Cases by Issue - Statutory Standing

Anza v. Ideal Steel Supply Corporation - Oral Argument

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

Case:

Anza v. Ideal Steel Supply Corporation

Media File:

04-433_20060327-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of David C. Frederick

Chief Justice Roberts: We'll hear argument first this morning in 04-433, Anza v. Ideal Steel Supply Corporation.

Mr. Frederick.

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

This case concerns use of alleged fraud in the underpayment of taxes as the predicate for a treble damages civil RICO action.

Respondent Ideal Steel concedes that it was not defrauded, but it, nonetheless, claims lost profits when National failed to pay State sales taxes and thereby offered a lower overall price to consumers.

Our position is that Ideal's injury is too indirect as a matter of law under RICO.

In reinstating Ideal's RICO claims against National, however, the Second Circuit committed two errors.

First, it substituted a direct targeting test that credited the plaintiff's allegations of intent instead of applying this Court's test for proximate causation in the Holmes case.

And second, the Second Circuit permitted Ideal to satisfy the reliance requirement by invoking the State of New York's reliance on the truth of National's allegedly false tax returns.

Both errors transformed civil RICO into a litigation weapon of great destructive force for defendants who will be forced to defend, beyond the pleading stages, damages claims of the most attenuated and indirect character.

With respect to our first argument, proximate cause, the court below erred by not applying this Court's test in Holmes and also by failing to take into account the fact that fraud is a statutory violation that... for which the plaintiff needs to be within the zone of interest.

Quite simply, because Ideal was not the defrauded party, it is not within the zone of interest protected by the fraud statute.

With respect to the Holmes factors, for three reasons the... Ideal Steel is unable to plead proximate cause.

First, in Holmes, this Court made clear that where there's an indirect plaintiff, the claims are difficult to prove in terms of ascertaining what the level of damages is.

That is particularly true in this case because of the highly attenuated chain of causation that allege... that Ideal alleges as a factual matter.

Justice Souter: Well, isn't there something different here?

Because in... in Holmes, the... the party that was claiming the... sort of the ultimate damage was damaged because other people up the line were damaged, the... the shareholders and then the broker dealers and so on.

There was a kind of a direct line of... of causation.

But the people who were claiming were at the tail end of it.

Here, the causation between the... or the... or the cause of the harm to... to the clients on... on the other side was... was direct.

It was direct competition harm.

So we are in a different situation from Holmes.

In other words, they... they weren't... the... the plaintiffs in this case were not injured simply because New York lost some money.

They were injured in... in their own right by... by the competition between them and your client.

Mr. Frederick: I don't agree, Justice Souter, and here's why.

In Holmes, the customers were the ones who were denied proximate cause in this decision... in... in the Court's decision.

They stood in a direct line from the harm that was caused when the companies were defrauded and the stock value caused the brokerage to go down.

It was completely foreseeable that customers that owned the shares in those firms would also suffer direct harm.

Justice Souter: Sure, but they suffered the harm because the firm suffered the harm.

There was... there was... there's a word there.

There was... there was a victim in... in the direct line of causation, if you will, between them and... and the... and the offending RICO party.

Here, there's... there's nobody in between the two of them.

Mr. Frederick: That... that's not so.

There is, and New York is in between them in this respect.

If... Ideal is asserting that because the taxes had not been charged and then paid to the State of New York, that National gained a competitive advantage.

But I think the Court has been clear that the competitive harms... and this was true in the Associated General Contracting case in which the Court in Holmes relied directly... is not going to be sufficient when there are multiple steps in the chain.

Here, as a factual matter, Justice Souter, they have to be able to link every individual sale for which there was not a tax paid, assert that that person was wrongfully not charged a tax.

Under New York law, under certain circumstances, if a contractor has a certificate, it's not appropriate for the vendor in this case to charge the sales tax.

And then they have to be able to show that they would have gotten the sale--

Justice Kennedy: Well, why... why is that true?

Let's assume that they could establish that there was a purpose and an intent to adopt this... this tax evasion scheme and that the whole object was to undermine and... and injure the competitor, and they show that this scheme began to work and that their reputation as a lower cost competitor was... was well established.

Why... why isn't that enough?

Mr. Frederick: --Because this Court rejected a similar theory in section 4 of the Clayton Act context where it held that a specific intent to injure is not sufficient as a pleading matter.

The Court in that case held that where an association had a... an... a specific intent to harm the unions, that that was not sufficient for invoking section 4 of the Clayton Act.

The same analysis applies here because what Ideal is attempting to do is to use artful pleading as a way to get around the proximate cause requirement through their simple assertions that there are no, in fact, other competitors within a three State area and that National was targeting them for competitive harm.

They're attempting to evade the normal requirements for proximate cause that look to whether or not the direct injury is suffered by the plaintiff.

Justice Ginsburg: Mr. Frederick, you... you started by saying how difficult this would be to prove, but could the plaintiff piggyback on New York?

If New York was the defrauded party and taxes are owed to the State, has the State had no proceeding in this?

Mr. Frederick: Well, as the briefs indicate... and we're somewhat outside the record.

As the case some to this Court, it's on the pleadings.

But the footnotes in the brief give a little bit of a flavor of what has happened since then, and there are audit proceedings that the State of New York has commenced.

It has not commenced any kind of civil or criminal proceeding against National, nor has it brought a RICO action against National.

But there are discussions with the State at the level of the auditors as to whether or not any back tax is owed and, if so, in what amount.

Justice Ginsburg: Do I understand correctly that the complaint has since been amended to assert a Federal income tax shortfall?

Mr. Frederick: That's correct, Justice Ginsburg.

And as we pointed out in our reply brief, there are in excess of 500,000 corporate income tax statements that are issued by the IRS for underpayment each year and in excess of 6 million unemployment underpayment notices sent out.

And under Ideal's theory, each of those would be a predicate act for a RICO case, asserting treble damages where one competitor could use the in terrorem effect of a RICO claim simply because of an underpayment of tax notice.

Justice Stevens: Well, but this is a little more focused than that, I think.

There's only one competitor here, isn't there?

Mr. Frederick: We have to assume that for purposes of this pleading except insofar as it acknowledges whether or not a legal requirement is satisfied, and I think that the cases of this Court and certainly the commentators have been clear the Court does not need to assume a fact for purposes of a legal conclusion.

As the... as the footnotes indicate, that has not been borne out by discovery, and there are, in fact, multiple competitors.

Justice Stevens: But do you think it's fair to interpret the Second Circuit as having, in effect, held that every competitor of anybody who cheats on his taxes has a RICO claim?

Mr. Frederick: What the Second Circuit held was that if the plaintiff pleads that they were a direct target... and here, other competitors in the market like Colonial, Alimar, Friedel, and Easton Steel, could plead exactly the same thing that they, in fact, were the direct target.

And under the Second Circuit's test, that would be sufficient to override a motion to dismiss and proceed the parties into protracted discovery.

And what the Court in Associated General Contracting and in Holmes made clear was that the courts were not designed to be the forums for this kind of long, arduous fact finding mission in order to determine whether or not indirect injuries should be compensable with treble damages under the RICO statute.

Chief Justice Roberts: Mr. Frederick, I understand how your arguments work under section 1962(c), but how... how do they work under 1962(a)?

It seems that that gets around many of the causation and reliance arguments that you make.

Mr. Frederick: Mr. Chief Justice, the way we get to the proximate cause requirement through Holmes is through 1964(c)'s use of by reason of a violation of 1962.

We submit that the proximate cause inquiry is the same whether it's a 62(a) violation or a 62(c) violation.

And in fact, Ideal has not advanced really any argument to the contrary.

They sued under 1962(a) in order to get a deeper pocket, National, which they would not be able to get under 1962(c).

Corporations are not persons.

Chief Justice Roberts: But 62(a) gets to the reinvestment of the illicit proceeds in a... in an enterprise, and here you have the opening of the facility right next... not right next door... nearby the other facility.

And it seems to me all they have to show is that the proceeds used for that were illicitly procured.

Mr. Frederick: They... that's not their allegation, though, in this sense.

The theory that your hypothesis is postulating is a money laundering predicate act, but they don't assert money laundering as the predicate act.

They assert fraud.

And it's exactly the same conduct, the alleged underpayment of taxes that is fraudulently sent to the State of New York, and through that, an indirect injury.

So their theory under (a) and under (c) of section 1962 factually is exactly the same.

The only reason that they brought in an (a) claim is, as I pointed out, to get at the pocket with suing National as a corporate defendant.

But I would point out here, in further answer to your question, Justice Ginsburg, the State of New York, under the Holmes test, is the proper plaintiff for purposes of vindicating the law's purposes, which after all, is to negate the activity of fraud.

Justice Ginsburg: Is there any impediment to New York suing?

This would be kind of strange.

New York has its tax scheme.

It has penalties for failure to pay tax.

And then it could go into the Federal court and say RICO is better than our penalties.

RICO has treble damages.

Mr. Frederick: There are cases that have so held, and I think this Court's decision in Pasquantino, which holds that the tax revenue from a governmental entity can be property within the meaning of the fraud statutes, would support a general notion that a State could, in fact, if it believed that that was necessary to vindicate the law's purposes would be appropriate.

Of course, here, the State of New York has got to get to that level through a very long series of steps, and it hasn't even approached, you know, the initial steps in terms of even bringing the civil claims against National.

Justice Ginsburg: The... the Second Circuit seemed to rely on an earlier case that is much featured in respondent's brief, but I don't recall your dealing with it.

Is that Commercial Cleaning case of the knowingly hiring undocumented aliens and paying them less than the minimum wage, which gave that person a competitive edge over rivals who... who paid what the law required?

Mr. Frederick: That, Justice Ginsburg, may give rise to certain legal remedies and certain harms, but we submit would be too indirect for a RICO treble damages claim.

There certainly could be an unfair competition claim under State law, perhaps a tortious interference with business advantage.

But the purpose of RICO is not to federalize unfair competition law.

And this point, we submit is very important because they could not bring a fraud claim under State law.

It's not in their complaint, but--

Justice Alito: Suppose... suppose the company gets a competitive advantage by engaging in the sort of activity that's would be traditionally be associated with organized crime, let's say, extortion or labor offenses.

Would your causation argument be any different in that situation if a competitor filed a civil RICO action?

Mr. Frederick: --It could, Justice Alito, in this way.

Congress has certainly announced, through a variety of statutes, a congressional policy of trying to deter and to minimize the use of violence and force against individuals.

And the Hobbs Act is quite broadly worded in the context of robbery and extortion, certainly.

The question, though, of whether or not an indirectly sustained injury... in your hypothetical, something like competitive advantage... would be sustainable... I think would be looked at through the Holmes inquiry whether or not the damages that are asserted are too attenuated to be readily ascertained.

Justice Scalia: Well, I don't understand your answer then.

I mean... I mean, does the fact that... that there was classic mob violence involved make a difference or not?

Mr. Frederick: It can--

Justice Scalia: Why?

I... your answer didn't... didn't tell me why.

Mr. Frederick: --Because if... depending on the exact facts of how the violence was done, whether or not the injury that is sustained is direct within the Holmes factors--

Justice Scalia: Well, that has nothing to do with violence or not.

It has to do with directness or not.

You're saying you would apply the same directness test.

Mr. Frederick: --That's correct, although there is... Justice Scalia, I don't want... I don't think that it should be foreclosed that as your opinion in Holmes and as footnote 20 of the majority opinion in Holmes pointed out, how those proximate cause factors get analyzed with the different predicate acts may vary slightly, but we think--

Justice Souter: Well, may... may I ask you to focus this way, just going one step further than the hypo you've got?

Let's assume that the... that the defendant engages in extortion against A and makes a lot of money doing it.

As a result of that, in... in dealing with B, the defendant, in fact, can... can offer... offer goods for sale to B's customers at a lower price simply because he's getting all this income from the extortion.

In that case, wouldn't your analysis be the same as your analysis in this case?

Mr. Frederick: --Yes, it would because there is a better defendant A which got extorted for purpose of vindicating the extortion--

Justice Souter: But... but if that's the case, then... if... if the relationship between the parties is the same, then the presence of violence or nonviolence has nothing to do with your... your position.

Does it?

Mr. Frederick: --It... it does in this extent.

I can't think of a hypothetical, off the top of my head or after some consideration, of where the violence would have been such that there would have been a less indirect injury than the one in your hypothetical, Justice Souter.

But I would not want to foreclose the possibility, as this Court did not foreclose in footnote 20 of the Holmes opinion, that there could be such a case.

It's not necessary for us to prevail here because the mail and wire fraud predicate acts are very close to the securities fraud that this Court considered in the Holmes case.

I would acknowledge that in the extortion and robbery and other carjacking and violence type acts, there could be congressional policies that would be taken into account.

And certainly the legislative history of RICO points to a concern that persons would be using violence in a way that would cause harms.

But I don't think the Court needs to go there in order to rule in our favor in this case.

Justice Stevens: May I ask this?

I assume you would agree that if the defendant had... had hired a thug to go out and beat up his competitor, the competitor would have a cause of action.

Mr. Frederick: Yes.

Justice Stevens: And what if the defendant bribed a... an official of the New York revenue department to impose unnecessarily high taxes on the competitor?

Mr. Frederick: That is starting to get more indirect, but I think that that probably would be sufficient to show injury because the State of New York is not suffering any kind of property loss or any other kind of harm other than honest services.

Justice Stevens: And what if they... what if they somehow or other fraudulently persuaded the revenue agents of the State to impose higher taxes and penalties on the competitor?

Mr. Frederick: I... I don't think that that hypothetical in any substantive way is different from the second one, Justice Stevens.

Justice Stevens: So you think there would be recovery in that scenario.

Mr. Frederick: No.

I... I think... I think that the... the question of how government behaves, for purposes of its discharge of public responsibilities, you know, is treated through a lens that goes to whether or not the law can be properly vindicated there.

And I assume that the State of New York has various laws that can be enforced in a way--

Justice Stevens: Well, supposing we've got a license inspector or somebody every Monday night to go out and... and inspect very heavily the competitor and cause all sorts of nuisance values and so forth.

But he's a State official, induced to do that by some kind of bribery or fraud on the part of the defendant.

Would there be a cause of action there or not?

Mr. Frederick: --Not under... well, I don't think there would be a cause of action by the competitor under RICO because, again, those damages are too indirect.

That's not very different from the Associated General Contracting case where there were... there was thought to be coercion on the part of the association against the labor unions, and this Court held that that was insufficient for proximate cause.

Justice Breyer: I'm rather surprised at your answers because I was thinking you want to draw a rather clear line between where fraud is at issue, and only fraud.

Proximate cause, case A, the fraud does nothing but lowers the costs of the firm; case B, the fraud is something that directly is aimed to raise the cost of a particular specified competitor.

I see a clear difference between those two cases, but you apparently don't.

Mr. Frederick: Well, I think, Justice Breyer, it depends on how the fraud plays out, and... and I would acknowledge that this is a... a somewhat nebulous area when you--

Justice Breyer: No, no, it's not nebulous.

It's absolutely clear.

In the one hand, you are targeting a particular defendant to raise... a particular competitor to raise his costs.

In the other hand, you are taking an action that simply lowers your own and, therefore, equally will hurt any competitor, whether there's one or a million.

Mr. Frederick: --The difficulty, Justice Breyer, as... as that series of hypotheticals plays out in the real world is that defendants who have to defend against actions are forced to deal with the truth of pleadings for purposes of 12(b)(6).

And as happened in this case, where the plaintiff can, through artful pleading, you know, navigate through these series of proximate cause issues, can plead facts that courts have to be assuming as true, reach a legal conclusion that there is, in fact, proximate cause--

Justice Breyer: No.

If you had my test, you'd win this case.

Mr. Frederick: --But, Justice Breyer, I guess my point is that I think that there... with all candor to the Court, there are some difficulties in handling that as a pleading matter.

And yes, I'll accept the win if that's how that's the Court wants to read the case.

Justice Breyer: No, no.

I don't want to give you a win--

Mr. Frederick: But--

[Laughter]

Justice Breyer: --on... on a--

Mr. Frederick: But... but I would submit that the rule as articulated is one that would have some administration issues.

I think it is certainly an easier case where there is a broad spread competitive harm as a result of a lowering of a particular competitor's costs or a particular defendant's costs and one where there is a fraud that is specifically directed at a piece of property for which--

Chief Justice Roberts: But it's not--

Mr. Frederick: --the plaintiff asserts a claim.

Chief Justice Roberts: --I think the reason Justice Breyer's test is a little more administrable than you're willing to admit is that it's not a question of motive.

You're not asking why they did it.

You're asking where the predicate act is directed, and if the predicate act is directed to lowering the... the firm's taxes so that it can compete more aggressively, that's one thing.

If the... the predicate act is directed to, you know, blowing up the other firm's warehouse or... or, you know, something like that, it's a different matter altogether.

Mr. Frederick: That's correct, Mr. Chief Justice.

But under the Holmes test, that becomes much easier to ascertain because you know where the damages are.

You don't have to worry about apportioning damages among multiple plaintiffs, and there may not be a better plaintiff.

So I think if you applied the Holmes factors in this test here and to the example that you gave, the answer is a fairly straightforward one.

If I could turn to the second point of proximate cause that we have raised, it's that as a matter of zone of interest standing, because Ideal is not the defrauded party, they fall outside the zone of interests protected by the fraud statutes.

It's been well accepted at common law and through this Court's incorporation of common law principles as a means of interpreting the RICO statute, that the predicate act should be viewed in terms of who is designed to be protected.

Here, because of the allegations of fraud against the State of New York, the State of New York is within the zone of interest that the... of the fraud provisions.

Ideal is not.

Ideal falls outside the zone, and under the way that some courts have viewed proximate cause analysis, that would be sufficient.

The second large point that I came here to argue today was that reliance was improperly analyzed by the court below.

At common law, reliance is a necessary element of fraud.

Ideal, for similar reasons to the zone of interest analysis, is not the party that relied on any misrepresentations by my client, National and the Anzas.

And therefore, it cannot assert a fraud claim because of that absence of reliance.

Justice Scalia: I'm... I'm impressed by one of the cases cited in the brief, in which someone causes a person who has a contract with a third party to believe that the third party has repudiated the contract, and thereby gets that person to give the contract to himself.

Now, in that case, the person defrauded is the other party to the contract, not the... not the third party.

And yet, I suspect the third party would... would be direct enough to be... to be within the protected scope, don't you think?

Mr. Frederick: I do, Justice Scalia, and--

Justice Scalia: And yet, he's not defrauded.

Mr. Frederick: --Well, but common law cases have carved out a very narrow exception where there is a relationship between the defrauded party and the entity that is injured.

Usually it's an agency relationship.

Sometimes it's a trustee or fiduciary relationship, but that is a very narrow exception that would fall within your hypothetical and would fall outside this case because Ideal cannot plead or prove any reliance whatsoever on the misrepresentations--

Justice Scalia: All right.

But it... it at least contradicts your assertion that you have to be the defrauded party.

You acknowledge that sometimes you don't have to be the defrauded party.

Mr. Frederick: --Our briefs make that concession clear, I think, Justice Scalia.

If I could reserve the balance of my time.

Argument of Kevin P. Roddy

Chief Justice Roberts: Thank you, Mr. Frederick.

Mr. Roddy.

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

Ideal Steel asks this Court to affirm the decision of the Second Circuit, send this case back to trial in the Southern District of New York.

The case is ready to be tried.

We ask you to do this for four reasons.

First, the Second Circuit's decision in this case is consistent with this Court's decisions in Sedima in 1985 and National Organization for Women in 1994.

Second, the Second Circuit's decision is entirely consistent with this Court's decision in Holmes in 1992.

Third, we submit that reliance is not an element of a civil RICO claim based on predicate acts of mail and wire fraud.

But fourth, if reliance is an element, then we agree with the Solicitor General that reliance by a third party not only suffices under RICO, but sufficed at common law.

That should be the end of the matter.

The decision should be affirmed.

The case should go back for trial.

Justice Ginsburg: Are you for relaying... relating the position of the United States... are you relying on that brief in the Bank of China case that was filed--

Mr. Roddy: I am.

Justice Ginsburg, I am.

5 months ago, as you know, when--

Justice Ginsburg: --Which... which was kind of said in passing to say that there was no... that the... that the court below was right and we shouldn't take the case.

Mr. Roddy: --Your Honor, the... Justice Ginsburg, the Solicitor General filed its amicus brief here 5 months ago when this Court had accepted the case for review.

In its brief, the Solicitor General said no fewer than seven times, not just as a passing aside, that third party reliance, what the Solicitor General called reliance by someone, not only suffices under RICO, but sufficed at common law.

We agree with the Solicitor General's position.

Here, we have that reliance by a third party, what the Government called someone, the State of New York.

Justice Ginsburg: Being... is there any other case where the defendant is charged with not paying tax either to the Federal Government or the State?

Now you have it both because you--

Mr. Roddy: Yes.

Justice Ginsburg: --you said they haven't paid tax for this... their income... Federal income tax either.

This seems to be a novel claim, and I don't know of another where failure to pay tax owed to a State or the Federal Government is the basis for a RICO claim.

Mr. Roddy: Justice Ginsburg, as you correctly pointed out, Ideal's second amended complaint, which is not before this Court in this proceeding, alleged an income tax scheme.

And... and Judge Berman in the Southern District of New York permitted that amendment.

I am not aware of another case involving a competitor bringing a claim on these set of facts.

However, as we pointed out in our brief on the merits, there is a discrete set of RICO cases involving competitors as plaintiffs who either allege misrepresentations to third parties, whether customers or government agencies, bribes, or violence and threats of violence.

I submit to you that this Court's decision in National Organization for Women in 1994 presents a variation on the theme.

You will recall that in that case the anti abortion protestors, the defendants, engaged in violence or threats of violence directed at customers, and the injury was to the health care clinics, the plaintiffs.

And... and I wish to say that... that petitioners--

Justice Scalia: The customers, employees, and doctors, as I recall.

It was--

Mr. Roddy: --Yes.

Justice Scalia: --not just customers.

Mr. Roddy: It was.

Petitioners--

Justice Scalia: So there is that kind of connection that... that your... your colleague was... was referring to.

Mr. Roddy: --Yes.

They try to distinguish National Organization for... for Women in two ways, Justice Scalia.

First, they say that in National Organization for Women, the potential patients, the customers, were a constituent part of the... of the health clinic's business.

That's true here also.

But more important, they say in their reply brief that this Court only decided that case on Article III standing.

That is not correct.

If you look at respondent's brief on the merits filed in that case in September 1993, both issues were raised, Article III standing and RICO standing, meaning injury plus proximate cause.

Justice Ginsburg: You're getting away from--

Justice Scalia: But here... here, the intimidation was... was not directed to your customers.

I mean, it seems to me that's a... that's a totally different situation.

Had... had your customers been defrauded, that would be a... your customers, but you... there... there was nothing directed specifically at the customers of your store.

Mr. Roddy: Certainly... certainly, Justice Scalia, there was.

Justice Scalia: What was it?

Mr. Roddy: In a--

Justice Scalia: I thought they were just cheating the State.

What was specifically directed at the customers of your store?

Mr. Roddy: --These are inappropriate financial inducements.

They are offered a lesser price.

It's a... it's a... it's an underbidding--

Justice Scalia: Oh, that's... that's good, not bad.

I mean, you know.

Justice Souter: Isn't... isn't the problem with your answer to Justice Scalia and... and a problem which... which is bothering you with your case this?

We're talking here about two different lines of causation?

And each of them, to some degree, contributes to the ultimate result which you claim, which is a loss of business and... and business harm.

One line of causation is... is competitive.

It's price competition.

They charge less.

They lure the customers away.

The other line of competition is fraud on the State of New York which makes it easier for them to engage in price competition.

So far as the fraud on the State of New York is concerned, its effect on your client's business is indirect.

In other words, they can defraud New York without hurting your client.

They might simply have pocketed all they money they saved, but the... the only way that the fraud on New York hurts your client is that it puts them in a better position to engage in the second line of causation that hurts your client and that is direct price competition.

If you accept the fact that there are two different lines of causation here, don't we have to say, under the Holmes direct analysis, that so far as the fraud on New York, which is the RICO violation, the consequence is an indirect one, the consequence to your client, but so far as the price competition is concerned, the consequence is a direct one, but price competition isn't a RICO violation, which leaves us saying, so far as the RICO violation is concerned, it's indirect?

Now, if... if I have gone astray, tell me where.

Mr. Roddy: --Justice Souter, respectfully I... I disagree that the two parts of the... that the two parts of the sphere of the scheme can be broken apart like that.

It's one scheme.

They have... the... the petitioners have to defraud the State of New York.

They have to not only mislead the State of New York, but fend off the State of New York, which frees up the cash which, as the Chief Justice pointed out, enables them to do two things.

First, it enables them to offer lower prices, which does competitively injure my client.

Second, as we allege in the complaint, in the amended complaint, they took all those cash proceeds and they took them to the Bronx and they opened up a competing location where they did not previously have one.

Justice Ginsburg: --Can we go back to the question that I was trying to ask you before with relation to the novelty of this because it involves fraud on the... a government that's a tax assessor and collector?

It seems to me that the taxing authorities, both State and Federal, might have some genuine concern with a potential plaintiff's examining to see, gee, has my... has my rival, my competitor cheated on his or her tax.

That... that could be pretty disruptive of the State or the Federal Government administering their tax system.

Mr. Roddy: Justice Ginsburg, I don't see that.

That's certainly not true in this case.

What I believe is true in this case is that but for my client's proactive litigation, this never would have come to the taxing authorities' attention.

The taxing authorities are free to bring their own case.

In our brief on the merits, in fact, we... we cited one case where the City of New York suing a different set of defendants over unpaid cigarette taxes.

The point I want to make is that let us assume that the State of New York intervened in this case, which is always a possibility... perhaps it's a bit late now... or brought its own case.

My clients and the State of New York are chasing two different piles of money, two separate measures of damages.

In our brief on the merits, we set forth a hypothetical, a $100 cash transaction, to illustrate that.

My clients cannot recover the lost taxes that were taken from the State of New York.

The State of New York cannot recover the lost profits that my client suffered.

So in... in the Holmes sense, we're not dealing here with an apportionment problem because--

Justice Ginsburg: But I wasn't concerned about that problem.

I was concerned about people setting themselves up as private enforcers of tax liability as kind of a surrogate for the government out there detecting who's violated the tax laws.

Mr. Roddy: --Not as a surrogate, Justice Ginsburg.

The... the fact of the matter is that wrongdoers act in a variety of ways.

Justice Stevens: Of course, you are claiming a different amount of damages, entirely different.

Mr. Roddy: Yes.

Justice Stevens: But I'd like to ask you supposing there were two competitors in the market instead of just the one--

Mr. Roddy: Right.

Justice Stevens: --and they did it just to get at... at the competitor A and didn't care about B, but B suffered exactly the same harm, would B have a cause of action?

Mr. Roddy: If B could pass through the Holmes wicket of causation, Justice Stevens--

Justice Stevens: Well, he has exactly the same causation as A, but he just didn't happen to be a target in the... in the mind of the defendant.

Would he--

Mr. Roddy: --The... the answer... the answer would be yes.

Where I believe--

Justice Stevens: --And it'd be true if there were 20 competitors too?

Mr. Roddy: --Twenty competitors becomes a bit more difficult to get--

Justice Stevens: Why?

Mr. Roddy: --to get them all through the Holmes--

Justice Stevens: I imagine the damages would be less, but why would it be any different analytically?

Mr. Roddy: --Analytically on a motion to dismiss, if there were 20, I agree that all should be... if all suffered the exact same competitive injury and the set of factors--

Justice Stevens: And then change it one other way.

Say, instead of defrauding New York, they defrauded the landlord and... and got a rent free office space, and that cut down their costs.

Would the competitors have a cause of action then?

Mr. Roddy: --Assuming that defrauding the landlord, Justice Stevens, involves predicate acts of mail and wire fraud or some other variety--

Justice Stevens: Yes, it did.

Mr. Roddy: --of... of predicate act--

Justice Stevens: They're sending out thugs to beat them up or something like that.

Mr. Roddy: --Yes.

Then the... the answer would be yes.

And if you look at... if you look at the competitor cases, what I call the competitor cases, there's a very discrete body of law we're talking about.

They're cited in our brief.

There's fewer than a dozen cases around the country from the circuit and district courts.

And what they show is that there's only three ways you... there's only several ways you can do this.

You can... you can make a misrepresentation to a regulator or to a customer.

We have those cases.

You can bribe a customer or a regulator, or you can engage in violence directed at a... at a regulator or at a customer.

There's only three variations.

Justice Alito: Is there... is there any limit on the number of competitors who would have standing?

You mentioned cigarette taxes.

Suppose one newsstand in New York City is not collecting the cigarette tax.

Does that mean that everybody else who's selling cigarettes in New York would be able to bring a claim?

Mr. Roddy: Justice Alito, we... we don't have those... those facts here.

Justice Alito: Well, I know, but where would the line be drawn?

Mr. Roddy: I don't think it... every... every competitor in the State of New York can sue because, as a practical matter, I... I submit to you that someone who lives in Manhattan is probably not going to go to Queens to buy their cigarettes.

There are much--

Chief Justice Roberts: But if they're tax free they might.

[Laughter]

I mean, that's the whole point is that the--

Mr. Roddy: --Yes.

Chief Justice Roberts: --the fraud gives him a competitive advantage not just over the, you know... his... his brother in law's company that he's trying to get at, but over everybody who's in the business.

Mr. Roddy: In that factual scenario, yes.

Justice Breyer: I mean, if that's so, then go back for a minute, please, to Justice Souter's question.

It doesn't concern violence.

I'm... certainly if violence is involved or a direct action against an employee or the competitor himself, then I'll assume you'd win.

But the line I think that he drew very clearly and I think Justice Stevens picked up on, as I heard it, is a... a fraud where the person defrauded is not the competitor and the only effect of the fraud is to lower the cost of the person who is doing the fraud.

Now, if that's so, you either draw Justice Souter's line or you don't.

If you do draw Justice Souter's line, then you stay out of the thicket.

If you don't, you'll have all the problems that were mentioned, that there is no way to distinguish between one person, two persons, 100 people.

There is no way to know whether the lower cost of the defrauding person did or did not lead to the shift of sales.

There is no way to know, indeed, whether it's a rent, in which case prices didn't fall, or whether it's actually some kind of ability of the competitor... of the defrauding person to take over the market.

All those things that are issue in antitrust cases and totally unsolvable are suddenly imported into RICO, where if you really want to bring a case, bring an antitrust case, and at least people know how to face it there.

That's... that's the... that's the kind of claim... that's the kind of problem that I think you're facing, and I'd like you to have the chance to respond to it.

Mr. Roddy: Yes.

Thank you, Justice Breyer.

The purpose of the scheme, the purpose of defrauding the State of New York was not just to fend off the State of New York, but to free up the cash to be able to offer a price discount.

As... as the Second Circuit found, relying on the Commercial Cleaning case, which we think is very much on point, that is the reason why they did it.

You can't separate them apart like that.

Justice Scalia: Mr. Roddy, I thought that the way you got out of this problem was what your opponent has called careful pleading.

I thought that... that what you were saying was that your client was targeted, that other competitors were not targeted, that this is something of a family... both of these companies are owned by the same family and there's some bad blood.

Is... is that part of the background of this?

Mr. Roddy: They say that's part of the background, Justice Scalia.

Justice Scalia: Okay.

Mr. Roddy: It's not our position.

Justice Scalia: I thought it was part of your complaint that... that the business here was going after your client in particular.

Mr. Roddy: Yes, that is correct.

Justice Scalia: And other competitors might have been hurt, but... but the whole purpose of it was to get your client.

That is to say, your client was in some special way a target.

Wasn't that part of your complaint?

Mr. Roddy: That is... that is part of--

Justice Scalia: Are you abandoning it?

Mr. Roddy: --No.

Justice Scalia: I mean, if... if you're abandoning it--

Mr. Roddy: No.

Justice Scalia: --then you're... then you're in the soup--

[Laughter]

--with... with all--

Mr. Roddy: Justice Scalia--

Justice Scalia: --you know, all the competitors are going to be covered.

But if you're not abandoning it, then... then... you know, then maybe we can talk further.

Mr. Roddy: --The complaint--

[Laughter]

Justice Scalia, the amended complaint alleges that my client, Ideal Steel, was the target, was the intended victim of this scheme.

Justice Breyer: So what does that mean?

Then that means you have like the family vendetta exception to the RICO--

[Laughter]

Mr. Roddy: Your Honor, Justice Breyer, they raised the family feud.

We explained it in a footnote.

That's not what this case is about.

Justice Breyer: But, I mean, you see the point.

The point is I don't see how it's administrable in a law, particularly in an economic context--

Justice Scalia: Right.

Justice Breyer: --where people who are interested in making money are prepared to say, look, we want to make the money.

We'd like to get rid all our competitors, and then we start distinguishing between they'd like to get rid of all of them.

No, only five.

No, one.

And does that make a difference in whether you can bring a case or not?

I frankly don't see--

Justice Scalia: Or, in... in other words, your... your targeted argument doesn't really make sense unless there is a family vendetta.

I mean, I... I want to make money.

I don't care--

Mr. Roddy: Justice--

Justice Scalia: --which of my competitors I'm... I'm hurting unless I have some special reason to get one... to get one... one.

Now, I thought that was your case.

Mr. Roddy: --Justice Scalia--

Justice Scalia: But maybe it's not.

Mr. Roddy: --what is alleged in the amended complaint is that in the Burroughs of Queens and the Bronx, these are the only two competitors.

Only two.

They are head to head competitors.

We allege in the--

Justice Scalia: Okay.

That is the only basis on which they're targeted.

So if there had been 18 competitors in... in the Bronx and Queens, then there would have been 18 targets.

Right?

Mr. Roddy: --Theoretically, yes.

Justice Scalia: Okay.

Then we're back in the soup.

Mr. Roddy: Theoretically.

[Laughter]

Well, Justice Posner, in a case we cited in the footnote, talks about the concept of the intended victim where you blow up... where the defendant blows up the airplane to kill A and he also kills B who's sitting next to him on the plane.

That's the EDC case.

We allege that the plane, so to speak, was blown up here specifically to get my client.

That's the reason why they used the proceeds to open the competing location in the Bronx.

Justice Ginsburg: How about your client's supplier?

If your client... if Ideal is selling less, then it's going to buy less from its supplier.

So would the supplier also have a RICO claim?

Mr. Roddy: Justice Ginsburg, I believe that when we begin talking about suppliers and creditors and bankers and employees, creditors, so to speak, they're one step removed.

They are, respectfully, I believe in the position of SIPC in the Holmes case.

We... we don't have to go to that level in this case.

Creditors, suppliers... let's suppose that Ideal becomes insolvent as a result of this scheme.

The creditors may step forward and believe that they have a RICO claim against the Anzas and National.

I believe that they have to pass through the Holmes causation test, and it would be difficult based on the SIPC analysis.

Chief Justice Roberts: They're'... they're one more step removed.

I don't know if they're one step removed.

I mean, if there were no allegations of motive or family feud or targeting and all we know is that there are two competitors there and the one underpaid its taxes, is your case still viable?

Mr. Roddy: Yes.

Yes, it is.

Chief Justice Roberts: So it doesn't depend on motive or targeting or anything at all.

It just depends on the fortuity of there being two competitors in a particular area.

Mr. Roddy: The lower Federal courts after Holmes have used the target concept and the intent concept to... to inform, for lack of a better word, the Holmes analysis.

They... and the Second Circuit in this case used that as a shorthand to inform one of the three policy factors that this Court set forth in Holmes, which I believe was the third factor, which is the proper plaintiff.

And the lower Federal courts, in these discrete body of cases involving competitors, like the Second Circuit in Commercial Cleaning, have looked to see whether the plaintiff is an intended victim of the scheme, a target, for lack of a better word.

This is... let me... let me speak about the question of reliance, if I may.

We don't see how reliance is an element of a civil RICO claim.

It has no basis in law.

We can't just pull it out of the air.

It's not in 1964(c).

It's not in 1962, which is the substantive violation.

It's not in 1961, which defines racketeering activity and pattern.

It's not in the mail and wire fraud statutes.

Chief Justice Roberts: Well, you've cited the Solicitor General's brief--

Mr. Roddy: Yes.

Chief Justice Roberts: --earlier.

The Solicitor General says it's inherent in the concept of proximate cause.

In the absence of reliance, you don't have proximate cause.

Mr. Roddy: That... yes, the Solicitor General said that.

We happen to disagree with that part of it because they don't tell us where the reliance requirement comes from either.

Justice Breyer: --Where it would come from would be it would be an alternative way of getting to, say, Justice Souter's test, and it couldn't... I agree with you... depend upon whether these are within the realm of people who are relying.

But suppose you had a fraud where nobody had relied.

You see, it was really a failed fraud, and you can get that under Federal law.

Mr. Roddy: Correct.

Justice Breyer: Or suppose you have a fraud where the only party that had relied was the government, in which case you don't need them for civil RICO.

And the strong argument, I think, would be where that's the case, cut it off because of all the indirect problems that Holmes goes into.

I'm not... I'm not accepting it.

I'm just trying--

Mr. Roddy: Right.

Justice Breyer: --to put it in what I think of as a strong form.

Mr. Roddy: I understand.

Here, we... we clearly allege and the Second Circuit found sufficient that there was third party reliance, mainly reliance by the New York Department of Taxation.

That sufficed at common law.

We have New York cases going back to the time of the Civil War, the treatise writers, the Restatement, the case from Maine involving... that Justice Scalia mentioned involving the ship captain.

This has been well settled for... for many years.

Justice Ginsburg: What... what is New York relying?

I mean, they... somebody... does... does the State or the Federal taxpayer rely on everybody who files a return that they... they filed it honestly?

Is that... that... I don't understand the sense in which a taxing authority relies on the return that's been filed.

Mr. Roddy: Justice Ginsburg, I believe the law is it's either actual reliance or presumptive reliance.

The taxing authorities actually rely or they are presumed to rely on the validity of the... of the tax returns.

The fact of the matter is that's what's alleged in our amended complaint and that is what the facts are in this case.

It is... and... and if you look at the Solicitor General's brief in Bank of China, the Government cited this case with approval as an example of an appropriate use of third party reliance.

And... and I... I submit to you that, while I disagree with the Solicitor General that reliance is an element whenever mail or wire... I mean, for example, if the predicate acts here involved extortion, a Hobbs Act violation, violence in some form, we wouldn't be here talking about reliance.

If it involved the payment of a bribe, we wouldn't be here talking about reliance.

What is it about mail fraud and wire fraud that springs from the ground this concept of reliance?

My point is I don't believe it has any basis in law, and I think this Court should say so.

That's... that's why we're here on the question presented.

I think that this notion should be swept away because it has no basis in law.

It's not in the statute.

And this Court has found on several occasions that where someone seeks to raise a requirement, the organized crime requirement, the prior conviction requirement, this Court has said it's not in the statute.

We can't engraft it onto the statute.

Justice Scalia: Gee, I... I find that extraordinary that... I claim to have been defrauded by somebody.

He makes a representation to me about the value of stock.

I don't believe it.

I really think it's ridiculous.

Of course, the stock is not worth that.

Okay?

I buy it anyway, and I can sue even though I didn't believe him?

Mr. Roddy: Under securities fraud, I believe that's different because in this case it's not a... when you're dealing with competitors, you're not dealing with face to face misrepresentations.

Justice Scalia: Well, I... I'm just talking about what the understood requirements of a fraud action were at common law.

Mail fraud, any kind of fraud.

Surely there has to be some reliance upon the fraud.

Mr. Roddy: At common law, there was a reliance requirement.

When the mail fraud statute was written in 1872, it's an amalgamation of various common law crimes, some of which required reliance, some of which clearly did not.

When we bring the mail fraud statute into RICO, it does not bring with it the baggage of a reliance requirement.

And... and securities fraud is gone as a predicate act for RICO.

It's been gone for 11 years.

Where does the reliance... our point is the reliance requirement doesn't come from anywhere.

It... it's simply being engrafted onto the statute, and it doesn't belong there.

That's... that's our position.

It must have some basis in law.

It doesn't.

Justice Scalia: Why... why do you say mail fraud does... does not have with it the normal common law fraud requirement of reliance?

Mr. Roddy: The case... the cases are uniform, including decisions from this Court, that a mail fraud case does not require the element of reliance.

It doesn't exist in the statute.

The... it's the same mail fraud statute that's a predicate act for... for RICO under section 1961.

Justice Breyer: The place where it comes from is the idea that if, in fact, you have these monetary crimes, white collar kinds of crimes, money is at issue, and no one is hurt.

You can proceed against a person under Federal law--

Mr. Roddy: Yes.

Justice Breyer: --where no one is hurt.

You catch it in the bud, for example, where no one is hurt.

You don't want the possible class of plaintiffs to spread out into every competitor, into competitors' suppliers.

It's a way of cutting off the potential class to people who are closer to any possible injury where, for example, there really wasn't any injury at all.

So, I mean, that's the kind of argument being made for it, not that you find the word reliance somewhere in the statute.

Mr. Roddy: But, Justice Breyer, there has to be a place in the law for the three party scheme.

Justice Breyer: Well, I just tried to say where... where it was.

It's a... it's a way of... with proximate cause, and that's how I think you have to deal with it.

You have a case where there was reliance.

Mr. Roddy: Yes.

Justice Breyer: The government.

Mr. Roddy: That's right.

Justice Breyer: So what you'd have to say is why that's good enough.

Mr. Roddy: I think it is good enough because it is... it is a sufficient way to show causation.

It is not necessary.

It's one way to show causation.

I agree with you.

Third party reliance is one way.

That happens to be the way we will do it here at trial, if given the opportunity.

Unless there are no questions, thank you.

Rebuttal of David C. Frederick

Chief Justice Roberts: Thank you, counsel.

Mr. Frederick, you have 4 minutes remaining.

Mr. Frederick: I'd like to return to Justice Souter's hypothetical because I think that the point of price competition fits squarely within the Holmes case.

If you were to take the fact of bankruptcy, the mere going bankrupt of the brokers in that case, the... the effect of that on the customers who are attempting to bootstrap in the securities fraud fits perfectly here because the fraud here against the State of New York enables National allegedly to engage in price competition.

But as you pointed out in your hypothetical, price competition is not a RICO violation.

And using 1964(c)'s by reason of, the injury has to be by the RICO violation.

Simply lowering prices or making their goods more economically affordable does not cause... is not a RICO violation.

The... the RICO violation, if there is one here, is in the fraudulent underpayment of taxes to the State of New York.

The SG's brief in the Bank of China case does, we acknowledge, make the suggestion about possible third party reliance, but it does not cite any decision of this Court.

It cites two court of appeals cases, one of which is the decision below, which we argue was wrongly decided.

The point that the SG, I think, was making was acknowledging that there are these circumstances, and I would advert to my earlier colloquy with Justice Scalia in which there are limited circumstances in which a third party can invoke the reliance.

But that is ordinarily done through a relationship among the parties.

The breadth of the respondent's position here should not go uncommented upon.

RICO is not an unfair competition statute.

Yet, the answers to the hypotheticals about how many competitors would be able to bring and whether or not they were directly targeted and the cigarette hypothetical all point to the fact that, at bottom, their theory is that any action on the part of a defendant that leads to an indirect ability to engage in price competition would give rise to a RICO claim.

And as we point out in our reply brief, there are literally millions... just on taxes alone, millions... of submissions by corporations that could be used by competitors if the direct targeting test is accepted by this Court as the predicate for a RICO claim.

We submit that the floodgates should not be opened in that way, particularly given the fact that the difficulties of proving harm and damages are especially present here and that antitrust cases should not be shoehorned under the RICO statute.

That is not what Congress intended.

Finally, with respect to reliance, this Court in Beck v. Prupis held that civil conspiracy principles should be imported into the understanding of what a civil action under RICO should be permitted.

And the common law is well settled that reliance is an element that is appropriate for it to be imported into the mail fraud predicate act here because the damages have to be shown by some type of relationship between the defrauded party and the defendant.

If the Court has no further questions.

Chief Justice Roberts: Thank you, Mr. Frederick.

The case is submitted.

Attribution:

The Oyez Project

Featured:

National Credit Union Administration v. First National Bank - Oral Argument

Fri, 09 Jan 2009 14:50:01 +0000

Case:

National Credit Union Administration v. First National Bank

Media File:

96-843_19971006-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Seth P. Waxman

Chief Justice Rehnquist: We'll hear argument now in No. 86-843, National Credit Union Administration [= v.] the First National Bank and Trust Company, and a related case.

General Waxman.

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

Congress enacted the Federal Credit Union Act to foster the development of strong and stable, cooperative credit institutions so that persons not being served by banks could obtain credit at non-usurious rates.

Credit union proponents advocated including the common bond provision because experience had shown that credit unions organized around preexisting, cohesive groups were most likely to form economically strong cooperative institutions.

The banks lack standing under the APA to challenge the NCUA's interpretation of the common bond provision because Congress enacted that provision as an organizing principle to promote financially viable credit unions and not to impose substantive restrictions or constraints on competition.

Thus, the banks' competitive interests are not within the, quote, zone of interests Congress sought to protect.

Unknown Speaker: Well, how do you reconcile that petition... position, Mr. Waxman, with our decision in the Clarke case?

Mr. Waxman: Well, Justice Rehnquist, in Clarke, this Court determined that the plaintiffs, the security industry, had standing because it found that Section... Sections 36 and 81 of the McFadden Act, which were the substantive provisions at issue there, had been enacted to reflect a, quote, congressional concern to keep national banks from obtaining monopoly power over credit and money through unlimited branching.

And, therefore, Congress... the Court found, Congress had arguably legislated against the very competition that the securities interest was seeking to challenge.

In this case, the common bond provision, in particular, and even the Federal Credit Union Act in general, was not enacted with any thought to restrict or control competition in any way.

It was enacted in order to provide a means for strengthening the development of credit institutions.

Unknown Speaker: Well, Mr. Waxman, the... the Investment Company Institute v. Camp case was enacted, of course, to restrict competition.

And we found standing there, didn't we?

Mr. Waxman: You did, Justice O'Connor.

And I think it's fair to acknowledge that that case, at least in our view, represents the outer limits of where this Court has gone in zone of interest.

Unknown Speaker: Yeah, I think that's the... the closest case for the standing argument.

I mean, how do you get around that?

Mr. Waxman: I... I... I... I think... I think it is... and I think it's important and can be readily distinguished in three ways.

First of all, although the Court acknowledged that the principle reason for enacting Section 16 of the Glass-Steagall Act had been to protect banks from engaging in investment activities of their own sake, the Court, both in the opinion in Investment Company Institute, and subsequently in Clarke, also noted that Congress had been concerned with, quote, the danger to the economy as a whole.

So it wasn't the only reason.

But, more importantly, the basis for the holding in Investment Company Institute was that Section 16 of the Glass-Steagall Act was legislation against competition.

The Court found in that case that Congress had legislated against the competition that the petitioners sought to challenge.

So even if you construe that case in the broadest possible way... and I would simply adopt Justice Harlan's characterization of the majority opinion in that case in dissent... he said, if Congress prohibited entry into a field of business for reasons relating to competition, then a competitor has standing to seek observance of the prohibition.

Now, he thought that that was a holding that was not warranted by the Court's prior precedence.

But even if that is what Investment Company Institute v. Camp stands for, that's not this case.

The common bond provision, and, indeed, the FCUA in general, have nothing to do with competition.

They were not... there was not a reason for enacting the common bond--

Unknown Speaker: But in order to find out the answer to that question, what was the reason for enacting the common bond, must we go back into the legislative history?

Mr. Waxman: --I think you do, because prudential... the prudential standing inquiry this Court has taught is an analysis of what Congress intended; that is, the interest... to quote Association of Data Processors... the interest sought to be protected by the complainant must be arguably within the zone of interest to be protected by the statute.

Unknown Speaker: So this is--

Mr. Waxman: So you must determine what the zone of interest to be protected by the statute was.

And here it was clearly an intent to foster the development... the rapid development of stable and strong credit unions, because... and I think it's also important to... to understand this... in 1934, when Congress was considering enactment of the Federal Credit Union Act, the country was beginning to come out of the Great Depression.

That--

Unknown Speaker: --Well, it just came out of the Great Depression and the War.

Mr. Waxman: --The banks... it was in the Great Depression.

Unknown Speaker: Yeah.

Mr. Waxman: The banks had failed in great numbers.

But, for the past 10 or 15 years, there had been developed state-chartered credit institutions, many... most characterized by the existence... or formed around a common bond.

And Con... the legislative history is replete with recognition that notwithstanding the banks' record during the Great Depression, not a single state-chartered credit union had failed.

And what Congress wanted to do, in enacting the Federal Credit Union Act, was replicate the success of the state-chartered institutions.

Unknown Speaker: Mr. Waxman--

--But isn't it--

Mr. Waxman: Wow.

[Laughter]

Unknown Speaker: --You might want to start at the end and work down.

[Laughter]

Mr. Waxman: Justice Ginsburg.

Unknown Speaker: If we go to the zone test, which is you're arguing that... that the banks are outside the zone, I believe that test was first introduced in an opinion by Justice White, where he said, it's only arguably within the zone.

So I would assume one need not consult the legislative history.

One could see if a lawyer could construct a good argument.

And further, didn't Justice White say that this was not a... a difficult test to meet?

Mr. Waxman: Well--

Unknown Speaker: He was, in that opinion, expanding standing beyond what it had been up until then.

And he explained that this test was rather easier to meet.

Mr. Waxman: --Justice Ginsburg, the zone of interest test, which I believe was first articulated in the Data Processing case, was a case that was decided with explicit reference to the legislative history in order to determine Congress' purpose; that is, who Congress intended to benefit.

The substantive statute at issue in this... in that case was Section 4 of the National Banking Act.

And in analyzing the standing question, the Court looked, basically, to two sources: first, the legislative history and the extensive comments in the legislative history that showed that Section 4 was... and I am quoting the Court now... a response to the fears expressed by a few senators that without such a prohibition, the bill would have enabled banks to engage in non-banking activity, and thus constitute a serious exception to the excepted policy which strictly limits banks to banking.

Now, the other--

Unknown Speaker: --extensive... such extensive legislative history... if legislative history is the proper source of this, I suppose all you would need is a couple of statement by individual senators, who could... who could cause the statute to be broader than it otherwise would.

Surely one or two senators can render it arguably within the zone of interest.

Mr. Waxman: --Well, I... I think, Jus--

Unknown Speaker: That just puts an awful lot of weight on legislative history.

Mr. Waxman: --I... I... I did not mean to... to suggest that a tremendous amount of weight ought to be put on legislative history.

But, nonetheless, the Court has, on occasion, looked at legislative history to determine Congress' intent.

But I think, Justice Scalia, in response to your point, it's also very important, in looking at the Court's opinion in Data Processing, which is the landmark case that established the zone of interest test, it... the Court made explicit reference to two of its prior decisions in competitor standing cases: The Acheson-Topeka Railway case and Hardin v. Kentucky Utilities.

And it characterized its decision in Association of Data Processing as an extension, or consistent with those prior competitor standing cases.

And it's very instructive, I think, if I can just beg the Court's indulgence for a moment, to recite what this Court stated in Harden v. Kentucky Utilities in its 1968 opinion.

It said:

This Court has, it is true, repeatedly held that the economic injury which results from lawful competition cannot, in and of itself, confer standing on the injured business to question the legality of any aspect of its competitor's operations.

And it cited a line of cases between 1880 and 1940.

But competitive injury provided no basis for standing in the above cases simply because the statutory and constitutional requirements the plaintiff sought to enforce were in no way concerned with protecting against competitive injury.

In contrast, it has been the rule, at least since the Chicago Junction case, decided in 1924, that where the particular statutory provision invoked does reflect a legislative purpose to protect a competitive interest the injured competitor has standing to require compliance with that provision.

And that, Justice O'Connor, is the precise rationale on which this case is distinguished from Investment Company Institute v. Camp.

Unknown Speaker: Suppose that--

--Well, do you... do you agree--

--Suppose that we could establish by the legislative history that we would accept this dispositive, or by judicial notice, that if the agency's interpretation of the statute had been intended by the legislature or put into the statute in explicit terms, that the banks would have actively opposed it on the grounds of it being a compet... a competitive injury, does that... would that change this case?

Mr. Waxman: It... I don't think it does.

I don't think it could be established, because--

Unknown Speaker: Because it seems to me that that's quite a plausible in... inference.

Mr. Waxman: --The legislative history... to the extent the legislative history reflects anything at all about the banks' interest in this, it reflects two things.

One, with respect to the--

Unknown Speaker: But I'm assuming that it does establish the proposition that... that I put forward, that the banks would have been very active in opposition to this bill had this interpretation been written explicitly into the statute.

Mr. Waxman: --Well, then, I think the answer is that the banks would have the same remedy now that they would have had then, which is to go to Congress and ask for a legislative adjustment.

If the statute is... in turning to the merits... if the statute is, as we argue, ambiguous... that is, that the phrase "groups having a common bond", can just as easily be interpreted to mean groups, each having its own common bond or groups all sharing a single common bond, the agency's interpretation must be given deference.

And that, I sus... I... I would submit to the Court, is the position that the banks would be in had they believed at the time that this would be given the interpretation it was and objected.

That is, they would have had a legislative remedy.

Congress, for whatever reason--

Unknown Speaker: What if I don't... what if I don't agree with you that it's at all ambiguous?

And if I thought any banker or, indeed, beer salesman, who read this... this language would come to the conclusion that... that each member of the group had to have a common bond with the others, then... then what would your response to Justice Kennedy's argument be?

Mr. Waxman: --Then, it seems to me, the banks are out of luck on standing grounds.

That is--

Unknown Speaker: No, but his argument is they... they would have opposed it.

The... the language seems to limit these... these credit unions to a particular field, and the banks surely would have come in against it if they weren't limited in... in this way.

Mr. Waxman: --Justice Scalia, Chevron says, as I understand it, that if an agency's interpretation is not in conflict with the plain language of the statute, deference is due.

And if the plain language of the statute, for whatever reason... inadvertence by Congress or a conscious choice to leave the decision to the agency... persists, what this Court must do in response to a challenge by the banks, if they have standing, is look to determine whether the agency's interpretation is a permissible or reasonable one.

And here--

Unknown Speaker: General Waxman, my... I just want to be clear on one point.

Is, essentially, your standing argument that there could be no challenger to this in the court; that, essentially, the logical challenger, the banks, are out; so this would be, essentially, immune from judicial review, accepting your view of standing?

Mr. Waxman: --Not at all, Justice Ginsburg.

Unknown Speaker: Who could challenge it?

Mr. Waxman: We think the logical challengers are in fact the same kind of parties that have been challenging chartering decisions.

And that is members of credit unions.

The common bond provision was enacted to protect the strength and stability of credit unions, and therefore to protect the members of the credit unions.

And in the cases that we cited in our principal brief, there are instances in which members of credit unions have sued either the NCUA or the State chartering agencies, saying, you're trying to add disparate groups or you're trying to add more groups than we think is safe and sound.

Unknown Speaker: Could a competing credit union have standing to challenge?

Mr. Waxman: I think... I think a competing credit union might have standing if it was challenging a decision that the agency had made under Section 1754 of the Act, which requires that the... the NCUA ascertain that economic advisability of the proposed... of the proposed chartering or proposed merger, but not--

Unknown Speaker: Why doesn't that open it to... why doesn't that open it to banks?

Mr. Waxman: --Well--

Unknown Speaker: That... economic advisability sounds to me something like a competitive possibility.

Mr. Waxman: --Here... here's the reason.

Because the agency has interpreted economic advisability, the statutory term, to mean, quote, that it will be a viable institution, and its chartering will not materially affect the interest of other credit unions or the credit union system.

Unknown Speaker: Yeah, but that's... that's a two-part standard.

And it seems to me the first part is... is equally open to the banks to raise.

Mr. Waxman: In any event, Justice Souter--

Unknown Speaker: Isn't it?

I don't know what--

Mr. Waxman: --No, I--

Unknown Speaker: --viability is a wonderful word, but it... and I'm not sure what it means, but it says something about economic feasibility.

And that's a product of competition.

And that implicates banks in general, doesn't it?

Mr. Waxman: --Justice Souter, the banks, number one, have not challenged the determination of economic advisability here.

But if they had--

Unknown Speaker: But what about the answer to my question?

Mr. Waxman: --if they had, I would argue that they do not have standing, because the evident purpose of that statutory provision was to make sure that when the NCUA charters a credit union, it does so, taking cognizance of the interests of other credit unions and the credit union system, not the banks.

Unknown Speaker: Well, that certainly is included.

But it seems to me that in this argument... and I... and I thought in the argument you were... you were making earlier, you are making the assumption that there can only be one purpose, or that there is at least a predominant purpose, and that controls.

And is... is there authority in our cases for that?

In other words, why... why, for example, in this case, could it not have been both the purpose of Congress to... to assure the... the... the kind of community soundness of these credit unions and to protect regular banks from their competition?

Why can't it be both?

And if it's both, why isn't there standing to the bank?

Mr. Waxman: The... the answer to your question is your cases, most recently, Bennett v. Spear, do recognize that Congress can have two purposes.

But in this case, there was none.

There was no purpose reflected in the legislative history and the '34 Act to benefit--

Unknown Speaker: Well, but that isn't the only--

Mr. Waxman: --banks from competition.

Unknown Speaker: --But let me ask you this.

Let's assume we had a case in which the legislative history was totally silent.

Would we not... and... and let's assume that were the case here... I realize that's not your position... wouldn't it be fair in that case for us to infer that the purpose of this limitation, or at least one purpose of this limitation, was in fact the protection of neighboring banks from competition.

Would that be legitimate?

Mr. Waxman: It would not be fair.

Even if the legislative history itself, the debate--

Unknown Speaker: Well, then, how would we ever decide the standing question?

Mr. Waxman: --Well, I think maybe then it goes to who has the burden of proof.

The plaintiff has the burden of showing that it is within the zone of interest that Congress sought to protect.

Unknown Speaker: Right.

And why wouldn't the plaintiff have a perfectly sound argument to say, look, this seems, among other things, to protect us from competition.

Why, therefore, may we not infer a... a purpose for standing doctrine?

Mr. Waxman: The... the accepted purpose... and the... and the Court of Appeals, the court below, specifically found that it would be anomalous, in light of the available evidence, to suggest that this provision had been intended.

Unknown Speaker: No, but I'm... no... you're changing the question, I think, with respect.

I'm saying let's assume the... the record is silent.

We don't have any legislative history.

All we have is what's on the face of the statute.

Would it not be a legitimate inference that the protection of banks against competition was at least a purpose of this limitation?

Mr. Waxman: I think it would not.

Because the way that the common bond provision works is not to set up any sort of substantive picket line or bar or entry restriction.

It is purely to determine which individuals in the United States get to belong to which credit unions.

There's no allegation in this case that there is any individual member who belongs to a credit union which, if the banks win, will not be able to belong to some other credit union.

This is purely an internal governing device for the industry to decide who belongs to which credit union.

May I reserve--

Unknown Speaker: But it is a limitation of some kind, isn't it?

I mean it is a limitation on--

Mr. Waxman: --It's--

Unknown Speaker: --the... the credit union.

Mr. Waxman: --It... it is.

It is expressed as a limitation, at the urging of the proponents of the credit union industry to--

Unknown Speaker: But it... so it's meant to be confining to--

Mr. Waxman: --It is meant to be confining in the sense that the statute requires something that the... the proponents of the credit union movement desperately wanted, which is to maximize success, that these groups be organized around... that credit unions be organized around groups having a common bond.

May I reserve the balance of my time?

Unknown Speaker: --Yes.

Thank you, General Waxman.

Mr. Roberts.

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

I would like to pick up with Justice Kennedy's question: If the banks had known about this interpretation, they would have objected.

First of all, that's beside the point.

You don't get standing under the zone of interest test simply because you objected.

Congress may not have accepted your objections.

Unknown Speaker: Well, I... I don't know that it's beside the point, because the way you're arguing, it's something of... of a trap.

Let's assume that the most plausible interpretation of this regulation is... is the interpretation that the banks now advance.

If they were satisfied that that's what the statute meant, you know the bankers' lobbyists... I assume the bankers had lobbyists in 19... in the 1930's?

Justice Roberts: They did--

Unknown Speaker: I'm sure they did.

And... and... and if--

[Laughter]

And... and they would have been all over this statute--

Justice Roberts: --But--

Unknown Speaker: --and all over the Hill had it... had it been given the plausible interpretation that you're now arguing for.

Justice Roberts: --I... I think they would not have been for the simple reason that banks were not in the business of making small consumer loans in 1934.

That was the very reason you needed a Federal Credit Union Act in the first place, because nobody was competing to provide these loans other than loan sharks.

And Congress had no interest in protecting their competitive status.

Banks were not in this business.

That's why you needed the Act.

Their competitive interests were not in Congress' mind.

Even if it had the interpretation that it has today, they were still not in that business.

This was not what they were about.

And simply because they would have objected doesn't mean Congress took their interest into account.

This was a Congress that was not particularly sympathetic to the interests and concerns of banks--

Unknown Speaker: What is your basis for saying that banks were not into this business in the 1930's?

Justice Roberts: --It... it resounds throughout the legislative record.

They say the reason we need this statute is because no one is in a position to provide small consumer loans.

The small consumer couldn't put up adequate security for the bank to provide the loan.

And it was usually in amounts too small for... for the banks to bother with.

Over time, they have become competitors with credit unions.

But the question is, did Congress view them as competitors in 1934?

And did it enact the common bond provision to protect their status as competitors?

And it is clear that they did not.

Unknown Speaker: Do you agree that a member of a credit union would have standing to establish... to... to attack this--

Justice Roberts: Certainly.

The purpose of the provision is to ensure the strength and stability of the credit union.

It's a cooperative enterprise.

Unknown Speaker: --Then... then it seems to me we're really enforcing something of... of a fiction on our standing doctrine; that the most interested challenger in this interpretation, the most injured person or entity is the bank.

Justice Roberts: I think that--

Unknown Speaker: And so we're having a credit union member front for the banks' interest.

That doesn't make much sense to me.

Justice Roberts: --Well, I think the argue... the line... that line of argument confuses the Article III standing inquiry and the prudential standing inquiry.

If it is enough to simply show competitive harm and a regulatory effect to establish prudential standing, then there's no difference between Article III standing and prudential standing.

This Court has made clear... most recently, in the Air Courier case... that there is a difference, and Article III injury is not sufficient to establish prudential standing.

Unknown Speaker: Well, no, it wouldn't show that there's no difference.

It would just... just say that... it would just show that... that when you have a regulatory provision, competitive injury is... is one thing that will establish... will establish both Article I and prudential standing.

But there are a lot of other injuries that... that wouldn't satisfy prudential standing even though they'd satisfy Article I.

Justice Roberts: The Court has told us that the prudential standing inquiry turns on congressional intent, not simply effect.

Every time Congress imposes a limitation on a regulated entity, it's not necessarily acting with competitive concerns in mind.

Unknown Speaker: Mr. Roberts, what will we presume the congressional intent to be?

These are hard questions.

And I... I personally am not going to comb through the legislative history to find a statement by a couple of senators that will render this arguably within the zone of interest.

That does not seem to me an intelligent way for this Court, or even a... a banking lawyer, to try to figure out what the answer is.

Justice Roberts: See, our--

Unknown Speaker: So we... we have some presumptions.

And... and... and Congress should be aware of those presumptions.

Surely a reasonable presumption would be, when you have a regulatory statute, any provision in that regulatory statute that was designed to limit the scope of activity of the regulated entity can be sued upon by someone who is... who is within the regulated industry and a competitor.

Justice Roberts: --Well, then that's... that's a new exception to the zone of interest test.

If, for example, Congress passes a law, saying, we're restricting late-night flights into National because of the noise, that might benefit bus and train companies who provide late-night service.

But they wouldn't have standing to sue if the FAA changes the definition of when late-night begins.

They would be injured as competitors.

But the intent of Congress was not to protect competition--

Unknown Speaker: Change the statute a little.

I mean, by saying "late night", you make it obvious that the purpose of the statute is to... is to hold down noise.

But suppose the statute is: We are reducing the number of flights into National, period?

Justice Roberts: --Then, as the Court has said in all the other prudential standing cases, you look to see what the intent of Congress was.

You start with the language of the statute, as--

Unknown Speaker: You don't have to find the intent.

You have to find what was arguably the intent.

Justice Roberts: --Arguably--

Unknown Speaker: Does arguably within the zone of interest mean you have to identify... you have to identify the purpose for sure, and then the question is whether this is arguably within that purpose?

Or does arguably within the zone of interest mean this was arguably the purpose and this is arguably within it?

Justice Roberts: --Arguably... arguably doesn't mean you just sort of have to get in the neighborhood.

Arguably is in the case because it's a standing inquiry.

It's not a determination on the merits.

It means that you don't have to make a final decision on exactly what the statute was designed to do, as you would in deciding the merits of the case, but appreciate that it's just a standing inquiry.

But you do have to decide.

If there is going to be a difference between an Article III standing test and a prudential standing inquiry, you do have to decide what the intent of Congress was.

And here--

Unknown Speaker: Mr.... Mr. Roberts, the zone test came up in a case where the Court recognized that there was standing.

And it was stated in that case, and then it's been discussed in... in other cases.

It's a little hard, isn't it, for you to extract from a case that found standing all these results where there would be no standing?

Because you're using a case that said there was standing, and then say, but we can find certain language in it, instead of saying, well, the Court dealt with the zone test, and it would elaborate on it in a further case.

It seems to me you're taking a lot of negative out of a case that was positive on standing.

Justice Roberts: --Well, the Court found standing in the Data Processing case, but it has, on other cases, other articulated a test for determining whether there's standing, and it said you looked to congressional intent.

And the one thing that's clear here is that this provision was not put in to protect banks.

It came from the credit union proponents.

Unknown Speaker: Mr. Roberts, I... I know you're still trying to address standing, but, so far, nobody has even talked about the merits.

Justice Roberts: Well, I'll turn to that right now, Your Honor.

The test is that the banks must show that Congress unambiguously expressed its intent on the precise question at issue.

The precise question at issue is, may the multiple groups in a Federal credit union each have their own common bond or must they share a common bond?

The language simply says: Federal credit union membership shall be limited to groups having a common bond.

There is no way to tell from that, as a matter of common parlance or technical grammar, whether each group must have its own common bond or whether all of the groups in a Federal credit union must share the same common bond.

It is simply ambiguous language.

Unknown Speaker: Well, in light of that second geographical limitation clause, it... it's awfully hard to give it this broadest reading of groups, each of which could have a common bond.

Why would you need the geographical limit, then?

I mean, it's just in... in the second part of the sentence.

Justice Roberts: In the community... the community--

Unknown Speaker: Yeah.

Justice Roberts: --The phrase is--

Unknown Speaker: It just seems like... like such... interpretation.

Justice Roberts: --There are two different types of credit unions.

The occupational credit union isn't confined to a well-defined neighborhood.

Only the community credit union has that limitation.

And although the court below said this gives different meaning to the... to the word "groups", it doesn't.

In each case, "groups" means more than one group.

Unknown Speaker: You couldn't have a single group?

You couldn't have a credit union composed of only a single group?

Justice Roberts: You can--

Unknown Speaker: It has to be composed of groups that have a common bond.

So there... there must be more than one group in every credit union under your reading?

Justice Roberts: --No, I... I don't think that's a... if it is a plausible reading, it's not the only plausible reading of the language.

Unknown Speaker: I don't think it's a plausible reading, but it's your reading.

Justice Roberts: Our... our reading is that--

Unknown Speaker: It shall be limited to groups having a common bond.

So it seems to me you can't have a single group, because that would not be a group having a common bond with other groups.

Justice Roberts: --I think the plural... as 1 U.S.C. 1 provides... the plural includes the singular.

So that groups could be read to... to include group.

Unknown Speaker: The plural includes the singular?

Justice Roberts: 1 U.S.C., Section 1, the Dictionary Act, says, unless otherwise compelled by the language--

Unknown Speaker: You see, you could have... you could have one credit union to which every person in the United States belongs, who is employed, but for sole proprietorships?

Justice Roberts: --The cred... nothing in the common bond provision would prevent that.

There are other provisions in the statute--

Unknown Speaker: Well, then, I mean, this wasn't much of a limitation of anything, if that's so, isn't it?

I mean you could have... you could have 200 million people in one single credit union.

I don't know why Congress bothered with this.

Justice Roberts: --As the agency interprets it, it's still a significant distinction.

You cannot walk down the street and turn into the nearest credit union and say, I want to make a deposit, or, give me a loan.

You have to be a member of a group that has joined that credit union as a group--

Unknown Speaker: But I mean everyone except for sole proprietors, who is employed, works with at least one other person.

And, therefore, those two people... two people anywhere in the United States, could join a credit union.

I mean, is that a plausible interpretation?

Justice Roberts: --Nothing in the common bond provision prohibits it.

If a court determines that's unreasonable under step 2 of Chevron, it may be invalid.

