Cases by Issue - Debtors' Rights

Connecticut v. Doehr - Oral Argument

Fri, 09 Jan 2009 14:49:38 +0000

Case:

Connecticut v. Doehr

Media File:

90-143_19910107-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Henry S. Cohn

Chief Justice Rehnquist: We'll hear argument first this morning in No. 90-143, Connecticut and John F. DiGiovanni v. Brian K. Doehr.

Mr. Cohn.

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

The issue before the Court in this case is whether Connecticut's ex parte attachment of real estate statute which provides for an immediate post-seizure hearing and a pre-attachment probable cause determination by a State court judge on a factual affidavit and an immediate appeal subsequent to the post-seizure clearing satisfies the due process clause of the Fourteenth Amendment.

Your Honors, this is a facial challenge to the statute, and I say this because it was noted in the opening paragraph of Judge Pratt's opinion for the Second Circuit and was so noted in all the papers and opinions below.

It arose on summary judgment--

Unknown Speaker: I'm not sure I--

--Mr. Cohn, what does that mean in the context of a case like this to say that it's a facial challenge?

I mean, we're not dealing with a First Amendment situation here.

Mr. Cohn: --Yes, Your Honor, the evidence before the court was limited, and therefore matters such as the effect on the debtor and the length of time it takes to obtain a hearing, the post... the immediate post-seizure hearing, things of that nature, were not developed in the district court.

And therefore we're dealing with the statutes... there is a statutory scheme or system which leads to the ex parte real estate attachment, and there are cases which have interpreted that in the Connecticut Supreme Court.

And that is what is before you today.

Unknown Speaker: No evidence was taken in the trial court?

Mr. Cohn: No, there were two facts presented in the trial court on summary judgment.

Under the local rule in order to have summary judgment you have to have a, what they call a list of material facts, and there were two facts presented.

One was that a lawsuit had commenced in a court in Connecticut, a superior court, concerning an assault and battery.

And the other was that in fact this attachment scheme or system had in fact been used.

So there were those two facts, and those two facts alone, and they were the basis of the ruling.

Unknown Speaker: Well, it was applied in this case, was it not?

I mean, we're dealing with a situation where the Connecticut procedures were actually invoked.

Mr. Cohn: Yes.

Oh, yes, indeed, Your Honor, that was the case.

Unknown Speaker: For these litigants.

So one couldn't really say it's a facial challenge.

I don't understand that at all.

Mr. Cohn: Well--

Unknown Speaker: This is... it has been applied in this case to these parties.

Mr. Cohn: --It was applied to these parties, but the case that came before the district court was not based upon the factual--

Unknown Speaker: Well, summary judgment was granted.

Mr. Cohn: --That's right.

And in that sense they had to rely on the fact that something had happened in the superior court below, yes, that certain steps had been taken.

Unknown Speaker: As long as you're... interrupted me, I asked you one thing about the statute.

Is notice given immediately to the landowner when the lien is placed on the property?

Mr. Cohn: Yes, it is, Your Honor.

In fact in an amendment to the statute, maybe 3 or 4 years ago, it did more than just require a service, which you would normally have with a lawsuit.

They also took... the legislature of the State of Connecticut added to the statute a requirement that in bold print every debtor or landowner that was affected by these attachments would receive a list of rights that they had that they could exercise.

Unknown Speaker: Well, is the notice given at the time the complaint is served to start the lawsuit, or is there some other notice given?

Mr. Cohn: It's at the time a complaint is served.

Unknown Speaker: So that could be a 90-day period?

Mr. Cohn: The 90-day--

Unknown Speaker: Meaning technically someone could go in and get the lien, and then have it in existence and serve the complaint 90 days later?

Mr. Cohn: --Technically speaking that is true.

We would contest, however, that that is ever done.

And we would also concede that, if such a procedure were shown to exist, there might be some due process problems.

Unknown Speaker: Do we know in this case whether a notice was received right away?

Mr. Cohn: Oh, yes, absolutely.

Yes.

The normal procedure is that the creditor or the attaching party would immediately get the paper served upon the debtor, and then that notice would be included with the packet of papers.

Now, there would be no harm in addition to the debtor if there was no notice by him of this 90-day period.

But again, we're talking about very much theoretical goings on that does not happen under this scheme as it's set up.

Unknown Speaker: You say in this particular case notice was served immediately upon the debtor?

Mr. Cohn: Yes, Your Honor.

There was a action started within 2 or 3 days after the creditor or the attaching party obtained permission from the district... from the superior court, and they immediately took steps to both accomplish the attachment and to serve the papers on the homeowner.

Unknown Speaker: Does Connecticut have a lis pendens scheme--

Mr. Cohn: Oh, yes, indeed.

Unknown Speaker: --in addition to this?

Mr. Cohn: Yes, we do.

And how does that differ from this?

Lis pendens differs actually because it gives somewhat less rights than this statute does in that in order to obtain the lis pendens there is no need to go to the superior court judge and to demonstrate the affidavit, in factual affidavit that we have in this case.

One merely starts the suits, puts the lis pendens on the land records, then gives notice to the debtor, and the debtor then has the opportunity to go to the superior court to state that that was an improper service.

I would point out to the Court that the lis pendens statute of Connecticut was approved by the Connecticut Supreme Court in Williams v. Bartlett, and it was appealed to this Court, and this Court summarily affirmed the lis pendens statute.

And the question presented to the Court, this Court, was whether or not this violated due process.

And again, it was summarily affirmed.

Unknown Speaker: One difference, in many States, and I believe this was true where I practiced in Arizona, is that a lis pendens can be sought only where you are bringing an action that somehow affects the land on which you want the lis pendens, whereas an attachment, you can seek that on property that has nothing to do with the underlying cause of action.

Is that true in Connecticut too?

Mr. Cohn: I believe it is true.

Yes, that is the case.

Unknown Speaker: Mr. Cohn, before you go on let me just be sure I understood one of your answers.

In this case is it not correct that the attachment was obtained before there was any notice to the owner of the real estate?

Mr. Cohn: The attachment was obtained without notice--

Unknown Speaker: Okay.

Mr. Cohn: --however, then the party started the lawsuit, and notice and attachment were given at the same time as--

Unknown Speaker: But that means that the party had the right to come in and seek to have the attachment set aside.

Mr. Cohn: --That's right.

Unknown Speaker: But the attachment was already in place before there was any notice?

Mr. Cohn: Within a day or so.

Unknown Speaker: Yeah, but at least it preceded the notice.

Mr. Cohn: Oh, yes.

Unknown Speaker: Okay.

Mr. Cohn: Because that's why it is an ex parte procedure.

Unknown Speaker: Right.

I just wondered.

Mr. Cohn: Yes.

Our point is that this statutory scheme, as it is established and as the legislature has passed it, is beyond question, as one district court said, beyond question facially constitutional.

Respondent in this Court has sought to go beyond even the Second Circuit, which made some factual assumptions based upon some of the two points that were in the court on summary judgment in the district court.

The Second Circuit has made a few additional assumptions as to the effect of a real estate attachment.

But now, in the Supreme Court of the United States, respondent has gone beyond this and, to our view, if this attachment, the Connecticut attachment, is vitiated, not only would the attachment statutes fall, but our mechanics lien statutes would be threatened, lis pendens statutes would be threatened throughout the country, and even attachments after hearing, because there are references in respondent's brief to the type of attachments which occur after hearing as being violative of due process and difficult for the homeowner to sustain and causing a variety of economic and emotional harm.

Just to briefly summarize the facts, in this case, in order for the attachment to take place, the petitioner, who is DiGiovanni, had to present to the district, to the superior court for the State of Connecticut three items: an application for pre-judgment remedy, which we call PJR's in Connecticut, a factual sworn affidavit setting forth the grounds of the liability and the nature of the damages, and the proposed unsigned summons and complaint that was intended to be served on the respondent door.

The superior court judge reviewed the above papers and made a finding of probable cause.

He actually had to read through these papers.

It was not just a matter of--

Unknown Speaker: Does that mean that there is, he find that there is a likelihood of success on the merits?

Mr. Cohn: --That is right.

Unknown Speaker: That it's more probable than not--

Mr. Cohn: That's right.

Unknown Speaker: --that the plaintiff will prevail?

Mr. Cohn: That is correct, Your Honor.

Unknown Speaker: And I take it that's the same standard that the plaintiff has to meet again if a hearing is sought after the attachment?

Mr. Cohn: That is right.

And indeed the burden is still on the attaching creditor if the hearing is sought.

The--

Unknown Speaker: Excuse me--

Mr. Cohn: --Yes.

Unknown Speaker: --Are you sure that it is clear from Connecticut law that it means it is more likely than not that the plaintiff is going to win?

It just doesn't mean that it's a valid lawsuit and not a frivolous lawsuit?

Mr. Cohn: We would say that the probable cause standard means that there is a likelihood of success for the--

Unknown Speaker: Gee, it doesn't, it certainly doesn't mean that in the context in which we are most familiar with that phrase, that is whether there is probable cause to conduct a search.

It certainly doesn't mean that you are more likely than not to find what you are looking for.

You just have to have a reasonable suspicion that it's there.

But here you say that it means it is more likely than not that the plaintiff is going to win?

Mr. Cohn: --It certainly is not suspicion, Your Honor.

It is not... I would concede it is not the degree that a high level of success, but it is the--

Unknown Speaker: Well, if it's more likely than not, then that's sufficient for the plaintiff to prevail in an ordinary civil action, I take it.

Mr. Cohn: --That's right.

Unknown Speaker: What is your authority for that?

Could you give us a citation that shows that it's a more likely than not--

Mr. Cohn: Well, I would rely on the Connecticut Fermont case, Fermont v. Smith, which is cited in our brief.

Unknown Speaker: --And that holds that?

Mr. Cohn: That describes the nature.

And also there is this case which is mentioned in our reply brief, Glans v. Testa.

This is the reply brief to our petition for certiorari, which discusses the nature of the proof--

Unknown Speaker: Well then if the plaintiff does not prevail, the defendant is automatically entitled to double damages?

Because then the suit had been commenced without probable cause.

Mr. Cohn: --Well, the remedy is there in any event, and they'd have to--

Unknown Speaker: Well, the remedy is that you... if the suit is commenced without probable cause you get double damages.

Isn't that correct?

Mr. Cohn: --That is right.

Unknown Speaker: So under your theory, anytime the defendant prevails, the defendant is entitled to double damages?

Mr. Cohn: I would have to say yes, Your Honor.

Unknown Speaker: But no bond or security is required under Connecticut scheme.

Mr. Cohn: No.

Unknown Speaker: Do most States that have a pre-attachment proceeding like this require a bond or security to be furnished?

Mr. Cohn: Yes.

Most States have that, but we have precedent which we cite in our brief to the effect that it is not just a bond which is necessary.

There must be some protection for the attached party, for the homeowner.

There is no question about that.

However, that does not always, in our view, have to be accomplished by a bond.

Unknown Speaker: Well, the only protection is the finding of probable cause.

Mr. Cohn: That and the right to sue if the... if there has been a wrongful attachment.

Unknown Speaker: Well, that doesn't do any good if the person who makes the attachment is judgment proof, in effect.

Mr. Cohn: That is true, but--

Unknown Speaker: It wouldn't take much to require some kind of security to be furnished, would it?

Mr. Cohn: --No, it wouldn't, Your Honor.

And I can only say that the due process clause would seem to allow the State to decide under what circumstances it would grant security, and it has not gone as far as that.

Unknown Speaker: Is the attachment in the sum certain?

$100,000?

Mr. Cohn: Yes.

Unknown Speaker: And if the damages recovered are $50,000, then what?

Mr. Cohn: Then the... that is just a contingency.

In other words, if the--

Unknown Speaker: Well, has the, has the defendant... can the defendant show damages and recover if the attachment was for $100,000 but the amount of the judgment was only 50?

Mr. Cohn: --Certainly.

There would be a... that same cause of action for wrongful attachment.

Unknown Speaker: But there would be the same cause of action, but if the plaintiff in the original case was in good faith and believing the damages would be over $100,000, there'd be no recovery, would there?

Mr. Cohn: Probably not.

Unknown Speaker: Yeah.

I think you may have given inconsistent answers.

Is it a question of whether the plaintiff is simply in good faith in filing the lawsuit and asserting a claim for $100,000, or is it a question of whether he actually recovers that amount?

Mr. Cohn: The question is whether or not he is in good faith, because he has to make a judgment at the time when he commences his lawsuit as to what the possible outcome will be and what security he needs.

There is one other factor.

Unknown Speaker: Okay, well, now, wait a minute.

I am the plaintiff.

I file... I file a lawsuit for $100,000.

I file an attachment on the piece of property for $100,000.

I recover only $50,000 in the lawsuit.

The superior court judge finds nonetheless I was in good faith in seeking $100,000.

Is there any recovery against me as the attacher?

Mr. Cohn: I would say no.

Unknown Speaker: Well, isn't that inconsistent with your earlier answer?

Earlier you said that you are entitled to double damages if you lose the suit.

Why couldn't you say the same thing with respect to losing the entire suit?

Well, I did lose, but in fact I was in good faith.

And it turned out that I lost, but at the time, beforehand, it looked more likely than not that I wouldn't lose.

Do you want to change your earlier answer?

Mr. Cohn: No, I don't.

I'd say that--

Unknown Speaker: Well, I don't see how it--

Mr. Cohn: --There's a separate suit which is brought after the initial lawsuit is over in the superior court, and when that separate suit comes up all these factors become important in deciding whether there is a recovery or not.

Unknown Speaker: --Well, I am sure they are all important.

But as I understand what you say the law is in Connecticut, if you are wrong because you have asked for too many damages, you're only liable if it wasn't in good faith.

But if you're wrong because you thought you had a valid lawsuit, but in fact it's worthless, good faith doesn't count for that.

You can get socked for double damages simply because you lost the suit.

Is that--

Mr. Cohn: No, I don't believe so.

I would not say that.

I would say that--

Unknown Speaker: --But you have said it already.

Mr. Cohn: --I apologize to Your Honor.

I would say that what happens is that the remedy is there to protect the party that goes beyond what is required in the lawsuit and seeks more than is necessary, or takes action which is just plain not justified by the action in question.

Unknown Speaker: So you can defend against the double-damage lawsuit so long as your initial submission was in good faith.

Is that--

Mr. Cohn: Yes.

Unknown Speaker: --Okay.

Mr. Cohn: And in addition, Your Honor, I think I should point out that there is the judge in here.

There is also the factor of the judge, because as the Connecticut procedure works, all these papers go before the judge.

And the superior court judge... and again, this is a facial challenge and we haven't shown any reason why the superior court would not do this.

The superior court would screen, and does in fact screen these attachments to make sure that the amount of the damages fits the amount of the... or the nature of the liability.

Unknown Speaker: Mr. Cohn, I want to go back to another aspect of that probable cause standard.

On page 2 of the respondent's brief there is a quotation from the... I guess it was an affidavit submitted in this particular case.

Are you familiar with that?

Do you have that handy?

Page 2, the first full paragraph.

Mr. Cohn: Yes, Your Honor.

Unknown Speaker: Was anything presented to the judge in this case beyond this particular affidavit?

Mr. Cohn: Actually, I think Your Honor should look at the full affidavit, which is on page 24A of the joint appendix.

That will show you the entire... there have been some things clipped out of the respondent's brief.

Unknown Speaker: What has been clipped out?

Can you summarize that for me briefly?

Mr. Cohn: Well, just a bit more about what the damages were.

Unknown Speaker: Well, let's go to the issue for a moment of the likelihood of there being a right to recovery at all.

Is the affidavit in that respect as set out here representative of what would be sufficient under Connecticut law?

Mr. Cohn: I would say that it is the bare bones, Your Honor.

I have seen a lot more detailed than this, however--

Unknown Speaker: This is enough to pass muster?

Mr. Cohn: --This is... this was enough for this judge to pass.

Unknown Speaker: Well, was the judge right or wrong?

Mr. Cohn: I would agree that the judge was right.

Unknown Speaker: All right.

What this provides... what this contains with respect to the right to recover, leaving aside the amount of damages, is simply an allegation that I was willfully, wantonly, maliciously assaulted, a statement that the assault caused, in this case, a broken wrist and a bruised eye, and that money was expended for treatment.

And it ends up with a statement, in my opinion the foregoing facts are sufficient to show there is probable cause for judgment.

What does that tell you anything more than the fact that this plaintiff is in fact making a claim, and professes to make a claim in good faith, that he has a right to recover?

Mr. Cohn: He does say that he was willfully, wantonly, and maliciously assaulted.

Unknown Speaker: Yeah, but that is purely conclusory.

That is not a factual affidavit.

That is a statement of conclusion.

And I don't see how... I guess what I'm getting at is, I don't see how any magistrate passing on this can make any judgment whatsoever about the likelihood of success or even the likelihood of there being a factual basis for the claim, except insofar as he says, well, I assume this fellow in front of me or signing the affidavit is doing it in good faith.

I don't see how he can get... at most I don't see how he can get beyond a judgment that the action is at least being brought professedly in good faith.

Mr. Cohn: There is one other point, Your Honor, and that is that he also has the complaint in front of him as well.

Unknown Speaker: But a complaint is just an allegation, isn't it?

Or is it more than that in Connecticut?

Mr. Cohn: No, it supplements... the way the practice works is that it supplements the affidavit so that the judges look both at the affidavit and the complaint.

Unknown Speaker: Is the complaint the one found on 28A of the joint appendix?

Mr. Cohn: No.

If Your Honor pleases, it's on page 30A.

Unknown Speaker: What is the complaint on 28A?

Mr. Cohn: Oh, excuse me.

No, 28A.

I'm sorry.

It is 28A.

Unknown Speaker: And what does that add to the affidavit?

Mr. Cohn: It does say that he assaulted the plaintiff and beat him with his fists.

Unknown Speaker: So beating with the fists is what's added?

Mr. Cohn: Yes, Your Honor.

Unknown Speaker: That's all?

But also the amount in demant... I think that may be a misprint over at the top of 29A... the ad damnum clause, the complaint contains an ad damnum clause of $15,000, which the affidavit did not.

Mr. Cohn: Yes, Your Honor.

Unknown Speaker: But I guess I come back to the question what does the... what does the affidavit really do beyond repeat or summarize in a conclusory way a series of allegations?

Mr. Cohn: In this case I would admit that it is a very skeletal affidavit.

However--

Unknown Speaker: But if this is enough to pass muster, then a judge really can authorize an attachment on the Connecticut law without being in a position to make any judgment whatsoever about the probability of success.

Isn't that true?

Mr. Cohn: --No, I would disagree.

I would say that, while it's a skeletal affidavit, it does set forth enough here in that the fists allegation is there, and also that there is some indication of the nature of the damages, and that that would be enough for a judge to decide in an assault and battery case that a attachment would be warranted.

Unknown Speaker: Mr. Cohn, I'd like to come back to your statement at the outset that the judge makes a determination that it is more likely than not that the plaintiff will win.

The judge doesn't evaluate the truth of what the plaintiff asserts, does he?

Mr. Cohn: No.

Unknown Speaker: I mean, he takes all these... so, don't you have to modify that statement?

Isn't all the judge determines at most that it is more likely than not that if what the plaintiff says is true, the plaintiff will win?

Mr. Cohn: He looks through the papers to decide whether or not there is sufficient evidence there--

Unknown Speaker: Assuming that everything the plaintiff says is true.

Mr. Cohn: --Yes.

Unknown Speaker: But he makes no evaluation as to whether that... this plaintiff could be a thorough liar.

Correct?

Mr. Cohn: Yes.

Unknown Speaker: And he makes no inquiry into that at all.

Mr. Cohn: No, he does not.

Unknown Speaker: So it's not really an inquiry as to whether it's more likely than not that he'll win, but rather it's more likely than not that if he isn't a liar he'll win.

It's a big difference.

Mr. Cohn: Well, not so much.

I would say that he gets a flavor of the case enough to allow a real estate attachment.

Unknown Speaker: Well, all he does is really say that the complaint is sufficient.

Yeah.

Mr. Cohn: To allow this attachment to go on a debtor's property.

Unknown Speaker: Really, the complaint survives a motion to dismiss.

Isn't that about what it boils down to?

Mr. Cohn: Yes.

Your Honor, may I reserve the balance of my time?

Unknown Speaker: Can I ask one quick question?

Mr. Cohn: Yes.

Unknown Speaker: How do they get the $75,000 on a $15,000 ad damnum?

Mr. Cohn: The ad damnum, in Connecticut the way it works is you list the minimum, and it could be anything higher than that.

It has to do with how much money you paid the court.

Unknown Speaker: What is the factual basis for the $75,000?

Is there anything, or is that just a--

Mr. Cohn: Not in this affidavit.

No.

Unknown Speaker: --Just picked out of the air?

Mr. Cohn: Normally in an affidavit that was... that would meet constitutional... that would be a little bit better than what we have got here today, they would actually put down money... monetary figures and show exactly how they arrived at that figure.

They didn't do it here.

Unknown Speaker: Mr. Cohn, may I take you all the way back to the bond, the absence of a bond?

Mr. Cohn: Yes.

Unknown Speaker: Even though you lost below, am I not correct that two of the judges felt that this was of no consequence?

Mr. Cohn: Yes, Your Honor, they relied on the fact that you had the right to sue for a wrongful--

Unknown Speaker: So that one of the judges in the majority nevertheless felt the bond was not an unconstitutional absence, so to speak?

Mr. Cohn: --Two felt that the bond was... lack of bond was okay, and one felt that it was not.

Thank you, Your Honor.

Unknown Speaker: Very well, Mr. Cohn.

Mrs. Faulkner, we'll hear now from you.

Argument of Joanne S. Faulkner

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

Connecticut has a unique prejudgment attachment statute which allows anybody with a colorable claim to attach a defendant's real estate before bringing the lawsuit without giving notice to that defendant until after the attachment has been placed, without any bond to protect the defendant against a wrongful attachment, and without reciting any particular reasons for the attachment.

This process is quite routine in Connecticut, or at least it was until the second--

Unknown Speaker: Mrs. Faulkner, when you say reasons for the attachment, you mean something like the defendant is liable to leave the jurisdiction, or something like that?

Mr. Faulkner: --That is correct, Your Honor, or the defendant is transferring his property in fraud of creditors or some other emergency circumstances, or the defendant is a deadbeat and doesn't pay his debts, whatever.

This procedure is so routine in Connecticut that before the Second Circuit decision below it was routinely... there were 300 to 400 real estate attachments per week before lawsuits were even brought.

And this figure I get from the attorney general's estimate in his... in her petition for a rehearing below.

In this case there was no need for the attachment.

There was no need to get in rem jurisdiction over respondent.

There was no showing that he could not or would not pay any eventual judgment.

There were no emergency circumstances as--

Unknown Speaker: Are you suggesting that the due process clause of the Federal Constitution requires that sort of a showing of necessity for an attachment?

Mr. Faulkner: --I am not suggesting that in this case, Your Honor.

Your... this Court has looked at several factors, and among the factors in deciding whether something was constitutional was in Mitchell, I believe, where the Court emphasized that the plaintiff had to file an affidavit that the property in which he had a security interest was at risk.

All we're doing in this case is absence of advance notice and the lack of a bond.

Again, the litigation was unrelated to the property.

And another peculiarity of Connecticut law is that we have no homestead exemption whatsoever, so that once a person's home is attached, there is no cushion left to the homeowner.

Exactly how it works is illustrated by this case, and that is that Mr. DiGiovanni presented a one-sided affidavit to a judge on the papers 2 days after the assault occurred.

And the affidavit is, as this Court has already noticed, a bare minimum.

"On March 13 I was willfully, wantonly, and maliciously assaulted. "

"The assault broke my left wrist and further caused an ecchymosis to my right eye, as well as other injuries. "

"My left arm is in a cast and I am restricted in my usual duties. "

"And I have further expended sums of money for medical care and treatment, and I will be obliged to spend sums in the future. "

"In my opinion the foregoing facts are sufficient to show that there is probable cause. "

Now the questioning to the attorney general was on the standard for probable cause in Connecticut, and the cases are quite clear that the standard for probable cause is a... that you can assert a colorable position that you have a claim against the defendant.

That subjective belief, probable cause, does not have to be more true than false.

As long as you can bring forth some statement of facts that you have a colorable claim, you can get an attachment.

Unknown Speaker: So you disagree with him that the standard is that it's more likely than not that the plaintiff will prevail?

Mr. Faulkner: I vigorously disagree, Your Honor.

There is--

Unknown Speaker: What case do you rely on that we might look at from Connecticut to--

Mr. Faulkner: --There are several cases cited in my brief, Your Honor, for the proposition that probable cause means merely that he has to have a belief in his cause of action and that belief does not need to be more true than false.

Unknown Speaker: --I have been reading the Fermont case, and I don't see any reference to that one way or the other.

Mr. Faulkner: I don't think you will, Your Honor.

In addition, one of the problems with the affidavit that we have in Connecticut, even though the Connecticut Supreme Court has said it must be factually specific, the Connecticut Supreme Court in two cases and the Connecticut appellate court in four cases have all said it doesn't matter whether your affidavit is adequate, because you can always cure the deficiency if the defendant asks for a hearing.

And at that hearing you can cure the deficiency and you can then keep your affidavit, keep your prejudgment attachment.

Unknown Speaker: Well, the court... the court below didn't deal with the sufficiency of this particular affidavit, did it?

Mr. Faulkner: No, Your Honor, it didn't.

Unknown Speaker: Did they invalidate it on other ground?

Mr. Faulkner: That is correct, Your Honor, but the--

Unknown Speaker: And are you defending the judgment below on the grounds they used?

Mr. Faulkner: --No, Your Honor.

I am responding to an argument that the State used here that the supreme court says the affidavit must be sufficient, and I am just responding to the argument that he made in his reply brief that that is all that is needed, that the Connecticut Supreme Court said it must be sufficient.

Unknown Speaker: But you are defending the reasons that the court below gave?

Mr. Faulkner: Yes, Your Honor.

I can defend... I believe I can defend the court below on alternate grounds other than what the court below ruled on.

Unknown Speaker: Do you in fact defend it on the grounds that it did rule on?

Mr. Faulkner: Yes, indeed.

My primary position here is that there is no advance notice to a defendant before his home is attached by the plaintiff.

Unknown Speaker: And no hearing.

Mr. Faulkner: And no hearing.

No notice, no opportunity to be heard, and no bond--

Unknown Speaker: You wouldn't say it would be enough to give him notice if he wasn't entitled to a hearing before the attachment went on?

Mr. Faulkner: --No, I would not, Your Honor.

Unknown Speaker: And if a bond or security were furnished, would that overcome any constitutional deficiency?

Mr. Faulkner: That would certainly be of assistance, Your Honor.

I don't know whether this Court will decide that a bond alone--

Unknown Speaker: Well, what is your position?

Mr. Faulkner: --My position is that, unless there are very unusual circumstances, the defendant should have an opportunity to tell his side of the case to the judge before his property is attached.

Unknown Speaker: Under the holding of the court which we're reviewing, I suppose no State's lis pendens law would survive.

Mr. Faulkner: I think a lis pendens law is entirely different, Your Honor, and that is because a lis pendens affects a particular piece of property that is an issue.

Unknown Speaker: But there is no notice, there's no advance hearing.

I assume that under the language of the opinion which we are reviewing that all these laws across the country would fail.

Mr. Faulkner: I disagree, Your Honor, because in mechanics liens statutes, in lis pendens statutes, we have a particular piece of property that everybody knows the defendant and the plaintiff have adverse claims to, so that in effect the defendant knows somebody is going to... if a mechanics lien, for instance, is put on the property, work has been done on that property and the defendant really knows that somebody has another interest in that property.

And in this case it would be an emergency circumstances situation because a particular piece of property is unique.

You don't want to give the defendant a chance to transfer it out from under somebody else who has a claim to that particular piece of property.

Unknown Speaker: Well, in your view, Ms. Faulkner, one could have had the most elaborate affidavit in the world here, sworn to by 20 bishops, in effect, and still, without a prior notice and a prior hearing, it still would be unconstitutional.

Mr. Faulkner: Yes, Your Honor, that is my position.

Unknown Speaker: Mrs. Faulkner, in the... in the lis pendens situation there is another distinction too, isn't there, and that is that the lien at least allegedly already exists.

Mr. Faulkner: An inchoate lien or some kind... of some kind exists.

Unknown Speaker: Well, that's the basis of the lawsuit--

Mr. Faulkner: That's correct.

Unknown Speaker: --that I have a lien, and I am just asking the court to affirm it.

Mr. Faulkner: That's correct.

Unknown Speaker: Whereas this action is what creates the lien.

Mr. Faulkner: That is correct.

Unknown Speaker: There's... there's no even arguable claim that any lien exists.

Mr. Faulkner: That is correct, Your Honor.

In addition this Court asked questions about the possibility of recovery.

If the $75,000 attachment in this case turns out to be excessive, but DiGiovanni wins the case, there is no recovery for a attachment that is wrongful because it is excessive.

The only possible--

Unknown Speaker: Is there some authority for that?

Mr. Faulkner: --The case law views that a wrongful attachment is only wrongful if it is completely dissolved and not if it is only partially dissolved.

And Justice O'Connor asked a question about the 90-day time work... time frame between getting the attachment and notifying the defendant.

That is a distinct possibility under our statute.

The plaintiff can get an attachment, put it on the land records, and sit on it for up to 90 days before he notifies--

Unknown Speaker: What happened in this case, however?

Mr. Faulkner: --In this case, Your Honor, there was, the attachment was served on the defendant within about 3 days of the time it was issued.

However, the time frame in which it was served was a month before this defendant could do anything about it.

We have a practice book rule in Connecticut, Practice Book 114, which says that motions and pleadings shall commence upon the return date.

In this case my client was served 1 month before the return date, and he could not, under our rules of practice, make any motion until the return date came along.

The defendant, it is interesting--

Unknown Speaker: What... the return date was the date upon which your client could ask for a hearing if he so desired?

Mr. Faulkner: --He could move for a hearing on that date, he could file an answer, he could do any number of things, but he couldn't do it before the return date.

He could move to substitute a bond so he could avoid--

Unknown Speaker: So he had notice, but he was unable to take any steps to defeat the attachment before the return date?

Mr. Faulkner: --Under the Practice Book Rule 114, that is correct, Your Honor, unless he brought a separate action or an order to show cause at additional expense, in which case he would get a--

Unknown Speaker: Now was that all in evidence before the district court or the court of appeals here?

Mr. Faulkner: --No, Your Honor, it's just on the face of our practice and procedure.

Unknown Speaker: May I go back to one... one further issue on that?

Does the return... is the return day in Connecticut law the day upon which, or the last day, as it were, upon which a response may be filed?

Mr. Faulkner: It is the first day upon which a response may be filed.

Unknown Speaker: Oh, so the clerk of court would not receive or would not accept pleadings prior to that date?

Mr. Faulkner: The clerk might accept pleadings, but the other party could say this is... should be stricken from the record because it was not properly filed.

Unknown Speaker: They would have no legal effect?

Mr. Faulkner: That is correct.

Unknown Speaker: If the return day is the first day, what is the last day upon which responsive pleadings can be filed?

Mr. Faulkner: There is a time frame that could go as long as a year or two, Your Honor.

Unknown Speaker: I see.

Mr. Faulkner: It is not like in Federal court.

Unknown Speaker: What is the status of this practice handbook that you refer to?

I raise the question because in the reply brief opposing counsel points out that under the Connecticut statute involved there is no indication that an objecting defendant could not have a hearing immediately, even before the return date.

That... so I ask what is the status of the practice handbook?

Mr. Faulkner: We have a separate statute which says that the pleadings are governed by rules of practice established by the judicial department, and their practice book is the rules of practice established by the judicial department.

Unknown Speaker: I see.

Do you quote the rules of practice in your brief?

Mr. Faulkner: I do not, Your Honor.

It didn't come up until defendant's reply... petitioners' reply brief, Your Honor.

A defendant can get an attachment on a plaintiff's property after the lawsuit is begun in Connecticut if the defendant asserts a counterclaim or set-off.

But when the defendant wants an attachment he has to give notice to the plaintiff and he has to give an opportunity to be heard to the plaintiff before he can get a counter-attachment.

As this... as Justice Souter and Scalia were--

Unknown Speaker: That seems unfair, but does that illustrate some constitutional proposition?

Does that--

Mr. Faulkner: --It just shows that a hearing and notice before an attachment is eminently practicable, and ordinarily this Court has not dispensed with a prior notice and opportunity to be heard unless there were emergency circumstances, unless the attachment were random and unauthorized and an advance hearing was not practicable.

Unknown Speaker: --Well, of course the real estate attachment is a little different than coming in and seizing someone's wages or household goods and carting them off.

Mr. Faulkner: That is correct, Your Honor.

Unknown Speaker: Because the homeowner is not dispossessed as of the time that the lien goes on.

So perhaps that enters into the balance, or what process is due under the constitutional requirement of due process.

It may well be different.

Mr. Faulkner: That could be, Your Honor, except that I think a real estate attachment is very significant, and that is because... for several reasons.

Most people have first mortgages or second mortgages on their homes which have an insecurity clause.

So that once an attachment is put on a person's property he is in technical default under an insecurity clause and he could be driven to the wall by a foreclosure on his property.

He is put in an impaired adversary position, he is kind of down one if the negotiations over settlement begin.

It is immediately put on his credit record and it stays there for 7 years, interfering with his credit opportunities.

And one of the important things about giving advance notice is that it gives the defendant the opportunity to avoid all of these consequences.

In the Peralta case which this Court decided a couple of years ago, the defendant hadn't gotten notice of the lawsuit and he wanted to reopen the judgment, but he didn't have a good defense.

And one of the arguments was that, well, it would have come out the same way even if you had gotten notice.

And this Court said no, because you could have negotiated, you could have made other arrangements.

In this case, advance notice might give an opportunity to escrow an amount instead of having his property attached, or to enter into an agreement not to sell or mortgage during the course of the lawsuit.

So there is some value in having some advance notice, because it gives you an opportunity to avoid the harsh consequences of attachment.

Unknown Speaker: Well, as a practical matter, don't settlement negotiations of some sort usually precede a lawsuit in Connecticut?

Mr. Faulkner: As a practical matter?

I don't know, Your Honor.

In this case they certainly didn't.

The assault and battery was 3 days before the lawsuit was begun.

Unknown Speaker: But I mean, are there no discussions between attorneys before a lawsuit is filed?

Mr. Faulkner: When a real estate attachment is available, they go and get it, and then they start talking, Your Honor.

That... that is... that is the 300 or 400 cases per week in which attachments were granted before the Second Circuit decision below.

Unknown Speaker: Mrs. Faulkner, is your position that there has to be a pre-attachment hearing?

That a prompt post-attachment hearing is inadequate?

I thought we have said that a prompt post-attachment hearing would be enough in Grant.

Mr. Faulkner: In Grant there were also emergency circumstances.

There was a preexisting interest in property which the defendant could destroy.

There was a double bond to compensate the defendant for humiliation, embarrassment, attorneys' fees, and whatever.

So that I think there were a number of factors in Grant which are not present in this case.

Unknown Speaker: But you're, you're not insisting that there absolutely must be a pre-attachment hearing?

Mr. Faulkner: No, Your Honor, there are circumstances--

Unknown Speaker: If there are certain other things, perhaps a bond, perhaps the necessity of emergency circumstances, or so forth, you might be able to get one without a hearing, constitutionally?

Mr. Faulkner: --That is correct.

Certainly, Your Honor.

Unknown Speaker: Well, don't you think the court below held that there had to be a pre-attachment hearing?

Mr. Faulkner: Yes, Your Honor, in the circumstances of this case.

Yes, I do, Your Honor.

Unknown Speaker: Well, so you say that an immediate post-attachment hearing would not be sufficient?

Mr. Faulkner: That is correct, Your Honor.

Unknown Speaker: And that is what the holding was below?

Mr. Faulkner: That is correct, Your Honor.

But that is on the factors in this case, and there may be other cases in which a prompt post-deprivation hearing would be appropriate.

Another problem in Connecticut law is that the post-deprivation hearing is not necessarily prompt.

Most States which have post-deprivation--

Unknown Speaker: You and your opponent disagree on whether you could apply before the return date.

How are we supposed to find out what the Connecticut law is?

Mr. Faulkner: --Practice Book 114 says pleadings and motion shall start on the return date.

Unknown Speaker: Your opponent says that you can apply for an immediate hearing.

Mr. Faulkner: Without citing any authority for that proposition, Your Honor.

Unknown Speaker: Did either of the lower courts make any finding on that point as to whether a relatively prompt or immediate hearing was available?

Mr. Faulkner: No, Your Honor.

Among the factors that this Court considers in whether... how much of a pre-deprivation hearing is due are the Government interests, the private interest, and--

Unknown Speaker: Did you take any steps in the State court?

Mr. Faulkner: --That is outside the record, Your Honor, but the answer is no.

Unknown Speaker: The... your opponent says,

"Indeed the defendant in this case appeared 1 week before the return date, even though he chose not to request a hearing. "

What does that mean?

Perhaps I should ask your opponent.

Mr. Faulkner: I am not sure what it means, Your Honor.

You can appear at any time after the lawsuit is filed against you, it is just that you can't file motions.

Unknown Speaker: Well, what did you do?

Was there an appearance?

Mr. Faulkner: Yes, there was, Your Honor.

I am not counsel in the State court action.

The Government interest in this case seems particularly tenuous.

In fact the Government has not argued that it has any interest in maintaining this ex parte procedure.

It is only myself and the amici who have posited some possible Government reasons here.

But it seems to me important that the judicial system be deemed impartial by a person who is called before the court, and that image of impartiality is certainly shattered when behind the defendant's back there is an attachment on his real property before he's had a chance to come into court.

The private interests, of course, the plaintiff has an interest in securing any eventual judgment, but studies in the State of... one study in the State of Connecticut shows that a potential judgment for the plaintiff is a possibility in about 1.5 percent of the cases.

Unknown Speaker: Mrs. Faulkner, how do you distinguish, if you want to distinguish, the Williams against Bartlett summary affirmance here on the lis pendens statute?

On the grounds that the lis pendens is different from the attachment?

Mr. Faulkner: Yes, Your Honor.

I would accept that a lis pendens or a mechanics lien statute would be constitutional without a prior hearing because it does involve a particular piece of property and a dispute over that property, which could be conveyed with advance notice.

Unknown Speaker: But the plaintiff who gets a lis pendens, until that... until he get it, files it, he has no interest in the property.

He has no right to interfere with any element or the ownership.

Mr. Faulkner: Yes, he does, Your Honor.

Lis pendens is only when there is a dispute over title.

For instance a husband and wife who are divorcing will commonly, one of them will commonly file a lis pendens--

Unknown Speaker: Well, when can you get a lis pendens?

When you have already got an interest in the property?

Mr. Faulkner: --Yes, Your Honor.

A person who is foreclosing on a piece of property would file a lis pendens.

Unknown Speaker: Well, that's--

--I don't think so.

Is that the only situation where you can get a lis pendens in Connecticut?

Mr. Faulkner: You have to have a... some kind of preexisting interest in the property.

Unknown Speaker: So a preexisting interest in the property?

Mr. Faulkner: Right.

Unknown Speaker: How about a claim that the property has been transferred in fraud of creditors?

Does that support a lis pendens?

Mr. Faulkner: Yes.

Thank you, Your Honor, yes.

Unknown Speaker: But can you really say that the person has a preexisting interest in that situation?

I mean, the lawsuit is designed to produce that result, but at the beginning of the lawsuit does a person... does the person who is suing to set aside a fraudulent transfer have an interest in the property?

Mr. Faulkner: Well, he has an interest in enforcing his judgment.

He has no more interest in the property, certainly--

Unknown Speaker: Yeah.

But that's not quite the same thing as saying he has a preexisting lien, I don't--

Mr. Faulkner: --Right.

Unknown Speaker: --Well, of course even in that case, even though you can't say the plaintiff claims that he has an interest, you can claim that he is asserting that the purported owner of the property does not have an interest.

If he claims it has been transferred in fraud of creditors he claims the transfer is invalid, and therefore the person who claims title really doesn't have it.

Mr. Faulkner: That's correct.

Unknown Speaker: So I think in all these lis pendens cases you may be correct that at least what is at issue is it is not conceded that the other person is the owner of the property, and I want to get a lien on it.

Rather, it's a dispute over whether it is yours or mine.

Mr. Faulkner: That is correct, Your Honor.

As I said before, this Court has never dispensed with some type of prior notice and opportunity to be heard unless there were emergency circumstances, or unless the defendant had substantial input into the decision-making process, as in Mathews v. Eldridge.

The person had a substantial paper input before the deprivation occurred.

That is not what happens in this case.

I think the attachment of $75,000 worth of equity in Mr. Doehr's property, which put that equity beyond reach for a loan, put his property in a position where it could not be sold, is every bit as significant as the $35 in wages that was attached in Sniadach.

Unknown Speaker: What's the status of the assault suit?

Mr. Faulkner: Again, that is outside the record, but it is still pending in the State court, and Mr. Doehr has filed a counterclaim against DiGiovanni.

I believe the $65,000--

Unknown Speaker: Can you give us any indication, I am sure it varies from case to case, that, how long it takes to bring a suit like this to trial in Connecticut, assuming diligence on all sides?

Mr. Faulkner: --I would say anywhere from 4 years to non-jury to 7 years for a jury trial, and this is a jury trial.

The attachment here is every bit as significant as the $23 hobby kit which was given due process protections in Parratt.

It is every bit as significant as the personal letters and mementos in Hudson, which was given due process protection.

We have in Connecticut an established State procedure, a foreseeable deprivation, and an eminently practicable opportunity to have pre-deprivation notice and hearing.

I urge this Court to affirm the decision below.

Thank you.

Unknown Speaker: Thank you, Mrs. Faulkner.

Mr. Cohn, you have 3 minutes remaining.

Rebuttal of Henry S. Cohn

Mr. Cohn: Your Honors, I think I should respond immediately to the return date question which Justice White had.

We do disagree, as you point out, in our reply brief as to the effect of this return date.

This return date is in all actions and has to do with when one has to appear or face default attachments to one's side.

It could be any case where there is a lawsuit between a plaintiff and a defendant.

The defendant is given, on the papers that he is receiving, an indication of a date, a cut-off date after which an answer must be filed or an appearance must be filed in the State court or he risks having the plaintiff come in and make a motion to default for failure to appear and then take judgment against him if that is granted.

But that does not impact on the attachment situation, where if a person is served with an attachment and given notice that he may immediately appear, there is no reason why, indeed there is no legal bar under the rule of court, to have that party go to the clerk's office, present the motion to release the attachment, and have the process started.

It obviously would have to be put on the calendar, and that would take a week or two, but they're not going to throw his papers out or refuse to honor it, or anything like that.

So the return date is a red herring, in our opinion, in this... in this matter.

Unknown Speaker: What... even if you are right that you can come in and ask for a hearing, you could file a motion for a hearing right away--

Mr. Cohn: Yes.

Unknown Speaker: --when... there is no guarantee in the statute or anyplace else that the hearing would be, would be given within a particular time?

It might be a week, it might be 6 months.

Mr. Cohn: No, that's not true, Your Honor.

Unknown Speaker: Well, where is the provision for an immediate hearing?

Mr. Cohn: The statute, which is 52.278(E)(c) says that the hearing shall be expeditious, and the Fermont case says that it should be immediate.

And reading the statute on its face we say that you would get this immediate hearing, and the 6 months would be a total violation of due process, and we would concur.

But that wouldn't happen--

Unknown Speaker: Within 10 days?

Mr. Cohn: --It certainly could be.

In the Fermont case itself it was within a week of the defendant attached party asking for it.

He received his hearing right away.

Unknown Speaker: When did the defendant ask for it in that case?

Mr. Cohn: In the Fermont case?

Unknown Speaker: Yes.

Mr. Cohn: In the Fermont case--

Unknown Speaker: How soon after the attachment?

Mr. Cohn: --Um, I believe in the Fermont case, as I understand the facts, the attachment had gone on, but the defendant hadn't asked for any sort of hearing.

He just let the attachment continue.

And then at some point during the course of the proceedings he asked for a hearing, and he was given a hearing immediately, 1 week later.

But I am using it as an example that they do in fact give immediate hearings.

There would be no reason under the world why the courts wouldn't accommodate what the statute and the Connecticut Supreme Court has said, that it should be an immediate hearing.

Unknown Speaker: Well, it's sort of inconsistent with the requirement for an immediate hearing to say that under the rules you have to wait 20 days before you can even ask for it.

Mr. Cohn: Yes, but we would contest that that is the situation that would happen.

Unknown Speaker: Thank you, Mr. Cohn.

Mrs. Faulkner, would you submit to the clerk of the Court by Wednesday noon the, a copy of the practice rule to which you refer?

Rebuttal of Joanne S. Faulkner

Mr. Faulkner: Yes, Your Honor.

Chief Justice Rehnquist: Thank you.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Langley v. Fdic - Oral Argument

Wed, 13 Apr 2011 20:10:58 +0000

Case:

Langley v. Fdic

Media File:

86-489_19871014-argument.mp3

Related Transcript:

86-489_19871014-argument.xml

Transcript:

ORAL ARGUMENT OF WILLIAM C. SHOCKEY ON BEHALF OF PETITIONERS

Chief Justice William H. Rehnquist: We will hear argument first this morning in No. 86-489, W. T. Langley versus Federal Deposit Insurance Corporation.

Mr. Shockey, you may proceed.

Mr. Shockey: Mr. Chief Justice, and may it please the Court, this Court is called upon in this case first to resolve a question of statutory interpretation, what meaning do we give to 1823(e).

The FDIC naturally urges a very broad reading of the statute.

The Langleys, whom I represent, argue a very restrictive interpretation of that statute.

In looking at past decisions of this Court relative to statutory interpretation questions, I note that this Court looks first at the language of the statute, then, if necessary, at the legislative history, and finally at policy considerations, and I will take each of those in turn.

The language of the statute says no agreement which tends to diminish or defeat, et cetera, et cetera, shall be valid as against the corporation.

No agreement.

That is the key word.

The statute does not say no claims.

The statute says no agreement.

We concede that some of the things that were alleged by the Langleys in their original complaint are agreements that 1832(e) bars, things such as the interest rate being, supposed to have been different from what was in the note, the term of the loan, that it would not be due until the property was sold, and that the liability on the note was in rem.

We concede those things.

Those are agreements at variance with the documents.

We do not have or concede that representations made by the bank president as alleged relative to the acreage in the tract of land in question or as to the mineral acreage and the status of the mineral rights in the property.

Unidentified Justice: Why didn't the bank agree that those... that much land would be delivered?

Mr. Shockey: Well, first, the bank, of course--

Unidentified Justice: They did, didn't they?

Mr. Shockey: --wasn't the true seller of the property.

Unidentified Justice: Well, I know, but they made the deal.

Mr. Shockey: If Your Honor will refer to the mortgage itself, which is in the Appendix at Page 29, you will see the fact that there were 1,628.4 acres in the mortgage tract.

It is specified in the mortgage.

Unidentified Justice: What do you want us to look at?

Where do you find it?

Mr. Shockey: On Page 29 of the appendix is... that is one of the pages of the mortgage.

If I recall, right in the middle of the page there is a reference in the mortgage itself to the property containing 1628.4 acres.

Unidentified Justice: And you say that some substantially lesser acreage was in fact conveyed?

Mr. Shockey: Yes, ma'am, I do.

If you will recall from the allegations in our complaint, the Langleys allege that the property in fact only contained 1522 acres.

Unidentified Justice: In your complaint, did you seek to set aside the transaction or to simply counterclaim for the decreased value of the property?

Mr. Shockey: We counterclaimed.

If you will recall, the suit began with a suit on the note by the bank.

We filed suit in Federal District Court seeking to rescind the transaction and to collect treble damages under the Rico statute.

This was prior to the time the bank closed.

Our suit, as distinguished from all the other FDIC litigation that I have reviewed, and I have tried to review every FDIC case, our case was pending.

Our case was pending at the time that the FDIC was appointed the receiver for Planters Bank.

Unidentified Justice: Mr. Shockey, it seems to me you are saying that a promise is an agreement, but a representation of present fact is not an agreement.

It doesn't seem to me a promise is any more literally an agreement than is a representation of present fact.

If you want to really be technical about it, an agreement requires an exchange of promises.

I don't know why the fact that I say I will charge you so much interest is any more an agreement than is the fact that I say the land has so many acres.

Mr. Shockey: Well, what the case boils down to at this point is the, and I will explain to you how it is different--

Unidentified Justice: You argue that the promises are agreements, right?

Mr. Shockey: --Promises that Mr. Caughfield as the president of the bank had the capacity to deliver, if you will, interest rate, term of loan, and things of those nature, okay, but Mr. Caughfield wasn't delivering the property.

Actually, another seller, another... a seller, a customer of the bank actually delivered the property, actually delivered... the mineral interests.

Mr. Caughfield was making representations about the quality of the thing that was to be the object of the sale, not necessarily things that would be as to the qualities and characteristics of the loan transaction itself.

Unidentified Justice: Why wasn't he promising that that customer would deliver so many acres?

Mr. Shockey: Excuse me, Your Honor?

I didn't follow your question.

Unidentified Justice: Why wasn't the officer, the bank officer promising that the bank's customer would deliver so many acres?

Mr. Shockey: We in fact contend that he was promising that there would be.

He represented that the tract, that he was familiar with the tract, and that it would include that many acres of property.

Unidentified Justice: Why wasn't that as much an agreement as anything else?

Mr. Shockey: Well, Your Honor, the representations as to how many acres there would be and how many mineral rights he would get were an ingredient, if you will, of the sale between Leenerts Farms, who was the other bank customer, and my clients.

Representations as to interest rate, term of loan, and that sort of stuff were an ingredient of the loan transaction.

You actually have two transactions between different parties.

Unidentified Justice: Well, the promises that you now rely upon or the representations that you now rely upon were apparently made by the actual owner of the property who sold it to your client?

Mr. Shockey: No.

We allege they were made by the bank president.

Unidentified Justice: The owner of the property never said he had 1600 acres, or whatever it was?

Mr. Shockey: I believe it is alleged in our complaint that the Langleys met the seller at the closing.

Unidentified Justice: And the document at closing included this document that you called our attention to?

Mr. Shockey: The documents at closing included a sale agreement, a deed, possibly you may refer to at common law, which is included--

Unidentified Justice: For that number of acres?

Mr. Shockey: --Right, and a separate document, a mortgage, which is the lien instrument under Louisiana law, which also contains the reference to the 1628.4 acres.

Both instruments contain that reference.

Unidentified Justice: I must confess I am kind of puzzled.

Why wouldn't that have given them adequate information about the size of the tract?

Mr. Shockey: Well, the problem is, there was a representation--

Unidentified Justice: There was an oral statement earlier that there was more acreage.

Is that it?

Mr. Shockey: --No, there was less acreage.

Actually, a survey, as we allege in the complaint, reveals there was less acreage.

In fact, over--

Unidentified Justice: Less than 1628?

Mr. Shockey: --Yes, I believe the exact figure is 1522, as alleged in the complaint.

Unidentified Justice: Why do you have to rely on an oral statement about 1628?

That is in the written documents.

Mr. Shockey: Well, I understand.

The mortgage itself is not in the form sanctioned by the statute, as in approved by the board of directors, and this and that and the other.

Unidentified Justice: Yes, but it surely cleared up any... I mean, it surely made it clear that that is the amount of acreage that they were talking about.

Mr. Shockey: Well, it surely makes it clear that that is what the Langleys thought they were buying.

I agree with you there.

Unidentified Justice: I don't understand, though, why he has to rely on an oral statement.

Mr. Shockey: Well, would love to rely on my mortgage, and if the Court would rely on my mortgage I would be very enthralled, but the point is, I don't think the mortgage itself fits the requirements under 1823(e).

You have got to have it not only in writing, but you have also got to have it approved by the board, and this and that and the other.

Unidentified Justice: Well, in the mortgage, I assume the representation as to the acreage is: a representation from your client to the bank rather than a representation from the bank to your client.

Mr. Shockey: Yes, and--

Unidentified Justice: Isn't that right?

I mean, in the ordinary mortgage, if there is something wrong with the acreage and it is less than indicated, is it the bank that is somehow responsible?

Mr. Shockey: --The answer to your question is yes and no, and I will explain.

You get to a question of state law there.

You get to a question of who the lawyer who prepared the mortgage instrument is actually representing.

Now, we allege in our complaint that the lawyer who prepared the mortgage instrument was the bank's lawyer.

He was the lawyer for the bank.

So you get to a state law question at that point in terms of who is representing to who.

Unidentified Justice: And the mortgage, by the way, that also wouldn't be an agreement, either, the representation as to what the acreage is?

Mr. Shockey: The representation contained in the mortgage, you know, that is a document prepared from, if you will, prepared from the same, the sale document.

They have the same appendix with the property description.

So I am not sure we can characterize that as an agreement.

It is a document, you know, of course, prepared by the attorney who was representing the bank.

Unidentified Justice: A mortgage is an agreement, certainly, but you would say that that portion of the mortgage consisting of the representation that there are so many acres in the land, that is not an agreement in and of itself?

Mr. Shockey: That is what I believe.

Yes, sir.

Unidentified Justice: Ordinarily a representation of a warranty or whatever you want to call it in a mortgage like that runs from the mortgagor to the mortgagee.

It would run, someone said earlier, from your client to the bank, and not vice versa.

Mr. Shockey: Right, and of course, where did my client get the information?

He got it from the bank.

Unidentified Justice: Well, what has happened to your lawsuit against the bank president and the bank?

Mr. Shockey: The bank president, for your information, went into bankruptcy.

In the bankruptcy proceeding, his discharge has been stayed pending the final outcome of the case.

Unidentified Justice: And that is still pending.

Mr. Shockey: That is still pending.

Unidentified Justice: Presumably your client could get some kind of adjustment on recovery in that lawsuit.

Mr. Shockey: Assuming the gentleman is solvent.

Of course, as I indicated, he has gone into bankruptcy.

His discharge has been stayed pending the final resolution of this case, be it in this Court or filed under remand.

Unidentified Justice: Mr. Shockey, tell me if I am mistaken about what you are saying.

In the ordinary contract, any representation of a material fact is automatically a condition on the performance of the other party.

If that representation isn't complied with, the other party doesn't have to perform.

Now, you can... if you make a representation and don't express the condition, the condition is implied anyway.

It simply is implied in fact.

Now, suppose the condition in this case had been expressed, and instead of just saying, the banks just saying the land contains so many acres, the bank says, I agree that if the land does not contain so many acres, you will have no obligation under this contract.

Would that be an agreement?

Mr. Shockey: That would be an agreement.

Unidentified Justice: So the only failure here is, what distinguishes an agreement from a nonagreement is spelling out the condition that exists anyway, whether you spell it out or not.

That is the line you would have us draw?

Mr. Shockey: I believe that is the conclusion that we are left with.

Yes, I think that is.

You are comfortable with that?

Obviously, I am not comfortable with the Superholder in due course statute.

The statute is mean.

It is tough.

It is not fair.

It is really not fair to the Langleys because their suit was pending seven months prior to the time the bank was closed.

Basically what this Court has got to determine is what is and what isn't beyond the scope of 1823.

We have briefed to death the question of what is a representation and what is a warranty and all that.

I mean, we couldn't cite another source other than possibly my mother for something like that.

I think what you've got to do is picture in your mind W. T. Langley and Roy Caughfield standing in the lobby of the Planters Bank in Opelousas, Louisiana, and think how this transaction went down, how... what must one have said to the other and in what context, gleaned from the allegations of the complaint.

I simply don't have time to go through it, but if you will think of that in your mind, I think you will come to have a better appreciation of what was agreed upon between the gentlemen and what was in fact just represented and taken for granted by the other.

Unidentified Justice: Mr. Shockey, let me pursue this same inquiry from a slightly different direction.

Are the representations that are the focus of your petition here matters that would be defenses not available to a holder in due course under a Uniform Commercial Code approach in ordinary commercial law?

Mr. Shockey: Our defenses--

Unidentified Justice: Would they be... would they be things like warranties that normally would not be available against a holder in due course?

Mr. Shockey: --They would not be available against a holder in due course who was otherwise a legitimate holder in due course to accrue value, no default, et cetera.

Unidentified Justice: And what we have here is a statute that automatically makes the FDIC a holder in due course in legal effect, don't we?

Mr. Shockey: Except for two things, and let me respond to your question in two parts.

The statute, mind you, the FDIC in a general sense is going to take these problem loans where they are defaulted, so holder in due course laws wouldn't apply anyway, where they are in default.

I am saying the FDIC... if you get these problem loans, they are in default and of course if a loan is past due, a note past due, you can't be holder in due course.

The representations that we are keying upon are really the representations that induced Mr. Langley to buy the property, not necessarily the representations that induced him to make the loan.

You have got to remember, the sale was between Leenerts Farms and Mr. Langley.

The loan transaction was between Mr. Langley and the bank.

I refer this Court to its recent decision in Sedima regarding strict construction of language.

Basically this Court--

Unidentified Justice: Mr. Shockey, before you get into the legal argument, can I ask you a question about the facts?

Is the agreement of October 3, 1980, in the papers before us?

Mr. Shockey: --I believe so, Your Honor.

Unidentified Justice: I can't seem to find it.

Mr. Shockey: No, sir, it is not in the appendix.

It is in the record, of course.

Unidentified Justice: It is in the record.

Mr. Shockey: I do believe so, yes.

Unidentified Justice: Does it contain the normal boilerplate that all prior representations are merged into the agreement or something like that?

Mr. Shockey: Frankly, I cannot recall the provisions of the instrument in that specificity.

Unidentified Justice: I see.

Mr. Shockey: I would like to refer you, as I indicated, to the Sedima case.

That is about the last pronouncement of this Court that I am familiar with regarding statutory construction.

I also refer this Court to the dissent in the Philadelphia Gear case, Philadelphia Gear versus FDIC.

Justice Marshall wrote at that time,

"Nevertheless, to reach this common sense result, the Court must read qualifications into the statute that do not appear there. "

"We recently recognized that even when the ingenuity of businessmen creates transactions and corporate forms not contemplated by Congress, the Courts must enforce the statutes Congress has written. "

Look at the words of the statute.

Now, legislative history.

Unidentified Justice: There still is a question of what does an agreement mean.

Mr. Shockey: What is an agreement?

That is the question.

Unidentified Justice: You say it means a promise.

Mr. Shockey: But it does not mean representations as to the quality of the thing that is the subject of another transaction between the borrower and another party.

Unidentified Justice: More precisely, you say it means only express promises, because when you make a representation of a material fact, there is an implied promise that the deal is off if that fact isn't true.

What you are saying is that an agreement consists only of an express promise and not of an implied promise.

Mr. Shockey: I don't follow your point.

Unidentified Justice: I sell you a car and I say the car has... I say, I warrant, this car has eight cylinders.

If it doesn't have eight cylinders, it turns out to have four, you could rescind the transaction because there is implicit in that representation a promise that if it doesn't have eight cylinders you can get out of the transaction.

What you are saying here is that unless that promise is made express, it is not an agreement.

If it is express, I promise that if it doesn't have eight you can get out of the transaction, if I make that express, you say it is an agreement, but if I leave it to be implied, it is not an agreement.

Mr. Shockey: But the difference between your analogy and our case is, you are talking about you selling to me, two parties to the transaction, and the party making the representation is the seller.

In our case, the party making the representation is not the seller.

The seller is somebody else.

Roy Caughfield had no obligation, implied or otherwise, to make representations about the qualities of the thing.

Unidentified Justice: But you are claiming that that representation goes to, goes to the validity of the deal between your client and the bank.

You are saying it has something to do with that deal and was part of that transaction as well, wasn't it?

Mr. Shockey: Certainly.

We look at legislative history only if the language of the statute is unclear, as this Court mentioned in the Blum versus Stenson case.

The legislative history is sparse.

Most of the legislative history that is available to the Court is actually testimony given by members of the FDIC and their counsel at committee hearings.

The Langleys had no lobby in Washington in 1950.

Unidentified Justice: Are you trying now to show us that the word "agreement" in the statute doesn't mean what one would ordinarily think "agreement" would mean?

Mr. Shockey: Well, I think it means what one would ordinarily think "agreement" means.

Unidentified Justice: Well, then, why do you have to go to the legislative history?

Mr. Shockey: Because I am sure the legislative history is going to be relied upon by my opponent.

Unidentified Justice: Okay.

0 [Generallaughter.]

Your opponent will say the same thing, no doubt, so we have to get into the legislative history.

You are right.

Mr. Shockey: Most of the legislative history is sparse on this Act, more so than on any that I can recall before.

Maybe it is the time.

This Court has indicated and most of it has indicated FDIC personnel--

Unidentified Justice: Isn't what you are trying to say, or perhaps you have already succeeded in saying it, is that there is a difference between an agreement as contained in the statute and a representation that is fraudulent that would be a basis for setting aside the transaction?

Mr. Shockey: --That is what I am saying, because under, you know, at least under Louisiana law, and we have the Civil Code, but the idea of fraud is not that much different from what I learned in law school about the common law.

Under our law, if there is fraud and it induces you into the transaction, then it is as if you didn't give your consent.

It erases, vitiates, to use that word, the consent, and without consent there is no agreement, because an agreement is an accord of two minds and two wills.

Unidentified Justice: Would you have won if this had occurred in the Eleventh Circuit?

Mr. Shockey: I think so.

I think Gunter I would have won.

I had the missing factual links that were not apparent in Gunter because if you will recall, in Gunter the borrowers conceded that the FDIC had no knowledge, and also, of course--

Unidentified Justice: The FDIC knew the facts here?

Mr. Shockey: --Yes, sir.

As the appendix will reflect, the suit was filed well before the bank was closed, and the pendency of the suit was noted in two examination reports by the FDIC and rendered prior to the time the bank closed.

That is a fact that distinguishes this case from every other FDIC case that I know about.

Unidentified Justice: I don't understand your injecting fraud into the analysis all of a sudden.

Whether it is an agreement or not depends upon the presence of fraud?

You can have a fraudulent promise.

There can be fraud in a transaction that consists of making a promise at the outset that you have no intention whatever to perform.

Mr. Shockey: Well, that's true.

Such as, for example, I am going to give you an interest rate less than what is specified in the note.

I am going to tie it to Chase and--

Unidentified Justice: And you think that that prevents it, that would prevent it from being an agreement within the meaning of this statute?

Mr. Shockey: --Yes, sir.

Unidentified Justice: Well, then, why have you waived your rights on those other two?

I thought originally those promissory elements you contested as not being agreements, I thought on this appeal you have acknowledge that they are agreements.

Mr. Shockey: Well, all of the Federal Circuit Courts have uniformly recognized that that sort of representation, if you will, the Gunter court went to the point of trying to distinguish between promissory fraud and fraud that did not involve a promise to deliver at some future point in time.

I believe the issue in Gunter was to... one of the issues in Gunter, as an example, was to make certain loans in the future or it was in one of the other case.

So the Federal Circuit Courts have uniformly held against me on that point, all of them, so when I came to the Fifth Circuit I was in a position of having to concede that point, and I came to this Court on the difference between the Gunter case and my case.

Unidentified Justice: Well, you would most like us to say, then, that any fraud, whether it is promissory fraud or fraud in a representation, which is not an express promise, any fraud can't constitute an agreement, and failing that you would fall back on the fact that at least an implied promise is not an agreement.

Is that--

Mr. Shockey: I would love for this Court to so hold.

And basically, you know, I can live with Gunter.

If this Court were to adopt Gunter and apply it to the facts of this case, I can live with that.

Unidentified Justice: [inaudible]

Mr. Shockey: That's correct.

0 [Generallaughter.]

The legislative history is really not of much help.

The weight to be afforded remarks made in the legislative debate by others other than the drafter or sponsor this Court has indicated is entitled very little weight.

Further, that even the contemporaneous remarks of one legislator speaking about the purposes or intendments of enactment, this Court has previously recognized as not--

Unidentified Justice: Mr. Shockey, I suppose that even if the statute didn't cover it, that we would fall back on the holding of the D'Oench case.

Do you think the statute replaced that old common law holding?

Mr. Shockey: --I think the statute replaces that common law holding in terms of--

Unidentified Justice: Has any court so held?

Mr. Shockey: --No, ma'am.

Unidentified Justice: No.

In fact, haven't they gone ahead and applied that case as well?

Mr. Shockey: There have been some Federal Circuit Courts that have applied that.

Either I am missing the boat or my client ought to pay me double for my brilliance, but I haven't seen the first time that anybody has brought up in those cases the preemption question.

Nobody has to my knowledge in those reported decisions urged that 1823(e) supplants the Dench case.

I haven't seen it.

And hopefully I shouldn't be penalized for that.

I believe Federal common law still has application here.

It has application for purposes of interpreting 1823(e), just as you bad noted in the Philadelphia Gear case that you look to Federal law to determine what is a "deposit" for purposes of another statute under the Federal Deposit Insurance Act in determining whether or not the corporation would be required to make good on a deposit.

We can accept that Federal common law applies.

We do not concede that Federal common law would apply in this case in terms of other defenses.

Basically the U.S. v. Kimbell Foods case announced a three-prong test for determining whether or not Federal common law or state law should apply.

I think if you will look at that case in light of the facts of this case, you will find that a state law rule or decision in terms of the fraud issue can be formulated that would not do violence to the Federal policies and what have you.

Chief Justice William H. Rehnquist: Thank you, Mr. Shockey.

We will hear now from you, Mr. Taranto.

ORAL ARGUMENT BY RICHARD G. TARANTO ON BEHALF OF THE RESPONDENT

Richard C Taranto: Mr. Chief Justice, and may it please the Court, the question in this case is whether Federal law permits petitioners to rely on unrecorded oral understanding to defeat their straightforward written obligation to repay to the FDIC more than $450,000 in borrowed money.

That question has two parts because there are two sources of Federal law, Section 1823(e) and Federal common law.

Our primary position is that Section 1823(e) requires petitioners to live up to their written obligation.

Our secondary position is that Federal common law requires the same result.

There are two central reasons for both of our positions.

First, it is necessary to the successful functioning of the Federal Deposit Insurance system.

Thus longstanding Federal policy and the basic functioning of that system as Congress intended require that the FDIC be entitled to rely on the bank's written documents.

Second, it is fair.

With regard to who should bear the burden of the $450,000 at issue here, this case presents a choice between petitioners on the one hand who borrowed the money, the FDIC insurance fund, and possibly other creditors on the other hand.

Unidentified Justice: Well, Mr. Taranto, you say it's fair, but do you really think Congress meant to totally repeal the doctrine of fraud and the inducement as applied to this kind of transaction?

Richard C Taranto: I think what Congress intended to do in Section 1823(e) was in effect to give by law the status of a holder in due course to the FDIC, and that status would, as Justice O'Connor suggested, preclude the assertion of personal defenses, including fraud in the inducement.

Unidentified Justice: Fraud in the factum, so-called, survives holder in due course status.

Richard C Taranto: That's right.

Unidentified Justice: How do you distinguish that kind of fraud from fraud in the inducement?

Richard C Taranto: Fraud in the factum, as I understand it, occurs when one person fraudulently induces somebody to sign a different document from the document that person thought they were signing, so it is akin to forgery or duress but it is different from what is alleged here, which I think is expressly in the complaint termed fraud in the inducement, that representations were made fraudulently that induced them to then sign the document that they had no difficulty reading or understanding.

Unidentified Justice: Are there any factual misrepresentations by a bank officer that could ever give the borrower a real defense under the statute in your view?

Richard C Taranto: There could be fraudulent... there could be fraud in the execution of an obligation assumed by the bank when it granted a loan.

There is a case from the Ninth Circuit called FDIC against Mio in which a bank promised when being given a note to use the proceeds to purchase certain voting stock, I think, in the bank or in some corporation, and instead purchased nonvoting stock.

The Court said that was enforceable against the FDIC because the maker of the note was not negligent in failing to discover that the bank had fraudulently failed to do what it said it was going to do.

Unidentified Justice: Would it make any difference that the FDIC in this instance did have actual knowledge before it took over the assets?

Richard C Taranto: We don't see how an actual knowledge requirement can be read into the statute.

The statute simply says that no agreement that tends to diminish the value of an asset obtained by the FDIC shall be valid against the FDIC, and it doesn't make any distinction according to whether the FDIC knew on the eve of the bank closing, perhaps by getting a telegram, as has happened, somebody saying, hey, I have some objection to this, to this defense, and in fact no court, not one, to my knowledge, has suggested an actual knowledge requirement in the context of Section 1823(e).

When some courts have gone on past 1823(e) and discussed the scope of federal common law protections, several of them have discussed an actual knowledge requirement.

As it happens in Gunter itself an actual knowledge requirement was discussed, but there it was satisfied.

Unidentified Justice: Mr. Taranto, can a fraudulent promise, a promise that the promisor has no intention of performing, can that constitute fraud in the inducement?

Richard C Taranto: I think it can constitute fraud in the inducement, but it would not be a permitted defense under 1823(e).

Unidentified Justice: I understand, but my point is that even if we accept the interpretation of the word "agreement" that the petitioner would have us adopt, we would not have succeeded in establishing fraud in the inducement as a defense.

Richard C Taranto: That's right.

As I understand petitioner's distinction and the distinction the Gunter Court alluded to and then the Sixth Circuit in the Hatmaker case more explicitly adopted, that distinction would say that certain kinds of fraud in the inducement are barred by 1823(e) but certain other kinds are not, depending on whether the fraudulent representation was a factual representation or was a promise to do something.

That distinction, too, we think, is simply inconsistent with the policies behind 1823(e), those policies being designed to allow the FDIC to look at the bank records and take those records at face value and not have to look outside the bank records.

Unidentified Justice: Mr. Taranto, why aren't those policies equally implicated by fraud in the execution?

Richard C Taranto: The policies as we understand them are designed to allow people who make... who assume obligations, make a note in this case, to insist that any term that they think is relevant to the note be placed in writing.

There are certain cases like fraud in the execution--

Unidentified Justice: Well, I understand that, but from the point of view of the FDIC, does it really make any difference whether the facts as your opponent alleges here, or just changed a little bit, supposing the bank president wrote up an agreement with the different sized acreage and he showed it to him and says, this is what the deal is going to be, and then he went home and substituted a page without telling him, and what shows up in the files is what we've got.

From the point of view of the FDIC, why is one any more... any different from the other?

Richard C Taranto: --Well, we do think that the statute places some limitations on the FDIC's protections.

The FDIC can't simply say... it can't win in all cases regardless of facts.

The emphasis in the statute on the writing--

Unidentified Justice: It seems ironic to say that the use of the actual knowledge doesn't matter.

In one case actual knowledge of the FDIC they still can prevail.

The other case they don't know but they lose.

Richard C Taranto: --We think the critical distinction is whether the borrower had an opportunity to place in writing conditions he relied on and failed to exercise that opportunity.

That is a distinction that we think comes out of the D'Oench case, which spoke about a borrower not even--

Unidentified Justice: He had the opportunity in the fraud in the execution case, too.

Richard C Taranto: --But as I understand your fraud in the execution case, the borrower didn't have any opportunity to prevent the bank from doing what later turns out to be fraud, as in the Mio case.

Unidentified Justice: Mr. Taranto, don't you at some point have to come within the terms of the statute?

What is your argument that makes these agreements?

Richard C Taranto: We think that any basis of the bargain, any representations, whether they are factual or promissory, constitute warranties which in ordinary commercial law are agreements.

We also think that the fraudulent intent behind any of those representations cannot be relevant, because this rule, like a holder in due course rule, is intended to protect third parties, and where third parties are the object of the protection, the objective words exchanged are what has to matter.

And as I suggested, that is a view that we think is supported first of all by the petitioner's concession at every level in this case that if the--

Unidentified Justice: Wouldn't the fraud in the execution that Justice Stevens mentioned to you qualify as an agreement in those terms?

Richard C Taranto: --If I understand that fraud in the execution example, that may well be a real defense in holder in due course doctrine.

Unidentified Justice: Well, I know, but the statute doesn't say anything about holder in due course.

It says an agreement.

And if the bank says here is what you are going to sign, and then substitutes another document, there has been an agreement, there has been a representation.

