Cases by Issue - Public Utilities

Central VA Comm. College v. Katz - Oral Argument

Fri, 09 Jan 2009 14:48:59 +0000

Case:

Central VA Comm. College v. Katz

Media File:

04-885_20051031-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of William E. Thro

Chief Justice Roberts: We'll hear argument next in Central Virginia Community College versus Katz.

Mr. Thro.

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

This case involves a conflict between two constitutional values.

On the one hand, Congress has the sovereign power to make laws which apply to everyone, including the States.

On the other hand, the States have sovereign immunity from all aspects of suit.

In the past, this Court has reconciled this conflict by drawing a line between sovereign power and sovereign immunity.

States are bound by Federal law, but the States are immune from monetary damages for violations of those laws.

In the bankruptcy context, this line means the States are bound by the discharge decisions, but that the States are immune from the trustee's attempts to augment the estate through monetary judgment.

Justice O'Connor: Can you tell us how often States are creditors in bankruptcies around the country?

Do you have any idea?

Mr. Thro: There is some information to that effect in the amicus brief of Ohio and every other State of the Union, Justice O'Connor, but my recollection is that the States are creditors in probably the majority of bankruptcies around the country.

Justice O'Connor: So, if you're correct, how would the result you want affect all the other creditors in these bankruptcies?

Mr. Thro: It would have some impact on the other creditors, in that you would not be able to augment the estate by collecting a monetary judgment from the State.

Justice O'Connor: And probably, on your theory, States can disregard the automatic stay that issues--

Mr. Thro: No, not at all--

Justice O'Connor: --when a bankruptcy--

Mr. Thro: --Your Honor.

Justice O'Connor: --commences?

Mr. Thro: No.

Under our... under our theory, the... theory, the States are bound by the automatic stay.

The States are also bound by--

Justice O'Connor: How is that, on your theory?

Mr. Thro: --Well, because--

Justice O'Connor: Why wouldn't the sovereign immunity extend to that?

Mr. Thro: --The automatic stay is an exercise of sovereign... of the sovereign power of Congress, just as the discharge decisions of a bankruptcy court are an exercise of the sovereign power of Congress.

The States are bound by the discharge decisions.

States are also bound by the automatic stay.

Where we draw the line is where the trustee attempts to get a monetary judgment as a means of augmenting the estate, which is what is happening with this case.

Justice Kennedy: Well, why don't we say that that's the exercise of the sovereign power of commerce, just... of Congress, just like you said?

That--

Mr. Thro: The automatic--

Justice Kennedy: --I mean, it seems that that answer is just conclusory, that it's an exercise of the sovereign power of Congress, okay.

That's just... that's just a conclusion.

That's not a reason.

Mr. Thro: --Yes, Your Honor.

The... this Court's decisions have struck a balance between respecting the need for the States to obey Federal law and, at the same time, respecting the constitutional value of the States' sovereign immunity.

What we have here in... with respect to the automatic stay and with respect to the discharge decisions, is States being bound by Federal law, no different than the States being bound by the minimum wage law, for example.

But what we have with respect to the trustee's attempts to augment the estate by collecting a monetary judgment against the States is an attempt to invade the State treasury, which this Court's decisions clearly state is barred by sovereign immunity.

Justice Breyer: Tell me, if you're... if you're right... let's suppose you're right.

I'm over here.

That's--

[Laughter]

Mr. Thro: Sorry, Justice Breyer.

Justice Breyer: That's all right.

So, it's hard to figure out, because the direction... you can't tell by the sound.

I don't know if there's a modern system that would help with that, but... you're right.

Suppose that the State... suppose you're right.

What I'd worry about... and I'd like your response to this... is that in bankruptcies, or weak firms... a lot of firms are weak, and they owe a lot of money to the States.

So, the States figure this out after a while.

It takes a few years to seep through, but once they see what they can do, they say,

"Here's what we'll do. "

"Settle your claims against the State, which happen to be pretty good, for 50 cents on the dollar. "

"Give us the money. "

"And you're... we're out of it. "

So, they settle it.

A month later, phhht, bankrupt.

Now, two things have happened.

The States got 50 cents on the dollar, every other creditor gets 5 cents on the dollar, because they were a month ahead of it.

The second thing that happened is, the creditor... the firm lost the chance to come in and be rehabilitated.

So, the result of this is two bad things, bankruptcy's law's basic purpose, to treat creditors fairly, bankruptcy law's basic purpose, to give firms a chance to rehabilitate, are both seriously undermined.

So, given the Bankruptcy Clause in the Constitution, how is it possible to say that Congress does not have the power to prevent those two very, very seriously harmful results... harmful in terms of the basic purpose of the Bankruptcy Clause?

Mr. Thro: Your Honor, the Constitution... specifically, the Eleventh Amendment... confirms that the States are not to be treated like private parties.

Private parties are not immune from contract actions; States are.

Private parties are not immune from torts... from tort actions.

Justice Breyer: But there is not a Tort Clause of the United States Constitution.

There is not a Contract Clause.

And there is a Bankruptcy Clause.

Mr. Thro: There is a Bankruptcy Clause, Your Honor, and that clause empowers Congress to make bankruptcy laws which apply throughout the entire Nation and which apply to the States.

However, the Bankruptcy Clause does not authorize Congress to abrogate the State's sovereign immunity from suit.

When... while abrogation can be accomplished using other provisions, it cannot be accomplished using the bankruptcy provision.

Justice Scalia: Bankruptcy Clause presumably does not allow Congress to set up the bankruptcy law in such a way that it would amount to a taking of property without just compensation, right?

Wouldn't allow another constitution to be violated.

So the only question here is whether the constitutional protection of States' sovereign immunity can be taken away by the Bankruptcy Clause; whereas, other provisions clearly can, right?

Mr. Thro: Yes, Your Honor.

And this Court said, in Seminole Tribe, that the Article 1 powers could not be used to take away, or to abrogate, the States' sovereign immunity.

Now, obviously, section 5 of the Fourteenth Amendment can be used to do it, but there is no suggestion that Congress used section 5 of the Fourteenth Amendment in enacting its attempt to abrogate sovereign immunity.

Justice Stevens: But, may I ask, how do you... how do you reach the conclusion that you're bound by the automatic stay and the discharge?

Why aren't those also an infringement of State sovereignty?

Mr. Thro: I think there is a strong argument which can be made that both the automatic stay and the discharge decisions infringe upon State sovereignty.

However, this Court's decisions, dating back to at least New York versus Irving Trust in 1933, have made it clear that the States are bound by the provisions of the discharge orders.

I think, also, the automatic stay is something similar to the Ex Parte Young doctrine, in terms of the States being enjoined from doing something else.

However--

Justice Scalia: To say... to say that the State can't be sued is not the same thing as saying that the State can sue, is it?

You--

Mr. Thro: --No, it's not, Your Honor.

Justice Scalia: --you can prevent the State from suing, even though you can't sue the State.

There's no incompatibility, is there?

Mr. Thro: No, there's not, Your Honor.

What we have--

Justice O'Connor: Now, do you... do you agree that there are situations where, notwithstanding the sovereign immunity of States, there can be in rem jurisdiction in a court to resolve claims against property--

Mr. Thro: --Certain--

Justice O'Connor: --and bind the State, as well?

Mr. Thro: --Certainly, this Court's decisions indicate that, in some instances, there can be in rem decisions which--

Justice O'Connor: Well, maybe bankruptcy estates are one such instance.

Mr. Thro: --As this Court noted in Hood, the bankruptcy decisions regarding the discharge are in rem and, of course, are binding upon the State.

But what we have here is not an in rem proceeding.

As this Court noted in Nordic Village, an action to recover a preferential transfer claim is not an in rem proceeding.

Rather, as this Court noted in Schoenthal versus Irving Trust in 1932, and Granfinanciera versus Nordberg in 1989, actions to recover preferential transfer are much like actions to recover a contract claim.

That is, like a contract claim, they do not involve the core bankruptcy proceedings, but, rather, involve matters that are... or controversies that are tangential to the core bankruptcy proceedings.

They're nothing more than an attempt to augment the State.

And where we would draw the line, and where we propose that this Court draws... draw the line... and a line that we believe is consistent with this Court's previous decisions... is that the States are bound by discharge, the States are subject to the automatic stay, but the trustees' attempts to obtain monetary judgments, and thereby augment the value of the estate, are barred by sovereign immunity.

Justice Stevens: Wouldn't it at least be theoretically possible to differentiate between setting aside a preference, on the one hand, and just bringing a suit for a tort or a breach of contact, on the other?

One could treat the assets that are... were transferred prematurely... or hastily, whatever you call it... as part of the estate.

At least it's conceptually possible.

Mr. Thro: Right.

Conceptually, it's possible.

And certainly there is an argument that the bankruptcy code says that preferential transfer is, in fact, property of the State.

With respect, however, to a preference to a State, we would say that that particular reading, as applied to the State, is unconstitutional.

I don't believe Congress can make a law which would require the State to divest money or something to which the State has in its possession in which the State has a colorable claim of ownership.

Here, there is no dispute that the money is in the State treasury.

What they are trying to do is to recover a monetary judgment from the State.

As this Court said in Schoenfeld [sic] and in Granfinanciera, this is very much like a contracts claim.

Justice Scalia: I suppose you could say that a... the intangible of a contract claim is part of the estate, too, right?

It's--

Mr. Thro: The current bankruptcy code does not say that.

In theory, I--

Justice Scalia: --But, I mean, you could be... there's no less reason to say that that's part of the res than there is to say that the preferential transfer is.

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

And just as the contract claims are barred, so are the preferential--

Justice Stevens: Except Congress--

Mr. Thro: --transfer claims.

Justice Stevens: --has drawn that very distinction hadn't it?

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

Justice Stevens: I said Congress has drawn the distinction that... between the preferential claim and the contract claim.

Mr. Thro: Congress has drawn a distinction between preferential transfer claims and contracts claims.

However, this Court has noted that the difference between an action to recover a contract claim in order to augment the estate and an action to recover a preferential transfer in order to augment the estate, that there really is no difference.

Both are--

Justice Stevens: But the theory of the second is that you're not augmenting the estate, you're merely preserving the estate, isn't it?

Mr. Thro: --I think... Congress has certainly defined the estate so that a preferential transfer is considered property.

I'm not sure that Congress can do that when the preferential transfer involves the estate.

That strikes me as the effect of Congress, in effect, saying that property which clearly belongs to the State no longer does.

I think that's probably an affront to Tenth Amendment federalism concerns.

But what we do have here is a situation where, like in a breach of contract claim, they are trying to recovery a monetary judgment in order to augment the estate.

It's our position that that is barred by sovereign immunity.

Justice O'Connor: Well, now--

Justice Souter: What if the--

Justice O'Connor: --Mr. Thro, doesn't the Respondent want to dismiss the contract claims here?

Mr. Thro: The Respondent had asked the bankruptcy court... after reading our brief, the Respondent asked the bankruptcy court to dismiss--

Justice O'Connor: Yes.

So, why do you insist that they be adjudicated?

Mr. Thro: --Well, Your Honor, I think this is an attempt by the Respondent to rewrite the question presented.

Neither--

Justice O'Connor: Yes, but why--

Mr. Thro: --our petition--

Justice O'Connor: --why should we force a plaintiff below to pursue claims they want to give up?

That just seems so odd to me.

Mr. Thro: --It is rather odd, Your Honor, but my read of this Court's rules are that there is no mechanism for a Respondent, the party that won below, to, in effect, give up its victory once they get in this Court.

I'm not quite sure why they wish to drop the breach of contract claims.

Perhaps they feel that by dropping the breach of contract claim, they somehow obtain a tactical advantage.

And, if that's the case, certainly this Court should not allow them to rewrite the question presented in order to obtain a tactical advantage.

But, in any event, both the breach of contract claim and the preferential transfer claims are attempts to augment the estate and are barred by sovereign immunity.

Justice Kennedy: Well, do you think the waiver argument that's made is properly before us?

Mr. Thro: No.

The waiver argument is not properly before you.

It was not passed upon by the Court of Appeals below.

Moreover, it was, for the most part, not preserved in the Court of Appeals below.

While they did argue that Virginia Military Institute waived sovereign immunity for all claims involving Virginia Military Institute in the Sixth Circuit, they made no such argument that filing proof of claim constituted a waiver of sovereign immunity for the transactions involving the other institutions.

Justice Kennedy: You may be right about that, but, while I've got you here, let's assume just one State entity, not multiple State entities.

And the State has received a preferential transfer of $2,000.

It still has an outstanding claim... a different claim against the same bankrupt for $1,000.

And it goes in to enforce its claim for $1,000.

Could we hold, consistently with the Eleventh Amendment, that that is a waiver?

Mr. Thro: I believe that this Court's decisions indicate the following position.

When a State files a proof of claim, it exposes itself to the trustee's defenses to that claim.

So, in other words, if the... if the... if the preferential transfer was part of the same transaction or occurrence--

Justice Kennedy: No, different claim.

The--

Mr. Thro: --Different claim.

Justice Kennedy: --One, the State received $2,000 worth of taxes, but it... still have its $1,000 contract claim.

Mr. Thro: Then I believe that this Court's opinions indicate that that would not be a waiver with respect to the different transaction or occurrence.

Certainly, by filing the proof of claim you would expose yourself to the trustee's defenses with respect to the same transaction or occurrence.

Justice Souter: --Go--

Justice Ginsburg: So was... there's a section in the back of... I think it's 160(c)... that says if it's an unrelated transaction, then... so, it would be a permissive counterclaim if we had ordinary civil proceedings.

Then there can be a setoff to the extent of the claim that's being made against the bankrupt estate.

There can't be any affirmative recovery, as there could be with a permissive... with a compulsory counterclaim.

But you're saying that that section is unconstitutional... 160(c)?

Mr. Thro: To the extent that 106(c) goes beyond the rule announced in Gardner, then, yes, it has constitutional problems.

But you need not reach the constitutionality of 106(c).

What we were talking about here is basically a straightforward application of this Court's precedence in a line that you have drawn in other contexts.

Justice Ginsburg: But if we're talking just about VMI, not about the other schools, then you... if this claim is unrelated, so that it would be a permissive counterclaim, then you would say not even against VMI could you have the setoff.