But not because the language is unambiguous under step 1.

Unknown Speaker: Thank you, Mr. Roberts.

Argument of Michael S. Helfer

Justice Roberts: Thank you, Your Honor.

Unknown Speaker: Mr. Helfer.

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

Congress expressly limited membership in Federal credit unions in the except clause, and the whole clause is critical.

It reads, except that Federal credit union membership shall be limited to groups having a common bond of occupation or association, and it then goes on, or to groups within a well-defined neighborhood community or rural district.

We submit that the first thing you do in making the standing determination under the cases is look at the text and what it does.

What does the common bond requirement do?

It limits the persons to whom a credit union can offer its banking services.

That's what it does.

That's the effect of it.

The first thing you look at is the text.

It's just like the Clarke case.

In Clarke, the McFadden Act limitations limited the locations at which a bank could market its services to other people.

It has the same effect.

So the presumption... to go back to Justice Scalia's question, the presumption, then, ought to be that a limitation of that kind that has that effect is intended as a competitive limitation, particularly in the context in which the legislation was passed.

Unknown Speaker: Well, in that context, are you going to address Mr. Roberts' point that not merely as legislative history but as a matter of real history, there simply was no competition at that time as between banks and credit unions for the kind of business that the credit unions served?

Mr. Helfer: Yes.

I'll be happy to answer that, to respond to that point.

In the first place, the banks did testify at the hearings on the D.C. Credit Union Act, which was the precursor to the Federal Credit Union Act, and which Mr. Berengren, who was the... Bergengren, pardon me, who was the chief credit union advocate, has described as a copy... that the Federal act is a copy of the D.C. act.

The banks testified, and they testified about their competitive concerns with the act.

Congress made a change relating to demand deposits, and Congress then carried forward that change into the Federal Credit Union Act.

With respect to the precise question of the... were the banks providing these services, banks were viewed... the NCUA brief at 5, and again at 21, tells us that banks were viewed as an alternative to credit unions when the FCUA was passed.

Congress wanted--

Unknown Speaker: Were they alternatives for deposits, or alternatives for loans, or both?

Mr. Helfer: --They would be alternatives, I believe, for both.

Not all... banks were not failing to make any loans at all.

What Congress wanted in the Credit Union--

Unknown Speaker: Well, loans to the small borrower.

Mr. Helfer: --I'm sorry.

I meant loans to... we're talking about consumer loans, yes--

Unknown Speaker: Yes.

Mr. Helfer: --Justice Souter.

When Congress... what Congress wanted was more sources of credit.

When you read what they were talking about, they wanted more sources of credit.

The banks weren't doing enough.

The loan sharks were paying... were charging very high prices.

The banks, of course, had been through a very difficult time and were asking for a lot of security and other things.

Congress had just passed... to go to the historical context--

Unknown Speaker: Wait, I assume there are two clients of banks, aren't there, the people who put money in and people who take money out?

I mean, those who make deposits, and those who make loans.

Mr. Helfer: --Yes.

Unknown Speaker: And even if it were true that banks were not competing with credit unions for loans, they might still... it would seem would still be competing with them for depositors, no?

Mr. Helfer: Well, that's a very fair point.

I'm sorry, I was focusing on loans coming out of Justice Souter's question.

The focus in the legislative history was on getting money back in to get the economy rolling again.

Congress of course didn't want to take away the source of deposits in banks, which were making commercial loans as well as some consumer loans, but making commercial loans.

It wanted to get the economy going again.

That's why it passed the Glass-Steagall Act and the Federal Deposit Insurance.

In June 1933... to put it in its historical concept, in June 1933 Congress passed the Banking Act of 1933, which included Glass-Steagall and Federal Deposit Insurance, and it was during that month that the hearings were held on the Federal Credit Union Act, and there was an inquiry, not surprisingly, about what the position of the banks was with respect to the bill, and Mr. Berengren, having laid the groundwork, said the banks weren't opposed.

It's clear that the banks were in the picture, and the concerns of the banks were in the picture.

Unknown Speaker: Were bank rates regulated, the interest that a bank could pay on a deposit?

Mr. Helfer: I don't believe their--

Unknown Speaker: At that time?

Mr. Helfer: --At that time, I don't believe so.

Reg Q came into effect later on.

They were not interest rates at that time.

Unknown Speaker: How about State regu--

Mr. Helfer: They were straight limitations, I believe, at that time.

Unknown Speaker: --You're not saying there was no State regulations?

Mr. Helfer: No, I'm sorry, there certainly was State regulation on the usury side, on the lending side.

I'm not familiar, Your Honor, although I haven't looked carefully at whether there was State regulation that might have been applicable on the deposit side.

Unknown Speaker: Mr. Helfer, the court below, the CADC, in finding standing for the bank, relied on a suitable challenger test for finding standing.

Do you defend that test here, or should we look to the zone of interest test?

Mr. Helfer: I believe that under this Court's decisions the question is the zone of interest.

What the D.C. Circuit--

Unknown Speaker: So you do not defend the D.C. Circuit's suitable challenge test?

Mr. Helfer: --Well, I do in this sense, Justice O'Connor.

What the D.C. Circuit does is, in trying to implement zone of interest, carry out this Court's decisions, it's divided its thinking, its verbal formulation, into intended beneficiary and suitable challenger, but both are ways of determining whether or not the zone of interest test is met, and the zone of interest test--

Unknown Speaker: Well, there isn't much left of the zone of interest test if you rely on the suitable challenger notion.

Mr. Helfer: --Well--

Unknown Speaker: That seemed a little odd to me.

Mr. Helfer: --Well, that formulation is one which I think this Court doesn't have to reach.

This Court's formulation has always been zone of interest.

Judge Wald, in concurring in the decision below, actually criticized the suitable challenger test as implemented by the majority in this case and others as too narrow, as not fully carrying out the zone of interest test, and so we... but we think that test is the zone of interest test, and that's what Clarke and Camp and the other cases show.

Unknown Speaker: You would... if... there would be standing for the banks if the provision, instead of the one we had before us, said that the credit union has to have its offices in the same building that the employer has its offices, and then they want to open an office next door.

Could the bank say, hey, you're getting too big?

Mr. Helfer: Well, I think if that were part of this test, that sounds very much to me like the McFadden Act limitations on where a bank can put an office that were at issue in the Clarke case, Justice Stevens, and so I think on that basis I would conclude yes.

Unknown Speaker: You think there would be standing?

Mr. Helfer: I think so, because that sounds to me just like McFadden.

Unknown Speaker: What if the provision limited the people who could serve on the board of directors of the credit union--

Mr. Helfer: Well--

Unknown Speaker: --so you have to have two appointed by management and two employees and a third party, or something like that?

Mr. Helfer: --I think there, when you look at that kind of a statute, you would conclude, I think, that it isn't a competitive boundary.

It isn't a competitive limit.

Now, a bank might come in and say, well, if they say they pay their--

Unknown Speaker: It might limit the number of associations that could do business.

Mr. Helfer: --It might do that.

You'd have to make that assessment.

The question would be, of course, whether there'd be Article III standing in the first place where you could show a direct--

Unknown Speaker: Well, you'd have a proliferation of credit unions that didn't qualify on the director standing.

They're just all over the country taking a lot of loans that the banks would otherwise get.

Mr. Helfer: --Well--

Unknown Speaker: If they could demonstrate that factually, that they just... for some reason it's a lot easier to organize them quickly if they don't have to go through the red tape of appointing all these directors.

Mr. Helfer: --I think that is harder than a clear competitive boundary like this one on who you can serve, and in that one I--

Unknown Speaker: It's who can serve, not only who you can serve.

Mr. Helfer: --That's right.

But what if--

Unknown Speaker: That would identify what unit can serve, which is also what happens here.

Mr. Helfer: --What affects the bank's competitive interest is, as shown--

Unknown Speaker: The proliferation of credit unions.

Mr. Helfer: --Is the... is taking away customers, and--

Unknown Speaker: And wouldn't that mean that any time a restriction affected the number of credit unions out in the market, the bank could have standing to challenge that restriction?

Mr. Helfer: --Well, I think you have to... when you look--

Unknown Speaker: And if not, why not?

Why wouldn't that be enough?

Mr. Helfer: --I think that the... at some point the relationship between the nature of the limitation and the--

Unknown Speaker: I'm suggesting that maybe the limitation has to be on... one on conduct, rather than one on who may do business.

Mr. Helfer: --And in response to that I would say that Clarke is a case... Camp is a case on who may do business, what business you can do.

That's a Glass-Steagall case.

But Clarke is a case on where you can do business.

It's not an activities case.

It's not a Glass-Steagall case, it's a McFadden Act case, which is why I answered your... the first--

Unknown Speaker: Well, a movement from where to who?

[Laughter]

Mr. Helfer: --Where to--

Unknown Speaker: I'm just wondering if your test wouldn't require us to say, any restriction that limits the number of entities that may do business by meeting certain qualifications would be subject to challenge by a competitor.

Mr. Helfer: --Well, I think that if the limitation affected the competitive authority of a regulated entity in--

Unknown Speaker: Well, it affects number, and number always affects competition.

Mr. Helfer: --Well, if number always affects competition and... it seems to me that the principle is that in a regulated marketplace limitations on your competitor are limitations that it's sensible to believe that Congress would permit the other competitors to meet, and if that's that kind of limitation, then I would agree that they would have standing.

Unknown Speaker: There's standing any time you have a limitation on the number of entities that may enter the business.

Mr. Helfer: Well, there's--

Unknown Speaker: Or that may, by its natural tendency, limit the number of entities.

Mr. Helfer: --I think it is true that the first thing you look at is the text, and what it does, and if it has the effect of limiting one competitor in a regulated marketplace, which is what this is, that cases like Data Processing, which involved data processors, Arnold Tours, which is about travel agents coming in, even though the Court said there was no indication at all that the Court was concerned about data... about travel agents, would permit standing under those circumstances, what--

Unknown Speaker: I'm... go ahead, please.

Mr. Helfer: --I'm sorry.

Just to finish up on that, what we're doing here, what's involved here on the standing side, the cause of action comes from section 10 of the Administrative Procedure Act.

The question is carrying out Congress' intent in the Administrative Procedure Act.

The Court has interpreted Congress' intent as being to facilitate judicial review.

It makes it presumptively reviewable.

It's not an especially demanding test.

These are all the terms in Clarke in carrying out Congress' intent in section 10.

Then you only deny standing in carrying out section 10, congressional intent, when the interests are simply not implicated by or are inconsistent with the statue.

That was Air Courier, the postal employees in Air Courier.

They're just separate from the interests of the statute, but it is congressional intent in section 10 which is critical, and when you combine that with the clear congressional intent to limit credit unions, who they can serve--

Unknown Speaker: Would it be a different case if Congress had made an express finding that the sole reason for making this requirement is that we think this will maximize the number of credit unions that can succeed in the marketplace?

Mr. Helfer: --It certainly is true--

Unknown Speaker: If they'd made such a finding, would there be standing?

Mr. Helfer: --If they'd made such a finding at some point you're going to get close to a case like Block v. Community Nutrition.

Unknown Speaker: I don't want another case.

What about my case?

Mr. Helfer: Okay.

I'm sorry.

I'm just using that to discern the principle that would be applicable.

When Congress manifests an intention that a particular group... it was... in Block it was the milk consumers... not be allowed to get judicial review, either by what it says in the statute or by the way it structures the statute, then you don't have standing under section 10.

Unknown Speaker: When I... or, does that mean in the hypo I gave you you'd say there was standing, or was not standing?

Mr. Helfer: In that hypothetical, I think if Congress clearly said in the statute this is the sole and only purpose of it, then that would be a manifestation of congressional intent that other people not sue, but legislation--

Unknown Speaker: It's your understanding there'd be no standing.

Mr. Helfer: --There would be no standing, I'm sorry, yes, but... I'm sorry.

I didn't mean to... I didn't want to duck it, but yes.

Yes, there would be no standing.

But legislation is almost never passed for one purpose.

They always have multiple purposes.

You know, here, to come back to a point on the legislative history of the act, a ponit was made by my colleagues that the banks didn't say anything about the common bond provision.

Well, they didn't say anything about the common bond provision because it was in the bill from the beginning.

It was... the very point that they made, that the trade union advocates had put it in, the banks didn't have to ask for a common bond provision.

The... there is an indication in one of the NCUA studies that's cited in the brief that suggests that one hypothesis was that the common bond was designed by Mr. Filene, who was a credit union advocate, and others to assure that the banks would not object to the bill.

That's at page 4 of the NCUA study in Federal credit union member--

Unknown Speaker: Mr. Helfer--

Mr. Helfer: --charter--

Unknown Speaker: --Mr. Helfer, do I understand correctly that the language, common bond, was originally in State provisions before there was a Federal?

Mr. Helfer: --Yes, it was in State provisions, and in a model provision as well.

Unknown Speaker: And in that line I'd like to know whether any States have interpreted their legislation using the same language, groups having a common bond, to mean what the Government and their credit unions are now asserting.

Have any States--

Mr. Helfer: Attorneys merits... no.

Unknown Speaker: --interpreted that language?

Mr. Helfer: None is cited in the briefs, and I'm not aware of any, Justice Ginsburg.

Unknown Speaker: Can--

--But do I also understand that if the legislation that's now pending, the proposed legislation with respect to defining precisely groups having a common bond, if that legislation passed, this case would be moot?

Mr. Helfer: If that legislation passed, parts of this legislation might be moot.

It would depend, because it would not... I guess there is actually some legislation which might moot the whole case, because it would eliminate the common bond requirement completely, and if that happened--

Unknown Speaker: It says that members of any Federal credit union shall be limited to one or more groups, each of which have within such group a common bond.

If that's... if that were passed--

Mr. Helfer: --If that legislation were passed, it would eliminate... yes, it would eliminate our argument that the statute now requires one common bond for all of the members.

Unknown Speaker: --I'd like to ask you a couple of questions.

Mr. Helfer: Certainly.

Unknown Speaker: I assume that the basic standing question... this is the assumption... is whether you, your clients, the plaintiffs, suffer the kind of injury that Congress or that this statute intended to protect these kind of people against.

That's basically the question of standing, isn't it?

Are they... and then you have to add the word, arguably, and once you add the word arguably, it becomes a problem.

I don't know if you have, but I never, in 17 years of being a judge, have found a position that a lawyer couldn't plausibly argue for.

[Laughter]

Mr. Helfer: Well, and I think that Justice--

Unknown Speaker: Am I right?

I'm just asking... that's the assumption on which my question... I take it you basically agree with that assumption.

Mr. Helfer: --Yes, Justice Breyer, with... although it is not necessary to show under the cases that there was a spec... an intent to benefit the particular--

Unknown Speaker: I'm saying we have to interpret a statute, the object... the question is, is, are the plaintiffs suffering the kind of injury that this statute seeks to protect these kind of people against, or compensate them for, or prevent in the future?

Mr. Helfer: --Or prevent them from suffering?

Unknown Speaker: Yes, right.

Mr. Helfer: Yes.

Unknown Speaker: Right.

Okay.

Mr. Helfer: Yes, essentially--

Unknown Speaker: Now, that's the question, all right, and the answer is, how do we decide if it's arguably so.

Now, what I don't understand, and this is my question, and I got this very much from Justice Stevens, I think, what he was trying to do, is say, why do we answer this question through the use of presumptions?

It's going to be pretty tough.

We'll make up a presumption, and then in the 400,000 pages of statutes and regulations we're going to find some cases where a presumption doesn't work, it mixes up the lawyers, they forget it... why don't we just answer that question exactly like we answer any other statutory question and if, in fact, we use legislative history, fine, and if in fact we don't, fine, but it's a typical statutory question that should be answered without the use of presumptions that will be good for this ticket and day only.

That's basically my question.

Mr. Helfer: --I don't think that you need to have any presumptions here.

I think if you use the traditional tools of statutory--

Unknown Speaker: Okay.

Then if you do not want us to use presumptions and think we don't have to, my next question would be, right here we have some language that restricts this to groups.

From looking at the language I have no reason at all to think this was done to protect banks at a time in history when, in fact, people were passing this kind of statute to protect depositors, lenders, and get out of the Depression.

They wanted... all right.

Now, so the language doesn't help me.

I personally sometimes find legislative history useful, and when I go to that legislative history I do not find one word that suggests that this statute was designed to help competing banks, and therefore whether I use legislative history or whether I don't use legislative history, without any presumption coming in, which I don't know what it would do elsewhere, I find it difficult to see how your clients have standing.

Mr. Helfer: --Justice Breyer, the reasons that we have standing are that the statute... the effect of the statute, what the statute does is to limit who the credit unions can sell their banking services to.

That's the first thing you look at.

The second thing you look at when you look at the legislative history is that, with all respect, you do find that the banks were involved, and that they were concerned, and that they were there, and that--

Unknown Speaker: All right, good.

So where is that?

Now, will you tell me that were in the legislative history--

Mr. Helfer: --That is in--

Unknown Speaker: --that would be helpful.

Mr. Helfer: --That is in... you have to start with the legislative history of the D.C. Credit Union legislation, which was passed in 1932, okay.

At the hearings on that act, Senator Kean said, I agree with the President that we ought to go very slowly with anything that will interfere with banks at the present time.

That's in the 1932 hearings at page 31.

At those same--

Unknown Speaker: But that's on a different... a different provision.

I mean, you're referring us to what happened in a whole different law.

Mr. Helfer: --Justice O'Connor this law, and my colleagues agree, is the precursor to the Federal Credit Union Act, and Mr. Bergengren, who was the sole witness on the Federal act, referred to the D.C. act as a copy.

That's at 1933 hearings at page 29.

So this is not some separate and different law that we're looking at.

It is the exact precursor that Congress passed before it passed the Federal Credit Union Act--

Unknown Speaker: And it had the groups language in it?

Mr. Helfer: --Yes, it did.

It had exactly the same groups language--

Unknown Speaker: Was Senator Kean still alive?

Mr. Helfer: --the same common bond limitation, exactly.

Unknown Speaker: Was Senator Kean still alive when the act we're looking at was enacted?

[Laughter]

Mr. Helfer: I'm sorry, Justice--

Unknown Speaker: We don't really know, do we?

Mr. Helfer: --I'm sorry, Justice Scalia, I don't--

Unknown Speaker: Never mind.

[Laughter]

Mr. Helfer: --I don't know.

Unknown Speaker: I don't want you to stop before you've said... I have page 31 of the '32 act.

Is there anything else?

Mr. Helfer: Well, you also have the bankers testifying in... on... in the proceedings on the '32 act about their competitive concerns, particularly with respect to deposit-taking by the credit unions, and you have that, Congress changing the act in that respect to accommodate the bankers' concerns, and you have that change carried forward to the Federal Credit Union Act as well.

You do not have the banks complaining about the common bond provision, because the common bond provision, the common bond restriction was in the act already.

There just wasn't any need to say anything about it or to ask for it.

Now, not in the legislative history but in the record here let me point out something else.

Mr. Filene wrote an article in the American Bankers Association Journal in 1925.

It's in the lodged materials, lodged by the Government, at tab 2, at page 24, in which... he wrote it in the Bankers Association Journal to reassure the banks that the credit union system wouldn't be a competitor because... and this is a quote now...

"credit unions are organized within specific groups. "

and have to meet the common bond requirement.

So I think the fair reading of the overall history... and I emphasize, Justice Breyer, that Filene article is not in the legislative history technically, but it is in the materials before the Court.

The overall reading is that the credit union advocates wanted the common bond for their own purposes, recognized that it would help to make sure that the banks didn't oppose the bill, at a time in which... the congressional goal was not to injure or hurt the banks.

The goal was to restore the banking system to health, which is why they passed the Banking Act of 1933.

Unknown Speaker: At least arguably, you say.

I recognize this--

Mr. Helfer: At least arguably, yes.

[Laughter]

I find it persuasive, but I... but at least arguably.

Unknown Speaker: --I... we're talking about Federal law here, but there is some law in the States on the position.

There are a number of States that have provisions regulating medical practice, that dentists and optometrists cannot use certain procedures or administer certain drugs.

I take it under your theory that, if those were changed to expand the functions and the privileges of an optometrist or a dentist, that any doctor could sue.

Mr. Helfer: Any doctor who was injured by that.

I think the same principles that have been used in the standing cases would lead to that result.

Unknown Speaker: Is that the law in the States generally?

Mr. Helfer: I'm sorry, Justice Kennedy, I simply can't answer that question over--

Unknown Speaker: Unauthorized practice of law actions are largely based on that sort of re... actual research.

Mr. Helfer: --And are permitted, yes, Chief Justice.

Unknown Speaker: Probably not--

Mr. Helfer: If I may turn to the merits... I'm sorry.

Unknown Speaker: --Just a little... one tiny question on history.

Am I correct in assuming that the '32 statute involving the District of Columbia was enacted during the Hoover administration, and this statute was enacted after a rather dramatic change in the status of the Government?

Mr. Helfer: That's... that is correct.

The statute was... '32 and then '34.

That's absolutely correct.

On the merits, we think that Congress... that the question here... the Chevron question is not what General Waxman, as General Waxman described, about unambiguous language used by Congress.

The question is, is the congressional intent clear, and you determine congressional intent largely by looking at the language, to be sure, but by using all of the tools of statutory construction.

Unknown Speaker: Well, I guess we have to ask if the statutory language is ambiguous.

Is it ambiguous?

Mr. Helfer: We... I submit--

Unknown Speaker: If it is, then we would defer to any reasonable interpretation by the agency.

Mr. Helfer: --That's right, and I submit that the... and the courts, both the Sixth Circuit and the D.C. Circuit, held that the legislative intent, as expressed in this language, was not ambiguous, shown in two ways that I will summarize here.

Unknown Speaker: I would hope we would look at the language of the statute to answer the question of whether it's ambiguous, not at some legislative intent.

Mr. Helfer: Well, the--

Unknown Speaker: Let's look at the language.

Is the language ambiguous?

Mr. Helfer: --The... we submit that the language is not.

Chevron says that the intention, congressional intention is the law and must be given effect, but the language is not ambiguous in terms of what the statute intended for two reasons.

One is that the except clause, the whole clause that we've been talking about, is an exception that both limits credit union membership and limits the NCUA's otherwise broad authority at the beginning of the statute.

They get very broad authority to determine who can be the member of any credit union.

Then they go on and... Congress goes on and says, except that credit union membership shall be limited to groups having a common bond.

If... the limit has to be, we submit, and as the Sixth Circuit and the D.C. Circuit held, has to be one common bond per credit union, because if it isn't, if a credit union can join together an infinite number of distinct groups, then the credit union, or then the common bond limitation would not have its intended limiting effect.

Mr. Roberts conceded that point.

He said--

Unknown Speaker: Mr. Helfer, aren't there other limitations that would prevent this infinite progression?

Mr. Helfer: --There are at the... there are other limitations that the agency has imposed in its discretion, like not letting credit unions compete with one another.

Those are not statutory.

But the key point, Justice Ginsburg, is that, as Mr. Roberts admitted, the way they read the statute, the common bond limitation has no effect.

It allows everybody who is employed to join AT&T Credit.

This clause, the except that credit union membership shall be limited to groups having a common bond, has no limiting effect, and that's what the Sixth Circuit said.

There's no reason to have that clause if you read it the way the NCUA reads it right now.

Unknown Speaker: Well, we know the agency considers the language ambiguous, and we know that some Members of Congress do, too.

What credit, if any, should we give to that?

Mr. Helfer: Well, the agency and its predecessors interpreted the common bond clause to require one common bond per credit union from the time of enactment until 1982, nearly 50 years, and from the time of enactment and for that long is strong evidence about what the clarity of the original intention was.

It's a Chevron I relevant point.

With all respect, Congress is in the business of determining what the law is going to be, this Congress is, and its views about whether the law ought to change are views that are entitled to respect going forward, but not about what this law means.

Unknown Speaker: But they did say--

Mr. Helfer: This case is like--

Unknown Speaker: --They did say this is a bill to clarify the existing law and ratify the NCUA interpretation.

Mr. Helfer: --Well, I think I can say with all respect the credit unions have lobbyists, too, and the--

[Laughter]

And that we ought to look at what the... at what this text says.

In this respect--

Unknown Speaker: Who said that?

Do we know who said that, that particular quote?

Was that Senator What's-his-Name, too?

[Laughter]

Mr. Helfer: --If he was still alive, I'm sure he would have.

Unknown Speaker: That's why I thought it might be relevant if States having the same language interpreted it the way the Government is urging us.

Mr. Helfer: Yes, absolutely, and the Government doesn't cite any such interpretations, and I'm not aware of any, Your Honor.

This case is a lot like Dimension, the Dimension case, where the Fed came in and wanted?

Unknown Speaker: What case?

Mr. Helfer: I'm sorry, Chief Justice, the Dimension case, Dimension v. Board of Governors.

Unknown Speaker: I thought you said dementia.

You said this case is a lot like dementia.

[Laughter]

That's arguable, too, I suppose.

[Laughter]

Mr. Helfer: Perhaps I ought to skip Dimension and go on to parallel clauses.

[Laughter]

The... in Dimension, in any event, the agency came in and said, we need to construe the definition of bank in the Bank Holding Company Act so as to reach institutions that are so-called nonbank banks, and that there were strong public policy reasons to do it.

The agency here says there's strong public policy reasons to have a multiple unlimited common bond requirement provision, and that's properly addressed to Congress, as in Dimension, where Congress, after this Court's decision, made the change.

Going back to the parallel clauses for one moment, the community credit union clause, the agency agrees, does require every community credit union to have a single common bond of community, but it says the preceding and parallel clause in the statute permits this unlimited number of members, and we submit, with all respect, that doesn't make any sense.

Both clauses are doing the same work in the statute.

Both clauses are limiting the groups that can join any one credit union.

The difference, we're told, is the difference between within, which is a restrictive prepositional phrase, and having, which is, we are told, an explanatory participle phrase.

That just isn't reading the statute.

That's an overemphasis on the grammatical... on the King's English, not what Congress intended.

Unknown Speaker: I suppose under the agency's interpretation, if there is only one group in a credit union, the people in that group don't have to have any common bond at all.

It's only groups that have to have a common bond, right?

So if you had--

Mr. Helfer: I think that's the--

Unknown Speaker: --You know, AT&T and other companies, all those other companies have to have a common bond.

Mr. Helfer: --I think that's a logical conclusion, Justice Scalia, but they do--

Unknown Speaker: Either that, or you can only have groups, and you can't have one company.

Mr. Helfer: --That's right, but they do in fact permit one company, one group there.

They do permit those kinds of credit unions, in any event.

That's not at all... let me just finish up by saying what [= AT&T] is.

AT&T here, so you can get a sense of what it is, is a $500 million tax-exempt conglomerate, and it has more than 300 distinct employee and associational groups in it.

That means it has more than 300 separate common bonds inside it.

Its range is truly enormous.

It has picked up employee groups that are as small as eight workers, so it is capable of going around the country and drawing in virtually everybody who is.

Unknown Speaker: How does it compare in size to your client?

Mr. Helfer: It compares in size as follows, Your Honor.

Randolph State Bank, of Asheville, North Carolina, is one-third the size of AT&T Credit.

Thank you very much.

Unknown Speaker: Thank you, Mr. Helfer.

Mr. Waxman, you have 1 minute remaining.

Rebuttal of Seth P. Waxman

Mr. Waxman: Thank you.

Justice Ginsburg, in response to your question about the States, the amicus brief submitted by the parties in support of our position advised us that 36 or 37 of the States permit... State regulators permit multiple groups within a single common bond and multiple groups with different bonds.

There... of the five States that have the exact language that the Federal statute has, either two or three have already interpreted that statute to permit the interpretation that the National Credit Union Administration has.

Unknown Speaker: Was that after the Federal interpretation, or was it before the Federal--

Mr. Waxman: I don't know, but it's referenced, Justice Scalia, at page 3 and 4 in the amicus brief of the National Association of State Credit Union Supervisors.

Unknown Speaker: --I mean, it may be a copy cat kind of thing.

I'd be more impressed--

Mr. Waxman: The--

Unknown Speaker: --if it came sooner rather than later.

Your time has expired.

[Laughter]

Mr. Waxman: --Thank you, Mr. Chief Justice.

Attribution:

The OYEZ Project

Featured:

Bennett v. Spear - Oral Argument

Fri, 09 Jan 2009 14:50:07 +0000

Case:

Bennett v. Spear

Media File:

95-813_19961113-argument.mp3

Related Transcript:

1996_95_813_argument.xml

Transcript:

Argument of Gregory K. Wilkinson

Chief Justice Rehnquist: We'll hear argument first this morning in No. 95-813, Brad Bennett v. Michael Spear.

Mr. Wilkinson.

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

This case arises from the Ninth Circuit and raises the question whether farmers and irrigation districts that receive water pursuant to Federal contracts have standing to complain when their water supplies are cut, their crops threatened, and their land devalued as a consequence of Government conduct alleged to violate the provisions of the Endangered Species Act.

Unknown Speaker: We're talking about the granting of a motion to dismiss here, aren't we?

Mr. Wilkinson: That's correct.

Unknown Speaker: So, we're talking about the... how you construe allegations in a complaint basically.

Mr. Wilkinson: In part, that's... yes, absolutely correct.

According to the Ninth Circuit, the answer to the question I posed is no because petitioners' competitive, economic-based interest in the water places them outside a zone of interest protected by the ESA.

We believe this ruling goes well beyond the bounds of any standing decision of this Court, and notably, neither the Government nor any amicus attempts to defend it.

If prudential considerations apply at all to actions commenced under the citizen suit provision of the ESA, they are more than satisfied by the petitioners in this case.

Their water supply contracts and the claims they alleged in their complaint place them well within any zone of interest either protected or regulated by the ESA--

And for the same reason, petitioners also have a right to review under the Administrative Procedure Act since they are persons adversely affected or aggrieved within the meaning of the relevant statute, namely, the ESA.

Finally, unless the ruling of the Ninth circuit is reversed, we believe there will be at least three farreaching and negative effects from it.

First, there will exist a prudential standing scheme under the ESA that overtly discriminates against economically based plaintiffs.

Second, because the courthouse doors will be closed to everyone except environmental plaintiffs, there will be one-sided enforcement of the ESA.

Finally, the result of that one-sided enforcement we believe will be skewed implementation of the act that continually presses the Government forward to a position of over-regulation instead of the balance sought by Congress when it has committed the act.

Unknown Speaker: Mr. Wilkinson--

Mr. Wilkinson: Yes, Your Honor.

Unknown Speaker: --the Solicitor General in response apparently chooses not to address the merits, but does raise an issue about whether the petitioners have Article III standing and an issue about whether the claims are cognizable under the statutory scheme.

Were those arguments raised below in response to the motion to dismiss?

Mr. Wilkinson: Justice O'Connor, the Article III arguments were raised below.

However, they were not decided by either of the courts below.

The cognizability claims in our view were never raised below, nor were they raised in the cert op. And accordingly, in our view rule--

Unknown Speaker: You mean in response to the petition on certiorari?

Mr. Wilkinson: --That's correct, yes.

And consequently, it would be our view that those cognizability issues are not properly before you.

Unknown Speaker: And do we have before us today any issue on the APA claim?

Mr. Wilkinson: The APA arguments as well were not raised below in our view by the Government, and consequently also are not properly before you today.

Unknown Speaker: Mr. Wilkinson, jurisdictional issues are always properly before us.

I mean, if there is no standing, we have no jurisdiction over the case.

We can surely reach the Article III issue if we want to.

Mr. Wilkinson: Oh, Justice Scalia, yes, I believe you can.

I'm not intending to say that the Article III issues were not properly raised.

I believe they were and I believe the Government preserved those issues.

There's a question, however, that may arise as to which do you get to first: the prudential issues or the Article III issues.

Our reading of the decisions of this Court indicate that while preliminary jurisdictional questions may be approached first, certainly before merits issues are to be decided, that there's no decision of this Court which indicates which comes first.

We think there are good reasons here for dealing with the prudential questions before you reach the Article III questions.

Those were the issues resolved by the courts below.

Those were the issues that were the subject for the... of the petition of writ of certiorari and those were the issues on which certiorari was granted.

In addition, those are the issues, the prudential issues, that have split the courts of appeal, and as I think we've indicated in a letter to the Court, that split has only grown since cert was granted.

Unknown Speaker: Assuming we agree with you on the prudential issues, would you want us to resolve the Article III issue or remand to have--

Mr. Wilkinson: We would prefer, if you are with us on the prudential issues, that we are still in this case, that you go forward and try and resolve the Article III issues.

I think that's particularly appropriate, in fact, in the circumstances in this case because it does arise on motions to dismiss.

And according to Lujan v. Defenders of Wildlife, at that stage of the case, the burden for a petitioner attempting to deal with Article III is a more modest one--

Unknown Speaker: --Well, now, is the Article III standing issue... does the resolution of that depend at all on who it is the petitioners sued, what agency?

Mr. Wilkinson: --We don't believe that--

Unknown Speaker: Does that enter into the calculus of the Article III standing question?

Mr. Wilkinson: --No, Your Honor, it doesn't as far as I'm concerned.

I'm not sure that I fully understand the--

Unknown Speaker: Well, apparently the suit below was not brought against the Secretary who has the final determination.

Mr. Wilkinson: --Actually the suit below was brought against the Secretary.

It was named... Bruce Babbitt was named as a defendant.

Bruce Babbitt is also, apart from being the Secretary of the Interior, the cabinet official responsible for both the Fish and Wildlife Service and the Bureau of Reclamation.

It has struck us as somewhat curious, indeed, that the United States would challenge Article III standing on the basis that we had not properly joined the Bureau.

We had sued the cabinet official responsible for the Bureau.

Unknown Speaker: The problem that's bothering me... maybe I'll set it all out... is that suppose I think this isn't ripe, this case.

That's the problem.

It isn't ripe.

There was a report that you say was not properly prepared.

The report was to go to the Secretary.

When the Secretary gets it, he might act, he might not act.

If the Secretary in fact says the levels of the lake should be higher, your clients are hurt.

If the Secretary says they shouldn't be higher and ignores the report or whatever, your clients suffered no harm.

So, it sounds to me as if this isn't final agency action.

Well, when it is final and your client is hurt, you have a case and you bring it.

How can I decide in the abstract whether you have standing or not have standing without knowing what the Secretary is going to do--

Mr. Wilkinson: Your Honor--

Unknown Speaker: --and without knowing what your basis for attacking the Secretary's action is?

I assume it would be the Secretary said the level of the lake should be higher.

That hurts our client.

He based that on a decision of the Wildlife Service or whatever and that decision is no good for the very reasons you're saying now.

But how can I decide the standing question abstractly without knowing what your final claim would be when your clients are really about to be hurt because the Secretary says the lake level has to stay up?

Mr. Wilkinson: --Let me deal first with the situation that exists in this case, and then I'll deal with your hypothetical.

Your hypothetical is not this case, Your Honor, because in this case it was alleged that the Bureau would comply, that the Secretary would authorize the Bureau to comply with the biological opinion.

And in its merits brief, the United States admits that the Bureau indicated that it would comply.

In fact, it has complied.

So, your hypothetical differs from this case in the sense that it assumes non-compliance when in fact there is compliance.

But let me deal with the hypothetical straight up.

Unknown Speaker: Mr. Wilkinson, could you just clarify what you mean by comply?

You said the Secretary has complied.

Has he made an adjustment in the water level?

Mr. Wilkinson: Yes, he has, Justice Ginsburg.

He has, and as a consequence of that adjustment, we lost 80 percent of our water supply.

Lands were fallowed.

People lost their jobs.

The value of property fell from hundreds of dollars per acre to $20 per acre.

Now, we didn't have an opportunity.

This case didn't get far enough for us to raise those issues either on a motion for summary judgment or a trial, but we are prepared to prove every one of those allegations.

Unknown Speaker: So, you say the ripeness question is something that needs to be aired in a court of first instance, but that you have--

Mr. Wilkinson: We believe that we have satisfied in this case already, on the basis of the pleadings before you, the issue of ripeness.

Unknown Speaker: --It can be contested later in more detail I assume.

Mr. Wilkinson: Certainly, and--

Unknown Speaker: At the summary judgment stage and at the merits stage, even more evidence can be brought in on that.

Mr. Wilkinson: --That's correct.

Unknown Speaker: But you're saying that at the pleading level, you've done all that's needed at that point.

Mr. Wilkinson: That's correct.

Unknown Speaker: Yes, but you just recited some facts that are not included in your pleading.

Mr. Wilkinson: We never had the opportunity to raise those issues.

Unknown Speaker: Well, but if you want... it just seems to me if you want the issue decided on the complaint as it now stands, I don't see how you can tell us facts that are not in those things you say should be dispositive.

Mr. Wilkinson: In our complaint... it's page 40 of the petition appendix... we alleged that the restrictions on lake levels imposed in the biological opinion adversely affect plaintiffs by substantially reducing the quantity of available irrigation water.

That's the generalized allegation of injury.

Unknown Speaker: Yes, but the Government points out there's no allegation that you're going to even lose a gallon of water.

Mr. Wilkinson: Well--

Unknown Speaker: And theoretically under your pleading, all the harm could be suffered by other water users.

Mr. Wilkinson: --Well, the Government is not, I'm afraid, being straight with you in terms of how this project operates.

We don't know because we haven't gotten the case this far, but the fact is the project operates on a pro rata distribution basis.

The project is in fact administered by the petitioner, the irrigation districts.

And what we've got is a situation where it really doesn't matter in effect how the harm or the loss of water is distributed.

What we have is a situation as a result of the biological opinion that whatever amount of water is bestowed by nature, whatever amount of water is left in carryover storage and so forth, whatever amount is there, the biological opinion takes a certain amount of that from all of us and we are left to divide up what remains.

Unknown Speaker: Did you allege that the Secretary accepted the opinion and was proceeding in accordance with the opinion.

Mr. Wilkinson: We did.

Unknown Speaker: Is that in your complaint?

Mr. Wilkinson: We alleged on... this is at petition appendix--

Unknown Speaker: Where and what?

Mr. Wilkinson: --page 32.

Unknown Speaker: Appendix?

Mr. Wilkinson: Petition appendix, page 32.

Unknown Speaker: In the blue brief you mean?

Mr. Wilkinson: No, the white one, Your Honor.

Unknown Speaker: No, the white.

Mr. Wilkinson: Right here.

Unknown Speaker: Okay.

At page what?

32--

Mr. Wilkinson: 32 of the appendix to that, the very bottom of the appendix page.

We alleged on information and belief, that the Bureau of Reclamation will abide by the restrictions imposed by the biological opinion.

And in their merits brief, United States admits that in fact the Bureau of Reclamation made the decision to comply.

Unknown Speaker: --Well, isn't it a general rule too that in... at the motion to dismiss stage, you interpret the allegations of a complaint to support a cause of action, if there's any ambiguity about it?

Mr. Wilkinson: In fact, you assume that they are true I believe at the motion to dismiss.

Unknown Speaker: Well, yes, for purposes of deciding any legal question raised by the motion to dismiss.

Mr. Wilkinson: Right.

Unknown Speaker: I was wondering if you could get back to the hypothetical Justice Breyer posed.

Mr. Wilkinson: I wanted to do that, Justice Kennedy.

Unknown Speaker: You were interrupted.

Mr. Wilkinson: Let me see if I can recall the hypothetical.

Unknown Speaker: The basic thing would be that, look, the APA... and I say the statute is similar... says that you can sue to complain about final agency action, and the final agency action in this instance, arguably, is not the action of the Fish and Wildlife Service, but rather the action, let's say, of the Bureau of Reclamation.

And whether you put this sentence in the complaint or didn't put it in the complaint, you are not suing to claim that the action of the Bureau of Reclamation is unlawful.

What you are suing to complain about is that the action of the report sending is unlawful.

And therefore, I wondered if it is ripe in the sense that your complaint does not attack the final agency action, namely, the action of the Bureau of Reclamation which would lower or raise or do something with the water.

That was... and I wondered how I could go at the standing question if I believed the hypothetical because standing would depend on what your argument is in respect to the final agency action which you would attack which this complaint seems not to attack.

That was--

--Before you answer that, would you incorporate please--

Mr. Wilkinson: Yes.

Unknown Speaker: --whether in fact you're relying on the APA as the source of the action or whether you can sue separately under the Endangered Species Act without reference to the final agency action requirement of APA.

Mr. Wilkinson: Let me answer your question first, Justice O'Connor.

We believe we do have independent causes of action under both the Administrative Procedure Act and the citizen suit provision of the Endangered Species Act.

In fact, 1540(g)(5) of the Endangered Species Act provides for redundancy of remedy and provides that nothing in the citizen suit provision will preclude a petitioner from using other remedies as well.

And so, the Congress intended there to be a redundancy of remedy.

Justice Breyer, in response to your question, I believe I've answered it on the facts of this case which are that the Bureau has already agreed to comply, but let me--

Unknown Speaker: My question, remember--

Mr. Wilkinson: --deal with the hypothetical as you posed it.

Unknown Speaker: --But you haven't sued the Bureau.

Mr. Wilkinson: We sued--

Unknown Speaker: I mean, in his question is the fact that you have sued the wrong party.

The party you have sued has not taken final agency... the final agency action which would affect you.

Mr. Wilkinson: --Justice Scalia, we sued Bruce Babbitt, Secretary of Interior.

If we get a decision against Bruce Babbitt, who is the cabinet Secretary responsible for the Bureau of Reclamation, we think as a practical matter, the Bureau will not differ from a decision which binds the Secretary.

And your decisions do indicate that in resolving issues of finality, you use a doctrine of practicality.

Unknown Speaker: What is the remedy you seek?

Do you seek to get more water which would be the remedy that pertains to the final action in question, or do you seek to get a revised report?

Mr. Wilkinson: We seek to get the existing report vacated and then revised in accordance with science because--

Unknown Speaker: But that is not a remedy that will do you any good because the Secretary can look at the revised report and say, I like the other one better.

Throw away the revised report and come out with the same decision that you're complaining about here.

Mr. Wilkinson: --Well, if the Secretary is bound by this decision, I'm not sure that that would be the case.

The Secretary would presumably have to comply with the decision of the Court.

Unknown Speaker: Which is what?

Which is simply that he consider the report, but... that he consider the new report.

But he's fully... he's free to reject it, isn't he?

Mr. Wilkinson: No, I don't believe he is in fact, because he can't operate this project without the incidental take statement that was found in the biological opinion.

The United States raised the identical argument that they are raising here in a case called Ramsey v. Kantor.

It's not cited in any of the briefs because it came down from the Ninth Circuit about 6 weeks ago.

Clearly the Ninth Circuit does not bind you, but we believe their reasoning is persuasive here.

What they said was that when a biological opinion is issued and the biological opinion finds there to be jeopardy, that a reasonable and prudent alternative is developed.

The opinion also then includes an incidental take statement.

They said the incidental take statement... that part of the biological opinion is the functional equivalent of a permit to operate the project.

Without it, you can't operate the project.

The Secretary, the Bureau in this case, had no possibility of doing anything other than complying with the biological opinion if it expected to receive immunity from civil, or potentially criminal, prosecution.

So, in answer to your hypothetical, Justice Breyer, yes, we believe that the biological opinion was final as of the time that it was issued and that the Bureau in fact did not really have any opportunity as a practical matter... the test you use in determining finality... to do anything other than comply.

And the United States admits in its reply brief that it's very rare that these agencies ever deviate.

In fact, they never cite a single example of deviation.

Unknown Speaker: That's a very interesting answer, and really you're saying that these reports are like environmental impact statements because environmental impact statements are preliminary to final agency action, but they are final because of the intent of an environmental impact statement which is to stop the machinery.

The problem with that answer is that all this hasn't been argued at all because at first blush it doesn't appear that they're the same as environmental impact statements since they aren't designed to stop the machinery of the bureaucracy from gearing up.

So, I find that an interesting and important response, but I just haven't seen it fully argued.

Mr. Wilkinson: Well, we would, I guess, disagree that it's tantamount to environmental impact statement which is essentially--

Unknown Speaker: I mean in the sense that it's final by itself.

Mr. Wilkinson: --This is much more of an operative document in the sense that as a practical matter, the test again that you use, you cannot operate this project without the incidental take statement in the biological opinion.

Unknown Speaker: Mr. Wilkinson, may I--

--Suppose that the Bureau of Reclamation said we have had a 3-year drought in the Pacific Northwest and we're not going to be making any releases from the Clear Lake Gerber reservoir even if we have abundant rainfall for 2 more years.

Would you then have standing?

And your injury is for the next 2 years let's say.

Mr. Wilkinson: We hold contracts with the United States for water from this project.

If the Bureau's determination or the Secretary's determination in that circumstance was believed to be arbitrary and capricious and we would then bring a lawsuit--

Unknown Speaker: No, no.

I'm assuming that he has good grounds not to release the water.

He doesn't have much water.

Mr. Wilkinson: --I believe that in that instance we are certainly within the zone of interest regulated by the Bureau.

We are injured by the action.

It's traceable to the Secretary, the Bureau's decision.

Unknown Speaker: No, no.

I... maybe my hypothetical is inept.

I'm assuming that the Secretary is acting within his proper discretion based on the drought conditions.

Mr. Wilkinson: Oh, all right.

Unknown Speaker: Do you still have a cause of action against the Secretary and the Fish and Wildlife Service for the improper preparation of this report?

The Secretary in my hypothetical also has this report.

He has two reasons for not giving the water.

One is what the Fish and Wildlife Service says.

The other is he doesn't have any water anyway.

Mr. Wilkinson: I guess there's a question that arises whether the plaintiff is injured by the action of the Fish and Wildlife Service or the action of the Secretary in that circumstance.

Unknown Speaker: There has to be... in other words, there has to be some redressability.

Footnote 7 of Lujan I think doesn't completely say that redressability is irrelevant, does it?

Mr. Wilkinson: It doesn't say it's irrelevant.

It does say that procedural rights are special and that normal standards for redressability and immediacy do not apply.

Now, if we look at footnote 7, the example used in footnote 7 of the Defenders decision involved the construction of a dam next to a property owner's land, and the issue was whether the property owner could, in that circumstance, compel production of an environmental impact statement.

We think the circumstances here are very similar in the sense that we are also raising procedural violations.

This project is in our back yard.

It is critical to the operation of our farms and our businesses, and we have we believe a right to go forward on procedural arguments and--

Unknown Speaker: Well, counsel--

--And I take it you're saying that there's a likelihood, a reasonable possibility, that the Fish and Wildlife report will be dispositive.

Mr. Wilkinson: --In the hypothetical that you have posed, it may or may not be.

In our situation it absolutely is dispositive.

Unknown Speaker: Well, counsel--

--Well, why is it dispositive?

Why--

--Yes.

I'm concerned about your suit is brought under the Endangered Species Act.

Mr. Wilkinson: And the APA as well.

Unknown Speaker: As an alternative you said.

Mr. Wilkinson: Correct.

Unknown Speaker: But under the Endangered Species Act, would that have anything at all to do with a reduction of water based on drought conditions?

It wouldn't.

That isn't an action under the ESA.

It's an action to save endangered species, and that's what you're complaining about.

How does a drought and a reduction in water by the Secretary or the Government have anything to do with that?

Mr. Wilkinson: Well, it doesn't have anything to do with our case.

That's I suppose the problem with the hypothetical.

Our case--

Unknown Speaker: Does it have anything to do at all with the Endangered Species Act if you're complaining about a change in water level because of absence of water due to no rain?

Mr. Wilkinson: --That's not what we are complaining about, Justice O'Connor, is not an absence or a minimum lake level established to protect against drought.

What we're dealing with in this situation was a determination by the Fish and Wildlife Service that these fish required certain minimum lake levels in order to continue to exist.

We don't believe there's any science behind that decision.

The drought had very little to do, in fact, with this opinion.

This is not a situation where if these irrigation releases had continued, the reservoirs would simply run out of water.

That wasn't the situation at all.

Unknown Speaker: But you think there has to be some proximity, some redressability, some causation between the injury you allege, i.e., lack of receipt of the water, and the procedural default that you're alleging under the Endangered Species Act.

Mr. Wilkinson: Justice Kennedy, we believe there is that connection in this case.

The biological opinion is the thing which becomes the operating scheme, if you will, for the project.

The biological opinion is not based on the existence of a drought.

It's based upon a determination by the Fish and Wildlife Service that certain amounts of water are necessary for the well-being of these fish.

The problem--

Unknown Speaker: Mr. Wilkinson.

Mr. Wilkinson: --we have with that is there's no science behind that determination.

Unknown Speaker: How wedded are you to attacking the Fish and Wildlife report per se?

In other words, you were cut off at the pass essentially, and when I heard the question about why didn't you sue the Bureau of Reclamation, well, that's an eminently fixable lack, if it is a lack at all.

And similarly, you could amend your complaint to say, yes, we're getting at the report through the acceptance of it by the Bureau of Reclamation.

So, I'm trying to determine whether we're just dealing with a pleading that may not be appropriate and could be amended or whether there's some reason why you must zero in directly on the Fish and Wildlife Service report rather than reach it through the Bureau of Reclamation acceptance of it.

Mr. Wilkinson: If the decision of the Ninth Circuit were to be reversed and this case remanded to the district court for further proceedings, it would be our intention, Justice Ginsburg, to amend the complaint to name the Bureau.

There's no reason not to I suppose in these circumstances.

We don't believe it's necessary, but if this Court concludes to the contrary that Article III or finality or ripeness considerations require that the Bureau be named, I can assure you the Bureau would be named.

There is not any kind of policy reason I suppose for not naming the Bureau here.

We felt we had named the people that had violated the act, the people who had determined that these minimum reservoir levels were necessary for the fish, and that was enough.

If... and I believe you're absolutely correct that this is an eminently fixable problem, if indeed it's a problem at all.

Unknown Speaker: Mr. Wilkinson, I think I understand your probability argument.

Let me just carry the redressability point one step further.

Assume that in fact there were a determination that the report was as defective as you say and therefore would not be a proper basis for the Secretary's action as the ultimate official responsible for BOR.

Is there any reason in law why the Secretary could not at that point say simply, not that I'm worried about unusual drought conditions?

I'm simply worried about the fish, and common sense tells me that having more water in the reservoirs is going to be better for the fish and be far less likely to lead to their extinction than less water in the reservoirs.

So, report or no report, for purposes of protecting the fish, I'm simply going to keep the water level up and do exactly what I've done before.

Is there any legal reason... or exactly what the BOR has done before.

Is there any legal reason that the Secretary could not do that?

Mr. Wilkinson: Yes, Your Honor, there is, and the legal reason is that the Endangered Species Act requires that these determinations, including the one you've described, be based on science, not speculation, not conjecture.

Unknown Speaker: Well, but you would have a separate action in that case I understand against the Secretary, but the... would the Secretary be violating... perhaps I should have... should rephrase my question.

Would the Secretary be violating any procedural norm other than needing a scientific basis?

Mr. Wilkinson: Well, he'd be violating section 7 of the act because that act requires that biological opinions be based on science.

Unknown Speaker: But does he have to have a biological opinion?

In other words, does he have to make this reference to the Fish and Wildlife Service?

Mr. Wilkinson: The biological opinion is the result of the consultation and that is the document that concludes--

Unknown Speaker: But is the consultation required?

Mr. Wilkinson: --Yes.

Unknown Speaker: Does he have an option not to consult in these circumstances?

Mr. Wilkinson: If consultation is... well, what happens is that a biological assessment is developed.

A consultation is sought by the action agency, if you will.

Unknown Speaker: Okay, but let's assume he doesn't seek it and he simply says, I don't need the Fish and Wildlife Service to tell me that more water is better for the fish.

Would he be violating any procedural norm of the act except, as you say, for failing to have a more systematically justified basis for his action?

Mr. Wilkinson: Well, Justice Souter, that of course is not this case, but I presume if there were no consultation--

Unknown Speaker: No, but it goes to redressability.

Mr. Wilkinson: --But it does only in the sense that we're talking about actions under the Endangered Species Act.

The Secretary might have the option to develop recommended conservation measures.

Those measures, however, are not binding on agencies such as the Bureau of Reclamation.

And since they're not binding, the Bureau has already told us what they would be willing to do and it didn't involve minimum reservoir levels.

So, I think that if we vacate the biological opinion here, there would be no basis for the Bureau, given what it has already said, to impose a minimum reservoir level.

Unknown Speaker: So, you're saying that this is an Endangered Species Act suit and the fact that there has been a reference in effect sets the stage for what redressability means in this circumstance.

And given the fact that there has been a reference, there has been a report, necessarily if the report, in effect, is required to be withdrawn, you will get relief.

The Secretary may turn around tomorrow morning and do something else that you don't like--

Mr. Wilkinson: Correct.

Unknown Speaker: --but you'll get relief.

Mr. Wilkinson: We will be restored to the priority that we had initially.

I think I would like to reserve whatever time I have remaining.

Unknown Speaker: Very well, Mr. Wilkinson.

Mr. Kneedler, we'll hear from you.

Mr. Kneedler, there are two questions presented in the petition for certiorari.

One is whether the standing under the citizen suit provision of the ESA has a zone of interest test, and if it does, is it a one-sided test.

I wasn't able to tell from the Government's brief what the Government's response was to either of those questions.

I hope you'll tell us during your argument.

Argument of Edwin S. Kneedler

Mr. Kneedler: Yes.

Let me answer that from the outset.

The zone of interest test or formulation, as this Court said in the Clarke decision, is ultimately traceable as a gloss on the Administrative Procedure Act when there... for determining when there's a cause of action under the Administrative Procedure Act.

At least that's where it originated.

So, it's ultimately a question of statutory interpretation.

In our view the proper approach to whether there is a cause of action under the Endangered Species Act citizen suit provision in this case is also a question of statutory interpretation, not by reference to unanchored questions of zone of interest, but by reference to the specific text of the citizen suit provision that we have at issue here.

And as to that, we say that there is... the only cognizable claims under the citizen suit provisions are things for violations of the act, and as we explain in our brief, violations of the act refer to on-the-ground activities that could be engaged in by a private person or by a Federal agency with on-the-ground responsibilities equally.

In other words, the citizen suit provision for actions against any person, including the United States, includes situations in which the United States, like any person, might be taking on-the-ground activities that would adversely affect a species.

In our view it does not provide an avenue for judicial review of ordinary administrative action of a regulatory nature.

It provides for a citizen suit against those who are regulated, not the agency that is regulating.

The APA--

Unknown Speaker: But even if that were true, the Administrative Procedure Act would provide for a suit against Government action, action that couldn't be taken by private individuals--

Mr. Kneedler: --That... that's--

Unknown Speaker: --but can be taken by Government so long as the individual is within the zone of interest.

Mr. Kneedler: --That's correct.

Unknown Speaker: And if the statute requires economic considerations to be taken into account, a person who would be favored by taking them into account is certainly within the zone of interests.

Mr. Kneedler: Yes, but that would be a suit under the APA.

So--

Unknown Speaker: Which is not eliminated by the--

Mr. Kneedler: --Right.

No.

In fact, the final subsection of the Endangered Species citizen suit provision here preserves other causes of action.

So, let me be clear.

Unknown Speaker: --But in short, you under the Endangered Species Act, although without talking about zone of interest, reach really the same conclusion as the Ninth Circuit, namely, that this is an act that works only one way for those who are protecting the endangered species and not for economic interests that are injured.

Mr. Kneedler: That's... violations are categorized as things that harm the species.

That's consistent with citizen suit provisions generally.

Unknown Speaker: Excuse me.

You're saying the substantive provisions of the act only operate one way, but the procedural provisions of the act, those that limit the types of action that the Government can take, those provisions are subject to the APA.

Mr. Kneedler: Well, yes.

I mean, there are two... the Government when it is... if the Government is operating a reclamation project or building a dam that may harm a species, in that situation it is analogous to a private party who may also be engaged in on-the-ground activities.

If it... when the Government is operating as regulator, then we think the APA is the normal cause of--

Unknown Speaker: Well, I don't understand.

Suppose that they brought the suit the way I was suggesting it would be brought.

There is an action taken by the Bureau of Reclamation to keep the lake level up.

That deprives my clients of X million square feet of water which they have a contract for and would otherwise get.

All right?

Mr. Kneedler: --Right.

Unknown Speaker: The reason that it is illegal, says the plaintiff, is because they received a report that was not prepared as the statute requires; i.e., it did not use the best scientific commercial and... scientific and commercial data available.

Therefore, it violated section 706 of the ESA.

Are you saying that they would not be able to pursue such a suit?

Mr. Kneedler: They would bring a suit against the action agency, not against the Fish and Wildlife Service, and they would have that--

Unknown Speaker: No.

That's right.

They would bring it against the Secretary, this time saying that the Secretary's action in keeping up the lake level is unlawful for the reason that the report did not correspond with what the statute requires.

Now, are you saying that that suit could not be brought for some reason of standing?

Mr. Kneedler: --No.

No.

In that situation the suit could be brought against the Bureau of Reclamation.

But let me just clarify--

Unknown Speaker: They would name the Secretary.

Is that right?

Mr. Kneedler: --They would name who was ever responsible for operating the project on the ground, not whoever gave the advice.

Unknown Speaker: Could the suit be brought under the citizen suit provision of the Endangered Species Act?

Mr. Kneedler: No.

In our view in this situation it would be brought under the APA.

Unknown Speaker: What is it in the Endangered Species Act that limits the ability to bring the suit that we're hypothesizing?

Mr. Kneedler: Because again in our view the citizen suit provision of the Endangered Species Act like citizen suit... other citizen suit provisions are designed to allow private persons or the Government as the plaintiff to sue whoever might be causing pollution or harming a species.

That is the origin of the citizen suit provision.

Unknown Speaker: But it doesn't say that.

What is in the statute that leads you to--

Mr. Kneedler: It's the word violation because the word violation in our view and enforcing the act, which is another word that the citizen suit provision uses, suggests law enforcement against people who are taking actions--

Unknown Speaker: --Could we consider the language of the statute?

1540(g)(1) says, any person may commence a civil suit on his own behalf to enjoin any person, including the United States and any other Government agency, who is alleged to be in violation of any provision of this chapter.

And section 1533(b)(2) says, the Secretary shall designate critical habitat on the basis of the best scientific data available and after taking into consideration the economic impact and so on.

And here they've sued the Secretary, and that's precisely what they say wasn't done.

And that section appears to be alleged to have been violated.

Why doesn't it fall under that citizen suit provision?

Mr. Kneedler: --Justice O'Connor, there are a number of provisions... a number of aspects of the citizen suit provision which we think cut strongly the other way.

If I may.

Subparagraphs (b) and (c) specifically... on page 2a----

Unknown Speaker: Where are you reading?

Mr. Kneedler: --Beginning on page 2a of the appendix to our brief, we have the entire citizen suit provision set out.

Section 7(a)(2) which imposes duties on action agencies is on the preceding page.

Seven... the citizen suit provision on page 2a in paragraph (a) says, provides for a suit to enjoin any person, including the United States or a governmental agency.

Paragraphs (b) and (c) talk about suits against the Secretary.

(b) and (c) are both for actions against the Secretary in his administrative responsibilities under the act.

The first one were some interim provisions in paragraph (b), and in paragraph (c) the only provision of the citizen suit provision that refers to section 4 of the act does it in a very precise way against the Secretary where there's alleged failure to perform a mandatory duty under the act.

Unknown Speaker: (c) was added 8 years later?

Mr. Kneedler: It was.

Unknown Speaker: Where are you reading?

Mr. Kneedler: But (b) was in the original act and referred to the--

Unknown Speaker: We have an act in which redundancy clearly is not a sin, and your argument basically is a redundancy kind of argument.

And I'm not sure that we should accept the redundancy premise as appropriate.

Mr. Kneedler: --Well, it's not just a question of redundancy.

It's a question that Congress used different--

Unknown Speaker: Well, redundancy plus violation, but I mean, your... one of your arguments is that on Justice O'Connor's suggested reading, you wouldn't need (c) there.

And it seems to me that this is an act in which redundancy doesn't cut much.

Mr. Kneedler: --Well, it's not just the redundancy that... let me make several other points, if I may.

It's the fact that Congress used different terminology.

When it was referring to the person who might be committing on-the-ground violations just like the private person, it used the word agency or United States.

When it was referring to the Secretary acting in his regulatory capacity, it used the word Secretary.

And back on page 1a where... which is the operative provision that the petitioners say was violated here, it says that each Federal agency shall in consultation and with the assistance of the Secretary make sure that its actions don't cause jeopardy.

So, even in that section as well, the Congress distinguished between agencies that take on-the-ground activities and their duty to avoid jeopardy.

And this duty is imposed on the action agency, the Bureau of Reclamation.

Unknown Speaker: Suppose that the Bureau of Reclamation said, we're not going to be releasing any water for a couple years, and the Fish and Wildlife Service said, in reliance on that, we're not going prepare a biological report.

Would that be a violation of the act?

And an endangered species has been identified, et cetera.

Mr. Kneedler: Not in itself.

I mean, what would... if the operating agency, even in that situation, thought that some aspect of its operation might affect the species, it is supposed to trigger... it is supposed to request consultation.

Unknown Speaker: But you don't think there would be standing for someone to at least test the Fish and Wildlife Service's refusal to prepare a biological report?

Mr. Kneedler: Well, in that situation there might well be an action under the APA, 706, paragraph 1.

Unknown Speaker: No.

Let's talk about the Endangered Species Act.

Mr. Kneedler: I think there would not be, no, again for the reason that that... first of all, that's not final agency action, and it's part of the--

Unknown Speaker: No.

Mr. Kneedler: --and the Secretary's administration of--

Unknown Speaker: No, I'm not talking about final agency.

I'm talking about whether or not there's a suit under the Endangered Species Act citizen suit provision--

Mr. Kneedler: --Right.

Unknown Speaker: --when the Fish and Wildlife Service says, despite the fact we've identified an endangered species, we're not going to file a biological report.

Mr. Kneedler: I believe there would not be a cause of action under the citizen suit provision for that because, again, that goes to the administration of the act.

Unknown Speaker: There's no violation of the act?

Mr. Kneedler: There's not a violation that's enforceable under the citizen suit provision.

I mean, there may be a failure to perform a... an obligation that the Secretary has, but again paragraph (c) of the citizen suit provision provides for suits against the Secretary to compel him to perform mandatory duties only in specific circumstances under section 4 of the act where there are certain time limitations and listing determinations, but the sort of... we think the clear implication of that--

Unknown Speaker: I'm quite amazed that the Fish and Wildlife Service could refuse to perform its duties under the act and not have a suit.

And, of course, the reason you don't want to admit that it does is because then you can't distinguish that between a suit brought by the plaintiffs who are positioned as the plaintiffs here are.

Mr. Kneedler: --No, well, we're not saying there's no suit.

Again, the APA would provide... where it's a question of administering the act, the APA is the usual way in which a plaintiff challenges a regulatory agency's administration of the act--

Unknown Speaker: That's right, but it's not exclusive.

Mr. Kneedler: --No, no.

Unknown Speaker: There may be a right of action under the ESA--

Mr. Kneedler: Right.

No.

Unknown Speaker: --apart from APA.

Mr. Kneedler: My only point goes to the question of whether the plaintiffs would be left remedyless.

And our entire submission in this case is not to try to keep resource users out of court.

We think... we do, however, think it's important to have an orderly process about how such suits are brought.

Unknown Speaker: Mr. Kneedler, may I interrupt?

Because I'm still interested in the answer to the question the Chief Justice asked at the very beginning about the questions presented in the... in this case.

And as I understand your argument... I may be wrong... you would answer both of the questions presented by the petition differently than the Ninth Circuit did.

Is that correct?

Mr. Kneedler: On the zone of interest, we would answer it differently in the sense that we would not use the phrase, zone of interest.

We agree with its conclusion on the ground that the citizen suit provision itself is narrowed to... is confined to situations where there... where what the defendant is doing would be harming the species.

It doesn't answer the question by reference to generalized zone of interest.

It answers the question in terms of what's a violation that is cognizable under the act.

And, I mean, that is our central submission in this case.

And it... one related point--

Unknown Speaker: Do you endorse the reasoning of the Ninth Circuit then?

Mr. Kneedler: --Not... we--

Unknown Speaker: They have a one-way... it's slightly differently articulated, but it's also a one-way construction of the statute.

Mr. Kneedler: --Well, with all respect, I think one-way is an unfair characterization.

Unknown Speaker: Well, if we can characterize it, the Ninth Circuit says one-way, then yours is also one-way, is not?

Mr. Kneedler: It's one-way in the sense that, yes, the citizen suit is designed to advance the purposes of species protection just like this Court in Gwaltney says--

Unknown Speaker: But it also, Mr. Kneedler, has very specific protections for the resource user.

Mr. Kneedler: --Yes.

Unknown Speaker: And you just read that out of the act and remit them to their remedies under the APA where, I tend to agree with you, there may not be final action under the APA.

Mr. Kneedler: Yes, but let me also say if... even if the citizen suit provision were applicable to administration of the act rather than on-the-ground activities, we think it would be extraordinary for Congress in that situation to have departed from the normal rules for judicial review of agency action and specifically the final agency action point.

And this ties--

Unknown Speaker: But citizen suits generally depart from the traditional rules, don't they?

Mr. Kneedler: --Well, they do in a sense, but that can be overstated.

For example, the petitioners in this case specifically endorse the proposition that this Court stated in the Seaclammers case, that the citizen suit provision of the Clean Water Act, which is the foundation for this citizen suit provision, was designed to allow a right of action where that would be true under Sierra Club v. Morton.

Well, in fact, the Sierra Club v. Morton was a suit under section 10 of the APA.

It specifically discussed the zone of interest test and said that the plaintiffs there, even though they're environmental... even though they were environmental interests being advanced, were within that zone of interest.

It was not a repudiation of the zone of interest test but an application of it.

So, when you have this citizen suit provision building on Sierra Club v. Morton, its principal thrust was that environmental interests are a sufficient basis for bringing a suit.

But there's no... particularly against that background, there's no suggestion that the citizen suit provision, even if it were applicable to suits against agencies and their administration of the act, was intended to depart from--

Unknown Speaker: But you're saying the citizen suit... just to oversimplify a little bit, you're saying the citizen suit provision is a narrower remedy than the remedy under the APA.

Mr. Kneedler: --Yes.

It addresses... and again, it's not designed for... it's not... it may allow broader standing where it applies, but it has a narrow application and the application is very much consistent with--

Unknown Speaker: Is one-way.

And Congress can write a one-way statute--

Mr. Kneedler: --Yes.

Unknown Speaker: --if it wants, I presume.

Mr. Kneedler: It can.

And it was addressing a harm that any person, including the United States, might engage in not the special expertise--

Unknown Speaker: But your position is that the citizen suit provision just changes that one aspect of the APA which deals with zone of interests and only as to certain people, namely, those who are complaining about environmental harm.

Mr. Kneedler: --That's correct.

Unknown Speaker: And the APA contains a provision, doesn't it, although I think it's rarely cited, that it shall not be superseded except... unless explicitly.

Mr. Kneedler: That's correct.

Unknown Speaker: So, all of the other provisions would certainly continue to apply, at least where there's no direct conflict.

Mr. Kneedler: That's right.

I'd like to make one other point that ties in here.

The petitioners in their reply brief had suggested that this Court resolve the Article III standing question, and we argued in our brief that there is no causation and redressability for much the same reason we've talked about, that they sued the wrong agency, sued the Fish and Wildlife Service for its advice rather than the Bureau of Reclamation for what it actually did.

That ties directly into our final agency action point.

Unknown Speaker: They claimed in their complaint that there was causality, and this was dismissed without any further investigation.

They said that there was.

Mr. Kneedler: Right.

Unknown Speaker: Upon information and belief, they said that he would follow it.

Mr. Kneedler: Our point is not one of fact.

It's one of law, and it ties directly into our final agency action point.

Unknown Speaker: Well, excuse me.

I don't understand that.

Causality is a question of fact, not of law.

Mr. Kneedler: Well, I think it's a mixed question.

In the opinion for the plurality in Lujan v. Defenders of Wildlife where redressability was discussed, the four-Justice plurality in that part of the opinion focused on the fact that the action taken by the Fish and Wildlife Service in interpreting the regulation or stating when consultation was necessary was not binding on the other agency, the action agency.

And for that reason, there was an absence of redressability.

And that was not a factual question in our view.

Unknown Speaker: But there was no allegation in that complaint.

I don't even remember whether Lujan came up at the pleading stage.

It was at the summary judgment stage rather than pleading?

Which is quite different.

And there was no allegation in Lujan that there was this causality, that the agency had determined to follow this report.

That would have made it a totally different ball game.

Mr. Kneedler: But let... if I may make the other half of the argument I'm making is the problems with that, exactly how close a connection there has to be, are completely taken care of if the Court simply adheres to the normal final agency action rule.

Unknown Speaker: Well, but if... let's assume we disagree with you with reference to your one-way interpretation of the Endangered Species Act.

And incidentally, I think we should be very cautious about receiving an argument that destroys the usual neutrality that we think underlies the rule of law in this country.

But you're arguing for this one-way provision.

Now, let's assume that we disagree with you upon that.

