is a partner in some deals, but the testimony that was provided in a declaration... and it is appended to our reply brief... demonstrates that Mr. Franzen was not a partner in any deal that had anything to do with the Westfield Village Apartments.

But what the court of appeals did was, it erected a burden of proof that said that the defendant has to prove a negative, that there is not some affiliate corporation out there that is a citizen of the Commonwealth that would be existing to destroy diversity.

And that type of burden, to prove a negative, has never been authorized in this court's cases.

Rather, what this court's cases have held is that, as the masters of their complaint, plaintiffs have an opportunity to plead whichever defendants they want to try to prove their allegations against.

If they want to try to prove Federal claims, this court has held that that kind of case can be removed.

If it wants to plead around Federal claims, this court's cases have said that that would be respected, as well.

Chief Justice Roberts: Mr. Frederick, earlier you made the point that Lincoln was a proper "real party in interest".

I take it that's not critical to your position.

Your argument would be the same if they weren't a real party in interest, wouldn't it?

Mr. Frederick: Well, we don't think, Justice... Mr. Chief Justice, that the "real party in interest" analysis even applies on the defendant's side, but it is... it would not apply to this extent.

It's not for the courts, once they have a proper defendant, to be searching outside the record for possible jurisdictional spoilers once jurisdiction has been established.

And this court's cases--

Chief Justice Roberts: But if they... if they don't have a proper defendant, they should do that?

Mr. Frederick: --If they do... if there is no proper defendant, then I think--

Chief Justice Roberts: I presume, then--

Mr. Frederick: --That's correct.

It--

Chief Justice Roberts: --that the plaintiff loses, not that you get to have the court find the proper defendant for the plaintiff.

Mr. Frederick: --That's correct.

It would be a 12(b)(6) motion to dismiss, where there is no defendant who would liable to the plaintiff.

But what the court of appeals did here was, it imposed an obligation on the defendants that, in effect, confuses the obligations that are in Federal Rule of Civil Procedure 19, which looks at whether there are necessary or indispensable parties.

And what the court did was, in effect, to take an unnamed affiliated entity to Lincoln and treat it as the--

Justice Stevens: Mr. Frederick--

Mr. Frederick: --functional equivalent of an--

Justice Stevens: --will you just clarify one thing for me?

Did the defendant ever take the position in this litigation, in discovery or anywhere along the line, that they sued their own defendant?

Mr. Frederick: --No.

In fact, in their answer, Justice Stevens, they admitted that they were the manager of the apartment, that they had run it through their agents.

They acknowledged that it was their policies that were in effect.

There wouldn't have been a basis that would have survived rule 11 that would have given Lincoln Property Company a basis on which not to defend the lawsuit.

And so, to that extent, we think it's quite clear that they are a proper party defendant.

We've always taken the position that if we are found liable, we would pay a judgment.

The issue is that we don't think we're liable, because we think that the allegations in the complaint are completely baseless.

And that's what the district court found when it held, on summary judgment, that there was not a dispute of fact as to the core allegations of the complaint.

Returning to the point I was trying to make about rule 19, there is a mechanism for the courts to consider whether there are indispensable parties.

And what the court did here was to take a rule 19 kind of inquiry... Is a non named defendant really an indispensable party, such that dismissal of the action is warranted +/?

and to engraft that onto a jurisdictional inquiry.

But the reason why we have the Rules of Civil Procedure is, of course, to follow them.

And what the fourth circuit did here was, it took that kind of analysis, but it didn't follow the standards that the courts have set out for applying rule 19 properly.

Justice Ginsburg: Well, plaintiff certainly wouldn't want to say there's an indispensable party missing, I take it, because then that would put the plaintiff out of court.

The plaintiff is arguing that there's another defendant who should be in here.

Mr. Frederick: And, Justice Ginsburg, they never sought to name or join that other possible defendant.

They never brought a joinder motion.

They never even conducted discovery as to whether or not there was another possible defendant that might be affiliated.

And their theory of liability made it unnecessary, because their theory of liability was that Lincoln Property Company, the parent, is responsible for all the acts of its agents.

And had they really wanted to be in Federal court, they could have found plenty of Virginia citizens that they could have sued.

They could have sued the plumber, they could have sued the installer of a... heating and air conditioning equipment, they could have sued the general contractors.

There are a lot of people they could have sued if they were that intent on staying in Federal court.

But, instead, they made a tactical choice to sue the deepest pockets.

And the deepest pockets happened to be out of State citizens that have a right under the statutes to remove the case.

Justice Ginsburg: And because you represent the removing defendant, it is true, is it not, that the removing defendant has the burden of showing that proper diversity exists?

Mr. Frederick: And we readily satisfied that, both on the face of the complaint, which identified Lincoln Property Company as a Texas corporation, and in the remand notice, which identified its principal place of business as Texas.

Even the court of appeals had no problem calling it a "Texas parent", because the corporation documents, which are part of the record, amply demonstrated that Lincoln Property Company is, in fact, a Texas corporation and satisfies those requisites under the diversity jurisdiction provision.

The... instead, what the fourth circuit has done is to erect a standardless forum that will increase litigation over jurisdiction by inviting courts to make inquiry about parties and entities that are not named in the lawsuit, solely for the purpose of determining whether or not there are jurisdictional spoilers.

Chief Justice Roberts: What... I know you contend that's not the case, but let's say there is a in State subsidiary that's completely responsible for all the challenged actions, and the in State plaintiff sues an... only the out of State parent.

What happens in that case?

Mr. Frederick: Well, what the ninth circuit, in a... in an opinion by then Judge Kennedy that we have cited, called Simpson... said you respect the plaintiff's allegations.

If the plaintiff wants to sue the parent, and the parent is an out of State corporation, the plaintiff is the master of the complaint.

And, in the Simpson case, the ninth circuit held that it was completely proper to remain in Federal court, even though it was obvious to all that there was a subsidiary that was an in State subsidiary that, if it had been sued, would be non diverse.

So, we think that's the proper answer, Mr. Chief Justice.

Now, if I could turn to the second issue that we have prevented... presented, that concerns how one would treat EQR, which is the management agent of Lincoln Property Company.

We read the fourth circuit's opinion as engrafting onto this Court's test in the Carden case an additional requirement that, in addition to the citizens of--

Justice Ginsburg: Mr. Frederick, would you clarify one thing for me?

I don't know how we even get to the second question, about partnership.

If you're right that Lincoln is a corporation... it's a Texas corporation, with its principal place of business in Texas, end of case; it's the only named defendant... so, how do we get to something about a partnership?

Mr. Frederick: --If you agree with us on question one, Justice Ginsburg, reversal is the appropriate disposition, and the Court need not reach question two.

We would submit, however, that, because the error is so egregious and leads to the difficulties that have been outlined by the Real Estate Roundtable for nationwide business entities, that the Court certainly ought to say that this was error, as well, or at least to vacate that part of the judgment, as well.

And the reason is, in the Carden case, what the Court held was that the--

Justice Ginsburg: Well, I don't understand it.

We wouldn't vacate the judgment in part.

If we reversed,--

Mr. Frederick: --No, but you--

Justice Ginsburg: --that's the end of it.

Mr. Frederick: --expressed disapproval with this very close nexus standard by which the fourth circuit attempted to engraft onto the normal citizenship rules for a limited partnership the notion that its citizenship could be deemed, if its activities had a very close nexus with the State... and I'm referring now to the passage, Justice Ginsburg, that's at pages 16(a) to 17(a) of the petition appendix.

There are four page... four sentences on those two pages that capture the error of the fourth circuit.

And, just below the bottom, it says... it says,

"The real party in interest owns land and operates a substantial part of its business in Virginia, thus establishing a very close nexus with the Commonwealth. "

Justice Ginsburg: Yes, but, Mr. Frederick, before that... you know, read back... the court... the fourth circuit has said,

"It appears that the real and substantial party in interest is this Virginia subsidiary, be it a partnership, be it a corporation. "

So, it's... the thing about nexus is not self standing.

The court is positing that there is a Virginia corporation or a Virginia partnership in the picture, and then says,

"And given that, not only is it... is it a Virginia entity, but it's got this close nexus because of... it's operating substantially there, as well. "

Mr. Frederick: Well, all of the evidence, Justice Ginsburg, in the record was that EQR was a Delaware limited partnership, where it was registered, composed of a Texas corporation as its general partner, and a limited partner that had two partners that were, themselves, Texas corporations.

So, the evidence in the record established that EQR, which was the entity the fourth circuit was alluding to here, was, in fact, a Texas citizen, and its attempt to confuse the record by suggesting that there was a way to look at the citizenship of that entity through its, quote,

"very close nexus with the State. "

we submit, is also in error.

Justice Stevens: Am I correct, though, this entity we're talking about is not a party to the case?

Mr. Frederick: That's correct.

Justice Stevens: So--

Mr. Frederick: That's correct, Justice Stevens, and that's where we think that the fourth circuit went off.

I'd just like to make one more point before saving the remainder of my time for rebuttal, and that is that if the fourth circuit was correct, SWIB is a critical party here, which the respondents never deny.

It is the owner of the apartment building.

It is a completely proper defendant for the acts of negligence in... and other wrongdoings that they allege.

But they never mention that party in their brief.

So, if the fourth circuit is correct that Lincoln, the parent, really is nominal under this Court's decisions, its citizenship should be completely disregarded.

That was the holding of this Court in Walden versus Skinner in 1879.

On the other hand, if a Lincoln affiliate at that stage in the litigation is a proper defendant, but non diverse, the fourth circuit should have dismissed it, under Horn versus Lockhart, which was decided in 1873.

If the Court has no further questions, thank you.

Argument of Gregory P. Joseph

Chief Justice Roberts: Thank you, Mr. Frederick.

Mr. Joseph.

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

The judgment of the fourth circuit should be affirmed for two reasons, one of which responds to a question that the Chief Justice has, and that is that Lincoln Property Company was not a real party to the controversy.

Justice O'Connor: Was what?

Mr. Joseph: Was not a real party to the controversy.

Justice Ginsburg: Then why did you name it, in the complaint, as the defendant?

Mr. Joseph: Trial counsel named it, because that was the understanding that he had.

It turned out, as Lincoln proved on remand, that it had abandoned the apartment management business in 1991.

And that's at page 239 of the joint appendix.

Justice Ginsburg: Then you'll be left without... if you've named the wrong defendant, then you have a suit against no defendant.

It seems to me you are automatically dismissed.

You didn't substitute another defendant.

Mr. Joseph: You're correct, Your Honor, and that's because Lincoln said that it was the manager.

Lincoln, in its answer, paragraphs 13, paragraph 36, paragraph 5, said that it was the real party in interest, when, in fact, it was not.

And that's what's led to the problem that we find ourselves in, because when you have a non real party to the controversy, jurisdiction is determined by the salient jurisdictional--

Justice Breyer: I've never heard of that.

Justice O'Connor: Well--

Justice Breyer: I thought, if you sue A, and then it turns out A doesn't own the building, well, then you've got to sue B.

Mr. Joseph: --Your Honor, that is--

Justice Breyer: And you didn't sue B.

Mr. Joseph: --We didn't sue B.

We didn't know B existed.

Justice Breyer: Well, that's too bad, that, unfortunately, if you don't know who owns the building, it's going to be hard for you to bring the lawsuit.

But we had, I thought, like, pages and pages of discovery rules and... I've never heard, before, of a lawyer who has a... you know, in this kind of situation, can't find out who owns a building there.

There are records, there are all kinds of things.

Mr. Joseph: Your Honor, Lincoln represented to the public and to the court that it was, in fact, the manager.

Discovery was, in fact, served that would have adduced this information.

This issue came up in the reply brief, so it's not addressed in our brief, but if any of your clerks would care to look at the fourth circuit's supplemental appendix, it--

Justice Breyer: I've looked through the appendix, actually.

I read the joint appendix, insofar as the opinion cited it.

And it cited, in the opinion, several... five factors... and I guess there are no others, though you can bring them out if there were... that supported you.

And the only two that seemed to say that it had something to do... that seemed to have anything at all to do with suggesting that there was no diversity... was Mr. Fred Chaney, which said that it was a partnership and not a company.

I read that.

That didn't seem to me to be what he said.

And then somebody called Mr. LeBeau, who said that Franzen is a senior vice president and... a Virginia resident... and partner in Lincoln Property.

So, I looked up that, and it was on, like, page 273 and, I think, 173 there.

And they asked Mr. LeBeau, and he says,

"Lincoln operates through many different structures, and I don't know what they were using here. "

Am I right--

Mr. Joseph: --Your Honor--

Justice Breyer: --or did I misread it?

Mr. Joseph: --you read that absolutely correctly.

There--

Justice Breyer: All right.

So--

Mr. Joseph: --are other--

Justice Breyer: --what is the evidence?

Mr. Joseph: --There are... there is other evidence on that issue, which I believe is a distinct issue, but let me address that issue.

In lawyer prepared documents that were submitted specifically to rule 26(a)(1) disclosures and the... and the supplemental interrogatory answers, which we've cited in our brief, it was lawyers that identified Mr. Franzen as a senior vice president and partner of Lincoln Property Company, raising an issue--

Justice Breyer: Where is it in the appendix?

It said that he... you sue person X, and I take it the reason that you won this case in the fourth circuit... which was surprising to me... was that a person called Mr. Franzen, who is a resident of Virginia, was a partner of the defendant.

Now, I would like... and, indeed, it was a partnership of which he was a partner.

So, if a Virginia resident is a partner of the defendant, which is a partnership, then maybe you were right.

So, I'm interested in What is the evidence that Mr. Franzen was a partner of the defendant, which is a partnership?

Mr. Joseph: --On page 179 of the joint appendix, Your Honor, in Lincoln's supplemental answers to interrogatories, Mr. Franzen is identified in this affirmation as a senior vice president and partner of Lincoln Property Company.

As I said, there are two issues.

What is Lincoln's characterization?

On the next page, page 181, in the supplemental initial disclosures, Mr. Franzen is again, in the middle of the page, identified as a partner of Lincoln Property Company.

Justice Breyer: What page--

Mr. Joseph: I'm sorry, that--

Justice Breyer: --is that?

Is that a--

Mr. Joseph: --that was joint appendix, page 181.

Justice Breyer: --Well, that's better than what is in the opinion.

What is it?

181.

Mr. Joseph: 181, Your Honor.

The prior one was 179.

There was--

Justice Ginsburg: And how about joint appendix 239 and 275, both of which say that Franzen was not a partner in any entity responsible for managing the apartments in question?

Mr. Joseph: --Your Honor, that evidence was also in the record.

The fourth circuit was not comfortable that Mr. Franzen was being entirely candid by not identifying which partnerships, in fact, he was involved in. And I would note, Your Honor, that this paragraph does not identify any entity that actually managed the apartment building.

Justice O'Connor: --Well, Mr. Joseph, I--

Mr. Joseph: Yes, Your Honor.

Justice O'Connor: --I thought we had to decide whether an unnamed private party should be considered for jurisdictional purposes.

Mr. Joseph: Correct.

Justice O'Connor: And do you have any case supporting that proposition?

Mr. Joseph: Yes, Your Honor.

I'd cite two cases, in particular, for a real party to the controversy defendant, where his citizenship is disregarded, even though he's named Barney versus City of Baltimore, 73 U.S. 580, and Little against Giles, 118 U.S. 596.

Justice Souter: But the... it sounds to me... if I understood your answer correctly, you're talking about cases in which the named party citizenship is disregarded.

Mr. Joseph: Correct, Your Honor.

Justice Souter: Where the question is, Should an unnamed party citizenship "be" regarded?

Mr. Joseph: Absolutely, Your Honor.

And that is the issue that we find in the fourth circuit.

The fourth circuit found that Lincoln Property Company was a nominal defendant.

Justice Ginsburg: Then there's no defendant.

Mr. Joseph: Your Honor, they defended the case. And we'd submit that, on the basis of Barney and Little, that what one does... on the basis of the State Highway Commission case, when you have someone who is serving as a surrogate for another, you look to the jurisdictional characteristics of the other; otherwise, he can, by coming in to defend, obtain a Federal forum to which he is otherwise not entitled.

Justice Souter: Yeah, but he didn't come in to defend; you pulled him in to defend.

Mr. Joseph: It--

Justice Souter: And the problem that I have with your position is, I don't know of anything in the record that indicates that he wasn't ready to defend, that he wouldn't have... or it wasn't ready to defend, that it wouldn't have paid the judgment, that you could have... could not have gotten, from the party you named, all the relief that you were asking for.

Mr. Joseph: --Your Honor, it was definitely a party to the controversy.

We believe that the point of the "real party to the controversy" doctrine is that every party doesn't fall in that category, and that is what the focus--

Justice Souter: Okay.

But so far as the fourth circuit... tell me if I'm wrong here... it sounds to me that the fourth circuit took the following position, that for purposes of determining diversity, it is not enough to name a principal who may be liable for the acts of subsidiaries, without naming the subsidiary, or, if you name a... I'm mixing up principal and corporation--

Mr. Joseph: --Understood.

Justice Souter: --principal and... corporate parent and subsidiary, or principal and business agent.

And I don't know of any rule to the effect that, for diversity purposes, a plaintiff simply cannot choose to sue the parent, or to sue the principal.

Mr. Joseph: Your Honor, the facts, as you've stated them, I believe, are not the facts in this record.

Justice Souter: Okay.

Where would I be wrong?

Mr. Joseph: And let me explain.

It's certainly true that Lincoln identifies, at page 96 of the cert petition appendix, a chart of entities that are salient.

The most notable omission from the chart is the relationship of any of those entities to Lincoln.

There is no evidence as to what... how attenuated that was or what the relationship is, what indemnities existed, or whether Lincoln actually had an interest in this outcome.

They now rely on an agency theory.

That isn't how the case was defended.

Justice Ginsburg: But you named Lincoln as the defendant.

And I'm looking at your second amended complaint, which says, "Lincoln", on information and belief,

"is a corporation with its headquarters in Dallas, and it is the developer and manager of the property. "

That's what you alleged in your complaint.

You allege that Lincoln was the manager... Lincoln, whose Texas corporation was the manager of the property in question.

Now, would you... you're saying that that was wrong, and you should have sued somebody else, and the Court should cure that for you?

That's... it's really bizarre.

Mr. Joseph: Well, let me try to make it less bizarre, Your Honor.

What we're saying is, for example, if I had a dispute with John Smith, the son, who's not diverse, but I accidentally sue John Smith, the father, who is diverse, and he comes in... he removes, and he comes in to defend, on the merits, that he is not a real party to that controversy, and that his citizenship, under the opinions of this Court, would be measured by that of the son to determine whether or not a Federal forum is appropriate--

Justice Scalia: He's a real party if you sued him.

Mr. Joseph: --Your Honor--

Justice Scalia: Just because you're going to lose doesn't mean that he's not a real party.

Mr. Joseph: --It's one thing--

Justice Scalia: It seems to me anybody you sue is a real party.

Mr. Joseph: --Your Honor, that cannot be the case, or the "real party to the controversy" case means that every defendant is a real party.

And it's true, in this sense, that--

Justice Ginsburg: But they... let me stop you on that 17, and it's talking about plaintiffs, that suits have to be brought in the name of the real party so that the defendant isn't in a situation where he's sued one day by plaintiff A, and is not home free when plaintiff B comes in with the identical complaint.

So, it was originally designed with, Who is the proper party, the assignee or the assignor?

That's what real party... that's what the concept is familiarly about.

Who is the proper plaintiff, not defendant?

Mr. Joseph: --Your Honor, it's certainly true that rule 17 only deals with plaintiffs.

But in the cases we've cited, including two I just cited today, it applies to defendants, as well, because rule 17 doesn't confine the limits.

In Navarro, the Court said that it articulates the same principles, but it's not completely congruent with the "real party to the controversy" test.

Justice Ginsburg: Rule 17 is about joinder of parties; it's not about jurisdiction.

Mr. Joseph: Exactly right.

And we're talking about the jurisdiction of the court under the "real party to the controversy" test.

Justice Ginsburg: So, that's... it's something different.

It's a... it's a whole other animal, because "real party in interest", as used in the Federal rules, is a device... is a joinder device, is in the joinder rules.

Now you're saying,

"Ah, but there's some other real party concept out there that has to do with jurisdiction. "

Mr. Joseph: Yes, Your Honor.

And I believe the Court's opinion, in Carden, identified "real party to the controversy" doctrine in a recent example.

I believe it was mentioned again in the Grupo Dataflux opinion.

The concept is that the real parties to the controversy must be before the court.

And to respond to Justice Scalia's--

Justice Ginsburg: I thought Carden was about In a partnership, does every partner's citizenship count?

Mr. Joseph: --Correct.

And in... it identified--

Justice Ginsburg: There wasn't any question that... that it was the right or the... that the defendant was a wrong defendant or that--

Mr. Joseph: --The language I'm referring to, in Carden, was in distinguishing the dissenting opinion, in saying that if, in fact, the question were, Which of the parties before the court should be considered, for jurisdictional purposes?

it would be the real parties to the controversy.

Justice Breyer: But to get the real parties before the court, you have to sue them.

Mr. Joseph: That's correct.

Justice Breyer: And, apparently, you didn't sue the right people until you replied to me.

Then I took your argument, because it seemed like seven arguments, mixed up, and I took that argument to be the following.

I'm... I, the plaintiff, sued a defendant, who is called the Lincoln Property Company.

Now, I grant you, there is some evidence that that defendant, the one I sued, is a Texas corporation.

One, they showed us the certificate of incorporation, or they got a sworn statement.

Two, in my complaint, I said that's what he was.

However, there is some evidence the other way.

On page 179 and 181, we have a person named Mr. Franzen who says,

"I am a senior president, vice president, partner for defendant Lincoln Property Company. "

in which case, if that's your argument, you're telling us... is that your argument, that there is some evidence the real defendant, whom I sued, is not a corporation, despite the apparent evidence to the contrary?

Mr. Joseph: Your Honor--

Justice Breyer: Rather, it is a partner, and Mr. Franzen is a partner in it.

Is that your argument?

Mr. Joseph: --We did argue, and we do argue, that the fourth circuit could reasonably conclude, on burden of proof grounds, that it was not satisfied that the Texas corporation was a corporate entity.

But the argument that I've been using--

Justice Breyer: Do you want to make that argument here, or are you going to give up on that argument?

Mr. Joseph: --Your Honor, we're not abandoning the argument, only because if you look at the corporate entity, itself, from the joint appendix, 243, it began as Lincoln Property number one.

If we then look at the yellow brief, in the addendum, we have thousands of Lincoln entities.

We have no doubt there is a corporation that is a Texas entity.

Now, our argument today is that that entity could not step in the shoes of another potentially non diverse entity without at least identifying who the... what the jurisdictional characteristics of that entity were.

Agency was not argued.

Agency was not argued below.

Lincoln said it was the manager.

The disparate court found, in three opinions, Lincoln was the manager.

The plaintiffs thought they were suing the entity managing the premises.

Lincoln was not that entity.

It had abandoned that business.

Justice Scalia: Well, if they said they were, then it seems to me... why don't you just hold them to it?

Mr. Joseph: Your Honor, it was not the plaintiff's choice.

Justice Scalia: I mean, it seems very odd that they... they say, "We were", and you say,

"Oh, no, you weren't. "

[Laughter]

Mr. Joseph: Your Honor--

Justice Scalia: "We shouldn't have sued you".

Why don't you just take them at their word and sue them?

Mr. Joseph: --There were significant tactical advantages to Lincoln, whatever its relationship with these entities, in being in Federal court.

The plaintiff preferred a State court venue where there was no Daubert and there was no summary judgment permissible on the basis of affidavits and deposition testimony.

Justice O'Connor: But it isn't up to the court of appeals to make some kind of roving inquiry of who would have been a better defendant.

It just seems to me the fourth circuit rule is totally unworkable and unprecedented.

I don't see how you can possibly overcome that, because the plaintiff is the master of its complaint, and it can decide who to sue.

And Lincoln was sued as a corporation, and I don't see what business it is of a court to say,

"Oh, it should have been somebody else. "

Mr. Joseph: Let me attempt to articulate a proposition, Your Honor, and that is that when jurisdiction is challenged, the party asserting jurisdiction, seeking the Federal forum, has to defend it by proving diversity of citizenship, and that means when its "real party to the controversy" status is challenged, it has to adduce sufficient evidence that it is, indeed, the real party to the controversy.

Justice O'Connor: Well, you can move, as a party to the case, to dismiss somebody who's sued for some reason, but that isn't what happened here.

Mr. Joseph: It is not what happened here.

And I would submit to you it is not what happened here, because of a lack of candor on the part of the defendant.

Ordinarily, one would expect the defendant to say, "Not me".

In fact, this defendant proceeded to litigate--

Justice Scalia: Well, what if they did?

Suppose they did say, "Not me", and you proceeded with your lawsuit.

Mr. Joseph: --They'd--

Justice Scalia: Okay?

What would happen?

Mr. Joseph: --Your--

Justice Scalia: They would win the judgment.

Would they be the real party in that controversy?

Mr. Joseph: --And that--

Justice Scalia: Of course they would be.

Because you sued them.

Even if they're innocent... are you saying all innocent parties are not parties to the controversy?

Mr. Joseph: --By no means--

Justice Scalia: I don't think so.

Mr. Joseph: --Your Honor.

And that was... that was a part of your first question, which I want to respond to.

Anybody who is a non real party to the controversy finds jurisdiction in the Federal court to be able to establish that it is not the party.

But when it defends, by standing in the shoes as a surrogate for another in order to obtain a Federal forum, the jurisdictional characteristics of that party are not germane.

It is the jurisdictional characteristics of the party in whose shoes it stands.

Justice Ginsburg: --But we don't know--

Mr. Joseph: That is--

Justice Ginsburg: --who that party is.

Let's go back to your... when you started this case, you said that you would, on discovery... this is what you said in... at the time of your initial complaint... determine if there is an additional defendant, or defendant, who should be named as parties.

What discovery did you pursue to find out if there was an additional defendant, or defendants, who should be named as parties?

Mr. Joseph: --Interrogatory number 3 in the fourth circuit supplemental appendix, at page 35, inquires about any person, which is defined to include any corporation affiliate, that has any knowledge of the tenancy of the plaintiffs.

The objections are not in the record.

Again, this issue came up in the yellow brief, but they did not reply to that.

Justice Scalia: Has any knowledge of--

Mr. Joseph: Documents--

Justice Scalia: --the what of--

Mr. Joseph: --Of the tenancy of the--

Justice Scalia: --Oh.

Mr. Joseph: --lease relationship of the Roches in the Westfield Village Apartment--

Justice Stevens: Mr. Joseph, can I ask you to go back to the beginning for a second?

Mr. Joseph: --Yes, sir.

Justice Stevens: They filed a reply brief.

There are a lot of disputes about the facts.

Do you concede that the Lincoln Property Company that you sued is a Texas corporation?

Mr. Joseph: Your Honor, we acknowledge there is a Texas corporation.

We sued the Texas--

Justice Stevens: Do you acknowledge that the corporation that you sued, Lincoln Property Company, is a Texas corporation?

Mr. Joseph: --Your Honor, we do not, in the sense that we accept the fourth circuit's determination that the burden of proof to clarify that entity's status, and the germane entity status--

Justice Stevens: I understood them to be arguing, in essence, that there's some other entity that really is the real party in interest.

Mr. Joseph: --That is correct, Your Honor.

Justice Stevens: But you dispute, as a matter of fact, that Lincoln Property Company is a Texas corporation?

Mr. Joseph: Your Honor, what we say is that the fourth circuit found that there was insufficient--

Justice Stevens: I'm asking you a--

Mr. Joseph: --proof of that point.

Justice Stevens: --very simple "yes" or "no" question.

Mr. Joseph: Your Honor, we do not... we do not walk away from the fourth circuit's conclusion, so we... we know there is a Texas corporation.

We don't know that that is--

Justice Stevens: Is this corporation a Texas corporation?

The one you sued.

Mr. Joseph: --We so alleged, and they said yes.

So--

Justice Stevens: So, you say yes, it is.

Mr. Joseph: --It is.

But whether or not that is the entity, we can't be sure of, because--

Justice Breyer: No, I'd like the... these are very expensive, this litigation.

You're all the way to the Supreme Court.

It's costing people a lot of money.

And if there is a legal issue here, I'd like to find out what it is.

I have exactly the same question Justice Stevens had, which is where I started.

Do you agree that the company you sued, called Lincoln Property, is a Texas corporation, yes or no?

Mr. Joseph: --Yes, Your Honor, we'll--

Justice Breyer: All right.

Mr. Joseph: --acknowledge that--

Justice Breyer: Then that's out... fine, that's out of the case.

The next question is... of course you could sue a real company, called Lincoln Property or Jolly Fisherman, and it could turn out that that real company is a front, that it has no real existence, its... all its papers and everything to do with it is signed by a totally separate corporation.

Are you saying that's what happened here?

And if that's what happened here, which is the real corporation and people in interest?

Mr. Joseph: --It is... the burden of proof failure that the fourth circuit found was that we could not--

Justice Breyer: I'm not talking about burden of proof failure.

Mr. Joseph: --We don't--

Justice Breyer: I'm asking you, Who is the real corporation or person in interest that Lincoln Property is a kind of sham or front for?

Mr. Joseph: --We do not have the answer to that question.

And that was the fourth circuit's conclusion.

We know that EQR is a part of that.

And that's why... they put in an affidavit that said that EQR was the only affiliate of Lincoln involved in the management--

Justice Breyer: Okay.

Then you think--

Mr. Joseph: --and that's why we--

Justice Breyer: --I'm getting there.

I'm not arguing with you.

I'm getting there.

Then you think that whoever it is that they are the front for has... is a Virginia resident.

Is that what you think?

Mr. Joseph: --What we think, Your Honor, is that they did not prove that that was not the case, and the burden of proof to sustain jurisdiction was theirs.

Justice Breyer: Might be a Virginia resident.

Mr. Joseph: Correct.

We don't know--

Justice Breyer: Might be.

Mr. Joseph: --who it is.

Justice Breyer: You think there is a real party there that might be a Virginia resident.

And do you have any idea whatsoever of what that real party is called?

Mr. Joseph: We do not, Your Honor.

Justice Breyer: And what's the evidence that there is a Virginia resident, in there?

Mr. Joseph: That is the burden of proof failure that the fourth circuit found.

But the Real Estate Roundtable brief, at page 11, identifies the fact that it's very common to have a special purpose entity that is property specific, which gives further rise to that inference.

But it is a failure of a burden of proof that was ultimately found by the fourth circuit.

And because of the failure of the burden of proof, we're not in a position to identify the party.

Had--

Justice Souter: But the failure of the burden of proof is apparently a function of the fourth circuit's assumption that if you sue the parent, you have a duty to negate the possibility of suing any subsidiary; or if you sue the principal, you have an obligation to negate the possibility of suing any agent.

And I don't see where that comes, except out of the sky somewhere.

Mr. Joseph: --Justice Souter, I believe, in fairness to the fourth circuit, on page 16(a) of the petition appendix, they said that they found Lincoln to be a nominal defendant, not a real party to the controversy.

In that case, the relevance of the subsidiary or other entity was to determine the jurisdictional characteristics.

And that is the reason why the fourth circuit found a failure of the burden of proof, because they could not identify, at the time of that hearing, who was the appropriate subsidiary and what the jurisdictional characteristics were.

Justice Souter: So, everything turned on the nominal party finding.

Mr. Joseph: Yes, Your Honor.

Justice Souter: On the nominal party assumption.

Mr. Joseph: Correct.

There's no dispute that if Lincoln were a real party to the controversy, they don't have to join every other real party to the controversy.

Justice Souter: But if the fourth circuit is wrong on nominal party, that's the end of the case for your side.

Mr. Joseph: Not quite, Your Honor, because there's still the burden of proof issue.

Justice Souter: No, but the burden of proof issue, as you've just answered my question, does not arise until the fourth circuit finds that Lincoln is a nominal party.

And if, in fact, that conclusion is incorrect, then there's no burden of proof issue that has... or no burden of proof that has not been satisfied.

Mr. Joseph: That is correct only if Your Honor makes that determination based on matters that were before the fourth circuit.

There are a series of affidavits they rely on that were submitted after the fourth circuit's determination which may affect the determination as to whether or not Lincoln is a real party to the controversy.

Specifically, in the blue brief, in footnote 9, and in the yellow brief, in footnote 15, they've adduced additional evidence.

The fourth circuit was ruling at a point in time as to what the burden of proof was.

Justice Ginsburg: Mr. Joseph, do I take it that the essence of your position is that a removing defendant, if that removing party is a corporation, must disclose all affiliates that may have been involved in the... in the occurrence that the plaintiff might have, but failed, to name as a defendant, that a defendant... although, on the surface, there's complete diversity, a defendant corporation must, in order to remove, identify all subsidiaries and affiliates who might have been sued, as well?

Mr. Joseph: No, Your Honor, that's not our position.

And the reason that's not our position is that, at the time of removal, every defendant that is, on the face of the complaint, diverse has the ability to remove in order to defend on the grounds that it is innocent... the innocence grounds.

But if it then steps, instead, to defend the merits on behalf of another in order to invoke a Federal forum... instead of saying, "Not me", which it could have done, but did not do... had it said, "Not me", then the plaintiff would have known that it should be looking at other entities.

In fact, it said nothing of the sort.

Justice Ginsburg: But defendant never took the position, "Not me".

Mr. Joseph: That is the--

Justice Ginsburg: Defendant said--

Mr. Joseph: --entire issue.

Justice Ginsburg: "# Yes, we are the responsible party. "

Mr. Joseph: Your Honor, that is correct.

And they clearly were a party to the controversy.

But if they were not the real party to the controversy, they managed, perhaps, to acquire a Federal forum by virtue of stepping into the shoes of the subsidiaries.

And that is the argument, that if they are not the real party to the controversy because they're litigating the merits on behalf of another, it's the jurisdictional characteristics of the other that are germane, and that's the burden of proof failure.

The "real party to the controversy" doctrine is not a new doctrine to this Court.

It goes back to at least 1809, Brown against Strode.

I mean, the... it is a fundamental doctrine.

And as Justice Ginsburg pointed out, it goes back as far, perhaps, as 1789, to the assignee clause in the Judiciary Act, in section--

Justice Ginsburg: Yes, but I also--

Justice Stevens: May I ask--

Justice Ginsburg: --pointed out it's--

Justice Stevens: --this question? Did you engage in discovery trying to determine who the real party in interest was?

Mr. Joseph: --Trial... I wasn't trial counsel, Your Honor.

Trial counsel did, in the fourth circuit supplemental appendix, at pages 35 to 38, make inquiries.

Justice Stevens: Well, did he... did he do a thorough job of trying to find out who the real party in interest--

Mr. Joseph: No, and... they did not... and I--

Justice Stevens: --Wouldn't it be his burden, if he thought it was the wrong person?

Mr. Joseph: --Your Honor, he didn't think it was the wrong person.

He was being told it was the right person, and shouldn't be faulted for lack of diligence in accepting the representations that they had the right person.

Justice Stevens: Yeah, but if you accept the representation, then they sued the right people.

Mr. Joseph: But, Your Honor, it only turned out at the end that, in fact, that was not correct.

And these matters snuck in through discovery, in the course of--

Justice Stevens: It would seem to me--

Mr. Joseph: --discovery that was a merits discovery.

Justice Stevens: --if there was a dispute about this, it ought to... there ought to have been extensive discovery before you got to the court of appeals.

Mr. Joseph: Your Honor, there was... there were discovery requests served.

There was not discovery forthcoming on the issue of affiliates.

Chief Justice Roberts: Well, you had no... I mean, you had no real reason to do it.

You had somebody there who accepted responsibility, in the sense that they were willing to defend on the merits, right?

Mr. Joseph: That's correct, Mr. Chief Justice, which is the reason--

Chief Justice Roberts: And it's only because you lost that you now question whether or not they should have accepted... you're saying they shouldn't have accepted responsibility, and shouldn't have defended on the merits.

Mr. Joseph: --There is no doubt, Your Honor, this is a Hail Mary pass, because the court had made clear what its decision was going to be.

But Hail Mary passes connect.

And the question is whether or not a real party to the controversy was, in fact, litigating.

And we believe that it was not.

And that... we basically come to the argument that limited jurisdiction means the limits must be respected.

"Real party to the controversy" doctrine is an established limit.

There are federalism issues involved, and we submit that the fourth circuit's judgments should be affirmed, because we did not have the real party to the controversy.

Thank you very much, Your Honors.

Rebuttal of David C. Frederick

Chief Justice Roberts: Thank you, Mr. Joseph.

Mr. Frederick, you have nine minutes remaining.

Mr. Frederick: I would waive, but for the clarification of two points in the record.

Number one, we take umbrage at being accused of a lack of candor in this Court.

Paragraph 22 of their complaint says, and I'll quote,

"All the defendants, acting through Lincoln and/or their obligations as owners of the property through the lease and acting by and through their agents, were responsible for one or more acts of common law and/or statutory negligent conduct with respect to Roche's apartment, including, but not limited to. "

a long laundry list.

When the parent is sued for the acts of its agents, and the parent comes forward and says,

"We will accept the responsibility for our agents. "

there's no cause to be accused of a lack of candor simply because there's no effort later to identify who those agents are.

Justice Breyer: But I guess what he's saying... I'm trying to put the... as good a light on it as I can... it's a... that if, in fact... if a big real estate developer, which is a corporation... what they do is, they organize a lot of deals, and their deals would take the form of hundreds and hundreds of limited partnerships, which are owned buildings in various States.

And I think he's saying,

"Well, for diversity purposes, we should consider the citizenship of the parent corporation to be the citizenship of the limited partnership that happens to have control of the building that we're complaining about. "

Mr. Frederick: And Lincoln had control.

It was acting through agents.

That's undisputed.

But the lease says Lincoln Property Company is the party, as agent, for the owner, SWIB.

Lincoln Property Company set the policies for the mold.

Lincoln Property Company hired Mr. Roche as an employee.

Lincoln Property Company directed the actions of all of the people involved in this.

And so, there's not... there's not any basis on which Lincoln Property could come... Company could say, "We are not responsible".

And when this was--

Justice Breyer: No, he thinks--

Mr. Frederick: --put to us--

Justice Breyer: --you are responsible, but he thinks you ought to have the citizenship of the intermediate entities that own, or manage directly, the building.

Mr. Frederick: --There would be no authority from this Court to so hold.

And there... the interrogatory that he points to, interrogatory number 3, reads as follows,

"Identify every person, other than your attorneys, who is aware of the facts and circumstances surrounding Mr. Roche's lease at Westfield Village Apartments and repeat in detail the substance of such person's knowledge. "

Now, from that interrogatory, we are supposed to infer that there are... a question about the citizenship of the affiliated entities through which Lincoln is operating.

We put forward all of the names of the people that we could identify who had some knowledge about this.

But I would submit to you that a response, as he is suggesting here in this Court, is not a reasonable one.

Finally, with respect to Mr. Franzen, the fact that his title may say "partner" surely cannot transform the corporation documents that say that Lincoln Property Company is a corporation in the State of Texas.

Thank you.

Chief Justice Roberts: Thank you, Mr. Frederick.

The case is submitted.

Attribution:

The Oyez Project

Featured:

Exxon Mobil v. Saudi Basic Industries - Oral Argument

Fri, 09 Jan 2009 14:49:03 +0000

Case:

Exxon Mobil v. Saudi Basic Industries

Media File:

03-1696_20050223-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Gregory S. Coleman

Justice Stevens: We will now hear argument in Exxon Mobil against Saudi Basic Industries.

Mr. Coleman, I trust you will soon tell us why the case is not moot or whether you think it's moot, and if... if not, why not.

Mr. Coleman: Good morning, Justice Stevens.

May it please the Court:

I will begin with that, if you would like.

This case is not moot because there is an ongoing case or controversy between the parties.

There is a judgment, it is true, from the Delaware State court, which has now been affirmed by the Delaware Supreme Court.

But preclusion doctrines not Rooker-Feldman and not mootness govern the resolution of the claims that we asserted first--

Justice O'Connor: Well, what financial interests do your clients have to keep litigating today in another court?

Mr. Coleman: --I don't know the--

Justice O'Connor: What's going on?

I mean, it's very confusing.

Mr. Coleman: --Well, certainly, Justice O'Connor, we've not yet recovered on our judgment and that judgment is still there.

It is still in existence.

We've not yet collected on it.

But I don't believe that mootness turns on whether you have, in fact, collected on a judgment.

There are very few cases out there in which a party has, in fact, obtained two judgments, one from a State court and one from a Federal court, usually because a party waived the application of preclusion doctrines.

And... and we have conceded previously that that's not our interest.

What is our interest here is that we have asserted Federal jurisdiction.

This case was brought in Federal court by SABIC.

During the course of discovery, we found some things out that they had been overcharging us and we indicated that we were going to bring claims against them in Federal court.

They ran down to Delaware court by forum shopping in order to try to obtain a shorter statute of limitations, which turned out for them to be a strategic blunder of monumental proportions.

But the Federal case, when we filed it, those claims had original jurisdiction in Federal court.

They have not yet been resolved in a proper way.

We--

Justice Ginsburg: But do you have a continuing case or controversy?

That was... that... that's a bedrock Article III requirement, and if you've got all the relief that you were seeking... let's put it this way.

Suppose your opponent SABIC says, here's the check for the $417 million and we undertake that we're not going to pursue any further relief.

Would you have a case or controversy left?

Mr. Coleman: --Yes, Your Honor.

We might not have an interest in pursuing the case, but we have a legal interest in terms of Article III case or controversy.

It is well established that the... the fact of taking a judgment does not make a case moot.

In fact, if there were a holding that we think that the Federal case were moot--

Justice Ginsburg: But if you've got all the relief to which you are entitled, that does make a case moot.

Mr. Coleman: --In terms of cases that involve injunctive relief where it is impossible for a court to give you the relief that you have... that you are seeking, that is true.

But when you are seeking money damage, it is at least theoretically possible... we're not saying that we're going to ask for that, but at least theoretically possible that the Federal district court could still give us relief.

And therefore, what we are asking for is--

Justice Stevens: What relief could it give you?

Justice Souter: But what for?

Justice Stevens: What relief?

If you're paid in full, what... what relief are you entitled to?

Mr. Coleman: --Well, we think the relief that we're entitled to, in terms of this, is for the case to be remanded for the district court to resolve these issues under preclusion doctrines.

Justice Stevens: But what issues would... would the district court resolve?

Mr. Coleman: Preclusion.

Justice Souter: Well, if you win on the preclusion--

Justice Scalia: Who cares?

Justice Souter: --what do you get then in substance?

Mr. Coleman: We don't necessarily intend to take a... another judgment in Federal court.

Justice Souter: Then what do you intend to do?

If you win on preclusion, what do you do then?

Mr. Coleman: Well, hopefully we'll win on preclusion with respect not only to this suit, the New Jersey II suit, but also the New Jersey I suit, which we say the district... or the Delaware judgment precludes.

Justice Kennedy: Well, I think we'd like an answer.

Justice Ginsburg gives us... gives you a hypothetical case.

You've got the money.

The judgment has been discharged in the State courts.

What is left to do in the Federal court?

Mr. Coleman: It is likely--

Justice Kennedy: Now, the one answer I heard you give, well, we're interested in preclusion to say... well, that's all historical at that point.

Who cares?

Mr. Coleman: --It... it is likely, Your Honor... and we have previously said... that we may very well dismiss the case of our own accord.

But that doesn't mean--

Justice Kennedy: We're looking for... we're looking for something that makes the case live.

Mr. Coleman: --Our claims are alive.

There are claims there that seek relief--

Justice Kennedy: But we're... we're questioning why that is and we're asking you what relief you need to get that you wouldn't get in the hypothetical that Justice Ginsburg posed.

Mr. Coleman: --We thought we would not seek further monetary relief.

Justice Breyer: So what--

Justice Scalia: Do you know how many claims in this case that... that were not in the Delaware case?

Mr. Coleman: We have affirmative defenses to the New Jersey I, but... but the claims in New Jersey II and Delaware are the same, Your Honor.

Justice Kennedy: Is your answer that you might want equitable relief, an injunction to continue making payments in the future, or something like that?

Mr. Coleman: No, Your Honor.

We're not seeking additional monetary or equitable relief.

Justice Ginsburg: You... you would be stuck anyway because you made a counterclaim and... and it would be... on which you prevailed.

And in that counterclaim you would be precluded if you didn't ask for everything that you could get.

But... but at this stage at least, the... the door... there... there is still conceivably an avenue of further litigation because, SABIC hasn't yet said that it's not going to do anything more, that it isn't going to petition for cert, for example.

Mr. Coleman: And, indeed, Your Honor.

I mean, SABIC has represented to the Court that it likely intends to seek certiorari relief from this Court in the Delaware suit.

Justice Ginsburg: So it has--

Justice Breyer: --So if they do, it's not finished.

Mr. Coleman: It is not finished--

Justice Breyer: Yes, all right.

I'll ask them that.

Mr. Coleman: --Getting back to the Rooker-Feldman issue, which is the issue on which the Court granted cert, Rooker-Feldman is a narrow, limited doctrine, but it bars only appellate review not parallel litigation in Federal district courts.

Rooker-Feldman is not a theory of vanishing original jurisdiction, nor is it a jurisdictional substitute for the preclusion analysis mandated by Congress in the Full Faith and Credit Act.

The expansive interpretation asserted by SABIC misperceives the fundamental nature of appellate review.

It's untethered to any natural negative implication in 28 U.S.C. 1257.

It illegitimately displaces the application of section 1738, the Full Faith and Credit Act, in most cases to which it is traditionally applied, and it serves absolutely no useful purpose.

Justice Breyer: Well, the problem that bothers me... and I don't know that there's an answer to it... is you have plaintiff.

Plaintiff goes into State court.

He brings a lawsuit, a tort suit, a contract suit.

And then he decides he'd also like to go to Federal court.

He brings exactly the same suit.

And here we have two suits and exactly the same thing running along at the same time.

Now, I know there are principles from this Court's case law that says, well, that's what's supposed to happen.

They've always bothered me.

But now let's take a special instance.

The special instance is that in court one in the State, the plaintiff loses.

Now, what he decides to do is to say to the Federal court, we want you to review what they did in the State court.

Can't do that.

Right?

Mr. Coleman: Yes, Your Honor.

Justice Breyer: Okay.

So he brilliantly figures out I will omit the word review from my... from my motion.

I will ask for precisely the same thing just not use that word review.

I will ask them to go and make their decision which happens to be... in my opinion should be... 100 percent the opposite of what the State court did showing they're wrong.

But I won't use the word review.

Now, you say because he cut the word review out, he can do it.

Mr. Coleman: No, Justice Breyer.

It's not because he cut the review out.

Rooker-Feldman is an issue of appellate... the exercise of appellate jurisdiction.

So what does appellate jurisdiction mean?

Well, appellate--

Justice Ginsburg: --Mr. Coleman, would you clarify, I think, in response to Justice Breyer's inquiry?

Rooker-Feldman both involved State court litigation that was over and done with.

Then you come to the Federal court.

You have two parallel cases would be... brought within a month of each other?

Mr. Coleman: --Within 2 months of each other.

Within a month of each other, Your Honor.

Justice Ginsburg: And isn't the standard defense of the person who has started the other suit first, well, Your Honor, prior action pending, please hold the case that started second in abeyance till we get done?

And if we win in the first case, then it will be precluded.

Then the second case... the parallel case will be precluded.

That's not Rooker-Feldman territory.

Mr. Coleman: That's... that's... Your Honor, that's our position that... concurrent jurisdiction is a separate issue from the appellate review issue that Rooker-Feldman raises.

Justice Breyer, the answer to your hypothetical is that appellate review is something different from having a parallel action.

Appellate review is probably best defined by two characteristics that I'll try to flesh out for you.

The first is that the proponent alleges some sort of injury causing error by the trial court and not by the adversary and then seeks an order reversing, vacating, or otherwise nullifying that lower court order.

When a party alleges an injury by his adversary rather than the trial court, the most that can really be said is that you are continuing on a parallel litigation but not that you are seeking appellate review.

You do not have what looks like appellate review.

You're not alleging errors by the lower court.

You're not seeking an order that directly nullifies or otherwise undoes the State court judgment.

Justice Souter: No, but the argument... it seems to me the argument is that in a de facto sense, when you try to litigate the Federal case, after losing the State case, you in effect are asking the Federal court in some sense to review what happened in the State court.

Justice Ginsburg's answer to that is preclusion is the answer.

Is that your answer?

Mr. Coleman: Absolutely.

Justice Souter: Because if that... if that is... if we accept that as the answer, then there's no argument for saying you should expand Rooker-Feldman to include the de facto review as opposed to the... the very strict sense of review that you're talking about.

Mr. Coleman: That is absolutely our position, Justice Souter, that preclusion addresses all of these issues.

Justice Breyer: Well, but can you... can you expand on this a little?

I'm not taking a view on it.

I'm trying to clear up what's a confusion in my mind.

I see how you could do this on the parallel business with... with delaying it on the docket and using the doctrine of preclusion.

I understand that.

But we've still got this doctrine called Rooker-Feldman out there, and as long as you have that doctrine, it strikes me as odd if... say, it weren't a plaintiff.

Say it was the losing party, you know, that was asking the Federal judge, Judge, you have this case on your docket.

Let's move it up.

Let's decide it now.

He doesn't use the word review, but everything else is the same.

He wants a decision out of that court that is going to be the opposite of what the State court did.

And what's concerning me... maybe I shouldn't be concerned, but what's concerning me is whether he can get it or not seems to turn completely on whether he uses the word review in the petition.

Mr. Coleman: I don't... I don't think that that is true.

It should not and does not turn on the words that you use in your petition.

What it turns on is the fundamental nature of the injury that you claim and of the relief that you seek.

One reason why you don't need to be necessarily concerned about this is that in all of these cases in which one case has gone to judgment and there is a... either a continuation or a new case, preclusion is going to cover these.

The only extension of Rooker-Feldman that SABIC is asking for is what they call the actually litigated test.