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

In... this Court's decisions dealing with what effect happens when a sovereign entity initiates litigation indicate that the sovereign, by initiating litigation, certainly exposes itself to defenses, but does not expose itself to affirmative recoveries.

Justice Ginsburg: But why shouldn't a setoff be a defense, even if it's unrelated?

I mean, there were such things in... at common law, were there not, that you could set off an unrelated debt?

Mr. Thro: Yes, Your Honor.

And to the extent that a setoff is a defense, it would be permitted.

But I may have misunderstood your hypothetical that you were talking about, a setoff which involved an affirmative recovery against the State.

Justice Ginsburg: No, I meant a setoff--

Mr. Thro: Okay.

Justice Ginsburg: --only--

Mr. Thro: Then I misunderstood your hypothetical.

I'm sorry, Your Honor.

Justice Souter: --Mr. Thro, I... am I correct in assuming that if the... if the preference in a case like this, that had been given to the State, were not a bank transfer, a check, but were some tangible object, like a gold bar, that there would be in rem jurisdiction on the part of the court to get the gold bar back as a... even though its function is that of a preferential transfer?

Mr. Thro: I don't think so, Your Honor.

I... although this Court has recognized certain in rem exceptions to sovereign immunity, particularly in the admiralty context, this Court has never recognized... said that sovereign immunity allows a Federal court to order the State to return something where, number one, it's in the State's possession, as it would be in your hypothetical, and, number two, the State has at least a colorable claim of ownership, which, if I understood your hypothetical correctly, the State does have a colorable claim of ownership.

But you need not reach... deal with the intangible or personal property issues.

The only thing that is at issue here is a demand for a monetary judgment.

Justice Souter: Well, that's... with respect to... I mean, you can say that of any claim that is valued in dollars.

But, I mean, your... you know, what I'm getting at is your position that there is no distinction to be drawn between the contract action and the preferential transfer.

And my point was, some transfers might be satisfied... might be sought in what, at least in the traditional classification, would be an in rem, rather than an in personam, action.

Would your answer be any different if the... if the gold bar were simply sitting on the... on the desk of some State purchasing agent, as opposed to deposited in the... in the State treasury or sold by the State for the monetary value?

Mr. Thro: As I understand this Court's decisions on this, if the... if the property is in the possession of the State, and if the State has a colorable claim to ownership, then sovereign immunity will bar the... a court--

Justice Souter: Okay, so--

Mr. Thro: --a Federal court order to--

Justice Souter: --in effect, you're saying there are some in rem exceptions, but not all in rem actions are exceptions.

And this would not--

Mr. Thro: --This Court has certainly recognized certain in rem exceptions, notably in the Treasure Salvors case, where the State did not have a colorable claim to title, and also in Deep Sea Research, where the State did not have possession of the object.

Also, in the Whiting Pools case, the Federal Government had possession of a intangible asset, but it was clear that the debtor still had the ownership interest, and this Court said that, in that circumstance, the Federal court would... could order the return.

Justice Scalia: Well, I suppose you could have a contract action that... in which the State promises to turn over a particular parcel of land that it owns, or even, for that matter, a gold bar that is on somebody's... some State functionary's desk.

And I guess you could have a suit for that gold bar or for the piece of property.

And I guess you could call that an in rem action, if you wanted to.

But it wouldn't be.

Mr. Thro: Right.

It would be a gross in... a radical in... expansion of in rem jurisdiction.

Traditionally--

Justice Souter: --Well, because--

Mr. Thro: --in rem--

Justice Souter: --because we normally deal with that as specific performance of the contract, and what... you know it's in rem, in the sense that we're talking about an object, but that's not what we mean, traditionally, by "in rem jurisdiction", is it?

Mr. Thro: --Traditionally, in rem jurisdiction has a couple of characteristics.

One is, it is... it is everyone against the world.

It binds--

Justice Souter: Yes, you sue... in effect, you sue the race, rather than--

Mr. Thro: --Right.

Justice Souter: --than the person.

Mr. Thro: And--

Justice Souter: And in the... in a... in a specific performance contract action, you sue the person.

Mr. Thro: --Right.

And a specific performance contract action, while barred in Federal court, would, of course, be allowed in State court, to the extent that Virginia has--

Justice Scalia: What about a rescission action in which the private party has conveyed property to the State, and the State doesn't pay, and the private party seeks to rescind the action and to receive back the property that it turned over, which is real estate or a gold bar?

Could that not--

Mr. Thro: --Right.

Justice Scalia: --not be a... characterized as an in rem action?

He's seeking back the property he gave over.

Mr. Thro: I don't believe it could be characterized as an in rem action, given the traditional understandings of "in rem".

But, regardless of whether you call it "in rem" or "in personam", sovereign immunity would still bar such a thing in Federal court.

This Court has never said that there is an in rem exception to sovereign immunity.

To the contrary, you explicitly rejected an in rem exception to sovereign immunity in Nordic Village, at least where money was concerned.

You have allowed recovery in certain limited circumstances, such as the admiralty cases.

Those do not exist here.

This is not an in rem proceeding.

Preferential transfer is not an in rem proceeding under Nordic Village.

Moreover, as this Court's opinions in Schoenthal and Granfinanciera make clear, it's more... it's a traditional sort of common law, similar to a contract action.

Justice Kennedy: I'd like to get away from in rem and back to the waiver aspect that's being argued here.

Let's assume that there is an offset obligation that the State has to comply with, that there's been a preference and it has another claim, and with just one entity.

If that's true, it seems to me somewhat unfair to say that the State can proceed on multiple fronts with different entities and fractionate its immunity so that if there are more than three entities... or if there are three or four entities, each one is judged separately as to the offset obligation.

It seems to me that if one State entity is subject to offset, then all of them are.

Mr. Thro: I believe--

Justice Kennedy: Otherwise, the State immunity, it seems to me, can be... can be fractionated.

Mr. Thro: --Well, I believe that this Court's decisions in the bankruptcy context draw the line with respect to the same transaction or occurrence.

So, to the extent that it arises out of the same transaction or occurrence, then you've got that, sort of, partial or limited waiver.

Where--

Justice Kennedy: But I--

Mr. Thro: --however, with--

Justice Kennedy: --I thought, with respect to Justice Ginsburg's colloquy... and my own, earlier... that we said that there is an offset obligation, even if they're different claims.

Mr. Thro: --There is an offset.

I--

Justice Kennedy: And now... and now I want to extrapolate from that to multiple entities, each of which asserts its own immunity.

Mr. Thro: --Right.

I think the offset obligation... my understanding of Justice Ginsburg's hypothetical was that the... was that we were talking about an offset that would not be an affirmative recovery, but would merely be using as... an offset as one of the trustee's defenses to the claim.

Justice Scalia: Against the entire State--

Mr. Thro: Against the entire State.

Justice Scalia: --including any money owed to the other... to the other State institutions.

You acknowledged that that--

Mr. Thro: Yes.

Justice Scalia: --offset could be--

Mr. Thro: Yes.

Justice Scalia: --applied not just against the college here, but against the--

Mr. Thro: No.

Justice Scalia: --other entities.

Mr. Thro: The offset with respect to that particular... with respect to that particular transaction or occurrence, not to the other transactions or occurrences.

Justice Ginsburg: --So, you're not... I thought your position was, VMI, okay.

If they filed a claim, then they're open to affirmative recovery if it's a compulsory counterclaim; offset, if it's a permissive counterclaim.

But I thought you said, as to the three other schools, no waiver.

There's not... no way you can lump them in.

I thought that was--

Mr. Thro: Yes.

Justice Ginsburg: --your position.

Mr. Thro: There is no way that you can lump in the other three schools.

With respect to VMI, by filing a proof of claim, VMI exposed itself to the trustee's defenses.

To the extent that the setoff is a defense for the trustee, then, of course, that setoff would apply to VMI.

Before I sit down, I'd like to make three points.

First, Seminole Tribe controls.

Congress may not use its Article 1 Bankruptcy Clause to abrogate sovereign immunity.

Second, to rule in favor of Virginia does not require any alterations in this Court's jurisprudence; however, to rule for Mr. Katz on any theory requires certain fundamental changes in this Court's jurisprudence.

Finally, regardless of context, sovereign immunity bars monetary judgment claims.

States are immune from contract actions; private parties are not.

States are immune from court actions; private parties are not.

States are immune from actions by the trustee to augment the estate; private parties are not.

Thank you.

Argument of Kim Martin Lewis

Chief Justice Roberts: Thank you, Counsel.

Ms. Lewis.

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

The... if the States are permitted to opt out of the collective bankruptcy process, and they're permitted to disregard Federal preference statutes with impunity, it will have a negative effect on the bankruptcy process.

States are large creditors.

Chief Justice Roberts: Well, it's the same problem in the patent area, isn't it?

And yet, in the Florida Prepaid cases, we've enforced the sovereign immunity with respect to patent proceedings.

Ms Lewis: Your Honor, in the Florida Prepaid case, there was an alternative State remedy.

In that case the plaintiff could sue the State of Florida... I'm sorry... yes, could sue the State of Florida in that particular case.

In this case, they can't do that.

There is a... an estate representative, who has one option, and that option, to preserve the collective benefit of the estate, is to sue the estate... or to sue the State in the bankruptcy court.

Justice Souter: Assuming that's so, for sovereign immunity purposes, why should it make a difference?

Ms Lewis: For... well--

Justice Souter: Yes, I mean, this is a tougher case, but if sovereign immunity is the issue, why does it make any difference?

Ms Lewis: --I do believe that it makes a difference that there is no alternative remedy.

However, in this case, I don't think--

Justice Souter: Why?

What does that have to do with the theory of sovereign immunity?

Ms Lewis: --I'm not sure that it has anything to do, directly, with the theory of sovereign immunity, but--

Justice Souter: Believe me, I... I mean, I... as you know, I'm not a big fan of sovereign immunity in these circumstances, but I'm not quite sure how to get around it, based on the fact that there is no alternative remedy here.

Ms Lewis: --Well, Justice Souter, the thing that I think is very troubling in this case is that there's a very basic bankruptcy policy, and that basic bankruptcy policy on preferences is equality of distribution and to prevent of abusive debt collection practices on the eve of bankruptcy.

Justice Souter: Then, basically, you're making the argument from the uniformity phrase... uniform bankruptcy laws.

That's essentially your argument.

And you're saying, in the... in this case, that that trumps the sovereign immunity, and that gets you out of Seminole Tribe.

Ms Lewis: I believe that it... I believe that it does, Your Honor.

But I... I'm not sure the Court even has to reach the uniformity argument in this case, because the fact that Virginia Military Institute, on behalf of the Commonwealth of Virginia, waived its sovereign immunity.

Justice O'Connor: Well, but, of course, that doesn't hold true for the other agencies, necessarily, unless you think VMI can waive it for all of them.

That seems to me to be only a partial argument.

Ms Lewis: Justice O'Connor, the... VMI waived the only sovereign immunity that existed, which was the Commonwealth of Virginia's sovereign immunity.

And, as a result... all of the agencies of the Commonwealth of Virginia served as unitary creditors... and so, when VMI waived the only sovereign immunity that existed, there was nothing left to waive.

And, at that point, the recoveries of the estate... which were recoveries against other agencies, not only VMI... were... the Respondent was permitted to bring those actions.

Chief Justice Roberts: Your waiver argument is... is it under 106(b) or 106(c)?

It's beyond both of those, isn't it?

Ms Lewis: Chief Justice, it's not under 106(b) or 106(c), because the waiver of sovereign immunity... 106(a) provides that, with respect to preference claims--

Chief Justice Roberts: That's an abrogation, that's not--

Ms Lewis: --That--

Chief Justice Roberts: --a waiver.

Ms Lewis: --that's correct, Your Honor.

Chief Justice Roberts: Well, my question would be, How can you argue in favor of waiver when you have a statute with a much more limited waiver, the limits in 106(b) and 106(c), and you're saying,

"Well, they waived it much more broadly? "

It would seem to me that the most you can argue is that there was a waiver under 106(b) or 106(c), but that doesn't get rid of the whole case.

Ms Lewis: Your Honor, I don't believe that 106(b) or 106(c) limits the waiver in this case, because, again, the sovereign immunity that was waived was the sovereign immunity of the Commonwealth of Virginia.

And so, the claims that were asserted in that action, the preference actions that are served against VMI and the other institutions, are preserved, because we can--

Justice Scalia: Well, you're saying that much of the language of (b) is ineffective and superfluous?

(b) certainly tries to limit it.

It says

"has waived sovereign immunity with respect to a claim against such governmental unit that is property of the estate and that arose out of the same transaction. "

You're just saying all of that is ineffective, then?

Ms Lewis: --I'm saying that, in this context, it isn't... it isn't effective, Your Honor.

Justice Scalia: In what context would it be effective?

Ms Lewis: The... 106(b) was intended for claims that didn't... that did not arise under the bankruptcy code.

106(a) claims, which was the abrogation of sovereign immunity, are claims that arise under the code.

106(b) and 106(c), there is no sovereign immunity to waive.

So, 106(b) and 106(c) were designed for the contract claims that Justice Scalia referred to earlier in the Petitioner's argument.

And then we looked to the Federal... this Court's jurisprudence with respect to what constitutes a waiver of sovereign immunity.

And we would most naturally look at the Lapides case, in which... in which a State came into this... removed a case from State to Federal court, and the court said it didn't matter the type of claim that was being asserted, or that there was affirmative recovery that was being asserted, but, in fact, they constituted a waiver of sovereign immunity.

And the State certainly can't say, here, that they didn't know the filing of a proof of claim would constitute a waiver of sovereign immunity, because back in 1947, in the Gardner versus New Jersey case, this Court acknowledged that filing a proof of claim constituted a waiver.

And there are ways that a State could avoid this.

They could have a process by which they had to go through... whether it be the Attorney General's office, or whomever... that in order to file a proof of claim, they had to first go somewhere to get authority to do that.

And that most naturally happens with corporations, because, as this Court is aware in the Granfinanciera case, if you... if you assert a proof of claim, you waive your jury trial right.

And that is a large issue for corporations--

Chief Justice Roberts: How do we interpret the statute to establish that Congress intended the States to waive their immunity with the filing of the claim?

I don't see that anywhere in the statute.