Richard C Taranto: I am not sure--

Unidentified Justice: It sounds to me like it is as much an agreement as--

Richard C Taranto: --I am not sure that in that case the asset would be one that the petitioner can fairly be said to have obliged himself under, so that... however one fits the... that example into the language of the statute, there has never been any attempt by the FDIC to depart radically from the basic distinction in the holder in due course doctrine between the personal and the real defense.

It is only when a borrower has an opportunity to protect himself and fails to take it that we think the statute applies, that there is an agreement that cannot be valid against the corporation.

Unidentified Justice: --One of the conditions to establish fraud in the execution, as I recall, is that the person asserting it not have had an opportunity to detect a fraud.

That is, he can't come in and say, you know, the agreement that was presented to me was not the one I thought I was signing.

The court would simply say, you know, was it given to you, and were you given an opportunity to read it, and if he said yes fraud in the execution wouldn't apply, would it?

There has to be some chicanery that deprives him of the opportunity to see what he is executing.

Richard C Taranto: That would certainly be one way of accommodating that exception.

Unidentified Justice: I don't know if it's a way of accommodating.

Am I right on the law?

Is that--

Richard C Taranto: As I understand, that is the essential rationale behind most, if not all of the real defenses, forgery, duress.

Unidentified Justice: --I am just repeating what the Chief Justice asked you earlier.

Do you think Congress had this distinction in mind?

Richard C Taranto: There is no evidence specifically in the legislative history--

Unidentified Justice: Or in the statute.

Richard C Taranto: --or in the statute that Congress surveyed the whole range of questions that could arise when the FDIC seeks to enforce a note that it obtains from the bank, and I might add at this point that that is the primary reason why we think any argument about preemption of common law, if we were to get to that, cannot survive.

That is, whatever Congress was doing in passing Section 1823(e), they were not saying, let's think about all possible defenses and then specify these defenses and only these defenses are to be forbidden.

They simply addressed what I think they understood to be one problem, a problem that grew out of the D'Oench case and more specifically, as we show in our brief, out of a Third Circuit case that prompted the introduction of the legislation.

Now, it is true that our position, by reading Section 1823(e) to grant the FDIC holder in due course status as a matter of law puts the FDIC in a much more favorable position than the bank itself would be in, but as Justice Jackson said in the D'Oench decision, the corporation, the FDIC, did not simply step into the shoes of local banks.

The purposes sought to be accomplished by it can be accomplished only if it may rely on the integrity of banking statements and banking assets.

That reliance is critical at at least two different places in the overall deposit insurance system.

Unidentified Justice: When you talk about the integrity of banking statements and so forth, ordinarily that would not be thought to suggest that a statement of a bank showing a note payable for $300,000 was free of any defenses like fraud in the inducement.

You wouldn't say that statement lacked integrity if they showed on their statement a note for $300,000.

There may be defenses to a note like that.

Richard C Taranto: As against the bank?

Unidentified Justice: Yes.

Richard C Taranto: Yes, and as against the bank officers in this case a fraud defense not only could be asserted but has been asserted and remains alive in this case.

Unidentified Justice: So I don't see where you get into the sense of integrity of the bank statements.

Richard C Taranto: I think what Justice Jackson had in mind when referring to the integrity of banking statements was the FDIC in its several roles as examiner of the institution and then as the insurer that steps in once a bank fails must be able to take those bank statements in effect at face value the way a holder in due course would take a note purchased in good faith at face value.

Unidentified Justice: But the inference from that observation would be that if the FDIC knows that there is no integrity to a bank statement, why should they win, if they know that this is a false statement?

Richard C Taranto: I think there is a statutory answer and then a policy answer.

The statutory answer is that an actual knowledge requirement simply, we think, cannot be fitted into the language of 1823(e).

The policy... and all the courts have agreed to that.

The policy answer is that unlike an ordinary holder in due course or good faith purchaser, the FDIC is not in a position to simply walk away from the transaction.

The FDIC has certain obligations.

One way or the other it is affected by the value of this asset.

Either it has to pay the deposit insurance up to $100,000 for each depositor, or it has to infuse some of its own money into the system either to assist the bank or to arrange for a new bank to take over the failed institution, but the FDIC cannot simply upon hearing that there is a problem with the asset say, I won't have anything to do with it.

The FDIC is in effect an involuntary creditor, and the protections should accordingly be stronger than in the ordinary holder in due course.

Unidentified Justice: Mr. Taranto, the old common law rule under the D'Oench case, would that yield any different result possibly?

Richard C Taranto: I think that there are situations in which the O'Dench rule would cover... that it would cover certain situations that in our view 1823(e) would not.

Unidentified Justice: What type of situation would--

Richard C Taranto: Principally it applies and has been consistently to apply to the FDIC acting in its capacity as receiver.

There are in fact very few cases that apply D'Oench where in our view 1823(e) would not apply.

There may be some situations, for example, where a failed bank has played the lead role, and a loan participation has been arranged.

In many situations the participating bank has some kind of informal understanding that if the borrower defaults, then the loan participation comes to an end and the lead bank has to take it back.

What the FDIC is presented with in that situation is simply the lead bank's participation and the participant bank is coming in and saying not that that asset should be diminished, but that the bank has to take on a new obligation that doesn't appear in the books.

We think that that, too, would be a situation that would be covered by D'Oench, because the bank, the participant bank would have lent themselves to a transaction that was likely to mislead bank examiners.

But on the whole, in our view Section 1823(e) as to the FDIC in its corporate capacity does in fact cover what D'Oench covers.

Now, the role that this statute plays if read as entitling the FDIC to rely on bank records as a holder in due course would, comes into play first of all in... with respect to the FDIC's role with open banks, and that role is chiefly to ensure that those banking institutions don't in the end threaten the solvency of the fund.

Congress has given the FDIC extensive powers to examine banks, and what is critical is that in those examinations the FDIC examiners be able to rely on the books and records of the banks as they appear and not have to be interviewing people outside the bank, investigating the particular law, of Louisiana in this case, and making its own assessment not about the practical collectibility of particular assets, but about their legal enforceability if on their face they appear to be fully valid.

The second place in the system that this ability to rely on bank records is critical is when a bank fails.

When a bank, an insured institution, fails, the FDIC has several options.

It has long been recognized that the preferred option is not to close the bank and pay off depositors, but to try to keep the bank open, and that is done through a purchase and assumption transaction, whereby another bank, usually in the community, takes over the failed institution.

That is preferable for a number of reasons.

For one, all depositors are fully paid, not simply up to the $100,000.

It keeps the bank open and avoids disruption of the banking services in the community, and it preserves the going concern value of the bank.

An assuming bank is typically willing to pay some substantial amount of money to get new branches.

Congress itself has recognized these advantages.

Even recently, this summer, since the briefing in this case was completed, Congress added yet a new method by which the FDIC can keep a bank open, create the possibility of a temporary bridge bank in Title 5 of the Competitive Equality Banking Act of 1987.

What is critical is that although that option is preferred under the statute, it may be exercised only if it is less costly than the principal alternative, simply closing the bank and liquidating it.

And the ability to rely on the written assets of the bank is critical in three respects at this stage.

First of all, of course, it increases the value of those assets and makes the preferred option more likely to be taken.

Second of all, the determination of which option may be taken, that is, the assessment of which option is more or less costly, must be made very quickly, and that means that simply as a matter of ensuring the accuracy of the determination the FDIC should be able to rely on the bank's records.

And finally, when the bank fails, the question is not whether a loss is going to be avoided entirely.

The question is who will bear the loss.

Now, it is possible that in this case Mr. Caughfield or the other bank official involved can successfully be sued, and petitioners will not have to bear this loss, but as between petitioners and the FDIC, it seems to us quite clear who should bear that loss, because petitioners had an opportunity to protect themselves by insisting that these terms be placed in writing, and the FDIC, of course, did not.

The FDIC came in after the transaction was completed.

Here, in addition, it should be noted that unlike in the D'Oench case, all we are talking about is whether petitioners must repay money that wasn't theirs to begin with, that was borrowed from the bank.

In the D'Oench case this Court precluded a defense by the maker of an accommodation note and required that person to pay money that was his to begin with, that he had not borrowed, so we think fairness considerations as well as requirements of the FDIC system require the same results.

Let me say a word finally about the common law issue.

As I have mentioned--

Unidentified Justice: --Do you think the result in D'Oench would have been different if the FDIC had known that the note was really not a note at all, it was a spurious note?

Richard C Taranto: --We think D'Oench either expressly or all but expressly says that the result would not have been different because it says whether bank examiners were in fact deceived or not is simply irrelevant to the issue.

The only requirement for deciding that the notemaker as opposed to the FDIC fund should bear the loss is that the notemaker lent themselves to a transaction that would tend to deceive bank examiners.

If those are enough, then an actual knowledge requirement is simply irrelevant.

Briefly, on the common law issue, our first point, as we suggested in our brief, is that 1823(e) cannot be read as a preemption of common law, of common law making power of the federal courts in these kinds of cases.

Unidentified Justice: Well, do you ordinarily speak of that sort of thing as preemption?

Richard C Taranto: Well, I think some of this Court's cases have spoken about it as preemption.

It is not preemption in the same sense as federal preemption of state law, but what we have here is a general jurisdictional grant by Congress and Section 1819 4th says that any case involving the FDIC arises under federal law.

There is no suggestion in the legislative history, we think, or in the statute itself that what Congress was doing here was like what it was doing in the principal cases relied on by petitioner.

Congress did not, as I have suggested, survey the entire realm of possible defenses and make a considered judgment that these and only these defenses were to be precluded, and all other defenses available under state law were to be recognized.

And we think that once the issue of preemption is out of the way and that it is acknowledged that if 1823(e) does not itself cover the facts here, that the common law making powers of this Court should lead the Court to reach the same result that the Fifth Circuit reached on statutory grounds.

Under the Kimbell Foods analysis, all three factors, we think, lead to the result, first, there is a need for uniformity in the federal rule because there is a single nationwide deposit insurance fund that is threatened every time there is a half a million dollar loss threatened.

Second, federal policies, as I have tried to explain them and as they are reflected in 1823(e), would be frustrated by disabling the FDIC from relying on bank records.

And finally, we don't think that there would be a serious interference with private practices based on state law, and the principal reason for that is that when an individual deals with a bank the norm is that obligations, promises and representations be placed in writing.

Unidentified Justice: The bank is subject to the same fraud laws in most states as any other.

If they lie or deceive a transaction can be set aside.

This certainly changes that.

Richard C Taranto: It certainly does, but in both common law and now for 40 years in federal law with respect to the FDIC for those who come in after a bank fails to be in a better position, whether they are a receiver or corporation.

Unidentified Justice: Since you never know whether a bank is going to fail, it just alters a very substantial part of ordinary common law governing fraud, doesn't it?

Richard C Taranto: Well, the considerations that an individual would ordinarily be expected to take into account should include the considerations about what will happen if the bank fails, just as somebody buying a security of some type from a corporation should take into account priority rules that may occur if the corporation goes into--

Unidentified Justice: It may be a desirable result but I don't think it is accurate to say that nothing would be changed if we did that.

Richard C Taranto: --The principal change, we think, would be exactly the one that Congress intended to encourage in 1823(e), which is to add an extra measure of encouragement for people when dealing with banks to place everything that they understand to be a basis of the bargain in writing.

If the Court has no further questions.

Chief Justice William H. Rehnquist: Thank you, Mr. Taranto.

Mr. Shockey, you have four minutes remaining.

ORAL ARGUMENT BY WILLIAM C. SHOCKEY ON BEHALF OF THE PETITIONER -- REBUTTAL

Mr. Shockey: When this bill that became this Act moved through the legislative process, it was amended on the House floor, as I recall, to change the word which was "simultaneously" in the original draft, talking about when this agreement must be placed in writing and all that sort of stuff, to the word "contemporaneously".

Representative Walter handled the bill on the legislative floor, and he had some remarks which are important not only for purposes of 1823(e) and what does the statute mean, but also for federal common law.

He said, in part, and this is from 96 Congressional Record 10731 and 32, he said in part,

"Prior to and up to the time of an unfortunate interpretation of the law it was believed that all legal agreements entered into by the bank and obligor were binding on the corporation, FDIC. "

He goes on, at Page 732:

"It was never the intention of Congress to give the corporation a stronger position than that of the bank, and the adoption of the amendment, my amendment, is offered to prove heretofore it was the intent of Congress that any agreement in the absence of fraud is binding on the corporation. "

This is a fraud case.

Thank you.

Chief Justice William H. Rehnquist: Thank you, Mr. Shockey.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Flagg Bros., Inc. v. Brooks - Oral Argument

Sun, 08 Aug 2010 19:13:45 +0000

Case:

Flagg Bros., Inc. v. Brooks

Media File:

77-25_19780118-argument.mp3

Related Transcript:

77-25_19780118-argument.xml

Transcript:

Argument of Alvin Altman

Chief Justice Warren E. Burger: We will hear arguments next in Flagg Bros. against Brooks and the related and consolidated cases.

Mr. Altman, I think you may proceed whenever you are ready.

Mr. Alvin Altman: Mr. Chief Justice, and May it please the Court.

The issue before the Court is the presence or absence of state action in the sale by a warehouseman of household goods, a sale of the household goods deposited by a warehouse depositor who has defaulted in payment of the storage charges, the sale being made pursuant to New York Uniform Commercial Code Section 7-210.

The petitioner is the warehouseman.

Respondents are two depositors of warehouse household goods while the facts in each case are not identical, they are substantially similar.

Both respondents, tenants in an apartment dwelling in Mount Vernon, New York were evicted from their respective apartments by a Court Order.

On the day of the eviction, the petitioner warehouseman acting on behalf of the landlord, the evicting landlord, to effectuate the removal of the household goods from the apartment to the sidewalk appeared at the apartment and entered into discussions with the respondents.

I may point out to the Court that these two occasions did not occur on the same day, there were separate occasions on different days.

As a result of the discussion in the Brookâs case, respondent Brooks requested that her household effects be removed from the apartment to the petitionerâs warehouse rather than leaving the goods on the sidewalk.

In the Jonesa case, the respondent Jones was present with the warehouseman in the apartment at the time of discussion, made a call to the Department of Social Services for the purpose of obtaining approval for getting funds to pay the transportation charges and to pay storage charges.

This was confirmed by letter of the Department of Social Services.

The Department of Social Services approved one monthâs storage.

After a period of time elapsed, both accounts became in arrears and the warehouseman threatened to sell in conformity with Section 7-210.

Respondents sought an injunction relief and a declaration from the United States District Court that Section 7-210 was unconstitutional being in violation of the Fourteenth Amendment due process.

The District Court on motion of the warehouseman dismissed the case on the ground that state action was not present.

The Second Circuit Court of Appeals reversed.

Since the Bedrock Principle of the Fourteenth Amendment is a prohibition against state action and not individual action, no matter how harmful or hurtful, the question is whether the State of New York was so involved in the sale that the action of the warehouseman maybe fairly treated as the action of the State of New York.

Unknown Speaker: Mr. Altman in that connection, just as a matter of you curiosity, if you prevail here what remedies do the respondents have under the New York System during the alleged wrong.

Mr. Alvin Altman: If we prevailed here, Your Honor, the remedies of the respondents are of course to go into Court to enjoin any action in which they feel the warehouseman has not complied with the rigorous safeguards of the statute.

Chief Justice Warren E. Burger: Or damages if they have?

Mr. Alvin Altman: They have an action for damages Mr. Chief Justice for any infraction of the statute, no matter how minute, and they have an action for conversion in the event that the infractions are willful one.

Justice William H. Rehnquist: But really all the respondents are complaining about is that the UCC gives your client an additional defense to a claim for a conversion in the State Courts of New York, is it not?

Mr. Alvin Altman: Well, that is so Mr. Justice Rehnquist, but of course in addition they have taken the position that the conferral of the right of sale upon the warehouseman is an action associated with sovereignty, is a right associated with sovereignty (Voice Overlap).

Justice William H. Rehnquist: If the UCC were not even in existence, and that there was nothing on the books at all with respect to what a warehouseman could dom common law or statutory law, presumably if the warehouseman without any contractual right to do so, took a bailorâs goods out and sold them, the bailor could sue for conversion, right?

Mr. Alvin Altman: Yes sir.

Justice William H. Rehnquist: And the UCC simply says if you follow this what you have described as rigorous procedures and I presume your opponent characterizes them otherwise, you will have a defense to that State Court action posiibly?

Mr. Alvin Altman: Yes sir.

Unknown Speaker: There is no attack here on the, even assuming the state action, there is no attack on the lien itself, is it?

Mr. Alvin Altman: No, Your Honor.

The only attack is on the conferral of the right of sale.

Unknown Speaker: On the conferral of the right to sell and in fact on these cases there was no sale with respect to either one of the named parties (Voice Overlap) is that correct?

Mr. Alvin Altman: That is correct Your Honor.

Justice Lewis F. Powell: Why is that contract between the warehouseman and the party who is (Inaudible)?

Mr. Alvin Altman: In the one case, Mr. Justice Powell, there was a storage receipt; a warehouse receipt which we claim has all of the elements of the contract in it.

Justice Lewis F. Powell: And that is received in the record here?

Mr. Alvin Altman: The warehouse receipt of the particular petitioner warehouseman and there is also a warehouse receipt which is used more commonly throughout the industry so the Court has before it the receipt issued in this particular case plus the receipt which is in common usage.

Justice Lewis F. Powell: Is that receipt the one issued in this case ended the Section 7-210?

Mr. Alvin Altman: Not in those words Your Honor.

Justice Lewis F. Powell: I thought you said it is relevant to this case if anything.

Mr. Alvin Altman: There is a provision in that warehouse receipt which confers the right of sale by the warehouseman in the event of the default in payment.

However, there is no specific pointing out of Section 7-210.

Justice Lewis F. Powell: Could you rely on that contract rather than the New York statute?

You can in deed of trust in that state?

Mr. Alvin Altman: We believe that you can rely on that contract.

Of course in this case if I may point out Your Honor, we have a special situation in that it was an emergency situation.

It was not the normal time to prepare the storage contract, the warehouse receipt in the ordinary case where there is a removal to storage.

This was an emergency whereby the goods were being removed to the sidewalk and in order to prevent that, the warehouseman took the goods into storage.

Unknown Speaker: Did the bailor sign the warehouse receipt?

Mr. Alvin Altman: No, Your Honor.

Unknown Speaker: So, how could it be a contract then?

Mr. Alvin Altman: We submit that there was an implied contract based on all of the facts in this instance.

Unknown Speaker: But not a writing signed by the party to be charged?

Mr. Alvin Altman: That is correct Your Honor.

Unknown Speaker: Well, it is like if you want to store your goods, you would store them on lease terms or we will not store them and so they stored the goods, that is what it amounts to us?

Mr. Alvin Altman: Not quite Your Honor if I may disagree.

Unknown Speaker: What more is there, in this case at least?

Mr. Alvin Altman: Well, there was the right --

Unknown Speaker: In terms of the contract?

Mr. Alvin Altman: Right, there was the right of the bailor to obtain different warehouseman if she did not agree to the terms specified by this particular warehouseman.

Unknown Speaker: (Voices overlap)

Unknown Speaker: You suggest that she knew anything?

You had any notions what the terms where when he took the goods away.

It was an emergency as you said.

Mr. Alvin Altman: That is correct Your Honor.

That is correct.

Justice Thurgood Marshall: The choice was either give it to him or leave it out on the street?

Mr. Alvin Altman: Or I try to obtain the services of another warehouseman and that is true Mr. Justice Marshall.

Chief Justice Warren E. Burger: But you are implying the contract must imply a power of sale which is in the written contract, is it not?

Mr. Alvin Altman: Yes, Mr. Chief Justice.

Chief Justice Warren E. Burger: How do you imply a power of sale in just a storage contract?

Mr. Alvin Altman: Well, Your Honor we imply it first because the statute itself should be considered and the statute itself should be considered in the terms of the contract.

That is one way and then we say Your Honor that this a --

Chief Justice Warren E. Burger: These statutes are limitations on the power of the parties to contract, is it not?

Mr. Alvin Altman: Yes, Mr. Chief Justice.

Yes, it is definitely a limitation.

Justice Lewis F. Powell: Why should not the warehouseman frame a contract that would solve this problem consistent with the terms of the statute?

Mr. Alvin Altman: That could very well be done and that is the case Mr. Justice Powell.

In the vast majority of the warehouse deposits, the contract is specific on this point, the documentation the warehouse receipt of the storage contract.

It so happens in this particular case that was not done for the reasons that I have mentioned.

Unknown Speaker: This case came to the Court of Appeals after the District Court dismissed the complaint?

Mr. Alvin Altman: Yes sir.

Unknown Speaker: And the posture of the case therefore is that we assume that the allegations of the complain are all true and it is taking those allegations.

There is no contract in this case.

The question is as you quite accurately said that outset of your argument and the only question before us is whether the action of your client was state action?

Mr. Alvin Altman: That is correct sir.

Unknown Speaker: Is that not right?

Mr. Alvin Altman: That is correct sir.

We respectfully submit that state involvement in a disputed private act must be significant, affirmative, all but ordering the challenged activity and that the delegation of sovereign power in economic due process setting is insufficient to cross the state action threshold.

We would point out that New York Commercial Code is a permissive statute.

There is no direction in the statute to sell.

The decision to sell is the decision of the warehouseman.

It is a private decision arrived at by a private party in a private transaction with no state official being present.

No state encouragement whatsoever.

Unknown Speaker: But on that point Mr. Altman, without a contract and without a statute, you think your client would have gone head and soul?

Mr. Alvin Altman: Without a contract and without the statute --

Justice William H. Rehnquist: Is not the statute a fairly important part of the whole picture?

Mr. Alvin Altman: Yes, it is.

Unknown Speaker: Otherwise, you would have to go to Court to foreclosure your lien?

Mr. Alvin Altman: That is correct.

Unknown Speaker: And the question I guess is whether it is under color of state law in the sense that it is something that would not have been done without the statute?

Mr. Alvin Altman: That is right sir and on that issue, may I say that the conferral of this right of sale is not the delegation of a power associated with sovereignty.

Far from being a power associated with sovereignty, this statute is a codification of a power to dispose a property which any private property had a common law.

The power of sale was an attribute of ownership and a common law possession was deemed to be, was presumed to be ownership.

Justice Byron R. White: Do you think under the law of bailor and bailee at common law, the bailee could sell the property without aid of the Court?

Mr. Alvin Altman: The bailee could sell the property under common law if possession had been voluntarily delivered to him, yes Mr. Justice.

Justice Byron R. White: Without going to Court at all?

Mr. Alvin Altman: Yes sir.

Justice William H. Rehnquist: Let me ask you one more question if I may Mr. Altman.

So, supposing that contrary to your answer to Mr. Justice White at common law, the bailee had absolutely no power to sell without going to Court, but the New York Court of Appeals without any statute, all it said, âWe are not going to follow that branch of the common law.

We are going to enunciate a new principle that the bailee does have the power to sell.

So that without statute, but as a result of decisional law of the New York Court of Appeals, your client would have the same right as now conferred on it by statute, do you think the case would be any different here?

Unknown Speaker: No, you do not.

Mr. Alvin Altman: In so far as a seizure is not concerned in this case, in so far as possession was delivered voluntarily, I do not think there would be any difference.

Chief Justice Warren E. Burger: Mr. Greenwald.

Argument of A. Seth Greenwald

Mr. A. Seth Greenwald: Mr. Chief Justice and May it please the Court.

My co-counsel has stated the relevant facts of this case.

The Attorney General of the State of New York has intervened and intervened at the District Court level by a way to defend the Constitutionality of the State Law and at this time, there is only one provision involved, Uniform Commercial Code Section 7-210, and of course the New York State Legislature several years ago passed that Statute, but it is my contention that that is not enough to make this a matter of state action.

I think there is really no dispute about that.

Unknown Speaker: And that is a simple enactment of the law?

Mr. A. Seth Greenwald: Precisely.

Unknown Speaker: Anybody who thereafter acts under its provisions just by reason of existence of the law that that private person is not acting like as a state, that is your point?

Mr. A. Seth Greenwald: That is precisely --

Unknown Speaker: A simple enactment of the law does not make the action of Mr. Flagg and Flagg Brothers a state action?

Mr. A. Seth Greenwald: Yes.

Unknown Speaker: The question is not of state action, is it not, the question whether it is action under color of state law?

Mr. A. Seth Greenwald: I think those two terms are basically interchangeable.

They have, I think in the past been used alternatively and perhaps confusingly.

I think that this is not the case to make any distinction rather than --

Unknown Speaker: I rather thought that you are saying there is quite a difference between the two.

I guess (Voice Overlap).

Mr. A. Seth Greenwald: Well, if this was before a fireplace that might be the time and the place, but I think in the context of this case basically under color state of law and the state action are basically interchangeable.

Unknown Speaker: Well, really what we have here is whether we are relying on the language of 1983 or whether we are relying on the language of the Due Process Clause of Fourteenth Amendment and that could be a difference, but perhaps that is as far side discussion.

Mr. A. Seth Greenwald: Yes, I think that we basically have to go back.

Section 1983 is derived from and based on the Fourteenth Amendment and I think this Court was so held.

Justice William H. Rehnquist: Well, do you not have to have both here as a matter of fact?.

You have to have under color of state law a deprivation of a constitutional right and the constitutional right is that you are not be deprived of due process by the state?

Mr. A. Seth Greenwald: Yes, that is a fair statement.

The fact of the matter is there has to be some, once again getting back to the magic words, there must be some state action that has deprived you of your constitutional rights.

Unknown Speaker: Well, there is no constitutional right unless there is a deprivation by the state, that is the point.

Mr. A. Seth Greenwald: Yes, basically of course.

Unknown Speaker: Deprivation by a private individual is not a violation of private personâs constitutional right, no matter how gross the deprivation might be?

Mr. A. Seth Greenwald: Yes and I think that was determined back in the civil rights cases, I think over century ago.

Justice Thurgood Marshall: And there had been a lot (Inaudible) with them since then?

Mr. A. Seth Greenwald: Well, I do not think that much.

I think the law has been reaffirmed only a few years ago by this Court in Jackson against Metropolitan Edison.

But I think it is worthwhile to emphasize to this Court that not only has New York passed the Uniform Commercial Code, 48 other state legislatures plus the District of Columbia have passed this Section that is under challenge here.

So, of course it is rather obvious we have a statute with nationwide impact and this statute simply regulates and authorizes the exercise of a power of non-judicial sale by the warehouseman where his customer may have disappeared, done any sort of thing and not paid his bill.

Now, there maybe a dispute about the bill, but that is something else, that is not a constitutional dispute and as I was saying, speaking about the UCC, the statute though dates much further back in UCC which is a product of distinguished group of legal authorities of the late 50s and early 1960s, it dates back in New York back to 1879 and it is based on and I would emphasized this, it is part of a Uniform Statutory Scheme of a warehouseman having a specific possessory lien of the stored goods in his possession and the statute by regulating sale by the warehouseman is basically a wholesome statute.

Justice William H. Rehnquist: And what difference does it make when New York first enacted the statute?

Supposing that there was no statute on the books and no decisional law and New York had just become a member of the union and the Court of Appeals was first established and had no cases at all on this subject, and this precise case came before it?

The Court of Appeals would have had to decide one way or another whether the bailee had a right to sell without going the Court, would it not?

Mr. A. Seth Greenwald: Well, I put it this way.

Age is not a determinant factor, but when we speak up and this Court has spoken traditional function of the state, it becomes of interest and I simply say, of interest, how old is a statute because when the Court below, this Court of Appeals' decision said that we had transferred by the UCC provision and traditional function of the state and I can cite and they even themselves cite the fact that dates back to 1879 and perhaps and even longer in other states, it hardly becomes a traditional state function for warehouseman to exercise the power of non-judicial sale when his lien which is not into question here is still outstanding.

Chief Justice Warren E. Burger: Are you going to touch at anytime on the question of possible mootness?

Mr. A. Seth Greenwald: Well, I have in my brief of course pointed out that --

Chief Justice Warren E. Burger: If you want to rely on the brief, you may do so.

Mr. A. Seth Greenwald: Yes, I would prefer to rely on my brief as I have many things to say here and I think they would go to the merits.

As I say and I mention the Jackson against Metropolitan Edison Case which had to do with utility cut offs, this Court enumerated, it went to the extent of enumerating what a traditional functions of the state and quite interestingly, not one of them even closely approached non-judicial sale by warehouseman or anyone else.

It is really a total stretch of the imagination to call non-judicial sale which was only threatened in the instant case and never carried out or cannot be now, to call that a traditional function of a sheriff because a sheriff has a significant power of sovereignty that the warehouseman does not have.

Basically stated, a sheriff seizes property and this is something that the warehouseman cannot do, did not do in this case, and never will do because his lien is based on voluntary consensual possession and there is another aspect when you are speaking about state action.

It has been generally recognized that this Court and any Court is much quicker to find a delegation of state function, a traditional state function in a case that involves racial discrimination because that racial discrimination is at the heart of the purpose of the Fourteenth Amendment when it was passed and what we all know is that that accredited relations really had nothing to do with the passage of the Fourteenth Amendment, it was not involved one iota and I think it is rather obvious that in New York, a sale by a warehouseman like they are challenging here and claiming the state action the respondents are claiming is not a traditional state function.

Now, there is some authority in the New York Court of Appeals which the respondent cite says it is a traditional state function.

That is the Blye Case, but I emphasize and I was in involved in the Blye Case, I argued that for the Attorney General up in Albany.

That case involved a lien sale, simply liens not a lien sale involved in innkeeperâs lien which is a basically different type of lien than a warehousemanâs lien.

And finally and most importantly, the decision of the New York Court of Appeals simply does not control this Court.

Even the cases that respondent cites, shows that you make an independent determination of case where there is a federal constitutional issue and once again, I would emphasize that the question of state action here is one of great importance because at the present time, you have a conflict in the circuits.

The Ninth Circuit in California has --

Justice Thurgood Marshall: Mr. Greewald you are down to five minutes.

Are you going to get to the Chief Justice's question's mootness.

As I understand, that Mrs. Jones paid the money and that the only by agreement they removed them.

Mr. A. Seth Greenwald: Well as I said and Chief Justice accepted my statement that I would rely on my brief.

Chief Justice Warren E. Burger: Well, I did not.

Mr. A. Seth Greenwald: But you have not.

Okay, then I will address my answer.

Yes, the point is that Mrs. Jones, the late Mrs. Jones at the termination of the District Court Case by her own action paid her bill and got her goods back.

It was not case of Mr. Altman trying to moot this case out.

This was a matter of the plaintiff taking action in effect to resolve the question, a question now states that she did not get all her goods back and some were in damaged condition, but that is a state law of question, it is certainly not a constitutional issue and I might point out also of course that my co-counsel has different views as to the mootness of this case and he has a client who is very anxious to get this matter resolved because it has been around for an awful long time.

But I have pointed out to Your Honors that having an actual case of controversy is a necessary ingredient of the case and I felt the obligation to inform Your Honors.

At this point, I would like to reserve my --

Unknown Speaker: May I just phrase it down Mr. Greenwald, We have an Amicus Brief here from the New York State Consumer Protection Board taking a position as opposed to yours.

Mr. A. Seth Greenwald: Yes,

Unknown Speaker: You represent the State of New York and this is a State Agency you know that --

Mr. A. Seth Greenwald: Well, once again, yes, this is the second time, at least on my own personal experience that you have a Amicus Brief opposing the Attorney General from the Consumer Protection Board.

Justice William H. Rehnquist: From a State Agency?

Mr. A. Seth Greenwald: Yes.

Well, they perform some state function.

As we say, it is questionable who they represent.

It is also questionable and is not questionable, there is no doubt under the New York State Law they have no right to come into court cases even when this law gives them a right to appear at a Regulatory Agency Hearing, a Public Service Commission.

Even though they could appear at that hearing, they cannot then go into challenge the matter.

So, I emphasize that the views of the State of New York are presented by the Attorney General, not the Consumer Protection Board.

Chief Justice Warren E. Burger: Mr. Schwartz.

Argument of Martin A. Schwartz

Mr. Martin A. Schwartz: Mr. Chief Justice and May it please the Court.

Before I commence my argument I would like to address the question of mootness.

Mrs. Jones claims that the $16,00.00 payment she made during the course of the litigation was not made voluntarily, but at least in part because of the threat of sale.

She would have a claim for damages at least for a part of that $16,00.00 payment.

In addition, I closely point out to the Court that the defendants charged Mrs. Jones an auctioneerâs fee presumably for a schedule to sale and under the Code, in order for a person whose goods are stored to exercise a right of redemption, part of the cost which must be paid are the fees involved in the carrying out of the contemplated or actual sale.

I think this claim for damages is efficient to keep the case alive.

I would also point out that in all of these Consumer Due Process Cases which have been brought the last few years, there is virtually an inherent problem in mootness.

We pointed this out to the Circuit Court.

We prepared in appendix in the Circuit Court which listed the various cases and the status of the good during the litigation and it is inevitable that a threat of sale will not continue during an entire lengthy litigation period.

We brought this case at the time the threat of sale existed.

We submit that was as proper time to bring the case to try to stop the sale.

The lawsuit served that purpose, but it is not reasonable to suppose that that threat will continue during the course of a three or four-year litigation period.

I would say that the capable of repetition yet evading review doctrine would also apply to these type of situation and I would also point that --

Justice Thurgood Marshall: Well, the woman had, it seems to me that woman I think it was who paid $16,00.00 is not automatically in danger of not being able to pay storage in the future.

She paid $16,00.00.

Mr. Martin A. Schwartz: But she claims that one reason for that $16,00.00 payment --

Justice Thurgood Marshall: Yes, I know but she did got together $16,00.00.

Mr. Martin A. Schwartz: But she claims it was not a voluntary payment.

This woman was left without all her possessions for virtually a two-year period Your Honor and of course the payment of the auctioneeras fee would only have to be made because the statute was invoked against her.

I also would like to point out that we have filed an action on behalf of a client whose goods have been sold already in the Southern District and it is assigned to the same judge before whom the Brooksa case was assigned and the only reason that we could not move to intervene at that point into the Brookas action is because the Circuit Court stayed its own mandate remanding the action to the District Court pending proceedings in this Court.

So, there is another case which has been filed.

It was just a mere formality.

I would also point out that the parties did stipulate to the propriety of the class here.

There was no certification.

The District Court never so ordered the stipulation.

Unknown Speaker: Well, some of the parties stipulated not all of them.

Mr. Martin A. Schwartz: Well, at the time the stipulation was entered into, Your Honor, the Attorney General and the associations were not parties to the lawsuit.

Unknown Speaker: But now they are.

Mr. Martin A. Schwartz: Now, they are but a

Unknown Speaker: And they have not stipulated.

Mr. Martin A. Schwartz: I would also point that the action clearly meets all of the requirements of Rule 23 (a) and (b) 2.

It is clearly the type of action that Subdivision (b) 2 was intended to apply to it.

Justice Thurgood Marshall: We can consider unless it was not certified.

Mr. Martin A. Schwartz: I understand that Your Honor.

I am just saying that it is another factor to consider if the case was remanded back to the District Court as the Circuit Court contemplated.

The Circuit Court opinion I believe, contemplates that the action is a proper class action, but that the only question is the propriety of the scope.

We did everything possible to get this class certified.

We entered into a stipulation, went to over side or whatever the stipulation was not approved.

We moved for class certification.

The District Judge did not pass on the certification.

We appealed.

Unknown Speaker: And then you have the summary judgment.

Mr. Martin A. Schwartz: We moved for a Class Certification and Summary Judgment at the same time Your Honor.

We then appealed from the denial of the Class Certification as well as they say, the only reason there is any mootness problem here at all is because the Certificate Court stayed its own mandate otherwise this new client, Mrs. Fence would have intervened into the Brookâs action, but we do have an action filed on behalf of somebody who is good to solve.

Your Honors, the point of contention is that state action is present in this case because we have a direct, precise and significant nexus between the stay and the contested activity.

The state has delegated two warehousemen.

The extraordinary power to summarily sell bailoras goods and in doing so, we contend that New York has delegated to warehouseman, the public functions of reinforcement and non-consensual dispute resolution.

Unknown Speaker: Without that delegation, where would the power of sale be?

Mr. Martin A. Schwartz: There would be no power of sale Your Honor and despite what my adversary said, the authorities are in consistent agreement and we cited them in the brief, there was no power of sale at common law.

It is clear; I do not know how my adversary can make the statement to the contrary.

Baileeas right to common law was merely the right to became possession of the goods.

Unknown Speaker: And goto court, he could go to court?

Mr. Martin A. Schwartz: He could go to the court.

The normal common law if the bailee sought to enforce his lien, his remedy was to bring in action in court and if he proved his claim and defeated offenses and obtained the judgment, the sheriff would then levy execution on the very goods that was sold.

Unknown Speaker: Well, in some respects that involves almost more state action than it this, does it not?

Mr. Martin A. Schwartz: I would say that this is a direct substitute for that process.

That is a judicial process, judicial determination and judicial enforcement and our position is that a person whose goods are sold under this statute, under Section 7-210 stands in the precise posture of a defendant and a judicial action against whom a judgment has been gotten and enforced with one exception and that exception is that the person whose goods are sold under Section 7-210 does not get an opportunity to be heard prior to sale, whereas the person whose goods are sold after a judicial proceeding presumably does.

Justice William H. Rehnquist: Is your claim of state action based on the legislature's enactment of the statute?

Mr. Martin A. Schwartz: Our primarily claim Your Honor is that the enactment of the statute constitutes the delegation of power which is normally associated with sovereignty.

Justice William H. Rehnquist: Okay.

Supposing that without any such statute, the New York Court of Appeals as a matter of common law had reached precisely the same result?

Mr. Martin A. Schwartz: My position would have to be the same.

If the New York Court of Appeals had recognize that the extensively private sector has the power to exercise functions which are governmental in nature, we would nevertheless have a delegation from the public sector to the private sector of governmental power.

Justice William H. Rehnquist: So it is not the enactment of the statute.

It is the any recognition by a Body in New York that is capable of laying down law that a warehouseman has a defense to a conversion action in this situation?

Mr. Martin A. Schwartz: It is the delegation of sovereign power by any branch of the government.

That is right Your Honor.

Justice William H. Rehnquist: What would say delegation of sovereign power but all that really is a defense to a conversion action?

Mr. Martin A. Schwartz: It is more than a defense Your Honor because these goods are sold without a hearing.

Justice William H. Rehnquist: Well, but in a conversion action, the goods may have been taken without a hearing.

Mr. Martin A. Schwartz: A conversion action come about because of an unlawful sale and what this statute does is make this sale lawful.

It makes what would have been an unlawful act a lawful act.

Justice William H. Rehnquist: So, it gives them a defense to an otherwise unlawful act to where the conversion is?

Mr. Martin A. Schwartz: But it gives them more than a defense.

It gives them much more than a defense.

It gives them a defense if an action in conversion is brought.

But if an action in conversion is not brought, it gives them the power to resolve this dispute by selling a personâs goods summarily.

Justice William H. Rehnquist: Well, just as if a converter takes your goods and does away with them and you never sue him, he gets away scot free?

Mr. Martin A. Schwartz: Well, that is true but if a case was brought it would be an unlawful act.

The state here is making lawful what would otherwise be clearly unlawful in common law, there is no question of that.

Chief Justice Warren E. Burger: That alone certainly, if you got to go further than that.

Mr. Martin A. Schwartz: We do not rely on that alone.

The heart of our claim is this.

That this person whose goods are sold stands in the same position as a defendant in a judicial proceeding against whom a judgment was taken and against whom that judgment was enforced by this power of sale of his goods and we would say what is involved here are the combination functions of non-consensual dispute resolution which is normally, historically, and traditionally carried out by the courts together with lien reinforcement which is the enforcing mechanism which is normally carried out by sheriffs and constables.

Unknown Speaker: If it were clear in common law that this power of sale existed, would you be making the same argument?

Mr. Martin A. Schwartz: I would have to consistently Your Honor because the common law would then be recognizing that the private sector has what we claim to be a power of the sovereign.

I cannot --

Unknown Speaker: Consistent argument as to what the common law was to be immaterial?

Mr. Martin A. Schwartz: No, I do not think it is immaterial.

Perhaps the Circuit Court stated the proposition to broadly when they spoke about the statutory reversal of the common law in a vacuum.

I think the statutory reversal of the common law is relevant into somewhat limited respects.

First of all, how the function was carried out at common law tends to give us some evidence as to whether that function was in the private and public sector.

For example in this case, it is clear that the private sector did not have the power to determine these disputes and to enforce liens.

So with some evidence that the power was not lodged in the private sector at common law and on the contrary in response to Mr. Justice Whiteâs question, I stated that that what happened at common law was that the lien would in fact be enforced after a judicial proceeding and enforcement by the sheriff so that at common law this is a function which is historically and traditionally was carried out by courts and sheriffs and constables.

In addition, I think the lack of common law authority is significant in that it shows that when the warehouseman does exercises his power, he is acting under and only under this particular statute, he must be acting in reliance upon the statute.

Unknown Speaker: Would you be making the same argument if all that the state law said is that bailor or bailee situations, we will go just by the contract whatever the parties agree to.

So, if the party has agreed to a private sale that would be state authorization of a private sale and that would be enough for you I take it?

Mr. Martin A. Schwartz: Your question presupposes a valid contract?

Unknown Speaker: Yes, it does.

Mr. Martin A. Schwartz: All right.

If we had a valid contractual power of sale, I would say that this would be a prime example of a credit as remedy which came about as a result of a contractual voluntarily agreement.

Unknown Speaker: Even though it comes about because of the state law simply authorizes parties to agree on a private sale, would that be state action?

Mr. Martin A. Schwartz: Now, you are assuming the existence of the statute?

Unknown Speaker: Yes, I am.

I am just trying to find out.

Mr. Martin A. Schwartz: Then there would be state action because the only, let me make sure I have this question straight.

We have the statutory power of sale.

Unknown Speaker: The statute says, whatever the parties agree to with respect to a private sale is all right with us, that is what the statute says and the parties agree to a private sale.

Now, is the state involved in that?

Mr. Martin A. Schwartz: If it is totally contractual, I would say that the state is not involved.

Justice William H. Rehnquist: But the whole source of enforcement of law for contracts is the state sovereignty under Austin or anybody else.

In many societies a written agreement between two parties is not enforced by the sovereign.

Mr. Martin A. Schwartz: But if we have a valid contract with a power of sale in that contract.

Unknown Speaker: Valid, you have automatically had reference to state law right there.

Mr. Martin A. Schwartz: Well, we may have reference to state law, but the power of sale came about because the parties mutually, consensually agreed that upon default the warehouseman would have the power of sale, that is not what we have in this case.

In this case we have a power of sale which exists only by operation of the statute.

Justice Thurgood Marshall: Well, you do agree that there is a lien, in common law there was a lien?

Mr. Martin A. Schwartz: We do not contest the lien.

The constitutionality of the lien we are not contesting.

Justice Thurgood Marshall: What does a lien mean that you can sell it?

Mr. Martin A. Schwartz: The lien at common law is defined as the right to detain the goods indefinitely until the bailor makes all the payments which the bailee claims are due and owing.

Justice Thurgood Marshall: And?

Mr. Martin A. Schwartz: And that is all.

Justice Thurgood Marshall: No, and he can go to court?

Mr. Martin A. Schwartz: He can go to court, but any other creditor can go court too.

The norm for is for a creditor who claims he has an amount due and owing to bring a judicial proceeding, prove his claim, if he can defeat defenses, obtain a judgment and seek to enforce that judgment.

This statute in effect short circuits that entire process.

If I could get back to Mr. Justice Whites question, the difference between a contractual power of sale and the statutory power of sale is the difference between voluntary dispute resolution which is historically and traditionally been in the private sector and involuntary, non consensual dispute resolution which has historically and traditionally been the function of the courts and the sheriffs.

Well, I see that it is 12 o'clock if I might complete my argument after.

Chief Justice Warren E. Burger: Well, we will allow you to start at 1 o'clock.

Mr. Martin A. Schwartz: Thank you.

Chief Justice Warren E. Burger: You may continue Mr. Schwartz.

Mr. Martin A. Schwartz: Thank you, Your Honor.

In Jackson versus Metropolitan Edison Company, this Court stated that the characterization which the State Courts give to a function as to whether that function is public or private in nature is entitled to wait in making the determination whether the state has delegated a public function to the ostensibly private sector.

The rationale for this, we respectfully submit is that just as the State Courts have the expertise --

Chief Justice Warren E. Burger: Now, you say a public function and sort of lost me there.

What about the State of New York, I assume grants licenses to truck lines as well as the --

Mr. Martin A. Schwartz: The granting of the license itself of course would be a public function, but the activity is carried out under that license, might be public, might be private, depending upon the nature of the powers that were delegated.

Chief Justice Warren E. Burger: Some trucking companies own warehouses and some warehousing companies own the lines of trucks too, do they not?

Mr. Martin A. Schwartz: The general everyday activities of warehouse companies, I would concede are functions which are private in nature.

They are genuinely contractual relationships, contracts of moving and storage.

The question here is whether the stateâs delegation of the power of summary sale is of that type of nature whether it is private in nature or whether this is the type of function which is historically and traditionally has been associated with sovereignty whether it is a public function and my point is that the characterization given by a State Court as to whether that function is public or private in nature should be given some weight by this Court in making that determination and the rationale for that is that the State Courts just as they have the expertise on questions of state law or in a particularly good position particularly the highest court in the state to evaluate whether a function is public or private in the particular state.

In this case, in New York, the New York Court of Appeals in Blye v. Globe-Wernicke Company has concluded that in New York lien enforcement historically and traditionally has been the function of the sheriff.

Now, the Attorney General seeks to distinguish the Blye case as a case involving a seizure of goods under the inn keeperâs lien law.

However, the Court of Appeals in Blye did not hold that it is a seizure which constitutes a public function, but rather held that it is the execution of a lien, regardless of the method of lien enforcement which in New York has been the function of the sheriff and in fact cited two types of liens.

Judgment liens and liens which arise from an action to judicially foreclosing mortgage which are liens which can be enforced by sale and without seizure.

In addition, the appellate division in New York has concluded that lien enforcement where accomplished by sale and without seizure is also a function which historically and traditionally has been the function of the sheriff in New York.

Unknown Speaker: But you do not contend that the actual sale is an act by the state, do you?

Mr. Martin A. Schwartz: It is not an act by a state official.

Unknown Speaker: Or is it by the state?

Yes, it is an act which is equivalent to the exercise of sovereign power.

It is something which we contend.

Unknown Speaker: Well, you would not say the state is liable.

If for example, the person misuses the power.

Mr. Martin A. Schwartz: We would not say the state is liable.

We would say that the state would be liable in Evans v. Newton, and in the case where the function of running a park has been delegated.

It is public under the state action doctrine.

It does not mean that the state has liability for the acts of the defendant.

That would be true in all the public function cases which this Court has decided.

I would also stress that the decisions --

Unknown Speaker: But your point is that this defendant has liability as though it were of the state?

Mr. Martin A. Schwartz: Our point is that this defendant is bound to comply with the Fourteenth Amendment.

Unknown Speaker: Because as though it was a state?

Mr. Martin A. Schwartz: That is right.

Unknown Speaker: And that is why it is liable under 1983?

Mr. Martin A. Schwartz: That is right, but that does not make the state qua state liable which I took to be Mr. Justice Whiteâs question.

Unknown Speaker: I suppose that for the foreclosures done by a sheriff and the sheriff was out and if he absconds though or if he does something wrong, perhaps you could sue him under 1983?

Mr. Martin A. Schwartz: The sheriff would be liable with the one exception that he would have a good faith immunity from liability for damages.

He is subject to liability in the first Section 1983 (Voice Overlap).

Unknown Speaker: In the warehousemanâs situation if the private seller mis-performs, can you sue him under 1983?

Mr. Martin A. Schwartz: Well that raises a question which I (voice overlap)

Unknown Speaker: Is it state action or is it not?

Mr. Martin A. Schwartz: We contend that it is state action whether damages would flow from the private party's wrong and this situation whether this (Voice Overlap)

Unknown Speaker: But you can get into Court under 1983?

Mr. Martin A. Schwartz: We can get into the Court on 1983 action.

Unknown Speaker: Claiming that his private seller was exercising state power and therefore should answer for what?

Mr. Martin A. Schwartz: Injunctive relief, declaratory relief, and damages with the possible exception that whether or not this dependent would have a good faith immunity is I believe a question which this Court has not answered.

Otherwise whether this type of defendant would have the same immunity as a sheriff or other executive or administrative official are only qualified in that respect.

The decisions of the New York Court (Voice Overlap)

Unknown Speaker: But at least the sheriff when he is making the sale as a neutral, but when the sale is made under power of sale, either expressed or implied, the selling official is not a neutral, is he?

Mr. Martin A. Schwartz: Absolutely not, Your Honor.

We contend that that makes this statute worse than the statutes which were involved in the Sniadach Fuentes and Di-Chem Cases.

Unknown Speaker: Would your theory make all powers of sale under mortgages and trusts both real and personal property state action?

Mr. Martin A. Schwartz: Absolutely not, Your Honor because they come about as a result of a contractual agreement.

We sharply distinguish --

Chief Justice Warren E. Burger: But it is a substitute for what I think you have at least implied is the traditional common law Sovereign Act?

Mr. Martin A. Schwartz: It is a substitute Your Honor when it is exercised as a result of non-consensual dispute resolution.

When it is a substitute for the functions exercised by the courts and sheriff, it is not a substitute when it comes about as a result of a voluntary neutral agreement between the parties that historically and traditionally has been in the private sector.

Unknown Speaker: Mr. Schwartz, may I ask you a question?

If there were non-compliance with the statutory procedure, say the failure to give a notice statutory required something like that, would you say that was state action?

Mr. Martin A. Schwartz: Sure.

Unknown Speaker: Could you sue in a Federal Court on the ground that there was a failure to comply with the state --

Mr. Martin A. Schwartz: The failure to give the notice might constitute not only a state law, but if there is state action in this case as we contend then it would also constitute a violation of the due process for us because our substantive claim is that an owner of the goods should be given adequate notice and some opportunity to be heard prior to sale.

Unknown Speaker: But if he acts without the statute, without complying with the statute, is he then acting under color of state law?

Mr. Martin A. Schwartz: Your Honor, he might be acting in violation of state law.

Well, it means in threatening to sale or in engaging in the sale itself, he would necessarily be invoking the power of the statute, otherwise he could not sell.

Unknown Speaker: What I am really asking is, is it your position that the Federal Court has jurisdiction of every case arising under one of these statutes or are you only contending that the Court has jurisdiction to determine a constitutionality of the basic procedure, I guess your argument is former?

Mr. Martin A. Schwartz: We are only arguing that the Court has jurisdiction to determine whether there has been a constitutional violation, a violation of due process which I take it to be the lack.

Unknown Speaker: But there could be a violation of due process resulting from the failure to follow the state procedure?

Mr. Martin A. Schwartz: That is right of course.

Our basic claim is that due process requires some opportunity to be heard prior to the sale, the statute does not provide for any opportunity.

Unknown Speaker: And you say there is the same kind of state action whether or not the defendant complies with the statutory procedure?

Mr. Martin A. Schwartz: I cannot see the distinction Your Honor because --

Unknown Speaker: Well, in one case he is acting under color of the state law and the other case is acting contrary to the state law, you do not draw distinction --

Mr. Martin A. Schwartz: But in exercising the power of sale, he is invoking the statutory power.

He may have engaged in some procedural irregularity along the way, but when he makes that determination to sell, and he in fact sells, he is only acting on the color of that statute.

Unknown Speaker: Well, supposed he sells at am unconstitutionally low price to his brother-in-law, and he just steals.

Now, he is exercising the state authority you say and so you could sue him under 1983 and recover damages?

Mr. Martin A. Schwartz: That is right, but not because it was fraudulent.

Unknown Speaker: No, I understand because --

Mr. Martin A. Schwartz: Because due process violation.

Unknown Speaker: Because he is exercising, at the threshold he is exercising --

Mr. Martin A. Schwartz: That is right and whether he conducted a fraudulent sale or did not comply with the procedural requirements, those are all of course generally questions of the the state law.

Unknown Speaker: Well, the state deprived him of his property without due process?

Mr. Martin A. Schwartz: That is right.

I might also say that those normally questions which would be determined at a hearing prior to the sale, in other words whether the warehouseman has a proper lien, the amount of the charges, the extent of the lien or whether the proper notification provisions were given and so forth, those are questions primarily questions of state law which would be resolved at a due process hearing prior to the sale.

It is the lack of that mechanism that brings us to this Court.

Justice Thurgood Marshall: And what about the provision in the contract that they had this right?

Mr. Martin A. Schwartz: Your Honor, there is no contractual power of sale in this case.

In the case of plaintiff Jones, the complaint alleges no contractual authorization for storage and transportation at all.

Justice Thurgood Marshall: What about the other one?

Mr. Martin A. Schwartz: In the case of plaintiff Brooks, the Bill of Lading which was given to Mrs. Brooks and I will refer you to page 19a on the record, in the most minute print imaginable refers to a right of sale.

If goods are not claimed at the shipment upon destination that refers to a carriers lien and the carrier's right to sale of the purchasing --

Justice Thurgood Marshall: Then it is not a warehouse lien?

Mr. Martin A. Schwartz: That is not a warehouse lien.

Justice Thurgood Marshall: Well, what would a warehouse lien good one do to your argument?

Mr. Martin A. Schwartz: Your Honor, a valid contractual power of sale would result in a lack of state action, but we would point out that in the Fuentes Case, this Court indicated that there are several factors that might lead, a Court as matter of state law to conclude that this type of contractual power of sale would be an invalid contract of adhesion, beyond need for bargaining power, the fact that the term is not really bargained for, if it is in form contract to find print form contract, these would be other factors which might lead the Court to conclude that there was no valid contractual power of sale.

Justice William H. Rehnquist: Does your argument not lead you to the conclusion that you could have a voluntary agreement between the bailor and bailee here which did not comply with the UCC Provision, but was perfectly valid under the Fourteenth Amendment since it was entirely consensual?

Mr. Martin A. Schwartz: If there is a consensual power of sale and it was valid as a matter of state law.

Justice William H. Rehnquist: No, supposing it is invalid as a matter of state law?

Mr. Martin A. Schwartz: Well, then we would not have a contractual power of sale.

Then in that case, the power of sale would arise wholly from the statute and the sale would be involuntary act.

Justice Thurgood Marshall: And that would mean there was no coercion that happened?

Mr. Martin A. Schwartz: That is right.

Justice Thurgood Marshall: But valid is the word that decides it whether or not it is valid?

Mr. Martin A. Schwartz: I agree Your Honor.

Justice William H. Rehnquist: So, it is just not any consensual agreement that it gets you at the the warehouseman out from under the Fourteenth Amendment here.

It has to be not only consensual, but it must also comply with the state statute which you say has delegated to the warehouseman, the stateâs ordinary function?

Mr. Martin A. Schwartz: Absolutely because that would be a pre-requisite for a valid contractual power sale and I say the distinction is critical in this case.

The distinction between contractual voluntarily powers which the parties agree to confer upon a credit such as the Article 9 transactions.

Now, on the one hand --

Unknown Speaker: In this case, are you contending that your adversary violated the statute in anyway?

Mr. Martin A. Schwartz: No, we are not Your Honor.

Unknown Speaker: So, we do not have a problem of whether or not a violation of the statute could be the state act?

Mr. Martin A. Schwartz: We do not have that problem.

In the case of Jones, we do not have a contract at all.

In the case of Brooks, we say that that course does not pertain to a warehouseman's lien, even if it did, it would be invalid as a contract of adhesion, that is what the court below stated.

Unknown Speaker: Do the members of the class that was stipulated, are they all parties who had no contracts?

Mr. Martin A. Schwartz: The quest was not limited in that respect, but I would have to concede that the quest should be limited in that respect.

Your Honors, in enforcing liens, warehousemen have been engaged in the enforcement of non-consensual binding dispute resolution.

This has been and always has been and remains an essential attribute of sovereignty.

According to Loach, one of the great and fundamental basic purposes of government is the protection of property by the establishment of courts to resolve disputes consensually when the parties cannot voluntarily do so.

From the early common law that remains so today, self-help remedies have always been very strictly limited.

We submit to this Court that our system of law recognizes that a person who is interested in the disputes such as a warehouseman should not have the power.

I see that my time is up.

Chief Justice Warren E. Burger: You may finish your sentence.

Mr. Martin A. Schwartz: A person who is interested in the dispute such as the warehouseman should not have the power to unilaterally resolve that dispute by the for sale of another personâs property without giving that other person an opportunity to be heard.

Thank you.

Chief Justice Warren E. Burger: Very well Mr. Schwartz.

Do you have anything further Mr. Greenwald?

Rebuttal of A. Seth Greenwald

Mr. A. Seth Greenwald: In response to the respondentâs argument, early on there was mention of this and has been mentioned again, a stipulation about class action.

As it has been recognized by this Court, the Attorney General did not sign this and many other parties did not sign this so-called class action stipulation.

So, we are parties to this case so these other people, so it basically is inoperative.

Furthermore, and I think I should emphasize that the respondents seems to be saying that he wants the warehouseman to bring service summonsing complaint and bring a court action.

As has been pointed out I think in our brief of the petition of Flagg Brothers.

that brings into play when the sheriff goes out to execute the judgment lien, brings into play the question of the household goods exemption provided by New York State Statute and makes a world of problems which I do not have time to go into now.

Now, I think once again, there is a claim here that there is not an opportunity to be heard.

Well, the claim as I now hear it that there is no opportunity to be heard, he says he has no opportunity to be heard before the sale.

Well that is questionable, but what I wish to emphasize to Your Honors is that the sale is not such a significant event.

The customer can be heard before the sale if he has a vigorous attorney and that he wants to be heard before the sale seeking an injunction of the like or he can be heard as he very frequently is after the sale claiming an action in conversion of the sale was not properly conducted and a like.

This is a complete opportunity to be heard.

Unknown Speaker: But that is after his property, perhaps personal, irreplaceable personal property has been sold?

Mr. A. Seth Greenwald: Well, once again I would point out that we are dealing here with personal property and you use the term irreplaceable.

I would say with personal property it can be replaced by money.

Unknown Speaker: Well, maybe family portraits and so on cannot be?

Mr. A. Seth Greenwald: Well, there is no allegation here that any of these matters -- and by the way, I would also say that these are stored goods also.

Unknown Speaker: That goes really to the question whether there is a violation of due process rather than the state action issue I guess.

Mr. A. Seth Greenwald: Right.

Unknown Speaker: May I just ask you one question on the state action issue?

I have been sometimes a hypothetical, I will illustrate the position.

Supposing New York passed a statute that said if a man is large enough and strong enough, he can go next door and take his neighborâs chattels, his lawnmower or one thing or another and he has the power to sell them to a third party and get good title and some one does that pursuant to that statute.

Could you get Federal Jurisdiction to challenge that statute?

Mr. A. Seth Greenwald: Well, that raises another issue which is not in the case.

That raises the issue of General non-possessory liens which is a totally different problem from the warehouseman --

Unknown Speaker: Well, I am just asking under that hypothetical, do you think the man would be acting under color of state law within the meaning of 1983?

Mr. A. Seth Greenwald: Well, I do not think that question is before us, but I would say that the State of New York cannot authorize someone to do a wrongful act.

Unknown Speaker: Well, but the question is how do we decide when state action is involved, an action is authorized by a statute, but no state official participates?

Is it your view that unless a state official participates, there is never a state action?

Mr. A. Seth Greenwald: Well, I would say that where a state official does not participate, it is much more difficult to find state action and racial--

Unknown Speaker: Did you ever find, that is the question?

Mr. A. Seth Greenwald: Well, basically you might never find unless it is a racial discrimination case or a classic governmental function.

Unknown Speaker: Your answer is that in my case, there would be no state action.

I think that is your position?

Mr. A. Seth Greenwald: Yes, but I do not think you get very far relying on such a law and of course such a law has never been passed.

Unknown Speaker: But you admit that you would be able to rely on Federal Court, you could dismiss on the ground that there is no Federal Jurisdiction, is that not your position here?

Mr. A. Seth Greenwald: No, that is not my position here because the type of lien where --

Unknown Speaker: What does that got to do with whether the private individual is acting on behalf of the state?

Mr. A. Seth Greenwald: Well, I think it has a lot to do because you have to focus upon the type of lien that the warehouseman has.

He has a lien by the voluntary, there is a question basically by the delivery by the customer, a property for moving and storage to the warehouseman.

The customer wants to have his goods taken care of and not surprisingly, the warehouseman expects to be paid.

The law provides a lien for this surface.

Unknown Speaker: Because there is greater, legal involvement, there is less state action?

I do not understand.

Mr. A. Seth Greenwald: Well, I would put it this way

Justice William H. Rehnquist: What is your test to the one there is state action in the case like this?

Mr. A. Seth Greenwald: Well, I would say that you have to have a traditional state function.

The best example is racial discrimination or say free speech, a fundamental right.

Justice Thurgood Marshall: Like due process?

Mr. A. Seth Greenwald: What?

Justice Thurgood Marshall: Like due process?

Mr. A. Seth Greenwald: Not like.

No, I would say not like.

Justice Thurgood Marshall: Well, that is what he said.

He wants a little due process.

Mr. A. Seth Greenwald: Well, I do not think due process would help him.

Justice Thurgood Marshall: He does not object to you giving the warehouseman lien?

He does not object to that.

He objects to you selling the property.

Mr. A. Seth Greenwald: Well, I think that --

Justice Thurgood Marshall: Not granting the lien.

Mr. A. Seth Greenwald: Well, I think that giving him due process would be a illusory benefit because due process as we all know has and have in this case a very substantial cost and in the end, the person who is going to pay this cost is the customer and we are dealing here allegedly with people who do not have a lot of money.

Justice Thurgood Marshall: Well, he asking to pay for it.

Mr. A. Seth Greenwald: Now, he has never yet.

Well, in the end he will pay for it because the bill that he is going receive in the first instance is going --

Justice Thurgood Marshall: But if a man wants due process, do not tell him that he cannot have it because he will have to pay for it?

Mr. A. Seth Greenwald: Well, that is a fact that this Court has considered in its other cases.

Justice Thurgood Marshall: Well, do we have to consider in this case?

Mr. A. Seth Greenwald: No, because you are on the state action issue.

You are not on the due process issue.

Justice William H. Rehnquist: Mr. Greenwald, what if the New York legislature decided that the Courts of New York were so congested that they just had to eliminate some claims for relief and they decided to eliminate any civil action for conversion.

Do you think that would implicate state actions so that someone who had previously had a claim for conversion could go into the District Court and say the state has taken away my client?

Mr. A. Seth Greenwald: No, because we actually had that case with our no fault law and I think it was appealed up to this Court where we under no fault insurance provision, we provided that any dispute about no fault, the benefits or the insurance is subject to binding arbitration.

It basically was taken out of the Courts of the State of New York because we do have a lot of congestion in our Courts and I think that is the example that is operative in that situation.

Thank you, Your Honors.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Third National Bank v. Impac Limited, Inc. - Oral Argument

Sun, 08 Aug 2010 17:07:05 +0000

Case:

Third National Bank v. Impac Limited, Inc.

Media File:

76-674_19770426-argument.mp3

Related Transcript:

76-674_19770426-argument.xml

Transcript:

Argument of Thomas P. Kanaday, Jr.

Chief Justice Warren E. Burger: We will hear arguments next in 76-674, Third National Bank against Impact limited.

Mr. Kanaday, I think you may proceed, now.

Mr. Thomas P. Kanaday, Jr.: Mr. Chief Justice and May it please the court.

This case arises out of $700,000 loan that was made by Third National Bank to certain borrowers to finance the construction of a commercial office building.

The payment of the loan was secured by deed of trust under the terms of which certain real property was conveyed to a trustee, who was granted the power to sell the property, in the event of default.

The loan was originally made in May of 1973 and originally matured in May of 74.

However, at the borrowers’ request three different extensions of the maturity date were granted, the last of which expired in July 1975.

In August of 1975, the bank determined that the loan was in default and in September 1975, the bank gave the requisite notice of foreclosure.

The process of foreclosure in Tennessee is an exercise of private contractual right and is not accomplished through judicial means.

After the notice of foreclosure was given, the respondents filed this action in the Tennessee Chancery Court seeking to enjoin the foreclosure.

The chancellor granted a temporary injunction restraining the bank from foreclosing.

The bank then moved to dissolve the temporary injunction relying on the provisions of 12 United States Code Section 91.

The chancellor granted that motion holding that Section 91 of the Banking Act, forbid a Tennessee Court from enjoining the National Bank prior to foreclosure.

Respondents filed an interlocutory appeal to the Tennessee Supreme Court, which in its decision, judicially created an exception to the anti-injunction proviso of Section 91.

The Tennessee Supreme Court held that the anti-injunction proviso does not apply for a bank’s debtors seeking to restrain the foreclosure.

The structure of my argument will be first to examine the grammatical and historical meeting of the anti-injunction proviso in Section 91, then the decisions of this Court and the State Court’s decisions and having done that to explore, whether under the circumstances present in this case, there is any constitutional impediment to its historic and natural construction.

Justice John Paul Stevens: Will you somewhere along the line answer this question and that is, whether respondent Impact instead of being a mortgagee, it simply owned the piece of land and your client sent out of bulldozer and started excavating on the land and the respondent objected and your client said that we are starting our new branch office here and the respondent said well, Gee! I have never sold it to you and it turned out to be simply a mistaken identity on the part of your client.

Would the Tennessee Courts be disabled by the Section, you are relying from issuing an injunction in that situation?

Mr. Thomas P. Kanaday, Jr.: Well, clearly under the decision of the Supreme Court in this case, they would not be disabled if…

Justice John Paul Stevens: Well, under your theory, would they be?

Mr. Thomas P. Kanaday, Jr.: Under our theory, I do not know because in the instance that you pass it to me, the bank is acting on its own initiative without reliance on any contractual rights.

In this instance, we are relying on our rights in the contract, in the deed of trust.

So I do not know.

It might be stretched that far.

There is a…

Justice John Paul Stevens: You say then it is simply, literally, no injunction in whatever circumstances conceivable, at least you say it could be prospective.

Mr. Thomas P. Kanaday, Jr.: Yes sir, this Court in 1888, when it decided the case of Pacific National Bank versus Mixter said that it was an absolute prohibition and that the remedy and that was an attachment case and not an injunction case, I do not think that is important.

Justice John Paul Stevens: Well, but it could be quite important, could it not because if you read the Section of the statute you are relying on is used in generous type I think, attachment and execution are both remedies prior to judgment, initiated by a plaintiff and certainly you could read this word injunction is being so limited.

Mr. Thomas P. Kanaday, Jr.: I do not understand that the limitation that is implied by a reference to the attachment.

The bank is relying on the latter part of section 91 which provides “No attachment, injunction or execution shall be issued against such association or its property before final judgment in any suit, action or proceeding in any state, county or municipal court.”

Justice John Paul Stevens: Do you have to go as far as was suggested in the case of the bulldozer and mistakenly on the wrong property?

Do you have to say the statute would go that far in order to support you?

Mr. Thomas P. Kanaday, Jr.: No, sir, you do not.

Justice John Paul Stevens: You have business relationships and business transactions and documents upon which your proceeding has distinguished from the other which is a trespass, I would take it?

Mr. Thomas P. Kanaday, Jr.: Precisely, that is what I have tried to respond that we are relying on private contractual right between the lender and the borrower that were defying the nature of the relationship and the rights on the happening of certain events, rather than a unilateral action on the part of the bank.

Justice John Paul Stevens: Mr. Kanaday, what in the statute draws a distinction between a breach of contract claim and a tort claim?

There is nothing in the statute?

Mr. Thomas P. Kanaday, Jr.: There is nothing in the plain reading of the statute that draws such a distinction, but I do not think that we have to embrace such an egregious.

Justice John Paul Stevens: No, no, but if you concede that the statute does not apply literally in that situation, are you not saying that in some cases it is read literally and in some cases it is not?

Mr. Thomas P. Kanaday, Jr.: Justice Stevens, I am not saying that I concede how the statute would be read under those extreme cases.

I am saying that important distinctions can be made.

I do not know how to…

Justice John Paul Stevens: Well, if one could distinguish between tort and contract, could one also not distinguish as your opponent does, between cases in which the plaintiff is a creditor and those in which he is a debtor?

Mr. Thomas P. Kanaday, Jr.: Yes, but I am not saying that the statute affords us the liberty to make those distinctions either between tort, contract, debtor, creditor.

I am relying on to the facts of this case where there is a private contractual right that there is an absolute prohibition on the statute from the interference prior to final judgment.

If there is any confusion about the proper construction of anti-injunction proviso, it arises that because in its present form, Section 91 as an amalgam of two unrelated statute.

The first portion of the statute, voids preferential transfers of property by Insolvent National Banks, the second portion of Section 91 prohibits a state court from issuing attachments, injunctions and executions against a National Bank prior to final judgment.

The issue in this case of course, is rather a State Court can issue an injunction against a National Bank before closing on collateral, prior to final judgment.

Now, because of the holding of the Tennessee Supreme Court, I think another way of stating the issue is whether the preceding language relating to preferential transfers in some manner does restrict the otherwise, unqualified meaning and unqualified language of the anti-injunction proviso.

Until, 1864, a National Bank could not even be sued in the state court.

In that year, a statute was adopted affording jurisdiction and actions against National Banks in the state court.

In 1873, the Congress adopted the anti-injunction proviso as a limitation upon the jurisdiction of state courts to grant certain types of remedy at certain stages of the litigation in the state court proceeding.

In 1873, there was a revision of the banking and the judiciary code and as a result of this revision, there was an inadvertent deletion of the anti-injunction proviso and it was left out of the code for some two years by mere inadvertence.

Then, in 1875, there was another revision of the code and the anti-injunction proviso reappeared without explanation at the end of the Section which rewarded preference of transfers by Insolvent National Banks and it has remained in that position through the present day.

It was in that position when this court issued its decisions in Mixter, Van Red and Earle.

The Tennessee Supreme Court reached the result that it did by taking the erroneous view that “We look to the purpose of the statute which was to secure the assets of a bank whether solvent or insolvent for ratable distributions among its general creditors.”

We say that was not the purpose of the statute.

The clear purpose was to limit the jurisdiction of the state court to grant extraordinary remedies at a certain stage in the proceeding.

There was a limitation on the Jurisdictional Grant of the 1864 statute.

The first case that this court has decided on it was Mixter, Pacific National Bank of Boston versus Mixter which in 1888 held that the anti-injunction proviso nullified an attachment which had been obtained by a creditor of a national bank against funds of that bank on deposit in another bank.

The Court clearly rejected the argument that the anti-injunction proviso of Section 91 is somehow limited by its preceding provisions awarding preferential transfer.

The court said, “As it stood originally, as part of Section 57, after 1873 and as stands now in the revised statute, it operates as a prohibition upon all attachments against national banks, under the authority of state court.

The form of its reenactment in the revised statute does not change its meaning in this particular.

All attachment laws of this state must be read as if they contained in expressed terms that they were not able to apply to suit against a national bank, the remedy is taken away all together and cannot be used under any circumstances” and it was further said, that “If the power of issuing attachments has been taken away from the state court, so also is the power of issuing injunctions that is true.”

And that was, this Court’s unanimous construction of the statute in 1888.

The Mixter case then was followed by the case of Earle versus State of Pennsylvania.

In that case, a creditor of a bank customer sought to reach funds on deposit in the bank.

The bank claimed no interest in the funds and was a mere stakeholder.

This court concluded that this was not an action against a bank or its property rights.

It is interesting to note that the Supreme Court in the Earle decision dissolved the attachment against stock which the bank held is collateral for a loan of that customer.

But unhappily, we do not have a statement of the reasoning of the court and doing this, presumably because of the applicability of the anti-injunction proviso.

The present case is clearly not within the ambit of the exception in the Earle case.

For in the present case, the proceeding is brought by the respondents against a national bank as named party defendant and obviously the injunction which they seek would materially affect the bank property rights and its collateral.

The final decision was in 1905 in Van Reed versus People's National Bank, which reaffirmed the holding of Mixter again in an attachment case.

Justice John Paul Stevens: What is the procedure for the bank in this case for closing on its security?

Mr. Thomas P. Kanaday, Jr.: Under the terms of the Deed of Trust, the trustee who is appointed in the instrument, in this case there was a substitute trustee appointed, the bank gave notice to the customer of the default, called the loan, then published in a newspaper in Davidson County, Tennessee, in Nashville, once each week...