Isn't there a likelihood... a likelihood, a very real likelihood... there of economic injury based on the Fish and Wildlife Service report?

Mr. Kneedler: As a practical matter, there may well be.

That's not our--

Unknown Speaker: But isn't that really the core of the inquiry we make under redressability when we're determining Article III standing?

Mr. Kneedler: --Well, I think not.

I think where there is an intervening action by a third party, as there was in Simon v. Eastern Kentucky Welfare or in this Court's decision in Franklin where there's intervening action by the President, it's not sufficient.

In fact, in Franklin there had never been an instance in which the President had failed to follow the recommendation--

Unknown Speaker: No, but we said there was Article III standing in Franklin.

We found there was no final agency action, but we said there was Article III standing.

Mr. Kneedler: --On the... only on the constitutional question, but--

Unknown Speaker: But that's what we're talking about.

You keep wanting to talk about the APA.

I'm talking about the Endangered Species Act.

As I take it, your point is that a FTC staff recommendation does not become final agency action simply because the commission itself always follows it.

Mr. Kneedler: --That's exactly correct.

For... to use another example in the internal operations of the Government, if the Secretary of another Department asks the Attorney General for a legal opinion and the Attorney General writes a legal opinion, I think it's safe to say that almost invariably, if not invariably, the other agency would follow it.

But that doesn't mean that the suit would lie against the Attorney General.

Unknown Speaker: But I'm still not certain--

--Suppose the agency has taken the action, as is alleged here.

It is alleged that the agency is proceeding according to this report.

Once it has, is it not proper to question under the APA the adequacy of the factual bases on which the agency took that action, including in this case the report?

Mr. Kneedler: Absolutely, in the suit against the action agency.

The advice... the recommendation becomes part of the record that the Bureau of Reclamation acts upon, but at that point it doesn't make the recommendation final agency action.

The recommendation remains a recommendation and gets acted upon, along with whatever else the Bureau of Reclamation may have in its files that would influence the way in which--

Unknown Speaker: I see that part.

The part that I'm finding difficult to follow is let's imagine my suit.

I sue the Bureau of Reclamation.

That's the ground agency.

Right?

Mr. Kneedler: --yes.

Unknown Speaker: And the reason I sue them is because they issued an order to keep the water up.

That's a final action.

Right?

Mr. Kneedler: Yes.

Unknown Speaker: And I allege in my Endangered Species Act complaint as a person who is asking for an injunction or the setting aside of this final agency order by another Government person.

The judge says, why is it illegal?

And I say, the reason that it's illegal is because it didn't comply with section 7(a)(2) of the ESA because it did not rest upon the, quote, best scientific and commercial data available.

Now, there.

I have standing.

I'm hurt.

I'm complaining about a final action, and I have a reason that under the law was not complied with.

Now, are you saying I cannot bring that action, and if not, why not?

Mr. Kneedler: Okay.

There are two situations in which you might sue the action agency.

If the action agency is... if the Bureau of Reclamation reduced the water and it might have harmed the species, there's unquestionably a cause of action under the citizen suit provision.

Unknown Speaker: Raised the water.

Mr. Kneedler: If the water is raised, there's no general proposition in the Endangered Species Act that requires the action agency to take only the minimum amount of action necessary in order to protect the endangered species.

It could, not just for endangered species concerns or because it wanted to add... have an extra layer of caution--

Unknown Speaker: Why did they put in those words, best scientific and commercial data?

Because they could have said raise the water for any reason you want.

Mr. Kneedler: --The background of that provision when it was enacted in '79 indicates that that was put in there so that the agency would not feel it had to hold up doing anything at all until it had perfect information.

Unknown Speaker: Just like the EPA.

Even though you get a wonderful environmental report, the agency isn't bound by the conclusion of that report so long as it has been done properly.

It's free to proceed on its best judgment.

Mr. Kneedler: That's--

Unknown Speaker: And you're saying that's the same with this biological report here.

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

The Bureau of Reclamation may have other evidence--

Unknown Speaker: So, you are saying it's just like an environmental impact statement.

Mr. Kneedler: --Yes.

Unknown Speaker: In other words, the agency must get it before it acts, but it may totally ignore it.

Mr. Kneedler: Well--

Unknown Speaker: Does that make any sense?

[Laughter]

Mr. Kneedler: --The sense of the act is that the... and experience shows that the action agency relies upon the biological opinion.

Most action--

Unknown Speaker: But they don't have to.

Mr. Kneedler: --They don't, and that's our point.

They don't legally have to.

And in fact, they may--

Unknown Speaker: But they have to get one.

Mr. Kneedler: --They have to get one.

Unknown Speaker: They have to get a good one just as an agency has to get an environmental impact statement, and if it hasn't gotten a good one, if it has gotten one that's been done on the cheap or one that's a sham, they're in violation of the act.

Isn't that right?

Mr. Kneedler: No.

The action agency simply has to consult.

The duty to prepare a comprehensive biological opinion is a duty owed by the consulting agency to the action agency.

Unknown Speaker: Yes.

That's the Fish and Wildlife Service, and that's the one agency you say that can't be sued.

Mr. Kneedler: Well, but that's... when you have a question of internal deliberations between two Government agencies and a statute that tells an agency, before you take certain action, talk to the Attorney General, it would be odd to say you can sue the Attorney General because of the advice that he gave to the action agency.

Unknown Speaker: Let me ask you this just as a proposition of administrative law, and I guess it would be under either the APA or the Endangered Species Act.

Suppose that the Bureau of Reclamation gets the biological report from the Fish and Wildlife Service.

Could it not say that we're not sure that it took into account the best scientific evidence, but we think it's reasonably close, and in our best judgment it's an adequate report?

Can it say that?

Mr. Kneedler: Yes.

Unknown Speaker: If it says that, then if an aggrieved person under the APA feels that the act... feels that the report is inadequate, does he sue the Bureau of Reclamation?

Mr. Kneedler: Yes, and the--

Unknown Speaker: And what does he allege?

Mr. Kneedler: --He alleges that the decision was arbitrary and capricious, and that's the standard under the APA or the ESA.

The same substantive standard of review applies.

He would say that the decision of the Bureau of Reclamation was arbitrary and capricious because it was not adequately supported by the administrative record.

Unknown Speaker: And there's no way anybody can get an accurate biological report.

Nobody can compel this agency to give an adequate biological report is what you're saying.

Nobody.

Mr. Kneedler: I think no private person.

Unknown Speaker: No private person.

Mr. Kneedler: I believe that's--

Unknown Speaker: Just the Secretary.

Mr. Kneedler: --I believe that's correct, but what... the way... let me retreat from that just to this extent.

Unknown Speaker: I hope you will.

[Laughter]

Mr. Kneedler: What would be done is that the plaintiff would sue the Bureau of Reclamation and said... and say, you proceeded without an adequate basis.

And if the allegation was you proceeded with a report that was... that didn't rise to the minimum necessary to be a biological opinion under section 7, you have to set aside your agency action and you, Bureau of Reclamation, can't proceed unless you get a more complete biological opinion.

Unknown Speaker: It's just the way it works with an environmental impact statement.

Mr. Kneedler: That's exactly right, but the suit is not directly against the Fish and Wildlife Service.

It's still always a suit set aside--

Unknown Speaker: Well, this one isn't either.

This one isn't either.

I mean, this one is against the Secretary, which includes everybody.

Mr. Kneedler: --Yes, but the Secretary was only sued in his capacity to... as the person making jeopardy determinations.

He was not sued in his capacity in running the Bureau of Reclamation.

And the relief sought was to withdraw the biological opinion, not to have the Secretary take other action with respect to the raising or lowering of water.

Unknown Speaker: But you're saying withdrawing the biological opinion is indeed relief that can be sought.

If you say you proceeded without an adequate biological opinion, you say you can get a judgment requiring the Secretary to get a proper biological opinion.

Mr. Kneedler: No.

Technically what you would get is a judgment saying you can't go forward with the action unless you get an adequate biological opinion.

It would be full and complete relief because the Secretary would have to proceed on the basis of something else.

But I'd like to tie our position too into something Justice Kennedy was asking about, the interrelationship of the water situation in the area to the Endangered Species Act concerns.

There can also be questions of the contract rights that these plaintiffs have.

All of that ties into the standing question.

All of that ties into the substantive right of what contract rights they have, what Bureau of Reclamation statutes--

Unknown Speaker: What about footnote 7 in Lujan which seems to indicate that standing requirements are somewhat relaxed when it's a procedural attack?

Mr. Kneedler: --Well, in that situation we think you still have to be alleging a concrete injury to yourself and you have to be alleging that the... it at least has to be true that if you... in the sort of suit I was describing to Justice Scalia, if you set aside the agency action, to have the procedural measure taken.

That would be adequate Article III standing.

We're not suggesting to the contrary.

Our point here has been on causation and redressability.

Unknown Speaker: What about the word arguably?

Do you remember the word arguably?

Mr. Kneedler: In the zone of interest?

Unknown Speaker: In data processing.

Right.

When we go through all this, isn't it at least arguable that that scientific data provision and so forth covers... isn't their claim at least arguable in that respect?

Mr. Kneedler: It may be, but again we think in this situation if they're claiming that the Bureau of Reclamation is not giving them enough water, that arises directly under the reclamation laws and their contracts.

And they can say that... when the Bureau says our defense is the biological opinion and other information we have, then they could say, well, that's not an adequate biological report because it doesn't have the best scientific evidence in it.

So, we're not saying that they can't make arguments about scientific adequacy.

Unknown Speaker: But footnote 7 of Lujan talks about redressability.

You answered my question and said, oh, well, we're talking about redressability.

Footnote 7 says the standards are relaxed even with reference to redressability.

Mr. Kneedler: But it is always I think necessary--

Unknown Speaker: So, it seems to me not a proper argument to say, well, I'm talking about redressability.

That's what it--

Mr. Kneedler: --Well, in the EIS situation, for example, the harm is redressed if the dam is going forward and your claim is there's an inadequate--

Unknown Speaker: --I think you've answered the question, Mr. Kneedler.

Mr. Wilkinson, you have 1 minute remaining.

Rebuttal of Gregory K. Wilkinson

Mr. Wilkinson: Thank you, Your Honor.

Simply put, Congress made no distinction between environmental plaintiffs and resource user plaintiffs when it provided for citizen suit review and APA review.

It simply used the term, any person.

All we are asking this Court to do is follow the plain language of the statute.

If you do that, it renders completely unnecessary this arcane, artificial review process that the Government is proposing where you have to sue an agency that didn't propose the opinion, didn't have the expertise, and may in fact disagree with it internally.

Unknown Speaker: You mean the archaic procedure that's used everywhere else in the Government.

Right?

[Laughter]

Except in this one statute.

Mr. Wilkinson: Not in this statute, Your Honor, it isn't used.

The opinion that was issued in this case was more than just a legal opinion.

It was in fact an operating plan for the project.

The Bureau--

Chief Justice Rehnquist: Thank you, Mr. Wilkinson.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

United Food Workers v. Brown Group Inc. - Oral Argument

Fri, 09 Jan 2009 14:49:45 +0000

Case:

United Food Workers v. Brown Group Inc.

Media File:

95-340_19960220-argument.mp3

Related Transcript:

1995_95_340_argument.xml

Transcript:

Argument of Laurence E. Gold

Chief Justice Rehnquist: We'll hear argument now in Number 95-340, United Food & Commercial Workers Union Local 751 v. The Brown Group doing business as Brown Shoe Company.

Mr. Gold.

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

Last term, this Court in North Star Steel Company summarized the basic aspects of the WARN Act, which is the statute which generates this case as well.

We set out the pertinent portion of the Court's opinion on page 9 of our opening brief, the blue brief, and very simply stated as the Court noted WARN is a statute which puts a condition on employers on plant closings and mass layoffs.

The employer is supposed to notify, among others, each representative of the affected employees if the facility is one in which the employees have an exclusive representative.

An employer who violates the notice provision is liable for penalties by way of a civil action that may be brought in any district court, and as the court concluded by noting, the class of plaintiffs includes both aggrieved employees or their unions as representatives, who may collect back pay for each day of violation not to exceed 60 days.

In this case, the union brought a WARN act case concerning a plant closing, alleging that Brown Group had proceeded without providing the proper notice.

The Eighth Circuit held that the union did not have standing to bring and prosecute that lawsuit and to seek the statutory remedy.

We believe the standing holding of the Eighth Circuit is plainly wrong.

We begin from--

Unknown Speaker: Mr. Gold, what is the actual injury to the union?

Mr. Gold: --The--

Unknown Speaker: The failure to get the notice?

Mr. Gold: --Right, the violation of its right to get the notice--

Unknown Speaker: Well, how does giving a recovery to the employees redress that injury to the union?

Mr. Gold: --The nature of the notice right is not one which inures to the union as an institution, as a person.

The point of the act, as the sponsors noted, and we quote this on page 10 of our reply brief, is that as the collective bargaining agent, the exclusive representative, whether it be an international union, a regional union, or a local union, has the responsibility and authority to address changes in terms and conditions of employment, the effects of a plant closing, and cooperative efforts at worker readjustment.

So the union gets the notice in order to facilitate employee readjustment, retraining, job location, to deal with the employer in ways which may even alleviate the entire problem, and as... what Congress saw is that if the employer does not provide the notice, the union is harmed by losing the opportunity to provide those representative services.

And what Congress determined was that where the notice isn't provided, and where employees do not get the opportunity to have this period of readjustment with assured income, the closest that was appropriate, because Congress particularly made the judgment that injunctive relief would not lie, that the closest that was appropriate was, in essence, a form of specific performance.

You will get 60 days with this assured money at some point, and have the opportunity, some opportunity for readjustment in that way.

So the union, by providing the substitute, is redressing the injury that it suffered by this invasion of its legal right.

Now, certainly we would not have balked, and I am certain that we lobbied for institutional direct relief as well, but the proposition that this is not relief that redresses the lost opportunities that are generated by the violation of the union's legal right seems to me to be without substance or reason.

This is a form of redressing this particular form of legal right.

Unknown Speaker: The damages sought are back pay?

Mr. Gold: Correct.

They are in an amount of back pay.

They're not exactly back pay as we normally understand that term.

It's a formula.

Every day without notice generates a certain amount per employee, whether or not that employee actually found another job or... it's a formula.

Unknown Speaker: Liquidated--

Mr. Gold: Liquidated damages or penalties is what was referred to.

Unknown Speaker: --Mr. Gold, what is the standard procedure in these cases?

It struck me that if you had joined one worker suing on behalf of herself and others similarly situated, that you would have obviated this problem, and I was wondering, since it appears later several workers came forward to make claims, why that wasn't done from the beginning.

Mr. Gold: I can only say that at the time... this was 1992... people who brought the case read the statute and proceeded in the way that they believed was right.

I think one of the reasons Congress did what it did is that for people who are thrown out in the job market, and so on, to be the named plaintiff in this kind of suit is something of a burden.

You're going to get a certain disinclination among individuals to do that, and this was a purposely simplified approach.

I quite agree that you could, and maybe, in the fullness of hindsight, might wish to do a belt and suspenders approach, and both have the union sue and have an individual sue as an aggrieved employee and as a class representative.

That's going to complicate the proceedings some, and I can only say that we don't believe it is what Congress required here, any more than it would be required where a union brings a suit of comparable character under a collective bargaining agreement.

Unknown Speaker: Mr. Gold, you're in one different position here, I suppose, from the CBA situation, because you're union is in effect a statutory representative, so the fact that you don't have a union member as a party doesn't really prevent you from arguing that this is essentially a class action.

And while it's true, I suppose, that because there's no union member who's a party, there's no one who's a named plaintiff who is going to get damages, but I don't know that that's an Article III problem, so you can still argue that it's like a class action.

Mr. Gold: Oh, absolutely.

I mean, we believe that in this kind of case, as in a case like EOC and General Telephone, you have the union acting for and on behalf of these individuals.

Unknown Speaker: Isn't that the easy way, in effect, for us to decide this case, or the easiest, you might say?

Mr. Gold: We believe that this is a direct standing case.

I don't know whether... I'm on the verge of discussing whether this is a true class action in Rule 23 terms.

Unknown Speaker: Well, we know it's not absolutely like it, but we're worried about Article III here, and--

Mr. Gold: Right.

Unknown Speaker: --And it's, the analogy is, I suppose, close enough for you to say it's, for Article III purposes you ought to treat it just like a class action.

Mr. Gold: Absolutely.

I mean, our overall point in meeting the arguments of the Eighth Circuit is that there is a range of representative litigation of this kind that situations of a pure association member kind is only one example, and that this, like the collective bargaining contract situation, or the third party beneficiary situation, is a different form of representative or--

Unknown Speaker: Mr. Gold, do you think the reasoning of the Eighth Circuit was that, conceding that Congress has authorized this, it violates Article III to authorize it, or simply that it was not clear that Congress had authorized it?

Mr. Gold: --No, I... we understand the Eighth Circuit to have said that Congress couldn't proceed this way.

They said that Congress formulated the employer duty and the union right, as the statute plainly does, that the union had the right to bring suit, but that the union didn't have standing to seek the only remedy for the violation of this legal right that Congress had created.

Unknown Speaker: Mr. Gold, why is the injury in this case the failure to give notice?

Had there been a failure to give notice and the plant never been closed, there would have been no problem, I assume, right?

It seems to me the injury is the closing of the plant, isn't it, without having given the notice beforehand?

Had the plant not closed, there would have been no violation, no injury.

Mr. Gold: Well, there is--

Unknown Speaker: You see, I have a sort of instinctive resistance to the notion that you can create purely abstract procedural rights, like the right of everybody in the world, or the right of a particular union to "notice" without any substance behind the notice.

What I see to be the violation, here, is not the failure to give the notice but the closing of the plant.

That's what hurt people, isn't it?

Mr. Gold: --It is the conjunction.

Employers have no duty to give notice unless they're closing or engaging in a mass layoff.

This is not an abstract situation.

I agree with that.

If the employer never closes the plant there's no lawsuit, but--

Unknown Speaker: So you have no objection to my considering the injury in this case to be not the failure to receive notice but the closing of the plant, without having done that beforehand, of course.

Mr. Gold: --Right.

Unknown Speaker: Oh, but it's both, I take it.

Mr. Gold: Yes.

I was going to say, in conjunction, the... there is no obligation under this statute to provide abstract information that has... about something that has no direct effect on the people getting the notice.

It is the conjunction of an intention to close or engage in a mass layoff.

Unknown Speaker: Let me ask another question.

Mr. Gold: Yes.

Unknown Speaker: If you want us to pursue the theory that Justice Souter was asking you about of representational capacity on the part of a union, I'm... again, my problem is I'm reluctant to acknowledge that for Article III purposes Congress can make anybody the representative of anybody else and just say, you know, for purposes of vindicating this right, you know, John Doe shall have standing to sue.

Most of the representational cases I know involve a plaintiff who is incapable of suing, so his executor sues, or his trustee.

Mr. Gold: Well, but in the trustee situation--

Unknown Speaker: The trustee owns the property.

Mr. Gold: --All right, but--

Unknown Speaker: --so the person really interested can't sue.

Mr. Gold: --The beneficiaries aren't incapable, and in this situation you do have a situation that Congress took very much into account.

The union is selected by the group of affected employees through a Government regulated process as their exclusive representative.

A union, as such, cannot bring the suit, only an exclusive representative selected by the employees.

Unknown Speaker: And it is not an organization formed just for the purpose of this suit.

It has some independent--

Mr. Gold: Right.

Unknown Speaker: --representational existence.

Mr. Gold: Right, and it has... one of its representational existences is to negotiate collective bargaining agreements and bring suits like this, if there is a breach, to collect back pay and other remedies for the individuals.

The notice runs to the union, as the passage I indicated to you indicates, so that the union can carry out these representational functions, so you're well into the central area of the kind of representative that Congress certainly can authorize to bring this kind of lawsuit.

Unknown Speaker: Mr. Gold, you don't concede, do you, that in the associational standing cases the members of the association are incapable of suing?

Mr. Gold: No.

Unknown Speaker: No.

Mr. Gold: No.

Unknown Speaker: So they're in the same boat as the--

Mr. Gold: Right.

Unknown Speaker: --union members here.

Mr. Gold: That was yet another... that is yet another example of the fact that these... that representational litigation is not so narrowly defined as to be for people who are incapable.

Unknown Speaker: What do you make of the argument that to determine the compensation the employees must come into this lawsuit as individuals?

Mr. Gold: I don't think that... first of all, Congress purposely simplified the remedy here so that it is according to a formula and based on back pay.

Beyond that, I don't believe that the individuals have to come in in order to perfect their rights.

If the union proves that there's a closing without the notice and shows the payroll records and who worked and who didn't, it has proved up the case and the liability.

Unknown Speaker: Thank you, Mr. Gold.

Mr. Jenkins, we'll hear from you.

Argument of Alan Jenkins

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

Petitioner has standing to sue under the WARN act both in its own right and as a representative of terminated employees.

Under direct standing principles, there's no dispute that Congress, through the WARN act, imposed a legal duty on respondent to give petitioner 60 days' notice of the shutdown of the Dixon plant.

Petitioner has alleged a breach of that legal duty and, in doing so, has established a direct and personal injury to itself.

That injury is neither hypothetical nor speculative.

This is not a case in which an abstract violation occurs and anyone in the universe has standing or even a cause of action to challenge it.

This is a situation where the union itself was denied the notice that it has a right to under the statute.

Unknown Speaker: But Mr. Jenkins--

Mr. Jenkins: Pardon me.

Unknown Speaker: --it does seem that the remedy granted is not particularly designed to redress the union's injury, if it's back pay for all the members.

Mr. Jenkins: We think it is, Mr. Chief Justice.

Congress provided unions right to notice precisely in order to facilitate their role in the readjustment and retraining process.

That process... pardon me, that role is frustrated by the lack of notice, and it's vindicated by an award of back pay to injured employees.

Unknown Speaker: Well, why is that?

I mean, ordinarily you think if the party who is wronged by... the union in this case, wronged, as you say, by the lack of notice, that the damages ought to be measured by what harm that is done the union, rather than what harm is done its members.

Mr. Jenkins: We think that's correct, but the nature of the injury in this instance is a harm, a frustration of the union's ability to participate in its statutory role and in its organizational role, to participate both in the retraining and readjustment process which Congress found notice to be relevant to, and its ability to function as a collective bargaining representative under the labor laws.

Unknown Speaker: Yes, but these damages are not going to affect that in this... in a given case.

Don't... aren't you reduced to saying that the sense in which there is a vindication of the union's right by giving damages to employees is essentially on a deterrence theory, that if you give the damages to the employees in this case, the next employer is going to know it, and is going to give the notice?

Isn't that as close as you can come to a vindication of the union's interest in receiving the notice?

Mr. Jenkins: I don't think so, although I do think that deterrence is certainly one of the goals that Congress had in mind.

But I think in this instance, for example... a union doesn't receive notice.

The plant shuts down.

Damages to the union would not speak to the union's role in aiding the employees that it represents in the work place, nor would an injunction reopening a plant years after it's closed, even if that were feasible, speak directly to the union's lost opportunities and lost ability to speak to the financial stability of the employees that are represented.

Unknown Speaker: What would speak to it would be an injunction against the plant closing, and that is specifically what Congress withheld.

Mr. Jenkins: Well, but it... that would be one remedy that would speak to that harm, but under Article III the requirement is simply that the remedy sought be likely to redress the injury, not that it necessarily be the best remedy to redress that.

Unknown Speaker: No, but the injury, as I understand it, is the injury to the union in depriving it of a capacity either to negotiate about the actual decision to close, or to retain those who are going to be put out of work, and the only... I should think the only remedy that is going to redress or vindicate the union's interest in failing to receive the notice would be a remedy that gives them the statutory amount of time to do that, and that remedy would be an injunction against closing the plant short of 60 days for the union to do whatever it wants to do.

The union absolutely cannot get that, so aren't we faced with a situation in which redress for the... I keep saying this... vindication of the union's interest as such simply cannot be given without an injunction unless you in effect take a long term deterrence analysis and say, well, if it... if the union can make it hurt this time by getting damages for a third party, the next employer won't do it?

Mr. Jenkins: I... Justice Souter, I don't think that's the only way to tie this right to the remedy that's imposed.

The Congress recognized that terminated employees are much better able to participate, work with unions and other resources for retraining and job adjustment, if they have the financial stability to do so and, of course, that makes sense, that if someone's receiving a paycheck, they can go out, obtain additional education, learn new skills, look for jobs.

It's much easier to do that, and the union's role in that process is greatly facilitated.

Unknown Speaker: But they don't... as a practical matter, they don't get the money during the time in which they would want to be doing this, do they?

Mr. Jenkins: Well, no, Your Honor, but I think for many employees--

Unknown Speaker: You're talking... you're making a very practical argument.

You're saying the employee who is getting the paycheck can afford, in at least two senses, to go to school and do the... and get the retraining, but in fact the employee is not going to get the paycheck until some period considerably down the road when the lawsuit finally grinds to an end, isn't it?

Mr. Jenkins: --Well, I don't think so, Your Honor.

Certainly temporally that's true, but I think the WARN act is aimed in particular at large scale layoffs in communities that are dependent upon particular industries, and so those employees will still be around, and the union will still have the ability, as will the State dislocated worker unit and the unit of local government, which also have a right to notice under the statute, will have the ability to work with those employees.

I think that was what Congress--

Unknown Speaker: So you're saying it may take a long time to get the money, but it's going to take a long time to retrain and get another job.

Mr. Jenkins: --I think that's right, Your Honor.

Unknown Speaker: So that they ultimately can match.

Mr. Jenkins: I think that's right.

Unknown Speaker: Isn't the consequence of that argument that any organization which has the interest of others at heart can be given standing to sue for injuries to those others, because, after all, that's the organization's function?

Mr. Jenkins: I don't--

Unknown Speaker: So I suppose the American Civil Liberties Union could be given standing to sue for any deprivation of civil liberties to anyone in the country, because their whole ratiocination is to serve those people and prevent those injuries.

Mr. Jenkins: --I don't think so, Justice Scalia, for two reasons.

Unknown Speaker: Well, why is this different?

Mr. Jenkins: The first reason is that unions are unique in that they have a right to notice under the statute.

The ACLU, general people out in the community don't have a statutory right to notice.

They also don't have the statutory relationship.

Unknown Speaker: Well, yes, but that's just to say that Congress has created it here, and I'm saying Congress could also create it for the ACLU.

Mr. Jenkins: Well, that's correct.

Then there would still be a--

Unknown Speaker: So what's your other argument?

Why else is it different?

Mr. Jenkins: --There would still be a requirement under Article III that there be a tangible effect on the plaintiff through the union of the layoff.

A simple ideological disagreement with an abstract violation of law doesn't satisfy Article III.

Unknown Speaker: Well, the tangible effect here was that it was unable to provide the kind of assistance to the people served that it wanted to, right?

Mr. Jenkins: That's correct, but this Court has frequently recognized that that type of impairment of an organization's ability to carry out its functions not simply a disagreement or an ideological conflict with action taken is sufficient to provide an injury in fact for Article III purposes.

Unknown Speaker: Yes, but the remedy given is not the remedy of providing the people what the people are entitled to.

It is, rather, a remedy directed to the organization.

Mr. Jenkins: Well, that's correct, Justice Scalia.

Unknown Speaker: Mr. Jenkins, is it relevant to this inquiry that the union is not stepping forward as a union?

It has standing under this statute only as exclusive bargaining agent of the employees, isn't that so?

Mr. Jenkins: Well, I don't think that's entirely so, Justice Ginsburg.

I think it's true that the union has its own independent injury.

Unknown Speaker: I thought that the workers get the notice, personally, when the union is not representing the plan.

Mr. Jenkins: That's correct.

Unknown Speaker: But when the union is, that only the union is entitled to notice under the statute and the workers aren't.

Mr. Jenkins: That's correct.

Unknown Speaker: But does that distinguish the situation of the union that has this preexisting representational obligation from an organization that is merely a do good agency?

Mr. Jenkins: We think certainly so, and that was my point in saying that there's a right to notice here, and as you pointed out, it's an exclusive right to notice.

It would not be sufficient for respondent to have simply notified some employees but not the union.

The union must be notified to satisfy the WARN act.

Unknown Speaker: What about a plant where there is no union representing the employees?

To whom does the notice go then?

Mr. Jenkins: The notice goes directly to the employees under that circumstance, Mr. Chief Justice.

Unknown Speaker: It would seem odd that if notice were also required to the employees that you would have a weaker case.

Mr. Jenkins: I'm not sure that I follow--

Unknown Speaker: Well, you said one of the reasons the union has standing here is because the union is the only one to get notice, and I observed it would be a rather odd statutory scheme if the notice also went to the employees that you would then have a weaker representational argument.

Mr. Jenkins: --Well, perhaps it would be weaker in that narrow respect.

I don't think Article III standing would be lacking as long as a union has a legal right that's been breached, and there are practical consequences of that right, and in addition the union has been affected in a way that distinguishes it from the public at large.

It would not be enough.

It would be comparable to the Lujan case if everyone in the world had a right to challenge an employer's failure to give notice.

Here, there are certain specifically designated parties who are affected in a practical way, and therefore have a right to notice in a cause of action under the statute.

Unknown Speaker: Mr. Jenkins, does this statute provide for fees to the plaintiffs?

Who pays the cost of litigation?

Mr. Jenkins: May I answer?

Unknown Speaker: Yes, go ahead.

Mr. Jenkins: There is a fee shifting provision and I believe it's discretionary with the district court.

Thank you.

Unknown Speaker: Thank you, Mr. Jenkins.

Mr. Walsh, we'll hear from you.

Argument of Thomas C. Walsh

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

On a number of occasions in the past 20 or so years this Court has reiterated what it has called the irreducible constitutional minima for standing to sue in the Federal courts, and two of those minimal requirements are involved in this case, in our opinion.

The first, of course, is injury in fact.

this Court's cases require that the injury claimed by the plaintiff be concrete, real, immediate, palpable, not speculative, not conjectural, not abstract, and that injury must be to a legally protectable interest.

The second element that's involved in this case is that of redressability, which requires that relief from the injury must be likely to follow for the plaintiff from a favorable decision, and it must redress the injury to the complaining party even though the judgment may benefit others collaterally.

Unknown Speaker: What's the relationship between that requirement and our associational standing cases, because in the associational standing cases, the association doesn't necessarily get any relief.

It's members that do.

Does that... is the consequence of that that the relationship between redressability and redressability to the named plaintiff is not an Article III requirement?

Mr. Walsh: No.

In the associational standing cases, and that's the Hunt v. Washington Applegrowers line of cases, the requirement is that an association, in order to sue on behalf of its members, must show three things, first that some of its members have injury; second, that the lawsuit is germane to the association's interests; and thirdly, that the participation of the individuals is not required for complete adjudication.

Now--

Unknown Speaker: Right, but none of those requirements say that there has got to be a redress flowing directly to the association.

Not that... there's no requirement that the association in a damages case get damages.

Mr. Walsh: --Well, the law has been universal that an association cannot sue for damages to its members.

Unknown Speaker: Well, I don't think there is a case in which they have done so.

Mr. Walsh: Correct.

Unknown Speaker: But in the cases in which there has been equitable relief, the benefit of the equitable relief has always been for the members of the association, hasn't it?

Mr. Walsh: Well, it's been for both, I think, Justice Souter.

I think when you're talking about declaratory or equitable relief in an associational context, I think the analysis is that that is a communal type of relief which redresses what's deemed to be a collective injury, so there is injury of the members that's attributed to the organization, and therefore--

Unknown Speaker: But the organization without that attribution does not, in fact, have an interest which would be vindicated if it alone sued.

If the applegrowers, whatever the association was, walked into court and said, we are not representing the members of our association... this is just us, Applegrowers, Inc., or whatever they were called... there wouldn't have been any relief that they would have been entitled to, I suppose.

Mr. Walsh: --Well, in that case actually they did have an interest because they claimed that they were losing... they would lose dues if the--

Unknown Speaker: Oh, they were reaching in--

Mr. Walsh: --said statute were not overturned.

But they could not walk in and say, we are suing on behalf of our members for their lost profits, for instance, or their damages, and that's the disconnect--

Unknown Speaker: --Well, they never have.

I mean, we--

Mr. Walsh: --That's correct.

Unknown Speaker: --haven't held that they couldn't, and that's what you want us to do here, I realize, but we never have.

I don't understand why it wouldn't follow.

I mean, you say their members have been injured, and that's enough, that their members have been injured.

You acknowledge that... for injunctive relief.

Mr. Walsh: Yes.

It depends on the relief being sought.

Unknown Speaker: Well, if you attribute their members injuries to the association, why not attribute their members compensation for the injuries to the association?

I mean, doesn't the one follow from the other?

Mr. Walsh: I don't think so.

When you're talking about damages, Justice Scalia, you can't have the collective type of analysis that you have when you're talking about injunctive relief, that all together there, everybody's suffering the same wrong.

It's attributed to the organization by reason of it happening to the members, but when it's damages, it's clearly--

Unknown Speaker: The wrong can be a very individualized wrong that the injunction is addressed against, for example, not paying a certain level of wages, which the association claims each individual employee is entitled to.

You get a mandatory injunction requiring that additional--

Mr. Walsh: --Well, if that were the case, that each union or association member were entitled to a different form of relief, then I think you would have the same kind of problem with that as you would with a damage case.

Unknown Speaker: --But it is the case that the union and the association members are not suffering the same harm.

Mr. Walsh: It depends on--

Unknown Speaker: In the example you gave, the applegrowers' case, the association is saying, we're losing members.

That isn't what the members are saying, so you can't say that the... I don't think you can properly say that the analysis depends upon everyone suffering the same wrong and hence everyone, association and members, getting the same benefit from the injunction and, therefore, if it makes sense to say that they have a kind of representative standing, then that representative standing depends upon their asserting something that the association itself could not or would not assert.

Mr. Walsh: --Well, as the Court said in Warth and in Brock again, the ability--

Unknown Speaker: Let me... well, I want to be sure, but just on the terms that I just gave you, doesn't it follow that you can't make the argument that they are all in the same boat?

Mr. Walsh: --That's probably true.

Unknown Speaker: Okay.

Mr. Walsh: But where they are close enough to being in the same boat that the relief sought will remedy the communal wrong, that's the rationale for allowing associational injunctive cases and for disallowing damage cases, and--

Unknown Speaker: Why doesn't it help the union to give the employees their money?

I mean, the whole point of the act, isn't it, is to give the union, just as Mr. Gold said, notice so it has some time to arrange for the employees to get training or other benefits?

It lost that time.

It failed in its duty to the employees because they didn't get notice.

Well, at least it can get money for them.

I mean, isn't that something that unions are there for, to help the employees by getting them money, by getting them training, by getting other things, and a failure to get notice inhibits that obligation of the union, which is what its purpose is.

Why can't Congress under the... what in the Constitution prevents Congress from saying... Congress wants to say we'll restore the union not completely, but we'll restore the union roughly to where it might have been, not by giving the employees training, we can't, but at least we'll give them some extra money?

Where in the Constitution does it say that Congress can't make that judgment?

Mr. Walsh: --The problem is, Justice Breyer, that there's no evidence anywhere that Congress made such a--

Unknown Speaker: Well, what about the statute?

Mr. Walsh: --The statute is silent on the purpose of the notice.

Unknown Speaker: The statute says that a union can come in, sue when it doesn't get notice, and collect liquidated damages in an amount equal to the number of days times the average wage, which presumably it pays to the workers, so the workers then think, well... I don't know, does it pay it to the workers or not?

Maybe it just... I don't know what happens to it, but I think the workers might feel better about it if the union has it rather than the employer.

[Laughter]

Mr. Walsh: There is nothing either in the legislative history or in the statute itself which suggests that that is the so called injury that's being redressed.

Unknown Speaker: Oh, well then--

--The union... the money doesn't go to the union, does it?

I thought the money went to--

Mr. Walsh: The money would go to the individuals.

Unknown Speaker: --It goes directly to workers.

Mr. Walsh: Right.

Unknown Speaker: Well, but how does that follow from the statute?

I mean, if the union is the plaintiff, the thing doesn't even go to the union as a trustee, the award is directly to the individuals?

Mr. Walsh: Well, they have filed here on behalf of... that's the language of the complaint, on behalf of the individuals.

Now, that, to me means the check that we would have to cut if we lost would be payable to the individuals probably, but the union also on the check.

Unknown Speaker: In that respect it would be no different than if one employee had stepped forward and sued on behalf of the 276 similarly situated.

Mr. Walsh: The statute does contemplate class actions, Justice Ginsburg.

Unknown Speaker: But--

Mr. Walsh: But I don't think that could apply to the damage part of the case for the same reasons that we've discussed--

Unknown Speaker: --The question I was trying to ask is, why isn't the remedy aimed at redressing a real harm to the union, namely, its inability to help its workers by arranging for some interim relief for the workers?

What this does is, it gives the workers some money.

That isn't precisely what the union would have arranged for, though it might have done.

Rather, it's roughly the kind of benefit the union could have arranged for, so the statute says, pay them that.

At least that's what I read the statute as doing, irrespective of the statute's motive.

All I'm looking for is, is that helping a little bit to redress a harm, and my question is under the Constitution, why doesn't that help redress somewhat a harm that the union really suffered?

Mr. Walsh: --Well, because first of all, with all due respect, Justice Breyer, there's nothing in the statute that suggests that that's the injury that's being redressed.

There are two other statutes that were enacted at approximately the same--

Unknown Speaker: The injury that is being redressed is the failure to get notice.

Mr. Walsh: --The lack of notice to the union.

Now, there's another statute which requires notice to the local job partnership, the State job partnership, and there's a statute that says that that's the organization that is supposed to bring the parties together once the plant closing is announced.

It's supposed to notify the union within 48 hours of it being notified, so even if the union didn't get notice here, it's required to get notice under that statute, and that's the one that determines all these rights and remedies that the union's talking about here, the relocation.

There's also the Job Training Partnership Act, which was enacted at about the same time.

Those deal with the kinds of concerns that have been mentioned here.

This is simply a failure to give notice and a remedy to the union, which in legislative history and in the statute and in the pleadings, I might add, there is no articulation of--

Unknown Speaker: Mr. Walsh, may I ask you a question that's concerning me?

Supposing WARN, instead of being a statute, was all spelled out in a collective bargaining agreement that provided exactly the same remedies and notice requirements and all the rest, and the employer failed to give notice to the union of an intended plant closing, and the agreement provided in that event the union could sue for back wages payable to the employees, just as it... measured by, just the same remedy here, would you think there would be an Article III problem on allowing the union to enforce that contract?

Mr. Walsh: --No, I do not.

Unknown Speaker: What's the difference between a contract and a statute?

Mr. Walsh: Because the union there is a party to the contract.

A breach of the contract--

Unknown Speaker: Well, here it has a statutory right, there it has a contractual right.

In terms of injury to the union, what's the difference?

Mr. Walsh: --The injury to the union is that it is a party to a contract that has been breached.

Unknown Speaker: Well, but it has a statutory right that's been breached here.

What's the difference?

Mr. Walsh: Well, before with that--

Unknown Speaker: Why is a contract right entitled to greater protection than a statutory right?

Mr. Walsh: --Because the union is not designated as the litigating agent of claims, statutory claims for its members.

It is under section 301 and under the National Labor Relations Act the litigating agent for breaches of the claim--

Unknown Speaker: But under this statute it's the litigating agent for the same people.

I don't understand the difference, in terms of constitutional terms.

Why is one injury redressable and the other not?

Mr. Walsh: --Because as the party to the contract that has been breached it has an injury.

In this situation--

Unknown Speaker: Is it different from the statutory injury in this case?

Mr. Walsh: --We contend there is no statutory injury in fact.

Unknown Speaker: You've admitted there's a statutory violation of a duty to the union.

Mr. Walsh: But that creates a procedural injury, in our view, to the--

Unknown Speaker: Then why isn't the contractual thing a procedural injury, then?

Mr. Walsh: --Because it's a breach of a substantive right under the contract to notice in your hypothetical.

Unknown Speaker: I... isn't your--

--A statutory right would be on even a higher order.

It certainly seems to me that if the parties by contract can, in effect, confer standing, that Congress by a specific statute can do the same thing, which is the thrust of Justice Stevens' point.

Mr. Walsh: Well, Congress certainly can create rights the violation of which will justify Article III standing, but it has to be a real right, it has to be a substantive right, and the violation of it has to create an injury in fact, and merely saying that you have to give somebody notice does not, in our opinion, create anything more than a procedural right where it's not--

Unknown Speaker: Surely it cannot be true that any right which could be acquired by contract, any right to sue which could be acquired by contract can, since it can be acquired by contract, be conferred by Congress without violating the separation of powers.

I mean, I can acquire contractual rights to do all sorts of good things for all sorts of people.

Does this mean that Congress can, when I have not entered such a contract, give you the right to sue on behalf of those people?

Mr. Walsh: --I'd say you couldn't enforce that contract--

Unknown Speaker: It's the end of the doctrine of standing, I would assume.

Mr. Walsh: --I would think so.

Unknown Speaker: Then you couldn't enforce that contract in a diversity case.

Mr. Walsh: I don't know.

Unknown Speaker: Right, I've a different question, which is... the question that I'd have would be, what about the associational standing?

Why, in a contract case, I take it a supplier and a company could get up a contract and a measure of damages for the breach of the contract might have to be what the company had to pay all of its employees, right?

You could have such a contract case, of course.

And now you don't have to bring the employees into court.

They aren't a necessary part of the case, so why do you say here that the measure of damages, which happens to be the wages that would be paid to the employees, makes the employees under Washington Apple necessary participants in this case?

Mr. Walsh: Because each of the individualized determinations of damages for these employees depends on a number of variables, including his wage rate, his piece rate, how many days he was entitled to notice but he didn't get it, what his benefits were--

Unknown Speaker: But the same would be true in a contract action.

The same could easily be true in an action for breach of contract, or some kind of trust action, where the measure of damages turns on precisely the same matters that you're just describing.

Mr. Walsh: --But if I am the party to the contract, then I have a substantive right to enforce that contract and collect damages for those who are properly aligned with me.

Now, I can't collect damages for the whole world, but--

Unknown Speaker: No, no, no, but I mean, my point is, why does it require the employee to come into court or to be a participant in the case, any more than in a breach of contract action where the measure of damages is wages paid to individual employees, any more than that kind of case requires an employee to come into court?

It might, but you might prove it from paper, or you might prove it in a hundred ways.

It might not even be disputed.

Mr. Walsh: --Well, that is the Hunt test, and the Hunt test is, the third prong is based upon the fact that in that situation, in the absence of a contract or other substantive right, the association as such does not have an injury.

The association is not itself injured, so it is not permitted to assert others' rights in trying to prop up its own right.

Now, the Government tries to say that this is a prudential requirement, but that--

Unknown Speaker: Well, we've called it that repeatedly, haven't we?

Mr. Walsh: --Well, I--

Unknown Speaker: And don't we... let me ask you a related question.

Don't we have to treat it that way, or we're going to be in trouble in class actions?

Mr. Walsh: --No, Justice Souter, I don't think so.

First of all, the Government has mischaracterized this prudential limitation, which it says is underlying the third Hunt factor.

Unknown Speaker: Before we get into the question of characterization, do I understand that nothing more would be required than payroll records to determine the compensation due here?

It's not a question of credibility, just a question of how many hours, how many days.

Mr. Walsh: Some of these piece rates, I'm told, Justice Ginsburg, vary from day to day, from hour to hour, even, so it takes an incredible amount of calculation and actually interviews probably with the individual employees to determine what they're entitled to from hour to hour and day to day, so it is a very highly--

Unknown Speaker: I can understand that it might be a complex formula, but I don't understand why the testimony... if you have time records, why the testimony of the employee would be necessary.

Mr. Walsh: --Oh, I think it's the participation of the employee that's the key.

The employee, because he is seeking his own damage remedy, has to come in and be part of the case because--

Unknown Speaker: I thought you agreed with me before that you could have one class representative, only one named representative suing on behalf of all similarly situated, and that would do it.

Mr. Walsh: --I said for liability purposes only, but when you get to damages, then the individual determinations under Rule 23, in our opinion, would outweigh the class deter--

Unknown Speaker: Well then, for liability purposes, why shouldn't we say the same thing about the union?

Mr. Walsh: --Because the only remedy that's permitted under this act is this back pay remedy.

There is no injunctive relief.

There is no declaratory relief.

It's either back pay for these members, or it's nothing.

Unknown Speaker: Okay, now, third Hunt prong, I thought we had characterized that, number 1, as being merely prudential, and number 2, if we don't so characterize it, are we going to be in conflict, in effect, with class action cases?

Mr. Walsh: No, sir.

It has not ever been characterized as prudential.

Where it has been discussed in Hunt and Warth and Brock, it has been discussed in the context of a constitutional requirement.

What is confusing about it--

Unknown Speaker: And hasn't it been called prudential?

Mr. Walsh: --No.

Actually, the actual prudential rule that the Government is referring to but which it mischaracterizes is one which says a plaintiff may not rest his legal claim upon the legal interests or legal rights of a third party, and that, of course, appeared in Warth v. Seldin, and the Court in Warth cited for that proposition Tilerston v. Oman, and Tilerston v. Oman was a 1943 case where a physician tried to claim that an act was unconstitutional in restricting access to contraceptives.

Unknown Speaker: Warth came from a prudential error.

I mean, anything you're basing on Warth has been superseded as far as principle is concerned by later standing cases.

Was not Warth based on the proposition that the whole function of standing is to assure concrete adversariness?

Isn't that the language that was in Warth?

Mr. Walsh: Yes.

Yes, sir.

There were--

Unknown Speaker: And that's been effectively overruled by later cases, which say its purpose is not to assure concrete adversariness alone, but rather that it has a constitutional component, which is what Warth explicitly denied, that it had any constitutional component.

Mr. Walsh: --Well, this--

Unknown Speaker: So if you're trying to make your case from Warth, you're going to be in a lot of trouble because Warth says the whole thing is prudential.

Mr. Walsh: --Well, I don't read it--

Unknown Speaker: So long as there's concrete adversariness, which there surely is here.

Mr. Walsh: --But this analysis was reiterated in Brock, and what it means is... this prudential requirement that the Government is relying on means that I can't try to prop up my claim by asserting the constitutional rights of third parties.

That's prudential.

The court can allow me to do it, but it has not allowed me to.

But that's not what Brock is... that's not what Hunt is about.

Hunt is about an association asserting damage claims for members of that association without having any injury to itself.

That's totally different, and that's Article III material.

Unknown Speaker: No, but the third prong... I think we're talking about the same third prong, which is that it does not require the appearance of individual third parties to prove their damage... supply the evidence for the specific damages that they have suffered, isn't that right?

Mr. Walsh: It does--

Unknown Speaker: Isn't that what we're talking about?

Mr. Walsh: --Yes.

It does not require the participation of third parties.

Unknown Speaker: Okay.

Well, in a class action which includes a damage remedy, ultimately before the action is over the unnamed third parties have... strike third parties.

The unnamed class members who got to prove their damages, or there has got to be proof of their damages, right?

Mr. Walsh: Yes.

Unknown Speaker: Okay.

Why wouldn't that offend the Hunt prong if the Hunt... if the third Hunt prong is constitutional?

Mr. Walsh: Because in a class action, the plaintiff is a member of the class.

The plaintiff is injured.

The plaintiff therefore has the right, under Rule 23--

Unknown Speaker: Yes, but that's not the requirement we're talking about.

We're talking about the third prong that says, you can't have associational standing if you have to bring in third parties, i.e., members of the association, to prove their claims, and the question is whether that's an Article III requirement.

If it is an Article III requirement, why isn't it by analogy an Article III requirement in class action cases, and it seems not to be.

Mr. Walsh: --Because in the class action, the plaintiff has his own injury.

In the Hunt context, the association--

Unknown Speaker: Well, he has his own injury, but before the class action is over, the injuries of other people have got to be shown, and those other people are in the same boat, aren't they, as the association members?

Mr. Walsh: --Well... and in a lot of those cases, where the individual circumstances, damages if you will, are diverse, courts routinely deny class action treatment.

Unknown Speaker: For Article III purposes?

Mr. Walsh: No, for--

Unknown Speaker: No, and--

Mr. Walsh: --For manageability purposes.

Unknown Speaker: --Yes, but not Article III.

That is to say, prudential.

Do you have any other reasons why associational standing won't wash here?

It's just the third prong, that's the only objection you have to associational standing?

Mr. Walsh: Well, there is a question, I think, about whether there's germaneness, but we haven't briefed that, but we do think... the third... the Eighth Circuit decided that the third prong of Hunt had not been met, and clearly it hasn't.

So the question then is, is it prudential, can Congress override it, or is it constitutional, and because it's based upon the lack of injury to the organization, and also because--

Unknown Speaker: With respect, I'm missing that point.

I don't see why the third prong is based on lack of injury.

The third prong is a limitation on proof of other's injury.

Mr. Walsh: --It's not a rule of evidence, Justice Souter.

It's--

Unknown Speaker: I don't know what it is.

It's... I'm concerned as to whether it's a rule of prudence or a rule of Article III standing.

Maybe you shouldn't concede, Mr. Walsh, that class actions are associational cases.

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

Unknown Speaker: You seem to have accepted that.

Mr. Walsh: --I don't think I did.

Unknown Speaker: I mean, I thought in these associational cases the association cannot demonstrate any injury to itself, and it is relying entirely upon the injury to its members.

Mr. Walsh: I don't think class actions are associational.

I think the plaintiff is an individual--

Unknown Speaker: So what we do with class actions has nothing to do with the third prong.

Mr. Walsh: --That's my view.

Unknown Speaker: Yes, but it has everything to do with what Article III requires, which applies to class actions as well as associational standing cases, and if the same objection could be raised in the class action case that could be raised in the associational standing case, and it is not effective in the class action case, then it seems to me it has to follow that it's not an Article Third requirement in the associational standing case, isn't that correct?

Mr. Walsh: Class actions are not associational actions.

Class actions are--

Unknown Speaker: I know, but they're both... class actions in associational action cases are, standing cases, are subject to the same bedrock Article III standing requirement.

Mr. Walsh: --But the first question is, does the plaintiff--

Unknown Speaker: And if it doesn't apply in one, then it can't be an Article III requirement for the other.

That's the only argument I'm making, and I don't think I have an answer from you yet on that.

Mr. Walsh: --Well, I'm sorry, but I'm doing my best.

The--

Unknown Speaker: If I'd just be quiet and let you answer, I--

[Laughter]

--you'd have an easier time.

Mr. Walsh: --The... in the class action context, the plaintiff is a member of the class who's been injured.

He has his own claim, so he is in court, he's properly in court, and there's no Article III problem.

Then it's a procedural question whether he should be able to represent under Rule 23 others similarly situated, but in--

Unknown Speaker: Okay, and there's no problem in the fact that there has to be extraneous proof of the various damages for the various class members once he's in, right?

Mr. Walsh: --Well, there may be--

Unknown Speaker: You know, it may make him nasty, and we may not certify the class for just that purpose.

Mr. Walsh: --Right.

Unknown Speaker: But at least there's no constitutional problem.

Mr. Walsh: But--

Unknown Speaker: Right?

No constitutional problem.

Mr. Walsh: --Well--

Unknown Speaker: No Article III problem, standing problem.

Mr. Walsh: --I don't really know.

Unknown Speaker: Well, we've never... I don't... and I will stand corrected if I'm wrong, but I don't think we've ever given... our Court has ever given that as the reason.

I think the reason has always been a manageability reason.

Mr. Walsh: Generally that's correct--

Unknown Speaker: Yes.

Mr. Walsh: --I would agree, but I think it could create a problem if one plaintiff would try to recover for mass tort victims, for instance, without joining those people in.

Unknown Speaker: But concentrating on this case, if the union had joined one member, then you would see no problem and everything could go forward without Article III impediment?

Mr. Walsh: If the union had joined one member, and that member had asserted a class action on behalf of himself, and he would be injured, on behalf of himself and others similarly situated--

Unknown Speaker: That would be okay.

Mr. Walsh: --Then possibly that would be an appropriate determination of liability only.

Unknown Speaker: Well, if that is so... there would be no Article III impediment, I think you're agreeing... then in view of the debate that has been going on here and among other courts, at the very least, shouldn't the union be allowed to amend its complaint to join a member, and then everything else follows.

Mr. Walsh: The union refused, despite repeated admonitions in the lower court, to ask for leave to amend until after this case was decided by the district court then, for the first time, they asked for leave to amend, came in and said we'd like to join the class members.

The judge said,

"Where have you been for the last year and a half? "

"Denied. "

They contested that before the Eighth Circuit.

The Eighth Circuit affirmed on that basis.

They did not include that in their cert petition in this Court, and that is the law of the case at this point, so amendment of the complaint to join additional class members in our view is no longer appropriate.

Unknown Speaker: Well, it's not before the Court.

Mr. Walsh: That's correct.

It's... but a remand by this Court to allow that to happen would--

Unknown Speaker: But it's not before this Court because it wasn't raised in the petition for certiorari, so we would ordinarily take no action with respect to any such assertion.

Mr. Walsh: --That's correct, yes, Your Honor.

The union has repeatedly based its claim here on the fact that Congress has acted and Congress has the right to create standing.

Now, Congress, indeed, has the right to create capacity to sue, but the party seeking the review must still be among the injured, and as Justice Kennedy said in his concurring opinion in Lujan, Congress at very least must identify the injury it seeks to vindicate and relate the injury to the class of persons entitled to bring suit.

The only way that works in this case is if we speculate about what the injury was and how it relates to the union, and it is not unprecedented for this Court to strike down statutes which purport to allow people to sue for a violation of Article III.

Back in 1911 in the Muskrat case, two individuals were authorized to sue to determine the title to some Cherokee Indian lands.

The Supreme Court held that there was no case or controversy, that Article III will not permit advisory opinions--

Unknown Speaker: Thank you, Mr. Walsh.

Mr. Walsh: --Thank you.

Unknown Speaker: Your time has expired.

Mr. Gold, you have 2 minutes remaining.

Rebuttal of Laurence E. Gold

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

In terms of the Article III point that Justice Souter was pursuing, the Court has decided the General Telephone case, the Alamo case where the Government sues to enforce a public right and to get individual payments to people who were harmed.

If this was an Article III question, title VII, the Fair Labor Standards Act, as well as section 301 would all be beyond the Court's powers.

I would also note that what we have here is a determination by Congress that injunctive relief, which would keep the plan open, is not available.

If injunctive relief had been provided and the union had sued, it would be plain to everyone here that the union had standing to bring a suit.

This back pay is the substitute that Congress provided.

We don't believe that Article III means that the best is the enemy of the good in this sense and precludes Congress from making this kind of measured judgment, which is very much in the interests of defendants, I would note.

Thank you.

Chief Justice Rehnquist: Thank you, Mr. Gold.

The case is submitted.

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Director, Office Of Workers' Compensation Programs, Department Of Labor v. Newport News Shipbuilding & Dry Dock Co. - Oral Argument

Fri, 09 Jan 2009 14:49:58 +0000

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Director, Office Of Workers' Compensation Programs, Department Of Labor v. Newport News Shipbuilding & Dry Dock Co.

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Transcript:

ORAL ARGUMENT OF BETH S. BRINKMANN ON BEHALF OF THE PETITIONER

Chief Justice Rehnquist: We'll hear argument first this morning in Number 93-1783, the Director of the Office of Workers' Compensation Programs v. the Newport News Shipbuilding and Dry Dock Company.

Ms. Brinkmann.

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

This case concerns the standing of the Director of the Office of Workers' Compensation Programs to seek judicial review of rulings by the Benefits Review Board of claims under the Longshore & Harbor Workers' Compensation Act.

The Director has standing to seek court-of-appeals review as a person adversely affected or aggrieved by a final board ruling under 33 U.S.C. 921(c).

The Director is charged with a myriad of duties under the act.

Incorrect board rulings adversely affect her ability to carry out those duties consistent with her interpretation of the act when that interpretation differs from the board ruling.

Unidentified Justice: Is it true, Ms. Brinkmann, that both the Director and the board are located within the Labor Department?

Mr. Brinkmann: Yes, Your Honor, it is.

It's somewhat analogous to the situation of the Occupational Safety & Health Review Commission, which came before the Court in Martin.

Although that Commission was an independent Commission, it was a situation in which Congress had taken the adjudicatory authority for a program and vested it somewhere other than where the administrative and enforcement authority was.

As in this case, the administrative and enforcement authority are vested in the Director, where the adjudicative authority is vested in the Commission.

Unidentified Justice: And are both... are all of them appointees of the Secretary?

Mr. Brinkmann: Yes, Your Honor, but in this particular case, it's different than what one might think is a traditional agency structure in that it's not a unitary structure, and that the administrator and enforcer of the act cannot overrule the Benefits Review Board decisions.

That's why we believe it's analogous to the situation before the Court in Martin.

Unidentified Justice: Now, can the Secretary change rules if a situation arises in the board's interpretation that the Secretary doesn't like?

Mr. Brinkmann: Yes--

Unidentified Justice: Rulemaking is possible?

Mr. Brinkmann: --Yes, Your Honor, but--

Unidentified Justice: And I assume the Secretary relies on the Director for advice on those matters?

Mr. Brinkmann: --Yes, Your Honor.

We don't believe, however, that that adequately protects the public interest, which the Director is vested and charged with carrying out under the act.

Unidentified Justice: Well, do you think the other person would have standing to appeal?

For instant, the President, or the chairman of the Senate committee that oversees these matters in the Congress?

Would they also have an interest in seeing how it's carried out, and have standing to appeal, do you suppose?

Mr. Brinkmann: I don't believe so, Your Honor.

The Director's vested interests were imposed, or she was charged with those through the act of Congress under section 939.

The Secretary and her delegate, the Director, is charged with administering and enforcing the act--

Unidentified Justice: Well, in the proceeding below, I guess your position was sustained on standing with regard to the effect on the special fund, and as to that, that's not before us.

Mr. Brinkmann: --No, Your Honor.

Unidentified Justice: It's not clear to me why the Secretary is a person.

Why is the Secretary a person under the act?

Mr. Brinkmann: Well, Your Honor, we believe that the Secretary is an individual, and as... in the authority that we've cited in our brief, Government officials can be considered persons depending on the context of the statute.

This was not a basis that any of the courts of appeals or the parties below raised as a challenge, and it has never been viewed as such, that she would be excluded from that.

Unidentified Justice: But the only reason she is suing is in her official capacity, in which case she's really no different from the agency, and the agency doesn't have... the agency isn't defined as... in the statute--

Mr. Brinkmann: Your Honor, the--

Unidentified Justice: --as being a person.

Mr. Brinkmann: --the Director has particular duties under the statute to further public purposes under the act that the court of appeals didn't recognize.

The court of appeals had much too narrower a view of the Director's responsibilities under the act.

Unidentified Justice: But those responsibilities derived from the prerogatives and the interests of the agency, and it seems to me that the Secretary is in no different position than the agency is.

Mr. Brinkmann: Your Honor, the Secretary and the delegate, the Director, is a Government official acting on behalf of the agency, but she is not an official that is permitted to overrule the board ruling, so in her role as the policymaker under the act, she is vested with the right and the ability to seek judicial review of board rulings if she disagrees with them.

Unidentified Justice: But again, only by reason of her official connection to the agency.

Mr. Brinkmann: Yes, Your Honor, but we don't believe a person excludes that.

Under that rationale, a person in the structure of those definitions would also exclude employer, and not permit an employer--

Unidentified Justice: No.

No, because that includes corporation.

Mr. Brinkmann: --But an employer is elsewhere defined in that section, also.

We just think that the fact there's a separate provision explaining that the Secretary of Labor that is referred to when the term "Secretary" is used doesn't undermine the fact that the Secretary is included as a person.

Unidentified Justice: Well, it isn't that that undermines it, it's the fact that the definition is strikingly different from the definition in the Administrative Procedure Act, which has a similar provision about who has standing, and the language is almost the same, any person adversely affected or aggrieved may obtain review, and "person" is defined in the Administrative Procedure Act similar to the definition here, except it goes on to include public or private organization.

Mr. Brinkmann: Well, Your Honor, I think that in order to assess the Director's standing, it's important to focus on the structure of the Longshore & Harbor Workers' Compensation Act and the history of it.

At the time that the board was created, these provisions was created, it had been the longstanding recognition that the Director did have standing to appeal from the district court to the court of appeals.

In 1972, when these provisions were added, all that Congress did was replace the district court's role with the board's role, and there's no indication in the text or structure of the act that there was any intent to change the fact that the Director had standing to seek court of appeals review of that ruling.

Unidentified Justice: It's a strange... your argument is simply because the Secretary has policymaking concerns and policymaking interests, the Secretary is a person adversely affected.

Let's take a case in which an employer and employee get involved in a contract dispute under State law, and the employer wins on the ground that... the decisional ground is that the National Labor Relations Act preempts the contractual question.

Do you think that the Labor Board, even though it was not a party to that private contractual dispute, would have standing to appeal?

That's a... it's an awfully broad interpretation of when public officers have authority to go into court and continue litigation in which they are not personally at all involved.

Mr. Brinkmann: Your Honor, if I may, I think I have about three answers to that question.

Unidentified Justice: Okay.

Give me the best one first.

[Laughter]

Mr. Brinkmann: First of all, are our position is on the interest that... how Congress vested the Director with standing is not limited to the fact that she's a policymaking authority.

She is the Government official that's charged with ensuring that the act is lawfully administered.

Part of that interest is ensuring that claims are correctly determined under the act, and that is so because underlying this act are public purposes, both through the nature of a Workers'... Workmans' Compensation Program through the structure of the act, and the fact that employers and employees don't have incentives to protect those.

Unidentified Justice: Well, why is that different from the Labor Board?

Mr. Brinkmann: In this case, Congress set up this statute, set up the statutory scheme and designated the Secretary as the person to play that role.

The public purpose is including not just providing compensation to an injured or maritime worker, but ensuring that that payment comes from the industry fund so that the burden isn't placed on other public disability benefits for private charities, and also that payment serves as an incentive to the employer.

Unidentified Justice: Do you rely to any extent in this respect to her role as the person who proposes a compensation award?

In answering Justice Scalia's question about, is there something different from just any agency that's interested in the sound enforcement of the law, does she have an initiating role?

Does she participate in this proceeding in a way that doesn't happen in other agencies?

Mr. Brinkmann: Yes, there are many provisions throughout the statute that provide for the Director to have a specific role, in particular, the Director is charged with responsibility under section 939 with assisting claimant in the process and with assisting claimants in obtaining services such as rehabilitation services.

Unidentified Justice: In the proceeding, is what Justice Ginsburg is asking about.

In the proceeding before the board, does she play a part?

Mr. Brinkmann: Yes, Your Honor.

I think we have to step back all the way to the initiation of the proceeding.

In fact, under this statutory scheme, employers are obligated to make payment even without an award being entered.

If it's not controverted under 914(a), the employer has to pay even without an award.

At that stage, under 914(h) the Director has the authority to sua sponte initiate an investigation into that payment even if it's not controverted and there's no dispute about it.

On her own, she has the initiative to go in and investigate that to see if it's in compliance with the--

Unidentified Justice: Even if it's not controverted, or only if it's not controverted?

Mr. Brinkmann: --In either case.

Under another provision--

Unidentified Justice: Well, wait.

Now, if it is controverted, she has no authority, does she?

Mr. Brinkmann: --Yes.

Under 919, then, if it's controverted, the notice is filed with the Director and she is charged with an informal resolution period which she meets with the employer and the employee and attempts to achieve a resolution, and--

Unidentified Justice: But not as an advocate, as an impartial adjudicator, presumably.

Mr. Brinkmann: --The regulations make clear that at that stage she is charged with informing that as to... with her expertise under the scheme about the rigid framework for compensation under this scheme.

Congress set up a very clear mechanism for calculating the amount of compensation that a worker is entitled to under this scheme.

That's her role at that stage.

Then, it is referred... if an informal resolution is not achieved, it's referred to an ALJ for a hearing.

I should also point out, if it's settled, the parties cannot settle without the approval of the Director or the ALJ.

Congress also prohibits claimants from waiving their rights to claim.

Unidentified Justice: Could she appeal on the part of the employer, as well?

Mr. Brinkmann: Yes.

Unidentified Justice: Suppose the employer loses below, you could appear--

--Yes, Your Honor, and in fact in the O'Keefe case, which was a case that ultimately came to this Court through the Rasmussen case, the Director has proceeded... I wouldn't say necessarily on behalf of the employer or on behalf of the employee at that point.

She is pursuing the public's interest in ensuring that the correct compensation is paid, so that employers don't have to pay too much.

That also is inconsistent with the aims of this Workers Compensation Program that was set up to ensure that there were certainties and availability of awards for injured workers at the same time eliminating other legal rights of workers to sue.

What if the employee chooses not to sue?

Let's assume an employee who's entitled, in the Secretary's view, to compensation.

The employee chooses not to litigate at all.

Could the Secretary initiate litigation on that employee's behalf?

Mr. Brinkmann: Again, going back to the different phases, if there was an employer who was obligated to make an award, and was making an award, and the employee was satisfied with that but the employer thought... the director thought that it was not an... under 1914(h), she couldn't invest... initiate investigations, no.

At that point, the claimant and the employer usually come in and there's informal resolution, and that may lead to a settlement, that may... to an award that the Director can then issue, or the claimant--

Unidentified Justice: But it doesn't.

Let's assume it doesn't.

The employer listens and says, Secretary, I think you're wrong, I'm not going to pay any more than this, and the employee, a very complaisant kind of a person, says, that's okay with me.

I don't really want any more.

Can the Secretary initiate a suit before the board on the--

Mr. Brinkmann: --Your Honor, that's not a situation that has arisen, and we're not aware of the Director doing a claim... initiating a claim on her own.

For the most part--

Unidentified Justice: --But it seems to me strange that if the employer does go, gets a judgment from the board and says, it's good enough for me, she can take an appeal, but she can't go into the board in the first place, if he chooses not to go before the board.

That's very strange.

Mr. Brinkmann: --Your Honor, to the extent... I think most of the situations that you're referring to would be characterized as settlements that would require the approval of the Director if there was any kind of monetary payoff.

The act frankly is structured to prohibit collusion between employers and employees, for example, and this is why the employers and employees--

Unidentified Justice: May I interrupt for a minute?

I'm not sure I understand your answer to Justice Scalia's question.

You say they don't do it.

Could they do it?

Could the Director initiate a proceeding in the situation he posits, in your view?

Mr. Brinkmann: --I can think of a situation in which that may be possible.

As I said, Your Honor, that issue has not been litigated, and that frankly has not arisen as a practical matter, but, for example--

Unidentified Justice: But I still am curious, you know, what your construction of the statute is with regard to the power of the director to do it if she wants to.

Mr. Brinkmann: --I think that, for example, in a situation where an employee was preferring to obtain disability insurance benefits under the Social Security Administration Program, for example, in lieu of pursuing that, the Director would have an interest in the lawful administration of this act certainly by initiating an informal investigation.

And then at the point if there was still a lack of initiative by the claimant to view that as a settlement under the act that was not adequate and not approve it and commence proceedings under that authority--

Unidentified Justice: Practically, how would she even know about it if the claimant doesn't even initiate a claim?

Mr. Brinkmann: --There are all kinds of obligations on the employer and the employee--

Unidentified Justice: To report.

Mr. Brinkmann: --to notify... yes.

Yes.

It's a very rigid reporting scheme and compensation scheme, and the Director is involved in that throughout, and--

Unidentified Justice: Is there any scheme like this... apart from the Black Lung Benefits Act, in all of Federal claims, is there any other regime quite like this, with this split, and... well--

Mr. Brinkmann: --Not that... we believe that OSHRC and the Mine Safety Health Review Commission are the most analogous situations, although we concede those are different because their mission is wholly independent.

Unidentified Justice: --And the Secretary appears all the time.

Doesn't the agency there have prosecutory authority before the independent commission?

Mr. Brinkmann: Your Honor, the Director also has enforcement authority for boards here.

The only difference is, unlike those, here the Secretary, the Director enforces the award in district court.

Unidentified Justice: Not enforcing.

I'm talking about litigating, going in to initiate an action against the employer.

Mr. Brinkmann: Your Honor, Workers' Compensation schemes were set up to try and--

Unidentified Justice: But am I not correct that these other schemes that you're appealing to as being the same thing are schemes in which the Secretary or the agency goes in before the Commission as an aggressor, as a postulant, to seek relief?

Mr. Brinkmann: --That's certainly one of the roles that the Secretary--

Unidentified Justice: Which is not a role that at least has been played here.

Whether it might be or not, it hasn't been.

Mr. Brinkmann: --Your Honor, we believe, however, when we look at standing, when you look at the responsibility that the Secretary has been charged with under this act, for example, approving settlement, fostering informal resolution, entering awards, in the informal resolution process the Director does have authority to enter award.

Also, if there's a request for modification for an award, the Director has the authority to enter awards, so there are certain situations in which the Director does have that type of authority, and considering the overall structure of this and the public goals that underlie the act, it's only the Director that has the incentive to further those interests.