Ms Lewis: --I'm sorry, can you--

Chief Justice Roberts: You're arguing that by filing the claim, the State has waived all of its immunity, but I don't see where in the statute it imposes that kind of waiver upon States.

I see where they abrogate the immunity, but that's different than saying that there's a waiver.

Is your argument that just because they abrogated immunity, and it turned out they didn't... may or may not have that authority, they necessarily imposed a waiver?

Ms Lewis: --I don't think 106(b) applies with respect to the preference claims, Your Honor.

Chief Justice Roberts: Okay.

Well, then where is the waiver of sovereign immunity in this statute?

Ms Lewis: The... in... 106(b) and 106(c) specifies the conduct by which a sovereign must... must engage in, in order to waive sovereign immunity in a noncore matter, in those matters not set forth in section 106--

Chief Justice Roberts: But I thought... you're not relying on 106(b) and 106(c).

Ms Lewis: --That's correct, Your Honor.

Chief Justice Roberts: So, where is the waiver of immunity on which you're relying?

Ms Lewis: The waiver of sovereign immunity is the jurisprudence of this Court, that Eleventh Amendment sovereign immunity is not absolute, that a sovereign can waive that sovereign immunity.

And it did, in Gardner versus New Jersey.

And, again, this Court looked at that in the Lapides case.

Chief Justice Roberts: But you have no argument that Congress imposed a waiver.

Ms Lewis: That's correct, Your Honor.

Chief Justice Roberts: Okay.

Justice Scalia: And, again, I still don't see how you distinguish (b) when you say

"(b) doesn't apply here, it may apply in other cases. "

If it doesn't apply here, why would it apply in other cases?

Ms Lewis: Your Honor--

Justice Scalia: I mean, if you are appealing to this broader principle, that you either waive all of sovereign immunity or you waive none of it at all, and you can't just restrict it to the particular claim, which is what (b) says, I don't know why, in any case, that wouldn't be true.

Ms Lewis: --Justice Scalia, again, it's because we do not believe 106(b) governs here, because it deals with claims that are not abrogated under 106(a) of the bankruptcy code.

Justice Stevens: Of course, if Congress had thought it had successfully abrogated, there would be no reason to provide for a waiver, I don't suppose.

Ms Lewis: That's correct, Justice Stevens.

And I think this Court has recognized that bankruptcy is different in other contexts.

And I think that it's very important to talk about bankruptcy differently.

This Court has looked at, in... just last term, in the Hood case, which was the debtor's discharge.

And the Court said that that constituted in rem authority.

This Court, in Perez versus Campbell, said that somebody cannot be denied a driver's license simply because they failed to play a discharged obligation.

The Court, in the Irving Trust case, said that a State is required to satisfy the procedure of bankruptcy if they want to participate in the claims process.

In Van Huffel and Straton, this Court said that a bankruptcy estate is permitted to sell property free and clear of the State's tax liens.

In Whiting Pools, this Court said the IRS, who seized property on the eve of bankruptcy on behalf of a... of a lien, had to return that in its in rem jurisdiction.

And I believe it was Justice O'Connor who asked the question of Petitioner with respect to, How would this affect the automatic stay?

And how I've thought of that is, sometimes the automatic stay, there may be an effect with respect to monetary relief, and there may be an effect as far as an injunctive relief.

For example, if there was a judgment that a State had, prior to bankruptcy, against the estate, and then sought to enforce the judgment, executed on the debtor's bank accounts post petition, debtor didn't know about it, because, in a... in a debtor's reorganization, the first month of the debtor's bankruptcy, you can't... you're not following everything that's happening in the case.

There is an execution on the bank account, the money is taken into the State's coffers.

Does that mean that the State is bound by the automatic stay, or is the State not bound by the automatic stay?

It was money that was transferred from one... from the estate to the State.

Justice Breyer: I thought (b) and (c)... tell if I'm right about this... but suppose an individual bankruptcy, and sometime prior to the bankruptcy the individual got into an automobile accident and ran into a State building and wrecked it.

All right?

Now, I take it that, in a State that hasn't waived sovereign immunity, that individual, were he not bankrupt, might not be able to bring a lawsuit for his damages caused by a claim that the wall was too high or something.

Each is claiming the other is negligent.

I guess the person wouldn't be able to file.

And the fact that he's bankrupt, he couldn't, either.

Okay.

Now, in (b), I guess it's saying that if the State happens to come in, after he's gone bankrupt, and brought his negligent suit against him, he can respond.

Ms Lewis: That's correct, Your Honor.

That--

Justice Breyer: So, if, in fact, you were to lose on (a), I guess the whole section would fall, because it wouldn't make any sense anymore, and we'd just wipe out the whole thing, (a), (b), and (c).

Ms Lewis: --That's correct, Your Honor.

It was... it was a--

Justice Breyer: All right.

So, then the case really turns on the extent to which the Government can... sorry, the extent to which Congress can waive sovereign immunity, as they seem to have waived it in (a), whether the Constitution permits them to do what they did in (a).

Ms Lewis: --Right, to abrogate sovereign immunity.

Justice Breyer: And if you win on that, you win.

And if you lose on that, the whole section 106 would probably fall.

Ms Lewis: I believe 106 would fall, but, if 106 falls, doesn't mean that Respondent would lose, as far as the waiver argument, because--

Justice Breyer: I'm not sure, because if you lose on the whole thing... suppose you were to say Congress doesn't have the power to do anything there.

I just wonder if (b) and (c) would survive, because they may have had something else in mind.

But maybe that's too complicated to go into now.

Ms Lewis: --Well, Justice Breyer, I think that (b) and (c), as pointed out by another one of the Justices, may be a limitation on the general concept of common law waiver.

So, to the extent that 106 would be... this Court were to rule (b) that would... unconstitutional, you would look to the general common law waiver of sovereign immunity, which would be the Gardner versus New Jersey case and the Lapides case.

The--

Chief Justice Roberts: Well, how do you... how do you have an informed waiver if the argument is over the authority to abrogate?

In other words, the Federal Government is saying, under your theory, that we're abrogating your immunity.

And the State's saying, "You don't have that authority".

And how do you get an informed waiver, simply because the State participates in a bankruptcy proceeding, on the basis of the legal theory that they're asserting here today, that Congress doesn't have the authority to abrogate the immunity?

Ms Lewis: --We believe, obviously, Congress had the right to abrogate sovereign immunity--

Chief Justice Roberts: I understand that.

But your theory, as I read in your brief, as an alternative argument, is that there was a--

Ms Lewis: --That's correct.

Chief Justice Roberts: --waiver.

The State waived its immunity by participating through... in the--

Ms Lewis: That's correct.

Chief Justice Roberts: --bankruptcy proceeding.

How is there an informed waiver if the argument is over the authority to abrogate?

Ms Lewis: Well, Your Honor, I believe, because this Court has recognized, in Gardner versus New Jersey, that if a State files a proof of claim, it constitutes a waiver, that the State had to have to been informed, it had to know that the actual conduct of filing a proof of claim would have a consequence of a waiver.

Chief Justice Roberts: Yes, but all the... all the statute does is abrogate.

Ms Lewis: All--

Chief Justice Roberts: In 106(a).

It's--

Ms Lewis: --That's correct--

Chief Justice Roberts: --an attempt to--

Ms Lewis: --Your Honor.

Chief Justice Roberts: --abrogate.

Ms Lewis: That's correct.

Chief Justice Roberts: And if it turns out that Congress doesn't have that authority, I don't see how you can say the State has made an informed waiver, when their theory is,

"Guess what? "

"You don't have that authority to abrogate. "

Ms Lewis: Well, Your Honor, 106(a) certainly didn't exist back in Gardner versus New Jersey in 1947 either.

And I think that the... the fact that... if sovereign immunity exists, sovereign immunity can be waived.

I'm not sure--

Justice Breyer: No, no, no, he's... so, I'm wrong.

What I said is wrong.

The answer has to be that... we're only talking about (a) at the moment.

And what Congress tried to do in (a) is abrogate sovereign immunity insofar as it is constitutional to do so.

So, then, you say, if you lose on it, it's unconstitutional for it to do so here, but it could... it is constitutional for it to do so insofar as there is this situation that the State brings a case against the estate, and you can do an offset, et cetera.

But it would have nothing to do with (b) and (c).

It would have to do with reading that into (a), I guess.

Ms Lewis: --I believe that's correct--

Justice Breyer: All right.

Ms Lewis: --Justice Breyer.

Justice Ginsburg: In... I don't follow that, because I thought the theory of the cases were that you can waive something by conduct.

And so, when you ask a court for relief against a party, then it's reasonable to say,

"If you're coming in and asking the court to give you something, then it's only fair that your adversary should be able to-- "

Justice O'Connor: A light bulb exploded.

A light bulb exploded.

Chief Justice Roberts: I think we're... I think it's safe.

Justice Breyer: A light bulb went out.

Chief Justice Roberts: It's a trick they play on new Chief Justices all the time.

[Laughter]

Justice Scalia: Happy Halloween.

[Laughter]

Justice Ginsburg: --Let me ask this--

Justice Kennedy: Take your time.

We're interested--

Chief Justice Roberts: We're even... yeah, we're even more in the dark now than before.

[Laughter]

Justice Ginsburg: --If you lose on the abrogation notion, and the Court holds that there is no authority in Congress to abrogate sovereign immunity, still the bankruptcy code codifies what is, across the board, the law.

That is, if you come to a court and say, "Give me X against D", that D should be able to come back and say,

"Either I want full relief because it's a compulsory type counterclaim. "

"I have to bring it here. "

"I can't bring it separately. "

"Or at least a setoff. "

I mean, that was understood, that a party over whom the court would not have jurisdiction otherwise, is amendable to the court's jurisdiction to the extent of a counterclaim or a setoff.

So, I don't see why (b) and (c) are not discrete from (a).

(b) and (c) are implementing the idea of a setoff.

You come to court for a claim, you are deemed to have waived any jurisdictional objection to the counterclaim or the setoff.

Ms Lewis: I understand that argument, Justice Ginsburg, but I believe when Congress enacted 106(a), (b), and (c), that they enacted it... (a), being those actions which were abrogated, (b) were those actions that remained.

And those actions that remained, there were limitations to that waiver.

Because this is not... there was nothing to waive on sovereign immunity on 106(b) as to preference actions, for example.

Contract claims are different.

Contract claims would have... are not abrogated under 106(a), so, therefore, the only way they can be waived is under 106(b).

Justice Kennedy: --Well, it's the same question.

But let's say that the court thinks there might be merit to the argument of waiver, that the State entity comes in asking to be treated as a creditor, and its preference is then before the bankruptcy court.

How is that issue preserved in the question you raise?

You say, maybe the Congress used Article 1 to abrogate the State's sovereign immunity.

Ms Lewis: Did you ask how it's preserved?

We raised the--

Justice Kennedy: It just seems to... seem to me to be part of the question presented.

Ms Lewis: --Your Honor, I think, to the extent that this Court can avoid addressing the Constitution about constitutionality of a statute... and, in the situation of waiver, we believe that it can... then we believe that's the appropriate jurisprudence.

Justice Kennedy: Well, you asked... you framed the question.

Justice Ginsburg: No.

No.

Justice Kennedy: Oh, no, you... you're right.

You're right.

You're exactly right.

Chief Justice Roberts: Well, to what extent was this argument raised below, I guess is a--

Ms Lewis: Chief Justice, it was raised, to the extent of VMI's sovereign immunity.

And the reason that it was is, at the time that the motion to dismiss was filed, as recognized by the Petitioner in their brief, and as recognized by the court, at the bankruptcy court level, the Hood decision at the Sixth Circuit had been a decision.

And so, there was no necessity for the court to engage into any other proceedings, other than to deal with the Hood decision.

Justice Stevens: May I ask a question on another subject, just talking for a minute about your in rem theory of the case?

And I understand you would contend that assets have been subject to a fraudulent transfer or a preference should be deemed to be part of the estate.

But is it not true that this case also involves a claim on the accounts receivable?

And do you contend they also should be treated as part of the estate?

Ms Lewis: Justice Stevens, we did seek to dismiss the causative action with respect to the accounts receivable and the causative action that we--

Justice Stevens: Is that because you concede, in effect, that they would not be part of the estate if we adopted an in rem theory that included the preferential transfers?

Ms Lewis: --They would not be part of the estate--

Justice Stevens: Okay.

Ms Lewis: --in a situation of... if this adopt... Court adopted an in rem theory, that's correct.

Justice Breyer: Which would not?

I'm sorry.

Ms Lewis: Any recoveries on behalf of State contract claims, account receivable as collections.

Justice Breyer: And you have some of those.

Ms Lewis: We do, Your... Justice Breyer.

Justice Breyer: Are you trying to get those in this case?

Ms Lewis: No, we are not.

Justice Breyer: Oh, okay.

Ms Lewis: We sought to dismiss them.

Justice Scalia: Well, you were, but you're not.

Ms Lewis: That's correct, Justice--

Justice Scalia: I mean, you're--

Ms Lewis: --Scalia.

Justice Scalia: --trying to get rid of that, right?

Ms Lewis: That's correct, Justice Scalia.

Justice Stevens: Now, that doesn't fit into your in rem theory, but why wouldn't you have been able to recover that on a waiver theory?

If you... and I understand your waiver argument is, you can defend the judgment on the ground not... you know, any ground to uphold the judgment is okay for the Respondent.

But why wouldn't you have tried to defend that part of your case on the waiver theory?

Ms Lewis: It would have been the waiver with respect to just VMI's contract claims.

And, I apologize, off the top of my head I don't recall what the value of just the VMI contract claims would have been.

But that's what we believe the waiver would have been limited to.

It would have not included the contract claims of Central Virginia Community College, Blue Ridge.

Justice Scalia: Would you explain to me again why it's okay that your waiver argument below was only directed to the claims against VMI?

Ms Lewis: At the--

Justice Scalia: I'm not... I didn't understand your answer to that.

You made a much narrower argument there than you're making here.

Ms Lewis: --I--

Justice Scalia: You didn't... you didn't assert that all the sovereign immunity for the entire State and all of its institutions had been waived simply because of the claim by VMI.

You didn't make that argument.

Ms Lewis: --At the time of that decision, Justice--

Justice Scalia: Yes.