That is the heart of the Full Faith and Credit Act.

Justice Ginsburg: Rooker-Feldman, if I understand it correctly, is a subject matter jurisdiction bar.

Is that--

Mr. Coleman: Yes, Your Honor.

It--

Justice Ginsburg: --Yes.

And--

Mr. Coleman: --it arises from a negative implication taken from section 1257 and a second negative implication from 1331.

Justice Ginsburg: --Well, to... so if the two lawsuits, the State court suit and the Federal suit... they're proceeding concurrently or one is held in abeyance waiting the other, there is certainly subject matter jurisdiction in the Federal court of the Federal action.

Mr. Coleman: Yes.

Justice Ginsburg: To apply Rooker-Feldman in that context would say you had subject matter jurisdiction at the outset, but then you lost it somewhere down the line.

Mr. Coleman: And... and... yes, Justice Ginsburg.

And that's a distinction between your hypothetical and Justice Breyer's.

Justice Breyer's, as I... if I understand it correctly, is that the Federal suit starts after the State court is done.

Yours is where you have parallel actions at the same time.

And where the Federal claims are parallel or even filed first, as in our case, you can't say that the moment you file those that you're seeking review of some nonexistent State court judgment.

You're simply asking for relief from something that your adversary did to you.

And the argument that SABIC makes that the court relinquishes jurisdiction has no basis or justification in anything this Court has ever said.

It is a theory of vanishing jurisdiction that I cannot understand.

Justice Kennedy: Suppose--

Justice Stevens: Mr. Coleman, can I interrupt with a question?

Mr. Coleman: Of course.

Justice Stevens: Is it your position that what should have been done in this case, not in the hypothetical case, is the trial court should have just stayed the action pending the outcome of the Delaware case?

Mr. Coleman: And, in fact, that's what the Federal district court had done, Your Honor.

Justice Stevens: And that's what... he did... that was correct.

Mr. Coleman: Yes, Your Honor.

Justice Stevens: And then when the Delaware case was over, then what should he have done?

Mr. Coleman: Well, we could either ultimately dismiss it or the Federal district court could say, looks like your Delaware case is over.

SABIC brings a motion--

Justice Stevens: And... and he has given you all the relief your entitled to.

Therefore, you go ahead and dismiss the case.

Mr. Coleman: --Yes, or SABIC brings a motion--

Justice Stevens: And therefore, my next question is why shouldn't we do exactly that now.

Mr. Coleman: --Because the question before the Court today is a question of jurisdiction, not of practical consequences other than the mootness question that SABIC has raised.

But practical consequences are that what we may do--

Justice Stevens: Well, maybe we could vacate the judgment of the court of appeals, say that was wrong, but still, order it dismissed after we vacate the judgment.

Mr. Coleman: --I think, as in Feldman, that's a question that should be first addressed by the district court.

Certainly we hope that you will vacate or reverse the Third Circuit's judgment and allow the district court to address those issues.

Perhaps we dismiss it.

Justice Stevens: But if you don't tell us what issue remains, I don't know why we shouldn't just direct the suit to be dismissed.

Mr. Coleman: There... there is a live... in... in the terms of Article III, there are live claims that remain pending before the district court.

And while it is true--

Justice Souter: And I take it that's because you don't have the cert period expired yet in the first action and you don't have the check.

Mr. Coleman: --At the very minimum--

Justice Souter: Okay.

It's... if the 3 months is expired and the check is in your hand and it's certified, what's left?

Mr. Coleman: --As a practical matter, we have no intention.

As a jurisdictional matter, there's still--

Justice Souter: I'm not asking about your intention.

Let's assume you do intend to litigate further.

What for?

Mr. Coleman: --If we did intend to litigate further, SABIC would be entitled to go to the district court and say they can't.

They are precluded.

Justice Souter: I want... I want an answer to my question.

What are you going to litigate for?

What's left?

Mr. Coleman: Well, again, setting aside our intentions and hypothetically, there are cases in which--

Justice Souter: I'm talking about your case.

What's left?

Mr. Coleman: --We... we do not seek... will not seek any further review from the district court.

Justice Souter: Nothing is left.

Mr. Coleman: Yes, Your Honor.

Justice Breyer: Now, suppose you don't have the check.

What's left?

Mr. Coleman: Well, the case is still up in the air.

Justice Breyer: Why?

Mr. Coleman: Because--

Justice Breyer: You have a judgment.

Mr. Coleman: --the case... the case is not over.

Indeed, because the State--

Justice Breyer: I never heard of a case that isn't over until you get the check.

I thought the case is over when you have the judgment.

[Laughter]

And then if they don't give you the check, you have a different matter.

We have to get it enforced.

Mr. Coleman: --There is a different matter.

But as a matter of Article III jurisdiction, Your Honor, the... the mootness doctrine does not apply to a situation where you have a judgment and it doesn't necessarily apply the moment you get paid.

Justice Kennedy: --Suppose that you lost in the State court and the judgment is final.

You then go to Federal court.

Are... is there a context in which Rooker-Feldman might then be applicable?

This is all hypothetical.

Mr. Coleman: Our argument is that it would be applicable only if the injury that we claimed in our Federal suit was an injury caused by the State court... the court itself or the judge rather than our adversary and we sought relief from that judgment.

That would obtain the nature of appellate jurisdiction rather than we say, well, SABIC did us wrong, we'd like a judgment.

And then SABIC can come in and say, well, they're precluded.

They already tried that.

Justice Kennedy: In other words, if you had some ongoing relation and, in this hypothetical, the State court ruled against you and you went in to try to reverse that ruling, that would be... that would Rooker-Feldman.

Mr. Coleman: Yes.

If we alleged harm from the court and sought relief from the court's judgment.

Justice Ginsburg: There were only the two cases, Rooker and Feldman, that established this.

Mr. Coleman: Yes.

Justice Ginsburg: Has this Court ever said anything to suggest that Rooker-Feldman, as apart from preclusion doctrine, applies to parallel litigation instead of you go into Federal court after the State court is over and you're trying to undo what the State court did?

Mr. Coleman: I don't think this Court has ever held any such thing, and I think it would be inconsistent with at least Feldman itself.

The idea of... of appellate jurisdiction over the constitutional claims in Feldman that were held not to be barred comes down in the end... SABIC says, well, those claims weren't actually litigated.

But the opinion itself on page 467 points out that the Mr. Feldman had raised his constitutional claims in front of the D.C. Court of Appeals in terms of asking for his waiver.

And when I checked the oral argument transcript from the Feldman case, it was mentioned specifically in terms of Mr. Feldman had raised the constitutional claims in front of the D.C. Court.

And that's on pages 9, 14, and 16 of the LEXIS version of the oral argument transcript.

Justice Ginsburg: But there's no preclusion unless they're also decided.

Mr. Coleman: Yes.

Well, yes.

The district court could then decide whether in fact they were precluded, and... and it's likely that they were.

I didn't follow up on what happened when the case went back down on remand.

But the Court said, we're not going to decide that.

We will allow the district court to address that in the first instance.

And so we think that the actually litigated revision of Rooker-Feldman is simply inconsistent with Feldman itself, that it improperly displaces full faith and credit that is not true to the negative implication from section 1257 which has to be a very narrow implication, indeed, because 1257 gives this Court jurisdiction, and it's only appellate jurisdiction, to suggest that another court doesn't have that appellate jurisdiction must be... must be narrowly limited to the context, the type of lawsuits that this Court would seek, which is not simply they did me wrong, please... please give me money, but rather, that lower court erred.

It violated my rights.

It is structurally or in some... in violation of Federal rights or something that the court did and that you have been asked to fix.

That, we think, is consistent with the proper negative implication from 1257, but overrunning most of preclusion law simply is not.

For these reasons, we would ask the Court to reverse.

And, Justice Stevens, I would like to reserve the remainder of my time.

Justice Stevens: You may do so.

Mr. Castanias.

I hope you'll tell us also whether you think the case is moot before you're through.

Argument of Gregory Andrew Castanias

Mr. Castanias: Justice Stevens, and may it please the Court:

This case is moot.

There is nothing for Exxon Mobil to get at this--

Justice Breyer: Well, you're still asking for cert..

Mr. Castanias: --That's right, and that's--

Justice Breyer: Well, then why is it moot?

Because something could happen.

We might get this case in theory, take it on cert, and discover a jurisdictional problem that somehow destroys the case without a decision, and should that happen, there luckily for them they have this other case going.

So as long as... you're prepared, I take it, to say you're going to ask for cert If that's what you're going to say, I don't see how the case is over.

It's up to you.

Mr. Castanias: --Okay. Well, I'm... I'm not going to take the Hobson's choice, Your Honor, but I am going to tell you, first of all, that SABIC is going to apply for cert..

At least that's my current understanding.

And second of all, that shows why this case is not justiciable at this point because if the most likely event in the... in the event of this Court's review of the Delaware determination, is a reversal on a statute of limitations problem.

That's the reason this suit was brought as the, quote, insurance policy that the Third Circuit identified, which was if the Delaware Supreme Court or the Delaware Superior Court had kicked this suit on the ground of the 3-year statute of limitations... and if you look at page 20a of the supplemental brief, the corrected supplemental brief that we filed with the Court, including the Delaware Supreme Court's opinion, you'll see that they had a whale of a time getting over the plain language of their own statute.

Justice Breyer: All right.

If for... somehow you won on that, even though it sounds a little like a State law issue, but nonetheless, if you won on that and they reversed it as a statute of limitations, then what they're saying is, well, that's just why we filed in Federal court.

We didn't want the Federal court to review the State court.

We wanted our Federal court suit as an insurance policy in case something goes wrong with the State court suit.

It has nothing whatsoever to do with Rooker-Feldman.

It is parallel adjudication, just what he said.

Now, what's your response?

Mr. Castanias: My response, Justice Breyer, is twofold.

First of all, with regard to the mootness question, if that eventuality occurs, that's the time when there may be a justiciable issue for a Federal district court.

Not now.

We've been talking about ifs and hypotheticals and what may happen in the future.

Justice Ginsburg: Mr. Castanias, was there a proper case in the district court when the complaint was initially filed there some 2 months after you filed in Delaware?

Mr. Castanias: We've never disputed that, Justice Ginsburg.

Justice Ginsburg: All right.

So you can bring two cases, identical cases, in two different courts, and that's an everyday thing, and the defense is prior action pending.

Mr. Castanias: Right.

Justice Ginsburg: Now, you are urging that Rooker-Feldman which this Court never applied when you had parallel litigation be extended into a domain which is ordinarily taken care of by preclusion doctrine.

Why would you want to mix those two things up that now seem to me rather clear, that if you have Rooker-Feldman, when you rush into a Federal court and say, Federal court, undo that State court judgment, I don't like it?

Rooker was just a paradigm case of that.

Why would you want to spread that doctrine?

What is... what is there that preclusion doctrine doesn't accomplish?

Mr. Castanias: Well, Justice Ginsburg, preclusion doctrine may accomplish this in a certain number of cases, but I think it's important... and I think I have to correct my colleague on the other side here with regard to the state of the record.

Yes, there was a stay of the New Jersey II trial court litigation, but it wasn't because of the Colorado River application that we made.

In fact, if you'll look in the appendix to the petition--

Justice Ginsburg: Well, I'm not talking about anything fancy like Colorado River.

Prior action pending is a familiar defense.

You've got two actions.

They could even be in different districts of the same State and one says, Your Honor, this case started second, the other one is going forward, hold it in abeyance because there's a prior action pending.

That's not Colorado River abstention or anything like that.

Mr. Castanias: --Well, I... I think, Your Honor, you will see that that is a component of Colorado River, and that was part of the application that we made to the district court in this case under Colorado River.

And my only answer... the only reason that I'm bringing this up, Justice Ginsburg, is that if you'll look in the appendix to the petition for certiorari, you will see that SABIC, my client, made an application for Colorado River abstention, and the district court denied that.

The district court denied that in this case.

Justice Ginsburg: Well, sometimes district judges rule incorrectly, but... but what happened here is the district court case did not go on because the two of you, both sides, said, okay, the district court... they're all bollixed up with this Foreign Sovereign Immunity Act, so we're going to agree.

You agreed that the case would go forward in Delaware, the trial in Delaware.

Is that not so?

Mr. Castanias: Well, it was... it was... if you'll look at... I believe this is at page 8a of the addendum to the red brief.

You'll see that it was Exxon Mobil that pushed in Delaware, but that actually happened before the ruling on sovereign immunity, that... that they elected to go forward in Delaware.

Justice Ginsburg: Well, when you say they pushed in Delaware, you brought them into Delaware and a... in a reverse suit.

You wanted a declaration of nonliability.

Mr. Castanias: Right.

Justice Ginsburg: They brought their case for liability in the Federal forum.

They were forced by you into the Delaware forum, and now you're saying you were pushed, that Exxon pushed.

You brought the case in Delaware.

They didn't.

Mr. Castanias: We... that is true that we brought the initial case, but the case was eventually tried on their counterclaims.

The case was inverted to make them the party plaintiff.

They went first at trial and is it... at the page I cited to you, that was where they decided to go forward with the Delaware case.

Justice Ginsburg: But it was your preferred forum, not theirs.

When they filed their complaint, they filed it in New Jersey where they had a related case pending.

So you chose the forum.

Mr. Castanias: That... that is absolutely the case with regard to the Delaware matter.

But I think what your question is getting at... and I think I have to go back a couple of minutes in our colloquy here to talk about why abstention won't do the work in this case.

In the lion's share of cases, it probably will, Your Honor, but in this case it didn't.

And this brings me back to Justice Breyer's question which said... in which he said that... that concurrent jurisdiction has always bothered him because what you're ending up with is a race to judgment.

But it's important again, Justice Breyer.

It's a race to judgment.

Justice Breyer: Well, that's... you see, Justice Ginsburg answered that.

I... I mean, she wasn't answering my question, but she did say what was a perfectly satisfactory approach, that... that the second person says, you know, Judge, there's another one pending and the judge says, okay, we'll let that go first except in some unusual instance.

Justice Kennedy: Which happens thousands of times in... in all of the courts.

It's very common and I don't know why we're over designing this vehicle.

It's simply other action pending.

End of case.

Mr. Castanias: Justice Kennedy--

Justice Kennedy: Or end of argument, not end of case.

[Laughter]

Justice Breyer: So why isn't it that the end?

I mean, here it's not moot.

They filed the other action.

You point out that you not only think something could wreck the State claim, you would love it to wreck the State claim.

And... and therefore, they have this insurance policy in Federal court which they'll gear up if and when the State claim does get wrecked as you hope.

Mr. Castanias: --Justice Breyer, I think this is the point in the argument where I want to turn to the definition of review as this Court has... has put it forth in cases like ASARCO.

This is a case that Exxon Mobil dismisses in their reply brief as mere dictum.

I don't think that this... the discussion of Rooker-Feldman and the ASARCO case can be dismissed as dictum in that it was a specific response to a specific proposal by the United States appearing as amicus to dismiss the case for lack of standing and instead remit the plaintiffs to pursuing a second suit.

In that case, the Court wrote that to readjudicate... and I'm quoting here from the opinion, and I don't have the particular page here... to readjudicate the very same issues that were determined in the State court proceedings would be... again quoting... in essence, an attempt to obtain direct review of the Arizona Supreme Court's decision in the lower Federal courts.

In ASARCO, there was no reference to what the intent of the plaintiffs was.

There was no reference to what the timing of the lawsuits was.

It was simply that identical issues actually litigated.

Justice Ginsburg: So perhaps the Court, if it had been more cautious, would have spoken not in terms of Rooker-Feldman or review, but in terms of this matter has been decided.

It is claim precluded.

That's what preclusion doctrine is supposed to do.

So in that context, maybe this Court used the wrong word.

Maybe it should have said, you litigated it, it's over and done with, now it's precluded.

Why do you need to interject the word review?

Isn't that... unless you're going to say every time court A decides a case and then you're in court B and someone is raising the same claim, that is a review of court number one rather than you're precluded in court two because of what is... has been litigated and decided in court one.

Mr. Castanias: Well, first of all, Justice Ginsburg, I'm hesitant to say that this Court was incautious in its use of words.

This was--

Justice Ginsburg: It is sometimes.

Mr. Castanias: --But... understandably, but... but with regard to... with regard to Rooker-Feldman, it was not just... it was not just an accidental... incidental invocation of it.

It was the reason for the rejection of the argument.

The reason was not res judicata.

The reason was respect for the dignity of the State court's work in the case, and that's ultimately--

Justice Ginsburg: That's why one has preclusion because you are giving respect, full faith and credit, to a decision elsewhere.

That's what preclusion doctrine is all about.

We respect the judgment of the court that rendered it.

We, therefore, give it full faith and credit.

That's what preclusion doctrine is about, is about respect and credit.

Isn't that so?

Mr. Castanias: --That's... that's... that is... that is generally right, Justice Ginsburg, but at the same time, there... we all agree... Exxon Mobil, SABIC, and the decisions of this Court... that there has to be some overlap with regard to Rooker-Feldman and SABIC... and... excuse me... and... and preclusion doctrine.

The... the argument made by Exxon Mobil, which is, in essence, the same question you're asking me, would have destroyed any reason whatsoever for the Rooker and the Feldman cases, as well as the ASARCO case.

There's also a significant body of law that's body of law that's been built up over the last 85 years in the lower courts in... in this regard.

And--

Justice Ginsburg: But you--

Justice O'Connor: So some of the lower courts have given a broad interpretation to Rooker-Feldman and have turned it into something other than the narrower view of it.

And I think that's why we granted cert in this case, to decide whether to give it a broad or a narrow interpretation.

The Third Circuit applies a rather broad interpretation of it.

Mr. Castanias: --Well, I... I guess in that respect, Justice O'Connor, I disagree because the Third Circuit, admitted by its own words, applies a very narrow version of Rooker-Feldman.

And, in fact, using this case as the vehicle to decide this, the... the definition of Rooker-Feldman in this instance amounts to no more than barring jurisdiction in a second Federal suit over the identical claims.

This is not a case where you have to worry about claims that might have been brought, the sort of things that footnote 16 in Feldman dealt with.

Justice O'Connor: But maybe that isn't a proper application of Rooker-Feldman where the complaint is not about something the State court has improperly done.

Mr. Castanias: Well--

Justice O'Connor: It isn't.

And so in that sense, the Third Circuit has a rather broader view of it I'd say.

Mr. Castanias: --Well, to be sure, Justice O'Connor, the Third Circuit's view is broader than that which appears to be adopted by the Ninth Circuit, as well as the Seventh Circuit.

And I think this brings me back to the definition of review.

The... the Ninth and Seventh Circuits' views in our estimation are wrong because they strictly look to the subjective intent of the plaintiff and as to whether the plaintiff is, in fact, seeking reversal.

That... that's the term that's used in these cases.

Noel says seeking to set aside.

But section 1257--

Justice Stevens: Of course, that's the language that was used in both Rooker and Feldman too I think.

Mr. Castanias: --And that's because, Justice Stevens, that's... that was the particular fact pattern of this... of that case.

Justice Stevens: And that's the only fact pattern any of our cases have dealt with.

Mr. Castanias: That's... in the Supreme Court, that's right.

Justice Souter: And the... and the concern is I think... at least as I understand the... the concern with it, it... it boils down to something like this.

Somebody comes along and says, don't apply claim preclusion.

Don't apply it because, for whatever reason, there's this... there's something wrong here, and... and Federal court should determine the... in fact, the... the claim preclusion of the State judgment should not apply.

The answer to that is, look, that's an issue to be raised by way of appeal of your State judgment.

You don't appeal State judgments in Federal court.

Out.

There's no such claim being made here.

The only claim that's being made here or the only conceivable claim, I guess, that can be made here is that we might want to do some litigating in the Federal case after the State case is over.

There's no claim here that claim preclusion should not apply in that instance, and because there's no such argument that claim preclusion does not apply, the answer to the problem that you're worried about is simply claim preclusion doctrine.

There's no reason to add a perihelion or something onto Rooker-Feldman to deal with what is really a very simple problem and that is, if they try to relitigate anew in Federal court, as Justice Ginsburg says, you... you plead claim preclusion.

Simple.

Why do we need to complicate it beyond that simplicity?

Mr. Castanias: Well, Justice Souter, I... I don't have any qualms with the application of claim preclusion here.

The... the Third Circuit, though, was being... was being sensitive to the interests of the State courts, as well as sensitive to the fact that it had another jurisdictional issue in front of it, which was subject matter jurisdiction under the FSIA.

And I'm... I'm certain, as certain can be, that that court would have reached the same result if res judicata had been before it.

But the... the fact is that Rooker-Feldman is there and, again, as... as with my response to Justice Ginsburg earlier, your... your question would effectively rub out any need for even Rooker and Feldman themselves.

Justice Souter: Well, no, because the... it... it would not rule out the need to have some answer when someone in a Federal court comes along and says, don't apply claim preclusion, whatever the reason may be.

Don't apply the claim preclusion rules.

There's something unfair about doing it here.

The answer to that is, look, what you're really asking us to do, when you say don't apply claim preclusion, is to review what happened in the State court, and we don't sit as an appellate court on State courts.

So there's still something for Rooker-Feldman to do on, as it were, Justice... Justice Ginsburg's claim preclusion argument.

Mr. Castanias: Well, Justice Souter, I think again, with respect to the hypothetical that you've put to me, the claim preclusion is appropriately--

Justice Souter: It'll get the... it'll get the job done that you say will need to be done if you get to that point.

Mr. Castanias: --It... it should get the job done.

Justice Souter: Why won't it?

Mr. Castanias: Well, there... there are... first of all, there are no guarantees.

The... the preclusion doctrines are... are riddled with exceptions.

Justice Souter: Then... then you--

Mr. Castanias: The preclusion doctrine--

Justice Souter: --Then... then you appeal.

Don't ask for a new body of law.

Just say, look, you got the application of claim preclusion wrong in this case.

We're going to appeal.

Mr. Castanias: --I... I disagree, Justice Souter, that... that we're asking for anything like a huge, new body of law or that the Third Circuit was making a huge, new body of law.

Justice Ginsburg: --Well, you're asking us to extend Rooker-Feldman beyond where this Court has taken it, and if I recall correctly, you really didn't ask for this.

The Third Circuit injected Rooker-Feldman into the case.

Is that not true?

Mr. Castanias: Well, that's true, Justice Ginsburg, but it's true because of the briefing cycle.

When we briefed the case, there was no Delaware judgment.

And it was only on the eve of oral argument--

Justice Scalia: Mr. Castanias--

Mr. Castanias: --Yes.

Justice Scalia: --could... could I come back to mootness?

One... one could say that not only is claim preclusion the answer to Rooker-Feldman, it's also the answer to the asserted mootness here.

I mean, you... you don't have to move to dismiss it as moot.

All you have to do is move to dismiss because of a prior adjudication that has resolved this question.

Do you know of any case in which the existence of a prior judgment in another court has been held to render a suit that someone wants to press to get a second judgment moot?

I mean, you'd think there would be a case on that, and I suppose the reason there isn't is that because the other side is always going to plead res judicata.

Mr. Castanias: Well, or the other side is going to give up.

Justice Scalia: Or give up.

But is there any case in which mootness is established by the fact that there is a prior judgment of another court giving you what you are asking for from this Court?

Mr. Castanias: Well, Justice Scalia, in the... in the realm that we're talking about here, the Fourth Circuit's decision in the Friedman's case came to a mootness conclusion.

We've also cited in our brief... and I don't recall the names of them off the top of my head... two cases in which the Court either... either dismissed or remanded for consideration of mootness in light of another State court judgment.

So I think there is... there is a body of law, but I also know that it is... as recently as yesterday looking at Wright and Miller on this issue, that when complete relief has been accorded by another tribunal, that is the classic case of mootness.

Justice Scalia: Well, I... I don't know why... well, if it's... if it were so classic, there would be a lot of cases, and I don't... I'm not sure that any of yours are right on point.

And... and I think the reason is that you don't need it, that claim preclusion is... is the remedy for the party who wants to get out of it.

Mr. Castanias: Well, and again, I'm... I'm certainly not going to fight claim preclusion because this is a suit that should not be here.

This is... this has had moving parts since we... since the petition was granted with the Delaware Supreme Court ruling and now with yesterday's denial of reargument in the Delaware Supreme Court.

What--

Justice Breyer: Why is it moot?

Or even on... why does claim preclusion apply?

I mean, if you win, from what you've said... somehow convince us that this refusal to apply the State statute of limitations properly violated some Federal law, let's say... then that would show that the State statute of limitations applied and barred their claim.

Would that be sufficient to knock out the Federal suit too?

Mr. Castanias: --I'm not sure I understand the question, Justice Breyer.

Justice Breyer: I mean, is... does the State statute of limitations, if... if it applied to the State's case, does it also apply in the Federal cases, the identical ground that everybody agrees that the State statute governs?

Mr. Castanias: The... the... there could be... there could be issue preclusive grounds on such a ruling, Justice Breyer, but... but--

Justice Breyer: I mean, if you... if you win, then... then... if you win your State case, because of the argument you made, do you also automatically win the Federal case?

Is it the same issue?

Mr. Castanias: --I... I don't think I could say that at this point because--

Justice Breyer: So it may not be the same issue.

Then... then they say, okay, it's not going to be claim preclusion, and you'd have to say insofar as it's not the same issue, it's not claim preclusion.

And therefore, they could proceed with their Federal case, which is what they want to do I guess.

Mr. Castanias: --And... and that is a future event.

Justice Breyer: Yes.

So we can't say it's moot in any... and we can't say there's an alternative basis where they'd win, can we?

I mean, I'm saying... I'm thinking if we get into conference, we're discussing this case, and I say, well, I have to think this through, is it the case that if you're right and you end up winning in this Court, that their case in Federal court is over?

I think no, it may not be.

The answer is it may not be.

Then this is not moot at all.

This is not claim precluded at all.

They then might proceed with their Federal claim.

Mr. Castanias: Well, I... I guess, Justice Breyer--

Justice Breyer: Is that right or not?

Mr. Castanias: --I don't think it's right.

Justice Breyer: Because?

Mr. Castanias: And... and I think the reason it's not right is because that just shows that there's no live controversy right now.

That's a controversy that might happen in the future.

Justice Breyer: Oh, well, but that... that isn't fair to them because, for all I know, they filed the Federal case because there's a different statute of limitations, say, that governs it that will have expired if you don't let them file it by the time... until this whole thing is over.

They just wanted it as protection.

Mr. Castanias: Well, two answers to that, Justice Breyer.

First of all, that seems to be a... a place for State doctrines of tolling to apply, not Federal law.

Second of all, this Court in... in Heck against Humphrey, which we cited in our brief, solves this--

Justice Breyer: That's explaining the unclear by the incredibly hard to understand.

Mr. Castanias: --I'm sorry.

I'm sorry, Justice Breyer.

Justice Breyer: It's explaining the unclear by reference to the incomprehensible.

But go ahead.

[Laughter]

Justice Scalia: I think I wrote that opinion.

[Laughter]

Mr. Castanias: And indeed, you did, Justice Scalia.

Justice Scalia: I never did like it.

[Laughter]

Mr. Castanias: I... I've also gotten that impression.

But... but Heck I think teaches an important... Heck teaches an important lesson for this case as well, which is that Heck was just a suit for money damages, just like this suit.

And... and yet, this Court said that there's going to be no cause of action under section 1983 because of the intersection of 1983 and habeas.

Well, we have the same result here.

There should be no Federal court case here because of the intersection of section 1257--

Justice Ginsburg: No, no, because it's where you walk in the door.

And you started out by saying this case, I think as you must, was a proper Federal case.

It was properly filed in... and it was properly filed in Delaware.

So you can't talk about a case that says, if you've got this kind of case, you go in this door.

If that kind of case, you go in that door.

You have a case here that could go in either door, the Federal, the State.

The usual rule is, is it not, that if Federal jurisdiction attaches, it doesn't get lost because of subsequent events.

For example, if a defendant moves into the plaintiff's State and the only basis for Federal jurisdiction is diversity, subject matter jurisdiction isn't lost, is it?

Mr. Castanias: --No, and in fact, the case that's cited against us for that proposition, the Freeport-McMoran case, makes clear, in the portion of it not cited by Exxon Mobil, that that rule is limited to the diversity context.

And it's not... it... it does not have its genesis in statute, but it's in policy.

We don't want to keep people from moving across State lines.

We don't want to... want to impede their... their free movement.

So we're going to look at it at the time of filing.

But what we have here is a case where maybe it was original jurisdiction when the case was filed, but it's not original anymore.

Justice Ginsburg: Maybe.

It's not... it's not maybe--

Mr. Castanias: Well, in this case, yes.

In this case, yes.

But original jurisdiction when the case was filed but not anymore because there's nothing original about it.

Justice Ginsburg: --A case can become moot, but we've already expressed considerable doubt whether that is the fate of this case.

The notion... you used it derisively... the insurance policy.

Lawyers bring protective actions all the time, don't they?

There's nothing wrong with doing that.

Mr. Castanias: Well, I guess I come back to... to where I started with Justice Breyer on the... on the merits of the Rooker-Feldman issue this morning, which is that the concurrent jurisdiction is something to be dealt with.

This Court has an uneasy body of law in the abstention area dealing with the issue of concurrent jurisdiction, but what it doesn't have is anything that deals with judgments, once you get to a judgment.

Justice Stevens: May I ask you?

It's perhaps an unfair question.

The Chief Justice generally likes to confine our attention to cases of this Court rather than the courts of appeals for our primary guidance, and most of the Rooker-Feldman law is court of appeals law, as we... we both know.

Going back just to Rooker and to Feldman, those two cases, and putting aside ASARCO for a minute, which of those two cases do you think provides you the stronger support, if indeed any support, between Rooker and Feldman?

Mr. Castanias: Well, I... I would have to say that Feldman, of the two of them, is probably stronger support.

Justice Stevens: And that is the case in which the court of appeals was itself a party to the litigation.

Mr. Castanias: That's right.

But at the same time, the... the Rooker case also dealt with relitigation of the identical issues.

And if I could just sum up here, seeing that the light is on here, the issue in this case is limited to identical lawsuits, identical claims.

The Third Circuit's decision in this case, if it constitutes an extension of Rooker-Feldman at all, is only a modest extension because it recognizes, consistent with ASARCO, consistent with Heck, and consistent with the very notion, Justice Souter, of de facto appeals, not actual appeals, but de facto appeals being prohibited by the doctrine... it recognizes that claims actually litigated in a State suit to a judgment, if they are litigated anew in the Federal court, that is de facto appellate review.

The judgment of the Third Circuit should be affirmed.

Justice Stevens: Thank you, Mr. Castanias.

Mr. Coleman, you have 8 and a half minutes left.

Rebuttal of Gregory S. Coleman

Mr. Coleman: And I'll take just a few of them, Your Honor.

I believe the concession that the Federal court exercised original jurisdiction at the time our case was filed is an important concession because I simply do not see yet still any rationale for this idea of vanishing original jurisdiction.

I also see the concession made in response to... to your question, Justice Breyer, about what happens if they win on the statute of limitations issue.

Well, one of the cases they cite on page 12, footnote 5 of their brief, the Northern Natural Gas case itself makes clear... and there are other cases.

They went to Delaware to apply the Delaware statute of limitations.

They conceded in front of the Delaware Supreme Court that even if they had won that, it wouldn't bar another lawsuit in a different forum applying a different statute of limitations.

The only way they could even hope to get the shorter statute was in Delaware.

The Delaware statute would never apply to our Federal claims, so that if somehow it went back on that procedural ground, it would not bar a trial in Federal court.

We don't think that that's likely to happen, but that is another explanation yet of why it's moot.

We also cited to the Court the Male case.

It is an old case, but it does make clear that when there is the question of jurisdiction before the court and some other court rules on the merits, that does not make the case moot.

In fact, you really wouldn't have a need for claim preclusion if that were the rule in... in mootness, because once the case is final over there, they'd all be moot, and you wouldn't need to apply--

Justice Scalia: Well, that depends on who wins.

Mr. Coleman: --You're right.

Justice Scalia: I mean, if you lost in the other suit, your claim here wouldn't be moot.

I mean, it... it would be precluded, but it's certainly not moot.

Mr. Coleman: I... I think that's right.

I'd also like to address, just very briefly, the ASARCO question.

The language that the Court used in there we don't necessarily think was loose or inappropriate, Justice Ginsburg, and the reason was the Court cites at that point an amicus brief by the United States and it cites a particular footnote.

And what that footnote says is it's a recommendation that the mining company in that case could file a Federal lawsuit seeking a judgment that the invalidation of the statute was not necessary.

But by challenging the invalidation itself, that... that looks more like a direct challenge to the State court judgment.

It's not simply a relitigation.

So that behind the Court's language there... and of course, it was really just addressing standing.

It was not directly addressing Rooker-Feldman.

But the US's suggestion in that case was a suit challenging the State court judgment, and in that situation, it looks more like appellate review, more likely to infringe upon Rooker-Feldman-type interests.

In the end, we believe that preclusion doctrines adequately cover all of this, that it is not true--

Justice Stevens: --Mr. Coleman, I don't mean to take your time, but in the ASARCO case, was the State court judgment final at the time in dispute?

Mr. Coleman: --Your Honor, there's a question about that.

I mean, the Court kept jurisdiction, but there was a determination that the statute was invalidate... was invalid and then a remand back to the district court for further proceedings.

Justice Stevens: Because if the judgment were final, then that would fit right into your... your analysis, if the judgment of the State court were final.

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

Justice Stevens: Yes.

Mr. Coleman: In the... at the end of the day, we believe that this Court's preclusion jurisprudence is not riddled with vagaries, that it's not difficult to understand, and that it's certainly not more vague or difficult than the borrowing that they are attempting to do to bring existing preclusion doctrines into... in order to expand Rooker-Feldman.

Preclusion is the answer in this case.

We believe that the district court should be permitted to address that in the first instance, and we would ask the Court to reverse the judgment of the Third Circuit.

Thank you.

Justice Stevens: Thank you, Mr. Coleman.

The case is submitted.

Unknown Speaker: The honorable court is now adjourned until Monday next at ten o'clock.

Attribution:

The Oyez Project

Featured:

Grupo Dataflux v. Atlas Global Group, L.P. - Oral Argument

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

Case:

Grupo Dataflux v. Atlas Global Group, L.P.

Media File:

02-1689_20040303-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of William J. Boyce

Chief Justice Rehnquist: We'll hear argument next No. 02-1689, Grupo Dataflux v. Atlas Global Group.

Mr. Boyce.

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

The central question here is whether Atlas' post-filing change in citizenship should be allowed to create retroactive diversity jurisdiction in this case.

To justify rewriting the longstanding time of filing rule, Atlas relies on the fact that this case was tried to verdict before the jurisdictional issue was identified and raised in the district court.

Justice Ginsburg: May I ask you with respect to that?

When you found out that you had this fundamental jurisdictional objection, when did you know that the partnership included partners not only Texas entities but two Mexican citizens?

When did you find that out?

Mr. Boyce: There are two answers to your question, Justice Ginsburg.

In terms of when we became aware of the issue, that was after verdict, and that's reflected in the affidavit which appears in the record at volume I, page 1887.

In terms of the question of was there evidence in the record that could have been pieced together to identify this issue earlier, the answer to that question is yes.

If... if... it probably could have been identified earlier, should have been identified earlier, but it was not.

Justice Ginsburg: There's a curious thing about what Dataflux did.

Dataflux at one point moved to add the Mexicans as individuals as counterdefendants.

Mr. Boyce: Correct.

Justice Ginsburg: And why would it do that if they were members of the partnership.

If... if it was sure that they were members of the partnership, then you wouldn't need to make them defendants as individuals because partners have individual liability.

Mr. Boyce: Two answers to that... that question, Your Honor.

First, under the Texas Revised Limited Partnership Act, the... the partnership can sue... the limited partnership can sue on its own without the participation of the limited partners.

In terms of all of the counterclaims against Llamosa and Robles, again under the Texas statute, we can choose to sue the partnership itself or we can sue individual limited partners.

In this circumstance, our counterclaim against them was predicated not on their status as limited partners, but rather on the fact that Mr. Llamosa and Mr. Robles made affirmative misrepresentations, was our position, directly to us to induce us to enter the contract that led to the... the lawsuit.

So--

Justice Ginsburg: But at that stage, you called them employees or former employees.

So it seems that the... that you had some inkling.

Mr. Boyce: --There... there was some confusion early on in terms of what exactly their status was and we, Dataflux, did not thoroughly explore that issue early on.

And... and that should have been done earlier.

But I would also note that the bottom line here is that... is that Atlas, the party with unique knowledge of the exact circumstances of its partnership at the time of filing, is the party here who filed the case in Federal court at a time when there was not diversity jurisdiction.

There certainly could have been more that we should have done to explore the issue earlier.

Justice Ginsburg: Well, you've admitted it.

You... you just admitted it flat out in your answer.

Mr. Boyce: Yes, Your Honor.

There were admissions that jurisdiction existed, but I would hasten to add that pursuant to the longstanding rule that jurisdiction cannot be stipulated to, agreed to, created by estoppel or waiver, that those statements are not effective to create jurisdiction if it does not exist at the outset.

And... and I would emphasize the language that was relied most recently in this Court's decision in Kontrick from January in which the Court noted that a court's subject matter jurisdiction cannot be expanded to account for the parties' conduct during litigation.

And I think that principle addresses that.

Is there more that could have been done to explore this earlier... this issue earlier and bring it up?

The answer to that question is yes, but I don't think that that circumstance undermines the fundamental rule here, which is that as of the time of filing, there was not a diversity present, and because of that--

Justice Ginsburg: Well, there was in the constitutional sense.

There wasn't under the statute.

There was diversity, but not complete diversity.

Mr. Boyce: --I think the... there is some room to discuss that, Justice Ginsburg, in light of the dissent's contention that there was, in fact, no diversity where you have one litigant here, one plaintiff, one defendant, and both are citizens of Mexico at that time.

It may be a situation where--

Justice Ginsburg: But that's not what... well, correct me if I'm wrong.

I thought that Atlas is a partnership.

Mr. Boyce: --That is correct.

Justice Ginsburg: And that it... and that there are three players involved... five.

Two are Mexican and three are Texan.

Mr. Boyce: There... there--

Justice Ginsburg: So then you would have on one side Texan and Mexican and the other side Texan.

If you drop out the Mexicans, then you're left, from the plaintiff's side... you're left with a complete diversity case.

Mr. Boyce: --Atlas is one entity with multiple citizenships, and... and if... if the question suggests that there was some kind of a... a dismissal mechanism available to make the... the Mexican citizenship go away, I don't believe that that is available under the facts of this case because it's... it... there were--

Justice Ginsburg: But it's what happened.

They did go away for a reason unrelated to this lawsuit.

Mr. Boyce: --Pursuant to Atlas' decision to change the constitution of its partnership after the time of filing and before the case was submitted to the... to the jury.

That is correct, Your Honor.

Justice Ginsburg: Yes, long before the case was tried.

Mr. Boyce: Before the... approximate--

Justice Ginsburg: Well, so when the case... when this case was tried, there was complete diversity.

Mr. Boyce: --That is correct.

Approximately 6 weeks prior to trial, the change in Atlas' composition became effective so that at that point there would... there is complete diversity if that post-filing change is given effect.

And I would submit to the Court that under the longstanding rule, going back as far as 1824 in Mollan v. Torrance, reflected in the 1891 decision in Anderson v. Watt, that the longstanding rule has been, and should continue to be in this case, that post changes--

Justice Ginsburg: I thought in Mollan v. Torrance exactly what I described happened.

Chief Justice Marshall said you've got one spoiler on the plaintiffs' side.

Take it out and you'll have complete diversity.

Mr. Boyce: --I think that the statement in Mollan, as reflected in Conolly and then applied in Anderson v. Watt, Your Honor, is that if the change in circumstances is the result of the addition or subtraction of a party, that's one circumstance, but here we have something entirely different, which is a change in citizenship.

It would be the same as if a plaintiff had lived in one State and then moved to another State.

Justice Ginsburg: No, it's not the same.

It isn't the same because a partnership is a citizen of every State in which a partner resides.

Isn't that correct?

Mr. Boyce: Correct, under Carden.

Justice Ginsburg: So you have, just as if you'd have five individuals... that's what they are in fact... in effect, because they're jointly and severally liable.

So you have, as I said before, three Texan and two Mexicans.

You don't have one person that can say, ah, I'm going to defeat diversity by moving where I live, or I'm going to create diversity.

You... none of these people's citizenships has ever changed.

That's quite different from somebody saying, I want to change my citizenship.

Mr. Boyce: I would respectfully disagree, Your Honor, because I think Atlas' citizenship changed by virtue of changing the composition of its partnership, and that is on all fours the same circumstance as if a... a litigant had lived in one State and then tried to move to another State in an effort to create retroactive diversity jurisdiction.

Justice Ginsburg: But it didn't leave Texas behind.

Texas was always there.

The Mexican partners left.

So I just don't see that it's anything like... I mean, this... as I said before, there's the same five people.

Two drop out and so you've got three Texans, and there were always three Texans.

They didn't move to Texas.

They were there from the start.

Mr. Boyce: The... the function of Atlas changing its citizenship after the time of filing and thereafter claiming... this is Atlas' argument... that that cures our jurisdictional defect, I would submit to the Court, is the same thing as a citizen moving from one State to the other because, in effect, what Atlas is saying, by relying on that argument, is we moved out of... move out of Mexico and... and resided exclusively in Texas as of the time of suit.

That is the whole basis for Atlas' argument as to why the jurisdictional defect, according to Atlas, was cured as of the time of trial.

And I think that's where the... the conflict comes in with the change of--

Justice Ginsburg: If Atlas had been a corporation incorporated in Texas, then there would have been complete diversity.

Right?

Mr. Boyce: --I'm... I didn't--

Justice Ginsburg: If Atlas... instead of being a partnership composed of five members, it had organized as a corporation, as a Texas corporation.

Mr. Boyce: --Then it would be under the... the different provision of 1332.

It would be a citizen of its place of incorporation and its principal place of business, and that would not be the issue that... that we have here today.

Justice Ginsburg: But would... would... my question is wouldn't the... if these... if this entity had been organized as a corporation, there would have been complete diversity.

Mr. Boyce: There... there... yes, there would not be an issue here because of a different operation of 1332 as applied to corporations, but the point of Carden was, as... as I read the case, is that limited partnerships are going to be treated differently.

Justice Ginsburg: Yes.

Mr. Boyce: There is no analog from corporate--

Justice Ginsburg: But I don't want to belabor this any further, but you do see the difference between an individual moving from New York to New Jersey, say, and a... a partnership with five partners, all of whom remain where they are.

They don't move anyplace else.

Those partners, those live human beings, stay exactly what they were.

Their citizenship doesn't change.

Mr. Boyce: --I understand the... the point, and our position is that when Atlas contends that it has cured the jurisdictional defect by changing the composition of its partnership, that is effectively the same as the litigant moving from New Jersey to New York and claiming I have... I have fixed the jurisdictional problem because my citizenship has changed.

It comes down to a change in citizenship, and I think that's what implicates the longstanding rule that the Court has enforced repeatedly.

Justice Stevens: Mr. Boyce, can I ask you a question about how far your position extends?

You say that it wasn't too late to... to raise the jurisdictional issue when you did.

Supposing there had been a trial and instead of your losing, you had won, and then you knew about the jurisdictional defect, and then you waited to see what would happen on appeal.

Then you lost on appeal.

And then you decided to raise the jurisdictional defect.

Would you say that was... they would then be required to dismiss?

Mr. Boyce: Yes, Your Honor.

I think the--

Justice Stevens: All right.

Suppose then it was affirmed and then you decided you didn't realize it until after the judgment had been entered and become final and so forth, and then a year later you find out about it.

Could you raise it then?

Mr. Boyce: --I don't think it would be the proper subject of a collateral attack after the initial case in which it has been adjudicated is over with.

But in terms of where along the line within that case can it be raised, our position is it can be raised, indeed, must be raised--

Justice Stevens: So you say it can always be raised on direct... while... until final judgment is entered, but it can never be raised on collateral attack.

Mr. Boyce: --That is my understanding.

And... and I think the most closely analogous case to the hypothetical that... that you're putting forth would be the Capron v. Noorden case from 1804.

It was discussed in... in this Court's recent decision in Kontrick where in that case the plaintiff who had filed the case in Federal court lost at trial and then went up on appeal to this Court.

The plaintiff who filed the case at that late stage identified the lack of jurisdiction, and then the Court said there is no jurisdiction here.

If there's no jurisdiction, there's no jurisdiction and the... the timing of the conduct of it is not germane to that inquiry because it's not something that can be created by the parties' litigation conduct--

Justice Scalia: We have to punish some other way, maybe fine you or make you pay costs for the other side, but we cannot punish you for that by expanding our own jurisdiction.

That's your point.

Mr. Boyce: --That... that's our point.

Justice Ginsburg: Capron against Noorden was one party on one side, one party on the other.

It wasn't a case where at the time of the trial there was complete diversity.

I frankly have a hard time distinguishing this case from Caterpillar which started out non-diverse but before trial, became diverse.

Mr. Boyce: I... I would like to address the circumstances under which this case is distinguishable from Caterpillar because that obviously is... is what Atlas relies very heavily on in its briefing.

And I think there are a number of important distinctions here, the first and foremost being that the citizenship of the parties to the final judgment in Caterpillar did not change.

That was a circumstance where the... the diversity-spoiling litigant was dismissed pursuant to rule 21.

That is not our circumstance here.

Justice Ginsburg: So if the... this would be the same if the... Atlas had come to the court and said, now, court, I want you to dismiss the two Mexicans because they're no longer part of the corporation, and gotten an order to... to do that.

Mr. Boyce: That would be a different circumstance.

I... I hasten to add that in terms of Atlas suing Dataflux, Mr. Llamosa and Mr. Robles were not plaintiffs.

Atlas itself was the plaintiff, and the problem arises because of the... the Mexican citizenship of Mr. Llamosa and Robles is attributed to Atlas.

But if... if a different circumstance is... is hypothesized where there's a dismissal, then I think that brings rule 21 into play.

As... as the Court discussed in... in the Newman-Green decision, there is a source of authority for addressing that circumstance under rule 21.

Here we have a situation where this is not a removal case, this is not a dismissal case, and the question arises--

Justice Ginsburg: My question was could they have dismissed and... and as far as removal, I perhaps don't remember Caterpillar that well, but of course, it arose out of a removal.

That's how it happened.

But the Court didn't make the removal dispositive.

Mr. Boyce: --Your Honor, I... I would not presume to... to say what the... the Court meant to do, but I would highlight the discussion in the subsequent Lexicon case where the point, I think, was made that indeed Caterpillar was grounded on the removal statute and specifically section 1441, the issue being in Caterpillar that the case was not fit for Federal adjudication at the time of removal and that that was the error.

There was an untimely compliance with--

Justice Ginsburg: Yes.

It certainly was a 1441, and the opinion certainly alerts district judges that when a case comes over from the State court, maybe you ought to look at it to make sure that there is Federal jurisdiction.

But I didn't think that there was anything peculiar about 1441 and the obligation of a judge to look into jurisdiction.

I don't know why the same thing wouldn't apply to 1332.

Mr. Boyce: --I would submit, Your Honor, that there are different... there's a different statutory overlay that... that was being addressed in Caterpillar, the overlay of the removal statutes.

Here we're under a circumstance where this... this is not a removal case.

Therefore, we are under section 1332 alone, and the... the longstanding rule that the citizenship is going to be measured as of the time of filing.

At... at this stage where the rule has been followed for some 180 years, I believe that similar to a complete diversity requirement, it is now part and parcel of section 1332.

So there... there's no removal overlay to be addressed.

And... and there's an additional circumstance here that I think in significant part, Caterpillar operates to protect a defendant's right to removal.

The... the removal in that case... the removal right was subject to being lost because of the timing of the dismissal of the non-diverse party.

There was a... a problem for Caterpillar in bumping up against the 1-year time limit.

In other words, Caterpillar operates to protect a... a right to invoke the Federal forum.

Here, by definition--

Justice Ginsburg: Well, I don't... I don't follow that because it was wrongfully removed by the defendant, had no right to be in the Federal forum when he got there, and... and the poor plaintiff who wanted to be in the State court got stuck with losing a Federal court case.

So it wasn't protecting the defendant right to remove.

The defendant had no right to remove.

It wasn't a proper Federal case until... who was it... one of the parties got dropped out.

Mr. Boyce: --I... I would go back to Lexicon's description of Caterpillar which is that there was an--

Justice Ginsburg: Why don't you go back to Caterpillar's description of Caterpillar?

Mr. Boyce: --Yes, Your Honor.

I... I think at... at bottom Caterpillar cannot be divorced from the removal context in which it arose.

And it... it was... it was--

Justice Stevens: Do you rely on a distinction between a defendant's right to a Federal forum and the plaintiff's to a Federal forum?

It seems to me they're exactly the same.

At the time it's invoked, it's... there's no Federal jurisdiction.

Mr. Boyce: --I think that under certain circumstances Congress has made a distinction between a defendant's right to invoke a Federal forum and a plaintiff's right to invoke a Federal forum.

Justice Stevens: Then are you... are you saying this is... is the rule you rely on a constitutional rule or a statutory rule?

Mr. Boyce: It is a... primarily a statutory rule operating--

Justice Stevens: In other words, you don't say the Constitution would prohibit us from affirming.

Mr. Boyce: --I... I need to qualify my answer, Justice Stevens, because under some circumstances there may be Article III implications here because if... if it's a circumstance where you have just an issue of whether or not there's complete diversity, then that's a statutory issue.

But if... if retroactive diversity is being recognized so as to allow a case to remain in Federal court for some 2 or 3 years, as happened in this situation, where there isn't even Article III diversity requirement... let's say you have an alien versus an alien with no citizen present.

That does have Article III implications.

Justice Stevens: So there's a... there's no subject jurisdiction as a matter of constitutional law, just no subject matter jurisdiction.

But nevertheless, you say there could be no... no collateral attack on the judgment.