The Congress expressly recognized that by precluding the employer or employee from settling it, from waiving claims--

Unidentified Justice: I don't know why you say it's only the Secretary.

Why doesn't the employee have the interest?

I mean, you have the classic situation in all of these cases where one person is owed money, and you would normally expect that person to be... to have a keen enough interest to get the money.

Mr. Brinkmann: --Well, Your Honor, for example, if I go back to the situation where the employee also has an opportunity to receive compensation through the Social Security disability insurance, Workers' Compensation is offset to that relief, so there's no benefit if the employee can get this money from somewhere else, or from a private charity, perhaps.

If an employer wants to set up some kind of private charity to avoid this rigid framework, that's prohibited by this act.

That is the exact purpose, the effect that Congress was intending to preclude by setting up this framework so that the industry was charged with paying for these injuries according to a rigid schedule.

At the same time employees had to surrender rights, and... to further the safety incentives placed on the employer.

That's I think a very unique aspect of the public interest that must be furthered by a Government official under the Workers' Compensation scheme.

Unidentified Justice: Is there any difference in looking at standing, that here we're dealing with a Government enforcer, an article II entity, as distinguished from... from your brief, I gather you're treating this just like citizens' standing.

Do you get anything extra because this is an Article II official?

Mr. Brinkmann: Absolutely, Your Honor.

We do cite several cases in our brief concerning the Government official's standing to enforce public duty.

For example, on page 15, one of the cases we cite is the SEC v. United States Realty & Improvement Company.

That was a situation in which the SEC went into bankruptcy court to further the public interest in ensuring that the proper bankruptcy proceeding was followed.

They moved to dismiss the proceeding that had already done, arguing that they should have been proceeding under another provision, and the Court upheld the SEC's position to, standing to intervene in that case, and the standing to appeal when they lost.

We believe that that's an analogous situation here, and when Government officials are enforcing the public duties that Congress has charged them with enforcing and administering, that that is a different situation than just a private party attempting to establish standing.

Unidentified Justice: And you take the position that the Director has standing to appeal here even if the employee opposes it and might stand to lose benefits as a result of the appeal?

Mr. Brinkmann: We believe... yes, Your Honor.

We believe that if the Director believes that the board erroneously charged the employer too much under the, again, the rigid scheme set up for calculating compensation, yes, it is furthering the public interest to appeal that determination.

Unidentified Justice: Well, you know, if we disagree and think that under the language and scheme of this statute that there is no standing in this situation, what are the practical results of it?

Can't the Director ultimately see to it that the policies are carried out by other means?

Mr. Brinkmann: Your Honor, frankly, because of the unique structure that Congress set up, this Commission is a creature of Congress, not a creature of agency as in most other instances.

Congress set up this Benefits Review Board, and the Secretary does not have authority to overrule those rulings.

Review of that goes to the court.

Unidentified Justice: Who appoints the members?

Mr. Brinkmann: The Secretary.

Unidentified Justice: I still have exactly the question that Justice O'Connor had.

That is, there is an employer, and an employee, and there's some transfer of money.

The employer doesn't care.

He's satisfied.

The employee is satisfied.

He doesn't care.

In any case in which in any money whatsoever that belongs to the public would be at stake, and there are because of the funds, there is standing, so we're not talking about that.

In any future case, where the law is wrong according to the Secretary, you can always file an amicus brief.

She may be a party.

So what is the practical difference?

What do you care if, in fact, in one case where nothing is at stake for the Government, except maybe the board got it wrong, what difference does it make to anyone--

Mr. Brinkmann: It makes a difference--

Unidentified Justice: --practically?

Mr. Brinkmann: --It makes a difference if, in the same reason as settlement, that both parties agree to but the Director disapproves makes a difference.

Unidentified Justice: Why?

Mr. Brinkmann: Because there's certain public interests underlying it.

Unidentified Justice: What?

Mr. Brinkmann: That it is the industry that should be charged to compensate according to a rigid scheme.

For example, Your Honor, if in every case the employer was willing to pay 80 cents on the dollar, that would be something that would completely undermine Congress' purpose.

Unidentified Justice: Well, if the employer wants to pay 80 cents--

Mr. Brinkmann: At the same time, every employee might be willing to accept--

Unidentified Justice: --Sorry.

Then let's take that example.

Let's suppose an employer wants to pay 80 cents, and the employer says, great, the employee says, great, neither of them care whatsoever.

No public money is at stake.

In any future case where the law generally is at issue, you can file an amicus brief.

All right, how does that hurt anybody or anything?

Mr. Brinkmann: --Congress intended that the Director have the authority to ensure that the compensation award is adequate and not subject... not a result of duress by giving her the express approval to reject settlements under section 908(i).

That is the type of--

Unidentified Justice: She can reject a settlement even though both parties are satisfied with it?

Mr. Brinkmann: --Yes.

Also, Justice Breyer, under your scenario, the issue eludes judicial review forever.

It's only according to happenstance, to await a private litigant to have the incentive to go to judicial review of the incorrect interpretation of the act that the Secretary is charged with administering and enforcing.

Unidentified Justice: Isn't your strongest argument that... not that the Secretary's interest is in seeing that the right amount is paid, but in something you alluded to a moment ago, and that is, if the Secretary cannot ensure that the right amount is paid, the Secretary ultimately has no basis for, or the Government has no basis in its own right to induce employers to follow safety standards?

Is the ultimate goal that your argument appeals to the safety standard argument rather than compensation, as such?

Mr. Brinkmann: Certainly, Your Honor, we believe that the safety incentive was a strong underlying purpose of the act, and part of that is also to make sure that it is the industry and not some other public benefit program or private charity that is burdened.

Unidentified Justice: Okay.

How do we assess the significance of the Secretary's lack of standing in ultimately imposing safety standard?

Aren't there other, more direct ways to impose appropriate safety standards?

Mr. Brinkmann: Certainly there are, but we're looking at what Congress did, and what Congress... what responsibilities Congress charged the Secretary with, and that's usually with standing because of those responsibilities.

The fact that Congress may also have pursued other means for achieving the same result doesn't undermine the fact that in this particular case that's what Congress intended.

I can also provide a very specific example of another role of the Secretary's that would be undermined by this particular situation.

Under 939(c) she's directly charged with assisting claims to obtain rehabilitation services.

As it stands under the board's incorrect interpretation of the act, the Secretary is put in the position of being able to... not being able to recommend pursuit of rehabilitation services consistent with her view of it, which would permit a claimant to continue to receive total disability benefits during that period, where the board's ruling would cut that back to partial disability benefits retroactively in this case.

If I may, Your Honor--

Unidentified Justice: Could I ask--

--Wait, just before you sit down, I'd like... I mean, you're talking about what Congress wanted.

The words "adversely affected or aggrieved" are words of art, aren't they?

They come out of Sanders Brothers.

They underlie the APA, and there's no case which I'm aware of in which those words were interpreted to protect an interest simply in seeing that the law is properly administered, or properly interpreted.

Mr. Brinkmann: --Your Honor--

Unidentified Justice: I don't know of any others.

So if we're looking at what Congress intended, wouldn't we follow those words as words of art with a long meaning?

Mr. Brinkmann: --I think it's crucial at that point, Your Honor, to look at the status of this program prior to the amendment of 1972.

The case that we cite in our brief makes clear under Glen Falls, there was no dispute--

Unidentified Justice: Before, I take it, the Secretary was in district court, why?

Defending an order?

Mr. Brinkmann: --Yes, Your Honor.

Unidentified Justice: Defending an order.

Mr. Brinkmann: But she was permitted without question to appeal to the court--

Unidentified Justice: Well, of course.

Was it her... whose order was it?

I may have that wrong.

Whose order was it?

Mr. Brinkmann: --The deputy commissioner was named--

Unidentified Justice: Fine.

Well--

Mr. Brinkmann: --as the respondent.

Unidentified Justice: --Well then, that's the difference.

Mr. Brinkmann: But Your Honor, in 1972, it's clear that what Congress wanted was to have the Director play a increased role in the adjudication process.

This would be cutting her back and tying her hands, in effect, and we believe that's inconsistent with the structure and history of the act.

If I may, Your Honor, I'd like to save the remainder--

Unidentified Justice: Very well, Ms. Brinkmann.

Mr. Postol, we'll hear from you.

ORAL ARGUMENT OF LAWRENCE P. POSTOL ON BEHALF OF THE RESPONDENTS

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

If I could follow up on Justice Breyer's question, because I think it's a key point, and that is, before the 1972 amendments, the Secretary of Labor never appealed her own agency decision.

The only time the Secretary of Labor would go from the district court to the court of appeals was to defend her agency's decision, which she can do now.

If at the court of appeals the agency decision is thrown out, then, of course, as a respondent, the agency is allowed to go petition this Court, but at no time for the first 45 years of the Longshore act... and we did a LEXIS search... never did the Secretary of Labor ever challenge her own decision, and that's to be expected.

The way the set-up was, you need an injunction against the Deputy Commissioner to challenge the Deputy Commissioner's decision.

The Secretary of Labor never sought an injunction against her own employee.

That was the picture that Congress saw in 1972.

There was no direct... the Department of Labor never challenged its own decision.

Just like every other agency in this town, there is no precedent for an agency challenging its own decision.

All the Congress did in 1972 was, they said, look, we don't like the idea that the Deputy Commissioner does administrative paperwork, tries to bring the parties together informally, and then there's also the judge, the adjudicator, so they said, we've got a better idea.

Deputy Commissioner, you just do administrative work, try to bring the parties together, but the decisionmaker, the adjudicator, will now be replaced.

Instead of the Deputy Commissioner, it will be the administrative law judge, and ultimately the Benefits Review Board.

Unidentified Justice: Mr. Postol, let me get this straight.

You say that if the board's decision is disagreed with by one of the parties before the board, and that party goes to court, and the court reverses the board, the board would then be able to appeal--

Mr. Postol: Well, the agency--

Unidentified Justice: --to us?

Mr. Postol: --whether it's--

Unidentified Justice: The agency would be able to appeal, even though the private individual is content with the court of appeals?

Mr. Postol: --Well, under appellate rule 15, the agency is a respondent, and theoretically a respondent... theoretically a respondent--

Unidentified Justice: The agency is a respondent?

How can the agency be a... the agency wasn't a party below.

Mr. Postol: --Under appellate rule 15, when there is an appeal of an agency decision, the agency is a respondent.

Whether it's the Benefits Review Board, or the Director, whoever the agency wants to name is a respondent.

Unidentified Justice: Gee, I thought that meant when there's an appeal... this is not an appeal of an agency decision, it's an appeal of the decision of the court of appeals.

Mr. Postol: Well, you could--

Unidentified Justice: But you... you're sure about that, then.

Mr. Postol: --No, I'm... I'm not.

Unidentified Justice: Well--

[Laughter]

Mr. Postol: I think... I think rule... I think that is in support of Rule 15.

I think Your Honor is correct in the sense that Congress never envisioned its agency being a litigant, and so I guess you could say the congressional--

Unidentified Justice: I mean, you're... it seems to me the structure you're proposing is even stranger than the one the Secretary is proposing, that the Secretary can come in at one level but not at the earlier level.

Mr. Postol: --I don't think so, Your Honor.

Let me explain why.

I think it is one thing to say the agency has a right to defend its own agency decision.

I don't think that is a novel concept.

Agencies do it all the time.

Now, whether in the Longshore act, where two private parties fight it, Congress ever envisioned that the agency would agree to go up to defend some decision.

Maybe you could come to the conclusion Congress never envisioned that.

But I think one thing is certain.

The agency... that Congress never envisioned an agency appealing its own decision, and I think if you look at the situation in 1972, that becomes clear, because in the first 45 years the agency never appealed its own decision.

Unidentified Justice: You would have no problem, then, with this agency appearing as a respondent in the court of appeals, or as an appellee.

Mr. Postol: Well, that's correct.

Unidentified Justice: That's okay.

Mr. Postol: As a prac... first of all--

Unidentified Justice: And they do have standing.

Mr. Postol: --They do not have standing.

They are a respondent under the law--

Unidentified Justice: Why don't they have standing there but they have standing here, at the next stage?

Mr. Postol: --Well, because to appear as a respondent is not standing.

To appear as respondent means that they defended the decision below, and presumably an agency you would think would want to defend its own decision.

Unidentified Justice: Is that right?

Everybody in the world can come in and defend cases before us as a party?

Mr. Postol: No.

Unidentified Justice: Why not?

Mr. Postol: Because that is--

Unidentified Justice: I thought it was because they don't have standing.

Mr. Postol: --Yes.

Unidentified Justice: All right.

Now, why does the agency have standing at this level to defend its decision, but not at the court of appeals level to defend its decision?

Mr. Postol: Well, because it doesn't have... because there is a difference between trying to challenge... standing is ability to challenge, to appeal.

Amicus curiae can come in to give their interest--

Unidentified Justice: They're not parties, though.

They're not parties, though.

Mr. Postol: --That is correct.

Unidentified Justice: But you're saying the agency has a right to come here as a plaintiff party, in effect, before this Court, but not to appear as a defendant party in the court of appeals.

Mr. Postol: Well, I'm saying that's an import of rule... appellate rule 15.

Your Honor may be right that under Article III they do not have standing because they do not have an interest.

Unidentified Justice: I guess the question was, initially it used to be simple a long time ago, I thought, where normally agencies issued orders and people who were aggrieved by those orders could go and fight them in court.

Obviously, the agency wouldn't be in there but to defend it, because it was the agency's order.

I take it that was the situation here before this new statute.

But now we have a new world.

It's as if Congress set up some other little agency--

Mr. Postol: But I--

Unidentified Justice: --or a board.

Now, obviously, the Secretary sometimes could be upset about what that board does.

It wasn't his or her order any more, it's the board's order, so our problem is what to do in this new world, where... and I don't know, the Solicitor General may or may not.

They may want to... they're saying, okay, it's all right if the agencies fight each other before other agencies.

Mr. Postol: --I don't--

Unidentified Justice: So it used to be that they could control it, but now Congress has these new... now, what should we do in this new world, where in fact the board may sometimes do something that the Secretary of Labor himself wouldn't want done?

Mr. Postol: --Your Honor, I think if you look at what Congress intended in 1972, they did not intend a new world.

Unidentified Justice: But they created one.

Mr. Postol: But they did not.

They did not.

All they said was, instead of the Deputy Commissioner issuing decisions, we don't want him to do that.

We're going to replace him by an administrative law judge and the board.

Unidentified Justice: Mr. Postol, would you concede that they did... Congress did intend a new world in the Black Lung Benefits Act, which is the only other act that I know of that's at all like... that's at all comparable with--

Mr. Postol: Well, but yes, they did grant the Director explicit standing in the Black Lung Act.

The Director has a much greater role in the Black Lung Act because oftentimes it is the Black Lung Fund that is paying the benefits.

Unidentified Justice: --Well, it's conceded by all around that there's standing where the fund, here the 8(f) fund, there the counterpart is at stake, but under both acts there are cases where there's no pecuniary interest of the Government at stake, and yet we know that Congress provided expressly, with the virtually identical regime, for standing.

Mr. Postol: But it isn't an identical regime?

Because under the Black Lung Act the Government says 30 percent of people can retire.

In a large percentage of the claims, there is no employer.

They can't identify the coal mine.

Unidentified Justice: Let's take the ones where they can.

If it's 30 percent, 40 percent, no matter, there's a significant number where they can.

Mr. Postol: I think in those cases it is true that Congress explicitly gave the Director standing.

I don't think that they have... that they have the power under Article III.

In those cases where the Director has no interest, I think that they exceed their power under Article III, that Article III says, you must have something at stake.

You must have an injury in fact.

That's all the decisions of this Court.

This Court has repeatedly held that no matter how vigorous someone believes that the decision below is not correct, that it's wrong, that that interest in correctness is not enough to have Article III standing, so that in the Black Lung Act, if the Director has nothing at stake, no financial interest, it is true that Congress gave them explicit standing, unlike the Longshore act.

I think, though, in those cases where the Director has nothing at stake, I think they exceeded their power under Article III.

Unidentified Justice: And couldn't come in as an intervenor either, if... let's say the employee initiated the review proceeding in court.

Mr. Postol: That is correct.

They could, of course, come in--

Unidentified Justice: Do you have an Article III problem with the Fair Labor Standards Act, the administrator enforcing the Fair Labor Standards Act at the initial level of enforcement?

Mr. Postol: --No, because under the Fair Labor Standards Act, just like under OSHA, the Department of Labor is the prosecutor.

They have... they stand in the place--

Unidentified Justice: Well, but for... I agree with you absolutely under the statute, but from the standpoint of Article III, why does an administrator under the Fair Labor Standards Act have any more or less interests than... for Article III purposes for injury in fact--

Mr. Postol: --Because--

Unidentified Justice: --than the administrator in the other cases we're talking about?

Mr. Postol: --Because in those cases Congress has said your job is to make sure the safety laws are enforced, or under the Fair Labor Standards Act, your job is to make sure the overtime laws are enforced.

Unidentified Justice: Well, suppose in this case Congress had said, it's your job to participate in all of these cases?

Mr. Postol: If Congress said, we want the Director to represent claimants, claimants who have a vested... there's something... there's an injury in fact, that Director, your job is to make sure they get the most money possible, that in fact they could have standing.

But that's not what Congress did.

What Congress said was, we're going to have an adjudicator, an administrator-adjudicator, and that's going to be the Benefits Review Board.

Now, the Director's point is, well, Congress made a mistake.

They should have said the Director, who didn't exist, by the way, in 1972, should be some kind of super adjudicator to overrule... try to overrule the Benefits Review Board, but that's not what Congress did.

Congress said, the final agency decision is the Benefits Review Board.

Unidentified Justice: Well, but the point is, Congress could have enacted it without an Article III problem.

It seems to me we have just a statutory problem before us.

Mr. Postol: That... if, in fact, they said that the Director's job was to maximize the claimant's benefits, then Your Honor would be correct, but the Government has conceded, in fact, that's not what they did.

In other words, Congress can give a Government agency an interest to protect, and then in protecting that interest they have standing, but merely having an interest in a 1) that wouldn't meet Article III standing.

Those... you've got to take sides.

You have to have a client to have standing.

That is the heart of the controversy, and that, frankly, is one of the problems the Director has always had.

At least twice before this Court they changed sides.

Why did they change sides?

Because they don't have anything at stake.

They're sitting there with some kind of super adjudicatory body, which I believe is this Court, and they're saying, well, maybe it should be this way, or maybe we're going to change our minds from the court of appeals here.

They have nothing at stake.

Therefore, they don't have the controversy, and therefore they don't have the standing, and similarly, even in the briefs before this Court they've changed their position.

In their petition for certiorari, they took the position that our job is to maximize the claimant's benefits.

When we challenged them in our response brief and said, look, you're an agency, then they changed their position and said no, we're not taking sides, we are here to help the Court decide what's the accurate decision.

But in fact, that's the Benefits Review Board.

That's what Congress created the Benefits Review Board to do.

Unidentified Justice: Why does an administrator have to be identified for all times and in all cases with one side alone in order to have a concrete stake?

Mr. Postol: Because otherwise he has nothing at stake.

Unidentified Justice: No.

Otherwise, he chooses, in effect, what to place at stake.

He's kind of like a... well, the analogy isn't right... sort of like a private lawyer who could represent a plaintiff or a defendant--

Mr. Postol: Sure, if--

Unidentified Justice: --and in one case chooses one, in another chooses the other.

There may, from the administrator's standpoint, the Director's standpoint, be something very much at stake in each case.

Mr. Postol: --But Congress has to tell the agency, has to give them that interest.

The agency can't assume it itself.

In effect--

Unidentified Justice: Why can't Congress give the agency the choice and say, if you... if you as someone charged with the appropriate administration of the statute believe that something is at stake which merits your taking the position of the employer in one case or the employee in another case, so long as there is something concrete at stake in each of those cases, you may have the choice.

Mr. Postol: --One is--

Unidentified Justice: Why can't Congress do that?

Mr. Postol: --One is Congress would have to do it, which they did not.

Secondly, as Your Honor points out--

Unidentified Justice: Well, it didn't do it... it didn't do it very clearly, but we might say that's what Congress intended.

Mr. Postol: --Then the director would have to tell the Court in this case what is the concrete thing that they're protecting?

Whether Mr. Harcum gets paid or not has nothing to do with the safety standard, it has nothing to do with vocational rehabilitation, because--

Unidentified Justice: Well, but your opponent says that's a short view, because ultimately if there is an appropriate administration on a case-by-case basis, the safety standards or the inducement to follow them will take care of itself.

Mr. Postol: --Well, in each particular case, they're going to have to establish standards.

This Court has made clear you have to do that in each case, and certainly in this case there's nothing there.

Now, maybe they can come up with a case--

Unidentified Justice: Could I interrupt with a question that helps me along the lines of Justice Souter?

Do you agree they have standing to approve or disapprove of settlements before the proceeding gets started?

Mr. Postol: --Well, that... yes, they do, at the administrative level.

Interestingly enough, Congress enacted... in section 8(i) of the act, if the Director doesn't approve a settlement, either party has a right to go de novo to the administrative law judge and ultimately the Benefits Review Board to overrule the Director's decision, so that's--

Unidentified Justice: No, but you do recognize that they have a sufficient interest in the proceeding to be able to say yes or no to settlement--

Mr. Postol: --Yes.

Unidentified Justice: --at the--

Mr. Postol: Well, Congress--

Unidentified Justice: --Why, then, is this not analogous, if the... an employee decides not to seek further review and accept what's on the table, isn't that in the nature of a settlement?

Why wouldn't they have the same kind of standing to say, no, you can't make that particular deal?

Mr. Postol: --Because in section 8(i) Congress explicitly said, Director, we want you to ultimately rule on the settlement, but although the administrative law judge and Benefits Review Board then has a right to appeal.

In this case they didn't do that.

They didn't say, we want... and they knew how to do it in the Black Lung Act.

They said, you have standing in all cases.

They did not do that in this case.

Unidentified Justice: Your argument on this point is entirely statutory?

Mr. Postol: Well, it can be both.

I think the easy way--

Unidentified Justice: Well, but let me back up a little.

In constitutional Article III terms, is there a difference between the standing to approve or disapprove settlements before the proceeding begins and approve or disapprove termination of appellate proceedings?

Mr. Postol: --Yes, there is.

The difference is, Congress, under section 8(i), gave the Director the duty to make sure the settlement was fair.

Therefore, Congress--

Unidentified Justice: But if we read the statute to say they intended the same duty as to the intermediate proceeding, why wouldn't the article III issue be the same?

If we read the statute that way, and I understand you--

Mr. Postol: --Sure.

Unidentified Justice: --say we should not.

Mr. Postol: I think... sure.

You could say that... well, I'm not... no, I do not believe so.

I think if Congress said, Director, we want you to make sure every decision is correct, I think this is what we'd have a hard time saying.

That vague correctness is enough.

I think you need something more--

Unidentified Justice: It's enough at the trial level, but not at the appellate level.

Mr. Postol: --No, I--

Unidentified Justice: You must make sure every settlement is fair at the trial level, but abandonment of appeal as a species of settlement, you don't have the same--

Mr. Postol: --I don't think they could go to the court of appeals on the standing... on the settlement.

In other words, the settlement level is all structured at the administrative level.

They have at the administrative level the agency... Congress has said the agency could decide if it's appropriate.

I think the... then they can go to the ALJ, and the benefits Review Board, because that's the agency.

The agency--

Unidentified Justice: --You're saying there's no Article III issue at that point?

Mr. Postol: --I think at the agency level I do not believe there's an Article III standing.

Unidentified Justice: Your primary argument is not Article III, as I understand it.

It's just that adversely affected or agreed within the meaning of the statute here does not--

Mr. Postol: That's correct.

Unidentified Justice: --Does embrace it.

Mr. Postol: I think if you look at the... our main argument is, if you look at the '72 amendments, there was no such thing as the agency appealing the decision, and there's nothing in the '72 amendments that suggests that Congress envisioned the Department of Labor to all of a sudden start appealing its own decisions.

Unidentified Justice: And you're not relying, as I understand it, upon the definition of "person".

That is not an argument you're making.

Mr. Postol: Well, I think if Your Honor rejects... well, no, I think we are, as an alternative.

Unidentified Justice: I don't think you are, because you acknowledge that the Secretary would have standing if the Secretary's fund were affected.

Mr. Postol: No.

I think--

Unidentified Justice: You don't acknowledge that?

Mr. Postol: --I don't acknowledge that.

Unidentified Justice: You don't?

Mr. Postol: I think that is an argument.

I do not think that... well--

Unidentified Justice: I thought you'd given that away.

Mr. Postol: --You're right.

Let me back up.

Unidentified Justice: If you don't want to give it away--

Mr. Postol: No, no--

Unidentified Justice: --then you can rely on person--

Mr. Postol: --I do precisely... I agree that under Article III, Congress could give them standing to protect the fund.

What I don't agree with is that Congress did that.

Unidentified Justice: --Did that.

Mr. Postol: But you see, I think Congress said, when the agency rules to its Benefits Review Board, the agency is done.

Unidentified Justice: That's it.

Mr. Postol: All right.

Now, if Congress wanted to, they could say in... that--

Unidentified Justice: You're saying, protect the fund by appointing good people to the Benefits Review Board.

That's--

Mr. Postol: --They could do that.

Unidentified Justice: --That's the Secretary's--

Mr. Postol: They have the ultimate power.

They have the power to hire and fire the Benefits Review Board.

Unidentified Justice: --It is the Benefits Review Board also under the Black Lung Act.

Mr. Postol: Yes, it is.

Unidentified Justice: So it's--

Mr. Postol: It's the same agency.

Unidentified Justice: --Right.

But now, in answer to Justice Scalia, you seem to be making a purely statutory argument so that you'd have a dysjunction, if we accepted that argument.

Congress appeared to have meant to have the same regime govern both acts--

Mr. Postol: Yes.

Unidentified Justice: --is that not so?

Mr. Postol: That is correct.

But in the Black Lung Act, they said the Director has standing, and I think, as I pointed out in our brief, there's some logic to that, because in the Black Lung cases oftentimes the Director is protecting the Black Lung Fund.

Unidentified Justice: Am I right that we just... we got into this only because the Fourth Circuit raised the question on its own motion, and it did so because it thought that there was an Article III infirmity?

Mr. Postol: Well, they raised it on their own.

They did not rule on the Article III.

what they said is, the affected and aggrieved standard is, in fact, identical to Article III, and we don't think that they are aggrieved or affected, so the Fourth Circuit equated the statutory definition with the Article III standard, and therefore didn't differentiate.

If I can--

Unidentified Justice: I assume that it's a question that the Court would have to raise sua sponte, whether the lack of standing is a constitutional lack or a statutory lack.

If you have a case before you in which someone does not have statutory standing, I suppose that's a case over which you have no jurisdiction, so the mere fact that the court below raised it sua sponte doesn't mean that the court below was necessarily relying on constitutional grounds, isn't that right?

Mr. Postol: --That is correct.

If they have no subject matter jurisdiction, they have no subject matter jurisdiction and they have to raise it.

May I go back to a point the Court raised earlier with the Solicitor, and that is, to understand the plaintiff's procedure, the fact is that the Director cannot file a claim.

Under section 12 and 13 of the act, an employee must give notice of his injury, and within 1 year, under section 13, a claim, the injured party must file a claim.

The fact is, if the injured party does not file a claim, the Department of Labor cannot do anything about it.

They are not some kind of super prosecutor.

They are simply administrators, so that if the claimant decides, I don't want to file a claim, I was injured at work, but so be it, I don't want any money, the Director can't initiate the claims proceeding.

In addition--

Unidentified Justice: Is that any different under the Black Lungs Act?

Mr. Postol: --I'm not sure, Your Honor.

I tried a lot of Longshore cases.

I've never tried a Black Lung case.

I believe that they have to file a claim as well, but I'm not positive of that.

So that 1) the Director can't start the proceeding, so they have no control.

Secondly, the Solicitor relies heavily on the fact that there is this administrative proceeding in which the Deputy Commissioner, now called District Directors, tries to bring the parties together, tries to get them to settle, but look what Congress did with that.

Congress said, that's fine and good, but we're separating the administration from the adjudication, so when you go to the administrative law judge level, it's a de novo hearing.

Nothing that happened before the administrator, the Deputy Commissioner, is in evidence.

His ruling has no effect.

That's how Congress set it up.

They then put an agency in, the Benefits Review Board, to give the final agency decision.

Nowhere in there did they suggest that there would be some other part of the Department of Labor, because, in fact, when they amended the act in '72, there was no such thing.

And in fact, as Justice Scalia's question raised, if this agency has a right to intervene whenever it thinks a decision is wrong, then why can't the NLRB go around and say, this was a bad decision.

We think it hurts labor unions.

We would like to appeal.

So I think while the... you could decide this on Article III grounds, I think there's a simple, easy way to decide it, and that is, in 1972, for the first 45 years, the agency never appealed its own decisions.

When Congress amended the act, and simply substituted the Benefits Review Board for the ultimate agency decision instead of the Deputy Commissioner, it changed nothing.

It did not expect, it did not envision, and it did not authorize some creature to develop in the Department of Labor to then appeal one delegee's of the Secretary of Labor, the Benefit Review Board's decision.

If there are no more questions, despite the fact these nice lights haven't gone on yet, I think I've made all my points.

Chief Justice Rehnquist: Thank you, Mr. Postol.

Ms. Brinkmann, you have 1 minute remaining.

REBUTTAL ARGUMENT OF BETH S. BRINKMANN ON BEHALF OF THE PETITIONER

Mr. Brinkmann: Your Honor, the practical consequences to rule adversely would be that incorrect interpretations by the board would be binding on ALJ's even though the Director is the Government official charged with ensuring that the act is properly administered.

Also, the reason there was no appeals prior to 1972 was because it was not... it was a unitary scheme at that point in time.

In 1972, Congress intended to enlarge the Secretary's role in the adjudication of claims.

Third, I'd like to go back to the fact that the fact that the Director and the Secretary did not exercise the authority to instigate claims, we do believe under section 914 her authority to--

Chief Justice Rehnquist: Your time has expired, Ms. Brinkmann.

Mr. Brinkmann: --Thank you, Your Honor.

Chief Justice Rehnquist: The case is submitted.

Attribution:

The Oyez Project

Featured:

Holmes v. Securities Investor Protection Corporation - Oral Argument

Fri, 09 Jan 2009 14:49:31 +0000

Case:

Holmes v. Securities Investor Protection Corporation

Media File:

90-727_19911113-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Jack I. Samet

Chief Justice Rehnquist: We'll hear argument now in No. 90-727, Robert G. Holmes v. The Securities Investor Protection Corporation.

Mr. Samet.

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

The question this case presents is whether a party, which was neither a purchaser nor seller of securities, and for that reason lacks standing to sue for securities fraud under the Exchange Act, section 10(b) and rule 10b-5, may nevertheless sue for the same conduct... security-based fraud in the sale of securities... as a predicate act of racketeering activity under RICO.

In order to answer this question, the Court will be called upon to construe section 1964--

Unknown Speaker: Did you say predicate act?

Mr. Samet: --Yes, a predicate act of racketeering activity.

Unknown Speaker: Not a predicate crime, is that it?

Mr. Samet: Well, I think they're pretty much--

Unknown Speaker: Or a predicate violation of law?

Mr. Samet: --Well, I would prefer the term "predicate act" because it's neutral.

As you'll see in my argument, I don't think necessarily all of these things are crimes, although I believe the overwhelming import in the criminal portion of RICO is to delineate crimes.

I think when we're talking about--

Unknown Speaker: This is civil?

Mr. Samet: --civil RICO, we're not speaking about crimes.

I think we're speaking about a crime only in so far as it a... as it is a component of an element of a civil cause of action.

I think it makes a difference, and I'll try to get to that.

But I do agree that RICO is a criminal act, and that it purports to delineate crimes, but it also purports to delineate acts more generally.

Unknown Speaker: Yeah, but you're going to be... I suppose you're going to be arguing that if this conduct wasn't a violation of the securities law, it can't be a predicate act.

Mr. Samet: You're absolutely correct.

That is exactly--

Unknown Speaker: But aren't you arguing then that the act has to be a violation of the securities law?

Mr. Samet: --The act... well, there are different schools of thought as to what--

Unknown Speaker: Well, you go ahead.

I'm sorry I interrupted.

Mr. Samet: --No, there are different schools of thought as to exactly what the nature of the conduct is that defines the RICO predicate acts.

In any event, this Court will be called upon to construe the following three key phrases.

Section 1964(c) states, any person injured in his business or property... and the Court will be called upon to construe the meaning of

"injured in his business or property. "

--by reason of... and the Court will be called upon to construe the meaning of the phrase 1962.

And that, Justice White, gets into your question about what is a violation of 1962.

I think the RICO Act means 1962 defines certain wrongful acts or crimes, whatever you like, and it then incorporates... it says you cannot commit a pattern of racketeering activity with respect to these crimes or acts.

And then the definition of racketeering activity in section 1961 lists about 36 crimes or acts, and one of them is fraud in the sale of securities.

That's the one we'll be talking about today.

Unknown Speaker: May I just interrupt there?

Mr. Samet: Sure.

Unknown Speaker: Do you not assume for purpose of your argument that such a fraud actually occurred, that there was a predicate act.

You just challenge the causal connection between it and your client.

Mr. Samet: I must assume it in this posture of the case because we're here on a motion for summary judgment.

At trial we'll contest it, but I do agree that for purpose of this argument we assume there was a fraud because it--

Unknown Speaker: And therefore... and also a predicate act.

Mr. Samet: --Well, no, I think not.

Because there was no standing.

I think, absent standing, there--

Unknown Speaker: Well, but standing doesn't affect whether the act occurred, does it?

Because... it affects whether--

Mr. Samet: --Well, I think it does the way... I'm sorry.

Go ahead.

Unknown Speaker: --Well, I can understand your argument that there's no standing here, no causal connection and all, but if the violation of 10b occurred, and that's a predicate act within the statute, I don't understand why you don't concede there was a predicate act, but merely argue that it didn't have the necessary causal connection.

Mr. Samet: Because I think... well, I do make those additional arguments, but I think standing is an element of the cause of the civil cause of action, which is what I think RICO intends to incorporate when it talks about fraud in the sale of securities.

Unknown Speaker: Do you think Blue Chip holds that in 10b-5, that there's no 10b-5 violation at all?

Mr. Samet: No, but I think that the Blue Chip means that there's no 10b violation for which anyone can sue if there's no standing.

And RICO is intended, I believe, to incorporate the wisdom of Blue Chip.

So I think they are related to each other.

I think... I think that the restatement of the question here essentially is, is the Securities Investor Protection Corporation, SIPC, a person or a party that was injured by reason of this alleged fraud in the sale of securities.

Unknown Speaker: Isn't it agreed that SIPC is simply here standing in the shoes of investors who themselves could not have met the Birnbaum test?

Mr. Samet: Not at all, Your Honor.

Not at all, Chief Justice.

For the reason that I believe that the record shows and the law is that SIPC is not subrogated to any of those claims.

There are two... SIPC essentially paid out money to two categories of investors, people who were customers of the failed brokerage firm.

They paid out money to investors who bought and sold the allegedly manipulated securities, and they paid out money to people who didn't.

Now, as to the people who did buy and sell the allegedly manipulated securities, they commenced a class action.

It was settled.

They got their recovery.

So SIPC can't be subrogated to their claim, because it's already been exercised.

As to the people who didn't buy or sell the allegedly manipulated securities, SIPC can't be subrogated to their claim because they, like SIPC, are too remote from the event to have a claim in the first place.

Furthermore, the Ninth Circuit held that the only way SIPC can acquire a subrogation right... and this is in an earlier case.

This is the third time this case has reached the Ninth Circuit.

In an earlier case, which is in the record, the Ninth Circuit held that SIPC is subrogated to any fraud claims if and only if the brokers who SIPC came in to pay out exercised unauthorized use of customer funds to buy the manipulated securities.

That didn't happen.

Discovery has established that didn't happen, so there's no fraud claim for SIPC to be subrogated to.

And therefore, SIPC cannot come here as a subrogee.

We must look at SIPC only as SIPC and ensure, if you will, that paid out monies, and not as a subrogee, because there is no subrogation.

In addition, Your Honor... I'm sorry, Chief Justice--

Unknown Speaker: Can I interrupt for... right there?

Mr. Samet: --Sure.

Unknown Speaker: As to the category of customers who purchased or sold the manipulated securities, and who had their own class action and recovered some of their own money, did that recovery not reduce the obligation of SIPC to pay to them their losses?

Mr. Samet: I don't think it worked that way.

It probably should have--

Unknown Speaker: So they got a double recovery, in effect?

Mr. Samet: --That's the problem.

That's... you have hit, Justice Stevens, on exactly the problem of allowing SIPC a recovery here.

There would be a double recovery, and since it's RICO, it would be a sextuple recovery.

Unknown Speaker: Well, we didn't grant certiorari to review SIPC's separate standing.

We thought we were taking a case that simply involved a question of, for instance, posed in section 2 of the questions presented, whether a person has standing under RICO when they wouldn't have if they were just going under a straight Securities Act claim.

Why do we need to get into all of these ramifications of what SIPC did or didn't do?

Mr. Samet: I don't think you do.

SIPC's brief raises them, and therefore, I'm responding to the questions from the Court and anticipating them in SIPC's position.

But I will tell you, totally apart from the uniqueness of SIPC... and I agree, that's not the larger, more interesting question.

The larger, more interesting question is do we have... you're looking at SIPC as SIPC, not as a subrogee... do we have a situation in which SIPC was injured by reason of the alleged violation.

And I'd like to get into the facts and show why I think we do not have such a situation.

Unknown Speaker: Well, let me just ask you one question.

I think it's related to what we've granted certiorari.

Supposing there had been no lawsuit by the customers of these firms that had purchased and sold securities, that they lost their money when the brokerage firm went bankrupt.

And the amount paid by SIPC to them was precisely the amount that they lost in making purchases and sales of the manipulated securities.

Would you say, then, that there was no standing on the part of SIPC to reimburse?

Mr. Samet: No.

If in fact it was a valid subrogation to people who had a claim, who were themselves purchasers and seilers of securities, there would be a... there would be standing, and I wouldn't be able to make the argument I'm making.

I'm making the argument--

Unknown Speaker: So doesn't our answer in this case depend on the extent to which there is subrogation of claims of purchasers or... the extent to which SIPC reimbursed persons who had valid claims?

Mr. Samet: --Unfortunately, in part, it does.

This is not a case that purely raises the purchaser-seller issue.

It does raise these related questions of who SIPC is and what it did.

But I'm trying to address, and I think the Court is most interested in, the pure question.

Unfortunately, the question of less general interest comes from this record and cannot be avoided.

But discussing the pure general question of do we have here... is SIPC, in its own capacity, a purchaser or seller of securities, which it clearly was not, and therefore, does it have standing, I'd like to ask the Court to look at the key phrases in RICO.

First,

"the injured in his business or property. "

phrase.

What that has come to mean in the decisions of this Court and other courts is essentially that a person must be directly injured in their business or property.

If, for example, a corporation is the target of a racketeering act, a shareholder cannot sue for injury to the corporation because the shareholder was not the direct victim; the corporation was.

Cases have held that if a union is the target of racketeering activity, the union member may not sue for RICO because it was not the directly injured victim; the union was.

Well, here--

Unknown Speaker: So that argument is the same whether or not it's a securities violation, which is the alleged predicate act, or any other violation?

Mr. Samet: --Absolutely.

That's absolutely correct.

And here... indeed, I think the purchase of seller implication in the doctrine of standing comes directly from the general principals of RICO.

You don't have to focus on securities law to reach the same conclusion.

I completely agree with you, Justice Kennedy, that looking at the general concept of RICO, SIPC here is not a person who was directly injured.

The direct victims--

Unknown Speaker: But your argument depends on our looking first to find out in what capacity SIPC brought the suit, whether it was subrogee for purchasers of manipulated securities or something else.

Mr. Samet: --It doesn't matter, Justice O'Connor.

You reach the same result either way because, on this record, there is nothing for SIPC to be subrogated to, and therefore, this Court is faced with a pure question.

If there were a viable argument that SIPC is subrogated to a claim, then you could go off on a subrogation issue.

But there isn't.

SIPC isn't subrogated to anything.

I'm addressing that because SIPC talks about it.

But if one accepts the notion that SIPC isn't subrogated to anything, then one reaches the general question.

And I think that's this case.

I think SIPC is subrogated to nothing, and we reach the general question.

And the general question... the first proposition on the general question is that we do not have a party that was directly injured.

SIPC was not directly injured.

If there were direct victims, it were the purchasers and sellers of these allegedly manipulated securities, not SIPC.

The second important point, I believe, is that any injury to SIPC was not by reason of the alleged fraud in... of the sale of securities.

And what I mean by that is that this Court has said in Sedima, SIPC paying out money.

Here there were many, many intervening events.

The harm complained of operated on the purchasers and sellers of securities.

Now, in addition, for that to happen, it had to be the case that these two brokerage firms took a large position in the allegedly manipulated securities.

And it had to be the case that the brokerage firms were otherwise in precarious financial condition, and therefore, taking this position and these securities caused their financial demise.

It had to be the case that SIPC comes in and says, well, let's make the failure of these brokerage firms subject to SIPA.

And it had to be the case that the composition of the assets of the defunct brokerage firms was such that they could not pay out or simply give to the customers of the brokerage firms their securities.

All of those events, none of which were intended or foreseen by the persons that allegedly committed the securities fraud, had to occur before SIPC would sustain the loss that it sustained.

This is causation run rampant, attenuated causation, the kind of speculation in causation that goes way beyond the bounds of proximate cause and should not be tolerated.

Unknown Speaker: Mr. Samet--

--May I interrupt there?

You've put in an awful lot of events.

Supposing that all that was involved is that the brokerage firm itself had taken a large position in manipulated securities and there... and that was the only thing that caused it to fail.

And as a result of the failure, SIPC had to pay a lot of money to its customers.

Mr. Samet: Well, we have an even clearer case here because the brokerage firm... the trustees of the brokerage firm are themselves parties to the action, the brokerage firm did take a position in the securities, and we're not challenging the trustees' standing.

We're challenging SIPC's standing.

So I agree with the implication of your question that if the brokerage firm was itself a purchaser or seller, we wouldn't have the argument we have.

But it's SIPC that's coming in, and they're not a purchaser or seller, and therefore, we have the argument on standing that we wouldn't if the brokerage firm were the only plaintiff, or the trustees were the only plaintiffs.

Unknown Speaker: I'm still not sure what your answer is.

If the record showed that the only reason the firm failed was because it made purchases of the manipulated securities, and that's the only reason SIPC paid any money to the firm, would there be sufficient direct causation?

Mr. Samet: That would be a closer, harder question.

It's not the question we now have--

Unknown Speaker: Well, what's the answer to that question?

Mr. Samet: --Well, that's the one you don't have to write an opinion on.

I would--

Unknown Speaker: Well, but I think you're general approach to it might decide that case.

Mr. Samet: --I don't think so.

Unknown Speaker: Because you said, as I understand you, that unless SIPC itself were a purchaser or seller of securities, it has no RICO claim.

Mr. Samet: Well, I think the logic of the general approach, and I agree you presented a tougher case than the one we have here today, but the logic of the general approach is that if you ain't a purchaser or seller, you ain't got standing.

Unknown Speaker: I'm surprised you found that a hard question, Mr. Samet.

I... given your approach, I would think that's an easy question.

Mr. Samet: Well, I think any question this Court poses, I recognize is a hard question.

Unknown Speaker: Well, unless you think that somehow, simply because you are a but for... a but-for cause is a direct cause.

Mr. Samet: No, a but-for cause is not a--

Unknown Speaker: All that the question showed is a clear but-for cause.

Is there no difference between a but-for cause and a direct cause?

Mr. Samet: --Well, are you using direct cause in the sense of proximate cause or not in your question?

Unknown Speaker: That's the way you're using it, isn't it?

I'm using it the way you're using it.

I thought you meant proximate cause.

Mr. Samet: I do.

I do.

Unknown Speaker: Well, one could be a but-for cause without being a proximate cause.

Mr. Samet: Absolutely.

Absolutely.

And that's what we have--

Unknown Speaker: So then why was it a hard question?

Mr. Samet: --That's what we... as I say, I'm trying to be polite and respectful.

I think I've answered the question, I didn't find it that hard to do.

Unknown Speaker: xxx anyway.

Mr. Samet: Maybe it wasn't that hard, but in any event--

Unknown Speaker: Then again, what is the answer?

[Laughter]

Mr. Samet: --The answer is, in my view, if you are not a purchaser or seller you are not causally connected, proximate cause, by reason of the alleged harm.

That's my answer.

But again, I can see where you're coming from, and I think I can--

Unknown Speaker: Even though... even though but for the illegal conduct, the SIPC would not have had to pay any money.

Mr. Samet: --Yes.

And that's Justice Scalia... that's the point in Justice Scalia's question.

There's a difference between but-for causation and proximate causation, and I do want to be clear about that, if I wasn't clear about anything else.

But-for causation is not enough to establish the by reason of requirement to be satisfied.

It's got to be proximate causation.

I don't think there is proximate causation if you're not a purchaser or seller of securities.

I don't think you can get that causal connection.

Unknown Speaker: Now what if the predicate acts relied on are wire fraud or mail fraud?

Does that alter the analysis in some way?

Mr. Samet: I'm very glad you raised that question.

I don't think it alters the analysis at all.

And indeed, what has happened in litigation generally, and in this litigation, is people with a simple turn of phrase... and that's what SIPC did in this complaint, they pled alternatively securities fraud and/or wire and mail fraud.

But the analysis is exactly the same.

Unknown Speaker: Well, of course, for wire fraud or for mail fraud, do you still have to... you say there still has to be a purchaser or seller?

Mr. Samet: Yes, for the reason that the provisions of 1964(c), the requirement that injury be to a person's business or property, meaning direct injury, and that the injury be by reason of, meaning proximate causal connection, those two requirements come from 1964(c), which applies to all predicate acts.

And therefore, they apply whether you're talking wire/mail fraud, or whether you're talking securities fraud.

Unknown Speaker: Well, then as presented so far, your argument doesn't depend on our opinion in Blue Chip Stamps.

It's an interpretation of the RICO section itself.

Mr. Samet: That's absolutely true, Mr. Chief Justice, but you were correct in saying as presented so far.

I've not gotten to the point yet, as I'm about to, to discuss Blue Chip.

Unknown Speaker: You're getting to the third point, are you?

Mr. Samet: I've got at least three, yes.

Three, and I'll go more if I'm permitted.

Unknown Speaker: You might think of more on the way, is that it?

Mr. Samet: I will keep going as long as I can.

Unknown Speaker: All right.

Well, anyway, you've gotten... you've got through two of them.

Mr. Samet: Yes.

And the third... the third one has to do with in effect, Blue Chip, and that is this: that the RICO predicate act is defined as fraud in the sale of securities.

And that's a very interesting definition of a predicate act, it contrasts with the other predicate acts in the statute.

All the other predicate acts define crimes as crimes, for example, murder, kidnappings, State crimes... and also Federal crimes by citation to Federal statutes.

If there was going to be a parallel incorporation of a securities crime, it should have said, for example, any violation of section 32 of the Securities Exchange Act, which is what criminalizes securities law violations.

It doesn't say that.

It says something much more narrow.

It says fraud in the sale of securities.

It also doesn't say any fraud in connection with securities.

That would be fraud.

But no, this predicate act is more narrowly drafted.

Fraud in the sale of securities.

That makes the concept of sale central.

And that brings us, in my view, to the Chief Justice's excellent opinion when he was an associate justice in Blue Chip Stamp, which spoke about what the requirements were for standing with respect to fraud in the sale of securities.

And those principles... that decision in 1975, was based upon, and involved from a principal of law back in the Birnbaum case, dating back to 1952, a Second Circuit case.

And those principles were accepted ever since 1952, even earlier, really.

They've existed in securities law for 40 years, and when RICO was passed in 1970, Congress reflected no intention to overrule, subvert, circumvent, do away with, existing securities laws, principles, and decisions.

And so that standing limitation that comes from Blue Chip should be carried forward when looking at RICO.

And RICO talks about fraud in the sale of securities because that's a piece of learning, basic learning, about what fraud in the sale of securities is and involved, and it's a settled, litigated matter at the Supreme Court level, that is a decision that there was no objection to at all anywhere in the congressional history of RICO.

So it seems to me we have here all but an incorporation by reference in the listing of predicate acts of this decision in Blue Chip, and the whole developed notions of securities law and standing surrounding it.

And they carry with it certain principles of standing.

Congress didn't intend to overrule those principles.

They should be carried forward into RICO when RICO incorporates fraud in the sale of securities as a predicate act.

So those are the principal reasons why I think essentially we have a situation where the very language of section 1964(c) in its three component parts,

"injured in his business or property. "

RICO either because of the way RICO was drafted or because of what RICO incorporates by reference.

But either way, one reaches the same result.

Now, there are a couple of arguments that I've seen in SIPC's brief, and I'm sure that the Court has looked at them and has considered them, and I'd like to comment on them for a moment.

One has to do with the principle of broad construction.

SIPC says RICO is to be construed broadly.

True enough.

RICO is to be construed broadly.

But broad construction does not mean construction in contradiction of the plain meaning of the words of the statute.

And what we are arguing here--

Unknown Speaker: Well, why is RICO to be construed broadly?

Is that something this Court has said?

Mr. Samet: --This statute says it.

Unknown Speaker: The statute says it.

Mr. Samet: The statute says it.

And also, I think that this Court has managed to decide cases by not viewing the statutory mandate to construe RICO broadly as central to this Court's decision.

I think that's a correct approach.

I don't think--

Unknown Speaker: What does the statute say?

Mr. Samet: --The statute at some point says... I don't have the section offhand... says that RICO is to be construed liberally to effectuate its remedial purposes.

That's in the RICO statute.

That's a statutory mandate.

I don't think that statutory mandate need or should govern or even applies to your decision, but SIPC thinks it does.

It's in their brief, so I'm raising it to talk about.

I think that all "broad meaning" means is that you should look at the plain meaning of the words, apply them fairly.

And when one does that here, one reaches a conclusion, I believe, that there's no standing.

So I don't think the requirement that RICO be construed broadly, if it is a requirement, need dictate your decision.

The second argument that SIPC has raised, which I think should not persuade this Court... and I'd like to deal with it just to be sure, if there are any questions on it... has to do with the express and implied limitation or differentiation.

SIPC says, pointing back to the Blue Chip decision... which SIPC... by the way, SIPC doesn't even recognize it's bound by Blue Chip.

In one of it's footnotes, SIPC suggests that Blue Chip, unfortunately precludes SIPC from recovering.

Blue Chip... it's not unfortunate, it's correct law.

But in any event, Blue Chip evolved from section 10(b) and rule 10b-5, and judicially implied causes of action.

RICO, of course, is express.

The Ninth Circuit and SIPC have tended to put significance of that and have said that because RICO is express and Blue Chip is dealing with implied remedy, somehow the construction of them should be different, or the construction of RICO should be more broad because one is dealing with an express statute.

But if one looks at what it is that's expressed in 1964(c), what the express... statute expresses, it has the very limitations on it that we are arguing for... namely, that the injury must be by reason of, and it must be injury to the business or property of the claimant.

Now there is another aspect of the case, which again is unique to SIPC, does not involve the general principal, but I think it needs to be address only because I think this Court should deal with the general principal, and it would be unfortunate... unfortunate, I think, for the case law in general... if the Court focuses only on the nature of SIPC, so I would like to briefly address that for a second.

Because SIPC argues that they have a special status, and somehow, whatever the general rule is should not apply to them.

That's in SIPC's brief.

I'd like to make clear, in the event it isn't already so, that SIPC is not a Government agency, that SIPC is not a successor in interest to the brokerage firm.

That's the trustees.

And the trustee standing is undisputed.

They've got standing.

They're in the case.

That SIPC is not an agency trained in prosecutorial discretion.

SIPC is not the Department of Justice; SIPC is not the Securities and Exchange Commission.

Though SIPC is statutorily mandated, it is essentially mandated, it is a private system of mandatory assessments against securities brokerage firms.

So I don't think that SIPC deserves that the special status that would be accorded the Department of Justice in a criminal prosecution.

This isn't the Department of Justice; it isn't the criminal prosecution.

Unknown Speaker: Can you tell me whether the record shows the extent to which SIPC... when it makes payments like they made here, some, I don't know, $ 12, 000, 000 or whatever it was... to what extent are they subrogated to the rights of the person to whom they made the payment?

Does the record tell us?

Mr. Samet: That's a matter of dispute.

I would say that we could look at the record and argue about it.

But SIPC would say that they are subrogated.

We would say that they are subrogated only to claims against the brokers and not necessarily to all third-party claims.

And we would say the Ninth Circuit said in this case that they're not subrogated to claims against... to fraud claims against third parties.

And SIPC did not appeal that determination.

Unknown Speaker: So you would take the position they're not subrogated.

Mr. Samet: That's correct.

Unknown Speaker: It would seem to me it would help you to take the position they were subrogated in order to avoid your client's risk of double recovery.

Mr. Samet: No, I think if I take the position they're subrogated, then maybe they can... they can acquire the claim of a purchaser of seller.

If I take the position they're not subrogated, they can't get near a purchaser or seller.

Unknown Speaker: No, but the purchaser or seller's going to sue.

Well, I don't understand.

I'm sorry.

Mr. Samet: I'm sorrier.

Thank you.

I'd like to reserve my remaining time for rebuttal.

Unknown Speaker: Very well, Mr. Samet.

Mr. Blakey, we'll hear from you.

Argument of G. Robert Blakey

Mr. Blakey: Chief Justice Rehnquist, may it please the Court.

Must every person injured in his business or property by reason of a violation of the Racketeer Influenced and Corrupt Organizations Act, when the predicate offenses are securities fraud, mail fraud, and wire fraud, be a purchaser and seller... or seller to have a claim for relief?

Mr. Holmes says yes.

Securities Investor Protection Corporation says no.

SIPC's arguments may be summarized in three words and three short paragraphs: text, text, text.

RICO expressly incorporates by reference the express criminal provisions of the Securities and Exchange Act of 1934.

It does not incorporate the '34 act's judicially implied civil claim for relief.

As such, the purchaser-seller limitations on the implied private enforcement mechanism of the 1934 act, recognized by this Court in 1975 in Blue Chip, are simply not relevant under RICO's expressed private enforcement act.

Unknown Speaker: Is there some questions, though, about how direct the injury must be for purposes of a RICO claim?

There's some discussion of that in some lower court cases, I take it, dealing with shareholders of corporations and union members and the like.

Mr. Blakey: There is indeed.

The phrase

"injured in his business or property. "

has been understood... and properly, I think... in the context of corporations to exclude shareholders, in the context of unions to exclude members, in the context of counties to exclude taxpayers.

Unknown Speaker: Well, the argument is made here that SIPC similarly stands in an indirect relationship to this claim.

Mr. Blakey: Well, if the relationship between a broker and his customers, which is the relationship we deal here, has as its best common law analogue, bailor-bailee, and the classic position has been between bailor-bailee, that either has the ability to sue for injury to the property.

I would suggest to you, Justice O'Connor, however, that this relationship is not the common law relationship of bailor-bailee, but the peculiarly statutory relationship of a customer and a broker-dealer.

Unknown Speaker: Would you explain to me, if you would, please, the capacity in which SIPC's suit is before us here?

Are you subrogated?

Is SIPC suing as a subrogee of anybody who had bought manipulated securities?

Mr. Blakey: It is suing in several capacities for several claims.

It is not suing for, at this time, as a subrogee of any of the customers that had a purchaser-seller 10b-5 claim.

That's a separate claim and a separate cause of action.

And this record indicates that SIPC was unable to show that any of the customers on behalf... it's speaking--

Unknown Speaker: And you still won the case.

Mr. Blakey: --We still won the case, Justice White, because we are suing as a subrogee of customers who were not purchaser-sellers.

And under the peculiar provisions of SIPA, we are a real party in entrance in all matters growing out of liquidations, and thus, we have a... are entitled to be heard for all claims that can be asserted by the trustee.

And we are, in addition, subrogated to the trustees' claims insofar as we have paid him or advanced him money.

So we are here, not in our own right.

We do not stand in our own shoes; we stand in the shoes of customers who are not purchaser-seller, who were nonetheless injured.

And we stand in parallel shoes, statutorily, with the trustee itself.

Unknown Speaker: Was that the theory of the court of appeals?

Mr. Blakey: Your Honor, what's happened between--

Unknown Speaker: Well, was it or not?

Mr. Blakey: --No.

The only issue faced--

Unknown Speaker: What... are you defending the court of appeals rationale?

Mr. Blakey: --I am... yes.

Unknown Speaker: That isn't the rationale you just stated.

Mr. Blakey: Justice White, I'm... an interesting thing happened between the court of appeals and the Supreme Court.

Unknown Speaker: That's not strange.

[Laughter]

Mr. Blakey: The argument that was presented in the court of appeals was basically an interpretation of the phrase "any person".

And we took the not unusual position that "any person" didn't mean any purchaser and seller.

And what's happened between the court of appeals and the Supreme Court is my good friend has moved off to the right a little bit and is trying to get the purchaser-seller limitations in through the back door.

Having failed to get it in through any person, he's attempting to insert it in through "injury to business or property" or "by reason of".

And we raised in the brief that this is perhaps not within the petition for cert. Nevertheless, I am perfectly willing to discuss that with the Court since you surely have discretion to hear anything that you want.

To the degree that he's challenged my "in my business or property" standing, to degrees that he has challenged my "injury by reason of", I have felt duty bound to answer those arguments.

I need not answer them to support the court of appeals.

Nevertheless, the court of appeals is equally supported in its own terms in arguments that I have made here today.

Unknown Speaker: May I ask you a question at this point?

You point out there are three categories of claims: those by the individuals and sellers who are suing on their own, and you're not subrogated as to them; the intermediate non-purchaser or seller-customer claims; and third, the firm claims themselves, where you are subrogated.

Mr. Blakey: That's correct.

Unknown Speaker: Now, my question is this.

Supposing that the combination of recoveries in the first and third categories exceeds or equals the amount of damage done by the defendants.

Are you still entitled to recover something additional for the second category of claims?

Mr. Blakey: Well, I have to kind of go back through and figure it out.

The way it works out, there's no double recovery.

If the parties themselves... if the purchaser-seller customers recover--

Unknown Speaker: 100 cents on the dollar.

Mr. Blakey: --100 cents on a dollar, and we did not reimburse any of them, that takes care--

Unknown Speaker: Oh, so they would not be... okay.

Mr. Blakey: --That's not taking any... take care of--

Unknown Speaker: All right.

Then there's a category of nonpurchaser-seller customers whom you did reimburse.

Mr. Blakey: --That's correct.

We now stand in their shoes.

Unknown Speaker: And assume that the wrongdoers have paid the firm everything it tortiously took from this firm, and the other customers, everything that they lost.

Are you still entitled to recover for the--

Mr. Blakey: If everybody has been paid off everything--

Unknown Speaker: --Well, not the category that you've had to reimburse, because they were presumably hurt by other... you know, this is not the sole cause of the failure of this firm.

Mr. Blakey: --Well, Your Honor, I think it's really appropriate to talk about how this firm went under.

This firm did not go under simply by a fraud in the purchase and sale of security.

The underlying challenge here is to have schemed to defraud.

And in the scheme to defraud, we had factually a situation where... and maybe I should explain the record here.

Mr. Holmes' co-conspirator, Mr. Lugo, took stock out of proprietary account in First State, and moved it into Mr. Holmes' account.

And the reason he did that is he would avoid his liquidity crisis that would come from the discount for the stock in the proprietary account.

He did that for one purpose and one purpose only, to hide the fact that he had a net capital deficiency.

Because he was able to hide the fact that he had a net capital deficiency, he was able to stay in business for a longer period of time.

And not only did he go under, and had he not done it, he would have gone under for about $ 700, 000... he... not only he went under, but he took in Sebag in California.

He hid that, not from purchaser-sellers.

He hid that from the regulatory system.

And we are part and parcel of the regulatory system.

The scheme to defraud that did in these two broker-dealers is a scheme that transcends fraud on individual purchaser and sellers who were customers.

It's a fraud against the broker-dealer and it's a fraud against the regulatory system as well.

Let me give it to you as a practical example.

Suppose a terrorist group wanted to engage in fundraising activities and they decided to work a life insurance scam involving some of its own members.

And they blow up an airplane to collect the life insurance on those two member passengers.

Clearly the insurance company, if it pays off, will be subrogated to the estates in their claims.

The issue here, though, is whether there is an injury in the business or property and a proximate cause relationship to the injury also done to the other passengers and to the airlines.

And that's precisely what we have here.

This is not a fraud directed to just some purchasers.

It was a fraud that in its scheme took in the broker-dealers and all of the customers who were there.

Accordingly, we suggest that there is a... SIPC is a proper party plaintiff to bring it because it stands in--

Unknown Speaker: But as you describe it, let's be sure I understand, as you describe it, I would think my second category would also have a cause of action against these people.

Mr. Blakey: --Oh, I think they do.

I think the other customers have a category and a claim.

Interestingly enough, if we've paid them off--

Unknown Speaker: Even though they are not purchasers or sellers.

Mr. Blakey: --That's correct.

Well, they may have it under the security statutes, too.

What we would suggest to you is, and now I'm not really arguing securities.

I'm arguing injury to business or property, and I'm arguing injury by reason of, which has nothing to do, as he's presented it, with the fact that it's underlying security.

Unknown Speaker: I don't know any other statute where there is not some proximity requirement placed upon the ability to recover.

I mean, really what you're saying is if by reason of this fraud somehow somebody's uncle got mad and cut them out of the will, they would have a cause of action under RICO so long as they could establish that causality.

Mr. Blakey: No.

But let me give you a slightly different example from the common law.

It is standard Hornbook law that if I defrauded a testator into leaving to me property, and Justice White would have been the person to whom the request goes, he has a claim for relief against me, even though he's not the immediate target because he's within the intended sphere.

Let me rive you another example... is if a group of corporations undertake a pattern of fraud to cheat the Government, clearly the Government can sue, but what about the next honest bidder who would have obtained the bid but for?

I think that next honest bidder has a claim for relief.

And on this issue, which is the proximate cause question, there was a summary judgment below.

Unknown Speaker: Do you have any cases on that?

That surprises me.

Mr. Blakey: Yes.

Unknown Speaker: The defrauded bidder would have--

Mr. Blakey: Yes.

Unknown Speaker: --I mean the bidder who would have gotten it but for the fraud?

Mr. Blakey: Yes.

The Environmental Tectonics v.--

Unknown Speaker: On the basis of defrauding or on the basis of unfair business practices?

Mr. Blakey: --No.

Environmental Tectonics v. Kirpatrick, which is both an antitrust case and a securities... I mean and a RICO case... 847 F. 2d 1052 1007, in the Third Circuit, affirmed on other grounds by this Court.

My reference to the defrauded testator is supported by Bohannon v. Wachovia Bank and Trust Company, 210 North Carolina 679.

My illustration of the terrorist in the airplane, slightly modified, is reflected in Judge Posner's RICO decision in the Seventh Circuit in the matter of E.D.C.--

Unknown Speaker: But the terrorist in the airplane is different.

These are other people who are harmed proximately by the same act, although they are not the persons who have the cause of action for the fraud.

But they are proximately harmed by the same act.

Here you have a person who is further down the line.

Every time you harm somebody you harm other people who are dependent on that somebody.

And that's what occurred here.

Mr. Blakey: --Your Honor, no, we're not arguing that the mother, the brother, the uncle, of any of the purchasers, or the landlord of one of the customers who now, because the customer was defrauded, can't continue to maintain his rent.

Unknown Speaker: What about the employees of Sebag?

Mr. Blakey: No.

Unknown Speaker: Why not?

Mr. Blakey: The injury there is precisely to injury... to... this is the corporate analogy.

The injury is to Sebag.

Sebag has the claim for relief.

The customer... the customers were not injured in their business and property within the meaning of RICO, injured in their business or property.

But we sue here for the injury to the customers.

The causal relationship between their illegal conduct and the injury to the customers is the same, whether it is a purchaser-seller customer, or whether it is a nonpurchaser-seller customer.

Unknown Speaker: Could I ask the question in another way?

Some courts have spoken of it in terms of a direct injury requirement.

Is it your position that if there is such a requirement for a RICO cause of action, that the customers who were not purchasers of the manipulated securities were nonetheless directly injured?

Mr. Blakey: Yes.

This is a question of proximate causation, and it's a question as to which we raised in the court below, a material question of fact, as so found by Judge Toshima.

It is a question that the defendant below defended on the grounds that there was no proximate relationship between his personal conduct and the fraud and the collapse.

That was accepted by Judge Toshima, and it was reversed by the Ninth Circuit on the grounds that he was equally responsible with his xx conspirators' conduct.

Unknown Speaker: May I ask this, Mr. Blakey?

This intermediate group of customers who did not themselves buy or sell, under your view of RICO I take it they would have been able to sue under RICO?

Mr. Blakey: Clearly under RICO, and a minimum, the predicate offense is mail fraud or wire fraud.

And we think they could just as easily sue using a fraud... the Securities Act because this does not incorporate 10b-5.

Unknown Speaker: How could they sue?

What money was obtained from them?

Mr. Blakey: It's the loss that they suffered.

As soon... what happened here--

Unknown Speaker: Anyone that is caused a loss by the deceiving of someone else has a cause of action for fraud?

Mr. Blakey: --Well, Your Honor, part of the problem here is that scheme to defraud is not equivalent to common law deceit.

As this Court has recognized, for example, in Carpenter, it extends to misappropriation.

This Court has not limited scheme to defraud to the common law meaning.

It included chicanery and overreaching.

And the chicanery and overreaching in this situation caused this broker-dealer to go under.

When that broker-dealer went under, it took out the business and it took out the property that the broker-dealer had in its hands.

Unknown Speaker: They are all subsequent consequences of the fraud.

They are not themselves a defrauding.

Mr. Blakey: Well, but in this context, the defrauding was of the broker-dealership itself.

For example, if you sink a boat, it sinks all passengers.

Unknown Speaker: Yes, it's called a sinking, though.

It's not called fraud.

Fraud means obtaining money or property from someone.

It doesn't mean tricking someone and--

Mr. Blakey: That's what common law deceit meant.

Mail fraud says scheme to defraud and scheme to defraud has never been limited to common-law deceit.

If Congress had meant common-law deceit in 1972 when it enacted the mail fraud statute, it would have said deceit.

Unknown Speaker: --I'm not saying it means common-law deceit.

I am saying that it means obtaining money or property from someone.

And your claim here is not based upon... even on this other category of persons, is not based on obtaining any money or property from them.

They are consequentially injured because of the wrongful obtaining of property and money from somebody else.

It's just one of the ripples that--

Mr. Blakey: The issue here is... can be put in terms of what is the target of the fraud.

If you focus the target only to obtain the property from the meaning person, you answer is obviously correct.

But all... but the problem with target in that context, it's a nubber-band word.

You can narrow it that way or you can extend it to ask what were the means by which the property was done in?

And if the means included destroying someone else's property, as you got there, that person is part of the intended scope of the fraud.

And he equally ought to have a claim for relief as the person who is the primary target.

You can be an intended target and not be the primary target.

That's the airplane example.

My intended target was my two people and the insurance company, but I took out the whole airplane.

My intended target was cheating the people who were buying and selling the stock, but my impact of it was to take out the entire broker-dealership.

Unknown Speaker: --You took them down directly.

When you took the plane down, you took them down directly.

They didn't go down as a result of the other people going down.

The analog to your plane incident is the business run by the person who was bombed fails because he's no longer managing it.

That's the analog to what's going on here--

Mr. Blakey: Justice Scalia, this is a fact-specific question that was raised in the trial court and the held... the holding below is that we raised a material question of fact on that question.

And I think that it is in one sense not in the grant of cert, but if it is in the grant of cert, we have to deal with the facts as argued and found below, the facts as--

Unknown Speaker: --What fact?

What fact is found below that I am contradicting?

Mr. Blakey: --Well, if you take a look at the Bunnington Park.

When property was taken out of one account and put into another, to keep the broker-dealership alive, that is part of the scheme to defraud.

And it was only because it was kept alive for a period of time that when it did collapse it took out not only the property of the immediate target of the fraud.

It took out all the other customers' property as well.

Unknown Speaker: Mr. Blakey, you're speaking as if it were a trial below.

But as I understand it... and you talk about facts that were found below.

The district court granted summary judgment, did it not?

Mr. Blakey: It granted summary judgment only on the issue is we were not a purchaser-seller.

Unknown Speaker: Were other issues actually tried?

Mr. Blakey: All the other issues were raised.

Unknown Speaker: Well, I didn't ask you whether they were raised; I asked you whether they were tried.

Mr. Blakey: They were posed in a motion for--

Unknown Speaker: I didn't--

Mr. Blakey: --No, they were not tried.