Ms Lewis: --Scalia, the Sixth Circuit Hood decision had already been decided, and, just as it was acknowledged in the--

Justice Scalia: What... which said what?

Ms Lewis: --Which said that sovereign immunity is waived, or abrogated, for preference actions in... it was actually across the board... an abrogation of State sovereign immunity.

And, at that point, there was notice--

Justice Scalia: Well, then why didn't you make the argument?

I mean, if Hood said, when you make a partial... or one institution... if I understand what you're saying, Hood said that a waiver by one institution waives for the whole State.

Is that... is that what Hood said?

Justice Ginsburg: No.

Hood said--

Ms Lewis: --No.

Justice Ginsburg: --that Congress could abrogate--

Ms Lewis: That's correct.

Congress could--

Justice Ginsburg: --through the Bankruptcy Clause.

The... what... and then when the case came to this Court, we didn't--

Justice Scalia: Yes.

Justice Ginsburg: --address that issue.

Justice Scalia: But if you're making a separate waiver argument, apart from the abrogation argument, I don't see why you would not make that waiver argument as broadly as possible.

It's a separate argument from the abrogation argument.

Ms Lewis: --We--

Justice Scalia: And you're making it as a separate argument here.

But here, you're making it as to all claims against all State institutions; whereas, below you made it only as to the claims against VMI.

I don't understand that.

Ms Lewis: --At the time, 106(a), in the Sixth Circuit, it was determined that that was constitutional.

So, at the time, the only thing left for the States to waive was the contract actions.

And the contract actions of VMI were the only things that could be waived as part of the--

Justice Scalia: I see.

Ms Lewis: --underlying--

Justice Scalia: I see.

Chief Justice Roberts: --So, the... so, the long and short of it is, for good and sufficient reasons you did not make the same waiver below that you're making here today.

Ms Lewis: --That's correct, Chief--

Chief Justice Roberts: Okay.

Ms Lewis: --Justice.

Justice Kennedy: And the proof of claim in VMI was $43,000, and the preference was $25,000.

Ms Lewis: That's correct.

Justice O'Connor: Now, on your in rem argument, how do you distinguish Nordic Village's case?

Ms Lewis: In the Nordic Village case, the trustee in that case focused on the money damages.

They didn't focus on the portion of the preference statute that says you can get the transfer back, you can get the property back.

And as this Court recognized in Bowen versus Massachusetts, just because it is monetary relief doesn't mean that it's money damages.

And that's how we distinguished the Nordic Village case, Your Honor.

The... this Court, I believe, would be extending the Article... its jurisprudence if it permitted the bankruptcy estate not to be able to sue the States.

This Court has recognized that a private citizen, Indian tribes, and foreign sovereigns cannot be sued.

But this Court's never recognized a Federal entity cannot pursue a State.

And this Court... this is a situation where there is no alternative remedy.

We aren't in a situation where we have the ADA, the ADEA, where the EEOC can bring an action on behalf of the Government and on behalf of the individuals to enforce a Federal law.

We have no other enforcement in bankruptcy, other than the collective bankruptcy process, the bankruptcy code.

And the bankruptcy code assigns to the debtor in possession, or to the trustee, the ability to collect on behalf of the estate.

Bankruptcy is unique in its very in rem application and its very narrow and specialized enforcement of the bankruptcy system.

The framers recognized the critical nature of binding the States in a uniform scheme.

The decision below ought to be affirmed on the basis of in rem, on the basis of the Constitution, and on the basis that Virginia, the Commonwealth of Virginia, waived its sovereign immunity.

Thank you.

Rebuttal of William E. Thro

Chief Justice Roberts: Thank you, Counsel.

Apologize for the fireworks.

[Laughter]

Mr. Thro, you have three and a half minutes left.

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

The question presented is whether or not Congress may use the Article 1 Bankruptcy Clause to abrogate sovereign immunity.

In Alden versus Maine, this Court held that there was a presumption that the States had retained their immunity unless it could be shown by conclusive evidence that the States surrendered their immunity in the plan of convention.

If Congress can use the Article 1 bankruptcy power to abrogate sovereign immunity, then one would expect there to be discussions to that effect at the constitutional convention, in the federalist and antifederalist writings, and in the ratifying conventions.

Yet, as the Sixth Circuit conceded in its version of Hood, there is no compelling evidence.

There is, at best, silence.

Silence cannot equal the compelling evidence.

Therefore, the Article 1 bankruptcy power cannot be used to abrogate sovereign immunity.

Justice Ginsburg: That's the question you've presented, Mr. Thro, but it was the same question that was presented to us in Hood.

And in Hood, we decided that we were not going to answer the question presented, we were going to decide the case on a lesser ground.

So, the Court, certainly if our venture in Hood was proper, here, too, we could decide the case on some other ground than the one you presented in your question.

Mr. Thro: Yes, you could, Your Honor.

But you should not address any of the alternative arguments raised by Mr. Katz.

Justice Scalia: We couldn't decide it in your favor, on some alternative ground, though, could we?

[Laughter]

Mr. Thro: Well--

Justice Scalia: Well, I mean, that distinguishes it--

Mr. Thro: --Yes, absolutely, Your Honor--

Justice Scalia: --The difference between this and Hood.

Mr. Thro: --Your Honor, but I believe that the proper exercise of judicial restraint is to decide the question presented, and only the question presented, and do the other grounds for perhaps another day.

All of Katz's... all of Katz's novel arguments raise complex constitutional issues and, quite frankly, ask for radical alterations of this Court's jurisprudence.

Justice Stevens: May I ask if you think, within the text of the question presented, we could decide whether the sovereign immunity was abrogated by the convention itself, not by Congress?

There is that argument out there, you know.

Mr. Thro: Yes.

Within... I think, in effect, if you were to decide... if you decided that the convention itself had intended--

Justice Stevens: Abrogated.

Mr. Thro: --for the States not to have sovereign immunity in bankruptcy, then you would conclude that the Article 1 Bankruptcy Clause includes the abrogation power.

So, I think it's, sort of, two sides of the same question.

Returning to Justice Ginsburg's question, a second reason for not addressing Katz's arguments were, they were not passed on below.

As this Court noted in Granfinanciera, where--

Justice Ginsburg: Well, then that would be a ground to allow them to present it below.

They had a total winner--

Mr. Thro: --Yes.

Yes.

Justice Ginsburg: --on that hands below.

Mr. Thro: Yes, absolutely.

You... it... you can... you should decide the question presented.

And if you decide the question presented in our favor... that is, that Congress has... does not have the power to abrogate sovereign immunity... you would presumably remand to the Sixth Circuit for further proceedings, consistent with your opinion.

At that time, Katz could attempt to present these other defenses.

We would, of course, argue that some of those defenses had not been properly preserved.

But it has not been briefed below.

Chief Justice Roberts: Thank you, Counsel.

Mr. Thro: Thank you.

Chief Justice Roberts: The case is submitted.

Attribution:

The Oyez Project

Featured:

Federal Maritime Commission v. South Carolina Ports Authority - Oral Argument

Fri, 09 Jan 2009 14:50:24 +0000

Case:

Federal Maritime Commission v. South Carolina Ports Authority

Media File:

01-46_20020225-argument.mp3

Related Transcript:

transcript.xml

Transcript:

CHIEF JUSTICE REHNQUIST: We'll hear argument first this morning in Number 01-46, the Federal Maritime Commission v. the South Carolina State Ports Authority.

Mr. Hughey.

MR. PHILLIP C. HUGHEY: Thank you, Mr. Chief Justice, and may it please the Court:

The adjudication of a Shipping Act complaint by the Federal Maritime Commission is an administrative regulatory process through which the agency makes findings of fact and applies its interpretation of the Shipping Act to those findings of fact.

This is an exercise of executive power.

CHIEF JUSTTICE REHNQUIST: Well, why isn't that adjudication, if it applies the law to findings of fact?

MR. HUGHEY: Mr. Chief Justice, it is adjudication, but what we're suggesting is that it's not judicial. It is an executive branch adjudication that permits the agency to determine what position it would like to take with respect to potential violations of the Shipping Act.

CHIEF JUSTICE REHNQUIST: But doesn't it involve a decision as to whether this particular respondent before the commission has violated some provision of the act?

MR. HUGHEY: Yes, and in that sense, Your Honor, it is an exercise of ad hoc regulation. It's regulation on a specific and discrete set of facts.

CHIEF JUSTICE REHNQUIST: Well, you could say the same thing about a court, that it's not making an -- making an ad hoc regulation on these particular facts.

MR. HUGHEY: However, Your Honor, in the case of a court and a decision issued by a court, such an order would be self-executing, whereas a Federal Maritime Commission regulatory determination is not self-executing.

Rather, in the event that it's not voluntary compliance with whatever order the agency reaches at the end of an adjudication, the Attorney General or a private complainant must go into a Federal district court and seek to have that Federal district court compel compliance.

JUSTICE ANTONIN SCALIA: Suppose Congress --

JUSTICE SANDRA DAY O'CONNOR: Well, presumably a State would feel -- would hesitate not to appear because it might ultimately be enforced against the State by the Attorney General, isn't that right?

MR. HUGHEY: Yes, I think that is correct, Justice O'Connor, that a State might --

JUSTICE O'CONNOR: Well, if the State is compelled to participate, does that alter our analysis of it?

MR. HUGHEY: No, I don't think so, because the extent to which the State feels compelled by a potential action by the Attorney General of the United States is compulsion that arises from an action of the Federal Government itself in the name of the United States.

CHIEF JUSTICE REHNQUIST: What if a -- is a private plaintiff entitled to take a decision, or order, whatever you want to call it, of the commission, and seek to have it enforced by a court?

MR. HUGHEY: Yes, Your Honor, under the Shipping Act a private plaintiff is permitted to go into a Federal district court --

CHIEF JUSTICE REHNQUIST: And would the Eleventh Amendment defense raised by the State there prevail?

MR. HUGHEY: I think that that case would present a much more significant Eleventh Amendment issue. The Shipping Act provides that the district court hearing and, of course, an action brought by a private complainant must have jurisdiction of the parties.

I would suggest that to the extent there's any Eleventh Amendment interest that requires vindication under the Shipping Act, that vindication can be explored in the Federal district court proceeding.

JUSTICE RUTH BADER GINSBURG: Do you concede that at least as to reparation, where as I understand it the Government can go into the district court to seek reparations, only the private party, at least as to seeking dollars from the State agency, that the Eleventh Amendment would preclude that?

MR. HUGHEY: Well, in its order in this case, Justice Ginsburg, the commissioner finds that it would like to see its reparation orders deemed to be enforceable by a Federal district court, so I can't concede that they wouldn't be, but what I can say is that determination is not within the agency's jurisdiction. That would be a determination for the Federal district court to make in the event that the State instrumentality raised an Eleventh Amendment immunity defense to the attempted enforcement action by the private complainant.

JUSTICE SCALIA: Mr. Hughey, why do you assume that if this is not judicial action, sovereign immunity doesn't apply?

I mean, I guess whatever sovereign immunity the States retained upon the formation of the Federal Constitution was the sovereign immunity that existed in international law at the time.

Can foreign sovereigns be summoned before executive or legislative tribunals in this country?

MR. HUGHEY: I don't know whether foreign sovereigns can be summoned before the --

JUSTICE SCALIA: Well, but the State sovereign immunity is just what -- the sovereign immunity that they had at international law. That's what -- the Eleventh Amendment is just a reflection of the fact that they retained that sort of sovereign immunity, and I don't think it makes any difference that, you know, if the King of England summons George Washington, President of the United States, to appear before a parliamentary commission or some royal tribunal instead of an English court.

I think George Washington would say, you know, go fly a kite.

(Laughter.)

MR. HUGHEY: Well, I think that one can turn to the text of the Eleventh Amendment itself for some guidance on this issue, Justice Scalia.

JUSTICE SCALIA: No, you can't, because the Eleventh Amendment is just -- we have held that it represents just a reflection of the fact that the States retained that sovereign immunity that they had before the formation of the Federal Republic, and --

MR. HUGHEY: It's a reflection, Your Honor, of the immunity from coercive judicial process. I think that's why the Eleventh Amendment begins that the judicial power of the United States shall not be construed to any --

JUSTICE ANTHONY KENNEDY: That's the conclusion, but what Justice Scalia's asking, and I think we're interested in, is whether there's any precedent that you could cite, any historical source that says that an administrative tribunal can summon a sovereign before it and render a judgment.

MR. HUGHEY: Well, if I may suggest a different side to that is that there is no precedent to suggest that it can't. It's been held by this Court in California v. United States that State-run courts are subject to commission regulation.

JUSTICE KENNEDY: Well, but if it's the dog that didn't bark theory, it seems to me that cuts against you. If this has never been done, that's probably because it can't be done. At least we can make that inference.

MR. HUGHEY: No, I think it has been done since the Shipping Act was first passed, and it simply --

JUSTICE KENNEDY: I'm not talking about the Shipping Act. I'm talking about other authority. If you're saying that the Shipping Act is the precedent-breaking ground, it seems to me that you're then on somewhat a slender foundation for your argument here.

MR. HUGHEY: This Court held in California v. United States that the Shipping Act as a regulatory statute applies to all State-run courts. What the commission is suggesting, Justice Kennedy, is that that applies equally with respect to agency adjudications.

CHIEF JUSTICE REHNQUIST: But California v. United States, the United States was a party, so there was no Eleventh Amendment question there.

MR. HUGHEY: No, the question I think was whether the entire statute, which at that time included a regulatory procedure that could be initiated by private complainants, whether the entire statute, which was a coherent regulatory scheme, applied to State-run ports, and that's what the Court held. The Court specifically referred to the scheme for regulating waterfront terminals, not the specific provision within that scheme that permits the United States itself to initiate an investigation.

CHIEF JUSTICE REHNQUIST: But the case itself, United States v. California, raised no Eleventh Amendment problem.

MR. HUGHEY: No, that's correct. That's correct, it didn't raise an Eleventh Amendment problem, but the issue was whether the regulatory scheme as a whole could be applied to State instrumentalities, and this adjudicatory proceeding under the Shipping Act is part of that regulatory program.