Justice John Paul Stevens: It takes no official participation, it takes no participation, it is not a judicial foreclosure?

Mr. Thomas P. Kanaday, Jr.: No sir, the courts are not used at all.

The trustee appointed in the instrument does act to enforce the bank’s right under the power of settle grant (Voice Overlap).

Justice John Paul Stevens: But he is not in any kind of public official?

Mr. Thomas P. Kanaday, Jr.: No sir, I am the trustee in this sale was a matter of fact.

Justice John Paul Stevens: What about at the sale?

Mr. Thomas P. Kanaday, Jr.: The other trustee then reads the notice of foreclosure whereas there has been a default called the note due and it has been advertised in…

Justice John Paul Stevens: But at no time in the whole foreclosure procedure, is there any official participation?

Mr. Thomas P. Kanaday, Jr.: Any public official, no sir, there is not, not at all.

We did not get any…

Justice John Paul Stevens: Well, in your capacity you have the same responsibility I suppose on constrictions as a public official, do you not?

Are you responsible to a court for…

Mr. Thomas P. Kanaday, Jr.: The sale after it is held by the trustee is not reviewed by a court; as I understand some states have a conformation process or something like that.

We do not have that actually; it is entirely a private act.

There is a fiduciary obligation of course that the trustee has, but there is no public review, there is no public empowerment…

Justice John Paul Stevens: Automatic judicial review.

Mr. Thomas P. Kanaday, Jr.: That is correct.

Justice Byron R. White: Was there any constitutional issue presented in the courts below?

Mr. Thomas P. Kanaday, Jr.: Mr. Justice White, there was no constitutional issue presented in this case at all, until after I filed my brief after this court had granted Certiorari and it was raised in the respondents reply.

Justice Byron R. White: What is your position on the – whether the respondent is privileged to attempt to sustain the judgment below by making a constitutional argument?

Mr. Thomas P. Kanaday, Jr.: I think that you are addressing this to the timeliness issue of…

Justice John Paul Stevens: Assume we agree with you except for the constitutional issue that is presented here, do we have to face that or must we…

Mr. Thomas P. Kanaday, Jr.: No, sir I do not think that it is even appropriate that you face this.

Justice John Paul Stevens: Why?

Mr. Thomas P. Kanaday, Jr.: Because in the case of Cardinal versus Louisiana, an unanimous decision which you wrote, you wrote this way “The court has consistently refused to decide federal constitutional issues raised here for the first time on review of a State Court decision.

Justice Byron R. White: So, you think that is a jurisdictional matter, the case is properly here, is not it?

Mr. Thomas P. Kanaday, Jr.: Yes sir, it is.

Justice John Paul Stevens: Well, the respondent now wants to sustain the judgment on constitutional ground.

Mr. Thomas P. Kanaday, Jr.: And your question is what?

Unknown Speaker: Well, it may that is the respondent privileged to argue that this statute that you rely on is unconstitutional?

Mr. Thomas P. Kanaday, Jr.: No, sir I do not think so.

One for the reason that you stated in the Cardinal decision, you noted not only the jurisdictional considerations incident to that rule, but you also noted the policy reasons incident to judicial administration.

You said questions not raised below are those on which the record is very likely to be inadequate, since it certainly was not complied with those questions in mind.

Now, apart from this court role in the appropriate review of this case, I think there is another result of the failure to raise the question in timely fashion and that is a plain waiver of a constitutional right which any party can do in either civil or criminal litigations, by not having raised it in the trial court, not having raised it in the State Supreme Court and it is obvious that it was not raised in those proceedings, because the State Court’s opinion clearly said and I agreed with it at the time on this one point that there was no jurisdiction in any other forum and they devote a portion of the decision to a holding that the case could not be brought in the Federal District Court, which was true as we understood the case at that time, thinking it was strictly a federal statutory construction case.

Unknown Speaker: Mr. Kanaday if the mortgagor wants to challenge the question of default, are they really in default, A) how is it normally done, if there is a State Bank says the mortgagee and in this case how would he do it, once a Federal Bank under your view?

Mr. Thomas P. Kanaday, Jr.: There are two procedures to be followed as I am familiar with the law as it is practiced in Tennessee.

One would be; a pre-foreclosure proceeding to enjoin the sale or to have the sale held but then subject to further orders of the court pending a hearing.

Another approach would be a post-foreclosure proceeding to nullify the sale to set it aside or lacking that, they might be content to file a suit for monetary damages.

Unknown Speaker: What is the normal procedure if you have a State Bank as the mortgagee, what is usually done in this a kind of controversy?

Is it the pre-foreclosure injunction proceeding?

Mr. Thomas P. Kanaday, Jr.: Your Honor, I have seen both types of actions brought during the real estate crunch in 1974 and 1975.

There were plenty of both types of actions and the reason that so many of the actions were brought after foreclosures that Tennessee does have a statute barring an application for an injunction unless it is filed within five days preceding foreclosure and many people sort of trip up on that procedure or requirement which and bring the post…

Unknown Speaker: And that procedure would be available against a National Bank here, that the post-foreclosure procedure would available?

Mr. Thomas P. Kanaday, Jr.: Oh, yes sir.

Chief Justice Warren E. Burger: We resume there at one o’clock Mr. Kanaday.

Counsel you may continue.

Mr. Thomas P. Kanaday, Jr.: I will reserve the balance of my time Your Honor.

Chief Justice Warren E. Burger: Oh! Very well, Mrs. Pigg.

Argument of Gail P. Pigg

Ms Gail P. Pigg: Mr. Chief Justice and May it appease the court.

Petitioner propounds the theory that courts of our land cannot interfere by injunctive relief to protect the citizens of our land from wrongful foreclosure of their property by a National Bank until a final hearing at which time I submit the damage is done.

Chief Justice Warren E. Burger: What do you think the statute means and what was its purpose?

Ms Gail P. Pigg: You Honor I think that the statute clearly on its face, means that its purpose is to protect creditors from ratable distribution, protect the assets of the bank from ratable distribution among its creditors.

The statute defines; it is self defining in that the heading of it regulates transfers by banks and other acts in contemplation of insolvency.

It goes further after that heading and it prohibits transfers, assignments, payments of money of committed act or an act of insolvency or in contemplation there off with a view to prevent the application of the banks’ assets in a court with the National Banking Act and with a view to prefer one creditor over another, then Your Honor, it has a semicolon and it says and no attachment or no injunction attachment or garnishment will issue against any bank, against any, in their case it says state bank, pending a final hearing.

It says also against the bank or its assets and I submit there is an important clause, but Your Honor, Mr. Chief Justice I submit that it is free and clear of ambiguity, that you cannot pull the last clause of that, that entire statute it is one sentence.

I submit that you cannot pull the last clause and apply to wherever it is that you want to apply.

I submit that this is good law and I would like to say initially that I do not argue or that responded does not argue with that law, but the petitioner goes further and says that this court has ruled three times, that the courts cannot interfere with national banks to protect the assets of its debtors pending a final hearing, always pending a final hearing.

Now, I submit that these cases did not hold that.

I would like to take a very quick look at Mixter.

Mixter was decided by Chief Justice White or Mixter was an opinion written by Chief Justice White in 1888.

In that particular case, the bank owed Mixter $15,000.

Mixter began a suit by attachment.

Now, the bank was not insolvent on the date apparently that that attachment issued, but just prior day too, it closed its doors.

Then it resumed business.

During the resumption of business, the attachment issued.

Now, I would like to say to the court that in the Mixter case, I have felt that it must be a typographical error because the year was one year preceding the period of time that is involved and I think when the court reads that case, it will see what I mean.

Nevertheless, the bank was in severe financial difficulty at that period of time.

This would be I think the obvious reason why the court extended or appear to extend the statute to mean that the banks did not have to be insolvent.

The Earle case decided by the court in written and the opinion written by Justice Harlan in 1900 did not go that far.

This was a case in which one Mr. Long as I recall had a judgment for some $31,000.

An attachment issued by garnishment and the court in that instance hailed that this last clause related back to the rest of the Section.

Now, it also in that instance went on to say that this was not an asset of the bank, but nevertheless it clearly allowed the attachment by garnishment to stand.

There is then another case, this is Van Reed decision written by Mr. Justice Dave (ph) in 1905 and this case was another simple attachment by a creditor, in which event the court related back to the Mixter case and extended the statute to apply beyond insolvency, but I submit to the court that these banks clearly protect or these cases clearly protect the bank against interferences of its asserts by the creditors.

Justice Potter Stewart: In those three cases it was the, they were creditors of the bank, is that it?

Ms Gail P. Pigg: Yes sir, they were creditors of the bank, Mt. Justice Stewart.

Justice Potter Stewart: In all three cases…

Ms Gail P. Pigg: And none of these cases and it’s almost frightening to me that the extension that they have extended this far.

None of these cases stands for the proposition.

None of theses cases had before it the question as to whether the bank can wrongfully take away the assets of the debtor’s property or the assets of one of its debtors.

Not a single one and I submit that neither of these cases stands for that proposition.

I have alluded, I think to the fact that property held as security under deem of trust in Tennessee is not owned by Bank and I would like to look to Tennessee law on that point for a moment, and this is our supported course in my brief, but the mortgagee is clearly a creditor.

His only interest in the property is as security.

He is not deemed to be a property owner.

The court has clearly held and this was I think in 1955 Supreme Court case that legal title vests in the trustee, and this has been holding in that state for the last many, many years, certainly since the turn of the century.

Justice Potter Stewart: And who is the trustee in this case?

Ms Gail P. Pigg: The trustee in this case, I believe now is Mr. Kanaday, but the trustee Your Honor in a situation like this is always selected by the mortgagee always.

I know of no exception to that rule.

The trustee is simply selected by the lender.

Unknown Speaker: Doesn’t a mortgagee have inequitable interest in the property?

Ms Gail P. Pigg: Your Honor certainly the mortgagee has an interest from the standpoint of his security interest.

He has and we get into a situation here where it becomes shaded.

Once the property is sold to a bona fide purchaser, now I will get back to answer to your question in just a moment, but once the property is sold to a bona fide purchaser, contrary to what petitioner say is that that property under the Tennessee law is gone.

It is beyond the reach of that mortgagor.

Now, that is assuming that he is a bona fide purchaser of course, but the trustee has only such power as he is granted in that day to trust.

Now, the serious question becomes the serious question throughout this entire matter becomes who determines default.

In the event there is no default the trustee has no power and it is a dry trust.

There are cases again throughout state that state just exactly that and I would like to point that the Jones Kennedy said, it is cited in my brief on page 14, states that the property cannot be recovered, in that instance there was a fraudulent sale, an actual sale whereby the mortgagee fraudulently took the property of back and then sold to a bona fide purchaser, and then the court held that the petitioner could only recover or the plaintiff in that case could recover the damages.

Unknown Speaker: What did the deed of trust say in this case?

Ms Gail P. Pigg: Your Honor the deed of trust in this instance was used was a very standard form of deed trust.

Unknown Speaker: Whatever the standard it was, what did it say about mortgagee, privileges -- and to decide upon?

Ms Gail P. Pigg: In the event of default he can advertise for twenty or twenty one consecutive days or three consecutive weeks and this is stated, but there is nothing in the deed of trust that tells how one determines default.

There is no labor in the deed of trust back that mortgagor.

Chief Justice Warren E. Burger: Well, doesn’t a person declare any default do so at his own peril if he is mistaken?

Ms Gail P. Pigg: Your Honor he does so at his own peril, and forgive me Mr. Chief Justice…

Chief Justice Warren E. Burger: In any situation where the power to declare a default is vested in one person.

Ms Gail P. Pigg: That is not the question before this court.

With the permission of the Court, the question is…

Chief Justice Warren E. Burger: Tell me the answer to my question and we will see if it fits in.

Ms Gail P. Pigg: Yes, I would have to agree that he does so at his peril, but then I would have to parry with the question what is his peril?

What is the remedy of the property owner?

The remedy of the property owner; first of all Tennessee does have the right of equity or redemption, but it is waived in this deed of trust as it is waived and virtually all deeds of trust in state of Tennessee, I know of none that would be different.

So what is his remedy?

He has waived it in the papers and the terms that are decided or controlled by the lender.

He has waived demand notice and protest.

He has waived the equity or redemption.

What can he do?

There is only one thing that he could do if the theory of petitioner were accepted.

He could, petitioner says that he can recover the property, this is error.

He can recover the property if the mortgagee is the successful bidder and retains the property then he could, I am confident recover the property under Tennessee law.

But, if the mortgagee is not the successful bidder he cannot recover the property as previously stated.

His next remedy then and petitioner would delegate him to the second best remedy.

He has only one other and that is to recover damages.

I submit to the court, that to recover damages in this instance is not sufficient.

Damages are simply inadequate and I would turn the attention of the Court to the fact that the Chancellor in the first hearing of the matter before this question arose, before the question of jurisdiction, did find that irreparable damages would occur, if foreclosure were permitted to be held prior to a final hearing.

Then of course when this question arose, he dissolved the injunction only to be reinstated by the Tennessee Supreme Court.

I submit, to the court that beyond the inadequacy of the damages that the legal fees that would be involved in seeking that final redress would be impossible, absolutely impossible for most people.

We are not dealing here only with business hardcore commercially oriented people.

We are dealing here with literally hundreds of thousands of home loans, home improvement loans, automobile loans, office loans, every kind of loan and in each one of those instances, petitioner stands before the court and say that you cannot interfere if they wrongfully foreclose.

Unknown Speaker: But we are only concerned in this case with the Statute involving National Banks as I understand it?

Ms Gail P. Pigg: This is true Your Honor and I am referring always throughout my argument only to National Banks.

When I state that we are concerned, they have mortgage loans and we are concerned with these types of loans.

Unknown Speaker: I think you made a statement if I understood you correctly that there is nothing in the Deed of Trust that indicated what constituted on the event default?

Ms Gail P. Pigg: No, sir this was not so.

I am sorry Your Honor, if I mislead.

There are certain things that are obliviously constitute default.

Unknown Speaker: It sets forth a long list of things that might constitute the default.

Ms Gail P. Pigg: Yes Sir, one of being nonpayment, one on them being a question of whether the property is being damaged or taxes have been paid or insurance has been kept in enforcement there, those are just some of those, but I am talking about when I responded to the question earlier, I am talking about who will make that determination?

Let me, take the example of a case that I have simply followed throughout my briefing, and would prefer to name.

Take the situation of a man who pays the account and it gets wrongfully credited to someone else’s account.

No demand, no notice, no protest, he does not have to be given these.

Advertisement is held for three consecutive weeks, and if he is fortunate enough he finds that in the newspaper which is a legal publication.

From that point he immediately tries to stop that sale.

Tennessee Law as Mr. Kanaday stated to the Court earlier, has a five-day notice requirement.

You must give the mortgagee five-days notice before an injunction can be held or a hearing can be held actually.

So the oppressed party and I will call him the oppressed party at this point because I feel that he is, he attempts to stop the sale and applies to the Court for injunctive relief and the court says to that citizen, we cannot help you.

The Courts do not have power over the banks to stop your property from being sold.

We can help you only, after the act is done and we will try to help you recover damages.

I summit to the court that this is at the point of taking.

It becomes questionable is to whether there is a violation of due process of the Fifth Amendment of that individual.

Now, I want to quickly respond to a question that was asked of the petitioner earlier and that is that I do not attack the statute as unconstitutional because not for one moment do I concede that either Congress or this Honorable Court ever would allow any bank, anywhere to stand in the shoes of the Court and make a determination as to whether a man is in fact in default or is not.

So I certainly do not attack it as constitutional.

I say only that if the construction were accepted which petitioner propounds that it would render it unconstitutional and that is the only way that I enter that argument.

Justice William H. Rehnquist: Well, in that sense if you are right and we agree with petitioner in his suggested construction of statute, we affirm that we have reversed the judgment of the Supreme Court of Tennessee because they were wrong on the statute and the constitutionality of the statute was never challenged.

Ms Gail P. Pigg: Yeah, there was a -- I would have to say to the Court, to Mr. Justice Rehnquist that there has been no challenge of the constitutionality here and perhaps I misunderstood what you were saying.

Justice William H. Rehnquist: Well, I think you have to fish or cut bait on thing.

Either you do assert a constitutional challenge and then you have to demonstrate that you have a right to do so on this state of the record or you say as I understood you to say that you are simply using the constitutional argument as a guidance to statutory construction, which we are free to consider along with all the other statutory guidelines.

Ms Gail P. Pigg: Yeah, this is correct; this is precisely what I am doing.

Justice William H. Rehnquist: Which is precisely what you are doing?

Ms Gail P. Pigg: I am submitting it as the construction as a part of determining the statute.

I do not attack the statute as unconstitutional, I never have.

Unknown Speaker: So, if we disagree with you on the construction of the statute, you do not expect us then to reach any constitutional argument?

Ms Gail P. Pigg: Well, obviously not.

This is an argument from my standpoint and I will proceed from that, but I would submit to the Court that there is an additional situation here.

Whereas the man who has the example that I proposed, of the man who has lost his house, goes back into the sign court rounds with the man next door who did not have used loan with a national bank and the Court the says he cannot grant an injunction in so far as a savings in loan or an insurance company, but not as to a national bank.

What is the feeling of the individual at that point, as to who makes the determination of default?

What is his 39.23 to due process?

Has he had a hearing?

I submit to the court that he has not had a hearing.

He has simply launched the property prior to the time of taking.

I would also go about back and sight Mr. Justice Stewart in the 39.40 because the language is far better than I could say it.

In that if the right to notice and a hearing is to serve its full purpose, it must be granted at the time when the deprivation can still be prevented, that this court does not embrace the proposition if the wrong can be done if it cannot be undone.

I submit first of all that the wrong can not be undone, but if it could, that that does not relay the fact that the oppressed citizen has still lost his property.

The wrong was done at that period of time.

There are three major points that I state here.

First of all, that the statute on its face is free of ambiguity.

Second, that the property is not an asset of the bank.

It is still an asset of the citizen.

Third; that the construction they seek would render in violation of the Fifth Amendment.

I submit to the court somewhere in the petitioner’s brief, I have stated that the wheels of business must continue to run.

I state that the wheels of business must give way and let the Courts determine if there is default.

First of all now, there is nothing here which would interfere with the bank’s rights, ultimately.

If there is a hearing under the Foreclosure Injunction Statute which we have, if there is a hearing then it will be determined at that time whether there is possible or are possibly repairable damages.

From that point, there will be a hearing.

If the Court finds at that time that there are no irreparable damages in the picture and no showing of irreparable damages, then there will not be an injunction granted.

There is only and a determination to be made as to whether there are irreparable damages and whether the bank in fact, has a right to foreclose.

Justice Potter Stewart: Mrs. Pigg did you argue in the Supreme Court of Tennessee that to construe this statute against you would be to impinge your constitutional rights of due process of law?

Ms Gail P. Pigg: Mr. Justice Stewart I did not.

Justice Potter Stewart: You did not make that argument?

Ms Gail P. Pigg: No sir, I did not.

I would state to the Court that I do follow rule 40 of the Supreme Court rules that in that the statement of a question presented would be deemed to include every subsidiary question fairly presented there in it and I do feel that this is a question fairly presented under the issue.

To please the Court, I think the issue is obvious and I think that it really is a quite simple issue.

The Tennessee Supreme Court did not accept petitioner’s theory that the Tennessee Courts could not protect citizens’ properties from wrongful foreclosure.

I submit that that court gave that decision contrary to petitioner’s statement in his brief, very thorough examination and very thorough consideration and that it is certainly in the interest of public policy alone, if not simply to misconstrue a statute, that the State of Tennessee, the Supreme Court of Tennessee be upheld in its decision.

Thank you Your Honors.

Justice Potter Stewart: And you too, you have any further, Mr. Kanaday.

Rebuttal of Thomas P. Kanaday, Jr.

Mr. Thomas P. Kanaday, Jr.: Yes sir, I do.

If as the Tennessee Supreme Court held and if as the respondent urges on this court the prohibition against the issuing of injunctions is somehow, constricted by the preceding language in Section 91 relating to preferential transfers to condition to Insolvent Banks to the securing of a bank’s assets for ratable distributions among its creditors, then, this court find it necessary to ignore the statutory context in which the anti-injunction proviso was adopted and that was as an amendment to the statute conferring jurisdiction on State Courts to hear actions against National Banks.

It will not only be necessary to ignore the context of its enactment.

It will be necessary to ignore the decision of this Court in the Van Reed case while in the Mixter case, as Mrs. Pigg stated, there was no insolvency in the bank at the time that the attachment arose.

It did become an insolvent, but the Van Reed decision dispelled any notion that the application of anti-injunction proviso is in anyway limited by the state of dissolvency of the bank in question or the securing of assets for ratable distribution to its creditors and then make that quite explicit in the Van Reed opinion, there's no intimation that the bank and Van Reed was insolvent or was having financial difficulties or had committed preferential.

Unknown Speaker: Mr. Kanaday, in the jurisdiction where I practice for 16 years, the statutes provide there could be no foreclosure of a mortgage without judicial action and in a judicial action such as was provided by the laws of Arizona, a mortgagor or a debtor could raise any of the issues which your opponent has tried to raise here and the court simply would not grant foreclosure until it had a hearing on those issues.

Now, I take if there's nothing in that statutory procedure that would violate what you refer to as the anti-injunction provisions.

Mr. Thomas P. Kanaday, Jr.: I don’t believe so Your Honor, although, I am not intimately acquainted with that process.

Unknown Speaker: Well, then would it not make some sense to construe the injunction language as I suggested earlier as being the same sort of injunction or the kind of injunction that you would think of in connection with attachments and executions, that is what a plaintiff creditor could get against a bank?

Mr. Thomas P. Kanaday, Jr.: No sir, I don’t think so, one; because it is an absolute unconditional, unqualified prohibition in its expressed terms.

The type of foreclosure that Tennessee has under its deeds of trust is the type that it had since 1796 when it became a state.

This was known to the Congress.

I think that what you are suggesting is an important policy consideration where we determining point is the appropriate legislative policy, but I don’t think it's of any assistance in the construction of the statute as we find it now.

Unknown Speaker: You agreed with Mr. Justice Stevens that the statute couldn’t be read literally out to the very length and breadth of it's literal language, that no repeat, no injunction shall ever be issued by a State Court against a National Banking Association, did you not?

Mr. Thomas P. Kanaday, Jr.: I don’t recall unqualifiedly going along with that.

Unknown Speaker: Well, but what is your position?

Your answer to my bulldozer example was that you really did not have to express an opinion on it, was it not?

Mr. Thomas P. Kanaday, Jr.: That is correct.

We can always conjure up a parade of probables that it carries a case beyond…

Unknown Speaker: Well, but what distinction would you draw in order that my bulldozer example could be governed by and you could get an injunction in that case and you cannot get one in this?

Mr. Thomas P. Kanaday, Jr.: The distinction that I would draw would be limited to the facts of this case.

I am not prepared to tell this Court what would or would not happen in the bulldozer case because we do not have the bulldozer case.

I am prepared to say that there is a basis for a logical distinction where the bank is acting pursuant to a private contract which defines events of default and consequences of those events of defaults as opposed to when the bank acts unilaterally on its own notion.

Unknown Speaker: Now, suppose you would to say an injunction was barred if the bank was engaged in some activities not related to its banking business?

Unknown Speaker: For example, if it started to drill for oil on the land, technically, you think a court of equity may allow on an injunction then if you could show all the usual requirements.

Mr. Thomas P. Kanaday, Jr.: It may well be that when a National Banking Association is acting beyond its powers.

It is not entitled as in those activities to the protection of the National Banking Act.

In the present situation, it is the most usual type of national banking power that it is exercising and that is to realize upon collateral.

Unknown Speaker: Mr. Kanaday, what happens if as a matter of fact the bank violated the contract and the mortgagor did not?

What remedy would the mortgagor have under the laws of Tennessee?

Mr. Thomas P. Kanaday, Jr.: Well, Mrs. Pigg and I seem to have a difference of opinion as to whether or not the sale could be nullified and set aside.

She said that under Tennessee law, this could not happen if it came into the hands of a bona fide purchaser.

As I understand the law in the State of Tennessee that no notion of the good faith purchase of a value in real property, the transfer retakes no better title than the transferor conveyed and so I think that it could be set aside as a matter of conveyance involved.

In addition, the bank acts at its extreme peril because there could be a remedy of damages, which all be it, leaves some room for dissatisfaction which is the conventional remedy for wrongful taking.

Unknown Speaker: As you change a law, I always thought that property could not be compensated adequately for damages.

Well with that aside, assuming that the computer made a mistake and the payment had been made twice what it should have been made and it came out that it had been made and the property is sold to bona fide purchaser, what remedy does the mortgagor have?

Mr. Thomas P. Kanaday, Jr.: In my opinion, they have the remedy to set the sale aside and should that not be granted…

Unknown Speaker: Is that by a statutory law?

Mr. Thomas P. Kanaday, Jr.: No sir it is not.

Unknown Speaker: Is it by case law and if so what is the case?

Mr. Thomas P. Kanaday, Jr.: I do not think that there is any case that I can call to your attention today on that point, but in the conveyancing law in the State of Tennessee, the transferee takes no better title to the transferor and it is actually two parts to it; the transferor would not have the legal power to conduct the sale.

It would be an absence of capacity as though it were a minor.

Unknown Speaker: But I thought the trust agreement waived their right to do that.

Mr. Thomas P. Kanaday, Jr.: It waves to equity of redemption, which is different from the equitable power to void a transaction I think.

Unknown Speaker: So you are saying that a part of equity could order a recession to that sale on the showing that is postulated by Justice Marshall.

Mr. Thomas P. Kanaday, Jr.: Although I admit the mistake and I differ on at construction of Tennessee Legal principle.

Unknown Speaker: Mr. Kanaday, I want to be sure of one thing.

I take it your posture here is that you are relying on the strict language of the statute.

Mr. Thomas P. Kanaday, Jr.: Yes sir, I am.

Unknown Speaker: And I also take it that in effect you have conceded that there might well be a legislative policy that would apply where if the bank is the debtor on the one hand and in a situation of this kind it might be a very different legislative policy.

Mr. Thomas P. Kanaday, Jr.: If I made a concession that there is a different legislative policy implemented in the anti-injunction proviso depending on whether the bank is a debtor or a creditor it was in a inadvertent admission.

I think that policy that is expressed in this act is a concern incident to the Federal regulation of the national banks for the liquidity of the banks, for the ability to immediately realize on important types of assets that are within the bank’s control.

That asset maybe a bank account as it was in Mixter, the asset maybe or the property right which is important to the solvency and the continuing management of the bank, maybe it is collateral, banking up a loan.

I think it is the same policy that underlies the statute further, if the bank is debtor or creditor.

Unknown Speaker: Then I run right smack into Justice Rehnquist’s enquiry about his bulldozer case.

You can say the same thing about that.

Mr. Thomas P. Kanaday, Jr.: I do not know whether that is an appropriate exercise of the banking powers to do that type of an act and I admit that that is a real egregious, horrible that has been applied.

We can be equally disheartened about the widow, whose life savings is in the her home and she only owes a $1000 and the bank wrongfully forecloses, we can postulate like horrible, but I do not think that we are dealing with anything here, but a foreclosure on a $700,000 commercial office building and I think that we make a mistake…

Unknown Speaker: Which I take it is worth more than that.

Mr. Thomas P. Kanaday, Jr.: I could not tell you whether you could make a deal on the building or not Your Honor, the bank might be tempted.

Unknown Speaker: Banks hope that it is worth more than that, don’t they, to get their money back.

Justice John Paul Stevens: Mr. Kanaday am I correct though that your argument based on the history of the statute that this is in the nature of the condition on the consent of the suit in the State Courts would apply equally to the tort case or the bulldozer?

Mr. Thomas P. Kanaday, Jr.: Mr. Justice Stevens, I must admit that because I view the entire injunction proviso as a limitation on the congressional grant of jurisdiction to State Courts that you got me into that corner and if I am going to be faithful to that position, I suppose view it as a jurisdictional limitation that it might well do that.

Yes sir.

The factors that we have heard mentioned today, adequacy of other remedies, legal fees, fraction on home loans, the possibility of error in bank judgment, these are all important considerations.

These are the types of the things that Congress in its wisdom should balance in its mind and in its will in formulating the extent to which it would consent for the national banks to be sued in State Court forum.

Chief Justice Warren E. Burger: Mr. Kanaday your time has expired.

Mr. Thomas P. Kanaday, Jr.: Yes sir.

Chief Justice Warren E. Burger: Thank you Mrs. Piggs and Mr. Kanaday, the case is submitted, we will hear arguments…

Attribution:

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Featured:

North Georgia Finishing, Inc. v. Di-Chem, Inc. - Oral Argument

Thu, 23 Aug 2012 18:25:34 +0000

Case:

North Georgia Finishing, Inc. v. Di-Chem, Inc.

Media File:

73-1121_19741118-argument.mp3

Related Transcript:

73-1121_19741118-argument

Transcript:

Argument of Warren N. Coppedge

Chief Justice Warren E. Burger: We'll hear arguments next in 73-1121, North Georgia Finishing against D-Chem Incorporated.

Mr. Coppedge, I think you may proceed now whenever you are ready.

Mr. Warren N. Coppedge: Mr. Chief Justice, and may it please the Court.

The case presented to the Court today is a garnishment action involving Title 46, Section 101, that (Inaudible) of the code of Georgia, which provides for prejudgment garnishment by a plaintiff upon the defendant's bank account without notice to the defendant.

The authority for our position before this Court today is contained in this Court's decisions in Sniadach, Fuentes versus Shevin, and Mitchell versus W. T. Grant Company.

We also consider the authority of Boddie versus Connecticut, at 401 US 371, to be especially applicable to the facts of this case.

And the facts are, that on August the 20, 1971, Di-Chem Inc.

filed a suit on account against North Georgia Finishing, and concurrently therewith, an intermediate sequential order, filed a garnishment action, and served its summons of garnishment upon the First National Bank of Dalton, in Georgia.

And the summons of garnishment, was issued by a clerk of the court.

It was based only upon the conclusory allegation, that the plaintiff had reason to apprehend the loss of a sum of money or a part thereof in the process of garnishment issue.

The summons required the garnishee to answer in not less than 30, no more than 45 days, all of the property that it had at the time service belonging to the defendant, and all of the property that might have come into his possession in the interim and this is not withstanding the fact that all of the property may have more or less than were as sued for, by the plaintiff in the case.

Justice Harry A. Blackmun: The allegation in the affidavit follows the statute, doesn't it?

Mr. Warren N. Coppedge: Yes, sir.

It's exactly parallel to the statute, and as a matter of fact it's a printed allegation supplied to people, by the local printing industry in courts and you may be filling the blanks.

Justice Harry A. Blackmun: Now, what's wrong with that, you have to have it?

Mr. Warren N. Coppedge: No sir.

Nothing is wrong with it.

Justice Harry A. Blackmun: It isn't true then you don't sign the affidavit?

Mr. Warren N. Coppedge: Insofar as form, nothing is wrong with that.

Now, the Georgia practice as stated in Powell versus Powell, at 95 Georgia Appeals 122 provides that a defendant in such a case is not even a party to the case, and is not entitled to any notice either pre-seizure or post-seizure, he is just not a party to the case, until he posts bond.

In this case, North Georgia Finishing posted bond, as soon as the courthouse opened after the weekend was over, the garnishment was issued on Friday afternoon, and in doing so freeze its bank account.

Justice Harry A. Blackmun: He's a party to the main action, isn't he?

Mr. Warren N. Coppedge: Pardon?

Justice Harry A. Blackmun: He is a party to the main action?

Mr. Warren N. Coppedge: He's a party to the main action, but he's not a party to this action.

Justice Harry A. Blackmun: But the main action is then pending in contrast to the Sniadach situation maybe in Wisconsin?

Mr. Warren N. Coppedge: The main action continues to pend, and it must be filed prior to the garnishment action.

In this case, it was the immediate preceding sequentially filed case.

And then, North Georgia Finishing posted its bond to do two things.

One is, to substitute property, that is to substitute a bond for its bank account, which was a commercial bank account, and which had been tied up by virtue of the garnishment and secondly, under the authority of the Georgia codes, it posted bond in order to gain access to the court, in order to establish standing.

Justice Lewis F. Powell: Mr. Coppedge.

Mr. Warren N. Coppedge: Yes.

Justice Lewis F. Powell: Did your client have an opportunity at the time he posted a bond to challenge the accuracy of the statements in the affidavit?

Mr. Warren N. Coppedge: No sir and there is no statutory provision provided by Georgia law for either a pre-seizure hearing or a post-seizure hearing.

As a matter of fact, we have have no standing in the case, until we post a bond and this is why, we think the authority of Boddie versus Connecticut to be especially applicable because if we understand in that case, it says that access to the courts shall not be a function of a financial requirement.

Justice Lewis F. Powell: Well, after you posted a bond in this case, did you can contest the affidavit anywhere in courts?

Mr. Warren N. Coppedge: No sir.

Justice Lewis F. Powell: I was under the impression you did, I don't know where that came from?

Mr. Warren N. Coppedge: No sir, there was a hearing before the trial judge.

There were allegations in the motion to set aside that the affidavit was granted; however, there was nothing heard on that particular allegation.

We do not consider that we have a authority under the Georgia statute to a cert.

There was an allegation in our motion to set aside the garnishment.

Justice Lewis F. Powell: You made an allegation, but you don't think it had any basis or justification-- (Voice Overlap)

Mr. Warren N. Coppedge: Yes sir, I don't think it had any of them.

There was nothing presented and there was no evidence presented.

We merely argued that this case is -- this Court's Sniadach opinion.

Justice Lewis F. Powell: Did you attempt to introduce any evidence?

Mr. Warren N. Coppedge: No sir.

Justice Harry A. Blackmun: Mr. Coppedge, is your client still in business?

Mr. Warren N. Coppedge: Yes sir.

Justice Harry A. Blackmun: He hasn't gone into bankruptcy?

Mr. Warren N. Coppedge: No sir, my client is not in business as North Georgia Finishing Company any longer.

It changed its name to Beavercreek Carpet Mills Inc to more correctly reflects its nature of business and that is the general manufacturing of carpet rather than carpet finishing.

It is a wholly owned subsidiary Beavercreek Mills Inc.

which is a subsidiary of another company.

They are no longer active in manufacturing and selling carpet, but they are still a corporate entity and still in existence.

Justice Potter Stewart: What happened to the underlying litigation here?

Mr. Warren N. Coppedge: The underlying litigation is still pending, there is no hearing on it.

Justice Potter Stewart: I see.

Mr. Warren N. Coppedge: Our purpose today, may it please the Court is not necessarily to rehash the written briefs previously filed but there have there a number of recent cases, following Mr. Justice White's opinion in the Mitchell versus W. T. Grant, case.

Justice Byron R. White: I won't say that was the Court's opinion?

Mr. Warren N. Coppedge: Mr. Justice White speaking for the Court.

We would take an opportunity to call this Court's attention to several of those cases that have flowed from this Court's opinion in Mitchell versus W.T. Grant, and we would take this opportunity to state that we are in agreement with all that we have found.

The first is a case of September 4, 1974 in the Supreme Court of Georgia, it's a case of Roberts versus Macaulay at 232 Georgia 660.

Justice Harry A. Blackmun: Are these in your brief?

Mr. Warren N. Coppedge: No sir, they are not, they are subsequent cases.

Unknown Speaker: You mind stating that again.

Mr. Warren N. Coppedge: Roberts versus Macaulay, 232 Georgia 660 wherein Justice Hall speaking for the sixth of the seven justices of that court quoted with approval Mitchell versus W.T. Grant, and stated that the one overriding constitutional problem presented by the Georgia Possessory Warrant Statute which was the statute under consideration in that case, was the absence of judicial control over the institution of the proceedings which could be begun by application to the court clerk.

In this case, in the garnishment case before this Court, it was commenced by application to a court clerk.

In this case of Roberts versus Macaulay, the Court recognized the Fuentes decision of this Court which it did not recognize when we were before that Court.

It declare the Georgia Possessory Warrant Statute unconstitutional.

Justice William J. Brennan: It doesn't suggest, does it, that this ought to go back to the Georgia Supreme Court for reconsideration, does it?

Mr. Warren N. Coppedge: No, sir, I don't believe so and I don't --

Justice William J. Brennan: I gather you suggest under the possessory statute, they reached a conclusion contrary to this one based upon a subsequent -- about Mitchell and they didn't deal with Fuentes and now they considered Fuentes.

Mr. Warren N. Coppedge: No sir, they did not deal with Fuentes when we were before that court.

They dealt with a case of American Olean Tile Co. versus Zimmerman, Hawaiian case and cited that as their authority.

Subsequent to that time, the Supreme Court of Hawaii has declared non-notice seizures of bank accounts to be unconstitutional.

Justice William J. Brennan: Based again on Mitchell and --

Mr. Warren N. Coppedge: No sir.

That was pre Mitchell, in the case of Brunswick Corporation versus Galaxy Cocktail Lounge at 513 Pacific 2nd 1390.

Justice William J. Brennan: What's the title?

Mr. Warren N. Coppedge: Brunswick Corporation versus Galaxy Cocktail Lounge Inc.

Justice William H. Rehnquist: What's the nature of the possessory warrant in Georgia law, I am not familiar with it?

Mr. Warren N. Coppedge: Possessory warrants in Georgia were first enacted in 1822 and were a means of summarily bestowing possession of run away slaves.

Justice William H. Rehnquist: I take it there is a difference purpose now?

Mr. Warren N. Coppedge: Pardon.

Justice William H. Rehnquist: I take it there it has a different purpose now?

Mr. Warren N. Coppedge: Well, runaway slaves or other property, and it has been applied to other property since 1865.

Now it is no different in effect from the provisions of the garnishment statute in that and it alters possession of property pending suit and prior to hearing.

Justice William H. Rehnquist: Well, how -- does garnishment really alter the possession of property.

Well, what kind of a property right you conceive that you client had against the bank.

He wasn't entitled to so many particular bills, was he?

Mr. Warren N. Coppedge: Mr. Justice Rehnquist, our position is that this particular piece of property, and this is one of the reason we feel this case is distinguishable from the Mitchell case, is that we are entitled to the money in the bank.

The bank is --

Justice William H. Rehnquist: Well, are you under Georgia law?

I mean, supposing that the bank went into receivership and went bankrupt, your claim wouldn't be regarded as a trust -- trustee fund claim, would it, it's just an ordinary debt?

Mr. Warren N. Coppedge: I suppose we'd have to look at the FDIC, decision power to --

Justice William H. Rehnquist: Well, you might be covered through insurance, but typically a depositor's claim against a bank isn't property in the sense of having a right to a particular group of bills in the banks, well it's a show, it's an action, it's a contract.

Mr. Warren N. Coppedge: It's a creditor debtor relationship.

Justice William H. Rehnquist: And nothing was transferred by this really garnishment, was it?

Mr. Warren N. Coppedge: Yes sir, we have a right under our contract with that bank to make use of the funds that we have deposited in that bank, and if the deprivation of the use of the funds, the use is the only purpose to which bank accounts and money can be put to my knowledge.

Justice William H. Rehnquist: Well, what's wrong with the Supreme Court of Georgia's analogy in this case, that it is like a lis pendens on property, that prevents you from using the property, but it doesn't transfer possession of it?

Mr. Warren N. Coppedge: Mr. Justice Rehnquist, lis pendens in Georgia pertains only to a situation where there are equities and the property.

Number one, lis pendens cannot be asserted in Georgia, unless an equitable claim of title is asserted against property.

Secondly, lis pendens leaves the property and the use and possession of that person against whom the lis pendens writ is filed.

Lis pendens is applicable in our opinion only to a real-estate, or perhaps to a mechanic's type lien, laborer's lien, material men's lien wherein that property is left in the possession, use and enjoyment of the contended debtor and only can be issued in an equitable situation, and there are several cases on that point, Watson versus Whatley at 218 Georgia 86.

Justice William H. Rehnquist: Are these cited in your brief?

Mr. Warren N. Coppedge: No sir.

Yes sir, they are, they are footnoted in the brief, excuse me.

Justice William H. Rehnquist: Now when you speak of not being able to use this money, you can't use it by putting up the bond, can't you?

Mr. Warren N. Coppedge: Yes sir, but in that instance, all we have done is substituted one form of our property with another, and we believe that this Court's opinion in the Fuentes case, where it's indicated that we've been deprived of our property and we are still deprived of our property, because that bond shows up on our corporate financial statement as a binding obligation of the corporation.

All we've done is substituted the types of property that we have been deprived.

Chief Justice Warren E. Burger: No but if you had debts outstanding, would it be any different on your balance sheet?

Mr. Warren N. Coppedge: Sir, this debt is very much a contested debt, and we submit to the court that the principle use of prejudgment garnishments in Georgia are as an economic bludgeon to either for settlement on more favorable terms or surrender.

Chief Justice Warren E. Burger: Well, I don't know if the condition of your balance sheet is very crucial to this kind of a case, but the fact is, honest accounting would require you to show some kind of a contingency liability based upon the maximum possible claim that might be established against you, wouldn't it?

Mr. Warren N. Coppedge: Your Honor, I don't believe so.

I think certainly we do have to properly account and post our balance sheets, but if we honestly contend that we don't owe anybody any money, and we are sued for this money on open account, I think I am not familiar with accounting practices enough to say, well, now we have got to show that, accept as a contingent liability under suits, somewhere else --

Chief Justice Warren E. Burger: I am sure your accountant will unquestionably tell you, you better put something in your statements if you are issuing the statement through a bank?

Mr. Warren N. Coppedge: And the statement which are concerning contingent liability and litigation, but I don't think we have to list it in the assets and liabilities of the corporation, that it is an acknowledged debt.

As a matter of fact I've had a case where that was done, and I used this evidence against these debtors.

Justice Lewis F. Powell: Mr. Coppedge what assets did North Georgia have in the state of Georgia, it's a foreign corporation?

Mr. Warren N. Coppedge: Yes sir, it had a finishing house, it had a carpet mill and it had a bank account.

Justice Lewis F. Powell: Were these plant facilities subject to mortgage?

Mr. Warren N. Coppedge: I am sure they were.

I would state to the Court that there were, but I have no independent knowledge of that.

But I am certain that they were real state mortgages, and I am certain that they were factoring contracts with various of the factoring incorporations.

Justice Lewis F. Powell: You read in your motion that there was no reason to believe that there was any danger of assets not being sufficient.

There was no proof one way or the other.

Mr. Warren N. Coppedge: No sir, there was no proof one way or the other.

To answer Your Honor's question in a little more detail, we believe that Mr. Justice Stewart's opinion in the Fuentes case that due process test should be based upon the merits of the case, and not upon the relative financial strength of the parties.

At page 1996 Fuentes states clearly, that the bond has no replacement for due process hearing before a neutral hearing officer, with discretion and knows that a bond merely replaces one piece of property with another, and does nothing to advance the cause of due process.

We agree with the court in that decision, that a bond offers only minimal protection and we know that the deprivation is for 30 to 45 days, of all of the property which that bank was have in its possession on deposit from our company, and it is not limited with --

Justice Harry A. Blackmun: What do you mean by offering only minimal protection, this is a double bond, isn't it, that the other side has to put on?

Mr. Warren N. Coppedge: Yes sir, but it just doesn't address the issue of fairness and due process.

It doesn't establish as the Mitchell case test required, as we read the Mitchell case that there must be some judicial officer with discretion to issue this seizure warrant, that there must be some facts stated upon ways to base the seizure warrant, that there must be some reasonable hearing, following the issuance of the seizure warrant.

None of the these things are provided for in the Georgia statutory scheme.

Further, we think that the Mitchell decision is support for our position before this Court in that the Mitchell decision limits itself or partly limits itself to property wherein both the debtor and the creditor have a legal and equitable interest, that is by virtue of title retention contract.

Justice Harry A. Blackmun: Well, you can distinguish the facts in the Mitchell as the other side can distinguish the facts of Sniadach too, you are kind of in between them, aren't you, under the Georgia system?

Mr. Warren N. Coppedge: I think not for this reason.

The Wisconsin statute as I understand it, number one, you did not have to post the bond to gain access to the courts as you do in Georgia.

Number two, in Wisconsin the garnishment automatically dissolved after 10 days.

There is no such disillusion feature in Georgia.

Justice Harry A. Blackmun: And number three, I maybe wrong as to this, in Wisconsin, couldn't your garnishment action antedate the main action?

Mr. Warren N. Coppedge: I am not sure Your Honor of that.

I am not sure, and I did not consider that in this case.

Justice William H. Rehnquist: Of course for a wage garnishment, when you are talking about disillusion after 10 days, that probably means two pay dates.

It certainly doesn't mean that after 10 days you give back the money held during those two pay days, it just means it doesn't apply beyond 10 days, doesn't it?

Mr. Warren N. Coppedge: I believe that's correct.

Justice William H. Rehnquist: And in your case, I take it once your bank account is garnished, you don't go on depositing money in there, you get a new bank account.

Mr. Warren N. Coppedge: I certainly hope.

Justice William H. Rehnquist: Oh!

I would hope?

Mr. Warren N. Coppedge: Yes sir, but they will go after any other bank account I have.

All they have to do is issue new summons.

Justice William H. Rehnquist: Well, but that might be evidence of harassment or attempt of add leverage, if they have enough tied up to satisfy their claim, I would presume they wouldn't do any more?

Mr. Warren N. Coppedge: You don't know Your Honor, for 30 days, and it couldn't be considerably more that they have tied up.

They can tie up $200,000 on a $100,000 bond, and that's what's in the bank.

Chief Justice Warren E. Burger: Is that subject to an interlocutory motion?

Mr. Warren N. Coppedge: There is no statutory provision for it, and in practice I will call another lawyer up and say, hey, you got too much, how about reducing?

Chief Justice Warren E. Burger: Well, wouldn't there be an inherent power in the Court to issue an order to trim it down to enough to give you your protection?

Argument of Warren N. Coppedge, Jr.

Mr. Warren N. Coppedge, Jr.: I know of no such order ever having been issued in my practice, and I know that I have not made an application, I have done it informally with counsel.

I would call two other cases to the Court's attention.

First is a case of the United States District Court in Texas and it's cited at 43 Law Week 20-120 Garcia versus Klaus (ph) wherein that court held the Texas statute which appears to be parallel to the Georgia statute in material part unconstitutional following the opinion of this Court in the Mitchell case and also a three-Judge Court of the Southern District of New York in Sugar versus Curtis Circulation Company at 43 Law Week 2183, which also followed the Mitchell opinion of this Court and held a Georgia statue -- held a New York statute to be unconstitutional.

Justice William H. Rehnquist: Mr. Coppedge, if this Court were to agree with you as to the infirmities of the present Georgia statute and that Georgia Legislature wanted to go back and try to make some constitutional provision whereby a plaintiff in a case like this suing an out of State corporation could get some sort of security that would ultimately satisfy a judgment if it got it, what could the Legislature do?

Mr. Warren N. Coppedge, Jr.: Mr. Justice Rehnquist, I have no objection whatsoever and so stated in my brief that we do not oppose what we consider to be this Court's attempt to reach a constitutional accommodation between the rights of debtors and the rights creditors by providing some safeguard either immediately prior to the issuance of the attachment, or the right of hearing after the attachment.

Justice William H. Rehnquist: A hearing prior to the attachment is useless, if you've got a debtor with a tendency to abscond, he won't have any money in the bank, the minute he gets notice of the hearing?

Mr. Warren N. Coppedge, Jr.: Your Honor, I said either, and I think that the Court could issue an interlocutory order requiring property under injunction to be held for three to four days, so we could have a hearing.

Justice William H. Rehnquist: So you say there could be some sort of seizure prior to the hearing on the merits?

Mr. Warren N. Coppedge, Jr.: Absolutely, absolutely.

We think that there should be a constitutional accommodation somewhere, but a clerk issuing a seizure upon conclusions without either any pre-seizure or a post seizure hearing, just doesn't measure up in our opinion.

Justice Byron R. White: Is your reference that you want effective (Inaudible)

Mr. Warren N. Coppedge, Jr.: No sir, I think – I think.

Justice Byron R. White: you are not claiming that if there is a debt here, you are not claiming that there should be pre-judgment (Inaudible)

Mr. Warren N. Coppedge, Jr.: No sir, if it's properly issued under proper control and safeguard.

I am claiming that we can be bludgeoned economically by interrupting the commercial course of business.

Justice Byron R. White: But if the judge -– if the creditor went to a Judge with a piece of paper and swore before the Judge of these facts and the Judge thought that gave a probable clause at least pending some further hearings you wouldn't have any objection?

Mr. Warren N. Coppedge, Jr.: No sir.

Justice William H. Rehnquist: What the Board has done is a different division of clerk here and a Judge in the case posited by Justice White.

Mr. Warren N. Coppedge, Jr.: We think that is one of the basic reasons.

The other is the fact that it's issued upon conclusory allegations without saying anything.

Justice Byron R. White: Do you think it even between two fairly equal people that are creditors, you don't think your client's standing for it to get any (Inaudible) protection against the risk of error against the claim of a debtor previously there from the plaintiff's posting a double bond?

Mr. Warren N. Coppedge, Jr.: No sir, it's a devastating -

Justice Byron R. White: Well, it may be devastating but not in terms of money, it is wrong --

Mr. Warren N. Coppedge, Jr.: Well, but the condition of the bond is not to pay any in double.

The condition of the bond is only to pay what money I am out in defending it.

Justice Byron R. White: I know but it's costing, it's costing money to put up the bond?

Mr. Warren N. Coppedge, Jr.: If he has a professional bonding company, if he gets a Vice President of the company to sign the bond as he did in this case, it doesn't.

Justice William H. Rehnquist: What are elements of damages on an action on the bond in Georgia?

Mr. Warren N. Coppedge, Jr.: Only to pay what money you are out in defending the bond, should I appear that it should not have been issued.

Justice William H. Rehnquist: You mean the only thing you can recover is the cost of defense?

Mr. Warren N. Coppedge, Jr.: Yes sir.

Justice William H. Rehnquist: Not damages --

Mr. Warren N. Coppedge, Jr.: All damages, which in my opinion, don't go to double the bond; they go to whatever you can show you are out.

Justice Byron R. White: There isn't any penalty --

Mr. Warren N. Coppedge, Jr.: There is no penalty.

If whatever I can prove, maybe I can prove interest expense, maybe I can prove my lawyer's but there is not a penalty, it's not a punitive bond, and it's certainly not -- won't go double the bond, it won't even go to the principal obligation.

Justice Lewis F. Powell: Mr. Coppedge, I just want to be sure I understand your position.

Would you be content if the Georgia law provided a prompt hearing after the garnishment at which you could raise all of the issues that you have in mind?

Mr. Warren N. Coppedge, Jr.: Absolutely.

Justice Lewis F. Powell: In other words, you don't insist on a prior hearing but --

Mr. Warren N. Coppedge, Jr.: I insist that a judge issue the sequestration warrant and not a clerk.

Justice Lewis F. Powell: But you don't insist on a hearing at that point?

Mr. Warren N. Coppedge, Jr.: I insist that the least, that the ex parte before Judge who exercises discretion, and hears something other than a conclusion, I don't insist that I have to be present.

Justice Lewis F. Powell: Right.

Mr. Warren N. Coppedge, Jr.: Thank you!

Chief Justice Warren E. Burger: Very well.

You may have about seven minutes now Mr. Kemp, but you can get started that away.

Argument of Lemuel Hugh Kemp

Mr. Lemuel Hugh Kemp: Mr. Chief Justice, may it please the Court.

I will end when the clock sounds.

I have my family here and I have to take them back on a train tonight, but I think I can cover the essential points.

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

I will take up three points rely on my brief on my constitutionality of the Georgia statute.

The first is, as indicated by Mr. Justice Powell, we think that waiver rights, the garnishment issued, they file the bond, not to create a stand-in, but to free up this bank account.

Three weeks later, as an after thought, after having read a little law perhaps, they came in and filed an assault and an under attack in paragraph 11, to answer to Mr. Justice Powell.

Paragraph 3, said, if plaintiff had no reason to apprehend the loss of any judgment.

Then three weeks, after they filed the bond, not to create stand-in but to free the bank account, they came in and had an opportunity to have a complete and a full hearing of any kind and at their instance it was heard and Judge (Inaudible) of superior court entered an order in which he denied each and every of the grounds on page 10 and 11 in the appendix of the North Georgia's brief.”

So we say they waived any rights.

Secondly they had many other ways which could have attacked.

The main action was removed to federal court, although they could have filed a separate suit in federal court.

They could have filed an inter-plea, they could have filed a declaratory judgment, they could raised it in many different issues.

The reason they filed the bond was to free the bank account.

Our second point is that under the authority of DeFunis versus Odegaard, the issue is a moot, first because they filed the bond.

Once they filed the bond under Georgia law, Roberts versus (Inaudible) the dissolution bond takes the place of the property or the fund garnished.

There is no issue anymore, it's moot, just as when the law student graduated, the issue out of Washington and Oregon became mute.

Secondly, and I don't want to get into an argument of counsel as to whether or not it's plant is solvent or not, but I respectfully submit and stating my place that what has happened is exactly what Mr. Foster said when he filled out this affidavit.

The defendants will not be forthcoming to answer the garnishment and we submit that if the Court does want to make an inquiry, it's not in the record, but the insolvency of the debtor if it in fact existed would make the garnishment moot.

Thirdly, and the third point is, we make the point in our brief that the Georgia statute and Your Honors, I frankly have inquired into the various areas of -- and I'll cover in my brief is constitutional and we distinguish, if we think (Inaudible) and (Inaudible) the Mitchell decision and the recent decision in the last week of the court, upon seizure of automobiles and similar recent cases which I don't have cited in my brief because it came down after the brief was typed.

The main point I want to make otherwise is that even if this court should reach Mr. Coppedge's conclusion and assertion that the statute is unconstitutional required to provide notice that it should not be applied to retroactively.

This case was filed in August 1971.

Sniadach had been decided, but it's certainly it didn't presage Fuentes, that was limited to specialized wages.

Fuentes had not been decided when the case would argued in the Trial Court in December 1971, and when Trial Court had issued its order.

Under the case of Linkletter versus Walker cited in our case, another case was cited in our brief, this Court had held that it will not apply retroactively, so as to dislodge established reliance on a statute.

Most recently in the case of Lemon versus Kurtzman which involved the Pennsylvania state, reimbursing sectarian schools, notwithstanding the fact that the statue had been declared unconstitutional, the Court refused to apply the statue or the unconstitutional holding that.

In that case the Court stated statutory or even Judge made rules of law of hard facts on which people must rely in making decisions.

This fact of legal life underpins our modern decisions recognizing a doctrine of non-retroactivity.

So we say in this case, Your Honor, and respectfully submit, we don't think that the statute is unconstitutional.

We don't think that you should ever reach the issue, because of waiver and because of mootness, but even if you do reach it and agree with counsel for petitioner, we respectfully submit Di-Chem is relying on it.

The only thing that they have got is this bond now, if they don't get into claim that there was no holding or poor shuddering of Fuentes, and therefore it would be inapplicable and under this Court's doctrine as stated in the Kurtzman case and in the Walker and Linkletter case that if the Court does reach a conclusion that the Georgia statute is unconstitutional for any reason whatever, that it should be given prospective application only and it should not be applied retroactively because what we're talking about is Di-Chem's right to get to stick to $51000 and I'm not sure that even the bond is solving it at this time because of various and sundry things that have gone in these corporations but at least we respectfully to submit that we should have our right to go after North Georgia and after his bondsman.

Justice Lewis F. Powell: Mr. Kemp why hasn't main litigation been tried in three years?

Mr. Lemuel Hugh Kemp: We've been waiting to see what the ultimate outcome is going to be and whether it's going to be bond available.

If there is no bond available, we own this case on the contingencies on a side, we have got about three-four hundred hours unless there is a bond available there was no use to going ahead and trying the main action because that would just eat up more judicial time and more effort.

Justice Potter Stewart: Mr. Kemp, is there direct conflict now between your State Court and the District Court for the Northern District of Georgia in the Atlanta division?

What's the practical situation down there now with this conflict?

Mr. Lemuel Hugh Kemp: I don't really know.

As far as I know in Atlanta I can't understand it.

If I want to issue a garnishment in Atlanta, I have no problem.

Of course our Superior Court judge will not let us issue one.

He follows the suggestion in some ways as suggested by Justice Rehnquist.

We go over with an order and say and take our client with us and swear him in and say that they are going to run off with this money.

Your Honor, if you don't issue this garnishment, he issues a garnishment and gives them three days to show why it shouldn't be dissolved.

Justice Potter Stewart: And that in his view was satisfies what was held by the Federal Court in Morrow Electric Company against Cruse?

Mr. Lemuel Hugh Kemp: To my knowledge yes, that's the practice.

As a matter of fact, Mr. Guptill (ph) who thought of this procedure where we could keep on [Attempt to Laughter] where we could keep on tying up people's money.

Justice Lewis F. Powell: Mr. Kemp, when the judge you've mentioned, gives three days, is that provided by the statute in Georgia or is that just a policy?

Mr. Lemuel Hugh Kemp: Just policy, it's usually on any kind of a – on that type of judgment.

We have a three days to show cause and on that point a wife can tying up a man's property by filing a suit and if he is got a plant amounting to three million dollars, he's got everything he has got tied up right now with a lis pendens in a divorce action and she wants it all, we can't sell it, we can't borrow on it, we can't sell our stock.

So a lis pendens is a pretty effective though; I have (Inaudible) Your Honor.

Chief Justice Warren E. Burger: Mr. Coppedge, do you have any thing more you have about three minutes.

Rebuttal of Warren N. Coppedge, Jr.

Mr. Warren N. Coppedge, Jr.: Mr. Justice I -- may it please the Court.

I would just like to answer to Mr. Justice Stewart's question because of this situation in Georgia created not only that -- well, the Morrow Electric Case but also Aaron versus Clark, 342 F. Supp.

898, we have jury rigged, a situation whereby if we want to restrain property we contend under the Georgia general equity statues that we have no adequate legal remedy that because of the conflict in the decisions of the courts, we have no adequately legal remedy.

We take our client in, we swear him in before the judge he testifies and the court issues an ex parte injunction requiring the defendant to to appear in a very short time and show cause and we think that the general assembly of Georgia should render this to dignity of statute.

Justice Potter Stewart: They don't have --

Mr. Warren N. Coppedge, Jr.: We don't have --

Justice Potter Stewart: -- (Voice Overlap) yourselves?

Mr. Warren N. Coppedge, Jr.: Because without it we don't have a fair system of sequestering property.

Justice William H. Rehnquist: Mr. Coppedge, what the Superior Court (Inaudible) was to refuse to dissolve the garnishment, isn't that right?

Mr. Warren N. Coppedge, Jr.: The Superior Court of Whitfield Country denied our motion to dismiss the case.

Justice William H. Rehnquist: To dismiss the--

Mr. Warren N. Coppedge, Jr.: The application -- the garnishment case on the constitutional grounds asserted which at the time was --

Justice William H. Rehnquist: Well, the Supreme Court of Georgia up held that rule.

Now if we were to reverse that, what would be the effect of our reversal on the liability on the bond?

Mr. Warren N. Coppedge, Jr.: I think that there would be no liability on the bond because the liability, the condition of bond as set forth on the appendix which Your Honor has before you is to pay such judgment as may be rendered in this case and that refers to the garnishment case.

In Georgia what you do is you get a judgment in your main case and then if it's not paid then you go sue the other case.

And they have not perused the main case and there is a counter claim pending in the main case and I assume that would be pursued later.

Thank you.

Chief Justice Warren E. Burger: Thank you gentleman..

The case is submitted.

Featured:

Calero-Toledo v. Pearson Yacht Leasing Co. - Oral Argument

Tue, 03 Feb 2009 02:40:37 +0000

Case:

Calero-Toledo v. Pearson Yacht Leasing Co.

Media File:

73-157_19740107-argument.mp3

Featured:

Mitchell v. W. T. Grant Co. - Oral Argument

Thu, 23 Aug 2012 18:24:50 +0000

Case:

Mitchell v. W. T. Grant Co.

Media File:

72-6160_19731204-argument.mp3

Related Transcript:

72-6160_19731204-argument

Transcript:

Argument of Robert J. Hobbs

Chief Justice Warren E. Burger: We’ll hear arguments next in Mitchell against W. T. Grant Company, 72-6160.

Mr. Hobbs, you may proceed whenever you are ready.

Mr. Robert J. Hobbs: Mr. Chief Justice and may it please the Court.

This matter is before this Court on a writ certiorari to review the decision of the Louisiana Supreme Court, upholding the Louisiana statutory procedure of sequestration.

The issue presented by the decision of the Louisiana Supreme Court and by the arguments of respondent is whether the decision of this Court in Fuentes v. Shevin should be applied to the Louisiana procedure of sequestration.

A procedure without any constitutionally significant references from the procedures and of Florida and Pennsylvania, a statutory replevin found unconstitutional in Fuentes v. Shevin.

Mitchell is not asking this Court for a novel holding.

The key facts in this case are brief.

On February 2, 1972, Grant filed a money claim in the First City Court in New Orleans.

That claim alleged $574.00 to -- against the purchase price of four appliances.

In conjunction with that money claim, Grant requested that a seizure by writ of sequestration be authorized.

In support of that request for seizure by sequestration, Grant filed a short affidavit which verified the petition and a surety bond.

The judge authorized the seizure.

The seizure could take place immediately.

As was true in Fuentes, the writ of sequestration issued upon the minimal showing the verified petition and affidavit.

As was true in Fuentes, it issued only by the -- with the filing of a surety bond.

As was true in Fuentes, the issuance of the writ of sequestration is a ministerial act.

It is the mandatory duty of the issuing official to issue the writ of sequestration if the documents presented to him are proper on their face.

The document need only show on its face, a claim, in this case the $574.00 money claim alleged to be due on four appliance purchased 11 to 19 months prior to the initiation of the suit.

Document need only show an interest of the claimant and the property to be seized, in this case, and unrecorded statutory lien was asserted and third, the document need only show the defendant’s power over the property to be seized, in this case, delivery of the goods to Mitchell was alleged.

The procedure is broadly available to every plaintiff who is willing to make these averments.

Once the writ of sequestration is authorized, the seizure may take place immediately.

As in Fuentes, there are only post-seizure procedures available to the dispossessed parties.

As in Fuentes, those procedures came too late, the depravation has already occurred.

However, to put this case in the proper perspective, I’ll briefly go through the post seizure procedures which Mitchell pursued.

The dispossessed party may defend both against the money claim and against the seizure, in this case, Mitchell sought to dissolve the seizure first.

Mitchell alleged state grounds, state exemptions statute, he argued applied it to certain of the appliances.

Mitchell also asserted at the Due Process Clauses of Louisiana and the United States Constitutions protected him against this seizure.

A hearing was held, both parties appeared.

No testimony was introduced.

A --

Justice Byron R. White: Did he make any assertion that there was not a balance due on the debt?

Mr. Robert J. Hobbs: No, he can -- he could do this in his defense to the underlying petition for setting a money claim and that is his intent, what he intents to do --

Justice Byron R. White: You mean at the trial later?

Mr. Robert J. Hobbs: By pleadings and been at the trial --

Justice Byron R. White: You claim that's his motion to dissolve the writ, he may not challenge the averments that balance are due?

Mr. Robert J. Hobbs: He can -- the Louisiana law is actually unclear on this.

It does say he can attach and attack any --

Justice Byron R. White: I notice that respondent’s claim that at this hearing, he dissolved the writ, he may challenge anything that is relevant to the issuance of the writ.

Mr. Robert J. Hobbs: I suggest that’s not the law of Louisiana, what the law says and --

Justice Byron R. White: Well, let’s assume that it was the law of Louisiana.

Mr. Robert J. Hobbs: Yes.

Justice Byron R. White: That he could challenge the writ, to challenge the underlying facts on which the writ was based.

Mr. Robert J. Hobbs: Yes.

Justice Byron R. White: -- namely that there is a debt due.

Mr. Robert J. Hobbs: Yes.

Justice Byron R. White: And a balance due, would that make any difference to your argument?

Mr. Robert J. Hobbs: Well, respondent does make the argument out of the -- he makes the argument that because Mitchell could have raised defenses in that post-seizure hearing that he had to raise every defense and because he did not raise the seizures against the underlying claim, he only raised defenses against the seizure that he has waived all these defenses.

I -- it makes a difference if you reach that conclusion.

However, as to my constitutional argue -- argument, it makes no difference.

Justice Byron R. White: It still comes too late.

Mr. Robert J. Hobbs: Because it comes too late, it comes after the depravation.

Justice Byron R. White: Is it -- well, I’ll -- you go ahead.

Mr. Robert J. Hobbs: After the City Court refused to dissolve the seizure, Mitchell sought immediate interlocutory relief at the appellate level and intermediate Appellate Court refused to review.

The Louisiana Supreme Court granted review on interlocutory writs of review certiorari and mandamus, etcetera and after hearing briefs and oral arguments of the parties, the Louisiana Supreme Court upheld the constitutionality of the Louisiana procedure of sequestration.

To uphold the decision below would be in effect to overrule Fuentes v. Shevin.

However, the decision in Fuentes is not the only principle involved to uphold the decision below would be to depart from a sound constitutional principles applied, and a host of this -- of other decisions of this Court stretching over a period of more than 100 years.

That principle is the very fundamental principle that the state cannot seize a person’s property without prior notice and hearing except in the most extra ordinary of situations.

To uphold the decision below would be to carve a new and almost unlimited exception to that principle.

To uphold the decision below would also cast out an uncertainty upon the decisions of more than 60 Courts in more than 29 States which have struck down statutes similar to those involved in Fuentes in reliance upon this Court’s decision in Fuentes v. Shevin and Sniadach v. Family Finance.

The basic purpose of the Fourteenth Amendment is to protect the individual against the state.

The key stand to this constitutional protection is the right to defend one’s property prior to a state seizure.

This can be accomplished effectively only by affording the individual notice and an opportunity for a hearing prior to the state seizure.

This right to prior notice and hearing can be abridged only by the most overriding of state interest.

The broadly available procedure of statutory sequestration abridges the constitutional rights of the individual without any overriding state justification for that abridgment.

But they --

Justice Potter Stewart: Mr. Hobbs, you said that, I missed -- I think -- something you said, the Courts of how many states had held similar laws unconstitutional beyond understanding of --

Mr. Robert J. Hobbs: It’s a -- there’s been more than 60 decisions in more than 29 States.

Justice Potter Stewart: More than 29?

Mr. Robert J. Hobbs: Nine.

Justice Potter Stewart: Nine.

And have the state legislatures done anything either in those states where the existing law was declared unconstitutional or another states where the Courts have not done so but --

Mr. Robert J. Hobbs: There has been --

Justice Potter Stewart: Have there been modifications of (Voice Overlap) --

Mr. Robert J. Hobbs: I’m aware of the legislatures considering new legislation to give consumers prior notice and hearing.

I believe that a few states have -- had sufficient time to enact such legislature, legislation.

If it would aid the Court, I could prepare a supplemental memorandum on that point.

Justice Potter Stewart: Do you have a -- do you have in your brief the judicial decisions to which you referred more than -- you cite this -- citations to?

Mr. Robert J. Hobbs: No, to -- when I was writing it I thought it would -- it was -- would do -- to state the obvious.

Justice Potter Stewart: Yes.

Mr. Robert J. Hobbs: And including those 60 (Voice Overlap) --

Justice Potter Stewart: You say they’re more than 60 in over 29 -- in at least 29 states?

Mr. Robert J. Hobbs: Yes Your Honor.

Justice Harry A. Blackmun: I understand they are since Fuentes?

Mr. Robert J. Hobbs: No, those decisions are all since Sniadach and since Fuentes.

Sniadach was decided in 1969.

The cases that were based on Sniadach and pre Fuentes, I suppose, would be -- have been predicting this Court’s decision in Fuentes v. Shevin.

The basis on which the Louisiana Supreme Court distinguished Fuentes are not entirely clear.

However, none of those justifications, evidenced this the -- the type of state interest necessary to overcome the constitutional protection of prior notice and hearing.

The Louisiana Supreme Courts made it -- an opinion made it abundantly clear that seizure by sequestration is available to every Louisiana credit seller who believes that there has been a default in a credit transaction.

The Louisiana Supreme Court refused to confine the application of the sequestration statutes to narrow extraordinary situations.

The need for prompt action identified by the Louisiana Court is the ordinary desire which any anxious creditor might feel well enforcing his claim.

The procedure of sequestration is not confined to situations where a creditor can show the collateral is actually endangered.

The creditor need only show that the owner has power over that property.

Justice William H. Rehnquist: Do you think if it could be shown that the collateral were actually in danger that that would be a legitimate exception to Fuentes?

Mr. Robert J. Hobbs: We then have the problem of safeguards to ensure whether that determination to safeguard that the determination is accurate once it is made.

The usual safeguard is the adversary process and that’s why we say prior hearings.

Justice William H. Rehnquist: But of course, given notice and hearing, it’s also an opportunity for the person who is the object of the writ to spare that thing away?

Mr. Robert J. Hobbs: Well, if we presume that consumers do spare things away or sitting in their house with the hatchet ready to destroy the goods; that would raise our presumption to a constitutional presumption of malice of consumers.

Justice William H. Rehnquist: Well, it’s not a question of malice of consumers but I think almost everyone who has had any experience in this type of practice knows that stuff frequently disappears if the people have notice of the fact that it’s a subject of sequestration?

Chief Justice Warren E. Burger: And they don’t use hatchets.

They sometimes just sell it.

Justice Lewis F. Powell: Or move it next door?

Mr. Robert J. Hobbs: That is a presumption which I’m unwilling to indulge in.

However, I think if there were adequate safeguards to determine the probability of consumer destruction that then perhaps we would have a statute which would be narrowly drawn and come within the exceptions of Fuentes, however --

Chief Justice Warren E. Burger: What safeguards would be, what range of safeguards do you have in mind, I am not sure I follow you?

Mr. Robert J. Hobbs: Well the traditional safeguard is adversarial hearing in which both sides can assert their interests.

Perhaps, we could -- there are other traditional safe --

Chief Justice Warren E. Burger: How does that help if the property has already been sold after those --?

Mr. Robert J. Hobbs: It doesn’t, I’m talking about a hearing prior.

Chief Justice Warren E. Burger: Oh! I see.

Mr. Robert J. Hobbs: And those are the safeguards to protect --

Chief Justice Warren E. Burger: Not a safeguard --

Mr. Robert J. Hobbs: -- to make sure that the state is not engaging in an erroneous decision when it decides there's a need to seize this property to take it from one individual and --

Chief Justice Warren E. Burger: You didn’t mean a safeguard for the creditor, you meant to safeguard for the debtor, the purchaser?

Mr. Robert J. Hobbs: As a safeguard for the state to ensure that the state.

To ensure that the state is not engaging in mistaken deprivations and a safeguard for the debtor to insure that he is not deprived of his property through mistake or inadvertence or otherwise.

Justice Byron R. White: There are --

Mr. Robert J. Hobbs: I --

Justice Byron R. White: There doesn’t seem to be any question about -- why under a Louisiana law, the seller in this case had a property interest in the goods?

Mr. Robert J. Hobbs: No, there's no contest.

Justice Byron R. White: So, you would make the same argument if there were chattel mortgage on that or some -- something besides just a vendor's lien?

Mr. Robert J. Hobbs: That’s correct.

Justice Byron R. White: And so, both parties have property interest in the goods and the question is who has possession pending litigation?

Mr. Robert J. Hobbs: Correct.

Justice Byron R. White: And let’s assume there was a hearing of whatever kind of a hearing that you think would be satisfactory, what would you think would have to be established at that hearing in order to change possession or is your position that possession may not be changed until the entire litigation is over?

Would you say that at the hearing, all you would have to establish is probable cause to believe that there was a balance due on the debt?

Mr. Robert J. Hobbs: There is a --

Justice Byron R. White: Or would you have to try out the entire case and make final and conclusive findings?

Mr. Robert J. Hobbs: The Court in Fuentes suggested that at that hearing that the underlying merits of the claim would be what the claimant must prove in order to obtain the seizure.

Justice Byron R. White: Not just probable cause to believe?

Mr. Robert J. Hobbs: When you get in to probable cause which is getting into us a burden or the specific facts on which this -- the --

Justice Byron R. White: That’s right.