Unknown Speaker: --Okay.

Then answer the question briefly, if you will.

They were not tried.

Is that correct?

Mr. Blakey: Correct.

Unknown Speaker: And then the Ninth Circuit reviewed the... reversed the grant of summary judgment.

There were no factual findings made in the sense you're talking about.

Both courts were dealing with motions for summary judgment.

Mr. Blakey: Perhaps I misspoke.

What I should--

Unknown Speaker: I think you did.

Mr. Blakey: --And I withdraw what I said, and would like to rephrase it.

For the purposes of the summary judgment, the lower court found that we had raised a material question of fact on each of these other issues, that there was an enterprise that we were employed and associated by, that there was a pattern, and that there was a nexus, a proximate cause nexus between the wrongdoer's conduct and the injuries sustained.

Unknown Speaker: The court found that in a summary judgment proceeding?

Mr. Blakey: It found that we had raised--

Unknown Speaker: You had raised that?

Mr. Blakey: --a material question of fact as to it.

And therefore, we were entitled to a trial on that question.

And what we... but having found that, it then dismissed it on the grounds that we lack purchaser-seller standing.

The difficultly with purchaser-seller standing is that it is a concept that can be used in several different senses.

It can be used in the sense of describing the class you may sue.

It can be, as he's using it, describing the nature of the injury or causation.

What he has done with Blue Chip is take what pleases him from it.

There is in Blue Chip a clear indication that the purchaser-seller limitations are somewhat arbitrary and that they deny some deserving plaintiffs of an opportunity to sue.

It is mitigated, however, this Court said, by the fact that there can be claims for relief under other bodies of law.

The example given in the footnote, footnote 9, comes from loss on securities.

And it points to the fact that in the Birnbaum case itself, a subsequent suit was brought for an accounting.

And in that suit for the accounting, nonpurchaser-sellers were able to establish a wrong, injury, and causation and recover on the same facts.

What we are here with RICO is another claim for relief.

We are not suing under 10b-5 and its implied claim for relief.

We're suing under the standard.

Unknown Speaker: No, but you are claiming that you have been injured in your business or property.

And I suppose the antitrust laws say that a person injured in his business or property can recover treble damages if it's by reason of an antitrust violation.

And yet we say that... we say that only those people who are directly injured can recover.

An indirect purchaser cannot.

Mr. Blakey: I think--

Unknown Speaker: This is not a very popular decision among plaintiffs' lawyers.

Mr. Blakey: --I think my case does not rest on the legislative history, and I'm willing to stick with the text.

Nevertheless, in the legislative history it's very clear, as this Court pointed out in Sedima, that one of the reasons RICO was not drafted as an amendment to the Antitrust Act, but rather as a freestanding statute was to avoid precisely narrow standing limitations of antitrust and proximate cause--

Unknown Speaker: I know, but it used that language

"anybody injured in his business or property. "

And the antitrust laws, you're not injured in your business or property, within the meaning of the antitrust laws, if you're an indirect purchaser rather than a direct one.

Mr. Blakey: --The same word in different contexts will have different meanings.

The meaning that it ought to have in this context is a function of the purpose that it serves in this statute.

In order to avoid precisely those narrow standing limitations and proximate cause limitations, RICO was drafted outside of the antitrust acts, and its liberal construction was enjoined.

If his argument is plausible and my argument is plausible, that is to say it's a genuine ambiguity, the statute suggests that this Court ought to take that construction of the statute that enhances its remedial purposes and not--

Unknown Speaker: You seem to say... you seem to concede that surely there are some kinds of injuries that will be... that would be caused by a securities fraud that would not be recoverable under RICO.

Some can be too remote.

Mr. Blakey: --Well, absolutely.

Unknown Speaker: And the claim here is that any... anybody injured except the purchaser or seller is just too remote from the fraud to--

Mr. Blakey: But the purchaser-seller limitation deals with the class who consume, not the nature of the injury or the causation relationship.

If it were otherwise, footnote 9 in the Court's opinion in Blue Chip would no longer have meaning.

Let me refer to one other case.

The language, 1934 act is squarely interpreted by this Court in National Securities... SEC v. National Security... to refer to coverage... that is, the wrongdoer's conduct, and not to the status of the plaintiff.

It is precisely that language in 1969 that was incorporated into RICO.

Since 1970, this Court has decided 10 RICO appeals.

Each time, properly, it has declined to add language to the statute that was not there: not organized crime, not legitimate, not racketeering, not competitive.

Indeed, the failure to add racketeering and competitive in Sedima would seem a fortiori to dictate the result in this case.

Not in an enterprise in Rusello, not only in Tafflin, and it is not subtracted from property legal fees.

We think that this Court in this case ought not to depart from that well-reasoned line... unbroken line of decisions, and add purchaser-seller to RICO.

Unknown Speaker: --I thought you were going to say the odds are against you this time.

[Laughter]

Mr. Blakey: Well, I teach at Notre Dame, and we from time to time act when the odds are against us, unfortunately, not always successfully, as last weekend shows.

Unknown Speaker: Not last weekend.

Mr. Blakey: Thank you.

Unknown Speaker: Thank you, Mr. Blakey.

Mr. Samet, you have 4 minutes remaining.

Rebuttal of Jack I. Samet

Mr. Samet: I don't intend to use them all unless there are questions from the Court.

But just two or three brief points.

First, it became clear during Professor Blakey's remarks that SIPC is here as a subrogee.

And I'd like to make two comments about their position as a subrogee.

First, that the concept of subrogation is limited to get reimbursement for what you paid.

SIPC isn't seeking reimbursement for what they paid.

They're seeking treble damages under RICO.

So the whole idea of subrogation and RICO are inconsistent because RICO, 1964(c), mandates treble damages.

It says, any person injured in his business or property by reason of a violation, shall sue and shall recover threefold the damages.

That's not subrogation.

That's an entirely different notion.

So the concept of RICO--

Unknown Speaker: You say wouldn't be suing under RICO if you were just suing for subrogation.

Mr. Samet: --Exactly.

That's point 1.

Point 2, SIPC says it's here as a real partied interest in the liquidation proceedings.

The fact of the matter is this isn't a liquidation proceeding.

The SIPA statute gives SIPC power to appear as a real party in liquidation proceedings.

But this is a RICO action, not a liquidation proceeding.

Unknown Speaker: Well, I know, but they did liquidate them.

Mr. Samet: Yes, but--

Unknown Speaker: And they paid out millions of dollars in claims.

Mr. Samet: --But that doesn't give them standing.

For example, SIPC wouldn't have--

Unknown Speaker: I didn't say it did.

Mr. Samet: --Okay.

Unknown Speaker: I didn't say it did, but it was a liquidation.

Mr. Samet: But this is the claim that we're discussing: SIPC's power to assert.

It's as though SIPC came into that terrorist airplane crash, having nothing to do with it, and say, well, we're a party to all proceedings.

We have the power to get in here.

SIPC must show it has the standing on a specific case basis and its authorization to appear as a real party in liquidation proceedings doesn't give it standing here.

Unknown Speaker: Like an insurance company coming in.

Mr. Samet: Yes, that is exactly correct, Mr. Justice White.

But third of all, we think that the Blue Chip case was right as it applied to securities law, and is even more right, even though it didn't address RICO, because didn't... it wasn't before the Court at that time.

Unknown Speaker: Of course, the Blue Chip case, you know, cuts against you in a way because that opinion assumed there were classes of investors other than purchasers or sellers who could be directly injured.

But they nevertheless followed the old Birnbaum rule and limited standing to purchasers and sellers.

So the premise of that decision was that there are a category of people directly harmed by the wrongdoing.

Mr. Samet: Well, of course we all know the author of that decision sits on this Court and is best... in the best position to describe what the decision meant.

But I don't read it that way.

Unknown Speaker: That's what he said in the opinion.

He discusses the three classes of harmed persons and said they don't have standing--

Mr. Samet: I'm sure he would make very clear what he means, but let me tell you what I think he meant, to be corrected, I'm sure, by him.

[Laughter]

I think that the policy considerations in Blue Chip, the concept of vexatious litigation, the concept of strikes, the concept of bludgeoning settlements are all the more egregious in RICO than they were in the securities law because the stakes are three times as high.

And it's interesting, in the amicus here, it's interesting to see who the amici are.

They are a group of plaintiffs' attorneys.

And what has happened here is there has been massive abuse of civil RICO.

President Bush, in his Civil Justice Reform Act, just the other day, was talking about the excesses of civil litigation.

In today's Wall Street Journal, there's an article about the SEC is saying they're concerned about the excesses of RICO civil abuse.

And I think what has happened is the very concerns that were soundly described in Blue Chip are even more egregious in the RICO area.

And hopefully this Court will put a stop to it.

Thank you.

Chief Justice Rehnquist: Thank you, Mr. Samet.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Gollust v. Mendell - Oral Argument

Fri, 09 Jan 2009 14:49:37 +0000

Case:

Gollust v. Mendell

Media File:

90-659_19910415-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Edwin B. Mishkin

Chief Justice Rehnquist: We'll hear argument now in Number 90-659, Keith R. Gollust v. Ira L. Mendell.

Mr. Mishkin.

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

The issue in this case is whether a plaintiff can maintain an action under section 16(b) of the Securities Exchange Act of 1934 after ceasing to own any securities of the issuer on whose behalf the action was instituted.

Briefly stated, the facts are as follows.

The respondent, then a shareholder of Viacom International, Inc., brought this action under section 16(b) against the petitioners in January of 1987.

In June of 1987 Viacom International was acquired in a merger transaction in which the respondent and other public shareholders of International received in exchange for their shares in International a combination of cash and a small amount of securities in the acquiring corporation, which became the parent company of Viacom International, which in turn became a wholly owned subsidiary of the new parent.

The transaction was an arm's length transaction between independent parties.

It was approved by stockholder vote.

The petitioners had nothing to do with the merger either in form or the substance of the merger.

Unknown Speaker: But you really don't think that matters anyway?

I mean, as far as your legal principle that you're urging upon us is concerned that wouldn't make a difference?

Mr. Mishkin: Justice Scalia, that is correct.

I point it out because in the opinion of the court of appeals below there was some suggestion that there was something suspicious in the timing.

In fact there was nothing suspicious in the timing.

If the Court looks to the record in this case it is clear... nor has the respondent argued or alleged otherwise... that this merger was begun by a series of events including a leveraged buyout proposal made by the management long before this suit was filed.

The merger was a culmination of those events.

I point that out simply as a matter of fact.

The analysis of this case should begin with the statute.

The statute says that an action may be instituted by the issuer or by the owner of any security of the issuer in the name and on behalf of the issuer.

The statute does not state that a former owner of an issue or securities can sue.

Indeed neither the SEC nor the respondent now seem to be saying that a former owner can sue in the first instance, although that--

Unknown Speaker: Well, Mr. Mishkin, in this case wasn't the plaintiff an owner at the time the suit was initiated?

Mr. Mishkin: --That's correct, Justice O'Connor.

Unknown Speaker: So all we have to resolve is whether it's now moot or he has lost standing?

What is it?

Mr. Mishkin: What the Court is... must resolve is whether a former shareholder, having commenced an action, loses standing when he ceases to be an owner of the securities of the issuer.

The further contention is made in this case that... by the SEC and the respondent, that a former share owner may lose standing in some cases but somehow not in this case, because in this case the SEC takes the position and the respondent takes the position that because the shareholder, originally a shareholder of the issuer, has wound up a shareholder of the parent corporation, that an exception should be made to the statute to cover this particular set of affairs.

Unknown Speaker: Mr. Mishkin--

--Well, is that strictly speaking an exception to the statute?

I mean, the language of the statute just says a... an act... a suit to recover such profit may be instituted by the owner of any security of the issuer.

Now, this suit was instituted by an owner of the security, was it not?

Mr. Mishkin: That's correct.

And that distinction now seems to have become, belatedly in this Court, the linchpin of the SEC's position.

In the court below that was not the distinction on which the SEC or any party relied.

But in any event, if taken literally, if you follow that position literally, what it would mean is that a shareholder can buy stock immediately before bringing an action, which he can now.

He can go to the clerk's office, file his complaint, call his broker on the way out of the clerk's office, and thereafter maintain his action and point to the words of the statute that said "may be instituted".

Unknown Speaker: Well, wouldn't ordinary principles of mootness come into play there?

Here you have a plaintiff who can be said to have a continuing financial interest.

Mr. Mishkin: I think, Your Honor, the question of mootness might come into play in appropriate cases, but what we're dealing with is a question of statutory construction.

It's quite plain that section 16(b) does not intend, or was not intended by the Congress to go to the full length of the constitutional article III jurisdiction of this Court.

Congress didn't simply say what we have done is we have created a statute that said somebody could get inside the courthouse door, and whatever happens to him thereafter we're going to leave up to the courts to decide under constitutional mootness standards.

What the statute says is that a shareholder should be a shareholder of the issuer.

It was very plain.

And the question is did it... means to say thereafter anybody can continue suit so long as they maintain, no matter how indirect, an interest.

For example, suppose the plaintiff in this case was a holder of some debt, not a security at all, but a creditor.

I suppose... of the parent corporation, or suppose that we had a grandparent corporation, twice removed.

You can pose any number of circumstances.

And the question that I think that the Court should not get itself into is going through the varieties of corporate forms in deciding that under certain circumstances a plaintiff should not lose standing--

Unknown Speaker: No, but Mr. Mishkin, the question... you're right.

The question in this case is whether a shareholder of a parent of a wholly-owned subsidiary continues to have standing when he did have standing at the time he instituted the suit.

That's the only issue here, isn't it?

And what in the statute says he loses standing?

Mr. Mishkin: --Well, Your Honor, I think as I was--

Unknown Speaker: You're worried about a lot of other cases, not this one.

Mr. Mishkin: --No, what I think I'm saying is that if a shareholder turns around and sells his--

Unknown Speaker: But he didn't do that.

Mr. Mishkin: --He didn't do that.

If--

Unknown Speaker: What in the statute defeats his right to continue an action that was properly instituted?

Mr. Mishkin: --I think it's inherently in the concept of a section 16(b) and a derivative action, because the courts have said in both contexts, in section 16(b) and in shareholder derivative actions generally, of which this is a variation, that a shareholder must be a shareholder of the issuer corporation, and not a shareholder of some parent or indirect subsidiary.

Unknown Speaker: Well, that's what's in the 16(b) context.

The Second Circuit has said that repeatedly, but we have never said that.

Mr. Mishkin: That's correct.

Unknown Speaker: And the statutory language doesn't say that.

Mr. Mishkin: The Seventh Circuit has said that.

The Ninth Circuit has said.

This Court has not addressed this issue previously.

Unknown Speaker: And the statute doesn't say that.

Mr. Mishkin: Your Honor, the statute uses the term "issuer".

Unknown Speaker: Referring to the point of instituting the suit.

Mr. Mishkin: Well, if the... I don't think what the Congress intended to do was to state that a shareholder need... his standing may be tested or need be tested only at the instant the suit is filed.

That would make of the standing requirement the sort of empty formality that the SEC claims that our position is.

Unknown Speaker: Well, Mr. Mishkin, in diversity cases do we look at diversity of the parties as of the initiation of the lawsuit, and if it disappears later do we say there is no standing?

Mr. Mishkin: No, Justice O'Connor, you look at it--

Unknown Speaker: Or the amount in controversy cases?

Mr. Mishkin: --No, those are questions that go to when a court's jurisdiction hatches to a lawsuit and it doesn't reinvestigate its jurisdiction as a case proceeds.

But this is, as Your Honor's previous question indicated, more analogous to constitutional requirements of mootness or case of controversy where the court does in fact examine whether a case continues to be a viable controversy--

Unknown Speaker: Well, it's entirely, it's entirely possible that a case filed under this 16(b) section could later become moot, I suppose.

So our question, as Justice Stevens pointed out, is whether this case has mooted out.

Mr. Mishkin: --Well, I think this case is mooted out insofar as the statutory words are concerned.

And it is a question of what Congress intended.

We are not maintaining that the plaintiff has not maintained... does not have... if it were a question of whether he had constitutional standing, that he would have lost constitutional standing.

What our argument is is that you look at the statute and you determine what it is the statute intended, the sort of interest that a plaintiff would have.

And it seems to me that the Commission and the respondent are both saying look, we recognize that the word "instituted" doesn't mean that you look at it only at the instant the lawsuit is brought.

The SEC, for example, has attempted to engage in rulemaking in this area and to establish distinctions among shareholders who have lost their... lost shares.

And what the SEC has said, that in certain instances a shareholder who has lost his shares by virtue of a merger continues to have standing, and certain instances doesn't continue to have standing.

If the SEC believed that the word instituted was all you needed to look at, then it wouldn't have had to adopt any such rules.

And indeed, in its 1989 rule proposal where it did include a requirement that a shareholder had brought the action before a merger resulted in the loss of his shares, the SEC only applied those proposed rules to a merger situation.

It didn't apply it to a situation where there was a reverse stock split.

It didn't apply it to a situation where a shareholder was confronted with a cash tender offer that would be followed by a back end merger, and said if he tendered in the first stage he wouldn't lose standing.

As far as I can understand the Commission's position he would lose standing.

What difference is there between a shareholder who tenders in the first step and a shareholder who accepts the merger price?

What difference is there between a shareholder who excepts an exchange offer, which is not exempted by their proposed rule?

So I think that the Commission has clearly and implicitly accepted the idea that this statute is not to be looked at at the instant the plaintiff walks out of the courthouse after filing his complaint and says--

Unknown Speaker: I wish you had given us some examples of other Federal statutes.

I am sure there are a lot of other Federal statutes that are framed this way: any person who thus and such may bring suit, or suit may be brought by, which again has an initiation flavor.

Mr. Mishkin: --Well, I think that the Commission actually identified a statute which, somehow, inexplicably to me, they cited it in their favor which indicated the statute provided that a lawsuit could be instituted against a certain... Secretary of a Government agency, and went on to provide that even if that, the identity of that Secretary changed, the action could be maintained.

It seems to me that Congress was recognizing that if the word "instituted" meant, in that instance, that you looked at the lawsuit, at the inception of it and forget about what happens thereafter, they would not have adopted any further terminology.

I think what the Congress is doing where it uses the word 36(b) of the Investment Company Act which the Court had before it in the Daily Income Fund against Fox case was another such example, although litigation has not arisen under it that raises this question.

Unknown Speaker: Is the plaintiff's only motive in a case like this to increase the... increase indirectly and incrementally the value of his own shares?

Mr. Mishkin: That was the intention that the Congress had in mind by vesting a plaintiff with standing to bring an action.

And the legislative history makes that clear.

There are repeated references to the fact that a shareholder or a security owner is given standing to maintain the action because indeed that shareholder has a financial interest in achieving a result, even if it's an indirect financial interest as a shareholder of the company.

So the idea that somebody should be a stranger to the corporation and be permitted to proceed simply because he was originally a shareholder and thereafter ceased to be one is foreign to this statute.

Unknown Speaker: But what's the incentive?

It doesn't seem to me like there would be much incentive to a small shareholder.

Do you get attorneys' fees?

Mr. Mishkin: The way I think the statute has operated or worked out over the years in practice, most shareholders indeed have the interest of their lawyers.

I think in this instance we have such a circumstance, where in fact a shareholder brought a lawsuit after the court held that the shareholder had no standing.

He went out at the recommendation or suggestion of his lawyer and bought some notes or some junk bonds that happened to be thereafter issued by the named subsidiary in order to maintain standing.

Unknown Speaker: But how does the lawyer benefit if the statute doesn't provide for attorneys' fees?

Mr. Mishkin: Well, the courts regularly award lawyers... plaintiffs' lawyers attorneys' fees in these circumstances.

Unknown Speaker: Under the common fund theory?

Mr. Mishkin: Yes.

Yes.

And clearly, as a practical matter in most of these cases the principal interest is that of an attorney, not of a shareholder.

But the statute itself when it was constructed, and it was, it is a statute, let us all recognize, is a statute that is devoted to certain formal requirements.

This Court has recognized the statute is a strict liability statute, that it sometimes operates harshly.

Although it is aimed at preventing the misuse of inside information, in fact there is no inquiry into whether the defendant did abuse or use inside information.

It catches people who are not in fact insiders, never have been, such as my clients, in a particular company, because they meet a certain statutory threshold that is arbitrarily fixed.

This Court has had a number of occasions to address the inflexibility and artificiality of some of the provisions of this statute.

In one of the early cases that this Court has had, Blau against Lehman, Lehman Brothers was regularly trading the securities of a, what I believe was a client of Lehman Brothers, and a partner, a fairly significant partner of Lehman Brothers, Mr. Thomas, was on the board of the issuer company.

And the Court refused, this Court refused to hold that Lehman Brothers as an entity was a director through Mr. Thomas.

That conclusion I don't think was self-evident to the bar before this Court's reading of the statute, and I think the Court took into account that this statute is a inflexible statute that imposes requirements that are not necessarily going to produce just results to particular defendants or to particular plaintiffs.

Similar approaches have been taken by the Court in every case that this Court has had, I believe, involving section 16(b).

In the Foremost-McKesson case that was before this Court we had a situation, or the Court had a situation, of a shareholder who acquired more than 10 percent of the shares, and the question... and therefore would ordinarily be a statutory insider, and the question is when do you become an insider.

And you can arrange your purchases so that if, for example, you wanted to get 16 percent of the stock, you could do that consistently with the statute, to be within the statute or be without the statute.

For example, you could acquire up to 9.9 percent and then look for a block of another 8 percent.

And if you acquired your 16 or 17 percent that way, when you sold that block you would have no statutory liability, as a result of a decision of this Court.

The SEC, I don't think... I think opposed that result in this Court, but the Court said look, we're dealing with a statute that is a very inflexible one.

It imposes rather strict requirements and harsh requirements, sometimes unjust, and we're going to read the words not in an expansive, not in a broad manner as the SEC there and as the SEC here has contended, but in a rather narrow fashion, because we recognize that it sometimes can produce undesirable results.

We're going to apply the words Congress wrote in the manner in which Congress intended that they be.

This Court thereafter had a case, the Reliance Electric case, in which somebody who did own more than 10 percent of the shares decided he would sell those shares in two pieces rather than one.

The first piece got him from some 14 percent to 9.8 percent, and he paid his profit back to the corporation on those shares.

Then he sold all of the shares and paid no part of the profit back.

The issue came to this Court as wasn't that a device, wasn't that some avoidance scheme, isn't that wrong.

And the Court said, you know, under this statute we're going to enforce it the way it was written and let the SEC, who argued to the contrary in that case, do what they should do if it's a problem with this statute, if there's a hole.

We, the Court, are not going to tinker with the statute.

Go to the proper forum to do so, which is the Congress of the United States.

And so the Court in cases thereafter has also applied a narrow, not a broad construction of the statute so that--

Unknown Speaker: But Mr. Mishkin, isn't it true that all those cases... I'm not sure the words narrow and broad are correct... all those cases gave a very technical, literal reading to the statute.

And if we just read this statute literally it only focuses on the time the case is instituted.

Mr. Mishkin: --Well, I think if you read this statute literally you also... I mean, look, every statute drawn by Congress requires some degree of interpretation.

One of the common characteristics I suppose we have as lawyers is that we read words and recognize that they don't always say the exact... have the exact meaning that one draws from a very strict reading of it.

So the word "institute" has got to be construed in the context in which Congress passed this statute.

It was riding against the back drop of derivative actions.

Now, derivative action principles that go back over a century in this Court, which has laid down the basic principles, and they say that a shareholder... you have to be a shareholder of a corporation to bring an action.

Now that has been construed by State courts and by Federal courts as meaning that you need to own your shares throughout the litigation, not that you should only have your shares at the outset.

What is the point of the Congress ever adopting such a requirement if it was to be a formality that would be forgotten the moment the plaintiff leaves the clerk's office?

Of course the court had... the Congress had in mind a continuing interest.

And the SEC has recognized that in its own rulemaking.

But I think once you get into the problem of under what circumstances do you permit somebody who was formerly a shareholder to continue to assume that position, that is, if he's a shareholder of a parent corporation, he lost his shares involuntarily in a merger, and so on, then I suggest that what the Court is being asked to do is to make policy decisions.

And I am not suggesting that those policy decisions are not real ones.

The Commission has been struggling with those policy decisions, and I think the problem with their struggle is that they keep coming up with different rules.

I don't know if the Commission has the authority to correct it, but if they do it's because they are exercising not a judicial function but a quasi-legislative function.

This is a statute, I think, that has to be given a strict and a literal interpretation, but in accordance with the common sense with which it is... that lies behind the words.

And I don't think that the Congress intended to say well, "instituted" is to be applied and thereafter who cares whether the plaintiff continues to have any standing.

For example, suppose that you have a shareholder that is divested of his shares in an all-cash merger.

The Commission originally and in its rules said well, we're going to continue standing for such a plaintiff.

They now say well, we'll do that only if he sued before the merger, consistently with the literalist reading of the word "instituted".

But does that make any real sense?

A shareholder who was cashed out in a merger, Your Honor, has no real constitutional jurisdiction, for that matter.

The SEC in its rule would still have continued his standing.

He certainly did not represent any body of shareholders.

And then suppose that such a person sought to settle a case.

Would the court say well, you can go settle it, and who cares about the other shareholders?

Maybe your lawyer will get, you know, a handsome reward, but you can turn away from this case.

No.

I think that the Congress had in mind a shareholder who had a certain relationship, a continuing relationship with the corporation for which he was suing and his co-shareholders.

He is in essence a fiduciary or a trustee of this cause of action.

Unknown Speaker: Well, how long would you say he had to keep the shares, as you read the word instituted in the statute?

Mr. Mishkin: Throughout the litigation, Your Honor.

Throughout the entire course of the litigation.

And there is really, you know... and Your Honor, if there is to be some distinctions made, if we say that a shareholder should continue it throughout the trial and not at some later stage, it seems to me that is a tinkering or a supplementing of the statute in deciding that maybe there are nuances here that ought to be fixed.

Maybe there are loop holes that ought to be plugged.

But the SEC has been able to address itself to Congress before.

And I must say this is a statute that is not only inflexible in its effect on people, but it has been... when it was enacted in 1934, after all, it was the only statute that dealt with the subject of insider trading.

Now I'm not saying that you apply a different interpretive rule because the law has developed in other areas, but I do say then, and this Court has said in its adjudications in section 16(b) that there are other remedies that plaintiffs have if there is real insider trading going on.

There is 10(b)(5) that has, as the Court knows, is a post-1934 developments, although section 10(b) was in the act.

There is section 14(e) of the act and the regulations under that dealing with insider trading and tender offer situations.

There is the whole range of insider trading sanctions under the Insider Trading Act, where if you engage in insider... illegal insider trading you can be subject in effect to quadruple penalties.

So that there is a whole panoply of remedies if we have a case in which a plaintiff is saying look, I have a real insider trading case.

I'm being thrown out of court on a technicality.

That's not this case and I don't think we need argue it, but the Court has recognized and taken some comfort from the fact that there are other remedies available in true insider trading cases.

Insofar as the issue of whether or not... I think, Justice O'Connor, you had raised this question, whether or not a shareholder of a parent or a grandparent corporation has or should continue to have standing, whether he has a sufficient interest to permit that person to sue, the statute uses the term "issuer".

It doesn't use the term "grandparent" or "parent".

And indeed the term 1934 act in a narrow manner.

The term "issuer" means the issuer of a security or the entity that proposes to issue a security.

And that's Viacom International.

When Congress saw fit to broaden that definition to include a parent corporation it knew how to do that.

In fact it did so a year earlier in the 1933 act, where the term issuer was defined for certain purposes as including a parent corporation.

That is to say was included... as including a person in control of an issuer.

Unknown Speaker: Well, my question was really whether you thought that under ordinary principles of mootness it could be said that someone who ends up at the end of the day with stock in the parent can be said to have no financial interest.

Mr. Mishkin: I think that that is arguable, Justice O'Connor, but I am not urging that as the rule for this case.

It is the... if one goes to the full constitutional sweep of case or controversy it is conceivable that a shareholder of a parent or a grandparent may have a sufficient interest to withstand constitutional attack.

I think that may be a case-by-case review, and I am not here in this Court asking for the Court to make those distinctions.

What I am saying is that the Congress here did not intend to go to the full sweep of the constitutional case or controversy jurisdiction of this Court.

And nor did it intend to leave to this Court's constitutional jurisdiction the question of who had standing and who is a proper plaintiff to commence and proceed with this action.

That was a legislative determination made by the Congress.

It is not or was not intended to be a determination to be made based on the constitutional authority of the United States courts.

The Congress clearly did not, in defining... and it used the word

"owner of a security of the issuer. "

And I think you've got to take into account all of those words.

And the owner of a security of a parent corporation or a grandparent simply does not meet the statutory requirement.

Let me address one other point that Mr. Malchman has made that the SEC has not.

Unknown Speaker: Would you be making the same argument if the corporation had been merged into the other?

Mr. Mishkin: If Viacom International had not been... I'm sorry, if the securities of Viacom International were used in exchange so that the plaintiff in this case received securities in Viacom International, it was the succeeding corporation if you will rather than the subsidiary, I would not be making this argument because the statute would not permit me to make this argument, because the shares would then be owned by a shareholder of the issuer, Viacom International.

If it was the corporation that resulted from the merger, then the original issuer in effect would have been the acquiring company, and I wouldn't have made the argument in the district court because this statute wouldn't permit me to.

The statute does make these formal distinctions.

It makes it in the question of standing.

It makes it in the substantive provisions of the statute.

It is a very formal type of statute.

Congress when it enacted it recognized that there were certain abuses that it was going to attempt to correct, not by leaving it to the courts to make adjudications as to people's intentions or bona fides or male fides.

It was going to adopt a--

Unknown Speaker: But you say if Viacom had been merged into the acquirer, you say you wouldn't be making this argument?

Mr. Mishkin: --What I'm saying, Your Honor, is if Viacom were the corporation resulting from the merger, Viacom International, the issuer for whom Mr. Mendell's client is suing.

Unknown Speaker: No.

If Viacom is merged into another company.

Mr. Mishkin: Right.

Unknown Speaker: And the succeeding corporation is no longer Viacom International.

Mr. Mishkin: And Viacom International has disappeared in that merger into--

Unknown Speaker: Yes.

Um-hum.

Mr. Mishkin: --No, Your Honor, I would not be making the argument because the successor--

Unknown Speaker: Well, the issuer is no longer in existence, and the stockholder can't possibly be holding stock in Viacom.

Viacom is gone.

Mr. Mishkin: --The question then becomes who is the issuer.

Unknown Speaker: Exactly.

So why wouldn't you be making the same argument?

Mr. Mishkin: And I think the courts have stated that where the issuer has disappeared in the merger into another company, the company that survives that merger has become the issuer, has succeeded to the rights of the issuer.

In other words the section 16(b) cause of action, like other causes of action, survives a merger.

We're not contending that the cause of action is gone.

The cause of action is there, and it can be asserted by a party withstanding to assert it.

Unknown Speaker: I think you have adequately answered the question, Mr. Mishkin.

Mr. Mishkin: Thank you.

Unknown Speaker: Thank you.

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

Argument of Irving Malchman

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

I'm going to proceed in a kind of disorganized manner because I have a couple of things I want to say right at the beginning.

The first thing I want to do is ask, is answer Mr. Justice White's question.

If the ABC Company is merged into the XYZ Company, the cases are clear that a stockholder... any stockholder of the XYZ Company can sue under 16(b) for a transaction that took place in the stock of the ABC Company before--

Unknown Speaker: Even though the stockholders of the XYZ Company are holding stock in a company that was never the issuer?

Mr. Malchman: --That is correct, Your Honor, and there are two... there are decisions to that effect.

For example, Newmark v.--

Unknown Speaker: Well, they may not be right.

Mr. Malchman: --No, we were in the court of last resort, but I'm trying to answer your question.

And the cases hold that in that situation the... as I said, any shareholder of the XYZ Company could sue under 16(b) even though the XYZ Company is not the issuer and even though the plaintiff shareholder of the XYZ Company never owned stock of the issuer.

Unknown Speaker: And your colleague on the other side seems to agree that he wouldn't be making an argument... his argument up here if that were the situation.

Mr. Malchman: That's the way I heard it, Your Honor.

Unknown Speaker: Um hum.

Mr. Malchman: Now, the next thing I would like to say out of order or out of sequence is that my opponent mentioned at least five or more times congressional intent.

The intent of Congress... let me back up.

It is manifest from the face of section 16(b) itself that it was the intent of Congress to confer as broad standing upon a plaintiff shareholder who sues under 16(b) as possible.

For example, the Congress said that any owner of a security, not stock, any owner of a security of the issuer could sue under 16(b), which is much broader than the ordinary derivative action where one has to own stock of the company in question.

Secondly, the Congress provided--

Unknown Speaker: Yes, but it doesn't say any owner of any security of a parent of the issuer, which could have been a little broader.

Mr. Malchman: --If they thought of it they may have said it, Your Honor.

Unknown Speaker: They might have thought it.

It's not that hard to think of, is it?

Mr. Malchman: I beg your pardon?

Unknown Speaker: Well... never mind.

Mr. Malchman: So, as I said, it's palpable that the intent of Congress was to cast standing in as broad a compass as possible, and I gave the example that Congress didn't confine standing to stock owners.

Also there is no requirement under 16(b) that the security owner owned a security contemporaneously at the time of the violation.

And that is another rule in ordinary derivative actions which is not the case in 16(b).

Thirdly, Congress made it clear in 16(b) that the shareholder is not bound by the business judgment of the issuer not to sue, which of course is not the situation in ordinary derivative actions.

So, my submission to the Court is it's as if Congress had explicitly written in 16(b) that we want shareholder standing to be as broad as possible, and further that if Congress had been presented by this case when it enacted the statute it would surely have opted for standing.

Now, to return to the formal argument, the facts in this case are quite simple.

First, the plaintiff owned the stock of the issuer at the time he commenced this 16(b) action, so that he satisfied the requirement of 16(b) that he be the owner of any security issuer at the time of institution of suit.

Secondly, in the merger by which the issuer became the wholly owned subsidiary of another company, that is the parent company, the plaintiff received stock as a result of the merger in the parent company, so that the plaintiff has a continuing financial interest to maintain a 16(b) action in this case.

And further, since plaintiff's 16(b) action had been commenced prior to the merger and was pending at the time of the merger, this case presents the possible danger of a restructuring intentionally designed to defeat section 16(b).

Now--

Unknown Speaker: Well, if a financial interest in the parent company is all you need, I don't suppose... I suppose you would be making the same argument if he didn't bring... begin his suit until after the merger?

Mr. Malchman: --No, I wouldn't, Your Honor, but financial interest in the parent... financial interest is just one-half of the situation.

The other half of the situation, that he was an owner of a security of the issuer at the--

Unknown Speaker: Of course, some of the arguments in brief would permit any holder of stock in the parent company to sue.

Mr. Malchman: --I certainly don't, didn't intend to imply that, Your Honor.

Unknown Speaker: A double derivative suit?

Mr. Malchman: Well, if I may, I'm going to come to that.

Unknown Speaker: That's all right.

Mr. Malchman: All right.

I don't want to be too disorganized.

So... now all the other courts of appeals decisions in this area, and there are only four of them, all involved cash-out mergers, every single one of them, which presented a situation where the shareholder of the issuer who was cashed out no longer had a continuing financial interest in the 16(b) suit in question.

Moreover, in two of those four courts of appeals decisions, the plaintiff had never been a shareholder of the issuer.

So the four other courts of appeals decisions in this area are totally inapposite here.

Now, if in this case the issuer had merged into the parent or the parent had acquired the assets of the issuer, plaintiff's 16(b) standing would be, would have been unimpaired.

It is simply happenstance insofar as 16(b) considerations are concerned that the issuer became a subsidiary of the parent instead of merging into the parent or instead of its assets being purchased by the parent.

Now, I want to come to a kind of distinct point, and that is that the corporate distinction between the issuer and the parent in this case should be disregarded for the purposes of 16(b).

The issuer... the only asset of the issuer... let me strike that, please.

The only asset of the parent which was formed as a shell corporation to hold the issuer is the issuer.

The parent holds and conducts the issuer's business through its wholly owned subsidiary, the issuer, so that the business reality is that the issuer's assets belong to the parent, including the issuer's 16(b) claim against defendants.

This Court, in cases that were cited... are cited in my brief, have held that corporate form may be disregarded where, as here, it produces an inequitable result such as the defeat of a statute of public policy, even to the extent of imposing liability upon the parent shareholders, and even though the parent was organized in good faith and was not a sham.

Now, on the point of the double derivative action, this 16(b) case is maintained not only as a single derivative action, but as a double derivative action whereby the plaintiff enforces derivatively the parent's derivative right to sue on behalf of the issuer under 16(b).

The commentators, and that's Professor Laws and Professor Blumberg, state that there is no reason why under 16(b) double derivative actions should be singled out for nonmaintainability.

That is there is no good reason why a double derivative action should not be maintainable in the context of 16(b).

In the double derivative action, a shareholder is enforcing the shareholder's... the issuer's right to sue under 16(b).

That is a shareholder is enforcing the parent's right to sue under 16(b), the parent's right as a shareholder of the, of the... the parent's right as a shareholder of the issuer.

The Congress which drafted 16(b) would have welcomed the double derivative action if presented with the question.

Unknown Speaker: Why does the statute mention the single derivative action explicitly?

I mean, if you didn't have to mention the double, presumably you wouldn't mention the single.

I mean, the statute just could have said suit to recover may be instituted by the issuer, and then leave it to a derivative action to allow the single derivative action.

If you follow me.

Mr. Malchman: Well--

Unknown Speaker: Congress felt it necessary not to stop by just saying suit may be instituted by the issuer, which it could have said.

In which case, I suppose you would be here arguing well, the stockholder of the issuer can sue by way of a derivative action.

But Congress didn't think that implication was enough, and therefore it went on to say not only the issuer, but the owner of any security of the issuer.

Now I would have assumed if it wanted to go one step further it would have repeated that step again, or the owner of any security of the parent of an issuer.

Mr. Malchman: --Mr. Justice Scalia, when one writes a statute one can't think of every possible situation--

Unknown Speaker: That's my point.

They tried to think of every possible situation.

If they had just said the issuer your case would be a lot easier.

They didn't say the issuer.

They said the issuer or a owner of a security of the issuer.

Mr. Malchman: --But they said both.

They said not only the shareholder of the issuer, but they said the issuer as well.

So it's a double-barrelled provision.

I think I have finished.

Thank you.

Unknown Speaker: Thank you, Mr. Malchman.

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

Argument of James R. Doty

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

The Securities and Exchange Commission believes that the guiding principle for determining standing under section 16(b) of the Exchange Act resides in the plain language of the statute and in Congress' purpose in enacting section 16(b) to create an express private right of action.

As to this statute, it is the Commission's position first that the plain language of section 16(b) directs the maintenance of standing here as that language is unambiguous in its grant of standing to institute suit to a broad class of security holders.

Nothing else in the language of section 16(b) or anywhere else in any other provision of the Exchange Act limits that grant of standing or permits a gloss of a continuous ownership requirement on the statute.

Unknown Speaker: Mr. Doty, do you speak just for the SEC here or do you speak for the Government more generally?

Is the Government willing to accept that position with respect to all statutes that, when they say somebody can institute suits with a certain characteristic they can continue it, whether they retain that characteristic or not?

Mr. Doty: Justice Scalia, I believe that in the context of this statute my statement as to the breadth of the grant of standing in this statutory context is one which the Government shares.

As our brief notes, we in the Government recognize that, at some point in the determination of an interest in a lawsuit, article III considerations do arise, but we in the Government, in the Solicitor's General office, share the view that in this case plaintiff Mendell's continuing economic interest in the issuer and in the lawsuit which the security in its parent represents is entirely sufficient for purposes of article III.

Unknown Speaker: I'm not talking about the sufficiency of... I'm not talking about the article III point.

I'm talking about the plain language point you were addressing.

Mr. Doty: Yes.

Unknown Speaker: For example, is the Government willing to accept that under the judicial review provision of the Federal Labor Management Relations Act, when it says any person aggrieved by any final order of the authority may institute an action for judicial review, that that person, even if the person later does not meet the aggrieved by any final order requirement which is somewhat above the article III minimum, that person may continue to maintain the suit nonetheless?

Mr. Doty: Justice Scalia, the Commission would not want to speak for the Government in these other contexts.

We would not want to purport to be representing their position on these other statutes.

Unknown Speaker: But plain language is plain language.

Mr. Doty: Plain language being plain language here, we rest strongly on the notion, or on the clear language of the statute that one who institutes the suit need only be a security holder.

We believe that this, that the statutory purpose in enacting 16(b) in this case comports with that reading of the statute--

Unknown Speaker: I expect that's a very common statute.

I just, I just picked this up while we've been sitting here.

I sent for the book and just flipped through it and came across the Federal Labor Management Relations Act.

I suppose one can find scores of statutes that are framed that way.

And if it indeed... I like plain meaning.

But if that is plain meaning, there are a lot of statutes that I think may have to be interpreted differently from what I have understood to be the practice.

Mr. Doty: --Well, Your Honor, let me say this.

This is a statute which, if the structure and the procedures of the statute are carefully examined, it is quite clear that Congress intended to legislate the elements of a private cause of action, including the procedures whereby a security holder went about getting that lawsuit before the courts.

So this is not a case in which Congress has conferred on any private citizen or where the arguable language... the arguable interpretation of the language could be that Congress had intended to confer on any concerned bystander the right to institute suit.

Unknown Speaker: But you do agree, Mr. Doty, I guess, with Mr. Mishkin... I mean with his statement of your position that it would be enough if the plaintiff had bought a share of stock the day before he filed his lawsuit and sold it the day afterwards, so far as what Congress demands in the way of standing?

Mr. Doty: We believe that as statutory standing for the purposes of 16(b), Mr. Chief Justice, that is correct.

The defendants in this case are arguing that their right of continuous ownership, or this gloss of continuous ownership, is implicit in the statute.

We think that one does not have... one need not look to this implicit gloss in the statute, that the statute's policy is clear that it intended to authorize the instituting of suits by one who was an owner of a security--

Unknown Speaker: And Congress was indifferent to what the plaintiff did with the security after he instituted the suit?

Mr. Doty: --I think certainly Congress recognized that the policing power, the enforcement policy of the statute overcame what Mr. Mishkin has attempted to characterize as a common sense concern here.

That Congress was comfortable with the notion that article III concepts of continuing interest in the outcome of litigation and the ability to vigorously advocate a position on behalf of a representation undertaken would be sufficient for the purposes of this statute.

One must remember Congress was writing against a very dark tapestry of insider trading here in which the purpose was to get these suits brought and litigated.

Unknown Speaker: Well, would you at least concede that in the situation the Chief Justice inquired about that the cases become moot?

Mr. Doty: Justice O'Connor, we can easily see that cases may come before the Federal courts in which--

Unknown Speaker: Well, I'm talking about the case where the plaintiff buys a share of stock on day 1, files suit on day 2, sells it on day 3.

Mr. Doty: --We think that serious questions of an interest in the outcome and mootness would be--

Unknown Speaker: Just serious questions?

Mr. Doty: --would be addressed there.

Yes, Your Honor.

But we would... the Commission would view that case as one which should be addressed by this Court in the full set of circumstances that it presents.

One may imagine, for example, instances of fraud--

Unknown Speaker: Well, I just wondered what the position of the SEC was.

Is it moot or is it not?

Mr. Doty: --Justice O'Connor, we do not have a position in the abstract on whether that case would necessarily be moot.

Unknown Speaker: What's your position as General Counsel of the SEC on that question.

Mr. Doty: Your Honor, my own view of the statutory standing here is that the statutory standing in that case is clear that issues would be--

Unknown Speaker: Has it become moot or not become moot when the stock is sold, in your view?

Mr. Doty: --It is possible that it is not moot.

It is... there are facts which could be developed which would not render that instance one of mootness.

Unknown Speaker: We would have to presumably go through a brainstorming session on article III standing.

Maybe... maybe his aged mother owns a share and whether that would be enough of an interest would become a question in every case, in that this is the kind of a statute Congress has written.

All you need is the interest they are concerned about at the outset of the suit, and after that any interest at all that possibly meets article III standing is going to be enough.

I mean, it's possible to write a statute that way, but it seems like a very strange statute to me.

Mr. Doty: But, Justice Scalia, Congress has in fact made clear that it in fact intends to deal with the potential, the possibility for abuse in the misuse of inside information, and that to do that it has sought to confer standing on security holders to bring the lawsuits.

It does not follow, in our view, that Congress necessarily was blind to the implications of eventual article III questions of mootness.

But this Court resolves those questions frequently and the cases, even in Justice O'Connor's hypothetical, the cases that could arise under this statute don't necessarily pose questions of mootness that are any more difficult than the questions this Court faces in other Federal contexts.

The mootness issue does arise from time to time, but in this case, in this case this plaintiff has no difficulty meeting that test of continuing economic interest.

The corporation whose securities he now holds was formed for the purpose of this transaction.

It engaged in no business activities until it engaged in the financing of this transaction.

The issuer has been, so far as we can determine from the papers, the sole asset of this corporation.

So in many ways Mendell's interest in the parent is an indirect but very strong economic equivalent of the security of the issuer he originally held.

We would urge on the Court the plain language of 6... of section 16, but also the purposes for which the statute was originally adopted.

And the argument which we feel that the defendants here are advancing to the Court, which is that on the basis of derivative analogies which we feel do not fairly apply that the Court carve out a statutory exception to the ability of a 16(b) plaintiff to continue to litigate his case.

We respectfully submit that there is nothing in the statute that warrants carving out that exception in this case and on these facts.

The time and the place in which the Court should consider what the extent of an economic interest is that would satisfy or fail to satisfy article III considerations or mootness considerations should be reserved for another time.

The plaintiff... the defendants, rather, in this case place great store by derivative analogies.

Their only source for that purported analogy... for that purported statutory gloss based on the analogy, is to the rules that govern derivative suits.

And we respectfully submit that those really are not appropriate here.

If one examines the structure again of the statute, it is quite clear the derivative analogy simply does not apply.

The opening words of section 16(b) state that it was adopted for the purpose of preventing the unfair use of information which may have been obtained.

Now that stands, we would submit, in stark contrast to the compensatory or the indemnificatory natures of derivative actions.

Section 16(b) is manifestly broader.

Creditor holders of securities and not merely shareholders can institute these suits.

Directors cannot refuse a demand... cannot by refusing demand terminate the suit.

Where Congress intended that one hold the security for purposes of being a defendant, it was quite clear in the statute that Congress intended one be a 10 percent holder of the security both at the time of the purchase and the time of the sale, which are being matched for the purposes of liability.

So Congress knew how to address questions of timing of security holdings when it considered that important for granting the requisites of the statute, when invoking the enforcement apparatus of the statute.

And they did not do so with the maintenance requirement.

Unknown Speaker: Mr. Doty, I suppose wisdom is to be welcomed whenever it comes, but this plain language point did not occur to the Commission when it issued its proposed rules on this area, right, and did not even occur to the Commission when litigating this case below.

Am I correct that this is the first time, before this Court, that the Commission is arguing for this interpretation of the statute?

Mr. Doty: Well, with all respect, Justice Scalia, we believe our brief to the Second Circuit in fact makes the plain language argument, and we believe also that the Second Circuit opinion reaches the right result and contains the right reasons--

Unknown Speaker: Did it make this plain language argument?

I thought your-position below was much more sweeping than this... that you, that it did not refer to a current owner.

It mean... it meant a present or former owner.

Wasn't that your position below?

Mr. Doty: --It is true... I believe it is fair, Your Honor, that we have refined our argument in this Court, and we believe that is something which the appellate process permits--

Unknown Speaker: I'll accept that.

You--

[Laughter]

Mr. Doty: --With respect to our rules, however, I would only note that our rules were not an attempt to exhaust the area of standing.

They were put out for comment.

The fact that we have not adopted a rule on this area in our view does not deprive the Commission's position today as to the standing of this plaintiff of any merit or any validity.

And we--

Unknown Speaker: Mr. Doty, can I ask you how your plain language argument would work if the plaintiff was a shareholder when he gave notice to the... he made a demand, and then before the 60-day period when the directors have a chance to respond to the demand the merger took place, and then he filed suit after the merger took place and was no longer a shareholder.

Would he have standing?

Mr. Doty: --Our footnote 11 in our brief, Justice Stevens, recognizes the problems with that factual hypothetical.

And with that situation and with Justice O'Connor's situation the Commission is principally concerned with questions of whether there have been coercion, fraud, unusual circumstances--

Unknown Speaker: My question was what does your plain language argument do with that hypothetical?

Does it come within or without the plain language as you read it?

Mr. Doty: --That is... that, we believe, is a case in which the security holder had, as I understand your hypothetical, he had standing.

He would have been able to bring the suit--

Unknown Speaker: Not at the time he instituted--

Mr. Doty: --but the merger intervened.

Unknown Speaker: --The merger intervened between the demand and the filing of the suit.

Mr. Doty: Candidly, Your Honor, we believe that that is an area where the Commission's rulemaking authority could provide clarification and certainty, and it would be entitled to deference by this Court.

Unknown Speaker: But you don't know what your point--

Mr. Doty: That was in fact the area of concern addressed by the rule of proposals.

We pulled back from that because we had not--

Unknown Speaker: --Are you sure the Commission can issue rules as to when suits are bringable in court?

Is that an area of Commission rulemaking at all?

Mr. Doty: --Your Honor, this Court has... to this General Counsel's knowledge this Court has not considered that issue.

And it is clearly one that would have to be considered.

Chief Justice Rehnquist: Thank you, Mr. Doty.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Air Courier Conference v. Postal Workers - Oral Argument

Fri, 09 Jan 2009 14:49:39 +0000

Case:

Air Courier Conference v. Postal Workers

Media File:

89-1416_19901128-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of L. Peter Farkas

Chief Justice Rehnquist: We'll hear argument now on No. 89-1416, Air Courier Conference of America v. American Postal Workers Union.

Mr. Farkas, you may proceed whenever you're ready.

ORAL ARGUMENT OF L. PETER FARKAS ON BEHALF OF THE PETITIONER--

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

This case concerns in the first instance international remail.

I thought I might open up by saying a little more about remail than we said in our briefs.

I think it might be helpful to decide both the issues presented.

I will then discuss the standing issue, and Mr. Larkin will go with the merits of the administrative procedure.

International remail involves the shipment in bulk of large volumes of business documents, publications, and business correspondence to post offices abroad for mailing to the ultimate addressee.

For example, American banks that have overseas depositors, credit card companies that have overseas cardholders have to send the monthly statements.

Rather than go to the post office, affixing U.S. Postal Service's international air rate, and sending them off to... for delivery abroad, under international remail the courier will pick up those monthly statements in bulk, will... they would be unstamped.

They would be put on an air plane that evening, and they would be delivered to a foreign post office the following morning, where they would be mailed at... usually at negotiated rates for ultimate delivery by that post office or by another foreign post office in some other country.

The international remail involves a savings of time.

Some shipments are delivered in half the time it would take the United States Postal Service to deliver, to deliver the same correspondence.

It involves a savings in money.

Some of... the record shows that savings of up to 50 percent exist in certain market for delivery by international remail.

These savings of time and money save American jobs.

The record shows that if remail were unavailable that certain publishers would move their printing operations abroad.

Under the example I noted before, if remail were unavailable, that is, if low cost, reliable and quick service for delivery of statements were unavailable, the banks or credit card companies may think... start thinking about moving their computer billing operations abroad.

So in short, this saves, saves American jobs.

It promotes exports, and it does so without necessarily cutting into the business of the Postal Service because international trade is not a zero sum game.

Now let me turn to the standing issue.

The... in 1979 the United States Postal Service suspended the operation of the restrictions on private carriage of letters--

Unknown Speaker: Could you speak up a little bit, Mr. Farkas.

I'm having a little trouble hearing.

Perhaps if you raised the lectern a little.

Mr. Farkas: --In 1979... can you hear me now?

Thank you, Your Honor.

In 1979, the United States Postal Service suspended the restrictions on private carriage of letters by... and that... those laws... the restrictions on private carriage of letters are referred to the postal monopoly laws, also referred to in the briefs as the private express statutes.

The 1979 suspension related to both domestic urgent letters and international urgent letters.

Soon after the suspension, the practice... the international side of the urgent letter rule was used both to deliver urgent letters to... individually to foreign addressees and also to deliver international letters, urgent letters in bulk, to foreign post offices.

In 1985 the United States Postal Service took exception to the delivery of letters, urgent letters, to foreign post offices and initiated a rule making to prohibit that practice.

The users of remail, the remailers themselves with the help of the administration and members of Congress, participated in that rule making and the... eventually the Postal Service turned around and issued a rule that said remail was okay.

It was lawful.

The American Postal Workers Union and the National Association of Letter Carriers then sued the Postal Service, saying that the suspension was improper and therefore violated the postal monopoly laws.

They alleged as their injury the possibility of losses of jobs, postal employment jobs, and the district court found that to meet the Article III injuring fact test but dismissed the case on the grounds that the postal employees were not in the zone of interest of the postal monopoly laws.

The court of appeals reversed, and we're here on petition for certiorari.

Unknown Speaker: Did you raise below the jurisdictional question at all, whether it was appropriately brought under the Administrative Procedure Act?

Mr. Farkas: No, we did not and we disagree with the Government that that issue was either properly raised here and we also disagree with their position on the merits of that issue.

In order to... under the zone of interest test, in order to look at whether... one looks to the statute and its legislative history to determine whether a party asserting a violation of an act was the party who's rightfully entitled to pursue that suit.

The private express statutes were originated in the late 19... late 1700's as a general tax provisions and as a means of paying for post roads.

The only time that Congress ever debated the postal monopoly laws were in 1845.

And at that time, there were two... two reasons advanced for the postal monopolies.

The first one was to help bind and build the frontier and connect it to the rest of the country.

The second reason was to control the flow of information.

At the time it was believed unfair that some individuals might take advantage of commercially useful information that travelled faster than the mails could carry them.

Never in the history of any consideration of, of a postal monopoly laws were the interests of postal employees ever considered.

Therefore, we contend that the postal employees are not within the zone of interest of the postal monopoly laws and the case was properly dismissed by the district court.

The unions here have not seriously challenged... in fact they appear to have abandoned the contention that the private express statutes give them standing.

They now turn to the Postal Reorganization Act of 1970 as the appropriate statute to look to for standing purposes for zone of interest purposes.

We believe that the Postal Reorganization Act does not confer standing because it was no more a postal employment act... it no more promoted postal employment... Congress no more considered postal employment... that is, in numbers... in promulgating that act--

Unknown Speaker: Is this, is this really an argument or is it part of an argument that the statute doesn't provide the private cause of action to anybody?

Mr. Farkas: --No, this is not a private cause of action case.

This is a judicial review case.

And I think the judicial... if that's made clear, that also reflects on the... on the reviewability on the Administrative Procedures Act issue raised by the Government by the Postal Service.

Unknown Speaker: At the time of the debate on the Postal Reorganization Act of 1970, was any of that debate addressed to the merits of the private express statute?

Mr. Farkas: No, it wasn't.

Congress specifically declined to change the private express statutes at that time, and the legislative history says so.

In short, the Postal Reorganization Act was intended to make the Post Office into a more businesslike... Government-owned corporation.

The unions opposed the Postal Reorganization Act because they ended Civil Service protection for employees, and it was predicted to reduce postal employment in the long run because it was predicted to, to help the Post Office automate and help the Post Office get the Congress off its back to keep it from automating.

And, therefore, the purposes of the act, of the 1970 act, do not bring the postal employees within the zone of interest of the private express statutes.

Unknown Speaker: Well, that's parallel with their contention here, isn't it?

They're saying it's just a, a continuation of that, and we object.

They're not being inconsistent.

Mr. Farkas: Well, they are being inconsistent in the sense that, Justice Kennedy, that they were opposed to the Postal Reorganization Act because they thought it would cost them jobs.

If that's so--

Unknown Speaker: Well, they're still saying that.

Mr. Farkas: --Well, but they're--

Unknown Speaker: And then it shows they have a continuing interest in the enforcement and the operation of this statute.

They say now that you've done it, just don't carry it too far.

Isn't that... isn't that their claim?

Mr. Farkas: --Well, but Congress has spoken by passing... by passing the Postal Reorganization Act over their objections, and Congress--

Unknown Speaker: Well, the question is whether the--

Mr. Farkas: --That's not their intention to save postal jobs.

Unknown Speaker: --Well, it was... it was to keep jobs in some stat, in... at some level.

Mr. Farkas: In any event, the purposes of the private express statutes are not clarified or helped by the Postal Reorganization Act.

They were passed for different purposes and therefore, the Postal Reorganization Act is irrelevant to bringing the postal employees within the zone of interest of the postal monopoly laws.

I'd like to... with the Court's permission, I'd like to save the... my remaining time for rebuttal.

Unknown Speaker: Very well, Mr. Farkas.

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

Argument of Paul J. Larkin, Jr.

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

We agree with the petitioners that the unions cannot bring this law suit under the APA.

As we explained in our opening and reply briefs, we believe that the unions did not and cannot satisfy the zone of interest tests that this Court has set out in its decisions.

But we and in this case, we alone, also believe that there is an additional reason why the unions cannot invoke the APA in this case, and that is that Congress has exempted the Postal Service from the APA by passing section 410(a) of the postal code.

Unknown Speaker: Well, Mr. Larkin the Government did not petition for review in this case.

Mr. Larkin: Correct.

Unknown Speaker: And it's simply here is a respondent, right?

Mr. Larkin: Correct.

Unknown Speaker: Is it permitted to raise a separate question from that raised by the petitioners?

Mr. Larkin: Normally, no.

There is only one small category of cases where we think that could be done.

We think this case fits into that category.

Unknown Speaker: What's the authority for that exception?

Mr. Larkin: The exception would be where the matter is jurisdictional, and we think that the way this Court discussed this type of issue in the case of Block v. Community Nutrition Institute that it treated these types of issues as being... as the Court said in Block... in effect jurisdictional.

The last footnote in the Block case, footnote 4, was the footnote in which the Court said that it declined in that case to resolve the Article III question that was before the Court.

The question in that case under Article III was whether the plaintiff's net lawsuit had standing.

There was an additional question in that case of whether or not review was precluded under the APA.

The Court resolved the case by looking to the preclusion issue and not resolving the standing issue.

So we think that both what the Court said in the Block case and what the Court did in the Block case indicates that the Court believes an issue like this is one that can be raised in this sort of matter.

Unknown Speaker: Even though... even though not jurisdictional in any strict sense of the word at all.

Mr. Larkin: Well, the term "jurisdictional", Your Honor, is one, I readily admit, has been used to cover a variety of different types of claims.

For example, sometimes the word jurisdictional is used when really the word authority is an issue.

Sometimes the word jurisdictional is used to discuss threshold issues which would normally not be jurisdictional in the Article III sense.

They would be threshold issues such as whether or not someone has exhausted remedies in the administrative process.

But the peculiar factual scenario in the Block case tends to indicate, I think, that the Court meant that in the stronger jurisdictional sense because there was in fact an Article III question that was presented by the Government in that case.

We brought a challenge on that type of ground to the decision below.

It was one of the questions that we briefed in the case, and the Court, rather than resolve the Article III issue, resolved this other issue.

So that is why, Your Honor, even though I readily confess that we did not raise the issue below, we raised it for the first time in our brief in opposition, and that normally a respondent, of course, cannot interject a new issue into the case.

We think nonetheless this fits into that category.

And there is another and a smaller reason, I might like to add at this point, why you... Court may wish to consider it.

Unknown Speaker: A narrow one.

Mr. Larkin: A narrow one.

The narrow one is this.

As the Court pointed out in the opinion by Justice White in the Clarke case, the zone of interest tests is principally a gloss on section 702 of the APA.

If, therefore, we are right in this case and the APA is inapplicable to the Postal Service, then that is the type of issue you would want to consider in deciding whether or not the zone of interest test is the proper way of looking at this case.

We think the zone of interest test has not been satisfied by the unions.

Unknown Speaker: That surely is not a jurisdictional argument.

Mr. Larkin: True.

That... that's not a jurisdictional one, I agree.

That's more a prudential one.

And I bring it to your attention because we thought, since this is one of the issues that a court looking at this sort of problem would have to consider that is one the Court would probably want to keep in mind.

Unknown Speaker: Mr. Larkin, in addition to the APA problem I guess there's also the question whether the postal express statutes create a private cause of action, and of course you say, you say they don't.

Is that a jurisdictional issue also in your view?

Mr. Larkin: Well, there is indication of that in the case that is cited in footnote 4 in the Block opinion, which is the Amtrak case, where in that case the Court resolved a cause of action issue without, to the best of my recollection, resolving a different type of standing issue.

So if that case... that case would therefore tend to indicate that a private right of action case, perhaps only where you're dealing with the Government rather than a private party, would at least be seen on that sort of parallel.

But I would also admit the Amtrak case did not use the word "forfeit".

It didn't say that this was the type of issue that could not be forfeited.

Normally, a private right of action issue is not one that you would think of as a jurisdictional issue.

That I agree.

Unknown Speaker: Mr. Larkin, you didn't raise this below?

Mr. Larkin: Correct, we made a mistake.

Unknown Speaker: Well, do you know of any other instance where we take up a point that wasn't raised below?

Mr. Larkin: Well, generally the Court doesn't resolve questions that weren't raised below, but for example, if the Court believes it's necessary properly to resolve the case... yesterday's opinion is some indication that the Court will resolve the case at least on a basis that wasn't--

Unknown Speaker: Do you know--

Mr. Larkin: --argued by the parties.

Unknown Speaker: --Do you know of any instance, other than the one you gave, where this has been done?

Mr. Larkin: Not off the top of my head, no.

Unknown Speaker: Off of any other part?

[Laughter]

Mr. Larkin: You've got... the rest of me can't come up with an answer either.

And we think for the reasons I have said now and tried to summarize in our brief that it's an issue that the Court would want to consider and proper--

Unknown Speaker: Well, what is different from that and an amicus curiae?

Mr. Larkin: --Well, we, as a respondent, I don't think, Your Honor, don't have any greater right to--

Unknown Speaker: The trouble is you can't be a respondent and an amicus curiae.

Mr. Larkin: --Correct.

Unknown Speaker: But aren't you doing just that?

Mr. Larkin: I don't think so.

I'm not trying to.

I don't want to try to force something on the Court, but--

Unknown Speaker: Well, you won't.

You won't.

[Laughter]

Mr. Larkin: --But it is... it is the way we looked at the case, and we think that it's one that the Court could decide.

And under it's precedents, as I pointed out, there would be reasons to believe that the Court should decide it.

Now the issue--

Unknown Speaker: Mr. Larkin, in the case that we decided yesterday... I assume you're referring to Arcadia?

Mr. Larkin: --Yes, sir.

Unknown Speaker: There, it was difficult to decide correctly the issue that was initially presented, namely whether you needed a conflict or there was field preemption, without first deciding... it bore upon that question whether the field you're talking about was the entirety of FURC jurisdiction.

Now, is that same situation here that we couldn't resolve the other issue intelligently without first reaching the APA coverage issue?

Mr. Larkin: I think that bears on my answer to what I gave to Justice White.

Unknown Speaker: Which I didn't understand, I guess.

Mr. Larkin: Well, what the Court in the Clarke case said, that the zone of interest inquiry is best looked at... best looked upon as analysis of section 702 of the APA.

It's a gloss, if you will, on the test of section 702 of the APA.

And its zone of interest inquiry, the Court said in Clarke, is also far more generous than the type of analysis someone... a court would have to employ under a Cort v. Ash.

So whether or not the APA applies, therefore, determines to some extent the type of analysis you have to follow.

Unknown Speaker: Well, we'd still decide the zone of interest thing the same way.

I mean, we wouldn't... it wouldn't affect how we came out on this zone of interest issue.

Mr. Larkin: Well, I--

Unknown Speaker: All you're saying is that the zone of interest test maybe shouldn't be applied, but we could... we would still apply it correctly even though it might be unnecessary.

Mr. Larkin: --Well, you... the zone of interest test wouldn't be applied differently, but as you say, you may or may not want to apply it.

Now, in our view they haven't satisfied the zone of interest test.

The private express statutes are the relevant statutes to look to in this sort of context, and the unions cannot make out a satisfactory showing that they are within the zone of interest of the private express statutes.

For that reason I believe the unions have in part also tried to raise what they call a common law, non-statutory type of claim.

Now, this Court has in some limited circumstances allowed that type of showing to be sufficient, basically in two types of circumstances.

One is where someone can satisfy the prerequisites for obtaining mandamus.

That the unions cannot do here.

In fact, they've made no real effort to try to satisfy the strict requirements for mandamus.

And the other is best illustrated by the Court's discussion in the case of Stark v. Wickard... is a situation in which Congress has implicitly granted someone the right to bring a suit.

That also is not the type of showing that we think the unions can make out.

That is essentially the type of showing a union would have to make out to satisfy the Cort v. Ash test, and we don't think they can satisfy that very strict showing.

So if you look at it as a matter of the zone of interests analysis, we don't the unions can satisfy that.

They can't show that they are within the zone of interest.

And to be perfectly candid, I think no one is within the zone of interest except the Postal Service.

The purpose of the private express statutes was to protect the Postal Service's ability to obtain sufficient revenue so that it could serve the Nation at a uniform rate.

It wasn't designed to protect the unions or postal employees, which... and the concept of postal employees unions would have been unheard of in 1845, when the statutes essentially took their current shape... and the statutes weren't designed to protect anyone else.

It was designed basically to protect the union... excuse me, the Postal Service and, therefore, the public as a whole.

So therefore, it's really the Postal Service that fits within the... the zone of interest of the private express statutes.

And as we've explained in our brief and I've tried to summarize here, the unions also cannot satisfy the necessary prerequisites for making out an implied right of action.

If I can, then, I'd like to say a few words about the merits of the case in the remaining time.

And that is this.

We think that this record here is an excellent example of precisely how Congress intended the rule-making process to operate.

The Postal Service started out with a rule, a proposed rule, in which it believe that the international remailing practice was unlawful.

After hearing from considerable commentary by both members of the public and... as well as other Government officials, the Postal Service changed its mind in reliance on those comments and ultimately adopted the international remailing rule.

The unions have, I think, essentially two arguments that they've made to try to criticize the Postal Service in this case.

The first is that the rule is not likely to benefit the public as a whole and is likely to benefit those businesses that engage in international business.

I think that's a misdirected inquiry.

The question is not whether the entire public can make use of a suspension, but is whether the suspension will benefit the public.

In this case, the Postal Service concluded that it would for a variety of reasons benefit the public, and that was based upon information from parties not only in the private sector, as I said, but also from Secretary of Commerce, the Chairman of the President's Council of Economic Advisors, the Director of the Office of Management and Budget, and the Attorney General of the United States.

Those comments indicated that this will help American businesses sell goods overseas, which is in the public interest.

The second challenge that the unions have raised is that the postal service did not adequately consider the potential revenue effect of the suspension on its ability to serve the public as a whole.

And we think that criticism is unfair.

The Postal Service admitted both at the out--

Unknown Speaker: Well, maybe it's right?

Mr. Larkin: --No, it's not.

It's worse than not right.

It's unfair.

The Postal Service at the outset and at the conclusion of the process admitted that it did not have the hard data that it would have liked.

It asked the public for that data, but it wasn't forthcoming.

The Postal Service therefore faced a decision, because making no decision... that is, not adopting a suspension or deferring a suspension would be as much of a decision as allowing suspension to go into effect.

What the Postal Service did was use a worst-case scenario.

It took a very high over-estimate of the potential loss that it would suffer, and using that over-estimate of its potential loss, nonetheless came to the conclusion that the potential benefits out weighed the potential loss.

And that's not an irrational result.

Under a public interest standard, an agency is entitled to make that sort of assessment, particularly since the agency has the ability over time to monitor the situation.

If in fact it were to prove that this would be too financially debilitating, the Postal Service would have the ability to modify the suspension or repeal it entire... in its entirety.

But what the respondents would have us do in this case is, in the absence of complete and perfect data, take no action at all, basically to stymie the agency until it had the type of data that, I'm told by the Postal Service, it really can't ever get.

In those circumstances, that would simply be forcing upon the Postal Service a rule that's inconsistent with this Court's decisions in cases such as Listeners Guild.

For these sorts of reasons and the ones laid out in our brief, we ask the Court to uphold the Postal Service's decision in this case on the ground that it was eminently reasonable and satisfied all of the requirements of the APA.

Unknown Speaker: But you don't have to give reasons not to adopt a rule, do you?

You have to give reasons to adopt one, and that's, I guess, if you have no data, you don't adopt.

Mr. Larkin: Well, you had a request in this case and you had a difference of opinion between some officials in the Executive Branch and the Postal Service over whether or not for example this was a practice that could be conducted under the regulations that existed beginning in 1979.

The Postal Service included its most forthright way of resolving this problem was to go ahead and adopt a regulation setting forth its considered view of the matter.