With respect --

CHIEF JUSTICE REHNQUIST: Is there any -- I mean, it's sort of an interesting question, but I wonder if there are laws or rules which say that the Congress says that any ship, including ships belonging to foreign States that enter New York Harbor, will abide by the rules of the New York Harbor Authority, and if they don't, you can -- there's some argument about whether the pilot comes on or something, that ship, including a military ship of a foreign nation, or any other, has to adjudicate the controversy in front of the New York Authority or other -- I don't know how that works, but maybe you do. I imagine they are subject to our rules when they come here, and bring their ships into the harbor.

MR. HUGHEY: Yes, I would think so, and the commission does have some jurisdiction over foreign-operated and -- foreign operated vessels that are owned by sovereigns. The commission regulates sally-to-port controlled carriers which are vessels that are owned by Governments.

If a complaint were to be filed against such an entity, I see no reason why the commission would not attempt to assert its regulatory adjudicatory jurisdiction over such a complaint, but I know of no such specific case under the statute.

JUSTICE DAVID H. SOUTER: How do you get around the, sort of the principle of dignity which has been emphasized in every case, I think, since Seminole, and it's been given a prominent place in the reasoning of the court majority in those cases, that it's the dignity of the States, and so on, which must be preserved.

If under the rule of sovereign immunity which overarches the Eleventh Amendment there were indefeasible dignity interests in the adjudication, say, in Seminole and all of them, doesn't it follow, a fortiori, that there are dignitary interests that would be offended by hauling the State in front of an Article I, a purely administrative tribunal?

MR. HUGHEY: I think I would have two responses to that, Justice Souter. First is that I understand the dignitary interest to be co-extensive with the sovereign immunity interest, and second --

JUSTICE SOUTER: Well, that leaves the question in a -- unanswered, I guess. The --

JUSTICE SCALIA: Justice Souter says the sovereign immunity interest is co-extensive with the dignitary interest.

(Laughter.)

JUSTICE SOUTER: Let's assume the co-existence. What's the answer to the question?

MR. HUGHEY: Well, I think the answer would be, then, that sovereign immunity doesn't apply, that a State's dignity is not offended.

JUSTICE SOUTER: I certainly agree with you.

(Laughter.)

Because dignity seems to have been taken, in fact, as one of the interests to be served by sovereign immunity. Why doesn't the doctrine of sovereign immunity, why doesn't it apply if applied in those other cases?

MR. HUGHEY: Well, I think that the dignity of the State is less offended by this type of regulatory adjudication, given the fact that the agency has no coercive power to compel anything from the State.

JUSTICE SOUTER: I -- it seems to me intuitively just the opposite. I mean, these are tribunals that -- if we're going to talk about dignity, these are tribunals that do not have the dignity of the judicial forums that were at stake in the preceding cases, and I would have supposed that the offense to the sovereignty of the State was even greater to pull the State before these lesser tribunals.

MR. HUGHEY: Well, I think the offense to the dignity interest of the State occurs when a State is forced to do something which is the result of a coercive act. Under the Shipping Act --

JUSTICE SOUTER: Everything was fine in Seminole and all of them, until we got to the point of judgment? I mean, is that the way you're trying to cut the argument?

MR. HUGHEY: No. I think in cases like Alden and Seminole Tribe it was the threat of judgment that hung over the United States that was the problem, because in those cases, if the court entered an order against a State it was automatically self-enforcing them.

JUSTICE SCALIA: Well, they could have made them appear and just said, you know, we understand that -- just as you're saying, we understand that an order can't issue against you, but that doesn't mean you shouldn't show up.

We haven't said that in sovereign immunity. We've said the State does not have to appear. It is hauling the State before the tribunal that is the offense, not just the judgment.

MR. HUGHEY: Well, I think with respect to your hypothetical this Court has found the power of coercion or contempt is the judicial power necessary to the exercise of all others, so I don't think that a court could just tell a State, well, appear and we're not going to be able to issue an order against you.

I think the fact that coercion can result from the judicial proceeding is the point of the judicial proceeding and is what differentiates it from this type of regulatory adjudication.

JUSTICE SCALIA: Well, but the court can't say it, but the Eleventh Amendment says it. I mean, and whereupon the court can say, look, you know, by reason of your sovereign immunity, we understand if you show up we can't issue any contempt judgment, we can't issue a merits judgment against you, but that doesn't mean you don't have to show up. But it does mean you don't have to show up, doesn't it?

MR. HUGHEY: Well, yes, the State can move to dismiss any suit that's filed against it in a court, but I still think that it's the threat of coercive judgment against the State that is the reason that the State can --

JUSTICE SCALIA: There is no threat of coercive judgment. The Eleventh Amendment makes it very clear that you can't issue the coercive judgment, but the State still doesn't have to show up.

MR. HUGHEY: I don't think that analysis should apply to this statute, Justice Scalia, because under the Shipping Act the agency can -- cannot compel an appearance by the State.

If the State just doesn't show up under the Shipping Act, the only way to do anything about that is to go into a Federal district court and seek a court order, and if the agency determines to do that, it then has to ask the Attorney General to do so.

Under the statute, the Attorney General may, rather than shall, enforce any order the commission issued. That is therefore, by definition, an exercise of the executive discretion that this Court found acceptable in Alden v. Maine.

CHIEF JUSTICE REHNQUIST: Does the commission have contempt powers?

MR. HUGHEY: No. No, it does not.

CHIEF JUSTICE REHNQUIST: Well, if it issues its process to a State and the -- like the entity in the present case, and the entity simply fails to show up, what can it do?

MR. HUGHEY: If the entity failed to show up, Mr. Chief Justice, the commission could issue an order telling it to show up, but again, that would have to be enforced by a Federal district court, and if --

CHIEF JUSTICE REHNQUIST: At the behest of the Attorney General, or --

MR. HUGHEY: Yes. Yes. The commission would have to ask the Attorney General to enforce it. Under the statute the Attorney General doesn't have to, but if he determined to do so, he could then go into a district court and try to enforce the order.

CHIEF JUSTICE REHNQUIST: And what would be the Eleventh Amendment situation there, when the commission went into district court to try to enforce its order to require appearing?

MR. HUGHEY: Oh, I would suggest that there would be no Eleventh Amendment problem there, because the enforcement action would be in the name of and by the United States.

CHIEF JUSTICE REHNQUIST: It would be by the United States?

MR. HUGHEY: Yes. It would be in the name of and by the United States. In this case, it would be, for example, United States v. South Carolina State Ports Authority.

JUSTICE GINSBURG: How many agencies have a pattern like this, where they determine the rules by rule-making, this kind of adjudication, and a commission-initiated proceeding?

MR. HUGHEY: I know that the Surface Transportation Board, which used to be the NSA Commerce Commission, has this authority, and I think that the Federal Communication Commission does, but I'm not entirely certain of that.

I would suggest, if I may, that to uphold the State's claim of Eleventh Amendment immunity in this case will have an adverse effect on the regulatory scheme that the Congress has created in the Shipping Act by undermining the notion of national uniformity in maritime commercial regulations.

JUSTICE SCALIA: Well, Congress could certainly handle that by making it very clear by legislation that if the State runs one of these operations, the State waives its sovereign immunity. Couldn't Congress make that clear?

MR. HUGHEY: I'm not sure if that kind of waiver is still acceptable after this Court's opinions of recent years.

(Laughter.)

I would suggest that it's probably not, but we think that, under the statute as it's written now, there's no need for something like that, because it's merely a regulatory action that the commission is attempting to utilize to find facts to determine what constitutes a Shipping Act violation, and again, there's no use of coercive power. In order for there to be coercion, the commission has to go into a Federal district court.

If I could reserve the remainder of my time for rebuttal.

CHIEF JUSTICE REHNQUIST: Very well, Mr. Hughey.

Mr. Clement, we'll hear from you.

MR. PAUL D. CLEMENT: Mr. Chief Justice, and may it please the Court:

States enjoy no sovereign immunity from Federal executive branch action, even when it takes the form of adjudication. It is well-established that States have no immunity from a suit brought by the Federal Government.

That's true not because of some preexisting notion of sovereign immunity, but because that consent to suits by the United States Federal Government is implicit in the plan of the convention.

Now, proceedings before the Federal Maritime Commission are a necessary predicate for the United States Government to bring a Federal suit to enforce the Shipping Act.

Given that the States enjoy no immunity from such a suit, they should not be allowed to reach back into the administrative process and assert an immunity from the preliminary proceedings before the agency.

JUSTICE KENNEDY: But I'm not -- I don't understand the argument. Sovereign immunity is based on parties, and we have said that when the United States is a party, there's no sovereign immunity, and not, incidentally, because that was inconsistent with some earlier notion of sovereign immunity, because the Constitution changed it.

MR. CLEMENT: No --

JUSTICE KENNEDY: But here we have a private party. That's all -- isn't that all the difference in the world?

MR. CLEMENT: But we have a private party that's not initiating a lawsuit, but is initiating executive action. Private parties are free to complain to the Federal Government and say a State government is violating Federal law.

In fact, the Petition Clause rightly protects the individual petitioner's right to petition the Federal Government and complain about that violation.

Now, I don't think it violates the Constitution for the United States Federal Government to say, we take citizen complaints seriously, and we're going to investigate each and every one of them, and I wouldn't think that it would violate the Eleventh Amendment for the Attorney General to give the party who's the subject of the complaint, even if it's the State, an opportunity to come before --

CHIEF JUSTICE REHNQUIST: Yes, but --

MR. CLEMENT: -- the executive branch and explain why there wasn't a violation.

CHIEF JUSTICE REHNQUIST: But the commission isn't just like kind of an ombudsman here. I mean, it's got very definite procedures that greatly resemble adjudication.

MR. CLEMENT: Well, they do resemble adjudication, and that's part of the process to formalize and regularize this process of getting complaints from citizens and response from others, but I don't think the formalization and regularization of that process turns it into a judicial act. It remains an act --

JUSTICE SOUTER: Well, isn't it the case that if the State defaults and says, you have no jurisdiction over me, and the commission therefore comes to a conclusion -- we'll leave the word adjudication out of it. It comes to a conclusion.

That conclusion itself is enforceable as such, at the behest of the National Government, in a district court, isn't it?

MR. CLEMENT: Well, first I want to clarify something. If there's a case where the State doesn't appear, and the private party is asserting a view of the Shipping Act that's contrary to the view of the Federal Maritime Commission, then there will be no order.

JUSTICE SOUTER: Let's assume it's not contrary. Let's assume the Maritime Commission says, you, private party, are right, and we hold that the State has committed the following violations, and I presume should be enjoined from further commission, whatever order it might come up with.

Once the commission has come to such a conclusion, isn't that conclusion, as such, enforceable at the behest of the United States in the district court?

MR. CLEMENT: It is -- it would be enforceable through a judicial procedure under the Shipping Act.

JUSTICE SOUTER: So -- if that is so, there's something much more involved here than merely an agency of the National Government taking a complaint seriously and investigating it, and the difference is that in the -- under the act, its conclusion on the investigation becomes an enforceable order at the behest of the National Government in a district court, and isn't that the difference?

MR. CLEMENT: But I don't think it's a critical difference, because the reason that that becomes enforceable, subject to whatever defenses there are, the reason that becomes enforceable is not because it's the midway point in some litigation.

It's enforceable because it reflects the executive branch's definitive interpretation of the Shipping Act.

The cease-and-desist order --

JUSTICE SOUTER: Well, the Federal Government could have an interpretation of the Shipping Act and go into it -- assuming there is otherwise a statutory jurisdiction here, the National Government could have a view of the shipping Act and go into the district court and say, this is our considered view, and the other party would have an opportunity to oppose it. We'd have a lawsuit.

As things stand now, when the United States goes in with what you call its considered view, that is the end of the issue on the merits, as I understand it. The only thing the district court is there for is to enforce it.

MR. CLEMENT: Well, there are some challenges that can be brought to that, and I guess the problem with this --

JUSTICE SOUTER: Could they have a trial de novo on the merits?

MR. CLEMENT: No, they can't, under the current system.

JUSTICE SOUTER: Could they collaterally attack and say, look, it doesn't mean anything to us, because we can't be hauled in front of the commission by a private party. Can it -- is such a plea recognized?

MR. CLEMENT: I don't think it currently is, but if that's --

JUSTICE SOUTER: No, I don't think it is, either, and that's why your argument that this is nothing but a way for the National Government to take a considered view of a complaint and come to a conclusion seems to me beside the point.

MR. CLEMENT: Well, it -- but the point, I think -- first of all, if the problem is the level of review that's given at the end of the process, then that's what should be adjusted, not throwing out the entire proceeding ab initio as the Fourth Circuit did.

But more to the point, I think the reason there's deference is because it reflects the executive branch's view, and it's the same in that order whether it's the product of a privately initiated complaint and adjudication, or whether it's an agency-initiated complaint. In both cases there's going to be practical pressure for the State-regulated entity to participate in the proceeding, but neither should they get an immunity.

The practical pressure is not the same as the compulsive process that the judiciary has. Nobody's summoned before the commission because a summons is necessarily enforced through the contempt power of the court. This is --

JUSTICE KENNEDY: Well, Mr. Clement, when I began to read your brief and I sensed that the sky was falling, and so I was turning my pages to see all of the horrible things that were going to happen to the Federal scheme if the court of appeals judgment stood, and I didn't see much there.

There's the Vending Stand Act in one of the circuit courts, but do Federal agencies call Governors before them all the time and say, well now, Governor, you're not enforcing the Federal laws?

I don't see that as part of our constitutional tradition. I don't see that we would create a great revolution in traditional practice by pulling the Ninth Circuit.

MR. CLEMENT: What there is a tradition of is the executive branch having the flexibility to determine how it is going to enforce Federal law.

There aren't many of these cases precisely because there just aren't that many State-run entities that are regulated, but the executive branch has the flexibility to regulate them through rule-making, through agency-initiated adjudications, or through private adjudications.

In each one of those, there are practical pressures to participate. In each one of those, the rule-making can be initiated by a private complaint.

There's a specific provision in the commission's regulation to allow rule-makings to be kicked off by a private complaint, but that doesn't turn it into something other than the executive branch's determination of what the law is and how it should be enforced, and this Court has generally deferred to the executive branch's need to determine how best to take care that the laws are faithfully executed.

JUSTICE STEPEHN G. BREYER: What about the labor board?

MR. CLEMENT: What's that?

JUSTICE BREYER: What about the labor board, universities?