Mr. Robert J. Hobbs: Creditor must show.

If we have the adversarial context, I suppose we could go in the traditional manner where he states his claim, he tries to prove his claim and the defendant --

Justice Byron R. White: Well, I know but isn’t that -- so you, in effect -- you’re saying that you must have a full adversarial hearing on all of the issues in the case and decide them on the merits before possession maybe changed.

Mr. Robert J. Hobbs: I don’t think that the Court has to reach that question to --

Justice Byron R. White: Well, I think it’s very much the part of the inquiry is what kind of a hearing are you talking about as requiring before a change of possession?

Mr. Robert J. Hobbs: I think that perhaps one of the issues that could be involved is the necessity of the seizure and if it is not shown necessary at that hearing, that is that there is no danger of the goods to the goods to be seized, but then there would be no reason --

Justice Byron R. White: How do you fill that, to put the burden on the creditor for that and to show that -- how does he show that?

In effect you’re just saying --

Mr. Robert J. Hobbs: If you indulge --

Justice Byron R. White: In effect you’re just saying, let’s wait till the trial is all over.

Mr. Robert J. Hobbs: That is the ordinary way that we test the claims under our system.

I think it is a good system.

I would be reluctant to see this Court abandon that system, but I do believe state legislatures could come up with possibly new techniques.

I think I would have to examine those new safeguards to protect the state and the defendant once they were drawn to -- before I could defend them.

I mean, possibly, we could have a judicial investigation.

Justice Byron R. White: You also think that the private repossession would be illegal without any aid from the state?

Mr. Robert J. Hobbs: The -- well, let me make this clear.

The self-help repossession as is known under the UCC is not a part of the law of Louisiana.

It presents different questions than are presented by the statute.

I do not think that Court should reach that decision.

That question in this case, the Court does not have to, it presents difficult questions of state action and a number of the Courts had been splitting on this issue.

Justice Byron R. White: No self-help remedies under the Louisiana law permissible?

Mr. Robert J. Hobbs: Not in the context of the credit sale and under the law of Louisiana, there are no conditional sales, title vests in buyer immediately upon the agreement of the price and the goods and therefore --

Justice Byron R. White: Subject to the vendor’s lien?

Mr. Robert J. Hobbs: Subject to the vendor’s lien, and therefore, under that rational, they do not allow self-help repossession.

Chief Justice Warren E. Burger: Does Louisiana recognize a conditional sales type of contract for personal property?

Mr. Robert J. Hobbs: No it doesn’t, it will give full faith and credit to one made out of the state, but it will not enforce one made within the state.

If the Louisiana Supreme Court’s finding is read to mean that the creditor’s interest in the property is superior to the debtor’s right to be -- to have his property secure from arbitrary and unreasonable seizure, it is erroneous.

There are no safeguards prior to the seizure except those say -- those minimal showings that were present in Fuentes.

The Louisiana Supreme Court rules that none of those safeguards were necessary because it gave an unbridled preference to the interest of one litigant that was a security interest which without even considering the full legal title of Mitchell or his right to be secure from arbitrary or unreasonable state seizures.

Such a use of state power without proper safeguards is unconstitutional.

Mitchell requests that this Court reverse the decision of the Louisiana Supreme Court and reverse the unconstitutional seizure of his property.

To do so would be entirely consistent with this Court’s prior decisions.

To do so would be to vindicate the decisions of more than 60 lower courts in more 29 states which have relied upon this Court’s decisions in Fuentes v. Shevin, Sniadach v. Family Finance and a host of other decisions of this Court.

Unless there are any further questions, I’d like to reserve the remainder of my time for rebuttal.

Chief Justice Warren E. Burger: Very well Mr. Hobbs.

Mr. O’Sullivan?

Argument of Thomas J. O'sullivan

Mr. Thomas J. O'sullivan: Mr. Chief Justice and may it please the Court.

This is a case in which though the petitioner claims the denial of an opportunity for a hearing regarding the taking of his property there has in fact already been a hearing in that regard.

The petitioner has been heard and his contentions have been decided adversely to him.

One point I might make right off the bat, Your Honor, is that this case arose prior to the time that the decision had been rendered in the Fuentes case and the trial court's determination was made at a time prior to the decision in the Fuentes case.

In terms of the arguments in the briefs, I submit that there are two basic areas of dispute between the parties with respect to Louisiana law.

The first of those areas is as to the nature and extent of the hearing which has been had in this case.

In the second area of dispute is with respect to the rule of the Court which issues the writ of sequestration.

Now, in the argument that’s preceded, there has been no discussion of that rule and I think that there should be a fuller development.

But first, I’d like to turn to the question of the hearing that has been had in this case.

We submit that the petitioner comes before this Court and is not in a position to assert an injury.

The Fuentes case was designed to prevent mistaken, unjustified or wrongful deprivations of property and that has not happened in this case.

The petitioner has had a hearing albeit after the property was taken from his possession and he’s been heard in that regard.

Now, as to the nature of that hearing, this was a hearing that was brought on by the petitioner to set aside the writ of sequestration in an endeavor to obtain the return of the property.

Now, the petitioner in essence claims that he was not able to go into the merits of the case at that time, but in fact, the petitioner was able to cause the court, the Louisiana Court to explore into the grounds for the issuance of what’s referred to as the auxiliary remedy.

There is a comment that the petitioner has referred to in his brief to the effect that at that hearing the merits may not be inquired into.

In fact, we submit that any significant defense can be raised at that hearing and the cases that we have cited in our brief at pages 22 through 25 amply demonstrate that in cases in which a motion has been brought on to dissolve a writ of sequestration, the Court has inquired into issues that go to the merits and that is because the burden of proof at such a hearing has been placed on the party that caused the goods to be seized in the first instance.

In short, the burden was on the respondent at that hearing to demonstrate that the property was properly seized.

Now, in addition at that hearing, after the property had been taken, there was a stipulation entered into by the parties to the effect that there was a valid vendor’s lien on the property.

Now, in short, this is a situation in which the petitioner purchased property and then having gone into default after the property was seized, came into the Court and admitted that there was a valid vendor’s lien on that property.

Justice Byron R. White: That means there is a -- you have a lien, you have to -- there has to be balance due I take it?

Mr. Thomas J. O'sullivan: Yes sir, I believe that that’s so.

In the event that there was not a balance due, there would be no such vendor’s lien.

Justice Byron R. White: Yes, but the -- you may have a vendor’s lien but not have the right to possess because the balance may not be due, may not be unpaid.

Now by just conceding that there's a balance vendors lien it doesn’t concede that it's unpaid?

Mr. Thomas J. O'sullivan: No Your Honor, I think that that’s so but beyond that --

Justice Byron R. White: What about that in this case.

Was there any concession, ever any concession that was un -- that the balance was unpaid?

Mr. Thomas J. O'sullivan: Well Your Honor, the allegations in the petition, in the initial affidavit pursuant to which this action was commenced were to the effect that the balance was unpaid and was due and that has never been contested nor contradicted and it could’ve been contested and contradicted.

Justice Byron R. White: But never been admitted -- never been admitted either, has it?

Mr. Thomas J. O'sullivan: No sir, but there has -- I submit, there has been a finding to that effect implicit in the decision of the Court at the hearing to set aside the writ of sequestration.

Justice Potter Stewart: I understand it only -- the -- there’s always a vendor’s lien in -- under Louisiana law, when personal property, when a chattel is sold and the full purchase price is not then in there paid, there’s always a so called vendor's privilege, isn’t it?

Mr. Thomas J. O'sullivan: Yes sir, that’s true.

Justice Potter Stewart: And that’s all the submission amounted to, wasn’t it?

Mr. Thomas J. O'sullivan: No, I think that it goes to something more than that because it’s an admission that it has not been extinguished, that its still, that it has not been extinguished, that it’s still in existence as of the time that the case has come on for a hearing before the Court.

Justice Potter Stewart: And that would simply be an admission of no more than that the full purchase price has still not yet been paid, isn’t that right under Louisiana law?

Mr. Thomas J. O'sullivan: I think that it goes beyond that.

I think that it implicitly meets that there aren’t defenses of such in nature as would extinguish that vendor’s lien.

Justice Potter Stewart: Well simply, and the only thing that would extinguish it as I understand it at least under Louisiana law of which I’m generally very ignorant, is that until the full purchase price has been paid plus whatever interest and service charges there maybe, the vendor’s lien remains and is not extinguished, isn’t that correct?

The vendor’s privilege, it's called in Louisiana.

Mr. Thomas J. O'sullivan: No sir.

I would think that that would not be so.

I think that we have cited case law in our brief to that effect that for example with discharge or with innovation or with -- in the past giving of notes, a vendor’s lien might be extinguished.

Justice Byron R. White: Your argument is -- I take it that the -- at this -- here you have the burden of showing that your seizure was proper?

That meant showing not only a vendor’s lien but there was a -- that there was a default?

Mr. Thomas J. O'sullivan: Yes sir we do.

Justice Byron R. White: And in order for them not to set us -- in order for the court not to set aside the writ and the sequestration and collect on your bond that there was any damages.

In order for the court to refuse to do that, it had to find, you argue that there was a default?

Mr. Thomas J. O'sullivan: Exactly so sir.

Now --

Justice Potter Stewart: But I -- that’s you and your brother are not in agreement as to that factual issue or as to that question of Louisiana Law?

Mr. Thomas J. O'sullivan: That is a correct statement.

I think that my brother’s argument goes a little bit further.

I think that he takes the position that there was not a final determination on the merits as to the ultimate right of possession of the property.

With that argument, I’m in agreement.

There was no such final determination.

The property so to speak is still in limbo.

There has not been a final judgment in this case but I would submit that the Fuentes case does not require an initial threshold preliminary ultimate determination of the right to the possession of property.

Justice Byron R. White: What is the (Voice Overlap) -- what do you think the standard is under Louisiana law at the hearing to quash the seizure such as what’s held in this case.

You have the burden of showing you say that the seizure was justified.

Mr. Thomas J. O'sullivan: Yes sir.

Justice Byron R. White: What standard does the court apply, probable cause or it’s sort of like a preliminary hearing you’ve established whether there’s a reasonable basis for the claim?

Mr. Thomas J. O'sullivan: In essence, I would submit Your Honor that at that hearing there is an inquiry into the probable validity of the claim.

Justice Byron R. White: Is that --

Mr. Thomas J. O'sullivan: In a sense, akin to the position asserted by Justice Harlan in the concurring opinion in the Sniadach case.

That I suggest is implicit in that, the burden of proof is on the party that has caused the goods to be seized in the first instance.

The party has to come into Court and prove at that time that there is a claim, that there is a default, that there’s a valid vendor’s lien or some other basis for having taken the property from the possession of the vendee.

Chief Justice Warren E. Burger: Of the showing of the valid vendor’s lien standing along would not justify it and then -- let me ask you this question hypothetically.

Suppose at this preliminary hearing, the debtor had come in and standard to the hearing officer receipts showing that he was paid right up to date, would the Court then be obliged to dissolve the writ of sequestration and return the property?

Mr. Thomas J. O'sullivan: Yes sir, I think so.

I think that Louisiana State Rice Milling case cited in our brief is to that effect and that case states that the mere coincidence that a fact is relevant both on the writ of sequestration and on the merits does not preclude use of that fact on the hearing to dissolve the writ.

We would submit that if such a showing were made and in fact we’ve cited in our brief a number of cases in which a party has come into Court with a meritorious defense and had the opportunity even before there need be a final determination on the merits to have that defense heard.

Now, that didn’t happen in this case.

Chief Justice Warren E. Burger: That’s the basis for your saying there is an implicit judicial determination of a default here?

Mr. Thomas J. O'sullivan: Yes sir.

Your Honor, we submit that in this case, given the facts of this case and the posture of the case before this Court that it makes no sense for the Court to order a new hearing, a new hearing as to the temporary depravation of the petitioner’s property, that hearing has already been held.

Now, I’d like if I could return to the second area of relevant inquiry here and that is as to the role of the judge who issues the writ of sequestration in the first instance.

We contend that in this case there was a prior judicial determination as to the propriety of the taking of the petitioner’s property before that property was taken.

Justice Potter Stewart: If that’s true of course and -- then the Fuentes in all its ramifications was fully satisfied, wasn’t it, this case, is that your point?

Mr. Thomas J. O'sullivan: No sir, I don’t think --

Justice Potter Stewart: There was a prior determination --

Mr. Thomas J. O'sullivan: I --

Justice Potter Stewart: -- of all of the issues that had to do with who should have relevant possession of the property before the property was taken then I should suppose that Fuentes if broadly read was fully satisfied, wasn’t it?

Mr. Thomas J. O'sullivan: No, I don’t think that that’s so Your Honor.

Justice Potter Stewart: Well, then what is your point?

Mr. Thomas J. O'sullivan: Well, the reason for that is that the prior judicial determination was ex parte and the question is whether or not the Louisiana ex parte prior judicial determination satisfies --

Justice Potter Stewart: I see.

Mr. Thomas J. O'sullivan: -- the rule that’s set forth in the Fuentes case.

Justice Potter Stewart: You don’t say there was prior --

Mr. Thomas J. O'sullivan: There was --

Justice Potter Stewart: -- hearing of it in the sense of any kind of an adversary hearing (Voice Overlap) --

Mr. Thomas J. O'sullivan: There was not an adversarial hearing, no sir.

Justice Potter Stewart: Right.

Chief Justice Warren E. Burger: On page 23 of your brief you -- beginning at the middle page you say in order to meet the burden of establishing that the writ was properly issued, the vendor must establish and then you list six elements.

Now, are you speaking there of the burden that he must carry to sequester the property or the burden that he must carry at the hearing on the purchaser’s motion to dissolve the writ?

Mr. Thomas J. O'sullivan: This is the burden that falls on him at the time of the purchaser's motion to dissolve the writ.

Chief Justice Warren E. Burger: And do you -- was that an adversary hearing?

Mr. Thomas J. O'sullivan: Oh, yes sir it was.

That was a hearing brought on by the petitioner at which both sides were present and there was argument before the Court.

I might say Your Honor, in regard to the record in this case and we have that question as to the nature of the stipulation and the extent of the stipulation as to the vendor’s lien in this case.

The record in this case is a very meager one and though I here argue this morning as to the role of the court on a motion to dissolve the writ and the role of the judge as of the time that the writ is issued in the first instance, there has not been in the record in this case, decisions below of the Louisiana Court, illuminating exactly what the functions of the Courts are under both those circumstances.

Justice William H. Rehnquist: Well, I suppose too that since you’re from New York and your opponent is from Boston, neither of you can contribute much personal knowledge of Louisiana.

Mr. Thomas J. O'sullivan: I recognize that problem and appear that that so Your Honor.

We have endeavored to make diligent inquiry into the Louisiana Law and we have done our best to breakout the cases, but I do have some hesitancy in that regard.

Coming back to the argument as to the prior ex parte judicial determination as to the issuance of the writ, we submit in this case, there is a significant difference in Louisiana from the situation both in Florida and in Pennsylvania as came off in those circumstances as the Fuentes case.

Now, in Louisiana, we submit that there is effective control by the state of the use of its power and that there is an official and impartial government official in this case, a reviewing judge who must consider the grounds that are presented in the application for the writ and that the Court is inquire -- entitled to inquire into those grounds and satisfy itself that there is a proper basis for the issuance of the writ.

Justice Thurgood Marshall: What is that, a lien as existing?

Mr. Thomas J. O'sullivan: Yes sir.

Justice Thurgood Marshall: And what else?

Mr. Thomas J. O'sullivan: And that there is a probable validity to the claim being asserted by the party commencing the lawsuit, seeking the taking of the property.

Justice Thurgood Marshall: But experience that some of us had with a computer, if all computer had made a mistake, that’s it?

Mr. Thomas J. O'sullivan: Well, Your Honor, this is a certain --

Justice Thurgood Marshall: Under the Louisiana law is that it or not.

It’s that enough to get it?

Mr. Thomas J. O'sullivan: Your Honor, there’s some question in my mind as to the answer to that question because I --

Justice Thurgood Marshall: Well, you have taken the burden of showing us in your answer to Mr. Justice Stewart’s question that this was a fully valid complete ex parte hearing, you’ve taken on that, now, you say you don’t know.

Mr. Thomas J. O'sullivan: Well --

Justice Thurgood Marshall: We won’t take which one you want to stand on?

Mr. Thomas J. O'sullivan: Sir, this is a situation in which the Court has the opportunity to make the inquiry into the claim --

Justice Thurgood Marshall: Did it?

Mr. Thomas J. O'sullivan: -- and the party seeking the issuance of the writ --

Justice Thurgood Marshall: Did it?

Did the court do it?

Mr. Thomas J. O'sullivan: Your Honor, you can’t tell from the record in this case and I --

Justice Thurgood Marshall: -- then you can’t say there was a full hearing.

The use -- the most you can say, am I correct is that there was an opportunity for an ex parte hearing?

Mr. Thomas J. O'sullivan: No sir. There was a ex parte hearing, the application was made to the court and under the Louisiana decisions that we’ve cited in our brief, it is the responsibility of the court to undertake an evaluation of the claim and look into these facts that are alleged in the petition to make a determination that as to the propriety of the issuing of the writ.

Justice Thurgood Marshall: And two facts are one that there’s a lien in two it was three-fold, that’s all there is, isn’t it?

Mr. Thomas J. O'sullivan: And that the property is in the possession of the vendee, yes sir.

Justice Thurgood Marshall: And that’s all it is?

Mr. Thomas J. O'sullivan: I think it is but I’m not entirely clear on that and the reason for that is because I do have some trouble in reading precisely what the Louisiana Supreme Court did --

Justice Thurgood Marshall: I answer me, clearance in reading, Louisiana law, the Supreme Court’s opinions, I think you should go on down and look at it because it’s the civil law.

Mr. Thomas J. O'sullivan: Yes sir and I appreciate that some of the problems in the civil law and in fact, Justice Holmes has addressed himself to the Question of dealing with problems under the civil law and he said, “When we contemplate such a system from the outside, it seems like a wall of stone, every part even with all the others except so far as our own local education may lead us to see subordinations to which we are accustomed.”

But to one brought up within it, varying emphasis, tacit assumptions, unwritten practices, a thousand influences gained only from life may give rise to the different parts, wholly new values that logic and grammar could never have gotten from the books and I submit that, that quotation maybe appropriate.

Justice Thurgood Marshall: But you have taken the burden of showing that you’ve got a full and fair hearing and you now say you don’t know what it was?

Mr. Thomas J. O'sullivan: No sir.

What I am saying is that the Louisiana Supreme Court in this case held that on the facts, the case fell within the exception to the rule in the Fuentes case.

Justice Potter Stewart: Well the -- their reasoning was as I understand it and I’ve just reread it here in the bench was that the vendee purchased the property, was implied in law knowledge of what the law of Louisiana was.

Mr. Thomas J. O'sullivan: Your Honor, I submit there is an ultimate ground in the decision.

Justice Potter Stewart: Was that what they said.

Mr. Thomas J. O'sullivan: Yes sir it did. But I submit there is an alternate ground of decision in this case which would be appropriate to consider in the court and this is set forth on page 29 of the appendix.

And the court stated that it was -- that this case fell within the exception to a rule announced in the Fuentes case that there maybe cases in which a creditor could make a showing of immediate danger that a debtor will destroy or conceal disputed good.

Justice Potter Stewart: But now, what if anything in the record of this case justified the statement that the -- that this case comes within that language of Fuentes.

There maybe cases in which a creditor could make a showing of immediate danger that a debtor will destroy or conceal disputed goods?

Mr. Thomas J. O'sullivan: The answer to that question Your Honor is the un-contradicted allegations made in the petition in this case to the effect that the respondent had reason to fear that the petitioner would alienate or dispose of the property.

Justice Potter Stewart: Isn’t that part of the form used in every single one of this in Louisiana?

Mr. Thomas J. O'sullivan: Your Honor, I don’t know the answer to that question, but I submit that this -- in this case, it was a fact, it was a sworn statement that was never contested.

Justice Potter Stewart: But what if it were a part of the form used in every single one of these or they used routinely and traditionally in every single one of these in Louisiana, would you say that was -- had came within the exception?

Exception and a part of the rule, doesn’t it in Louisiana?

Mr. Thomas J. O'sullivan: No sir, I would think that it would be completely inappropriate that the -- that there must be a stronger showing that merely pro forma showing.

Justice Potter Stewart: And is there anything in this case --

Mr. Thomas J. O'sullivan: And the suggestion here is that this is pro forma of showing.

Justice Potter Stewart: Yes.

Mr. Thomas J. O'sullivan: In that regard, I suggest that in part that maybe attributable to that fact that this case arose before the Fuentes case was decided and before the parties and indeed the country knew what was required for a showing that would have to be --

Justice Potter Stewart: But it came to the Supreme Court of Louisiana after Fuentes obviously because they dealt with Fuentes.

Mr. Thomas J. O'sullivan: Sir?

Justice Potter Stewart: By the time it got to the Supreme Court of Louisiana, Fuentes had been decided quite clearly.

Mr. Thomas J. O'sullivan: Yes sir it did.

Your Honor, one point that I would like to make clear is that, we believe we have cited the cases appropriately for the proposition that with respect to the threshold inquiry as to the issuance of the writ of sequestration at the ex parte hearing, there is considerable authority vested in the Court and the judge to make inquiry as to the claim that’s being asserted, and to test that claim.

We have seen the petitioner in his reply brief endeavor to distinguish the cases on the basis that there is a difference between judicial sequestration and these cases only apply to judicial sequestration and some other cases.

The claim is that in cases involving judicial sequestration, there is discretion in cases involving ordinary garden variety sequestration, there is no discretion.

We submit that attention to prior law under which these cases was decided indicates that there is one kind of sequestration and that is the judicial sequestration.

We have set forth the definition of sequestration on page 30 of our brief and that shows that sequestration applies to a mandate of the Court, to the sheriff to take property without regard whether it’s made at the request of one of the parties or both of the parties, so, those cases we submit are applicable.

One further point that I think deserve to be made in the context of this case and that is the unusual feature of the civil law.

Here, the vendor’s lien as in Louisiana Supreme Court has set forth in its opinion is thought to be an important creditor’s right.

At the same time, it’s a right that can easily be defeated by the debtor in the event that the debtor transfers the property, the vendor losses the rights as against the property and so that it was for this reason that Louisiana Supreme Court, I believe, took the position that this was an important right that needed to be safeguarded and that there were circumstances in which it could be shown that there was an immediate need for action on the part of the creditor and that it would be appropriate for the government to lend its power to the taking of that action.

Justice Thurgood Marshall: My question is, is justice Stewart’s -- in your appendix C, Supreme Court of Louisiana is the affidavit which uses the language that he might run away with materials and it appears that it’s a form just filled in.

Mr. Thomas J. O'sullivan: Your Honor, what page is that?

Justice Thurgood Marshall: This is the appendix C in the petition for writ of certiorari to the Supreme Court of the State of Louisiana which is on file here in this Court.

It said the petition of deputy grant, all of it was filled in except that part, that’s not filled in.

So, do you agree that was just a fall?

Mr. Thomas J. O'sullivan: Yes sir, I do.

But we submit that in view of the circumstances in which the case as a risk in view of the fact that the initial determinations and initial proceedings took place prior to the time that the Fuentes decision was rendered.

And in view of the fact that there has been a hearing in this case in which it’s been determined that in under the facts of this case, there has not been a mistaken or unjustified or wrongful taking of the property of the petitioner.

We submit that it would be appropriate for this Court either to vacate the writ as having been improvidently granted or to affirm the decision of the court below.

If there are any further questions of the Court, I’d be happy entertain them, if not --

Justice Harry A. Blackmun: Mr. O’Sullivan, are you asking, you are not asking I take it that Fuentes be overruled.

Mr. Thomas J. O'sullivan: No sir, no.

Far from it we would be contending that the Louisiana Supreme -- the Louisiana law and the facts that this case as well as the Louisiana Supreme Court’s decision are sufficiently different from the Fuentes case as to not require its application to the present case.

Justice Harry A. Blackmun: And you are content to rely on those distinctions.

Mr. Thomas J. O'sullivan: Yes sir.

Justice Harry A. Blackmun: So, if we don’t agree with you we should reverse it?

Mr. Thomas J. O'sullivan: That decision of the court below.

Justice Harry A. Blackmun: If the Fuentes governs this case, the decision should be reversed?

I mean, if there’s no real valid distinction between this case though.

Mr. Thomas J. O'sullivan: That is correct Your Honor.

Justice Byron R. White: You don’t hesitate that we overrule or modify the Fuentes language?

Mr. Thomas J. O'sullivan: No sir.

Justice William J. Brennan: Mr. O’Sullivan, before you sit down --

Mr. Thomas J. O'sullivan: Yes sir.

Justice William J. Brennan: Would you look at page 36 of the appendix, do you have it there?

Mr. Thomas J. O'sullivan: Yes sir, I do.

Justice William J. Brennan: Can you tell me what that disposition is by the Supreme Court of Louisiana and of what?

Mr. Thomas J. O'sullivan: Oh, Your Honor that is an application for a rehearing that was made by the petitioner below after the decision had been rendered by the Louisiana Supreme Court and the decision was --

Justice William J. Brennan: Made by whom, by Grant or by Mitchell?

Mr. Thomas J. O'sullivan: By Mitchell.

Justice William J. Brennan: I see.

Mr. Thomas J. O'sullivan: For rehearing and the --

Justice William J. Brennan: Right.

Mr. Thomas J. O'sullivan: -- and the request for rehearing was denied.

Justice William J. Brennan: Right, thank you.

Justice Harry A. Blackmun: May I ask -- as a further question along the lines of Mr. Justice White’s inquiry, why you don’t as an alternative take the position of Fuentes should be overrule?

After all, it was four to three decision by a -- Court?

Mr. Thomas J. O'sullivan: Well, Your Honor, I thought about that and I feel disturbed as my brother Hobbs does about the fact that there have been so many other jurisdictions and courts that have passed upon them and have acted upon the decision in the Fuentes case and concluded that it was an appropriate rule in the jurisdictions in which it applied and adopted it.

I would be --

Justice Byron R. White: As a matter of federal constitutional law which is at --

Mr. Thomas J. O'sullivan: Yes sir.

Justice William H. Rehnquist: I suppose they have --

Justice Byron R. White: Are there any -- the decisions weren’t necessarily voluntary, it doesn’t say.

Mr. Thomas J. O'sullivan: I detected some lack of enthusiasm in some of the decisions including, I might add the decisions, the many decisions that have recently been coming down in regard to self-help in which the courts have seen to be reluctant to extend the rule in the Fuentes case to the self-help situation admittedly on --

Justice Byron R. White: In the jurisdictions that have responded by the legislation, I guess there had been some --

Mr. Thomas J. O'sullivan: I Your Honor, I’m not aware of any states in which there has been legislation of yet.

Justice Byron R. White: So the decision have -- I suppose that issue have been on provision of the Uniform Commercial Code in some states permitting what the -- the repossession?

Mr. Thomas J. O'sullivan: Yes sir.

Justice Byron R. White: That’s Article 9, Section 9-503.

Mr. Thomas J. O'sullivan: 5 -- 9-503, yes sir and just recent --

Justice Byron R. White: Is that provision that has been at issue on this been held unconstitutional under Fuentes, in this other -- in these decisions?

Mr. Thomas J. O'sullivan: I would submit Your Honor that the great number of the decisions involving an application of that section of the Uniform Commercial Code have held that action under that section was not unconstitutional on the ground that it didn’t constitute state action, and just recently the -- both the Eighth and Ninth Circuit have come down on the side --

Justice Byron R. White: On the side of self help.

Mr. Thomas J. O'sullivan: On the side of self-help as being not unconstitutional.

Justice Byron R. White: What -- of what state statutes have been at issue where Fuentes is not implied to a bit -- what provision of the Uniform --

Mr. Thomas J. O'sullivan: The Uniform Commercial Code?

I can’t answer that question Your Honor, I don’t know.

Chief Justice Warren E. Burger: Mr. Hobbs, do you have anything further?

Rebuttal of Robert J. Hobbs

Mr. Robert J. Hobbs: Yes, I have a few.

Chief Justice Warren E. Burger: Let me ask you before you get started whether at the hearing to dissolve the writ of sequestration, there was either opportunity to prove an the absence of a default or whether there was an effort to prove the absence of a default?

Did your client in other words try to show that he has paid up?

Mr. Robert J. Hobbs: The law of Louisiana is not clear as to what is relevant at that post-seizure hearing.

This was my position, one that I had two good grounds to dissolve that sequestration, the constitutional claim and an exemption statute and -- but what the Louisiana Courts do say?

What -- in Louisiana Code of Civil Procedure, Article 3506 covers the dissolution of the writ of sequestration.

(Voice Overlap) see to that article states this article retains the jurisprudential rule that only the grounds for auxiliary -- for the auxiliary remedy can be inquired into on the motion to dissolve and significantly and not the merits of the main demand.

Chief Justice Warren E. Burger: Well, wouldn’t the -- as a practical matter if you could prove that you were not in default, that would end the whole matter here to get your merchandise back, wouldn’t you?

Mr. Robert J. Hobbs: Certainly, if the statute had been declared unconstitutional, I would have gotten the property back.

If the exemption statute had been found applicable to this procedure, I would’ve gotten the property back.

In fact, the Court, this -- Louisiana Supreme Court divided on the exemption issue, they did not divide on the constitutional issue.

I would like to point out Mr. Rehnquist directed a question to Mr. O’Sullivan regarding on geographical preference.

I’d like to point out that I’ve been in Boston for a year.

I didn’t realize I lost my Louisiana accent so much but my entire practice of law prior to that was in the City of New Orleans.

Justice Potter Stewart: Were you in in this case from the beginning?

Mr. Robert J. Hobbs: I was in the case initially and I left Louisiana before it was argued in the Louisiana Supreme Court but I --

Justice Potter Stewart: But you were in at the --?

Mr. Robert J. Hobbs: I was in at the outset.

Justice Potter Stewart: Outset.

Justice William H. Rehnquist: What is the practice in the parish of Orleans about the issuance of this writ of sequestration?

I mean, is it strictly a pro forma thing or does the judge who is asked to issue the writ review the affidavit, whether it complies with the statute?

Mr. Robert J. Hobbs: The -- I think the practice is that the -- is that a petition which I characterize and I think fairly so as a pro forma, that is a -- it’s a legal form that’s used over and over again, is presented to the judge.

He is then by the statute 3501 of the Civil Code of Procedure to the face of that document because the document is pro forma, because it is used over and over again, it does not tell him anything, it is not like an affidavit for a TR or under the federal rules of several procedure or under the Louisiana’s rule to obtain an injunction, that requires a detailed specific facts on an affidavit.

Perhaps, if we had such safeguards as is embodied in the federal rules for injunction, maybe then we could say, we will allow deprivations without the adversarial context, but those safeguards would have to be exempt in a case in which they were used because they are not the traditional methods of safeguarding one person’s interest against the claim of another.

The --

Justice Byron R. White: Or would the -- the hearing if you would want before a seizure, would the standard that would be applied be one of probable cause or what or would the Court have to turn primarily that will be --

Mr. Robert J. Hobbs: I --

Justice Byron R. White: That was due unpaid and overdue unpaid --

Mr. Robert J. Hobbs: I do not think that the issue should finally -- be finally resolved if we have a very short mini hearing.

Justice Byron R. White: I take it -- take a standard like for a preliminary injunction would decide it?

Mr. Robert J. Hobbs: Yes sir or yes, I do.

Justice William J. Brennan: Well, how do you distinguish the standard in Bell and Burson from the one you have in mind?

Bell and Burson said that all that had to be established, well, that was the probable --

Justice William H. Rehnquist: The basic distinction --

Justice William J. Brennan: A reason to believe that a jury might find the driver negligent but no final determination of the issue of the --

Mr. Robert J. Hobbs: I think that would be sufficient.

I’m not saying that you have to reach what kind of --

Justice William J. Brennan: Well, that’s sort of a probable cause kind of the thing?

Mr. Robert J. Hobbs: Yes, I’m willing to concede any standard at this point and that prior hearing if you’ll give me the prior hearing.

Justice William J. Brennan: That’s right.

Mr. Robert J. Hobbs: But I would like to examine the statutes.

Justice Byron R. White: How about the probable cause, standard -- do you think that there must be a probable notice put an opportunity to appear first that you can’t just decide the probable cause issue on the basis of affidavits.

Let’s assume you had an opportunity to counter affidavit and then argue, you want to be before what?

Mr. Robert J. Hobbs: If that affidavit was presented in the adversarial context, that is where one party presents his side of the case.

Well, we’re dealing with the affidavit on what is -- judge’s acts -- acting on one side of the case.

Justice Byron R. White: That is on the probable -- for instance, say for summary judgment?

Mr. Robert J. Hobbs: I would suggest, if we had a requirement in Louisiana that there was a detailed showing of all that the creditor knows and the judge was given the discretion as a judge and the federal Court has given the discretion in issuing a TRO that we would have a very different situation and it should be closely examined and determined whether those safeguards are accurate, but this is not the case.

Justice Byron R. White: Well, if it is relevant, what kind of a hearing you’re talking about is whether you’re entitled to it or you’re talking about a kind of hearing on the merits before any transfer of possession is concerned?

Mr. Robert J. Hobbs: No.

What --

Justice Byron R. White: It might be one thing.

If you're not, there’s something else maybe?

Mr. Robert J. Hobbs: I would also in conjunction with the request on what is relevant at that post-seizure hearing, there is one case in which a judge had a post-seizure hearing did enter a judgment on the merits against the dispossessed party, that case was reversed, it was held that that was not to be determined at that motion to dissolve and I cite that in my reply brief, it's Tucker versus Shawna (ph) case.

The question though is what standards apply to the judge at the time he is presented with these documents and requested to issue the sequestration.

The Louisiana Courts making clear that mandamus will lie to compel him to issue the writ of sequestration if the documents on their face are proper.

He does not have the discretion to go beyond the face of those documents or even to question what they say on their face.

In this case, there is simply no requirement of a detailed showing.

I think for these, unless there is any further questions, that’s my case.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.

Featured:

Lynch v. Household Finance Corp. - Oral Argument

Thu, 23 Aug 2012 18:18:39 +0000

Case:

Lynch v. Household Finance Corp.

Media File:

70-5058_19711207-argument.mp3

Related Transcript:

70-5058_19711207-argument

Transcript:

Argument of David M. Lesser

Chief Justice Warren E. Burger: We will hear arguments next in Number 5058, Lynch against Household Finance.

Mr. Lesser you may proceed whenever you are ready.

Mr. David M. Lesser: Thank you Mr. Chief Justice.

Mr. Chief Justice and may it please the Court.

This is an appeal under Title 28, Section 1253, from the judgment of the Three-Judge District Court in the District of Connecticut which denied injunctive and declaratory relief.

The issue is whether the Federal Courts are powerless to award any redress to low income wage earners whose earnings on deposit are summarily garnished by Connecticut Deputy Sheriffs without any notice, hearing, or order of the State Court.

Chief Justice Warren E. Burger: Now in Connecticut, would you clear this up for me, must there be an action pending against to the garnish -- the defendant at the time.

Mr. David M. Lesser: I would like Mr. Chief Justice to begin answering that question and then explain the Connecticut practice of summary prejudgment garnishment in some detail because it is quite unusual.

Chief Justice Warren E. Burger: Yes, you do it on your own way then.

Mr. David M. Lesser: In Connecticut, an alleged creditor and his attorney has absolute discretion prior to instituting suit against the debtor to summarily garnish earnings in his account without any involvement of the court.

The garnishment occurs before process is served upon the debtor.

The attorney for the alleged creditor instructs deputy sheriffs to levy the garnishment by serving a writ of garnishment on the garnishee bank.

Justice William J. Brennan: Then when he get the judgment?

Mr. David M. Lesser: Judgment is obtained perhaps several years after civil action is commenced by service of process on the debtor Mr. Justice Brennan.

Justice William J. Brennan: What -- you garnished as here I gather savings account.

Mr. David M. Lesser: And a checking account, Mr. Justice.

Justice William J. Brennan: And a checking account.

Now then the garnisher has to -- has immediately to file a civil action of it?

Mr. David M. Lesser: He does not immediately need to file.

Justice William J. Brennan: How much time does he have?

Mr. David M. Lesser: Under the applicable statutes, Section 329 of Title 52 and Section 48 (a) of Title 52.

It would be possible for the garnishment to be levied for example on day one for the alleged debtor to be served with process, let us say, on day 45 or 50 and for process to be docketed in the State Court, let us say, on day 55.

Justice William J. Brennan: And you do not get into the State Court until day 55?

Mr. David M. Lesser: One never gets into the State Court on a garnishment Mr. Justice Brennan to raise any questions with respect to that garnishment.

Now --

Justice William J. Brennan: You mean after the proceeding -- even afterward you get into the State Court on day 55?

Mr. David M. Lesser: That is correct Mr. Justice, and I would like to explain that.

Connecticut appears to be the only State in which an alleged creditor and his attorney are permitted in their absolute discretion to levy and maintain a garnishment until final disposition of the creditor suit without any involvement of the State Court.

Most other states require the creditor to get some sort of court approval before garnishment either in the form of posting a bond, filing an affidavit and so far as we know in all other states, the writ of garnishment must be signed or issued by a judge or clerk of court.

None of that obtains here.

Now, once the creditor’s civil suit for damages is docketed, no questions relating to the garnishment can be considered in the context of the creditor’s pending suit.

If the debtor claims that the garnishment was levied without any probable validity, that the creditors claim has no merit or that there was no necessity for a garnishment as in Mrs. Lynch’s and Mrs. Toro’s case for example, where we alleged that there were Connecticut wage earners raising a family in Connecticut, steadily employed, no grounds as in Minnesota for example, where garnishment is permitted only where there maybe some danger that a debtor may escape from the jurisdiction.

They have service of process or fraudulently conceals his assets.

Chief Justice Warren E. Burger: There must be an action pending first against the defendant.

Mr. David M. Lesser: There need not be an action pending first Mr. Chief Justice.

Chief Justice Warren E. Burger: I am speaking -- you were addressing yourself in Minnesota --

Mr. David M. Lesser: Oh, yes, that is correct.

Chief Justice Warren E. Burger: -- which is very common of many other states, is it not?

Mr. David M. Lesser: That is correct Mr. Chief Justice.

In most other states the garnishment is not permitted to be levied unless the court has issued the written and there is a civil action pending.

Justice Potter Stewart: Of course in most other states at least those of which I am familiar, the word, the word ‘garnishment’ means going after somebody’s wages, going after his employer for his wages. Here, what we are talking about is what is generally known in other states as an attachment, is it not?

Mr. David M. Lesser: In Connecticut the term garnishment --

Justice Potter Stewart: Excuse me.

Mr. David M. Lesser: In Connecticut the term garnishment is used Mr. Justice Stewart, as a term permitting a creditor to reach debts owing to a debtor which are in the hands of a third person --

Justice Potter Stewart: But not -- but explicitly not wages as I understand it.

Mr. David M. Lesser: We have a -- we have alleged in these cases that the constitutional deprivations that Mrs. Lynch and Mrs. Toro have suffered is indistinguishable from that suffered by Christine SNIADACH, the only difference --

Justice Potter Stewart: I understand your -- I understand your legal argument, I am asking a question that I --

Mr. David M. Lesser: Wages on the hands of an employer, Mr. Justice, are exempt from garnishment until after judgment, and then it is called an execution.

Justice Potter Stewart: Right.

Mr. David M. Lesser: But wages deposited in accounts --

Justice Potter Stewart: In a bank account?

Mr. David M. Lesser: In a bank account.

And in the Lynch case, I think the parallel of Christine SNIADACH is most clearly appreciative.

Her employer deducted $10.00 of her $69.00 paycheck each week.

Justice Potter Stewart: Deposited in the bank and --

Mr. David M. Lesser: And automatically deposited in a Credit Union Savings Account after place of employment.

Now, once the creditor as I was saying --

Justice Harry A. Blackmun: Do you have any amount exempt in garnishment in Connecticut?

Mr. David M. Lesser: Mr. Justice Blackmun, there is a statute, Section 352 I believe of Title 52, which sets out what the exemptions are.

That is a very old statute and the relevant portions for exemptions are necessary tools of a debtor’s trade and necessary household.

Justice Harry A. Blackmun: But no cash amounts, no monetary amounts?

Mr. David M. Lesser: Only after judgment when wages in the hands of an employer or executed upon, is there any exemption I believe it is either the first $65.00 of the wage earner’s net income is exempt or 25% of his disposable income whichever is greater.

But as to garnishments on wages deposited in accounts there is no exemption.

Now if the creditor, excuse me, if the debtor attempts to raise any issues with respect to the garnishment in the creditor suit, there is no authority of the court to entertain those issues.

And there was no appeal from the denial of relief because Connecticut does not permit interlocutory appeals and such appeals are being to be interlocutory.

There are only two questions in Connecticut which a debtor can raise with any hope of getting either a dissolution or a reduction of the garnishment.

We have discussed those on Pages 14 through 16 of our brief.

A debtor in order to raise these issues must institute separate proceedings pursuant to specific statutes by serving process upon the creditor or his attorney.

Now, he can complain that the garnishment unreasonably exceeds the amount that the creditor himself claims as damages.

But the Court, the State Court has no ability, no power to inquire into the probable validity of the creditor’s claim.

The only inquiry is directed to what the amount of the creditor’s claim is.

In Mrs. Lynch’s case and a suit on a note, it is very clear what the creditor’s claim is, the garnishment does not exceed the amount which the creditor claims as damages.

Therefore, Mrs. Lynch cannot make use of that statute, neither could Mrs. Toro for the same reason before her garnishment was released.

The debtor may also moved to substitute a bond but as --

Justice Harry A. Blackmun: Particularly Mrs. Toro’s particular garnishment has been released?

Mr. David M. Lesser: Mrs. Toro’s particular garnishment has been released Mr. Justice and the District Court stated that this raised some question of mootness which it did not decide but as our prayers for relief demonstrate, Pages 10 of the Appendix in 37 and 38, we were also looking for injunctions against garnishments to be levied by deputy sheriff in the future on behalf of other creditors of Mrs. Lynch and Mrs. Toro.

Now, aside from posting a bond which the wage earners in this appeal are to poor to afford and aside from the reduction of the garnishment for it unreasonably exceeds the amount that the creditor claims, a State Court has no power to release a garnishment.

That is why we are saying that the District Court was in error in these cases.

I think that the procedure in Connecticut highlights that the garnishments in these cases are not proceedings in a State Court.

No Court involvement is necessary from the date of levy until final disposition.

Any questions relating to the garnishment must be raised in a context separate from the creditor’s suit.

The Connecticut --

Justice Harry A. Blackmun: Would your case be any different if your client were General Motors?

Mr. David M. Lesser: I think that this case would be different with respect to the jurisdictional point Mr. Justice Blackmun, if our client were General Motors, not with respect to the 2283 point.

If I may just --

Justice Harry A. Blackmun: It is rather effective to garnish large corporation’s bank accounts once in awhile.

Mr. David M. Lesser: In Connecticut there is a statute, Section 337 (a) of Title 52, which requires a court order for garnishment of checking accounts to the extent if they exceed $5,000.

The grounds upon which in order to an issue are set out on that statute in parallel seriously and very closely, the procedure in a number of other states, the alleged creditor must make some showing that the debtor is about to abscond, avoid service of process, or conceal his property.

But those protections are not available to low income wage earners.

The Three-Judge Court in this case dismissed the complaints on motions to dismiss on two grounds: First, relying on the Second Circuit decision in Eisen against Eastman, the Three-Judge Court held that it lack subject matter jurisdiction under Section 1343, subsection three of Title 28, on the ground that utmost the wage earners had alleged an unconstitutional deprivation, a substantial question of an unconstitutional deprivation of their property valued at less than $10,000.

Its second ground, despite its recognition that summary garnishments are levied without any Court involvement was that Title 28 Section 2283, the anti-injunction statute barred a relief.

Now the rule that we are contending for with respect to the jurisdiction point and we think that this rule follows directly from this Court decisions in Monroe versus Pape ten years ago, is that whenever a natural person alleges a not insubstantial deprivation of his Fourteenth Amendment rights under the color of state law, Sections 1983 and 1343 are satisfied.

Now I say natural person, Mr. Justice Blackmun, I do not think that this case needs to go so far as to hold the General Motors or a corporation has a right of action.

Chief Justice Warren E. Burger: We will suspend for lunch at this time counsel.

You have got about 17 minutes of your time left now.

Mr. David M. Lesser: Thank you Mr. Chief Justice.

Mr. Chief Justice and may it please the Court.

I would like to resume my discussion of the denials of subject matter jurisdiction by the Three-Judge District Court which was the first ground upon which it denied an injunctive relief that our complaints requested.

The rule which we are proposing that this Court hold in this case is that Sections 1983 and 1343 be satisfied by allegations of Fourteenth Amendment deprivations by persons acting in the color of state law.

We believe that this rule is fully supported.

The only reasonable conclusion from the examination of the legislative history and the decisions as discussed in our brief and our reply brief.

We think that a clear enunciation of this rule would have the very great advantage of ending the great confusion which now exists in the different circuits as to the scope of Section 1343.

And that would also end or curtail the needless litigation which has resulted from that confusion.

We discussed the different circuit’s interpretation and how inconsistent they are with one another in Pages 22 through 27 of our brief and then in our replied brief at Page 15, Footnote 13.

As to the second ground upon which the District Court denied injunctive relief and declaratory relief, the ground that Title 28 Section 2283 --

Unknown Speaker: Barred all relief.

Mr. David M. Lesser: We would say that this Court need not adopt a broad rule because the garnishments in these cases are not proceedings pending in the Connecticut Courts.

The Connecticut Supreme Court said more than 50 years ago in the case of Sachs against Nussenbaum which we have cited in our brief and reply brief that the release of a garnishment has no effect upon the pending creditor’s civil suit.

No State Court interests and adjudication would the affected by holding that the garnishments in these cases are not proceedings in a State Court, because they are not under the control of the State Court.

We do not believe that in this case, this Court need reach the question of whether Section 1983 is an expressly authorized exemption to Section 2283, even though we feel that in these cases we have shown through our briefs that the wage earners have no redress in the State Courts.

And I would refer the Court to the case of Michael's Jewelers against Handy cited in our brief in which after the SNIADACH decision a low income debtor challenge the very statute, Title 52 Section 329, under which the garnishments in this cases were levied on the ground that they deprive to have notice and hearing, procedural due process.

Chief Justice Warren E. Burger: Let me see if I can get a little better light on your constitutional argument by hypothetical with reference to the other states.

If a garnishment were permitted by notice or process served on the garnishee and on the defendant after an action has been commenced in the State Court.

Do you think that meets constitutional standard?

Mr. David M. Lesser: Mr. Chief Justice, if garnishments were levied after notice and hearing were given to the debtor, we would say that that would meet constitutional safeguards, but that issue was not before this Court, the reason --

Chief Justice Warren E. Burger: But I am trying to test some of your arguments by that context.

Mr. David M. Lesser: Yes sir.

Chief Justice Warren E. Burger: I noticed, you mean -- I noticed that the notice must allow a period to respond before the garnishment would take effect?

Mr. David M. Lesser: Yes, Mr. Chief Justice.

Chief Justice Warren E. Burger: But then of course they would not usually be any property remaining.

Mr. David M. Lesser: Exactly the same --

Chief Justice Warren E. Burger: Unless the property were impounded print pending, the disposition of the process.

Mr. David M. Lesser: We would be asking for exactly the same protection accorded to Christine SNIADACH.

Several State Courts have held prejudgment attachment and garnishment unconstitutional.

This, the resolution of the constitutional issue, is not before this Court however.

I have raised -- I have explained the practice of prejudgment garnishment in order to give context to our claims that garnishment is not a proceeding in a State Court.

And the severe deprivations that result from excluding Mrs. Lynch and Mrs. Toro from a federal forum.

If this case is remanded then the District Court will reach the constitutional issues and we will be able to litigate them there but the Three-Judge Court itself recognized, although it did not reach the constitutional issue and decided, Mr. Chief Justice, that the wage earners had raised substantial constitutional issues in light of this Court’s decision in the SNIADACH case, but that -- whether the constitutional principal ultimately at issue here would involve an extension of SNIADACH.

It is not before the Court --

Justice William J. Brennan: (Voice Overlap) the only, you say they were in error in denying that they have jurisdiction in this case?

Mr. David M. Lesser: Yes, Mr.--

Justice William J. Brennan: And if we agreed with you on that not we do not reach the merit.

Mr. David M. Lesser: That is right Mr. Justice Brennan.

Also that the Three-Judge Court was in error in holding that Section 2283 barred relief.

And although the opinion of the Three-Judge Court is not entirely clear.

It seems to us that a reading of it will indicate that the Three-Judge Court did not hold summary garnishments to be proceedings in the State Court.

The way we read the opinion Mr. Justice is that the Three-Judge Court felt that enjoin -- that releasing garnishments would probably interfere with the existing creditor’s suit.

This was on motions to dismiss and additionally the Connecticut Supreme Court itself has held in the Sachs case that release does not affect the creditor’s suit.

It is an entirely different matter.

Finally, as to our 2283 point, we do not believe under any circumstances that Section 2283 would bar an injunction against Connecticut deputy sheriffs from filing future summary garnishments in proceedings, existing creditor’s suits.

It is not yet instituted by other creditors of Mrs. Lynch and Mrs. Toro.

In conclusion, the only question before this Court is whether Congress intended Mrs. Lynch’s and Mrs. Toro’s complaints to be heard in a federal forum.

We submit that since they have alleged substantial Fourteenth Amendment violations and that they have no redress in the Courts of Connecticut, there claims must be heard in a Federal Court.

We, therefore, ask this Court to reverse the judgment of the Three-Judge Court below and to remand it for resolution of the merits.

Thank you.

Chief Justice Warren E. Burger: Thank you, Mr. Lesser.

Mr. Bell.

Argument of Richard G. Bell

Mr. Richard G. Bell: Mr. Chief Justice and may it please the Court.

I would like to pick up if I may at precisely the point where my Brother Mr. Lesser left off and that is posing the question as to whether Congress intended these claims to have been heard by the Three-Judge District Court below.

The basic holding of the lower court was that it did not have subject matter jurisdiction under the Section 1343 and that was the basis of its dismissal.

Now, the appellees’ position on the 1343 jurisdictional question rests squarely upon the doctrine annunciated in the Eisen case which in turn goes back to the postulation by Mr. Justice Stone in the Hague decision as to the relation between 1343 and 1331.

I would like to review that because that is the basis of our position and the basis of the lower court’s dismissal below.

Now the appellants have a direct argument and an appealing argument as to why this is not so and they say basically that the Fourteenth Amendment was enacted with the purpose in mind to protect precisely the kind of right that is involved in this case.

Further, that Section 1343 and Section 1983, the statute created the cause of action were designed to pick up those constitutional rights and to provide a cause of action and jurisdiction to secure them.

Finally, the appellants say that Section 1331, a $10,000 jurisdictional statute, is to be looked apart -- looked upon as separate and apart from and distinct from the 1343 and 1983 propositions.

Now, if the matter were as clear as this from the legislative history, the wonder is really that Mr. Justice Stone had to go through its process of reasoning in the Hague decision at all.

And the answer must be simply that a selective choice of the legislative history is simply not as clear and not as precise and not as symmetrical as the appellants would have it.

I believe that the reason for this really is that what you overlook in establishing that kind of precise intent to a portion of the civil rights legislation is the nature of the process that went on in Congress for the period following the Civil War.

In Mr. Justice Frankfurter’s words, “This were years of struggle and of compromise.”

And to reduce a portion of the legislative result to clarity and direct us in simplicity overlooks the nature of that struggle and it overlooks the triumphs and the defeats of that compromising process and it overlooks the intensity of the passions that were involved, thus the post Civil War Congress has tried to hammer out in lasting terms what it was that it had torn a country apart for five years during the Civil War.

Now, I think it is instructive to review the period that is in question while this legislative history accumulates.

We begin in 1865 with the Thirteenth Amendment itself which the Court’s emancipation.

In 1866, we have the first of the Civil Rights Act.

That was the act which, among other things, included what is today Section 1983, that statute dealing with equal rights as to ownership and as to disposition of property.

And there is evidence from the history as suggested in our brief that 1983 was the keystone of the reconstruction of Congress’ efforts to preserve that kind of property right.

In 1868 the Fourteenth Amendment himself, in 1870 there is another Civil Rights Act and the Fifteenth Amendment dealing with voting rights comes in to being.

In 1871, there are two Civil Rights Act that came on the books and one of them is so called Ku Klux Klan Act of 1871 from whence the present day 1983 statute creating a cause of action and the 1343 jurisdictional statute draw.

Now, there is evidence in the history that what was a paramount concern of this Ku Klux Klan Act of 1871 was the unequal treatment of people, evidenced by the clan activity in the South from whence the act took its name.

The discrimination on the basis of race, the denial of equal opportunities and the denial of the equal applications of the laws in the years following the Civil War.

Finally, the last stage in this legislative history in 1875 is the first emergence of Section 1331, the jurisdictional statute which now deals in terms of $10,000, but at the time of the original passage I believe it was a $500 statute.

There is pause in 1875 and there is a recodification that takes place in that year and some adjustments were made to the statute that had preceded it.

For instance, I believe it is at that time that the statement in 1983 dealing with a cause of action based on federal laws as well as the Constitution first comes in to being in 1875.

The jurisdictional statute 1343 includes at that time a statement with respect to causes of action based on federal laws denying equal rights and expressed records to the kind of equality concerned that it was at the heart of the Civil Rights legislation.

Now what Mr. Justice Stone’s formulation in Hague case does is set the year 1875 as the point of departure from whence both 1343 and 1331 have existed on the books side by side down to the time of the Hague decision, which was in 1939.

Excuse me, there was one legislative activity during that period but not of tremendous significance, that was in 1911 recodification when the jurisdiction of the Circuit Courts and the District Court became merged in the District Court and 1343, the jurisdictional statute, preserved the phrase that it has today dealing with jurisdiction to causes under those Federal laws providing for equal rights.

Now, what Mr. Justice Stone saw from the history that he looked up in its entirety and as a whole were these two parallel statutes: One providing a cause of action under Section 1343 with no monetary allocations or no monetary requirement whatsoever, and the parallel statute 1331 which did in fact have a monetary requirement which is, as I have said before, has been changed throughout during the course of the year.

Now his analysis led him to believe that 1343, that jurisdictional statute which is at issue in this case, was the one intended to be directed at those causes of actions which were essentially denials of personal rights, and those causes of action based essentially on denial of the equal protection of the law, the discriminatory evils which the reconstruction Congress had noted in the Ku Klux Klan Act and others.

1331 on the other hand, according to Mr. Justice Stone’s formulation, was that statute designed to pick up those actions which were essentially of a property nature capable of being measured in monetary amounts.

Now, in looking back at this history his feel the vision was not entirely uncluttered or unclear because he had the precedents performed in such cases as the Pleasants case, Greenhow and Holt against Indiana which were cases giving some attention to the 1343 question and those cases had started the Court found attack consistent with Mr. Justice Stone’s formulation to the effect that 1343 was a statute dealing with Civil Rights, 1331, the statute dealing with property allegations which were truly property, and did not involve those rights susceptible of being measured in monetary or pecuniary terms.

That is the rationale of Mr. Justice, Hague lies and that is the one if it comes to rest in the Second Circuit case involving Eisen which was Judge Friendly’s opinion some 30 years later, I believe in 1969.

Now, in the Eisen decision, Judge Friendly is candid and frank to know the difficulty with the Hague formulation, because it was 30 years previous and also because there was no majority opinion in the case and that Judge Friendly pointed that out in the course of his opinion.

However, notwithstanding what he termed to be difficulties with it, notwithstanding some self confessed uncertainty as he explained quite expressedly in his opinion.

He found that the formulation had three specific virtues.

He sought as accounting for the prior decisions of this Court that is prior to the term of the Eisen case or those as to where jurisdiction had been granted and those as to where it had not with one exception.

He sought as harmonizing the parallel relation of 1343 and 1331 during their long history stemming from the recodification in 1875.

And finally, he felt convinced in the Eisen opinion that this rationale of Mr. Justice Stone preserved in 1343 the kind of case that was at the heart of the Civil Rights enactment, I believe we call them the Civil War.

That is it preserved.

Those causes of action based on discrimination, based on unequal treatment, based on denial of equal opportunity which could not be merged with money which not lend themselves to any kind of property analysis.

And thus the Eisen decision in the Second Circuit effectively repeats the Stone analysis and gives rise to these -- the separation between 1343 and 1331 on the basis of whether or not the right alleges or assorted is or is not capable of monetary evaluation or whether it is one of those intangible rights of personal liberty which is not so capable and therefore for which no monetary requirement lies within the statute.

Now, it was the application of this analysis.

That is of the Eisen rationale based on Mr. Justice Stone’s rationale that was at the heart of the lower court’s dismissal on the basis of lack of subject matter jurisdiction in this case.

Now, the garnishment process in Connecticut -- and may I just explain that the garnishment process is a kind of attachment and Mr. Justice Stewart raised this question, I believe, the statute itself is entitled one of four in attachment, and garnishment is used not with respect to that statute but the understanding that is part of the overall attachment pattern in the State of Connecticut.

But --

Justice Potter Stewart: In Connecticut as I understand it, one thing that cannot be reached prior to judgment is wages owing from an employer to an employee.

Mr. Richard G. Bell: That is correct Your Honor.

If we look at the attachment statutes as a whole there are several things which is a matter of fact are proscribed, all of them having kind of a common thread of interest which reflects a legislative concern in Connecticut for those kinds of property which come closes to enabling one to exist and enabling one to operate in a free society.

You cannot attach or reach your garnish wages in advance with an action.

You cannot deal with household or personal effects.

You cannot reach the tools of one’s tree.

You cannot reach an automobile without a court order.

There are certain kinds of action wherein attachment of any nature or garnishment or otherwise is prohibited before suit.

There were classes of plaintiffs as to whom the process is denied in advance of suit.

Chief Justice Warren E. Burger: Is there any time limit counsel that the garnishments may remain in effect for following the merits, some states put time limits?

Mr. Richard G. Bell: No --

Chief Justice Warren E. Burger: Three months --

Mr. Richard G. Bell: No, if the garnishment is properly effective at the outset of suit it will remain pending throughout the duration of the suit.

So its time limit is so extensive with the tendency of the laws of itself.

Chief Justice Warren E. Burger: So, if the lawsuit -- it is in a particular district where three years in reaching cases for trial or money have been impounded all that time.

Mr. Richard G. Bell: That is correct.

The garnishment would continue to apply during the pendency of that action and until the -- within a certain period following judgment as a matter of fact allowing for execution on that garnish.

That is correct.

The -- what I am trying to make though is that the process from the beginning, it is circumscribe, with respect to certain classes of assets and certain classes of suits and certain classes of plaintiffs for whom or as to whom the process is simply not available.

Now, these two plaintiffs in the basic cases below had money claims against the defendants.

One sued on a note the other provided a writ.

They were prohibited by Connecticut statute from attaching the kinds of asset or seeking to garnish the kinds of assets that I have described.

That is wages at the source, automobiles without a court order, necessarily household, personal effects or tools of one’s pre tree.

They were permitted to garnish to reach the assets not in the hands of the debtor but in the hands of a third party.

In this case there was one hand of savings account and the other hand a checking account, essentially a debt due which is the keyword in our garnishment statute from those banking institutions to the defendants in question.

Now the effect of doing so is to put a place, a conditional lien, on that asset during dependency of that lawsuit.

Once that is done, that is once the garnishment process is effected there are provisions under the statute whereby the defendants can come in directly to the court for reduction, for a bill of particulars for verification of the claim, for a substitution of bond.

And that does not rely on the pendency of the suit; that can be done as soon as the garnishment process has been reached.

But it was under these circumstances, i.e., in looking at debt due to defendants from a third party that the court below attempted to analyze the nature of the interest involved and found it to be essentially a property interest, i.e., is one measurable by money since the accounts in question were fixed amounts.

Being a property, interest it found it not to lie within the 1343 formulation under the Eisen and the Hague rationales and being merely a property interest.

The decision of the lower court based -- finding itself without jurisdiction was based on implicit assumption that would be subject to the 1331 jurisdictional statute.

Now, there was no alternative holding in the court below and that was the one predicated on 2283.

2283 being the anti-injunction statute which proscribes the application of injunction during the pendency of State Court proceeding, and this was relied upon by the lower court as an alternative holding having addressed itself to the jurisdictional issue first.

Now, the purpose and the policy of 2283, I believe, are familiar.

The statute dates from 1793 and it reflects the kind of sensitive concern for state proceedings that ought to be had by the Federal Judicial system once the state proceeding or once the State system has been set in motion.

It was a matter of first business for the Congress of United States to establish that relation between the two judicial processing.

Now the Connecticut garnishment statute or the attachment statute with which we are dealing with, dates of almost equal vintage as a matter of fact; it goes back to the beginning of the State of Connecticut and represents a scheme that has been in effect in the State of Connecticut during its judicial history.

You must have this old state policy and a venerable federal policy now in focus within the confines of Section 2283, the anti-injunction statute.

Now, the question becomes whether for the purposes of Section 2283, the garnishment arrangement in Connecticut, the garnishment machinery, constitutes proceedings within the meaning of Section 2283 as to which the federal action should be staid during the pendency of the state case and the state proceedings.

Justice Thurgood Marshall: It is not the court proceeding, is it?

Mr. Richard G. Bell: Excuse me.

Justice Thurgood Marshall: It is not a Court proceeding, is it?

Mr. Richard G. Bell: Well, it involves court procedures Your Honor.

It is affected that is to --

Justice Thurgood Marshall: This particular case does not involve a court proceeding.

Mr. Richard G. Bell: Well, and that it invokes the utilization of statutory procedures in court or attacking the garnishment, if that is desired by the defendants.

Justice Thurgood Marshall: Well, that would these people do in the Connecticut Court?

Mr. Richard G. Bell: They did nothing, I believe.

Justice Thurgood Marshall: Has this of Court proceeding of the State of Connecticut?

Mr. Richard G. Bell: Well, that bears on the question of what is a proceeding under 2283.

It is true that the garnishment --

Justice Thurgood Marshall: It is a court proceedings, it says that, does it not?

Mr. Richard G. Bell: Yes, Your Honor.

It is our position that that is a proceeding and that it is a proceeding --

Justice Thurgood Marshall: Yes, but it is a court proceeding?

My emphasis is on the word ‘court’ or ‘legal’.

Mr. Richard G. Bell: Well, the concept of proceedings in 2283 Your Honor, I believe takes in all phases of a lawsuit and it takes them in from beginning to end.

There is a Hill against Martin decision which is cited --

Justice Thurgood Marshall: Well, suppose the -- I am sure you are familiar because this client, suppose your client repossesses a car, would that be a court proceeding?

Mr. Richard G. Bell: Well, he needs to proceed with an order of court Your Honor at the upset and that --

Justice Thurgood Marshall: Does he in Connecticut?

Mr. Richard G. Bell: Yes, Your Honor.

Justice Thurgood Marshall: That is because of Connecticut statute, is it not?

Mr. Richard G. Bell: That is correct Your Honor.

Justice Thurgood Marshall: But that is not normally so, is it?

Mr. Richard G. Bell: For automobiles that could -- it is a statute as proscribed.

Justice Thurgood Marshall: If I understand Mrs. Lynch made this note and did not pay the money, you go to the sheriff or deputy sheriff and he garnishes the bank account.

Mr. Richard G. Bell: That is correct.

Justice Thurgood Marshall: And none of that up to that point has ever happened anywhere in (Inaudible).

Mr. Richard G. Bell: That is correct Your Honor.

That is correct.

Justice Thurgood Marshall: That is where this case was when it came in to Federal Court, was it not?

Mr. Richard G. Bell: Well, this case was -- this case was pending at the time the federal action was instituted.

That is the basic interest --

Justice Thurgood Marshall: That is the case that you filed, and as I understand they are not trying to get an injunction against that case, am I right?

Mr. Richard G. Bell: Well, they are not seeking to enjoin the application of the utilization of the Connecticut statutes.

Justice Thurgood Marshall: They are seeking to get the money back.

Mr. Richard G. Bell: That is correct.

They are seeking to join the application --

Justice Thurgood Marshall: And they do not need the Connecticut Court to get that money back.

Mr. Richard G. Bell: Well, I think that is the question, and then one of the allegations is that they make it that the Connecticut Courts do not have the machinery to do just that.

Justice Thurgood Marshall: Well, all I am trying to test you a little, I admit I am being over technical about this, but I just do not see that -- I do not think the sheriff is the court, the deputy sheriff.

Mr. Richard G. Bell: Maybe I could explain it this way.

If the question zeroes in on exactly what proceedings are within the concept of 2283, I would suggest this: If the -- given the policy of 2283 which is that concern for the relation of this judicial systems, given the fact that the question as a matter of fact as to constitutionality is an open question in the Connecticut Courts and given the language of prior court decision here in Hill against Martin I would suggest that is proceedings.

The Hill language of Mr. Justice Frankfurter suggested that the concept of proceedings for 2283 purposes should include all steps and all phases of a lawsuit or actions by ministerial officers of the court including else which are directive either ancillary or supplementary for its making of the suit or the judgment effective.

And I would say that that concept to proceedings dealing with the whole workings of the judicial processes of a state does include the process of garnishment and does include the process of attachment.

Justice Thurgood Marshall: The sheriff in Connecticut are elected or appointed by the court?

Mr. Richard G. Bell: I believe that deputy sheriff in service was appointed, he is appointed, I believe, by a sheriff who is an elected official if I am not mistaken, I believe that is the case.

Justice Thurgood Marshall: Well, is he responsible for the court?

Mr. Richard G. Bell: Well, he is a -- he is an officer, an administerial officer who must at least have enough colors of state law that fit in under the original statute at the outset.

Justice Thurgood Marshall: I apologize for being even more practical.

Mr. Richard G. Bell: No, I would suggest that he is a ministerial officer in serving the writs of the papers involved in a garnishment process.

The lawyer is the one who initiates the action who in Connecticut is termed the Commissioner of the Superior Court or an officer of the Court.

He must work through a statutorily designated officer to serve process who in so doing is a ministerial officer of the Court, I would submit, for the purposes of Section 2283 and its concept of proceeding.

Now, I think the expressed language of that Hill case is significant because it emphasizes, it is not just the question of liability or not in the lawsuit itself, it embraces those activities triggered by the lawsuit which bear upon making a judgment secure or effective, ancillary proceedings instituted by ministerial officers.

And I believe that concept of proceedings, when we have a pending state action, is the one that you would apply under Section 2283.

Now, one of the things that was raised by --

Justice William J. Brennan: May I ask Mr. Bell, I am looking at the opinion of the court below on Page 26.

What they have said is although garnishment maybe separated from the underlying (Inaudible) of action.

What does the Court mean by that?

Mr. Richard G. Bell: I believe what it was saying Your Honor is that the question for instance of liability or not the basic rationale of any judgment that might be rendered by the Court is separate from the garnishment proceeding.

I believe that is the context Mr. Justice Brennan in which the Three-Judge Court below strategically --

Justice William J. Brennan: I do not mind anywhere in this opinion, I gather under the statute, now the question is whether this garnishment, whatever it is, is a proceeding in a State Court, did you get it, that the question.

Mr. Richard G. Bell: That is correct.

Justice William J. Brennan: And I do not see that this opinion addresses itself directly to that question, does it?

Mr. Richard G. Bell: I take its language is not as direct as I would have like to have seen it but the holding under 2283 must necessarily involve the conclusion that it constitutes proceedings.

There was reference made by the --

Justice William J. Brennan: Well, more than proceedings whether it constitutes proceedings in a State Court.

Mr. Richard G. Bell: That is correct.

Justice William J. Brennan: That is what the statute is.

Mr. Richard G. Bell: That is correct, well there is not any question that the basic garnishment than -- that is reflected both Lynch and Toro were in connection with a proceeding to pending State Court action that is both cases where pending at that time in a Sixth Circuit Court in Connecticut as to which these garnishments had in fact ineffective.

And I think what the --

Justice William J. Brennan: Incidentally when were the complaints, repetitive complaints filed in, in a relation to the time with the Federal Court complaints.

Mr. Richard G. Bell: Well, I think within -- in relation to the Federal Court?

Justice William J. Brennan: Yes.

Mr. Richard G. Bell: Well, the creditor’s complaints were filed in Lynch on July 1, 1970, Toro in February.

And the complaints in the Federal Court, well, I believe in March-April, 1971

Justice William J. Brennan: But, in any event, after the creditor’s complaints were filed in the State Court.

Mr. Richard G. Bell: Yes, those actions were --

Justice William J. Brennan: But I gather -- but it is the case, is it not, that the complaint in Federal Court did not ask for any restraint against the prosecution of the creditor’s complaints in State Court?

Mr. Richard G. Bell: Well, that is not prosecutions; that was an injunction against the utilization of this Connecticut garnishments statute.

Justice William J. Brennan: Now that my question was Mr. Bell.

It did not ask any restraint against the creditors going on with their creditor’s suits, did it?

Mr. Richard G. Bell: I have to answer that you are correct Mr. Justice Brennan as far as the suit is concerned but I have -- but they did seek -- they did seek the application --

Justice William J. Brennan: Well, what they want to do is take a way from you the security you now held under the garnishment --

Mr. Richard G. Bell: That is correct.

Justice William J. Brennan: process, but whether recovery of a judgment if you got it in there.

Mr. Richard G. Bell: That is correct.

Justice William J. Brennan: Is that not it?

Mr. Richard G. Bell: That is precisely correct.

Now that --

Justice William J. Brennan: Now, are we to -- how should we approach interpreting proceedings in the State Court strictly or --

Mr. Richard G. Bell: I believe that Hill v. Martin suggests that given the policy of 2283 that it needs to be a generous instruction, that the concern expressed in the statute is for the operation of a State jurisdiction.

Justice William J. Brennan: You mean generous against jurisdiction.

Mr. Richard G. Bell: Well, I think it requires a broad interpretation because of the --

Justice William J. Brennan: A broad interpretation against jurisdiction.

Mr. Richard G. Bell: I believe so because I think the concern --

Justice William J. Brennan: The jurisdiction I mean against the --

Mr. Richard G. Bell: I believe the concern is to permit if it is appropriate to permit the State proceedings to go on.

Now, one of the points made by the appellants is that it is not incumbent to do so here because there is not any way to raise the question than they want to raise in the State Court.

I think that appears in the situation.

What they have said is that even if 2283 applies at the outset, we have a situation in Connecticut where you cannot raise the constitutional claims that they sought to raise in Federal Court.

Where there is no relief in the state process then out of 2293 notwithstanding of the Federal Court should have taken jurisdiction and should have proceeded.

We would dispute the availability of claims in the -- of remedies available in the State Court.

Justice William J. Brennan: Excuse me Mr. Bell, is the question before us whether 1983 is an expressed deception.

Mr. Richard G. Bell: I believe it is a --

Justice William J. Brennan: And I noticed it was decided apparently or the Second Circuit poses it is not.

It is not recognized that 1983 is an express of Section 2283.

Is that issue before us?

Mr. Richard G. Bell: I believe it is with the total 23 issues Your Honor.

But to dwell just a moment on State remedies, if I may, because I believe that is an important point.

If there were no remedies nor procedures nor processes in Connecticut for raising the kinds of issues then we might have a different kind of situation.

I would like to observe that you could raise exactly the kind of issues in the pending state proceedings that were in fact raised in the District Court.

I am not dealing now with the preliminary relief --

Justice William J. Brennan: To which, in the creditor’s action?

How do you do it?

Mr. Richard G. Bell: I believe if you sought an injunction in a State Court proceeding that is available by way of a counterclaim in court --

Justice William J. Brennan: Now, the creditor brings a suit for recovery on a note, is that what it was?

Mr. Richard G. Bell: That is right.

Justice William J. Brennan: And in that proceeding you are suggesting the defendant is seeking an injunction against the garnishment.

Mr. Richard G. Bell: I am.

I am suggesting that the defendant can raise either by independent action or by counterclaim in the state suit, an injunction based on the debt claim deprivation under the Fourteenth Amendment.

And that it could also has a declaratory judgment process which is available to a defendant.

Justice William J. Brennan: But that would be independent, that would be independent suit, would it not?

Mr. Richard G. Bell: It could either be by independent suit Mr. Justice Brennan or by way of counterclaim.