And in that circumstance, we believe that what they did was eminently reasonable.

Now, maybe they could have done nothing, but it would have left this cloud, as Chairman McKean said.

They thought that the most responsible thing for the agency to do was to dissipate that cloud.

Thank you.

Unknown Speaker: Thank you, Mr. Larkin.

Mr. Secular?

Argument of Keith E. Secular

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

I'd like to begin by just following up on Justice Scalia's last question and the response.

This case is not, and I really want to emphasize this.

This case is not about the legality or the illegality of international remailing.

Mr. Farkas' clients were in business before the suspension, and regardless of what happens here, they're going to continue to be in business.

This case really has to be understood in the context of the 1979 urgent letter suspension.

That's the suspension under which the international remail practice grew up.

That suspension prescribed two tests, certain delivery deadlines which had to be satisfied and it prescribed an alternative cost test.

The private courier had to charge a certain minimum amount.

And if that minimum amount was charge then there was presumably a reason why the mailer wanted to use a private courier rather than the Postal Service.

That was the balance the Postal Service struck to meet the needs of mailers who needed to go outside the Postal Service while at the same time safe guarding the monopoly.

What the regulation here did, and this is the point that petitioners' arguments are missing, is to release the international remailers and their customers from those requirements.

To simplify it, there's a minimum requirement of a charge of twice the applicable postage or $3... let's just say $3... for a given mailing.

Under the international remail suspension, that charge is no longer in effect for this one group.

And it was that that we... that we attacked.

It was the... what we saw as an arbitrary and capricious release of this one group from the same requirements that are applicable to all other mailers who wish to use private carriage rather than the Postal Service, and it's that aspect of the case that we contended was unjustified by anything in the record.

Unknown Speaker: Did you present testimony or present your views to the hearing?

Mr. Secular: We presented comments.

Unknown Speaker: Comments.

Mr. Secular: Yes.

Now as... just to follow up on the merits for the moment and I'll move on to the reviewability and standing issues.

The issue with respect to revenue loss, which was the primary concern of the court of appeals.

It's not simply whether or not the Postal Service forecasted or attempted to forecast how much revenue would be lost.

The question is the failure of the Postal Service to examine the economic tradeoffs that are involved.

For example, international mail, just like any other class of mail, is expected to make a contribution to the maintenance of the Postal Service's institutional infrastructure.

The Court has examined the rate-making procedures set forth in the Postal Reorganization Act in the National Greeting Card case.

And essentially there are two types of costs which arise in the Postal Service rate-making scheme.

One are attributable costs, those costs which can be attributed to a specific class of mail, and other cost, which is simply assigned on an equitable basis, based on statutory criteria, to all the classes of mail in order to preserve the Postal Service's institutional infrastructure.

Now, while international mail is outside the scheme of the Postal Rate Commission, it has historically... and the evidence we submitted in the record makes that clear... it has historically made a contribution to the, to the Postal Service's institutional costs.

Unknown Speaker: Mr. Secular, it strikes me--

Mr. Secular: Yes.

Unknown Speaker: --now these are your arguments on the merits, you say.

Mr. Secular: That's right.

Unknown Speaker: It strikes me there as something that could be made by any person from the general public, so to speak.

Do they have any connection with the special standing you claim as being Postal Service employees?

Mr. Secular: Well, under the case law, as I understand it, standing is a separate inquiry and--

Unknown Speaker: You say, in effect, that if you can show standing, then you can come in and make arguments that have nothing to do with the reason for your standing?

Mr. Secular: --Yes, we can assert the public interest once standing is established.

I think the cases do... like the Sierra Club establishes that and some of the--

Unknown Speaker: Does that seem at all odd to you?

Mr. Secular: --Well, it's a... it's a bifurcated inquiry.

I think it's consistent with the function of the zone of interest tests.

The zone of interest test, as most recently articulated in Clarke, is a guide to the Court to determine who is an appropriate plaintiff, who should the Court hear from.

It's, in effect, to screen out inappropriate plaintiffs, those plaintiffs whose interests are so marginal or inconsistent with the statute that presumption is fair that that particular plaintiff would not be a reasonable plaintiff for the Court to hear.

But once someone has satisfied the zone of interest test and comes before the Court as a reasonable plaintiff, I think the cases then allow that plaintiff to challenge the legality under the statute without regard to the specifics of his interests.

Just to finish up the point on costs.

The question that the Postal Service did not examine was what effect would the loss of revenue that it forecasted have on the remaining users of the mail.

This is very, very simplistic for anyone who is familiar with the rate-making process, but the Postal Service calculated the cost under its worst-case scenario as a little bit over 3 percent of its total revenue.

That's an enormous amount of money.

3 percent, if it were distributed evenly over the rest of the rate structure, could mean, for example, close to a penny increase on the first class stamp.

The question is what is the rationale for making the remaining users of the mail pay ultimately more for their postage so that the customers of the international remailers could have, in essence, free access to the remailers.

Maybe there is a public interest rationale.

The Postal Service never articulated it.

That's what troubled the court of appeals and that's why the court of appeals remanded the case back to the Postal Service to articulate that kind of rationale.

Unknown Speaker: May I interrupt with a question, and I don't know if the record comments on this at all, but we're talking about a net loss... I mean, a loss of gross revenues.

And presumably... and this is why you're objecting... there are also some jobs that are going to be lost as a result of this, which means that there are some costs that are going to be saved.

That's inherent in your position, isn't it?

Mr. Secular: That's... what you're driving at is whether or not the net... whether there would be a loss of net revenue.

Unknown Speaker: Yes.

Mr. Secular: Whether the costs incurred by a Postal Service in furnishing international mail service are greater than the loss of revenue.

Unknown Speaker: Is there anything in the record that--

Mr. Secular: Yes, we submitted a declaration by an economist which was not rebutted which tended to show... and the court of appeals cited to that, although without referencing the declaration... that there was a net loss, and that in fact--

Unknown Speaker: --Is there anything to indicate the magnitude of the net loss?

Mr. Secular: --There are documents, and I don't have the number off the top of my head, but there are documents in the record from the Postal Service's comprehensive annual statement of operations which show a declining international mail volumes and textually a comment by the Postal Service that attributes at least a significant portion of that loss to the growing practice of remailing.

So there is something in the record--

Unknown Speaker: I'm not sure that responds to my question.

Is... and... and maybe it doesn't make any difference, but there's a little bit of a... sort of a little bit of a tension between--

Mr. Secular: --I don't... yeah... I understand.

I don't--

Unknown Speaker: --your standing argument that you're hurt by this and your relying entirely on the loss of gross revenues, it seems to me.

Mr. Secular: --Well, it was the Postal Service that cited the loss of gross revenue.

There is no specific estimation of the loss of net revenue.

And in fact, and I may regret saying this if the case proceeds any further, if the case goes back to the Postal Service and the Postal Service establishes that there is no significant loss of net revenue, it may be that we're not going to prevail ultimately in the court of appeals.

That... having addressed the--

Unknown Speaker: Let me ask one other question.

This gets a little closer to standing.

Is there anything in the record to indicate the impact on loss of jobs?

How many jobs are affected by--

Mr. Secular: --No, what we cited to was the threat of job loss, which I think is sufficient to confer injury and fact standing under the cases.

Unknown Speaker: --Was there anything to show the impact on jobs of the 1979 regulation?

Mr. Secular: No, there's no evidence of that.

Unknown Speaker: Because there would have been some history to work with there I suppose?

Mr. Secular: Well, one of the interesting issues that is raised by... and I may be wasting my time by elaborating on this.

I think there are a couple of questions that are raised by the urgent letter exception, and one is whether or not there was any diversion.

The philosophical assumption of the urgent letter exemption was that there was a type of service that the public needed the Postal Service couldn't provide.

So, in theory at least, the mail volume that was generated by the urgent letter exemption is not volume that the Postal Service was already processing.

Unknown Speaker: Yes, I see.

Mr. Secular: It's also... now I'm really just speculating but I think it's fair... one could theorize that the marketing activities of the express mail industry have increased the overall market, and possibly increased the Postal Service's express mail business.

So it would be difficult to forecast the loss in revenue or job impact from the urgent letter exemption.

As to... briefly on the question of judicial review and whether or not the... this case can probably brought under the Administrative Procedure Act.

The only justification that's been offered for raising that issue for the first time is the notion that this is in essence a jurisdictional claim, and the authority for that proposition is Block v. Community Nutrition Institute.

I would point out that what Block was focusing on is whether the substantive statute precluded review in its entirety, not simply a question of whether the APA was applicable.

And it was on that basis that the Court characterized the preclusion... the issue as jurisdictional.

There's no basis in the case law for treating the availability of the APA as jurisdictional.

In fact, Califano v. Sanders settled that the APA was not a jurisdictional statute.

This... the jurisdictional statutes involved here were the Federal question statute and section 409 of the Postal Reorganization Act.

That's what creates jurisdiction in the district courts for bringing this lawsuit and seeking the relief that we sought.

At that point, I would point out, it's the Government that focused and defined the issues in terms of the APA zone of interest test.

So I think there's no basis for that issue being raised here for the first time.

Unknown Speaker: Let me go back to Block for a second.

That wasn't really a fact that there was no review.

There was no review for the particular class of litigant that was before the Court.

Mr. Secular: That's correct.

That's correct.

As I indicated in earlier responses, the standing question as the case now... as the case now appears before the Court is defined solely in terms of the zone of interest test.

The zone of interest test focuses on whether the plaintiff is arguably within the zone of interest to be protected or regulated by the statute in question.

Now, the argument advanced by petitioner in this case focuses primarily on the notion that the private express statutes are different from the Postal Reorganization Act, which is the organic statute involved.

And we're claiming a violation of the postal... of the private express statutes, which date back to the seven... 1700's, when there were no postal unions, and therefore we couldn't be within the zone of interest.

I'd like to address that argument.

First of all, let's start with what it is we're contending, because I think that's the beginning of a standing inquiry.

Our contention on the merits is that the Postal Service acted in excess of its authority, that it abused its discretion.

It acted arbitrarily in... and capriciously.

The source of the authority to act that we claim the Postal Service exceeded, or the source of discretion which we say it abused, is 39 U.S.C. 601(b).

That is the one provision which the Postal Service claims is the source of its authority to suspend the private express statutes.

The argument that is being made is that 601 should not be considered part of the Postal Reorganization Act.

It should be considered some sort of 19th century enactment.

And let me digress and just address the history here, which is summarized in our brief.

Unknown Speaker: Well, where is... is that particular statutory section set out in your brief?

Mr. Secular: 601 is in the statutory appendix.

Unknown Speaker: Whereabouts?

Well, don't worry... don't take time from your argument to--

Mr. Secular: Just to paraphrase it, it provides that the Postal Service may suspend the foregoing section or any part thereof where the public interest requires the suspension.

It's referring to section 601(a), which sets forth certain conditions under which mail that would otherwise be covered by the private express statutes can be carried outside the mail.

In essence, if an individual puts appropriate postage on a letter, seals it, and marks it appropriately, the letter can be carried outside the mail.

That privilege of carrying letters outside the mail was enacted in 1852.

In 1852 the Postal Service... Congress enacted a statute which gave the Postal Service the authority to manufacture embossed envelopes with postal on the envelopes and permitted the Post Office... and further provided that those... letters sealed in those envelopes could be carried outside the mail.

In 1864, Congress passed another statute which authorized the Postmaster General to suspend the 1852 law.

In other words, to revoke the privilege of carrying letters outside the mail.

That original 1864 enactment never authorized the Post Office Department to suspend the monopoly, and that was clear as the statute developed in 1872, in 1938.

And it wasn't until 1960 when the... when Title 39 was revised, that the present structure came into effect.

Unknown Speaker: --The present structure authorizing the suspension of the PES?

Mr. Secular: Yes, the present structure which can be read as authorizing suspension of the private express statute.

And I would point out that was enacted without any debate.

Be that as it may, there is no historical practice of suspending the private express statutes, which dates back to the 19th century.

It's a modern development.

Unknown Speaker: Well, was there any debate or discussion or was the statute that was finally formed in 1960, was that changed in any way in the Postal Reorganization Act of 1970?

Mr. Secular: Only in the sense that Post Office was changed... postmaster... the reference to Postmaster General was changed to Postal Service.

Unknown Speaker: Well, no substantive change?

Mr. Secular: No substantive change.

Unknown Speaker: So, no part of the debate over the Postal Reorganization Act in 1970 involved this statute, which you say is the crux of the Government's power to move here... the Post Office's power to move.

Mr. Secular: That's correct.

But I would point out that there really wasn't any reason for Congress to be thinking in terms of suspensions of the private express statutes when it debated the Postal Reorganization Act.

Unknown Speaker: No, that wasn't what they were thinking about.

Mr. Secular: That's right.

Unknown Speaker: And it seems to me that greatly weakens your case for standing.

The court of appeals relied on the Postal Reorganization Act, saying that there had been considerable discussion of the role of postal workers and the concern for them.

But in... that may well have been.

But it seems to me that what you're talking about is something quite different from that.

Mr. Secular: Well, I... let me make two responses to that... to that point, Mr. Chief Justice.

One is that I don't think that the 1960 statute could have been fairly interpreted, at least in terms of congressional intent, as authorizing suspensions of the monopoly.

The Postal Service really began to view 601(b) as a source of authority to suspend the monopoly for reasons of policy with respect to certain specific classes of mail, after the Postal Reorganization Act was enacted.

That's an historical response.

Unknown Speaker: But did... but did that have any... but did its viewing when it did at the 1960 statute in such a way have anything to do with the Postal Reorganization Act?

Mr. Secular: The governor's report in 1973 didn't address the issue as... in any thorough way.

But let me move onto another response.

Unknown Speaker: Well, what is your answer to that question, the question I just asked you?

Did the position taken by the Post Office after the Postal Reorganization Act about the authority in the... have anything to do with the postal reorganization?

Mr. Secular: No.

Unknown Speaker: Before you move on, can I ask another question about the same section?

Mr. Secular: Yes.

Unknown Speaker: Why is that the crucial section?

It seems to me what you are doing is claiming the benefit of the monopoly, and this is a section authorizing the Postal Service to eliminate the monopoly as to certain portions.

But the statute that you claim gives you the protection is the basic conferral of the monopoly upon the Postal Service.

Mr. Secular: Well, this--

Unknown Speaker: Not the later provision, whenever it was adopted, allowing an exception from it.

Mr. Secular: --Well, I'm not sure, claiming the protection of the monopoly is precisely the right characterization.

Unknown Speaker: Well, you're claiming it was... you're within the zone of interests for which the monopoly was designed.

It seems to me that that's your claim.

I don't see how the exception statute does anything except affect the scope of the monopoly.

Mr. Secular: Well, our argument on standing, our basic argument on standing, treats the Postal Reorganization Act and the private express statutes as functionally a... an integrated statutory scheme.

And that's because essentially the purposes of the Postal Reorganization Act and the postal monopoly laws are crucial interdependent.

The policies of the Postal Reorganization Act cannot be achieved without the monopolies.

Similarly, the purposes of the monopoly, viewed post-1970, are to effectuate and guarantee the conditions under which the policies of the Postal Organization Act can be realized.

The court of appeals, I think fairly, characterized the private express statutes as a linchpin of the entire statutory scheme.

Let me also point out, and I think this is an important--

Unknown Speaker: But they were... they were the linchpin before the Postal Reorganization Act and afterwards, weren't they?

Mr. Secular: --That's correct.

That's correct.

Unknown Speaker: The Postal Reorganization Act didn't change them.

Mr. Secular: That's correct.

But a related point, which I haven't articulated quite yet, is that it shouldn't matter whether private express statutes and the Postal Reorganization Act are considered one statute or two statutes or however many statutes, because if that were true then there would be... the holdings of the banking law cases from Data Processors on through Clarke would have been different.

In Data Processors, for example, the claim, the only claim on the merits that was made, was that the allowance of national banks to perform data processing services was a violation of the National Bank Act.

When it came to standing, the court looked not the national... the policies of the National Bank Act but to the policies of the National Bank Service Corporation Act of 1962, a much later enactment.

And it developed a zone of interest tests on the basis of the interests that were protected by that statute.

Similarly, in the Investment Corporation case that followed just a couple of years later, the claim on the merits that was advanced by the plaintiffs was that the regulation allowing... you know, the ruling allowing national banks to provide investment services was in violation of the Glass-Steigal Act.

Well, there was no finding at any time by the court that the Glass-Steigal Act was designed to protect the interests of businesses in the stock brokerage business.

It was designed to protect and safeguard the interest of the national banks.

Nonetheless, the court, citing Data Processors, found that the policies recognized in Data Processors were sufficient to confirm standing.

That also true in Clarke.

In Clarke the statute that formed the basis for the claim on the merits were the anti-branching provisions of title XII.

Instead of focusing narrowing on the anti-branching policies, the court looked to the overall policies of the National Bank Act.

So, I think--

Unknown Speaker: Does this... again I'll ask you the question I asked.

Does this seem logical or sensible to you?

Mr. Secular: --Well, I think it depends, Mr. Chief Justice, on the case.

We use the term, and I think this is the one bit of terminology we attempted to add the case law.

The inquiry must be statute specific.

In a given case, it may very well be appropriate that... to hear from a plaintiff who is claiming an interest from an enactment which is, which is different, although related to, the enactment which is... which will control the merits.

And I think this is clearly one of those cases.

I think we've got a much stronger case here, because the relationship between the statutes at issue is so intimate.

The policies involved are critically interrelated.

They don't make sense without one or the other.

And for that reason, I think it's fair to characterize the zone of interest as the zone of interest that would flow from the Postal Reorganization Act and the private express statutes viewed as an integrated, functional whole.

And I certainly think that there's enough legislative history to indicate that that's how Congress thought of the relationship between--

Unknown Speaker: Mr. Secular, I'm not quite clear on why it is essential to the Postal Reorganization Act and the various things it accomplished that there also be a monopoly.

Mr. Secular: --The basic rationale for that was articulated in the 1973 Governor's Report.

Briefly, what... the focus is on the requirement of the Postal Reorganization Act that the Postal Service provide universal service at uniform rates.

Those... both those concepts are important.

The Postal Service cannot provide uniform service at a uniform rate to thinly populated rural areas if it's going... if at the same time private companies can skim off profitable mail service in highly populated urban areas.

That's essentially the underlying rationale of the private express statutes to... as found by the Governor's 1973 report.

It's to prevent cream skimming.

Cream skimming must be prevented in order to allow the Postal Service not only to provide universal service but to charge the same rate for transporting a letter from Washington, say, to Alaska.

Unknown Speaker: I don't see how that follows.

It just depends on how the rate is.

You, you can provide universal service at uniform rates so long as the rate is high enough.

Mr. Secular: Well, the statute also--

Unknown Speaker: Even if other people are scream... cream skimming, the people left will pay the freight.

Mr. Secular: --We can get into an economic debate on that, Justice Scalia.

The result of that would be that the rates charged by the Postal Service would skyrocket above and beyond the rate of inflation, which would have a devastating impact on volume.

I think that it's fair to say the system--

Unknown Speaker: Already... they've already skyrocketed far beyond the rate of inflation.

Mr. Secular: --Well, the Postmaster General has made that a fact, and I think that points up our argument on the merits.

3 percent loss of revenue, if that's all that the Postal Service is talking about, could very well be the difference between whether or not rates go up more than or less than the rate of inflation.

It's that tradeoff which the Postal Service never examined.

Unknown Speaker: Maybe competition might determine it, too.

Mr. Secular: I'm not sure I understand the thrust of the question, Justice Scalia.

Unknown Speaker: Determine how fast rates go up, as it does in other segments of the economy.

We're talking economics here.

Mr. Secular: Well, the problem with that is that the Postal Service has to maintain a fixed, nationwide infrastructure, which prevents it, I think, from responding to competition out on the fringes in those particular areas where rates... where rates... where a lower rate could be charged by a private business while competing with the Postal Service.

That's essentially the rationale that was articulated in the 1973 Governor's Report.

It's the rationale that underscores the conditions which the Postal Service imposed when it suspended the private express statutes for urgent letters, and it's that basic rationale that the Postal Service ignored.

There's one other point I want to make, just to follow up on Justice Scalia's question.

One of the... another one of the policies of the Postal Reorganization Act which I may have neglected to mention is the requirement that the Postal Service break even, that it... it's... it cannot run at a loss.

It cannot make a profit.

Over time the Postal Service is to break even.

And the basic thrust of that, in terms of the 1970 reorganization, was to ensure that the Postal Service would no longer ultimately have to depend on subsidies from the taxpayer.

That's another aspect of the Postal Reorganization Act which is dependent on the maintenance of the private express statutes.

Unknown Speaker: But the employees of the Postal Service are within the zone of interest that that actively, as you say, intended to protect?

Mr. Secular: Oh, there's no question of that.

Unknown Speaker: The purpose of this legislation, of establishing the Post Office is--

Mr. Secular: A substantial--

Unknown Speaker: --is to ensure employment to people?

Mr. Secular: --A substantial purpose of the 1970 reorganization was to address the legitimate grievances... that the phrase that's found on the House report... of the employees.

The statute was literally a response to a nationwide work stoppage.

It was literally collectively bargained by the unions and representatives of the administration in the White House.

After the strike was settled, the unions and the administration met, settled on the broad outlines of the statute, and presented it to Congress.

That PRA is unique in that aspect.

But I think it clearly demonstrates that the employees are within the zone of interest in that act.

Unknown Speaker: Thank you, Mr. Secular.

Mr. Farkas, do you have rebuttal?

Rebuttal of L. Peter Farkas

Mr. Farkas: Yes, Mr. Chief Justice.

Mr. Secular mentioned that the Postal Service had failed to consider the economic tradeoffs.

At Joint Appendix, page 72 to 73, the Postal Service did state... give notice of the estimates of $25 million to $250 million in gross revenue losses and net losses of $3 million.

The postal unions failed to present any evidence, contrary evidence, of tradeoffs.

There's no reason for the Postal Service to have considered evidence or arguments that weren't raised.

As to the APA argument, it's really not an APA argument.

It's a reviewability argument, and independently of the APA, there's a presumption of reviewability.

And there's nothing in the private express statutes that precludes reviewability.

In fact, the court, as early as 1921 in the Burleson case, recognized the right to review Postal Service... at that time, Postmaster General's... administrative determinations.

When the APA was passed, there was... it intended to broaden, not limit, reviewability.

The APA did not include the postal... the Post Office in either section 551 or 701 under the list of exempt agencies.

In 1970, when the Postal Reorganization Act was passed, the Congress did not amend 551 or 701.

Therefore, 410, section 410 of the PRA, has to be limited to the purposes of the PRA and do not overcome the presumption of reviewability of administrative actions under the private express statutes.

Thank you, Your Honor.

Chief Justice Rehnquist: Thank you, Mr. Farkas.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Wilder v. Virginia Hospital Assoc. - Oral Argument

Fri, 09 Jan 2009 14:49:22 +0000

Case:

Wilder v. Virginia Hospital Assoc.

Media File:

88-2043_19900109-argument.mp3

Related Transcript:

1989_88_2043_argument.xml

Transcript:

Argument of R. Claire Guthrie

Chief Justice Rehnquist: We'll hear argument next in 88-2043, Gerald Baliles v. Virginia Hospital Association.

Ms. Guthrie?

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

This case comes to you today by way of an interlocutory appeal from a case pending in the Eastern District of Virginia which concerns the administration of the Virginia Commonwealth's Medicaid Program.

The case concerns, fundamentally, the significance of action Congress took in 1981 when it amended the Social Security Act by way of what is now commonly called the Boren Amendment.

The Boren Amendment granted states new authority to set Medicaid payment rates for in-patient hospital services.

Exercising this new authority in 1982, Virginia adopted a prospective payment system as its method for reimbursing hospital rate... hospitals for expenditures for Medicaid patients.

In March of 1986, Respondent in this case, The Virginia Hospital Association, brought suit challenging our prospective payment system on the ground that it violated the terms of the Boren Amendment because it under-reimburses Virginia hospitals.

Accordingly, the hospital association argued that our system is inconsistent with Federal standards.

The Commonwealth moved for dismissal or summary judgment on several grounds, including, among other things, the Eleventh Amendment and the lack of enforceable right under Section 1983 and collateral estoppel, and the district court initially granted judgment on the collateral estoppel grounds, but that decision was ultimately reversed by the Fourth Circuit.

We're now before you on appeals from subsequent decisions by the district court and the Fourth Circuit that rejected the Commonwealth's grounds... remaining grounds for dismissal, and from a decision fundamentally that... in which the Fourth Circuit ruled that the Boren Amendment guarantees cost-efficient hospitals, a substantive Federal right to reasonable and adequate reimbursement, and that this right can be enforced under Section 1983.

The Commonwealth sought certiorari on four issues, but the Court decided to grant and to hear only this one.

I intend to focus my argument today on two key points relevant to our principal argument, which is that the Boren Amendment, as drafted, does not secure any substantive Federal rights that can be enforced under Section 1983.

Unknown Speaker: Ms. Guthrie, do you think that the legislation, as it was written before the Boren Amendment, provided a private cause of action?

Mr. Guthrie: I think, Justice O'Connor, there's a much better argument that could be made there, but we would not concede that point.

There is a distinct difference in the language between the Boren Amendment and its predecessor.

And that language... the change in the language is to incorporate the express findings and assurances requirement and also to expressly repeal the cost-based reimbursement standard reflected in the prior language.

The prior language said that a state plan for medical assistance must provide for the payment of the reasonable cost of in-patient hospital services.

That language is somewhat similar in nature to other standards incorporated in the Social Security Act that this Court has held enforceable.

But what's important about the Boren Amendment is that it doesn't say that anymore, that it makes a very significant change that must not be overlooked by this Court.

The Boren Amendment reflects congressional intention to interject the free enterprise system into the Medicaid program.

Under cost-based reimbursement, hospitals could argue that they were entitled, essentially, to present a bill to the Commonwealth and to have it paid, regardless of whether the charges made or the bill presented was in fact necessarily related to the services that the Medicaid recipients were entitled to.

It is that fundamental change that we would stress in this case.

And our second important point today is that the language of the Boren Amendment itself doesn't secure any substantive Federal rights within the meaning of Section 1983.

The only requirement, we would submit, that the Boren Amendment now imposes on the states is an administrative obligation to make findings and assurances to the Secretary of Health and Human Services, an administrative obligation that relates to how we administer our program, not to any entitlement to hospitals, and certainly not to anything that would remotely resemble an industry subsidy.

Alternatively, we would argue that even if the Boren Amendment could be said to impose an obligation to make payments to hospitals, the standards for determining the level of payment to be made under the Boren Amendment are too imprecise, too general, too open-ended to secure any specific and Federal... specific and definite Federal rights in any party.

Unknown Speaker: But what about a Federal right to a good-faith determination by the state, and to a good-faith assurance?

At least that is categorical in the act, is it not?

Mr. Guthrie: Your Honor, we would argue that in fact the finding... the findings and assurances language requires that the Commonwealth be accountable in making assurances to the Secretary, and certainly the presumption of regularity of administrative and state action would obtain.

And we wouldn't, obviously, expect a state to make a finding or submit an assurance that was patently false or inaccurate.

Unknown Speaker: I'm sure you would, but let's assume a state doesn't, and there's all sorts of evidence that this is all tricked up and it's as phony as can be.

Mr. Guthrie: Well, I think that what I would hear in that particular question and would submit is the proper argument in that particular case is that what the state has done is arbitrary and capricious, and that might, in fact, state some sort of constitutional plane that possibly could be enforced under Section 1983.

But we would argue that a statement that our findings and assurances are arbitrary and capricious does not state a claim under this particular statute.

Unknown Speaker: Could you sue the Secretary under the APA if he accepted those assurances when the assurances were obviously insubstantial?

Mr. Guthrie: We... we think that there's an argument that could be made that the Administrative Procedure Act would permit someone to sue the Secretary for not living up to his obligations, but we do not believe that argument is persuasive in this case because of the nature of the right arguably created, which is one to findings and assurances.

And the findings and assurances that are required are so defined by what comes after that language that by their terms they are more like the indefinite language this Court recently referred to in Webster v. Doe, language that might even foreclose a proper Administrative Procedure Act review.

The findings and assurances require the state to make a number of different, almost legislative, certainly policy-laden judgments.

First, if you look at the actual language of the statute, it says that a state plan for medical assistance must provide for payment of hospital services through the use of rates, so we're making payment for the use of rates, which the state finds and makes assurances satisfactory to the Secretary are reasonable and adequate to meet the cost which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable quality and safety standards and state and Federal laws, and to assure individuals eligible for medical assistance have reasonable access.

Buried in that somewhat labyrinthine language which is added to an already... which you have already characterized as a byzantine statute, are several mandates for findings: one, the state has to look to see what is the care and services that must be provided in conformity with applicable state and Federal laws and regulations and quality and safety standards.

And once we know what the level of care that's required is, then we have to ask, now, what are the costs that have to be incurred... have to be incurred by an economically and efficiently operated hospital in order to provide that level of care?

And once we've determined what those mandated costs are... because economic and efficient here is a limitation, not an expansion.

It's meant to avoid overpayment, not to raise questions about underpayment.

Once we know the answer to the question of what costs are necessary, only then do we get to the issue of whether the rates that we set after that analysis are reasonable and adequate to meet those costs.

And only then, once we've established the rates, do we know anything about payments.

Now, when you look at that complexity, and when you look at the kinds of judgments that are buried and required of the state in that language, I think it's absolutely necessary to conclude that is the sort of language where there is substantial discretion delegated to the states that it is not the kind of language ordinarily determined by this Court to support a finding of specific and definite rights.

Contrast the language of the Boren Amendment not only with its predecessor, which specifically talked about cost-based reimbursement, but contrast it too with sections of the Social Security Act that this Court has already found enforceable, such as Section 1902(a)(8) of the Social Security Act, which is the part of the act that was at issue in Edelman v. Jordan, one of your most important holdings about enforceability of rights under Section 1983, under the Medicaid Act.

That section required that a state plan provide that all individuals wishing to made... make application for medical assistance under the plan shall have the opportunity to do so, and that such assistance shall be furnished by reason... with reasonable promptness to all eligible individuals.

Shall have the opportunity to apply for assistance; that assistance shall be provided with reasonable promptness... very clear language.

Even in that circumstance, the use of the word "reasonable" was interpreted by the Secretary of HHS' regulations, and accordingly could be easily enforced by the courts.

Moreover, the language of the Boren Amendment differs dramatically from the rights-granting language of the Brooke Amendment, which was at issue in the Wright v. Roanoke Development and Housing Authority case.

In Wright, the Court considered the effect of statutory language providing that tenants could be charged as rent no more and no less than 30 percent of their income, and the meaning of the... and also looked at the meaning of an implementing regulation that included within that 30 percent standard a reasonable amount for utilities.

Unknown Speaker: What if a... the state just doesn't set up any standards at all for reimbursement?

Mr. Guthrie: That's not this case.

In this case we have an acknowledgement by Respondent that we have made findings and assurances, and that acknowledgement is bolstered by findings of fact made by Judge Merridge in the Mary Washington Hospital case.

So we're in a circumstance in this particular case where that question is not an issue.

Unknown Speaker: Well, I suppose if they didn't have a set of standards they wouldn't have presented anything to the Secretary, would they?

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

Unknown Speaker: I take it you suggested that if neither the state nor the Secretary was doing its job, somebody could complain in court?

Mr. Guthrie: If the state was not doing its job, if we did not submit satisfactory assurances, if we've made no payments, for example, the Secretary--

Unknown Speaker: So what... who can sue whom for what?

Mr. Guthrie: --Well, the Secretary certainly in the first instance can refuse to approve our state plan, can withdraw his approval and can refuse to provide Federal participation--

Unknown Speaker: Can somebody sue?

Mr. Guthrie: --Yes.

As I indicated earlier, if our actions were so--

Unknown Speaker: Can somebody sue the state?

Mr. Guthrie: --If our actions were wholly arbitrary and capricious, I think that we would acknowledge that there would be a constitutional claim to which a 1983 action might attach.

Unknown Speaker: Why?

Why?

I don't know why you... why can't you say that the scheme is such that your protection is the Secretary?

The assurances are made to him.

All of the information has to be given to him.

Why isn't it constitutional to have the Secretary protect... protect the hospitals.

That's their assurance--

Mr. Guthrie: Well, I think--

Unknown Speaker: --And if the Secretary doesn't do the job, then the hospitals can sue him?

Mr. Guthrie: --I think that that's certainly a reasonable interpretation.

I was only meaning to suggest that because of the level of state action involved in promulgating the state plan that's at issue here... we have to promulgate a state plan under our Administrative Procedure Act as well as under the public notice and other requirements of the Federal law in this particular provision, and so we have state action--

Unknown Speaker: I see.

Mr. Guthrie: --derived from this Federal-state cooperative program that might be independently attacked, you know, as arbitrary and capricious.

Unknown Speaker: I understand.

If you can sue when you don't have a plan, why can't you sue and just say look, the plan that was presented is just wholly arbitrary and capricious, so I want to sue the state?

I want to... it's just a... it's a nonplan, and look at these rates, they're just too low?

Mr. Guthrie: In that circumstance, this statute is one that clearly sets up a scheme that contemplates that the states will be accountable and the Secretary will be charged principally with assuring that the states follow the mandate of Congress.

There is embodied in the statute a delegation to the states which is very broad and a recognition that this program is going to work only if it is a cooperative program of the state and Federal Government.

Unknown Speaker: Well, does the state have a procedure whereby a provider can say look, you aren't paying me enough?

Mr. Guthrie: Yes.

There is a--

Unknown Speaker: So the... and is that reviewable in a state court?

Mr. Guthrie: --Yes.

I'd like to reserve the rest of my time, if that's appropriate.

Unknown Speaker: Very well, Miss Guthrie.

Mr. Roberts?

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

It may be helpful at this point to return to the language of the statute.

That language specifies that a state Medicaid plan must provide for the payment of rates which the state finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs that an efficiently and economically operated facility must incur to provide care and services and to assure that eligible individuals have reasonable access to services of adequate quality.

In providing for state findings and assurances, this language vests responsibility for rate setting squarely on the shoulders of the states.

It does not secure any substantive Federal right to the payment of particular rates.

Unknown Speaker: Mr. Roberts, can I just interrupt to ask you the same question that Justice O'Connor asked earlier of your colleague?

What was... what is your view of the situation before the Boren Amendment?

Was there a cause of action under 1983 then?

Justice Roberts: I think there may well have been, Your Honor.

Certainly several lower Federal courts found that there was.

But the important distinction is... there are two major respects in which the language prior to 1980 was very different.

Unknown Speaker: Why, I... I understand that.

But basically you're saying, then, that even if there was, we should construe the Boren Amendment as taking away a preexisting remedy?

Justice Roberts: Well, I think it's different than in the implied right-of-action cases.

I don't think it's, for example, like the Merrill Lynch case, where if Congress... Congress did not provide a judicial right of action even prior to 1980.

The question is whether the language it used secured a right which then could be enforced under 1983.

So I don't think you should look for particular evidence that they were withdrawing a judicial remedy.

You simply construe the language of the statute to see if it secures a right, and in this case, looking first at the standard for payment, that standard is not the sort of language that suggests Congress intended there to be judicial policing of rates.

How do we tell--

Unknown Speaker: Is there some kind of right of action to require the state to include reimbursement provisions in the plan?

Justice Roberts: --The statute requires that the state plan have a provision for payment of rates.

Unknown Speaker: Is there... is there a cause of action to require at least that much?

Justice Roberts: There may well be, if the allegation in the complaint is that the state plan... the state has not made findings that its rates meet this standard, or that the state has not given assurances to the Secretary at all.

But that's not the relief that these plaintiffs seek.

Unknown Speaker: Is there a requirement that the state act rationally in making those findings?

Would that give rise to a cause of action?

Justice Roberts: I think not, Your Honor.

It is only... the only thing that the act requires is state findings and state assurances.

There's no basis for a court to look behind those findings and assurances.

This is not the pre-1980 situation, where the statute said the plan must provide for payment of rates at this level.

The only requirements are that the state find that its rates meet this level and assure the Secretary.

Unknown Speaker: Mr. Roberts, I must say I don't see that line, that you say it's all in the hands of the Secretary and sue him if you have any problems, unless there hasn't been any filing at all.

Why couldn't you say the same thing for that, that that's up to the Secretary?

If he doesn't move against the state because of the state's failure to file, the remedy is against the Secretary?

Justice Roberts: In the first place, Your Honor, I didn't mean to suggest that you should sue the Secretary.

I think the statutory standard, assurances satisfactory to the Secretary, is one that does not give law to apply under the Administrative Procedure Act.

Unknown Speaker: Also, the Secretary could... it doesn't matter what the Secretary approves.

You're saying there is not only not a remedy directly here against the state, you're saying that even... there is not even any remedy against the Secretary no matter what he approves?

Justice Roberts: I think that's right, Your Honor, and I don't think that's an absurd conclusion.

The notion... it is not the case that enactments of Congress that confer certain protections are meaningless unless they can be enforced in Court.

It is a meaningful and significant protection to providers, perhaps, in this statute, that the state officials are required to stand up and say, we find that our rates meet this standard.

It is an additional meaningful and significant protection that they must assure the Secretary that that is the case.

But the providers want more.

They want, as you suggest, to be able to haul the officials into Federal court and say, prove it, or say, under any other standard that's arbitrary and capricious, we don't think that your findings are right.

Unknown Speaker: No, they just want to haul the Secretary in to be sure that he's doing the job he's supposed to under the statute.

Why... why would the normal judicial review that's available under the Administrative Procedure Act to be sure that the Secretary's action is not arbitrary or capricious, why is that suspended here?

I didn't realize you were taking such a--

Justice Roberts: Because--

Unknown Speaker: --polar position on this.

Justice Roberts: --Well, in the first place, of course, that question is not presented here, but in the second place, the statutory standard, assurances satisfactory to the Secretary, is one that by its very terms commits that decision to agency discretion.

I don't think there are any standards for a district court or a court of appeals--

Unknown Speaker: In any case, it's not involved here.

I must say, though, that my view of what these people can get from the Secretary colors to some extent my view of whether they have any action here.

If you're telling me they can't get anything anywhere, I might just say, you know, in for a penny, in for a pound.

Let's let them sue the state.

Justice Roberts: --My point is that they do get something, and they get it in two different places.

They get it with the responsible state officials who have to make the findings, they get it with the Secretary who has to review the assurances.

They want a third option.

They want to get it in Court.

But Congress, in using the language in the Boren Amendment, did not secure to them any rights enforceable in court.

The language of the standard itself, quite apart from the findings and assurances language, is not the sort that suggests the securing of rights: reasonable and adequate, efficient and economical.

What are the costs that must be incurred, as opposed to simply those that are incurred?

These are not objective facts that can be found by a court.

They are policy judgments, policy judgments that Congress, in providing for state findings and assurances, clearly vested with the state.

Unknown Speaker: It would be an objective fact if somebody brings a suit saying the Secretary is not even looking at these things.

They don't even go into his office.

Nobody... nobody in the whole agency is even looking at them.

That would be an objective fact, wouldn't it?

Justice Roberts: Even if you get over that hurdle, Your Honor, the only requirement... that's... that goes to the standard against which the state must make its findings and assurances, but the only mandate in the statute is that findings be made, assurances be given and the Secretary's approval obtained.

That is, of course, very different from the situation prior to 1980, when these lower case... court cases were decided, when the repeal of the Eleventh Amendment immunity and the repeal of the repealer took place.

Perhaps there was a right of action at that time, but the one thing that's clear is that Congress made a significant change at that time.

It not only changed the standard from reasonable cost, but it also inserted the language of findings and assurances.

It left the responsibility for rate-setting with the states and not to be second-guessed in Federal court.

It is telling, I think, that there is no explanation in the plaintiffs' submission to this Court, or of that of their amici, as to what they thought Congress was trying to do when they made this change, when they inserted the requirement of findings and assurances.

And it seemed... the one thing that is clear with respect to the Secretary is that they wanted the Secretary to back off.

His review was not to look at the rates, but to assure proper accountability, to make sure that the findings were made, and it seems curious to suggest at the same time that Congress was pulling the Secretary back, it nonetheless intended that every provider have a right to challenge the level of its rates in Federal court before a Federal judge.

Unknown Speaker: Well, that isn't quite that absurd, is it?

And I suppose the standard would be quite different if the Secretary would take a fresh look and decide whether it was right, whereas they'd have a much heavier burden in court, wouldn't they, to show the statute was violated?

Justice Roberts: Well, I think it's unclear what the standard of review would be in court.

Someone has suggested arbitrary and capricious, substantial evidence--

Unknown Speaker: Well, they allege in this case that somebody who has 95 percent of the hospitals get less than the... their costs out of this, and they say... and that ergo, it's arbitrary.

Isn't that their theory?

Justice Roberts: --Well, I think it is, although I don't think it follows.

It would not surprise me to find out that 95 percent of the hospitals are charging costs that are beyond those that would be charged by an efficiently and economically operated hospital.

The purpose of the Boren Amendment, with its flexible standard and the express conferring of rate-setting authority on the states, was to drive the hospitals to efficiency.

I think it would be a very difficult task for a judge to decide, not simply what costs were incurred, but in an ideal world, what costs should have been incurred, what an efficient provision of care would entail.

That's a policy judgment.

It's one which Congress vested in the states in this system of findings and assurances.

Unknown Speaker: And the state can reasonably find that 95 percent of the hospitals in Virginia are inefficient.

That's what it amounts to.

Argument of Walter E. Dellinger, III

Justice Roberts: The purpose of the Boren Amendment was to give the states the flexibility to set the rates that must be incurred to provide services.

For example, a state could determine that a particular service is better provided on an out-patient than an in-patient basis, and therefore be willing only to reimburse the services at the out-patient level.

Thank you, Your Honor.

Unknown Speaker: Thank you, Mr. Roberts.

Mr. Dellinger?

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

In response to questions from Justice O'Connor and Justice Stevens, Mr. Roberts acknowledges that there may well have been a right of providers to sue before 1981.

Miss Guthrie, on behalf of the state, was not so sure.

Each of them, however, is quite convinced that somehow, some significant change was made in 1981 which retracts this right that in our view was not only settled, but a right with which Congress was extremely well aware.

Providers have been suing under these reimbursement agreements... under these reimbursement standards of Congress for more than 20 years.

The first case to come to the court of appeals was decided by the three-judge court in Catholic University... Catholic Medical Center v. Rockefeller of 1969.

And Congress was sufficiently aware that providers were suing to enforce this right--

Unknown Speaker: But they were suing... that was a right to a quite different substance than the right we are talking about here, wasn't it?

Mr. Dellinger: --Not at all.

The standard was revised in 1980 and '81.

The previous standard was that a state must provide the reasonable cost of providing hospital care.

In the 1980 and '81 amendments for nursing home care and hospital care Congress provided the present language, which gives states the flexibility to adopt methods of reimbursement that encourage efficiency.

The state... and we emphatically agree with this... with the state on this point.

States are not required to reimburse the actual costs of all hospitals.

They are required to reimburse at a level that must be incurred by efficient and economical providers in providing care.

There's nothing in that change in the standard which continues to be enforceable and mandatory.

The statute says a state plan must provide for payment of the hospitals, and Congress has never stopped with simply saying you must pay the hospitals a reimbursement for the costs they incur in providing care.

Unknown Speaker: This Court never held there was a cause of action under the previous statute, did it?

Mr. Dellinger: This Court never had occasion to hold that there was a cause of action under the previous statute, but the sense of Congress on that point could not be clearer.

It's not merely a sense from matters that appear in floor statements or in committee hearings.

Congress twice in the '70s passed legislation expressly predicated on the existence of an underlying cause of actions upon which providers could sue.

Unknown Speaker: Do you think that was a... the cause of action given by the act?

Mr. Dellinger: Absolutely.

Unknown Speaker: Or do you have to get to 1983 or something?

Mr. Dellinger: Well, the secured right comes from the Medicaid Act, the cause of action under 1983.

The court decisions in the lower courts were, in the main, explicitly based on 1983.

Congress became concerned in 1975 that the 1983 cause of action for future injunctive relief wasn't enough of a remedy.

Because of this Court's decision in Edelman against Jordan, a provider who sued in the '70s and challenged the state for failing the meet the minimum reimbursement standard could not receive compensatory damages because of the Eleventh Amendment barrier.

So Congress in 1975 passed legislation requiring states to waive their Eleventh Amendment immunity and consent to be sued not only for injunctive relief but for money damages as well.

That did not work out very well.

Many state legislatures simply weren't meeting in time to comply by March 31 of the ensuing year, and the penalty was draconian... a 10 percent cut in Medicaid reimbursement to the state... so the Congress in '76 withdrew, repealed the statute which required states to waive their Eleventh Amendment immunity.

It obviously makes no sense to require a waiver of Eleventh Amendment immunity if there's no underlying right to sue, but Congress could not have been clearer and the Solicitor General in his brief in the final footnote, page 23, note 16, notes that the House and Senate report explicitly state... they say observe in passing... explicitly state, with an interesting ellipsis here, that after the repeal "providers can continue" dot, dot, dot,

"to institute suit for injunctive relief in state or Federal courts. "

The ellipsed matter is: ", of course".

I mean, it was so well established that this statement... the position of Undersecretary Marjorie Lynch in her testimony, Assistant Secretary Kersman, the repeal of this legislation... should not be interpreted as placing constraints on the right of parties to seek prospective injunctive relief in a state or Federal judicial forum.

It could not have been clearer that "of course" providers had a right to sue to enforce this standard.

Congress, as it had done previously... Congress has modified this statute in '69, '72, '75, '76, '80 and '81.

The last '81 standards are intended to encourage efficiency on the part of hospitals by--

Unknown Speaker: Well, Mr. Dellinger, exactly what is the obligation you think the current language imposes on the state?

Mr. Dellinger: --The obligation that the current language imposes on the state is to come up with a plan that is not arbitrary and capricious.

It is not certain what the standard will be on the merits.

Unknown Speaker: So if there is a cause of action it's only to assure that the action of the state is not arbitrary and capricious?

Mr. Dellinger: That has not been finally settled in the lower courts that have heard this so far.

It may well be that that's where the standard comes out, because the statutory language is "reasonable and adequate".

That obviously gives the state some room and flexibility.

Unknown Speaker: Well, certainly Congress apparently intended to remove from the Secretary the obligation for any detailed enforcement--

Mr. Dellinger: That's correct, and--

Unknown Speaker: --of particular standards.

Mr. Dellinger: --That's correct, and that is I think essential to what happened in 1980 and '81.

I think the Solicitor General concedes, as he must, that there was a right to sue before '80 and '81, and one of the principal changes in 1980 and '81 was to reduce the oversight role of the Federal Secretary.

Unknown Speaker: But you would have us increase the Federal oversight by virtue of having the Federal courts do what the Secretary cannot do?

Mr. Dellinger: No.

The court's role is simply to see that the Federal statute has been enforced, that it has been complied with by the states.

Only in those instances--

Unknown Speaker: Do you think there's a private cause of action to achieve results and have Federal oversight through the courts that could not be obtained by the Secretary?

Mr. Dellinger: --Yes, and in fact the access to Federal court is... makes more sense once the Secretary's role has been diminished, that is, prior to 1980 and '81 it was more arguable that the Secretary's function, which was then a review and approval function, provided the remedy that was necessary.

Now, this has been decentralized.

Unknown Speaker: Well, it's kind of curious as an end result, though.

One might think that what Congress had in mind was a reduced Federal involvement across the board, whether it's through the courts or the Secretary.

Mr. Dellinger: There's absolutely no evidence of that in the legislative history, of reducing the role of the courts.

What Congress did want to do is to decentralize the function of adopting a reimbursement methodology.

Previously, the Secretary had exercised something like a command and control function.

When the Secretary engaged in that function, conceivably there could have been meaningful APA review.

Unknown Speaker: What's his function now, Mr. Dellinger?

What is the Secretary supposed to do now, just file them?

He's not supposed to look at them at all?

Mr. Dellinger: That is the position of the Department of Justice, that the Secretary... in its brief, the Solicitor General says, at page 5 of its brief,

"The states are not required to submit to the Secretary the findings themselves or the underlying data or analysis. "

Unknown Speaker: Well, it's one thing to say they're not required to submit.

It's another thing to say that he doesn't have some obligation, if he smells something wrong or somebody complains, to probe more deeply, ask for documentation and so forth.

What do you think he has to do?

I mean, the way you've just been talking, he's been read out of the act.

Is that so?

Mr. Dellinger: I think that is largely correct.

That is, at page 20 of their brief the Solicitor General says that

"consistent with this legislative history, the Secretary has maintained. "

--whether he gets Chevron deference in this judgment I don't know, but the Secretary has maintained that the statutory provision

"does not require him to analyze or verify the state's findings. "

partly because we've now switched to a system from one in which the Secretary had a command and control function.

There are other areas of the Medicaid Act where the Secretary continues to be the effective decision-maker, but here Congress has decentralized to the point where it is the state which finds that its plan meets the requirement of the statute of being reasonable and adequate reimbursement.

Unknown Speaker: Mr. Dellinger, supposing you win here, and then the Arlington Hospital goes into court and sues a year from now saying we incurred $10 million in costs, the Virginia people have only reimbursed us for $8 million.

What issues could a Federal court consider in deciding that case?

Mr. Dellinger: Well, the fact that they had incurred $10 million in cost and the state had only reimbursed them $8 million would by no means suggest that they were entitled to win.

Unknown Speaker: So, but what issues... what issues could the Federal court consider?

Mr. Dellinger: I think if you look at the cases that have gone to judgment in the Courts of Appeal, and we have a number now that have been decided, you can see the process that the Federal court... a Federal court can go through.

The state officials are asked to, in a sense come forward and explain how their system was designed and what is the theory that this is a reasonable and adequate rates that would meet the costs that must be incurred.

That is not an impossible finding.

I think it's the--

Unknown Speaker: And if the district judge disagrees with... that the plan is reasonable, he doesn't think it is reasonable, he can set it aside?

Mr. Dellinger: --Not at all.

Unknown Speaker: Well, what does he do?

Mr. Dellinger: Well, I mean if--

Unknown Speaker: He gives them $2 million, doesn't he?

Mr. Dellinger: --No, he... by disagreeing... I think I now understand, you want to know just what the result is.

The result is that he disapproves the state plan and the state is required to submit another plan, to make another annual finding.

Unknown Speaker: And another plan to the Secretary?

Mr. Dellinger: To come up with... to come up with another plan.

That's essentially--

Unknown Speaker: The hospital doesn't get any money judgment, then?

Mr. Dellinger: --Not at all, not from the Federal district court.

The only relief, as far as I know, in any of these cases is that the state plan be disapproved and that perhaps if it is an amendment to a state plan which is being eliminated that you call back.

The state is given an order.

The state is ordered by the court... as I understand the judgment in the court of appeals cases... to submit a plan, to come up with a new plan that meets the Federal standards.

We have cases that have gone to trial on this.

Unknown Speaker: What... is that a de novo standard of review?

Does the Federal judge decide for himself whether this meets the Federal standard?

Mr. Dellinger: Yes.

The Federal judge obviously must make in the final analysis a determination of whether the state's plan meets the Federal requirement, but that's not the same as a Federal judge having to decide what he thinks is reasonable.

That is to say, I think Edmond Kahn once said it's much easier to identify instances of injustice than it is to find justice.

See, a court is only asked to identify instances in which a state plan is unreasonable.

Let me give you an example, if I may.

Unknown Speaker: Before you--

Mr. Dellinger: Yes.

Unknown Speaker: --Can you think of any other instances where we have Federal courts passing upon the adequacy of state plans?

I can think of a lot of Federal statutory... or several Federal statutory schemes where you have a Federal administrator approving state plans.

Isn't it rather extraordinary to have state plans submitted to Federal judges... and this will go on annually, won't it?

I mean, every time a state makes an adjustment in its rate system?

Mr. Dellinger: Well, there have been, I think, in the history of this provision only 42 actions brought.

I assume that in most cases... there are only suits pending in 18 states at the present time.

I think most states are in fact in compliance, judging by those figures.

They are... they have a variety of different methodologies, just in the way in that, when we get our travel expenses reimbursed there are lots of different ways in which payers calculate our travel expenses, but all of them seem to be a method to determine... to be in... actually a method of determining reasonableness and adequacy.

But you have cases, like the Colorado case brought by St. Mark's Hospital and Denver Lutheran that has now gone to judgment in the court of appeals, in which the state... again it was a case like Virginia's where not a single hospital... not 90 percent but 100 percent... not a single hospital was receiving... was being reimbursed its cost of providing care.

In Colorado, the state's method was to use one of the Medicare methods of determining cost per patient day, and at the next-to-bottom line the state simply multiplies by.54.

They simply cut the amount in half.

That's not a very difficult judgment for a court to make, and particularly when the state has no theory.

It's as if they said, we take the numbers and multiply them by last Tuesday's trifecta number.

I mean, the trial court asked the state, by what method or theory do you assume that multiplying by.54 and cutting the figures in half will result in reimbursement that meets the costs that must be incurred?

The state essentially had no answer, so that the court was able to conclude that the record was

"flagrantly devoid of any effort to make the Federal required findings. "

Unknown Speaker: It told them to come up with another number?

[Laughter]

Mr. Dellinger: It told them to come up with... some numbers are... you have a theory.

One of the first things the state did was multiply Medicare rates by.88, but they had a theory that it was less expensive to treat Medicaid patients than Medicare patients, so they had a theory.

But then when they cut it in half, they had no theory.

Unknown Speaker: Well, what was the order?

Mr. Dellinger: The order was simply, in that case, to hold that the state plan was... failed to meet the... the state was failing to comply with the statutory requirement that it pay providers in accordance with a plan that is reasonable and adequate to meet the costs that must be incurred, and the state was ordered to--

Unknown Speaker: You couldn't get any money out of the state because of the Eleventh Amendment, is that it?

Mr. Dellinger: --That's right.

There's no retrospective damages, so the state is only required to come up with a new plan, which Colorado has done.

Colorado has now come up with a new plan and now has joined the ranks of other states that find it quite possible to come up with a plan that meets this Federal standard.

Unknown Speaker: In your view, is there an action against the Secretary under the APA?

Mr. Dellinger: If there is an action against the Secretary under the APA, there would be very little for the court to review because the Secretary's role is so limited and the Department of Justice has taken the position, as it did in Illinois Health Care v. Suiter... the Department of Justice moves to dismiss the Secretary whenever the Secretary is sued now.

Unknown Speaker: Well, why is the Secretary so limited?

Just because it has to do with assurances that are satisfactory?

I mean, doesn't the Secretary have to, in effect, make the same finding the state does?

Mr. Dellinger: No.

The Secretary... the state plan... when a new state plan is adopted, it must be submitted to the Secretary.

And the Department has taken the position, as the Secretary has, that he only reviews formal compliance.

He looks and sees if the state has in fact rendered an assurance.

Unknown Speaker: But it says that they have to be satisfactory, to... not just that they have to be filed, but that they have to be satisfactory to the Secretary.

I don't think they're talking about gastronomic satisfaction.

[Laughter]

I think he's supposed to look at them and see that they seem to be in rough compliance, right?

I mean, it's not--

Mr. Dellinger: One would think that the Secretary would scrutinize these submissions, but it's... there is a critical point here.

There are two requirements in the statute.

One is that the state submit assurances satisfactory to the Secretary, but that's a backstop requirement.

The fundamental obligation is that the state find that it's plan meets the Federal standard.

Unknown Speaker: --Well, isn't there some... I asked your opponent, is there some administrative scheme whereby you can in... take... get review in the state itself, in its administrative processes?

Can you take this issue up there?

Mr. Dellinger: Absolutely not.

This issue may not be brought in the state administrative appeals procedure.

The... at no point has the state ever said that you can challenge--

Unknown Speaker: Didn't your adversary suggest--

Mr. Dellinger: --No, she--

Unknown Speaker: --You don't... you didn't understand her that way?

Mr. Dellinger: --The way the dialogue proceeds on this question... I did not understand her to say that, because the dialogue proceeds as follows: we say, since the Secretary is providing no remedy, and in fact the findings... the annual findings do not have to be submitted to the Secretary.

The findings are an annual requirement.

The Secretary only even sees us when there's a new plan--

Unknown Speaker: Well, is--

Mr. Dellinger: --But on the state side--

Unknown Speaker: --Is the only way you can argue with the state is to go to court, or can't you argue in their... don't they have some administrative structure?

Mr. Dellinger: --Here's the state's administrative structure, and they do say this: the Federal statute and the regulations say that a state plan has to provide procedures for prepayment and postpayment claims review

"with respect to such issues as the state agency determines appropriate. "

When we say there's no remedy, the state says, oh, yes, we have an elaborate three-tiered administrative appeals process.

But we look at the plan, and the plan says, you may not challenge the principles of reimbursement.

The plan for long-term care says, and I quote,

"The principles of reimbursement are not appealable. "

And we respond with that; to which they say well, nobody's perfect.

I mean, there's... the plan doesn't allow you to bring the issue that we want to litigate, and I understand this is not necessarily a critique of the plan.

The state administrators are not appeals officials, are not Chief Justice John Marshalls.

Unknown Speaker: So you just can't go in and say, I didn't get enough?

Mr. Dellinger: No.

Here's what you can do--

Unknown Speaker: Well, can you or not?

Mr. Dellinger: --Not at all.

Unknown Speaker: Well, what can you say in an administrative--

Mr. Dellinger: You can say they've miscalculated your reimbursement.

Suppose, for example, the state plan provides that you get one-third of your cost.

You can go into the state appellate process--

Unknown Speaker: --Say, you didn't multiply right.

Mr. Dellinger: --You can go in and say look, you calculated this at 33 percent and we believe that one third means 33-1/3 percent, and the state plan says one-third.

Unknown Speaker: Now, is that clear as a bell in this... is it in the... can we tell that that is so in this record, or from any papers that you can read?

Mr. Dellinger: I think if you look at the Solicitor General's brief, at page 2, the Solicitor General... the Solicitor General says at page 2 that we want to bypass the state administrative procedures, but at page 6 the Solicitor General says,

"The Commonwealth Medicaid appeals procedure precludes administrative review of the principles of Medicaid reimbursement under the plan. "

Unknown Speaker: Well, what if, instead of seeking administrative review of those principles, you went into the Circuit Court of Fairfax County and said the statute requires that the state make these findings, that they will be adequate; the state's findings are inadequate?

Why not go into the Circuit Court of Fairfax County instead of the District Court of the Eastern District of Virginia, which you did?

Mr. Dellinger: Well, the Virginia APA has a provision that grants of state or Federal funds are exempted from the judicial review provisions.

There's no definitive judgment of the Virginia Supreme Court, but that provision that exempts grants of Federal funds from APA review, and the provision that says that the validity of any statute, regulation, standard or policy, state or Federal, upon which the action of the agency was based shall not be subject to review by the court, appear to preclude any access to court.

The state administrative system clearly does not--

Unknown Speaker: This is not a grant of state or Federal funds, is it?

Is it a grant?

Mr. Dellinger: --This involves a grant of state or Federal funds and--

Unknown Speaker: The grant includes--

Mr. Dellinger: --Conceivably the Virginia Supreme Court would decide differently, but it's important to note that once you're closed out of the state administrative appeals process, because it doesn't allow you to challenge the principles of reimbursement, there's nothing in the Federal Medicaid Act that requires state court judicial review.

So that any review that might exist by happenstance, the availability of which would be entirely a matter of individual state law, cannot, as this Court held in Wright v. City of Roanoke, foreclose a remedy under Section 1983.

The state simply doesn't identify, as we can see it, any plausible basis.

I think in the end that what happened in 1980 and '81 was very significant for what Congress did not say, after manifesting its concern with provider remedies and having an extensive legislative history.

The Congress is said to have taken away and extinguished provider's right to sue, with no mention... there's not a word in the legislative history, the extensive legislative history in '80 and '81, that says, oh, in addition, we're making another major change.

We're extinguishing the right of providers to sue in state and Federal court which we've legislated about in '75 and '76.

It's being extinguished by this statute.

That is, in this case, the dog that did not bark.

There's not a word that Congress was withdrawing a right of which Congress was fully and clearly aware.

It seems to me that two approaches have been argued here today to take away the right to sue.

One of those approaches would have this Court hold that a state's plan always meets the statutory standard, no matter how arbitrary, capricious, unsupported or untrue its plan might be.

The other would acknowledge the existence of the statutory right but shut the doors of the state and Federal courthouses to the only effective means that providers have of enforcing the requirements of this statute.

I think either one of those approaches would breathe an unhealthy skepticism and a lack of respect for Federal law.

The state says... it takes umbrage in its brief at our suggestion that... they're saying that a false finding satisfies this statutory standard.

But the state itself says that we acknowledge that the Commonwealth has made the findings required by the statute.

I thought, when did we ever say that... acknowledge that the state had made the required findings under the statute?

They cite the complaint, footnote 12... I mean, the complaint, paragraph 12, which says that the assurances and findings provided by the Commonwealth were inaccurate.

The state... the heart of the state's position is, as it must be, that a state's requirement to find is satisfied by an inaccurate finding.

That simply does not square with what this Court held in Wright v. City of Roanoke, where the statute said the regulations involved spoke of reasonable utility... reasonable amounts of utilities determined in accordance with the Public Housing Authority's schedule of allowances.

I don't see any difference between what the state finds to be reasonable and adequate in this case and what the state authority determined to be reasonable in City of Richmond Public Housing Authority, in Roanoke.

It seems to me that if the state's finding is to mean anything, then this case is one in which--

Unknown Speaker: --Is there been an example where you've utilized the state appeals procedure, administrative procedure, and then gone into court and asked the court to review the principles of reimbursement and have been denied?

Mr. Dellinger: --No, Your Honor.

The state filed... the providers filed appeals in the state court system, but those have been stayed pending this litigation and the--

Unknown Speaker: Well, you don't know whether you can get relief in the Virginia court.

Mr. Dellinger: --We are quite certain that relief is not available in the state appeals process, because--

Unknown Speaker: Well, in the administrative appeal.

How about in court?

Can you go to court and say look, these fellows won't listen to principle?

Mr. Dellinger: --You mean go to state court?

Unknown Speaker: Yes.

Mr. Dellinger: Well, we can certainly go to state court under Section 1981 as long as the Virginia courts are open, but there does not appear to be any state appeal otherwise.

Unknown Speaker: Thank you, Mr. Dellinger.

Miss Guthrie, you have five minutes remaining.

Rebuttal of R. Claire Guthrie

Mr. Guthrie: Thank you.

I think I'd like to use my time in part to try to clarify a little confusion that's been introduced here about our appeals system.

First, turning to pages 36 through 40 and... well, 42 of the joint appendix, which sets out the formal administrative hearing and the necessary demonstrations of proof that are available to hospitals, it says the hospital shall bear the burden of proof in seeking relief from its prospective payment rate, that a hospital seeking additional reimbursement for operating costs relating to the provision of in-patient care shall demonstrate that its cost exceed the limitations.

Unknown Speaker: Now, you're not just going from 36 to 37?

Mr. Guthrie: Right, and it goes through several pages, I think and ultimately focuses the attention of the director and the hospitals on showing what the Medicaid program really is all about.

It directs the attentions to show that the rates that the receive are not sufficient to cover operating costs related to in-patient care in a manner that's sufficient to provide care that conforms to applicable quality standards or, moreover, it also directs the hospitals to put their proof on related to the reasonable access standard.

That was Congress' purpose in enacting the Medicaid Act and the Boren Amendment was intended to serve it.

There's no issue here of those--

Unknown Speaker: Isn't there an express provision that you cannot review the principles of reimbursement?

Mr. Guthrie: --There is an express provision--

Unknown Speaker: Where is that?

Mr. Guthrie: --There is an express provision that states that you can't... you can't review the principles of reimbursement.

That's one of the terms of the administrative mechanism.

Unknown Speaker: Does that mean that you can't claim... you can't claim and be permitted to show that reimbursement is not reasonable?

Mr. Guthrie: Not in the administrative process, but Section 32.1-325.1, which is a specific statute that we point out in our reply brief on page 10--

Unknown Speaker: Page 10 of the joint appendix?

Mr. Guthrie: --Of the reply brief, Mr. Chief Justice.

On page 10, we tried to clarify this matter in our reply brief.

Virginia, after the Mary Washington Hospital case, enacted a specific provision that overrides the general APA exclusion for grant programs and says specifically, the providers have a right of judicial review of reimbursement, and then that invokes the normal standards of Section 17 of our Administrative Process Act that includes the right to bring a Federal question issue before the state courts on judicial review of the administrative determination.

Unknown Speaker: But... you can't... you can't do it in the administrative process, but you can in the state court, is that--

Mr. Guthrie: Correct, because the agency doesn't want to delegate to an individual hearing officer the right to set aside its Medicaid program.

Unknown Speaker: --Well, but surely we shouldn't determine what the Federal statute means on the basis that Virginia happens to provide a state procedure?

Mr. Guthrie: No.

Unknown Speaker: I mean, we're trying to interpret the Federal statute, and I guess we have to assume that a state... other states may not have such procedures--

Mr. Guthrie: That's correct.

Unknown Speaker: --Whether Virginia does or not.

Mr. Guthrie: That's correct, and we did not interject this issue in order to say that it... that this Court is required to defer to those state procedures necessarily.

The whole issue of foreclosure is one that you need only address if you determine that there's a substantive Federal right that's secured within the meaning of that term 1983, and we have submitted, and we continue to argue, that the language of the Boren Amendment in its complexity, in its delegation of discretion, in its lack of guidelines, and in forming the terms "reasonable and adequate", "economic and efficient", the measure related to assuring access, that all of those things taken together are a statute that is not subject to judicial enforcement and therefore cannot confer any substantive Federal right that can be vindicated here.

The Virginia Hospital Association tries to make much of two lines in the legislative history of the Eleventh Amendment repealer about not wanting to change the status quo ante with respect to Federal and state rights.

What they haven't told you, and which a careful reading of all of the cases that they refer to in their footnotes will show you, is that most of the cases that had been in existence up 'til that point... the pre-1981 cases... most of the cases involved suits against both the Secretary and the states, and in most of those cases the relief granted was against the Secretary, making the Secretary go back and do his job over again.

The amici American Hospital Association brief recognizes that fewer than half of the cases that were decided before 1981 involved any 1983 claim at all, many of the issues regarding provider rights were resolved on questions of standing, which is why you see the parallel interest language and the zone of interest language in many of the cases, and even the Colorado Hospital case that they cite to... cited to in argument today is a case eminently distinguishable from ours.

Thank you very much.

Chief Justice Rehnquist: Thank you, Miss Guthrie.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Jackson Transit Authority v. Transit Union - Oral Argument

Fri, 09 Jan 2009 14:46:58 +0000

Case:

Jackson Transit Authority v. Transit Union

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81-411_19820421-argument.mp3

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transcript.xml

Transcript:

ORAL ARGUMENT OF JOSEPH S. KAUFMAN, ESQ., ON BEHALF OF PETITIONERS

Chief Justice Burger: We will hear arguments next in Jackson Transit Authority against the union.

I think you may proceed whenever you're ready.

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

This case directly brings before the Court today the provisions of the Urban Mass Transportation Act of 1964 for the first time.

The issue presented to the Court today is whether by enacting UMTA, and particularly Section 13(c) thereof, Congress silently required federal courts to federalize municipal transit labor relations over federal grant recipients by creating a federal common law to resolve public sector transit labor disputes and thereby preempt state law.

In the first instance, the District Court in this case answered that question negatively.

the Court of Appeals for the Sixth Circuit in a two-to-one decision reversed.

It implied a federal private right of action by default.

Since the decision of the Sixth Circuit, another Circuit Court has reviewed this matter comprehensively and ruled to the contrary, that being the Eleventh Circuit in the MARTA case.

This controversy that reaches the Court today is between two private parties, Jackson and the union.

There is no federal interest in the outcome of this litigation.

There are no federal parties presently before this Court, and the substantive outcome of this controversy requires neither construction, interpretation nor vindication of UMTA.

Additionally, in this case there is no conflict between any federal interest and the law of Tennessee.

Tennessee law clearly establishes collective bargaining between municipalities and its transit workers.

The outcome of this case will have no substantive... will have no effect on the substantive rights or duties of the United States.

UMTA--

Unidentified Justice: Well, that's true in a lot of cases, Mr. Kaufman, where nonetheless a federal right of action has been implied, isn't it?

J. I. Case v. Borak and cases like that?

Mr. Kaufman: --Well, yes, sir, but the J. I. v. Borak has been somewhat cut back by your more recent decisions.

Unidentified Justice: But even in some of our... those cases where a private right of action has been implied, say Cannon v. University of Chicago, there there was no federal party or the United States wasn't a party.

Mr. Kaufman: But there was a direct command in the statutes involved in those cases which is not true here, as I will point out in a moment.

I might point out, sirs, that UMTA was on the books for some 12 years before the union sought to utilize the federal courts to bring actions such as this nature.

This was one of the first attempts.