MR. CLEMENT: Well, --

JUSTICE BREYER: State universities and the labor board.

MR. CLEMENT: I don't know the specific application, but --

JUSTICE BREYER: No, but I'm thinking that the universities often have unions, and I gather that -- why hasn't the labor board been involved in adjudicating complaints about the State university as an employer in respect to the labor unions?

MR. CLEMENT: Well --

JUSTICE BREYER: Maybe it hasn't. I wouldn't know why it wouldn't have.

MR. CLEMENT: I mean, but one thing that's certainly clear about the labor board is that that's a perfect example of an administrative agency that decides to proceed by adjudication.

JUSTICE BREYER: I'm not arguing with you. I'm just wondering why there were not more examples.

MR. CLEMENT: Well, another example is the Railway Labor Act, because the Railway Labor Act is -- defines its jurisdiction coextensively with the Interstate Commerce Commission. There are State-run railroads under the Railway Labor Act.

Typically those kind of employment disputes are initiated by a private party. This court in California v. Taylor said that the Railway Labor Act can apply to a State-run railroad.

Interestingly, in footnote 16 of that opinion, the Court reserved the question of whether the Eleventh Amendment provided protection for the suit in court, but it didn't say anything about Eleventh Amendment protection before the board itself, and I think the relevant history here is almost exactly the opposite of the case in Alden.

In Alden, this case had a long history of State sovereign immunity, and very few and only recent efforts by the Federal Government to abrogate that immunity.

Here, by contrast, there's a 115-year tradition of State entities being subject to regulatory commissions, and very few and only recent efforts to invoke any kind of Eleventh Amendment immunity before them.

I also think that the text of the Eleventh Amendment has a special relevance here that it lacked in Alden.

In Alden, the determination that State courts not exercise the, quote, judicial power of the United States, only began the analysis of whether or not the States enjoyed their sovereign immunity free from congressional disturbance.

Here, the recognition that the commission exercise -- does not exercise the judicial power of the United States necessarily means it exercises the executive power of the United States, and this Court has traditionally held that the executive branch may initiate process against the States without an Eleventh Amendment bar.

The fact that this proceeding --

JUSTICE SOUTER: Well, it's not -- you keep speaking about an Eleventh Amendment bar. The bar is sovereign immunity. We're not concerned about the textual limitations about the Eleventh Amendment. We're concerned with sovereign immunity.

MR. CLEMENT: But in this particular context, I think the text is relevant, because this is not a free-floating, pre-existing notion of sovereign immunity.

What we're saying is that the Eleventh Amendment waiver in the plan of the Constitution that allows the United States Government to sue a State also allows it to take the preliminary steps in the administrative process.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Clement.

Mr. Dean, we'll hear from you.

MR. WARREN L. DEAN, JR.: Thank you, Mr. Chief Justice, and may it please the Court:

This case presents the question of whether sovereign immunity protects a State from a private suit brought before a Federal administrative tribunal.

We have heard today arguments and suggestions that this proceeding is not a suit within the meaning of the doctrine and principle of sovereign immunity.

In 1868, this Court addressed this question. It held in Nichols v. United States that a proceeding before an Article I administrative tribunal, a so-called legislative court, just like the Federal Maritime Commission, was a suit for sovereign immunity purposes.

The case was appealed from an appeals court.

The Court confirmed that legislative court status of the claims court twice, in Ex parte Bakelite in 1929, and then in Williams v. United States in 1933, and later in 1934 the court again, in United States v. Sherwood, unanimously confirmed both conclusions, that States -- that claims court was an Article I legislative court, and its jurisdiction was dependent upon a waiver of sovereign immunity. There were no dissenting justices in any single one of those decisions.

JUSTICE GINSBURG: Mr. Dean, but that was an Article I court that just adjudicates. Here we're being told that the Maritime Commission is in the business of making rules for the governance of people in the trade, and it makes the rules three ways.

One through rule-making, another's through commission proceeding, and a third through private complaints, and why couldn't the private complainant be regarded as a kind of delegate to the commission?

I take it if the commission itself decided to investigate, you would have no question about sovereign immunity, is that true?

MR. DEAN: We've made that clear throughout this proceeding, Justice.

JUSTICE GINSBURG: All right. So why can't the commission say, one of the ways that we investigate is, we listen to what private people tell us, so that in effect we're taking that private complaint and we're making it our own by processing it?

MR. DEAN: That's exactly -- that is exactly what does not happen in this case, Your Honor. A private complainant files a complaint before the Federal Maritime Commission, we receive the notice, we either respond or we're in default.

It is quite clear -- and I submit with all due respect that Mr. Clement is absolutely wrong on this. It is quite clear that the agency can find both findings of fact and findings of law against a nonresponding party.

That's been established administrative procedure law for sometime and, in fact, the private party controls the disposition of this proceeding.

The executive arm of the Federal Maritime Commission, its Bureau of Enforcement, does not even have a right to intervene in the proceeding. It has to petition like any other private party to get involved in the proceeding. They did not do that in this case.

JUSTICE KENNEDY: -- have standing?

JUSTICE GINSBURG: Can the private party ask --

MR. DEAN: They have to show cause for intervention, Justice Kennedy, just like any other private party would do. They have no greater standing than any other private party.

JUSTICE GINSBURG: But could a private party say to the commission, commission, here's a serious complaint, something wrong has been done, I don't have the resources to prosecute it, would you please investigate it?

MR. DEAN: Oh, absolutely. That's the way the commission traditionally does business. That is an entirely separate proceeding. That is the proceeding to which we would not object.

If a private party came into the commission and said, we have this grievance against the South Carolina State Port Authority and we'd like you to look into it, and the Bureau of Enforcement came to us and said, we think you're doing something wrong, we would obviously talk to them, and if we couldn't reach some kind of accommodation with respect to that matter, then we would -- and they brought a complaint against us, they would be entitled to do that if -- provided the complaint was brought in their names and formed by the United States.

And I might add that, in a reparations proceeding -- this is not a sanctionless exercise.

In a reparations proceeding, if the agency issues an order against us, a judgment against us, and we fail to comply with that judgment, we incur statutory liabilities, automatic, of up to $25,000 a day.

Now, they can be compromised by the agency for a period of 5 years after each violation, if it so chooses, but any time somebody says to me, for example, that if you don't do XYZ you're going to incur an automatic statutory liability of $25,000 a day, I consider that a sanction, and --

CHIEF JUSTICE REHNQUIST: Well, is that statutory liability, is that enforceable by the commission without court order, or did it have to go to court to do it?

MR. DEAN: Ultimately, if push comes to shove and there's a confrontation, they have to go to court, but Mr. Chief Justice, I think anybody faced with a statutory liability of the United States imposed by Federal law considers that a sanction, and we do not have the opportunity to protect our interests, to say, no, no, no, this wasn't a violation, this is what we did, when the agency, the only standard for the enforcement of the agency's order in court is whether or not it was duly and regularly issued.

So the position of the United States that this is not a -- that this is a proceeding that is essentially equivalent to a petition by a private party for executive action is absolutely incorrect, and they don't even believe that position themselves.

JUSTICE BREYER: Could I go back to your opening statement? Why is it an exercise of the judicial power of the United States? I mean, we have an ordinary administrative agency. What's the theory of it?

I mean, I grant you, I'm sure you're right, that there's some case that said once the court of claims, which is a court in exercising -- though set up under those Article I exercises the judicial power of the United States, so my Constitution says it has nothing to do with whether it's a lawsuit, not a lawsuit, I don't care. I want to know, is it the judicial power of the United States, and frankly, I didn't know that the executive branch could exercise the judicial power of the United States.

MR. DEAN: The court below held --

JUSTICE BREYER: Whatever they held, I want to know what the reasoning of it is.

MR. DEAN: Well, the reasoning -- the judicial -- you don't need to find the judicial power.

JUSTICE BREYER: You don't? My Constitution happens to say, the judicial power of the United States shall not be construed, so I'm -- maybe I don't have to find it, but I'd like to know on what basis I wouldn't have to.

MR. DEAN: This is a case brought by a citizen of the State of South Carolina, like Chisholm v. Georgia, I might add, against the -- against a -- the State of South Carolina. It's not technically for those terms and those terms alone within the scope of the Eleventh Amendment.

JUSTICE BREYER: All right, fine, it's not within the scope of the Eleventh Amendment.

MR. DEAN: It's Hans v. Louisiana.

JUSTICE BREYER: Oh, no, no, I want to know if it is with -- forget the fact -- I think it is within the scope of the Eleventh Amendment if a -- I believed, as far as I know, when a citizen of a State sues the State itself, of which he is a citizen, it is an interpretation of the Eleventh Amendment, and I didn't know that for that purpose you didn't have to find the judicial power of the United States, so I'm open to that argument.

MR. DEAN: Well --

JUSTICE BREYER: I want to know, is this the judicial power? If so, what's the argument? If it's not the judicial power, what part of the Constitution forbids it?

MR. DEAN: First, it is -- we have stated it is the judicial power, but you need not find that, and I'll give you the reason it is the judicial power of the United States, is because this agency acts as an adjunct to the court, just as this Court has held in Northern Pipeline and --

JUSTICE BREYER: Do all administrative --

JUSTICE JOHN PAUL STEVENS: Did you say it was the exercise of judicial power?

MR. DEAN: It is the exercise of -- the Shipping Act entails the exercise of judicial power, Justice Stevens.

You can look at this either as an organic analysis, as you have done under the Appointments Clause of the commission itself, or you can look at the statutory process and procedure that is involved.

JUSTICE BREYER: Does the Federal Trade Commission exercise the judicial power, does the State Department, does the Commerce Department, the Post Office -- I mean, what is the principle under which this is or is not?

MR. DEAN: Well, the --

JUSTICE BREYER: What about the President, let's say, when he's -- you see the point.

MR. DEAN: In your book, Justice Breyer, you call this an uneasy constitutional area, and I certainly agree with that.

(Laughter.)

The judicial power of the United States, this Court has held in a number of cases, including the cases that I just mentioned, that the judicial power can -- at least some component of the exercise of the judicial power in a comprehensive proceeding can be delegated to nonjudicial officers, provided it is subject to judicial supervision and subject to some specific supervisory parameters that exist in this case, but it's a complicated question, and the Court has disagreed on it, and various courts have disagreed on this question for sometime, and in fact, in some of the cases that I just mentioned, the United States Supreme Court took appellate jurisdiction from an Article I tribunal in the executive branch, and under those circumstances something was going on before the court of claims.

JUSTICE BREYER: You know, now that I can quote one of my favorite authors, Justice Scalia, he says it is no doubt true that all such administrative bodies adjudicate, they determine facts, apply a rule of law to those facts, and thus arrive at a decision --

MR. DEAN: Well --

JUSTICE BREYER: -- but there is nothing inherently judicial about adjudication.

MR. DEAN: Granted, but --

JUSTICE BREYER: Then what is it that makes it the judicial power?

MR. DEAN: What is it that makes it subject to sovereign immunity, or what is it that makes it the judicial power?

JUSTICE BREYER: The judicial power is what we're all -- and I'm --

MR. DEAN: Well, the judicial power, if you look at a proceeding, an administrative proceeding like the Shipping Act, and this Court held that, held this in the Far East Conference case, it said, you can't take one isolated aspect of it.

You cannot take the organic entity which is the Federal Maritime Commission and consider its functions independent of the rest of the proceeding that is involved.

Ultimately, this proceeding ultimately, in combination with the courts of the United States, this proceeding invokes the judicial power, whether the FMC is acting --

JUSTICE SCALIA: All executive action does. I mean, that's just too broad a principle. I mean, the fact is, since we don't have a -- we have a Constitution that has a Habeas Corpus Clause. There's nothing the executive can do to you that can't be challenged in court.

MR. DEAN: Well, this is --

JUSTICE SCALIA: Ultimately, the court is the moment of truth, but that doesn't convert every executive action into an exercise of the judicial power.

MR. DEAN: I know, but this is clearly not purely executive action. This is an independent agency, and this Court has held repeatedly that officers that exercise quasi-judicial power can be subject to special removal requirements, and that is --

JUSTICE SCALIA: Ah, so if this wasn't an independent agency, it would be different?

MR. DEAN: No, but let me -- both in Hensel and in Artistani, and in this Court's decision in West v. Gibson --

JUSTICE STEVENS: Would you -- may I just interrupt you? What if this were an executive agency, rather than an independent agency? Could you make the same argument?

MR. DEAN: Like -- the claims court was within the Department of Treasury at the time these decisions were handed down. That doesn't necessarily resolve the matter, but it does instruct the Court's analysis that this is a quasi-judicial independent agency --

JUSTICE STEVENS: Well, great, but that's not answering my question.

MR. DEAN: -- and its officers are not subject to executive supervision.

JUSTICE STEVENS: What is your answer to my question? If it were a pure executive agency, would it be the same case for you?

MR. DEAN: No. It would be the same case depending on the statutory process involved, Justice Stevens. The agencies --

JUSTICE STEVENS: In the statuary process, but clearly an executive agency within the Department of Commerce or Department of Agriculture, or something like that.

MR. DEAN: It was -- the court of claims was in the Department of Treasury at the time, and customs officials have done --

JUSTICE STEVENS: You're a little too fast for me.

MR. DEAN: I'm sorry.

JUSTICE STEVENS: What is your answer? Is it the same case entirely within the executive branch?

MR. DEAN: It is.

JUSTICE STEVENS: Okay.

JUSTICE SOUTER: Let me ask you a slightly different question. If we assume for the sake of argument that it is not the judicial power that's being exercised here, do you lose?

MR. DEAN: No.

JUSTICE SOUTER: Why don't you lose? Why don't you lose?

MR. DEAN: The court below said it was irrelevant.

JUSTICE SOUTER: Pardon me?

MR. DEAN: The court below said it was irrelevant, and I agree with that proposition.

JUSTICE SOUTER: And it's irrelevant because?

MR. DEAN: Because sovereign immunity --

JUSTICE SOUTER: Sovereign immunity -- in other words, you've got a sovereign immunity argument which is at least distinct from the Eleventh Amendment argument?

MR. DEAN: Absolutely.

JUSTICE SOUTER: Okay.

MR. DEAN: And the United States has a sovereign immunity argument, and they apply sovereign immunity --

JUSTICE SOUTER: That's what I thought.