Now the declaratory judgment is a little different in this particular Court.

The Circuit Court in which these actions lay, the Sixth Circuit Court, does not have declaratory judgment jurisdiction.

You could raise it in a counterclaim as we have noted on our brief and then transfer it to another Court of appropriate jurisdiction.

Justice William J. Brennan: The whole suit then or just a counterclaim?

Mr. Richard G. Bell: The whole action would follow.

But the point is that under Connecticut practice both the injunctive relief is available and that is within the jurisdiction of this precise court and the declaratory relief is also available, and I believe that the law of the State of Connecticut assures it.

Reference has been made to Michael’s Jewelers against Handy which was a Sixth Circuit Court case of involving the same kinds of set of facts.

That is the garnishment response by a defendant.

A motion for injunction was presented to the Court there and that Court addressed itself substantively to the constitutionality of the garnishment process in the light of SNAIDACH.

It held on the merits that it was constitutional.

I supposed that settles for the time being the law of the Sixth Judicial Circuit.

But the point is, it indicates illustrators that cannot come up by motion.

A better way I submit would have been through if done so by counterclaim or by the declaratory judgment proceeding and even more effective device I also suggest come from 1983, the federal statute itself, which provides for a civil cause of action for damages in the event of deprivation.

That lies by way of counterclaim in the same Sixth Circuit Court which has the unique advantage of avoiding any mootness problem that we had in Toro, for instance you would call the companion Lynch here involve with situation, where the garnishment was in fact released as civil cause of action by way of counterclaim under 1983 for which the State Courts have concurrent jurisdiction to handle avoids very nicely the problem of mootness and combined with injunctive request and combine with declaratory judgment permits the raising in exactly the same court below, the Sixth Circuit Court in the Hague in Connecticut are precisely the issues that were sought to be presented to the Federal Court and the claims that have brought to the Three-Judge Courts.

So I would say that that the availability of state remedies in the State Courts makes at all the law incumbent for under the 2283 fellow ups and to have consideration for the breadth of the proceedings which are then pending and to permit them to continue.

The constitutional issue has never been presented to the Connecticut Supreme Court throughout the long history of the garnishment process.

The constitutional issue both as to the US Constitution and even under the State of Connecticut Constitutions which is a brand new constitutional since 1965, it adopted a new one.

Those are open issues as far as the State is concerned and that State Supreme Court has never in light of SNAIDACH examined this process.

I believe all the more reason to construe the concepts of proceedings as it is construed in Hill against Martin forbear of the Federal intervention and permit the State Court process to continue.

The question of expressed exception to 2283 is discussed at length in our brief and all I would say in conclusion is that it is not just an exception it is an expressed exception which is required to 2283, at least some reference in the statute which takes cognizance of the problem of two pending actions going on simultaneously and tells one or the other to stay or to proceed.

There is no expressed reference in 1983 to that problem.

There is no mention of the difficulty exposed by two pending actions and no requirement of one if the other go forward as is the case with virtually everyone of those expressed exceptions which have been historically noted to the 2283 statute.

I have not had occasion to discuss further the request for declaratory relief which was embodied here or the denial of the injunctive remedy below, we believe it takes care of that request as well which was made our position on that as stated in the brief is that the request for declaratory judgment is essentially of the same effect as the request for declaratory -- for injunctive relief and we believe that the prior decision in cases so hold.

Thank you Your Honor.

Chief Justice Warren E. Burger: Thank you Mr. Bell.

Mr. Lesser you have about ten minutes left.

Rebuttal of David M. Lesser

Mr. David M. Lesser: Mr. Chief Justice and may it please the Court.

As to the question of whether relief lies in the Connecticut Courts, I would first like to make the point that any such affirmative actions would of course be entirely separate proceedings against which no injunction is being sought.

Now, as to the Michael’s Jewelers case, there the Appellate Court, the Appellate Division of Circuit Court held that no appeal would lie from the refusal of the lower court to dissolve the garnishment on the ground that it is was levied without notice or hearing.

The Appellate Court held that the three -- that the Circuit Court, the lower court, had no authority to entertain any relief and then it said, but at any rate Connecticut statutes providing for prejudgment garnishment of accounts is constitutional distinguishing SNIADACH.

Chief Justice Warren E. Burger: Do you agree with your friend that your client can assert a counterclaim --

Mr. David M. Lesser: No I do not.

Chief Justice Warren E. Burger: -- under 1983 grounds?

Mr. David M. Lesser: I do not believe that a counterclaim would lie in the Sixth Circuit Court action where the creditors service pending against Mrs. Lynch, Mr. Chief Justice.

A counterclaim must be related to the matter in demand.

That is the way the practice book reads.

I believe that Section 124 of the Connecticut practice book in it --

Chief Justice Warren E. Burger: But does -- do you say it does not relate to the matter in demand when the counterclaim would be against the unlawful act of garnishment (Voice Overlap).

Mr. David M. Lesser: The garnishment would be unrelated to the complaints that alleged.

That is, the claim of Household Finance Corporation that money is doing owing from a note.

The only case I have been able to find is the case called the Bank against Riley (ph) reported in 12 Connecticut supplement in which it was held that a counterclaim in those circumstances would not lie.

Now -- but at any rate, it would seem that the issues in the Circuit Court have been settled by Michael’s Jewelers one way or another.

Either the Court cannot entertain the complaint, the motion to dissolve the garnishment or if it can -- if it can entertain it nevertheless, garnishment is still constitutional.

And let me simply refer the Court to our reply brief at Pages 23 and 24 in which we set out the substantial cause of litigating in the Connecticut Courts in order to bring a suit for declaratory judgment.

For example, it is necessary as a jurisdictional requirement to notify all interested parties which carries a substantial cause.

Now, the Connecticut Supreme Court has, during all the years of this century, affirmed the constitutionality of summary prejudgment garnishment.

Not since SNIADACH; that is true, but in the Michael’s Jewelers case the Appellate Court opinion, the Appellate Court did not certify that a substantial question of law was involved thereby making an appeal to the Connecticut Supreme Court impossible.

What occurred in that case was I suppose an equivalent of certiorari, the debtor filed a petition for certification to the Connecticut Supreme Court but that was never acted upon because then the creditor withdrew his underlying damage suit.

I would finally like to the state that a lawyer is not a ministerial officer of the Court and I would refer the -- and neither is a sheriff.

The sheriff is acting under the instructions of the lawyer who, under the decisions of the Connecticut Supreme Court, has full absolute discretion in levying a writ of garnishment.

I would refer the Court to the Sachs case again, Volume 92, Connecticut, Page 16 of our brief, in a case which is not in any of our briefs, Sharkovitz (ph) against Smith in Volume 143 of Connecticut reports.

We also state in our brief that even if the garnishment represents an abuse of process, the State Court is barred from releasing that garnishment.

Thus under Hill against Martin we would say that there is no action by the Court or any of its ministerial officers and therefore garnishment is not a proceeding in the State Court.

As to the remarks on jurisdiction, we will rest on our argument and our briefs unless there are further questions.

Thank you very much for the opportunity of being here.

Chief Justice Warren E. Burger: Thank you Mr. Lesser.

Thank you Mr. Bell.

The case is submitted.

Featured:

Lindsey v. Normet - Oral Argument

Thu, 23 Aug 2012 18:18:36 +0000

Case:

Lindsey v. Normet

Media File:

70-5045_19711115-argument.mp3

Related Transcript:

70-5045_19711115-argument

Transcript:

Argument of John H. Clough

Chief Justice Warren E. Burger: We will hear arguments next in number 5045, Lindsey against Normet.

Mr. Clough.

Mr. John H. Clough: Mr. Chief Justice and may it please the Court.

This is an appeal from a three-judge court’s denial of injunctive and declaratory relief, sought by Donald and Edna Lindsey on behalf of themselves and the class of appellants, including all tenants in the State of Oregon.

The Lindsey’s attack to constitutionality of Oregon’s Eviction Law, seeking to enjoin its enforcement of it is objectionable provisions by appellee judges.

The Lindseys had been having difficulties in getting there landlord, appellee Normet to repair the condition of their home which condition included lack of plaster, downstairs toilet out of order, missing rear steps, etcetera.

Since pictures are better than words, we specifically refer the Court to the color photographs in evidence marked as plaintiff’s exhibits number 25 to 37 in the record.

On November 10 --

Justice Potter Stewart: Those photographs are in the appendix?M

Mr. John H. Clough: No, they are not.

They were unable to print them because they were color photographs, Your Honor.

On November 10, 1969, their home had been condemned by the Bureau of Building Inspections of the City of Portland because of the violation of Portland’s Housing and Building Codes.

Since Donald Lindsey was substantially confined to a wheelchair with crippling arthritis of both arms and legs and neither he nor his wife could drive a car, they did not have the mobility to search for another home.

Furthermore, their search would have been rendered more difficult by the factor that the overall vacancy rate for Portland was less than 2% and for low income families less than 1%.

Chief Justice Warren E. Burger: Would your case be any different if this was a 25-year-old professional football player in the peak of physical condition and health?

Mr. John H. Clough: In some respects it might and some respects it might not.

There are some aspects of the case.

Chief Justice Warren E. Burger: Constitutionally?

Mr. John H. Clough: Yes, some aspects of the case would make a difference because of the indigency and ability to search for a home.

Although, constitutionally –-

Chief Justice Warren E. Burger: Let us make him an unemployed professional football player that is indigent, then it would --

Mr. John H. Clough: Constitutionally, it would make no difference.

Low-income housing is that which has rents within the financial reach of a typical family of four whose income is from $0-4,000.00 a year.

In Portland, an estimated 75% of low income families rent, but Lindsey’s home was a low-income home.

Most housing available for low-income families is quite often substandard and the condition is generally very poor in Portland.

Low-income people pay a higher portion of their monthly income for rent and generally pay higher utility in heating bills because of deficiencies in plumbing, insulation and wiring.

Justice Harry A. Blackmun: Mr. Clough, is always general material in the record?

Mr. John H. Clough: Yes, it is Your Honor.

The last statement, Mr. Justice Blackmun was in the deposition of Josephine Brown, our expert which is admitted into evidence and as plaintiff's exhibit number 24 at page 26.

Low-income people generally have a difficult time finding a place because of the advance month’s rent for cleaning deposits often required.

After the request to the landlord to repair these conditions and no action was forthcoming, they decided to attempt to improve their lot where they lived and withheld their rent on December 1, 1969 to compel their landlord to repair the premises.

Chief Justice Warren E. Burger: At anytime in the course of these proceedings was there a tender of the rent into the custody of the Court?

Mr. John H. Clough: The Court had the option and the Court preferred -- the tender was offered at the institution of the proceedings and the court preferred that we as their attorneys keep the money in our escrow account and specifically condition to temporary restraining order based upon that.

Chief Justice Warren E. Burger: Well, then it was really in the custody of the Court because you were holding it as an officer of the Court?

Mr. John H. Clough: That is correct.

On December 15, 1969, they were sent a letter from their landlord’s attorney demanding them to pay rent or vacate.

At this point, they were faced with the realities of having an eviction action filed against them, pursuant to the statute under attack in this appeal.

There was no question that an eviction would cause the Lindseys irreparable harm.

Evictions of low-income families often result in a continuing downward and tightening spar which they find an emotional block to overcome.

They do not have the cost of moving and they cannot find housing.

They are often forced into less adequate housing.

They lose standing in the community and in their children’s eyes and large families are often split up.

In this background, this action was filed in the Federal District Court prior to any eviction action being filed by the Lindsey’s landlord.

The best way to describe the operation of the eviction statute is by taking the Lindseys through their eviction, had one been filed by their landlord.

A complaint and summons would be filed and served upon the Lindseys, setting the time for trial within two to four days which may include weekends.

Justice Potter Stewart: But this did not actually happen to the Lindseys?

Mr. John H. Clough: No.

Justice Potter Stewart: They filed this action to the District Court before alleging that they were threatened with this, is that right?

Mr. John H. Clough: That is correct.

I am using the Lindseys as what would happen to describe the operation of the statute.

For example, they could be served on a Friday with a trial set on Monday or Tuesday.

However, two days is all the time for trial that the tenant has a matter of right.

Within this time, they would have to contact the lawyer, make an appointment and get him to take the case.

His first move would be to ask for continuance and all that he could get without posting cash security would be two days, the granting of which is only the discretionary under the statute.

Even though that defenses that Lindseys would like to raise would not be heard by the Oregon Courts because of the statute he is challenging.

He might still have conventional defenses based upon issues of fact, regarding what rent was agreed to or if it were truly paid.

Litigation of these issues may well require interviewing potential witnesses, subpoenaing them, legal research and trial preparation.

At trial, Lindsey would want to raise defenses based upon his landlord’s refusal to obey the housing codes, but these defenses will not be heard or adjudicated on their merits.

The reason for this is found on the face of the Oregon statutes.

They provide that the landlord’s complaint is sufficient as it states: (1) A description of the premises, (2) That the defendant is in possession, (3) That the defendant unlawfully holds by force which is deemed to include failure to pay rent within 10 days after it is due,and (4) that the landlord is entitled to possession.

The statute goes on to provide that if the Court or Jury finds the complaint to be true, the tenants shall be evicted.

Thus, these statutes on their face preclude the raising of affirmative legal defenses and they have been so construed by the Oregon Courts.

Justice Harry A. Blackmun: Mr. Clough, how old are the Oregon statutes?

How long had they been on the books?

Mr. John H. Clough: The last time that the FED, the eviction law was changed in any matter was in 1909, although the case of Friedenthal v. Thompson goes into a historical analysis where they were in effect back in the middle 1800s.

Justice Harry A. Blackmun: Has there been any endeavor to change the statute legislatively?

Mr. John H. Clough: There has been an effort yes, Mr. Justice Blackmun.

Justice Harry A. Blackmun: I just wonder if one could say that possession of the premises during the controversy such as you envision here with the Lindsey’s is a matter at issue and that your legislature has come down on the side of the landlord rather than the side of the tenant in deciding a policy question?

I take it you do not agree with that?

Mr. John H. Clough: No, I do not, Mr. Justice Blackmun.

Justice Harry A. Blackmun: But do you for the first time in the century are raising question?

Mr. John H. Clough: The question has been raised, Mr. Justice Blackmun in several cases that have gone up to the Oregon Supreme Court on various aspects.

So that for example Friedenthal v. Thompson involved the constrictions on limitations of time.

There were several cases that sought to raise equitable types of offenses and these were interpreted by Oregon Supreme Court.

The double rent bond on appeal has been construed by the Oregon Supreme Court and been upheld as constitutional.

Legal defenses had been specifically disallowed by the Oregon Supreme Court.

Justice Harry A. Blackmun: Of course you could have resolved this dilemma by appropriate legislation, could you not?

Mr. John H. Clough: Of course, that would be a very welcome response, but the legislature of Oregon has not seen as to do so and our -- one of the main lines of attack that we have here on the statute is due process which -- that does not matter that the statute either procedural like constricts the courts and the litigants so that the it dives in due process or it does not.

Well, that is true of any statute.

Any statute could be changed at any given time by state legislature.

Under the Oregon statutes, the fact that the tenant may would have withheld rent because the landlord failed to make proper repairs or the fact that the landlord brought the action in retaliation for the tenant having recorded code violations to a city agency or complaint to the landlord or even the fact that the action is brought because of the tenant’s raise.

Those facts are not only considered irrelevant, they are not even heard.

These defenses are not judged on their merits.

They are not even heard and are stricken.

At the conclusion of the trial, if the tenant looses and desires to remain in the premises, pending the appeal to the Circuit Court, he must post an open-ended double rent bond to guarantee twice the amount of the rent to be paid from the inception of the action until final determination by the Appellate Court.

Justice Byron R. White: Do you object to paying in the Court the rent while the action is going on?

Mr. John H. Clough: Not at all, as long as it becomes due.

Justice Byron R. White: Yes, I understand.

Mr. John H. Clough: Because of the indigent tenant, but there is no objection to that.

Justice Byron R. White: And you do object to paying it to the landlord?

Mr. John H. Clough: If the situation is such --

Justice Byron R. White: It is what the case is all about, I guess?

Mr. John H. Clough: Yes, it is the case is what as such lends itself, that paying it to the landlord would defeat the whole purpose.

Justice Byron R. White: But you could sue the landlord in an independent action on an attempt to collect for breach of the lease or something?

Mr. John H. Clough: That is true, but would not, that action would not stay this proceeding and that the whole issue here --

Justice Byron R. White: But you are not giving as rights under the Oregon Law, you do not give up any right to sue the landlord in you own action, I gather?

Mr. John H. Clough: Not in an independent action for contract, but the issue here is possession of the premises.

Justice Byron R. White: I understand.

Mr. John H. Clough: And that is the key issue that the tenant is interested in.

Justice Byron R. White: Well, he can retain possession by paying the rent to the landlord?

Mr. John H. Clough: By continuing to pay the rent of the landlord, but then it defeats this whole purpose.

Justice Byron R. White: Well, it does defeat anything if you -- what does it defeat, if you can nevertheless recover what you paid in the possession?

Mr. John H. Clough: The problem -- the problem with that is it forces every tenant into litigation.

The --

Justice Byron R. White: I know that, but you concede that pending litigation you have to pay the rent anyway?

Mr. John H. Clough: But even --

Justice Byron R. White: You pay in the court.

You are not keeping the money.

Mr. John H. Clough: That is quite correct.

However --

Justice Byron R. White: You are paying the money, you are being separated from the rent as it falls due and you are going to be separated from it as long as the issue between you and the landlord is settled?

Mr. John H. Clough: And you will also be separated from your property, if the landlord decides to (Voice Overlap)

Justice Byron R. White: Not as long as you pay the rent in the Court, you are not being dispossessed?

Mr. John H. Clough: He could give a 30-day notice in retaliation for your invoking the Court procedures and what this action would do, would force them to involve the --

Justice Byron R. White: Well, I have seen -- If I do not understand when the landlord brings this action, this forcible entry and detainer action against the tenant?

Mr. John H. Clough: Yes.

Justice Byron R. White: Now, the tenant can retain possession if he pays rent in the Court?

Mr. John H. Clough: Only for the time of the continuance.

Justice Byron R. White: Yes.

Mr. John H. Clough: If he gets a continuance and it must be cash in advance.

In other words, he cannot -- If he is an indigent tenant who has his money carefully budgeted he could not financially afford to pay enough to get a continuance for two or three months.

Justice Byron R. White: What do you mean get a continuance?

Mr. John H. Clough: A continuance of hearing, the possessory action, the action for eviction.

Justice Byron R. White: What does he actually have to put out to get the continuance?

How much money?

Mr. John H. Clough: That would vary depending on how much time he has.

Justice Byron R. White: Suppose he does not have any money that any rent that he is in default on in the first place?

Mr. John H. Clough: Well, presumably under our situation he would have that money that if he were in default on it and there will no objection to that.

Justice Byron R. White: And then his rent falls due, he would have to put up the money?

Mr. John H. Clough: We would have no objection to that, but that is not the way to that statute operates.

Justice Byron R. White: So how does it operate?

Mr. John H. Clough: You have to put up cash in advance.

In other words, if he desired a continuance for two months, he would right then and there have to put up cash and guarantee it for two months.

Chief Justice Warren E. Burger: Mr. Clough, I seem to have missed something.

When I first asked you about depositing the rent in the custody of the Court or under the control of the court somewhere, I thought your response was that this was done as a discretionary matter, but judge not as a matter of any requirement under the Oregon statute.

Will you clear that up for me?

Does the Oregon Statute require the payment of the money, the rent in escrow?

Mr. John H. Clough: No, it does not, Mr. Chief Justice --

Chief Justice Warren E. Burger: My first impression was correct then?

Mr. John H. Clough: Your first impression was correct.

I thought you were referring to the Federal Court action.

The Court below opted the rent escrow.

Chief Justice Warren E. Burger: (Voice Overlap)

Mr. John H. Clough: That was the three-judge court, yes.

Chief Justice Warren E. Burger: And would you think that was a reasonable condition uniformly to be attached to any right to maintain possession?

Mr. John H. Clough: Perfectly reasonable or some variation.

However, the Court felt this would be something for the state courts to work out.

Chief Justice Warren E. Burger: If you did not have that deposit in escrow, might you not be confronted, whether a counter suggestion that this was a taking of property without --

Mr. John H. Clough: Of course.

Chief Justice Warren E. Burger: -- taking of the landlord’s property without due process and without compensation?

Mr. John H. Clough: That is correct.

Chief Justice Warren E. Burger: So that you would accept that as an invariable condition to maintaining possession?

Mr. John H. Clough: Yes, we would have no problems with that whatsoever.

The double rent bond on appeal is in addition to the usual cost bond.

This bond may be filed as a cash bond, personal bond or for maturity bond, in any event with two sureties.

It is open ended and may last for a month or a year.

Within five days after the posting of the bond, the landlord can require justification of the sureties by their presence in court.

At the conclusion of the appeal, if the tenant loses, the landlord simply executes on the bond or if the money has been paid into court, upon the filing of the order, it is simply dispersed.

The landlord collects the entire amount of the bond, not just to the damages or expenses if any.

If the tenant loses at the Circuit Court, he may appeal to the State Supreme Court and the same process is again repeated.

We are challenging the three-major restrictions on the low-income tenant’s ability to properly defend himself in Oregon.

These are; first, the short time to prepare for trial, (2) The refusal of the Court to hear his defenses and (3) the denial of his ability to appeal because of the double rent bond requirement.

We contend that these restrictions violate both the equal protection and Due Process Clauses of the Fourteenth Amendment because they affect certain fundamental interests of the tenant.

The first of these fundamental interests is his right to retain peaceful possession of his home or the sanctity of the home.

Second, is his right to decent housing.

Third, his right to meaningful access to and equal treatment in the courts.

While all of these interests has been treated as fundamental by this Court in various decisions, the right to retain peaceful possession of once home has received the most attention, from the Court being protected under the Third, Fourth, Fifth, Ninth and Fourteenth Amendments.

For example in Silverman versus United States at 365 U.S., this Court rejected evidence obtained by the use of spiked mike which intruded several inches under the wall of the defendant’s home as it would have obtained by “actual intrusion” into a constitutionally protected area.

In Camara versus Municipal Court at 387 U.S., this Court held that a warrant must be obtained before homes can be inspected by City Agencies.

And in Rowan versus United States Post Office Department, this Court upheld in the face of the First Amendment attack, a statute protecting householders from junk mail intrusions.

If this Court has found the sanctity of the home to be worthy of constitutional protection against these sporadic intrusions, how much more worthy a protection is the right to be free from a total ousting of possession?

Total ousting by the County Sheriff is what faces the tenant who looses an eviction action in Oregon.

It is almost inevitable under the procedures we are challenging.

In addition, certain of the restrictions, we are dealing with involve a suspect classification, one based upon wealth, since indigent tenants do not have the resources to post either the continuance bond or the double rent appeal bond.

We do not feel that we are asking for anything unreasonable in this case.

We fully recognize that there are certain interests of the landlord that the State of Oregon may reasonably protect, if it wishes to do so.

The main interest meant to be protected by the restrictions we are challenging is the landlord's desire to see that he will not lose rent money, he may have come into it during the litigation, that he eventually might win.

Statutes designed to protect this interest should be constitutional if they are reasonable, but the restrictions involved here go too far.

They are unreasonable at the expense of the tenant’s interests in protecting his home.

We can understand, for example, shortening the time to prepare for trial on eviction action to something less than that available to other defendants.

But only two days as a matter of right is so short as to make the mockery of the judicial system.

Chief Justice Warren E. Burger: Would you be here if that were 20 days, Mr. Clough?

Mr. John H. Clough: If that were 20 days, probably not on that issue.

It would depend entirely how that the Oregon Court has set up the procedure.

Justice Potter Stewart: Well, what are the defenses available under the Oregon System just that payment is one, is it not?

Mr. John H. Clough: Payment is one.

Yes actually --

Justice Potter Stewart: Is there is anything else?

Mr. John H. Clough: There are certain equitable types of defenses such as showing that agreement between the parties was something aside from what its apparent nature was and their true relationship was not that of landlord-tenant such as, a deed is really a mortgage, and therefore, the eviction procedure should not be used, the Oregon procedure should be used (Voice Overlap).

Justice Potter Stewart: Or that what appears to be a tenancy at will; might be month-to-month or what appears to be a month-to-month might be an actual lease for a year or something like that?

Mr. John H. Clough: No those would still be landlord-tenant and they will still be (Voice Overlap)

Justice Potter Stewart: Is that available as a defense that, is what I mean?

Mr. John H. Clough: That the lease, that there is in fact a lease for year, a written lease that may be it depends depending on the circumstances of the case, but again we are dealing with that fourth item in the complaint with landlord’s right to the possession, not the third item which we are concerned with raising any contractual defenses.

Justice Potter Stewart: My thought was that it cannot be both ways.

In other words, you say on one hand that Oregon does not allow you to make any real defenses and on the other that you should be given more time to make defenses.

Well, if there are no defenses to be made, like the time is not a very --

Mr. John H. Clough: Like the time is contingent upon the ability to raise its defenses of course.

Justice Byron R. White: Can I ask you if the, in the FED suit in response to it, you could not only claim that you are not in default, but that the statute itself is unconstitutional and have -- get a constitutional decision in that case and if you did afford the appeal bond, appeal any rejection of your constitutional ground?

Mr. John H. Clough: In theory that (Voice Overlap) that would be available.

Justice Byron R. White: Well, now this FED suits were pending at the time you went to the Federal Court, were they not?

Mr. John H. Clough: Some of them, there is none filed in the Lindsey case.

Justice Byron R. White: But they were in the others?

Mr. John H. Clough: There were three others and for various reasons those three cases settled and were never appealed.

Justice Byron R. White: And what if the case of controversy between the one person in that landlord,l had he threatened the eviction or what?

Mr. John H. Clough: The case in controversy is that he threatened eviction into invoke the use of the Courts.

Justice Byron R. White: But he never did?

Mr. John H. Clough: But he never did because of this action.

Justice Byron R. White: I see.

Mr. John H. Clough: Because there was a restraining order issue in this action.

Chief Justice Warren E. Burger: Let us back-up to a case where there is a tenancy from month-to-month and for reasons not disclosed the landlord decides he wants to terminate the tenancy and gives the appropriate notices and at the end of the notice period, the tenant declines to leave, claiming that it is very inconvenient, there is no other housing available, etcetera.

Now, that you say that there is a due process right to remain, it would in turn will enable them to remain in possession, notwithstanding the landlord’s compliance with the statute in giving them notice?

Mr. John H. Clough: Not in the fact situation Mr. Chief Justice that you gave to me.

Chief Justice Warren E. Burger: In other words, in that situation the landlord can evict the --

Mr. John H. Clough: He would have no defense.

Chief Justice Warren E. Burger: There would be no defense?

Mr. John H. Clough: However, if he were raising the defense that he should be entitled to at least raise and be heard on a defense that the landlord is evicting for example in retaliation, puts testimony in, but that is not the fact --

Chief Justice Warren E. Burger: Or if he has a one year lease or the things that Mr. Justice Stewart was talking to you about in alternative, that if you have a clear case of that kind where there is no valid defense, then you concede that the landlord can evict --

Mr. John H. Clough: Of course, there is no denial of due process because the defense has not been raised.

Chief Justice Warren E. Burger: Then the two days would not be a problem for you in that circumstance?

Mr. John H. Clough: Yes, but the statute is over inclusive because it includes all of these other situations too.

There is no differentiating between that type of situation and the type of situation where the tenant seeks to raise retaliatory eviction as a defense.

Chief Justice Warren E. Burger: Well, then you come down to a claim of unconstitutionality of the statute as applied rather than facially, it that not right?

Mr. John H. Clough: It would be on its face because the statute is over inclusive on its face.

Chief Justice Warren E. Burger: I suppose six of one-and-a-half dozen of the other has applied with the specific case, is it not?

Mr. John H. Clough: It might be merged to both, yes.

I like to reserve my time for rebuttal.

Chief Justice Warren E. Burger: Very well.

Mr. Jensen.

Argument of Theodore B. Jensen

Mr. Theodore B. Jensen: Mr. Chief Justice and members of the Court.

I am appearing here for the defendant, Mrs. Normet.

The factual situation in the case actually as we see it was that Mrs. Normet was the record owner of the property, but had become so with an outstanding contract of sale on the property to a party who had in turn rented the property to the Lindseys.

When Mrs. Normet on default on this contract under which the property had been sold and more or less had been abandoned by the contract purchaser.

Mrs. Normet had begin to collect and she did receive the rent payments from the Lindseys up through November, applied them on the contract of sale and commenced a suit to foreclose the contract in order to clear up the title of the property.

Then in November, the City of Portland, under its Housing Code, notified both the Lindseys, they being the tenants and Mrs. Normet that the property was substandard in a good many respects and posted a notice that the property be vacated or the repairs made.

At that point Mrs. Normet through her attorney gave a notice to the Lindseys requesting them to vacate the property in accordance with order of the city of Portland.

She not wanting to go ahead and spend the money which would be required to make the repairs because of the existing cloud on the title of the property at that particular time.

Now, the Trial Court made a finding that there was a landlord-tenant relationship between Mrs. Normet and the Lindsey’s and treated it as though it were an ordinary landlord-tenant relationship.

In this case, we view the summary of the argument and briefs of the appellant that they are saying on two grounds that the Oregon Eviction Statutes are unconstitutional because they do not grant equal protection and due process at law and that it deprived tenants of rights and privileges afforded to them in the civil eviction actions in Oregon by denying basic rights needed to enable them to receive fundamentally fair hearings on their defenses.

Now, I would like first of all to direct my remarks to the Oregon Eviction Law briefly.

First of all, the Oregon Eviction Law is only available or is only used when there exist a landlord-tenant relationship.

It does not apply in any other situation.

It protects, our position is that it protects all tenants equally.

It does not make any distinction as to what their funds may be that they have available to them whether they are rich or poor.

It just applies and gives equal protection to all tenants.

If the tenants, first of all, we have no self-help procedure in Oregon that is where the landlord can go in and evict the tenant himself.

If he wants to evict a tenant from the property he has to go in to the Court and get a determination that he has the right to take possession from the tenant.

He can do this, if the tenant has failed to pay the rent within 10 days after due or if the tenant’s lease has expired and the tenant has refused to get out or if the tenant’s month-to-month or what tenancy or whatever the term is has been terminated upon either 30 days notice or if it is a longer tenancy where than on a notice equivalent to the term and then if a tenant refuses to vacate, the landlord must in order to have a determination then of his right to take possession, he must go in and file a complaint in court, setting forth, it is kind of a notice sort of a complaint, at least the equivalent of the Federal rules requirements, in which he in effect says that the tenant is withholding the premises unlawfully and with force and that the landlord is entitled to possession.

That is the only issue in the FED case at that point in the complaint.

Justice Potter Stewart: As I understand it, under Oregon Law the landlord is not permitted to join with FED complaint, any other claim eg a claim for the payment background or anything, is that correct?

Mr. Theodore B. Jensen: Mr. Justice that is correct and if he does join, he can join an action for rent if he wishes to do so or for any other action that might be joinable under our statute.

Justice Potter Stewart: But then if he does?

Mr. Theodore B. Jensen: But if he does then the FED procedure is not followed, the summary procedure is not followed --

Justice Potter Stewart: It becomes (Voice Overlap)

Mr. Theodore B. Jensen: -- and the case is subject to the ordinary trial of procedure and instead of a the two to four days for which the summons would state, it would be 10 days observed in the county, 20 days in any other county where the individual did not actually reside.

Justice Potter Stewart: And it becomes just like any other contract action?

Mr. Theodore B. Jensen: Yes, sir and in any and all defenses, including counter claims, could be raise then in the action.

I would say --

Justice Potter Stewart: If the plaintiff joined anything except the eviction?

Mr. Theodore B. Jensen: Yes, that is correct.

I understand --

Justice Potter Stewart: Then defenses would be available and it would become an ordinary lawsuit?

Mr. Theodore B. Jensen: Yes.

Justice Potter Stewart: This summary procedure will no longer take place?

Mr. Theodore B. Jensen: That is correct Mr. Justice.

As a matter of practice, in most FED cases the simple landlord-tenant relationship of rental of a residence on a month-to-month basis file just for possession without joining any rent or any other cause of action with it.

Now, I think the Court should realize that the FED Eviction Laws of Oregon apply not only to the rental of residences, but it applies and is available and used in connection with commercial properties where there is a lease for example and the tenant has refused to vacate at the end of the lease with most leasers providing that if they hold over at the end of the term, then they are month-to-month tenants, then you will have to give a 30-day notice and bring your FED action.

But you can see that in cases involving commercial property where the tenant may find a tremendous financial advantage to him to remain in a particular property for another year or so, it would be a unfair to permit him to stay in just by continuing to pay his rent if the landlord has given him the 30 days notice and his lease term is over.

Now, we have personal service in Oregon of the summons in complaint on the tenant and the summons provides that the matter will come before the Court and the return made from two to four days, the day of service is not counted.

So, it comes up then before the Court at that time.

There need not be any written answer filed.

We have procedure in the Oregon Law which grants to the defendant tenant two more days continuance for without any showing of any kind.

He can have an additional two days continuance and then if that is not a sufficient amount and he wishes to have a further continuance that can be obtained by posting security for the payment of his rent.

That may -- to cover the period of the time for the continuance that he wants, in other words, the practical aspect of that is that he does not have to go back and pay his delinquent rent, that is not an issue in the case.

It is possession and if he wants to remain in possession and get a continuance of the case for more time for preparation or for whatever the reason may be, he can do so from a practical aspect by paying the month’s rent and that would give him a 30-day extension of time.

Chief Justice Warren E. Burger: Pay it in the Court?

Mr. Theodore B. Jensen: There is no provision, Mr. Chief Justice for the payment of the rent into Court.

I assume that the Trial Court could make that provision.

Chief Justice Warren E. Burger: Would not the Court have inherent power to do that?

Mr. Theodore B. Jensen: I believe that it would be.

It has not been the practice in Oregon particularly.

Justice Harry A. Blackmun: It happened in this case though?

Mr. Theodore B. Jensen: No, it did not.

Justice Harry A. Blackmun: It was in the Federal Court.

Mr. Theodore B. Jensen: And the thing about this case is that there was no FED eviction commenced by Mrs. Normet against the Lindseys.

The claim here is that Mrs. Normet has threatened commencing an eviction case against them but there actually was no case filed.

Justice Thurgood Marshall: But I thought that it led from lawyers to the Lindseys threatening a lawsuit, is that correct?

Mr. Theodore B. Jensen: We have -- I think that a counsel would agree with me that we have a different interpretation of the notice that was sent by Mrs. Normet’s attorney to the Lindseys.

It appears it was a letter.

It appears in appendix.

Justice Thurgood Marshall: May I see it?

Unknown Speaker: It is an exhibit, is it not correct?

Mr. Theodore B. Jensen: It is an exhibit.

That is not in the -- it is an exhibit in the case.

It is exhibit number 14.

The appellee’s interpretation of the letter was that it was a notice or demand or request for the Lindseys to comply with the order issued by the City of Portland Building Department for the premises to be vacated because it was substandard.

Either party made it, Mr. Justice.

Justice Potter Stewart: You said that personal service is required in Oregon?

Mr. Theodore B. Jensen: Yes, it is.

Justice Potter Stewart: In the amicus brief, everybody all talked about the so-called sewer service because I gather in many states a service by attaching the process to the door of the house is something that is sufficient and process servers often find it more convenient to do that, but actually (Voice Overlap) up down the sewer.

I wonder if the failure to make personal service would be a defense in this action?

Mr. Theodore B. Jensen: Yes, it would be now, I would say --

Justice Potter Stewart: Of course, I suppose if that defendant comes into court, he is uttered an appearance, so instead of (voice Overlap) in order to make that defense he would to have his special appearance, would he?

Mr. Theodore B. Jensen: Yes, he could under a special appearance to quash the service and we have no --

Justice Potter Stewart: Because there was no personal service?

Mr. Theodore B. Jensen: Yes, to quash whatever the service was and it would -- he can reserve that by making a special --

Justice Potter Stewart: And what happens if for want of personal service, the tenant never did have an actual notice to this proceeding, then what happens?

Mr. Theodore B. Jensen: Well, we have the service in the FED case, is the same as in any other action in the State of Oregon (Voice Overlap).

We have personal service but you can have substituted service by publishing, there could be a publishing which if the person is concealed within the state or is outside the state and his location is not known, but in support of that there would have to be an affidavit, prepared and filed which contained facts, sufficient to show that there had been a reasonable search made for the party before the publication of the summons.

Justice Potter Stewart: If the defendant were absent outside the state, you would not need to bring an eviction proceeding, would you?

Mr. Theodore B. Jensen: Well, depending on had he left some of his belongings in the property perhaps or something of that nature, you might be taking a chance to go in and have self-help taking possession of the property, but the service is no different in the FED eviction case in Oregon than it is in any other case.

So we do not have what is called conspicuous service or so-called sewer service as I notice in the amicus curiae briefs, they have in New York and Florida.

We do not have that.

We require personal service.

Now, either party can request and have a jury trial and if the tenant and that is to determine the possession and the tenant can interpose defenses which are relevant to the question of possession.

Justice Potter Stewart: And those defenses would mainly be whether or nor he paid the rent (Voice Overlap) would that not be 99%?

Mr. Theodore B. Jensen: That would be a payment of rent or that he has a lease on the property.

He has not been given notice, things of that nature which are relevant to the possession.

Chief Justice Warren E. Burger: Alright.

We resume after lunch now, Mr. Jensen.[Lunch break]

Mr. Jensen, you may proceed with your argument, you have about 13 minutes remaining.

Mr. Theodore B. Jensen: Mr. Chief Justice and members of the Court.

The Oregon Eviction procedure does not deprive either the tenant or the landlord of the right to assert other claims they may have under the General Court Procedure which is available to all.

In other words, they have open to them the General Court procedure for litigating any other claims that they may have against each other arising out of the rent agreement or the rent contract.

Now, the appellants seem to argue here that all defendants should be treated equally and that it is wrong to have a separate eviction procedure to determine possession of rented property between the landlord and tenant.

In support of that, they compare a mortgage foreclosure case with an FED case under the Oregon Law and then say that since the procedure is different that the tenant defendants in a FED case do not receive equal protection or the same protection as an owner of real property whose mortgages being foreclosed and claim that therefore the eviction or FED procedure is unconstitutional.

Certainly there is a vast difference between the owner of real property who is delinquent in the payment of a mortgage and a tenant who does not pay his rent.

It seems to me, that we certainly would not require a landlord, first to obtain a judgment for the rent and then hold some sort of a judicial sale to evict the tenant, terminating his right to possession of the property perhaps even with some redemption rights following the order have some sort of a strict foreclosure proceeding which would grant the tenant some period of time to pay up his delinquency before the landlord could retake possession of his property from a defaulting tenant.

I submit that the summary eviction procedures justify because of the intending rights existing in a landlord-tenant relationship and the Oregon Eviction Law grants equal protection to all landlord and tenants.

The State of Oregon has the right to establish by legislative enactment a summary procedure to determine the issue of possession between landlords and tenants and that is what it has done with its statute and laws.

Now, I would like to make a comment or two with regard to the amicus curiae briefs that were filed in this case primarily to make the point that the Oregon Eviction Laws do provide due process to tenants in compliance with the United States Constitution.

First of all, we have no self-help provision in Oregon for the landlord as there are in Arkansas and Arizona under their unlawful detainer statutes which require some sort of a bond from the tenant to keep possession prior to trial.

Before the landlord in Oregon can take any steps towards recovering possession he has to file and commence a case in Court under the eviction statute, filing a complaint.

We do not have what is called conspicuous service or so-called sewer service in Oregon as they apparently have in New York and Florida.

Oregon requires personal service or the same service as in any other litigation in the Oregon Courts.

We do not permit an oral complaint as in Kentucky.

Oregon requires a written complaint filed in a summons issue and we permit continuances.

We do not refuse to grant a continuance as in New Hampshire.

Oregon grants a two-day continuance without any cause on request and an unlimited continuance if security posted for the rent which may be found due during the continuance period.

In other words, you can pay rent, pay your current rent and get a 30-day continuance.

In Kentucky, it permits, in amicus curiae brief, there is a statement that there is the trial as before the Court not presided over by judges.

Oregon Courts are all presided over by legally trained judges and jury trial on request.

Oregon does not allow in the FED eviction, the landlord to recover both possessions and judgment of money damages as in the California and New Hampshire States.

In Oregon, if you join the rent claim or any other claim that you have then you have to make the usual service as you would in other cases and it proceeds accordingly.

Oregon in some states in referring primarily to California observed from the amicus curiae brief that they allow the FED, the eviction procedure to be used by the purchaser at an execution mortgage foreclosure to recover possession, I suppose after the sale of the property at sheriff sale, if the former owner does not voluntarily surrender possession of the property.

And they also allow it to be used to recover possession under and after a trustee's sale under a trustee’s deed to evict the former owner.

Oregon has no such statute.

Our eviction statute is related and confined entirely to the landlord-tenant relationship.

Oregon does not deny defenses to be raised in eviction proceedings as in Arizona.

We permit in Oregon equitable defenses, relevant to the right of possession are allowed.

Oregon does not require a bond to appeal covering the past, present, and future rent as in Vermont and New York.

The bond in Oregon on appeal, the tenant wishes to remain in possession is for twice the rental value only for the period -- only for the period from commencement of action to final judgment.

Also, and --

Justice Thurgood Marshall: What is the purpose of double rent?

Mr. Theodore B. Jensen: The purpose of that is stated in the case of Scales versus Spencer decided by the Oregon Supreme Court in 1967, in which it said that in as much as a final judgment for restitution could not include a judgment for rent, pending appeal, it appears obvious that the legislative purpose for requiring this particular bond on appeal was the guarantee that the rent pending on appeal would be paid.

Justice Thurgood Marshall: It is double?

Mr. Theodore B. Jensen: That the bond must provide for double the rental value was no doubt intended to prevent frivolous appeals for the purpose of delay.

If there were not some added cost or restriction, every ousted tenant would appeal regardless of the justification.

It can also be assumed that the additional payment would compensate for ways or is in lieu of damages or the unlawful holding over.

Justice Thurgood Marshall: Is there any other provision in Oregon Law that requires double the amount?

Mr. Theodore B. Jensen: No, there is not Mr. Justice.

If the tenant wants to appeal and remain in possession then the Oregon Eviction Law provides for the double rent bond.

If he surrenders possession and wants to appeal which was done in the Priester-Thrall case which is cited in the briefs, then he does not have to put up the double rent bond.

He would put up the bond provided for in the usual undertaking section of the Oregon statute which would be for --

Justice Thurgood Marshall: Cost?

Mr. Theodore B. Jensen: Cost and disbursements and any damages that might be incurred in the nature of waste I think.

Justice Thurgood Marshall: Would you say that that might -- the posting of the bond of double the rent might discourage a person from appeal?

Mr. Theodore B. Jensen: I think that it would discourage frivolous appeals and I suppose as the appellants here claiming that --

Justice Thurgood Marshall: How does Oregon handle other frivolous appeals in other cases?

Mr. Theodore B. Jensen: Well, we have a supersedeas bond which is in damage cases if you want to stay the execution of any judgment or you have to put up a supersedeas bond.

Justice Thurgood Marshall: But that is only liable to what is actually lost, is it not?

Mr. Theodore B. Jensen: Yes, it is but --

Justice Thurgood Marshall: But it is double of what is lost?

Mr. Theodore B. Jensen: Yes, our position with regard to that is that to permit the tenant to remain in possession by just continuing to pay just the rent would mean that he could stay in for a year probably or longer depending on how long it took the case to progress through the courts and that would point out that he could do that, if the landlord, now this applies, the eviction procedure applies not just to delinquent rent cases, but it applies where the landlord might want to take the property will say off the market.

Maybe he has other use that he wishes to put to the property to.

Maybe he wants to have it occupied by some member of his own family.

In other words, our position is that there are rights in the landlord in his properties and he is entitled to that protection and if you do not preserve or protect the rights of a landlord then you would be depriving him of his property rights without some due process.

Justice Potter Stewart: Mr. Jensen, Judge Goodwin in his opinion for this three-judge District Court referred to this appeal on provision as the to quote him “perhaps the most difficult question in this case” and the statute provides for the posting of the bond for double the amount of rent that will accrue pending the appeal.

How can you tell, how much that will be?

How can you tell how long the appeal will take?

How in actual operation does this work?

Mr. Theodore B. Jensen: Well, I do not that you could actually tell.

The Court then would have to set the amount of bond which is what is generally done.

Justice Potter Stewart: This is sort of making an estimate as to how long the appeal would take and then it is going to be increased or decreased, depending on how fast things go?

Mr. Theodore B. Jensen: Well, generally that is not the case.

It is generally fixed and that goes on in connection with the appeal.

Justice Potter Stewart: Is there generally just sort of an arbitrary estimate of three months or four months or five months or do you not know?

Mr. Theodore B. Jensen: I am not certain of that because there have not been very many appeals.

Justice William O. Douglas: What kind of bond is commonly employed?

Mr. Theodore B. Jensen: On other cases?

Justice William O. Douglas: On this case, this type of case?

Mr. Theodore B. Jensen: What kind of a bond?

Justice William O. Douglas: It is (Voice Overlap)

Mr. Theodore B. Jensen: It can be -- no, it can be a personal --

Justice William O. Douglas: I know, but --

Mr. Theodore B. Jensen: -- or a surety bond.

Justice William O. Douglas: What kind is usually used in Oregon?

Mr. Theodore B. Jensen: Well, the landlord would have a right to question the sureties or if it is a personal surety and if they could not justify by showing that they have twice the property equal to twice the value of the bond over and above property exempt from execution or then the Court would not approve those sureties.

But it is up to the Court and in many cases the Court the answering party questions, would question the sureties, if they are personal sureties, but that does not mean that he would have a right to discredit them if they qualified.

That would be up to the court.

Justice Potter Stewart: And if the tenant loses the appeal, does the appellee landlord automatically get payment of the full amount of that?

Mr. Theodore B. Jensen: That is the theory of the eviction statute and the bond.

Justice William O. Douglas: That is because of the fact that he cannot in the eviction action collect the rent?

Mr. Theodore B. Jensen: That is correct.

He would not collect any rent and he would be being deprived of the possession of the property and it is sort of liquidated damage amount, is the way that it is treated and viewed.

Justice Potter Stewart: Can it or any decision as to whether or not this can be waived by the Court?

Mr. Theodore B. Jensen: It could be waived by the parties.

I do not believe --

Justice Potter Stewart: How about by the court, can he --?

Mr. Theodore B. Jensen: -- the court it could not -- I do not believe the Court would have the right to waive the point of bond.

Justice Potter Stewart: In view of the explicit statutory bond?

Mr. Theodore B. Jensen: If the tenant surrenders possession or then he can go ahead --

Justice Potter Stewart: I understand.

Mr. Theodore B. Jensen: (Voice Overlap) appeal.

Justice Thurgood Marshall: Suppose the Court says that it will be three months and I want you to post three months rent, Bond of twice the value of three months rent and the case is decided in one month, will he get all three of those?

Will he get that whole bond?

Mr. Theodore B. Jensen: No, he would only get the amount which has accrued as I understand it.

Justice Thurgood Marshall: Whereas the statute?

Mr. Theodore B. Jensen: Up to the time of the termination of the case.

Chief Justice Warren E. Burger: The statute is cast in terms of double the rent, and therefore, if it was 30 days, he would get double 30 days rent, is that it?

Mr. Theodore B. Jensen: That is my understanding Mr. Chief Justice.

Justice Thurgood Marshall: That is all he would get?

Mr. Theodore B. Jensen: Yes.

Chief Justice Warren E. Burger: Thank you Mr. Jensen.

You have four minutes left Mr. Clough.

Rebuttal of John H. Clough

Mr. John H. Clough: Mr. Chief Justice and may it please the Court.

I have just few comments.

Contrary to the apprehensions here that had been cast, we still need time to prepare for conventional defenses and we still maintain that the two-day time limit as a matter of right is too short to even prepare for those such as to find out the issues as to what rent is agreed to.

They may need witnesses to testify as to whether or not rent is in fact been paid or whether rent receipts are available and in connection with that, the attorney still has to ascertain whether or not there is in fact a valid defense and he needs more time in order to do that.

The third point is regarding the joining of the action for rent and FED under -- in our brief at page 48 footnote 13, we have cited two statutory provisions which provide that the action for rent can be joined with an FED, but at that point the case is severed and the action for rent proceeds as any other lawsuit with the FED proceeding close forward.

The fourth point is the -- I would refer the Court to plaintiff’s exhibit number 14 which is the letter sent to the Lindseys by the Normet’s attorney.

It speaks for itself regarding whether not it threatens eviction.

Essentially, all that appellants are asking for is a chance to be able to change the law in Oregon.

We do not ask this Court to change any substantive rule of law.

That is for the Courts of Oregon to do and that is for them to use the principles of the common law and develop, we will seek to have them adopt the consumer protection principles that have been analogize to landlord- tenant law in other jurisdictions which they are free to do absent the statute So we are essentially asking for chance.

Chief Justice Warren E. Burger: Within the framework of this case the issue is I suppose could this statute hypothetically be saved by saying that Oregon was give the same time to answer in these cases as in any other civil action by reference to the particular statute governs that the 10 or 20-day statute?

Mr. John H. Clough: You mean by a construction of the statute?

There is no construction of the statute that the statute is very explicit it says to --

Chief Justice Warren E. Burger: But you want 10 or 20 days, do you not?

Mr. John H. Clough: Whatever reasonable enough period of time in order to --

Chief Justice Warren E. Burger: You have conceded earlier this morning that conventional statutory time to answer in actions in Oregon of 10 to 20 days was a reasonable time you were making an argument --

Mr. John H. Clough: Oh! Yes.

Chief Justice Warren E. Burger: Well, then if you got that, you would be satisfied, would you?

Mr. John H. Clough: On the time limitation.

Chief Justice Warren E. Burger: I am not suggesting it can be done that way.

I would test whether that is what you want --

Mr. John H. Clough: On the time limitations, that would be true.

Chief Justice Warren E. Burger: And that would dissolve this whole case?

Mr. John H. Clough: No, it would not dissolve this whole case.

Chief Justice Warren E. Burger: What else would remain?

Mr. John H. Clough: That the ability to raise defenses would still remain and the double-rent bond on appeal and the continuance bond.

Those issues are still in this case no matter what happens to the time limitations because you still have the constrictions of the statute that would apply, no matter whether he had 10 days, 50 days or 2 days.

Justice Potter Stewart: Do you know how this double-rent bond on appeal actually works in practice?

Mr. John H. Clough: It is an open-ended bond, Mr. Justice.

It is for no specified amount.

It is a virtual impossibility to obtain a surety bond.

Surety bond companies just would not write them.

Justice Potter Stewart: How many appeals have there been and how many --?

Mr. John H. Clough: We have the Oregon cases that are listed in the brief, Scales v. Spencer and Priester v. Thrall specifically dealing with the double-rent bond on appeal and describe how it operates.

The other types of cases are appeals that have been taken, but quite effectively it does preclude almost any right to appeal and most of those cases involve commercial leases, not residential leases.

Justice Potter Stewart: Scales against Spencer and what are the others?

Mr. John H. Clough: Scales v. Spencer, Priester v. Thrall involve the double-rent bond on appeal.

Friedenthal v. Thompson involves the time limitations and the ability to raise an equitable defense.

There the equitable defense plus of the nature of asserting oral modification of a subsequent modification of a written lease.

Topco v. Florida, Leathers v. Peterson, Sher v. Williams are similar types of cases, but that is it and Menefee Lumber Company versus Abrams those cases.

Chief Justice Warren E. Burger: Mr. Clough, did I understand Mr. Jensen to say that equitable -- all equitable remedies were available?

Mr. John H. Clough: I believe that is what he has implied, but that is not the case under Oregon Law.

The--

Chief Justice Warren E. Burger: How do we find that out except by reading those cases, do those cases reveal it?

Mr. John H. Clough: Those cases reveal it and an analysis of the statute.

You see the case -- the cases involving raising an equitable, the so-called equitable matter do not operate as a stay per se of the eviction action.

They must then proceed to determine whether or not those, the issues raised would operate to stay.

In other words, the example of Leathers versus Peterson, the question was whether or not there was deed or a mortgage in conveyance of the land near the parties, we are dealing of less than arms length.

There is a question of fraud and the inducement.

Well, if did operate as a mortgage as opposed to a deed then there would not be any validity to using the FED action. There would be another action that would have to be available.

So it goes to item four on the allegations to complaint and that is whether or not the landlord has the right to possession and what we are dealing with is item three which explicitly says, if the rent has not been paid within 10 days after it comes due, that is it.

It is cut-off right there.

He says yes but and no more defenses in the Oregon Courts.

It just seeks if there are chances are.

Chief Justice Warren E. Burger: Thank you Mr. Clough.

Justice Potter Stewart: Priester versus Thrall, I cannot the find the list in your brief.

Maybe I am --

Chief Justice Warren E. Burger: It is listed in the appellee’s brief.

Justice Potter Stewart: How do you spell Priester, begins with a P?

Chief Justice Warren E. Burger: Priester, P-R-I-E-S-T-E-R.

Justice Potter Stewart: Thank you.

Chief Justice Warren E. Burger: Thank you.

Justice Potter Stewart: Thank you Mr. Clough and Mr. Jensen.

The case is submitted.

Featured:

Swarb v. Lennox - Oral Argument

Thu, 23 Aug 2012 18:18:58 +0000

Case:

Swarb v. Lennox

Media File:

70-6_19711109-argument.mp3

Related Transcript:

70-6_19711109-argument

Transcript:

Argument of David A. Scholl

Chief Justice Warren E. Burger: We will hear arguments next in number 6, Swarb against Lennox.

You may proceed Mr. Scholl.

Mr. David A. Scholl: Mr. Chief Justice and may it please the Court.

This is a case instituted by 38 named plaintiffs on behalf of a class of all persons in Pennsylvania who would sign contracts containing confession-of-judgment clauses.

I will refer to the appellants in discussing this case as the consumers since they are all consumers and the appellees as the creditors.

I would also like permission to request that five minutes of my time be reserved for rebuttal.

The Pennsylvania State -- we have a Law in Pennsylvania that permitted and in fact, did in the case of these 38 named consumers, the prothonotary who is merely a Court Clerk to ministerially enter judgments against the consumers without their having had any notice nor opportunity to be heard prior to the entry of that judgment.

Now, the reason that, the only thing that authorized the prothonotary to do this other than the State Law was a clause which was contained in the contracts that each of the consumer signed.

This clause, of course is the Confession-of-Judgment Clause and I think that there are two significant characteristics of the Confession-of-Judgment Clause.

First, it is one of the many clauses that it is very in prime fine print in contract.

It is a difficult clause to understand, many attorneys do not understand what the effect of the clause is.

And I think a second important aspect, is that Confession-of-judgment Clauses are contained in almost every contract in Pennsylvania and which credits is extended in any form.

That is to say, loan contracts, retail installment sale contracts, in leases, there is a confession-of-judgment and ejectment, and of course also in mortgage contracts.

Unknown Speaker: Well, you have in footnote 1 on page 12 of your brief, what you say is a typical wording of such a clause?

Mr. David A. Scholl: Yes.

Unknown Speaker: Is there anywhere in the appendix or elsewhere where we could see how it looks in print, if you just referred it to fine print?

Mr. David A. Scholl: Yes, there is Your Honor.

There are 80 exhibits.

Actually, there are 81 exhibits, 80 of the exhibits are contracts, so that --

Unknown Speaker: In the initial records?

Mr. David A. Scholl: Yes, they are the contracts that each of the main plaintiffs signed in the --

Unknown Speaker: They are here in the appendix that would show as that?

Mr. David A. Scholl: Your Honor, there was no appendix in this case, so --

Unknown Speaker: We just have the original one?

Mr. David A. Scholl: As we move that to proceed in the original record.

Unknown Speaker: Alright, thank you.

But this, the wording is how a typical one appears, do I it right on footnote 1 on page 12 of your brief?

Mr. David A. Scholl: That is right Your Honor.

Now, the confession-of-judgment that the prothonotary may enter, may be entered immediately.

After the contract is signed, that is it can be entered even before there is any allegation of fault.

It can be entered the same day that the contract is executed.

It cannot immediately serve as the basis for execution and sale of the consumers’ property.

However, all that, the creditor need to do it at that point to execute and sale the consumers property is to file ex parte in averment that the consumer has defaulted.

Now, what notice does the consumer get to the proceedings that are occurring against him?

Well, after the judgment is entered, he is required to get notice of the entry of the judgment.

However, the property of the consumer can be sold as short as 20 days after the notice of the entry of judgment is given.

Also, if there is a sale of the consumer’s real estate, he is given notice that the writ of execution has been issued against this real estate and also he is given notice of the sale of his property.

However, this is generally by publication although, there must also be notice by mail and that notice by mail may be as little as 10 days before the property is sold.

Chief Justice Warren E. Burger: In the earlier case, I asked counsel that if he thought it would satisfy due process, creditor by informal notice by communicating actual notice, advised to tell him that he intended to exercise the powers granted under the confession-of-judgment clause.

Do you agree that would satisfy due process?

Mr. David A. Scholl: Well, I think if it would be noticed that the consumer would have an opportunity at a hearing to raise any defenses that he might have before execution in sale could proceed on the confessed judgment, then I think that it would comport with due process.

Of course, that is not what is assured by the Pennsylvania confession-of-judgment statutes and rules.

Chief Justice Warren E. Burger: In other words, under your statute, even if he had notice and came in, he would not be able to put in any defenses.

Is that your --

Mr. David A. Scholl: That is right, there is really only one procedure by which the consumer can possibly stop the sale of his property and that is by petitioning to open or to strike the judgment.

Now, what happens when someone petitions or opens to strike to judgment?

Justice Thurgood Marshall: Mr. Scholl, do you mean the consumer gets notice say on Monday of next week, we are going to file confession-of-judgment against you?

Mr. David A. Scholl: No, he does not receive that notice.

He never receives any notice prior to the entry of the confessed judgment.

Justice Thurgood Marshall: I am asking the hypothetical that Chief Justice gave you?

Mr. David A. Scholl: Oh, I am sorry.

Justice Thurgood Marshall: And he gets that notice, is it your position that he cannot do anything about it?

Mr. David A. Scholl: The only thing that he can do is to petition to open or to strike the judgment.

Justice Thurgood Marshall: The judgment has not been issued yet.

Mr. David A. Scholl: Well, the point is that in --

Justice Thurgood Marshall: (Inaudible) This Monday, he gets the notice which says on next Monday in the common pleas court in Philadelphia, common pleas court in number 267, we are going to apply for confession of judgment against you. You say that there is nothing he can do.

Mr. David A. Scholl: Well, he never gets that notice.

There is no requirement --

Justice Thurgood Marshall: But if he did get it.

Is there something he could do?

You said he could not do anything?

Mr. David A. Scholl: Well, if it is prior to the entry of judgment, he would be able to go in the Court and attempt to enjoin the creditor from obtaining the judgment, that is the only thing I can --

Justice Thurgood Marshall: That does not fit due process?

Mr. David A. Scholl: Well, the problem is that the Pennsylvania procedures do not provide any entry or any notice prior to the entry of judgment.

And in fact, I know of no instance and certainly that was not the case in any of the named plaintiffs cases in which the notice of the judgment was to be entered was provided to the consumer prior to the entry of judgment.

Justice Thurgood Marshall: My only point was if you say, it did not have notice.

Then I am saying if he was given a notice, would that be as much due process that you wanted?

That is the only question I ask.

Mr. David A. Scholl: Well, that would be a different case and I think perhaps, in that case, depending on what the notice was and what opportunity the consumer would, have to come in and present his defenses, what you are suggesting may comport with due process of law.

Justice Thurgood Marshall: Well, if he did have notice, would he be permitted to present breach of warranty defenses for example in Pennsylvania?

Mr. David A. Scholl: Well, the problem that I have is what he could do prior to the entry of judgment.

I think that what Mr. Justice Marshall was suggesting was that person would obtain notice prior to the entry of judgment and I think the only thing that could possibly be done is bringing some kind of an injunction action to prevent the creditor from proceeding.

Unknown Speaker: But what he is saying is he could not afford common pleas court on Monday and say now, I want to tender evidence and defenses of this proposed action.

I want to tender evidence of breach of warranty.

You are telling us he could not be (Inaudible).

Mr. David A. Scholl: That is correct.

He can do it and the prothonotary would enter it anyway.

Unknown Speaker: He would have to start to saying, in your view some original action to get an injunction against there being any proceeding of the judgment notices, is that it?

Mr. David A. Scholl: That is the only procedure I can conceive of.

The prothonotary has no digression, he must enter the judgment.

The state statute says that he must enter the judgment as long as he is presented with the document that contains a confession-of-judgment Clause in it.

Now, as I had mentioned, there is of course, the procedure to petition to open or to strike the judgment.

However, this is simply a procedure that is provided in Pennsylvania as in most jurisdictions to obtain relief from any judgment.

It is a petition that is directed to the Court’s discretion and the Court, it must be shown, the consumer must come forward and show that he has a meritorious defense before the judgment will be open and he even gets an opportunity to come in and have a hearing on his motion.

This of course, would deny him the right to any jury trial to determine whether the defense that he is claiming is a meritorious defense.

Unknown Speaker: Well suppose that the judgment is open? What then happens is there any further proceeding?

Mr. David A. Scholl: Yes, then there is a hearing on the merits, if the judgment is open --

Unknown Speaker: But what is the hearing on the merits? Is that involved with jury trial?

Mr. David A. Scholl: Well, then you could obtain a jury trial after the judgment is open.

Unknown Speaker: And going back to the hypothetical, I suggest.

At that point would he have a jury determination on his defense of breach of warranty?

Mr. David A. Scholl: Yes, he could have a jury determination after the judgment is open but the problem with the Pennsylvania procedure is that he must come forward and show that he has a meritorious defense before a judge --

Unknown Speaker: How does he show that?

Mr. David A. Scholl: Well, he presents whatever evidence he can, usually, he has to proceed by depositions, is another aspect of confession-of-judgment is that the burden of proof switches but also that the costs are increased, where the consumer must come forward and present his defenses through a petition to open a strike rather than proceeding in the normal proceeding, answering a complaint.

Unknown Speaker: (Inaudible) merely by affidavit, he has to take that position, is that it?

Mr. David A. Scholl: The new confession rules do provide that he can take testimony.

Unknown Speaker: But supposing he wanted to rely only on affidavits only?

Mr. David A. Scholl: Well, I suppose he could try it.

He could proceed with only affidavits.

But the problem is of course that he would not have a jury trial at that stage, which determines that he actually has a meritorious defense.

Unknown Speaker: As I understand you, all that he gets is that whether his affidavit of deposition was that the judgment is open for the purposes of the hearing?

Mr. David A. Scholl: That is right Your Honor.

Unknown Speaker: And that maybe a hearing at which, there may be a jury trial.

Mr. David A. Scholl: That is right.

Unknown Speaker: Alright!

Mr. David A. Scholl: Now, the court below recognized that in fact, the opening in striking procedure did change the burden of proof and that it did significantly increase the costs that the consumer would ordinarily have in the complaint answer proceeding.

And the court below further declared that confession-of-judgment, at least for the class on whose behalf it held that the action could be maintained did violate due process of law.

Essentially, the Court held that since the consumer did not have any notice nor any opportunity to be heard prior to the entry of judgment that therefore, he was denied Due Process of law.

However, the Court below did make three exceptions from the ruling that the consumers urge below.

The more the consumers urge that the Pennsylvania confession statutes and rules be declared unconstitutional on their face.

The court below instead declared that, yes, it is unconstitutional for a certain group of people but it is not unconstitutional regarding three specific classes of persons.

Now, the first class which should accept it was all persons wherein $10,000.00 or more annually.

Person earning more than $10,000.00 confessed judgment could be entered, executed and serve as the basis for sale against him.

Secondly, it made an exception for all persons who signed mortgages are actually signed confession clauses as their signed bonds and warrants and notes that contain confession-of-judgment clauses which are company mortgages so that in any mortgage transaction, a person could also validly sign a confession-of-judgment that it would serve its execution and sale of his property.

And the third exception at the Court made, the Court said that well, if at a prior hearing and well it did not set down, how the procedure would be carried out.

It could be showed that the consumer voluntarily, knowingly, and intelligently waive his due process rights, then in that case too, the confessed judgment could be entered and served as basis for execution and sale of the consumers property.

Unknown Speaker: Now incidentally, in this instance, you do not have the forms before it, but are these all of the printed forms?

Mr. David A. Scholl: Which forms are you speaking about?

Unknown Speaker: The one that has the clause at the bottom of page 12, the confession-of-judgment clause.

Are they in a printed form that is what I am trying to get at or what are they?

Mr. David A. Scholl: It is not in a separate printed form, what it is, is a, usually, it is one clause in a contract that contains numerous other clauses, as I think probably the best reference point for, Your Honor, would be the exhibits in this case.

Unknown Speaker: We do not have that is why I am asking you.

They are in original record but we do not have it here.

Mr. David A. Scholl: Oh!

Unknown Speaker: We have the original record here.

Mr. David A. Scholl: I think it is here somewhere.

Unknown Speaker: They are not here on the bench.

I cannot see them before me, that is why I am asking the questions.

Mr. David A. Scholl: Yes, well, it is difficult to --

Unknown Speaker: What it takes to spend -- some form of a contract in appliance that he uses, for example is something like that?

Mr. David A. Scholl: Well it is use in practically every contract.

Every contract in Pennsylvania wherein credit is extended in any form, most every contract, retail installment sale contracts, bonds and warranted mortgages, somewhere in there.

Unknown Speaker: Are they printed form?

Mr. David A. Scholl: Yes, they printed form.

In fact --

Unknown Speaker: That is what I am trying to find out.

Mr. David A. Scholl: They are standardized forms.

In fact, some of the exhibits that we have included are simply forms that we got from the local stationery store, and they all contain confession-of-judgment clauses in the body.

Chief Justice Warren E. Burger: Was there a cross-appeal in this case?

Mr. David A. Scholl: No, there was no cross-appeal.

The only party that is appealed are the consumers.

We are appealing that from the decision failing to declare confession-of-judgment unconstitutional on its face.

There has been no cross-appeal.

Unknown Speaker: Who is Lennox?

Is he a state officer?

Mr. David A. Scholl: Lennox is the -- or he was, he is recently been, or I guess he still is officially the Sheriff of Philadelphia County.

Unknown Speaker: Sheriff of Philadelphia.

Mr. David A. Scholl: He is the person who has the duty of executing and selling the property of the consumers.

Unknown Speaker: And Lennox took no cross-appeal?

Mr. David A. Scholl: Lennox took no cross-appeal, that is correct.

Now, I think it is perhaps well to focus on the three exceptions that the Court made and how easily these exceptions might be used as a device of circumvention of the entire fact of the decision below.

For instance, the Court says that in any case, where there is a mortgage and a bond and warrant and note accompanying that mortgage that if the consumers signs that, well, then you can confess judgment against it.

Now, the Court does not restrict however, if the transaction to purchase money mortgage.

Mortgage can in fact, be taken by a creditor in any transaction.

It can be taken in a loan transaction.

A chattel mortgage could be taken in a retail or installment sale transaction.

And in fact, there was much evidence that this is exactly what was happening in Philadelphia County prior to the time that Mr. Justice Brennan issued a stay order which stopped all executions and sales on confessed judgments in Philadelphia County.

The $10,000.00 and over exception has also been circumvented by simply requiring that a borrower filed an affidavit, at the time that he take out a loan or whatever harbor he is retaining credit that he earns $10,000.00 and over a year.

And it is not surprising that the creditor should have the leverage to get the mortgage or to get the affidavit from the consumer.

Because of course, before he was able to get the confession-of-judgment clause, why not just ask the consumer to sign one more paper which in fact, has the same effect.

I think there is also a problem with the other exception that the Court set out, the voluntary knowing and intelligent waiver hearing which is to be held.

The Court below sets no procedure on how this is to take place.

The way they usually were scheduled in Philadelphia County after the decision was by petition and rule to show cause upon the consumer.

Of course, the consumer gets this petition that says, he has to come in and show that he did not knowingly, voluntarily, intelligently waive his rights.

This does not apprise him of actually what the significance of that hearing is going to be.

The consumers never apprised that if it is shown in fact, that he knowingly, voluntarily and intelligently waived his rights that he is not going to have any hearing on the merits of any defenses that he might have.

Also, the Court below focuses in its discussion although, it says knowingly, voluntarily and intelligently on an understanding waiver by the creditor at the time that the contract is signed.

Therefore, we have the anomalous result of somebody who understands the confession-of-judgment clause and perhaps went to a lawyer and asked the lawyer to explain the contract that he is signing before he signed it, he is now accepted from the class.

Because he knows or he understood what confession-of-judgment was at the time that he signed it.

The person who does not know what it is or perhaps is not prudent enough to go to a lawyer, he does not understandingly waive his rights therefore he is protected by the Court’s decision.

Unknown Speaker: (Inaudible) what he is doing right here, right?

Mr. David A. Scholl: Excuse me?

Unknown Speaker: What is unconstitutional about someone who knows what he is doing, waiving his right?

Mr. David A. Scholl: Well, I think that there is a practical problem if somebody showing that somebody actually voluntarily, knowingly, and intelligently waives his rights.

It is like, I will discuss it.

I do not think it is possible but I think one of the problems is --

Unknown Speaker: You mean no one could understand that?

Mr. David A. Scholl: Well, no, what I am focusing on Your Honor is the notice that the consumer gets.

All the consumer gets is notice that he is going to have a hearing and --

Unknown Speaker: Let us assume, we got the kind of a notice that you wanted and understood exactly what kind of a hearing was going to be held, namely that they are going to go into the voluntariness, intelligence of his waiver and that if he waives why he is going to have his judgment against himself.

Let us assume he got all of the notice he wants.

Mr. David A. Scholl: Well, if it can be posited that a person knew exactly what the significance of that hearing was going to be, that would mean, he would not be able to raise any defenses that he might have, or perhaps this exception might make some sense but the Court, as I said in the opinion, when they discussed the waiver hearing speak only of understanding whether the person understood what the clause meant at that time and I think that if we look closer at the Court’s analysis of waiver, we see that the Court did not really focus on the elements of voluntary, knowing, and intelligent in its discussion.

The Court below says, it a matter of fact, -- and I think this is where the Court begins to err in its analysis and I think this is what led it to the exceptions.

It says --

Unknown Speaker: Well, you do not claim there and as I understand that a voluntary, knowing, intelligent waiver is un-acceptable constitutionally to dispense with notice of hearing before a judgment.

Mr. David A. Scholl: Well, yes I do Your Honor.

I do object that assertion and the reason that I object to that assertion is that, in a confession-of-judgment clause, what is in fact, being waived is due process itself.

What somebody is waiving is any notice or opportunity to be heard prior to the judgment.

Unknown Speaker: Well, you say that nobody should be committed constitutionally to waive notice of the entry of judgment.

Mr. David A. Scholl: That is right Your Honor.

Unknown Speaker: Alright.

Mr. David A. Scholl: Although, I think that it is well to focus on the elements of voluntary and intelligence to see whether in fact, there could be a voluntary and intelligent waiver also, it is also our position that even if you could show that there was a voluntary and knowing and intelligent waiver that nevertheless such a waiver simply should not be acceptable to this Court.

Unknown Speaker: Then, I just wanted this.

Mr. David A. Scholl: Thank you.

Chief Justice Warren E. Burger: What you really want is to shift the burden of proof, is it not?

Mr. David A. Scholl: Well, what we want to do is prevent the burden of proof from being shifted ordinarily in an adversary proceeding when one person comes forward and attempts to get the property of another person, he has the burden of showing to the Court by a clear preponderance of the evidence that he is entitled to the other person’s property.

The Pennsylvania due process or confession-of-judgment procedure shifts that burden of proof.

The creditor gets the confessed judgment right in the beginning and the consumer will spend all his time trying to somehow get rid of that judgment that he has against them.

It switches around the entire adversary proceeding and the only way that he can do this is by coming in and showing to the Court in a petition to open or strike that in fact, he by a clear preponderance, the evidence has a meritorious defense.

Unknown Speaker: Mr. Scholl, if you prevail here, do you raise any question as to the validity of closed and past transactions in Pennsylvania.