If the decision of the Sixth Circuit is affirmed, municipal transit labor relations will be decided in two courts, in state courts as well as federal courts.

Now, the events in this case are somewhat unique.

Prior to 1966, for approximately 20 some odd years, there was a private transit operator in Jackson, Tennessee.

The union represented the transit workers in that community.

In 1966 the Jackson Transit Company, as was happening throughout the country with other transit systems, went defunct.

The city, in its judgment, as a public function, took over the operation of a bus system containing 12 buses and 18 unionized employees.

Jackson filed for and received an Urban Mass Transportation Act grant in the amount of $275,000 to assist in acquiring 12 new buses and rehabilitating its maintenance facilities.

As part of the grant application process Jackson entered into what is commonly known as a Section 13(c) agreement whereby the rights of the workers and the interests of the workers are protected.

That 13(c) agreement was certified by the Secretary of Labor as creating fair and equitable arrangements for the protection of the interests of the employees.

From 1966 through 1975, Jackson and the union entered into three collective bargaining agreements which were obviously honored since there was no litigation between the parties.

In 1975 a fourth collective bargaining agreement was negotiated.

It contained a COLA provision, a cost-of-living escalator which is the underlying basis of this suit.

The city, after the execution of the agreement, found that it had never been properly ratified by the Board of Commissioners and refused to honor the COLA, and sought to renegotiate the collective bargaining agreement with the union.

The union declined.

It first demanded of the Secretary of Labor that he decertify Jackson for future UMTA grants.

The union, in its wisdom, decided to try to make a federal case of the matter.

Now, did Congress, in light of the aforegoing, intend for the federal court in Tennessee to create and apply federal common law to this contract dispute between Jackson and its 18 unionized employees as a result of this single UMTA grant made some ten years previously?

It is Jackson's position that the answer to this must be emphatically no.

Congress, through UMTA, and particularly Section 13(c), did not intend to displace the traditional public policy enunciated in both the Wagner Act and the Taft-Hartley Act excluding by definition state and political subdivisions from all obligations of the Labor-Management Relations Act in order that local governments and communities regulate and manage their affairs and arrangements with their own employees free from federal interference, control and federal court jurisdiction.

What is UMTA?

It is a typical federal funding statute which requires at the time of federal assistance certain conditions be met.

They include long range transit plans and public hearings thereon, special efforts for the elderly and handicapped, environmental impact statements, charter bus assurances so there will be no competition, and maximum participation by operators in the private sector.

One of the conditions is the conditions to protect the interests of the workers, and that is to be determined by the Secretary of Labor, and he must certify that fair and equitable arrangements have been made to protect the interests of the workers.

Section 13(c) did not create federal collective bargaining rights, and only required the Secretary of Labor during the application process to look at state law and determine if it was hostile to collective bargaining.

Unidentified Justice: Mr. Kaufman, to what extent is the continuance of state law a binding obligation?

Suppose after the grant is made the state changes its law, wipes out collective bargaining.

Mr. Kaufman: If that were to happen, Your Honor, there is adequate provision in UMTA itself, in Section 1602(f) and (g) of the law, the Secretary is instructed to bar further grants to those communities which do not comply with their grant contracts.

There is a cutting off of funding mechanism built right into the act itself.

Unidentified Justice: Is that the end of it?

Mr. Kaufman: No, sir.

There is a provision that the Secretary can enforce agreements.

He could sue on his agreement.

Unidentified Justice: So the Secretary could go into federal court.

Mr. Kaufman: Yes, sir.

But this is where we have a private party attempting to go in.

Unidentified Justice: What would be the law governing if the Secretary went in?

Mr. Kaufman: The law would be govern--

Unidentified Justice: There might be jurisdiction, but what would be the governing law?

Mr. Kaufman: --The governing law would be the law of contracts, Your Honor, which essentially is state law.

There is no federal common law of contracts.

Unidentified Justice: Well, there's a lot of contracts that federal law requires or specifies that are governed by federal law.

Mr. Kaufman: Some are governed by... but this contract, I think, would be governed by state law, and let me explain why I say that.

Unidentified Justice: What about an ordinary collective bargaining contract subject to the labor laws?

Mr. Kaufman: Those are expressly governed because Congress created federal court jurisdiction and mandated federal law apply.

Unidentified Justice: Well, it didn't mandate it.

We said it did, but that isn't what the statute said.

Mr. Kaufman: Well then, this Court said it did, Your Honor, and I will accept that correction.

Unidentified Justice: So it might as well have said it, might as well have said it.

May I ask a question about Section 13(c) agreement?

Mr. Kaufman: Yes, sir.

Unidentified Justice: Right on this point.

I think it is quoted in... at 17a of the Joint Appendix.

There's a sentence in the agreement that says any public body or agency shall comply with the requirements of 10(c) in such manner as is necessary not to reduce or impair any rights, privileges and benefits which such employees of such transit system would have received or be entitled to had the system continued under its former private management.

Now, had it continued under the former management, the rights would have been federal rights, wouldn't they?

Mr. Kaufman: Your Honor, if it had... in this particular case that is true, but that wasn't the situation under which UMTA was--

Unidentified Justice: But this is the agreement we are talking about.

Mr. Kaufman: --That's true, and there's also provisions I believe you will find in that agreement, if it is unenforceable, that you go back to the Secretary of Labor for new types of arrangements.

Unidentified Justice: Well, I don't understand, in response to Justice Blackmun's question, if this... they would have had federal rights before and those are preserved, and after all the money is spent so there is no remedy in cutting off further funding, why couldn't the state, under your view, why couldn't the state simply pass a statute that says, well, municipal bodies don't have to abide by collective bargaining agreements because there is a public interest in management and so forth?

Mr. Kaufman: I think it's highly impractical that that could happen, Your Honor.

Nobody--

Unidentified Justice: Well, your opponents in effect contend it happened here.

Mr. Kaufman: --It did not happen here.

We negotiated three collective bargaining agreements.

We have a state law that mandates that we collectively bargain.

The Tennessee law makes a positive mandate upon us to do so.

The only thing that we did here is we said that this agreement had not been properly ratified.

Unidentified Justice: Right, by the municipality.

Mr. Kaufman: If it hadn't been properly ratified, there's no contract.

It's a typical common law issue of whether or not there has been the proper formation of a contract.

There is no great issue here.

Unidentified Justice: Well, what if the state passed a new statute on what it takes to ratify a contract or something of that kind?

Then that would control under your view.

Mr. Kaufman: Your Honor, I know of no state action anywhere that that has ever happened, and why I believe it would not happen, that although Jackson is a small community in Tennessee, the other communities in Tennessee that are not so small such as Memphis and Nashville and Knoxville and Chattanooga are not going to have their federal funding, cut off because Jackson decided it didn't want to collectively bargain anymore.

As a practical matter what happens is that state laws have been adjusted to accommodate the situation under Section 13(c), not the reverse, the cutoff situation.

The federal--

Unidentified Justice: As a practical matter, perhaps it wouldn't happen, but you say as a matter, conceptually, there's really no federal objection to it if the state should decide to do so.

Mr. Kaufman: --Your Honor, if you look at the whole UMTA act, the one thing that comes out clear in the legislative history was that once a grant was made, there should be as little federal interference as possible.

There were two concepts before the Congress at that time, to have loan guarantees on one hand which would require continuous federal monitoring, and on the other hand to have a situation where all the documents are forwarded and judgement is made whether this was a good or bad project to be funded.

Once it was funded, they would go on and look at the next project.

There wasn't to be that type of... and it was intentionally not to be that continuous type of monitoring as is in certain other programs that have proved disastrous to the government.

Your Honor, we can always speculate it could have happened.

Unidentified Justice: Well, I'm not... that's right, and I'm troubled, frankly, the thing that troubles me is the language in the agreement itself here, which seems to contemplate no difference in the substantive rights of the parties before and after, and I think you suggest there's a rather significant difference.

Mr. Kaufman: Yes, sir.

And I think you also have to look at what the legislative history was because time and again both the sponsor of the bill, the Kennedy administration, the floor leader of the bill, Senator Williams, the Chairman of the Committee that handled the bill, Senator Sparkman, and the Floor proponent of the bill, Senator Morse, said time and time again that this was not intended to supersede state law, that it was not intended to override state law or preempt state law in any way.

It was truly to encourage states to adjust their laws, modify their laws to have collective bargaining, and if they didn't, they wouldn't get the funding.

I think probably the best example of how the law was intended to work is in the City of Macon case which is cited in our brief.

When the City of Macon refused to make the necessary adjustments to make its laws compatible with collective bargaining, after the Secretary used all kind of jawboning, they didn't get their money.

And that's exactly how this act was intended to work.

It wasn't intended to create federal collective bargaining rights.

I have serious doubts whether it could have.

The states have been exempt from the federal labor relations laws ever since the inception of the Wagner Act.

Time after time there have been proposals before the Congress to change that.

And they have been defeated.

And it has been the consistent national policy to leave the states' handling of their own labor relations to the states without federal interference by either federal administrative bodies such as the NLRB, or the federal courts.

Unidentified Justice: Well, that's a little bit of an overstatement, isn't it, because in the Macon case, for example, in order to get the federal funding they would have had to modify, adopt new state laws.

Mr. Kaufman: That's correct, but--

Unidentified Justice: And so the condition of the grant is a change in state law.

Mr. Kaufman: --It would be governed by state law.

That's the critical point, sir, that state law covers--

Unidentified Justice: But it's the state law after the grant rather than before the grant.

Mr. Kaufman: --No, sir, before the grant is approved the state law would have had to have been modified in order to make it compatible with the continuation of collective bargaining and therefore to get the money.

Unidentified Justice: But no obligation to make it continue to be compatible.

Mr. Kaufman: Your Honor, I don't know how you make people comply with the law that sign documents that they are going to comply with the law, that pass laws.

We are dealing with situations that have never happened, to the best of my knowledge, where a state has absolutely repealed its law.

Now, we do have situations where states have modified their laws, and there's a matter that's pending before you on cert right now at MBTA where they modified their laws regarding interest arbitration, but it didn't end collective bargaining.

Now, as I said, UMTA is, must be viewed as a typical federal funding statute such as the Court had before it in Pennhurst, and its purpose was not to create federal transit relations.

Its purpose was to salvage, and yes, it was the survival of a badly deteriorated urban mass transit industry in this country.

It was structured to require local solutions to local problems.

13(c) arrangements were to be the product of local negotiation and bargaining.

Neither UMTA nor Section 13(c) contains any express private remedy.

If one exists, it exists only by implication, and then I respectfully submit, not warranted under the circumstances here.

It is clear from the language of the statute itself that UMTA was to meet the requirements of local needs, and it was to improve the mass transit facilities in order to facilitate desirable urban renewal.

The labor protection were either secondary or ancillary to the main purpose of this act.

Interestingly, as you read the legislative history, the reason that 13(c) even became an issue was a happening that you suggest, Justice Stevens, in Dade County, Florida.

Dade County had a private transit operator in the early '60s.

It, too, went bankrupt, and Dade County took over the system.

Because of state law, the employees lost whatever collective bargaining rights they had.

They were required to become merit system employees, and they couldn't be represented by a union.

It was in that type of factual background that the unions came to the Kennedy administration and said we don't want federal funds to be used to defeat the workers' rights as happened in Dade County.

Congress and the administration had three choices in that light.

The first was to have full federal involvement akin to the railroad and airline industries, under the Railway Labor Act, in other words, federalized local transit labor relations.

The second option was to keep hands off and do nothing.

And the third option, the one that was eventually adopted, was the carrot and stick approach, to make federal funding attractive so as to have the states that had hostile collective bargaining laws to either modify those laws or work out some innovative arrangement in order to be able to qualify and be eligible for federal assistance.

I want to tell you why that is particularly important in the light of what was happening in 1963.

In 1963 the major transit systems had already gone from the private to the public sector.

New York City, Chicago, L.A., Boston, Seattle, Oakland, California, Cleveland, just to name a few, had already made the transition.

They were already governed by state law procedures.

Now, if that was the case, we would have two classes of systems, those who were later going to fall into the same trend and who were still governed by federal law at that time, and those that had already made the transition, the major systems that needed the money most of all.

I don't think Congress ever intended to have two classes.

They intended to have a situation to make it, as Justice Rehnquist said in the Pennhurst case, to have a nudge, an ability to try to get an accommodation with state law so it would not be hostile.

At no time in this case was Tennessee law antagonistic to what was intended here.

Unidentified Justice: Are you suggesting that all that was intended by Congress was to see that the workers would be no worse off?

Mr. Kaufman: Yes, sir, no... and that is the word that is used in the statute itself, a worsening.

They would be no worse off.

You know, this is the fourth collective bargaining agreement that was executed between Jackson and its workers.

It wasn't something that just was an attempt to defeat any of their previously existing rights or benefits.

They'd had collective bargaining.

They had a longstanding collective bargaining relationship.

Unidentified Justice: Well, but isn't it true that if you prevail on your position in this case, that will be the last?

Mr. Kaufman: No, sir.

Unidentified Justice: Legally it could be the last.

Mr. Kaufman: No, sir.

At all times Jackson has wanted to go back to the table, and the record in this case shows that they urged the union to come back and renegotiate a collective bargaining agreement, and that is the only evidence in this record.

It's part of the complaint.

Unidentified Justice: Well, let me put it differently.

Assume that the arbitrator if it goes to... I guess it goes... if it goes to an arbitrator.

I don't know exactly whether it would or not, but there's a ruling that the ratification was not proper.

Therefore the agreement's no longer in effect.

As a matter of law you would be under no obligation to bargain, would you?

Maybe as a matter of policy you would do so.

Mr. Kaufman: I think we are under an obligation under Tennessee law to do it.

Unidentified Justice: To--

Mr. Kaufman: To collectively bargain.

The Tennessee law is explicit on that.

Unidentified Justice: --I see.

Mr. Kaufman: Sure we're under an obligation to, and we've never backed off that obligation.

Unidentified Justice: Mr. Kaufman, I wanted to ask you whether it's your position that the union could force you to collectively bargain under... by virtue of Section 13(c).

Mr. Kaufman: No, ma'am.

Section 13(c) creates no rights.

It is not like the Labor Railway Act that mandates that there be collective bargaining agreements between the railroads and their unions.

And that also brings me to a very interesting point.

Unidentified Justice: Could I ask you just one more question to follow up Justice O'Connor's question?

You say 13(c) creates no rights, but certainly the agreement entered into pursuant to 13(c) between the transit authority and the union creates rights, doesn't it?

Mr. Kaufman: It creates contract rights.

Unidentified Justice: And if it creates contract rights to collectively bargain, those could be enforced in state court.

Mr. Kaufman: Yes, sir.

State courts traditionally handle dispute--

Unidentified Justice: Or in a federal court if there were jurisdiction.

Mr. Kaufman: --If there were jurisdiction.

Unidentified Justice: And it would be a question of contract enforcement, not a question of a cause of action under a statute.

Mr. Kaufman: That is correct.

That's the absolute bottom line of this dispute.

It's the enforcement of a contract.

I'd like to point out before I sit down and reserve my time one very important element.

When this matter was before the Congress the union, through its representatives, presented to both the House and Senate committee a proposal, a proposal which would have... and I'm going to quote...

"required protective arrangements which shall include, without being limited to, enforceable provisions requiring."

and I'm skipping,

"the right of the employees to bargain collectively through representatives of their own choosing concerning wages, hours and conditions of employment, and ensuring the right and duty of the employees' bargaining agent and the employer to make and maintain collective bargaining agreements, and ensuring the existence of authority for any employer and the bargaining representatives of the employees to enter into enforceable arbitration agreements."

very rigid, mandatory requirements, similar to the Railway Labor Act.

The Congress rejected this proposal.

It wanted not to impose these type of requirements on the municipalities.

It wanted state law wherever it was, where it existed, if it was not hostile to federal law, to govern the situation.

And that is our position before this Court today.

I would like to reserve the remaining time, Mr. Chief Justice.

Chief Justice Burger: Mrs. Hirshman.

ORAL ARGUMENT OF LINDA R. HIRSHMAN, ESQ. ON BEHALF OF THE RESPONDENT

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

Your Honor, the Section 13(c) preserves rights.

That language is right in the statute.

If you look at Section 13(c)(2) you see that it says the continuation of collective bargaining rights.

There is no distinction between create, for our purposes here, between creating rights and preserving the rights as they existed before.

Unidentified Justice: Why not?

Why not?

Mr. Hirshman: Because when these employees were in the private sector they had rights to collective bargaining including enforceable collective bargaining agreements which could not be torn up months after they were concluded.

And what Congress did in 13(c) was look at that situation and say we're going to preserve those rights for you.

We are not going to all federal funding to be the vehicle by which you are transferred out of that right-laden position.

Unidentified Justice: Well, they said if you want a grant, if you want a grant, you have to make some arrangements to preserve them.

Mr. Hirshman: The statute is phrased as a condition on the receipt of federal funds.

Unidentified Justice: Yes, yes.

Mr. Hirshman: That's correct.

Unidentified Justice: And so if you want a grant, why you, for example, must adopt the contract that was in existence before.

Mr. Hirshman: There are--

Unidentified Justice: Does that create a right?

Mr. Hirshman: --Well, it preserves... let's... the question before us today is whether it continues collective bargaining rights.

It said you must make arrangements to continue collective bargaining rights.

It doesn't need to create rights in order to do that.

It preserved them from the prior status.

Unidentified Justice: You mean it said you had to agree to be subject to the National Labor Relations law?

Mr. Hirshman: No.

Your Honor, the Congress made it I think quite clear what it was intending to do in this case.

Without amending the National Labor Relations Act it was requiring the recipients of federal transit grants to make binding commitments to their employees and also to the United States that they would not divest the employees of their labor rights, and they are enumerated in the statute.

Unidentified Justice: So you think the condition was that they subject themselves to the National Labor Relations Act?

Mr. Hirshman: No.

I think that the condition was that they continue collective bargaining rights as that--

Unidentified Justice: What rights?

What rights?

Mr. Hirshman: --Well, in this case it's the right to a binding collective bargaining agreement.

If there's one thing that we--

Unidentified Justice: Under what?

Mr. Hirshman: --Pardon me?

Unidentified Justice: Under what, what right to a collective bargaining agreement, the federal right?

Mr. Hirshman: Yes, Your Honor.

Unidentified Justice: So you say yes, they were agreeing to subject themselves to the National Labor Relations Act?

Mr. Hirshman: To the rights that were created by the Labor Act which by virtue--

Unidentified Justice: So your answer is yes, they just, that's the way you construe the act.

Mr. Hirshman: --It was preserved to them through the vehicle of Section 13(c).

Unidentified Justice: All right.

So in order to get the grant they had to agree to be bound by the National Labor Relations Act.

Is that what you're saying?

Mr. Hirshman: What I'm saying is that the substantive rights that we understand when we use the phrase collective bargaining rights includes certainly the years of history under the National Labor Relations Act, including binding collective bargaining agreements.

Unidentified Justice: Well, let me ask, let me ask you this.

Suppose there was a collective bargaining agreement in effect and the city says, well, sure, we'll continue that collective bargaining agreement for as long as it lasts.

Well, the contract expires, and so there's no more contract rights right then, and then you say, well, now you must bargain for another one.

Mr. Hirshman: Right.

Unidentified Justice: Now, what right is there to do that?

I mean, what... is the basis for it the National Labor Relations Act?

Mr. Hirshman: The basis for it is Section 13(c) of the Urban Mass Transportation Act which obliged them--

Unidentified Justice: Well, it just continued rights that they had, and so what right was it?

Mr. Hirshman: --They would have rights whose substance and understanding is derived from the years of experience under the National Labor Relations Act but whose actual legal, enforceable source is Section 13(c) of the Urban Mass Transportation Act, and that came up in Congress.

I mean, that came up in the debates in Congress, and I think it was Senator Morse who said they would retain their rights, not by virtue of the National Labor Relations Act, but by virtue of the arrangements which 13(c) will oblige them to make.

Unidentified Justice: Forever?

Mr. Hirshman: Well, the National--

Unidentified Justice: Once having, once having taken the money, you are forever subject to the National Labor Relations Act.

Mr. Hirshman: --Well, you're subject to the commitments that you make as a condition of the receipt of federal funding.

Unidentified Justice: Well, so what that... so yes, you say yes.

Mr. Hirshman: And I say, Your Honor, that if you take your employees out of the private sector and transfer them into the public sector whereby they are not covered by the strict terms of the National Labor Relations Act, Congess intended to bind you to deal with them in the ways set forth in Section 13(c).

Your Honor, since the mid-1940s--

Unidentified Justice: May I ask you a question?

Mr. Hirshman: --the union repre... the employees in Jackson had a union.

Unidentified Justice: Excuse me, Mrs. Hirshman.

May I ask you one question about that precise point?

Mr. Hirshman: I'm sorry.

Unidentified Justice: Supposing the contract expires and there's bargaining for a new contract, and the municipality commits an unfair labor practice in connection with the bargaining.

You don't have a remedy under the National Labor.

Mr. Hirshman: No.

Unidentified Justice: What remedy, if any, would you have?

Mr. Hirshman: The 13(c) agreements commit the recipients of federal funds, as Congress intended them to be committed, to bargain collectively with us.

Unidentified Justice: Yes.

Mr. Hirshman: And I think that we would be seeking to enforce the 13(c) agreement which has a provision for arbitration of disputes over its terms.

So that if, for example, the transit authority said no, it's not an unfair labor practice, or we were bargaining in good faith, whatever, then we would have, as the 13(c) agreements provide, a dispute over whether they were violating the terms of the 13(c) agreement, and we would arbitrate over that.

But that's not what they did here.

They took a collective bargaining agreement that they had signed, the same way that they had signed ordinary collective bargaining agreements for ten years, and wrote a letter to the union informing us that the collective bargaining agreement was personal to the personnel director whom they had discharged.

Now, if there's one thing that collective bargaining rights means, it means that when you sign a collective bargaining agreement, it is binding on the parties and enforceable by them.

That was certainly Congress' understanding in 1964.

That is certainly the only reasonable understanding of the language of the act.

And that is what the sponsor of the act said about collective bargaining rights when he amended the preparatory language of encouragement to make collective bargaining rights mandatory.

Senator Morse said if we only wanted to nudge the recipients of federal grants with language of encouragement, then, he said, under the committee's indefinite language, collective bargaining agreements could be ignored or set aside by systems of public ownership.

Unidentified Justice: Where is the language you are referring to, on what page?

Mr. Hirshman: Page 15 of our brief, Justice Burger.

So that we know I think from the passage of the act through Congress, we know two things.

First of all, we know that Congress was not intending to nudge transit authorities.

Congress was intending... and they had that option.

They had the language of encouragement of collective bargaining in an early version of the bill.

They took it out and they fought hard over taking it out.

And one of the justifications that Senator Morse gave to the Congress for strengthening the law to make collective bargaining rights mandatory, not just encouraging them, was that the scenario that you have heard today would, under the old language, have taken place.

Unidentified Justice: What is at issue here, the enforceability of the collective bargaining contract that was entered into pursuant to 13(c)?

Mr. Hirshman: We have both issues, Your Honor, whether the collective bargaining rights preserved to the employees through the vehicle of 13(c) includes the common understanding that collective bargaining agreements are enforceable by the parties to them in federal court.

Unidentified Justice: All right.

Mr. Hirshman: And whether--

Unidentified Justice: You mean, and that federal law would apply?

Mr. Hirshman: --Federal law would apply, Your Honor--

Unidentified Justice: And why would it?

Mr. Hirshman: --Well, the second option that Congress had in front of it when it was considering Section 13(c) was whether to subordinate the protections of Section 13(c) to state law, and they rejected that option five times.

It was proposed in committee.

Senator Tower proposed it twice on the Senate floor.

After Senator Morse--

Unidentified Justice: Well, that doesn't necessarily... it doesn't necessarily follow from that that a collective bargaining agreement entered into pursuant to 13(c) would be governed by federal rather than state law.

Obviously there's a binding contract that's enforceable.

It's just a question of whether state law or federal law would apply.

Mr. Hirshman: --Okay.

Your Honor, what happens, the situation that Congress was facing was the Dade County scenario where the state law not only prohibited collective bargaining, but also did not provide the employees with an action to enforce their collective bargaining agreement, so that when, you know, to understand how the law is supposed to function you have to look at the problem that Congress was trying to solve.

Congress was trying to solve the Dade County situation, and in that case the state law simply did not provide the employees with an action to enforce their collective bargaining agreement.

Congress said if there's one thing we're going to do with Section 13(c), it's make sure that federal funds do not fuel repetitions of the Dade County scenario.

The fact that the law of a particular state at the moment that the grant issues is or is not hostile to the federal rights that Congress sought to protect, it seems to me, is largely irrelevant.

Should this Court require an example of a situation in which a transit authority signs 13(c) agreements under then satisfactory state law and the law... the state then changes its law, the First Circuit's decision in Division 589 v. The Massachusetts Bay Transportation Authority is a classic example of that.

The State of Massachusetts did what Your Honors were asking the Petitioner about.

They took the money and they changed their law in a way which affected the rights set forth in our 13(c) agreement.

The legislature of the State of Georgia has passed a similar law.

It is awaiting the Governor's signature.

When the 13(c) agreements are remitted to state court for enforcement, a host of unexpected state law defenses surfaces.

For example, in Georgia, where the Eleventh Circuit's ruled that although 13(c) agreements must be honored, the honoring of them must be honored, and that their contents, the federal contents are assured by the supervision of the federal Secretary of Labor, actions to enforce them belong in the state courts.

Unidentified Justice: When you say 13(c) agreement, are you talking about the collective bargaining contracts entered into, or the agreement entered in between the recipient and the government?

Mr. Hirshman: There are actually three agreements at issue here, Your Honor.

There is a grant contract with the United States.

Unidentified Justice: Well, which one are you referring to?

Mr. Hirshman: I was referring to the labor protective agreement entered into between the grant recipient and the union representing its employees which Congress required to be made as a condition of the receipt of federal funds.

Unidentified Justice: Is that Exhibit C in the Joint Appendix?

Mr. Hirshman: I don't have it with me at this moment, Your Honor, but I am sure it is.

Unidentified Justice: And is... would the suit that would be brought be brought to enforce that agreement technically?

Mr. Hirshman: This lawsuit happens to enforce both agreements because in this case the transit grant recipient both abrogated our collective bargaining agreement and abrogated the 13(c) agreement which required them to bargain with us and make and maintain enforceable collective bargaining agreements.

So the grant recipient violated both.

This case really presents the--

Unidentified Justice: Well the National Labor Relations Act doesn't even require people to enter into an agreement.

Mr. Hirshman: --No, the National Labor Relations Act operates by its own terms, to generate a process of collective bargaining--

Unidentified Justice: Well, you have to bargain.

You don't have to enter into any agreement.

Mr. Hirshman: --Right, right.

Unidentified Justice: Let alone an enforceable one.

Mr. Hirshman: Well, but once you enter into it, Your Honor, you're bound by it.

Unidentified Justice: Mm-hmm.

Mr. Hirshman: And I think that that is the critical collective bargaining right which we are seeking to enforce here.

Once the agreement is entered into, it must be enforceable by the parties thereto.

Unidentified Justice: Well, it isn't an unfair labor practice to break the agreement, is it?

Mr. Hirshman: Well--

Unidentified Justice: That is just a 301 case, is it?

Mr. Hirshman: --Well, it would depend on the circumstances, Your Honor, and first you would obviously have an arbitration question, a preliminary arbitration question.

But the--

Unidentified Justice: This has an arbitration clause.

Mr. Hirshman: --Right.

So the fact that Tennessee law may or may not be hostile to our collective bargaining rights in this instance has no bearing on what Congress was trying to do.

Congress didn't write a law that said you will have 13(c) rights but only in those states where the law is hostile to collective bargaining.

They said you will have 13(c) rights.

If a transit authority wants the federal money, they have to commit themselves, not to create federal labor rights for you, but to preserve the rights that you had before the federal funding.

Unidentified Justice: Mrs. Hirshman, supposing that before the federal funding the transit authority had been operated... was a public authority and had been acting, had been operating the system and just got the funds to improve it.

Now, there it wouldn't have been subject to the National Labor Relations Act.

Mr. Hirshman: That's correct, Your Honor, and we do not contend that the same relationship pertains.

There is a... what Congress, to some degree faced that in considering Section 13(c), and they said we will look at the law of the particular state that applies at the time that we're thinking about giving the federal funding, and the employees get no greater rights than they had already.

Unidentified Justice: What if they weren't organized before?

Mr. Hirshman: Well, they had, in that case... we don't have that case here, Your Honor.

It's an inchoate right, in a sense, to organize, but that certainly is very far from what we have here, where our binding collective bargaining agreement was torn up on the grounds that it was personal to the personnel director.

If in fact Tennessee law is not hostile to collective bargaining, then theoretically that conduct should be a violation of state law as well.

But that's not what we're saying.

The Congress did not create a need system whereby federal... the employees would have federal rights some of the time and state law rights others of the time.

It created a system which was mandatory in its terms, not encouragement of collective bargaining but continued collective bargaining rights, and does not subordinate itself to the doctrine of state law.

The... because the concept of collective bargaining rights includes the concept of enforceable collective bargaining agreements as they were understood in 1964, our action arises under federal law and jurisdiction in this Court would be proper under 28 U.S.C. 1331 and 1337.

Moreover, the 13(c) agreement which is also at issue here is a contract mandated by federal law, and it's--

Unidentified Justice: Are you suggesting that 13(c) requires that there be a binding collective bargaining agreement?

Mr. Hirshman: --I think that 13(c) requires that if collective bargaining agreements are concluded between the parties, that the parties abide by them, the same core meaning of collective bargaining rights that Congress explicitly adverted to in passing 13(c).

If you make an agreement, you have to abide by it.

I think that at the very least that's what Congress had in mind.

That's what the Dade County abrogated in the Dade County scenario which Congress was considering at the time, and that is what Senator Morse referred to explicitly on the Senate floor.

Unidentified Justice: But no agreement, if there's no agreement reached, then where does this stand?

Mr. Hirshman: Well, this case does not present that situation.

The Congress had in mind a scheme whereby the parties would attempt to negotiate fair and equitable labor arrangements between them that they could live with, in a fashion... the model for which is the Interstate Commerce Act labor protective arrangements.

So they thought that to deal with particular problems the parties would try to negotiate a fair and equitable labor arrangement and the Secretary of Labor would supervise the terms of the 13(c) agreement to be sure that the federal statutory interest was effectuated by it.

So the 13(c) agreement is not only required by federal law, its contents, its federal contents are... there are statutory minimums, and remaining questions are to be dealt with through the agency of negotiation and the supervision of the Secretary.

Unidentified Justice: Well, I'm not sure you've answered my question.

What if no agreement is ever reached?

Mr. Hirshman: The most... many Section 13(c) agreements in which the employees are transferred from private to public and lose their right to strike because Congress was clear that that was one thing they were not preserving in Section 13(c), provide for arbitration of the terms of a new collective bargaining agreement.

That is the fair and equitable arrangement that the parties have arrived at as a substitution for economic weapons which--

Unidentified Justice: But the 13(c) doesn't require that.

Mr. Hirshman: --13(c) requires such fair and equitable labor protective arrangements as the Secretary of Labor determines.

Unidentified Justice: Well, he hasn't determined that arbitration is necessary on the terms of the contract.

Mr. Hirshman: Well the 13(c) agreements, where there's a loss of strike rights, 13(c) agreements almost invariably provide for--

Unidentified Justice: But we know that the law doesn't require it.

Mr. Hirshman: --Well, the law requires what the parties negotiate and the Secretary of Labor certifies as a fair and equitable arrangement, and from the beginning he certified such arrangements as fair and equitable as the statute requires.

Unidentified Justice: Well, if this agreement that was entered into between the union and the authority pursuant to 13(c) expired and that you were negotiating a new contract and you just didn't... there was an impasse, and they just never... there was never a contract, are you suggesting that the transit authority would be required to submit the terms to arbitration?

Mr. Hirshman: If the particular 13(c) agreement which was a condition of the result of federal funding contained a provision for interest arbitration, then the transit authority would be bound.

Unidentified Justice: Well, did it in this cas?

Mr. Hirshman: That is not in this case.

Unidentified Justice: Well, so it didn't in this case.

Mr. Hirshman: It did not in this case.

All we want is that our collective bargaining agreement should be abided by here.

Unidentified Justice: And what was the term of the collective bargaining contract that you are suing on?

Mr. Hirshman: It was... I believe it was 1975 to 1978.

Unidentified Justice: And it's long since expired.

Mr. Hirshman: It has, Your Honor.

Unidentified Justice: And so what if you win?

Mr. Hirshman: Well, there would be damages because the terms and conditions of employment were were unilaterally--

Unidentified Justice: But only damages, only damages.

Mr. Hirshman: --And, and... well, in this, on the complaint as it existed in 19... as it was filed in 1976, that's where we are.

Unidentified Justice: Well, so it's a damages case.

Mr. Hirshman: But the transit authority here... in case I misspoke myself, Justice White, the transit authority here in another case is party to a 13(c) agreement which provides for interest arbitration.

That is just not this case.

Unidentified Justice: Yes.

So?

Again I say, what's left of this case if you win?

Damages.

Mr. Hirshman: It would be damages, Your Honor, and the... and that's just by virtue of the fact that collective bargaining agreements have terms and--

Unidentified Justice: And it's expired.

Mr. Hirshman: --Right.

Unidentified Justice: What are the measures?

What are the measure of damages?

Mr. Hirshman: Well, it would be the difference between the wages and benefits that we were paid under the unilateral terms imposed by the employer and the collectively bargained terms that were a part of our contract.

Unidentified Justice: Well, that might not get you very far, assuming you prevailed, isn't that so?

Mr. Hirshman: Well, it's not so wide as a church nor so deep as a well, but'tis enough; 'twill serve.

I think we would be happy to have the damages, the difference between our agreement that we negotiated for with cost-of-living adjustments and so forth, and what the employer chose to give us as a matter of his--

Unidentified Justice: Well, you're going over that rather fast, with cost-of-living adjustments.

Where did they come from?

Mr. Hirshman: --It was in the collective bargaining agreement.

Unidentified Justice: Well, but that's the agreement that's expired.

Mr. Hirshman: Right, and that would be the measure of our damages.

Unidentified Justice: Up until... from '76 to '78?

Mr. Hirshman: Right, right.

Your Honors--

Unidentified Justice: Mrs. Hirshman, the fact that the agreement is required by federal law, which you have stressed, is not conclusive, is it?

In Miree v. Dekalb, which is cited several times in your opponents' brief, the agreement there was required by federal law, too, and yet we held that state law would government.

Mr. Hirshman: --Well, you had a particular question there.

That agreement was an agreement between the grant recipient and the United States, not between the grant recipient and a third party.

Congress did not... this, 13(c) is rather unusual.

It is far from a garden variety federal funding statute.

It is modeled on the Interstate Commerce Act which operates by virtue of mandating agreements between in that case a regulated industry, in this case a federal grant recipient, and their employees, and those agreements Congress anticipated would be enforced by the parties to them in the traditional way that labor agreements are usually enforced.

So that this is not the same contract relationship as was at issue.

Unidentified Justice: When you say the traditional way that labor agreements usually are enforced, now, if there is a collective bargaining agreement between a school board and its teachers, that agreement is usually enforced in state court.

Mr. Hirshman: Right.

And what Congress sought to do was to preserve for the employees here the other structure of relationships because they saw what happened when the transit employees in Dade County were transferred to that system, and they knew that the federal funding which did in fact fuel the wholesale transfer out of the private sector and into the public sector of transit--

Unidentified Justice: But you are saying it should govern even if there is no transfer, in other words, if the public transit company had been in the public sector before.

Mr. Hirshman: --No.

All that 13(c) would do in that case is preserve whatever rights the employees had under state law prior to the federal funding.

Unidentified Justice: Would that sort of a 13(c) agreement then be suable in the state courts and not the federal?

Mr. Hirshman: The 13(c) agreement preserves the status quo for the employees.

That is a federal right.

The substance of the status quo was... is derived from the state of the law at the time of the federal funding.

That is not this case.

This is the classic--

Unidentified Justice: I know it's not this case, but I'd be interested in your answer to it.

Mr. Hirshman: --Well, the... what I'm saying is that the role that Congress... Congress was rather explicit.

It said all we're going to do for you is maintain the status quo so that we will guarantee that things can't get worse for you, but we're not going to make it any better, so that if, for example, there were a state whose collective bargaining law were totally unacceptable to the federal government, they could just refuse to fund.

But the... in the case where it stays public, which I gather is your question, the 13(c) agreements as a matter of federal law merely maintain the status quo as it existed prior to the federal funding.

Should Your Honors choose to ignore the existence in this case of a traditional collective bargaining agreement and 13(c) agreements whose making is mandated by federal law, and treat this case as one merely for enforcement of the statute, an additional basis for our claim here is provided by Section 1983.

We think this case parallels this Court's decision in Maine v. Thiboutot.

There, as here, the federal law required grant recipients to make arrangements whose contents was dictated by the federal statute.

It was, there as here, it was a condition of the receipt of federal funds and not a direct mandate like the Railway Labor Act.

Unidentified Justice: Well, if you're right about 1983, you would have to say that the action under this agreement arises under federal law, wouldn't you?

Mr. Hirshman: Yes, and I do say that.

Unidentified Justice: And there, if it arises under federal law, you can get in on 1331.

Mr. Hirshman: We... right, we get to the same place.

The question that--

Unidentified Justice: So it isn't really an alternate basis at all.

Mr. Hirshman: --Well, actually, it actually is, because should this Court determine that the statute is not the right source of our 13(c) agreement rights, we would still have rights under the statute directly.

There's been some discussion in the briefings and the Eleventh Circuit adverted to the point that somehow our rights only derived from the 13(c) agreement and not from the statute itself, and should this Court determine to consider only the statute, you would not have to imply a private right of action for us there because the public body here made a commitment to the federal government, just like in Maine v. Thiboutot, and that... the violation of that commitment violates the federal statute mandating the commitment to be made.

This Court has never held to my knowledge that the mere making of the commitment is sufficient to satisfy the federal statutory mandate, The ink still being wet on the paper and thereafter all of the rights contained in the commitment are, if you're just fortunate enough to have a state with good law.

In Maine v. Thiboutot the state executed a plan, just like the federal statute required, containing the particular payment of welfare provisions that the statute required, and thereafter when the beneficiaries of that arrangement came to enforce it, this Court held that 1983 created a claim for them.

In sum, the United States Court of Appeals for the Sixth Circuit ruled correctly in this case, and we believe that their decision should be affirmed.

Chief Justice Burger: You have about three minutes, Mr. Kaufman.

ORAL ARGUMENT OF JOSEPH S. KAUFMAN, ESQ. ON BEHALF OF PETITIONERS -- REBUTTAL

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

I think the Court understands what this case is about now.

It's a case to collect the difference between the amount that the union claims was due under the 1975 collective bargaining agreement and what they say they have been paid.

It's a claim for damages to enforce nothing more than a garden variety collective bargaining agreement.

There is no federal right.

There is no federal law to be vindicated here.

And it does not hinge on the interpretation of any federal statute.

Picking up where I left off before, we would have the most anomalous system where the large cities such as New York, Cleveland, Los Angeles, Chicago and Boston would be, having 13(c) arrangements, would be under one system and smaller communities such as Jackson would be under another system merely because of the events that caused the transition from the private sector to the public sector.

I don't think Congress ever envisioned any such situation as that is now proposed.

Many states, including New York, for example, have long had the Taylor law on their books which handle situations with their local transit workers, and handled them well, and handled the situation that has been talked about in unfair labor practice.

These have always been in the state court and state law well, and just as Jackson should be.

My colleague would have this Court import, or insert, municipal labor relations insofar as only transit workers are concerned silently by the incorporation of Section 301 of the Labor Management Relations Act into Section 13(c).

Not one Congressman, not one Senator, and not one word in the debates would ever lead you to that conclusion.

No one urged that.

And I might point out that has never been urged in any lower court in this proceeding, and for the first time has been urged in this Court.

Now, collective bargaining agreements are enforceable, but if, as has been pointed out, the teachers have a violation of their collective bargaining agreement, it's solved under state law pursuant to the exemption of the Wagner and Taft-Hartley Acts, and so it should be for transit workers.

Unidentified Justice: What if you were suing to enforce the agreement between... what if the Secretary were suing on the agreement between the authority and the United States?

Mr. Kaufman: I think there's express federal jurisdiction under 1345, Your Honor.

Unidentified Justice: And that would be governed by federal law, wouldn't you say?

Mr. Kaufman: I would think that that would be governed by probably a hybrid of federal and state law in that case, sir.

Chief Justice Burger: Thank you, Counsel.

The case is submitted.

Mr. Kaufman: Thank you, Your Honor.

Attribution:

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Featured:

Havens Realty Corp. v. Coleman - Oral Argument

Fri, 09 Jan 2009 14:47:13 +0000

Case:

Havens Realty Corp. v. Coleman

Media File:

80-988_19811201-argument.mp3

Related Transcript:

transcript.xml

Transcript:

ORAL ARGUMENT OF EVERETTE G. ALLEN, JR., ESQ., ON BEHALF OF THE PETITIONERS

Chief Justice Burger: We will hear arguments next in Havens Realty Corporation against Coleman.

Mr. Allen, I think you may proceed whenever you are ready.

Mr. Allen: Mr. Chief Justice, and may it please the Court, this action arose pursuant to a complaint filed in the Eastern District of Virginia alleging that Petitioners, Havens Realty and its employee, Rose Jones, violated the Fair Housing Act and Section 1982.

As to these Respondents, the complaint was dismissed on grounds of lack of standing and the statute of limitations.

The Fourth Circuit reversed, and this Court granted certiorari.

The complaint here provided the sole facts before the Fourth Circuit and provide the sole facts before this Court.

Havens Realty operates two adjacent apartment complexes in Henrico County, Virginia, and is alleged to have engaged in racial steering at just these two apartment complexes.

Respondent HOME is a Richmond-based fair housing organization with the avowed purpose of making fair housing in Richmond a reality.

Its activities include counseling, investigating complaints, and testing to ensure compliance with the fair housing laws.

Its only contact with Petitioner Havens was through its employee testers to determine if Havens was complying with the fair housing laws.

Its injury is alleged as a frustration to its counseling.

Unidentified Justice: Before you get too far along, counsel, I hope at some point that you will discuss the amicus representation to the Court that there were certain developments after the granting of cert in this case.

Mr. Allen: Yes, Your Honor.

I will speak to that.

Unidentified Justice: Because that might have something to do with the ultimate disposition.

Mr. Allen: Yes, sir.

Let me speak to that.

One of the plaintiffs in this case, Paul Allen Coles, was a bona fide renter.

He was a party to this complaint.

His complaint withstood the motion to dismiss.

He went to trial, and a consent order was entered in his favor, in which Havens was found to have been engaged in racial steering.

That consent order, Your Honor, was addressed to Coles and his class, which was a class consisting of all black persons deemed to have been monetarily injured by those practices.

It can in no way, shape, or form affect the relief being requested by these Respondents, which is damages, other injunctive relief in the form of affirmative action, attorneys' fees, which will be substantial.

We submit that under this Court's stringent test of mootness, this case can't be moot.

As to the contention that the writ was improperly granted, Your Honor, we submit that for the same reasons evidenced in the cert petition, which are things not dealt with by this Court before, the tester qua tester issue, the dispute... the conflict between the Fourth Circuit and the Seventh Circuit as to organizational standing, that those are questions of important federal and constitutional law that are still in this case and are in no manner affected by the relief granted below.

HOME's membership... as to HOME's membership, we are told only that it is multi-racial and numbers 600.

We are told nothing else about them, or where they live, only that Havens' conduct denied them the benefit of interracial associations.

The two individual Respondents, Sylvia Coleman, a black woman, and Kent Willis, a white man, are HOME employees.

They were not in any way bona fide apartment seekers, and their sole reason for contacting Havens was testing.

While we are not told precisely where they live, the complaint says that they lived somewhere in the city of Richmond or Henrico County, and that Havens's steering of these two apartment complexes deprives them of the benefit of interracial associations.

All acts as between Havens and these testers took place more than 180 days before the complaint was filed.

Respondents complain that the district court's dismissal was precipitous, and that they should have been allowed to go forward and demonstrate their standing.

We submit that this is without merit.

They knew the facts before they filed the complaint, and if those facts aren't in that complaint, that is no one's fault but theirs.

Further, in--

Unidentified Justice: But, Mr. Allen, they did allege that... you say we don't know where in Richmond they live, but they did allege that wherever they lived, they were denied the benefit of interracial community live because of your client's practices.

Mr. Allen: --Yes, Your Honor.

Unidentified Justice: Don't we have to assume that was true?

Mr. Allen: Yes, Your Honor.

They... Well, Your Honor, we can assume... we can assume that Havens steers, and we can assume that they have properly alleged the injury, but let me speak to that particular aspect of the standing, and why we think their standing fails on that count.

All that these Respondents allege is, Havens steers at two apartment complexes in Henrico County.

We live in either Richmond or in Henrico County.

Consequently, we have been denied the benefit of interracial association.

Your Honor, we--

Unidentified Justice: And don't we have to assume that is true, because we take the allegations of the complaint as true?

Mr. Allen: --Your Honor, we would disagree that you have to assume any essential element of standing.

We submit that there has to be, as required by Article 3, a plausible connection between the defendant's acts, between the defendant's acts and the plaintiff's harm.

It is implausible to assume that racial steering directed to two apartment complexes can affect two individuals that live somewhere in a metropolitan area of 400,000 people or in fact that they can affect the entire metropolitan area.

Unidentified Justice: Maybe it is, but why don't we have to assume it is true when they allege it, and then you prove it isn't true?

Mr. Allen: Your Honor, in Bellwood, essentially the same allegations that these Respondents made were in the complaint, as noted in the footnotes in Bellwood, the city of Bellwood, in pleading the harm, had said that the actions of the defendants affect all the citizens of this community.

This Court looked at that complaint and said, well, you have alleged a harm to one society, and that is really not right, that is a generalized grievance, and it can't possibly be the defendant's fault.

The way we are going to interpret that is, you have alleged harm to the residents of a very carefully described 12 by 13 block target area, and for those... for those plaintiffs that live in that target area, we are going to assume that you have pled a proper cause--

Unidentified Justice: You assume they can prove what they have pleaded.

Mr. Allen: --That's right.

Unidentified Justice: Well, why don't we do that here?

Mr. Allen: Well, Your Honor, but in Bellwood, for those--

Unidentified Justice: You think it is much more unlikely here?

Mr. Allen: --It is implausible.

It is implausible--

Unidentified Justice: Well, is there a rule of pleading that we do not take as true implausible allegations?

Mr. Allen: --Your Honor, I believe that the language of this Court in Warth and in Bellwood, that the standard to apply to a complaint is that the plaintiff is to be given the benefit of all material allegations, and the complaint is to be construed in his favor.

We think the Connelly v. Gibson standard is wrong, and that to allow that standard is for a federal judge to assume that he has got the power to act, and it is not unreasonable, not only not unreasonable, it just makes sense to say, if you have got standing and you are going to invoke the power of the federal fiduciary, plead it.

Plead the causal connection.

And it is for that reason that we don't think that this Court has to accept the conclusory allegation of pleading that two apartment complexes... we live in a big metropolitan area.

We have been denied the benefit of interracial association.

Unidentified Justice: Mr. Allen, the complaint in this case was filed before the Bellwood case.

Mr. Allen: Yes, it was, Your Honor.

Unidentified Justice: So possibly the Respondents in this case should have an opportunity to conform their complaint to Bellwood, would you not think?

Mr. Allen: I would agree with that.

I think the standard--

Unidentified Justice: I mean, what you are saying makes some sense, but under the circumstances here, maybe they are entitled to conform to Bellwood.

Mr. Allen: --Your Honor, I think it is very clear that the district judge employed the reasoning of TOPIC, which is wrong, and that under what the Court did in Bellwood, with the district court, had employed an erroneous standard... standing, that I can't stand here and say in a final judgment for the Petitioner so they could--

Unidentified Justice: What about the United States' position that the statute really is aimed at protecting anybody who is given misinformation?

Mr. Allen: --Your Honor, let me comment on the--

Unidentified Justice: And that you could be from Chicago, and make these same inquiries in this county, and you would be a person aggrieved, entitled to an adjudication.

Mr. Allen: --Let me respond to the latter part of the question first.

I don't think a person from Chicago can get on the phone just for the heck of it and decide that he is going to call and some apartment complex--

Unidentified Justice: Well, he can do it.

He can call them, and he can be given--

Mr. Allen: --Let's say he does it.

Unidentified Justice: --and he can be given misinformation.

Mr. Allen: Yes, and it is because of race.

Let's assume because of race.

Unidentified Justice: Yes.

Mr. Allen: Your Honor, I believe that the government is correct that one has the right not to be given false information because of his race pursuant to 804(d).

But for--

Unidentified Justice: Wherever he lives.

Mr. Allen: --Wherever he lives.

Yes, Your Honor.

But for him to have standing, he has got to satisfy Article 3, and addressing that particular point within the framework--

Unidentified Justice: I know, but if the statute is aimed at saying, look, it is illegal to give people false information--

Mr. Allen: --Yes, Your Honor.

Unidentified Justice: --now, if somebody is giving false information, then the only question is, is the statute constitutional.

Mr. Allen: Well, Your Honor, it is not criminal.

It is not a criminal statute.

It makes it unlawful to give false information.

One can have the right to receive--

Unidentified Justice: Well, is it true that these people were given false information?

Mr. Allen: --I think that is a fair assumption.

Unidentified Justice: And does the statute forbid that?

Mr. Allen: It does.

Unidentified Justice: Is the statute constitutional?

Mr. Allen: Your Honor, I think the statute is constitutional.

Notwithstanding that, I don't believe that a tester qua tester can demonstrate any injury under Article 3.

Unidentified Justice: Well, he suffered the very injury the statute forbids.

Mr. Allen: Your Honor, the statute--

Unidentified Justice: He got false information.

Mr. Allen: --Your Honor, he wasn't looking for accurate information.

The only thing he was looking--

Unidentified Justice: He was given false information.

The statute forbids it.

Mr. Allen: --Well, he was.

I can't deny that.

Let me speak to another aspect of the 804(d) claim, Your Honor.

This right under Section 804(d) was not plead, and in fact, in the brief that Respondent submitted before the district court at Page 43 of the appendix, they said, we are not suing as testers.

We are only suing as persons denied the benefit of interracial associations.

That is a disavowal of a right under Section 804(d).

Unidentified Justice: Well, you are really making a jurisdictional argument, an Article 3 argument.

Mr. Allen: Yes, Your Honor, we are.

Unidentified Justice: And if despite what... if that is the issue here, are we really bound by the jurisdictional claims that your opponents made below?

Mr. Allen: Your Honor, I don't think that there is anything that you can plead to satisfy Article 3 except facts.

Unidentified Justice: Well, they plead a fact.

We asked and we were given false information.

That is apparently admitted.

Mr. Allen: That wasn't raised in the pleadings.

It was disclaimed before the district court.

Before the Fourth Circuit it was never argued, and Your Honor, what will confirm that the Fourth Circuit never relied on Section 804(d) is, they found standing in Kent Willis, the white man, as a tester qua tester, notwithstanding the fact that he hadn't received any false information.

Unidentified Justice: You think the Respondent here is entitled to support the judgment on that ground, on an accurate ground, or--

Mr. Allen: I do not think he is entitled to enlarge upon his rights from the Fourth Circuit.

I do not think he is entitled to not plead a Section 804(d) violation--

Unidentified Justice: --That is not going to enlarge his rights.

He is just going to say, there is jurisdiction.

Mr. Allen: --Well, Your Honor, let me tell you what it would have been like.

In the Perry... in Bellwood, two of the individuals, Perry and Sharp, lived outside of the target area.

They were black testers.

They had been given false information, and they... and they claimed denial of the benefits of interracial association.

I don't think they should have been allowed to come into this Court for the first time and say, we want to claim a Section 804(d) violation, because that is essentially what the testers here did.

I would like to comment on the issue of HOME's representational standing.

In order for HOME to sustain representational standing, it must plead specific facts to enable a determination to be made that the three-part test specified in Warth and Hunt v. Washington Apple Advertising Commission has been satisfied.

This complaint is completely devoid of any fact necessary to even try to make that determination, much less to make it.

Consider only the first part of the test, which is that at least one HOME member must have standing in his own right to maintain this cause of action, whereas the injuries plead, they... that, that is, denial of the benefit of interracial associations.

How can you determine that that one HOME member has standing to sue when we don't know where he lives, we don't know how Havens' acts affect him, and we don't know whether the... individual was... will assist?

We submit that the district court's... that the Fourth Circuit's finding in this regard is plainly wrong and must be reversed.

Unidentified Justice: Mr. Allen, was there discovery in this case at all?

Mr. Allen: No, Your Honor, there was not.

Insofar as HOME's standing to sue in its own right, it alleges, as Mr. Justice White has been discussing, a Section 804(d) claim also.

Again, not plead, not briefed, not argued in the Fourth Circuit, up before this Court for the first time.

HOME actually... now its primary standing argument has become Section 804(d).

804(d) is the right to receive accurate information, and if you receive false information, your rights have been violated.

It ought to be very clear that Havens has not violated HOME's Section 804(d) rights.

He didn't even know HOME was involved.

And he cannot be held to have violated those rights because he didn't give HOME any false information based on rights.

This point is noted in the government's brief, where it says if HOME had contacted Havens and said, I am HOME, or a HOME employee had contacted Havens and said, I am a HOME employee, and it got false information, it would have been a different--

Unidentified Justice: Mr. Allen, was Coleman an employee of HOME?

Mr. Allen: --Absolutely, Your Honor.

Unidentified Justice: You said yes?

Mr. Allen: Absolutely, yes.

Unidentified Justice: Does that affect the interest of HOME in this case, an employee was given false information?

Mr. Allen: Your Honor, if that false... if the information had been sought--

Unidentified Justice: Had been what?

Mr. Allen: --Sought for a bona fide purpose, in other words, if Sylvia Coleman and Kent Willis, who were HOME's... I didn't get a chance to introduce them.

Coleman and Willis were HOME employees.

They were not bona fide apartment seekers.

They were just testing agents.

That was their sole--

Unidentified Justice: Both of them were HOME employees?

Mr. Allen: --Yes, sir.

That was their sole involvement.

Unidentified Justice: And HOME had a contract with the city of Richmond?

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

Unidentified Justice: And what were the terms of that contract?

Mr. Allen: Well, Your Honor, the terms of that contract was that HOME was to counsel so many people with respect to the city, provide services to the city--

Unidentified Justice: As to where housing could be obtained?

Mr. Allen: --Generally, Your Honor, that is correct.

Unidentified Justice: And wouldn't that give HOME an interest in the question that was put by Coleman, its employees?

Mr. Allen: Your Honor, it could have if it had been plead.

Unidentified Justice: If it had been plead?

Mr. Allen: If it had been plead.

The facts that are plead are that Coleman and Willis never sought, nor did HOME, to obtain any bona fide information from Havens.

They never at any time called Havens--

Unidentified Justice: Mr. Allen--

Mr. Allen: --and said, tell me what you have got available.

All they did was test.

Unidentified Justice: --Mr. Allen, Paragraph 16 of the complaint alleges plaintiff HOME had been frustrated by defendant's racial steering practices in its efforts to assist equal access to housing through counseling and other referral services.

Isn't that pleading exactly what Justice Powell asked you about?

Mr. Allen: Your Honor, yes.

Let me comment upon that.

Here is what HOME pleads.

HOME says, we thought Havens was... this is the complaint.

This is no extrapolation.

We tested Havens.

We found he was steering therefore, we are damaged.

Now, what is the causal connection?

Because again it is a conclusory pleading.

Does it follow that just because Havens is steering, there is damage to HOME's counseling service?

And the answer is, of course not.

Consider that you have a--

Unidentified Justice: I would have thought the answer was, of course.

0 [Generallaughter.]

Mr. Allen: --Let me explain, and maybe I can change your mind.

Consider a bona fide black apartment seeker, never heard of HOME, and he goes to Havens, and he is steered.

Has HOME been damaged?

Of course not.

What has happened?

What has happened is that its abstract concern with fair housing has been thwarted.

No question about that.

Is that the type of damage that will sustain an Article 3 standing?

The answer is, of course not.

Suppose that black bona fide apartment seeker is referred to Havens--

Unidentified Justice: No, but Mr. Allen, I think the point is that if there is a practice of steering, no matter who comes to the real estate agent, that practice would impair HOME's ability... they say to someone who comes into the office, well, there is a vacancy over at the Havens Realty office, go over there and apply for it.

If the person will not get the apartment by doing so, doesn't that impair HOME's ability to refer people to vacant apartments?

Mr. Allen: --Your Honor, if that were so, that would give every apartment locator service in Richmond a cause of action in every case where racial steering or violation ever brought without alleging that they were hurt by it.

Unidentified Justice: Would that be so terrible?

I mean, maybe that is what the law could be, that if you refer someone on the basis of a vacancy, you have an interest in filling vacancies, that you have a right to expect that you will get an honest answer.

Mr. Allen: Your Honor, in looking at violations in the Fair Housing Act, the usual starting place is what was the Congressional intent.

The legislative history is of zero help here because it is obvious that Congress was only considering the direct... the people who were directly discriminated against.

You can't get any help from the legislative intent as to whether they intended to benefit the indirect victims, much less fair housing organizations and testers.

We just can't tell.

So I can't stand here and talk about legislative intent because I don't know.

What I can talk about is Article 3, and unless HOME can demonstrate that this steering harms its counseling service, it shouldn't be able to avoid the reasoning of the... which is what he seeks to do.

The Seventh Circuit in Bellwood, speaking to similar allegations, said that the alleged injury, because they plead similar injury, is a natural concomitant of and so inextricably intertwined--

Chief Justice Burger: We will resume there at 1:00 o'clock, Mr. Allen.

You may resume, Mr. Allen.

You have eleven minutes remaining.

Mr. Allen: Thank you.

Chief Justice Burger: There is no requirement that you use all of it.

ORAL ARGUMENT OF EVERETTE G. ALLEN, JR., ESQ., ON BEHALF OF THE PETITIONERS -- CONTINUED

Mr. Allen: Thank you.

The Seventh Circuit in Bellwood addressed similar standing questions with respect to a fair housing organization there known as Leadership Council, that made pleadings similar to those made here, and concluded that its alleged injury was just the natural concomitant of and so intertwined with its abstract concern as to be inseparable for Article 3 purposes, and we submit that that rationale is applicable here.

Unless the standing requirement is satisfied, simply because Havens is steering, there is no, absolutely no facts plead to support a causal connection between that steering and its counseling service.

Admittedly, as Mr. Justice Stevens pointed out, there is a conclusory allegation that they were harmed.

There are no facts plead that any HOME client was ever sent to this apartment complex, that HOME ever sought any information for this complex.

As Justice Powell noted, they had the duty to get information but they never called, they never called Havens and said--

Unidentified Justice: Well, what about the notice pleading concept of the federal rule?

If this had been a summary judgment, wouldn't you be in a much stronger position where there had been discovery and so forth, than rather just to go off on the pleadings without any affidavits or discovery?

Mr. Allen: --No, Mr. Justice Rehnquist, because I don't believe the concept of noticed pleading ought to be applicable to standing.

Standing is a jurisdictional matter, and in order to invoke the power of the federal court, there ought to be facts that distinctively and affirmatively show that the federal court has got power, and I don't think that the idea of noticed pleading, where the plaintiff is just supposed to put the defendant generally on notice of what the claim is about, ought to be the same standard when you are talking about standing.

Unidentified Justice: Well, there are individuals involved here, aren't there?

Mr. Allen: Yes, there are, Your Honor.

Unidentified Justice: Would you say that jurisdiction of the federal court is defeated if you plead the wrong statute?

If you said 1331 instead of 1343.3, do you think it would be thrown out of court?

Mr. Allen: Well, Your Honor, I think in a motion--

Unidentified Justice: If the facts that are alleged would satisfy one or the other.

Mr. Allen: --As a practical matter, I don't think it would happen, because as a practical matter--

Unidentified Justice: Well, it happens all the time.

Mr. Allen: --Well, as a practical matter, I think it would be called on a motion to dismiss to the plaintiff's attention and would be corrected, but that is not the case here.

We are talking about pleading facts.

You are referring to a technical area.

Unidentified Justice: I am referring to 804, where the only thing you have to plead is that you are a person, and that you have been given false information.

Mr. Allen: Your Honor, if that standard... if that is the standard that governs this Court, then with respect to two testers in Bellwood who lived outside the area, they would not have been denied standing.

In that particular case, they were testers.

They were given false information.

They did not plead 804(d).

When they got to this--

Unidentified Justice: Do you think Bellwood holds that they wouldn't have standing?

Mr. Allen: --It holds--

Unidentified Justice: Under 804?

Mr. Allen: --It didn't address the question, because--

Unidentified Justice: All right.

It doesn't hold it, then, does it?

Mr. Allen: --No, it doesn't.

It was never addressed, and Your Honor, my point is here, it was never raised in this case until it came to this Court.

Unidentified Justice: It is raised now.

Mr. Allen: Yes, it is, Your Honor.

Let me turn to the testers.

The Fourth Circuit found standing for the testers on two grounds, first, as surrogates raising the rights of third parties, and secondly as individuals denied the benefit of interracial associations.

We submit that the Fourth Circuit reliance on Pierson and Evers is wrong, that the emphasis is misplaced.

The plaintiffs in those cases had standing because they had injuries, not because they were tested, and the testing motive is absolutely irrelevant for standing purposes.

The Fourth Circuit's decision granted standing as a tester qua tester without regard to any allegation of injury, its reasoning being the broad public policy of the Fair Housing Act.

That flies in the face of Article 3, and cannot be sustained.

Now, before this Court, Respondents have abandoned the tester qua tester issue.

They no longer argue, as the Fourth Circuit held, that Kent Willis has standing.

They only argue for Sylvia Coleman's standing on the basis of, as Mr. Justice White has said, her 804(d) claim.

Still, the Fourth Circuit's opinion with respect to tester qua tester standing is still there and has to be corrected--

Unidentified Justice: What if Congress had funded a series of state and local agencies to do testing, and rather expressly provided that those testers were to be able to bring an action under the section that you assail here?

Would you say that that violated Article 3?

Mr. Allen: --I would.

I would say... I would say that... it is difficult to say that Congress can't create an agency and give that agency enforcement power.

But to allow that agency to... and I think this is perhaps the way to answer it... to enforce the same rights that private individuals could enforce... for example, Section 813, I believe, gives the Attorney General certain rights with respect to practices and patterns, et cetera.

That is okay.

But I think it would violate Article 3 for Congress to set up an independent agency and to say, you know, go get them on civil grounds.

Yes.

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

Chief Justice Burger: Ms. Ruiz?

ORAL ARGUMENT OF VANESSA RUIZ, ESQ., ON BEHALF OF THE RESPONDENTS

Mr. Ruiz: Mr. Chief Justice, and may it please the Court, this case presents the issue whether a local fair housing group and two individuals, one black and one white, who have engaged in testing of the defendant's housing practices have standing under the Fair Housing Act to obtain relief from the defendant's racially discriminatory housing practices when the local fair housing organization and the individuals both reside in the community that they claim has been affected by these racially discriminatory housing practices, and have been the recipients of racially biased housing information from this defendant.

Unidentified Justice: Ms. Ruiz, could I ask you about your definition of the word "community"?

Would you think community as you have just used it could be extended to mean the whole northeast corridor of the United States, from Boston to Richmond?

Mr. Ruiz: No, sir.

I don't think that a person who lives in Boston could claim that his community, his day to day life, his day to day activities, are affected in the way that we claim that they have been affected in this case by the activities, let's say, of a realtor in New York.

No, would not extend it that far, and this case does not extend that far.

This case only deals with the Richmond area.

The case is before this Court in a somewhat unusual posture, and it presents a narrower issue.

The case is here on review from a grant of a motion to dismiss for lack of standing.

Therefore, the complaint must be presumed true and construed in favor of the plaintiffs.

The complaint was filed on January 19th, '79.

By February 16th, the plaintiffs were out of court.

They appealed to the Fourth Circuit, which held in their favor.

The defendants then petitioned this Court for review.

While this whole appeals process was taking place, however, the companion case of Paul Coles, a black man denied housing by Havens, continued on to discovery and for trial on the merits.

After presentation of the evidence to the District Court, the judge found, and I quote from the findings of fact, that

"Havens Realty established a policy of discrimination against black people in the rental of its apartments, and that this was a conscious and deliberate policy on the part of Havens Realty."

Because of the procedural posture of this case before this Court, review of the grant of the motion to dismiss and the finding that the defendant has violated the Fair Housing Act in Section 1982, we believe that this case presents only the issue of whether these plaintiffs, Respondents before the Court here today, should be allowed to go back to the District Court, pick up where they left off, and continue to prove their case, that they are entitled to relief from these defendants.

Unidentified Justice: Ms. Ruiz, isn't there a provision in the federal rules that upon the filing of a motion to dismiss, you can ask that ruling on it be deferred pending taking of depositions or affidavits?

Mr. Ruiz: Indeed, sir, we requested that.

We requested that the District Court on a motion for reconsideration that the... that any decision on the motion to dismiss be deferred until the taking of an already scheduled deposition.

In fact, we also noted the fact that this Court was considering and would shortly be deciding the Bellwood case, which would probably be instructive to the District Court.

That motion was... that request was denied.

Unidentified Justice: What do you have to say about the suggestion that this might be an appropriate case for exercising discretion to dismiss as improvidently granted because of the intervening events, that is, the consent decree?

Mr. Ruiz: Well, we think that the consent decree does not render the case moot, so that the court has power, has jurisdiction to hear the case if it so wishes.

The court might decide, however, that it does not wish to hear this case at this time because precisely of the procedural posture, the somewhat skimpy record that is available for review, and we would not be at all adverse to a decision that the writ was improvidently granted.

Unidentified Justice: That would leave your win intact below.

Mr. Ruiz: That's right.

0 [Generallaughter.]

Unidentified Justice: And you would go into the District Court and proceed.

Mr. Ruiz: We would then go to the District Court and proceed, sir.

The clear statutory language of the Fair Housing Act, the broad remedial purposes of the Fair Housing Act, the Congressional intent expressed in the statutory scheme of the Fair Housing Act for strong private enforcement of the Fair Housing Act, and this is a private action, private plaintiffs against a private defendant, and this Court's decisions in Trafficante and in Bellwood that standing under the Act is to be as broad as permissible under Article 3, require that these plaintiffs be granted standing to proceed with their action.

Unidentified Justice: Ms. Ruiz, do you concede that Willis lacked standing?

Mr. Ruiz: No.

Justice O'Connor, we believe that Mr. Willis has standing based on his claim that as a resident of the community affected by the racial steering practices, he has been affected and injured by these practices.

Because of the particular facts in this case, where Mr. Willis was not given misinformation, racially biased misinformation by Havens, we believe that he would not have a claim under Section 804(d), but he would have standing as a resident of the community affected by these practices.

Ms. Coleman, however, was given such misinformation, and the statute makes it unlawful to misrepresent on the basis of race to any person, and that would include Ms. Coleman.

Unidentified Justice: Would her claim be time barred, however?

Mr. Ruiz: Her claim?

No, we don't believe it would be time barred, because the violation which has been alleged here and which in fact was found by the district judge, is the policy, on an ongoing and continuing basis, a policy of discrimination, a policy of racial steering.

Now, that policy extended back for a period of time, during the time when Ms. Coleman contacted Havens up to the limitations period, the 180-day period, which was Mr. Cole's incident, and indeed, continued past that, to 1978 through 1980, as we have been able to see now, pursuant to the claims filed under the consent order was the claimants came forward and were granted relief by the court pursuant to the magistrate's recommendation that they had been discriminated by Havens Realty during those times.

Unidentified Justice: Could someone, do you think, come forward now and say that they were a victim of a steering practice in 1969 because it was a continuing violation and Havens had always steered, even after the 1968 Act made it unlawful?

Mr. Ruiz: In 1969, the action would have been unlawful.

The claim, if they could prove that their claim was based on the same policy and practice, and I think that that would be a difficult claim to make, but assuming that they could, I think their claim should be... should be heard by the court.

In a situation such as that, of course, the court has certain kinds of discretionary and prudential authority, where it would be unfair to the defendant to exclude certain claims, but that again is not this case.

In this case, we are talking about incidents that occurred not a number of years back but a mere two, three months before the Coles incident.

Unidentified Justice: The reason I ask the question is, you have used in your argument the term "continuing violation", and the term "community", both of which recur in cases such as these, and both of which are somewhat amorphous, I think.

Mr. Ruiz: Well, they were put in this way, and without specific reference to any particular community or any particular defendant; they may seem amorphous, but isn't that, after all, what the purpose of a factual inquiry, of a trial on the merits, of a judicial determination is, to see what is the scope of this violation, what is its nature, how far has it extended?