I'm not sure that I understand the... why there couldn't be a collateral attack if you're dead right on this.

Mr. Boyce: I think that... and I... I cannot cite the case that... that I'm relying on for that, but in the... in the course of reviewing, I... I believe that I saw the... the statement regarding collateral attack.

But I--

Justice Ginsburg: You are correct in that respect.

Justice Stevens: I think you're right, but I'm just wondering why.

Chief Justice Rehnquist: If there... if there was... if there was an adjudication of the jurisdiction in the direct case, that's binding on the parties when the thing has become final, just as well as the merits.

Mr. Boyce: --But I... I think maybe the... the primary focus here in terms of the applicability of the time of filing rule is one that... that turns on the... the purposes of the time of filing rule.

These are summarized in... in the--

Justice Ginsburg: May I take you back a little way?

It is unconstitutional because incomplete diversity is fine.

Minimal diversity is fine under the Constitution.

The statute, 1332, has always been interpreted to require complete diversity.

Mr. Boyce: --Correct.

Justice Ginsburg: When Marshall first mentions that you can't oust jurisdiction by something that happens after, he doesn't talk about the statute.

The cases that you are... are discussing, out of which the timely filing rule arises... it's a kind of a common law that he's spreading out.

He doesn't cite the... the jurisdictional statute for that.

Mr. Boyce: I... I have to agree that... that both Conolly v. Taylor and Mollan v. Torrance do not specifically anchor it in the statute, and to... to some extent, I would... I would have to acknowledge that they're somewhat cryptic.

But I think the... the clearest statutory anchor as the basis of this rule comes from Anderson v. Watt which, applying Mollan and applying Conolly, does specifically anchor it in the 1875 iteration of the diversity statute in the course of its discussion.

And... and I think that's the clearest indication that this is indeed--

Chief Justice Rehnquist: What was the date of Anderson?

1891?

Mr. Boyce: --1891.

Correct.

And the point that we would emphasize here, Your Honor, is that the longstanding interpretation, similar to complete diversity as discussed in the Owen Equipment v. Kroger case, is now a part and parcel of section 1332 and its predecessors.

And... and so it's not a situation merely that the Fifth Circuit is... is stepping into some area where the Court did not expressly address it in Caterpillar.

I think the Fifth Circuit has, in fact, gone beyond that by creating this new rule because it's a circumstance where it is going contrary to the longstanding interpretation and understanding of 1332.

Justice Ginsburg: As I understand the bottom line of what the situation would be, there was a trial between totally diverse parties.

You... you say that has to be undone.

There's no question now that there's complete diversity between these same two parties.

So this isn't a case where there's any federalism interest.

This wouldn't go back to the State court.

This is a proper suit for Atlas to bring in Federal court, and so you'd have the same court, the same parties going over exactly the same case, which does seem a terrible waste.

Mr. Boyce: I... I would focus on one portion of Your Honor's question, which is in terms of an assumption that this case automatically would go back to Federal court.

That may well happen, but we don't know--

Justice Ginsburg: No, no.

It would be up to Atlas, but Atlas at this point, being totally diverse from Dataflux, could walk in... the day that Atlas is thrown out, it can come in the revolving door and say, here's a fresh complaint.

Let's start all over again.

Mr. Boyce: --I think an underlying assumption of that question is that Atlas has not yet again changed its... its partnership, and I do not know the answer to that question.

Justice Ginsburg: May... may I ask you is there another impediment that you do know about like the statute of limitations?

Mr. Boyce: There will be an issue... the answer to your question is that... that whether or not limitations would prevent... present an obstacle to Atlas is going to be determined under the Texas savings statute and/or the New York savings statute.

There was a choice of law dispute in the case.

Justice Ginsburg: Well, I assumed... I assumed you looked into this.

Mr. Boyce: And there is a... a savings statute, assuming Texas law applies, that would allow Atlas to refile suit.

One point that I would note... and... and this is outside the scope of the record, but I... I would put it before the Court to completely answer the question... is that Atlas already has refiled once within 10 days of the initial dismissal.

It refiled in Federal court and then subsequently dismissed the second Federal court lawsuit.

There may be an issue under the savings statute in terms of how many times do you get to refile, and... and I don't know the answer to that.

We haven't looked at that specifically.

But there is a savings statute available, and... and I presume Atlas would invoke it.

Justice Ginsburg: At what point did they file and refile?

Because the court of appeals held in their favor.

Mr. Boyce: They filed after the trial court dismissal and before the Fifth Circuit held in their favor, and I believe that the... the second suit was filed in December of 2000 and dismissed in approximately October of 2001.

I think that's the chronology of it.

Justice Ginsburg: Dismissed after they won on appeal or before?

Mr. Boyce: I think it was before the... the Fifth Circuit ruled in the case.

But the... the point that I would emphasize is that the... the purposes of the time of filing rule transcend any individual case--

Justice Breyer: What is it?

What is it?

I mean, imagine the worst case.

A Lithuanian sues a citizen of Taiwan in New York on July 1st.

On July 2nd, they both become citizens.

Well, what I'm going to ask is what's the worst... I don't see a constitutional problem.

They didn't notice till after judgment.

What's the worst thing that could happen if we were to say, as a matter of policy, if you like, Federal policy, there's an exception to the time of filing rule... when nobody notices until after the judgment is entered... to prevent manipulation?

What's the worst thing that would happen?

Mr. Boyce: --Justice Breyer, the worst thing that can happen is uncertainty in what was formerly a bright line rule in terms of litigants being able to determine with some certainty whether or not they belong in Federal court.

And I would also focus on this point, which is I... I think the one question that the Fifth Circuit and Atlas do not answer is what is the source of authority for a Federal court to recognize this retroactive jurisdiction here?

By process of elimination, we know what it is not.

It is not section 1653, because that addresses only defective allegations, not defective facts.

It is not section 1441 or 1446 because this is not a removal case, and it's not rule 21.

So the... the bottom line inquiry then is what is the source of this authority and... and I don't think the authority is there, and in fact this is contrary to section 1332.

And with that, I would reserve the balance of my time.

Argument of Roger B. Greenberg

Chief Justice Rehnquist: Very well, Mr. Boyce.

Mr. Greenberg, we'll hear from you.

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

Respondent asks that this Court affirm the Fifth Circuit's judgment and hold that, based on this Court's precedent, the trial court had subject matter jurisdiction at the time of trial because the lack of complete diversity between the parties was cured before trial.

This Court unanimously held in Caterpillar that if the jurisdictional defect is cured before trial and then a case is tried on the merits and the court has Article III... it's an Article III court, it has subject matter jurisdiction, that it has the judicial power to... to preside over--

Justice Scalia: Yes, but Caterpillar involved a... a situation in which the jurisdictional defect was cured by a change in which parties were in the case.

That has not occurred here.

Mr. Greenberg: --That's correct.

Justice Scalia: The party is the same, and that makes it a different case.

You can't possibly say we've decided this.

Mr. Greenberg: With all due respect, Justice Scalia, our position is that Caterpillar and the thread through Caterpillar of Newman-Green and Grubbs points out that that is not an issue that was determinative of the decision.

The Court specified unanimously in Caterpillar that once diversity is cured... it didn't say has to be cured a certain way.

It didn't say has to be cured by a dispensable party leaving, et cetera.

It said simply once a case has been tried and diversity obtained at the time of trial, that the... that--

Chief Justice Rehnquist: Well, Caterpillar certainly is not a white horse case for you.

Otherwise, there wouldn't be a conflict in the circuits the way there is.

Certainly there are significant similarities but there are differences too.

Mr. Greenberg: --Respectfully, Chief Justice Rehnquist, our position is that the facts in this case are much narrower than Caterpillar.

We fall under the umbrella of Caterpillar.

Here we did not have, for example, as in Caterpillar a mistaken challenge at the inception of the case that the Court decided in Caterpillar to overlook when it did not remand the case.

There is no issue of that ilk.

Justice Ginsburg: But there was something that you overlooked or whoever was representing Atlas.

When did Atlas first become aware that the citizenship of each partner counts for diversity?

I mean, this was set up as a Texas business, but in a partnership, unlike a corporation, each partner's citizenship counts equally.

And when did you first become aware of that rule?

Mr. Greenberg: Justice Ginsburg, I don't know if the record reflects that issue, but answering your question, I don't think either party in the record adverted to that issue until the motion to dismiss was filed by Grupo Dataflux.

Therefore, the case continued on from filing through trial to verdict without either party adverting to the fact that there may have been a jurisdictional problem until after--

Justice Kennedy: Is it your understanding that the... that the attorney for Atlas in this case would have the obligation to advise the court of the problem the moment it was discovered?

Does the attorney have an ethical duty to advise that the original pleading was... was misleading as... as soon as the attorney finds out that this problem existed?

Mr. Greenberg: --Justice Kennedy, I believe so, yes.

And I... and I believe that the parties on either side, as well as the court I might add, if the court learned of or had an issue would have brought it up, but I think certainly counsel had an ethical duty to do so.

The... the issue before you is whether this case creates a new or different exception to the rule of time of filing, and we posit it does not because Caterpillar, contrary to... to the position of the petitioner... Caterpillar stands for the propositions, as I have stated, which are overwhelming according to the court.

Finality in that opinion, costs of litigation, litigants waiting in line.

That is an exception to the rule of the time of filing.

This case falls within much narrower... because the Fifth Circuit said, if it's cured before trial and not raised till after trial, then that's the test.

That's a much narrower test.

Chief Justice Rehnquist: What... what's the latest time it can be raised in the view of the Fifth Circuit?

Mr. Greenberg: In the... in the view of the Fifth Circuit, raised before trial... cured before trial, but not raised... but raised after is what the court's test was.

Chief Justice Rehnquist: Yes, but in your time of filing rule, you... you have a very definite period.

Now, this is an exception.

And when is the... under the rule of the exception, when is the last time this can be raised?

Mr. Greenberg: I would... would... respectfully, Chief Justice Rehnquist, I would think before trial is... is the last time it can be raised because Caterpillar says once a case has been tried.

It's very clear.

And... and our... in this case Atlas was tried to a jury.

And as Justice Ginsburg correctly pointed out, this case goes right back to the same court.

And if the considerations of finality, of costs of litigation, of people, litigants waiting in line to have their cases tried is to have any meaning, then this Court should overlay that on the facts of this case and say, well, it would be as Yogi Berra said, deja vu all over again, just to go try this case.

Justice Kennedy: Does... does the record tell us why the partnership was changed in its composition?

Mr. Greenberg: The... the record does not.

The... the record only reflects that 6... 6 months before the trial, the two Mexican partners were bought out, if you will, were no longer partners.

That was not finalized because of some... it was... it was final from the parties' standpoint, but there was a technical need for some document from the NASD, and I'm not sure that's in the record, that that's why petitioner says, well, it was really only finally cured a month before trial.

But nevertheless--

Justice Kennedy: Did the same attorneys represent the partnership in... in this change of partner transaction as were representing the... Atlas in the litigation?

Mr. Greenberg: --No.

No, Your... no, Justice Kennedy, that is not the case.

Justice Ginsburg: Do you see any impediment?

Or, first of all, explain to me what that second filing was.

Mr. Boyce told us--

Mr. Greenberg: Yes.

Justice Ginsburg: --that you filed a second complaint.

Mr. Greenberg: That is not in the record, but what occurred is when the judge dismissed this case after the jury trial, the thought process was, well, let's start anew so that whatever happens on appeal, that case will be advanced so much it would be tried right away, we thought.

But after discussing it and after thinking about it, we didn't want two cases to go along at the same time.

So we... it... we dismissed it without prejudice, relying on whatever happens in this case.

Justice Ginsburg: So you did that before you knew what the outcome was--

Mr. Greenberg: Oh, yes.

We did that long before we knew what the... long before we knew what the outcome or the briefing was in... in the... in the Fifth Circuit.

Justice Ginsburg: --Do you know of any impediment?

Now... now it's for sure that you can go back to the same court with the same parties, do the same thing all over again.

Mr. Boyce said that as far as the Texas statute of limitations is concerned, it's not a problem.

Is... is there anything that... apart from repeating the same thing, that would put you at a disadvantage?

Mr. Greenberg: Mr. Boyce is a bright lawyer and I don't know what's in his mind, but as for me, I believe there's a savings clause in the Texas statutory scheme that upon ruling by this Court, if it were not to uphold the Fifth Circuit and this case had to be refiled in district court, I... I believe that that savings clause would pertain except... except... that in the record it shows that New York law is to apply to this litigation.

And I don't know whether New York substantive law would apply or Texas procedural law would apply.

My coming here today, of course, was the hope of an affirmance and not have to face that issue.

And--

Justice Kennedy: Under the Fifth Circuit rule, suppose there's no diversity when the suit is filed because the plaintiff resides in the same State as one of the defendants, and then the plaintiff moves in order to create diversity.

Doesn't the Fifth Circuit rule permit that to occur without destroying the jurisdiction of the court?

Mr. Greenberg: --I'll answer--

Justice Kennedy: Then let's say this is done just before trial.

Mr. Greenberg: --And the issue then is raised after the trial?

Justice Kennedy: Yes.

Mr. Greenberg: I would respectfully say this, not only do I think the Fifth Circuit rule allows that, I think Caterpillar allows that.

Justice Kennedy: You think which?

Mr. Greenberg: I think Caterpillar--

Justice Kennedy: Caterpillar.

Mr. Greenberg: --the unanimous decision of this Court, would allow that same fact situation, but--

Justice Scalia: It's... it's really... it's really quite different to say, look it, it's the same party here who was here at the outset of the trial, this very same person, and he's been here all through.

All that's happened is one other person who... who destroyed jurisdiction has gotten out.

It seems to me it's quite something different to say we had... we had one person, you know, originally with... with a certain citizenship.

That's... that same person is here.

It was bad as to... as to him originally, but now it's changed because he's changed his citizenship.

I'm not sure that that's the same situation.

It seems to me quite different.

Justice Ginsburg: It seems to me that that situation is just what Justice Marshall dealt with when he said you cannot oust a court of jurisdiction once lodged.

So if there is authority, then it doesn't matter whether that plaintiff moves.

I mean, the plaintiff who certainly couldn't move and become non-diverse and hope to escape an adverse judgment... I thought... I thought that rule was firm, that a single plaintiff, if it's just a two-party lawsuit, jurisdiction is not ousted.

And I don't think that Caterpillar in any way suggests that that one party plaintiff situation would be different.

The... the partnership is sort of in between.

It's not like a single individual, but it's not quite like Caterpillar either where there were wholly discrete parties.

Mr. Greenberg: --I... I noted in Caterpillar at page 11 that the Court cited the McMahan case from the Third Circuit in which there was a change in the partnership after the filing, but before the trial so as to empower the court with complete diversity and the court had the judicial power to decide the case.

I take it that if this Court in its unanimous opinion referred to the McMahan case, Knop v. McMahan, that it... it understood that change in that case and did not dispute the fact, therefore, that the change in a limited partnership is acceptable so that when that change occurs and then there is complete diversity and then there is a trial, that the court has the Article III judicial power to decide the case.

Or as... or as Justice Souter said in Lexicon, while not on all fours with this case by any means, there was no continuing defiance but merely untimely compliance.

In this case there was no continuing defiance of the court's jurisdiction.

Once the limited partners were bought out of the limited partnership, this court acquired the power, and once it acquired the power, the lineage of cases, the thread of cases from... from Grubbs, Newman-Green, and Caterpillar say this court has the power to consider that case.

Chief Justice Rehnquist: Well, Grubbs... what... what... Grubbs was a removal case.

Mr. Greenberg: Yes, that is true.

The only direct filing case... you are correct, Justice... Chief Justice Rehnquist.

Chief Justice Rehnquist: I'm glad to know that.

Unknown Speaker: [Laughter]

Mr. Greenberg: Well... and... and following on that, but of course, Newman-Green, a rule 21 case, admittedly is very instructive here because Newman-Green... the court gave the plaintiff the option of dismissing the dispensable party.

The plaintiff took the option.

While the case was on appeal, the appellate court gave the option.

The plaintiff dismissed the dispensable party and the court said okay, we had jurisdiction then to render... the district court had jurisdiction then to render summary judgment in that case.

The plaintiff could have turned down that power and said, no, I don't want to lose that dispensable party.

He may be the money man.

He may be the one that I can come after later on.

So you do have this Court in Newman-Green approving, if you will, the act of the plaintiff unilaterally to make the decision whether it's going to stay in Federal court or in that case... well, stay in Federal court.

Here, there are... there are... the... the petitioner raises two salient issues: removal is different than remand and this was unilateral.

I've covered the unilateral in my opinion, and I will say one final thing about... subject to questions, about the removal.

And that is once a case comes to this court by removal or by direct filing, the jurisdictional questions are the same at that point, and that is, is there diversity?

And in Caterpillar, it said, well, there wasn't and the court erroneously ruled, but later on diversity obtained and we had Article III jurisdictional power to try the case.

I... it's like coming to Washington, D.C. by train, boat, plane.

Once you get to Washington, D.C., you're subject to the same rules.

Once we be... came before the Federal court by direct filing, or once Caterpillar in the removal filing, the test was the same.

We... we believe this is a very, very narrow case.

Justice Stevens: May I just ask you one general question?

In... in your view is the rule that you advocate a one-way street in the sense that if there was jurisdiction when the case was filed, then the next week the plaintiff moved to the same State of the defendant, there would nevertheless continue to be jurisdiction all the way down the line?

Mr. Greenberg: That... Justice Stevens, that is correct.

Justice Stevens: So it's... this... this rule, if we adopt it, is 100... it's... it's to... it's always to preserve or to allow a... a belated creation of jurisdiction.

Mr. Greenberg: Once the court acquires the power, it doesn't lose it or it is not divested by the actions of the parties.

Justice Stevens: Okay.

Then the second question is... I just want to be 100 percent sure on your view... is if the original defect is discovered before trial, even though it had been corrected a day or 2 later, there would still be a duty to dismiss the complaint, dismiss for want of jurisdiction because there was no jurisdiction at the time of filing, under your view.

Mr. Greenberg: Respectfully, Justice Stevens, it's not my view.

It's what I believe Caterpillar says because Caterpillar speaks of a case having been tried.

The words are cases tried on... on... and I hope it's page 11... it... it--

Justice Scalia: Well, that would be the end of filing, not... not before trial.

He said... the... the question is before... you're... you're taking the position before trial.

Once trial has started--

Mr. Greenberg: --I think the court would have to dismiss the case.

Justice Scalia: --Well, that's not what Caterpillar says.

Having been tried is what--

Mr. Greenberg: It says, having been tried.

Justice Scalia: --I... I take that to mean the trial having been completed.

Yes.

Mr. Greenberg: So do I.

So I'm agreeing with you.

I think the court--

Justice Ginsburg: As Caterpillar said, that if at the time of trial--

Mr. Greenberg: --Yes.

Justice Ginsburg: --you have no spoiler in the picture, which was what Caterpillar was.

Mr. Greenberg: That's correct.

Justice Ginsburg: And if there's a sentence that says something different, but the facts in Caterpillar was before the trial began, it was complete diversity.

Mr. Greenberg: That's correct.

Justice Breyer: Your answer to Justice Stevens, when he put his question, was yes.

Mr. Greenberg: Yes.

Justice Breyer: If in fact it's noticed before the trial is complete, it is necessary to dismiss.

And that you believe the answer is, one, yes, and you believe that's implicit in Caterpillar because you agree with what Justice Scalia said.

Mr. Greenberg: That is correct.

That's very well put and I thank you very much.

[Laughter]

Justice Ginsburg: Suppose... suppose--

Mr. Greenberg: I honestly thought that was my answer.

Justice Breyer: --Who... who is that man?

Unknown Speaker: [Laughter]

Mr. Greenberg: I honestly thought that was my answer.

Justice Breyer: I did too.

Mr. Greenberg: But... but I also... I also have to hasten to point out that Justice Ginsburg's opinion says cured... you know, if it's cured before trial.

In... in this case, it was cured before trial, but it wasn't raised before trial.

It was raised after the trial.

We fall well within the umbrella of Caterpillar.

Justice Ginsburg: Suppose you had gone to that trial with the two Mexicans still in the partnership and you had won, and then could you then have said to the court, we don't need those Mexican partners?

They're out of here.

So now, we'd like to make a motion under rule 21 to drop those two people from the party lineup.

Could you have done that?

Mr. Greenberg: Under rule 21, if they were dispensable, yes.

Justice Ginsburg: So you're suggesting that a plaintiff could play the same game as a defendant could play, say, oh, I'm going to go in... I'm going to go in and get my trial, and I'm going to have those two spoilers in the case, and if I win, fine, I won't open my mouth.

If I lose, out they go and I start over again.

Mr. Greenberg: I understand the question, and respectfully, Justice Ginsburg, I would say that rule 21, Newman-Green, and Caterpillar does allow that.

I would say, though, on the other hand, that there are other checks on... on the ethics of... of lawyers.

If they do go in with that type of mental frame of mind, that there are ethical obligations, and you're going to face the wrath of the court.

The court may have a... a hearing, for example, to you... for you to show cause why you should be sanctioned for misrepresenting things to the court.

I'm very concerned about that.

Chief Justice Rehnquist: If... if the rule you're proposing kind of invites the sort of conduct that you say is prohibited, maybe there's something wrong with the rule.

Mr. Greenberg: I'm not proposing a rule, Chief Justice--

Chief Justice Rehnquist: Well, you're... you're proposing a rule that is derived, you say, from Caterpillar.

Mr. Greenberg: --I'm proposing that... that this case on its facts falls within the exception in Caterpillar.

I'm not advocating any new rule.

Chief Justice Rehnquist: Well, except that there was not a limited partnership in Caterpillar.

Mr. Greenberg: There was not a limited partnership in Caterpillar, but diversity was cured before trial and the issue was not raised until after trial.

Justice Stevens: And I suppose you would argue that if we're looking for bright line rules, we shouldn't make it turn on what the nature of a particular jurisdictional defect was or they moved to another State or you let one partner resign of something like that.

The bright line rule, it seems to me, has to turn on whether it's equally bright line to say you can make this objection up till the time of a verdict in the trial court or it's equally bright line to say you can do it up to the time that the appellate court judgment is final.

You can't do it after... we all agree you can't do it on collateral attack.

And I don't know why one is any more bright line than the other, unless you get into these ramifications that there's a difference between removal and filing or a difference between the... the plaintiff moving to another State or... or adding a partner.

Those are all... it seems to me any one of those would depart from the need for a bright line rule.

Mr. Greenberg: Respectfully, Justice Stevens, I do agree with that.

I think the rule... the time of filing rule is... is a general rule and it has been subject to exception.

We fall... we... this case falls within the Caterpillar, Newman-Green, Grubbs exception.

Yes, there are distinctions in the factual issues, but those distinctions are without a difference as far as what we would ask this Court to do.

Justice Kennedy: Well, they're pretty big distinctions because in the other cases, they were just extra parties that could be dropped out.

Here the whole partnership... the nature of the partnership had to change.

There was... the... the initial premise for the jurisdiction was wrong based on the identity and the composition of the partnership, not the identity and the composition of all of the parties that are in the complaint.

Now, that may be metaphysical, but it... it does seem to me to open more room for manipulation than existed just with Caterpillar on the books.

Mr. Greenberg: Respectfully, Justice Kennedy, I will answer your question.

I... I do not think it opens the door to more manipulation.

Two reasons.

Number one, in Texas the general partner has the right to bring lawsuits.

The limited partners do not have the right to sue or be sued in their name on behalf of the limited partnership.

That's a very important distinction here.

The... the second point... and I think this is more important... the precedent of this Court does not discuss intent.

Caterpillar, Newman-Green, Grubbs did not talk about what were the parties' intent at the time that the jurisdictional Article III power came to this court.

Since there is no discussion in those cases of intent, it is my reading that intent is not an issue.

It's an absolute.

Did the court have jurisdiction or does it not?

And I think there are checks and balances on lawyers who would manipulate, as you say, Justice Kennedy.

Justice Scalia: Can I get back to... to bright line rules?

It seems to me it is a bright line rule, that you can preserve jurisdiction by dismissing a party.

That's very bright line.

I don't think it's very bright line to say, you know, whenever there was a jurisdictional defect which later is cured... in any way whatever?

I mean, this case involves an alteration in the citizenship of the partnership.

What about an alteration of the citizenship of the corporation?

They reincorporate somewhere else before the thing happens?

What about a... a private individual who decides to move to another State?

Is that covered?

Is this bright line when... when we still have all of these... all of these future cases in front of us?

It seems to me it is not.

Mr. Greenberg: Respectfully, Justice Scalia, in Caterpillar at page 11, there are overriding considerations to those analogies, which of course are not the facts here.

There's no showing of intent here.

There's... there's... the only showing is neither party adverted to the issue.

This case was tried.

But--

Justice Ginsburg: There's a difference between the absence of jurisdiction at the outset, which is what is involved when you have a plaintiff from the same State as the defendant which can't be cured by the plaintiff moving to a diverse State, and imperfect jurisdiction, in other words, that you do have diversity, but you have a spoiler in the picture.

That is... that is very clear in Caterpillar, less clear in the partnership.

Although the partners are five individuals, they are not an entity the way a corporation is.

Mr. Greenberg: --That's correct.

In this... in this partnership, there were, I think, two corporations.

Justice Scalia: Wasn't the partnership sued as an entity?

I thought that it was sued as a partnership.

Mr. Greenberg: It was a sued as a partnership.

That is correct.

Justice Scalia: As a partnership.

And so--

Mr. Greenberg: Yes, and two individuals.

Justice Scalia: --So there was no jurisdiction initially over the partnership.

Mr. Greenberg: That's correct.

Justice Ginsburg: It wasn't... it was sued.

It... it sued.

It was the plaintiff, wasn't it?

The--

Mr. Greenberg: Atlas sued--

Justice Ginsburg: --Yes.

Mr. Greenberg: --and was counterclaimed against by Dataflux as an entity, and then Dataflux third-partied in the two Mexican individuals.

Justice Scalia: But at... at the outset, contrary to the earlier statement, it was not a matter of imperfect jurisdiction.

There was no jurisdiction over Atlas.

Period.

The... of the partnership.

Mr. Greenberg: According to Carden v. Arkoma, Justice Scalia, the way I read it, the jurisdiction did not obtain at the time of filing.

That was only cured later, but the overriding consideration in Caterpillar unanimously by this Court is once a diversity case has been tried in Federal court, with the rules of decisions under State law, under Erie v. Tompkins, considerations of finality, efficiency, and economy become overwhelming.

If I have to take those words as they are, they are overwhelming, then it is overwhelming in this case because this case is narrower than Caterpillar.

Why send this case back?

I would ask this Court... these principles apply regardless of whether the case arrives to Federal court through removal or original filing.

I would ask this Court, on behalf of the respondent, that this Court apply these principles to conclude that the trial court in this case had subject matter jurisdiction at the time of trial, and allow this case to return the district court for entry of judgment consistent with the jury verdict.

Chief Justice Rehnquist: Thank--

Mr. Greenberg: If there are no more questions, I give back the Court my... the balance of my time.

Rebuttal of William J. Boyce

Chief Justice Rehnquist: --Thank you, Mr. Greenberg.

Mr. Boyce, you have 4 minutes remaining.

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

I would like to elaborate on an answer to Justice Breyer's question, which has been touched on by a number of the questions here, which is what's the worst that can happen.

And I... I think the point would be this.

Once the efficacy of a post-filing change in citizenship is... is taken as a given, then I think you're... you're setting up a situation where the door swings both ways.

Jurisdiction can be created and jurisdiction can be destroyed by virtue of post-filing changes.

Justice Breyer: Well, he says it's the opposite.

I mean, you... you could do that, but I mean, it's very clear to say it could destroy it; no.

It could create it; yes.

I mean, that's not hard to understand, and there's a lot of authority.

Mr. Boyce: The... the rule... if... if the line is drawn there, then I... I think that raises implications of manipulation.

You can move and create it and then move back and not destroy it.

If... if the concern is creating incentives--

Justice Ginsburg: Only if the court says... only if the court says so because the rule, even the timely filing rule was... was something that John Marshall said and it's been that way ever since, with exceptions and recognizing that a human individual is different from a corporation is different from a partnership.

If... if a court is going to make such a regime, surely it would make a sensible one and not one that's subject to abuse.

Mr. Boyce: --If... there... there may be... the... the court will do what it will do.

The... the question is, is there an... a creation of additional opportunities for manipulation or confusion, and we--

Justice Breyer: What are they?

You were going to say.

What are they?

Mr. Boyce: --And... and I submit that if the bright line rule is no longer bright, if it... if it turns on the fact of how far into the trial court proceedings before this came up, then it's... the... the time when you need certainty most, in terms of being able to decide whether or not you have jurisdiction, that's when there's going to be the least amount of clarity.

And that's the real... the real problem that's... that's created here.

And... and Justice Stevens had... had asked the... the question saying, well, why don't we just draw the... the line?

You want a bright line rule?

We'll... we'll draw it at the time of trial.

I think the problem here is that what you're setting up is a circumstance where for some period of time, a trial court, a Federal district court is acting ultra vires, to borrow the phrase from Steel Company, for some period of time prior to whenever you say the... the post-filing change could become effective.

You've got a Federal trial court that is operating without authority.

It's issuing orders.

Justice Stevens: No.

You assume the jurisdictional defect has been cured.

Mr. Boyce: But prior to the time of that curing of that defect, you have a circumstance as you had here for 3 years, for example, where you've got a Federal district court issuing summary--

Justice Stevens: And as you had in Caterpillar.

Mr. Boyce: --And... and I guess the point I would make is... is this.

If Caterpillar opened the door to a component of retroactive jurisdiction, it did not open that door very wide.

And... and the... the choice is should that... should that door be opened wider and what are the problems that result from that.

And our position would be that the confusion and uncertainty and opportunities for manipulation that are going to result from opening that door wider make it appropriate to leave the line drawn where--

Justice Stevens: Can you imagine a plaintiff's lawyer deliberately filing a Federal lawsuit where he knows there's no Federal jurisdiction?

Why would he ever do that?

Mr. Boyce: --That may not be a... a circumstance that... that is likely to happen, but--

Justice Stevens: But you're talking about deliberate manipulation, and I just don't understand why a competent lawyer would ever do that.

Mr. Boyce: --I... I think the... the greater issue is... is one of uncertainty and of having a circumstance like this case or going back as early as... as the Capron case where the case gets filed and gets tried and then the issue comes up.

I do want to make one note about the reference to the Knop case.

Chief Justice Rehnquist: Thank you, Mr. Boyce.

The case is submitted.

Unknown Speaker: The honorable court is now adjourned until Monday next at 10 o'clock.

Attribution:

The Oyez Project

Featured:

Beneficial National Bank v. Anderson - Oral Argument

Fri, 09 Jan 2009 14:50:40 +0000

Case:

Beneficial National Bank v. Anderson

Media File:

02-306_20030430-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Seth P. Waxman

Chief Justice Rehnquist: We'll hear argument now in Number 02-306, the Beneficial National Bank versus Marie Anderson.

Mr. Waxman.

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

The complaint in this case alleges that a national bank charged excessive interest.

This Court has held repeatedly and consistently since 1875 that section 30 of the National Bank Act of 1864 provides both the exclusive standards governing the interest that a national bank may charge and the exclusive judicial remedies for any violation.

And as a result, any claim that a national bank charged excessive interest necessarily arises under Federal law, whether that claim is brought in State court or Federal court.

Any well-pleaded complaint would reflect that, and therefore, any claim of usury against a national bank, whether pleaded well or mistakenly or deceptively, falls within the original jurisdiction of the Federal courts and may either be filed there by a plaintiff or removed there by a defendant.

Justice Scalia: Mr. Waxman, normally when the Federal Government creates a cause of action that preempts State causes of action, it attaches an element to that cause of action that does not exist under some of the State causes of action.

Let's say, it... it creates a cause of action against the owners and... and managers of nuclear facilities, but the cause of action must be based on something more than mere negligence.

It has to be intentional malfeasance or gross negligence.

Okay?

Now, what if somebody comes in and brings a cause of action in State court, alleging mere negligence by the owners of the nuclear facility?

Is it your position that that case is removable even though it wouldn't... it wouldn't survive a motion to dismiss for failure to state a claim under... under Federal law?

Mr. Waxman: Justice Scalia, with respect, I don't think that I would concede the premise of your question, that is, that a Federal cause of action ordinarily has an additional element.

Justice Scalia: All right.

Well--

Mr. Waxman: But leaving that aside--

Justice Scalia: --Leaving... in my hypothetical... create one--

Mr. Waxman: --Your... your hypothetical actually is an example of a very peculiar instance in which, with respect to nuclear incidents, Congress has imported in... has federalized the cause.

It created an express Federal cause of action--

Justice Scalia: --Right.

Mr. Waxman: --and said expressly that State law standards will apply and it will be the law of whatever State the incident occurred.

Justice Scalia: But take my hypothetical.

What do you do in my hypothetical?

Is it removable or not?

Mr. Waxman: If... if--

Justice Scalia: Yes or no.

Mr. Waxman: --If... if any... I hope I can remember your hypothetical.

The--

Justice Scalia: The hypothetical is you plead a State law cause of action that does not claim all of the elements which are necessary for the Federal cause of action.

So it's clear on the face of it that it is dismissable.

Mr. Waxman: --It is definitely removable.

It definitely is completely preempted if it comes within the scope of a cause of action that has been determined to be exclusive.

Now, that's--

Justice Scalia: It's very strange to say that you can remove something that on its face does not constitute a Federal cause of action.

Mr. Waxman: --Justice Scalia, there may... in preemption cases, there are line-drawing problems at the margins about whether something is or isn't preempted.

This is a heartland case and the example... the hypothetical you're giving is let's say that State of Alabama or the State of Delaware created strict liability for excessive interest.

The Federal statute says it has to be knowingly under section 86.

There is no question... no question... under this Court's decided cases that a claim that a national bank charged excessive interest, with whatever state of mind or lack of state of mind, is governed exclusively by Federal standards and an exclusive Federal cause of action and that--

Justice Scalia: Right, but the question is whether the consequence of that is that the State law cause of action must be dismissed by the State court because it's preempted, or rather, the consequence is that you can remove into Federal court a pleading that plainly on its face does not... does not claim a Federal cause of action.

Mr. Waxman: --Well, the--

Justice Scalia: It just seems very strange to me.

Mr. Waxman: --The... the pleading... the complaint in this case on its face does satisfy the Federal cause of action and--

Justice Scalia: I understand that.

I understand that.

We're... we're not talking about what happens here.

But I... with regard to the general principle that you want us to set forth.

Mr. Waxman: --I think--

Justice Scalia: That's... what's... what I'm concerned about.

Is it that all cases automatically come, or is it only those that... that set forth a Federal cause of action?

Mr. Waxman: --It has to be one that if well pleaded... I mean, a... on a removal... on a notice of removal, the Federal court is obligated, like any court determining its own jurisdiction, to read the complaint as if it were well pleaded.

And if, when the court reads the complaint, it says there is a Federal question necessarily presented in here which has been inartfully not pleaded, the court then proceeds to adjudicate on the merits that claim.

If the answer is no, if the answer is, hey, this guy pleaded a claim under State law and I have well pleaded it and it still doesn't raise a Federal question, then you remand.

And it's that... that's sort of... I didn't mean to quibble with you, but the principle that we suggest is very straightforward is simply an application of this Court's decided jurisprudence, under arising-under jurisdiction, that removal jurisdiction follows original jurisdiction.

Justice Ginsburg: Mr.... Mr. Waxman, is what you're saying essentially there is a Federal claim or there is no claim?

Certainly the plaintiff doesn't want there to be no claim.

If there is a claim, it is necessarily Federal.

Mr. Waxman: Yes.

Justice Ginsburg: And that's what makes it removable.

It is treated as though it were well pleaded, when, in fact, it's badly pleaded.

Mr. Waxman: Indeed.

And the... the perplexing thing about this case is the sort of almost Kafkaesque situation that we have that's exemplified by the amicus briefs on both sides where this particular instance where the plaintiff says usury under State law even though the Supreme... this... this Court has decided, since 11 years after the act was passed in the Civil War, that there is no such State claim, we now have a... a group of plaintiffs lawyers from California urging this Court to establish a right to plead something that in their own case they say is only, quote, defensively preempted.

Justice Ginsburg: If they had--

Mr. Waxman: And no one has... I'm sorry.

Justice Ginsburg: --If they had pled it correctly, they could still be in State court, but the defendant could remove.

In other words, this is not... although it's a Federal claim... it arises only under Federal law... it could be brought in State court or Federal court.

Mr. Waxman: Correct.

There is concurrent jurisdiction as there... as is the norm, as this Court has explained.

And there are instances in which these cases are litigated to the merits in State court and instances in which they're litigated in Federal court either because they're brought there by the plaintiff, as the plaintiff could have here, or they're removed there as the defendant.

And the other principle that this case reflects, as I said, is not just the importance of parity in Federal question jurisdiction between giving plaintiffs and defendants parity in invoking the Federal courts if they choose, but the requirement that this Court has stated over and over and over again that in... in determining its own jurisdiction, the Federal court will construe the complaint as well-pleaded.

Justice Scalia: Mr. Waxman, one thing that troubles me about... about the proposal that you make and that the Government makes is that it seems to me in the LMRA case that established this principle and in the ERISA case, which is the only other case that has... has held to the same effect, those cases refer to this as being an extraordinary, an unusual event.

But I don't think it's going to be an unusual event if we say that whenever there is created a Federal cause of action, and at the same time, State causes of action are preempted, it may be removed to Federal court.

I don't think that will be unusual at all--

And I sort of looked upon the... the Labor Management Relations Act case as really sort of a... a platypus, I mean, a very strange case in which the courts just didn't want these labor things to go into State courts because they didn't trust State courts.

And so they said, boy, we're going to have Federal courts create this whole new law of... of contracting, of collective bargaining.

That's how I always regarded it.

And now you're telling me it's really just a little piece of a much broader proposition which is not at all... not at all narrow.

Mr. Waxman: No.

Justice Scalia, I think it actually is very, very narrow.

And we can go through in detail, but almost all of the statutory schemes that the... the State's amicus brief cites are not, in fact, examples of complete preemption.

But it... it comes up only in the instance where there is not only substantive preemption by Federal law and the creation of a Federal cause of action, but the determination that that cause of action is, in fact, exclusive.

And that is the difficult and close question that this Court--

Chief Justice Rehnquist: Well, was... was that true in the Farmers' and Mechanics' case?

The... the Court certainly said that when you're suing for usury, that was all you could get with the... that wasn't, of course, a... a removal case at all, was it?

Mr. Waxman: --No, it wasn't a removal case.

And in fact, depending on when in 1875 it was decided, there may or may not have been--

Chief Justice Rehnquist: There wasn't Federal... there wasn't Federal question jurisdiction.

Mr. Waxman: --there may not have been removal.

Chief Justice Rehnquist: But it is not a white horse case for you, that one.

Mr. Waxman: I think it is a... if I understand the reference, I think it is a white horse case in the sense... in this sense, Mr. Chief Justice.

We're not contending that the 1864 act evinced an intent to make these causes of action removable, even if pleaded under State law, because there was no general Federal question jurisdiction, and it wasn't provided in the law.

The relevant question and the relevant question that this Court deemed to be close in Metropolitan Life in the ERISA context is whether... okay, fine, Federal law has substantively preempted the field or by conflict or whatever.

Is the creation of the Federal cause of action of such force that it should be deemed to be exclusive?

And that, I think, is what this Court decided first in Farmers' and Mechanics' Bank by saying to the borrower in that case... the borrower was maintaining that under New York State law, it was entitled to void not... to forfeit not just the interest, but the note.

And this Court said, look, New York State law has nothing to do with this.

This is a claim of usury by a national bank.

The Federal standards are exclusive, and the Federal penalty expressly will not permit forfeiture of the note.

Only the interest.

Chief Justice Rehnquist: But... but certainly under the... the statute itself did not preclude the possibility of that action having been brought in State court.

Mr. Waxman: Not at all.

And in fact, it was expressly contemplated.

Then as now, these actions can be brought and are often brought in State courts.

All that the--

Justice Ginsburg: So can 3... 301 suits.

The two cases that we have so far where we have recognized that there is only a Federal cause of action, that cause of action could have been brought just as well in State court, but it's up to the defendant to remove it.

So we're not talking about an exclusive Federal forum.

Mr. Waxman: --That... that's correct, Justice Ginsburg.

And the same is true for the types of ERISA claims that were at issue in Metropolitan Life.

Justice Souter: And... and I suppose one reason... I was surprised when I went through.

I thought there would be a whole lot of exclusive Federal cause of action, and... and there are very few.

But I suppose one of the reasons we don't get it very often is just what Justice Ginsburg said.

There are other provisions where there's an exclusive Federal forum.

Mr. Waxman: Correct.

For example, the Copyright Act.

Justice Souter: Which is... which is not this case.

Mr. Waxman: The Copyright Act certainly is an example of complete preemption, but there's a statutory provision that--

Justice Scalia: Okay, why didn't we express this... this principle before instead of... instead of adhering so narrowly?

I mean, even the ERISA case, it didn't express this... this broad theory.

It says, this is... this is very much like the section 301, and the legislative history referred specifically to 301, and therefore we come out the same way.

Pretty... pretty narrow.

Mr. Waxman: --Here's... here's why, Justice Scalia.

The very difficult... this Court made clear in Metropolitan Life, if it wasn't clear before, that it wasn't going to infer from congressional silence very lightly that when Congress created a Federal cause of action, it meant it to be exclusive so that it would displace State causes of action.

There's a very strong and longstanding presumption to the contrary.

But that difficult question was decided in the context of section 30 of the National Bank Act beginning in 1875 for reasons that are explained in this Court's opinion and in the Comptroller's report that the Government cites that precipitated the enactment of section 30, which is that this was war legislation.

This was a... the creation of the national banks was hoped by Congress and President Lincoln that it would provide the means with which the Government could continue to fund the war, and national banks would knit the country together when the war was finished.

And the one thing that comes out of the history of this case and is reflected in this Court's opinions is that they feared, based on their experience with the first bank of the United States and the second bank of the United States, that jealous States, States that were jealous of their State-chartered banks, which were issuing paper at the time, would engage in predations against the national banks that were created at the very same time that section 30 was enacted and, in essence, smother this important Federal infant in its crib.

Justice Souter: I started to call you General Waxman.

[Laughter]

Mr. Waxman: Thank you.

Justice Souter: Like the old days.

Mr. Waxman: R-18.

Justice Souter: Assume... assume that I... I agree with you that... that on... on complete preemption, this... this case passes muster.

But assume also that in writing an opinion, I... I want to say something to indicate why we do not have a gathering snowball here.

I mean, we... first, we had the labor management reporting.

Then we got in some ERISA cases.

Now we recognize this.

Is there any criterion that you see in... in at least the cases on those three points so far, that... that... or any language that points to a criterion for when preemption, particularly field preemption, for example, becomes complete and when it doesn't?

Mr. Waxman: Yes.

There has to be substantive... Congress has to supply the exclusive substantive standards.

It has to create a cause of action to remedy violations of those standards, and this is the hard part.

And it also has to make clear that that... that judicial remedy is, in fact, exclusive, that is, that it will not permit the existence or operation of State law causes of action, even those that import the Federal standards and my--

Justice Souter: Okay.

Why in other cases?

Again, assume you... you made your point on... so far as this statute is concerned.

Why in other cases aren't courts going to be, in effect, remitted to doing what the... the Court tried to do here, and that is, say, let's find out what Congress had in mind?

And we don't find anything in the legislative history that makes it clear, and therefore it doesn't apply.

Mr. Waxman: --You... you have to find out what Congress had in mind, but I think this Court has made clear in Metropolitan Life that it is going to be the rare, rare, rare day when the Federal courts will infer from congressional silence that a Federal cause of action is to be exclusive.

And the other examples in... in which... in the Federal law in which there is, in fact, complete preemption, the FELA or the Carmack Amendment as an example, Congress has gone ahead and expressly made those actions nonremovable.

May I reserve the balance of my time?

Argument of Matthew D. Roberts

Chief Justice Rehnquist: Very well, Mr. Waxman.

Mr. Roberts, we'll hear from you.

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

For more than 125 years, it has been clear that the National Bank Act provides the exclusive cause of action for a claim of usury against a national bank.

Because the National Bank Act provides the sole available avenue of relief, any claim that a national bank has committed usury can arise only under that Federal law.

The National Bank--

Justice Scalia: Can I ask you the same question that I asked Mr. Waxman?

What if... what if the pleading makes a claim of usury, but it does not contain all of the elements necessary to make out a Federal cause of action?

Is that removable?

Mr. Roberts: --A failure to state a claim on which relief is granted does not deprive the Federal court of jurisdiction over the claim.

So the simple failure to state a claim wouldn't prevent it from being removable if the... if the claim was within the scope of the Federal cause of action, if it was a colorable claim.

Now, if... if the claim--

Justice Scalia: Well, it's not colorable.

I mean, one of the elements is just not there.

Mr. Roberts: --If... if the claim was not colorable--

Justice Scalia: It... it claims usury when... when what they charged was 3 percent and that would not violate the Federal statute.

Mr. Roberts: --Well, here... here we... we don't have that situation, Your Honor.

Justice Scalia: I understand that.

I want to know--

Mr. Roberts: That--

Justice Scalia: --We... you're... you're asking us to set forth a new general proposition, which we haven't set forth before.

We've... we've treated 301 and ERISA as... as distinctive cases.

Now you want a general proposition.

I want to know what does this general proposition cover.

Is the State court going to have to... or is... before removal is granted, is the court going to have to decide whether a cause of action is properly stated, or... or, you know, whether... whether it could be dismissed on... on a motion to dismiss?

Mr. Roberts: --When it's removed, the Federal court decides whether there's jurisdiction under Federal law, whether there's arising-under jurisdiction, and decides whether the... the complaint is properly pleaded, the true nature of the complaint states a claim under Federal law.

And--

Justice Scalia: So if it doesn't, then it stays in State court.

Mr. Roberts: --If it doesn't, then it can remand the State... the case back to State court, but it would have decided, in essence, that the claim should be dismissed at the same time by deciding--

Justice Stevens: What happens... what happens if the cause of action is for misrepresentation under State law, and the misrepresentation is that the interest rate was lawful and the plaintiff alleges it was unlawful because it was usurious?

Mr. Roberts: --Well, to the extent that the State claim requires the decision that a... a determination that there were excessive interest charges by a national bank, then the claim would fall within the scope of the cause of action.

But that wouldn't mean that there couldn't be claims for misrepresentation that--

Justice Stevens: Well, in... in my... would this removable?

This is the only thing in the complaint.

Mr. Roberts: --The complaint--

Justice Stevens: It seems to me this might be like Gully in that it... the... the nature of the cause of action was really a State cause of action even though it involves an inquiry into what the Federal law--

Mr. Roberts: --The State cause of action is just misrepresentation.

Justice Stevens: --That's it.

Mr. Roberts: Then that would not be removable.

Justice Stevens: It's unlawful, and the only misrepresentation is it's unlawful and it's unlawful allegedly because it's usurious.

Mr. Roberts: Yes.

I don't think that would be removable, Your Honor.

Justice Ginsburg: There were related claims here that were strictly State claims.

Mr. Roberts: That... that--

Justice Ginsburg: But they fell into--

Mr. Roberts: --Yes, but the existence of pendent State claims doesn't defeat removal jurisdiction just as it doesn't defeat original jurisdiction.

There were pendent State claims in the Metropolitan Life case, yet--

Justice Ginsburg: --And they'd come up under 1367.

They would travel with the 13--

Mr. Roberts: --Exactly, Your Honor.

The supplemental jurisdiction statute, 1367, expressly provides for Federal court jurisdiction in those instances.

They would come with... with the claim to Federal court.

Justice Ginsburg: --But if you had this same complaint and it didn't have the usury claim and it just had those State law claims, then there's nothing removable.

Mr. Roberts: That's... that's right, Your Honor.

The... the misrepresentation claim and the suppression claim are both species of fraud claim under State law.

They don't come within the... the scope of the cause of action in the National Bank Act, and they're not, on their own terms, arise under Federal law and they would not be removable.

Justice Stevens: Mr. Roberts, can I go back to your answer to Justice Scalia's question?

I wonder if you really meant the answer you gave.

Assume a case in which the plaintiff alleges that 3 percent is usurious as a matter of Alabama law, and under Federal law it must be at least 5 percent, say.

As I understand it, that would be removable because he's making a usury claim and would be dismissable, that is, under your... your theory of the case.

But I thought you said that would have to be dismissed in State court.

Mr. Roberts: What... what... I tried to distinguish between failure to state a claim, which I agree the simple failure to state a claim is... is not a ground for lack of Federal jurisdiction, Your Honor.

Justice Stevens: If you fail... you failed to state a Federal claim, but you do state an Alabama claim.

Mr. Roberts: There is no Alabama claim because the only claim can arise under Federal law.

So it... so it is removable and then the Federal court would assert Federal jurisdiction, which it has over the claim and dismiss it.

Justice Stevens: And the Federal court would dismiss, yes.

Mr. Roberts: Yes.

Yes, Your Honor.

But... but that was the initial question that I... that I understood Justice Scalia to be asking.

But then he said, if it's not colorable on the face of the complaint, what happens then?

But I don't think it makes a practical difference.

Justice Stevens: Well, that's my... my hypothetical.

It's 3 percent and the Federal law clearly says anything under 5 percent is not usurious.

What happens with that case?

Mr. Roberts: The critical... you have to know--

Justice Stevens: I've given you all the facts.

Mr. Roberts: --There still... there still could be a colorable claim under--

Justice Stevens: Well, is it a colorable claim or isn't it when it doesn't allege a--

Mr. Roberts: --We don't know what the rate--

Justice Stevens: --percentage rate that's usurious under Federal law?

Mr. Roberts: --You don't know what the rate is, Your Honor, under Federal law without... without more facts about the complaint because the National Bank Act provides the... the possibility the national bank can charge any of three rates.