In other words, I would like a comment from you on the retrospectivity feature, if you should prevail?

Mr. David A. Scholl: Well, I think that is a very difficult question Your Honor and I think it is so difficult that the consumers do not want to urge for anything that is unreasonable.

I do not think, for instance, that we would urge that any judgments that have been entered by expunge or we would not urge that, in any case.

I think that what we would urge is that there be, that there be no more execution in sales on even the judgments that have been entered in the past.

That in the future, there be no more entrance of judgment.

Now, the Land Title Association brief of course raises the issue of retroactivity and I would like to comment on what they say and I think that we actually concur with the Land Title Association’s position which is that any decision on entry should not in any sense be retroactive and that regarding executions in sales that a decision on that be retroactive only since January 26, 1970.

The reason that I choose that date, it is a date that the Land Title Associations indicate that they advise all of their members that they should be careful in the future about insuring titles on confessed judgment.

And I think that was a point at which the hardship factor that may weigh against a fully retroactive decision, sort of changes over and that it is not at that point so important because at that point the Land Title Associations were unnoticed.

That in fact, confession-of-judgment probably or possibly was constitutionally deficient.

I would just like to say a few words about whether the waiver can ever be a voluntary in the confession-of-judgment situation.

I think that perhaps the case before this has highlighted several of actually, the distinctions here. What we are concerned with in this case is a clause that is contained in almost every contract in Pennsylvania and the parties that are negotiating here are not two corporations, they are in fact, the consumer who probably would not even know what confession-of-judgment was.

Much less would be effective it is in a company which uses a standard form and understands of course, perfectly what confession-of-judgment means.

Or the consumer in fact, is put in a position where either has to sign the contract that contains the confession-of-judgment clause or he has to do without credit.

He is put in the situation almost the classic, adhesion contract situation, and --

Unknown Speaker: You are suggesting that the statute might be alright as between corporations and understanding people?

But not with respect with consumer?

Mr. David A. Scholl: Well, what I am suggesting is that there is not a voluntary waiver of the Due Process rights for the consumers.

It may be valid.

There may be a voluntary waiver for some corporations although in Pennsylvania --

Unknown Speaker: In fact, it really is not, you are suggesting that (Inaudible).

Mr. David A. Scholl: Well, I think that we are because there is certainly nothing in the statute that distinguishes persons who voluntarily waive their rights or corporations from individuals.

I think that the statute as it is drawn affects all persons and I think that the Court, the Lower Court could only have come to the conclusion, well, it is alright for corporation but it is not alright for individuals if it could have found that the statute was in fact severable and if the legislature would have intended to retain a statute that said well, a confession-of-judgment is alright for corporations but it is not alright for consumers.

Unknown Speaker: Well, does the judgment below apply to the corporation under (Inaudible)?

Mr. David A. Scholl: No.

In fact, we --

Unknown Speaker: Only the individuals, do you say?

Mr. David A. Scholl: It just applies to individual.

Unknown Speaker: Earning under that -- the Court suggests -- what was the basis of the $10,000.00?

Mr. David A. Scholl: I think the basis was that we did not present to the Court any consumers that earned over $10,000.00 and they felt that we had failed to meet our burden of proof on that issue.

They also had suggested another argument, they say that well maybe these poor people could not adequately represent the people that earn over $10,000.00 because those people might want to retain confession of judgment because now the confession is gone, it might be harder to get credit.

Well, I think that there is a problem with that reasoning and the problem is that the person that is earning over $10,000.00 as an income which is security prohibited.

Unknown Speaker: Is it your suggestion that anyone who earns $10,000.00 or under has necessary purpose.

Mr. David A. Scholl: Well, that is true too.

There is no determination made as to whether --

Unknown Speaker: It is just that the only proofs you had for the people you are representing were people who earned not more than $10,000.00, is that it?

Mr. David A. Scholl: That is right.

I think where the Court erred in that discussion is assuming that we had to show for every group of income people that in fact, they were in the same boat, so to speak as to the loan.

Unknown Speaker: But under the judgment below, what is the standing of the Pennsylvania statute on its face?

Mr. David A. Scholl: Well, they made no decision on the statute on its face.

The statutes still retained but the Court said it is just as applied to this group of people who earn under $10,000.00 and none more be jurors.

That group of people is now going to be protected from confessed judgments being entered and executed and --

Unknown Speaker: Then what is your quarrel?

What it is?

Mr. David A. Scholl: Well --

Unknown Speaker: You do not represent anybody that makes more than $10,000?

Mr. David A. Scholl: Our quarrel is that, we do not feel that there is any distinction between persons that earn over $10,000 and those that are not.

In fact, had the Court --

Unknown Speaker: That may be another case.

You do not represent -- nobody here in that category, is there?

Mr. David A. Scholl: Well, one of the named plaintiffs, I think does earn over $10,000.00 --

Unknown Speaker: That answers to Justice Brennan?

Mr. David A. Scholl: No, I believe there is one person that is appealing that earns over $10,000,00 but I will concede that perhaps, that is another case but I do not think that what the court should do is built in, in its decisions other cases.

Unknown Speaker: Well, in any event, I gather that anyone earning under $10,000.00 is subject to this waiver in face of this?

Mr. David A. Scholl: Yes.

A person can still be extracted --

Unknown Speaker: So none of the people you represent has any protection unless, he can leave that hurdle, is that right?

Mr. David A. Scholl: That is right, as the hearing would not even come up unless the person earns under $10,000.00.

Unknown Speaker: But as I get it.

The person earning under $10,000.00 has no protection.

If in fact, it is establish that he waive these?

Mr. David A. Scholl: That is right.

Unknown Speaker: Is that right?

Mr. David A. Scholl: That is right.

Unknown Speaker: That your understanding and intelligent, voluntarily or --

Mr. David A. Scholl: Right.

That hearing takes place and --

Unknown Speaker: Before whom does the hearing take place?

Mr. David A. Scholl: Well, the Court does not say that, how that hearing used to take place; the way it has been taking place is by petition and rule in Philadelphia County which I do not think is an adequate substitute.

Unknown Speaker: But if the creditor who wants his judgment as the person who earns under less than $10,000.00 is the one who has to initiate?

Initiate it.

Mr. David A. Scholl: He has to do something to have that hearing.

Unknown Speaker: Before he can go forward on his judgment.

Mr. David A. Scholl: That is right.

Unknown Speaker: I thought that satisfied you from your previous argument?

Mr. David A. Scholl: No, in fact, in answer to Mr. Justice’s White particularly on that point, we would urge that in fact, what is in question here is a waiver of the entirety of Due Process.

It is a waiver of any notice and opportunity to be heard prior to the entry of judgment and prior to something which can lead to the taking away of a person’s property on that such a waiver is simply invalid on its face because it is a waiver of Due Process and that is something that this Court simply cannot permit to take place under our form of government.

Unknown Speaker: You mean no matter how intelligent and voluntary, but not it is?

Mr. David A. Scholl: That is right.

Chief Justice Warren E. Burger: Your time is up Mr. Scholl but if you would just answer one question for me.

Where did the -- briefly if you will. Where did the Court of Appeals get the $10,000.00 figure?

Mr. David A. Scholl: It seems that where they got it was from one piece of evidence that we introduced a study taken by Dr. David Caplovitz of the Columbia University Bureau of Applied Social Research in New York.

David Caplovitz had studied the attitudes of persons who he termed default debtors, in a study taken in several cities, one of which was Philadelphia.

And one of the findings that Dr. Caplovitz made was a demography of the persons that he had studied and he found that only 4% of these persons earned over $10,000.00 annually.

Now, I think initially that the reason that this finding came about was because of the way he conducted a study and I do not think it indicates anything differently about persons under, earning $10,000.00.

Chief Justice Warren E. Burger: Thank you that answers my question.

Counsel Patterson.

Argument of Philip C. Patterson

Mr. Philip C. Patterson: Thank you Your Honor.

I represent the Middle Atlantic Finance Association and 15 members of companies, who were the intervening defendants in this action.

And in view of shortness of my time because Mr. Matz here will take 10 minutes after me, I will not ask for rebuttal.

Now, the first question that I would like to cover is the question of whether or not a deferred hearing following judgment violates Due Process when every opportunity is given to the defendant to present every defense he has and the main contentions that are presented by the plaintiffs in that regard are not that there is anything inherently wrongful with having a deferred hearing of this sort.

But they are contending that it is permissible only when there are some overriding governmental interests.

And I would merely like to point out that the cases decided by this Court on that subject, rebut that argument because for example that the Coffin case which is cited in our briefs, which was a suit by the liquidator of an insolvent bank against its stockholders is certainly not a suit on behalf of the government, it is just an ordinary lawsuit between a bank and stockholders, and that case specifically held that even though execution was an assessment, which is like a judgment and also an execution were issued before any hearing has been held and even though a lien was acquired upon the stockholders stock.

Nevertheless, because the stockholder had a procedural opportunity under the Georgia procedure to present all defenses, because he get on the hearing before he was actually deprived of that property that that complied with Due Process.

There are many other cases to that affect.

For example, there is one case not cited in the briefs, Bank of Colombia versus Oakley decided in 1890 and 17 United States 233.

Now, that case held likewise and there also there was a lien and I will not burden Your Honors with the description either accept the state that there was a statute that provided that anytime a note was payable at the bank, the bank could go ahead and issue execution and acquire a lien and but then there would still be a right to a hearing afterwards.

Unknown Speaker: There is no cross-appeal here, is it?

Mr. Philip C. Patterson: There is no cross-appeal however --

Unknown Speaker: In the Court below as I understand it, that held that there has not been a legal waiver on the part of any of these people.

Mr. Philip C. Patterson: That is correct Your Honor.

Unknown Speaker: Is that right?

Mr. Philip C. Patterson: That is correct.

Unknown Speaker: So, where is your case of controversy here?

Mr. Philip C. Patterson: The controversy is as follows, the Court below found made a finding of unconstitutionality only as to loans by our clients to consumers with incomes of $10,000.00 or under --

Unknown Speaker: But there is nobody here over $10,000.00 and there is no cross appeal?

Mr. Philip C. Patterson: The plaintiffs here are appealing and asking the Court to extend this decision to people with income over $10,000.00.

Unknown Speaker: That does not make it necessarily a case of controversy.

Mr. Philip C. Patterson: Well, because the plaintiffs are trying to, plainly represent people and consumers with incomes over $10,000.00 and because we represent lenders, who are lending money to people with over $10,000.00 it is our position that we are entitled to argue all constitutional questions for that reason and that is another point.

Unknown Speaker: Including that the Court was wrong on people under $10,000.00?

Mr. Philip C. Patterson: Except well, including that the principles that were laid down by the Court with respect to people under $10,000.00 are wrong as applied to people with incomes over $10,000.00 and one other point is and that is that this question of waiver has been thrown in to the case somewhat belatedly by the plaintiffs, if you look at the jurisdictional statements, that did not mention that, they just, mentioned that $10,000.00 matter and the mortgage matter but, we are perfectly willing to exceed to that certain expansion.

Now the main --

Unknown Speaker: May I, I just do not understand this.

If you were to prevail people over $10,000.00, that is you are having been brought here by the other side who prevailed as the people who get earning under $10,000.00, are you suggesting that what we have to do is reverse this judgment, if they won below even if they are the appellants?

And you did not cross-appeal?

Mr. Philip C. Patterson: That Your Honor is a very difficult question.

I think the present.

The important thing that is going to come out of this case is the precedent that will apply to the future and in applying --

Chief Justice Warren E. Burger: As to which class?

The over 10 or under 10?

Mr. Philip C. Patterson: The over 10.

Chief Justice Warren E. Burger: Should not we have had some opportunity to reach that question better than we have now.

Mr. Philip C. Patterson: We have stated in all of our papers in this Court and even in our motion to dismiss, we made a plan that were arguing all constitutional matters, because of the fact that this appeal has been made as to the people with over $10,000.00 and the precedent that is laid down on loan to consumers over $10,000.00 will as a practical matter govern all transactions, even under 10.

Justice Thurgood Marshall: Do you want an (Inaudible) opinion?

Mr. Philip C. Patterson: No, Your Honor, because there is a case in controversy as to consumers with incomes of over than $10,000.00.

Justice Thurgood Marshall: And who is presenting that point?

Mr. Philip C. Patterson: We are presenting that point (Voice overlap)

Unknown Speaker: The appellees bring it up.

Mr. Philip C. Patterson: They have brought it up and we are controverting their arguments.

Unknown Speaker: But by not taking a cross-appeal, does it not follow that you are not quarreling with that part of the, with the three-judge Court's decision that held this Pennsylvania procedure, constitutionally invalid?

Mr. Philip C. Patterson: Well, actually we do.

Unknown Speaker: That people under $10,000.00 except, except when secured by mortgages or except when it could be shown that they did this knowingly and intelligently?

Do you have problem with that?

Mr. Philip C. Patterson: But the matter is what happened and we quarreled with it lately, but what happened is the fact that our clients ran out of money and advised us that they could not afford to pay for an appeal --

Unknown Speaker: All your clients run out of money?

Mr. Philip C. Patterson: We wrote and asked to withdraw at least so stated.

We wrote and asked to withdraw that the Court wrote and stated that we could withdraw.

Justice Thurgood Marshall: (Inaudible) money from the Pennsylvania's same loan league?

Mr. Philip C. Patterson: Your Honor, if we have, if we had realized that we were going to stay in the case, we would have filed an appeal.

It is very unfortunate we did not, but, luckily we can still as I see it raise all these questions as far as the loans by our clients to consumers with incomes over $10,000.00 and Mr. Matz here can certainly raise as far as mortgage loans to creditors.

Unknown Speaker: (Inaudible)

Mr. Philip C. Patterson: May I continue, Your Honor?

Unknown Speaker: (Inaudible)

Mr. Philip C. Patterson: Now, the most important controversy that appears between ourselves and the plaintiffs is the plaintiff's contention that the burden of proof changed, that the expense changed, and that the notice was not sufficient as between proceedings to open a confessed judgment on the one hand in an assumpsit actions brought on summons and complaint.

That is absolutely not correct, first of all as far as the burden of proof is concerned, what the plaintiffs has done is to quote to the Court language from the Pennsylvania Supreme Court that applies to cases that do not involve promissory notes, they have nothing to do with this case because this case involves entirely judgments entered in promissory notes and mortgage bonds that Mr. Matz will handle.

Now, the Uniform Commercial Code which we have sought in our briefs, Section 33071.

Unknown Speaker: It has been adopted since the?

Mr. Philip C. Patterson: That is correct Your Honor.

Section 330721 states that the moment, a note is put in –-

Unknown Speaker: (Inaudible)

Mr. Philip C. Patterson: As to all defenses other than that of forgery, the burden of going forward with the others and the burden of proof is on the defendant in assumpsit action.

And that of course, it is the same way on the petition to open.

The official comment makes it plain and this is not just a matter of the burden of going forward in the evidence.

The comment makes it plain that this is matter of a burden of proof, then on top of that, the cases have held the Uniform Commercial Code makes it plain that Section 33071, that as to forgery the burden of proof is on the plaintiff in an assumpsit action as a presumption of genuineness at the moment, some evidence is put in as to forgery then the plaintiff has the burden of proof, then there is defense Yank versus Isenberg which is cited in the briefs and that case specifically held that in a confession proceeding, the plaintiff not the defendant has the burden to proof as to forgery, so, there is not one difference in burden of proof between a confession case and an assumpsit case.

That is the first point.

Now, the second point is that as to the expense factor, there is not one shred of evidence in the record to the effect that the overall expense of assumpsit action is any less than the overall expense of a proceeding to open judgment.

There are no studies, no surveys, no overall, no comparisons of overall figures.

I need say no more than that.

Chief Justice Warren E. Burger: Mr. Patterson, if you are out of reserve using only 10 minutes, I think you are now beginning to impinge on Mr. Matz's time.

Are you taking 20 or 10 for yourself?

Mr. Philip C. Patterson: I am taking 20.

Chief Justice Warren E. Burger: Oh 20, excuse me I thought it was the reverse.

Mr. Philip C. Patterson: Oh I see! Mr. Matz will take 10.

Now, then on the question of notice, the question of notice is thoroughly examined in the rules.

It is a very technical matter and at least 20 days and generally many more days between the notice of entry of judgment and the notice of execution in the time when the time, the sale can be scheduled.

In the case of an assumpsit action, there are 20 days until a default judgment can be entered and then on the very day or next day, execution can issue --so, there really is any difference of burden there.

Unknown Speaker: What answer -- the procedure now when a judgment is then entered by confession, a notice goes to the --

Mr. Philip C. Patterson: The Pennsylvania rule say that within 20 days after the notice is entered by confession, a notice of the entry of the judgment and also a notice of execution, when execution is issued have to be sent to the debtor.

Unknown Speaker: Well, what I am trying to get at is, the debtor gets that notice, how many days before his property may be put for sale?

Mr. Philip C. Patterson: Well, first of all, sale, the next step is that the notice of execution has to issue.

Unknown Speaker: That issue is when?

Mr. Philip C. Patterson: That can issue anytime within 20 days.

Unknown Speaker: Well, can it issue simultaneously with the notice to the debtor?

Mr. Philip C. Patterson: It is my understanding that it can, if it does not issue with in 20 days then it can still issue but after that --

Unknown Speaker: Well, how soon may the property be put up for sale from the date of the sending of the notice of the entry of the judgment?

Mr. Philip C. Patterson: Well, in no event can it be put up, more sooner than 20 days after the sending of the notice of the execution.

The next point is --

Unknown Speaker: But if that goes on to the day that the judgment has entered that it had 20 days from the entry of the judgment --

Mr. Philip C. Patterson: Yes, but there are further restrictions, another restriction is that sales only takes place once a month.

So, it is a very rare case.

Unknown Speaker: Does differ by county and states?

Mr. Philip C. Patterson: Well, Philadelphia County, I understand that it takes place once a month.

I do not know about the other counties.

Then the second point is, that Pennsylvania rule say that, when it is real estate, there has to be advertising, weekly advertising for three successive weeks and it has to be first -- and it has to be at least 21 days before the sale, and in case of personally, personally it is six days.

So, with all these, all these --

Unknown Speaker: These executions are out of Court, they are not judicial foreclosures?

Mr. Philip C. Patterson: These are rather Court.

Unknown Speaker: In to your notice of execution in the case of personally what do you do?

Do you give the (Inaudible) of execution to a sheriff and he goes to seize the properties or what?

Mr. Philip C. Patterson: That is correct Your Honor.

Unknown Speaker: Then it is sold without any further Court Order or anything?

Mr. Philip C. Patterson: That is correct Your Honor.

Unknown Speaker: And, what tweaks the notice of execution with respect to personally?

There is at least 20 days before the sale?

Mr. Philip C. Patterson: Their hand bills have to be posted and they schedule, the timetable is a little shorter there and hand bills have to be posted and they have to be posted at least six days ahead of time, in several days --

Unknown Speaker: What I intend to notice is the execution to the debt, until then you cannot cease the property at least.

Mr. Philip C. Patterson: It cannot be ceased for 20 more days, but, then after that --

Unknown Speaker: Alright, alright.

But you sent in the notice of execution.

He has 20 days before the property can be seized by the sheriff?

Mr. Philip C. Patterson: Before it can be sold.

Unknown Speaker: What about the seizure?

Mr. Philip C. Patterson: I am not certain about that Your Honor.

I will ask Mr. Matz to cover that point.

Unknown Speaker: Well, if we are talking about personal property and un-mortgaged personal property and you simply get a lien on it by having a debt, is that right?

Mr. Philip C. Patterson: You do not get a lien on personal property by having the judgment, there is some very misleading, in fact (Voice overlap)

Unknown Speaker: Alright, alright well then you do not get a lien but you have the right to seize it and sale it, is that right?

Mr. Philip C. Patterson: You can not sale until you seize it.

Unknown Speaker: That is right and how soon could you seize it after you get notice of execution?

Mr. Philip C. Patterson: Well, you cannot sell it until 20 days, I do not want to know --

Unknown Speaker: 20 days, I want to sell it.

Mr. Philip C. Patterson: Yes, I do not know whether you can seize it before 20 days or not.

Unknown Speaker: But now, there is a motion meanwhile within the 20 days made to strike the judgment, what happens to all these procedures and execution and sale?

Mr. Philip C. Patterson: Well then, also it is customary to ask for stay and the Pennsylvania Rule state, they authorized the court to grant a staid and execution.

Unknown Speaker: But it is not automatically staid?

Mr. Philip C. Patterson: It is not automatically staid--

Unknown Speaker: Well, I know but it is not automatically staid --

Mr. Philip C. Patterson: No.

Unknown Speaker: It is possible then notwithstanding there is a pending motion to strike the judgment, it is possible I gather, if Court does not grant a staid, whatever reason it denies it, that the property may be sold in execution?

Mr. Philip C. Patterson: Well, as possible as it might be consistently with the fact that the states are always granted.

Unknown Speaker: Well, one other thing though, I take it none of this happens if you proceed in assumpsit, if the creditor proceeds simply in assumpsit under debt against the debtor then there has to be notice in defense and trial and everything else, and his judgment is never or his property is never imperiled until after a judgment following a jury trial or something they can do it, is that right?

Mr. Philip C. Patterson: Well, Your Honor.

Yes except if assuming, in 99 instances out of the hundred on these promissory notes, there is no defense and so if an honest answer is filed, then an immediate judgment would be taken other than out of a defaulter.

Unknown Speaker: Well, well I appreciate that but nevertheless; until he had notice, an opportunity to define no judgment entered upon which it can be executed.

Mr. Philip C. Patterson: Yes, Your Honor.

Unknown Speaker: That is the difference between the confession that occurs and the confession though than the ordinary --

Mr. Philip C. Patterson: Well, well that is correct Your Honor.

Unknown Speaker: Mr. Patterson, is the duty of the Attorney General of the Pennsylvania to defend the constitutionality of the law that acted by the legislature of that state?

Mr. Philip C. Patterson: It was always my understanding that it was and the Commonwealth of Pennsylvania through the Attorney General appeared and did defend the constitutionally of this law in the proceedings below.

Unknown Speaker: But here they take a dice so to speak?

Mr. Philip C. Patterson: Then there was a change of administration and (Voice overlap)

Unknown Speaker: They joined the appellants and say that the Court, that the only error in the Court to say the decision was that it did not go that far enough in holding this law unconstitutional --

Mr. Philip C. Patterson: Two attorneys Your Honor who were actually counsel of record for the plaintiffs happen to go up to the Attorney General’s office and then immediately after that pleading start coming down with their names corresponds with their names and since then they have been more discreet and I have used other names and that is the situation --

Unknown Speaker: But we do not have an adversary proceeding here in this Court, do we?

There was no cross-appeal, there is nobody here asserting that the District Court was wrong in going so far as it did, is it correct?

Mr. Philip C. Patterson: We are asserting that the District Court’s decision was -- first of all we are defending the District Court’s decision insofar as an attack is being made on the proposition that a knowing intelligent and understanding waiver is invalid.

Unknown Speaker: That is as far as you have been told though, there having been no cross-appeal, all you can do is defend the District Court’s decision which held prothonotary, these laws constitutionally invalid?

Mr. Philip C. Patterson: Well, it is our contentions that since the plaintiffs are trying to extend the judgment of the Court below too, all consumer to all loans by our clients to consumers with incomes over $10,000.00 that insofar as we are representing our clients as to that aspect of the case that we can, we can go in all questions of constitutionality.

The next point that I would like to make --

Chief Justice Warren E. Burger: You are covering the microphone counsel.

Mr. Philip C. Patterson: Oh I am sorry.

That next part of that I would like to make is the fact that the plaintiffs contend that the inadequate notice --

Chief Justice Warren E. Burger: I think we will recess for lunch and your time is up Mr. Patterson.

Mr. Matz, you may proceed whenever you are ready, you have 10 minutes.

Argument of William L. Matz

Mr. William L. Matz: Mr. Chief Justice and may it please the Court.

I appear here on behalf of the Pennsylvania Savings and Loan League which is an organization of Savings and Loans in Pennsylvania all of which are mutual trust institutions.

They lend their money for the purpose of purchasing homes by their members and they appear in a different guise as amicus curiae below for the Insured Savings and Loan Group of the Philadelphia area and in that position, we presented the position of the mortgagee.

And we are appearing here again to present the position of the mortgagee, the person who takes a bonded mortgage to secure a loan for the purchase of real estate.

Rebuttal of Philip C. Patterson

Mr. Philip C. Patterson: You will assume, indicate why the three-judge court accepted that?

Rebuttal of William L. Matz

Mr. William L. Matz: I hope to sir, yes.

Unknown Speaker: They did not say anything --

Mr. William L. Matz: They did sir, it is in the opinion.

Unknown Speaker: Is that enough?

Mr. William L. Matz: No, I intend to go further sir.

I hope.

First, I should like to make it clear that the matter before this Court is an interpretation of the rules of the Pennsylvania Supreme Court promulgated on the provisions in the constitution and that is the issue here, not in the statute.

The Court below exempted bonds and mortgages in real estate transactions and I think for the following reasons.

First and foremost, the plaintiff offered no evidence whatsoever dealing with bonds and mortgages.

There was not one bit of evidence in the record by the plaintiff or by anyone which indicated that in any way bonds and mortgages were in the same category as the defendants they had named in the action which were a group of finance companies.

Now, if Your Honor will read the complaint, you will find that the entire direction of the complaint is to the conduct of certain finance companies.

Chief Justice Warren E. Burger: What is the difference as a matter of legal doctrine laying aside the question of parties?

Mr. William L. Matz: The Court below made that distinction, that there was no evidence and the Court said in determining the class to be covered by this action, only those persons against whom there were evidence should be included in the class unless there were some good reason for including them which was not given and this Court said, the plaintiff had given no evidence with reference to this and indicated that no reason why the mortgage bond class should be included in the class.

Now, in my --

Unknown Speaker: (Inaudible)

Mr. William L. Matz: Sorry?

Unknown Speaker: You are not main defendants nor any of your --

Mr. William L. Matz: No sir.

Unknown Speaker: And you were in as amicus?

Mr. William L. Matz: That is correct sir.

Unknown Speaker: And amicus here?

Mr. William L. Matz: That is correct sir.

That is correct.

I should like to point out -- the difference between a mortgage bond transaction and a financing transaction for a small loan company, for one, the mortgage bond transaction arises out of the purchase of a home.

Secondly, it has been established below that in almost every case where a home was purchase, the purchaser was represented by either an attorney or by a license realtor, so, the purchaser did have representation at the time of closing.

Thirdly, at the time of closing the purchaser receives a statement on the regulations, under the Truth in Lending Act, which clearly indicates to the purchaser at that time that he is executed a document which has within it a confession of judgment.

Fourthly, the mortgage, the lending institutions that we represent have nothing to do with the sale of real estate or any other product, they only have one purpose to lend money for the purchase of homes and therefore, they are not involved in questions of breach of warranty or anything like that.

They only lend money to members of the association for the purpose of buying a home.

Now, with reference to the actual foreclosure procedures, which I think was talked about before, when a foreclosure proceeding is begun on real estate, the bond is entered a record that is not really a new lien, because that bond is part of the same transaction for which a mortgage was executed and which is already a lien on the property and has been a lien on the property from the moment the loan was made.

So, that the entry of a bond creates no new obligation by the borrower it is merely a different procedure for executing against the real estate there are no two obligations, there is only one and it is the same obligation whether it is a bond or the mortgage payment of one discharge or the other.

When the sheriff --

Unknown Speaker: I take that it has been foreclosed without it. You do not need this provision to foreclose it?

Mr. William L. Matz: The bond provision?

Unknown Speaker: Yes. (Voice Overlap)

Mr. William L. Matz: We could foreclose on the mortgage but that would be a wrong proceeding, you would have several defects sir.

For one thing it is more expensive.

For another thing it takes much longer to do.

Thirdly, in today’s market with real estate dropping a hiatus of several months in foreclosure can be very serious in the position of the lender.

And as I pointed out this is purely a procedural question, whether we proceed on the bond or we proceed on the mortgage.

We think it is better for the lender to proceed on the bond.

We think it is better for the borrower too because if we have a market where we can realize on our security more quickly, we could lend a larger margin under this lower interest rate.

Now, we pointed out below, that the Philadelphia area has the lowest mortgage interest rate in the United States and I am not saying here that this is the only reason but I am certainly saying this is one of the reasons.

Unknown Speaker: But only bond foreclosure you do it outside the Court?

Mr. William L. Matz: All foreclosures are done outside the Court Your Honor whether it is in a bond or on the mortgage.

Unknown Speaker: On the mortgage?

Mr. William L. Matz: That is correct.

And do not have to appear in Court unless an answer was actually was filed, right?

Unknown Speaker: That is correct.

Mr. William L. Matz: Now, I wanted to point out that on a petition to open judgments, our experience has been that the Court invariably grants that petition, one of this file, for even the most flimsy of reasons and that petition carries with it a stay of proceedings, so, that if a defendant who has at least 20 days --

Unknown Speaker: But not right.

Do they have proceedings of right?

Mr. William L. Matz: I have never seen one that did not carry it sir.

I do not think that the right, the rules state specifically but, I have never in my practice seen a petition to open judgment allowed without the stay of proceedings, and I have never seen one refused.

Unknown Speaker: The stay is granted pending determination on whether the judgment will be reopen?

Mr. William L. Matz: That is correct sir.

Unknown Speaker: But the reopening is not a formality?

Mr. William L. Matz: The opening is not automatic sir.

Unknown Speaker: (Inaudible)

Mr. William L. Matz: No, but the burden of proof on that is exactly the same as if it would have not been in complaint in assumpsit, there is no difference, exactly the same.

The defendant on an execution on a real estate gets at least 20 days notice of the sale and usually considerably more.

The minimum time he receives is 20 days which is exactly the same time that a defendant in a suit on a complaint has to file on that sir.

He has exactly the same time, 20 days in which to do something.

If he does not do it in the 20 or more days he has available, there may be a sale.

During the period from the date of execution to the date of sale there is no interference with the debtor’s right of possession or the use of the property.

He remains a possession, uses it as he did before with no interference in any way in his rights.

Unknown Speaker: Mr. Matz, do you know whether that is the same with personally?

Mr. William L. Matz: That may or may not be sir. It depends on the circumstances, if the sheriff merely makes a levy it is the same.

If the sheriff is directed to take the personally, under custody it may be different.

This would depend on a particular levy in that particular case.

In real estate it is certainly so.

Now, I pointed out before that the matter before this Court was a construction of the rules of our Supreme Court and I should like to point out that at no time has our Supreme Court been asked to rule on the validity of the same rules which it has promoted and it might be advisable to refer this back and therefore for our Courts to rule on these matters which have been presently never been ruled upon.

I think, I have tried to point out why the mortgage situation differs in large measure from the finance company situation and from the other situation under these matters which I think induce the Court below to making the exception of the situations where a savings, a loan or other lending institution lends money for the purchase of a home or for improvements to a home and we think this is an entirely different type of case from that one where lending is made for other purposes.

Thank you.

Chief Justice Warren E. Burger: Thank you Mr. Matz.

I think your time is up counsel.

The case is submitted.

Featured:

D. H. Overmyer Co. v. Frick Co. - Oral Argument

Thu, 23 Aug 2012 18:17:21 +0000

Case:

D. H. Overmyer Co. v. Frick Co.

Media File:

69-5_19711109-argument.mp3

Related Transcript:

69-5_19711109-argument

Transcript:

Argument of Russell Morton Brown

Chief Justice Warren E. Burger: -- Overmyer against Frick Company, Mr. Brown, you may proceed whenever you are ready.

Mr. Russell Morton Brown: Thank you.

Mr. Chief Justice and may it please the Court.

This case brings up for consideration a judgment rendered in the Ohio State Court on a promissory note which contained a provision for confession of judgment.

This is the note, commonly known as cognovit note by which the maker of the note agrees that if there is any default in payment of an installment or in the principal of the note, that he appoints any attorney in the state to enter an appearance, waive notice and service of process and confess judgment for the amount demanded.

Appointment of this attorney has been made by the holder of the note, the adverse body to the maker of the note.

In the case that borrower, it appears that the party have a contract whereby the respondent, holder of the note, wants to install a cold storage, a refrigerating plant in very large warehouse and the original contract was for some $230,000.00 for $223,000.00.

The payment of $94,000.00 was made and a note in the amount of $130,000.00 was executed to cover the balance.

This was to be paid in monthly payments of some 16 months and it contained this provision that we are considering here, the cognovit provision, that is any attorney might be designated by the holder of the note to enter an appearance and confess judgment.

Now --

Unknown Speaker: Contract is made in Ohio, was it?

Mr. Russell Morton Brown: Yes, Your Honor, it was.

Unknown Speaker: And there is no question that the applicable state laws are the Ohio Laws?

Mr. Russell Morton Brown: That would be correct, yes sir.

Now after the installation was completed, the equipment was put in operation.

It was to be automatically controlled to produce a temperature or 10 degrees below zero and it functioned for a little while and then died of heart failure.

The warehouse company lost some ice cream and very nearly lost a large quantity of turkeys, but they were salvaged and they called on the supplier to remedy the defect and they tried, it was unsuccessful and they had to maintain a staff of people to watch the machinery and keep it going and keep it controlled.

And so the purchaser notified them that he would not make payment unless they could put in good order and refused to go forward with the scheduled payments.

And when that happened, they proceeded to take judgment, the attorney who confessed judgment for the defendant, the petitioner here, was completely unknown to the defendant, never communicated with the defendant, was obviously selected by the holder of the note and paid by the holder of the note and he simply entered an appearance and confessed judgment waiving notice and service.

Then under Ohio procedure, notice was given, that there is a judgment against you and the defendant engaged counsel in an attempt to set it aside.

They filed a motion for new trial, filed a motion to stay execution and a motion to vacate the judgment.

Setting forth that it was ended without notice and that they wanted a trial and tendered as sworn answer showing the difficulties with the equipment and the problems that had risen and also attached a course action which alleged to claims in excess of the amount demanded on the note as damages due to the malfunctioning of the equipment.

The trial court declined to entertain the course action and simply affirmed the judgment and refused to --

Justice Potter Stewart: Could the Court do that without any hearing at all?

Mr. Russell Morton Brown: Yes, Your Honor.

There was some discussion as to whether it should or should not, but it did not go into the merits.

Justice Potter Stewart: There was little oral argument but no --

Mr. Russell Morton Brown: Yes.

No witnesses.

No, nothing of that kind.

Thereafter, an appeal was taken to Court of Appeals and the constitutional question was set forth.

The Court of Appeals simply said, this is a matter of discretion and it would not be offset.

They then asked the Ohio Supreme Court to review the matter on constitutional grounds, Federal and State and the Ohio Supreme Court on its own motion dismissed the appeal saying that there is no constitutional question involved.

We then filed this petition for certiorari and the Court granted it.

Now, we say there are three objections here really.

First and foremost and most important is the question of in personam jurisdiction and I have to dredge up from our law school days the case of Pennoyer against Neff in which this Court very clearly set forth the rule that unless there is jurisdiction in personam there can be no judgment in personam and there certainly was no jurisdiction here.

In the first place, it has established that in personam of jurisdiction was rest upon service of process within the jurisdiction or a voluntary appearance and submission to the Court.

Now, there is no argument that service was made in this case because it was expressly waived, but they rest the entire judgment on appearance by this attorney who was unknown to the defendant, who was selected by the advisory and paid by him for the sole and only purpose of coming into Court and confessing judgment.

It might be different, if he communicated with the defendant and said if you got any defense, you got any case, the right thing you want me to do.

He did not do anything.

He just confessed the judgment and that was all.

Now, we take it as a fundamental that a lawyer who owes an obligation to a client to represent his interests, that he cannot go in there and throw his client into the hands of the other side without even communicating.

For example, I can conceive of a situation where there is note and I am not saying that happens in this case, the note might be signed by somebody other than the person whose name is on there or it might have been signed under circumstances that he might validly object to.

For example, there might some misrepresentation of fraud in the inducement and inducing him to sign.

Chief Justice Warren E. Burger: That would be subject to collateral attack, would it not?

Mr. Russell Morton Brown: It possibly would, Your Honor, but in Ohio you have a judgment against you.

You have lien on all the real estate and in Ohio, the statute and the case law and we noted it in our brief here and the statute is set forth, the burden of proof is on the person who moves to set it aside, that is upon the defendant and he must show that he has a valid defense.

That is what the statute says.

In other words, there is a shifting of the burden of proof from the plaintiff to the defendant to overcome this, whereas as a matter of fact, if the case were tried in good order and in accordance with usual standards, the burden of proof would rest upon the plaintiff to make out his case.

In this kind of situation he might not be able to make out a case, but for the promissory note with the cognovit provision.

At any rate it is clear, that this confession or this appearance by this attorney should not be permitted to stand and we have referred in the brief to Canon 6 of the American Bar Association which we have set out verbatim and which says, in so many words that an attorney owes the kind of obligation to his client to disclose any conflict of interest, to disclose any possible basis upon which the client might object to his representation.

He owes single-minded loyalty to his client and the Canon even says that it is unprofessional for an attorney to accept an obligation where he may be obligated to carry water on both shoulders.

It is his duty to contend for that, it is his duty to contend for that which duty to another client requires him to oppose.

Clearly that happened in this case.

The lawyer who was engaged by the plaintiff below, the respondent here has only an obligation to the advisory of his client.

And he goes into Court only for the purpose of throwing his client to the wolves, not for the purpose of representing him, but for the purpose of betraying him.

Now, that is strong language, but that is the obvious and inevitable construction that must be placed upon his undertaking.

He goes in there only to confess judgment against his client and I cannot get by the fact that he does so without ever talking to his client.

Chief Justice Warren E. Burger: Would you think the situation is different Mr. Brown if the debtor had designated a trustee just distinguished for he might be lawyer or might not be a lawyer, trustee as is done under the practice of trust notes in real estate transactions often –-

Mr. Russell Morton Brown: In that event Your Honor --

Chief Justice Warren E. Burger: Is there any difference?

Mr. Russell Morton Brown: I beg your pardon?

Chief Justice Warren E. Burger: Would you think that would be different?

Mr. Russell Morton Brown: I would think it would be materially different on the facts because the trustee under a trust note is held as I understand Your Honor to represent both parties.

He is not a partisan.

He can never take action against the maker of the trust note.

Chief Justice Warren E. Burger: But he can confess judgment?

Mr. Russell Morton Brown: Ordinarily Your Honor, I am not familiar with the situation where the trustee is authorized to do more than all of the property in trust and that the request of the debtor offer it for sale.

Chief Justice Warren E. Burger: But I suppose it varies from state to state, but in some places he has the -- he has given a power of Attorney to confess judgment in the event of his own independent determination of the default?

Mr. Russell Morton Brown: If that should happen, Your Honor and assuming the fact as you state them I would say, Mr. Chief Justice that he is under an obligation certainly to give notice to the debtor of what he proposes to do and what is being done and give the debtor an opportunity to be heard before his rights are concluded and represented in the judgment.

In that event, Your Honor, though the trustee is really not engaging to be Attorney for one of the parties, but presumably to represent both parties to the trust transaction.

We have that in the District of Columbia as a general practice, as I am sure, Your Honor is well aware and the trustee commonly says that disinterested third party holding the note for the benefit of both parties and with an obligation to advertise or give notice upon a default.

Chief Justice Warren E. Burger: It is always I suppose invariably, is it true selected by the creditor?

Mr. Russell Morton Brown: That is almost always the case, yes Your Honor.

But his obligation has been held by the Courts to run to both parties to the trust transaction.

At any rate, it is our conclusion that because there was no service of process and there was no voluntary appearance by an attorney in the sense in which we members of the bar would like to look upon attorneys as obligated to represent a client truthfully and honorably and fairly, there was no jurisdiction in personam within the meaning of decisions cited in our brief by this Court holding that such jurisdiction in personam is a vital prerequisite to a judgment in personam.

Now, point number two, brings us to this Ohio Statute which authorizes this kind of confession and it is our position that the Ohio Statute is unconstitutional when it is measured against the Due Process Clause of the Fourteenth Amendment.

Justice Byron R. White: When was this context been raised in the state courts?

Mr. Russell Morton Brown: If Your Honor please, Mr. Justice White, this contention of no notice was raises when the --

Justice Byron R. White: I understand that, what about the Federal question raised, has been presented as Federal question?

Mr. Russell Morton Brown: If Your Honor please I would say the first time that due process language was used was in the Court of Appeals and it was raised there then again in the Supreme Court of the State.

Justice Byron R. White: Did the Supreme Court or the Court of Appeals or the Supreme Court deal with this at all?

Mr. Russell Morton Brown: Yes, Your Honor they did.

The Court of Appeals did not specifically treat of it, but it was raised.

They said that the matter of the proceedings in the trial court were a matter of discretion in that they would not set aside the judgment.

When it went to the Supreme Court of the State of Ohio, that Court sua sponte dismissed the appeal saying there is no constitutional, no substantial constitutional question involved.

Now, we have referred to cases and decisions of this Court which required the Court to give notice and an opportunity to be heard.

These are fundamental requisites that have been dealt with by this Court from the beginning of the Republic.

The Fifth Amendment with the Due Process Clause as been in the constitution from the very beginning and the Fourteenth Amendment Due Process Clause is materially different.

We have cited the authorities in our brief and we feel that the Court's decisions speak very well for themselves and for the rule for which we were contending.

There is one point that I need to make here and that is this.

The waiver that we are dealing with here is the waiver that it is embodied in the contract.

It is a waiver, the right to notice and an opportunity to be heard.

And it is a waiver before there is any controversy.

We feel at that is a very, very important and crucial.

We make no point of the fact that a person who served this process can certainly waive it here.

He can waive any rights that he has, but at that point, he knows what a controversy is.

He knows what the consequences will be and he knows what he is doing.

Chief Justice Warren E. Burger: Would it satisfy the due process in your view of this particular case if the creditor had given notice by mail, actual notice that he intended to exercise the powers given under the cognovit note?

Mr. Russell Morton Brown: I believe it would, Your Honor, yes sir.

I think, as I read some of the Court’s decisions that actual notice will measure up to the constitutional provision.

It need not take any particular form.

As long as the individual has a reasonable notice and an opportunity to come in and present his defense that is all that is required, provided of course, Your Honor that the court, the trial court would entertain the defense and of this, I have serious doubts in Ohio because the courts out there are have from the time in memorial given effect to this cognovit provisions and I am inclined to believe that even though the defendant had come in here, the court would hold him to that confession of judgment.

I am not in the position to say that they would because I am not an Ohio Lawyer, but that appears to be the situation, Your Honor.

Justice Thurgood Marshall: Would he not end up with two lawyers?

Mr. Russell Morton Brown: Well --

Justice Thurgood Marshall: One lawyer will confess the judgment and the other lawyer put in the defense?

Mr. Russell Morton Brown: Well, Mr. Justice Marshall --

Justice Thurgood Marshall: How do you get around that?

Mr. Russell Morton Brown: Mr. Justice Marshall, it is my opinion that unless a party to litigation himself engages counsel, that is not his lawyer, so he only would have one lawyer.

He would certainly disown the lawyer selected by the other side.

We have set forth in the brief, cases in which this has happened in the other Courts.

Fortunately, I must confess, very extensive research has not disclosed the great volume of case law in the subject because lawyers are generally very careful not to appear in a case where there is a conflict of interest.

All of our training is to be faithful and the loyal to one client to look out to his interest.

And in the Glasser case which we have cited in the brief, this Court invalidated the conviction because counsel for the petitioner who is one of several defendants also represented other defendants in the case below where there was a possibility of conflict.

They were on the same side, but there was a possibility of conflict in the Court, in very clear language announced the doctrine that there must be no conflict of interest in a lawyer’s undertaking when he appears in Court.

Now that Glasser case is typical of many that we have cited and we have discussed at length.

The cases were, for example, in the Indiana Court a proceeding was brought against a non-resident and appearance was entered by a non-resident employee of the defendant who sent an answer to counsel for the plaintiff in the Indiana and they entered a confession of judgment.

Indiana Court threw it out saying, public policy prohibits this, a matter of serious public policy prohibits a party from representing both sides in the litigation and the defendant in the case cannot be represented by counsel for the plaintiff.

Now, that is exactly what happens in the case at Bar.

There is one more point I would like to touch upon briefly and that is the waiver point.

The other side says, well, he waived his constitutional rights.

It does not seems sensible to say, that when you sign a contract, you equate even the right the performance of the contract and that is what this argument goes to.

In other words, you may waive rights when you know what those rights are.

But --

Justice Byron R. White: But no one suggested that he waived the right to recover for breach of warranty.

All it suggested is that he waived his right to present this as a defense to collection of the note.

No one suggested he could not sue the breach for warranty?

Mr. Russell Morton Brown: That is correct, Mr. Justice White.

The point comes up this way though, if you please sir.

When the defendant is sued on his note, he has a valid defense to the note.

For example, that there was no performance by the other side.

Justice Byron R. White: I understand.

Mr. Russell Morton Brown: And he should not be permitted to recover.

Now, under the Ohio Practice that is under attack here, they go in and get a judgment.

This judgment is subject to immediate execution and it could result in tying up the bank account; it constitutes a lien automatically under Ohio --

Justice Byron R. White: But you do not suggest that he is precluded from filing his own suit for breach of warranty?

Mr. Russell Morton Brown: No sir.

Ohio law --

Justice Byron R. White: And he is in no different position than if there had been a negotiation of the note and a holder in due course sued him?

Do you think he had have a defense for breach of warranty?

Mr. Russell Morton Brown: If the note where in the hands of the holder in of course I am inclined to think the holder it could recover.

Yes, Your Honor.

Justice Byron R. White: Yes, and then he just has to sue for breach of warranty?

Mr. Russell Morton Brown: He would have to proceed against the holder of the -- against to payee of the note.

Justice Byron R. White: Yes.

Mr. Russell Morton Brown: The original holder for breach of warranty.

However, in this case, You Honor, we do not have that situation at all.

Justice Byron R. White: Well then, this note never was negotiated and then given back to the maker when it was the default.

Mr. Russell Morton Brown: Not to my knowledge, Your Honor.

No sir.

At any rate that the note -- action on the note was more quite --

Justice Byron R. White: (Inaudible)

Mr. Russell Morton Brown: And I do not believe, Your Honor that it ever was in any other hands.

Justice Byron R. White: You just say, it is unconstitutional to waive in advance the right to present a defense in an action on the note?

Mr. Russell Morton Brown: Yes, Your Honor.

In other words, we have referred here to a Wisconsin case in which they required that any insurance company coming into the state had to waive the right to remove a case from a State Court to Federal Court.

This Court passed on it and says, we will not stand for a waiver of fundamental rights and that is the position.

Now, after we came up here with this case, the State of Ohio amended its statute and we set that forth on page 23 of the brief.

It says, the note must contain this language.

One; by signing this paper you give up your right to notice and court trial.

If you do not pay on time, a court judgment may be taken against you without your prior knowledge and the powers of a court then can be used to collect from you or your employer, regardless, of any claims you may have against the creditor whether for returned goods, for the goods, failure on his part to comply with the agreement or any other course.

Now --

Justice Byron R. White: So, this would be unconstitutional if the note said that he waives his right to present a defense in an action on the note, but not his right to file and independent suit for breach of warrant?

Mr. Russell Morton Brown: I believe so, Your Honor.

I believe anything that strips him of notice and an opportunity to be heard before judgment is unconstitutional under the authorities of this case.

Unknown Speaker: I would like to present that in this particular case there was some intervening litigation in the Federal District Court in the Southern District of New York, did you mention that?

Has that got anything to do with it?

Mr. Russell Morton Brown: I do not believe so, Your Honor.

It was an attempt to stay the proceedings in Ohio.

The Court refused to interfere with the proceedings in Ohio and that is all that happen.

Unknown Speaker: Did the Federal Court consider the -- the federal court consider the merits of your claim of breach of warranty?

Mr. Russell Morton Brown: I would say no.

There was no hearing on the merits.

There were no witnesses, there were no testimony taken.

The Court simply declined the stay the Ohio proceedings and very properly so I am sure, Your Honor.

I was not a party to that litigation.

Unknown Speaker: Alright.

Chief Justice Warren E. Burger: Thank you,Mr. Brown.

Mr. Harvey.

Argument of Gregory M. Harvey

Mr. Gregory M. Harvey: Mr. Chief Justice and may it please the Court.

The facts in the record in this case conclusively refute each of the constitutional contentions which have just been advanced and by that, I refer to both the facts as to what happened between Frick and Overmyer over a period of several years prior to Overmyer’s default on the second installment note and the facts as to what subsequently occurred, first in the District Court in New York and what occurred in the State Courts in Ohio.

Now, I think I should start, just by making reference to what actually happened in the Federal District Court in New York.

The opinion of Judge Mansfield is set forth in full in the appendix at page 81.

I think that is instructive reading.

It is true that no witnesses appeared in the New York proceeding, but that is because Overmyer chose to present no witnesses.

At page 81 through 83 in the record, Overmyer presented no witnesses.

The matter is gone into preceding the opinion in the affidavits of New York counsel who handled the matter, which established in Judge Mansfield’s opinion that there was no merit to Overmyer’s position.

I think that is merely one example of how the record has not accurately been stated in the briefs for the petitioners.

Unknown Speaker: How does -- who is Nixon?

Mr. Gregory M. Harvey: Nixon is an Overmyer affiliate, Your Honor, which was the construction company for whom Frick performed the subcontract.

So Nixon is Overmyer for the purposes.

Now, I think to proceed chronologically –-

Justice William J. Brennan: The facts are still pending and that apparently is an action for damages, I gather based on breaching of the contract?

Mr. Gregory M. Harvey: Yes it is, Your Honor.

Justice William J. Brennan: And the lead just mentioned denied as (Inaudible) conjunctively, if the action still has it?

Mr. Gregory M. Harvey: Well, Your Honor I would have to go outside the record to answer that.

I will do so, only if the Court requests me to.

Justice William J. Brennan: Is that pending?

Mr. Gregory M. Harvey: Now that action is not, but there is another action pending.

Justice William J. Brennan: But this was dismissed by agreement or what?

Mr. Gregory M. Harvey: I believe it was dismissed by agreement as to moot or dismissed by Overmyer as a matter of fact voluntarily, I am informed by my associate.

I think we have to start chronologically from the beginning to establish briefly just what occurred prior to the litigation.

It is very important to the case, both on the constitutional issues and because what happened between Frick and Overmyer was the basis for the Ohio Court’s decisions that Overmyer had no valid defense to the note, although it might well have a counter claim for breach of warranty to be asserted separately against Frick.

Now, the first contract relevant to the case was the original construction subcontract which has been described for the installation of refrigeration machinery in a warehouse under construction in Toledo.

The record before you, printed in the appendix, establishes that Overmyer consistently failed to make the progress payments which were required under that constructions subcontract.

And Frick accordingly, after numerous demands for payment which were again printed in the appendix, Frick accordingly, stop to work and as to what is right under Ohio law recorded mechanic’s liens against the property in a total amount of 194,000 and some odd dollars.

Those liens have never been challenged at any stage in this proceeding.

Three months later, Frick, the respondent here agreed to an Overmyer proposal for extended terms of payment.

Frick agreed to take 10% of the balance then due and owing in cash and the remainder in 12 monthly installments with interest at 6-1/2%.

The effect of that was that instead of being paid in full in October 1966, as required by the original contract, Frick agreed to receive the final payment in February of 1968 and Overmyer accordingly executed the first installment note which is in the record at page 51, which contains no confession of judgment clause and which in language which appears in the middle of appendix page 52, expressly preserves Frick’s mechanic’s liens against the property.

Frick agreed to forgo their enforcement so long is there is no default.

Immediately after delivery by Overmyer to Frick of this first installment note, Frick completed the work, placed the system in operation, conducted a demonstration of the system and formally requested of Overmyer that it accepted the system.

Overmyer did accept the system and the acceptance documents are also printed in the record at page 54.

Now, under the subcontract and the subcontract is in the record, although not printed in the appendix, but under the subcontract, if Overmyer had been dissatisfied with the system, Overmyer was required to give written notice of the alleged deficiencies and Frick was required under the subcontract to correct those deficiencies to Overmyer’s satisfaction.

I think this is very important because the original construction subcontract reserved to Overmyer’s engineer the final determination of whether the work done was in accordance with the specifications.

On the other hand, however, the effect of Overmyer’s written acceptance which you see in the record at page 54 was to waive all claims except those which might be made under the continuing warranty provisions of the contract which are also in the appendix and Overmyer’s failure to specify in writing any deficiencies of course would have the same effect under the contract, but Overmyer did formally accept the work.

Now, the next development in the relations between the two sides --

Justice William J. Brennan: Mr. Harvey, may I ask you?

Mr. Gregory M. Harvey: Yes Mr. Justice Brennan.

Justice William J. Brennan: Just one thing, I understood you say that, that as part of the agreement, the defective deal.

Frick released mechanic’s lien?

Mr. Gregory M. Harvey: I am about to get to that.

We are not to that stage chronologically.

Justice William J. Brennan: Yes, what I am trying to get through (Voice Overlap).

What is the relation between that release and the cognovit note?

Mr. Gregory M. Harvey: Yes, that is exactly the stage at which I am.

Overmyer desired to have the liens released, that is my point in the record at several points.

Why they so desired is not clear, but it was apparently an urgent desire.

I comment first on reasons for it.

There were negotiations.

There were exchanges of correspondence between general counsel for Overmyer and the counsel for Frick.

Negotiations were conducted largely through lawyers on both sides.

The result of those negotiations was the execution of the second installment note, which did three things very favorable to Overmyer.

First, it extended the term time of payment for 21 months.

So instead of getting the money in full in October 1966, which had then been extended to February 1968, Frick now agreed to wait till February of 1969.

Second, the rate of interest was reduced by half point.

Third, Frick agreed in the second note to release and Frick actually did release the three mechanic’s liens.

I think that the text of the note is instructive in that.

It appears at page 6 and 7 of the record.

You will see on page 7 of the appendix that the two provisions follow immediately upon them and there is in the record, the affidavit of the Frick person responsible for the work to the effect, but in Frick’s mind the two were linked, that appears in the middle of page 32, Mr. Justice Brennan.

In other words that Frick was willing to extend the time of payment so long as it could obtain security and the security which Frick desired was either the mechanic’s liens which it thought were adequate security or a bundle of other rights, including first the confession of judgment clause, second mortgages and I think that is it.

That was the additional security, but it is clear from the record and another point, Mr. Justice Brennan also, I refer to Frick’s letter of October 10 reproduced in the record at page 49, the second numbered paragraph of that letter says, “In lieu of actual cash, Frick has indicated their willingness to accept $35,000.00,” I am just giving you the high points, “provided the balance can be evidenced by interest-bearing judgment note.”

Unknown Speaker: Well, what is this interest-bearing note?

Mr. Gregory M. Harvey: Well, the second installment note was an interest-bearing judgment note, a note containing a confession of judgment clause and bearing interest.

The first installment note, however, was not a judgment note and Frick did not require so long as the mechanic’s liens continued on the record and a confession of judgment clause.

Justice Potter Stewart: This final arrangement is reflected, I guess in the exchange of correspondence appearing on page 59 and 60, is it?

Mr. Gregory M. Harvey: Yes, it is.

Justice Potter Stewart: Between Frick and Overmyer?

Mr. Gregory M. Harvey: And I am sorry to say that due to clerical error at some stage the letter at page 59 has been truncated.

The last three paragraphs refer explicitly to a release of the mechanic’s liens and request that Frick make arrangements with its local counsel in Toledo to be able to have those released promptly and then that is referred to again in the letter on page 60.

Justice Potter Stewart: Yes, I notice that.

Mr. Gregory M. Harvey: I think there is no doubt on the entire record and of course it is a small record before you.

Justice William J. Brennan: But I noticed, what you are saying is that really, the whole judgment note procedure that since they filed a consideration that when they negotiate it has bearing on the support the first note that substitutes this?

Mr. Gregory M. Harvey: That is correct and of course the first note was secured that it falls under the original contract.

Justice William J. Brennan: Well then but I do not think that they agreed to give judgment clause in lieu of and subsequently for what previously have been construed by mechanic’s liens?

Mr. Gregory M. Harvey: By three mechanic’s liens.

Yes, it is plain as can be that that is what actually happened and I think skipping ahead in my argument somewhat that that creates what is a very unique situation, but the Court has passed on it before in the Shepherd case in 194 U.S.

which I cite, it creates an estoppel situation.

The mechanic’s liens were of record.

They were regarded by Frick as entirely satisfactory security.

Overmyer desired that they be released.

Frick had no interest in obtaining Overmyer’s consent to this judgment note.

Frick could have gotten his money earlier under the first installment note.

Overmyer induced Frick to release the mechanic’s liens and take in consideration for that the confession of judgment clause.

Both parties knew what they were doing and since if it involves any constitutional right at all it is merely a due process right for the protection of property rights and not individual freedom.

That is estoppel situation and this Court should never reach the question of constitutionality.

I think that is a decisive argument if in fact you ever get to that stage.

Now, if I may take up the constitutional issue of voluntariness first because it follows from what I have just said.

There is the estoppel argument.

There is also the fact that is plainly not a contract of adhesion in the Hamingson or the Walker Furniture case from the District of Columbia Circuit.

Compare the first note with the second note, it is plain that Frick does not require of its customers that they sign confession of judgment clauses.

Also, this is not a case in which there has been a disparity of bargaining power on the two sides or in which a poor, poor in the economic sense individual of limited education, has been seduced into signing something the meaning of which he does not know.

Justice William J. Brennan: And I gather this was just the standard form (Inaudible) agreement –-

Mr. Gregory M. Harvey: They where made and type as best I can determine Mr. Justice Brennan, typed on the typewriter of general counsel for Overmyer and transmitted by him and insofar as the record shows prepared by general counsel for Overmyer and that maybe why, as a matter of fact the text of the confession clause is about the most favorable to the judgment debtor that I ever seen.

And I am a Pennsylvania lawyer I would urge you to compare that confession clause on page 7 in the instant record with the typical Pennsylvanian notes which will be before you in an hour, compare them also with the typical Delaware note which appears at page 1353 in the Osmond decision that is in 327 F 2nd and you will see that this is a very limited form of power to confess judgment.

I just like to make one other point, under voluntariness and that is this.

The transaction, which resulted in the second installment note, was not priorly to the benefit of Overmyer insofar as the record shows.

There was nothing of any substance and nothing of any value that Frick obtained from that transaction and I think that distinguishes it again perhaps from those retail cases in which it might be argued, I am sure, it will be argued, the consumer gets nothing for signing the confession of judgment clause, that is not the case here.

Here Overmyer obtained a very tangible benefit, the release the liens.

Chief Justice Warren E. Burger: Does this record reflect any challenge at any time to the validity of the liens that were --

Mr. Gregory M. Harvey: None whatsoever.

In fact, it reflects quite to a contrary Mr. Chief Justice.

At least an implicit recognition in the first installment note and that is set forth at page 52, an implicit recognition that the liens were valid and that Overmyer requested Frick forgo enforcement of the liens.

I think I may comment there of course with that.

A mechanic’s lien is a very, very severe weapon in the law.

It is an equitable proceeding.

There is no right to jury trial.

It is in rem.

It operates against the property.

The property can be sold off by the sheriff and there are very few defenses which the Court recognized under mechanics –-

Chief Justice Warren E. Burger: Under the Ohio statute must the lienor give notice to the debtor at the time, he files the lien?

Mr. Gregory M. Harvey: Yes, and that was done and there is also a provision by which the debtor may give notice to the lien holder to proceed to enforcement and so that the question whether the lien is valid must be promptly resolved.

So Overmyer had the right to test the liens if it desired, but it never did so.

Justice Byron R. White: So that, there is judicial foreclosure of the mechanic’s lien?

Mr. Gregory M. Harvey: Oh yes, absolutely!

Justice Byron R. White: And in that proceeding, breach of warranty could be raised to the defense?

Mr. Gregory M. Harvey: It could had been raised as a defense (Voice Overlap).

Justice Byron R. White: And if it were found valid that would had been a judgment against the plaintiff to that extent?

Mr. Gregory M. Harvey: To that extent.

Justice Byron R. White: And in the transaction, plaintiff retained his right to breach of warranty, Frick admitted those were not being made?

Mr. Gregory M. Harvey: Well, in this transaction and of course, bear in mind this transaction was negotiated two months after Overmyer had executed the unconditional acceptance, which appears at page 54 of the record.

Justice Byron R. White: Let us assume instead of confessing judgment, the Frick had just sued on the note.

Mr. Gregory M. Harvey: Yes.

Justice Byron R. White: And served Overmyer as they could have found them and Overmyer came in and presented a defense of breach of warranty.

Mr. Gregory M. Harvey: Yes.

Justice Byron R. White: Now, that would have to been dealt with, would it not?

Mr. Gregory M. Harvey: It would have to have been dealt with under the --

Justice Byron R. White: What is your then -- what is your explanation -- what is your constitutional ground for saying that the in the confession of judgment proceeding Overmyer was not entitled to notice and a hearing?

Mr. Gregory M. Harvey: Well, notice had been waived in the confession of judgment clause.

Justice Byron R. White: So you --

Mr. Gregory M. Harvey: I think it is clear no direct --

Justice Byron R. White: Right, strictly on the advance?

Mr. Gregory M. Harvey: No, I want to get to the hearing question.

I am dealing just with notice.

Now, also the record in this case establishes that the absence of notice in the sense of a notice we are going to proceed on the note, notice was of no detriment, lack of notice was of no detriment to Overmyer.

The first notice which Frick, my client received that Overmyer intended to default on the note with the service upon it of an ex parte restraining order obtained in the Southern District of New York from Judge Frankel, restraining their entry of judgment on the note.

Only at that point, did Frick know that it was not going to be paid that monthly installment.

Justice Byron R. White: But it knew then that claims of breach of warranty were being presented?

Mr. Gregory M. Harvey: Well, it knew that there was going to be a claim raised as a defense to the note and the exact claim which is raised is set forth in the record.

Yes, they knew at that point.

But what proceed -- I think your question is answered by what happened in the Ohio Courts with respect to these defenses, which I think it is your question.

Did Overmyer actually have a chance to assert its defenses which I think is where your question takes us and the record on that point is very clear.

If you look at the text of the note, the note does only two things.

It waives notice and it waives a prejudgment hearing.

It certainly does not purport to waive a post judgment hearing.

Some of the notes which will be before you later today do purport to that and do purport to waive the rights to appeal and various other things.

Justice Byron R. White: Or any cause of action for breach of warranty?

Mr. Gregory M. Harvey: Right, or things like this and there are such notes I have seen them.

This note does none of those things.

Justice Byron R. White: Where in the appendix is the note itself?

Mr. Gregory M. Harvey: It is at page 6 and 7.

Justice Byron R. White: Thank you.

Mr. Gregory M. Harvey: Now this note and it is page 7 is the only page, which is relevant.

It is short.

It is simple.

It waives a prejudgment hearing, but it does not waive a post judgment hearing and this is what most important.

The note does not waive any defenses whatsoever and what actually happened is that Overmyer presented its defenses to the Ohio Courts when it is said that there was only oral argument, the record is not being correctly stated to this Court.

I urge you to have the original record, this thick brought before you to see how many papers were filed, how much factual material was presented to the Court by way of affidavits, how much informal testimony was delivered by Mr. Garrigan (ph), Attorney for Overmyer who came in --

Unknown Speaker: This was all in the motion to set aside?

Mr. Gregory M. Harvey: This is all on the motion to vacate.

There were several hearings.

A few excerpts merely from the hearings are included at pages 28 and 29, but I refer you the page 29, towards the end of the page where the Court expressly gives Overmyer.

It says, “I want to give him a reasonable time to file whatever he wants to” and they filed a great deal of what they wanted to file and it is now in the record before this Court and it is our contention that Overmyer received a very full hearing and adjudication on its defenses.

Unknown Speaker: Well, what is your understanding to the basis of this issue?

Mr. Gregory M. Harvey: Alright, if I can answer that by starting first with the Ohio procedure and then I will give you the exact basis of the adjudication.

The Ohio procedure on a motion to vacate requires that the trial court do two things.

First --

Justice Potter Stewart: Can you back up just a little bit?

Mr. Gregory M. Harvey: Yes, surely.

Justice Potter Stewart: There is a time limitation within which such a motion must be filed, is there not?

Mr. Gregory M. Harvey: Not really, there used to be a distinction between filing in term and out of term of which the recent decisions really tend to overlook.

Justice Potter Stewart: I have been away from that too long.

Mr. Gregory M. Harvey: Yes.

In this case, however, it was filed in term immediately after and therefore it is the term distinction in this Court as in others is tending to become.

Justice Potter Stewart: And going back before you go any further --

Mr. Gregory M. Harvey: Yes.

Justice Potter Stewart: After there is a judgment by confession on cognovit note, is there any procedure for notifying the judgment to debtor?

Mr. Gregory M. Harvey: Yes, indeed.

The Court must give notice and the notice went out in this case to five different Overmyer locations and so far as I am aware which received in all of them.

Justice Potter Stewart: Notice by mail?

Mr. Gregory M. Harvey: Notice by mail, yes and the notice, the form of notice appears in the record here and the docket entries reflects the places to which a notice was sent, that is page 1 and 2, you will see sets forth all the places that notice was sent.

Now, the Ohio Court’s have a two-step procedure which the trial court takes in passing on a motion to vacate.

First, is to determine whether the judgment debtor has presented a valid defense and that is a question of examining the pleadings, that does not go to whether is meritorious or whether it will eventually prevail, that is just, has he pleaded a valid defense and then second since under the Ohio Procedure, you are not supposed to plead your evidence and it is a very special pleading system, under to the Ohio procedure you are not supposed to plead your evidence.

The next step is to determine whether there is some evidence adduced by way of affidavit, testimony in Open Court, deposition or anything else by the judgment debtor which would avoid a directed verdict against him, if the matter went to trial, very similar to avoidance of summary judgment in the federal procedure, any show of an issue or fact.

If that occurs, he presents a valid pleading and enough evidence in support of it to avoid judgment against him, then the Court has the duty, that is the phrase used, has the duty in the Ohio cases to open the judgment and a full trial is had in which there is a right to trial by jury if demanded, in which the burdens are the same as in a normal proceeding not started by confession of judgment and the result is the determination either that the judgment was good in which case it is confirmed and relates back or that the judgment is stricken.

Justice Potter Stewart: You said, at which the burdens are the same?

Mr. Gregory M. Harvey: Yes.

Justice Potter Stewart: And what do you mean by that?

Mr. Gregory M. Harvey: Well, I mean that the burden on Overmyer to present evidence and support of its affirmative defenses in that plenary proceeding following the opening of the judgment if that occurred, would be the same.

Justice Potter Stewart: The same as (Voice Overlap)

Mr. Gregory M. Harvey: As in a normal trial (Voice Overlap)

Justice Potter Stewart: As in no folder (Voice Overlap)

Mr. Gregory M. Harvey: Merely brought suit without attempting to confess judgment.

Justice Potter Stewart: Alright.

Unknown Speaker: Including a possible judgment over on Court finding?

Mr. Gregory M. Harvey: Yes.

Unknown Speaker: Even though that exceeded the amount of the judgment.

All of that could happen?

Mr. Gregory M. Harvey: All of that could happen, could still have happened in that proceeding if Overmyer chose to prosecute it there.

They could have kept going, the answer could have -- the counterclaims could have been filed.

They could have proceeded to a trial.

They did not.

Now, what the, and as my time is just about to expire, what that Court of Appeals held and I refer you to page 84 of the record, the motion for reconsideration, what the Court of Appeals held and unfortunately it is not in the appendix, but it is in the docket entries which are part of the record in this Court, the Court of Appeals said, “Finding that the defendant’s appellants failed to prove the existence of a valid defense; further finding there from that the answer and cross petition of defendant’s appellants constituted only a counterclaim to the petition on the judgment note” and they go on to hold that the judgment properly was not opened.

The entire constitutional issue presented here, may it please the Court, depends upon Overmyer’s contention that it had a valid defense rather than a counterclaim, but the Ohio Courts for reasons which I think are not properly to be passed upon by this Court, but with which this Court would agree, if you have the factual background, the Ohio Courts found that there was no valid defense as a matter of the pleadings that there was a counterclaim.

Justice William J. Brennan: What was the significance of that?

That the answer on cross petition has been only counterclaims?

Mr. Gregory M. Harvey: Because under Ohio Law, Mr. Justice Brennan, if it is only a counterclaim then that maybe litigated in the same proceeding and eventually there maybe judgment in favor of the judgment debtor against the judgment creditor in the amount of the counterclaims, but since it is only a counterclaim under Ohio Law, it is no defense to an obligation of the certainty of the second installment note which was a replacement for the first installment note --

Justice William J. Brennan: That is the base on the basis of this adjudication; they might have proceeded on the counterclaims if they chose to do?

Mr. Gregory M. Harvey: Absolutely, absolutely.

They were not cut-off from proceeding on that.

They had the full right to assert it.

They have in fact asserted it in New York in another civil action and the matter is still open and still available to them.

Justice William J. Brennan: Now that counterclaim is still pending in Ohio or that was supposed to --

Mr. Gregory M. Harvey: No, it is now pending, may it please the Court, in the Southern District --

Justice William J. Brennan: What happened to the counterclaim in the Ohio Court, it got dismissed or not?

Mr. Gregory M. Harvey: Well, they have proceeded no further with the Ohio matter because it has been constantly on appeal, but they did assert the counterclaim in a separate civil action in New York filed December 20, 1968, an answer was filed within 20 days.

There has been no action taken to prosecute that proceeding.

No action whatsoever.

Counterclaim was still open and available to them.

Chief Justice Warren E. Burger: Thank you, Mr. Harvey.

Mr. Brown, you have five minutes left.

Rebuttal of Russell Morton Brown

Mr. Russell Morton Brown: Thank you, Your Honor.

Chief Justice Warren E. Burger: You wish to take issue with any of the factual aspects emphasized by Mr. Harvey?

Mr. Russell Morton Brown: I do not believe so, Mr. Chief Justice.

Our issue is on constitutional law and I would particularly ask the Court to have in mind two cases which we have cited in the brief.

Armstrong against Manzo and Griffin against Griffin, particularly the latter which was decided by this Court in an opinion by Mr. Chief Justice Stone where the shifting of the verdict is the unconstitutional aspect of things.

In the New York case, they imposed the burden to pay alimony without hearing.

Brought it down here and filed suit on it and it was held by this Court, that the shifting of the verdict, the post judgment determination will not measure up to constitutional standards of due process.

Justice William J. Brennan: Mr. Brown?

Mr. Russell Morton Brown: Yes sir?

Justice William J. Brennan: Let me on what Mr. Harvey has been presenting to us (Inaudible).

It does appear as though this whole arrangement was at arm’s length, both lawyers appearing for both and with an understanding, certainly on the part of the lawyers I would supposed, what the consequences were of this confession, of this judgment note?

Can you really suggest that it was not a called a waiver, call it what you will, that there was not a complete understanding on the part of Overmyer of what they are getting into?

Mr. Russell Morton Brown: I think Mr. Chief --

Justice William J. Brennan: Because you are argued earlier that the arrangement affected by the lawyer was the breach of his professional responsibility and yet your client entered into this with his eyes open for a quid pro quo, the release of the mechanic's liens and all the rest of it all, knowing that this is precisely the way that the security has to be enforced, that it would be enforced?

Mr. Russell Morton Brown: If Your Honor please, Mr. Justice Brennan, that on its face appears to be the thrust of the fact.

However, who would know at the time that the debtor would be held to pay for something he never got.

Justice William J. Brennan: I was not suggest to you that is your client must have known.

That is the form of security that he gave Frick in substitution for what Frick had in the way of the security before that?

Mr. Russell Morton Brown: Now, that relates, Mr. Justice Brennan, to the merits that should be determined in the trial court.

Justice William J. Brennan: I know, but you are asking us to say that this procedure, the filing of this case is in unconstitutional.

(Voice Overlap) back sort of thing because of --

Mr. Russell Morton Brown: Exactly! Precisely! That is the constitutional issue and it is our position --

Justice William J. Brennan: It is certainly not, now that you put yourself with your eyes open, is it, in that position, would you not either have waive to estoppel it or something based on that kind of fact situation?

Mr. Russell Morton Brown: Well, let me put it this way Mr. Justice Brennan.