Again, in this case, we have not had that opportunity, sir.

I would like to address the--

Unidentified Justice: May I ask you one other question--

Mr. Ruiz: --Yes, Justice Stevens.

Unidentified Justice: --on the limitations point, Ms. Ruiz?

Which section of Section 3604, which subsection do you contend that the steering practice violates?

Mr. Ruiz: The steering practice, where it referred to Mr. Coles, would have violated Section 804(a).

Unidentified Justice: Take the white tester.

His claim.

Mr. Ruiz: Well, his claim, had he in fact not received accurate information--

Unidentified Justice: Well, he did receive accurate information.

Mr. Ruiz: --He did receive accurate information, right, so we are not pressing his claim under 804(d).

Unidentified Justice: No, I am asking--

Mr. Ruiz: But had he received inaccurate information it would have been Subsection (d) of 804.

Unidentified Justice: --No, but he didn't.

I am asking you what section would you contend he can invoke in order to be covered in this case?

Mr. Ruiz: Oh, I am sorry.

Unidentified Justice: Say he was the only plaintiff in the case.

Mr. Ruiz: He could under... actually under both Sections 804(a) and (d).

Mr. Willis's claim in that case would be no different from the claims of the plaintiffs in Bellwood.

There what they claimed was that the rights of third parties had been violated.

Now, the rights of those third parties might have been under Sections 804(a) or (d), but that the injury was to the plaintiffs before the court.

That would be in essence Mr. Willis's claim, that he had been injured, but that his injury resulted from the violation of the right that a third person had under the statute.

This, in essence, is this Court's holding in Trafficante and in Bellwood.

Unidentified Justice: His right to neutral racial living conditions?

Mr. Ruiz: That's right, his right--

Unidentified Justice: In his community.

Mr. Ruiz: --His right to live in a community that is normal, that is stable, that is not subject--

Unidentified Justice: So that is his own right.

Mr. Ruiz: --That is his own right.

That's right.

Unidentified Justice: His own right that he is alleging.

Mr. Ruiz: Well, no, that is his own injury.

Unidentified Justice: Yes.

Mr. Ruiz: He has an injury in that the community has been manipulated from outside.

Unidentified Justice: He has a right under the statute not to have that happen.

Mr. Ruiz: That's right, because the statute says--

Unidentified Justice: That is his claim, anyway.

Mr. Ruiz: --That is right.

That is his claim.

I would like to address the argument by opposing counsel that testers do not have standing qua testers.

In fact, we do not make that argument, and we do not posit that that the standing of Willis and Coleman is based on their status as testers.

What we say is that the fact that they engaged in testing does not undermine their standing, given the fact they have a good claim on their own.

This Court's prior decisions concerning standing have addressed usually two factors.

One, whether the case is justiciable, and two, whether there is adverseness between the parties.

In this case, the fact that the Fair Housing Act has provided a broad remedy for any person is a clear indicator that the case indeed is justiciable.

The Congress has said that the courts should be hearing this type of case.

This is, indeed, where these grievances are to be brought.

The sole question then is whether there is adverseness between the parties, is there a case or controversy between these two parties?

Is there injury in fact?

Unidentified Justice: If the statute had provided any person seeking a place of residence in good faith, and then went on as it does, then you wouldn't be here, I take it.

Mr. Ruiz: That's right, sir.

In fact, the statute requires that under the first phrase of Section 804(a), but not as to any other.

It does not require it as to this.

So the only requirement is that there be an injury in fact to these plaintiffs that is fairly traceable, that is plausibly connected.

Unidentified Justice: May I ask one other question?

Does that injury have to occur within 180 days of the filing of the complaint?

Supposing the white tester moved to Boston 181 days before the lawsuit was filed.

Would he still have standing?

Mr. Ruiz: The white tester had moved to Boston.

Unidentified Justice: Moved to Boston.

Yes.

But he had suffered all these injuries during the months previous to his move.

Would he have a claim?

Mr. Ruiz: Well, he clearly would have had it before.

I am not sure that the move would totally mitigate... in fact, he may be--

Unidentified Justice: Well, either his claim is barred or it isn't.

What I am asking you is, does the injury to the plaintiff... must the injury to the plaintiff occur within the 180-day period?

Mr. Ruiz: --No, sir.

What the statute says is that the housing practice must have occurred within the 180 days.

Unidentified Justice: So you would say if he moved to Boston five years ago, but prior to the five years he had suffered from the same practice that continued into the 180-day period, he could still sue?

Mr. Ruiz: I think that case would present other problems.

Unidentified Justice: What is the problem?

Mr. Ruiz: Well, the problem might be that actions, events subsequent to the happening--

Unidentified Justice: It is a continuous practice.

You prove that they did it every week for five years.

Mr. Ruiz: --Yes, but the question would remain whether there is an injury to this plaintiff, and if he has moved to--

Unidentified Justice: Well, it did, but it occurred five years ago.

Can he recover?

If he can't recover then, why can he recover when it is only 181 days ago?

Mr. Ruiz: --Well, I would say that there is indeed a difference between its being five years and only 181 days.

Unidentified Justice: Well, the statute draws the line at 180 days.

Mr. Ruiz: As far as when the housing practice, the violation must have occurred--

Unidentified Justice: Well, I am asking you, though, if there is also any time limit on when the injury must occur.

Mr. Ruiz: --The statute does not provide any kind of limitation on when the injury must have occurred.

Now, assume that going back you could... you couldn't go back further than 1968, which is when this policy was made to be unlawful.

Unidentified Justice: Well, of course you can't go back further than 1968, but if you would go back 181 days, I don't know why you can't go back five years.

Mr. Ruiz: Well, again, you get into an area where you look at other factors.

How fresh is the evidence?

I mean, we are really talking now--

Unidentified Justice: It is very fresh.

We've got tape recordings of everything.

Mr. Ruiz: --Well, if we have tape recordings, and there is absolutely no question that the plaintiff can come forward and prove his claim, if there is no unfairness to this defendant because it is one and the same practice, and there has been a policy, I would say yes, he can bring his claim.

It is not this case, but I would say that there is no logical inconsistency with saying that claimant could bring the claim.

Unidentified Justice: Ms. Ruiz, the Solicitor General takes the position that the continuing violation theory does not apply to a party who merely asserts a right to receive correct information, instead of the neighborhood resident theory.

What is your comment about the Solicitor General's position?

Mr. Ruiz: Well, I think that when we talk about a continuing violation, we are focusing not on the plaintiff and the right asserted, but on the violation and the conduct of the defendant, and if the receipt of misinformation has been pursuant to an ongoing, continuing practice that violate the Act, we contend that even the person who brings an action under 804(d) for receipt of misinformation is entitled to have that claim survive on a subsequent incident which is within the 180-day limitations period, because it is part of one same continuing practice.

It is the defendant's conduct that we look to then, not the nature of the claim.

This case, as far as the injury claimed, as far as the pleadings filed, is really no different from the cases of Trafficante and Bellwood and Village of Arlington Heights.

We think those cases are consistent with the Fair Housing Act and the purpose of the Congress in enacting the Fair Housing Act, and we urge this Court to affirm the Court of Appeals.

Chief Justice Burger: Do you have anything further, Mr. Allen?

ORAL ARGUMENT OF EVERETTE G. ALLEN, JR., ESQ., ON BEHALF OF THE PETITIONERS -- REBUTTAL

Mr. Allen: Yes, Your Honor.

To start with counsel's last point, it was that this case is like Trafficante and Bellwood, and I have to say that I think that's absurd.

Trafficante allowed persons injured by discrimination against others to assert the rights, and we were talking about an apartment complex, where the act of discrimination, the racial manipulation was at that apartment complex.

Bellwood changed it a bit, because in Bellwood you had a village of 20,000 people, and you had a fairly sizeable area within that village of 12 to 13 blocks, and notwithstanding that, the Court had some difficulty and in fact refrained from allowing standing for two plaintiffs that lived outside of that target area.

Now what we have done is, we have contracted the target area down to two apartments, and we have expanded the size of the area that the people can live in to a whole metropolitan area.

This is a quantum leap from Bellwood.

And if it goes that far, where does it stop next?

In reading the Bellwood oral arguments, one question from the bench was, where does this end?

And if we lived in northern Illinois, and we don't like what is going on in Bellwood, can we complain about it?

And the answer was, oh, no.

Oh, no.

We are going to be reasonable about this, and we are only going to deal with an area that is affected.

Another question asked from the bench in Bellwood is, how many private attorney generals are we talking about?

Well, in Richmond, Virginia, if this complaint is upheld, you are talking about 400,000.

There is no question about that.

The question was raised, well, should we dismiss the writ as improvidently granted and opposing counsel says, well, we just want to go back and amend.

It has been admitted that the Fourth Circuit's decision in tester qua tester is wrong.

That needs to be changed.

That can't be left standing by dismissing the writ as improvidently granted.

The representational standing.

The facts are not in that case to support representational standing, and no one can say that they are.

Thirdly, this decision by the Fourth Circuit is such a far step from Bellwood that it shouldn't be allowed to stand.

Mr. Justice Rehnquist raised, well, you know, why didn't you move to... why didn't you move to be given the right to furnish information later?

The point was, Mr. Justice Rehnquist, they had this opportunity.

When the defendant moved to dismiss this case, they had an opportunity then to supply whatever facts they wanted to supply.

They have had no difficulty supplying them in this brief before this Court for the first time.

The important thing to note here is that these Respondents wanted to stand on this complaint.

They wanted this District Court to accept the broad allegations in this complaint and that is why they plead it.

That is why they had final judgment entered under Rule 54, and that is why they have appealed.

This isn't a matter of inadvertently doing anything wrong.

This was a deliberate effort to have these broad allegations accepted by the District Court.

Unidentified Justice: If we found that Coleman... Coleman was the black lady?

Mr. Allen: Yes, sir.

Unidentified Justice: If we found that Coleman had standing, would we need to reach the standing of anybody else?

Mr. Allen: Your Honor, yes, you would, because Coleman's claim under Section 804(d) is, as Justice O'Connor pointed out, absolutely barred by the statute of limitations.

That receipt of false information is a claim personal to the recipient.

And I don't see how the statute can be interpreted any other way than that she has got 180 days from the day she gets that wrong information to bring that claim, and to allow that to slid in under a continuing violation theory just doesn't make any sense.

So you do have to reach--

Unidentified Justice: What was her claim, though?

Mr. Allen: --Her claim was--

Unidentified Justice: What would be her remedy?

Suppose it was--

Mr. Allen: --Your Honor, that is my point.

Unidentified Justice: --What if it was timely?

Mr. Allen: That is my point.

Unidentified Justice: Well, you haven't made it yet, then.

What is your point?

What would be her remedy if her claim were timely?

Mr. Allen: The point is, she hasn't been injured, and she doesn't care about any relief.

She received this information solely to test.

She got false information, but the point is, what does she care?

She is just doing her job.

That is not an entry under Article 3, and that is why she doesn't have standing pursuant to Article 3.

She hasn't been injured.

Chief Justice Burger: Very well.

Thank you, counsel.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Gladstone, Realtors v. Village Of Bellwood - Oral Argument

Sun, 20 Jun 2010 20:43:28 +0000

Case:

Gladstone, Realtors v. Village Of Bellwood

Media File:

77-1493_19781129-argument.mp3

Related Transcript:

77-1493_19781129-argument.xml

Transcript:

Argument of Jonathan T. Howe

Chief Justice Warren E. Burger: We'll hear arguments first this morning in Gladstone, Realtors against Village Of Bellwood.

Mr. Howe, you may proceed whenever you are ready.

Mr. Jonathan T. Howe: Mr. Chief Justice, and may it please the Court.

I am Jonathan Howe, representing the petitioner, defendants in this case -- in these cases of Gladstone Realtors and Hintze Realtors versus Village Of Bellwood.

This case comes to this Court by way of a writ of certiorari in which the order as granting writ has stated the caution presented as whether natural persons and municipalities who are not direct victims of discrimination in the sale or rental of housing have any rights under Article III of the United States Constitution or under Sections 1982, 3604, 3612 of Title 42 of the United States Code, to bring a suit against real estate brokers who they allege to have engaged in racial steering on the theory, that racial steering interferes with such persons’ generalized interest in living in an integrated society.

Our oral argument this morning shall focus upon the statutory construction of Sections 3604 and 3612, which will require the decision of the Seventh Circuit Court of Appeals to be reversed, because these plaintiffs cannot state a cause of action under 3604 or 3612 of Title 42.

It is our contention that Section 3612 on its face provides for the enforcement of certain enumerated rights under Section 3604 and these plaintiffs before this Court possess none of these rights and therefore have no standing to pursue or to bring the cause of action.

Section 3612, it is our contention, must be read as a complementary enforcement provision of the Fair Housing Act, not as an alternative for Section 3610.

3610 has a much broader range of complainants, the person aggrieved concept, those claiming injury or to have been injured as a result of a discriminatory housing practice is far broader than that which is provided under Section 3612.

In addition, the legislative history of the Fair Housing Act is not contrary to the position of these defendants.

It is incomprehensible, that Congress would provide in Section 3610 for an administrative and agency program and deferral to states and local governments and then two sections later, totally abandon and provide a mechanism by which that provision of 3610 could be frustrated and evaded for all claimants.

As to Section 1982, it is the position of the defendants in this case, that plaintiffs have failed to state a claim under that Section and now the decision of this Court in Warth v. Seldin decided in 1985 is dispositive of the claims raised by the plaintiffs under Section 1982.

These cases were brought by identical plaintiffs in two actions in the United States District Court for the Northern District of Illinois.

The plaintiffs that are before this Court include the Village of Bellwood and Illinois Municipal Corporation and six individuals, four of whom are white and all residents of Bellwood and two blacks, one of whom is a resident of Bellwood and one a resident of another municipality.

The defendants in the first case include Gladstone Realtors, a real estate brokerage firm in Illinois and six of its sales people.

The second case involves Robert A Hintze, a sole proprietorship, the owner of that firm and two of his sales people.

The plaintiffs allege in their complaints that the defendants had engaged in illegal racial steering and the defendants are charged that they undertook efforts to influence the choice of perspective home buyers on the basis of race and discouraged prospective black home buyers from purchasing homes in white areas on the basis of race.

Jurisdiction is posited in part upon Section 3612 of articles or Title 42.

In the complaints, the plaintiffs sought declaratory release, injunctive relief, and over $300,000 in damages.

The injury that was alleged to have been sustained by the Village of Bellwood was that its housing market had been wrongfully and illegally manipulated to the economic and social determent of the citizens of such village.

The individual plaintiffs base their injury on two different theories.

The first theory was that the individual plaintiffs had been denied their right to select housing without regard to race.

The second theory they claim that they had been deprived of the social and professional benefits of living in an integrated society.

Pursuant to discovery and as a result of discovery request made by the defendants, the individual plaintiffs admitted that none of them had ever intended during the period at issue to purchase or rent a home in Bellwood or to purchase or rent a home through the services of any of the defendants in this case.

Based upon that discovery, the defendants proceeded to file a motion for a summary judgment in both cases.

The plaintiffs, it was contended, had not set forth a cause of action under Sections 1982, 3604 or 3612 and alternatively that plaintiffs had failed to demonstrate the existence of a case of controversy under Article III.

Subsequently, Judge Decker in the Gladstone case held and ruled in favor of the motion and held that the individual plaintiffs were only testers and not bona fide homeseekers and therefore could not be denied the right to select housing without regard to race.

At most, Judge Decker found that the individual plaintiffs had suffered was the indirect or generalized injury of being denied the benefits of living in an integrated society.

Judge Decker relied in large part upon the decision of the Ninth Circuit Court of Appeals in TOPIC versus Circle Realty.

In that case, the Ninth Circuit had held that a cause of action under Section 3612 exists only for a direct victim of a prescribed practice under Section 3604.

The court went on to hold that the Village of Bellwood had not suffered any cognizable injury.

Subsequently, Judge Perry in the Hintze case adopted Judge Decker’s decision and the case went on appeal to the Seventh Circuit.

There the Seventh Circuit found that the individual plaintiffs themselves had not been denied the right to purchase or rent housing without regard to race, because the plaintiffs did not possess a good faith interest to enter into the housing market and the plaintiffs’ allegations to the contrary in the complaint had been foreclosed by their admissions through the discovery process.

Therefore, testers qua testers did not have a cause of action.

Justice William H. Rehnquist: Mr. Howe, was there a cross-petition for certiorari from that portion of the judgment of the Court of Appeals of the Seventh Circuit?

Mr. Jonathan T. Howe: No sir, there was not, no cross-petition has been filed in this case.

The Seventh Circuit went on however to hold that the plaintiffs claim that they had been denied the right to live in an integrated society, was cognizable under Section 3604 and 3612.

The court made no decision as to the claims under Section 1982.

The Seventh Circuit, it is our position, erroneously relied upon the decision of this Court in Trafficante versus Metropolitan Life Insurance, where this Court held under Section 3610 that residents of an apartment complex could complain that their landlord’s rental practices deprived them of the social and professional benefits of living in an integrated community.

The Seventh Circuit while noting that Trafficante was not technically controlling, felt that its thrust and its rational suggests that individual plaintiffs have standing to allege deprivation of a right to live in an integrated society under Section 3612.

The Court specifically rejected the decision of the Ninth Circuit in the TOPIC case.

As to the Village, the court went on to find without any allegations in the complaint to support the conclusion that it was apparent that the concrete injury with a substantial nexus to the Village’s status as a unit of government could be proved.

Based upon that decision of the Seventh Circuit, this writ was granted.

It is the position of the petitioners and the defendants that Section 3612 does not authorize the filing in a United States District Court of a cause of action by the same class of plaintiffs as would be permitted to file a cause of action after the exhaustion of the administrative remedies under Section 3610.

Section 3612 provides that the rights granted by Section 3604 may be enforced in an appropriate United States District Court.

Thus 3612, it is our position, limits the rights that can be enforced to those under 3604. 3604 provides five distinct categories of rights and practices which it declares to be unlawful.

Not one of those five categories includes a right or generalized interest to live in an integrated society, nor do any of the five categories provide any generalized right or interest to protect the economic and social interests of citizens for manipulation by racial steering.

Justice Potter Stewart: Mr. Howe, you do concede, I guess, don't you that the practices alleged by -- that were carried on by the realtors in this case known colloquially at least as racial steering were violative of the substantive provisions of the Act?

Mr. Jonathan T. Howe: For the procedural process of this case Your Honor, that is correct.

Justice John Paul Stevens: And what Section of the Act do you concede they may violate, Section 3604?

Mr. Jonathan T. Howe: It is arguable and there is substantial case law in the lower courts that racial steering as to a direct victim of such a racial practice does have a cause of action.

There are some other cases –

Justice John Paul Stevens: I am not asking about who has the cause of action?

Do you or do you not agree that if the allegations are true, there was a violation of 3604?

Mr. Jonathan T. Howe: If the allegations are true, there is a violation of 3604.

Justice Potter Stewart: At least for the purposes of your argument?

Mr. Jonathan T. Howe: For purposes of our argument today, that is correct.

Justice Potter Stewart: But your submission is that the steeree has to be the plaintiff [Voice Overlap]

Mr. Jonathan T. Howe: That is correct, that is correct Your Honor.

We also note that 3612 by limiting access to the federal courts to those five categories is part of a broader base of the entire statute.

We must look at the entire Fair Housing Act to determine and to see whether the Sections as defined by Congress provide a harmonious hope.

The Seventh Circuit disregarded this argument.

It did not even address it.

It is our suggestion in our argument that we must compare Section 3610 with 3612 and we must read them together.

Now, Section 3610 addresses itself to the concept of injury sustained as a result of housing discrimination by a person aggrieved.

In Warth versus Seldin, this Court characterized the decision in Trafficante and Section 3610 as giving residence of housing facilities and actionable right to be free from adverse consequences to them of racially discriminatory practices directed at and immediately harmful to others, because they were persons aggrieved, which is a term of art we submit, to give broader opportunities to a class of claimants.

3612, as noted, addresses itself to rights, not to injury. Purely for the sake of example, this Court has held in several cases that even if a person is injured as a result of an invasion of a constitutional right of another person, that injured person cannot seek redress of the constitutional rights of an absent third party.

In fact in the (Inaudible) decision and stated that the established principle is that suspension of the product of a Fourth Amendment violation can be successfully urged only by those whose rights were violated by the search itself, not by those who are aggrieved solely by the introduction of the damaging evidence and thus 3610 does provide a cause of action however to these people who have sustained some injury.

They are persons aggrieved and consistent with the decision in Trafficante, which does provide for the concept of the private attorney general.

we have to look at this word of art of person aggrieved.

It does have significance.

Congress has used that terminology only when it has wanted to expand the jurisdiction of courts to hear claims.

It has a well defined meaning in the case law of this country and as Trafficante shows, the concept is to extend the broadest and possible standing under Article III for the injury sustained.

We do not need to look at the legislative history for the Fair Housing Act in this case, because as this Court stated in the Kepner case, it is a well settled rule that the construction of language in a statute which has a well settled and well known meaning sanctioned by judicial decision is presumed –

Justice John Paul Stevens: Mr. Howe, may I interrupt you once again?

Mr. Jonathan T. Howe: Surely.

Justice John Paul Stevens: Do you concede that -- these plaintiffs still allege that they suffered and harm themselves and you concede that they are persons aggrieved within the meaning of Section 3610?

Mr. Jonathan T. Howe: Your Honor, I think that the answer to that question would have to depend upon the extent to which the decision of this Court in Trafficante would be extended or broadened to cover the class of plaintiffs in this particular litigation.

Justice John Paul Stevens: Let me change it, you argue that they are not persons aggrieved within that?

Mr. Jonathan T. Howe: We take no position because no action has been raised under 3610 for these plaintiffs.

Justice John Paul Stevens: I see, but they are not -- but you do concede, don't you that they are suing for an injury to themselves rather than the third parties?

Mr. Jonathan T. Howe: The injury that they allege to have occurred to them is a result of an alleged unlawful housing practice directed to third parties.

They have claimed -- they did claim that they had been injured in their personal right to select housing.

Justice John Paul Stevens: Right.

Mr. Jonathan T. Howe: But the District Court and the Court of Appeals both held that this was not the case since they were not bona fide homeseekers.

Justice John Paul Stevens: I understand, [Voice Overlap] they make the Trafficante allegation that they were denied the opportunity to live in an integrated community.

Mr. Jonathan T. Howe: That is correct Your Honor, but under 3612, they are supposed to [Voice Overlap]

Justice John Paul Stevens: And your submission I gather is in the alternative, either that's not enough to make them persons aggrieved because there is a little difference between this case and Trafficante or alternatively even if they are persons aggrieved 3612, somehow or other, is a less broad --

Mr. Jonathan T. Howe: Our contention Your Honor is that 3612 in no way includes the definition of persons aggrieved as being a person who can bring an action.

Justice John Paul Stevens: I understand, it does not have that language in it --

Mr. Jonathan T. Howe: None whatsoever.

Justice John Paul Stevens: It also does not have any limiting language in it either.

Mr. Jonathan T. Howe: It does not have limiting language, but our concept of the statutory scheme is that in order to give meaning to the statutory scheme, we must hold that 3610 does have a broader class of claimants that can bring an action or bring up the process into force than that which would be allowed under 3612.

If in one hand we establish a right to go forward as a person aggrieved in 3610 and then two sections later, we say, well, you can bypass that administrative process, you can bypass the state and local remedies that are available, you can bypass the exemption or the deferral to a state court by filing under 3612, the whole concept of two separate distinct complementary enforcement sections, it is our contention, is lost.

Justice John Paul Stevens: Of course the Court of Appeal say, well, there are alternative remedies.

Mr. Jonathan T. Howe: That is the position of the Court of Appeals towards of course we take exception.

Justice Thurgood Marshall: Even then also, anything else in this case --

Mr. Jonathan T. Howe: No Your Honor, it is not, because in the –

Justice Thurgood Marshall: (Inaudible) did not they?

Mr. Jonathan T. Howe: You have to understand that –

Justice Thurgood Marshall: Didn't the floor manager --

Mr. Jonathan T. Howe: Yes he did Your Honor.

The floor manager stated that as far as they were concerned based upon an opinion that they received from the Attorney General that 3610 and 3612 were alternative remedies.

We agree with that for a direct victim, a person whose rights have been infringed, but as to a person as an indirect victim who is asserting the rights of absent third parties by virtue of having suffered some kind of injury themselves, we submit that was not considered whatsoever during any of the legislative debate.

Justice Thurgood Marshall: Is there any language in legislative history that points to it?

Mr. Jonathan T. Howe: There is no language whatsoever Your Honor that the Congress of the United States ever considered or gave thought to an indirect victim bringing an action under this Act.

Justice Thurgood Marshall: Is there any language in the legislative history that said when Congressman Seller was talking, he was talking about the aggrieved person, which is what you just said.

Mr. Jonathan T. Howe: Yes Your Honor, he is --

Justice Thurgood Marshall: But do you have any language in the history that backs you up or is that your statement?

Mr. Jonathan T. Howe: Our statement Your Honor is that Congressman Seller when he was working with the bill, looked at 3610 and 3612 as being alternatives for a direct victim.

We do not find anywhere in the legislative history of the Fair Housing Act that Congress ever gave consideration to the class of plaintiffs that are before the Court today.

We think that this Court, however, properly construed in Trafficante the concept of person aggrieved to being a broader base area for a person to bring a claim, but when it came to 3612, that was not the intention of Congress.

We have got to remember that the Fair Housing Act was an Act that came through great compromise.

It did not have the benefit of any committee hearing.

So it was hammered out on the floors of Congress without committee hearings or committee reports.

And thus, much of what may be said on the floor of Congress relative to what was intended by the legislation, we would submit Your Honor, may not be worth much for purposes of interpreting a statutory scheme which we think on its face is relatively clear.

Justice Thurgood Marshall: Of course, Congressman Seller was also a Chairman of the Judiciary Committee, wasn't he?

Mr. Jonathan T. Howe: That is correct Your Honor.

Justice Thurgood Marshall: You are not saying he did not know what he was talking about?

Mr. Jonathan T. Howe: No, I am certainly not.

I am not suggesting that for one minute.

I am suggesting that when he was speaking however, he was speaking solely of people who were direct victims, not indirect victims.

And therefore based upon that theory, I think you can see a pattern between the two and then when this Court in Trafficante took the concept of person aggrieved for Section 3610 case and extended it to the broadest limits permitted by Article III, that was consistent with the word of art of person aggrieved.

Justice Byron R. White: Was not that Trafficante suit under both sections?

Mr. Jonathan T. Howe: Your Honor, that question has been raised by the respondents and while it is true that there had been an intervention filed in the court below under 3612, the decision of this Court addresses itself solely to Section 3610.

It does mention as part of the statutory enforcement scheme, the existence of not only Section 3612 but also 3613.

Justice Byron R. White: We certainly did not put Section 812 aside, did we?

Mr. Jonathan T. Howe: You did not put it aside, but you did not address it and Justice Douglas in his decision stated that all other issues, there was no opinion of the Court and that the Court was not going to address those.

In the Warth decision and in other decisions of this Court and other courts which have looked at the Trafficante decision, they have viewed them as being a decision under Section 3610 and the language contained there.

It states that only can you give vitality to Section 3610 by a generous construction which goes to standing to suit to all in the same housing unit who are injured by the management of that particular housing unit and that, that can be within the ambient of the statute under Section 3610.

We have got to look in –

Justice John Paul Stevens: Mt. Howe --

Mr. Jonathan T. Howe: Yes sir.

Justice John Paul Stevens: -- while I have you interrupted again.

I take it, there is no definition or distinction in the statute that is termed direct victim.

Mr. Jonathan T. Howe: No, Your Honor.

Justice John Paul Stevens: There is a definition of person aggrieved.

Mr. Jonathan T. Howe: There is indeed.

Justice John Paul Stevens: But you would say, the claimant would have been injured by the housing practice, that is a broader concept than the direct victim concept.

Mr. Jonathan T. Howe: When you talk of injury, you talk about something that somebody has incurred as a result of a housing discrimination.

Maybe that housing discrimination was not directed at them, but they do sustain some injury whereas with the right, we contend Your Honor that, that is individual.

Justice John Paul Stevens: I understand your argument, but maybe I am just repeating what Mr. Justice Marshall asked, but is there anything in the legislative history, the language of the statute that you can point to that says there is this distinction between direct and indirect victims?

Mr. Jonathan T. Howe: No, Your Honor and we submit the reason that we cannot do that is because Congress never considered the distinction between a direct or indirect victim but rather throughout, the thread of the legislative history was that they were talking about people who were barred access to housing.

They were talking of direct victims.

I do not think you will find anywhere in the legislative history anything which would indicate that a party has a right to assert rights of an absent third-party in the legislative history and also in the legislative history, the difference between --

Justice John Paul Stevens: Most of what they are thinking of is direct victims than most applications of Sections 810 and 812 were expected to be alternative remedy application.

Mr. Jonathan T. Howe: As far as the direct victim, yes Your Honor, we concede that.

Justice John Paul Stevens: Yeah, well, most that they ever thought about.

Mr. Jonathan T. Howe: That is correct Your Honor.

Justice John Paul Stevens: And there is nothing indicated that they thought about this narrow category of indirect victims pursuant to one Section and not the other.

Mr. Jonathan T. Howe: That is correct, until the decision of this Court in Trafficante which extended the concept of person aggrieved.

Justice John Paul Stevens: I see.

Mr. Jonathan T. Howe: But prior to that, there is nothing in the legislative history at all which would support any finding that the concept of an indirect victim was to have any kind of right under either 810 or 812.

And I think --

Justice Byron R. White: I guess that if you are right, Trafficante was wrong?

Mr. Jonathan T. Howe: Your Honor, that is not a decision that has to be reached by this Court.

I think that the legislative history while not addressing it, but by using that term person aggrieved in 810 that you could sustain the decision that you reached in Trafficante.

Personally, we might take a different position in that, but I think that as far as the decision of this Court in Trafficante in construing the traditional concept of person aggrieved --

Justice Byron R. White: But insofar as the silence of Congress is concerned about indirect victims, it is no more meaningful here than it was in Trafficante?

Mr. Jonathan T. Howe: I would concur that the silence of Congress and as Mr. Justice Douglas suggested, the legislative history of the Fair Housing Act is a very little help in trying to interpret what the Act was intended to cover.

I think that the impact of Congress again looking at the basic statutory scheme shows that under 3610 that the concept was of having some kind of ameliorating process of requiring a person to file a compliant with the Secretary of HUD to have 30 days for conciliation and if there were state or local agencies which had substantially equivalent remedies and rights that there should be a deferral to the state and local governments so that there could be a conservation of judicial time, that those people who work perhaps in a broader position than those who would be having their rights infringed under 3612 would first go through that administrative process, because 3612 has no preconditions to invoking federal jurisdiction.

And we would consider that part of the pattern again, the intention of Congress was to provide these two vehicles for enforcement.

One of a less adversary context under 3610 with a broader spectrum of individuals who could bring a complaint under 3610 and that they could also do that without having to go into a court for purposes of achieving their rights.

Justice Byron R. White: You must think that, you do not think that the Trafficante indicated that the people who had exhausted their administrative remedies could then sue under 812?

Mr. Jonathan T. Howe: No Your Honor, I do not think we can construe it that way because it provides specifically in 810, how a person may go to court after having instituted the process of filing a complaint with the secretary, the referral to a state agency the unsatisfactory solution to that problem and then allowing a person to go into a United States District Court.

We think that is a pattern that flows through 810, there is no –

Justice Byron R. White: But when he gets there, what Section is he under?

Mr. Jonathan T. Howe: He is under Section 810, 810(d).

Justice Byron R. White: Is that where the cause of action is given?

Mr. Jonathan T. Howe: Cause of action was given in the 810 (a), which states that any person who is harmed, any person aggrieved by an unlawful housing discrimination may file a compliant and then we follow through the process.

Justice Byron R. White: But that does not give them a cause of action in court?

Mr. Jonathan T. Howe: It gives them a cause of action after they have exhausted their administrative remedy, then they proceed to file a case in court.

Justice Byron R. White: Well then I suppose the Trafficante says moreover these rights may be enforced by civil actions in appropriate United States District Courts without regarding the amount of controversy of brought within 180 days after the alleged discriminatory housing practice has occurred.

These rights referring to the 810 rights, after citing 810 (d) and then the court cites Section 812 (a), that is in page 209, 409 U. S. 209.

Perhaps the court was just wrong there, is that it?

Mr. Jonathan T. Howe: The Court could be wrong Your Honor, but you do not have to reach that decision in this case.

Justice Byron R. White: Well, I would suppose if the Court was right, it was saying that these very rights that were rejected in the administrative process could be brought in the Court under 812 and that would include indirect purchases?

Mr. Jonathan T. Howe: We would disagree Your Honor on the basis that in order for a person first of all under Section 810 to be able to proceed under 810, if they are a person aggrieved, it is much broader.

If they go to 812, there is no similar language in 812 for a person aggrieved.

Thus, if they were found to be a person aggrieved under 810 –

Justice Byron R. White: So you are arguing that this reference of 812 then is just wrong?

Justice Potter Stewart: No, no --

Justice Byron R. White: I think the reference is correct because it is --

Justice Potter Stewart: I understand Mr. Howe that your argument was that the opinion of the court by Mr. Justice Douglas was simply summarizing these provisions in the statute?

Justice Byron R. White: That is correct, it is merely a summarization.

Justice Potter Stewart: He also goes on to talk about 813, which gives the attorney general authority to bring a civil action in any appropriate United States District Court.

Justice Byron R. White: That is correct.

Justice Potter Stewart: And that passage is on page 12 --

Mr. Jonathan T. Howe: That is correct to that top --

Justice Byron R. White: And he refers to these rights?

Mr. Jonathan T. Howe: I think that these rights referenced Your Honor would be to --

Justice Byron R. White: Having just left Section d, 810(d).

Justice Potter Stewart: The rights --

Justice Byron R. White: Well, never mind, I was just wondered what your position was?

Mr. Jonathan T. Howe: Basically, it is that would be the individual rights but you can proceed if you are a direct victim under 810 or 812, indirect would only be able to go through 810 and the action would be brought pursuant to 810.

Chief Justice Warren E. Burger: Mr. Howe, having in mind that there appears to be a considerable ambiguity question about it, how much in the scales should there be weighed the ultimate objectives of the legislation as a whole?

Mr. Jonathan T. Howe: The preamble of the Fair Housing Act states as an objective of this country to provide for free and open access to housing.

As to how far the scale should be weighed or challenged or changed, I think that with the statutory scheme as it presently set forth with allowing an indirect victim who meets the standing requirements as set forth in the Trafficante decision to proceed under 810 gives relief to those indirect victims whereas we reserve in 812, the opportunity to those people who suffer an immediate and direct violation of their rights under Section 3604 to immediately have the access to a federal court.

If they need an injunction to stop the sale of property, which they have had an interest in and had been deprived of because of some kind of discriminatory act, then I think we have protected the interests of those people who suffer a direct immediate injury by letting them go immediately into federal court.

Whereas those who may have a broader spectrum of a compliant, they may go through the administrative process, it allows for that amelioration, it allows for that conciliation and many times may result in a remedy, which would be far better than a remedy that might be obtained in court.

And we would suggest Your Honor that the two sections are not alternatives because if we are to treat them as alternatives and you allow a person to immediately go to 3612 who was an indirect victim, you dislocate the whole administrative scheme and I think also because of the reference in 810 to state and local governmental bodies and their ability to promulgate Fair Housing Laws, but this would destroy the incentive for them to go forward, because if everything is going to be decided in a federal district court, then what should they do or why should they proceed.

The scheme of Congress was to share that responsibility with the state and local governments.

And in fact, during the debate on that --

Justice John Paul Stevens: Mr. Howe, there is one another difference on this very point and may be I am wrong in my reading, but 812 authorize suits in state courts as well as [Voice Overlap]?

Mr. Jonathan T. Howe: That is correct Your Honor.

Justice John Paul Stevens: Whereas 810 only authorizes federal act?

Mr. Jonathan T. Howe: That is correct.

Justice John Paul Stevens: Well, how does that cut, I do not -- is there any inference to be drawn from that?

Mr. Jonathan T. Howe: No, I do not think any inference should be drawn from that at all except to allow or to create and say that the rights given under this statute may be enforced alternatively in a state court by a direct victim.

Justice John Paul Stevens: And 812 provides for a stay if there is a pending administrative act.

Mr. Jonathan T. Howe: That is correct also Your Honor.

Justice Potter Stewart: The TOPIC case on which you so heavily relied and on which the District Court relied in this case, in that case Judge Kennedy's opinion says that the court holds -- we hold that the language of Section 3612 does not authorize lawsuits to vindicate the rights of the third parties.

Well, and that characterizes the holding of the court.

Here, the plaintiffs do not made very clear that they are not trying to assert the right of third parties but their own personal rights.

Mr. Jonathan T. Howe: Your Honor, we go back to the concept again of injury versus right.

The rights that they have asserted are those rights which are contained in Section 3604 in 1982.

Justice Potter Stewart: They have asserted an injury as did the plaintiff in Trafficante to themselves resulting from these practices made early go by the statute?

Mr. Jonathan T. Howe: Yes and that injury that this claim was deprivation of the right to live in an integrated society and there is no where in 3604 any corollary right to the right to live in an integrated society.

Justice Potter Stewart: But you would concede at least that their allegations are not those of somebody asserting their rights of third parties?

Mr. Jonathan T. Howe: Their allegation is that as a result of there having been some infringe to the third parties --

Justice Potter Stewart: What you are saying is that the rights that they assert and rights that are simply not created by the statute.

Mr. Jonathan T. Howe: That is correct Your Honor and that the rights that they say or the rights that they say were infringed was racial steering against absent third parties and as a result of that steering against those third parties which would be made unlawful under 3604.

They have suffered injury because they have been deprived of that right to live in an integrated community.

Chief Justice Warren E. Burger: Do you think Trafficante helps you very much on that?

Mr. Jonathan T. Howe: Well, I think the concept of Trafficante does show that this Court did consider Section 810 to confer broad standing of the person aggrieved concept and we would suggest to the Court that its absence of any person aggrieved language in Section 812, this Court should not imply person aggrieved in Section 812.

If there is to be broader jurisdiction under Section 812, it should be Congress and not the Court that grants it by virtue of letting Congress put in the term of art person aggrieved, if that is their intention to allow direct access to indirect victims of racial discrimination.

I would like to reserve my remaining time if I may.

Argument of F. Willis Caruso

Chief Justice Warren E. Burger: Very well Mr. Howe.

Mr. Caruso?

Mr. F. Willis Caruso: Mr. Chief Justice and may I please the Court.

We would like to cover four main topics in our discussion.

First that the individuals here, the individual home owners are very much individual people who have been injured and are being injured and it is an immediate injury.

Secondly that the Village is suing to protect the village fisk and that is an immediate and a very much felt injury right now.

That the legislative history shows that these two Sections 3610 and 3612 are alternative methods of enforcement, and finally the Trafficante is very applicable to this situation and that the injury here indicates an even more stronger situation of injury to individuals in taking away rights guaranteed under 3604.

The homeowners Mr. Powell and the others, Mr. Powell happens to be white, found that there was steering going on in the Village of Bellwood and that the impact was to create fear and problems and so they tried to do something about it.

And Mr. Powell wanted to live in Bellwood in an integrated society, in integrated schools, in a normal stable kind of situation and he wanted to do something about it.

So he went to the village and he went to the Leadership Council, a fair housing group in Chicago to work on this.

Ms. Perry is black and she lives in Bellwood and she wanted to continue to live in this community, which was a normal integrated community and she wanted it to stay that way where her children could live and deal with people of the same kind of living situation on a normal basis and to have a healthy real estate market free from fear and constant pressure by the real estate community.

At the same time, the village here received complaints of the Mayor's office and the police department of real estate people out steering in the neighborhoods and creating fear and problems among the people in the community.

And the Village Board voted to ask for help from a fair housing organization, the Leadership Council.

Some of the plaintiffs and other people then went out to find out what the practices were.

What they found out was that when a white person went in and asked for a certain kind of housing at a certain value, they were sent to certain areas considered to be protected and set aside for whites, when blacks went out and gave the same kind of information, we want a $45,000 house or whatever the figure was, so many bedrooms and so forth, they were steered mainly to two particular areas where they were trying to change the area from white to black.

The village after seeing this information from the audits, both from the people who are plaintiffs in this case as well as other testers or auditors or investigators or whatever they may be called, the village then voted to take action in the federal district court and requested again assistance in filing that case in the federal district court.

They sought direct relief under 3612 and this was an immediate problem.

This was something that had to be solved quickly and it is something that had to be done and get into court right away.

And they sought that 3612 remedy because among other things under 3614, there is a provision that these cases are supposed to be expedited, and in many cases they are.

Defendants here acknowledged that there is a violation of 3604 (a) and that they think that a plaintiff, a person who is affected by violation of the Fair Housing Act must under these circumstances go through the route of going to HUD and the administrative process and only after that could they sue.

That seems to indicate that they see and in fact they say, they see a system here.

Well clearly, if the Congress meant to have that kind of a system, they could have followed the Title VII approach and they did not do that.

Congress knew how to make that exhaustion necessary and they did not do it.

The legislative history –-

Chief Justice Warren E. Burger: Let me test out how far you would carry this, suppose someone living in the Springfield or Peoria came in and said -- in a complaint alleged that they did not like the country life, they had wherever was they were living and they wanted to move into a totally integrated community and they were thinking about coming into this particular complex, but the situation that has been described in the pleading is existed and therefore they bring a suit under 3612 in federal court immediately.

What would you say about that?

Mr. F. Willis Caruso: Well, I think that this case does not extend anywhere near that far, anywhere near that far.

Chief Justice Warren E. Burger: But I am just trying to see how long the arm is, how you would carry it?

Mr. F. Willis Caruso: The first thing is that in the complaint, the area involved is specifically delineated by streets, a very specific area where this steering activity was taking place is delineated, it starts from there.

Chief Justice Warren E. Burger: Well, I am assuming you consume that my hypothetical, that is the same?

Mr. F. Willis Caruso: And the people involved suing here are the village itself or this area is all included within the village and the people who live in the community, although one of whom live right in the municipality, Miss. Sharp lives in Maywood, which is on a budding community, subjected to the same kind of problems and in the same marketplace.

Chief Justice Warren E. Burger: Do they need to live in the same community to get relief?

Mr. F. Willis Caruso: I think it is a practical matter of the experiences and it seems that the experience would be and the violation of future would be people living either in that community or very close by because they are affected by the damage that we allege, the manipulation of the marketplace.

Now it could be, I do not think it extends to Springfield Your Honor, because I do not think that the marketplace extends to Springfield, but the marketplace under some circumstance might include two or three communities all being subject to a steering practice.

Justice Potter Stewart: The fact is that the Trafficante opinion in at least two places and of course the opinion emphasizes that the plaintiffs were occupants of a precise and limited apartment complex, does not it?

Mr. F. Willis Caruso: Yes it does.

I think that in this instance --

Justice Potter Stewart: At least one of those references would seem to pretty clearly limit the standing in that case to people so situated, would not you agree?

Mr. F. Willis Caruso: I would agree that it is very limited and would be limited.

I clearly would not include Springfield.

And as we move in from the Springfield, I think it would not include a lot of other things, but I would say that from experience, the real estate marketplace extends beyond sometimes a specific community and there is --

Justice John Paul Stevens: Is it true that there are 8,200 people in the Trafficante apartment complex?

How many people are there in Bellwood, do you know?

Mr. F. Willis Caruso: They were about 22,000 at this time Your Honor and Bellwood interestingly enough was a very built-up community.

I mean it was a community which developed kind of the same kind of time, had a lot of people of the same kind of background, same kind of homes who had lived there for quite some time.

It had a lot of the indices of a very close-knit community, with people with similar interests and similar backgrounds.

Justice William H. Rehnquist: You would agree, would not you Mr. Caruso that you have to go beyond the holding in Trafficante in order to sustain your position because of the fact that appear, the plaintiffs in Trafficante were tenants or occupants of the apartment complex in question?

Mr. F. Willis Caruso: I think that the case is different than Trafficante in that respect that Trafficante was a particular apartment complex, although a very, very big one, and Bellwood is different because it is homeowners, it is a community itself and it is different because the villages involved trying to protect the values of the homes from being depreciated by this process and thereby limiting the tax pay.

So there are those differences.

It seems to me there is one thing that is stronger here and that is that these home owners are being damaged directly by an attempt to change the process.

In other words, change it from an integrated community to an all black community and it seems to me that, that is even a stronger injury than the situation and where in Trafficante they were trying to keep blacks out and the whites wanted to make it an open community.

Here, the community and the municipality have worked to make it an open community and as a result of that, the real estate industry now is trying to turn on them and change it to an all black segregated community.

So I think it is a little stronger in that regard, but it is broader than Trafficante, it includes more people.

Justice Byron R. White: But even if Trafficante has limits, which it certainly does and even if this exceeds those limits, that is a long ways from taking the position that only direct purchasers have a cause of action under 3612.

Mr. F. Willis Caruso: The position that only direct purchasers would have a cause of action does not seem to follow anything in the Act or any of the existing decisions.

And particularly in looking at 3604, for example on advertising, clearly the people have to bring a suit to prevent that kind of advertising, 3604 (c) and 3604 (e) among other things contemplate the kind of action that is set forth here and in addition, all of the district courts and Courts of Appeals, most of the Courts of Appeals have dealt with situations where many different kinds of parties have been allowed standing under 3612, when there has been an injury as a result of a violation of the Fair Housing Act.

The legislative history as indicated previously in some discussion on questions and the Dirksen involvement in that indicates that 3612 was meant to be a strong enforcement tool and it is in fact necessary to make this fair housing law work.

HUD is very busy and HUD is doing more and more, but it is important and the legislative history indicates that it was intended that individual people, local people, like the people in this community would have a right to act or work together to try to protect their community and do something about a problem they see as being very important.

We think that the situation here presented represents individuals and the municipality who are directly injured, who have need the activity here locally to protect their community and to try to maintain a healthy viable local community, that the legislative history supports the position that these two Acts should be enforced separately and concurrently as is necessary along with other ways of enforcing these laws is necessary and that the case should be allowed to go forward and that the proof should be allowed to come in and that the plaintiffs should be allowed to show these steering practices, to show what these realtors do, to try to change the neighborhoods with all of the things that can result from that, like the problems with the school segregation and so forth.

If these communities can be kept integrated and healthy schools can be maintained, the other problems of segregation can be helped and prevented by integrated communities and we respectfully request that the plaintiffs here be allowed to proceed to show these violations, to present the evidence, to do the discovery and to proceed with this case.

I would like to with the indulgence of the Court to pass on what remaining time I may have to the United States.

Argument of Lawrence G. Wallace

Chief Justice Warren E. Burger: Very well Mr. Caruso.

Mr. Wallace, of course, as usual, there is no obligation on you to consume all that time.

Mr. Wallace: Yes Mr. Chief Justice and may it please the Court.

The first I want to emphasize about this case is that contrary to some impressions that some may have of it; it is not in our view a case about whether testers have standing to sue under Section 812.

Testers do provide important evidence, particularly in racial steering cases, it is very difficult to prove racial steering in our experience in the absence of evidence of this kind and occasionally you can evidence from a former employee of the company, but by and large this has been the most prohibitive kind of evidence in steering cases, but it is just coincidental that the complainants in this case also happen to be the witnesses, the potential witnesses who have been doing the testers.

Their interest here is an interest in the way their community has been affected by the cumulative effects of the steering practices, and its cumulative effects that the steering practices have their pugnacious effects on the community.

Insofar as the statute deals with steering, its focus is not really as an anti-fraud provision about a particular individual.

Very often the individual who has been steered, who is a willing purchaser of a home or a renter is quite satisfied with the property that he is settled into.

It is the cumulative effect that causes the injury to the community and the people living in the community.

Justice William H. Rehnquist: Mr. Wallace, the government's brief on page 6, in it is introduction and summary of the argument says, “we submit that the individual respondents have standing to challenge petitioners’ racial steering practices under the Fair Housing Act.”

Now, as I understand the Court of Appeals' opinion, it held that both the city and the individual respondents had standing.

Does the government take a position on the standing of the city?

Mr. Wallace: We have not taken a position in our brief Mr. Justice Rehnquist, but we have no disagreement with the opinion of the Court of Appeals on this subject and indeed HUD has entertained complaints from municipal corporations similarly situated and initiated investigations in response to such complaints.

So while we didn't brief the question because we thought that the case was pretty clearly controlled by Trafficante with respect to the individual complainants, we have no disagreement with the holding of the Court of Appeals or indeed with any aspect of Judge Powell’s opinion, we think it is a fine opinion.

Justice Potter Stewart: My question Mr. Wallace was simply this.

Let me begin by expressing my understanding with which may I ask you, if you agree that up until the enactment of this federal legislation so far as federal statutory law went, forgetting for a moment 1982, there was nothing wrong about racial steering so far as federal statutory law went.

Therefore any rights that are asserted by the plaintiffs in this case have to be based upon this statute, limiting again forgetting the constitution in 1982, which -- what substantive rights are these plaintiffs asserting, created by 3602 or 3 or 4 or what?

Mr. Wallace: It is 3604 or what we call Section 804 of Title VIII, 3604 (a).

It's set forth quite completely in the briefs for the petitioners and our theory right along and we have brought about 80 cases of our own in the course of the Act alleging racial steering of one kind or another, has been that it is a violation of that portion of 3604 (a), which refers to or otherwise make unavailable or deny a dwelling to any person.

The first part of 3604 (a), which includes the qualification of the bona fide offer focuses on a violation by the seller himself or the renter himself and they wanted to afford the protection to make sure there was a bona fide offer made to that individual in many instances rather than a company engaged in the business, before there would be a violation of that kind, but the remainder obviously has principal reference to people engaged in the real estate business or to big renters of property.

Justice Potter Stewart: Well, now were any one of these plaintiffs been rendered unavailable to housing as a result of the actions of these defendants?

Mr. Wallace: No there -- as I look at, as we look at the right that they are asserting under the statute, it is not a right as counsel for the petitioners as expressed to live in an integrated society, Congress could not guarantee that --

Justice Potter Stewart: No.

Mr. Wallace: -- and did not purport to guarantee that, but it is a right not to be injured by the effects of practices that are proscribed under the statute and it is a right not to be affected by the racial steering that the statute prohibits.

It is very similar to the right asserted by the plaintiffs in the Trafficante case.

There was as the Court noted in its opinion in Trafficante, considerable focus in the legislative history on the dangers to the community of discriminatory practices in housing and the benefits to all members of the community with adherence to the requirements that were being proposed in the Fair Housing Act.

And one of the telling things about steering case is and we reviewed every decided case yesterday rather hastily, every decided case under Title VIII, one of the telling things is that we did not find a single instance of a case in which an individual had sued solely because he had been steered and claimed an injury as a result of that.

There were a few cases in which an individual claimed that he was illegally denied access to a particular house that he wanted to buy or a particular apartment that he wanted to go into and was seeking that and additionally alleged that there was steering done.

Justice Potter Stewart: Well, that is a result of steering.

Mr. Wallace: That could be a result of steering.

Justice Potter Stewart: No, that is the hope for result of steering.

Mr. Wallace: Yes, often the result is that he was shown something else and he liked it and he moved in and he never knew about the other and he wasn't trying to get into the other.

Justice Thurgood Marshall: That is there in this case, what is the different than “red lining?”

Mr. Wallace: Red lining is usually used in reference to credit practices by lending institutions, and areas –-

Justice Thurgood Marshall: It is lending on property.

Mr. Wallace: Yeah, that is right, areas where it is harder to get a mortgage fund, even though --

Justice Thurgood Marshall: But here, they had lines which is saying, whether they were red or blue?

Mr. Wallace: Well, here there were areas where steering of customers by the real estate companies was done on the basis of race.

But what we have found is that the cases where private suits have been brought alleging steering and attempting to enjoying the steering or claiming damages from steering have typically been cases by community fair housing organizations where the plaintiffs would be a number of individuals who have banded together because of the effect the steering has had on their community.

And it may well be that some of these plaintiffs have actually dealt with these companies and being steered themselves, which you do not ordinarily see that alleged in the complaint because it is very difficult for them to prove what was available that they were not shown in the absence of the testing evidence, which is something gathered separately.

And in other words, if you have someone who was himself a victim of steering as a plaintiff from one of these cases, it is more or less coincidental and it is his similarity to other plaintiffs that we have in this case that is his real motivation for being a plaintiff rather than the difference, which he does not even allege typically.

So that tells us something about what it is as the incentive to sue here and that has something to do with realistically where the standing should be recognized.

Justice Potter Stewart: Just let me be sure I fully understand you that the plaintiffs’ entire substantive claim, substantive statutory claim, forgetting again about 1982, is based upon the second half of 3604 (a), forgetting or otherwise make available, make unavailable, excuse me, is that correct?

Mr. Wallace: Well that is our theory that we have operated on about where steering as proscribed in the statute.

Justice Potter Stewart: And what the injury as to these plaintiffs.

Mr. Wallace: No, there are other provisions there that some have looked toward in the literature as bearing on the steering --

Justice Potter Stewart: But I am asking you --

Mr. Wallace: But we have relied on 3604(a) and no court has ever expressed doubt that steering is prohibited by the statute.

Justice Potter Stewart: Oh, surely, I think that is been conceded by your brother.

Mr. Wallace: Yes, that has been conceded for purposes of this case.

Justice Potter Stewart: Yes, yes.

Mr. Wallace: So, we are dealing here with the typical kind of private complainant about racial steering and the injury that is typically alleged in a racial steering case.

And I think that is of some importance in concomitance with the concerns that were being expressed in Congress about the community interest that would be served by this legislation.

Now as a matter of fact, as Mr. Justice White was suggesting early in the argument, there were claims made under Section 812 in Trafficante, which is the Section that the suit has been brought under here and indeed there were complainants in Trafficante, complainants in intervention who had not exhausted their administrative remedies with HUD, who would not complain to HUD at all and the sole basis for their suit in intervention was Section 812.

And there is significance in our view to the statement that he quoted from page 409 of the opinion that individuals could sue directly under Section 812 because those were among the complainants who were seeking not only injunctive relief, but they also made damage claims and on remand, the case was settled.

But the District Court and everyone else thought that their claims had been upheld along with the claims of the two tenants who had first gone to HUD and were suing under Section 810.

Justice Byron R. White: Do you understand the challenge here to be a case of controversy challenge?

Mr. Wallace: Well, there has been --

Justice Byron R. White: Solely or what?

Mr. Wallace: I do not think it solely.

I think there is an argument being made under Article III in the petitioners’ brief.

It seems to me that, that challenge is largely foreclosed by the decision in Trafficante and that there is an open question here, it is a statutory question.

These people are directly effected in much the same way as the complainants in Trafficante.

Justice Byron R. White: A statutory question in the sense that even if there is a case of controversy, Congress did not intend this particular kind, this class of person do have the right to get in the court, even he could get in the court under 810.

Mr. Wallace: It seems to me that, that has been --

Justice Byron R. White: Although there would be no difference between that person under 812 or 810 as far as case of controversy is concerned.

Mr. Wallace: That in my view is the principle question in the case.

I agree with that formulation.

Justice William H. Rehnquist: Mr. Wallace, to get back to 3604, which is apparently the ‘a’, which you say as the source of the substantive right.

It reads, to refuse to sell or rent after the making of a bona fide offer or to refuse to negotiate for the sale or rent however otherwise make unavailable.

You do not read the subsequent clauses after refused to sell or rent, after the making of a bona fide offer, as for having required a bona fide offer?

Mr. Wallace: Not at all, not at all Mr. Justice Rehnquist.

The motivation behind putting in the bona fide offer requirement as it is recounted in petitioners’ brief focused on the liability of the particular seller or renter and there was resistance to making him liable in the absence of a bona fide offer and the language was carefully placed in the statute.

There was no concern about the practices of real estate companies that would not even tell people about --

Justice William H. Rehnquist: But what about an individual seller who refuse to negotiate for the sale or rental of property?

Mr. Wallace: Well, he I think would be liable as a matter of fact.

Justice William H. Rehnquist: In spite of Congress's concern --

Mr. Wallace: They were concerned that someone should not be claimed to have refused to sell to someone because of his race, if that person was not a good faith purchaser who made a bona fide offer, but if the seller was going to refuse to even show the property or talk to anyone, the concern did not carry over.

Of course, it is not a question in this case.

I think it is clear from the statutory language that the bona fide offer qualification relates only to refusal to rent or sell, if that is the claim.

Justice William H. Rehnquist: And not to negotiate it?

Mr. Wallace: Well, that is right.

I think if you refuse to even talk to someone about what is available, it is a violation of the statute as we view it, but that is not ordinarily the form the violations take.

It is really unreasonable to expect a bona fide offer to be made for a house that is not even shown to someone, and that applies to both the steering and the refusal to negotiate.

I think it is the sensible way to read the statute.

Justice Lewis F. Powell: Mr. Wallace, is there any cause of action that may be brought under the Act, under Section 3610 requiring extortion of administrative remedies?

In other words, does the option always prevail with respect to every cause of action of the Fair Housing Act to go directly to 3612?

Mr. Wallace: That is our understanding of the statute and indeed --

Justice Byron R. White: Except for the United States?

Mr. Wallace: Except for the United States.

We never can– really, we have a separate provision.

Justice Lewis F. Powell: What are the advantages of using 3610?

Mr. Wallace: There are great advantages and they are the ones that Congress actually anticipated in providing this as an alternative remedy and that is that many matters are informally settled without the expensive litigation through the good offices of HUD, through the conciliation process.

HUD is now getting about 3800 complaints per year, a far greater number than are submitted to the courts.

And many of them are quite expeditiously finally resolved, not always in favor of the --

Justice Byron R. White: It is cheap.

Mr. Wallace: It is cheap, that is right.

It is inexpensive and they did a computer run down for us this week of their disposition as between October of 1976 and May of 1978, and more than half of the complaints were finally disposed of within 120 days.

During that period, there were 11.2% were finally disposed of within 30 days, and another 17.2% in 30-60 days, another 16.2% in 60-90 days, and so on, 13.8% in 91-120 days, So many of the complaints can expeditiously be disposed of.

As we point out in our brief, it has been HUD's consistent interpretation of the statute that the alternative remedies are available for any person aggrieved within the meaning of 810, and at every step in the process, their notifications to individuals who have complained to them include a statement that they have a right to sue under Section 812.

And indeed, there is much in the legislation evolution of the two provisions, which suggests that this is right.

All of the resistance to the fair housing legislation and there was a great deal of resistance.

One of the main focal points was on the idea of the federal bureaucrats becoming involved and indeed the deferral, the main motivation behind the deferral that was required to local fair housing officials was that the federal bureaucracy should not be interfering in areas where local conciliation and mediation efforts are available, which suggests that quite the opposite of what is being argued today that the deferral should take place in the absence of HUD’s involvement, rather than as the statute focuses it in the presence of HUD's involvement, it is HUD itself that is supposed to defer of these processes.

And in looking again at the legislative history, the immediate evolution of 812 is connected with this and it was recounted in some detail in our brief in the Trafficante case, which I reread yesterday.

And I regret to say some of the pertinent portions of the legislative history were not reproduced in any of the briefs in the present case, but they can be found in our brief in the Trafficante case.

And I would like to just mention rather briefly some of those pertinent aspects of it, in addition to the ones that we have cited in our present brief.

And I have for the convenience of those members of the Court who would like to have it, I have submitted to the clerk ten copies Xeroxed of the pertinent pages of the brief that we filed in Trafficante and the --

Justice Byron R. White: It sounds like you were preparing like a witness yesterday?

Mr. Wallace: [Attempt to Laughter] Well, we did recount there in some rather lengthy textual footnotes, the immediate derivation of Section 812.

And this is principally in footnote 8 of that brief and in footnote 12 of that brief.

In footnote 8, we pointed out that Section 810 itself was derived from Section 11 of a Bill which Senator Mondale had offered as an amendment to a house bill, the house bill that came over at this time in 1968, this is after two years of previous history that we recounted in some detail in our present brief.

The Bill that came over at that time from the house did not include any fair housing provisions at all.

And Senator Mondale offered as an amendment a Bill that included a provision similar to Section 810, but it also included authority for HUD issue cease and desist orders that would be enforceable in court.

And it was the cease and desist authority, something similar to the way the National Labor Relations Board operates, that was the focal point of controversy and that resulted in the failure of a number of cloture motions, which we have recounted in that footnote 8.

And at that point, after these cloture motions had failed, Senator Mondale moved to table his proposed amendment and supported a substitute amendment offered by Senator Dirksen, which is the one that was adopted and later was adopted by the House.

And this retained the Section 810 mechanism for making an administrative complaint, but took the authority to issue cease and desist orders away from HUD and in its place substituted Section 812 an alternative to go directly into state or federal court.

And as we argued then in our footnote 12 in that brief, because there were after all two complainants in that case, who were complaining only under Section 812, there is no reason to think that the failure to repeat the definition of person aggrieved in Section 812 made any change in the class of complainants who were authorized to pursue either of the remedies, because Section 812 was designed as a substitute for the cease and desist remedy that had originally been proposed for the class of persons aggrieved, defined in what had been Section 11 of Senator Mondale's bill.

There was nothing in this immediate evolution of the alternative remedy that suggests any notion of a different class of complainants.

It was a way to ameliorate the objections to a federal administrative remedy for the class of complainants that both proposals were designed to give a right of action too.

And so the additional aspects of the legislative history, which we have recounted in our present brief indicate that the rational hypothesis by the Ninth Circuit and it was entirely hypothesis, there were no references at all to the legislative history in the TOPIC opinion, that those do not comport at all with the actual evolution of the provisions at issue or the congressional intention, which was as has been the practice that it is really the administrative remedy that provides the inexpensive quick road to relief in many instances and the judicial remedy was not reserved for a special class of cases that had to be more expeditiously handled.

Our experience is that the hope for expedition in Section 812 and Section 813 cases are often does not come to pass.

And so, we really think that this case is in every pertinent respect no different from Trafficante.

It is true that you have a wider geographic area that these people are concerned about.

They do not happen to be people living in apartment complex.

They are living in a suburban community, but they too are protected by the intent of Congress and by the protections of the Act.

And as Judge Stern, I think very eloquently stated in a case in New Jersey that is cited in the briefs, Fair Housing Council against Eastern Bergen County, the fact that the alleged injury and I am quoting from Judge Stern now, affects a large number of people in a large geographic area does not serve to attenuate it.

On the contrary, it makes the harm more severe.

Residents of an all white housing complex may need only to look to the next residential facility for the inter-racial associations they desire.

If the allegations here are true, residents of Bergen County may have to go to an entirely different neighborhood or community.

Similarly, a completely white building is less of a ghetto than a completely white neighborhood or a community, that the court on the Sanitaire has been drawn around an entire community rather than a single apartment complex does not render it unlawful.

Justice Potter Stewart: How far does that go Mr. Wallace, according to the Chief Justice's question?

Mr. Wallace: Well, it goes to people who --

Justice Potter Stewart: Any residents of Illinois can sue and say, I am uncomfortable living in a state where there are any communities; they are not fully disaggregated?

Mr. Wallace: We do not think so, we think they have to show a more direct interest that their own community is affected by the practices that they are complaining us.

Justice Potter Stewart: The state is community in a broader sense?

Mr. Wallace: It is -- the best --

Justice Potter Stewart: So is the United States?

Mr. Wallace: The best answer I can give you is that, that is not the kind of complaint that HUD has received --

Justice Potter Stewart: But you just made the point that Trafficante must, its logic must take us way beyond a single apartment complex, now how far beyond?

Mr. Wallace: Probably to the point where the complainants are realistically being affected.

Justice Potter Stewart: Maybe as a resident of Illinois, I do not like having any non-disaggregated community in the entire state in which I live.

Mr. Wallace: Well, it isn't their feelings being hurt, it is --

Justice Potter Stewart: Well, I am hurt by it.

I say I am hurt?

Mr. Wallace: [Attempt to Laughter] Well, the question is whether the way they have to live is affected by unlawful practices of someone else that the Congress has proscribed and that they are complaining of, not whether their feelings are hurt because the law is not being observed by everyone in the country or in their state.

It is always difficult to formulate these things with exactitude.

I can tell you that HUD does not undertake investigations at the behest of people who do not in someway allege that they are affected.

For example --

Justice Potter Stewart: Economically affected or how?

Mr. Wallace: No, they do not require a pleading the way a court might, but for example, if they got a complaint from a former employee of a real estate company that the company was engaging in steering practices and that employee does not anyway say that he is still in that community and is affected by those practices.

HUD does not initiate an investigation, instead it will refer that complaint to the Department of Justice for us to see whether there is a violation to be investigated.

The same thing is true of an anonymous complaint.

It has to be a complaint from someone who shows that something is affecting him, his life and his community, he is someway affected --

Justice Potter Stewart: But not necessarily economically, he does not have to show that --

Mr. Wallace: No, no.

Justice Potter Stewart: -- twice the value of cost of the market price of his house is going down?

Mr. Wallace: No, he just has to show a direct interest of his own.

And we do what we can to enforce the statute.

The Court in Trafficante noted that the housing Section of the civil rights division had less than two dozen lawyers at that time.

Justice Potter Stewart: And therefore relied on private attorneys general?

Mr. Wallace: That is correct.

Justice Potter Stewart: And I just wondered how many private attorneys general there are?

Mr. Wallace: Well, we hope enough to enforce the statute.

We now have only 21 attorneys in that same Section.

And it has the additional responsibility of enforcing the equal credit law as well as the fair housing law.

Justice Potter Stewart: That is the red line to which --

Mr. Wallace: That is correct Mr. Justice Stewart.

And so it still has to be private enforcement that is the primary tool to bring about the congressional purpose here.

Justice John Paul Stevens: Mr. Wallace, on this question of the scope of Trafficante, you know, apparently Bellwood had some 20 or 25,000 people and that if we have to compare to 8,200 in Trafficante, but then I just recall that the complaints actually concern a limited area within Bellwood, does not it?

Mr. Wallace: Well, they specified --

Justice John Paul Stevens: Does that go across in the Maywood, I am not sure of it?

Mr. Wallace: They specified a limited area to which black customers were being steered.

That was part of the specificity of the complaint, but I do not think the complaint specified that as the only area affected by the steering.

Justice John Paul Stevens: I see, so the relevant number of people for purposes of comparison is the population of Bellwood?

Mr. Wallace: I would say so Your Honor.

Thank you, my time is expired.

Rebuttal of Jonathan T. Howe

Chief Justice Warren E. Burger: Very well Mr. Wallace.

Do you have anything further Mr. Howe?

Mr. Jonathan T. Howe: Yes, may it please the Court.

Much has been said about the Trafficante decision in this argument.

I think the Court's attention should be directed to page 212 of the opinion wherein the Court stated, we reverse and remand the case to the District Court leaving untouched all other questions.

And I think this follows right after the statement by Mr. Justice Douglas stating, we can give vitality to Section 810 (a) only by a generous construction.

So I think that all other questions in Trafficante were reserved and untouched by this Court.

One other factual --

Justice Byron R. White: The Court left open a 1982 question?

Mr. Jonathan T. Howe: That is correct also Your Honor.

Justice Byron R. White: But it did not mention 812?

Mr. Jonathan T. Howe: It did not mention it in the footnote but it dealt with the 1982 but it did in this language at the end, and then taking your concurring opinion to Mr. Justice White wherein you stated that you would limit it to the facts of the case as presented.

One other fact which is extremely important in the Trafficante decision is that the action was brought against a single landlord who alone controlled access to that apartment complex.

No one has alleged nor is there any reason to believe the two realtors doing business outside of the Village of Bellwood itself have a dramatic impact upon housing patterns within Bellwood.

Justice Potter Stewart: And that would almost go to the merits?

Mr. Jonathan T. Howe: It could Your Honor, but I think that the fact that we like to point out is that there is a distinction between the class of defendants in Trafficante as to the class of defendant in this particular case.

The concept of the public policy argument as advanced by the United States, no showing has been made that by opening an opportunity under Section 3612 to indirect victims that the policy of the Fair Housing Act would be advanced.

And we would submit that it would be to the contrary because it would provide a mechanism by which the entire metrics of an administrative remedy through Section 3610 could be avoided and circumvented.

We think that the language of Section 3610 of person aggrieved is unique and the failure of Congress to include that language specifically in Section 3612 indicated a different view by Congress and we need to only look at the natural meaning of the words contained in the statute to go forward with that.

The fact that the attorney general's office lacked staff is no reason for this Court to make any consideration as to how it is going to interpret a statute.

It must do that solely and exclusively on the basis of what is contained in the statute.

We submit that we know of no other statute in the United States that would allow the systematic circumvention of remedies, if this court is to adopt the position that has been advanced by the plaintiffs.

It is necessary to confine an actionable claim within the limits of the language used by Congress and consistent with the logic that is embodied in that statutory scheme rather than allowing it to extend beyond the intentions of Congress.

Thank you.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.

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