But the--

Justice Ginsburg: And one was a State rate.

Mr. Roberts: --the fundamental... the fundamental point is that... that it's removable if there's jurisdiction in the original jurisdiction of the Federal court.

Justice Stevens: Well, I still don't understand your answer.

My... my hypothesis is the Federal law says no cause of action unless it's over 5 percent.

He pleads 3 percent and he... and he says this violates State law.

He says that and the defendant comes in and says, well, there's no State law cause of action.

It's a Federal claim.

Chief Justice Rehnquist: I want to remove it.

Does the judge remove it or not?

Mr. Roberts: If... if there is... if the claim properly pleaded states a claim over which there's Federal jurisdiction, if it was pled as a claim under the National Bank Act--

Justice Stevens: No, it's... that is a matter of State law in usury and--

Mr. Roberts: --No.

Justice Stevens: --and you say there is no such animal.

But then do you get to remove it or don't you?

I don't understand your answer.

Justice Scalia: I don't think there's authority to remove it, if--

Justice Breyer: --The answer is yes, isn't it?

Justice Stevens: You can remove it.

Mr. Roberts: You can--

Justice Stevens: He might be able to remove it because he doesn't have confidence in what the State judge will do.

Mr. Roberts: --No... no, Your Honor.

You can remove it if there's... if there's original... would be original jurisdiction over the complaint.

And that doesn't matter whether it's characterized as a... as a complaint under State law, which doesn't... doesn't exist because it's been entirely displaced, or if it's properly pled as a... as a claim under Federal law.

You could just as easily ask if they state the claim--

Justice Stevens: I... I still don't know whether you're telling me yes or no to my hypothetical.

Mr. Roberts: --I'm telling you that if the... if there's no colorable claim--

Justice Stevens: Well, I've told you what the claim is.

Is that colorable or not?

Mr. Roberts: --Well--

Justice Stevens: He says 3 percent.

Federal law is 5 percent, and Alabama says I'll... I'll do it on 3 percent.

Can he remove it or not?

He... I would think he could remove it and get it dismissed, but I'm not sure you agree with that.

Justice Breyer: The question... can I ask you a standard on this?

I mean, I thought the standard is to ask this question.

Is this... i.e., the State claim... the kind of claim in respect to which Congress intended the Federal action to be the exclusive substitute therefor?

If the answer to that question is yes, you can remove it even if it doesn't state a Federal cause of action.

Now, have I got it right what your argument is or not?

Mr. Roberts: --Yes, that's correct, Your Honor.

Unknown Speaker: Then the answer to Justice Stevens, if I have the right standard, would be yes, because Congress did intend the Federal cause of action to be an exclusive substitute for those State actions which allege that 3 percent is usurious.

Justice Stevens: How does this removal statute read?

Justice Breyer: I mean--

--Is that right or not?

Mr. Roberts: The... the removal statute gives the... gives the... the Federal courts... gives the defendant the right to remove to a Federal forum any claim that arises under the laws of the United States--

Justice Stevens: Arises under the law.

Mr. Roberts: --and so... so the question is whether it arises under, whether there's original jurisdiction in the Federal court.

Justice Stevens: And could we please answer Justice Breyer's question?

Justice Breyer: I want to know if I'm right or not--

Mr. Roberts: Yes.

Justice Breyer: --because I'm not asking just to hear my standard.

I'm asking--

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

Yes.

Justice Breyer: --I'm right, okay, in your opinion.

Mr. Roberts: Yes, you're right.

Justice Breyer: Okay.

Okay, and by the same token, if Justice Stevens' question had been asked about a subject that is not under the banking act or labor management reporting or that part of ERISA which has been held to be complete preemption, I take it your answer would be that if a... a claim was pleaded that omitted one element of the Federal cause of action in the State court, and you didn't start with the assumption that there was complete preemption for extraneous reasons, it wouldn't be removable.

Mr. Roberts: Yes.

If there... if I understand the hypothetical, it's not a situation where it arises under the exclusive cause of action for usury under the National Bank Act.

Justice Breyer: Right.

We don't start with the assumption of complete preemption.

What he states is, in fact, a Federal claim but for one element.

Is that removable?

Mr. Roberts: Yes.

Justice Breyer: He leaves out an element.

Mr. Roberts: The Federal... the Federal claim would be removable to... to Federal court, yes.

Justice Breyer: But it's not a Federal claim.

He's left out one element.

Would that be removable?

Chief Justice Rehnquist: Answer yes or no, and then sit down.

Mr. Roberts: Yes.

Yes, Your Honor, it's removal.

Thank you.

Unknown Speaker: Thank you, Mr. Roberts.

Mr. Clark, we'll hear from--

Argument of Brian M. Clark

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

Federal jurisdiction is necessarily limited jurisdiction.

Federal removal jurisdiction is limited by statute to those cases that arise under the Constitution or laws of the United States.

Plaintiffs have brought no cause of action on the face of the complaint that arises under the... the Constitution or laws of the United States.

As such, there's no Federal jurisdiction under long-held jurisdiction--

Justice O'Connor: Oh, but it's a claim of usurious interest charged by a national bank.

Mr. Clark: --It is a--

Justice O'Connor: So under the theory of the Government, that is a Federal claim.

Mr. Clark: --Under the theory of the Government, it... the claim, as pled, is under Alabama Code section 8-8-1.

And any interposition of Federal law at all is necessarily interposed by the defendant in this case.

And under this Court's decisions in Gully, which was a National Bank Act case, Caterpillar, MetLife, Franchise Tax Board, the imposition of a Federal defense does not create--

Justice Ginsburg: This is not a Federal defense, Mr.... Mr. Clark.

This is like... suppose you have a case in State court and the plaintiff says, we're both from the State of Alabama.

Defendant removes it, says, I was from... I am, was from Georgia.

Now, doesn't the defendant have a right to remove that case even though plaintiff pled it as though it were a case that could be only in State court?

Said we're both from--

Mr. Clark: --Are you talking about where the... where the... a... a complaint is pled by... by an... by a Georgia plaintiff against an Alabama corporation, it will be removed because--

Justice Ginsburg: --Plaintiff is from Alabama.

Mr. Clark: --because there's diversity?

Justice Ginsburg: Plaintiff says defendant is from Alabama.

Mr. Clark: Right.

Justice Ginsburg: Defendant removes because defendant is, in fact, from Georgia.

Mr. Clark: Right.

Well, in that case you have a... you have a... you have factual inaccuracy in the pleading.

In this case, we're not talking about their basis for removal is not some factual inaccuracy of the pleading, it's that they're saying that your legal theory, plaintiff, which you, under the well-pleaded complaint rule are allowed to choose your own legal theories, you've decided to travel on the Alabama statute--

Justice Ginsburg: You're not allowed to choose a theory that doesn't exist.

Mr. Clark: --Well--

Justice Ginsburg: The notion is that there simply is no claim under State law for usury against a national bank.

It doesn't exist.

No such claim.

If the plaintiff chose to stand on such a claim, it would have to be dismissed because the only exclusive claim for relief... although it can be brought in State or Federal court, the exclusive claim is one under Federal law.

That's the argument here.

Mr. Clark: --The argument that they are making is that there's no claim is... is misstating.

There is a claim.

What... what Your Honor is discussing is the principle of ordinary preemption.

Whether or not that Alabama State law claim may proceed is a question of ordinary preemption as to be... to be distinguished from complete preemption.

And the Court held in... in Caterpillar that... that a case may not be removed on a Federal defense, including the defense of preemption, even if the defense is anticipated by both parties.

Justice Ginsburg: Of course.

And there's one case... I was surprised you didn't cite it in your brief.

It's very... makes that point very nicely.

The Rivet case against Regions Bank, which was featured on the other side... you didn't mention it at all in your brief.

Mr. Clark: That's an ordinary... ordinary preemption case... case also.

Justice Ginsburg: That... that distinguishes between a claim for relief and a defense.

And that case involved a defense.

Mr. Clark: Right, and--

Justice Ginsburg: The defense of preclusion.

Mr. Clark: --Right, and that's exactly what they have in this case, a mere defense in this case.

And--

Justice Breyer: Because?

Justice O'Connor: Do you... do you disagree that section 86 of the National Bank Act provides the sole source of the cause of action?

Mr. Clark: --It does not provide the sole source of the cause of action that the plaintiffs have pled in this case, and that's the difference here is... is the source of sort of organic law as to where the... where the complaint comes from.

Assume there were... the defendants never brought up this... this claim or this defense of Federal preemption.

The Alabama case would... the Alabama usury claim would go forward under Alabama law and would be decided under Alabama law.

So it's important to... to see the distinction between... between what's being... what's being pled and a defense to what's being pled.

Now, as... as was stated--

Justice Breyer: Wait.

Don't leave that point because you're... you win if you're right on that.

I mean, you win if your particular claim is not preempted by this Federal statute, you win... and they admit it... if this particular Federal statute is not intended by Congress to be the exclusive vehicle for bringing the kind of claim that you have brought.

So now, explain to me.

You just said it isn't.

Why isn't it?

Mr. Clark: --Why isn't... Your Honor, why isn't... why isn't the... the cause of action we've brought--

Justice Breyer: Why, in your opinion, is the State cause of action that you brought... you say it is not true that Congress intended the Federal cause of action as the exclusive vehicle, excluding your kind of claim.

Mr. Clark: --Well--

Justice Breyer: They say it did.

You say it didn't.

Now, all I want to hear is your arguments for saying it didn't because they pointed to a lot of Federal cases going back to 1886 which say usury claims are to be brought under the Federal statute.

The State power in respect to a national bank has no power.

Okay?

Now, your reply to that is what?

Mr. Clark: --As this Court stated in the Caterpillar case under note 4, the question of the breadth of the--

Justice Breyer: I don't see what Caterpillar could possibly have to do with it since it isn't a bank case.

Mr. Clark: --Well, but the question of the breadth--

Justice Breyer: Is it?

Mr. Clark: --of the remedy provided--

Justice Breyer: I'm not asking you that.

I asked you to tell me about banking law.

Mr. Clark: --Right.

Justice Breyer: I want to know is it the case in your view... you concede it.

You seem to contest it.

I'll repeat it for the third time.

Is it the case that this Federal cause of action is intended by Congress as the exclusive vehicle excluding your State cause of action under the Supremacy Clause of the Constitution?

Mr. Clark: Under Supremacy Clause--

Justice Breyer: Is the answer to my question yes or no?

Mr. Clark: --That is... yes, that is what those cases hold.

However--

Justice Breyer: Okay.

Well, then--

Mr. Clark: --however--

Justice Breyer: --then you can't make the argument you just made.

Mr. Clark: --However, the question of whether or not a claim is preempted ordinarily is a... a wholly different question from whether or not there's jurisdiction in the Federal courts.

Justice Breyer: All right.

You... you really want... you conceded you have no State claim.

It's preempted by the Federal statutes.

Is that right?

Is that what you're conceding?

Mr. Clark: We... it appears that there is no... there is no State claim on the usury.

Justice Breyer: All right.

There is no State claim.

So then the question in this case is even though you concede, as I take it you have... I don't know if you really mean to.

Unknown Speaker: [Laughter]

Justice Breyer: But... but I take it you just did concede that the Federal cause of action is the only possible cause of action that your client could have.

Mr. Clark: Well, if the... if my client... if we decided to travel under the Federal cause of action... and what this goes back to is the well-pleaded complaint rule.

Plaintiffs in... in cases are allowed to choose their remedies.

And in this case the plaintiffs chose a remedy under the Alabama usury statute, be--

Justice Ginsburg: The problem with it is your complaint isn't well-pleaded if the only source of law is Federal, which you conceded on your brief and again here.

There is no well-pleaded Alabama claim because the Alabama claim or the State law claim doesn't exist.

The only claim that exists against a national bank for usury is a Federal claim.

Mr. Clark: --Well, and again, that is a defense... the claim... as the Court said in MetLife, the touchstone is not whether or not preemption is obvious, but the question is whether or not that creates removal jurisdiction.

Justice Souter: No, but the... the--

Mr. Clark: And that has to appear from the face of the complaint.

Justice Souter: --But I--

Justice Ginsburg: --But the face of a well-pleaded complaint.

And there's a difference between preemption as a defense to a claim that is well pleaded and here where you have badly pleaded a complaint that can arise only under Federal law that simply can't arise under State law.

Mr. Clark: The problem with that test is it's not a... it's not a test.

It adds another layer of... of litigation to... to almost any claim.

And what you're going to have is, instead of following the well-pleaded complaint rule that for years has served this Court, you're going to have all manner of State law causes of action all of the sudden removed and then you're going to have this litigation over... over, well, does it state a cognizable cause of action under... under State law or is it part of--

Justice Ginsburg: We have one simple question.

Has Congress provided for exclusive Federal law to govern this claim?

That's not a complicated question.

Mr. Clark: --Congress has not provided for exclusive Federal cause of action to govern an Alabama usury claim.

Justice Breyer: So then you are not conceding--

--Then you just withdrew your concession.

[Laughter]

--complete preemption as opposed to ordinary preemption.

Mr. Clark: As a matter of ordinary preemption, and maybe--

Justice Breyer: You're conceding ordinary preemption, but not complete preemption.

Mr. Clark: --Exactly.

And if I... if I understood the question, then I misunderstood the question.

Justice Breyer: I'm sorry.

It probably was--

Mr. Clark: As a matter of ordinary preemption, it may very well be that... that--

Unknown Speaker: --Congress--

Mr. Clark: --the State claim and Congress... and Congress intended that.

Unknown Speaker: --Let him finish answering the question that somebody else asked.

Oh, I'm sorry.

Mr. Clark: But as a matter of complete preemption, under... under what I was saying in the MetLife and the Caterpillar case, those do not jurisdiction make.

In the Gully... Gully case itself, it said a suit brought upon a State statute dues not arise under an act of Congress because prohibited thereby.

That is exactly the situation that we have here.

We have a State law cause of action.

We have the defendant interposing a defense saying, your State law cause of action is prohibited by that... by that... by the Federal act, and now we want to create removal jurisdiction because of that.

It's interesting.

This Court has always found--

Justice Ginsburg: Mr. Clark, I'm... can we go back to... you just cited Gully and maybe I have it wrong, but I thought that that was a suit to collect a State tax under State law.

Mr. Clark: --Yes.

Justice Ginsburg: That the source of law that was applied to the private actor was State law, the State tax.

Mr. Clark: Yes.

Justice Ginsburg: And here, the source of law that would be applied is Federal law, not State law.

Mr. Clark: The... the source of law pled in the complaint is Alabama State law.

Now, the fact that it may be ordinary... ordinarily preempted is something that... that the defendants can raise and the State courts can decide.

And the State courts have often... often decided matters of Federal preemption.

Justice Stevens: I just--

--May I ask... may I ask this one question?

It seems to me there's a slight difference in the text of section 85 and 86.

And section 85 reads as a defense, and if that's all there were here, I would understand your argument completely.

But I think one can read section 86 as creating an affirmative Federal cause of action, and one can argue that that's the only cause of action that can be prosecuted.

Now, if that's true, would there not be... would it not... not... would you not have to say then that the affirmative remedy in... under the Federal statute is exclusive?

Mr. Clark: Well, in... in... there are many Federal statutes that would run concurrently with State regulation of... of business.

And if... if the question is, is the fact that there's a Federal remedy provided, in addition to the State remedy... does that provide... provide removal jurisdiction, the answer would be... would be no to that question.

Justice Stevens: It's not only that there's a Federal remedy provided, but it's been construed to be the exclusive remedy.

Mr. Clark: Right.

Justice Stevens: That those are the only remedies that one can get.

Mr. Clark: Again, I would--

Justice Stevens: Doesn't that distinguish it from some of these other hypothetical cases?

Mr. Clark: --Well, again, I would go back to this Court's concept of federalism wherein the... the State courts are allowed to make that call.

And in Avco, which established the... this platypus of... of field preemption or complete preemption is very limited to... to those actions construing the collective... collective bargaining agreements.

And then it was reluctantly extended by this Court in the Metropolitan Life and Taylor cases, and--

Justice O'Connor: Well, the argument of the Government is that this is another one of those rare cases.

That's their whole point.

Mr. Clark: --But this--

Justice O'Connor: And if it is, then you're just wrong about it being only a defensive maneuver.

Mr. Clark: --This... if this another case, it is a wholly separate and... and distinguished... distinct way to go because the National Bank Act carries with it none of the indicia of the intent of Congress to completely preempt that the LMRA does.

Justice O'Connor: But it's been interpreted by a number of cases to have precisely that effect.

Mr. Clark: To have ordinary preemptive effect which--

Justice O'Connor: No.

No.

That was not the interpretation.

You want us to overrule earlier cases about--

Mr. Clark: --Absolutely not.

Justice O'Connor: --the meaning of the National Bank Act?

Mr. Clark: No.

But in the... in the LMRA context, you have specific jurisdictional grant to the district courts of the United States.

Then when ERISA came along, with Taylor you have... you have specific legislative history saying that this is to be interpreted under the Avco rule, which is to... which is to... to have a body of Federal law deciding all cases, no matter where brought, under... under ERISA or deciding all cases under collective bargaining.

In this case, there's no... in National Bank Act, there's no... there is no body of Federal law that could ever arise, and it's because the nature of the National Bank Act is really more of a hierarchy of State laws.

It says, National Bank Act, you can... you can charge either the interest rate in the State in which the claim is brought, you can charge the interest rate in the State in which the bank is located, or you can charge... and there's a default Federal interest rate.

So what you're going to have here is sort of a patchwork of State law decisions concerning the State... State law of Delaware versus Alabama versus Kentucky versus Michigan.

Justice Breyer: I'm still trying to get back to my... I'm beginning to see what I think your answer is, but please don't agree with me if you really disagree.

All right.

First, if I were to ask the question, is there Federal law in the area?

Yes.

Ask the question, does Federal law preempt State law?

Yes.

Mr. Clark: Ordinarily.

Justice Breyer: Yes, here.

Yes, well, you'll say right here, but wait.

So you... if I ask this question, is this State... Federal cause of action... did Congress intend it to preempt a State cause of action substituting the Federal cause of action therefor?

I think now you're prepared to say the answer to this question is yes.

Mr. Clark: Ordinarily preempt.

Justice Breyer: But you will answer the following question no.

Is there an intent here by Congress that this Federal cause of action that preempts the State cause of action by substituting an exclusive Federal remedy... is there an intent of Congress to allow removal when it's pleaded?

The answer is we have no evidence of that.

Mr. Clark: The answer to that question is no.

Justice Breyer: And what they're saying on their side... and now this is exactly the issue between them and the lower courts.

And indeed, there's language that's unclear in the lower cases... is that we need evidence of that latter point.

That's what you're saying.

And they're saying no.

Mr. Clark: Well--

Justice Breyer: They're saying, look, all you have to have are the first three things I mentioned.

Stop after you decide that Congress has created a Federal action with the intent that it provide an exclusive substitute for this State action.

Stop there.

Don't ask for any further evidence of anything.

One, because you'll never get it.

Congress never thinks of this sort of esoteric issue.

And second, because there's just no reason.

Now, okay.

Now I get the... the clash, and now I can get the answer.

Mr. Clark: --I'm sorry if I... I misunderstood your question before.

Justice Breyer: No, no.

It's my fault.

I didn't get it.

Mr. Clark: And in fact, in the... in Justice Brennan's concurring opinion in the MetLife/Taylor case, he said, you know, that... that congressional intent is the touchstone here, and that this Court would be well served not to infer removal jurisdiction unless there is some clear evidence of congressional intent to do so like in an ERISA case or like in the LMRA case.

Justice Scalia: Mr. Clark, I should perhaps have asked this question of the other side, but they're not going to have a lot of time left when they get back up.

I assume that it... it is a given that merely setting forth all of the elements of a Federal cause of action in a complaint is not enough to provoke removal.

That is to say, if there is both a Federal cause of action and a State cause of action which has the same elements, if you plead those elements, which would constitute a Federal cause of action, but you protest that you are not asserting a Federal cause of action, you are only asserting a State cause of action, that would not be removable.

Would it?

Mr. Clark: No, it would not be.

And that--

Justice Scalia: Okay.

So we're... we're talking about a... a distinctive rule here that where you set forth the elements of a... of a cause of action that you do not assert to be a Federal cause of action, we are going to allow it to be removed nonetheless.

Right?

Mr. Clark: --If... if what the defendants are arguing, it would be a new rule.

And it... it is a departure from--

Justice Ginsburg: But may I understand this further point?

What Justice Scalia's described seems to me quite common.

You have State human rights laws.

You have Federal human rights laws.

The same facts that I was discriminated against.

If I make my choice that I want to bring it under, say, New York law rather than Title VII, that's my prerogative.

And the defendant certainly can't remove that case by saying, well, you could have pleaded those same facts as a Title VII case.

Quite different.

That's where there's concurrent lawmaking authority, both State and Federal.

Here the argument is there is no State lawmaking authority.

There is no parallel source of law, State and Federal, and that's what makes it different from the ordinary case where you plead the facts and they would state a claim under either State law or Federal law.

The pleader has her choice.

Mr. Clark: --There... there is concurrent lawmaking authority.

However, because of the Supremacy Clause, the courts have held that... that there is ordinary preemption in this case.

But that does not answer the question whether or not should... there should be removal jurisdiction in the case.

And it's... in other words, the Alabama legislature certainly has the right to make... make law regulating Federal banks.

In fact, this Court decided way back in 1870 that national banks are subject to State law regulation.

And in fact, the quote from the case something like in their daily activities, they're regulated much more under--

Justice Ginsburg: But not usury.

I mean, you... it's a question of how you characterize this, but I think you agree that on the question of usury, the Federal legislation is conclusive and it was done, indeed, for the very purpose of having national banks escape from whatever jealous, mean legislation the State might pass.

So the only law... I mean, the choice would be if you want to say, yes, I want to stick with Alabama law, no Federal 85, 86 for me, that case must get dismissed.

You can't get past the door because there is no such claim.

Mr. Clark: --If... if the preemption, ordinary preemption, is... is applied, it... it would... applied as it has been, it would be dismissed.

However, that is a wholly separate question from whether the case arises under Federal jurisdiction.

It is a question of ordinary preemption that the State courts--

Justice Ginsburg: Why would a plaintiff want to bring a... a suit that inevitably must be dismissed?

Mr. Clark: --Well, and... plaintiffs have different reasons for pleading the things they do.

Under the well-pleaded complaint rule, of course, it's their prerogative to rise and fall on the causes of action that they choose to plead.

However, I go back to the MetLife case which the Court said it's not the obviousness of preemption defense but the intent of Congress.

And I think in answer to the question over there, is why... why go that extra step?

Well, because this Court has decided in MetLife that that extra step is necessary to stop this slippery slope down where every case that is removed out of a State court, you now have this other layer of... of litigation over, well, is there another cause of action and... and perhaps that we have to find some... we have to litigate over whether it's an exclusive cause of action.

And the answer to that is this Court has provided, for right or for wrong, since 1887 that we follow the well-pleaded complaint rule and it follows the language in the... at the end of the Gully opinion saying that what you need is a clear bright line limitation.

And only where we find some clear congressional intent, such as in the LMRA situation, such as in the ERISA situation, do we make this extreme and extraordinary grant of field preemption or complete preemption or whole preemption.

If there are no further questions, I will sit down.

Rebuttal of Seth P. Waxman

Chief Justice Rehnquist: Thank you, Mr. Clark.

Mr. Waxman, you have 3 minutes remaining.

Mr. Waxman: Justice Scalia, the answer to your question is yes, if there are--

Unknown Speaker: What was my question?

[Laughter]

Mr. Waxman: --Your question was if... if you... you said this would take time, and it will.

You pleaded all the elements of a Federal cause of action, but it also... it also satisfies a State cause of action.

If the Federal cause of action is not exclusive except in that rare instance, it is not removable.

Justice Breyer, yes, indeed we say that you stop at point 3.

That is, you determine whether or not this is the rare instance in which there's not only substantive preemption but exclusive Federal remedies.

And the reason you stop is because we have Federal question jurisdiction.

It says that removal is tied to original jurisdiction, and therefore, the question is, does the complaint well-pleaded necessarily state a cause of action?

Justice Holmes indicated in a statement that is oft repeated and, if it's anything, is under-inclusive, as this Court indicated I think in Merrell Dow, that a suit arises under the law that creates the cause of action.

If the cause of action is exclusively Federal, in that rare instance, it's under arising-under jurisdiction.

Justice Kennedy I think asked what for me is the most difficult question in this Court's sometimes not fully explicated arising-under jurisdiction, which is the question that was addressed in Merrell Dow and in particular in footnote 1 in this Court's opinion in Merrell Dow, which is if you have a State cause of action misrepresentation, but it has embedded with it as a necessary matter a conclusion about whether Federal law was or was not satisfied, does that State claim arise under Federal jurisdiction?

In Franchise Tax Board, this Court repeated dicta that suggests that the answer is yes.

And in Smith versus Kansas City Title and Trust, this... this Court seemed to indicate yes.

But in Moore versus Chesapeake... the Chesapeake and Ohio Railway, the Court suggested that the embedded Federal question has to be central to the State cause of action and really important.

And the result, as I... as I think things stand now, is we have a very long footnote 1 in this Court's opinion in Merrell Dow that says many people have difficulty resolving our jurisprudence in this area, but in the Merrell Dow context, where there was a State tort claim that could... may I finish my--

Chief Justice Rehnquist: Thank you, Mr. Waxman.

The case is submitted.

Unknown Speaker: The honorable court is now adjourned until Monday next at 10 o'clock.

Attribution:

The Oyez Project

Featured:

Breuer v. Jim's Concrete - Oral Argument

Fri, 09 Jan 2009 14:50:37 +0000

Case:

Breuer v. Jim's Concrete

Media File:

02-337_20030402-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Donald E. Pinaud, Jr.

Chief Justice Rehnquist: We'll hear argument now in Number 02-337, Phillip T. Breuer versus Jim's Concrete of Brevard.

Mr. Pinaud.

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

This case is about the vitality and scope of the rule of construction from Shamrock Oil that says that the removal jurisdiction to Federal courts should be narrowly construed.

As we see it, the overarching question in this case is, as posed by respondent, whether or not the rule from Shamrock Oil applies to cases brought in State court, but based upon a Federal question.

We think it has to for three reasons, and I'd like to, if I can, list them, and then I'll go back and... and cover each of them individually.

First, respondent proposes an unworkable distinction whereby the... whereby Shamrock Oil is not to be applied where a case is brought under the Fair Labor Standards Act alone, but it should be applied if it's brought together with some State law claims.

Secondly, Florida has a right to protect its citizens.

And thirdly, the Fair Labor Standards Act is just... just as much a part of the law of Florida as any act of the Florida legislature or any decision of the Florida courts.

Let me cover that first point first, which is the unworkable distinction.

Respondent concedes that Shamrock Oil would certainly apply in a situation where a State law claim was being brought together with a Fair Labor Standards Act claim.

In this case we did not bring a State law claim.

We only brought a Fair Labor Standards Act claim.

We could have, but we didn't.

If you were to... if you were to have that rule, you would have a situation where whether or not Federal jurisdiction was proper would be wholly dependent upon whether a State claim was brought with Federal action.

We don't think that--

Justice Ginsburg: But there are unworkable aspects to your position, Mr. Pinaud.

For example, a Title VII case combined with an equal pay case, the equal pay case could not be removed, but the Title VII case could, and then you would split what is essentially one controversy into two parts because one is... is not removable.

Mr. Pinaud: --Well--

Justice Ginsburg: The equal pay would be governed by the same thing as--

Mr. Pinaud: --There is--

Justice Ginsburg: --the Fair Labor Standards Act.

Mr. Pinaud: --There is, I think, no question that the Equal Pay Act and the Age Discrimination Act... Age Discrimination Enforcement Act would be covered by the Court's decision in this case because the enforcement provisions of those statutes are tied to the Fair Labor Standards Act.

Justice Ginsburg: And if you're right... if you're right... the equal pay case would have to stay in the State court, although the Title VII case could go forward in the Federal court.

Mr. Pinaud: That would be correct.

The... the second reason that I think Shamrock Oil applies in this case is because Florida has a right to protect its... its citizens.

This is a dispute between Phillip Breuer, Mr. Breuer, who is a resident of the State of Florida who lives in Duval County, who works for Jim's Concrete of Brevard, which is a company in Brevard County, in an employment relationship that took place in Florida, governed by Florida law.

They worked in many counties in Florida.

Certainly then Florida has an interest in that relationship and in this dispute.

This is not a case like Asahi where you have a... a California court looking at a dispute between a... you know, a Taiwanese company and a Japanese company.

Florida has an interest.

The third point is that the Fair Labor Standards Act is just as much a part of the law of Florida as any decision of the Florida legislature or any... or any opinion of its court.

Under the Supremacy Clause, the laws of the United States are the laws of Florida.

Florida courts have an obligation, an absolute duty, to enforce and uphold the Fair Labor Standards Act just like they have to enforce and uphold the... the Fourth Amendment, the Fifth Amendment, the Fourteenth Amendment.

It... it would be unrealistic to say that Florida has an obligation to uphold these laws, but then has no right or no interest in having them upheld in... in Florida courts.

So for... for those reasons, we think that Shamrock Oil certainly has to apply to this case.

If you then go ahead and... and apply the Shamrock... the Shamrock analysis to either the expressly provided language of 1441 or the maintain language of the Fair Labor Standards Act, you have to reach a decision that these cases are... are not properly to be subject to removal.

Chief Justice Rehnquist: Well, one can certainly maintain an action in the Florida courts, and unless it's removed, it will continue there.

I... I... it doesn't seem to me that using the word maintain means that the action must necessarily remain there.

Mr. Pinaud: Well, Mr. Chief Justice, obviously it's our position that maintain in this case does mean that it should remain in State court, and we think it's for a couple of reasons.

The first reason we would say is that once you apply the Shamrock analysis, maintain has to mean what we say because in the very worst-case scenario, at least for our position, maintain is ambiguous or... or capable of two different constructions.

Everybody here has argued... the Government argues and respondent argues... that it's ambiguous.

Well, if it's ambiguous, if it's capable of meaning you can maintain to a conclusion in State court, or if it is, rather, capable of meaning that you can only really bring or commence it, then under Shamrock Oil, when we apply that analysis, we should use the conclusion that most limits removal, which would be to... which would be to say that maintain means you continue on to... to final judgment.

Justice Scalia: Well, except... except that you have a later statute that says that it's removable unless... unless it is expressly provided otherwise.

Mr. Pinaud: Justice--

Justice Scalia: And I don't think something that is ambiguous expressly provides otherwise.

Mr. Pinaud: --Well, Justice Scalia, I think what you have to do, though, is I think when looking at the expressly... expressly otherwise provided language, you have to... first, you have to apply Shamrock Oil to that language.

Now, it's... it's our position that when Congress used the word expressly provided, otherwise expressly provided, it meant it in a textual sense.

That is, the word expressly is capable of two different meanings itself.

It can mean super clear or absolutely unambiguous, or rather, it can mean grounded in some text.

Because it's capable of two different meanings, we think that when you apply Shamrock to expressly, you choose the textual meaning because the textual meaning shrinks removal considerably whereas the other meaning expands it.

But I think--

Justice Ginsburg: And your reading of the word maintain... and your whole case hangs on that word, maintain... suppose the case were brought initially in a Federal court, and there were... there was a motion, a 1404(a) transfer motion, to transfer the case from one district court to another.

I take it on your reading, 1404(a) couldn't apply either because you would have to... if the plaintiff chose to maintain it in one Federal court, therefore it couldn't be switched to another?

Mr. Pinaud: --Justice Ginsburg, I... I don't think that would be the case.

I... I don't think that that's really analogous to the situation of bringing it from the State court to the Federal court.

It's... it's... the... the forum choice I think is significantly different.

When the employee brings his action in State court, he's choosing that State... that State forum, and it's for a reason.

And... and we think that... that those reasons are... are actually well articulated in... in the Government's 1947 brief when they were actually supporting our position.

So I... I don't think it's--

Justice Ginsburg: But if you're relying on the language of the statute, maintain in any Federal or State court, any State court, any Federal court.

So if you are conceding that you could transfer from one Federal court to another, then the plaintiff's choice doesn't inevitably prevail.

Mr. Pinaud: --Well, I think then my... my answer to that would have to be the rule from Shamrock Oil says if there's two reasonable interpretations, we... we make a decision that limits removal.

I'm not sure it's reasonable to say that if you bring it in one Federal court, it can't be transferred to... to another Federal court on... on the... the concerns would... that would give rise to it.

If I could go back, just a moment, to what I was talking about, the... the expressly provided language, addressing your question, Justice Scalia.

We also think that the expressly provided language has to be the textual basis based upon this... this Court's construction of 28 U.S.C. 2283.

That's the anti-injunction statute.

In that statute, Congress has provided that no... that no Federal court shall issue an injunction to enjoin a State court proceeding unless expressly authorized by Congress.

We're dealing with expressly provided language in 1441.

We see the language as completely indistinguishable.

In Mitchum v. Foster, this Court construed that language in 2283 as saying, look, that language does not mean that you have to have a... a statute that says you can issue an injunction.

Rather, what the Court said was, we look at the scope... we look at the purpose and intent of the statute and say is the purpose of... and intent of the statute to allow an injunction.

So really, what the Court is saying in... in Mitchum--

Justice Scalia: That was just a magic language case.

I mean, I think all it was saying is you don't have to use the... the very words so long as you have clearly made that disposition, but I don't know that I would go so far as to say that it... it stands for the proposition that something has been expressly provided for when there is simply an ambiguous provision that might be interpreted that way, but then, on the other hand, might not be interpreted that way, which is... which is what I think you have to fairly say about maintain.

I... I don't think your maintain argument goes anywhere unless you apply to it the... the rule of preference that you're urging upon us, that... that you have to interpret it so as to prevent removal rather than permit it.

But that... that preference is eliminated by the later statute unless you... unless you interpret that expressly to mean that an ambiguous provision expressly provides, and I just find it hard... hard to swallow that.

And I just don't see any of our cases that... do you have a case that deals with what was truly an ambiguous provision and... and nonetheless said that it expressly provided for something?

Mr. Pinaud: --I... I don't have... there... there is no case that I know of that would be on point in... in this situation, Justice Scalia.

But I would also add that we do not... though we think that the first analysis should start with Shamrock because... the first analysis of maintain should start with Shamrock because at best everyone... everyone agrees that the statute is ambiguous and that is... that is, that the respondent and the Government would say, well, it could mean this but maybe it doesn't.

I don't think we say that it's... that everything hangs or falls on Shamrock necessarily.

If you look at the way maintain was used in the Fair Labor Standards Act, we think that the word maintain is an express prohibition... prohibition on its own.

This is not just our opinion.

This was the opinion of the... of the majority of judges, the majority of courts that construed the statute prior to the 1948 amendment.

It was also the opinion of the United States back in 1947.

Justice Breyer: What's the reason?

I mean, leaving the word out of it, I mean, normally the background rule is... this is an... case arising under Federal law, and the background rule through removal is if either party wants to go into Federal court, you can.

Now, you say there's an exception for this statute.

Why?

Mr. Pinaud: We believe that the word maintain--

Justice Breyer: I understand the linguistic point.

I'm saying leave the linguistic point out.

Why?

Mr. Pinaud: --Justice Breyer, I'm not exactly sure why we--

Justice Breyer: What... what reason would there be that people would want to make an exception for the statute, the normal... I'm not saying there is none.

I just want to know what the reason is.

The... the normal... I would be just repeating myself.

Have you got what I'm saying?

Mr. Pinaud: --I... I think I understand what you're saying now--

Justice Breyer: Yes, all right.

Mr. Pinaud: --Your Honor.

The... the reason why Congress wanted an exception in the Fair Labor Standards Act to allow employees to bring these cases in... in State court--

Justice Breyer: Or Federal, yes.

Give them a choice.

Mr. Pinaud: --Well--

Justice Breyer: Is because?

They can bring it either place.

Right?

Mr. Pinaud: --Well, they can... they can bring it in... in either place.

I mean, there would be no reason why Congress--

Justice Breyer: The reason why Congress would want employees to have a choice, but would not want the defendant to have the choice or bring it to State court, unlike other Federal statutes is?

Mr. Pinaud: --Because in 1938, when this statute was passed, it was difficult for many employees around the country to... to effectively vindicate their rights for unpaid overtime if they had to go to Federal court.

This is--

Justice Ginsburg: Mr. Pinaud, that's the same thing with respect to the FELA, and... and Congress therefore expressly provided that if a railroad worker brings a case in State court, it cannot be removed.

And Congress was responding to the problem of the person who would find it difficult to go to the big city to litigate in the Federal court rather than stay in the State court close to home.

And so doesn't the... the fact that Congress expressly provided that FELA cases are not removable cut against you?

Mr. Pinaud: --Justice Ginsburg, I... there are certainly cases... certainly statutes where Congress has said this is not removable.

We don't think that Congress is to be held to a standard where they have to use magic language in order to prohibit removal.

We think that the... the real analysis should be what was Congress intending by the statute at issue or else you--

Justice Ginsburg: But... but before the... the 19... what was it... what?

1445... before 1948, were FELA cases removable?

Mr. Pinaud: --I'm not sure.

I... I will say this.

Before 1948, you know, Congress had used language in other statutes that said you can't remove it, and... and we recognize that.

But if you... if you hold Congress to this magic language statute, then... then nothing they could do or nothing they could intend would matter unless they use this specific language, and we're not sure that that's what the standard should be.

Justice Ginsburg: But we have a string of specific statutes, and then we have 1445 that lists in a row non-removable actions, a catalog of actions that are not removable.

And this one is left out.

Wouldn't one infer from that, well, they--

Mr. Pinaud: Well... I'm sorry.

The... the Reviser's Notes to the... the 1948 revisions are rather meticulous.

They talk about everything they're accomplishing and what they're trying to do.

I... I think it's noteworthy that with all the changes that were made to the other sections, like section (c), the other subsections, that in order to accept the proposition proposed by respondent, you would have to conclude that Congress throughout, with these other sections of 1441, certainly intended to contract removal, but yet with 1441(a), it grossly expanded removal.

I mean, this is a time now where Fair Labor Standards Act cases were generally considered to be not removable.

That was the prevailing opinion.

There's no mention in the... in the Reviser's Note or any of the history to the statute that... that Congress even thought about the Fair Labor Standards Act, so I think the more realistic assumption in the enaction of... of that legislation was that Congress accepted the... the prevailing opinion which was that maintain was good enough, that maintain was an express prohibition against removal.

The... when you're looking at the word maintain, also I think it's to see obviously the... the public policy concerns that I was just addressing with Justice Breyer, but we do think it's important, as did the Government back in 1947, that in enacting this legislation, as it was... originally appeared back when it was passed, Congress used the maintain within 38 words in the same sentence.

Congress said an action may be maintained in any court of competent jurisdiction, and then 38 words later, it said it may be maintained by an agent or representative of the employee.

If you were to... if you were to assume that maintained does not mean what this Court essentially has said it meant in the George Moore and Smallwood cases... and that is that maintain means to... to continue on... to continue or uphold, continue on foot a suit already commenced--

Chief Justice Rehnquist: --When... when you say that the... the provision said it could be maintained by an employee, that sounds more like a synonym for brought by the agent of the employee, that the action could be brought an agent of the employee, which of course does not help you.

Mr. Pinaud: --Well, the way I think we look at it, Mr. Chief Justice, is certainly Congress could not have meant by saying it could be maintained by an agent of an employee that he can file it, bring it, and then somehow have the case ripped from his control.

That is why we think that if you--

Chief Justice Rehnquist: Well, but that... that's the case in any case of a Federal statute covered by the removal statute unless... unless Congress says otherwise.

I mean, to say it's ripped from his control by being removed, that happens all the time.

Mr. Pinaud: --Oh, no.

I'm sorry, Mr. Chief Justice.

That... that's not what I mean.

I don't... I'm talking about when... when the Fair Labor Standards Act was originally enacted... it... it no longer appears with this language.

When it was originally enacted, it said, an action under this section may be maintained in any court of competent jurisdiction, which we all agree is... includes a State court.

And it also said in the same sentence that that action can be maintained by an agent or representative of the employee so that he didn't have to do it himself.

Somebody else could do it for him.

And the point that we're making is certainly when Congress said that that other person can maintain it, they didn't mean that that person could start the case and then have the case ripped from him and have somebody else take it over.

So if you... if you--

Chief Justice Rehnquist: Well, ripped from him in what manner?

Mr. Pinaud: --Well, that's exactly it, Mr. Chief Justice.

If... if you were to accept the argument proposed by respondent, you would have to accept that the... the agent or representative of the employee in 1938 could file the case, but then after he filed it, somebody else or someone would have the authority to divest him of his right to prosecute it.

Chief Justice Rehnquist: Are... are you talking about removal?

Mr. Pinaud: No.

Chief Justice Rehnquist: So you... you... when--

Mr. Pinaud: I'm--

Chief Justice Rehnquist: --you say ripped from him, you're not talking about the effect of removal.

Mr. Pinaud: --No.

Chief Justice Rehnquist: What are you talking about?

Mr. Pinaud: I am talking about what could the word... I... I was responding to a... a question by Justice Ginsburg about the definition and... and so forth of maintain.

And the point I was making is that maintain has to mean more than simply start or bring or something like that just because, if for no other reason... if you put aside Shamrock and you put aside the policy arguments, for no other reason that Congress in this statute, in the Fair Labor Standards Act, when it enacted it, used the maintain twice, one to mean you can maintain the suit and one to mean that a person can maintain it for you on your behalf.

And obviously, if Congress is going to give the employee the right to have an agent maintain the suit for him or her, certainly they didn't mean you can just bring it and then somehow, not for removal purposes, but you won't have the authority any more to prosecute it.

Justice Ginsburg: But you won't if the employee that you're representing says, I don't want you, I want another representative.

Then you can no longer maintain it.

Mr. Pinaud: Well, I... that's... I suppose that would probably be the... be the case, but I... I think that's... I think that's more... that's more akin to dismissal.

I mean, if an employee brings a case in State court and brings a case in Federal court, I mean, they can always... they wouldn't be maintaining it if they themselves choose to... to abandon it.

Justice Ginsburg: No.

He said, I... I want... the employee says, I don't want you as my agent.

I want somebody else.

Mr. Pinaud: Yes, Justice Ginsburg, but that would be the employee's decision.

That would be no different than saying an employee can maintain the case in State court when--

Justice Ginsburg: I'm just questioning your... your saying no one could... you couldn't wrench the case from the agent because the word maintain is used.

Well, of course, the employee could wrench it from him and give it to somebody else.

Mr. Pinaud: --Yes, Justice Ginsburg.

The employee could wrench it from him just as the employee who was maintaining his suit could choose to dismiss it.

I mean, the employee controls the suit.

I think it's more analogous to the... to the employee's power--

Justice Ginsburg: But nobody else could appoint an agent.

So I can't see the other wrencher in the picture.

Mr. Pinaud: --Well, if the... the point I... I am trying to make is that if this representative is maintaining the suit for the employee, if it only means bring, then one could conceivably fashion reasons why that person wouldn't have a... would not be able to continue on foot that suit aside from the employee.

I... I know we're kind of dealing with... with the semantics of the word, but I think it's important to show that the word means more than just bring or commence.

At this same time also... and we've cited the statutes in our brief... the... the Government passed a whole host of laws where they used words like bring and commence.

Why choose the word maintain if it doesn't mean something... something more in... in this case?

Also... and I know I've mentioned this a couple times... the word maintain itself... it was the prevailing opinion back then, before 1948, that maintain was express.

That is the exact language that the Government used in its brief filed in the Johnson case, that this was an express prohibition against removal.

So these are the people that lived contemporaneous at the time, that understood the... the public policy arguments of it, that understood the... the semantics of it, that understood presumably the intent of it.

And we think that that... those are entitled to some weight.

There's... you know, there is another argument that is addressed by respondent that, you know, State court judges are... are not competent to handle these... these kind of things.

Or I shouldn't say competent, but they're not experienced enough to handle it and so forth and so on.

We don't think that that's realistic.

State courts handle matters of Federal jurisdiction all the time.

We depend upon State courts to interpret the Constitution and properly apply the Fourth, Fifth, other amendments.

There's no reason why they... they can't handle Fair Labor Standards Act cases, and they handle them all the time.

We filed many... we have brought many Fair Labor Standards Act cases.

Most are removed to Federal court because removing to Federal court makes the case take a lot longer.

Justice Ginsburg: No one would suggest that a State court isn't competent to hear an ordinary tort case, an ordinary contract case, but if there's a diversity of citizenship, it can be removed to the Federal court.

Removal doesn't mean that the State court is in... in any respect incompetent.

Mr. Pinaud: I agree.

I don't think removal means that the State court is incompetent.

I... I was addressing an argument made that essentially that, well, State court judges don't have enough experience, they're not... Federal courts are better at handling these things.

I don't think that that's fair nor realistic.

State courts handle these matters all the time.

Fair Labor Standards Act cases are not overly complex.

They're certainly not as complicated as Title VII cases which States handle all the time and handle their own similar anti-discrimination cases all the time.

So there... there's just no... that particular argument made by respondent we don't believe has much import.

Mr. Chief Justice, I'd like to reserve the balance of my time.

Chief Justice Rehnquist: Fine, Mr. Pinaud.

Mr. Pinaud: Thank you.

Argument of Andrew S. Hament

Chief Justice Rehnquist: Mr. Hament.

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

Since 1875, a defendant in a civil action has had a right to remove a case arising under Federal law to a U.S. district court.

This right is currently codified in 28 U.S.C. 1441(a), which authorizes a civil action... the removal of a civil action of which the Federal district court has original jurisdiction except as otherwise expressly... otherwise expressly prohibited by an act of Congress.

The except as otherwise expressly provided language was added in 1948.

The court below correctly ruled that respondent had a right to remove this case for three reasons.

First, the plain language of 1441(a) which allows removal of a case arising under Federal law, such as a Fair Labor Standards Act case, unless Congress has expressly prohibited removal.

There is nothing in the text of the Fair Labor Standards Act or its legislative history which even mentions the word removal much less expressly prohibits it.

Second, Congress has explicitly prohibited removal in a series of enactments, and when it has done so, it has used very explicit language directly referring to removal.

Third, the words, may be maintained, in any court... or any Federal or State court of competent jurisdiction in the Fair Labor Standards Act is identical to language that Congress has used in other statutes, including the Family Medical Leave Act and the Employee Polygraph Protection Act.

If this Court were to rule that removal is barred under the Fair Labor Standards Act, then this would affect those statutes.

And again, there is nothing in the text of those statutes which suggests that Congress was attempting to prohibit removal.

The word is not mentioned in the text or the legislative history.

When Congress has prohibited removal in a series of statutes, starting in 1910, it has very directly used the word removal, and this has happened both before and after it enacted the Fair Labor Standards Act in 1938.

In fact, in 1948, Congress created a section of the 28... Title 28 under section 1445 and entitled it Non-Removable Actions.

In 1910, Congress stated that certain railroad... cases against railroads under the Federal Employer Liability Act, FELA, that actions arising under those laws may not be removed... used the words, may not be removed.

In 1914, Congress passed an enactment stating that certain actions against common carriers may not be removed.

In 1933, they passed the Securities Act and used the words, shall not be removed.

So these laws were in place using very direct language when the Fair Labor Standards Act was enacted in 1938.

Since the Fair Labor Standards Act was enacted, we have examples of four different laws that were passed by Congress, some in 1441(a), some stand alone, that use the words, may not be removed or shall not be removed.

The last one was the actions under the Violence Against Women's Act of 1994.

So we know from example after example what Congress had in mind in 1948 when it used the words, except as other expressly provided.

Justice Ginsburg: But the Wage and Hour Division didn't.

In 1947, it expressed the opinion that Fair Labor Standards Act cases were not removable.

Mr. Hament: Number one, Justice Ginsburg, at this point the Department of Labor has changed their position, and I think that's because of the addition in 1948 of the very express standard that except as otherwise expressly provided by an act of Congress, this type of case would be removable.

Justice Scalia: Well, what do we care what their position is?

This is not a matter that's within their administration, is it?

Do they administer the... the removability of matters in... in Federal courts?

Mr. Hament: No, Your Honor.

Justice Scalia: So, you know, their... their view on that matter is... is no more persuasive than... than yours, if may say so.

Unknown Speaker: [Laughter]

Justice Breyer: And yours might be very persuasive.

They have the--

Unknown Speaker: [Laughter]

Justice Breyer: They have the power to persuade, and they're knowledgeable.

Mr. Hament: Respondent's relying on the view of Congress which set forth a very clear standard in 1441(a) that these types of actions are removable unless expressly prohibited, and we're relying on Congress.

Justice Stevens: Is your position they were never removable or that the law changed in 1948?

Mr. Hament: Our position is that they were never removable.

Justice Stevens: And the... the Department was just wrong on its opinion.

Mr. Hament: Correct, Your Honor.

Justice Breyer: Though what he I guess was driving at is what the... in 1938, the year I was born, I'm in San Francisco, but there are a lot of workers down in Salinas putting artichokes in cans.

And their employer perhaps was violating the law, so they go into the State court in Salinas and the employer runs up to San Francisco.

And once he can remove that case to San Francisco, it's too expensive for the employee to run up there.

And that was why your opponent says they... they wrote this statute.

They used the word maintained, and the administer who was present at the creation, so to speak, had followed that for quite a long period of time.

Now, you're... you're saying look at the language.

The language just isn't good enough.

Is there anything else you want to add on that?

Mr. Hament: Well, Justice Breyer--

Justice Breyer: You know, on the purposive part.

Mr. Hament: --Yes.

Yes.

Justice Breyer, there... there is no legislative history to support that Congress was intending to prohibit removal for that or for... or for any other reason.

And... and yes, in... there are small claims that are possible under the Fair Labor Standards Act, but there are also very large claims, including very large collective actions.

If Congress wanted to put a limit on the amount of claim that could be brought in a Federal court, then Congress could certainly do that, as it has done in other statutes, and as... as it has also done in limiting removal of certain cases based on amount.