If it turned out that they had not installed the equipment at all or material part of it was omitted --

Justice William J. Brennan: I know, but that is not this case as I understand it.

Mr. Russell Morton Brown: No, it is not this case.

Justice William J. Brennan: It was the second note that was substituted for an earlier note that Frick had one form of security and they swapped it for this form of security and surely your client has to know in giving this form of security of what that man said?

Mr. Russell Morton Brown: We knew what it meant, Your Honor, and he had to pay this obligation, but I submit.

Justice William J. Brennan: I suggest he also knew that if he defaulted, it meant that Frick could do exactly what it did here?

Mr. Russell Morton Brown: And then it would go into Court and try to get a hearing on the valid defense it had on the merits, but it never got that.

It is our position --

Justice Byron R. White: (Inaudible) it just waived the particular proceeding or form which had presented claim, just could not present it, just waived his right to present the judgment in the form in which the judge -- presented was a claim?

Mr. Russell Morton Brown: In Manzo and in Griffin, this Court has held that that will not measure up to constitutional standard of due process.

Now, let me just say one thing that Mr. Justice --

Justice Byron R. White: Well, Manzo never waived his right to notice?

Mr. Russell Morton Brown: I beg your pardon?

Justice Byron R. White: Manzo never or I do not know which one is the father (Voice Overlap) I do not know which one is the father?

Mr. Russell Morton Brown: No, he was the father, yes Your Honor.

Justice Byron R. White: And Manzo never waive his right to -- at least in that case, he did not ever purport to?

Mr. Russell Morton Brown: Well, it was said in that case that he had forfeited his right because he had not kept in touch and supported the charge.

Justice Byron R. White: That is a forfeiture, that is not a waiver.

Mr. Russell Morton Brown: Well, that is right, but the Court said that you cannot adjudicate these rights without notice and an opportunity to be heard.

Justice Thurgood Marshall: Well, if you have not notice, why was this action filed in the Southern District?

Mr. Russell Morton Brown: This was to restrain them from going ahead.

Unknown Speaker: Yes, of course.

Mr. Russell Morton Brown: Where any action out there in Ohio --

Unknown Speaker: From realizing on the security which you had given.

Is it the fact, you know Mr. Brown, Mr. Harvey suggested that your client’s lawyer.

I know (Inaudible) actually drafted this agreement and actually drafted this form?

Mr. Russell Morton Brown: I am not informed and I would be inclined to think that that is immaterial, Your Honor.

Unknown Speaker: Well, think so too.

(Voice Overlap)The lawyer was certainly there?

Mr. Russell Morton Brown: Yes, there is not question about that.

Unknown Speaker: (Voice Overlap)

Mr. Russell Morton Brown: They were represented by a counsel, but there is one factor I would like to emphasize if you please sir.

And that is that this been as waiving in the beginning, before you know what the controversy is about, before you know anything about it, it simply does not conform to the decisions for this Court.

Now, we have no quarrel with the fact that, for example, now as a judge you will be aware of course that all this information about the prior negotiations would not be admissible as fraud.

These were merged in the notes.

That is the contract on which they sue.

They can bring up all this prior negotiation, it is merged.

As a matter of evidentiary law, I would object at the trial and the Court would sustain that objection, I am sure.

Nothing can modify the agreement between the party and that is where we stand here as you place it.

Was this a constitutional agreement?

Does it measure up to standards of due process?

Notice and an opportunity to be heard?

All that has been, it simply says he got consideration, same thing applies in the case of the little consumers.

They got it something.

Chief Justice Warren E. Burger: I think it you have covered that.

Mr. Russell Morton Brown: Thank you, Your Honor.

Chief Justice Warren E. Burger: And your time is up now.

Mr. Russell Morton Brown: Thank you very much.

Chief Justice Warren E. Burger: Thank you Mr. Brown and Mr. Harvey.

The case is submitted.

Featured:

Fuentes v. Shevin - Oral Argument

Thu, 23 Aug 2012 18:18:32 +0000

Case:

Fuentes v. Shevin

Media File:

70-5138_19711109-argument.mp3

Related Transcript:

70-5039_19711109-argument

Transcript:

Argument of C. Michael Abbott

Chief Justice Warren E. Burger: We will hear argument next in No. 5039, Fuentes against Shevin and others.

Mr. Abbott you may proceed whenever you are ready.

Mr. Abbott.

Mr. C. Michael Abbott: Mr. Chief Justice and may it please the Court.

And may Your Honor, I would like to reserve five minutes of my time for rebuttal.

The nature of the case before the Court now is a challenge to the Florida prejudgment replevin statute on procedural due process and Fourth Amendments search and seizure grounds.

The issues are two-fold.

Simply stated, whether the Florida prejudgment replevin procedure in which a writ is issued without notice or prior hearing violates the procedural due process and the Fourteenth Amendment and sectioning whether the same procedure insofar that commands the state officer to enter a private ruling by force if necessary violates the search and seizure provisions the Fourth Amendment as applied to the States to the Fourteenth.

The lower court held with one judge dissenting that the Florida prejudgment replevin statutes were constitutional.

The facts of the case can be briefly stated, the appellant Margarita Fuentes separately purchased a stove and a stereo from the appellee Firestone Tire and Rubber Company in 1967 under retained title contracts.

These contracts were then consolidated into one agreement.

Margarita Fuentes has complained to Firestone on a number of occasions about mechanical difficulties with her stove.

Appellee Firestone indicates that those difficulties have been repaired.

Margarita Fuentes alleges that they have not.

For that reason she began withholding payments on her contract on April of 1969.

In May of that year Firestone sent her telegram for repossession.

Four-and-a-half months later, on September 15, they filed an affidavit and a bond pursuant to the Florida statute in replevin to her property.

The execution writ was executed on the same day on September 15 by Deputy Sheriff of Dade County over her protest and a protest of her relatives.

The appellant then filed the instant action in the court below in November, 1969.

The Dade County Small Claims Court on our motion agreed to state that action pursuant to the conclusion of this action and on August 24, a Three-Judge Court below held that neither of the -- that this statutory procedure did not violate either the Fourth or Fourteenth Amendment.

Now with regards to the issue of procedural due process, our position can be stated very simply.

If you look over the breadth of the due process cases that had come before this Court, conceding that it is a flexible concept, nevertheless, one rule has emerged that is that absent special circumstances involving a compelling governmental interest, that no one may be deprived of a significant property interest prior to having a chance to contest the taking.

That is what this Court said in Sniadach and reaffirmed it in Boddie versus Connecticut.

Mr. Justice Brennan said again in Bell versus Burson.

Now if you look at the Florida procedure, usually an affidavit is filed, although it is not now required in the Florida statue but was filed in this case.

It is the usual procedure to file an affidavit in the case.

The claimant is lawfully entitled to the property.

That is the only allegation that you must make.

He files a complaint, a bond in double the value of the property and the clerk issues the writ without any judicial interposition.

Simply a ministerial act, he issues the writ, while notes in a hearing, he gives it to the sheriff, sheriff takes it the home and executes on a property.

Justice Potter Stewart: He files a bond in double the amount of the value of the property?

Mr. C. Michael Abbott: That is correct Your Honor.

Justice Potter Stewart: And he is the one who asserts the value of the property?

Mr. C. Michael Abbott: That is correct.

And there is no examination whether this is true or not.

Now we submit that the Florida procedure displays the same types of constitutional deficiencies that this Court file lacking is Sniadach versus Family Finance Corporation.

There is no evidence indicating the validity or the probability of the claim prior to the part of the taking.

The statute is not nearly drawn to certain circumstances that maybe have extreme interest to the creditor.

There is no need for the credit to allege a particular state interest that is of concern to him, and it is the use of the property here as it was in Sniadach, it is of concern.

It is use of the property itself.

There is a property under the Fourteenth Amendment we are talking about.

I mean in fact the contract between Margarita Fuentes and Firestone Stores is simply this that she said, I will pay you more money than the cash price of these goods over period of time, in order that I might have the goods immediately as exactly what I am paying for, I am paying for the use of those goods.

I agree you to pay you a finance charge so that I may have them now.

And it is the use of the goods that she is entitled to until she defaults.

But here under this procedure there is no need for Firestone to prove that she has in fact default in this procedure.

They come and get it anytime they think they want it back for whatever reason.

Chief Justice Warren E. Burger: What is the bond for and under what circumstances can the purchaser --

Mr. C. Michael Abbott: The bond is under the condition that Firestone should be proven wrong.

She can thereafter reach that bond and collect on it.

Of course, the bond has nothing to establish the validity of the claim.

The bond does nothing to mitigate the deprivation between the taking of the trial.

Unknown Speaker: But does it indicate at all that what Firestone’s claim is that there is a default?

Mr. C. Michael Abbott: No, I do not think so.

I mean there is no indication of the claim itself.

Nobody makes the examination of whether there is or there is not a default.

One can argue that by filing a bond, you cannot deter privilege claims.

That if one has to file bond you will deter those people who do not have a proper claim.

Justice Byron R. White: Did Firestone have to file anything in Court prior to taking the goods that in any way indicated that there was a default?

Mr. C. Michael Abbott: No, all they have to file is something in the case they are lawfully entitled to, not to the extent one brief that as anything default.

I suppose yes, but there is no examination.

Unknown Speaker: What is the condition of the bond though that if Firestone does not prove what?

Mr. C. Michael Abbott: If Firestone then does not prove at the this comes to trial that they are lawfully entitled to it, Mrs. Fuentes raised defenses that show that Firestone is not, then if she can show damages she can reach the bond.

But in the first instance they have to show nothing, all they have to do is file an affidavit that is all pre written and said, I am lawfully entitled to property.

It seems to me that what we have to focus on this case are what are the state interests here that are compelling that require Firestone to need this kind of summary procedure.

Chief Justice Warren E. Burger: Well, is it possible that the perishable nature of the merchandise and fact that it is rather rapidly wasting asset has something to do with that?

Mr. C. Michael Abbott: If they could show that, then I think that might be significant Your Honor.

In fact, it is interesting to note here, that in April when she withheld her first payment they sent her a notice.

In May they sent a telegram saying, we are going to repossess within 24 hours if you do not start paying.

Then they waited for four-and-a-half months before they actually issued the writ.

Chief Justice Warren E. Burger: You are not complaining about that, are you?

Mr. C. Michael Abbott: No, the only point I am trying to make is that if they are actually interested in getting the property because of the deteriorating value, why then did they wait this length of time before going after it.

I think what they really want is they want the money.

By taking the property first, they gained an additional bit of leverage over that period of time to try to coerce her to pay whether she may have all defenses or not, I think that is the point to be made.

It seems to me though that if one looks at the interest that the appellees before, it is compelling this procedure, there is simply no indication that it is necessary for them to do this.

The State of Florida says that it is the protection of property of Florida citizens that is of compelling interest here.

But of course our position would be there emphasizing the rights of one class such as creditors over another class such as debtors.

They also say, well, it is the economic life of the community that is at stake here.

As a matter of fact though there is no evidence at all indicating that there is any relationship between attachment type remedies and the availability of credit.

The California Supreme Court was recently faced with the same issue just last month in Randone versus Appellate Department.

They reject and they said, there is no evidence here that there is any relationship between attachment of property like this and the availability of credit.

And further, we note that there are some prevalent studies that indicate that there is no relationship between these two factors.

So, if in fact Firestone is restricted, what is going to happen?

Well, the only evidence before this Court indicating that there is going to be any damage to Firestone at all, it is an affidavit by Firestone’s own national manager of retail credit in Akron, Ohio.

The lower court re-indicated the counter affidavit by Professor William F. Willauer (ph) of the National Consumer Law Center in Boston.

We did not even submit that to the record on this Court because we do not feel that either of these affidavits gives the Court the kind of hard data on which you could comfortably rely and say yes, in fact, there is gong to be an economic depravation to elect the community here.

But let us go one step further.

Let us assume that replevin is essential to consumer credit.

It seems to me that one can make the argument that to the extent that you give debtors or creditors relatively inexpensive and expeditious remedies such as we have here, to that extent, they just encourage them to over extend.

I mean maybe they are giving credit to people that should not have credit.

Now is that in the interest of the citizens of Florida?

I do not think so.

Our research shows that one out of five people simply default on this thing.

They just never show up once their property is taken, they think it is gone.

I think that is significant one of the every five people.

I suspect that is low over the national average, I suspect it is much higher, and then if you look that studies of Dr. Castlewich (ph) who has mentioned this morning (Inaudible) find you will that nationally that the default rate is much higher but in Florida every one out of five.

So I do not think they can show that even if assume that they are going to be hurt, I do not think they can show that consumer credit itself is related to public interest.

The amici in this case say that, in addition to this, there is a public interest in the conservation of state resources.

Well that may be true.

They are assuming that a pre-hearing procedure is going to take more resources than there is now. There is going to be a trial in this case, there is supposed to be a trial.

So, simply by having the hearing first that is not necessary indicate that you are going to have to spend more state money.

Think only in those few cases where you have a really compelling interest, where you can show for example that the debtors about to take the property of the jurisdiction or he is going probably convey that third person or that is rapidly deteriorating the value.

Those are types of cases where you might want to have some kind of summary procedure.

But even then, you can still do it on probability, you do not just have give it to him and say we believe you, you can say, what is the evidence that you have the right to this property?

What is the compelling situation that you need it now?

Then okay, we will let you take it.

Chief Justice Warren E. Burger: Is it a criminal offense to move this type of property without notice to the legal owner?

Mr. C. Michael Abbott: I suspect it probably is Your Honor, although that relates somewhat to the consuming of property under lien statute of order, which has Firestone has pointed out in the opinion of the Attorney General of that state is no longer valid aside from that particular statute, I am not just sure if there are other statutes indicating it is a misdemeanor to move the property, I just do not know.

Chief Justice Warren E. Burger: Well, the movability of this property -- portability perhaps I should say, does that have some relationship to the right to a summary remedy, is that in large the need for summary proceeding?

Mr. C. Michael Abbott: It seems to me it might.

It seems to me it might if you could show that in fact you had that fear.

Then in fact they thought Margarita Fuentes was one want to move the property.

Chief Justice Warren E. Burger: Well, Do you make that kind of decision on an ad hoc basis or do you make that on basis of the generality?

Mr. C. Michael Abbott: But, if you have evidence to show that there was some reason to make that evidence that you know on the broad basis I think, you know, there will be a point there.

The whole point that we make that there is no evidence indicating that a large number of that is expect, what Firestone says, in their own brief at page 18, they say, in the vast majority of these cases, and that is their language not mine, in the vast majority of this case statute that is voluntarily relinquished the property, give it up freely.

They also point out that default rate in all consumer installment contract of this kind is 1.76%.

Way below the types of defaults that the consumers are having, when they just do not show up.

I mean, we are talking about a very narrow portion of the total consumer contract.

And there is no evident even indicating that small portion.

There is going to be a large number if we are going abscond at the property.

In fact, if they are the ones to abscond, it seems to me he has a lot of opportunity to do so prior to the time of the hearing.

I mean, Firestone just like any other creditor begins to go to this debt collection process once they think there is a default.

You know, they sent Margarita Fuentes a letter, they sent her a telegram and she really wants to get rid of the property it seems to me she is going to do it then and she knows eventually, that they may come and get it, it seems to me.

But, if she had the default she still simply not, if she thinks she has not defaulted, she is simply not going to give it up.

I mean, if it is her property, why should she?

But, there is no evidence over the broad basis to indicate that the Firestone needs this kind of protection that they can not just provide it, and they have not provided it.

Justice Byron R. White: So, you would not be satisfied if Firestone before repossession was required to go before a judicial officer and establish what we might, with a better language call “probable cause”, for reasonable grounds to believe that there has been a default.

Exhibit the contract or the note or whatever it is and an affidavit that there has been a default and you would not be satisfied if a judicial officer will require to sign the writ of replevin?

Mr. C. Michael Abbott: I would not Your Honor because I think what would happen is that it would quickly become a rubber stamp procedure.

Justice Byron R. White: Now you say that there must be cannot be done ex parte in any way?

Mr. C. Michael Abbott: Only in narrow circumstances where they can tell proper with the compelling reason.

But these are sometimes very complex issues.

If you take a look at the brief of National Consumer Law Center, one of the things that is interesting in this case that it is here that the security interest that Firestone had in the stove had expired at the time they got it.

That is to say that in any rational allocation of payments between the stereo and the stove, Mrs. Fuentes had paid off that stove when they came and took it.

And, that is not, not a type of defense that the judge looking at the contract, see.

She has got to have a chance to commend and say you know, I paid for that stove already, Firestone has breached their warranty of repair.

A judge just by himself not makes that kind of determination.

Finally it seems to me, I would like to look briefly at the Fourth Amendment issue.

Under the Florida procedure, the writ commanded the officer, state officer, the Deputy Sheriff in our case, to enter by force if necessary and to make a reasonable exploration of the dwelling in order to find the property.

The problem we have with that is again, what is the compelling state interest that Firestone has in allowing the Deputy Sheriff not only to enter but to enter by force if necessary.

Now, if you look at the balancing test which this Court has done in the past, it seems to me you have to weigh the interest of Firestone against the invasion which that entails, and if we agree with Mr. Justice White said in Camara that you are going to have as much of a disturbance in a civil seizure as you are in criminal procedure.

It seems to me that you have to allege a very substantial state interest before you can go in to that home.

Again, the statute is not nearly drawn, there is no advance notice that they are coming here, I think it appears in with Wyman versus James, resistance with misdemeanor compares to Mr. Wyman where if the welfare is different, wanted to refuse she could.

There is no way to refuse here; the sheriff is going to go in whether you refuse or not.

If you look at the back of this case Margarita Fuentes did everything, one could expect of a private citizen to do.

Short of actually physically obstructing the sheriff, she told him, she stopped him at the door, she called her son-in-law, the son of son-in-law who speaks English which she does not, explained to the Sheriff that he could not take the property.

The sheriff comes back and says I have got to take your property that it is my obligation; only at that point did she let him enter the house.

Unknown Speaker: Would your case be any different if the stereo are not kept at her home but in a little grocery store that she run?

Mr. C. Michael Abbott: I do not think so Your Honor, unless there was some evidence to indicate that she was attempting to conceal it.

If Firestone indicates we do not know where it is, we cannot find and she refuses to indicate that she still has it in order to make her feel secure and then they may have an interest.

But the Court is not this case.

Unknown Speaker: Well, you are giving so much emphasis to the home as such and I wondered if that factor is influential in your case?

Mr. C. Michael Abbott: Simply the fact it is in the home.

But to the extent that the property is located in a public dwelling where they may have a chance to enter anyway, it seems to me that one can make a less concurring claim.

Of course, that is not the statute and the statute does not cover special situations like that.

Unknown Speaker: Now you are assuming that the standard is applicable here, is that a compelling state interest, is this established?

Mr. C. Michael Abbott: It seems to me under the due process cases of this Court, it is established.

Switching back the procedures of due process issue for example, if you look at the cases that were cited, Sniadach, all of those cases dealt with the compelling state interest, you know, Fahey versus Mallonee.

Unknown Speaker: These are definitely facts which are -- and I am asking whether this one comes within the factual range of those cases, they must, in your view I take it.

Mr. C. Michael Abbott: It seems to me it comes within the general principle, yes.

It seems to me as far as they have to show some reason why they need this procedure.

Unknown Speaker: Maybe your opposition would not agree to that?

Mr. C. Michael Abbott: I suspect they will not Your Honor.

Chief Justice Warren E. Burger: If the statute permitted the counterband that is present in one of the other cases we are hearing, would you say that --

Mr. C. Michael Abbott: The statute does have a counterbond Your Honor.

Chief Justice Warren E. Burger: It does?

Mr. C. Michael Abbott: Yes, it does.

Chief Justice Warren E. Burger: Well, then the process can be stop by the complete --

Mr. C. Michael Abbott: As a matter of fact I think, one of the things that is also interesting.

If you look at the record here it appears that in fact what the Sheriff was supposed to do was he was supposed to take this property in hold for three days and give Mrs. Fuentes a chance to post a counterbond.

But in the first place there is no notice to her that she has that opportunity.

I mean, only if she has a lawyer who can tell her within 72 hours that exist would she ever be likely to do it.

We examined 442 cases in fact in County Small Claims Court and we found that nobody ever in that entire year ever posted a counterbond.

Justice Potter Stewart: I did not -- I heard what you just said now, that you would examine well over 400 cases and found nobody did it.

I did not hear what you said a little earlier, was there any notice to the debtor, to the vendor that he has this opportunity of filing a bond?

Mr. C. Michael Abbott: To the debtor?

There is no --

Justice Potter Stewart: To Mrs. Fuentes?

Mr. C. Michael Abbott: No, there is no notice to Mrs. Fuentes that she has the opportunity.

Well, one of the other interesting things is even though the sheriff is supposed to hold her property for three days, it appears from the record below that actually the property went directly to Firestone.

I mean, Firestone accompanied the sheriff in their truck; Firestone took the property not the sheriff.

They took it immediately, but, in way three days --

Justice Potter Stewart: What are the, what were the remedies of Mrs. Fuentes?

One was to file a bond in the same amount that had been filed by Firestone?

Mr. C. Michael Abbott: That is correct, that is correct.

Justice Potter Stewart: And then what would happen?

Mr. C. Michael Abbott: If she had filed the bond and if the sheriff was still holding the property then she has the chance to get it back until the trial.

Of course, one of the other things we found is that --

Justice Potter Stewart: Until the trial -- so far there is no complaint then filed?

Mr. C. Michael Abbott: Yes, there is a complaint in the Florida procedure.

There is none in the Pennsylvania.

Justice Potter Stewart: So where is the complaint (Inaudible).

Mr. C. Michael Abbott: There is a complaint in under the Florida procedure, they do file a complaint.

Justice Potter Stewart: I see.

Mr. C. Michael Abbott: They do not in Pennsylvania.

Justice Potter Stewart: Right.

So a complaint has been filed?

Mr. C. Michael Abbott: That is correct.

Justice Potter Stewart: And it is a complaint, was it a subsequent, is that what you are saying?

Mr. C. Michael Abbott: That is right, that is right.

Justice Potter Stewart: And, that is the condition preceding to the --

Mr. C. Michael Abbott: It is; it is.

Justice Potter Stewart: -- that procedure?

Mr. C. Michael Abbott: The affidavit that they are entitled to it or not, and nobody ever looks to see what the complaint says.

But they do have to file one.

Justice Potter Stewart: And then, there is a copy of the complaint served on Mrs. Fuentes?

Mr. C. Michael Abbott: It is at the time the property is taken.

There is no previous notice.

The same time, the sheriff takes the property, he says here is the affidavit, and here is the complaint.

Justice Potter Stewart: And then, is she filed a bond in an amount equal to that filed by Firestone in this case, by the plaintiff.

Then the sheriff continues to hold the property, does he?

Mr. C. Michael Abbott: Well, he is supposed to.

I do not think he did in this case.

Justice Potter Stewart: What does the law provide?

Mr. C. Michael Abbott: He is supposed to hold the property for three days, give her the chance to file her bond.

But, what we have found is that --

Justice Potter Stewart: File her bond and then how long does she has to make an answer to the complaint?

Mr. C. Michael Abbott: Then she has the normal time to make an answer.

Unknown Speaker: But if she files the bond, she gets the properties of it?

Mr. C. Michael Abbott: Assuming that sheriff has that is correct.

Unknown Speaker: She gets it back?

Mr. C. Michael Abbott: She gets the property back totally --

Unknown Speaker: You told me, it remained in the custody of the sheriff?

Mr. C. Michael Abbott: No, no, no.

I am sorry Your Honor.

The Sheriff is supposed to hold it for three days before he gets it to Firestone.

Now, if she does not file a bond he then gives it to Firestone.

Unknown Speaker: What if she does?

Mr. C. Michael Abbott: If she does file a bond he then gets it back to Margarita Fuentes.

Of course our research shows that nobody ever have filed a bond.

Unknown Speaker: Well, we are talking about the law of Florida.

Mr. C. Michael Abbott: That is right, that there is a provision there.

It is also interesting to know I think though that in order to file this type of a bond, you got to put forward the full amount, full cash value of the property.

And Firestone can file their bond for about 1% of the total of their charges, say $200.00 here.

Mrs. Fuentes, on the forth coming bond is going to have to file the full cash value, $200.00 plus a premium.

If Mrs. Fuentes were a plaintiff, they would make no distinction, she could then file 1% bond, it is not a question of we know, we think Firestone is more reputable than Mrs. Fuentes.

It is just simply a question of are you a plaintiff or are you a defendant, if you are a defendant, you file a full bond, if you are a plaintiff, the bonding companies are willing to, let us say, file 1%.

Unknown Speaker: If she does not file bond, she is still as perfectly as the property delivered to Firestone that she is still perfectly free to file an answer to the question?

Mr. C. Michael Abbott: She is Your Honor, she is.

Unknown Speaker: And if she can get judgment she can judge?

Mr. C. Michael Abbott: That is correct.

Of course in the meantime she is about --

Unknown Speaker: She gets the judgment as she, I guess, gets the property back in order to what happens, so, what else does she gets?

Mr. C. Michael Abbott: If she can show damages, she then gets damages.

I think it would be very difficult --

Unknown Speaker: After the bond filed by Firestone.

Mr. C. Michael Abbott: That is right.

Unknown Speaker: That is the purpose of its filing.

Mr. C. Michael Abbott: That is right.

But assume for example, it is not this case, but assume she is about out of stove that she was using for six weeks prior to trial, how do you show those types of damages?

The types of damages one is liable to be, one is liable to suffer are not the type that you can show in terms of money and that is our point, it is the taking of the property that is a deprivation of itself, it is the significant interest.

Now, we are talking about property worth about $600.00.

She has got the right to hold on that, now they show she defaults that is the contract.

Unknown Speaker: She may file the bond, she must file it within three days --

Mr. C. Michael Abbott: She must file it in three days.

Unknown Speaker: Must file?

Justice Potter Stewart: In order to get the property back.

Mr. C. Michael Abbott: Prior to trial.

Justice Thurgood Marshall: In that hearing can she plead breach of warranty?

Mr. C. Michael Abbott: The Florida Law is a little bit uncertain.

We believe she can.

There are cases which indicate that she cannot.

Justice Thurgood Marshall: Well, let us point this way, she can put the same defenses that as if Firestone has recently sued her?

Mr. C. Michael Abbott: That is right.

That is our position, yes.

Justice Thurgood Marshall: She can.

She is not denying any of the defenses, right?

Mr. C. Michael Abbott: No.

Unknown Speaker: And in Florida, must Firestone proceed to bring that action instituted by the complaint to a conclusion, is it required to do so?

Mr. C. Michael Abbott: I think it is unlike the Pennsylvania procedure where there is no requirement that you file a complaint at all.

Unknown Speaker: So, within Florida they are compelled to bring it to a conclusion?

Mr. C. Michael Abbott: Well, they did not I suppose that if they did not show for the hearing, it would just be just be a moot, but ordinarily, yes.

I mean, in the normal course of events one would normally conclude a complaint.

Unknown Speaker: Not if there is an answer filed?

Mr. C. Michael Abbott: Yes, if there is an answer filed then you are going to have your trial.

Unknown Speaker: There is not one, as the default?

Mr. C. Michael Abbott: On the part of the debtor, correct.

Unknown Speaker: Incidentally, I think, did you say that the debtor is not informed by Firestone at least or by the sheriff’s office that she may get the property back by posting the bond within three days?

Mr. C. Michael Abbott: No, she is not informed.

Unknown Speaker: And she -- so she has to know that she had a motion from some source or because the lawyers so advised to her?

Mr. C. Michael Abbott: That is correct, that is correct Your Honor.

I briefly just like to run over what the lower court held.

I mean, one of the things they said is it seems to them that Firestone, that Mrs. Fuentes may have wage her rights.

It is a little unclear from the opinion but it appears that they are saying that since the contract reads that in the event of default of any payments, since Mrs. Fuentes has admitted that she withheld payments, therefore, that gives Firestone the right to the property.

I think that is an incorrect assertion of Florida Law.

Our whole position during the whole litigation has been that ‘default’ is a technical word.

Default indicates breach of legal obligation.

Now, if Firestone has breached the warranty as she says they have, under the Uniform Commercial Code in Florida, she has a right to suspend her payments; that is her right.

Therefore, she has a right to suspend payments, she cannot be in default.

If the contracts said, in the event of an omission of payment, Firestone is entitled to repossession.

Then they would have a stronger case, but it did not say that, it says in the event of default in payment, there can be no default unless one proves that there is a technical default and that has not been proved here.

Likewise, the court below said that we are here dealing with a peaceable entry into her home.

It seems to me that with due difference to the lower court that is misleading, I think the question has to be asked, are we dealing with an entry that is coerced?

And did Mrs. Fuentes say, Sheriff come on in and take my property, it is alright, or did she stop them at the door and say you cannot have it.

What happened --

Unknown Speaker: A prior consent (Inaudible)

Mr. C. Michael Abbott: I think there was no prior consent in the taking?

Unknown Speaker: What does the contract say?

Mr. C. Michael Abbott: The contract says, in the event of default of any payment or payments --

Unknown Speaker: -- the property may be repossessed?

Mr. C. Michael Abbott: That is correct.

Unknown Speaker: Do you say that does not mean that they may repossess it from her home although that is where this kind of property all exist?

Mr. C. Michael Abbott: Not unless they can show some compelling reason that they need to break the sanctity of the home.

Unknown Speaker: I know, but well, I suppose -- you say you cannot send in advance to repossess it from her home?

Mr. C. Michael Abbott: I think maybe she could, I do not think she did --

Unknown Speaker: I thought you said, she did say you may repossess it?

Mr. C. Michael Abbott: In the event of default --

Unknown Speaker: Yes.

Mr. C. Michael Abbott: Of course there had been no default in our opinion.

Unknown Speaker: Well, that is a different point.

You state that even if there has been a default, there is no grounds for entering the home.

Mr. C. Michael Abbott: No, assuming that there --

Unknown Speaker: But your position is --

Mr. C. Michael Abbott: Now assuming there had been a default, it still seems to me that that she ought to have a chance to comply first.

I mean, they give her no notice they are coming.

If they --

Unknown Speaker: But assume the default was what she said in the contract sufficient to give consent then to enter the home?

Mr. C. Michael Abbott: No, I do not believe it is.

It seems to me there has got to be --

Unknown Speaker: (Inaudible) Fourth Amendment.

Mr. C. Michael Abbott: She has got to have a knowing waiver.

It seems to me it is their burden to show that she has knowingly waived it.

I think she could knowingly but perhaps under proper circumstances.

I do not think that the contract here indicates that she did or even has the kind of language indicating that we have the right to enter your home.

Chief Justice Warren E. Burger: You do not think that a written waiver is prima facie evidence of a waiver?

Mr. C. Michael Abbott: If the written waiver indicated what Firestone contends it indicates?

I do not think it does; I do not think if you read the contract you glean from it an indication or an inference that Firestone has a right to enter their home.

That is not in there.

If it were then it is to be a more difficult case.

I would like to reserve more of my time for rebuttal.

Thank you.

Chief Justice Warren E. Burger: Very well.

Mr. Schwartz.

Argument of Herbert T. Schwartz

Mr. Herbert T. Schwartz: Mr. Chief Justice and may it please the Court.

I am Herbert Schwartz, the Deputy Attorney General of the State of Florida.

I represent the appellee Robert L. Shevin, the Attorney General of Florida, Mr. George Wright, my co counsel who would be representing appellee Firestone, and he and I will equally divide the argument.

I should first like to address some remarks to the comments of the appellant as to the facts.

There is a stipulated set of facts in the appendix, which indicate that the Deputy Sheriff may or may not have an refused entry.

The appellees and the testimony that was taken at the hearing before the Three-Judge Court indicated that the Deputy Sheriff was admitted to the home peaceably and he did not force his way in at all, nor was this a type of entry that comes under the sheriff appearing in the doorway and the force of law behind them idea as in previous case before this Court.

Indeed, the Deputy Sheriff was in civilian clothes.

Apart from that the facts --

Justice Thurgood Marshall: Was the Deputy Sheriff armed?

Mr. Herbert T. Schwartz: There were no arms on the Deputy Sheriff that were showing.

I do not know whether he had to conceal it.

Justice Thurgood Marshall: Did the record can show that?

Mr. Herbert T. Schwartz: I am not sure Your Honor, I really cannot --

Justice Thurgood Marshall: Although, the record did not say he was the Deputy Sheriff?

Mr. Herbert T. Schwartz: That is correct Your Honor, he did.

Justice Thurgood Marshall: And that meant to anybody with any reasonable sense that he has the whole power of State of Florida behind him?

Mr. Herbert T. Schwartz: I would say yes Your Honor that is a reasonable sense I guess.

The State of Florida is a real party in interest in this case and the State does assert a real value to this statute.

It is more than the State of Florida, merely siding with a credit because in the proper circumstances we would take which ever side were just inequitable in defending our statute.

But we do have a viable interest in keeping creditor and debtor peace between the two.

It is to the interest of the State of Florida that we prevent and provide ways to keep people from resorting to self-help, such as breaking in and seizing the property and perhaps altercation is over.

So the reason for the replevin statute in the State of Florida is simply stated in our brief to take the property and to custodial end to let the two, the debtor and the creditor have it out in Court.

Because I hope the Court has got the distinct impression because it would be true impression that everything that is done in Florida in the replevin statute must be done by a Court.

There is no profanatory doing anything.

There are only officers of the Circuit Court or the Court that has jurisdiction doing the issuing of papers and the hearing, only a judge.

Justice Byron R. White: Well who (Inaudible)?

Mr. Herbert T. Schwartz: An officer of the Court, a clerk does all of this.

Justice Byron R. White: Judge can decide?

Mr. Herbert T. Schwartz: No, not decide, but before a default can be entered or judgment entered on the default.

Justice Byron R. White: Well, I understand that but the writ of replevin was not issued by a judge and the judge never see the need of the basis for this?

Mr. Herbert T. Schwartz: No, Your Honor.

But ultimately the manner is disposed of by Court before anybody gets the property.

And indeed the clerk must be satisfied and in our State, clerks are officers of the Court.

I am not sure how they are in another states, but he must be satisfied that the bond in proper form and that the complaint is in proper form and that the papers are in quite direct order and that is the last thing the ministerial officer the Court has to do with it.

From then on it is before the Court and no disposition of the case can be held without the Court doing something.

I think there is a very real interest in the conservation of judicial time and energy to be held in the statute envisions, and that it would take a great deal of judicial time and energy for a party to come before the Court of competent jurisdiction to get the writ of replevy, especially as Mr. Abbott says in an advisory hearing.

Certainly that would consume even more time than the ex parte type of hearing suggested about the Court in question.

And I think the State of Florida does have a very appropriate interest in preserving the economic viability of the installment credit system.

So, they really, State of Florida sees two major concepts involved here one is, the very basic underlying question that the State posts and that is our right to legislate in this statutory scheme of replevin, a writ is over 700 years old and somehow the appellant would have you believe that the viability and vitality of the writ of replevin somehow ended when the Deputy Sheriff stepped on the front porch of Mrs. Fuentes’ house.

Justice Thurgood Marshall: This is what (Inaudible), it was ex parte, was it not with replevin?

Mr. Herbert T. Schwartz: Yes Your Honor, it was.

Justice Thurgood Marshall: It was strictly ex parte, and then you add it was a writ of a vendor return (ph) or something filed upon, if you want it back.

It was all ex parte, was it not?

Mr. Herbert T. Schwartz: It evolved to that, your Honor, Yes.

Yes, Your Honor, that is correct.

The common law history of the writ is well-known to this Court and it is detailed in our brief that this is a viable common law institution that has been engrafted on our constitutional scheme of law and one that it stood the test of time.

It is not to be abandoned, the State of Florida feel simply because it is old.

Certainly, the older the law the more firmly rooted it is in our jurisprudence.

Justice Byron R. White: Could under Florida Law, Firestone can repossess without getting a writ of replevin at all, just use self help, if it would end up peacefully?

Mr. Herbert T. Schwartz: That would not be satisfactory to the State, Your Honor.

Justice Byron R. White: Well, not to the state, But how about under the Florida statute?

Mr. Herbert T. Schwartz: No, your Honor that would not satisfy the statute.

Justice Byron R. White: A secured creditor cannot, there cannot be wholly private repossessions by a secured creditor in Florida?

Mr. Herbert T. Schwartz: Not under the statute Your Honor.

There cannot be.

I am sure, as sure as I am standing here that automobile lending institutions do it when they find the car in the street, they take it.

I am not saying that we sanction it.

I am sure that goes on we are not involved in any type of case like that, nor would we be.

This is purely and simply our statutory replevin action that we are seeking to defend.

I think there is another fair amount in overriding issue that it is before the Court and that is just how far reaching is the doctrine of Sniadach or Goldberg.

I think the appellant in this case tries to view and characterized this case in a vacuum, separately in a part from its operative facts.

The facts are that Firestone, under our replevin statute and under its contract, had an absolute right to possess the exact same specific property that they then engrafted.

It does not sound ethereal or abstract right of judgment that they are seeking to execute on and therefore garnish Mrs. Sniadach’s wages or stop Mr. Kelly’s welfare payments, those things that are peculiar type of property, those things that are needed for the life blood of a family.

But, the appellant speaks here in conclusionary terms without any real facts to support those conclusions, he is speaking this case is one of abstraction really in regard to Mrs. Fuentes because the factual basis is one that wholly supports the reasonableness and the rationality of the Florida statute.

It was a peaceful repossession she has all the defenses available to her at the time and place when they reasonably can be presented and the appellant here would have this Court engraft on our law exactly what this Court has said it will not do at many times and that is make due process of law of some fix mechanistic principles without regard to the facts under which it is operating in a given case.

And I believe the attack on the Florida statute is a very broad brush treatment of storm and fury that really in a real sense attacks the very system of which Mrs. Fuentes is at beneficiary.

Because the system is orderly, it has a great deal rationality to it.

She, Mrs. Fuentes, upon repossession could have a quick hearing on the merits, she could post the bond, and also if this statute were abused at the hearing and she laid the predicate to establish the abuse of the procedure, she has her civil recourses to misuse of process, the civil actions for harassing predator techniques and tactics.

She could take Firestone in the Court and get damages from them for this harassment and for misuse of process if she could establish that this was indeed the case.

So, the fact that the statute has not been abused, speaks of its rationality.

And, I think also the fact that people know when they buy something on an installment basis that they are obliged to pay for it and they know that if they do not pay for it, it is going to be taken back rather by the seller.

So Mrs. Fuentes is not in a precarious position.

Indeed, the record shows that she had been a credit and installment purchaser of this very same Firestone Store several times before over period of years, she had established a credit rating with them, and that if she really have some defense to raise as to breach of warranty, the place to do it was before the court in a proper manner, in a proper case, and the forum was there for her to use.

Certainly, Mrs. Sniadach’s wages cannot be made analogous to Mrs. Fuentes stereo set.

Mrs. Sniadach’s wages were the life blood of her family, they were that suppose this Court specialized type of property presenting distinct problems in our society, without Mrs. Sniadach’s wages her family could not exist.

Without Mr. Kelly’s welfare payments being cutoff his family could not have existed.

Money represent those things that is a specialized type of property, certainly one cannot say that a stereo set and unused electric range sitting out on the back porch of a home are those specialized type of property.

Unknown Speaker: Well, I presumably I gathered from just reading the stipulation that the reason it was unused in sitting on the back porch was that Firestone -- that it was a defective?

Mr. Herbert T. Schwartz: This is a --

Unknown Speaker: Firestone has breached its warranty, is it not?

There had been controversy between Firestone and Mrs. Fuentes about the stove and as I got it Firestone supplied a new burners and what not?

But it still it did not work.

Is that right?

Mr. Herbert T. Schwartz: That that is correct, Your Honor.

There had been some dispute about the stove.

Firestone said it was fixed but Mrs. Fuentes said it was not. Nevertheless, the operative facts are this was a stove sitting out in the back porch.

She had another one and a stereo set.

That partly can be called the life blood of the family.

As the lower Federal Court said in Pennsylvania this was really the garden variety of personal property in a footnote to the abstract case.

Unknown Speaker: Mr. Schwartz, I supposed it is hard to conceive of it but, suppose this installment purchase instead of being for stereo and a range, had been for car pitches or foods stuff or something, then would we be closer to Sniadach and Kelly?

Mr. Herbert T. Schwartz: This is precisely the point Your Honor you would become very close to those specialized types of property that was the subject matter of Sniadach and Kelly.

In those cases, I would certainly say they might very well be the light blood of the family.

Unknown Speaker: You would have us draw the line of half then between these types of cases.

Mr. Herbert T. Schwartz: Your Honor, the State of Florida says that if you do not, if you do not what this Court would be doing would be deciding replevin cases add in for (Inaudible) as to precise property, which property does come under Sniadach and Kelly and which property does not in a case to case basis.

The operative facts, I think in summary.

The operative facts show that the state’s interest is to get the debtor and the creditor, and at this process, which is set up by the Florida statutes does need those rudimentary standards to fairness and due process that have been so often enunciated by this Court.

And that to change the Florida Statute’s in effect would be to throw a monkey range into the works of an orderly state process and an economic process in which both parties are eminently aware of their rights and duties.

Thank you, Your Honor.

Chief Justice Warren E. Burger: Very well, Mr. Schwartz.

Mr. Wright.

Argument of George W. Wright, Jr.

Mr. George W. Wright, Jr.: Mr. Chief Justice and may it please the Court.

Before proceeding to discuss the appellant’s due process complaints as they relate to this case, I would like to clarify one or two matters that have been here before discussed by counsel for appellant.

He has asserted in argument before the Court that there were complaints about the performance of the stove in question, and has asserted here in all argument that that was the reason for Mrs. Fuentes withholding payment on the installment contract.

When we were requested by the Three-Judge Federal Court below to confer it for the purpose of stipulating to as many facts as we could to ease the burden of that Court in resolving this case, Mr. Abbott, counsel for the plaintiff asserted and it reflected in this stipulation that he made a contention that there was some difficulty with the stove and that his client was not satisfied with the repairs that were made by Firestone.

Because of the fact that such assertion was made by counsel in that stipulation, the Three-Judge Federal Court below set down an evidentiary hearing for the purpose of allowing either or both parties to this cause to adduce before that Court evidence on any matters on which they may not be able to be stipulated.

At that evidentiary hearing despite inquiry by that Court of Mr. Abbott, he declined to adduce any evidence to support his unsupported contentions that the stove was in fact defective or have not been properly repaired.

There is nothing in this record to reflect in one order that the reason for Mrs. Fuentes withholding payment for the stove or for the merchandise purchase was because of a defect or a failure to properly repair.

The next point I would like to mention in respect to a factual statement and that is as to the Fourth Amendment contention.

Counsel for appellate implies and has throughout his brief implied that there may have been some forcible entry in the service of the particular replevin writ here involved.

That is a far cry from the undisputed facts here.

Not only was a peaceable repossession, the Deputy himself was invited in to the Fuentes home.

There is only a dispute as to the time of the invitation of the Deputy into the home but there is no dispute and it is conceded that prior to the actual service of the writ, the Deputy was invited in to the Fuentes home.

There was no objection by Mrs. Fuentes herself; there was a question raised by her daughter-in-law, who happened to be in the home with her about the right of the sheriff to repossess the merchandise.

The sheriff awaited the daughter-in-law’s call to Mrs. Fuentes’ son-in-law who then sought the advice of counsel and the sheriff stood there during this period of time which must have been some 30 minutes or so when all of these was going on and the son-in-law came to the home and advice the sheriff that he had talked with his counsel and that his counsel said he could not take back merchandise unless there was an actual court proceeding pending.

At which point, of course the deputy explained that there was a Court proceeding pending at which point all parties involved retracted and failed to raise any objection to the repossession of the merchandise.

One matter I would also like to clarify --

Justice Byron R. White: Was the complain in replevin --

Mr. George W. Wright, Jr.: There was a complain --

Justice Byron R. White: -- given to her then?

Mr. George W. Wright, Jr.: Yes sir.

And the complain in replevin, Mr. Justice White, is stated the basis of the claim that she had defaulted on the installment contract for the purchase of the stove and it was asserted what her default was in the balance owed upon that obligation as reflected by the contract --

Justice Byron R. White: Was that complaint filed in connection of getting the bond, the replevin bond?

Mr. George W. Wright, Jr.: Yes, the complaint had to be filed under our statute in order for the clerk to issue a writ of replevin.

Justice Byron R. White: Together with an affidavit?

Mr. George W. Wright, Jr.: Our statute no longer as Mr. Abbott pointed out requires an affidavit but in fact one was filed with this complaint.

But our statute does require the filing of a complaint at that is the actual institution of a lawsuit before the clerk is empowered to issue a writ of replevin, and of course the replevin party must file with the clerk a bond in twice the value of the property sought to be repossessed.

Unknown Speaker: What does Mr. Abbott mean by 1 or 2% under your practice?

Mr. George W. Wright, Jr.: I think he has referenced to the fact he filed an affidavit in the court below to the fact that, I think most of the practice or the practice of most bonding companies in Florida require the defendants who post forth coming bonds to actually collateralize the bond by putting up the value of the bond itself as security where they apparently do not require full collateralization of the replevin bond itself.

That is a matter of practice.

Unknown Speaker: The face amount of a bond is the same as indicated?

Mr. George W. Wright, Jr.: Yes, the face amount of the bond is exactly the same.

If there are abuses in the bonding company’s procedures or charges we of course would submit that would be matter for legislative direction and not for a constitutional strike down of this statute on the basis of the Fourth Amendment violation.

I would like to mention the fact that in our brief before this Court we have dealt somewhat with the economic aspects of the secured sales transaction.

Our purpose in doing so is not because I purport to be an expert in the field of economics which is somewhat a complicated field, but to point out I think significantly that the property interest in the collateral sale, collateral which forms subject matter of the installment sale, is vitally different from those involved in wage garnishments which were involved in Sniadach and welfare termination payments which were involved in the Goldberg-Kelly case.

And secondly, because the impact of altering or in fact eliminating some repossession remedies is conceivably so great that it should not be done by constitutional sweeping, constitutional attacks upon a long acquiesced in and honored remedy such as replevin certainly in absence of compelling judicial precedent.

We submit that there is no compelling judicial precedent of this Court that would require a constitutional strike down of this statute on the basis of due process contentions.

The times when this Court has had before, the question and the validity of the remedies or prejudgment attachments generally such as in McKay against McInnes, this Court has approved them and only in Sniadach has the Court disapproved any prejudgment attachment remedy or general attachment remedy and that of course dealt with the question of garnishment. The basis there being of course as Mr. Schwartz has emphasized that involved as the Court stated a specialize type of property wages in which the Court has describe there and in Goldberg as the very means by which to live.

Both in the economic and legal aspects of the secured sales transaction we submit bear consideration in considering the due process contentions asserted here by the appellant.

The respected property rights of course of the secured seller and purchaser are vitality different from those involved in a prejudgment garnishment.

For example, family finance has no contractual interest or legal interest in the wages of Mrs. Sniadach.

It has none certainly until after judgment is entered upon the debt if there be a judgment ever entered upon a debt.

Of course, there is no contractual relationship involved in the Goldberg situation, but in the secured sales transaction there is a contractual relationship involved which gives the creditor, we submit, certainly and equally if not greater property right in the collateral as the debtor, and it is for the protection of the creditor and the debtor that replevin remedies have been approved, have been enacted, and have been followed, and have been acquiesced in for centuries of time.

Justice Potter Stewart: This remedy would be available I suppose if let us assume that the personal property would cost a thousand dollars and after $999.00 have been paid and then it was default on the last dollar, the remedy would be available to the vendor.

Mr. George W. Wright, Jr.: The remedy Mr. Justice Stewart would be legally available on the Florida Statute, yes sir.

Justice Potter Stewart: So you cannot say that in every case there is more property right in the plaintiff than in the defendant?

Mr. George W. Wright, Jr.: No sir, you cannot say that in every conceivable factual situation that that would be the case.

We have adduced in our brief and appendix to our brief, statistics reflecting in so many instances that for -- particularly in automobiles for example that for the greater proportion of the ordinary automobile, the term of the automobile loan that the value of the collateral itself or the resale value of the collateral itself is much less than the balance owed on the debt.

For example, if I recall correctly and if it is reflected in our brief that on a 36-month automobile loan that for the first 22 months, the wholesale or resale value of the automobile is less than the balance due on the 36-month loan debt.

Justice Potter Stewart: Now, there are two reasons for that.

One is the fast appreciation on automobile in the first few months in its life and the other is that for the first few months the buyer is paying mostly interest and almost no principle, is that correct?

Mr. George W. Wright, Jr.: That is correct.

I would assume that if the contract provide the course that interest is being -- payments are being applied first to interest and then the principal which I trust is probably case in most such transaction.

We submit further that the Sniadach situation or Sniadach ruling should not be extended to all types of tangible personal property and to the replevin of the counsel for appellate would here assert.

Indeed, I think that this Court expressly recognized in Sniadach that it was not intended to extend its doctrine to all of prejudgment attachments in general.

The Court stated there that a procedural rule that may suit due process or satisfy due process or attachments in general citing its prior decision in the McKay versus McInnes which upheld on due process claims constitutionality of prejudgment attachments statutes of Maine does not necessarily satisfy procedural due process in every case.

And every case in Sniadach involved of course the specialized type of property that the Court recognized warranted a specific conclusion breached in that decision.

The same holds true in an essence we submit for the Court’s holding in the Goldberg decision.

The new property concept there recognized as embracing those dependent upon the sovereign for their very existence, that is the persons being all welfare and when they are deprived of their welfare payments, they are denied of their very means by which to live, we submit is peculiar to that situation and should not be extended to cover the situation of replevy of all types of tangible personal property.

I think perhaps counsel --

Justice William J. Brennan: What about the Bell and Burson?

Mr. George W. Wright, Jr.: Excuse me?

Justice William J. Brennan: What about Bell and Burson?

Mr. George W. Wright, Jr.: Bell and Burson, if my memory assures me correctly Mr. Justice Brennan involves of course the situation of the driver’s license of the Georgia Minister.

My understanding or reading of the Bell and Burson decision was essentially based on the entitlement concept that this Court recognized in Goldberg that once the government undertakes to give you something even though they are not obliged to give you something then that person has acquired such a property right in that entitlement that he should have an opportunity to be heard.

Of course, in Bell and Burson there was a provision for hearing but not on the question of liability of fault.

But I think that Bell and Burson were closely fits the specialized situation in Goldberg because the Court did observe in Bell and Burson, if my memory serves me correctly, that the driver’s license himself might well constitute the very means by which to live virtually speaking as or analogous to the Goldberg-Kelly situation.

Certainly, we submit that that cannot be applied categorically to all types of tangible personal and it should not be implied to a tangible person be at all.

I think there is one interesting statistics that we have cited in our brief from a publication often cited by the appellants themselves in their brief, entitled “The Poor Pay More”, and it demonstrates that people, while they may not be able to do without wages, can do without things.

The statistics show that insofar as consumer durable goods including such things as washing machines, furniture, carpeting, sawing machines that in families earning a annual income of less than $3,000.00 almost anywhere from 30 to 40% of those families, and this Court’s -- there is a sampling, it is about 300 families sampling.

But, it reflects that of the family sample, the 300 family sample earning $3,000.00 annually or less that who have these particular items the washing machine, the TV, the sawing machines and so forth that they had paid cash for them.

They had waited until they could save enough cash to pay cash for these articles, and I think it demonstrates that whether we are talking about rich or poor that people can do without things were they cannot do without wages or welfare benefits.

I think it is important to mention also that there is a vast distinction and a consideration to be given to the contractual property right that is involved in this particular decision or in this particular case, which is not existence in the decisions of this Court that counsel for appellant rely upon.

I did want to mention to clarify in response to a question asked Mr. Schwartz by of Mr. Justice White, that Florida does have the Uniform Commercial Code and under Provisions of Section 679.9-503 Florida statutes, it has the self-help repossession feature --

Justice Byron R. White: But Firestone has repossessed this without getting replevin bond under the Florida Statute and under the Uniform Commercial Code.

Mr. George W. Wright, Jr.: Yes sir, it could have so long it does not invoke a breach of the peace, but we submit certainly if that is reasonable and valid and we submit of course that it is that it should not be justification for striking down the replevin statute which does provide for of course the intervention of the state to assure a no breach of the peace.

Thank you, sir.

Chief Justice Warren E. Burger: Thank you.

You have two minutes left Mr. Abbott.

Rebuttal of C. Michael Abbott

Mr. C. Michael Abbott: Mr. Chief Justice and may it please the Court.

Briefly with regard to the facts the only point I want to make is that to the extent that the appellee Firestone continues to say that the sheriff was invited in to the home I think it is essentially misleading.

I would also like to note one error --

Chief Justice Warren E. Burger: It is then stipulated there or it is not?

Mr. C. Michael Abbott: No, it is not stipulated Your Honor.

Chief Justice Warren E. Burger: It is not covered by the stipulation?

Mr. C. Michael Abbott: What happened is that Mrs. Fuentes allowed the sheriff to enter after he had made clear his position that he has the obligation to execute the writ.

She did not say you come on in to my home to say that he was actually invited.

I think what happened was he, Mrs. Fuentes acquiesced.

In fact Mr. Leon (ph) acquiesced in speaking for Mrs. Fuentes who does not speak English.

But one thing I did want to note is that both the lower court in our own brief made an error in indicating that Mrs. Delgado called the son-in-law to come to the house because Firestone continues to contend that Mrs. Fuentes herself made no protest.

I think that is not true but in fact --

Chief Justice Warren E. Burger: Do these factual matters really make any difference here on the constitutional issue?

Mr. C. Michael Abbott: I do not think they do.

The Firestone contends that Mrs. Fuentes did not make any objection.

The only point I want to make is that the record on Page 28 would show that actually Mrs. Fuentes who called Mr. Leon and not her daughter-in-law and the lower court in their own brief including lower court were in error on that point.

The only point I want to emphasize is to say as Mr. Wright does that they have more property right than Mrs. Fuentes has or she gets more property right.

The Firestone has I think missed the point.

My whole point has been that what Mrs. Fuentes was paying for is the use of these goods and that is why she pays a higher price in the cash sale price.

In fact, we can show in this case I think, that they did not have any security interest in the stove at all when they took, I do not think that is particularly important I think the situation would be exactly the same if she had made only one payment at the time they came to take it.

That they have security interest in both items.

The point to be made is that she is paying more for this so that she can have their use immediately.

Unknown Speaker: Well, if she continues to pay more for them, she has their use, does she not?

Mr. C. Michael Abbott: That is correct Your Honor.

Unknown Speaker: This only arises when she stop paying.

Mr. C. Michael Abbott: That is right.

But of course Uniform Commercial Code and Florida says that our situation in which she has a right to suspend payment.

That is crux of our thrust, and it seems to me that Firestone ought to establish that she has violated or is someone in default.

I mean, if the Florida gives her a right to suspend payments, is it then fair to give Firestone a right to take their property before they prove they are entitled to it, and that is our thrust.

It seems to me to the extent that the appellee’s rest on the specialized property that they are ignoring the vast history that the due process cases in this Court.

This Court has always looked first to the state interest involved and then if there is a compelling state interest they look to see whether the property is significant.

Here, the very little talk coming from the appellees on the significance of the interest on why they need this procedure, why is it compelling that they have, what interest did they show that they needed or as required that they are going to settle without it.

They just have not shown that and that is the thrust of the past case in this Court, you look first to the State interest.

Unknown Speaker: But do you think -- Do you think this could be true every time that somebody wants to attack the case law or the statutory law of contracts of a particular state saying that it is unconstitutional, but all of a sudden the burden passes to the state to show a compelling state interest for this particular rule of contract law?

Mr. C. Michael Abbott: It seems to me if they are violating the fundamental rule --

Justice Potter Stewart: But that is the question before us.

Mr. C. Michael Abbott: That is right, if you look to the cases -- Mr. Justice Stewart, if you look at the case that have decided is Sniadach, all of those cases have a compelling state interest except for two, Ownbey versus Morgan and McInnes versus McKay about which Mr. Wright speaks.

Now those two cases at least Ownbey is clear involve a non-resident defendant.

So, they needed that kind of prejudgment attachment in order to bring them into Court.

McInnes versus McKay which is the per curiam decision appears to indicate that also there was non-resident defendant there too to extent the Court speaks of the defendant of making a special appearance.

Those are the only two cases cited by the Court in Sniadach in which there is not a compelling state interest in terms of the statute at hand in which a private creditor initiated procedure to only two cases, and both of those cases are distinguishable and that you needed the statute in order to bring that defense in Court.

All the rest of those cases involve compelling state interest.

Chief Justice Warren E. Burger: The time is up now Mr. Abbott.

Mr. C. Michael Abbott: I thank you.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.

Featured:

Fuentes v. Shevin - Oral Argument (No. 70-5138)

Thu, 23 Aug 2012 18:18:44 +0000

Case:

Fuentes v. Shevin

Related Transcript:

70-5138_19711109-argument

Transcript:

Argument of David A. Scholl

Chief Justice Warren E. Burger: We will hear arguments is in 5138, Parham against Cortese.

Mr. Scholl, you may proceed whenever you are ready.

Mr. David A. Scholl: Mr. Chief Justice --

Chief Justice Warren E. Burger: We will try to complete tonight, if it is all possible.

Mr. David A. Scholl: Okay.

Thank you.

Mr. Chief Justice and may it please the Court.

In this case, this is another action which is a class action, brought by a group of consumers.

This is similar in effect to the Swarb action which was also class action instituted on behalf of all of the residents of the state which had been subjected to a certain procedure.

For that reason, I would like to refer to the plaintiff, the appellants as the consumers although, I think that is partially a misnomer in this case.

The appellees, I will refer to as the creditors again.

Well, again it is partially a misnomer.

Well, what is in question in this case is the Pennsylvania procedure of replevin with bond.

The Pennsylvania procedure of replevin with bond is similar in many ways to the Florida procedure which was considered in the Fuentes case.

However, there are very important distinctions on Pennsylvania.

As was pointed out in the arguments in Fuentes case, the replevin seizure in Florida is part of a proceeding which has already been commenced which will ultimately determine the rights of the parties to the particular goods which were seized.

That is not the case in the Pennsylvania replevin with bond procedure.

All that a creditor need to file in Pennsylvania to commence the replevin with bond procedure are four things.

One of these things as an entry of appearance, the other is an affidavit of what the value of the goods are, then he is going to go out and have seized.

The third thing is a bond and the bond must be in double the value of the goods that are being seized and the fourth thing is merely a praecipe to that which is directly to the prothonotary, asking or ordering the prothonotary to issue a writ of replevin at bond.

Now, what need to be included in such a praecipe?

Well, really nothing, except that it is just the direction, a form just as a direction to the prothonotary to issue the writ of replevin?

prothonotary as I had mentioned in the Swarb case, this morning is merely a court clerk.

All that the court clerk does is to examine to see whether in fact the four pieces of paper that have to be filed have been filed.

And if they have, he then ministerially issues the writ of replevin with bond to the sheriff and the sheriff is required to go out and forcibly seize the property from the consumer.

Now, this is the distinction in the Pennsylvania procedure, not only from the Florida procedure which was considered in Fuentes but also, even the procedures in New York which was the subject of the Laprease versus Raymours Furniture case and in California which was the subject to the Blair versus Pitchess case.

Both of these cases held that the procedures involved there were unconstitutional.

Another important feature of the Pennsylvania procedure which is probably distinct from Florida because it is not actually the beginning of an on-going process which is going to determine the party’s rights to the goods, is that for all practical purposes when the seizure is made by the sheriff, that is the end of the proceeding.

Usually, nothing further is filed.

Now there are three possible ways in which the consumer can possibly get that property back, and these three only.

The first is he can file the counter-bond within 72 hours of the seizure of the property.

Unknown Speaker: What is he advised?

Mr. David A. Scholl: Well, he is never advised of it.

In fact, in the Pennsylvania rules of civil procedure, there is a form set out.

It is Rule 1354 and it is included in the appendix.

I believe it is included in our appendix, appendix A to our brief, and the form has nothing in it which states that the consumer can file a counter bond to recover the property.

Unknown Speaker: So that this part of the Pennsylvania procedure is apparent first to be identical with that in Florida?

Mr. David A. Scholl: Yes.

I think it is.

Unknown Speaker: 72 hours?

Double the amount.

I believe, bond double the amount of value property and no notice?

Mr. David A. Scholl: That is right!

Unknown Speaker: Is that it?

Mr. David A. Scholl: That is right.

There are two other ways that the consumer could possibly get the property back eventually.

The one is that, he could file a praecipe with the court which would require the creditor to commence an action to finally determine the rights of the goods.

Of course in the intervening time until that complaint is filed and until it comes to a hearing, the consumer is going to be deprived of the goods.

The only other possible way that the consumer could get the goods back would be to commence an actual of replevin with bond themselves and get the goods back from the creditor.

Of course, this is also going to require them to put up the bond.

Unknown Speaker: You said that the prothonotary –- how do you pronounce this?

Mr. David A. Scholl: It is prothonotary.

Unknown Speaker: prothonotary.

Mr. David A. Scholl: So you can refer to him as the clerk.

Unknown Speaker: Right![Laughter]

It is nothing more than less than a clerk of the court?

Mr. David A. Scholl: Exactly.

Unknown Speaker: Well, does that imply that this if filed in a court?

Mr. David A. Scholl: It is filed with the prothonotary with the court clerk and to that extent; it is filed in a court.

Unknown Speaker: In a court, just as anything filed in this Court, is filed with our clerk, is it not?

Mr. David A. Scholl: That is right, Of course --

Unknown Speaker: We do not call him by that title probably because we cannot pronounce it.

Mr. David A. Scholl: [Laughter]Of course, it never goes before a judge, at any point and the replevin with bond procedure of and so well, it may never go to a judge.

In fact, this probably never will.

But certainly not --

Unknown Speaker: (Inaudible)

Mr. David A. Scholl: The only way he possibly could is if the consumer does something, files a praecipe and makes the creditor file a complaint, then that complaint will eventually get –-

Unknown Speaker: Well what happens if the consumer filed this double bond?

Mr. David A. Scholl: Well he --

Unknown Speaker: And get the property back, then what happens?

Mr. David A. Scholl: Well, then the creditor, it is the creditor’s move so to speak.

The creditor is going to have to do something to get --

Unknown Speaker: And what something?

Mr. David A. Scholl: Well, you probably would follow it up by planning an action.

You file a complaint at that point because then, he would have to get the rights to the goods determined before --

Unknown Speaker: That thing would get you before a judge?

Mr. David A. Scholl: Yes, that would get you before a judge.

So if the consumer cannot come up with the counter bond, the creditor is going to have to go before a judge, to get that property.

But I think the problem is with the counter bond proceeding, especially when one considers the appellants in this record, we have two welfare recipients.

We have the Parhams and the Washington.

Mrs. Washington, both of them are welfare recipients.

They are required to come up with the counter bond within 72 hours or they are not going to get the property back.

Unknown Speaker: Yes, I think that they have three alternatives as I understood.

One is to come up with the counter bond within 72 hours.

Mr. David A. Scholl: That is right.

Unknown Speaker: So they can get back to the property.

Mr. David A. Scholl: Then they will get the property back.

Unknown Speaker: There is another occasion for controversy.

And the other was to file a praecipe?

Mr. David A. Scholl: Yes, but the trouble with the praecipe proceeding is that they will not get the property back when they filed the praecipe.

Unknown Speaker: The praecipe compels the plaintiff to file a complaint, is that it?

Mr. David A. Scholl: Right.

If you file a praecipe, then you are back to where Fuentes case is, you are back with where the Florida proceeding.

Unknown Speaker: Where the Florida proceeding begins?

Mr. David A. Scholl: Right.

Exactly.

Unknown Speaker: But I mean, you cannot always do that as of right by filing a praecipe.

Mr. David A. Scholl: That is right.

Unknown Speaker: And without filing any bond.

Mr. David A. Scholl: Yes.

But you have no -- You are not really, not at anytime.

You do have to file the praecipe; I believe it is within 30 days.

Unknown Speaker: Within that period of time.

And then the third alternative is, to yourself.

It is for the defendant himself to file a counter replevin.

Mr. David A. Scholl: Right! That is always permissible.

Unknown Speaker: Yes.

Mr. David A. Scholl: I think it would be in any --

Unknown Speaker: Replevin is sought for personal property where habeas corpus is for human being, is it not?

Mr. David A. Scholl: Well, I never thought of that analogy.[Laughter]

Unknown Speaker: As a matter of speaking?

Mr. David A. Scholl: Perhaps it is.

Now, I think, we have already had some discussion on Due Process and I think that the Due Process claim here is relatively clear.

This stemmed during the Sniadach case and also hearing the Fuentes, it is that there is a seizure of the property of the consumer without his having had any notice or opportunity to be heard prior to the time at which he deprived of that property.

Essentially, that is the due process claim.

Unknown Speaker: That is not so much that he gets no notice within 72 hours, you can file a counter bond.

Mr. David A. Scholl: Well, he does not get, he did does not get notice.

Unknown Speaker: No, I just want to get it clearly.

You said that your due process claim deals primarily was a fair way to give them any notice or opportunity to be heard, before the property is seized?

Mr. David A. Scholl: That is correct Your Honor.

Unknown Speaker: And not with the fact that he does not get a notice within 72 hours and within which to file a counter bond.

Mr. David A. Scholl: That is correct Your Honor.

Although, I think the fact that he does not get notice of the counter-bond accentuates the fact that the seizure is unlikely to be at temporary seizure.

Unknown Speaker: What happened if Mr. Cortese had --

Mr. David A. Scholl: Well, he is the prothonotary.

Unknown Speaker: I am sorry.

Mr. Parham had -- If I got the right name.

Mr. David A. Scholl: I think so.

Unknown Speaker: If the condition then be -- to file this counter replevin, how long could that process go on?

He files a bond in double the amount of the value of the property and so then the sheriff seizes the property back and the original claimant has 72 hours to hit the ball back in the other court.

How long does that go on?

Mr. David A. Scholl: Well, it could go on, I guess for any length of time.

Justice Thurgood Marshall: I would suggest --

Unknown Speaker: With the merits of the case never determined?

Mr. David A. Scholl: That is right.

I think it is unlikely that it would go on pass the first seizure because Mr. Parham, being a welfare recipient --

Unknown Speaker: Well, let us assume that he has a rich friend.

Mr. David A. Scholl: But presuming that --

Unknown Speaker: Okay, let us play this game and see what happens and what would happen?

Mr. David A. Scholl: You could just keep going indefinitely and --

Unknown Speaker: With never any resolution of the merits of the controversy.

Mr. David A. Scholl: That is correct Your Honor

Unknown Speaker: How you ever noted that?

Justice Thurgood Marshall: I submit that is not true that what happens then is that the creditor files a legal action and it is tried out in the court.

Mr. David A. Scholl: I think Your Honor is right and in fact, practically what would happen, but I was answering Justice Stewart’s questions to what could possibly happen and it would be possible, if the creditor decided to be stubborn about it.

Try to outlast the consumer --

Unknown Speaker: Well, have you ever heard of that instance ever happen?

Mr. David A. Scholl: I have never heard of that happening.

The Court below, recognized that the case of Sniadach versus Family Finance Corporation, which of course concerned a prejudgment wage garnishment seizure, in Wisconsin, this court held was violative of due process because it deprived the consumer in that case of wages prior to determination of the creditor's rights to it was closely analogous to this case and I think that principally, the best way of presenting this case on appeal is to discuss what the court below said and tried to establish how what the court said, did not have support either more in reason.

Now the court relies heavily on the fact that what was concerned within Sniadach or what this court was concerned within Sniadach was wages.

The Court, in fact, holds that because Sniadach concerned wages, therefore, Sniadach cannot possibly have any direct relevance on this case with the seizure of personal property.

I would submit that there are two rationales by which the reasoning that the Court below suggested can be rebutted.

I think the first arises when one considers that what is challenged here is a procedure by which certain property is taken.

The taking of the property of course is an instance of the procedure but it is the taking of the property before there is any determination of the party getting it has any right to it, that is really in question and should it make any difference at all.

Whether it is wages or whether it is personal property or whatever it is.

It is being seized prior to their being any notice and opportunity to be heard.

I think that this court’s decisions in Kelly versus Goldberg which of course concerned welfare benefits and the Bell versus Burson case which has already been discussed suggest that this Court did not intend the language in Sniadach to be delimited or did not intent to delimit its ruling in the Sniadach case solely to wages.

However, I think there is an alternative grounds, on which the court's reasoning can be rebutted and that is that the property seized here, which is the personal property of four persons is equally specialized as the wages that were concerned that the court was concerned within Sniadach.

What we have here, in fact, in the case of the Parham’s, we have a bed, a table and stools which were simply seized.

Now these are things which the Parham’s as welfare recipients simply cannot go out and replace.

It would take many months of saving and even them perhaps, they would not be able to save enough to replace the goods that are seized.

In the case of Mrs. Washington, it is the clothes cabinets that her daughters and her sons’ clothes had been kept in that were seized.

She was forced to simply put the clothes on the floor and just not put them in a cabinet

Unknown Speaker: Well, that is the case; the Washington case does not involve a conditional sale at all.

I think that is an argument between a man and his wife over the custody of one of their children is that right?

Mr. David A. Scholl: Well, that is right Your Honor and I think this points out another flaw in the court’s reasoning.

The court below in its discussion of the seizure constantly points to the fact that there is an extraordinary creditor interest here because the creditor has title and security interest in the property which is seized.

In the case of the Washingtons, we do not even have a debtor-creditor situation.

Unknown Speaker: That is what I thought.

Mr. David A. Scholl: So how can the fact that the title or security interest, and the goods have any really relevance to how replevin in Pennsylvania works.

And the answer is that it does not.

The Pennsylvania replevin procedure actually permits any person to seize anything from anybody.

As long as they can come up with a bond.

For instance, I could probably replevy this chair here, if I had a mind to do it.

I might be liable in some other court for abuse of process eventually, but certainly the replevin statutes would permit me to take it.

Chief Justice Warren E. Burger: Well, there are a lot of statutes which if abused can produce these anomalous results that are not used that way.

Speculation does not get us very far, does it?

Mr. David A. Scholl: Well, I would submit that the Washington case does submit an instance of abuse.

All we have in that case and that is the case before this Court.

Chief Justice Warren E. Burger: We are talking about replevin of a piece of the merchandise now.

Mr. David A. Scholl: Well, the point that I was making of course is that, replevin is not limited to the case of the seizure of merchandise.

That it can be used to seize anything and in fact, one of the parties before the Court was involved in a case that was not a consumer transaction.

It was a case where a father who had just been divorced from his wife, took the child, one of the children and intended to get all the goods that the child was using in his wife’s house.

Interestingly enough, he was a deputy sheriff and he knew about replevin and that is how he effectuated it.

I think though that even if we can assume that -- I think even if we focus on some of the other named plaintiffs in this case, even if we focus upon of the case of Mitchell Epps.

Now he is not an appellant in this case but of course, this case is part of the record below.

We can see how in other instances, we are presented with the fact that the replevin procedure in Pennsylvania is not narrowly drawn in such a way to merely protect creditor interests.

For instance, we might have a different case if we were --

Unknown Speaker: Are all or one of these debtors –- are these parties debtors?

Are they main plaintiffs?

Mr. David A. Scholl: Well, there are originally three main plaintiffs.

Two of them were debtors and the other one was Mrs. Washington, who is not a debtor.

Unknown Speaker: Are the two debtors agreed they were in default?

Mr. David A. Scholl: No.

There was no --

Unknown Speaker: They were not behind in their payments.

Mr. David A. Scholl: Well, there was no agreement as to Mitchell Epps regarding his default.

Perhaps I ought to explain what happened in the Epps case because I think it shows in other instance of how replevin procedure can be abuse or even in the debtor-creditor context.

Mitchell Epps had two separate accounts.

He had a revolving account on which she bought clothes and various other things and then he had some time payment accounts.

Now, what happened is that he fell behind on revolving account and he was paid up to date with the time payment account.

So governing employees’ exchange which was the creditor concern at his particular case filed a writ of replevin and came out and seized all the things that he bought on the time payment accounts.

Now, there is some question as to whether they even had a security interest in those goods on even assuming that somewhere they could produce a contract which showed that there was a security interest and goods purchased in the time payment accounts for violations in the revolving account such a security interest would probably be invalid because we have a case right on point decided in the District Columbia Circuit which indicates that such a security interest is unconscionable.