MR. DEAN: The United States applies its sovereign immunity in proceedings just like this.

It has for all time. As a matter of fact, this Court has held sovereign immunity applies to the United States in administrative proceedings consistently for the last 130 years, and there has not been one single dissent from that proposition that I've been able to find.

In West, all the Justices of this Court assumed for the purposes of that analysis that sovereign immunity principles apply before the EEOC.

CHIEF JUSTICE REHNQUIST: Well, but sovereign immunity for the United States may not be co-extensive with sovereign immunity for the States.

Granted that sovereign immunity to the States goes beyond just the literal language of the Eleventh Amendment about the judicial power.

MR. DEAN: Mr. Chief Justice, I agree with that proposition in the abstract, but in this particular case, I think there's a lot of similarity, and I'll give you exactly -- I'll tell you exactly why I think why.

Firstly, the courts have held that it's a reciprocal -- this Court has held over the years that it is a reciprocal privilege, but the United States in its brief in this case --

JUSTICE SCALIA: Excuse me. What do you mean by that, that it's a reciprocal privilege?

MR. DEAN: Well, in Alden and in Hans and -- the Court has held that the privilege of Federal sovereign immunity -- State sovereign immunity is a reciprocal privilege to the privilege enjoyed by the States.

JUSTICE SCALIA: By reciprocal you mean that it's co-extensive?

MR. DEAN: Co-extensive mirror image, yes, Justice Scalia.

The United States has suggested in this case, and it's a proposition that I agree with, that the sovereign immunity of the United States at least as it applies to money judgments -- and it's much broader than money judgments, but let's just talk about money judgments for a minute, that at least as it applies to money judgments is informed by the Appropriations Clause, which reserves to the legislature, to the Congress the right to spend, and we all know the right to spend is the right to tax.

So our body politic, our -- the public -- the people of the United States have made a determination that their Constitution, which is their sovereign, commits to the legislative branches the exclusive right to expend the public's money, and that's a very fundamental principle in our Federal Constitution. That principle is also reflected word for word in this constitution of South Carolina --

JUSTICE STEVENS: Well, you don't think the States have --

MR. DEAN: Pardon me?

JUSTICE STEVENS: -- the exclusive right to determine when their money will be spent in a proceeding brought by the United States, do you?

MR. DEAN: Excuse me?

JUSTICE STEVENS: You don't say that the States have the same power over their own money that the United States has over its money, in an action brought by the United States?

MR. DEAN: I do.

JUSTICE STEVENS: There's sovereign immunity -- even in an action brought by the United States?

MR. DEAN: No, this Court has held that they have consented to suit, so it doesn't apply in that area.

JUSTICE STEVENS: So they don't have sovereign immunity in cases brought by the United States.

MR. DEAN: That's correct, but in this constitution of the State of South Carolina that was adopted 9 years before this Constitution was adopted, there is the same Appropriations Clause. The same principle is reflected, that no moneys may be obligated --

JUSTICE STEVENS: But that was before the Supremacy Clause was adopted in the Federal Constitution.

MR. DEAN: But this is a constitutional principle Justice Stevens. It is a question --

JUSTICE STEVENS: It is not a constitutional protection -- principle that protects the States from liability to the United States.

MR. DEAN: I ask you this question as a hypothetical. The Constitution of this --

CHIEF JUSTICE REHNQUIST: No, counsel doesn't ask questions.

(Laughter.)

MR. DEAN: I'm sorry, Mr. Chief Justice.

The constitution of -- I'll state it in a declaration. The constitution of the State of South Carolina reflects the same principle reflected in the Appropriations Clause.

We have two sister sovereigns, both of them organized on the same fundamental principle that only the people have the right to levy on the public treasury, and only the people through their elected representatives, and only the people have the right to spend, and therefore only the people have the right to tax.

JUSTICE GINSBURG: Mr. Dean --

MR. DEAN: Now, you have these two comparable constitutions. How do you [*41] put them together and violate that principle?

JUSTICE GINSBURG: Mr. Dean --

MR. DEAN: I don't know the answer to that question, Justice Stevens.

JUSTICE GINSBURG: -- you recognized a case called Ex parte Young, and let's say that the private complainant says, okay, I'm not going to sue the State court authorities.

I'm going to sue the commissioners, and so as the FMC to please substitute for the entity the individual commissioners, and they said go ahead, and they don't have sovereign -- individuals, at least with respect to prospective relief do not have sovereign immunity.

Why couldn't -- is that then just a matter of amending a complaint to name different parties?

MR. DEAN: That suit belongs in Federal court, and I doubt very seriously that the commission has that statutory jurisdiction. The reason is that it has jurisdiction over persons engaged in the business of operating, or internal operators.

I very sincerely doubt that any individual employee would satisfy that test, but the test certainly exists under Ex parte Young.

The opportunity might exist, except for the fact that the proper way for the individual to proceed in this particular case would be to file a declaratory judgment under State law, which is available, to obtain the relief the individual requested.

JUSTICE GINSBURG: But you haven't answered the question --

MR. DEAN: I'm sorry, Justice --

JUSTICE GINSBURG: -- why couldn't the FMC say --

MR. DEAN: I don't believe the Shipping Act gives the FMC jurisdiction over individuals who are employees of entities that are engaged in --

JUSTICE GINSBURG: Not employees, the commissioners themselves, the members of the State body.

MR. DEAN: The officers of the -- I don't believe the Shipping Act gives the FMC jurisdiction over officers of entities that it regulates. I don't believe it has that kind of personal jurisdiction, Your Honor.

That issue has not -- I am not aware that that issue has decided, but I frankly have grave doubts that it would.

JUSTICE GINSBURG: But if that matter were clarified so that Congress, wanting the FMC to have this third way of regulating said, in the case where State agencies are involved you can sue the individuals, individuals who compose the entity --

MR. DEAN: Well, the proper way for the Federal Maritime -- as I said, I don't think the FMC has that jurisdiction. It does have jurisdiction over us. All it has to do is initiate its own complaint.

When the ALJ dismissed the complaint in this case, he invited the commission, if the commission deemed the case had merit, satisfying the test in Alden, he invited the commission to initiate a proceeding through its own Enforcement Bureau.

The commission did not do so. Instead, they reversed the ALJ's order, which is in turn reversed by the Fourth Circuit.

The parties in this, the Federal parties in this case do not challenge the holdings of this case in Nichols, Hans, Sherwood, Alden, or Seminole, so in effect what they're asking this Court to decide is the following three propositions, and all of the following three propositions: that lesser tribunals established under Article I have powers that both State and Federal courts lack, even though they constitutionally may adjudicate only subject to the supervision of the latter;

2) that Congress, merely by assigning a private cause of action to administrative tribunal, acquires and exercises power it does not otherwise have to abrogate State sovereign immunity, thereby bypassing this Court's sovereign immunity jurisprudence, and 3) that States lack the reciprocal right to assert sovereign immunity in Federal fora where the immunity of the United States clearly applies.

CHIEF JUSTICE REHNQUIST: Well, you really don't need your third argument, do you, that the State sovereign immunity is co-extensive with Federal sovereign immunity?

MR. DEAN: I don't need that third argument, Mr. Chief Justice, that's quite correct, but what the United States asserts, says about administrative proceedings, if they were purely executive action -- for example, if it was purely an executive branch matter, this -- the United States has come into this Court on numerous occasions most recently in Artistani and West, and asked this Court to intervene in what they now say is a purely executive branch matter.

There was no inquiry. There was no special analysis that the court did to determine whether or not the intervention in that kind of purely executive branch matter was warranted. There was no discussion of that.

The court assumed that the doctrine of sovereign immunity as it applied to the Federal Government applied to it, and I might add that --

JUSTICE BREYER: Oh, what is the boundary? Apparently you're now talking about a principle of state sovereign immunity outside the scope of Amendment 11 of the United States Constitution, and I haven't really heard of that one.

I'm not saying it doesn't exist, but where do I go to discover what its bounds are, to discover what the implications are, to discover if it applies when the President does anything? I mean, I don't know what the scope of that one is, so where do I go to find out about that?

MR. DEAN: If the President does something and the President --

JUSTICE BREYER: No, I'm just asking -- my question is --

MR. DEAN: Hans -- Hans v. Louisiana is the only place you need to go.

JUSTICE BREYER: In other words, Hans you say is outside the scope of the Eleventh Amendment.

MR. DEAN: By its terms it held it was outside the scope of the Eleventh Amendment.

JUSTICE BREYER: All right, so Hans does not have to do with the Eleventh Amendment.

MR. DEAN: It does not by its terms have anything to do --

JUSTICE BREYER: Okay, it does not.

MR. DEAN: -- it reflects the --

JUSTICE BREYER: Then how do I discover the scope of this principle of State sovereign immunity outside the Eleventh Amendment?

MR. DEAN: Well, the same way you discover the principle of Federal sovereign immunity. You look at what the nature of the proceeding, and the nature of the affront to the dignity of the sovereign is being involved, you identify what the sovereign's interests are, and in this particular case, in the money judgment it violates the same clause of our constitution that it violates in the case of the Federal Constitution, and that's pretty persuasive.

JUSTICE STEVENS: But as I understand your argument, it's not limited to the reparations part of the case. There's --

MR. DEAN: No.

JUSTICE STEVENS: -- also a request for a cease and desist order.

MR. DEAN: Although I might add, Justice Stevens --

JUSTICE STEVENS: You don't really need the reparations for your position.

MR. DEAN: -- that the pure participation in this lengthy proceeding has had consequences for the Treasury of the State of South Carolina, but nonetheless, it's much broader than that, yes, Your Honor.

It goes to the nature -- as this Court held in Seminole, and I might add, when I was -- when we argued the case before the Fourth Circuit we had a little discussion about whether or not the State of South Carolina was willing to be a scofflaw.

In other words, whether we were willing to have our -- to have allegations, whether they be frivolous or serious, against us go unanswered in an administrative tribunal that concededly regulates us in Washington and have as the United States maintains this become a precedent that would affect their dealing with us in the future without defending ourselves, and that's simply not a realistic option for the State of South Carolina.

It's not a realistic option for anyone, much less a sovereign. If there's anything to dignity, there's a dignity to that, to be able to defend yourself against allegations and not have people who are decisionmakers make judgments against you --

JUSTICE STEVENS: But let me just --

MR. DEAN: -- based on unanswered allegations, or unanswerable allegations.

JUSTICE STEVENS: May I interrupt you for just a moment, please?

MR. DEAN: Justice Stevens.

JUSTICE STEVENS: Let's put the reparations to one side, and let's assume you're dead right on the monetary aspect of the case.

Is it your position that it would be in everyone's best interest to have proceedings like this initiated ex parte, and then the agency makes up its mind whether to go -- bring an enforcement proceeding, or it would be better to have a formal proceeding where you have a chance to respond to the charges and so forth?

MR. DEAN: No, it's far better, Justice Stevens, to have a person come to the agency, present its concerns to the agency, and the agency approach the State of South Carolina, one sovereign to another sovereign.

This case involves the regulation of gaming ships. The Congress has committed that to our discretion under State law. We are given that right.

The Johnson Act, which gave us the right to regulate gaming ships, does not say that it's subject to review by the Federal Maritime Commission. It does not say, for example that the Federal Maritime Commission --

JUSTICE STEVENS: No, but if you have --

MR. DEAN: -- has the right to preempt the Congress.

JUSTICE STEVENS: If you have an issue such as this in which the agency thinks there's a colorable basis for a proceeding, do you think the only way they can proceed against you formally is to first of all get all the information ex parte from the private parties, and then make up their own mind as to whether to bring a formal proceeding in the name of the agency?

MR. DEAN: Just like the Department of Justice does when it enforces the laws against the States, yes, Your Honor, that is the proper way of doing it, because we can and will address those allegations at that time, but I can assure you that the -- this case implements policies of the State of South Carolina that are important to it, the regulation of gaming ships, the Johnson Act Congress has said it's up to the State of South Carolina to make those policies and to implement those policies --

CHIEF JUSTICE REHNQUIST: Well, but the Johnson Act certainly didn't say that South Carolina was exempt from the requirement of the Shipping Act, that it not discriminate.

MR. DEAN: No, but I can -- that's correct, but in -- any regulatory system has at its core the right to make discretionary, discriminatory judgments about what does and does not comply with the policies of that regime.

CHIEF JUSTICE REHNQUIST: Well --

MR. DEAN: And the FMC is now sitting in judge -- as a judge of the -- of our implementation of State law as authorized by the Johnson Act.

CHIEF JUSTICE REHNQUIST: Well, certainly you're not suggesting that the Shipping Act in its prohibition against discrimination can't be applied to South Carolina other than on a sovereign immunity basis, are you?

MR. DEAN: No, we're not, but what we're saying is that if they exercise the executive discretion that they ought to act, that the Constitution envisions them enacting, that they would approach us as a sovereign, we'd say, these are our sovereign interests, they'd say, they are their sovereign interests --

CHIEF JUSTICE REHNQUIST: Well, yes, but --

MR. DEAN: -- ultimately they would trump ours, if there was a disagreement --

CHIEF JUSTICE REHNQUIST: Yes. In 1787 we adopted a Constitution so they didn't have to approach one another as sovereign to sovereign any more.

MR. DEAN: That's true, but in this particular area the Congress has decided that the sovereign State of South Carolina gets to do the regulating, Mr. Chief Justice, so we would come down and we would have two different regulatory regimes, and we would approach each other, and we would resolve the differences between them, and if they disagreed, if ultimately they disagree, they could bring a complaint against us, which they have the right to do, and we would defend it, and we would participate. We would have the opportunity to defend ourselves, and we would defend ourselves, and so that's --

JUSTICE KENNEDY: It would not be, perhaps, as intellectually satisfying as resolving the case specifically on the merits. Is it open to us to say that there's no clear statement that waives sovereign immunity, as we did in Vermont Yankee?

MR. DEAN: There is no statement that waives sovereign immunity. I think that's been conceded in the proceedings below. There's no waiver of sovereign immunity in this case. Yes, Your Honor.

JUSTICE KENNEDY: But there's no clear statement by the Congress of the United States intending abrogate --

MR. DEAN: Oh, no, clearly not. There's no mention in the Shipping Act at all of intention to waive State sovereign immunity.