But Congress hasn't chosen to do that.

Turning to the point of the effect of a ruling that these words, may be maintained, could bar removal under the Fair Labor Standards Act, as mentioned and as counsel for the petitioner concedes, this would also prohibit removal under the Family Medical Leave Act, the Employee Polygraph Protection Act--

Justice Breyer: Well, it might if you... it might not if you, in fact, did put considerable weight on the knowledgeable views of the... of the administrators who were present at that time and the presence of a good reason for wanting to have achieved that result.

I... I grant you, I see problems with the approach I'm enunciating, but... but it wouldn't necessarily change those other acts.

Mr. Hament: --I... I think the problem would be that the Court would have to... to eliminate from 1441(a) the expressly provided otherwise language to... to achieve that result.

Justice Breyer: Is it meant to apply retroactively in 1948 to those statutes passed preceding 1948?

Mr. Hament: I believe... I believe it was.

If you look at the timing of the addition of that language in 1948, at that time, the right to remove didn't have the expressly provided otherwise exception.

It just was a right to remove, and it was at that time codified in 28 U.S.C., section 71, which had the right to remove.

But coupled in that same paragraph were two examples of cases where Congress said there was no right to remove, the FELA action and the action under the Interstate Commerce Act dealing with loss of... or injury under certain actions against common carriers.

So right in the same paragraph was this language, may not remove these two types of cases.

When they reorganized, they moved that language to 1440... 1441... 1445 and I think they were just making clear, when they left the right to remove, that they may from time to time, as they have, expressly prohibit removal of certain actions.

So I... I think the... the addition of that language changed nothing.

It is just simply adopting what the Congress had already applied as a standard.

Justice Ginsburg: Are you saying then what it did was to clarify what was ambiguous before, and the clarification made it apparent that the Wage and Hour Division had been wrong?

Is that... is that your argument?

Mr. Hament: I would be a little disingenuous if I said I think that Congress had looked to the Wage and Hour brief or the Johnson decision in doing that.

I'm not sure that they did and my guess is--

Justice Ginsburg: But in any... in any event, they clarified--

Mr. Hament: --Right.

Justice Ginsburg: --what they did in 1948 so the error of the Wage and Hour Division--

Mr. Hament: To the extent they--

Justice Ginsburg: --meaning--

Mr. Hament: --considered it, they overruled it because Johnson in that case, although it reached the rule that... that there was no removal by implication, said repeatedly in the decision that Congress was not clear in expressing its intent.

So to the extent that Congress was paying attention to Johnson, it overruled it with the expressly provided other language in 1948.

If removal were barred in this case, just to finish on the point of the effect on these other laws, you could have a very problematic situation, which I'm sure Congress never intended, of having, for example, an age discrimination case which would not be removable under the ADEA, but a race discrimination case under Title VII that is removable, or a handicap or disability discrimination case under the American with Disabilities Act which would be removable.

You'd have ERISA claims which would be removable, but not claims for leave benefits under the Family Medical Leave Act.

You'd have a Title VII sex discrimination claim due to unequal pay that would be removable, but not an Equal Pay Act case under the Fair Labor Standards Act.

And again, there's no indication that Congress, in using the words, may be maintained... it simply confers right of action... would have ever intended this effect.

Finally, I'd like to just briefly address petitioner's argument in the reply brief dealing with Mitchum v. Foster.

They're arguing that there's similar language in the anti-injunction statute which says that except as expressly authorized, a State court injunction... a... a Federal court may not enjoin a State court, and relies on Mitchum.

This reliance is misplaced.

First, the underlying law in Mitchum was the Civil Rights Act, the 42 U.S.C. 1983 action.

And the Court determined that the power to enjoin a State court under that statute was inherent in the necessary and indispensable power to remedy civil rights violations.

And the... the right to enjoin State court actions was absolutely essential to the purpose of 1983.

Second, the Court observed that it had a long history of making exceptions to the anti-removal statute without directly referring to the anti-removal statute or State court injunctions.

And third, in--

Chief Justice Rehnquist: --Are you talking about the Anti-Injunction Act or the anti-removal statute?

Mr. Hament: --Anti-injunction statute, I'm sorry.

And third, in Vendo Company versus Lektro, this Court said that the fact that in Mitchum there was no direct reference to the anti-injunction statute or staying State court injunctions was cured by the fact that there was relevant legislative history.

None of those factors are present here.

Obviously, the Fair Labor Standards Act does not rise and fall on this removal issue.

Second, Congress has repeatedly made exceptions very expressly and directly referring to removal when it made an exception.

And third, there is no legislative history.

For these reasons, the respondent respectfully requests that this Court affirm the Eleventh Circuit's decision that this case was removable.

Argument of Lisa Schiavo Blatt

Chief Justice Rehnquist: Thank you, Mr. Hament.

Ms. Blatt, we'll hear from you.

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

The general policy of the removal statute is to give the defendant the same right as the plaintiff to have his case heard in Federal court.

The removal statute achieves that objective by permitting the defendant to remove an action to... to Federal court if the plaintiff could have originally filed his suit there.

There is no dispute in this case that the plaintiff could have filed this action in Federal court even had the... even had the defendant preferred that the... that a State court adjudicate the dispute.

The policies underlying the removal statute are therefore served by giving the defendant the same right to insist upon a Federal forum.

Now, the removal statute creates a narrow exception to this policy when another statute expressly bars removal.

And Congress has foreclosed removal in a number of statutes in direct and explicit terms by providing most notably in section 1445 of Title 28 that, quote, a civil action in any State court may not be removed, or in other statutes that no case brought in any State court shall be removed.

There is no similar prohibition in the Fair Labor Standards Act, which does not address the issue of removal at all.

The language in the Fair Labor Standards Act providing that an action may be maintained in any Federal or State court of competent jurisdiction does not expressly foreclose removal.

Rather, it grants an employee a cause of action over which State and Federal courts have concurrent jurisdiction.

The language does not purport to trump or override generally applicable rules that affect the disposition of the proceeding such as whether the action may be stayed or transferred under other express statutory provisions.

Justice Ginsburg: What you're saying sounds so sensible.

Why was it that a number of Federal courts didn't get it, Ms. Blatt?

There was quite a division of authority on this question and the Wage and Hour Division originally took the other view.

Justice Kennedy: You want to be very careful about answering how Federal courts don't get things.

Unknown Speaker: [Laughter]

Ms Blatt: There was division and there still is division today, but we think that the 1948 revision makes amply clear that what's required is an express bar.

And when compared to the established template of the other statutes where Congress has foreclosed jurisdiction in direct, unambiguous terms, it makes clear that the... the correct answer is that the actions are subject to removal.

And the example I wanted to give was about why the word maintain doesn't speak to how the action may be disposed of under other provisions was a bankruptcy petition.

Under Federal law that would operate to stay the continuation of any judicial proceeding, and a similar result would hold true under State and Federal venue provisions.

And we think the same result is true under a Federal removal legislation.

There's nothing in the Fair Labor Standards Act that suggests that the plaintiff's initial choice of a State law... State court forum must prevail over the defendant's express statutory right to remove an action under section 1441(a), and we think the employee's right to sue accordingly is subject to removal.

And the only thing I... I'd like to address in response to the petitioner's argument is this principle of narrow construction.

We don't think that principle applies for basically two reasons.

And the first is that because there was no dispute about the Federal court's jurisdiction to hear this case, again notwithstanding Florida's interest in the case or even if the... had the defendant preferred the State court forum, the plaintiff could have insisted that the Federal court hear the dispute.

And thus the only relevant inquiry is not one of narrow interpretation, but it's a standard that's set forth on the... under the plain terms of the statute itself, and that is whether another statute expressly bars removal.

And we think for the reasons that have been given, even if one were to apply a principle of narrow construction, it would not be plausible to construe the word maintain as an express bar to removal.

And for those reasons, we would urge that this Court affirm the judgment of the Eleventh Circuit.

Rebuttal of Donald E. Pinaud, Jr.

Chief Justice Rehnquist: Thank you, Ms. Blatt.

Mr. Pinaud, you have 5 minutes remaining.

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

Justice Ginsburg, you had asked respondent a question about whether or not the... the 1948 amendments could have in any way been intended to... to clarify the removability of Fair Labor Standards Act cases.

And as... as I think I mentioned earlier, I... I just wanted to add, I think respondent agreed with that.

I don't agree because, as I stated, if you look through the Reviser's Notes, they... they are extraordinarily meticulous.

They list what they are doing and why--

Justice Ginsburg: I didn't ask whether they intended to.

I asked whether they did.

I don't know that... that Congress paid any attention to this particular Johnson against Butler Brothers case.

Mr. Pinaud: --Oh, no.

No, it did not.

It certainly did not.

And I... I think that is important.

I... I think also that these public policy concerns that... that Justice Breyer was... was discussing, these are really very important concerns that we don't think should be overlooked.

This is a time where you don't have an interstate highway system.

You don't have a whole lot of time... a whole lot of lawyers who want to practice in Federal court or who can practice in Federal court.

There were claims at the time for as low as... as low as $11.

Even the cases today, when they're individually brought, they're not typically enormous cases.

These are... these are employees suing for their wages, trying to have an opportunity to... to collect them without it being inordinately long or inordinately impractical.

Nobody is going to take a case for $11 or $250.

Justice Ginsburg: Was there ever a proposal made in Congress to give workers who have FLSA claims the same express provision that is there for railroad workers?

Mr. Pinaud: Not that we know of, but it's our position that that would be because Congress, at the time it passed this law, believed it was express, that that was the prevailing opinion, and that even now that was still the opinion of about half of... about half of the courts, half of... half of the district courts.

You know, this is... district courts every day... in fact, after this... I think just before this Court granted certiorari, there was a district court in... in Texas that said, absolutely these cases need to be staying in State court.

So I think Congress didn't get... I don't know why Congress didn't get involved in it, but I would think it would be because they thought maintained was express enough, that maintain was good enough.

Mr. Chief Justice, if there are no further questions, I have nothing further.

Chief Justice Rehnquist: Thank you, Mr. Pinaud.

Mr. Pinaud: Thank you.

Chief Justice Rehnquist: The case is submitted.

Attribution:

The Oyez Project

Featured:

Roell v. Withrow - Oral Argument

Fri, 09 Jan 2009 14:50:42 +0000

Case:

Roell v. Withrow

Media File:

02-69_20030226-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Lisa R. Eskow

Chief Justice Rehnquist: We'll hear argument first this morning in Number 02-69, Joseph Roell, Petra Garibay, and James Reagan versus John Michael Withrow.

Ms. Eskow.

Mr. Eskow: Good morning, Mr. Chief Justice, and may it please the Court:

When parties knowingly and voluntarily proceed to trial before a magistrate judge, they consent within the meaning of 28 U.S.C. section 636(c)(1).

The plain language of the statute confers case-dispositive authority on full-time magistrate judges upon the consent of the parties.

Congress did not specify in section 636 what form that consent should take.

It did not include adjectives such as express or written, and the omission of such qualifiers is significant.

Chief Justice Rehnquist: How about Rule 73(b)?

Mr. Eskow: Yes, Your Honor, Mr. Chief Justice, Rule 73 does require that the parties execute a consent form filed with the court, and it did not occur in this case.

However, a violation of that rule did not divest the magistrate judge of authority to preside over the case, and that is because the authority emanates from the statute, specifically the requirement that the consent be voluntary in 636(c)(1), and although it was error not to follow the Federal Rule of Civil Procedure or the local rules for the Southern District of Texas, which may have had writing requirements, these rules were related to procedural safeguards to protect the voluntariness of the parties.

They are not the consent requirement themselves, and it is the voluntariness of the agreement that gives a magistrate judge authority to preside, not compliance with technicalities of statutory referral procedures.

Justice Kennedy: Do you agree that the consent has to precede the action of the magistrate?

Mr. Eskow: Yes, Justice Stevens, we do.

Justice Kennedy: So that there had to have been consent before he took any... the magistrate took any action in the case?

Mr. Eskow: Any case-dispositive actions under section 636(c)--

Yes.

--yes, that would have to be with the consent of the parties.

Justice Kennedy: So that an hour into the trial, somebody hands counsel a note that says, Your Honor, we've made a mistake, our office said we can't consent to this, the trial, the magistrate should say, too late, you've appeared, you've been deemed to have given consent?

Mr. Eskow: Yes.

Yes, Justice Kennedy.

Justice Stevens: So it's like double jeopardy when this first witness is sworn, or something like that?

Mr. Eskow: Well, certainly, consent in our view is predicated on two things, and first it's notice that the magistrate judge is proceeding in this case-dispositive authority, and notice that the party has an opportunity to decline to consent to that procedure.

Justice Kennedy: So the first dispositive motion that he rules on?

Mr. Eskow: Certainly, that would be a signal, and yes, if a party did not object at that point, after being on notice that the magistrate judge was exercising case-dispositive authority.

Justice Kennedy: Well, then, we need a whole jurisprudence parallel to the simple rules that you all didn't follow.

Mr. Eskow: I'm sorry, Your Honor?

The--

Justice Kennedy: We need a whole jurisprudence that's parallel to the simple rule.

The... the object of the rule was structural, in a sense.

It was to bring home to the parties that they had a choice, to make them consider the choice, to make sure that the choice was not in any way forced on them or suggested to them, and it seems to me that your rule defeats all of that.

Mr. Eskow: --We would respectfully disagree, Justice Kennedy.

Absolutely, the rule is designed to protect the voluntariness of the parties' consent and to ensure that they aren't coerced into agreeing to a procedure and into relinquishing their right to an Article III judge when it's not something that they voluntarily choose to do, but those are merely the procedures to protect the consent.

The consent itself is the predicate for the exercise of the authority, and although there was a departure from the local rules, and in this instance, it was not merely on the part of two defendants who neglected to file a form but on the part of plaintiff Withrow, who neglected to obtain all parties' consent, as was his responsibility under the local rules--

Justice Ginsburg: Was he represented at the trial, Withrow?

Mr. Eskow: --No, Justice Ginsburg.

He... he was pro... he was pro se at that time.

Justice Kennedy: So... so your rule is that a pro se defendant has to tell the State of Texas how to comply with the Federal rules?

Mr. Eskow: No, Justice Kennedy.

Certainly, that was just an indication of the various mishaps that can happen because of the nature of the varying local requirements that exist in different districts.

You also had in this instance a district judge who referred the case to the magistrate before the defendants had even been served, much less had an opportunity to consent, and the magistrate judge did not comply with local practice of confirming on the record all parties' consent--

Justice Ginsburg: But she was... she--

Chief Justice Rehnquist: --Well, can... can local rules in one district produce a different result than another district which didn't have that local review with respect to this sort of consent?

Mr. Eskow: --Absolutely not, Mr. Chief Justice.

In... in this circumstance, certainly that authority emanates from the statute itself, and a local rule can't determine the authority of the magistrate judge.

That would apply nationally, and in every court, but--

Justice Ginsburg: This local rule did require express... it required consent in writing before the... the proceeding, didn't it?

Mr. Eskow: --Yes, before even the case could be referred the local requirement existed, but that was departed from both by the clerk, who provided a form to the district judge before it had been signed by the parties, and by the district judge himself, who referred the case without waiting for all parties' consent, or even all parties' service.

Justice Ginsburg: Do... do we know how this came about, because the magistrate, she was certainly aware of it.

Mr. Eskow: Absolutely.

Justice Ginsburg: And she asked the State, do you consent, and whoever was representing the State said, well, I have no authority to do that today.

Mr. Eskow: That was at a preliminary proceeding, Justice Ginsburg, a Spears hearing, that was determine whether or not plaintiff Withrow's claim should even be permitted to proceed, or whether he should be permitted to proceed in forma pauperis and whether service would be affected.

No defendant had been served at that point.

It was an evaluation under section 1915(a) of whether this prisoner suit should be allowed to proceed, and at that time there was a representative of the Attorney General's Office present at the hearing, merely in an informational capacity, but none of the defendants had been served, and they were not yet represented, so she indicated at that hearing that she could not consent on their behalf.

Later on, after that hearing, when it was determined that some claims could proceed, there was service on the defendants, and that was effected on a different Attorney General, who in turn assigned it to the Attorney General... the Assistant Attorney General who did represent the defendants at trial and filed answers on their behalf, and... and that attorney did neglect to file the required forms.

However, at the time of service, the case had already been referred, and he did not go back to confirm whether previously the forms were on file, but everyone in this proceeding was assuming that all the parties consented because the case was already before the magistrate judge, and everyone was acting in accordance with a section 636(c)(1) referral.

Indeed, in the referral order that the district judge signed that sent the case to the magistrate judge, it specified that if the defendants did not consent, they merely needed to indicate that to the court and it would go back to the district judge, so certainly there was an awareness that the case was proceeding pursuant to the dispositive, case-dispositive provisions in subsection (c).

Justice Ginsburg: And one of the defendants did put in a form.

Mr. Eskow: Yes, who was represented by separate counsel, and that counsel did follow the instructions from the court and... and did comply, and that was not complied with by the attorney who was representing the two defendants at trial in this case, but everything that that attorney did was consistent with and demonstrated the parties' consent in this instance, including filing a dispositive motion with the... the court that the magistrate judge could grant only if she had authority under subsection (c), and only if she had the parties' consent, and when she denied that motion and made that adverse ruling, that she could only do with the parties' consent, these defendants never once objected, they did not dispute that they consented, instead, they asked her to reconsider the merits of their summary judgment motion.

Justice O'Connor: Ms. Eskow, the statute, 636(c)(2), deals with the clerk of the court shall notify the parties of the availability of a magistrate, and then it goes on to say, the decision of the parties shall be communicated to the clerk of the court.

Does the use of communicated to the clerk suggest that it be express?

What is that requirement?

How does that enter in?

Mr. Eskow: Certainly, communicated to... to the clerk suggests that... that the clerk will be informed of the decision.

When the parties filed a dispositive motion that invoked, affirmatively invoked the case-dispositive authority, that was before the clerk and would have notified the clerk that they were--

Justice O'Connor: And satisfied that requirement?

Mr. Eskow: --It would, and moreover, it's subsection (1) that discusses the authority of the magistrate judge--

Justice O'Connor: Yes.

Mr. Eskow: --and speaks only of consent that is the provision of the statute in which Congress gave this grant of authority.

Justice O'Connor: Yes.

Mr. Eskow: Subsection (2) is a procedural mechanism for ensuring the voluntariness, the requirement under subsection (1).

Justice O'Connor: And was it complied with here fully, do you think--

Mr. Eskow: With subsection--

Justice O'Connor: --subsection (2)?

Mr. Eskow: --Subsection (2), in this instance, no.

Because of the local procedures that are requested the district courts develop under subsection (2), they were not complied with by any of the parties or any of the judges in this case, so there was a departure, but because there was full compliance of subsection (1), in that the parties all voluntarily agreed, absolutely there was authority to proceed.

Justice Souter: May I just ask you a technical question about the local rule?

I... as I recall, wherever it was referred to, it was referred to not as rule, but as order.

Does everybody in the case agree that whatever this order was, it had the status of a local rule for purposes of this case?

Mr. Eskow: Yes, Justice Souter.

That is not disputed by any of the parties.

That is just the mechanism by which the Southern District of Texas implemented it as a general order.

It is printed in writing, it is signed by the judges of the court, the chief judge of the court, and it's something that is respected by all parties as being the local rule in that case.

Congress' intent not to require any specified form of consent is evidenced by the language in (c)(1) itself, where the first provision is... for full-time magistrate judges does not require any form of written consent, it merely speaks to consent.

In the very next sentence of the statute, which is on page 3a of the appendix in the petitioners' brief on the merits, the statute specifies that for part-time magistrate judges, there has to be a specific written request by the parties in order for the magistrate judge to exercise case-dispositive authority, and the fact that Congress in the very next sentence chose to insert and to require a written consent indicates that Congress did not intend to make the same sort of requirement with respect to full-time magistrate judges, because that adjective is... is lacking, and the Court should not engraft terms onto the statute that Congress chose not to include.

Justice Ginsburg: I take it from your argument this morning you would say that these defendants... suppose they lost.

Suppose the plaintiff won.

They could not then say, magistrate, you never had any authority because we did not give you in advance written permission to proceed.

They could not... they would be bound.

Is that your view?

Mr. Eskow: Yes, Justice Ginsburg, if the court were to adopt an inferred consent rule and... and determine consent based on the parties' voluntary conduct beforehand, and there was notice, and there was a clear indication of conforming to 636(c)--

Justice Ginsburg: But I'm not asking the question hypothetically.

I'm asking, in this case.

Mr. Eskow: --In this case?

Yes, my understanding is that no party had... had even thought, it had not crossed any party's mind that consent was lacking and that all parties were intending to be bound by the judgment.

Justice Ginsburg: But if the defendants, having lost instead of having prevailed, then said, aha, now we can get out of it because we never formalized our consent, you... you are saying that they could not have... that on these, on the facts of this case they could not have bowed out if they lost?

Mr. Eskow: Yes, Your Honor.

We believe that that is the... the correct approach.

Certainly, in the Seventh and Eleventh Circuits, where those courts require express post judgment consent separate and apart from looking at the underlying conduct, in those situations there is not an effective judgment if the parties refuse to put express consent on the record after the fact.

That is certainly one approach to the statute.

It's one approach that we believe is valid, because requiring that express consent at some point in the proceedings to confirm the earlier conduct is something that... that would protect the voluntariness concerns Congress had, but we don't believe that it's required in... in terms of the authority, that the authority comes from the voluntary agreement that's evidenced from how the parties proceeded, and certainly, if the Court wished to avoid the gaming concerns that the Fifth Circuit expressed under the type of post judgment consent rule that the Seventh and Eleventh Circuits adopted, then adopting an inferred consent rule would eliminate that by requiring parties to be bound by the bargain they struck.

Justice O'Connor: Ms. Eskow, I take it all of the courts of appeals that have addressed this question have found express consent required?

Mr. Eskow: Yes, Justice O'Connor, that's absolutely true, but there's nothing in the statute that makes that requirement.

Indeed, another provision of the Federal Magistrates Act, the provision governing misdemeanor trial authority, that's in 18 U.S.C. section 3401(b), requires not... it used to require written consent.

In 1996, Congress amended the act to require only oral consent, but it specified that it could be oral or written, but that it needed to be express.

The words, expressly consents, are in that provision, and certainly neither the word express, nor the word oral or written, exist in 636(c)(1).

Justice Stevens: You suggested earlier that the second sentence of... of (c)... of (c)(1) contains the written... the writing request, whereas the first second... sentence doesn't.

Mr. Eskow: Yes.

Justice Stevens: But the writing request in the second sentence is a request for the... the magistrate to participate, rather than the consent itself.

It says, upon the consent of the parties pursuant to this specific written request.

There's no requirement of writing with respect to the request in the first sentence, but that doesn't necessarily disavow the need for writing in the... to evidence the consent itself.

Mr. Eskow: We would read the statute differently, Justice Stevens, that the fact that it says, upon the consent of the parties pursuant to their specific request, would indicate that the consent of the parties has to be pursuant to their written request.

Justice Stevens: That's right, but there doesn't have to be a written request with respect to the first sentence.

There just has to be... if one reads it the other... the way your opponent does it, there just has to be a writing evidencing the consent itself.

Mr. Eskow: We would respectfully disagree.

Justice Stevens: Yes.

Mr. Eskow: That the writing requirement only exists with respect to the part-time magistrate judge, and that that goes to the consent as well.

Justice Stevens: That's not expressed.

I'm saying, that's not expressed, but I'm just saying that it's not... it's not... the two... the writing requirement that is referred to in the second sentence is not an exact parallel of what they contend the... the writing requirement is in the first sentence.

Mr. Eskow: Well, certainly respondent has a variety of writing requirements, and one that they deem to be dictated by the local rules as well, which is something that's not spoken to in subsection (c)(1).

Certainly, the... the statute in (c)(1) imposes no sort of express or written requirement with respect to consent or with respect to requesting a magistrate judge--

Justice Stevens: Well, of course, that's the issue.

Mr. Eskow: --in any form.

Justice Stevens: Yes, that's the issue.

Mr. Eskow: And the absence of that we believe is significant because... in these other provisions because in the misdemeanor trial authority, it requires consent, and is probably the closest analogy to the trial authority in subsection (c)(1).

There is both express consent required, and it specifies that it can be oral or written.

Justice Breyer: The obvious reading of a statute like this I would think, and you tell me why I'm not right, but it just means consent in such form as the judicial conference or local rules provide.

I mean, Congress is perfectly aware in these procedural statutes that judges have rulemaking authority and that they elaborate the statute through rule.

Mr. Eskow: Certainly, Congress is aware of the common sense meaning of consent, and in substance--

Justice Breyer: Well, it's also aware that they're writing a statute for the judiciary that's implemented through rule, and where you have a term like this, that is implemented through rule, that everybody would think it would be implemented through rule, the word consent in the statute means consent in the form that the rules provide.

Does Congress have to add that every time in... I mean, isn't it obvious?

Or perhaps it isn't, but why isn't it?

Mr. Eskow: --We don't believe it's obvious, Justice Breyer, because if it was the form of the local rules, or the form of consent prescribed by local rules that determined the authority, you would have magistrate judges with different authority in a variety of jurisdictions across the country.

Justice Breyer: So what's wrong with that?

I mean, if the local rule is okay, what's wrong with that, I mean, if that's what the rule authorities want to do?

Mr. Eskow: Certainly it may be a good idea as a matter of policy--

Justice Breyer: No, no, it's a matter of law.

Mr. Eskow: --to require.

Justice Breyer: It's a matter of law.

Very often, Congress legislates, and they use words like consent, and so forth, and those are implemented.

I don't want to just repeat the point.

I want to be... I want to see what you can--

Mr. Eskow: Certainly, our view is that because Congress specified the requirements for local rules in a separate subsection than the consent requirement itself, it was anticipating that there would be some need to protect the voluntariness, but that it is the voluntariness that's the cornerstone, and that it would be a matter of administrative discretion on the local level.

Justice Breyer: --Assume you lose on that, just for the sake of argument.

Mr. Eskow: Yes.

Justice Breyer: Then I guess the other question is whether you can cure the violation by not objecting on appeal.

Mr. Eskow: That certainly is the question.

Justice Breyer: And what is your answer to that?

Mr. Eskow: The... yes, absolutely.

Justice Breyer: Because?

Mr. Eskow: Because the underlying voluntary consent is there through the parties' conduct, and to the extent the court construes the statute--

Justice Breyer: No, no, I'm saying, suppose that there is not consent.

Suppose I were to believe that the word consent in the statute picks up the method of the rule, at least it rules out implied consent, so suppose I held against you on that point, then still you'd say, we win anyway, because we can waive this requirement by just not objecting on appeal.

When... when the other side appeals it we say, we don't care, or when you appeal it the other side says, we don't care.

We consent now.

What happens then?

Mr. Eskow: --Well, certainly--

Justice Breyer: Now what, about that?

Mr. Eskow: --Assuming there is a violation of... of the rule, and that their consent is not lacking, the question is, what is the consequence for noncompliance with the rule, and certainly the failure to comply with these procedures, for that to be an automatic grounds for reversal would be a deviation from accepted practice, which is a party has to object to a proceeding, has to preserve error, and here, no party objected, and it is their personal right to the Article III judge.

It is their personal consent--

Justice Breyer: But the argument is--

Mr. Eskow: --that is at stake.

Justice Breyer: --of course, that you can't cure a basic jurisdictional problem.

You... both parties could not go out on the street, pick the third person whom you see and say, you decide our case, and then you appeal his decision, and when somebody says, who's that person, you say, we waive all the claims that he isn't a judge.

Mr. Eskow: Well, certainly, if Congress had not provided for a scheme that existed, and the parties randomly invoked the authority of a person on the street, that would be a problem, but here, you have a magistrate judge who has been specifically assigned by Congress to perform this function and has been designated by the district judge of the court, and the only question is, have the parties agreed, and if... and if no party objects to that and the magistrate judge enters the final judgment, even if there's been noncompliance with the rules, the question is, what is the harm, and even--

Chief Justice Rehnquist: So you say basically this isn't jurisdictional in the strict sense of the word?

Mr. Eskow: --No.

No, Your Honor, absolutely not.

It's not a question of subject matter jurisdiction.

The term, jurisdiction, solely is a question of authority of the powers of the magistrate judge to act.

Justice Kennedy: Do you think it's like personal jurisdiction, or more... it's more like personal jurisdiction or subject matter--

Mr. Eskow: It's more--

Justice Kennedy: --Because if you say personal, then you have on your side the rule that a general appearance, general... as a--

Mr. Eskow: --Absolutely.

Justice Kennedy: --as a rule waives deficiencies.

Mr. Eskow: And that it can be waived inadvertently, even by failing to timely assert the person--

Justice Breyer: My question is why, because the argument that it is like a person on the street is that a magistrate who is not an Article III judge is going to preside over a jury trial, and the result of that trial will have all the trappings and... and dignity and enforcement power of a judgment of a court of the United States, and the only way this could possibly occur is if the parties consent, particularly since it's a jury trial, and where they don't consent, he really is like a person off the street, because of the importance of what the parties are giving up in order to obtain his judgment rather than that of an Article III judge.

All right, now that's the other side's argument.

Now, I want to know how you respond.

Mr. Eskow: --Well, certainly in Peretz versus United States this Court considered a circumstance where, in a felony trial, a magistrate judge was supervising the voir dire, and the defendant's counsel did not make any objection to that when it went on, and this Court determined, both from a personal litigant Article III perspective, as well as from a structural perspective, that there was no infirmity in that procedure, and that a defendant who does not assert his right to an Article III judge has no cognizable right that he can enforce, and that would be the same circumstance here, for the same reasons why the felony voir dire was permissible without objection of the defendant in Peretz versus United States.

Here, without objection from the parties, with their fully informed knowledge of the nature of the proceedings, and their proceeding through judgment affirmatively invoking the authority of the judge, it is directly parallel to the situation in Peretz versus United States, and certainly the litigants waived their personal Article III right to a district judge, and the same structural protections that this Court deemed sufficient in Peretz also would exist here, because the magistrate judge is appointed, or direct... referred the case only by the district judge, the district judge can at any point in time, sua sponte, for good cause, take the referral back from the magistrate judge, and... and supervises the process.

That insulates it from separations of powers concerns that--

Justice Kennedy: One of... one of the insulating features in the suggested form and the rules of civil procedure makes it express that the consent form is not to be communicated to the judge or the magistrate in order to protect the attorneys who don't consent so that the magistrate or the judge doesn't know which party doesn't consent, and your rule completely destroys that.

Mr. Eskow: --No, Your Honor.

We... in this instance, certainly if the parties are voluntarily proceeding with knowledge, a magistrate judge would be aware that they were going forward and that there are rules that inferred consent is what satisfies the statute, then yes, a magistrate judge would know when a party, upon notice both of their right to object and of the nature of proceeding, invoked the affirmative authority, yes, the magistrate judge at that time would know that the parties have made the dissent.

Justice Kennedy: Well, no, but you... you presume a regime in which the magistrate said, I'm ready to proceed, and you... somebody stands up and says, well, I don't consent.

I mean, that's... that's the regime you want us to adopt, so that... that destroys the confidentiality.

Mr. Eskow: Well, certainly in many circumstances the... the local rules do provide for the communication to the clerk, and that is what Rule 73 provides.

As a matter of practice, however, in 1990, Congress relaxed the consent provisions to permit discussions between the district judge and the magistrate judge about consent, that they could remind the parties that they could consent to a magistrate judge, and that that was a topic that could be discussed in... in the courtroom provided that there was no coercion to consent.

If--

Justice Kennedy: Where did... where did the Congress do that?

You say the Congress did that?

Mr. Eskow: --In 1990, Congress amended subsection (c)(2) to loosen the consent requirements, and certainly it still anticipated that the decision is going to go to the clerk of court, but magistrate judges and district judges are not prohibited from discussing the matter of a referral with the parties, and if a party failed to sign the requisite form, certainly there'd be no... no prejudice by proceeding to inform the judge at the time that the issue came up that they did consent, and certainly, to... to wait until the eve of trial, when every indication was that they had consented, and to withdraw it at that point, an inferred consent rule would be more consistent with holding the parties to the benefit of their bargain.

Justice Stevens: May I just make one... ask you one clarifying question for me?

Is it your position that it... it is not necessary either to consent in advance, or to have the consent in writing?

Mr. Eskow: No, Justice Stevens.

We believe that you do have to consent.

You have to voluntarily agree before the magistrate judge can act.

Justice Stevens: But... but wasn't there a finding that that did not occur in this case?

Mr. Eskow: No, Your Honor, the... only a finding that they did not expressly consent.

The magistrate judge expressed... actually did find that they clearly had implied their consent by their conduct, but deemed implied consent insufficient.

The only piece that was missing was an express memorialization of the voluntary agreement that did exist.

Justice Stevens: The statutory provision that you... that you cited, which provides for subsequent discussions, is predicated on the fact that consent has first been communicated to the clerk of the court.

Mr. Eskow: Well--

Justice Stevens: So Congress basically talked about this discussion process against the backdrop of a consent form that had already been communicated to the clerk.

Mr. Eskow: --We would disagree, Justice Kennedy.

The legislative history actually indicates that the... the provision was intended to enable the district judge and the magistrate judges to inform--

Justice Stevens: But that's not what the statute says.

Mr. Eskow: --to inform the parties of the availability, irrespective of whether they had actually already consented, because too many magistrate judges and district judges believed that they... they could not go on record.

Chief Justice Rehnquist: Do you want to reserve the remainder of your time, Ms. Eskow?

Mr. Eskow: Thank you.

Argument of Amanda Frost

Chief Justice Rehnquist: Ms. Frost, we'll hear from you.

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

All parties must expressly consent before a magistrate may exercise jurisdiction under section 636(c).

First and foremost, this is because the text of the Magistrates Act and Rule 73(b) require express consent.

In addition--

Justice Ginsburg: Oh, the text does not require express consent.

I beg to differ.

Mr. Frost: --I'd like to--

Justice Ginsburg: It does not.

I think that's how you want us to interpret it, but I don't think the word is there, is it?

Mr. Frost: --The word, express, is not there, Your Honor.

It is in Rule 73(b), and in addition, I'd like to point Your Honor... Your Honor to some of the provisions of 636(c) which strongly indicate that the consent must be expressed.

Chief Justice Rehnquist: What part of 73(b) uses the word express?

Mr. Frost: 73(b) refers... it does not use the word express, Your Honor.

Chief Justice Rehnquist: So then neither the statute nor the rule use the term express, as you suggested earlier.

Mr. Frost: Neither use the term, express.

Rule 73(b) refers to the... that the parties shall execute and file a consent form.

That is a written form of consent that obviously must be express.

It couldn't... wouldn't be possible to file in writing a consent without that being express.

It is our position here that written consent is required, and I used the word express only because this Court need not go that far in this case, because these... the petitioners here not only failed to file their consent in writing, as 73 requires, but they also failed to articulate consent at all, and... and so there is no need to reach the... the question of whether a consent must be in writing.

Justice Ginsburg: Well, it could be implied.

That's the question of whether the consent, if it is required, as it appears to be, could be implied, and if there ever were a case for implying consent, this is that case.

Mr. Frost: I... I respectfully disagree, Your Honor.

For example, I think that everything that these petitioners did was as consistent with an intent to withhold consent as to give consent, and I'd like to show you as an example the motion for summary judgment that was filed in this case that petitioners have pointed to as being evidence of clear consent.

It's captioned, To the Honorable Judge of the District Court, and it was submitted to the clerk.

In addition, a magistrate may review a motion for summary judgment under 636(b) without the parties' consent, so nothing that the petitioners did by submitting this motion indicated their... their intent to consent to these proceedings.

Chief Justice Rehnquist: But wasn't there a trial?

Mr. Frost: Yes, there certainly was, Your Honor.

Chief Justice Rehnquist: They... they did participate in the trial.

Mr. Frost: Yes.

Chief Justice Rehnquist: So even if filing that motion did not give implied consent, perhaps it could be argued that simply participating in the trial gave it.

Mr. Frost: Yes, Your Honor, that is petitioners' argument, and the reason I think that argument cannot be... is not in accord with the language of the Magistrates Act is, first of all, consent is used consistently throughout the act to be... to mean an express statement.

For example, in 636(h), a retired magistrate may come out of retirement and serve again upon the consent of the... of the chief judge of the district court, and I don't think even petitioners would argue that that consent could be implied in the sense that the chief judge never said or wrote that the retired judge--

Chief Justice Rehnquist: But it's used in a little bit different sense there.

It requires basically the permission of the chief judge, which you know, I think you're quite right in saying that that would not be satisfied by simply doing nothing, but in... in a case where you're talking about an agreement, I... I think it's... the law is different in some... in some respects.

Mr. Frost: --Well, I respectfully disagree, Your Honor, because both provisions, 636(h) and 636(c)(1) use the term, upon consent, and I think that where Congress used the same term throughout the statute, it should be interpreted to have the same meaning, but that's not the only provision I rely on.

There's the fact that the Congress thought consent would be communicated to the parties.

There's the fact that Congress said, upon consent, meaning consent must come first.

It makes no sense to say, consent must come first, if what Congress meant was, simply by showing up once the magistrate starts exercising that authority, we are going to consider you to have consented.

Justice Ginsburg: Why not?

If... Justice Kennedy brought up the analogy to personal jurisdiction.

If one makes a general appearance just by showing up in court, then any question of whether the court would otherwise have jurisdiction is gone, because there is jurisdiction, personal jurisdiction by consent, just by making a general appearance, so why isn't showing up in that magistrate's courtroom, going to trial without objecting, why isn't that equivalent to a general appearance?

Mr. Frost: Justice Ginsburg, the answer to your question is that there is in the Federal Rules of Civil Procedure Rule 12, which says that showing up will be waiving your right, and here we have a statute that requires consent, and it's important to look at why Congress wanted that.

Congress was clearly very concerned that consent be voluntary, willing, and knowing.

Petitioners agree, and the question is, what is the best way to protect that?

Express consent protects the consent and ensures that it is voluntary.

Justice Ginsburg: I could understand that in the abstract.

In the concrete, as applied to this case, if the plaintiff, the pro se plaintiff didn't consent and then lost, I could see an argument there, but this is the State Attorney General, and when they show up and they go to trial, it seems to me it's reasonable to imply that they have consented.

Mr. Frost: I think not, Your Honor, for a few reasons.

First of all, there is nothing that would have stopped these parties from... from arguing after the fact that they hadn't intended to consent, and there's no evidence as a result of the fact that the counsel failed to specifically consent--

Justice Kennedy: Well, how... how could they have made that argument in this case, say, well, we just forgot about the rule, we didn't know, or--

Mr. Frost: --The argument they would make is--

Justice Kennedy: --I... I just can't imagine what the State Attorney General would say, after having participated in a trial and say, well you know, I really didn't consent.

Mr. Frost: --I think that what the State Attorney General would say was, I had not realized that my... I had not realized that I had not checked with my clients, that I had not... because the State Attorney General took this case over, he... he could say, I had not realized that my clients had not already agreed to do this, they have a right to an Article III judge.

Chief Justice Rehnquist: Well, but it... I mean, who... who is the Attorney General's client except State officials?

Mr. Frost: Well, I think, Your Honor... that's true, Your Honor, but these questions go to the question of whether Congress intended different consent standards for different parties, and also to the question of whether Congress would want this kind of satellite litigation on the question of consent.

I think it is telling that these... that the petitioners in this case, when asked whether they consented, said they could not, never consented, the documents they submitted to the district court were captioned to the district court, they did not indicate that they intended to go before a magistrate.

Would Congress have wanted courts to have to deal with the satellite litigation of parties arguing whether they did or didn't consent?

Justice Ginsburg: But Ms. Frost--

Justice Stevens: --Well, once this--

Justice Ginsburg: --you're asking them to engage in much more than satellite litigation over consent.

The result of your position is that there will be a whole new trial, so it's going to engage the court much more than making a determination whether, in fact, the State officials consented by appearing before the magistrate, so--

Mr. Frost: Yes, Justice Ginsburg, that is true in this case, but if the rule is explicit consent rather than inferred consent, and if that is established as the rule, then there will be far fewer occasions on which mistakes are made.

Justice Ginsburg: --But it was the... but it was the local rule.

Mr. Frost: Yes.

Justice Ginsburg: And it... and... so we're dealing with only the consequences, and I could see if this were a big question of subject matter jurisdiction, you'd say that the parties can't waive that, but this kind of rule is at a much lower level.

Mr. Frost: Well, I respectfully disagree, Your Honor.

I think that, both throughout the Magistrates Act and the legislative history, Congress referred to section 636(c) as an expansion of the magistrate's jurisdiction to act, and that jurisdiction can only be invoked upon the consent of the parties.

Justice Souter: No, but if you're saying that that jurisdiction is on the level, as I think you are, on the level with subject matter jurisdiction--

Mr. Frost: Yes.

Justice Souter: --then it seems to me you've proved too much, because if it were... if Congress were assuming it was on that level, Congress wouldn't have done this in the first place.

You can't consent to subject matter jurisdiction, and you can't consent to it by filing written forms before trial, so we've got to make the assumption, just as Justice Ginsburg did in her question, that we're dealing with an interest which Congress viewed at a very lower level.

Mr. Frost: I respectfully disagree, Justice Souter, and here's why.

It's not a question of consenting to subject matter jurisdiction, it's a question of what did Congress say are the limits of the magistrate's--

Justice Souter: No, but I mean, we... I'll... I'll grant you that... I mean, I read the statute, this... and the rule the same way you do.

Of course, what Congress had in mind was consent beforehand, and I think you're right, consent in... in written form.

The question is, if... if that consent is not given, and a whole trial is held, did Congress regard the subject of the consent as being on the same level as subject matter jurisdiction so that it could not possibly either be satisfied by... by an... an inferred consent or corrected afterwards, and if it were on the level of subject matter jurisdiction, then there couldn't have been consent in the first place, so we've got to assume that Congress regarded the interest here as something less significant than, say, subject matter jurisdiction.

Mr. Frost: --I would not put it quite in those terms, in terms of less significant.

I think what Congress did was establish thresholds to the magistrate's exercise of jurisdiction, and this is separate and apart from saying this is a Federal question case.

Of course, we agree with that.

This case was properly in Federal court.

The question is, were the two prerequisites to the magistrate's exercise of authority met?

One is the designation by the district court, and the other is consent.

Chief Justice Rehnquist: 630... 636(c), as you point out, talks about the consent of the parties.

Now, supposing an attorney for a party comes in, signs a consent form, and then the... he loses the case.

Can the client later come in and say, I never authorized the attorney to sign that consent form?

Mr. Frost: First notice... that's, I think, a question that's... it's arguable, but I would think that the argument would be that no, the client at that point is bound by the attorney's representation, just as clients are bound by their attorney's representations in many other situations.

Chief Justice Rehnquist: But they aren't bound by their attorney's representations in some criminal cases.

I mean, the... the client must make the decision.

You don't think this is one of them?

Mr. Frost: I... I think the... it's arguable, but the answer I think is no, because there are many very important decisions that counsel... they're supposed to consult with their client and, indeed, it would be a violation of the Rules of Professional Responsibility if they didn't in this instance on this question of consent, but if for some reason the counsel made an error, frequently litigants are at the mercy of their counsel.

Justice Breyer: I... I thought they were going to ask... I agree, Peretz is not in point, because it's an issue where they did consent, but the... the... there is a doctrine called the de facto officer doctrine, and that means that if it's a fairly unimportant error, it can be waived.

For example, if a judge sat in the wrong district, or the judge was designated to sit while the other judge was sick, and then the other judge died, so he wasn't just sick.

I mean, and these were all errors, and the court said, well, they do not go to jurisdiction, they're waivable.

Now, why isn't this case like that, at least if we assume there was real consent given, it was just implied.

It violates the statute all right, but no real harm is done, if they want to waive it, they can?

Mr. Frost: Yes, well, Justice Breyer, the first response to the de facto officer doctrine is that that is supposed to apply to minor errors, and--

Justice Breyer: That's right.

They'll say, this is sort of minor.

Mr. Frost: --And--

Justice Breyer: Because after all it's not that important, given the fact they gave the consent anyway.

At least, they showed up for trial.

Mr. Frost: --I was going to say, it's not that important considering the fact that they expressly consented after the fact of the trial, but that, of course, cannot be what this Court relies on, or--

Justice Breyer: No, but I'm asking you really to answer, why isn't it trivial?

Why is it important?

Why isn't it small enough that it could be waived?

Why is it grand enough that it implicates what we call jurisdictional error, the parties can't cure it, they can't waive it?

Mr. Frost: --Justice Breyer, the answer to your question is first that Congress created it as a jurisdictional threshold, second, that Congress was very aware of the constitutional issues that arise when you delegate Article III powers to non-Article III actors, and for that reason, Congress repeatedly stated it wanted consent to be voluntary, knowing, and willing.

It was concerned that less-advantaged litigants might be coerced, or might not realize that they have a right to an Article III judge.

For this reason, Congress--

Justice Ginsburg: But then, if it's jurisdictional as you say--

Mr. Frost: --Uh-huh.

Justice Ginsburg: --then why doesn't 1653 control?

Title 28, 1653 reads, defective allegations of jurisdiction may be amended upon terms in the trial appellate court.

A provision like that would take care of the pro se person, because the court could say, on terms it's not fair to hold this person, this pro se litigant to consent that that person didn't give, but that it's perfectly appropriate to hold the State Attorney General, so even if we grant that it was jurisdiction, why doesn't 60... 1653 take care of it, saying defective allegations of jurisdiction may be amended even in the appellate court?

Mr. Frost: I think that would not be sufficient, Your Honor, because it would change the language of the statute, and in addition it would... the question would have to arise, what would happen if the Attorney General came in at the end of this process and said, I didn't consent, and I think that there would be a strong basis on this record for the Attorney General to proceed on that argument successfully.

The rule in the Fifth Circuit that the Attorney General was supposed to be familiar with was that all the parties must submit written consent before trial, so the fact that they didn't would be strong evidence they had not intended to consent.

Then you have the fact that all their pleadings are captioned to the district court, you have the fact that there was some switching off of counsel so it's not clear whether the individuals, individual defendants here had ever been consulted, or ever had an opportunity to object.

Chief Justice Rehnquist: Is the customary way in the Southern District of Texas to caption a pleading, Before the Magistrate Judge, if the magistrate judge is presiding?

Mr. Frost: I do not know the customary way that pleadings are captioned.

I do know that, from looking through the record in this case, that later pleadings, once the issue had come up that the magistrate... that there was never explicit consent before the trial, and later pleadings did not have that caption, so it had been taken out, and I guess my point in--

Chief Justice Rehnquist: What did the later pleadings have?

Mr. Frost: --Nothing.

There was... there was not in... in the summary judgment motion that I appealed there is in all caps, a line that says, to the Honorable Judge of the District Court, and in the later pleadings that line was simply removed.

There was nothing there.

But my point, Your Honor, is not... yes, that may have been a form caption.

I don't dispute that.

My point is that there is nothing, from their submitting of a motion for summary judgment, that indicates their consent.

Justice Breyer: What happens with our... suppose you have a defective diversity suit, and you get up to the court of appeals and suddenly discover that one of the defendants is from the same State, that there are many defendants, and so the party says, oh, don't worry, we'll drop him out, so they drop him out at the appellate stage.

Does that rescue the whole case, or do you have to do it all over again?

What happens?

I don't know.

Mr. Frost: This Court's decision in the Caterpillar case held that as long as there is the... as long as diversity is met at the time of the entry of judgment, then that is acceptable, but that isn't your hypothetical.

Justice Breyer: Entry of which judgment, of the lower court's--

Mr. Frost: The district court, the lower court's judgment.

Justice Breyer: --The district court, so you'd say if we're doing it by analogy, you win?

Mr. Frost: Yes.

Yes, Your Honor.

Justice Souter: Who do you suppose was intended to be protected by these congressional requirements?

The point of my question is, wasn't the point to protect people who didn't want to be tried by a magistrate judge, and if that is the answer, why is someone in your position, or your client's position, in a position to object at all here?

Your client gave consent.

Mr. Frost: No.

There are two answers to that, Justice Souter.

The first is that there are both structural protections and personal protections in the consent requirement.

As this Court said in CFTC v. Schor, when Congress requires consent, or when consent is required, that serves as a break on the delegation of Article III authority, and that preserves the separation of powers required by the Constitution.

Justice Souter: Okay, but if... if we say, this does not rise to the level of structural problems, which is what we were getting at--

Mr. Frost: Yes.

Justice Souter: --earlier when we were saying, well, it doesn't rise to the level of personal jurisdiction, so if we say, that's not really involved here, then it's merely a personal protection, and I suppose it's a personal protection for the purpose who... for the person who can give or refuse consent, and as long as your client said, fine with me to be tried by a magistrate judge, why isn't the end of it, that the end of it for you?

Mr. Frost: Because my client never consented to what happened here, which is that the Attorney General, by failing to consent--

Justice Souter: Well, you're saying my client never consented that they could get by without giving a written consent, but that... I mean, that, it seems to me, is turning the whole premise on its head.

Mr. Frost: --I have a slightly different point I'm trying to make, Justice Souter, which is--

Justice Souter: Okay.

I should let you give your answer, okay.

Unknown Speaker: [Laughter]

Mr. Frost: --Which is that at the end of this proceeding, if the Attorney General's Office had said, oh, we made a... we didn't mean to consent, we're not filing a written consent form, and we can't consent here, then there would have been a new trial, and of course they were only going to do that if they lost at trial, so when I said my client didn't consent, my point was, my client didn't consent to go through a proceeding where his adversary had the opportunity to decide at the end of the case whether they--

Justice Ginsburg: But if you're wrong about, that... that the State Attorney General could have done that, and if, as the petitioners' counsel said, they would have been stuck.

They went to trial.

It's just like making a general appearance.

If you're wrong about that, then I gather that you would lose, because then you would have, if the defendants couldn't get out at the end of it by saying, sorry, we never consented, if they couldn't get out, then I think you must lose.