That is the case of Williams versus Walker Thomas Furniture Company.

So I think that this shows another of the possible of abuses to which the Pennsylvania replevin procedure because it is not narrowly drawn in subject.

That is that the creditor can define what the security interest is and what he thinks the security interest extends to before he goes out and replevins the goods.

Unknown Speaker: Well, apparently Pennsylvania, one of the instances as personal property is that it will be seized by anybody else if he applies the amount of the private property?

Mr. David A. Scholl: Yes, I would say it is.

Unknown Speaker: And do you say that it is unconstitutional, Board of Pennsylvania(Inaudible)

Mr. David A. Scholl: I think that it is.

I think that it represents a violation of Due Process of the citizens of Pennsylvania, for checking any of those citizens who have been subject to the seizure of the property without any notice or opportunity to be heard.

Now, what the Court below constantly speaks of is only the Parham fact situation and the court talks about how default is not denied here.

Well, there is no question that the Parham’s were behind in the payments on their contract but they were making some payments.

In fact, they had made a $25.00 payment in August of 1970 and made a $20.00 payment in the beginning of September 1970 and then a week later, Sears Roebuck, except $20.00 payment came out and replevied the goods.

And by this time they had paid off, I believe approximately $200.00 of the $384.00 debt, that they originally had.

I think that the Parham’s, they had an opportunity to get in the court and raise any defenses that they might have had.

They might have been able to establish that in fact, Sears Roebuck could agree to accept the $20.00 payments a month as a payout schedule.

Because the only reason that Mr. Parham was not able to keep up his original schedule was because he lost his job.

So this is the kind of thing also that the replevin procedure is subject to Mr. Parham, never having an opportunity --

Justice Thurgood Marshall: Do I understand you as where does it note without at all these provisions in it, that it is a good defense to say you cannot afford to pay?

Mr. David A. Scholl: No, what I am suggesting --

Justice Thurgood Marshall: Because you are unemployed?

Is that good defense?

Mr. David A. Scholl: That is not what I meant to suggest Mr. Justice Marshall.

Perhaps, I ought to explain --

Justice Thurgood Marshall: Oh you said he paid the fact that they accepted less than the payment.

Is it something to do with Roebuck, what did that do to Sears Roebuck?

Mr. David A. Scholl: I am saying that it may have this --

Justice Thurgood Marshall: Is it optimism?

Mr. David A. Scholl: It may have represented that they accepted a lesser payment schedule from the Parham’s in light of the fact that they were not --

Justice Thurgood Marshall: Can you give me anything in any law that comes close to that?

If he had paid $25.00 a month and you paid $20.00 that is your excuse from default because the man accepted the $20.00?

Mr. David A. Scholl: I think if the man accepted the $20.00 and does not say anything about it, there is at least an argument that can be made.

Justice Thurgood Marshall: Yes, that he does not notify?

Mr. David A. Scholl: Not that he does not notify but that in fact, the creditor should decease from taking the property as long as the consumer is willing to work out --

Justice Thurgood Marshall: How could you mean, he does not notify?

Mr. David A. Scholl: I do no think that it could possibly be asserted if they did not know the balance.

I did not mean to assert that.

Now, in addition to a claim that the due process rights of the consumers were violated, there is also a claim made by the consumers in this Court and it was also made below that the Fourth Amendment Rights of the consumers were also violated.

Because when an effect is permitted here is an entry into the home of the consumers and a taking of their goods without there being any assertion on the part of the creditor that he has probable cause to enter the home and to seize the particular goods.

Now, the court below gets out of any discussion of the Fourth Amendment in a very easy manner, they simply say that the Fourth Amendment does not apply the civil cases and this is a civil case therefore no Fourth Amendment.

I do not think that that follows the teachings of this Court as to what the nature of the Fourth Amendment is.

The nature of the Fourth Amendment is to protect person’s right to privacy to their home.

It is to prevent seizure or searches of the home and entry into the home by state official in any instance.

Whether the official is executing criminal process or whether as in this case is executing on civil process.

Now, I think that the several cases that point to this result.

First of all, the Camara case, the See case.

Even this Court’s decision in Wiremen versus James, although in that case, it was found that there was no search and no seizure, that case reiterated the holding of the Camara and the See cases that in fact the Fourth Amendment is not limited to cases in which there is a criminal matter that is before the Court and I think other cases that support this notion of the Griswold case which the Fourth Amendment is one of the grounds given for that decision and also the Viven case in which it was permitted at, the plaintiff was permitted to bring an action, civil action, based on the Fourth Amendment.

Positing that the Fourth Amendment does apply the civil cases, I think it is fairly easy to see that in this case, there is no showing of probable cause before a magistrate or any person before the seizure of property is affected.

In fact in Pennsylvania, there is no procedure that ever goes before any neutral arbitrator.

Chief Justice Warren E. Burger: However, the parties undertake the substitute agreements in advance for these processes?

Mr. David A. Scholl: Well, I do not -- neither of the contracts concerning this case really say anything about replevin.

The only thing that the contracts and now this is putting aside the Washington case which of course is not a consumer case and shows out the Fourth Amendment invasion on Mrs. Washington, I do not think that is it all relevant too, but even assuming that Mrs. Washington is out of the case for a minute, then we have just the consumers.

We have an agreement that says that the creditor shall retain title to the instruments and the one contract says, they may repossess goods, the other says, they may retake goods.

Well, title in itself as the uniform commercial code points out merely means that the creditor has a security interest in the goods.

So to say they have the security interest then title is probably redundant.

Now, in the --

Justice Thurgood Marshall: (Inaudible) only for limited decisions?

Mr. David A. Scholl: Right! That does -- a point from the contract that I was referring to you, I mean, retake the merchandise again.

It does not say, however, that they may, that is the Epps contract, if I am not mistaken.

That indicates, that does not say that they may replevy the contract of the property and perhaps the reasonable interpretation of the Epps contract is to be interpreted the same way as the Sears, Roebuck contract which merely permits repossession by the creditor and repossession is not replevin.

Justice Thurgood Marshall: Well, you can think that they were just coming in by self-help and take it?

Mr. David A. Scholl: Well, they could attempt to come there by self-help, but the distinction between repossession and replevin is that if Mrs. Washington and Mrs. Parham said to Sears, Roebuck or to Mr. Washington, you cannot enter my house, or I am not going to let you come into repossess the goods, the repossession would have to stop at that point and I think that is the important distinction --

Justice Thurgood Marshall: You think that is a fair interpretation?

Mr. David A. Scholl: I think that it is.

I think that is ambiguous retake.

Justice Thurgood Marshall: It is your interpretation that Mr. Epps could stop them from repossessing?

Mr. David A. Scholl: I think a fair interpretation is that all retake means is repossession.

Justice Thurgood Marshall: It could be repossession.

You agree that they could repossess, but you say it used to be interpreted that agreement that they could repossess it and give them the right to stop the repossession?

Mr. David A. Scholl: Well, that is the definition of repossession. Repossession has to be a feasible taking.

So the minute that Mr. Epps and Mrs. Parham would attempt to stop Sears from retaking the goods, they would have to stop it.

All repossessions of course are non-consensual or repossession can be consensual.

The Parham’s may have decided, in fact, they could not keep up the payments and they would just as soon have Sears to take it back.

Justice Thurgood Marshall: Well, I assume that (Inaudible)

Mr. David A. Scholl: I think that is all that they reached.

Justice Thurgood Marshall: (Inaudible) that contract, then anytime they may want to repossess that it was really repossess.

I would think that is what the language says.

Mr. David A. Scholl: I would not --

Justice Thurgood Marshall: Without (Inaudible)

Mr. David A. Scholl: I would not interpret that contract as permitting a forcible seizure merely because the meaning of repossession --

Justice Thurgood Marshall: I did not say it was forcible.

I said I would interpret that contract to say that if at any time if a creditor want to repossess that he has a right to repossess?

Mr. David A. Scholl: I would agree with you, Your Honor, but --

Justice Thurgood Marshall: But how do you have a right if he can stop it?

Mr. David A. Scholl: Well, by definite --

Justice Thurgood Marshall: (Inaudible)

Mr. David A. Scholl: Well, it is --

Justice Thurgood Marshall: I see it as an abstract right.

Mr. David A. Scholl: I do not think that Mr. Parham can be held to any interpretation of repossession, other than what it means in the law or nearly which is a feasible taking and I do not see how Mr. Parham especially, Mr. Parham, of course, is a not the person that drafted the contract could possibly be held to such an interpretation that it would permit replevin.

Also, with respect to the Fourth Amendment of course, the agreement is merely between Sears, Roebuck and Mrs. Parham.

It does not permit the sheriff to come in and take the goods and that is the person who takes the goods in this case.

Chief Justice Warren E. Burger: Excuse me Mr. Scholl, your time is up.

Mr. David A. Scholl: Thank you, Your Honor.

Chief Justice Warren E. Burger: Mr. Maxwell.

Argument of Robert F. Maxwell

Mr. Robert F. Maxwell: Yes sir.

Mr. Chief Justice and may it please the Court.

I represent solely Sears, Roebuck in this matter, as an appellee, but I do think I should mention one or two things where I feel there has been some misunderstanding.

Much is made of the Washington case and then impropriety of the repossession there that there was no right to immediate possession or title.

There was a hearing held in this case by the Lower Court, where Mr. Washington himself was summoned and so was the plaintiff Mrs. Washington.

Mrs. Washington did not appear nor did her attorneys and the court after hearing testimony of Mr. Washington, vacated the injunction that had previously issue and the order to return the goods, saying on page 29 of the record, “it now appears to the Court that the representations upon which the Temporary Restraining Order, September 8 issue were incorrect, both as to allegations contained in the complaint and representations made by counsel.

Accordingly, we will both vacate the order of September 18.”

Thus, there is a finding in the Lower Court on the merits of this controversy which has never been controverted.

Secondly, I would like to call to the court’s attention that while no complaint is filed in Pennsylvania replevin procedure, the bond itself signed by the person making the replevin and signed by a surety which must be an improved surety by the Court which is decided by the judges themselves, not the prothonotary.

There must be a corporate surety and twice the amount of the goods, but this bond says specifically that if, that the plaintiff claims the right to immediate possession of the goods and that if he does not sustain this in an action, in the action then he is liable to the defendant, the value of the property, all legal costs, fees and damages, sustained by reason of the issuance of the said writ.

Now, I would further call to Your Honor’s attention that this procedure is before that the first instance before a prothonotary of the court and his deputy clerks of the common police court.

The fact that a complaint is not filed at the beginning is taking care of in my opinion by this bond where the man finds himself a replevying party and his surety and says he has a right to immediate possession.

But more than that, the rules are replete as is the Original Act of 1705 in Pennsylvania, with immediate actions that the defendant can take to turn away the writ, the effect of the writ.

True, he can file a counter-bond within the 72 hours.

If he does so, then he immediately gets the property back, but as Justice Marshall has indicated, this does not result in a back and forth bond.

It requires as the rule says that all actions of this nature shall follow the rules of assumption in Pennsylvania.

There are must be a filing of the complaint immediately upon at this time by the plaintiff.

There is a right to answer and then it comes before the court either, on a jury trial or by mutual waiver jury trial.

Now second, there is also an immediate right under the rules to move, to adjust the bond, to cancel the bond, to take over the prothonotary to say that they can move the court immediately.

They go immediately to a judge to move that the prothonotary’s action in issuing this bond is improper and to limit the bond, to discharge the bond, etcetera.

So there is really an actual -- let us see, this is one of rules here which are attached and says specifically that the bond can be adjusted and that there can be, it can be thrown out in fact by the court.

Now --

Justice William J. Brennan: This I gather that in the repossession that was taken by the sheriff?

Mr. Robert F. Maxwell: That is right, Yes sir.

In other words --

Justice William J. Brennan: And if the result is a discharge bond then what happens?

Mr. Robert F. Maxwell: Then if the bond were discharged, the goods would immediately revert to the defendant and the court would either enter a final order at that point or would set it down for a future trial.

Justice William J. Brennan: Does adjusting the bond means an adjustment to the amount --

Mr. Robert F. Maxwell: It would be adjusting or they could cancel the bond.

Say the bond has been improvidently issued the rule says.

Now, in addition to this situation, a replevin action is Pennsylvania is never dead until a complaint has been filed, served upon the defendant and judgment entered either by default after 20 days or after hearing before the court and there are provisions in the rules stating that the court has the right to give damages on either side, substantial damages, it can hear the entire case either before a judge or before a jury.

Now, I submit that under these facts, that there has been compliance with constitutional rulings of this court throughout its previous history.

I think it has been indicated in this Court that a party first, taking advantage of a statute cannot be sought -- seen to come in and to attack the constitutionality of the statute.

And this was in the very case of Fay was just Mr. Justice Douglas referred to as an exception in the Sniadach case and the Court specifically said and I think that opinion also was, I know that was by Mr. Justice Jackson said that if you take advantage of a statute, you cannot attack its constitutionality.

Now, these people in gaining these goods, the possession and title of these goods depends on the Commercial Code and the goods in sales act to Pennsylvania.

These forms, the way the form reads, the amount or the title of the type, everything is provided by these laws.

They got possession of these goods by means of compliance with this act, but they say that the punitive effect of this act, the collecting of money for it or replevying the goods, that should be stricken down because it is unconstitutional.

In this action, replevin is merely a procedural remedy to enforce the rights of the creditor given by the Commercial Code, the right to self-help, plus the right to replevy by court action if this is so desired and this is how the plaintiff’s rights in this case arose in this property by this very Commercial Code and certainly, you cannot if they just strike down the replevin action.

It would seem to me, you would have to strike down the security provisions of the uniform commercial code which is effective in 49 states.

The very language precisely here, saying that you can proceed by self-help or in the alternative by an action of replevin and the action of replevin has been proceeded with in this point, in this case.

Now, I think the only other thing that this Court has said over its past history, again in certain exceptions to the Sniadach doctrine that is language that was used in the Sniadach doctrine as indicated that in personal property if there is sufficient availability of immediate or subsequent remedies sufficiently protecting the party against whom a replevin or action has had, where the property is taken from him that this satisfies the due process.

Now, in the specific cases before speaking of the Fourth Amendment, there is certainly I can see no violation of the Fourth Amendment here that was a feasible taking certainly in our case and in all other cases.

And I do not see against -- it was by agreement, the right in the property of this plaintiffs passed through them by virtue of the Uniform Commercial Code, by provisions of the Uniform Commercial Code which is I say is in effect in 49 states and then it is said that because it passed this way, the other part of the Uniform Commercial Code which not only gives rights to these plaintiffs but gives the facts that this part of the code should be stricken down and I think --

Unknown Speaker: (Inaudible)

Mr. Robert F. Maxwell: Pardon?

Unknown Speaker: What is the hold out in state in 49?

Mr. Robert F. Maxwell: I believe sir, as I understand it, that it is Louisiana because of the French law, I believe that is it.

So, I think that is really -- I adjust in this case, really solely move for a dismissal on the ground of this specific case.

In our specific case, we gave a prior notice, four or five prior notices which are part of the record that we were going to repossess, there was default and after that, we finally did repossess and as I say, this replevin action as any other replevin action is still open.

The state courts are open to these people.

In every one of these cases, they could have gone to the state court and a common police judge sitting in city hall and (Inaudible) up, he would have given immediate order if they have rights on which they can depend or which they can, which exist.

Justice Potter Stewart: Mr. Maxwell, in this case as an earlier case today, we have the Attorney General of the State of the Commonwealth of Pennsylvania, instead of seeking and uphold constitutionality of a legislation passed in his commonwealth, respectfully praying that the judgment of the court below be reversed and that this Court entered a judgment deterring the Pennsylvania statute is unconstitutional on their face.

So what is the history of that?

Mr. Robert F. Maxwell: Well sir --

Justice Potter Stewart: We hear at least I hear in federal cases to the tradition that it is the duty of an Attorney General of the State to defend the validity of his state laws?

Mr. Robert F. Maxwell: Your Honor, you probably state the law.

In my position, I have enough problems as attorney for Sears, Roebuck and general counsel for them (Voice Overlap)

Justice Potter Stewart: Well, can you tell as what is the --?

Mr. Robert F. Maxwell: I do not know sir.

Justice Potter Stewart: Was state involved in the --

Mr. Robert F. Maxwell: It did not appear in the Lower Court, Your Honor.

Of course there has been a change.

I think this was measured by Mr. Scholl.

It was a change in administration of the previous Attorney General with Mr. Speaker and it is now Mr. Shane Creamer.

Justice Potter Stewart: And this law has been --

Mr. Robert F. Maxwell: But I do not think it would be right for me to --

Justice Potter Stewart: But this law has been on the books, at least, the core of it, since what, 1705 (Voice Overlap)?

Mr. Robert F. Maxwell: It has been in effect since 1705 ,Your Honor and of course before that I guess it was common law, but it was a law of the colony when the constitution was enacted in independence for Philadelphia.

Chief Justice Warren E. Burger: Thank you, Mr. Maxwell.

Thank you gentlemen.

The case is submitted.

Featured:

Simmons v. West Haven Housing - Oral Argument

Thu, 23 Aug 2012 18:31:01 +0000

Case:

Simmons v. West Haven Housing

Media File:

81_19691208-argument.mp3

Related Transcript:

81_19691208-argument

Transcript:

Argument of Francis X. Dineen

Chief Justice Warren E. Burger: Today is number 81, Simmons against West Haven Housing Authority.

Mr. Francis X. Dineen: Mr. Chief Justice --

Chief Justice Warren E. Burger: Mr. Dineen.

Mr. Francis X. Dineen: Mr. Chief Justice, may it please the Court.

My name is Francis X. Dineen.

I represent the appellants in this matter.

Jurisdiction of this Court has invoked under 28 United States Code, Section 1257, Subsection 2 because of the fact that the constitutionality of a state statute as an issue.

And by the decision of the appellate division of the State of Connecticut, the constitutionality of that state statute has been upheld.

The Supreme Court of Connecticut denied our petition for certification and so the appeal to this Court is from the appellant's division of the Circuit Court.

The facts of this case involve a relatively ordinary eviction action which was commenced in July of 1967.

Thereafter, pleadings were filed and defenses were raised and in fact seven special defenses were raised to the eviction action that was brought.

In January of 1968, a trial took place.

On January 16, judgment was entered for the landlord, the Housing Authority of West Haven.

Thereafter on January 18, our appeal from that judgment was filed with the Appellate Division.

At that time, pursuant to Section 52-542 of the Connecticut General Statutes, it was required that we file with the court a bond with a surety to cover the rents that might accrue during the pendency of the appeal.

And in order to file that bond, on behalf of our clients, we went to several surety companies asking them what they would require to go on the bond as a surety.

The bond in this case because the rent was $72.00 per month would have been approximately something in the nature of $400.00 to $500.00 or even more dollars for this bond.

In fact, that case that we have cited in our brief, in which the rent was approximately the same as our rent, the trial court had ordered that a bond in the amount of $700.00 be filed in that particular case.

So that in any event, our bond would've been something in the nature of $500.00 to $700.00.

And this again, is to covered the rents that would accrue during the pendency of the appeal.

The surety companies that we approached asking that they own this bond with us, demanded full cash collateral before they would sign a bond as well as demanding their fee.

This was impossible for our clients to pay.

They were poor and they didn't have that kind of money.

So, we went to the trial court and by motion on our client's behalf to waive the surety bond.

We stated these facts to the trial court and asked that as an alternative in order to protect the landlord during the pendency of the appeal that we be allowed to pay the rent into the Court every month to be held by the Court in escrow.

And we also agreed that in the event that we should loss the appeal and ultimately if the Supreme Court of Connecticut heard it and lose there, but this body then will be turn over to the landlord.

We also agreed that if any one month we fail to pay that rent into the Court that the appeal could automatically be dismissed.

Now, we thought this was a fair alternative because the increase of the state has in protecting the landlord would be met entirely by this provision by this alternative that we offered if we pay the rent to the Court every month as it came due.

And if we fail any one month and our appeal would then be dismissed, the landlord would have all the protection that he would be entitled to.

Chief Justice Warren E. Burger: Is it clear Mr. Dineen that the Court have the power by way of equity, discretion or some other source to waive the bond requirement and accept your alternative proposal?

Mr. Francis X. Dineen: Your Honor, it appears to us that it's clear that they did not have that discretion.

The reason I say that, we cited in our appendix the appellate court decision and on page 57 in the appendix where we recited the decision, the court says, the right to an appeal is a not a constitutional one.

Though one based upon privileges of natural justice.

It is but statutory privilege which an aggrieved party has the right to avail himself of only when he is strictly complied with the provisions of the statutes.

And later, on page 60 of the appendix, the Appellate Division says, "Want a bond with surety, where a bond with surety is by statute a prerequisite of review furnishes a sufficient ground for dismissal of the appeal."

We made the motion in the trial court because there had not been a decision such as this with regard to waiving a surety bond prior to this time.

We made it because we felt when we're offering a fair alternative.

It turned out from our understanding now of the Appellate Division's decision that the Appellate Division decides that it does not have the power to waive this --

Justice Hugo L. Black: What did you say the suit was filed for?

Mr. Francis X. Dineen: This is an eviction action Your Honor.

Justice Hugo L. Black: It -- nonpayment of rent?

Mr. Francis X. Dineen: Well, there were two actions.

The action that we're concerned with was based on nonpayment of rent.

Prior to that, --

Justice Hugo L. Black: And you offered to pay the money in the court?

Mr. Francis X. Dineen: We offered to pay the money in the Court at the time of the appeal.

During the pendency of the action from July 1967 until the time of judgment in January of 68', rent was not being paid.

Now, --

Justice Hugo L. Black: Was there any defense?

Mr. Francis X. Dineen: Yes, there was Your Honor.

There were defenses on the merits that no rent was due.

Our defense all along was for two reasons no rent was due.

One was that the -- we claim that the landlord, the Housing Authority, had not complied with Connecticut statutes and this is set forth as well on page 29 of the appendix.

Justice Hugo L. Black: What Connecticut statutes?

Mr. Francis X. Dineen: There're Connecticut statutes Your Honor that require that any building that is considered a tenement house or a garden type apartment.

And these are -- they find in Connecticut statutes, must have what is called a tenement house certificate stating that that building complies precisely with these tenement house laws.

And if it does not have a tenement house certificate, then no rent is due.

And under a case cited I believe in our jurisdictional statement, Creamy Hollow Apartments against Louis, no special proceeding or some reprocess action can be brought when such a house does not have this tenement house certificate.

That was one of our defenses as to the claim for rent.

There was a second defense and that relates to the first action that was brought.

There was an action brought some two months or three months before the second action which is an issue here.

That was brought in early May and it was effort file the landlord to put these people out for another reason.

That was our contention that under Connecticut law that once a first action is brought, there is no more obligation on the part of the tenant to pay rent to the landlord.

It's an obligation to pay what we --

Justice Hugo L. Black: But you offered to pay the rent first, plus the cost?

Mr. Francis X. Dineen: I beg your pardon Your Honor?

Justice Hugo L. Black: Did I understand that you say awhile ago, you had offered to pay rent plus the cost?

Mr. Francis X. Dineen: We had offered to pay rent every month from the time of the appeal.

The point I'm trying to make is this.

Justice Hugo L. Black: That would pay at all?

Mr. Francis X. Dineen: I beg your pardon Your Honor?

Justice Hugo L. Black: That would pay all the man was claiming, that company --

Mr. Francis X. Dineen: No, Your Honor.

That would pay from the time the appeal started -- from the time the appeal started during the entire pendency of the appeal.

Justice Hugo L. Black: But would it pay the back rent?

Mr. Francis X. Dineen: It would not pay the back rent, Your Honor.

Now as to that question, there's no required in Connecticut law that in order to defend or to litigate in a summary process action, if you have to pay any rent.

In fact generally, when a summary process action is commenced, the landlord will refuse to take any rent because this would be a waiver probably of his action.

Litigating and defending an eviction action is not conditioned in Connecticut upon paying current rent.

Connecticut law does not require that.

And this particular factor, we don't feel as relevant to this case.

In other words the fact that for several months, from July until January rent was not paid is not relevant to the issue that we presented to this Court.

If we had paid the rent in full, every month as we went along during the litigation.

We still would have come to the same problem that we came to here.

We would've come to the time of a appeal where we would have had put up this bond with a surety.

In other words, to get the surety, we would have to put up lump amount covering perhaps some six or seven or eight months rent.

And so the precise same issue that's raised by this case would have been raised even if every month we had been paying the rent to the landlord or into the court during the litigation.

But we had defenses up until the time --

Justice Hugo L. Black: What did you say your second defense was?

Mr. Francis X. Dineen: The first was that there wasn't any tenement house certificate.

The second was, that there had been a prior action brought which terminates any obligation on the part of a tenant to pay rent to the landlord.

Once the landlord commences an eviction action, he waives his right to collect rent and his effort to terminate the lease --

Justice Hugo L. Black: He waives his right to collect rent?

Mr. Francis X. Dineen: Collect rent as such Your Honor.

He's still is entitled to collect whatever the reasonable value of the premises are, but this would be a separate matter.

These were our two defenses during the cause of the trial that rent was not due to the landlord.

Justice Potter Stewart: What was the basis of the prior action?

Was that also an eviction action?

Mr. Francis X. Dineen: That was an eviction Your Honor.

The basis of that was they claimed the nuisance with regard toward tenants.

We defended that.

That never came to trial, that action in fact is still pending, theoretically.

It's never been withdrawn, it still exist.

Our defense is relating to that action are set forth from the special defenses that we had which are part of the record in the second action.

Justice Potter Stewart: So, that was the first action in the eviction action because your clients have allegedly were committing a nuisance?

Mr. Francis X. Dineen: That was the allegation Your Honor.

Justice Potter Stewart: And then -- and that's never been resolved.

And then there was a second eviction action based upon to nonpayment of rent.

And you had two defenses.

First, that since they didn't have a certificate, they couldn't ask you for rent?

Mr. Francis X. Dineen: That's correct.

Justice Potter Stewart: And secondly, since they brought this earlier action, they didn't have any right to ask you for rent as such (Voice Overlap) --

Mr. Francis X. Dineen: That's correct Your Honor.

They have waived it or they were stopped to claim --

Justice Potter Stewart: But I don't understand, how you can say that if you had kept paying rent this question would still have arisen because if you had I suppose in this action which is only based on a nonpayment of rent, it couldn't have arisen.

There would've not been an appeal, there wouldn't have not been a --

Mr. Francis X. Dineen: Yes Your Honor.

If we had been paying -- let us assume we have been paying during the course of the litigation each month.

Now, if we paid as rent, there is some technical use of words in Connecticut as to rent or use in occupancy.

If we paid as to rent and it was accepted as rent, this would operate as a waiver of the action.

In other words, once the landlord had renewed the tenancy, then they couldn't continue on with the action.

Well, let us assume we didn't pay it as a rent, we paid it as use in occupancy with the reasonable value with the premises as we went along.

Now, that would have not affected to the court's judgment because the judgment was based upon facts that took place prior to this time, prior to the continuation of litigation.

Justice Potter Stewart: Nonpayment of rent --

Mr. Francis X. Dineen: Nonpayment of rent for a specific month which was back in the month of May which was what they were claiming.

At the time of judgment, I -- if we are paying the during the course of litigation is, what I'm saying is that would not affected the court's judgment.

At the time of judgment, eventhough we were paid up and were current, we still would've face this appeal bond which says, if you want to appeal, you have to put up a bond with surety to cover the rents that will accrue.

Even if we had no arrears at that time, we would have to get a surety and pay him say, five months in advance or whatever it would be that we would put down in the bond, say $500.00 in advance.

And even if we're current and had no arrears, we would still in order to meet this appeal bond have to have more tenants put up $500.00 in there which they couldn't afford.

Justice Thurgood Marshall: But how would you lose if you paid the rent?

So I understand you said this would pay you to pay rent?

Mr. Francis X. Dineen: The eviction --

Justice Thurgood Marshall: And you did pay rent, you'd win.

Mr. Francis X. Dineen: Well, not necessarily because this is a very -- it's a very technical action.

The action that was brought related to a failure to pay in May.

The first action was brought on May 5th.

We claimed we had a leeway to pay.

In other words, they have been there for months before sometimes they paid on the 10th, sometimes on the 15th.

It's a working family.

When they didn't have it, they got a few days extra to pay.

The landlord wanted them out and brought the action on the 5th on the technicality that they hadn't pay on the first.

Now, what I understood Mr. Justice Stewart's comment today was if we're paying in good faith a long as we went rather not necessarily on the first which is the technical basis of the action.

But say on the 15th and whatever we had it each month, wouldn't that affect the outcome.

I'm saying no, that would not affect the outcome at all, because he would still get to the point of judgment where the trial judge say, why didn't you pay on the first.

Therefore, judgment for the landlord, I don't care whether you've been paying your arrears or --

Justice Thurgood Marshall: You mean the Connecticut Court would say that for the past six months you paid $72.00 everyday, every month on the second, therefore, you are out?

Mr. Francis X. Dineen: Yes Your Honor.

If you didn't meet the terms --

Justice Thurgood Marshall: That's what the Court would say?

Mr. Francis X. Dineen: If you didn't meet the terms of the lease and the eviction action were brought on the basis of -- then termination of the lease for failure to comply with it.

Even though during the course of litigation, we were paying use in occupancy.

That court would still say, that they were the judgment of the landlord.

So that there could've been a time, and what I'm saying is that makes this nonpayment or this failure to pay during the litigation irrelevant.

There could've been a time when we came to judgment for the landlord and we had no arrears.

We've been paying this use of occupancy all along and we're still faced with the precise question that were faced with here.

Chief Justice Warren E. Burger: Mr. Dineen, let me see if I can get one opinion clear there were some findings here and then there are some colloquy in the record which would seem to explain the findings.

And I'm not sure to -- in which action this took place.

The finding I'm referring to, the finding of the trial judge, if the court at the first instance that this appeal was taken for purposes of delay and not in good faith.

Now, do you challenge those findings?

Mr. Francis X. Dineen: Yes, we did challenge those Your Honor.

Chief Justice Warren E. Burger: But now if those findings, let's assume first that you are right from -- and that the findings are in error, do we review a finding of the Court at the first instance of the state on a factual issue in which undoubtedly credibility and other similar factors are --

Mr. Francis X. Dineen: No, no Your Honor.

My contention as to that as well is that that finding is irrelevant to this appeal.

That finding that the appeal was taken for the purpose of delay relates only to stay of execution.

Other words, we're still --

Chief Justice Warren E. Burger: Was it not also relate to whether a bond would be accepted --

Mr. Francis X. Dineen: No Your Honor.

Chief Justice Warren E. Burger: -- Under any circumstances?

Mr. Francis X. Dineen: -- because as I understand the Appellate Division decision there is no discretion in the court to waive the bond.

In other words, even if they thought we were appealing in for delay.

They or not for delay or in appealing in good faith whatever the trial court may have found.

He still doesn't have the discretion to waive that bond.

He requires the bond and failure to put up the bond makes a subject then to a motion to dismiss the appeal.

Our feeling is that the finding that the appeal was taken for the purpose of delay is not relevant to the questions before this Court because that only relates to the stay of execution.

The Appellate Division's decision in this matter, when they dismissed the appeal and denied our motion to review says nothing about any delay.

It simply says, that we failed to put up a bond and that the bond is required.

The appeal was dismissed because we didn't put up the bond and the bond was not waived because there was no authority in the court to waive a bond.

Any question of delay which we did dispute all along even assuming that there were delay involved and that the finding of the trial court were correct is not relevant to this appeal.

The only thing that's relevant as we see it, is the surety bond which requires in a fact that in advance be made on the rent in lump sum for some five or six months.

Justice Potter Stewart: Well, that would defend if you -- while you approach this issues about the statute on this face and the statute in the trial.

If you're arguing as a matter of federal constitutional law, state could not insist about security and in appeal in a situation where it made the determination, that the appeal was frivolous unless you can take it for the purpose in July, are arguing that?

Mr. Francis X. Dineen: I'm not arguing that Your Honor.

Under Connecticut law, the question of delay or formality doesn't relate to your being entitle to appeal.

What we are questioning is when there is the right to appeal, that's available to everyone but it's condition on the posting of this bond and which requires that you in a fact put up several months rent in advance.

Now, that that is unconstitutional because it deprives some constitutional, we claim for several reasons both it denies Equal Protection of the law and it denies Due Process.

Justice Hugo L. Black: Where is that finding?

Mr. Francis X. Dineen: I beg your pardon Your Honor?

Justice Hugo L. Black: Where is that finding you made was indicated?

Mr. Francis X. Dineen: Which finding, Your Honor?

Justice Hugo L. Black: Finding of facts about whether they were of indulgence?

Mr. Francis X. Dineen: There was a motion made to the trial court that we be entitle to waive the bond and at that time we filed an affidavit.

Justice Hugo L. Black: Where is that?

In the record?

Mr. Francis X. Dineen: I believe that's in the appendix, Your Honor.

Chief Justice Warren E. Burger: I believe that's finding one and two, I'm sure what page it's on.

Mr. Francis X. Dineen: And in the appendix on page 10, we have the motion to where the surety bond.

Then, we have a financial affidavit of the tenants on page 12.

Justice Hugo L. Black: Now, where's the finding of the Court whether there was indulgence shown?

Mr. Francis X. Dineen: I don't believe the Court ever made a finding Your Honor.

The Court then --

Justice Hugo L. Black: Now what did he show what the man does?

Mr. Francis X. Dineen: Yes Your Honor that's is in --

Justice Hugo L. Black: What's his occupation?

Mr. Francis X. Dineen: He was working at Series Rolebook at the time.

Justice Hugo L. Black: Regularly?

Mr. Francis X. Dineen: Not regularly Your Honor.

The problem was this.

During the cause of the trial, this man had a nervous breakdown and was unemployed for a substantial period of time.

Justice Hugo L. Black: During the course of the trial of before it?

Mr. Francis X. Dineen: During the course of the trial.

At the time of the appeal, when we file this financial affidavit, he then was working with Series Rolebook.

But during the course of the trial, he had a nervous breakdown and was unemployed.

We tried to obtain welfare assistance for the family.

But because of the fact that an eviction proceeding was pending, we are unable to get assistance from the welfare upon.

This one of the background fact --

Justice Hugo L. Black: So you agreed to get some kind of fund in the Court?

Shall be reward indigent or you bring the case all of at the end?

Justice Byron R. White: Well didn't the corporation think it was a relevant whether he was indigent or not?

Mr. Francis X. Dineen: Well, that's -- this our understanding of the court's opinion that whether he is indigent or not there isn't the power to waive the surety bond.

And I think that's implicit.

Justice Hugo L. Black: Suppose there's not if it's in theoretical thing, why should we have it up beyond the constitutional question?

Mr. Francis X. Dineen: Well, the Appellate Division as I understand it makes a clear that there is any power to waive the surety bond that the surety bond must be complied with.

Justice Hugo L. Black: Suppose does not and suppose he doesn't need this waive.

Would you still claim you could get a decision on the constitutional question decided?

Mr. Francis X. Dineen: I don't understand Your Honor.

Justice Hugo L. Black: Suppose it is not an essential, would you still claim that eventhough you're not indigent you could get it it's not constitutional question decided.

Mr. Francis X. Dineen: If you're not indigent?

Justice Hugo L. Black: Yes, there's no finding of them.

Mr. Francis X. Dineen: Well, I --

Justice Hugo L. Black: Or you say you can get to that issue without having something or some kind of find or of something to show that really you use any of it.

Mr. Francis X. Dineen: Well, we have an affidavit --

Justice Hugo L. Black: That's right but is there any finding?

Justice Byron R. White: Well, could you make the court make a finding on -- even to that you, if they thought would be relevant?

Justice Hugo L. Black: Since, we were denied and as I understand on the basis because indigency is irrelevant because the surety bond is required.

I think that raises the constitutional question.

We're claiming that person was indigent.

The Court has denied us, our request to waive the surety bond regardless of whether he is indigent.

I think that's enough to raise the constitutional question to this Court.

Justice Hugo L. Black: Suppose he has waived $50,000.00.

Would still say that the Court had to consider that he was indigent?

Mr. Francis X. Dineen: But we have an affidavit Your Honor, that that indicates that he is indigent.

Justice Hugo L. Black: But I understand you just say that's irrelevant whether he was or not?

Mr. Francis X. Dineen: That's what the lower court said and that's what the appellate court had said that they would not waive the surety bond because they didn't feel that the statute given the power to waive it.

Chief Justice Warren E. Burger: Well, if Equal Protection on your argument to -- is an absolute requirement that there must be a right to appeal and still having some difficulties seeing whether it makes any difference.

But there is another way to protect the appellee in this case the Housing Authority?

Mr. Francis X. Dineen: Well, we make two arguments on the basis of Equal Protection.

One is that this classification that as I say those -- we can put up the surety bond as suppose to those who cannot is without a reasonable basis the standard Equal Protection test.

Chief Justice Warren E. Burger: But does it make a difference to your case whether you could or could not put up the rent during the pendency of the appeal?

Suppose he could not pay the rent at all during the pendency of the appeal would your position be different here today?

Mr. Francis X. Dineen: Yes, I'm not going that far Your Honor.

Our position is that we offered to pay that and we would pay that and also, we offered that if we fail to pay, the appeal could be dismissed forth with at any one month that we did that.

We're not saying -- we're not asking that he need not pay anything at all.

We say that the state has a legitimate interest in protecting the landlord during the pendency appeal.

We might even had said that if were a matter of state law that the state might have a legitimate interest during the previous time.

But that wasn't -- that's not part of any state laws.

Chief Justice Warren E. Burger: But if you're right and if your position is some on the Equal Protection ground, would you posture not be the same, if you didn't have a dime to pay into the treasury of the court or refuse to pay it?

Mr. Francis X. Dineen: Not precisely, I don't think because we do recognize that there is a reasonable and legitimate interest that the State may have in protecting land owners.

After a judgment has rendered in their favor during the pendency of an appeal.

What we're saying is that it's arbitrary that they manifest this kind of interest or this protection by in effect requiring that five or six months be pay all at once at one time which is impossible for somebody who can't afford it.

We're saying that the reasonable way and the almost obvious way, that they could've protect the interest of the landlord was to require that if be paid month by month.

That way, access to the courts will be available to everybody.

Justice Hugo L. Black: How many months did you offer to pay?

Mr. Francis X. Dineen: The requirement was that we put up a surety bond --

Justice Hugo L. Black: I know about this, but how much money, you should you attempt to offer to payment.

Mr. Francis X. Dineen: We offered to pay month by month from the time of the appeal.

Justice Hugo L. Black: How many months did you offer to pay?

Mr. Francis X. Dineen: We did in fact pay Your Honor five months during the course of the entire appeal.

There's three hundred and --

Justice Hugo L. Black: And yet handed an affidavit of indigency not be in able to make the bond?

Mr. Francis X. Dineen: The affidavit was that we couldn't make the bond, yes Your Honor.

But the rent was $72.00 a month and each month from the time of the appeal for five months, thereafter.

Each month we deposited $72.00 with one or another clerk either the District Court or up our own Circuit Court.

So that there is now an effect.

In fact, $360.00, which is on deposit which has been deposited $72.00 per month since the time of the appeal.

We have been doing actually what we offered to do when we offered to deposit money and ask it for the Court --

Justice John M. Harlan: I thought your claim on indigency was not that couldn't raise the money to pay the rent.

It came due month by month that you had no liquid collateral which was a condition preceding to you're being able to get a surety bond, wasn't it?

Mr. Francis X. Dineen: That's correct.

Justice John M. Harlan: Wasn't that the indigency issue?

Mr. Francis X. Dineen: That's correct Your Honor.

We're so indigent --

Justice Hugo L. Black: Well if that's the issue why didn't you have the money which was liquid to put it to court?

How could you claim if one debt that you don't have it and pay it into Court?

Mr. Francis X. Dineen: We paid only $72.00 a month, we didn't pay the full $360.00 at one time.

We were in possession for five months after the time of the appeal.

We had offered in our motion to pay $72.00 a month to the clerk.

This what was denied at us.

We were indigent to the extent that we not that we couldn't pay the rent.

We offered to pay the rent.

We are indigent to the extent that we couldn't pay the $500.00 for the surety which would have been required in order to put up the surety bond.

We could pay our rent monthly --

Justice Hugo L. Black: And needn't to pay $500.00 indigent to put up the money for the rent?

Mr. Francis X. Dineen: No, no, Your Honor.

That would cover that, if we put up the surety bond that would cover the landlord for that period of time during the pendency of the appeal.

Justice Hugo L. Black: And you had the money to pay that bond just the same as you had the money to put in the Court, did you?

Mr. Francis X. Dineen: No, we didn't Your Honor.

We didn't have the full amount of the rent.

We had the monthly rent.

We didn't have the five months rent to put down all at one time.

See the surety bond required that we put down in lump.

Five times or six times each month's rent.

It would be something like $400.00 to $500.00 in lump sum at that time.

We didn't have that money.

We did have enough money to pay the rent each month on the first of the month or whenever as it came due in the amount of $72.00.

Which is what we did and there is now $360.00 available to the landlord.

But, that was only -- we are only able to pay $72.00 a month.

We weren't unable --

Justice Hugo L. Black: -- able to pay that before he sued you, you wouldn't have to be sued, would you.

Mr. Francis X. Dineen: We have defenses Your Honor, regardless whether we pay.

We had defenses on the rent.

The technicality of Connecticut Law is that you pay on the first according to the lease.

We had defenses that there had been and established practice that rent was accepted late.

This was a Housing Authority --

Justice Hugo L. Black: How many?

Mr. Francis X. Dineen: I beg your pardon Your Honor?

Justice Hugo L. Black: How many?

Mr. Francis X. Dineen: Many times the jury depending on the tenant it might be the 10th or the 15th or something like that.

Depending on when the tenant had it.

This is a Housing Authority.

These are low income tax --

Justice Hugo L. Black: Is this the test case?

Mr. Francis X. Dineen: I beg your pardon.

Justice Hugo L. Black: Is this no more than a test case?

Mr. Francis X. Dineen: No, Your Honor.

Justice Hugo L. Black: Are you really -- do you really have a genuine litigation here?

Mr. Francis X. Dineen: Yes, Your Honor because --

Justice Hugo L. Black: Why couldn't they pay the rent?

Mr. Francis X. Dineen: He could've pay the rent.

The fact was that the action was brought at an early time, as I said on the 5th of May without giving him opportunity to pay the rent for May.

In fact, prior to May in April --

Justice Hugo L. Black: Four days?

Mr. Francis X. Dineen: I beg your pardon?

Justice Hugo L. Black: Three or four days?

Mr. Francis X. Dineen: Three or four days, Your Honor.

Justice Hugo L. Black: You said they decline to take in?

Mr. Francis X. Dineen: No, Your Honor, they started the action.

They would not take it at that time once they started the action and as I said, to Mr. Justice Stewart.

They started the action on the basis of a nuisance because this really was not essentially a nonpayment case.

They wanted to evict this tenant originally on the basis of nuisance.

But, as we pointed out in our jurisdictional statement, there is a right to a writ of restitution in Connecticut, so that this tenant can get back into the Housing Authority should we win on appeal.

Justice Potter Stewart: Where are the family now?

Are they in the housing?

Mr. Francis X. Dineen: No, they are not Your Honor.

But as we pointed out in our jurisdictional statement Connecticut does allow of writ the restitution, so that we can get back into the Housing Authority, should we win on appeal.

Justice John M. Harlan: I'd like to ask you a question did the proceeding subsequent proceeding, you call it provision or what?

If you get any review that any kind of merits of your client?

Mr. Francis X. Dineen: No, Your Honor.

Not at all.

Justice John M. Harlan: Not at all?

Mr. Francis X. Dineen: Not at all.

Justice John M. Harlan: But that was concurring with what?

Mr. Francis X. Dineen: The Appellate Division was concerned with the motion to dismiss the appeal and our motion to review the decision of the trial court in denying our motion to waive the surety bond and they dismissed the appeal first day in put up the surety bond.

Chief Justice Warren E. Burger: Thank you Mr. Dineen.

Mr. Ahern.

Argument of F. Michael Ahern

Mr. F. Michael Ahern: Mr. Chief Justice and may it please the Court.

The State of Connecticut is not a party, a named party to this appeal.

However, because of the decision of the West Haven Housing Authority which is the appellee in this case not to further relief or orally argued the issue raised by the appellants in this case.

The State of Connecticut filed the motion with this Court for permission to orally argue the issue and the Court graciously granted it.

That's why I'm here this morning.

Chief Justice Warren E. Burger: Now, what's the states connection of the Housing Authority?

Mr. F. Michael Ahern: The State --

Chief Justice Warren E. Burger: This is a federal?

Mr. F. Michael Ahern: The Public Housing Authority is established by both state and federal statute.

Chief Justice Warren E. Burger: This is a joint -- the state's interest is through that --

Mr. F. Michael Ahern: And also the state's interest in protecting property owners who have been, shall I say denigrated by the tenants by nonpayment of rent, so that they have their rights to their own property and to the retention of their property.

Because of the adverse and disruptive effect on civil process if this appeal is sustained.

The State of Connecticut and 14 of her sister States have together entered into a amici curiae brief in this case in support of the appellee's position.

This is pursuant to Rule 42, Subsection 4 of the rules to this Court.

If I may, in reviewing the file in this case one cannot help but the amaze that the zealous and ambiguous advocacy of the appellant's rights by counsel in the lower courts.

In the period between the initial notice to quick possession on July 12, 1967 until the trial on the merits was held on January 9, 1968.

Six judges of the Connecticut Circuit Court were called upon to rule on the same number of motions, six motions.

The legal maneuvering of counsel for appellants has followed a torturous and very exhausted path through both the state and federal judicial systems.

Appellants have their day in Court and the Connecticut Circuit Court and the Appellate Division of the Circuit Court and then the State Supreme Court.

Simultaneously, a inaugurated hearings in the United States District Court for the district of Connecticut, the Court of Appeals for the Second Circuit, and finally to this honorable Court this morning.

I count 36 separate entries in the file concerning legal action on the part of the appellants.

And if I may, I would like to analyze them for you and highlight certain operations and approaches by the appellants.

They became tenants of the Housing Authority on November 1, 1966 under a written a lease.

A monthly written lease which was renewable each month at the rate of $72.00 per month.

The monthly rent was determined by an objective schedule according to their ability to pay.

Having withheld payment of the rent for the months of May, June, and July of 1967.

The appellants were given a statutory notice to quit the premises on July 12, 1967.

Justice Thurgood Marshall: Well, is -- was the other case pending then?

Mr. F. Michael Ahern: The other case has never been dismissed or --

Justice Thurgood Marshall: But was it pending during that three-month period that you say they didn't pay their rent?

Mr. F. Michael Ahern: I believe it was Your Honor.

In view of the fact --

Justice Thurgood Marshall: Well, is he correct that when a case dispossess the case that pending you don't use the pay rent?

Mr. F. Michael Ahern: Your Honor, I don't understand that to be the situation of the initial summary process or the previous summary process action was brought for reasons other than the statutory reasons for summary process.

Justice Thurgood Marshall: Well, why wasn't it carried through?

Mr. F. Michael Ahern: I believe it wasn't carry through because the attorneys for the Housing Authority recognized the fact that it wasn't a proper motion and they then had other reasons for bring the summary process action which is the nonpayment of rent.

Justice Thurgood Marshall: Which was brought about by the first action?

Mr. F. Michael Ahern: No it would -- they claim it was brought about by the first action.

Justice Thurgood Marshall: Well, that first action.

So, then you filed the second one.

Mr. F. Michael Ahern: May it please --

Justice Thurgood Marshall: Because now you got a clearly not paying their rent.

Mr. F. Michael Ahern: If you please Justice Marshall, this is the claim of the appellant that the second summary process action was brought because of the first one.

Justice Thurgood Marshall: Well, if it's not their claim that you've never withdrawn the first case, still then?

Mr. F. Michael Ahern: They have claimed that, yes.

Justice Thurgood Marshall: Was that true?

Mr. F. Michael Ahern: Yes, it is.

Justice Thurgood Marshall: Why?

Mr. F. Michael Ahern: Since, I am not the Attorney for the West Haven Housing Authority, I can't answer that question, Mr. Marshall.

Justice Thurgood Marshall: Are you defending the real issue?

Mr. F. Michael Ahern: I'm defending them as an amicus of filing a brief from behalf of the state of Connecticut.

Justice Thurgood Marshall: Well, you're not responsible for what they did of course, I agree with you.

Mr. F. Michael Ahern: But you are right that the action was never withdrawn, the first action.

Justice Thurgood Marshall: And you just don't know?

Mr. F. Michael Ahern: The appellant is not having complied with the notice to quit.

We're given a statutory -- were asked again to quit and when they refuse a summary process action was instituted in the Circuit Court for the State of Connecticut.

That was on July 19, 1967, which was actually five -- three months after the first withholding of the rent.

After the preliminary motions were disposed of trial on the merits was had on January 9, 1968, which resulted in judgment for possession for the Housing Authority.

Pursuant to Section 52-542 of the Connecticut General Statutes, the appellants instituted an appeal which was promptly filed with the Appellate Division of the Circuit Court of Connecticut.

In lieu of the surety bond required by the statute, they attached to their appeal a motion to waive surety bond on the grounds of alleged indigency.

After a full hearing in the Court, the same trial judge who had heard the case on the merits earlier denied the motion because he found that the appeal was not taken in good faith but for purposes of delay and obstruction.

Justice Potter Stewart: Now, that's the Judge Dehenzel --

Mr. F. Michael Ahern: Dehenzel, yes.

Justice Potter Stewart: Dehenzel and that's justice who is denial on page 23 of this appendix together and the full hearing to which you referred that appears on page 13 to 22 of the appendix.

Is that we're talking about?

Mr. F. Michael Ahern: Yes, it is Justice Stewart.

Justice Potter Stewart: And the same Judge Dehenzel had decided in favor of the plaintiff landlord?

Mr. F. Michael Ahern: A hearing on the merits on January 9, 1968, that's correct.

Justice Potter Stewart: And that I guess it's not in the -- that hearing is not in this appendix, is it not?

Mr. F. Michael Ahern: The hearing is not made a part of the transcript to his decision I believe is.

Justice Potter Stewart: The judgment is I get on page seven.

Mr. F. Michael Ahern: That's correct, Justice Stewart.

Justice Potter Stewart: Seven or eight, thank you.

Justice William O. Douglas: I can't find that the Court of Appeals of the Appellate Division whatever you call in Connecticut adopted that at on us relied upon that, did they?

Mr. F. Michael Ahern: They did -- it is mentioned in the decision of the Court of Appeals or the Appellate Division of the Circuit Court that the lower court found that the action is taken for reasons of delay.

Justice William O. Douglas: Is that one of the reasons that they affirmed?

Mr. F. Michael Ahern: That's our position Your Honor that that's the reason they did affirm.

The appellants filed a motion for review with the Appellate Division of the Circuit Court from the judge dissenters denial of the motion.

And that motion was denied by the Appellate Division and the appeal was dismissed.

Thereafter, the appellants filed the petition for certification in the Supreme Court of the State of Connecticut and petition was dismissed or denied.

The Housing Authority then moved the Appellate Division of the Circuit Court to terminate the stay of execution which motion was granted.

Now concurrently with the state legal activities, the appellants in order to delay their eviction filed an injunction action in the United States District Court for the district of Connecticut.

That court in a very lengthy decision dismissed the federal complaint and the decision was promptly appeal to the Court of Appeals for the Second Circuit.

The Court of Appeals dismissed the federal complaint as moot on January 10, 1968 and an appeal was taken to this Court, which noted probable jurisdiction on September 7 -- on April 7, 1969.

I think it would -- it should emphasize to this point that the Housing Authority finally obtain possession of the premises on July 26, 1968, which was full year after the filing of the summary process action in the Circuit Court in Connecticut and more than 15 months after the tenants decided to withhold the payment of rent to the authority.

Justice Potter Stewart: What's happened to the $360.00?

Mr. F. Michael Ahern: I believe it's still in the custody of the clerk of the Court.

The Housing Authority has never filed a motion to reach it and the clerk is holding it pending the ultimate determination of this case.

In addition to the Zoas Legal Representation provided the appellants by counsel in the lower courts.

They have the benefit of extensive briefs by their attorneys and also by several organizations who have filed amici curiae briefs in this Court.

The question presented by the appellant's appeal is whether the surety bond requirement of 52-542 of the Connecticut general statutes on an appeal on summary process action is violative of the Fourteenth Amendment to the United States Constitution, the Equal Protection Clause.

The Connecticut summary process statute was initially adopted in 1806, prior to that time if a land owner desire to oust the tenant of possession.

He was required to file an action in ejectment in the courts which was a slow and expensive procedure.

The purpose of the summary process statute was to give the property owner and all to that means of recovering possession of his property from a tenant who was either unable or unwilling to pay his rent.

I want to emphasize the Connecticut summary process statute is not a statute of general application.

Its applicability is limited to those cases where there is a lease which has terminated either by time or nonpayment of rent or where there is occupation without greater privilege.

I also want to emphasize that the property owner utilizing the summary process procedure does not recover rent.

He only recovers possession of his property.

In order the reach the unpaid rent, he must bring a separate subsequent legal action for money his own.

Justice William O. Douglas: I've read this opinion three times now and I -- maybe I'm just stupid but I don't see any indication that the Court rule that if this appeal have been taken without any suggestion of dilatory tactics, it would been decided differently.

Mr. F. Michael Ahern: All I can suggest Justice Douglas is that we read it differently.

I think we agree with Justice Harlan in his decision on their motion to suspend execution that --

Justice William O. Douglas: I'm just talking about the opinion of the Appellate Division --

Mr. F. Michael Ahern: I realize you are and I -- we read it differently that's all I can --

Justice William O. Douglas: So, sometime could you supply a supplemental memorandum and I don't want to take your time.

Mr. F. Michael Ahern: I will be glad to do that.

Justice William O. Douglas: Just underline of the -- marking the lines in the paragraphs in this opinion that possibly indicate that.

Mr. F. Michael Ahern: I will do that Justice Douglas.

Justice Hugo L. Black: May I ask you a question about the statement of page 20?

In fact it end 25.

Mr. F. Michael Ahern: Page 20?

Justice Hugo L. Black: Yes.

Mr. F. Michael Ahern: Justice Black?

Justice Hugo L. Black: The court said you told me that to the counsel.

I am satisfied that you're, I'm satisfied in all these monkey business as it go in have been successful so far as keeping them in here and not paying any rent.

The legislature must have that something in mind when it brought here unless it appears to the judge to find the case that the appeal was taken for the previous of delay.

What was he quoting from?

Can't find it?

Mr. F. Michael Ahern: I can find it Justice Black but I can't find where the quote is taken from.

Justice Hugo L. Black: Here on page 20.

Mr. F. Michael Ahern: I find that --

Justice Hugo L. Black: The last paragraph.

Mr. F. Michael Ahern: But this appears -- this is the colloquy between attorneys for the plaintiff and the court.

Justice William O. Douglas: It doesn't appear to any of the statutes have decided but there maybe other statutes.

Mr. F. Michael Ahern: No, it does not.

Justice Hugo L. Black: But he purported to the reading from the statute.

Justice William O. Douglas: Yes, maybe you could add that --

Mr. F. Michael Ahern: Actually, this quotation is taken from the Section 52-542 of the Connecticut Statutes.

Justice Hugo L. Black: That is what you said?

Mr. F. Michael Ahern: Yes, if --

Justice Hugo L. Black: Well, unless what?

Mr. F. Michael Ahern: Unless, it appears to the judge who tried the case that the --

Justice Hugo L. Black: Well, but what's the premise on which that unless is based?

Mr. F. Michael Ahern: That no appeal shall be taken, if I may read the whole sentence, maybe in the context here --

Justice Hugo L. Black: I understand.

Mr. F. Michael Ahern: No appeal and this is from the statute.

Justice Hugo L. Black: Alright.

Mr. F. Michael Ahern: And I quote it.

“No appeal shall be taken except within said period and if an appeal is taken within set period, execution shall be stayed until the final determination of the cause.

Unless, it appears to the judge who tried the case that the appeal was taken for the purpose of delay.”

Justice Hugo L. Black: Alright.

Now, we have findings here that this was taken for the purpose of delay?

Are you arguing that settles the case under that statute?

Mr. F. Michael Ahern: Yes, I am.

Justice Hugo L. Black: But why doesn't if that's the statute?

Mr. F. Michael Ahern: Why doesn't or why doesn't it?

Justice Hugo L. Black: Why does it not?

And you have argue that they made any argument.

Justice William O. Douglas: But I thought this was an Equal Protection Court not whether the things you can state or not?

Mr. F. Michael Ahern: Well, this is the --

Justice William O. Douglas: But does the bond should have to be furnished?

Rebuttal of Francis X. Dineen

Mr. Francis X. Dineen: If I may Justice Douglas, this is the position of the appellants.

Justice William O. Douglas: Yes, but I mean --

Rebuttal of F. Michael Ahern

Mr. F. Michael Ahern: We do not feel that there's a substantial federal question involved.

Justice William O. Douglas: I understand that and their some members of the court appeal the same way perhaps.

But I'm just trying in the setting the statute, it doesn't say anything about the bond will be required if it's dilatory or not be required if it's not?

Mr. F. Michael Ahern: No, it just makes provision for a surety bond in all cases.

Justice William O. Douglas: No, no, it just says it shall be stayed unless it appears?

Which is a hardly relevant to the Constitution of process have presented here, is it?

Justice Potter Stewart: That statute Mr. Ahern as Mr. Justice Douglas suggest that if it's the one appearing on page 4 of the appellate brief.

Mr. F. Michael Ahern: It is Your Honor.

Justice Potter Stewart: It has nothing at all to do with the requirement of a surety bond, does it?

It's nothing.

Mr. F. Michael Ahern: It just states that a surety bond shall be required.

Justice Hugo L. Black: Unless?

Mr. F. Michael Ahern: Unless it appears who tried the case that the appeal was taken for purpose of delay.

In other words, I --

Justice William O. Douglas: No, the unless is modifies the state law.

Justice Potter Stewart: Yes.

Justice William O. Douglas: Not the surety bond?

Unless I have a different set of the statutes than you have.

Mr. F. Michael Ahern: If you've raised the point that haven't occured to me that's the trouble Mr. Justice Douglas and I'm trying to --

Chief Justice Warren E. Burger: If the stay was entered Mr. Dineen.

Would a bond if the court decided this was not for delay, but it was on good faith, could you then stay the execution of the judgment without a bond?

Mr. F. Michael Ahern: Yes, he could in our opinion.

Chief Justice Warren E. Burger: Well, that would seem to me to be the crux of the case.

Mr. F. Michael Ahern: I think this is where the appellants in the Housing Authority disagreed whether or not the surety bond in all cases must accompany in appeal.

Certainly, since this for sole protection of the landlord, the landlord could waive the surety bond requirement we feel and similar --

Justice Byron R. White: The landlord could the Court waive -- did the Court say no bond because the person is indigent and the appeal is in good faith?

Mr. F. Michael Ahern: We haven't been able to find the Connecticut case that provides that Justice White.

However, we have cited cases and we feel once the matter is before the Court.

That the Court could waive the surety bond as long as it provide adequate protection for the landlord.

Justice Byron R. White: The appellant -- do you think the Appellant Division assumed that the waiver of surety bond was permissible that the appeal was in good faith?

Mr. F. Michael Ahern: There seems to be language in that decision as I recall it, that would lead me to believe so, yes.

Justice Thurgood Marshall: Mr. Ahern, do you know in Connecticut that the Court waive a close bond should be bond, couldn't it?

Mr. F. Michael Ahern: Yes.

Justice Thurgood Marshall: And when those come over here too that seem to say that?

Mr. F. Michael Ahern: Justice Marshall, I couldn't say whether they would be appeal to this Court.

The way things are going today, I think everything is appealed up here.

Justice Thurgood Marshall: But the problem I really have is why the argument is made by the Appellate Court could not legally waive the surety bond.

Mr. F. Michael Ahern: I think that's probably because of the word “shown in the statute” and they're referring to the same that this is the statute under which they have appeal to this Court in which they claim is violative of the Fourteenth Amendment.

The bond on appeal and stay of execution.

Justice Thurgood Marshall: Well, do you agree that show means that?

Mr. F. Michael Ahern: I think it means to show unless the Court appeals that there are equitable considerations that should be taken into consideration by the Court.

Either the Court could use its good offices to have the landlord waive the surety bond requirement which I think can be done -- could be done because the sole purpose of the surety bond is to protect the landlord's interest.

Then I think also, that if the Court felt that the circumstances in the particular case warranted.

It could probably, it could waive the surety bond requirement as long as some means were provided for the protection of the land owners.

Justice Thurgood Marshall: Well, if you do see of Equal Protection problem it shall mean what it says, don't you?

Mr. F. Michael Ahern: That's the crux of this case this morning, I believe Justice Marshall.

Justice Potter Stewart: You don't have and I understand it, you don't have any records on, is that correct?

Is that federal --

Mr. F. Michael Ahern: We have cases in other jurisdiction which was cited which give the seem to give courts that authority and we feel they apply to this situation also but we do not of any Connecticut authority.

Justice Potter Stewart: The only kind of authority, I guess, is that Appellate Division's opinion in this case, is it?

Mr. F. Michael Ahern: It's breaking new ground Justice Stewart, I believe.

The West Haven Housing Authority as I stated earlier is a federal and state instrumentality.

It set up by state and federal statutes, it's finance by public bond issues and by grants from the United States Department of Housing and Urban Development which controls its operations.

The income derived from the tenant rentals is used to meet its obligations to bond holders and to pay the normal continuing operating expenses of the authority.

In the defending the summary process action in the trial court, the appellants advanced seven special defenses all of which were procedural and all of which were considered by the trial court and evidently considered meritless.

It is obvious from a reading of the first special defense and the trial brief that the reason, the appellants, the tenants determined to withhold payment of rent from the authority was that they were lift because of the previous summary process action instituted by the authority which was not prosecuted to effect.

The trial court in entering judgment for possession of the premises expressly found that the appellants had not paid rent for a period of eight months from April 1967 to December of 1967, which was immediately prior to the trial on the merits.

And the trial court made the following significant statement in its memorandum of decision, dated January 16, 1968, and I would like to quote it.

”The record in this quick case clearly shows what can happen to a summary proceeding where the process is abused by dilatory tactics, defense is interposed to delay or obstruct the proceeding and every effort made to delay a trial of the case on the merits."

That can be found in the record appendix at page 5.

Just three days after the above decision was rendered by the trial court, that is on January 19, 1968, the same trial judge heard arguments addressed to the appellant's motion to waive surety bond.

After argument, the trial judge found “this appeal is being taken for the purpose of delay and the motion was denied.”

But, posting requirements upon the privilege of obtaining judicial relief are found in both the State and federal statutes.

And this Courts has consistently held that the Fourteenth Amendment to the Constitution does not prevent a State from proscribing reasonable and appropriate conditions precedent to the seeking of judicial relief in its courts so long as the basis of the distinction is real and the conditions imposed have a reasonable relationship to a legitimate object.

Applying this standard to the surety bond provision of Section 52-542 we submit.

It is clear that the statute proscribes the reasonable and appropriate conditions with a legitimate object in view.

That is the protection of the landowner.

We therefore submit that the statute is constitutional on its face.

Justice Byron R. White: Do you think that its on question under the federal -- under the Connecticut statutes that you take any appeal whether frivolous or non frivolous the bond is required?

Mr. F. Michael Ahern: In this case, yes.

In this context of this case --

Justice Byron R. White: In this case.

It is the justice in the question of getting a stay of execution.

Mr. F. Michael Ahern: No, we take the position on appeal bond is required.

Justice Byron R. White: And that if the appeal bond is not filed, there is no appeal to this not just to be but that the order of eviction is executed?

Mr. F. Michael Ahern: The surety bond is essential to the appeal.

Justice Byron R. White: In any event?

Mr. F. Michael Ahern: That's correct.

Justice Byron R. White: But do you think that you -- but you said awhile ago that you thought the --

Mr. F. Michael Ahern: Well, I'm talking about the language of the statute at this point.

Then the question comes in whether since both law and equity refuse in our court system whether the Court can utilizing equitable considerations itself waive --

Justice Byron R. White: Are you sure that's correct?

Mr. F. Michael Ahern: We feel that it could.

Yes, Justice White.

Justice Byron R. White: And that it would I think it is unless they --

Mr. F. Michael Ahern: In the context of the proper case where the situation is such that the tenant for valid reason has not paid the rent and cannot pay the rent, we think that it would.

This case we submit is not a case where --

Justice Byron R. White: He may not pay the rent or put up the bond?

Mr. F. Michael Ahern: Pardon me?

Justice Byron R. White: I would suppose the Court will decide if there are some valid reason not or not paying rent for putting up the bond?

There are some -- he couldn't afford to put up the bond?

Mr. F. Michael Ahern: But he could continue to pay the rent as they claim in this case.

Justice Byron R. White: Yes.

Do you think that in such a circumstance the Court could waive the requirement for bond?

Mr. F. Michael Ahern: Yes, we do Your Honor.

Although, we haven't found any Connecticut citations.

We have cited case in other jurisdiction which were seem to hold --

Justice Byron R. White: But certainly cited in the people's statute.

Mr. F. Michael Ahern: It's in the tip of the statute as far as its language is concerned, yes Justice White.

Chief Justice Warren E. Burger: The trial judge seems to have at least given some consideration to the idea that he first found that the appeal was taken in good faith and not the purposes of delay, then he would considerably questioned because page question of the paying the alternative of rent into the Court that the top page 22 in your appendix.

He says, if they can referring to the execution on the state.

Then I won't give any further thought to the alternative plan of substituting the clerk for the legal assistance association to hold the rent in the interim.

Mr. F. Michael Ahern: That is correct Your Honor.

That evidently is the position of judge Dehenzel of the trial court and we agree with it.

Chief Justice Warren E. Burger: Now, the Appellate Court didn't approach that question?

Mr. F. Michael Ahern: I don't think it had to Chief Justice because of the fact that it went along with the finding of the trial court that the action was instituted for purposes of delay.

Chief Justice Warren E. Burger: Well, at least six times by my count here.

The trial judge referred affirmatively and not ambiguously at times to the reasons why he thought this appeal was taken for purposes of delay.

But as Justice Douglas pointed out that the Appellate Division never mentioned that.

I would like -- I would hope when you file the supplemental memorandum that Mr. Justice Douglas suggested that you give us your view of why something which the trial court emphasize somewhat and so often was not referred to by the Appellate Court.

Mr. F. Michael Ahern: We will attempt to analyze it to that effect Mr. Chief Justice.

Justice William J. Brennan: As I understand Mr. Ahern, you're going to try to demonstrate Justice Jacob's opinion or Judge Jacobs?

Mr. F. Michael Ahern: Judge Jacobs.

Justice William J. Brennan: And rest itself or address to itself for the state, did you say that?

Mr. F. Michael Ahern: Well, if I may say --

Justice William J. Brennan: Well, is that what's going to do of --

Mr. F. Michael Ahern: Yes, Justice Brennan.

Certainly, --

Justice William J. Brennan: In other words, you're telling us that we are to read this opinion is not addressed only to whether the appeal have to be dismissed for one rebuttal of law.

But also, that the opinion addressed to itself to whether or not a stay were probably denied because the appeal was taken in bad faith?

Mr. F. Michael Ahern: That's correct Justice Brennan.

Certainly, the plight of the indigent tenants who are unable to pay their bills, elicit the sympathy and compassion of all peoples.

However, we submit that some sympathy and compassion should be reserved for the real property owner who must meet his mortgage obligations and other financial obligations or risk, the loss of his property.

All landlords are not wealthy and all tenants are not indigent.

And most property owners cannot afford the luxury of tenant who was either unwilling or unable to pay his rent.M

Chief Justice Warren E. Burger: I suppose this Housing Authority like most public housing authorities has a waiving list of other poor people who are or claim to be eligible for occupancy here.

Is the record show in any --

Mr. F. Michael Ahern: Mr. Chief Justice, I don't know if the record shows it but certainly, I think the Court can take judicial notice of the fact that there aren't sufficient housing accommodations for the poor and that there would be a list of people waiting.

And further, take notice of the fact that the Housing Authority depends on a tenant's payment of monthly rents in order to meet its obligation to bond holders and its obligations to and its financial obligations in the continuing operation of the authority.

Justice Thurgood Marshall: I still have big difficulty on the landlord in all when they paid this $72.00 a month into Court.

It's all the landlord was entitled to? It was in Court

And any --

Mr. F. Michael Ahern: If I may --

Justice Thurgood Marshall: -- they fail to pay it, they loss everything.

Mr. F. Michael Ahern: Mr. Justice Marshall, I think the record will show that the offer to make payment into Court was made at the time the hearing was held on the motion to waive surety bond which was nine months after they stopped paying rent.

The offer was to pay current rents into the Court not be back nine months which they had not paid.

Justice Thurgood Marshall: Well, then am I wrong that if that stage, if they put up a surety bond they didn't have to pay their nine months behind, did they?

Mr. F. Michael Ahern: Not in summary process action.

A separate action would have been brought by the landlord.

Justice Thurgood Marshall: Well, that's what I'm saying as of this.

The alternative the surety bond or $72.00 a month into Court.

Mr. F. Michael Ahern: That's correct.

Justice Thurgood Marshall: And the -- was solely for the protection of the landlord.

Mr. F. Michael Ahern: Correct.

Justice Thurgood Marshall: And why did he had ever surety bond when he was sure of his rent -- $72.00 a month?

Mr. F. Michael Ahern: Why would he have to?

I believe the reason the Court would not accept the recommendation of the Attorneys for the appellants was the fact and I think the court asked the direct question of one of the Attorneys whether they would make payment of the nine months in arrears and they said they would not.

They would only take care of the future in rental payments.

Justice Thurgood Marshall: Well, they didn't -- with the surety bond wouldn't call that nine months in arrears either?

Mr. F. Michael Ahern: No, it would not.

Justice Thurgood Marshall: Well, so far is that particular point to nine months are arrears is out of the picture?

Mr. F. Michael Ahern: Well, I think these all comes in to the fact that the trial judge found that there dilatory tactics used because normally for summary process action takes considerably less than seven months to have a hearing on the merits.

Justice Thurgood Marshall: Oh, I see them less then two hours.

Mr. F. Michael Ahern: Well, not in Connecticut that they have a hearing in Connecticut, the full hearing on the merits, Justice Marshall.

Justice Thurgood Marshall: I see.

Mr. F. Michael Ahern: I have nothing --

Justice Potter Stewart: Mr. Ahern, do you think the action of the Appellate Division of the Circuit Court of April 11, 1968 appearing on page 66 of the appendix, throws any lie upon the question in which Mr. Justice Douglas and the Chief Justice expressed an interest?

That is whether or not the Appellate Division decided the case on the quite absolute and inflexible basis or whether if adopted the part at least the reasoning of the trial court?

Mr. F. Michael Ahern: Well, certainly on page 67, the paragraph which starts on that page.

They mentioned that they briefly review the proceedings in the court below.

And I would assume that the review of those proceedings, eventhough they don't might not mentioned it here, would take into consideration of the activities in the court below and the finding of the trial judge.

Certainly, the Appellate Division had the trial judgment or memorandum of decision before at the time that reviewed the case.

Justice Potter Stewart: This owner here has to do with finally the vacation of the stay of execution, is it not?

The one appearing on page 67?

Mr. F. Michael Ahern: Yes, it does Your Honor.

Justice Potter Stewart: And they do review in some length the Appellate Court what they refer to as dilatory instructions?

Mr. F. Michael Ahern: That is correct.

On page 67 and thereafter actually.

Chief Justice Warren E. Burger: At 69 in the opinion, the Appellate Court also notes apparently with some emphasize as I read it to upon the review of the whole matter.

Suppose, depending on what author meant by the whole matter -- the finding of the trial judge on the lack of good faith to becomes more or less important, might as positive?

Mr. F. Michael Ahern: I would trust that the statement of the trial judge would be given as widest application in that connection, Mr. Chief Justice.

Chief Justice Warren E. Burger: Thank you Mr. Ahern.

Mr. F. Michael Ahern: Thank you very much.

Chief Justice Warren E. Burger: The case is submitted.

Thank you gentlemen for your submission.

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