Mr. Frost: --I disagree, Your Honor, and here's why, because the Magistrates Act establishes consent as one of the vital thresholds to the parties, to the magistrate's exercise of authority, and I do not believe that the provision that you're reading from would apply in a situation where Congress said, before a magistrate can take over that Article III authority there must be both designation and consent.

I think if... if the district court here had not designated this magistrate, that is also an error that could not be overlooked.

Justice Souter: No, but I think you're answering a different objection.

I said, why isn't your consent sufficient so that once you give it, you have no further objection, and you said, the answer is, I didn't consent to a trial in which they can sit back and wait and see what happens and then say, oh, we didn't consent, rendering the entire thing a waste of time.

Justice Ginsburg says, yeah, but if we say, they don't have the right to pull their consent if they sat there and implicitly consented, then you don't have that problem at all, and that would be the end of the argument, and I don't think you've answered that.

Mr. Frost: Yes, I agree, and let me answer... you're very right, Justice Souter, and let me answer the question that I think you both are posing, which is, could a harmless error standard be applied here?

In other words, if it is true that the only right is my client's, and--

Justice Souter: Well, that's another question, too, but--

Mr. Frost: --Oh, I saw them as related, because I... if I understood your question correctly, what I thought you were asking was--

Justice Souter: --Your answer was, I consented, so far as I was concerned, to be tried.

I didn't consent to give them an option to go through an entire trial and then pull the rug out if they didn't like the result.

Justice Ginsburg's suggestion and my suggestion is, if we... this.

If we find that an implicit consent on their part is sufficient, they can't pull the rug out, and that would be the end of the issue so far as self protection is concerned, and I don't--

Mr. Frost: --I agree.

Justice Souter: --I don't see a way around that.

Mr. Frost: Yes, I... I was... I agree with Your Honor, and that was why I was turning to the question--

Justice Souter: That was why you were going to another subject.

No, I--

Unknown Speaker: [Laughter]

Justice Souter: I'd do it, too.

Okay.

Unknown Speaker: [Laughter]

Mr. Frost: --Well, respectfully, Your Honor, I think this is related, because what I was trying to say is that while I agree with you that once you say, if these people go forward at trial, they're stuck, then there is no question about, did my client get a raw deal here, because everyone's bound, and they would have been bound if they had lost, so that is why I am going on to the next argument, which is harmless error, and whether or not that would legitimately be something that a court could apply in this situation, and this Court has said, in both it's magistrate judge jurisprudence and also in its Article III jurisprudence--

Justice Stevens: May I just interrupt with this question?

If you took Justice Ginsburg's suggestion that just participation in the trial is enough to establish the consent, that would mean that the consent need not be given in advance of the beginning of the proceeding.

Mr. Frost: --Yes, and I think that--

Justice Stevens: And the statute's rather clear that it has to come first, isn't it?

Mr. Frost: --Exactly, yes, Your Honor.

Justice Souter: Well, is... don't they give the consent, though, when the magistrate judge sits down and says, let's go, and... and the... I realize consent is not failure to object.

There's a distinction there, but if the party sits there and the trial begins--

Justice Stevens: --But may I ask, does he even have the authority to say, let's go, before consent has been given?

Unknown Speaker: [Laughter]

Mr. Frost: That is my argument, Justice Stevens, which is that because the statute says upon consent, the consent must come first, and therefore simply by--

Justice Souter: No, but the magistrate can say the words, let's go... I mean, he's got that First Amendment right, and if he--

Unknown Speaker: [Laughter]

Justice Souter: If the magistrate does say that, and everybody sits there, as it were, with a smile on their face, I would suppose that that was a consent at that point.

I mean, isn't... couldn't you infer the consent at that point?

Mr. Frost: --I agree that consent could be inferred at that point, but I would disagree strongly that Congress intended inaction to equal consent.

Justice Kennedy: Of course, the statute says that consent has to be communicated to the clerk.

Mr. Frost: Yes, exactly.

I agreed that consent could be inferred from the parties' conduct, but that does not meet the requirement of the statute.

Justice Ginsburg: There's one dysjunction, and you have stressed, and I think rightly, that why was Congress doing this?

It didn't want parties to be coerced into getting a magistrate instead of an Article III judge, it wanted to assure voluntariness, and those two concerns are not present in this case.

I mean, nobody is suggesting the State Attorney General is being coerced, or didn't do this voluntarily, so the reasons for the provision don't exist, don't match this case.

Mr. Frost: I agree with you, Your Honor, but then the question is, well, did Congress intend for some different standard for consent to be applied in different cases?

The Congress--

Justice Kennedy: Well, I think we could take notice, couldn't we, that State Attorney Generals might not want to antagonize magistrates.

They're going to be... they're institutional litigants, will appear there all of the time, and they might... and they might be reluctant to withhold consent, unless they could do it under the anonymous basis provided for in the rules.

Mr. Frost: --Yes, I agree with that, Justice Kennedy, and that would be another reason to say yes, Congress' concerns actually do apply to the State Attorney Generals, but in any case I think that what's relevant here as well is the fact that Congress clearly... and it couldn't be more clear, both from the use of the word jurisdiction in the statute, and from the fact that in the legislative history Congress expressed these concerns about voluntariness, that consent must be expressed.

The counsel for the petitioners, when she was arguing, repeatedly referred to the fact that the local rules and Rule 73(b) protect the voluntariness concerns.

They serve that purpose, and that is our point.

That is what Congress said consent is for, and that is why Congress said consent cannot be something that simply is implied as you go along.

Consent must be something you communicate to the clerk.

It must be something clear, and that is why eight courts of appeals, we respectfully submit, have already reached the conclusion there must be express consent.

They've reached the conclusion that without it, the court has no jurisdiction, and both... and all of these decisions came before amendments to the Magistrates Act in 1990, in '96.

If Congress had an issue with both the consent requirement being read as express consent and with courts concluding they had no jurisdiction without it, then Congress could have take action, taken action, and because it didn't, I believe that that is a sign that Congress meant what it said in the Magistrates Act.

Rebuttal of Lisa R. Eskow

Chief Justice Rehnquist: Thank you, Ms. Frost.

Ms. Eskow, you have 3 minutes left.

Mr. Eskow: Because the statute was designed to protect the voluntariness of the parties, and the local rules and the Federal rules also serve that purpose, and here you have no party suggesting that they were coerced or involuntarily dragged before a magistrate judge rather than an Article III judge, to reverse in these circumstances, as the Fifth Circuit did, to sua sponte investigate consent when there is no question, where no one is claiming to have been involuntarily dragged before the magistrate judge, would be to import some sort of automatic, per se, plain error, subject matter jurisdictional principle into a context that is not based on subject matter jurisdiction but, rather, the particularity of a particular officer presiding and, as Justice Breyer noted, the de facto officer doctrine exists to insulate judgments from attack that have a technical deficiency, for example, not signing a consent form.

And because all parties voluntarily proceeded in this fashion, their consent should not have been questioned after the judgment was entered, and there is no basis to find any sort of harm to any of the parties when their Article III rights were not violated in any respect, and for these reasons we would ask that you reverse the judgment of the Fifth Circuit.

Chief Justice Rehnquist: Thank you, Ms. Eskow.

The case is submitted.

Attribution:

The Oyez Project

Featured:

Dole Food Co. v. Patrickson - Oral Argument

Fri, 09 Jan 2009 14:50:38 +0000

Case:

Dole Food Co. v. Patrickson

Media File:

01-593_20030122-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Peter R. Paden

Chief Justice Rehnquist: We'll hear argument now in Number 01-593, the Dole Food Company versus Patrickson, and a companion case.

Mr. Paden.

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

The Dead Sea Bromine Company is an instrumentality of Israel under the Foreign Sovereign Immunities Act for three principal reasons.

Justice O'Connor: Is it... is it owned in the same capacity now as it was earlier?

Mr. Paden: No... no, it is not, Your Honor.

Justice O'Connor: And was it owned at the time the suit was filed?

Mr. Paden: At the time this suit was filed, the company had been privatized.

It was privatized in 1995.

Justice O'Connor: Right.

Right, and so are you going to address, then, how it comes under the statute at all in those circumstances?

Mr. Paden: I certainly intend to do that, Your Honor.

Justice O'Connor: Yes.

Mr. Paden: The three reasons, in sum, are that, throughout the period of time giving rise to the claims, Israel owned a majority of the shares or other ownership interests in the company.

We contend that this broad phrase plainly encompasses the majority ownership of Dead Sea Bromine that Israel indisputably possessed through a tiered ownership structure.

Secondly, a contrary interpretation cannot be reconciled with the basic purposes of the act.

The same policy that Congress found applicable to directly owned entities apply equally to their subsidiaries where the foreign State retains a majority interest.

To restrict instrumentalities to entities in which States hold legal title to the shares of stock would exclude a large number of the very types of State-owned commercial enterprises, shipping and airlines, mining operations and the like, that Congress specifically intended to bring within the reach of the statute.

Justice Scalia: Yes, but it's a lot of trouble to track these things back, you know, who owns shares many tiers up, and Congress might well have simply determined we will honor the sovereignty of other States when they're the principal stockholder of a corporation.

Where... where they are not, we are not impugning their sovereignty by going ahead and permitting... permitting suit against the entity.

That's certainly a rational... a rational disposition, and the language seems to suggest that.

Mr. Paden: Well, Your Honor, I... I don't disagree that that would be a rational disposition, but I don't think there's any indication in the case law, and there have been numerous cases where tiered entities have appeared before courts, that it's posed any particular problem to identify the tiered ownership structure.

I... I'm not aware of any cases where... where that's posed an enormous issue, and the computation of ownership and corporate... corporate responsibility for subsidiaries is an issue that lawyers deal with every day in commercial litigation, and lawyers have well-established techniques to ferret out the corporate change of ownership and it's... it's done all the time.

We don't think... it clearly can be an issue, but we don't think that that's a particularly insurmountable issue here, and, in fact, there's certainly no indication--

Justice Scalia: Your... your principle would apply no matter how many tiers up they go?

I... I assume you don't think the second tier is the limit?

Mr. Paden: --So long as the State's ownership interest is the majority ownership interest, Your Honor, there could be--

Justice Scalia: Even though the name of the State does not appear until you get six tiers up?

Mr. Paden: --That's correct.

Our position would be that so long as the State's interest is a majority interest, that would be the limiting principle, and I think that's what the words of the statute seem to us to suggest--

Justice Kennedy: Why do you limit to the majority?

Supposing they have practical control as in other situations, you look at who really runs the company.

Mr. Paden: --Well, the statute says majority ownership, Your Honor, and we think that--

Justice Kennedy: But it doesn't say majority ownership of grandchildren of the parent.

Mr. Paden: --It says a majority ownership interest, Your Honor, and we think a majority ownership interest is about as broad a term as... as could be conjured up to try to describe generically the concept of ownership.

I think Congress had in mind that this statute was going to apply to entities from nations all around the world, with many different kinds of economic systems, and in some countries the notion of ownership isn't even so clearly established.

Justice Kennedy: Well, I... I suppose it could mean ownership of other forms, for instance, an oil-drilling venture, a working interest of 70 percent, which is not usually called a share.

It's--

Mr. Paden: That's true.

Justice Kennedy: --So... so there... there's work for that phrase in the statute to do without adopting your position, it seems to me.

Mr. Paden: There is.

There are certainly other kinds of ownership in our legal system... partnership interests are an obvious example... which don't necessarily refer to share ownership.

But ownership interest is a very, very broad term, and it... we think that if Congress had intended this to be so specifically limited to direct... directly owned entities, it would have said directly owned--

Justice Souter: Well, it can--

Justice Ginsburg: --Your argument would be stronger if it were a stand-alone term, but it isn't.

It comes after shares, and so one can say, well, we're going to read ownership interest, shares or other ownership interest as something, say, equivalent to a stock certificate.

You... it... it doesn't just say, ownership interest, and I think that that's why the statute itself doesn't answer the question.

Mr. Paden: --Well, we think, Your Honor, that the phrase needs to be read as a whole, and we do not believe that this is a situation, when the statute is read as a whole, that the... that the principle of redundancy and superfluousness which Judge Kozinski felt, decided in this case dictated the... the restriction to direct ownership should apply.

Justice Scalia: Do you... do you agree with the respondents' contention, the United States' contention that foreign countries would not... would not give us this break, that generally speaking, in international law they... they'll only look to the ownership of the immediate company?

Mr. Paden: I... I think that that's true, Your Honor, but I think it requires a comment.

I think that the... the structure of this statute very uniquely reflects our Federalist system, and... and the... this alleged disparity between treatment in this country and other countries I think is something of a red herring.

Congress for the most part, in establishing this system, I believe it's fair to say contemplated that commercially owned ventures of foreign States would be subject to suit, that--

Justice Scalia: I... I thought... I remember when they enacted the FSIA.

I was around, and I... I recollect quite vividly that its object was to bring United States domestic law into conformity with the new, accepted international determination of when... when sovereign immunity should be respected and when it shouldn't, and if that's the case, and if you acknowledge that the general principle internationally is not to go beyond the ownership of the immediate company, then I don't know why language which... which is susceptible of that meaning shouldn't be given that meaning.

Mr. Paden: --I think there's an answer to that question, Your Honor.

In... in foreign nations, an entity would be subject to suit, but it would typically be subject to suit... I don't think there are too many foreign countries that have our Federalist system, and certainly not too many foreign countries that have our deeply ingrained right to a jury trial.

Congress, for the most part, was saying these suits should go forward.

One of the purposes of the act was to bring commercially owned ventures of foreign States within the subject of... of litigation and make them susceptible to claims, but Congress said that in doing that, because of potential sensitivities that could exist, they would accord those entities the same kinds of privileges that the Federal Government gets when the Federal Government waives its immunity, so that--

Justice Scalia: How can they be sensitive to something that they're willing to do to us?

I mean, the... the potential sensitivity, if... if they would hold the United States liable in such a situation, I mean, would... would not recognize sovereign immunity of the... of the indirectly owned United States entity, how could they be offended by our doing the same?

Mr. Paden: --My sense is that the Congress' concern about sensitivities was... was a little different than that.

I don't think the notion was offense at being sued.

I think the notion is that foreign States would have a... an... a... an interest, potentially... not in every single case, but potentially significant interest in the manner and treatment of claims against entities that... that they owned.

They may have--

Justice Ginsburg: Is your point that there are no other countries that have our dual Federal system with State courts and Federal courts, so you're not urging that there's substantive sovereign immunity.

You're saying, on the jurisdiction side, you should have a right, or Congress meant to give you a right to have access to Federal court rather than State court.

Mr. Paden: --That's correct, Your Honor.

There... there are cases, but I think they're quite rare, where a commercial entity might actually be able to contend that it has immunity, but for the most part, Congress was thinking--

Justice Ginsburg: Are you contending that here?

Mr. Paden: --Well, we've pled it in our answer, Your Honor, but the issue has... has not been crossed in this particular case, because the judge in... in the district court held that we weren't even a foreign State, so the question didn't even arise.

There are... whether or not an entity is immune, of course, if it is a foreign State, depends upon whether one of the exceptions in the statute applies, and the commercial activity exception requires direct effects on the United States, and so forth.

There's... there are issues of treaty waivers, there are a number of issues--

Justice Ginsburg: For purposes of your argument now, can we assume that you are not claiming the substantive immunity and the question is a forum question, whether you can have access to a Federal forum?

Mr. Paden: --I think you can assume that, Your Honor, but I think--

Justice O'Connor: Counsel for... I'm just not sure we ever get to this question.

This statute, the foreign sovereign immunity statute is written in the present tense.

It talks about an entity that is a separate legal person, and a majority of whose shares or other ownership interest is owned by a foreign State, and when the action was filed, there was no such ownership, so how do we even get to the first question?

Mr. Paden: --We get to the first question, Your Honor, because the use of the present tense does not clearly indicate the point in time at which the present tense exists.

This statute uses the present tense in many circumstances in some of the subsequent provisions that discuss immunity to discuss actions that clearly took place at the time the events arose.

Chief Justice Rehnquist: Well, what do we do with diversity jurisdiction?

Supposing a person... supposing diversity jurisdiction exists at the time the suit is filed, but by the time it gets up on appeal, it does not?

Mr. Paden: I don't... the font, the jurisdictional font of this statute, Your Honor is not diversity, it's Federal question.

This court--

Chief Justice Rehnquist: No, but I... I would like to know just for purposes of analogy, the... when something exists at the time the suit is filed, but is lost during its process.

Mr. Paden: --I think that's going to have to be an issue that is decided in... in cases as they develop.

There have been some cases where entities were privatized during the course of litigations, and courts, I believe, have consistently held that in that case, the immunity... the Foreign Sovereign Immunities Act jurisdictional premise is not lost because it existed at the time of the claim.

The preponderant case law here, Your Honor, has been to look either to the time of the acts that gave rise to the claim, or to the time of the filing of the suit, and there's a... a nice opinion by Judge Kaplan in the Southern District, in... in the Belgrade case, which kind of synthesizes those cases.

We... the... in the jurisdictional determination under this statute, the way it's structured, a court very frequently has to look at the acts giving rise to the claim in order even to decide if it has jurisdiction, because, as Your Honor will recall, in section 1330, jurisdiction depends upon a determination, a) that a party is a foreign State, and b) that one of the exceptions applies, and most of those exceptions require an examination, whether or not the acts that gave rise to the claim were commercial in nature, where they took place, so that the... it's not at all unusual in the context of this statute to say that the actions that gave rise to the claim are the point of reference for the jurisdictional determination.

Justice Breyer: Why... why would we do that?

If we... if we took your view, there are quite a few jurisdictional statutes, I guess, which talk about action against a foreign State.

Wouldn't we then have to read all those to say they mean actions against a former foreign State, so if you sued Illyria or Bohemia, you would suddenly discover you could get into Federal court, while if you don't take your... your approach, you'd say the... the question of... that you're worried about will arise when they get to the substance of the issue in the State court.

Mr. Paden: Your Honor, we think that looking at the time of the events that gave rise to the claim is the approach that most closely comports with the policies and purposes behind this act.

What Congress was sensitive about is when the actions of foreign State instrumentalities are called before the courts of the United States to be adjudicated, and Congress indicated that there were sensitivities in those situations that... should be respected by according a broad right to hear in court--

Justice Breyer: What's... what's the sensitivity if somebody decides to sue Czarist Russia?

Mr. Paden: --Well, there's probably a statute of limitations claims on that, Your Honor, but I think the question is whether the... whether the acts that gave rise to the claim are at issue in the case, and I don't think it's difficult to imagine--

Justice Scalia: You know, there... I... I just don't agree with you that that's... that's the policy of the United States.

There... apart from who can get into Federal court, there... there is in Federal law a thing called the Act of State Doctrine under which we will... we will honor and accept the action of a foreign country conducted within its own borders and will not allow that to be challenged in a suit in the United States.

It's a... it's a longstanding doctrine, and yet we do... certainly do not say that any time an act of State is involved in a piece of litigation, there's Federal jurisdiction.

This act doesn't seek to do that.

It seems to me the Federal jurisdiction has nothing to do with whether the actions of a foreign State are the... are the subject matter of the litigation, but rather whether the foreign State is a party to the litigation.

Mr. Paden: --Well, Your Honor, except for Judge Kozinski below, every circuit court that has looked at this and looked at the legislative history has concluded, as did the ABA working group, which recently did an extensive study of this statute, and that group was made up of prominent international relations professors and practitioners, that actions of foreign States remain potentially politically sensitive even after an entity is sold.

The potential here is the point.

This is kind of a prophylactic statute.

I don't think anybody's saying that in each and every case, there will be intense foreign relations issues, but I... for example, the foreign State may very well have ongoing financial obligations for pre-privatization acts.

That's the case with one of the amici before the Court today in the State of France.

Justice Ginsburg: Mr. Paden, if you would look particularly to the diversity statute, and now there's a... a provision that expressly deals with a foreign State, everything else in diversity, you would agree, it depends on the time suit was brought, and so if you moved in the interim... there was diversity when it happened, but you move in the interim, when the complaint is filed there's no more diversity.

I take it you're asking us, within the very same statute, 1332(a), to interpret a foreign State differently so that its nationality at the time of suit doesn't count, only at the time of the act, and that would be anomalous within very same provision, 1332(a), that you would treat one one way, citizens of different States, that has to be as of the time the complaint is filed, but a foreign State only at the time the event occurred.

Mr. Paden: Well, two responses, if I may.

First of all, we're not suggesting that it should only be the time of the events that gave rise to the claim.

We believe the appropriate rule is the rule expressed in the consensus of case law today, that it would be either the time the claim was filed, or the time of the acts.

But your question about section... section 1330 is... is a very good question.

Justice Ginsburg: It was 1332 I'm--

Mr. Paden: 1332, that refers to claims by foreign States.

When a foreign State entity is... is a plaintiff and chooses to come to this Court.

The... the statute that we're alluding to is when... when people are trying to assert claims against these entities and... and bring them into court and have their actions adjudicated in courts that the State--

Justice Ginsburg: --So you're saying in court... to be a plaintiff, the foreign State would have to be... it would have to be a foreign entity at the time suit was brought?

Mr. Paden: --The instrumentality has a choice whether or not to come to court in that circumstance, Your Honor, and invoke... and... and--

Justice Ginsburg: It's not a question of whether it... it chooses to.

It... does it have access?

Mr. Paden: --The... the--

Justice Ginsburg: In other words, does it have to qualify as a foreign instrumentality when it brings the suit?

Mr. Paden: --I don't think--

Justice Ginsburg: Suppose it's been privatized.

Can it come into Federal court and say, we were at the time of this incident that we're suing about?

Mr. Paden: --I believe that if the acts at... at stake took place at the time it was a foreign sovereign, it should be able to do that, Your Honor.

Justice Ginsburg: Those are... then you are interpreting within the very same statute a citizen of a State would be treated one way, or a... a... an entity that was once a foreign State but is no longer would be treated another way?

Mr. Paden: That's correct.

I think the question... whether or not an entity is a foreign State, the analysis is the same, but for purposes of when that analysis is pertinent, it may be different.

It may be different when we're talking about what... the rules about execution of judgments than at the time of filing a claim.

The... the opposite rule, we think, leads to greater anomalies.

Under the opposite rule, you... there's a very clear prospect.

There's almost an inevitability that liabilities attributable to acts of State instrumentalities are going to be adjudicated outside the structure and protections of this act.

State court juries all around the country will be sitting in judgment on acts of State-owned entities, and that is fundamentally contrary to what Congress wanted to... to have happen.

In this very case I think we... we posed a hypothetical that, if we just change the facts significantly but slightly, if... if Dead Sea Bromine was the sole manufacturer of the toxic, the pesticide at issue in this case, and if Dead Sea Bromine, the acts of a... an instrumentality of the State of Israel, closely monitored and overseen through the Government company's law structure, have been alleged to be the sole manufacturer of this product, the man... the party that sought and obtained approvals through, as alleged in the complaint, not being entirely candid about known health risks, had knowingly marketed it in the Third World, had been... whose actions had been called appalling by Senator Leahy in a public hearing, if that entity was on trial before a lot of different juries in various parts of Texas and Louisiana, being called up as a Israeli chemical company who had done all these things, I think it's not at all difficult to imagine that the State of Israel might have some interest in that case.

Justice Ginsburg: Well, you've made another significant change, because it wasn't the plaintiffs who brought the Israeli corporations into this action.

The plaintiffs sued Dole, I thought, and Dole impleaded the Israeli company.

Mr. Paden: That's definitely true, Your Honor, but I'm simply trying to show that there could be a hypothetical situation that's not entirely far-fetched, where... where a State's ongoing interest in litigation against an entity for acts that took place when the State had responsibility for it in the sense that it owned it, were at stake.

Justice Breyer: Well, but if the State gives up the corporation, and no longer is part of it, I would have thought that that's just one of the risks that they'd have to run.

Why... why... I mean, they... if they want... if they're worried about it, keep control of the corporation.

If you're not that worried about it, then when you release the corporation, you're subject to a lot of State court lawsuits.

Is that... why is that--

Mr. Paden: Well--

Justice Breyer: --I can't get much of a feeling one way or the other about that, to tell you the truth.

I... I don't... can you say something that will make it quite clear that would be a terrible thing?

Mr. Paden: --That's clearly a policy judgment, and what we're left with is this... the wording of the statute and the purposes and policies that lay behind it, and we think that with that information before us, Congress' concern about the risk and the sensitivities both in terms of uniform... the desirability for uniform decisions and potential risks and bias that can take place in multifarious State court juries, those were to be not present when we were going to allow claims to go forward against State entities, and where the acts at issue are the acts of the State entity, those same interests would seem to be implicated.

Many States... privatization, of course, is a fairly widespread phenomenon in the last decade, and what happened to our client has happened to many formerly State majority-owned entities.

Justice Breyer: And a lot of those tort claims are going to be for continuing actions, so in your view, if the chemical is disseminated partly while the State is the owner of the company and partly while it isn't, then what happens?

Mr. Paden: If... so long as within the allegations of the complaint, actions of a foreign State instrumentality are at stake, then it should be within the claim.

Your Honor, this case poses an even, I think more stark example.

As... as noted by the court below, this particular litigation is, I think in Judge Kozinski's words, one part of a large broadbased litigation, I think he used the word war.

The Delgado case out of the Fifth Circuit was... it arose out of cases that began in 1994 in Texas, based on the same claims, based upon the same structure of parties, and at that time we were majority-owned by Israel, so under the rule propounded by the respondents and the Solicitor General there would be Federal jurisdiction over the... that part of the cases, but if someone waited to sue until later, there wouldn't be.

I think Credit Lyonnais seems to be in the same position, based upon the... the information in the... in the amicus brief.

Justice Ginsburg: Mr. Paden, because--

Justice Kennedy: --I have one... one small procedural question.

Why is Dole properly before us?

I want to make you feel welcome here, but--

Unknown Speaker: [Laughter]

Mr. Paden: I do, Your Honor.

Justice Kennedy: You... you impleaded... you impleaded the Dead Sea Companies, and they're the ones--

Mr. Paden: I'm... I represent Dead Sea, Your Honor.

Justice Kennedy: --Oh, you represent Dead Sea?

Mr. Paden: Yes.

Dole is--

Justice Kennedy: Why... why is Dole properly here?

Mr. Paden: --Dole, I believe... Dole is interested in... in confirming the jurisdiction of the Federal court over this case and the jurisdiction of the Federal court will be established if our position is established, and to this extent, we have a common interest in this case, apart from--

Justice Ginsburg: Did you... did you join in removing, or did Dole file the removal petition?

Mr. Paden: --We filed the removal petition, Your Honor.

I believe that Dole filed a supplemental removal petition on different grounds alleging Federal question jurisdiction, which--

Justice Ginsburg: Right.

That's how it got up to the Ninth Circuit.

Justice Kennedy: Yes, and... and Dole was dismissed on that... on that ground, and that hasn't been appealed.

Mr. Paden: --Correct.

That's--

Justice Kennedy: That... that hasn't been brought--

Mr. Paden: --That's correct.

Justice Breyer: --And is there diverse... there's no diversity because there isn't complete diversity?

Mr. Paden: Yes, that's correct, Your Honor.

Justice Breyer: I see.

Mr. Paden: If I may, I'd like to reserve the rest of my time for rebuttal.

Argument of Jonathan S. Massey

Chief Justice Rehnquist: Very well, Mr. Paden.

Mr. Massey, we'll hear from you.

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

I'd like to begin with the first question presented.

Owning shares of stock in a parent corporation in our view should not be equated with owning shares in the subsidiary.

I'd like to deal with the text of the act, and the structure, and its purposes, beginning with the distinctive text of 1603(b)(2), which, as Justice Ginsburg noted, does not refer to ownership in the abstract, it refers to a special legal kind of ownership.

It says, a majority of shares or other ownership interests and, in using that familiar phraseology of corporate law, it's borrowing something which is related to the Meyer opinion, I think, that Justice Breyer delivered this morning, the notion that there's a degree of separateness between a corporation and a shareholder.

That case, as we heard it, turned on the liabilities that the shareholder would not bare--

Chief Justice Rehnquist: Well, what... what is the phrase that you say is familiar from corporate law?

Mr. Massey: --Well, the concept of a majority of shares.

Chief Justice Rehnquist: Are you talking about a phrase, or a concept?

Mr. Massey: Well, the phrase in particular, Your Honor.

Chief Justice Rehnquist: Okay.

Mr. Massey: The... as... I'm sorry, the concept.

Chief Justice Rehnquist: So you're not saying that the phrase, shares or other ownership interest, is a familiar phrase--

Mr. Massey: Phrase... no, Your Honor, I'm saying it's a concept, the concept of what it means to own a majority of shares in a corporation and, in particular, 1603(b)(2) is written from the perspective of the subsidiary.

It's written from a bottom-up perspective, rather than a top-down perspective, and it asks, from the subsidiary's perspective, who owns the majority of its shares and it is, in our view, the corporate entity which sits directly atop the subsidiary, rather than the foreign State, which may stand several tiers removed.

It's sort of telling that in the Dead Sea Company's own corporate disclosure statement, they list as their... as the owner of Dead Sea... Israel Chemicals Limited, which is the company which sits directly above Dead Sea Bromine.

The corporate disclosure statement then goes on to say that Israel Chemicals Limited is, in turn, held by another company, which is the Israel Corporation, and it doesn't explain that the Israel... it doesn't state that the Israel Corporation is the owner of Dead Sea Bromine.

That's just the natural way we talk about it in the... in the... especially in the corporate law realm, which Congress was adopting in 16(b)... 1603(b)(2).

There are several textual clues in section 1603 that Congress was adopting the principle of corporate separateness.

1603(b)(1) requires that a corporation be... a... a showing that the agency be a separate legal person.

1610(b), which governs attachments, limits attachments of property to claims against the particular agency or instrumentality against whom the claim is raised, and this Court, in the First National Citibank case, held that the... under the FSIA, the... the property and assets of a foreign-owned corporation are distinct from the property and assets of the foreign State itself, so this is not even a case like Bestfoods, where this Court said that Congress' silence was audible in... in that Congress was legislating against these background corporate law principles.

Here, there are quite clear textual signs that Congress was adopting a principle of corporate law.

Now, the primary argument on the other side, this that is a... the indirect shareholding is a form of other ownership interest, and I... we think that is not a proper reading of this statute.

As Justice Kennedy pointed out, there are other forms of ownership interests in the world.

There are shares in an oil venture.

The Tennessee Valley Authority, for example, doesn't have stock.

The Federal Government simply owns it.

The stock has been retired.

Congress was dealing here with foreign legal systems which may have different ways of framing equity interests.

Socialist countries, for example, you can imagine there might not be shares, so in our view the phrase, other ownership interests, is meant to take into account those sorts of equity holdings, so in this case--

Justice Breyer: --Because?

Because?

Mr. Massey: --Well, because Congress was dealing with other foreign owners, other--

Justice Breyer: You know, I mean--

Mr. Massey: --Yes.

Justice Breyer: --nobody doubts that there are other ways of owning corporations.

They're just saying, one other way of owning it is like, under the Public Utility Holding Company Act, you have a... a pyramid of shares with intervening corporations.

They're not saying that's the only other way.

They're saying that's one other way, and then you say, no, that one other way is not another way, because?

Mr. Massey: Because there... we believe it's... there are two reasons, primarily.

First, is... the first part of the phrase, shares, already takes care of stock.

It would be unreasonable, in our view, to say indirect stock counts as other--

Justice Breyer: Because?

Mr. Massey: --Because stock is not an other kind of interest.

Justice Breyer: Because?

Mr. Massey: Because it's already been listed--

Justice Breyer: No... nobody's saying stock is.

Mr. Massey: --Sure.

Justice Breyer: What they're saying is, stock in intervening corporations organized in certain ways--

Mr. Massey: Right.

Justice Breyer: --as under the Public Utility Holding Company Act, is one other way, and I still haven't heard the word... you see, that's why I keep asking, because.

Mr. Massey: Right.

Justice Breyer: Because to me it's an unusual way, not that unusual.

The... the law books are filled with cases involving that, under the act I cited, and... and so they say, that's one way.

Mr. Massey: That--

Justice Breyer: Now I want to know why that isn't one way.

Mr. Massey: --Because it--

Justice Breyer: One other way.

Mr. Massey: --Right.

First, because it's still stock.

Even if it's indirectly held, it's still stock.

Justice Breyer: And I don't quite see that, because--

Mr. Massey: Well--

Justice Breyer: --Go ahead.

Mr. Massey: --Okay, and then second is, you're absolutely right, the law books are filled, the U.S. Code is filled with many other phrasings of direct, indirect references to affiliates, references to beneficial ownership, all the kinds of things, a control test, as Justice Stevens mentioned, all the kinds of things that could capture this kind of interest, but instead we have the very distinctive phrasing that says, stock, and in our view, once you count stock first as a direct majority ownership, you shouldn't go back and count it again as an indirect form.

Justice Breyer: Now--

Mr. Massey: The other ought to be reserved--

Justice Breyer: --I know that's your... your view.

Mr. Massey: --I know.

I know.

Justice Breyer: Now... but let me push the because--

Mr. Massey: Yes.

Justice Breyer: --one step further.

Suppose I thought that the word, other ownership interest, is at least open to this unusual type of arrangement as one form of ownership interest.

Mr. Massey: Right.

Justice Breyer: Still you should say, you shouldn't interpret it that way, because?

Mr. Massey: Because the number of principles that animate the statute, first, this is a jurisdictional statute.

Jurisdictional statutes should be construed precisely with clear, bright line rules and, in our view, the... the kind of direct legal ownership of stock is a kind of bright line rule and the Court should not depart from it.

Second, the statute already contains, in the first clause of 1603(b)(3), the... the so-called Oregon test.

The Oregon test captures governmental entities which perform sovereign functions which are staffed by Government employees over which the Government has a significant degree of control.

That's not at issue in this case.

That was decided both by... in both courts below adverse to the petitioners, and it's not before this Court, but that clause would capture all of the stereotypical cases at the heart of the Foreign Sovereign Immunities Act, so we ought not stretch this part of the statute to cover it.

Justice Breyer: All right, now if I think it is not a stretch, but just another form of ownership--

Mr. Massey: Right.

Justice Breyer: --I'm putting this hypothetically--

Mr. Massey: Right.

Justice Breyer: --I then go on to think, you know, I cannot think of a reason in the world, not even one, not even a shadow of one, as to why Congress would have wanted to say, when country X owns business A, it gets into Federal court, but when everything is the same, but for a stack of papers this thick which puts a bunch of intervening paper corporations between A and Z, it doesn't want it to get into Federal court, I think what could they... what human being could possibly think of any conceivable reason for drawing that difference, and at that point... I'm putting it as strongly as I can... I come up with a blank.

I can't think of one.

I used to have relatives who had little tiny corporations, and the number in between was a matter of tax law or something.

It was the same person sitting at the same desk--

Mr. Massey: Right.

Justice Breyer: --doing the same thing.

Mr. Massey: Right.

Justice Breyer: Now, I put it as strongly as I can.

Mr. Massey: Right, and of course Congress is... Congress has to legislate by category.

It's not simply dealing with the example of 100 percent subsidiaries.

Congress is drawing a general rule and, as a general rule, the... the line it drew was reasonable because Congress was interested in facilitating suits against foreign States in the United States courts.

That's one of the purposes that's laid out in 1602 in the statute, and reading the statute the petitioners' way would disserve those purposes.

First, it would impose important procedural burdens on litigants that Congress did not want to impose.

It would eliminate traditional State long arm statutes.

It would eliminate the right to jury trial.

It would create immunity questions, because once immunity is invoked--

Chief Justice Rehnquist: Why... why would it eliminate the right to jury trial?

Mr. Massey: --Well, under the FSIA, once a... a... an entity is deemed to be a foreign State, the right to jury trial is lost, even if an exception to immunity is subsequently found to apply.

It would... the... the other burdens it imposes, it eliminates the traditional attachment provision that's--

Justice Breyer: Of course it does have a few... but nonetheless my question is, what conceivable reason could there be for saying those special advantages disappear when there is country A, and when there is country A to Z, since the only difference between A and A to Z, I'd repeat, is a bunch of paper?

Mr. Massey: --Well, again, as I said, Congress is not just legislating with that specific example of 100 percent subsidiaries, it's using a... the general category.

It... it has to operate by general rule.

I think other examples, though, would show that when you have multiple tiers, there... the surprise factor significantly increases.

Congress was concerned that litigants would be surprised to discover that they were not dealing with an ordinary commercial entity but, rather, a foreign State, and that surprise factor increases as you go down the corporate tier to the nth tier.

Also, there are potentially complex factual inquiries as you go down the... a... a tier.

In this case, there are organization charts which show how the shareholdings have been computed, but consider, when ownership is not expressed through shares but through some percentage of assets or partnership interests which are not going to be reflected in a shareholder ledger, but are going to be the potential subject of controversy in a court, and I think the potential for factual disputes increases.

Justice Ginsburg: Mr. Massey--

Mr. Massey: Yes.

Justice Ginsburg: --we're trying to find out, not was... what Congress did was reasonable--

Mr. Massey: Yes.

Justice Ginsburg: --but what did Congress do.

Mr. Massey: Of course.

Justice Ginsburg: Of course if it... what it did was reasonable, that... nobody could doubt that that would be fine, and in determining what... what Congress did, the petitioners pointed to a number of statutes that use the word, directly, when they meant to cut out the subsidiaries.

Mr. Massey: Yes.

Justice Ginsburg: They say, shares, or... or a company directly owned by, and this statute is silent.

It doesn't say, directly owned.

Mr. Massey: That... that's... that's correct, Your Honor.

In our view, Congress didn't have to use directly, because it was using this familiar corporate concept of a majority ownership of shares.

That implies direct, because the owner of a majority of shares in... in this tiering relationship is the corporation immediately above the subsidiary, it's not--

Justice Scalia: Is there any context in which we have held that a majority ownership of shares, that... that phrase is satisfied by... by second-tier ownership?

Mr. Massey: --Where this Court has held it?

Justice Scalia: Yes.

Mr. Massey: I'm... I'm not aware of any... of any case, Your Honor.

Justice O'Connor: Do you plan to address the other question--

Mr. Massey: Yes.

Justice O'Connor: --in the case?

Mr. Massey: Yes, Your Honor.

Let me do that right now, because I think the timing question is... is a independent way of resolving this case.

Ever since 1824, when Chief Justice Marshall announced Mollan against Torrance, the rule has been that jurisdiction is determined as of the date of filing the complaint.

The Chief Justice asked, what is the rule in diversity cases?

Well, since Anderson and Watt in 1891, diversity cases have been held to be... to be governed by that rule, and the response we hear is that this is a Federal question case, but, of course, even Federal question cases are governed by the familiar rule that the date is given by the... the filing of the complaint.

That's... United States against Keene Corporation in 1993 reflected that principle.

And as Justice Ginsburg noted, even if some parts of the act are a Federal question, it's also telling that in 1332(a)(4), Congress created a new species of diversity jurisdiction, so accepting the petitioners' argument here would lead to the anomalous situation where there's a diversity part of the statute that's going to be governed by the Mollan against Torrance rule, and there will be a Federal question part of the statute that would be governed by a different rule.

Justice Ginsburg: Mr. Paden said that that (a)(4) would be interpreted by the different rule, so he's being consistent with--

Mr. Massey: Okay... well, I misunderstood.

I apologize, but then that also means that there are some diversity rules that are being interpreted one way, and other diversity rules being interpreted a different way.

Either way, there's an anomaly, and it appears to us the simplest way to resolve it would simply be to adhere to the longstanding principle that the date on which the complaint is filed is the relevant time to take a snapshot.

That's also more administratively feasible, because you can imagine that the rule of when the underlying conduct occurred is a... is a... might be difficult to determine in some cases.

In this--

Chief Justice Rehnquist: --Or it might also extend over a considerable period of time.

Mr. Massey: --That's correct, Your Honor.

I agree completely.

And so it's... it's more reasonable to assume Congress was legislating against the background understanding that the date of filing of the complaint would be determinative.

It used the present tense in 1603.

In 1441(d), which is the removal provision at issue here, it talked about a case against a foreign State, and in our view, it's more reasonable, it's more naturally read to think that a case is a case against a foreign State only if the entity actually is a foreign State at the time, as opposed to being Czarist Russia.

1608, which is the special service provision, also indicates that Congress is contemplating entities that actually were foreign States, because--

Justice Breyer: Well, their point, though, is that, first my examples were slightly absurd, and... which they were... and secondly, that in any real case where... where you have, say, Communist Russia you're suing, or... or more recent former States, you're... you're actually suing the State, and the... the defense is, but that State no longer exists, like Bosnia or something.

There are a few things that are more involved in foreign relationships, and... and boy, to suddenly throw that to 50 State courts is a total nightmare if you're really worried about the foreign State, so even though it creates differences between the diversity jurisdiction and the other, we better keep these in Federal court, or we're all in trouble.

I mean, that's what I took them to say.

Mr. Massey: --Right.

Well, I think the... the answer to the jurisdiction point and the sort of State court point is that they're already is a provision in the diversity statute, 1332(a)(3), I believe it is, that deals with citizens of foreign countries, so there's already diversity jurisdiction for suits against foreign corporations after they've been privatized.

They would be able... any claim against the Government would be protected by the act of State doctrine, as Justice Scalia noted.

There could be no... of course, no direct liability imposed--

Justice Breyer: It works all right with the corporations, but what if you're actually suing the State, which still has some assets somewhere?

How does that work?

Mr. Massey: --Well, that, of course, isn't... that's not going to be before this Court today, but--

Justice Breyer: Oh, no, but if we go into the foreign State, former foreign States don't count, we've decided that, and so I... just curious.

I don't want to do it blindly.

Mr. Massey: --Well, no, I'm... we're not asking you to decide anything about... about former foreign States.

I think--

Justice Breyer: Is there a reading that... that throws out the corporation that used to be owned but now isn't by a foreign State, but keeps the former foreign State within?

Mr. Massey: --Well, the... the whole immunity that foreign States enjoy is governed by 1604 and 1605, and... and the provision that we're focusing here is... is just the definition of agency and instrumentality, so I... I think this Court could safely leave for another day the issue of the former foreign State.

It... it's not at the... it's not in the provision that we are asking this Court to interpret, and... and it's governed by different provisions which Your Honors could... could leave for another day.

Justice Ginsburg: Mr. Massey, practically, is it so in these litigations that if you can't remove to the Federal court, the State courts keep them and try them, whereas if you remove them to the Federal court, they are then dismissed on forum nonconvenience?

Mr. Massey: Well, it's... undoubtedly the forum nonconvenience defense would be raised in State court as well.

In this case, the... no proceedings of any substance have occurred, so nobody--

Justice Ginsburg: But in this category of case--

Mr. Massey: --Yes.

Justice Ginsburg: --is that the general pattern?

Mr. Massey: That is the... yes, that's the general pattern.

It's... that's correct and, of course, I think there would also be an immunity asserted.

The Dead Sea petitioners have preserved that.

It's in joint appendix 57, and... and the... the issue of whether they would be entitled to immunity, or whether the commercial activity exception would apply or something, hasn't been litigated yet.

Chief Justice Rehnquist: When was the Foreign Sovereign Immunities Act passed?

Mr. Massey: 1976, Your Honor.

Chief Justice Rehnquist: We presumably lived, then, for 200 years without it, these cases being tried in State court?

Mr. Massey: That's correct, Your Honor.

The... the... under the... the prevailing doctrine of the separate entity rule, any separate unit or corporation was not entitled to immunity, that's correct, and it was governed by, after 1952 the Tate letter, which the... which the State Department issue didn't... this Court has described the procedural history in Verlinden, but you're absolutely correct, Your Honor.

I... I think that in the... at the end of the day, what... what is at issue here is a statute which Congress adapted in 1602, set outting out... setting out the purposes to facilitate suits against foreign entities, and also, as Justice Scalia noted, it referred to principles of international law in 1602, and here, we're... the petitioners are asking this Court to aggravate the difference between U.S. law and the law of every other country.

These petitioners do not receive immunity even in the courts of Israel or anywhere else, and the concerns about State courts and juries could be addressed through other provisions which enact... which are enacted in the diversity statute which govern every other corporation in the world.

If there are no further questions--

Argument of Jeffrey P. Minear

Chief Justice Rehnquist: Thank you, Mr. Massey.

Mr. Minear, we'll hear from you.

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

Congress enacted the FSIA against the backdrop of venerable corporate law principles, including the principle that a parent corporation and subsidiary are distinct, and that the shareholders of a parent corporation are not the shareholders of a subsidiary corporation.

We submit that the FSIA refers to share ownership in that familiar legal sense.

Viewed in that light, a foreign State's majority ownership of the shares of a parent gives the foreign State control over the subsidiary, but it does not give that foreign State ownership of the subsidiary's shares.

If Congress had intended that the FSIA would extend agency or instrumentality status to the foreign State's control of the subsidiary, it could easily have said exactly that.

Justice Breyer: Well, they don't think of these things all the time, so... so what... what about... they just don't.

It's... and that's... we have... that's why we have a difficult problem, so I wondered, with the language, and nobody accepts... I just want to know the reason for this, and I'm sure it's not a tenable interpretation, because nobody's advanced it, but if you look at the first part, literally speaking, it says a foreign State includes an instrumentality of a foreign State, and so an instrumentality of a foreign State, is, among other things, a corporation, the majority of shares of which the foreign state owns.

And that's true as to the first corporation in the tier, A. Well, now, since A is included in the term, foreign State, it therefore is a foreign State.

That's what it says.

And therefore, B is a company whose shares, the majority of which are owned by a foreign State, and so forth down the line.

Now, literally, that's what it says, and so what's wrong if I can't think of any reason why they'd want a difference, and the... that language literally covers it, what's wrong with that?

Mr. Minear: There's a very strong textual indication that that's not a correct reading, and that is found in section 1623(b)(2), where it speaks of a majority of whose shares or other ownership interest is owned by the foreign State, or political subdivision thereof.

Justice Breyer: Yes.

Mr. Minear: Now, obviously, if Congress had intended that recursive use that you've described, they would not have included, political subdivision thereof, which is also a part of a foreign State and, in fact, that provision excludes agency or instrumentality.

We think what the Court can draw from this is that Congress was using foreign State in a very strict sense of simply a foreign nation.

Justice Breyer: Or... but you're referring there back to the intent of Congress.

I see that linguistic point, but if we're referring back to the intent of Congress, I'm back to my question I asked before, what possible intent of Congress could the interpretation that you advance further?

I mean, what reason is there?

The same questions I asked before.

I'm just--

Mr. Minear: We think--

Justice Breyer: --you've got me back to that because of your response, which referred to the intent of Congress.

Mr. Minear: --We think there are two very clear reasons.

First of all, Congress was drawing a bright line.

We think that Congress wanted to avoid litigation over where to litigate.

Nothing's more wasteful than that... and by doing so it spoke to ownership of majority of shares in the traditional legal sense, which provides a very bright line rule.

We also think that this... this reading must be... must take into account that we're not speaking solely of the interest of foreign nations, but also of the interest of American litigants.

Congress was trying to strike a balance between the two, and the balance that we suggest here is one that recognizes that American litigants have an interest in a clear delineation of who is entitled to foreign sovereign status and who is not.

We think our interpretation reflects both of those concerns.

Justice O'Connor: But the statute does refer to other ownership interests.

Mr. Minear: Yes, it--

Justice O'Connor: Other forms of ownership.

What does that cover, then?

Mr. Minear: --Again, Your Honor, we think that it ought to be... that this term ought to be interpreted in terms of a... a test that provides a bright line rule.

We think other ownership interest refers to something that is an alternative to shares, such as, as Justice Kennedy has described in ownership in... in a joint venture.

We don't think that Congress intended to complicate the inquiry by making inquiries into whether something that is sometimes described as control should be treated as a different type of ownership interest.

We think that here, that what Congress was seeking was clarity, and the interpretation that we're providing is designed to provide that clarity for foreign nations and for American litigants as well.

Now, we think it's important to remember that Congress drew this line with the understanding that foreign instrumentalities is a narrow term, particularly as used by foreign nations.

Foreign nations by and large would not provide immunity to corporations.

We believe that Congress took the step of extending it to a first-tier corporation, but concluded that that is where the line should be drawn, it should go no further, and we think a narrow construction of this term is also appropriate in... in the face of the fact that Congress is granting a special privilege, a comity-based privileged, that not ought to be extended beyond what other foreign nations recognize in applying their immunity laws to the United States.

This is particularly so when the construction that we urge is very likely to lead to foreign friction with other nations.

Because, as... because foreign nations do not recognize the immunity that's being sought here in their own courts, it's very unlikely that they will object to our recognition of nonimmunity on the same basis in our courts.

Now, even if this Court concluded that the FSIA granted agency or instrumentality status to subsidiaries, the Dead Sea companies would still not qualify because, as noted before, they did... did not have that status at the time that this suit was brought.

We think that the diversity statute model provides the appropriate test here.

Diversity jurisdiction is predicated on whether or not the parties are diverse at the time the suit is brought.

It's based on the status of the parties.

Likewise, jurisdiction that is based on the status of a foreign entity ought to be determined at the foreign ownership's--

Justice Breyer: How do you deal with somebody who sues Yugoslavia, as a State?

I mean, they find some assets owned by Yugoslavia, they go sue them.

Mr. Minear: --I think--

Justice Breyer: What... that goes to a... West Virginia State court?

Mr. Minear: --I think the question here is, who exactly are they suing?

Justice Breyer: They're suing Yugoslavia.

That's the--

Mr. Minear: They might be suing--

Justice Breyer: --the... it says, defendant, Yugoslavia.

Mr. Minear: --But that suit most likely has to be served on someone, and it's likely--

Justice Breyer: There is somebody over there who claims to be the recipient of lawsuits... I mean, we could easily construct a serious problem, or you may have looked into it in telling me it just isn't a problem, and I'd like to hear you say that, if that's so, because it would help.

Mr. Minear: --We think it's unlikely to be a problem.

I cannot say that we... we can... can certify that this problem would never arise, but typically, these types of suits are brought against another State that now stands in the shoes of the former State, and there might be interesting questions of law with regard to the liability of that suit, but they may never be reached because in that case, the suit is being brought--

Justice Breyer: Okay, so you're telling me, and you've looked into it, this isn't really a problem, it's theoretical, not real?

Mr. Minear: --We think it is primarily a theoretical problem.

We think that Congress had no compelling reasons to provide immunity for past agencies and instrumentalities that are no longer associated with the foreign... foreign State.

As Justice Scalia pointed out, there's other mechanisms, such as the Act of State Doctrine, that provide protection of the foreign sovereign interests in those cases and, in any event, a foreign corporation, even after it has become privatized, still has access to Federal court jurisdiction under the alienage diversity statute, provided that it satisfies the... the requirements that Congress has set forth.

Finally, I'd like to note that because two questions are presented here, the Court does have discretion to reach both of those questions, and we think that there would be an advantage in clarity in the law if the Court did address both the so-called tiering question and the timing question, since they both have led to disputes among litigants in the lower courts.

They... both issues have been fully briefed and, as I say, the Court does have that power to make that determination if it so chooses.

Justice Stevens: Mr. Minear, I don't understand how the Act of State Doctrine would apply to sales of Israel pesticide in Central America.

Mr. Minear: It most likely would not apply--

Justice Stevens: Yes.

Mr. Minear: --in this situation because obviously, the Act of State Doctrine applies to the acts of a foreign State in--

Justice Stevens: Within its own--

Mr. Minear: --within... within--

Justice Stevens: --Yes.

Mr. Minear: --its own territory, within is own jurisdiction.

If there are no further questions, thank you, Your Honor.

Rebuttal of Peter R. Paden

Chief Justice Rehnquist: Thank you, Mr. Minear.

Mr. Paden, you have 7 minutes remaining.

Mr. Paden: Thank you, Your Honor.

First, with respect to the phrase, ownership interest, Mr. Massey suggested that the issues here, and I believe Mr. Minear as well, are related to the issues in the recently decided Meyer case, with which I confess I'm not familiar, but I think also the Bestfoods kind of case.

We think those cases are very different.

Those cases relate to liability-creating statutes and, in the context of a statute that creates liability, whether Congress intended for traditional rules of corporate veil-piercing to be eased somewhat in assigning liability in the case of the Superfund law to the... to the owner of the contaminated facility.

This is not a statute that gives rise to liability.

It defines a category of entities that are within the scope of the... of the group that Congress intended to... to vest with a certain limited protection when they will be sued in... in the United States, namely, a broad right to a Federal forum, and so forth.

Chief Justice Rehnquist: We... we have always construed jurisdictional statutes quite narrowly, going all the way back to Strawbridge against Curtis, that said you have to have complete diversity under the diversity statute, and it seems to me you're asking for something different than that here.

Mr. Paden: I think, Your Honor, that the... in the first place, of course, the statute has to be construed to the best one can on the words of the statute and the congressional intent.

I think there is some interesting language.

I... I believe it's the Delta case of the Sixth Circuit, or maybe the Texas Eastern case in the Third Circuit... talking about why, in the context of this law, there actually should be a broad interpretation of diversity.

Really, that's just another way of saying because Congress intended to bring within it a certain defined category of... of entities.

I think it's very hard to... to articulate a reason why Congress would have wanted to bring commercial operations of foreign States within the scope of the statute and say... let me back up a moment.

There was a time when Dead Sea Works was the immediate parent of Dead Sea Bromine, and Dead Sea Works was owned by the State of Israel.

Dead Sea Works' job is to extract manganese and potassium from the Dead Sea.

Dead Sea Bromine's job is to extract Dead... bromine from the Dead Sea.

It's impossible to come up with a rationale why Congress wanted Dead Sea Works to be within the purpose... the purview of this statute and Dead Sea Bromine not to be.

Justice Breyer: Well, they listed two.

They said, first of all it's easier for the court not to have to go through the morass of paper and try to figure out who owns what where, and the second one is that, because it's less surprising, at least the customers and others will know, likely, who owns the company, and know it's the State.

Those were their two responses.

Mr. Paden: Correct.

I... in terms of ownership interest, I think it's... it's a well-known and widely used phrase in our law as well as others to be a generic broadbased term.

We did a little research on some publicly available information just to try to find companies that I think we can say are well-known to be... have certain relationships, and I think it's fair to say, based on news articles and so forth, that General Electric Company is widely understood to own NBC, the broadcasting network.

It turns out that General Electric Company is the 100 percent shareholder of a company called NBC Holdings, Inc., which is the 100 percent shareholder of NBC, Inc., the broadcasting company.

I think the chairman of the board of GE would be astonished to hear the United States and the respondents explain that GE does not have an ownership interest in NBC.

It's--

Justice Ginsburg: I think that was conceded, that for purposes of newspapers reports, and... yeah, we understand that you would have five tiers down, if only one person owns it, you say, well, that person owns it, even if it's the fifth tier down, but the question is, in this context of a jurisdictional statute... and I wanted to ask you particularly, you've just heard Mr. Minear's argument, do we, as a Court, owe any special respect to what the executive tells us a statute that deals in the foreign affairs realm means?

Mr. Paden: --Your Honor, I think in this case that... that we think that the respect that is owed to the Justice and State Departments in this case is... is measured by the persuasiveness of the opinions that they're offering.

Essentially, they're offering a legal interpretation of the meaning of the statute and congressional intent.

I don't think they've said that the interpretation that we're offering here will impair or jeopardize the conduct of our foreign relations.

In fact, the only comment in their brief about this is to note that there have not been frictions in foreign relations as a result of the extant state of the law, and the extant state of the law is really in our favor on both points.

There are a number of cases where privatized entities have been held to be agencies or instrumentalities, and certainly where tiered entities have been, so we think it really is a matter of an analysis of the legal opinions about statutory construction and... and whether--

Justice Ginsburg: But the... the Government says you are the one who's saying, oh, a foreigner might be offended by the jury trial, whatever.

Mr. Paden: --We're trying to honor the intent of Congress, Your Honor.

Congress--

Justice Ginsburg: And... and the Government answers no, that we don't think this is going to be disturbing foreign nations.

You're the one who says that it will.

Mr. Paden: --I think what's salient is what Congress said, Your Honor, and Congress said that when claims are brought, when we are going to allow claims against foreign State entities for their commercial activities or whatever in this country, we're going to accord them the kinds of... the Federal jurisdiction breadth and lack of jury trial which we accord to ourselves when we agree to be sued.

Justice Stevens: May I ask you what the purpose of filing this lodging was, this gigantic paper?

Are we supposed to read this to figure out what the corporate relationships were, or what was the purpose?

Mr. Paden: Your Honor, that contains a lot of very detailed material in support of the information that we thought pertinent describing the particular structure of the Government companies law and the legal regimes--

Justice Stevens: But is this typical of what a district judge would have to look through to figure out ownership under your theory?

Mr. Paden: --No, sir.

It doesn't--

[Laughter]

--not at all.

That had nothing really to do with ownership.

We... we actually originally put that material in the record in support of our argument that the company was an organ of the State of Israel within the kind of emerging case law there, and what that material shows is the extensive, detailed interrelationship between the Government companies authority in Israel.

They made decisions about whether or not the company was going to have to use company cars, about whether or not they were... they made... they made... they had input in the operation of this company to a minute degree of detail and to, of course, very profound decisions such as budget decisions, who would be on the board of directors.

This company, under the Government companies law, a Government subsidiary company is treated, for all intents and purpose the same, whether it's indirectly held, as a Government company which is directly owned, and it... and this detailed material is really in support of several pages in our brief where we... where we provide a... a long paragraph with a series of examples of the extent of the interrelationship between the Government of Israel, the ministers of finance, the Government companies authority, and so forth.

Chief Justice Rehnquist: Thank you, Mr. Paden.

Mr. Paden: Thank you, Your Honor.

Chief Justice Rehnquist: The case is submitted.

Attribution:

The Oyez Project

Featured:

Lewis v. Lewis & Clark Marine - Oral Argument

Fri, 09 Jan 2009 14:50:28 +0000

Case:

Lewis v. Lewis & Clark Marine

Media File:

99-1331_20001129-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Roy C. Dripps, III

Chief Justice Rehnquist: We'll hear argument next in Number 1999... correction, 1331, James Lewis v. Lewis & Clark Marine.

Mr. Dripps.

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

Both the Jones Act and the Limited Liability Act can and should be given effect in this single claimant case, yet respondent seeks to use the Limited Liability Act to destroy rights conferred by Congress on Lewis as a seaman.

The Jones Act incorporates the provisions of the Federal Employers Liability Act guaranteeing the employee a choice of a State or Federal forum.

In addition, it guarantees him the freedom from removal to Federal court in the event he chooses a State court forum.

Chief Justice Rehnquist: That's true of both the Jones Act and FELA, is it?

Mr. Dripps: Yes, sir, and that statutory remedy is saved to Lewis by the saving to suitors clause, yet it can only be preserved in this case by dissolving the injunction against State court proceedings.

This Court's decision in the 1931 Langnes case held that the injunction, even without stipulations, should be dissolved to allow the State court suit to proceed, and that the admiralty court would resume jurisdiction only in the event that the State court judgment exceeded the amount of the limitation fund.

Justice O'Connor: Well, under what circumstances could the district court exercise its discretion and not dissolve the injunction and require litigation of liability in Federal court?

Mr. Dripps: Justice O'Connor, it would be only in a multiple claimant excess fund situation, and even then under the Jones Act there might be a question with regard to preserving multiple suitors claims under the Jones Act, but generally in a non Jones Act multiple claimant excess fund situation the vessel owner does have the right to maintain the exclusive jurisdiction of the admiralty court.

Chief Justice Rehnquist: Well, what if you have excess funds, multiple, and the Jones Act?

Are you saying that the Jones Act would prevent a liability determination in all of those situations?

Mr. Dripps: Not necessarily.

I'm saying that it's a question that potentially could be raised, but it hasn't been.

That's, of course, not this case.

This is a single claimant case, and part of the court's discretion at the district court level certainly was finding that it could be a single claimant case, which the district court order did note in footnote 3.

Justice O'Connor: Do you think that the courts and rule (f) preclude a single claimant exception?

Mr. Dripps: Oh, absolutely not, Justice O'Connor.

I think that was made clear in the Langnes case, because in the Langnes case the district court in fact exonerated the vessel owner, and were that... were rule (f) to preclude dissolution of the injunction, certainly the court would have simply relied on the exoneration finding.

Justice O'Connor: But you think that rule (f) is invalid?

Mr. Dripps: I do.

However, and I want to make this clear, the Court need not reach that issue if it simply follows the Langnes analysis.

The Rules Enabling Act analysis only comes into play in this case if the respondent's position is adopted, in that they say that we have no right to go to State court.

At that point, I am forced to attack the rule which gives them the right to have a liability and damage determination made in the Federal court, which I do say is invalid as violation of the rulemaking powers of this Court.

Chief Justice Rehnquist: But it's possible to rule for you here without holding that rule (f) is invalid just as a matter of interpretation, isn't it?

Mr. Dripps: Mr. Chief Justice, I agree completely that if the Court simply follows the Langnes case and says that the Jones Act allows this case to be brought in State court, and that that statutory remedy is preserved by the saving to suitors clause, and that the injunction should be dissolved on that basis, the Court need not reach the issue of the invalidity of rule (f) in this case.

Justice Ginsburg: But it might not... but it might not go that far if you had a mass disaster and there were many sailors injured and the vessel wasn't worth enough to cover all the claims.

Mr. Dripps: Justice Ginsburg, I think that in that case the plain language of the limitation statute in anything other than fire requires the vessel owner to admit liability and cannot use the limitation statute as a method to shift the forum and then contest liability.

The shipowner has a choice of one or the other in that circumstance.

Justice Kennedy: How does it work in practice?

You have a single claimant, and there's adequate, adequate funds to cover the claim and it goes to the State court.

Then 6 weeks later somebody else has a slip and fall, and then there's another suit.

Does that make everything start all over again?

How does this work in... it seems to me that there's great merit to your position, but that on the other hand there's going to be problems down the line when you have subsequent claims, or is that maybe not a problem?

Mr. Dripps: Justice Kennedy, I don't believe that's a problem, because normally when you have a case like this you have separate or serial funds.

Each time the vessel owner wishes to file a limitation case there's a separate valuation made, and it's a separate proceeding.

Now, the seaman's claims will become liens in priority of the time they arise, but that's a separate issue, and I--

Justice Kennedy: Okay, so the priority is what solves the problem, then.

Mr. Dripps: --Exactly.

There's a priority based on chronology.

Justice Ginsburg: And also--

Justice Kennedy: --A chronology of when the claim was filed, or when the injury occurred?

Mr. Dripps: I believe that it is of the time of the judgment, except for wages, when it's a... wages are a lien that accrue as of the time--

Justice Kennedy: Well, then I think there might be a problem with successive claims.

We need not get into it.

It's in the background, it seems to me, of the rule we must make, because if we ship it all off to the State court, and then there are going to be subsequent claims, you might have to start the... stop the State proceeding midway.

Mr. Dripps: --Well, Justice Kennedy, I believe that would only be a problem if the vessel owner tenders the vessel to a trustee rather than posting security for value, which is what was done in this case.

If, in fact, the vessel is turned over to a trustee, though, the likelihood is that it's not going to be employed by the owner, and so that owner won't be allowed to have a subsequent claim, and if they post security for value, I think that solves the problem, because there is a fund posted, and we won't be in a situation where we have competing claims for the same fund.

In other words, they will be different funds.

Justice Ginsburg: Do I understand the limitation correctly?

I mean, the typical use would be if you have a collision and lots of people are hurt, but this is a single... this is a tripping on wire, so we know it isn't... it isn't disputed in this case, is it, that we're dealing with a single sailor accident?

There was... he tripped over a wire on the deck.

Mr. Dripps: There is no dispute concerning that, Justice Ginsburg.

In the motion to dissolve the restraining order, which is in the joint appendix on page 70, and I believe it's at page 71, paragraph 6, Lewis made the specific claim that this was a single claimant accident.

That claim has never been rebutted or contradicted by the opposing side, by the vessel owner, so this is clearly a single claimant case.

Now, what your question suggests then, is why was this case filed, and it was filed simply as a forum shifting device.

Justice Ginsburg: But you sued later.

Oh, you think that they came in precipitously so that the forum would be where they wanted it, rather than where you chose to sue?

Mr. Dripps: Well, Justice Ginsburg, I wouldn't use the term precipitously, but the complaint was filed on March 24 of 1998.

Normally, in the case of a mass disaster, for example, there would be immediately a motion for an injunction and a notice to potential claimants that goes out.

That was not done in this case until May 11, 6 weeks or so after the initial complaint, and it was not done until after the State court case had been filed.

What they did was, they filed a limitation case in the Federal court and then sat on it, waited to see if Lewis was going to institute suit or not.

When he did, they obtained the injunction restraining prosecution of the suit, and--

Justice Ginsburg: And their limitation proceeding was filed in which court?

Mr. Dripps: --It was filed in the Eastern District of Missouri, United States District Court for the Eastern District of Missouri, across the river from Madison County, Illinois.

Justice Ginsburg: And--

Mr. Dripps: Rather than filing it in the Southern District of Illinois.

Justice Ginsburg: --There was... seemed to be a concession that if only you had asked for a jury trial you'd be home free, because you can't get a jury trial in admiralty and that's what the savings to suitors clause saved.

Mr. Dripps: And I think the Linton case from the Fifth Circuit in 1992 addresses that point specifically, Justice Ginsburg, and they say that the saving clause saves a nonjury Jones Act case because that's part of the seaman's remedy under the Jones Act.

The Jones Act's election language says the seaman has the right to maintain an action at law or... with or without a jury and, by incorporating the Federal Employees Liability Act, he can do it in State or Federal court.

Chief Justice Rehnquist: The defendant cannot ask for a jury trial in that situation?

Mr. Dripps: That's true, Chief Justice.

The... and I think the Linton case goes on at great length to discuss that, and the significance of that I think is perhaps made more clear by the antiremoval provision in 28 U.S.C. 1445(a).

The defendant cannot remove that case to Federal court where he would be able to trigger the Seventh Amendment and get a jury trial.

Chief Justice Rehnquist: Yes, but it's one thing to say, for Congress to say it can't be removed, but it seems to me it's quite another, a separate thing for Congress to say that the plaintiff can have a nonjury trial and the defendant cannot move for a jury.

Mr. Dripps: That is what the Linton case said, and that point wasn't specifically brought up in the briefs, although I believe this Court has addressed that issue.

I'd have to go outside the briefs to give you a case cite.

Chief Justice Rehnquist: Yes, well, it certainly isn't directly involved here, is it?

Mr. Dripps: No, sir.

No, sir, but this Court has addressed it.

Chief Justice Rehnquist: Well, we said in Singer, that Singer case, in the criminal case that the Government can move for a jury trial even though the defendant doesn't want one.

Mr. Dripps: And in this case Congress has specifically said that the injured employee has the option of determining whether or not it should be a jury or nonjury trial.

That's what this Court said in the Panama Railroad case v. Johnson, from 1920.

The Linton case simply followed that, and said that the fact that the seaman chooses the nonjury remedy in State court does not transform the case into something that is now removable because it's outside the scope of the saving to suitors clause.

And that ties in with this Court's decision in the Red Cross Lines case, where it concluded that statutory remedies are saved remedies, and in this case Mr. Lewis is a seaman invoking his rights under the Jones Act, which is a Federal statute.

Accordingly, that remedy is saved to him by the saving to suitors clause, and Congress' decision to confer the right to select the forum and the form of trial on the seaman is also saved by the saving to suitors clause.

In contrast, the vessel owner's rights in this case have been fully protected by Lewis' stipulations.

We've guaranteed their right to seek the exclusive jurisdiction of the Federal admiralty court, and in that case their Federal statutory rights are fully protected, but by precluding us from being able to preclude in State court, they are destroying the rights that Congress has conferred upon us in the Jones Act and preserved from the exclusive Federal jurisdiction through the savings clause.

Justice Ginsburg: Well, what have you conceded with respect to the limitation forum, because there'll be nothing... there'll be nothing... the only... this is the only lawsuit, this Jones... this is the only claim, so they have a shell of an action, but there's nothing to fill the shell because this case will go on in the State court, there'll be a decision, there's more than enough money in the till to pay the judgment, so what have you conceded by letting them keep the limitation action?

Mr. Dripps: Justice Ginsburg, what we've done is guaranteed that their limitation action will be successful.

They have limited their liability.

They've capped their liability.

Justice Ginsburg: That your... that's your concession, that your claim is for less than the--

Mr. Dripps: Absolutely, although... and I don't think that's necessary, though, to a resolution of the case.

If we look back at the Langnes case, which was a Jones Act case, the Court's decision simply hinged on applying the saving to suitors clause so that both statutory doctrines could be implemented, which is what I'm asking this Court to do now, rather than to pick one in an effort to destroy the other, and that is the goal, I think, of this case.

Justice Souter: --Well, your... what's left of the... what's in the shell, I guess, is a kind of interrorum jurisdiction to, in effect to guarantee the concessions, and it may never have to be... presumably it will never have to be exercised, but you're conceding that it could be.

Mr. Dripps: Justice Souter, that's right.

The... in the event that a State court judgment would be entered in excess of the limitation fund I think they have an absolute right to go back into the Federal court and say, wait a minute, Lewis agreed that in order to get to State court his... our liability would be capped, and at that point the Federal judge would have the right to enter an order limiting their liability.

I don't think there's any dispute about that.

Justice Souter: All right.

To keep it simple, on res judicata they could simply enjoin collection beyond the conceded limitation.

Mr. Dripps: Sure.

Justice Souter: Yes.

Mr. Dripps: But they don't have the right to go beyond capping their liability, which is what they're seeking to do.

They're seeking to shift the forum from the State court, which has been guaranteed to us by Congress, into the Federal court so that the liability and damage determination can be made there, and that's what we say is improper.

Justice Ginsburg: Do I correctly understand the picture on this exoneration that would go on if you... say you did have a collision, would go on in the admiralty forum, that the function is served by the defense that the shipowner can put into the Jones Act claim that is, there was no negligence here, and that is effectively what the exoneration plea would do?

Mr. Dripps: In some ways, Justice Ginsburg.

Now, if I understand the question correctly, I don't believe that the exoneration rule is an incorporation of Congress' allowing them a defense under the Jones Act.

I think that defense has to be taken in the context of the statute, and they can choose to defend and require us to put on our proof of negligence, but only in the context of the forum grant that is given to the employee by Congress.

Justice Ginsburg: From the shipowner's point of view, it's one thing to say the shipowner itself had no involvement in the negligence, it was the other deck hands.

It's a respondeat superior situation.

That's one thing.

Another thing is, there was no negligence by anybody at all, and I thought that that was the equivalent of the exoneration plea, that nobody was negligent at all, as distinguished from, maybe we have respondeat superior liability, but we should be allowed to limit that.

Mr. Dripps: That's true, that is the essence of the exoneration claim, and that's what they want the Federal court to decide.

The two responses to that are, first of all, the Langnes case from this Court essentially held that the exoneration claim was not sufficient to preclude dissolution of the injunction because, as I noted earlier, in Langnes the district court had, in fact, exonerated the vessel owner.

This Court nonetheless required the injunction to be dissolved and the case to go back to State court.

Justice Ginsburg: Well, that I don't follow, because if there was a determination of exoneration, that is, no liability at all, not limited but no liability at all, why wouldn't that have been preclusive in State court?

Mr. Dripps: If it had not been reversed by this Court it would have been preclusive.

Justice Ginsburg: Ah.

Mr. Dripps: But this Court said that determination has to be made in State court and not in Federal court.

Justice Ginsburg: What determination?

Mr. Dripps: The determination of liability and damage, and once it's made in State court, it is preclusive of the exoneration claim in Federal court under the rule of the Benefactor, which this Court decided in 1880.

Justice Ginsburg: But if the Federal court had made the determination first, and that... and hadn't been reversed, then that would be preclusive.

Mr. Dripps: Yes, it would, but the Court reversed it because the determination should have been made by the State court in the first instance rather than the Federal court, and that's the essence of the Langnes holding, that we're implementing the Jones Act's grant to the seamen, preserved through the saving to suitors clause, of the right to proceed in State court, rather than be forced into Federal court by the shipowner, and that holding was made without the presence of any stipulations regarding res judicata, and this Court said that the case will go back to State court for that determination.

The other--

Justice Ginsburg: Well, that sounds like, entirely in sync with my suggestion that the defense of no negligence at all, which can be put into the Jones Act proceeding, is the equivalent of getting, in the Federal court, exoneration.

Mr. Dripps: --That's absolutely true, Justice Ginsburg.

They have the right in State court to defend, require the plaintiff to prove negligence, causation, and damage.

They will be getting in the State court the benefit of that defense that they seek to assert in Federal court.

They are not being deprived of any rights by proceeding in State court, and their Federal right of limitation will be guaranteed to them by the stipulations that we filed waiving res judicata with regard to the issue of limited liability and stipulating to the exclusive jurisdiction of the district court to decide the limitation issues.

Those protect their Federal rights, and their right to defend and require proof of negligence and the other elements of the plaintiff's case are all things they can assert in the State court.

The other reason that the exoneration rule should not be permitted to control disposition of this case and we're required to be brought into Federal court is because at that point we do get into the rules enabling analysis and I simply wanted to mention the Henderson case that this Court decided in 1996, which set forth four factors that the Court considers in determining whether or not a provision is substantive or procedural.

Rule (f) meets each and every one of those.

The Henderson Court indicated that the factors are, who may sue, which is answered by rule (f)(1), which says any vessel owner, on what claims, the amount of all demands in conflict, tort or otherwise, rule (f)(2), for what relief, exoneration, or limitation from liability under rule (f)(2), and within what limitations period, not later than 6 months after receipt of a written notice of--

Chief Justice Rehnquist: When you say it meets every test.

It meets every test for being procedural, is that what you're saying?

Mr. Dripps: --For being substantive.

Chief Justice Rehnquist: For being substantive?

Mr. Dripps: Yes, Your Honor, and that's why I say that if the Court adopts the analysis that the respondent has offered, then we need to grapple with the Rules Enabling Act analysis, and in that case the provision of conferring a substantive right to sue by rule violates the Rules Enabling Act because it conflicts with the congressional statutory scheme of the Jones Act by abridging or modifying Lewis' right to sue in State court and enlarges the vessel owner's right to seek limited liability in Federal court.

Justice Ginsburg: I'm not following your argument to this extent.

I thought all this came up originally not because of statutes, but because of court made doctrine in admiralty, and then that doctrine gets reflected eventually into rule (f).

It's not a like a rule in place of a statute, where I would follow your argument very well, but it is taking what was, indeed, substantive law, but substantive law originally made up by courts.

Mr. Dripps: Well, normally, Justice Ginsburg, I would agree with you that that is what the rules do.

In this particular case, however, this Court's decision in the Benefactor specifically said that the fifty sixth rule in admiralty, which was the predecessor of current rule (f), was designed to circumvent the prevailing English rule requiring the vessel owner to admit liability.

So in fact the rule has done the opposite of what you suggest.

It has created a substantive right to sue for a determination of liability and damage, where in fact the common law, or the prevailing admiralty law, required the opposite, that the vessel owner admit liability, and that was the decision specifically of this Court.

If there are no further questions, Mr. Chief Justice, I'd like to reserve the balance of my time.

Argument of James V. O'Brien

Chief Justice Rehnquist: Very well, Mr. Dripps.

Mr. O'Brien, we'll hear from you.

Mr. O'Brien: Mr. Chief Justice, and may it please the Court--

The issue that is presented on certiorari grant from this Court in this case is whether the district court in this case abused its discretion in lifting the injunction that was imposed upon the filing of the limitation of liability case and allowing the claimant to proceed with a nonjury case in Illinois State court, where he was a single claimant in the limitation and where the fund was, at least after the initial filing, deemed adequate.

The Eighth Circuit answered this question in the affirmative, and held that since the remedy sought by the claimant, a nonjury trial, was already available in the limitation of liability court, that there was no saved remedy.

In other words, there was no statutory right of the claimant implicated, and therefore the Federal district court in the limitation case was bound by its grant of jurisdiction under Article 3, section 2--

Chief Justice Rehnquist: Well, do you think the district court's view would have been different had the right to jury trial not been given up?

Mr. O'Brien: --Mr. Chief Justice, our position in the case, and I believe the position of the Eighth Circuit was that if a jury trial had been requested, then a remedy that was not available in the district court would have been sought and therefore a saved remedy would have been sought, and therefore the stay, assuming the single claimant exception and the adequate fund exceptions were met, would have been allowed to proceed in Illinois State court.

Chief Justice Rehnquist: So this case hinges, in your view at any rate, on the fact that the plaintiff had waived the right to a jury trial.

Mr. O'Brien: To a large extent it does.

If I may--

Justice Ginsburg: You say that because you say, well then he doesn't need the State forum because he can get a nonjury trial in admiralty, but wouldn't one say equally, once the Jones Act plaintiff stipulates that he's not going to seek more than X amount of damages, you don't need the limitation proceeding?

Mr. O'Brien: --Our position takes a step back, and our position looks back at the original origin of the single claimant exception that was set forth by this Court in Langnes v. Green, and what we say is that we know a number of things about what this Court... what the district courts have to do under the Limitation of Liability Act.

Unlike some of the cases cited by the petitioner, where there is no limitation case, we know that when there's a limitation case on file there is exclusive Federal jurisdiction, and we know that the district courts are therefore bound to... exclusively to administer the rights of the limitation claimant and all... the limitation petitioner, excuse me, and all those claimants who make claim.

The only way for any given claimant to exit from the limitation case is if they can, for lack of a better word, trump the limitation petitioner's rights to an exclusive determination in the Federal court with some statutory right, and in this case that would be... the source of that right would be 28 U.S.C. section 1333, the saving to suitors clause.

Now--

Justice Ginsburg: I'd like to back up a little bit, because I don't think I followed you that far down the trail.

That is, as I understand it, the whole reason for being of a limitation action is so that the shipowner will be able to limit the extent of his economic loss to the value of the ship.

Now, once it is certain that that will in fact be the case, that there is no exposure beyond the value of the ship, what function does a limitation proceeding save... serve, other than to block what would ordinarily be a garden variety Jones Act case from proceeding in whatever forum the sailor chooses to sue in?

Mr. O'Brien: --Because the Limitation of Liability Act has more than just to limit liability.

It also has the purpose of allowing an exoneration to be pursued by the shipowner and, indeed, in Langnes v. Green, the seminal case that started this exception, the Court was very clear, this Court was very clear that the limitation court had both the power to decide exoneration and limitation.

Now--

Chief Justice Rehnquist: What provision of the limitation act gives you the right to have an exoneration proceeding?

Mr. O'Brien: --Mr. Chief Justice, we believe that the entire act construed by this Court in the Norwich v. Wright case provides that right.

Specifically, section 183, but also read in conjunction with section 185 and the entire statute.

Chief Justice Rehnquist: And where is that in the appendix?

Mr. O'Brien: Well, the--

Chief Justice Rehnquist: I see it's at pages 1 and 2 of the petition for certiorari.

Mr. O'Brien: --Yes, Your Honor.

Well, the statute itself, of course, is in the United States Code, and under section 183 of title 46 the vessel owner is entitled to pursue the limitation of liability, and is--

Chief Justice Rehnquist: But pursuing the limitation of liability is one thing.

Getting an exoneration determination is another.

Mr. O'Brien: --Yes, sir.

Your Honor, going back to Norwich v. Wright, this Court on at least a dozen occasions since 1871 has decided that exoneration is a fundamental right under the statute and is part and parcel of the limitation proceeding.

Justice Ginsburg: Were any of those cases single claimant cases where the fund was adequate to cover the injury, or were they all what one thinks of as limitation case, a rather larger disaster?

Mr. O'Brien: The early cases, Justice Ginsburg, typically involved a petitioner limit after a judgment had already been obtained in a district court.

Indeed, the Norwich case that is the case cited in both briefs, and the original seminal case in limitation liability, involved such a proceeding, and the Benefactor, the second case after Norwich, also involved a shipowner that came in after a finding of liability in the district court.

But when those early decisions came out construing the Limitation of Liability Act, for the first time... it had been passed in 1851... they had to decide what it meant, and there is an extended discussion in Norwich v. Wright about it, and in that case this Court stated that the American Limitation of Liability Act represented a departure from English law, because the English chancery courts, which had earlier heard limitation cases in England, lacked the power to investigate claims in admiralty, and therefore under English admiralty law the shipowner was required to admit liability.

In the American courts, and under the limitation act as construed by this Court in Norwich v. Wright, a determination not only of limitation was undertaken, but also exoneration, and from that time forward--

Justice Stevens: But wasn't that only on the assumption that there was jurisdiction under... just to seek limitation?

As part of the proceeding they could seek exoneration, but was there any case where the only issue was exoneration versus liability?

Mr. O'Brien: --Not per se, Your Honor.

Not per se.

Justice Stevens: And the word exoneration is not in the statute itself, is it?

Mr. O'Brien: It is not found in the statute, although it does state... the statute does state that the vessel owner's liability shall not exceed the value of the vessel--

Justice Scalia: Right, but that's quite different from saying it shall not exist.

Mr. O'Brien: --Well, it also does not deny the district court... the same statute that gives the jurisdiction to decide limitation of liability does not deny to the district court the ability to decide exoneration.

Justice Stevens: But wouldn't all these cases fit together if we simply held that in an appropriate case where the limitation of liability proceeding involves multiple claimants and an original intent to get more than the gross value of the ship, that in such a case, the... among the things the shipowner can do is seek a complete defense of a nonliability?

Wouldn't all the cases fit together if we just held that's where the exoneration is appropriate?

Mr. O'Brien: Well, certainly that's one option.

Justice Stevens: Yes.

Mr. O'Brien: And I... we would certainly urge that on the Court, and I believe it's part of the limitation act that the shipowner should be entitled to seek exoneration in any case in which it seeks a limitation as well.

Chief Justice Rehnquist: The Norwich, for example, under the Norwich was decided long before the Jones act was passed.

Mr. O'Brien: Yes, Your Honor.

Chief Justice Rehnquist: Do you think the Jones Act affects the holding in Norwich in any way?

Mr. O'Brien: We do not.

It's clear that the rights that the seaman has under the Jones Act are subordinate to... in general to the rights of the shipowner to limit liability.

In other words--

Chief Justice Rehnquist: Now, why do you say that?

Mr. O'Brien: --Because... for the reason that it's clear that if it had been a limitation proceeding with multiple claimants in a case where the claims asserted exceeded the value of the vessel--

Chief Justice Rehnquist: Yes, but Langnes says the single claimant is different, does it not?

Mr. O'Brien: --Well, what... Langnes really rests upon three distinct factors.

Langnes says, first you have to have a limitation of liability case.

Langnes says second, you have to have a single claimant, and third you have to have a request for a jury trial.

Those, in our view, are the three pillars upon which that case was decided, and--

Chief Justice Rehnquist: Do you think the request for a jury trial was essential to the holding in Langnes?

Mr. O'Brien: --Your Honor, I do, and the reason is because it's the request for a jury trial that implicates a saved remedy.

The request for a jury trial is what implicates a right under the saving to suitors clause, which in that situation exceeds the interest of the vessel owner in staying in Federal court.

Justice Breyer: As I read it, you're trying... you seem to be trying to make the tail wag the dog.

These early cases say, well, you know, if you're in Federal court, shipowner, trying to limit your liability, because we've had a collision and there are 42,000 plaintiffs and you've got to deal with this and just limit it to the vessel, well, as long as you're there, we'll try out whether you're liable at all.

We'll try out exoneration.

The only reason we're doing that... they didn't do it in England, but the Court says... we say, from time immemorial it was done in every other country, right?

So--

Mr. O'Brien: Yes.

Justice Breyer: --So we'll do it.

But if you're not here, what's the point of doing it, and you're not here if there's a single plaintiff or if there's an adequate fund.

I mean, the reasoning of it would seem to me to be, if you're not here, and you can't get here because there's an adequate fund, for example, there's no reason for us to snatch the issue of liability away from the State court.

Mr. O'Brien: Justice Breyer, I think it's key to look at Langnes v. Green and see in that case that this Court stated emphatically that the procedure under the Limitation of Liability Act was to first look at exoneration and then, if liability was found, to look at limitation issues.

Justice Breyer: Of course that's true, provided that you are properly in the Federal court limiting your liability.

My point is, suppose you're not, as is true here, for the reason that you already have an adequate fund.

You have no basis to get into the Federal court if there's an adequate fund.

Your only basis could be that we want to exonerate, but exoneration is there in case you're in anyway.

Mr. O'Brien: Well, let me state that initially... the initial claim filed in this case did exceed the limitation fund, and so that at the time the vessel owner instituted the proceeding, that was certainly in play and, indeed, when the initial claim was filed--

Justice Ginsburg: How did you know that, because the Federal suit was filed second.

You had your limitation... if I remember the chronology right, you sought limitation, and then a week later the Jones Act case was started.

Mr. O'Brien: --The short answer is that we know in this jurisdiction, where the State court suit could have been brought, that tripping over a wire could lead to a judgment in excess of the value of the vessel, and so therefore the--

Justice Ginsburg: But this plaintiff--

Mr. O'Brien: --vessel owner had a good faith reason for pursuing limitation.

Justice Ginsburg: --This plaintiff hadn't made any such claim then.

You're basing it on other claims that were made against this shipowner?

Mr. O'Brien: No.

I believe the vessel owner, based on its experience, and based on its knowledge of the situation, felt that an accident had occurred during this voyage which might make its vindication under the Limitation of Liability Act a realistic legal possibility, and so a petition was filed.

There's no rule that prevents a vessel owner from coming in before the claims are filed, just as there's no rule that prevents a vessel owner from coming in while claims are being filed or after they're filed, so the timing of the filing of the limitation of liability proceeding is really--

Justice Ginsburg: I brought it up in answer to your assertion, we knew that he originally had a claim in excess of the value of the vessel.

You didn't know that specifically with respect to this plaintiff.

Mr. O'Brien: --Well, knowing, I think, and having a good faith belief that the proceeding might be in the vessel owner's interest are too different things.

I don't think there was any way to predict the future at the time the petition was filed, but certainly--

Justice Ginsburg: But you didn't have to make any prediction a week later.

Mr. O'Brien: --That's true, because we shortly thereafter had a claim in excess of the value of the vessel.

Justice Ginsburg: And the prayer for relief was for in excess of 450,000 dollars?

Mr. O'Brien: Yes.

By stipulation, I think in the joint appendix at 69 the record reflects that the initial claim was in excess of the value of the vessel, and by stipulation--

Justice Stevens: The question really is whether that did not satisfy the purposes of the limitation of liability proceeding.

Mr. O'Brien: --Well, Justice Stevens, our position is that once the jurisdiction of the limitation code is validly invoked, which it was in this case, that jurisdiction attaches, and under the Constitution and laws the district court is obligated to decide all those issues, and the only way to escape... for the claimant in this case to escape that jurisdiction is to point to a definite statutory right that allows him to defeat Federal jurisdiction.

Now, in this case it would be--

Justice Stevens: But the statutory right that he's talking about, there's two ways to define it.

One is the savings to suitors clause itself is a statutory right.

He's entitled to invoke that, and it doesn't really say, only if he's seeking a jury trial.

Mr. O'Brien: --That's true, and... but we know a number of things about the saving to suitors clause.

We know that the rights under it are not absolute, and we know that because, number 1, a Jones Act claimant can have his case... excuse me.

A limitation claimant, not a Jones Act claimant, can have his case removed to Federal court.

We know that the saving to suitors clause doesn't protect the right of a bank, say, to sue a lender or a debtor on a first preferred ship mortgage.

We know those kinds of cases are committed to the Federal court and can't be brought in a State court.

Chief Justice Rehnquist: Well, what about the practical advantage of a plaintiff who thinks he's going to get a better verdict in Madison County, Illinois, than he will in the Federal District Court for the Eastern District of Missouri?

Mr. O'Brien: Well, that is his right, to sue where he thinks he can obtain the best verdict, unless there's some kind of illegal forum shopping going on, but that really is what this case is all about.

Chief Justice Rehnquist: I thought so.

Mr. O'Brien: The vessel owner is entitled to pursue limitation where it believes the purposes of the act will be furthered, in other words, where it sees that it has an opportunity to invoke exclusive Federal jurisdiction to adjudicate the rights from some accident occurring... occurring during some voyage.

And if I may address a point from--

Justice Ginsburg: Do I understand you, then, that the vessel owner in every case where the sailor chooses to sue in State court and not ask for a jury trial the vessel owner can always pick the forum instead by filing a limitation proceeding?

Mr. O'Brien: --Unless he pursues a right, the claimant pursues a right that is preserved under the saving to suitors clause I would agree with that.

Justice Ginsburg: Well, what... you told me that the only thing that's preserved is jury trial, not the Jones Act claim, which is what I would have thought that... I would have thought, apart from entertaining your position that it's not the Jones Act claim, and the choice of forum that Congress has provided, but it's only the device of jury trial.

Mr. O'Brien: Well, it's really... what it is is... let me refine my comment.

What I'm really saying is that if the remedy is already available in the Federal court, and what the Eighth Circuit decided was that if the remedy's already available in the Federal court in the limitation proceeding, there is no saved remedy to pursue elsewhere, and so the... I think the issue for this Court is not so much jury versus nonjury in the abstract sense.

The question is whether or not the specific remedy requested is available in the Federal court where exclusive jurisdiction is found.

Justice Ginsburg: Well, why isn't the remedy the courthouse that's closest to my home that's most convenient for me?

Why isn't that the remedy that is saved, the ability to choose, irremovably, the venue?

Mr. O'Brien: Well, the answer to that is that the rights under the saving to suitors clause are not absolute, and they never have been by this... held so by this Court or by any other Federal court.

They're always going to be subject--

Justice Ginsburg: But your position was that that wasn't saved at all, because you could get a nonjury trial in the admiralty forum.

Mr. O'Brien: --Well, I don't think the decision whether or not the nonjury trial is saved or not is necessary to this Court's decision, nor was it addressed specifically... in fact, it was reserved specifically by the Eighth Circuit.

You don't need to get that far, and the reason is because under the rubric adopted by the Eighth Circuit, if the remedy sought is available already in the limitation court, the claimant's not allowed to go back, and it was already available, i.e. a nonjury trial, so the court below never needed to address whether a nonjury trial was specifically a saved remedy or not, nor does this Court need to decide that for--

Justice Ginsburg: So practically what the position you're urging on us comes down to is that the Jones Act plaintiff can get his choice of forum as long as he insists on having a trial by jury.

If he doesn't insist on having a trial by jury, he doesn't preserve his right to choose the forum.

Mr. O'Brien: --That's correct.

Justice Ginsburg: That's your position?

Mr. O'Brien: That's correct.

Justice Breyer: Why would that be?

I mean, let's suppose that a Jones Act plaintiff does... could go... he could get into Federal admiralty court.

He could get in, or he could do what he'd prefer to do, which is to file in the State.

Why shouldn't he be able to file in the State unless there's some Federal reason that prefers the Federal tribunal?

Mr. O'Brien: Well, the Federal reason that prefers the Federal--

Justice Breyer: No, no, I mean, you're making both arguments.

One argument is that there is a Federal reason and the Federal reason is the exoneration, and that's countered with the argument that there is no Federal reason where there isn't an independent reason for being in the limitation action, all right, so I'm taking the other part.

Let's assume there is no Federal reason.

If there is no Federal reason... he has the right come in the door, but there's no Federal preference.

Why shouldn't he be able to go to the State court?

Mr. O'Brien: --Well, Justice Breyer, I... number 1... my first response is, I don't believe that's our case.

Justice Breyer: All right, yes.

Mr. O'Brien: We do have a Federal reason for being here.

Justice Breyer: Okay.

Mr. O'Brien: And the second response--

Justice Breyer: But if you didn't, if there were no reason favoring the Federal court, then would you say, give him his choice?

Mr. O'Brien: --Well, I suppose that would be true, except that Congress has spoken to the situation when they've committed limitation of liability acts to the exclusive jurisdiction of the Federal courts.

Justice Breyer: Okay, but if you're prepared to go that far, then the case turns on whether there is a Federal reason, and the Federal reason you say is exoneration, so I understand that.

And then I'm back to the question I had before, which I'm not sure I had a satisfactory answer to totally, that really what this exoneration is is the tail and it follows the dog into the Federal court, and the only reason it's ever there was, historically in England they did this, what the courts thought were absurd, to force the shipowner to give up his right to exoneration in order to get in Federal court, and our court years ago said that's silly, no other country does that and we're not going to do it.

Mr. O'Brien: Well, I would prefer to think of exoneration not as the tail, perhaps the other set of legs of the same dog.

I think that the right to exonerate is half of what you have under the statute.

The right to limit is the other half of what you have under the statute, and one can't be divorced from the other.

You've got--

Justice Scalia: You have the statute, but it doesn't appear in the statute, and what is your response to the fact that if the only reference to it is in the Federal rules, that's ultra vires?

Mr. O'Brien: --Well, my response, Justice Scalia, is 130 years of decisions from this Court and others, at least a half dozen cases from this Court holding that in a proceeding under the Limitation of Liability Act itself now the court determines exoneration as well as limitation.

It would be almost impossible for this Court to write exoneration out unless it were prepared to overrule all those cases.

Chief Justice Rehnquist: Well now, are you saying that in the single claimant, stipulated claim less than the value of the vessel, we would have to overrule cases in order to rule against you here?

Mr. O'Brien: No.

Chief Justice Rehnquist: Well, I thought that's what you just did say.

Mr. O'Brien: No.

No.

What I'm saying is, what Langnes v. Green tells us, and what Lake... which is the single claimant exception case, and what Lake Tankers v. Henn tells us, which is the multiple claimant case, or, excuse me, the adequate fund case, what those cases tell us is that when the claimant seeks a jury trial that it has been deprived of him in the limitation court, that under those circumstances there is enough of a... there's enough rights there for that claimant to trump the shipowner's right to be in Federal court, and they will then allow him to go back to State court assuming that on the one hand there's a single claimant, or on the other hand there's an adequate fund.

But you can't look back at Lake Tankers v. Henn or at Langnes v. Green and write out of the Court's decisions the references to a jury trial being requested by the plaintiff.

That is what in my view was the, really the moving force in those decisions that allowed those plaintiffs to go back.

Justice Stevens: Well, of course, can't you just read that as the... this is a particularly strong reason for vindicating the plaintiff's right to choose his own forum, that in one forum he gets a jury and in the other he doesn't?

That makes it a very appealing case, but I don't think you can necessarily deduce from that the conclusion that he wouldn't also have a right to pick the forum of his own choice without that feature.

Mr. O'Brien: Justice Stevens, I don't think we'd be here if the courts had routinely held that you got a right to a forum.

They haven't.

What the courts have held, this Court and the Federal courts, and what the commentators have talked about for decades, is the right to a remedy, and the right to a remedy does not necessarily entitle him to go to a State court.

It entitles him to a remedy.

Justice Stevens: Well, he gets the same remedy whether it's a jury trial or a bench trial.

He's seeking damages.

That's the remedy.

Mr. O'Brien: Well, the remedy, as the Court stated in Shilendez v. Luckenbach, the remedy is the means employed to seek the redress and in our view, and I think the cases bear this out, a jury trial is a specific form of remedy, a nonjury trial is another form of remedy.

It's the means employed, and I think that there's really no question under the case law that a jury trial is in a class separate from a nonjury trial as far as the saving to suitors clause goes.

They're different remedies.

Now, they both seek judgments, but in a different way.

If I may briefly address the rule (f) argument, the position urged by petitioner that rule (f) should be declared invalid is in our view extreme and not warranted by the case law.

This Court in the Henderson case did not announce a general test for the determination of when a Rules Enabling Act rule would be ultra vires.

It instead decided that rule 4 trumped the Suits in Admiralty Act provision requiring forthwith service of process on the basis that the rule was purely procedural.

But if I may, under rule (f), three of the four items that petitioner urges are contained in rule (f) and that mandate that it's a substantive rule are found in the limitations statute itself, namely, who may sue, when they may sue, and the object of the suit and so therefore, even under the test that petitioner cites, rule (f) clearly does not meet the standard of a substantive rule that would be struck down under the Rules Enabling Act.

Indeed, the limitation act addresses those items.

And I turn again back to the original decisions by this Court in the Benefactor, in the Norwich v. Wright case, in which this Court had occasion to construe the act and, if you follow the language closely of those decisions the Court was not construing rules that it promulgated.

The Court was construing rules that it promulgated.

The Court was construing the act itself, and the original admiralty rules that were promulgated by this Court in the Norwich case, the original 50-some admiralty rules from 1871, were rules, but they were in themselves interpretations of the act as seen by this Court, and they included the right to exoneration.

Now, if the limitation petitioner can come into court, and if he can pursue a limit... exoneration as well as limitation, then by definition the Court has exclusive jurisdiction over both of those subject matters and the limitation claimant, in this case the Jones Act seaman, can return to State court only if he demonstrates that the remedy he wants is not available in the Federal court.

If there are no further questions--

Chief Justice Rehnquist: Thank you, Mr. O'Brien.

Mr. O'Brien: --Thank you, Your Honor.

Rebuttal of Roy C. Dripps, III

Chief Justice Rehnquist: Mr. Dripps, you have 6 minutes remaining.

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

Mr. O'Brien indicated that three of the four items that are in rule (f) are in the statute.

What he neglected to mention is, as what Justice Scalia asked earlier, the one that's not in the statute is the one that's critical to his analysis, which is the exoneration provision, and that's not in the statute.

Mr. O'Brien relies heavily on the Benefactor, and I would simply refer the Court to the quote from the Benefactor.

It's at 103 U.S. 241.

It's at page 16 of the reply brief, and the Court said that hence, this Court, in preparing the rules of procedure for a limitation of liability, deemed it proper to allow a party seeking such limitation to contest any liability whatever.

That is not the statement of statutory construction.

That is a statement of legislative intent.

We're adopting these rules so that the party can contest the liability.

Now, that is exactly what is forbidden by the Rules Enabling Act, yet that is what this Court said it was doing in 1880.

Justice Stevens and Justice Breyer both asked about, in essence, whether there would be a right to a pure exoneration claim in Federal court, and I do want to point out that both the Fifth Circuit in the Fect v. Murkowski case and the Seventh Circuit in the Joyce v. Joyce case have said no, that unless there is a viable claim for limitation you cannot come in and ask for exoneration, and I think that is the rule that this Court should adopt.

The Langnes decision, as Justice Stevens noted--

Justice Stevens: Well, I... go ahead.

That's all right.

Mr. Dripps: --as Justice Stevens noted does not require a jury trial, but it simply said that a jury trial is one aspect that makes the State court forum desirable, and that's part of the Jones Act remedy to allow the injured employee that option of choosing either State or Federal court, and whether or not to have a jury trial in either forum.

To get to the respondent's not otherwise available test, this Court is going to have to say that the saving clause does not protect statutory remedies, particularly the statutory remedy afforded by the Jones Act, which allows the employee to choose the forum that the case will be tried in.

That, however, is exactly what the saving clause was designed to do, and that is why this Court should reverse the Eighth Circuit's decision and reinstate the decision of the district court dissolving the injunction.

Chief Justice Rehnquist: Thank you, Mr. Dripps.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Grupo Mexicano de Desarrollo v. Alliance Bond Fund - Oral Argument

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

Case:

Grupo Mexicano de Desarrollo v. Alliance Bond Fund

Media File:

98-231_19990331-argument.mp3

Related Transcript:

1998_98_231_argument.xml

Transcript:

Argument of Richard A. Mescon

Chief Justice Rehnquist: We'll hear argument next in No. 98-231, Grupo Mexicano de Desarrollo v. Alliance Bond Fund.

Mr. Mescon.

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

The Court is being asked today to ratify a significant expansion in the powers of the Federal district courts to issue preliminary injunctions.

This it should not do for two reasons.

First, there is no historical or statutory predicate for the issuance of a preliminary injunction to restrain the disposition of the assets of a defendant which assets are unrelated to the underlying cause of action and are located outside the jurisdiction of the court.

Justice O'Connor: Mr. Mescon, do you mind giving us a little preliminary information here?

I'm concerned basically with a potential mootness problem.

Your suit, your petition rests, I take it, on... on an... an allegation that your client is entitled to damages by virtue of an improper preliminary injunction.

Mr. Mescon: That is correct, Justice O'Connor.

Justice O'Connor: And there's a bond outstanding...

Mr. Mescon: That is correct.

Justice O'Connor: which could be... the damages could be secured from the bond.

But as I understand it, the preliminary injunction has become a final injunction.

Is that right?

Mr. Mescon: That is correct, Your Honor.

Justice O'Connor: And no appeal was taken from that.

Mr. Mescon: The...

Justice O'Connor: Is that right?

Mr. Mescon: That is correct, Justice O'Connor.

Justice Stevens: Okay.

Justice O'Connor: So, tell me what's left and why we should be deciding it.

Mr. Mescon: The issues that would... that Your Honor has suggested would render this appeal moot arise in cases where the issue to be decided on the merits is the same as the issue to be decided in the preliminary injunction.

For example, in Camenisch, which is the case relied on primarily by the respondents, the claim was that the student was entitled to an interpreter under section 504 of the Rehabilitation Act.

The injunction was granted.

The case came to this Court before the case had been decided on the merits.

But let's assume that the case had come to this Court after the case had been decided on the merits.

Clearly if the... if the injunction had been vacated, the State would have had a remedy, namely, the remedy of recouping the amount of money it had paid for the interpreter.

That is not so here because there is no claim in this case that the permanent injunction was improper.

There is no claim in this case that the plaintiffs did not have a probability of success on the merits.

The claim in this case is as to the power of the court to issue the preliminary injunction.

Justice O'Connor: And on that, you rest on New York law basically.

Mr. Mescon: Right, that under... no.

The... the power of the court... the absence of the power of the court to issue a preliminary injunction is true both under traditional principles of equity and also under New York law.

Justice Scalia: What are your damages from... what... what would you receive if you showed that the preliminary injunction was wrong even though the... the final injunction is okay?

Mr. Mescon: Justice Scalia, if I could prevail on proving that and establishing damages, my damages would be the loss to GMD for the inability to restructure its debt, conduct its business, and organize its affairs during the 4 months of the pendency of the preliminary injunction, which damages...

Justice Scalia: Well, but it shouldn't have been doing that anyway.

I mean, doesn't the preliminary injunction say that, in effect, it would have been wrongful to do that?

Mr. Mescon: No.

If absent the preliminary injunction...

Justice Scalia: Not the preliminary.

The final injunction.

Mr. Mescon: No.

The final injunction says that when one has a judgment, one can restrain the assets of the debtor.

The very point in this case is that before there is a final judgment, before there is a permanent injunction, there is no power in the court to restrain the assets of the debtor unrelated to the underlying...

Chief Justice Rehnquist: You're talking about a period then just between the issuance of the preliminary injunction and the final injunction.

Mr. Mescon: That is correct, Mr. Chief Justice.

Justice Kennedy: And you say that that caused discrete, demonstrable damages to your client.

Mr. Mescon: We would... we have not yet proved that.

Justice Kennedy: That's the theory of your case.

Mr. Mescon: Yes, Justice Kennedy.

Justice Souter: The theory behind that is that it may entirely be proper now to enjoin a certain use of those assets, but it would not have been wrong to use those assets for the other purposes, for want of which you have sustained damages.

Mr. Mescon: That is correct.

At any moment until April 17th, 197... 1998, when Judge Martin issued that permanent injunction, GMD was free to do with its assets whatever it wished to do.

Justice Ginsburg: Mr. Mescon, I thought Judge Martin said, look, I basically want to make sure that if there is, as I think there will be, a judgment for the plaintiff, there's something to realize it against, but I don't want to be rigid about this.

Didn't he say that you could come back?

He said, Grupo may seek modification on a showing of some need in order to keep the company going.

Given... given that opportunity that he gave you, he didn't say you're immobile.

He said, if you have a good reason to relax the injunction, come tell me and we'll talk about it.

Mr. Mescon: Justice Ginsburg, you're correct.

He did give us an opportunity to come and make an application for leave to make expenses, if you will, in the ordinary course of business.

But what the company, which was clearly in significant financial straights, where it remains today, wanted to do is effect a restructuring of its debts, not merely to pay its current obligations as they were due, wanted to make, if you will, preferential payments perhaps, preferential under our bankruptcy code.

Justice Ginsburg: For parties other than this plaintiff.

Mr. Mescon: Pardon me?

Justice Ginsburg: For parties other than this plaintiff.

Mr. Mescon: Parties other than this plaintiff.

Justice Ginsburg: So, the... what you... you are arguing essentially, if I understand you, that you wanted to be able to deal with your other creditors so that there would not be... the consequence of that would... there would not be these assets against which the final decision could be realized.

Mr. Mescon: I would only quibble with one part of your comment, Justice Ginsburg.

We wanted to deal with these... these assets not so there would be nothing available, but rather with the effect that there would be nothing available.

The purpose was not to eliminate assets available for these plaintiffs, but that would have been the effect of the action.

With that qualification, I agree with Your Honor's observation.

Justice Ginsburg: So... but the judges... we're talking about a 3 and a half month period?

Mr. Mescon: It's a week less than 4 months, Justice Ginsburg.

Justice Ginsburg: And you said something about the court hasn't power to do this preliminarily, and one of the reasons was, you said, in New York they wouldn't do it.

Suppose New York law were otherwise.

Suppose New York law says, if you make out a very strong case on the merits and also a very strong case that unless there's an injunction during the pendency of the suit, the assets will be gone.

We will give you that freeze worldwide.

Suppose that were the New York law.

What does the Federal court do?

Mr. Mescon: Right.

There actually have been statutes like that at different times in... in our country.

There was a statute in Mississippi in the late 19th century that... that had something of that same content that was before this Court in Scott v. Neely.

In those Swift v. Tyson days, this Court said we're not going to apply the Mississippi State rule.

We're going to apply the basic Federal equitable rule which is no injunction shall... shall be issued.

Justice Stevens: But now we're in the Erie days.

Mr. Mescon: But nowadays, after Erie against Tompkins, my answer to your question would be if a New York statute afforded this right to the plaintiffs in a diversity action in New York, they would have this right.

Justice Scalia: But you say we don't have to decide that as... as things are in this case.

Mr. Mescon: That is correct.

First of all...

Justice Scalia: You're fortunately spared the...

Mr. Mescon: Yes.

We have the... we have the benefit of... of Judge McLaughlin's insights into what New York law provides.

We have an explicit finding by the court of appeals as to what New York law is and New York law does not permit such an injunction.

Justice Kennedy: Well, does... does it work the other way around?

Does the absence of a State mechanism to do this mean that under Erie the Federal court may not do it?

Mr. Mescon: Yes.

Yes, Justice Kennedy.

I would say that this case and a diversity case is governed by Erie, and for that reason, we must look to New York State law.

New York State law provides that such an injunction cannot be issued in the New York State courts, and the old across-the-street argument applies.

We shouldn't be able to do it...

Justice Scalia: Even if the rules explicitly gave the court authority?

Mr. Mescon: Not so.

If the rule...

Justice Breyer: You should make that clear.

Mr. Mescon: If under Hanna... if we... if rule 65 were amended so as to give the Federal courts this authority, then in my view this would be within the Rules Enabling Act.

It would be a proper exercise of congressional or court rulemaking authority, and therefore that would also, if you will, trump State law as... as in Hanna, the service requirement...

Chief Justice Rehnquist: You're saying neither... neither rule 64 nor 65 authorize what was done here.

Mr. Mescon: That is correct.

Rule 65 does not authorize what was done here because rule 65 is... is a... is a mechanism, is a cookbook, is a recipe of how to get one.

It doesn't... it doesn't talk about substantive bases for a preliminary injunction.

Cases like Sims Snowboard in the Ninth Circuit and the decision by Justice... by Judge Clark in Frankie v. Wilchek in the Second Circuit suggest, though this Court hasn't decided it, that the question for... of whether a preliminary injunction is procedural or substantive under Erie is that it is substantive.

Justice Breyer: What do you do... suppose A sues B in New York, a damage action, and A learns that B is about to transfer property in New Jersey to a relative, a fraudulent conveyance, and there won't be enough money around otherwise to satisfy the judgment.

That must be somewhat common.

I mean, it's occurred before.

Is he without a remedy, the plaintiff in New York?

Mr. Mescon: A and B are both in New York and the property is in New Jersey?

Justice Scalia: Yes, yes.

Mr. Mescon: An action could be commenced in New Jersey and assuming the New Jersey attachment statute...

Justice Breyer: Yes, of course.

You'd attach it and get an attachment action in New York.

You get one in New Jersey.

Mr. Mescon: Right.

Or in Mexico.

Justice Breyer: So, what we have is a... is a different route in New York of accomplishing the exactly precise same objective.

Mr. Mescon: Yes, Justice Breyer, but a route that is not sanctioned by the traditional equity jurisprudence...

Justice Breyer: No, indeed.

I guess since fraudulent conveyance is a legal action in fact... it's not an action in equity... the... we have an instance where a New York court would, indeed, permit an injunction to protect a judgment that's all legal.

All legal.

Mr. Mescon: I don't think that the New York courts would issue such an injunction.

Justice Breyer: No, no, but what they do is get to the same result in a different way.

Mr. Mescon: Yes, by going to New Jersey and getting an attachment.

Justice Breyer: All right.

So, in fact, why can't the Federal court, although it doesn't have exactly the same legal mechanisms because they're not involved in exactly the same thing, get to precisely the same result, which is in fact to attach property abroad to satisfy a likely judgment in a legal action?

Mr. Mescon: Well, with regard to attachment certainly...

Justice Breyer: Don't call it attachment.

Mr. Mescon: because rule 64 says that you look to State for attachment.

For rule 65, you don't do it because the court can't do it.

It doesn't have the... the courts don't have the power to exercise... to issue injunctions with regard to restraining assets... restraining assets and actions for money damages.

Justice Breyer: But, of course, they do in fact have that very power if the underlying action is equitable.

Mr. Mescon: Of course.

Justice Scalia: And do they...

Mr. Mescon, I suppose that hanging a guilty person without a trial achieves the same result in a different way, doesn't it?

Mr. Mescon: Yes, Justice Scalia.

Justice Scalia: I wasn't talking about that.

It's not permissible, is it?

Mr. Mescon: But... but certainly in an equitable action, they do have that power.

Justice Scalia: Right, and what happens...

Mr. Mescon: And that's what the... the decisions in this Court in Deckert and First National City Bank have said.

Justice Breyer: We accept that.

Suppose it was just... because this is an odd example, but I think it makes the point.

Suppose it were an action for a fraudulent conveyance?

Mr. Mescon: If this were an action for a fraudulent conveyance, it would depend on an analysis of the equitable principle of whether or not the plaintiff had a sufficiently connected interest in the object, in the subject of the claim to justify the... the issuance of an injunction, very fact-specific.

There are cases... a good example really is... even in First National City Bank, the question is how attenuated, how close is the relationship between plaintiff's claim and the object in question I could conceive of a case where that relationship was significantly close, that the plaintiff's interest in the thing to be enjoined would justify the issuance of an injunction.

I can think of many cases, routine money damages cases, like actions on a note, for example, as was here, where that connection would not be so close.

And so, I...

Justice Ginsburg: Mr. Mescon, I... I thought that the reason for New York's... I mean, New York lets you put your hands on anything that's in New York... that what was behind New York's limitation is the notion that New York lacks the power until there's a final judgment to put a freeze on assets outside.

And if that's so, if it isn't a question of New York's policy of protecting this debtor from having its assets touched, but New York's notion of its own powerlessness that's at work, why should that be applicable in the Federal court which doesn't have that powerlessness?

Mr. Mescon: It is clear from this Court's holding that a State's power to attach assets is limited to assets within its own jurisdiction.

So, with regard to attachment, New York could not attach assets outside of the State.

Justice Kennedy: And... and I don't want to interrupt your extended answer to the question, but these are... are these intangibles?

Are promissory notes intangibles?

Mr. Mescon: Well, which notes are we talking about?

Justice Kennedy: The promissory notes in... in question here.

Mr. Mescon: Well, there are the notes that were issued by the defendant to the plaintiff, and there are also those notes that the Mexican...

Justice Kennedy: The notes they received from the Mexican Government.

Mr. Mescon: They have... they are to receive.

They have not yet been received.

Justice Scalia: Right.

Justice Kennedy: If... would the case be different if those notes physically had been in some safe deposit box of a Chase Manhattan Bank in... in New York?

Mr. Mescon: The case would have been very different if they had been encased in a safe deposit box...

Justice Breyer: So the... the location of the security itself is significant.

Mr. Mescon: Well, it might be.

Where the... it depends I suppose on the nature of where it is located.

If they were negotiable instruments and they were located in New York, I think under the attachment...

Justice Scalia: It depends on the choice of law theory, of which there are millions.

Right?

Mr. Mescon: Yes, Justice Scalia.

Justice Kennedy: I mean, you can't give a sure...

Well, I... I might have intervened with your answer to Justice Ginsburg.

Justice O'Connor: Yes.

Justice Ginsburg: I would like to get back to that.

It... it is an Erie question that I'm asking.

Mr. Mescon: Right.

I'm with you.

Justice Ginsburg: I... I thought that the Erie assessment isn't just automatic.

Well, we have no rule on point, so we look to see whatever the State does.

I thought that there was then an examination to determine whether the State has any relevant policy.

And it may be that the State has a policy.

In fact, most cases it does.

But if... and I may not be right about this.

If the State is not putting on this kind of freeze because it thinks it can't rather than because it has made a judgment that is not a sound thing to do, then why should that apply in the Federal court?

Mr. Mescon: With regard to attachment, the power of the New York State courts is limited.

They cannot...

Justice Ginsburg: Let's take attachment out of it and sequestration...

Mr. Mescon: But in personam, the authority of the New York State courts is just as broad as the authority of the Federal district court.

Justice Ginsburg: Well, some courts have had a notion that they can't act extraterritorially.

Mr. Mescon: With regard to assets outside their jurisdiction, but the... the basis of Judge Martin's ruling was that he had in personam jurisdiction... and this is indeed the basis in part of the First National City Bank holding... in personam jurisdiction over the defendant, and therefore, based on that in personam jurisdiction, could enjoin conduct worldwide.

And the Federal district court is no more powerful than the New York State Supreme Court with respect to that power.

The... this principle in New York State law goes back very, very far.

The legislative history is... is not clear as to the origins, except that it stems back from traditional pre-1789 notions of what were the powers of the court in equity that were adopted as part of our... the first judiciary act when we adopted the equitable power and when we gave to the Federal district courts only those powers in equity which the English Courts in Chancery had in 1789.

Justice Ginsburg: Well, this... now you... you seem to be cut loose from what you said earlier.

That is, you said New York could have such a preliminary injunction.

If New York has a preliminary injunction, it would apply in the Federal courts.

Mr. Mescon: That's correct.

Justice Ginsburg: So, it isn't a question of equity would not permit this kind of thing.

It's simply a question, did the State do it, and you say...

Mr. Mescon: Right.

No.

I was... I'm sorry.

I was just answering why I thought New York had the policy.

I don't know what the policy of New York State was.

I was surmising that it might have flowed from this traditional equitable notion that would have been as obvious to the New York State legislature as to anyone else that courts don't have powers to issue preliminary injunctions to restrain assets to satisfy a money judgment before judgment.

Justice Kennedy: Suppose... suppose that this... that this Court thought that the old rule should be changed, that we have a global economy and debtors are too quickly depriving the courts of real jurisdiction.

It's wrong to know that the defendant in front of you is secreting assets, and so we want to change the rule, as the English did in... was it Mareva?

Mr. Mescon: Mareva, Justice Kennedy.

Justice Kennedy: And assume the Court wanted to do that.

Would we have the authority to do that?

Mr. Mescon: With the greatest respect and with some trepidation, this Court would not have the power to do that except perhaps by exercising its authority under the Rules Enabling Act to promulgate rules of civil procedure.

But acting as a court, bound by the precedents about what the... what courts of equity can do, and guided by the principles of Erie and with reference to New York State law, this Court could not do that.

Justice Kennedy: Well, you say guided by what courts of equity can do.

Suppose we think the old equitable rule is wrong and should be adjusted to the new dynamics of an economy and so forth.

Mr. Mescon: Well, first...

Justice Kennedy: You may disagree.

We're just making the assumption.

Mr. Mescon: Assets out of State are... are not something new that's a function of the new global economy.

In the sense, of course, of power, I suppose the answer to Your Honor's question is yes, the Court could do that.

No one could tell the Court not to do it, but I don't think it would be appropriate exercise of the Court's power for the Court to do it perhaps would be a better way to say it.

Justice Kennedy: Well, just... just because of the extant equity precedents?

Mr. Mescon: Because of...

Justice Kennedy: Or because of any other proper constraints on our authority?

Mr. Mescon: That and the Erie doctrine.

Chief Justice Rehnquist: Could one go into a New York court, the Supreme Court of New York, and get an injunction of the sort that was issued here?

Mr. Mescon: No, Mr. Chief Justice.

Justice Breyer: And why is that?

Mr. Mescon: It is because the law of New York State makes plain, as Judge McLaughlin described in his opinion below, that injunctions to secure funds for payments of money damages not in an equitable claim are not permitted by the courts of the State of New York.

Chief Justice Rehnquist: Is that because it's covered by the attachment and you... you... if the attachment statute sets out certain requirements, you can't beat... you can't kind of go on the side door and get an injunction?

Mr. Mescon: That could be one reason.

It is clear that attachments apply to property in State.

It really goes back to Justice Ginsburg's question, why New York State doesn't afford this remedy.

Perhaps because they think attachment is enough, perhaps because their guided by the same principles of the Chancery Court that have guided the Federal courts up until 1986 when the first of these decisions was made.

Justice Ginsburg: Mr. Mescon, you did say that New York would give this injunction, a permanent injunction.

We have a permanent injunction which you're not challenging.

Mr. Mescon: That's correct.

Justice Ginsburg: And apparently New York, just like the Federal court, would give such a permanent injunction after the plaintiff has won the lawsuit.

Going back to Justice O'Connor's question, have courts of appeals ever ruled on the validity of a preliminary injunction once the final injunction has been entered?

Mr. Mescon: In a case in which the... I do not know the answer to that question.

But the... in a case in which the issue raised by the preliminary injunction goes to the power of the court and is not at all dependent upon the merits of the case, then the entire rationale, which is a sensible rationale, for not deciding the preliminary injunction, after it's merged with a permanent injunction, does not apply.

Chief Justice Rehnquist: Well, I... I don't see why your response is... is that narrow.

It seems to me that you might have a perfectly good case if the preliminary injunction was improvidently issued, but after a full hearing, a permanent injunction issues, and you don't challenge that.

There was enough evidence developed on the permanent injunction hearing that you don't challenge it.

But it seems to me you're still entitled to challenge the preliminary injunction if you suffered damages and there's a bond.

Mr. Mescon: I... I would like to adopt your position, Mr. Chief Justice, but I think some of the authorities cited by the respondent would limit our ability to... to recover in such a case if the issue, for example, in... if the issue were the same as the issue decided at the preliminary injunction.

Justice Breyer: What is the...

Mr. Mescon: The judge, for example, deciding the preliminary injunction... there wasn't enough evidence in the record for him to make an appropriate finding of...

Justice Scalia: But he guessed... but he guessed right.

Mr. Mescon: But he guessed right, yes, Justice Scalia.

Then he's validated, if you will, by the final decision.

And I think that's what the cases cited by respondent stand for and we don't dispute that...

Justice Kennedy: But I thought... I thought your... your position... correct me if I'm wrong... is that there's a great difference from an injunction before we have adjudicated that there is a debtor and an injunction after there has been adjudication that the debt is owed.

Mr. Mescon: Yes.

Under New York law 5222 of the CPLR, which rule 69 makes applicable in the Federal courts, there is an absolute right in the court to enjoin a debtor from parting with any asset of any kind after there's a judgment until the judgment is satisfied.

And we... while initial notice of appeal from the final judgment did contest that, because the notice of appeal was filed within a couple of days of the final judgment, when we drafted our brief on the merits for that second appeal from the final judgment, we withdrew that claim because that injunction was proper and was permitted under New York law, which under rule 69 is applied in the district court.

Justice Breyer: Did you actually look up the... and the reason I'm harping on this odd thing, I had to look it up once and fraudulent conveyances are legal actions.

They're not actions in equity.

A typical case is a case where A sues B in a normal damages action, and then he thinks that B is going to convey to a friend some property and B is likely to become insolvent.

I'd be surprised if injunctions weren't issued in that kind of case to prevent a... a... maybe rarely, but to prevent a real danger.

Mr. Mescon: I believe they are not issued...

Justice Breyer: They're not?

Mr. Mescon: Justice Breyer, because... because if the action between A and B is unrelated to the asset...

Justice O'Connor: Yes, it is.

Justice Scalia: It is.

Mr. Mescon: Then I believe that... that is exactly, you know, Lister v. Stubbs was just such a case.

You know, the... the classic situation in which... with the exception of Mississippi in the late 19th century, we don't enjoin fraudulent conveyances.

The Federal rule up till 1986 was that in that case, as... as unpleasant as it may have been, you have to go to New Jersey to get your injunction where there can be an attachment of the assets.

Justice Stevens: May I ask... oh, excuse me.

Chief Justice Rehnquist: You're not suggesting that New Jersey is more unpleasant than New York, are you?

Unidentified Justice: [Laughter]

Mr. Mescon: No, Mr. Chief Justice.

Justice Stevens: Mr. Mescon, can I ask you a practical... how long did the trial take in this... trial on the merits in this case take?

Mr. Mescon: The trial... there was a motion for summary judgment.

There was...

Justice Stevens: And how long did it take the judge to decide it?

Mr. Mescon: The... the... there was a period of several weeks of briefing, and I think the matter was sub judice for something on the order of a week.

But I...

Justice Stevens: I was just wondering if the judge... if you win and the judge had the same problem all over again, it seemed to me what the trial judge might do is say let's go to trial tomorrow, put your evidence in, we'll have a decision on the merits in 15 days.

So, we would... and then you would... and if you lost on the merits then, you would have no... no redress.

Mr. Mescon: Right, Justice Stevens.

And that... that point is really I think what motivated the trial judge.

He said to me could I do this after judgment, and I said, yes, Judge Martin, you could do it after judgment.

And he said, well, I am sure that the plaintiffs are going to win this case, and if I could do it after judgment, I can do it now.

And that tests the principle that we're raising.

That really is where the rubber meets the road.

But the point is, within the limits of due process, he could have truncated it as far as he wanted to, but for whatever period...

Justice Stevens: But if he had truncated it by saying... say, he did have the power, and if he truncated the trial, the preliminary injunction hearing, by saying I'm going to rely on this affidavit as enough evidence because I'm convinced what I'm going to do after all the evidence comes in, he could get away with that.

Mr. Mescon: If... if he... within the limits of due process...

Justice O'Connor: Yes.

Mr. Mescon: if he had accelerated the trial and had somehow a finding on the merits within a day or 2 of the... of the original ex parte application, then... then the answer is yes.

Justice Breyer: But how would that have helped in a world where you can transfer money in 5 minutes?

Mr. Mescon: But that was always... there's nothing new about that, Justice Breyer.

Justice Breyer: No, but I mean, if it's a practical thing we're looking for, if you... if you win this, then in... in future cases, as long a there's 5 minutes' time between the complaint being filed and the trial on the merits, that's the same as if there were 10 years' time.

Mr. Mescon: That's correct.

Mr. Chief Justice, if there are no other questions, I'd like to reserve the balance...

Argument of Drew S. Days, III

Chief Justice Rehnquist: Very well, Mr. Mescon.

Mr. Days, we'll hear from you.

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

I wanted to address some of the issues that were just raised with my opposing counsel on the mootness issue and with respect to the Erie issue as well.

First of all, on the question of the applicability of Camenisch, we believe that Camenisch makes very clear that the issue of the ability to sue for damages on the bond is not a matter that can be resolved on an interlocutory appeal of a preliminary injunction.

Of course, there is no preliminary injunction in existence at this point.

It ceased to exist when it was converted to a permanent injunction by the district judge.

Justice Kennedy: But... but here the theory of the petitioner is... is that the reason any mischief happened was because it was at the initial injunction stage.

Mr. Days, III: I understand that, Justice Kennedy, but I think that what...

Justice Kennedy: It's the difference between the preliminary and the permanent injunction that is the very theory of his case, and that just wasn't involved in the case that you cite.

Mr. Days, III: That is correct.

It's not directly on point in that regard, but I think it can be used for this purpose.

In Camenisch, it is true that there was the question of the ability to recover on the... on the injunction bond, and what this Court said was that issue can be resolved after a trial on the merits and final judgment.

There was a... a nexus between those two.

What GMD argues here is that there is no nexus.

There's no nexus between the preliminary injunction and the merit issue in this case, and we disagree with that.

We think that the permanent injunction was in fact just an extension of the preliminary injunction.

There is nothing in the record that suggests that the judge relied on any different authority for the permanent injunction than he invoked when he entered the preliminary injunction.

Chief Justice Rehnquist: But that may be true, Mr. Days, but if... if the petitioner is right, that the authority to issue the preliminary injunction is... is nonexistent, whereas the authority to issue the permanent injunction is clear, I would think that would be enough to at least give the structure of a claim for damages on the bond.

Mr. Days, III: Mr. Chief Justice, with... with respect, this Court has said that where one wants to have those types of issues resolved, they have to be resolved after trial on the merits and judgment.

Any... any person who's been...

Justice Breyer: But if... if... maybe you need a separate suit on the bond.

Chief Justice Rehnquist: I don't mean to decide that, but certainly if it were decided by this Court that the issue of the preliminary injunction in this case were improvident or unauthorized, that could be used in the suit on the bond, could it not?

Mr. Days, III: Well, I think, Mr. Chief Justice, but what the district judge, in essence, found was that the activities of GMD that were preliminarily enjoined were correctly enjoined, and that's what the permanent injunction is all about.

Chief Justice Rehnquist: Yes, but if we decide he was laboring under a misapprehension as to what his authority was to issue a preliminary injunction, then... you know, that... that goes to the merits of this case certainly to a certain extent.

Then that would certainly be binding on the parties in a suit on the bond, would it not?

Mr. Days, III: Yes, I think that is certainly possible, Mr. Chief Justice, but what it opens up is the ability of any party who's been dissatisfied with a ruling on a preliminary injunction to raise not just the basic propriety of the issuance of the preliminary injunction, namely, whether it met the basic requirements of rule 65, but larger issues, or even issues as to do with whether there was irreparable harm.

But I think this Court has said that those issues simply are inappropriately raised with respect to a preliminary injunction.

Justice Stevens: Well, but, Mr. Days, it wouldn't really... it wouldn't really open up that Pandora's box if it only applied to cases in which it was contended that there was an absence of power during the interval between the time of the preliminary injunction entered and the judgment in the case was entered on the merits.

Mr. Days, III: Yes.

I... I understand that to be the argument.

Justice Stevens: And I think he agrees it would be limited to that.

Mr. Days, III: Yes.

Let me just mention one other factor with respect to the bond damage action, and that is, as was pointed out I think by Justice Ginsburg, the district judge here allowed GMD to come in and seek modifications from the preliminary injunction.

GMD initially filed such a petition for... or motion for modification and withdrew it.

So, I think that one of the things that's presented here is the highly hypothetical nature of the claim on... on the bond.

Chief Justice Rehnquist: Well, that... that would certainly perhaps be a defense to a damage... a partial defense to a damages action, that you had it within your power to correct this situation without enduring it.

But I... I don't think that dispenses with the entire case.

Mr. Days, III: Yes, Mr. Chief Justice.

Let me turn, if I may, to the Erie question.

As we've indicated in our brief, we think that the Erie issue is not properly before this Court.

It was not fairly included in the question presented, nor was it pressed or passed on in the lower courts.

I think the colloquy between the Court and Mr. Mescon reflect the fact that what GMD is asking this Court to do is the work of the lower court judges, that is, the trial judge and the court of appeals.

Now, they have pointed to a decision by the Second Circuit in this case in which the court says all parties agree that this type of relief would not be available under rule 64 or New York injunction law.

First of all, that entire discussion in the lower courts was about the relationship between rule 64 and 65.

Erie never came up, and I think one would search in vain to find even the word Erie mentioned in any of the filings in this court below until this Court got the merits brief from GMD in this case.

And secondly... and I know it's somewhat curious that the court says rule 64 and the injunction statute, but what it was saying was that under New York law, if one brings an attachment action pursuant to rule 64, one can also get an injunction in aid of that attachment process.

So, I think that it is unfair to look at that decision as a pronouncement on what New York law would, in fact, hold if those courts had been invited to consider Erie and go through the process that you were discussing with Mr. Mescon.

Let me turn to the basic issue here, though.

I think Mr. Mescon has been very direct and very candid in saying that there's no historical or statutory predicate for what the district judge did here, and indeed, that this court has no power to authorize a Federal judge to do what Judge Martin did here.

I am reminded of a quotation from Justice Holmes in which he said that it is revolting to have no better reason for a rule of law than that's what was laid down in the time of Henry IV.

It is still more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past.

Now, I don't necessarily want to embrace the revolting part of that statement by Mr. Justice Holmes, but I think it does get to the heart of this.

What basically GMD is saying is that there were cases in the 19th century where parties sought to get freeze orders and were told that they were unable to do that, that the court simply could not provide that type of relief.

Scott v. Neely, the Hollins case, and there are other cases that go to the same point.

But those were pre-merger cases, and I think that if one thinks about them in terms of their being pre-merger, when courts were faced first, as was true in those cases, with a request for a final judgment that included the freeze order, that is, a freeze order that would take the defendants property and convert it in a way that would satisfy a money judgment that the plaintiffs were seeking...

Chief Justice Rehnquist: Mr. Days, do you think that the merger of law and equity enlarged the... the kind of remedies that were available?

Mr. Days, III: I think, Mr. Chief Justice, what the merger did was allow a court, sitting on both law and equity cases, to use remedies that previously would have been available only in a court of equity after there had been some satisfaction of a judgment in... on the law side of the court.

Chief Justice Rehnquist: But do you think that if a court of equity couldn't have given it before there was a judgment and then you merge law and equity, wouldn't the rules still be the same?

You have to... you know, you can get it in the same proceeding.

You get a judgment, then you get an injunction.

But you don't get an injunction before that.

Mr. Days, III: Well, I think... I think that certainly if the law had been clear in that respect, the courts had been very clear that no matter what the circumstances, no matter what the merger, no matter what happened to the Seventh Amendment rights that were always implicated in that type of situation, then we'd have a different... different problem.

Justice Scalia: Do you have any cases to the contrary?

Do you have any cases where, indeed, an injunction of this sort was issued?

Mr. Days, III: We do not have a case that deals specifically with this question, but I think the... this Court in... in Dairy Queen v. Wood pointed out the kind of time-bound nature of decisions like Scott v. Neely.

Justice Scalia: There have been deadbeat creditors... deadbeat debtors who... who were going to try to get rid of their property forever.

And now, maybe the rule that we have is not a good rule, and Henry IV notwithstanding.

But the issue is not whether we can change it really.

The issue is whether this Court ought to be the... the instrument of change or whether, you know, it's such a fundamental departure from what... what courts have done in the past, that if indeed we want to give creditors more rights against debtors in this respect, it ought to be a congressional determination.

I mean, that's... that's really the only argument here.

Mr. Days, III: Justice Scalia, I think that what rule 65 does is embody all of the principles of equity power, and I don't think those decisions that have been cited by... by GMD stand for the proposition that they would absolutely have been foreclosed after a merger of law and equity.

Justice Scalia: But you don't have a single case that...

Mr. Days, III: Well, I think that the fact that there haven't been many of these cases arising is reflective of the fact that in most instances we don't have the unique circumstances presented in this case.

We have a situation where there is a party that admitted that it was subject to the personal jurisdiction of the court and to the laws of not only New York State, but of the Federal court's laws, whatever they might apply.

It was a situation where there were no assets in the jurisdiction.

Therefore, attachment was unavailable.

Bankruptcy was not available because it's a foreign corporation and would not be subject to the bankruptcy laws.

And one can go down the list.

Under those circumstances, what we believe is the case, that if one looks at the nature of equity, the flexibility and the adapting to new circumstances that has always characterized the equity power of Federal courts, that it is not inappropriate for the equity court in 1999 to try to deal with this situation.

Justice Kennedy: Are you saying that we're doing this to supplement the void in the bankruptcy laws?

Mr. Days, III: No.

I'm simply saying that it goes to the whole question of whether, for example, there's an adequate remedy at law, whether there's irreparable harm.

Justice Kennedy: Well, I would have thought that would have been... it's your argument, not mine... not a bad argument because...

Mr. Days, III: I'll accept it then, Mr. Justice Kennedy.

Justice Kennedy: Assuming the assets were, say, in the State of California...

Mr. Days, III: Yes.

Justice Kennedy: in this case, GMD had its assets, I take it you could have initiated an involuntary bankruptcy proceeding?

Mr. Days, III: Yes, that is correct.

Justice Kennedy: All right.

So, then why aren't I correct in suggesting that what you're doing is simply trying to cure a gap or a void in the bankruptcy laws?

Mr. Days, III: I think it's a very persuasive argument.

Chief Justice Rehnquist: Equity simply fills in any gap that may result from an absence of a bankruptcy law in Mexico?

Mr. Days, III: Well, I... I won't... I don't want to go to the point of seeing this as merely a gap-filling procedure.

It is a procedure in which a Federal court is presented with a party and it is told, as Mr. Mescon has told this Court, you are completely powerless, no matter what the circumstance is, no matter what can be shown about irreparable harm, the inadequacy of legal remedies, the unavailability of attachment, the unavailability of bankruptcy, you have...

Justice Scalia: But it seems to me...

Mr. Days, III: nothing that can be done.

Justice Kennedy: That's... that's the minimum of what you're doing, and you may be even doing more.

You may be saying even if they can't go into bankruptcy, you ought to be able to attach a putative debtor's assets.

And that's a... that's a sweeping change in the law.

Mr. Days, III: Well, I don't think it's a sweeping change.

I think it merely is a situation where, as this case reflects, all of the tools that would ordinarily be available to a litigant in the courts of this country are not available to the investors in this case because of the circumstances that I've just described.

Justice Breyer: I take it you say that the reason this isn't coming up a lot is obvious.

There are attachment statutes.

There are lots of other remedies, including bankruptcy, et cetera.

And so, obviously... but why isn't it... and you're going to agree with this.

What's the objection to it is what I'm looking for.

The best evidence of what I'm about to say.

Mr. Days, III: What is the objection to... to this approach?

Justice Breyer: No.

Of what I'm about to say, that the best evidence of what would happen after the merger of law and equity is what did happen after the law... merger of law and equity, namely, Britain.

Mr. Days, III: Yes, that is correct.

I think in Mareva...

Justice Scalia: No.

Justice Breyer: But there must be some objection to it because, I mean, at the moment I am tempted, which you will say, well, let's see what happens after law and equity.

What did they do?

But... but are... are there problems with it carrying that over here?

Mr. Days, III: I'm not prepared to say that there would be a wholesale transporting of the Mareva injunction approach to the United States, but I think it does say two important things.

One is that the English courts are drawing from the same historical base that our courts are drawing from in terms of the nature of equity court power.

Justice Scalia: And you think we have the same freedom in developing new rules of equity as the... as the House of Lords does?

I mean, don't forget the supreme court of England is the House of Lords.

Mr. Days, III: I understand that, Justice Scalia.

Justice Scalia: And we have the same... we have the same authority to... to revise equitable...

Mr. Days, III: I think what it says is that to the extent that this Court has held and it's held for a number of years that, as long as Federal courts are applying principles of equity that were handed to the courts in 1789 in the first judiciary act, then they can continue to do that and they can determine...

Justice Breyer: I just found an old treatise somewhere.

So, this is why... I'll have to look it up, but I... that said that basically you could get an injunction to prevent a fraudulent conveyance.

And probably when I look that up, I'll discover, because you would have had it otherwise, that it isn't really in point or something.

But... but I'm not sure.

What was the reason that the... the courts of equity wouldn't enjoin, say, a fraudulent conveyance where the... the petitioner in equity said, I... I need that injunction in order to protect my sure-to-come judgment in a lawsuit.

Mr. Days, III: Yes.

Justice Breyer...

Justice Breyer: What was the reason?

Was it anything other than...

Mr. Days, III: I... I think the reasons aren't given.

They simply were pronounced.

If one looks at those cases, first of all, there's no discussion of irreparable harm.

There is a clear concern about the problem of depriving a litigant of a jury trial right under the Seventh Amendment.

And as Dairy Queen v. Wood says, those issues have been done away with.

They're no longer problematic.

Now, the court doesn't go on to say what follows from that, but we think what follows naturally from this is the power that the district court exercised in this particular case.

The second point I want to make about Mareva, however, is that the... the courts have been able to apply that principle in a way that has not caused a floodgate to open up.

They have used it very carefully and cautiously, and we think that under rule 65 and the demanding standards under rule 65, there's no reason why Federal courts shouldn't do the same.

Justice Stevens: May I ask you to comment on an aspect of the case that I am just kind of puzzled about?

If I understand you correctly, it is unlikely that many of these cases would arise except when a foreign debtor is... is in the picture.

And if it were true that under the laws of the... of Mexico, say, where you have certain transactions would be permitted that would be contrary to our bankruptcy rules and fraudulent conveyances under our rules, is it clear in your mind that a district court should be able to enjoin the performance of action... of transactions that would be lawful under the law of Mexico although unlawful here?

Mr. Days, III: Justice Stevens, that's obviously an issue that a trial judge, a Federal trial judge, would have to consider very carefully.

I think that if that judge had power... personal jurisdiction over the defendants before it, that judge could issue an order that would have extraterritorial effect requiring those defendants to do one thing or another.

That's been part of our law for many, many years.

But I think what the judge did here is an example of caution under such circumstances.

For one thing, he did not try to affect anything in Mexico as such with respect to insolvency proceedings.

What he said was, you may take advantage of whatever insolvency proceedings or rights are available to you in Mexico.

GMD simply never availed... insofar as I'm aware, availed itself of that possibility.

It also made clear that it went directly against the defendants and their privies not third parties, and that's been true under the Mareva injunctions as well.

There's something called a Babanaft proviso which makes very clear that when a... a worldwide Mareva injunction is issued by an English court, it's very limited so that it does not unwittingly or, indeed, intentionally affect proceedings in a foreign country.

Justice Ginsburg: Mr. Days, I'm a little concerned about your taking Erie out of the picture because you say they didn't mention it.

But in the next case, I mean, we sit not for this case alone, do you agree that the way the game would be played is you look to see if rule 64 or 65 covers it, and if not, then you look to see what New York does and then... and that would be the end of it?

Mr. Days, III: Well, that's correct, Justice Ginsburg.

But I... the point I was making or should have made is that if one looks at this case and looks at every other case on this particular question of the power of Federal judges to issue a freeze order, one will look in vain in those cases as well for a discussion of Erie.

The debate has been over rule 65 versus rule 64.

That doesn't mean that this Court shouldn't get to the Erie issue, but we thought it was incumbent us to point out that there were some, shall we say, missing of compliance with the rules of this Court on that... in that regard.

Justice Ginsburg: But rule 64 says you can... you can... it's a permissive rule.

You could do what the State makes available.

Mr. Days, III: Yes.

Justice Ginsburg: Rule 65, at least Mr. Mescon tells us, is a how-to rule.

It doesn't say circumstances in which you can get injunctive relief.

Mr. Days, III: Yes.

Well, Mr. Mescon would... would have rule 65 be viewed as an empty vessel, but as we've indicated, it is really the embodiment of the principles of equity that have been in effect for over 200 years.

And in the Erie analysis, we would say several things.

First, as we've indicated in our brief, there is no conflict between Federal law and New York law.

Now, once again, this Court is going to have to resolve that issue because there's no guidance in the opinions of the lower court, but...

Justice Ginsburg: Well, I thought Judge McLaughlin, who knows something about New York law, said New York law... you couldn't get this in New York.

Mr. Days, III: Well, Justice Ginsburg, as I indicated earlier, I don't think that that particular comment can be read for the proposition that GMD invokes it for.

It simply does not go to that lengths.

It's about rule 64.

It says nothing about what would happen under rule 65.

And, indeed, we've mentioned the Zonghetti case, for example, under New York law, and it depends upon what level one wants to look at in interpreting New York law.

And we have no definitive decision in that respect in this case.

But let me go beyond that and say that we think that rule 65 does control here, that there is... if it's contrary to New York law, there's a direct collision.

And Hanna v. Plumer says that under those circumstances...

Chief Justice Rehnquist: What particular provision of rule 65 is it that you think is substantive rather than procedural?

Mr. Days, III: Well, Your Honor, I... it is not a question of whether it says explicitly that the rules of equity must apply, but what... as we've indicated in our brief, rule 65 is a result of a development from...

Justice Breyer: I... I take it then...

Mr. Days, III: 1789.

Chief Justice Rehnquist: I take it then there isn't anything in the rule that...

Mr. Days, III: That is correct.

This Court has not decided whether rule 65 is procedural or substantive for Erie analysis.

Justice Ginsburg: I thought none of the rules could be...

Mr. Days, III: I beg your pardon?

Justice Ginsburg: I thought none of the rules could be substantive, because didn't Congress say in the Rules Enabling Act, you can't do things that affect substantive rights?

Mr. Days, III: Well, that is... that is correct, certainly, Justice Ginsburg.

But I think that what this Court has held is that when a matter is procedural, then... and it's expressed in Federal law and there's a direct collision between this Federal procedural rule and whatever the State rule may be, then the Federal rule controls.

Justice Scalia: Well, you would probably be willing to hazard this far at least, that if... if the State in question under... under rule 64 did not permit injunctions at all, you could still get an injunction in Federal court by reason of rule 65.

Mr. Days, III: Well, in fact, rule... under 64...

Justice Scalia: I'm... yes.

Mr. Days, III: Yes.

New York does permit injunctions is what I'm saying.

Justice Stevens: No.

Justice Scalia: But I'm saying suppose a State did not... did not permit injunction at all.

Mr. Days, III: Yes.

Justice Scalia: Would you be able to get an injunction in Federal court by reason of rule 65?

Mr. Days, III: I would say yes, Your Honor, because as this Court has indicated, it tries to get... and Justice Ginsburg's questions I think got to this point.

What is the State interest?

Well, we don't know what the State interest here assuming that the... the defendants are right, GMD is right, about New York law.

But I think that we've set out in our brief an indication that there are several layers of New York law, and for example, where there's a showing of irreparable harm or possibility of insolvency, New York's courts do allow for this type of injunctive relief.

But we think that rule 65 is directly in conflict with what GMD asserts is the New York rule, and we think under those circumstances, it could be described as...

Chief Justice Rehnquist: What... what do you think rule 65 says substantively that is in conflict with the New York rule?

Mr. Days, III: What New York... what... what rule 65 says... and it has always been part of equity... is when a party faces irreparable harm and has no adequate remedy at law, Federal courts remain open and available...

Chief Justice Rehnquist: Is this... you're not reading from the rule.

Mr. Days, III: No, I'm not.

I just happened to write some notes here, Mr. Chief Justice.

Chief Justice Rehnquist: Well, but I mean, is there some sentence in rule 65 you can point to that...

Mr. Days, III: I cannot point to some sentence, but I repeat, Mr. Chief Justice, that it has always been understand... understood to be a bedrock principle of Federal equity, that when a party is experiencing irreparable harm and has no adequate remedy at law, that equity will come to the... the support of that particular litigant.

Chief Justice Rehnquist: Well, yes, that may be, but I think it would have to be derived from somewhere other than rule 65.

Justice Scalia: It wouldn't include whatever, I mean, like, you know, taking his mother hostage or something like that.

Equity will come to his assistance within... within the bounds of what equity has traditionally done.

You're not saying whatever it takes, equity can do it.

Mr. Days, III: No, I'm not saying that, but I am saying...

Justice Scalia: Well, but that's the issue before us.

Equity hasn't done this before.

So, is... is this... is this like taking your... your mother hostage?

Mr. Days, III: I certainly hope that's not the situation.

Justice Kennedy: No, probably not.

Mr. Days, III: But... but even if rule 65 were not directly on point, we think that this Court's decisions in Byrd v. Blue Ridge Electric and, indeed, the discussion in Gasperini points to the fact that there are essential characteristics of Federal courts that need to be protected even where the Erie analysis comes into play.

And we think what we have here is not merely a response of a judge to the claim of a plaintiff who has no other alternatives, it is a response to the fact that what GMD basically said to the court was, you can do nothing.

Catch me if you can, but you have no power to do that.

So, what we're talking about is a Federal court's ability to be able to issue an effectual judgment.

Now, this is a case where there was no defense on the merits, where the... the defendant simply had no reason to challenge what was going on.

It filed counterclaims and then basically did not oppose the dismissal of the counterclaims.

And we think that...

Justice Scalia: Yes, but this wasn't, you know, catch me if you can.

There's no contention here that... that there was fraud going on.

They... they just wanted to do something that was convenient for the sake of their business.

Justice Souter: I mean...

Mr. Days, III: There was no...

Justice Scalia: They didn't want to do it simply in order to avoid paying the judgment that might ensue from this.

They... they would have wanted to do it whether this... whether this case was pending or not, wouldn't they?

Mr. Days, III: Well...

Justice Scalia: I thought that's the agreed upon state of matters.

Mr. Days, III: Justice Scalia, there is no explicit finding of fraud here.

But I think that, as the court of appeals pointed out, the district judge thought that what was going on was less than benign.

It has used in this opinion various characterizations, but it does talk about the duplicity of GMD and describes some of its conduct and arguments as particularly disingenuous.

Now, we're not arguing that there has to be a showing of fraud.

There are many ways in which a party which as the investors here can be injured, injured in a way that means that they will never, in a real world, recover anything from a just claim where there is no defense to a breach of contract claim.

And that's the situation that we have here.

And so, the question really... really becomes one of whether Federal courts can come to the rescue.

Justice Ginsburg: May I ask just a technical question about this, what's... what's left here.

Mr. Days, III: Yes.

Justice Ginsburg: We have a permanent injunction...

Mr. Days, III: Yes.

Justice Ginsburg: and the possibility of a suit for damages against the bond.

Is... is there an appeal bond still in existence?

Mr. Days, III: The appeal bond is still in existence.

We have basically a final order on the underlying merits, namely, the breach of contract claim.

We have the permanent injunction which was not appealed by GMD.

And we have something called a turnover order in which the district judge basically said, the assets that you've been required to hold, now turn them over to the defendants.

I might point out that because GMD has made many efforts to distinguish your three cases in Deckert, DeBeers, and First National City, I see them as prismatic cases because apparently courts and litigants have held them up in all kinds of ways and found different sources of light coming from them.

But... but basically this was a suit seeking damages, but it was also a suit that sought the establishment of a trust.

So, if one wants to make connections between this case and some of the... some of the earlier cases that have been at the center of this... this debate, certainly the fact that a trust was requested... it was denied by the district judge and perhaps properly so... then we have an equitable claim.

Chief Justice Rehnquist: Thank you, Mr. Days.

Mr. Days, III: Thank you, Mr. Chief Justice.

Rebuttal of Richard A. Mescon

Chief Justice Rehnquist: Mr. Mescon, you have 3 minutes remaining.

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

Several short points.

On the question of whether Mareva injunctions are a good idea or a bad idea, there's been a lot written.

It's referred to in the briefs.

The question of how it would implicate our bankruptcy statutes, the question of how it would implicate the relationships between debtors and creditors, the question of how it would implicate our relations with other nations are all important, interesting questions that suggest that Mareva injunctions would not be a good idea.

But in any event, whether they are or whether they are not, it is for the Congress to decide whether or not that is an appropriate extension of the judicial power in the United States because the lower Federal courts in this country...

Justice Stevens: I suppose the State legislature could make that decision.

Mr. Mescon: And the State legislatures could do that as well, yes, Justice Stevens.

Second, the complaint in this case did not request any kind of establishment of a trust.

There was a motion made, a preliminary injunction motion, that called for the creation of a trust, but that was not part of the permanent relief.

And finally, Justice Breyer, if I could turn to your question and make my third attempt to try to answer it.

I hope this will be helpful.

First, in this case there was no allegation of a fraudulent conveyance.

I start by saying that.

All of the transfers were made in consideration of valid debts, frequently at a discount and so on.

But I think the cases that Your Honor may be thinking of relate to those in which the plaintiff had some interest, some traceable interest.

I think the phrase in the old cases sometimes...

Justice Breyer: That is, you don't have...

Mr. Mescon: is follow the money.

Justice Breyer: You did... I got... picked that up from what you said.

Mr. Mescon: Okay, fine.

Justice Breyer: You did answer the question, and it was helpful.

Mr. Mescon: And finally, with regard to the question of the merger of law and equity, it is correct cases like Stainback and Gordon made clear that the merger of law and equity have made no fundamental difference on the powers of this Court acting as a court...

Justice Kennedy: If we ruled for you, would we necessarily be disavowing the Marcos case, or are there distinctions between the two so that Marcos could stand and you could still prevail?

Mr. Mescon: I cannot find the principal distinction between our case and... the Marcos case cries out for something because the facts are very bad and the facts here are much more favorable to... to our client, which makes this a... a better case from our side of the table.

But it's hard to think of a principled reason why the courts could do that.

If there are no further questions, thank you very much.

Chief Justice Rehnquist: Thank you, Mr. Mescon.

The case is submitted.

The honorable court is now adjourned until Monday next at ten o'clock.

Attribution:

The OYEZ Project

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