I can't find a mention in the Shipping Act of intention to waive Federal sovereign immunity if and when the Federal Government ever wants to get into the business of operating ports.

It operates two airports in the Washington area, so I don't think it's inconceivable that it might do so at some point, but it is clearly -- it is clearly no waiver of sovereign immunity, even if -- even going back to the law where it said the Congress could waive the sovereign immunity of the United States, of the States, I'm sorry, there is no evidence of any intent whatsoever in the Shipping Act to do that.

The fact that the Federal Maritime Commission may bring its own actions against the United States -- against the States as it did in the California case proves the opposite proposition, that the Congress, that was the proper way to proceed, and I think that is the proper way to proceed.

The -- I'd like to go back to -- this complaint is a verified private complaint. It is -- calls for reparations in the broadest form of reparations, including consequential damages, interest and attorney's fees, the commission has no discretion in the handling of this complaint, it's required by law to adjudicate it, and the agency's findings become final subject only to judicial review.

This is precisely the kind of anomalous proceeding suit that the Court had in mind in Hans, and Hans came 30 years after --

JUSTICE KENNEDY: But only to the extent they're seeking a money judgment.

MR. DEAN: No, Your Honor, I think the sovereign immunity --

JUSTICE KENNEDY: Well, Hans was purely a money judgment.

MR. DEAN: Yes, but they held that the Court was -- they held the State immune from the proceeding.

Obviously, the proceeding had already been completed, but I think it's fairly clear now that the dignity of the sovereign entails to the entire proceeding, applies to the entire proceeding, but you know, this question about the dignity of the sovereign, the Court in Hans gave us some instructions, some future instructions --

JUSTICE BREYER: But Hans was a court case.

MR. DEAN: Hans is a court case.

JUSTICE BREYER: Well, I mean, it's not a case, then, in which they say it's not the judicial power --

MR. DEAN: Just like Federal sovereign immunity is a court case.

JUSTICE BREYER: And why is it a case in which they say -- isn't it -- I mean, I'm back on my judicial -- forget it, I'm sorry.

MR. DEAN: My time is up.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Dean.

MR. DEAN: Thank you, Mr. Chief Justice.

CHIEF JUSTICE REHNQUIST: Mr. Hughey, you have 3 minutes remaining.

MR. HUGHEY: If I could keep going with your inquiry, Justice Breyer, I think we are suggesting that there is a line in this case, and that line is Freytag v. Commissioner of Internal Revenue.

We're not suggesting that State instrumentalities would never have sovereign immunity in administrative proceedings. Rather, we're suggesting that they might in proceedings in which contempt power can be exercised, and this is not one such proceeding because the agency doesn't have coercive authority over the entities that it regulates. It has to rely on a Federal district court for that.

To make another point, I think Mr. Dean emphasized that the Shipping Act allows the agency to fine instrumentalities that don't comply with its order.

However, I should point out that in this case the commission has never indicated that it has the authority to fine a State instrumentality for not complying with a reparation order. That was something that ended up in the Fourth Circuit's opinion.

We've never said we could do it, and the United States in its reply brief to this Court has specifically expressed the view that the FMC could not fine a State-run court for not complying with the agency-issued reparation order.

And finally, with respect to the issue of whether and when the agency's Bureau of Enforcement can intervene in an agency proceeding,

I should point out that whether or not the Bureau of Enforcement intervenes in the adjudication does not get to the point of whether it is an agency action, because the agency always retains the ability to review, sua sponte, any administrative law judge order that comes out.

JUSTICE KENNEDY: Why is it that you cannot fine the State?

MR. HUGHEY: I think the United States has suggested that because the commission and the Attorney General don't have the authority to enforce a reparation order against a State, that the authority to fine the State for not complying with that reparation order would not be an appropriate interpretation of the Shipping Act.

Again, that's something, the commission has never said that it has the authority to, or that it would fine a State for not complying with an agency-issued reparation order.

JUSTICE GINSBURG: Could the commission substitute the commissioners of the South Carolina Ports Authority for the port authority itself?

MR. HUGHEY: I'm unsure of that, Justice Ginsburg, but we would suggest that the pleading requirements of Ex parte Young need not be imported into the Shipping Act, and that a request for, for example, a cease and desist order against the ports authority would, under the Shipping Act, be sufficient, and that the complaint need not name the commissioners of the ports authority themselves.

Thank you -- oh, sorry.

JUSITCE SCALIA: I think what Justice Ginsburg's question went to, you're saying you don't have to name the individuals, but suppose that we held that you couldn't name the State, do you think you have authority to name the individuals?

MR. HUGHEY: I'm unsure of that, Justice Scalia. The Shipping Act provides that complaints must be filed against persons. I think the question would be rather whether the port commissioners are persons.

It may be that a fiction could be conceived that they would be under the Shipping Act, but again, that issue has never come up in the commission's administration of the statute.

Thank you.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Hughey. The case is submitted.

Attribution:

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Verizon Maryland Inc. v. Public Service Commission of Maryland - Oral Argument

Fri, 09 Jan 2009 14:50:25 +0000

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Verizon Maryland Inc. v. Public Service Commission of Maryland

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00-1531_20011205-argument.mp3

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Transcript:

Argument of Mark L. Evans

Chief Justice Rehnquist: We'll hear argument next in No. 00-1531, Verizon Maryland v. the Public Service Commission of Maryland and United States v. Public Service Commission of Maryland.

Mr. Evans.

Mr. Evans: Mr. Chief Justice, and may it please the Court: Unlike Mr. Smith, Verizon takes the position that these contracts are, in fact, pervasive and Federal, and I'd like to tell you why.

The statute, by its terms, requires us to enter into these relationships whether we want to or not.

It dictates the subject matter of the negotiations, it provides that the agreement has to be approved by the State commission but under Federal standards spelled out in the statute.

Once approved, moreover, these agreements are binding not as a matter of State law but as a matter of Federal law, which is provided for in 252(a)(1) of the statute.

Chief Justice Rehnquist: 252(a)(1)?

Mr. Evans: (a)(1), and finally, and in some ways most tellingly, every provision of an approved agreement is like a tariff made available automatically to every other carrier that wishes to adopt them, and the Court upheld that in the Iowa utilities case even though it was challenged, but the function of not only the agreement's terms but every interpretation of an agreement's terms has Federal reverberations.

These are not cases that... with which the Federal Government has washed its hands.

Chief Justice Rehnquist: Well, what about Justice Stevens' example in the previous case, do you pay on Tuesday or do you pay on Thursday?

Mr. Evans: Mr. Chief Justice, I think that is a hard question in terms of the way it was put, and I think the answer, to be consistent, is yes it belongs in Federal court, and the reason I say that is because just like a Federal tariff, where there's a question about the payment date, it belongs in Federal court.

That... the Court has held that in many cases involving Federal tariffs, one of which we've... two of which we've dealt with in the brief, one of which is Thurston Motor Lines, which is in 460 U.S.--

Justice Scalia: How many of these agreements, negotiated or otherwise, are there Nation-wide?

Mr. Evans: --They're... they're--

Justice Scalia: Do you have any idea?

I mean, give me--

Mr. Evans: --limited to--

Justice Scalia: --a magnitude.

Mr. Evans: --I'm sorry.

They're limited to the boundaries of the State in most instances, although the negotiations in one State have reverberations for the same two parties in other States, as, for example, with Verizon.

Justice Scalia: I'm just wondering how many pure contract cases are being dumped into Federal courts by your--

Mr. Evans: Oh, I see.

Justice Scalia: --100,000?

Mr. Evans: I think the... I don't have a number, Justice Scalia.

I can say that I don't think once the big issues are resolved there's going to be many of them, and the big issues tend to be like the issue in this case, where the very contract says, on the point in dispute, that the parties agree that reciprocal compensation will be paid only to the extent required by the statute, naming a specific section of the statute.

Justice Scalia: Yes, but you say every time there's any dispute on this contract, even as to what date payment should be made, you run into Federal court.

Mr. Evans: Well, I mean, yes, but as a practical matter the issues will not be brought to Federal court unless there's a lot of money involved and the issues are very important for a variety of reasons.

It's not a cost-free proposition to go to Federal court.

Justice Breyer: I thought a tariff... I mean, you're talking about a State railroad tariff?

Mr. Evans: No, not a--

Justice Breyer: No, of course a Federal railroad tariff is a Federal question.

Nobody doubts that.

What they're saying is, here, the structure of this statute is to have State commissions run these agreements, period.

Now, of course, they have to be sure that the State commission satisfies certain Federal standards, which might have been minimal but have turned out not to be so minimal.

Mr. Evans: --Well--

Justice Breyer: But... so I don't see how in answer to Justice Stevens... and I think it does create a problem.

I don't see how you can put all the... every detail of this State contract in a Federal court, calling it a Federal question, and once that's so, there does become an issue as to whether Congress bifurcated this and said, as is true of all other State agencies, you have a Federal question, you can go into Federal court.

Or said, throw them all in the State.

Mr. Evans: --Well--

Justice Breyer: What's your response?

Mr. Evans: --Well, two things, Justice Breyer.

First, the... if you look back at this Court's Federal tariff cases you find that the reason these cases wound up in Federal court, even though lower courts in the cases have almost routinely said this looks to us like a run-of-the-mill state contract issue, is because the tariff itself derives its authority and depends entirely upon the Federal statute.

That's what makes them Federal statutes, because of the Federal Government's interest in the whole process.

Chief Justice Rehnquist: What's your answer to the Jackson Transit case, then?

Mr. Evans: Jackson Transit actually was a case involving a contract under the Urban Mass Transit Act in which the Court's analysis proceeded as follows.

First, it said these are inherently, pervasively Federal contracts... e agree with that... and but for a contrary indication in the text of the statute or the legislative history we would view those as Federal issues that belong in Federal court, but the Court went on to look first at the text where they found the issue not conclusive, and then to the legislative history where it found that Congress made a specific determination that it did not want these cases in Federal court.

There is no such analogy in the case here, and in fact, if anything, the suggestion is to the contrary, because when Congress did address the question of jurisdiction, albeit it perhaps in narrower terms than we would have liked.

It made clear that the... that there's jurisdiction in the Federal courts and that, moreover, State courts are foreclosed from involvement.

It's odd to imagine why an issue like the one in this case which could just as well have come up at the approval stage, but didn't until the interpretation stage, in part because the Internet exploded in the interim.

In one case it goes to Federal court, in the other case it goes to State court.

It just doesn't... it doesn't make sense that Congress would have envisioned that outcome.

There has been discussion about whether 252(e)(6) in some way restricts the provisions of... excuse me, the availability of jurisdiction under section 1331, and we think the answer to that is quite clear not only from the general presumption against that kind of restriction that the Court has articulated from time to time, but also because in this statute Congress actually enacted a specific rule of construction in section 601(c) of the act which is actually not in the joint appendix and not codified.

It appears as a... in the note to 47 U.S.C. 152, and what it said there was that nothing in the act should be construed to modify, impair, or supersede Federal law unless expressly so provided.

So Congress spoke to what inferences could be drawn from a limitation of jurisdiction in 252(e)(6) and, moreover, there... the Court has... I mean, the Congress has shown repeatedly, both in this statute and in other statutes, that when it wishes to preclude review in one court system or another it spells that out specifically, as it does in 252(e)(4) here with respects to States, as it's done in a variety of statutes that we and the Government have cited in our briefs with respect to the other... with respect to the medicare act.

And finally, let me just say a word about the impracticality of the bifurcation that I think Mr. Smith is striving for here.

It would mean a bizarre separation where a case could come up with an interpretation not only of... not only of the issues we think are binding as a matter of Federal law, but also State law issues that the State put in as part of its review, and from Mr. Smith's point of view, if it's interpretive, it all goes right to State court.

In our view, at least all of the Federal issues come to Federal court, and probably the State issues can come along under supplementary jurisdiction, although there may be a... may not be possible to name the State in that context.

Justice Scalia: You say they're going there under 1331?

Mr. Evans: Yes, and this Court once before had before it a bifurcation scheme that had been proposed, actually decided by the Seventh Circuit, as it was in this case, and that's the Bank One case in 516 U.S., and the Court said, this is just too unwieldy and inefficient a system for us to impute the Congress, even if the language were clear, and here the language by no means even supports the outcome.

Unless there are further questions, Your Honor--

Argument of Barbara B. McDowell

Chief Justice Rehnquist: Thank you, Mr. Evans.

Ms. McDowell.

Mr. McDowell: Initially, I'd like to note that although this... in this case the Court granted certiorari only on the question of jurisdiction under section 1331, if the Court determines that there is a standing problem in the Mathias case, all of the other questions on which the Court granted cert in that case are also presented here, and section 1331 gives the district courts jurisdiction over claims at least that a State commission has acted contrary to controlling Federal law in construing or enforcing an interconnection agreement.

Such claims arise under the laws of the United States within the meaning of section 1331.

Justice Scalia: Excuse me, how does a State commission act contrary to Federal law in construing an agreement that clearly says X, which is contrary to Federal law, but I mean, the State commission is just saying what is the truth.

Mr. McDowell: How is that acting contrary to Federal law?

For example, let's say that the FCC had issued a different order with respect to Internet calls than it actually did.

What if the FCC had said that no agreement under section 252 can be construed as providing reciprocal compensation for Internet service provider--

Justice Scalia: They wouldn't say that.

What do you mean, can be construed?

Can be enforced, which provides, I mean, that's fine.

Mr. McDowell: --Well, it... the commission conceivably could have said if the contract is silent on the specific subject--

Justice Scalia: Oh... yes.

Mr. McDowell: --or whatever.

In any event, one can envision circumstances in which--

Justice Scalia: Okay, but you... but sure, I mean, if you posit that the Federal regulation says no contract shall be construed this way, no matter what it says, no matter how clearly it says that, then I agree with you, the commission would be violating Federal law, but let's assume a more normal FCC regulation which just says that this particular disposition is unlawful, even if you do agree with it, okay, and all that happens is that the State commission says, yes, they're... that's what they agreed to, okay.

Now, how does that violate State law?

Mr. McDowell: --It may not.

It may be--

Justice Scalia: Federal law, excuse me.

Mr. McDowell: --It may be the rare case in which a State commission decision interpreting a negotiated agreement will... can be alleged to violate Federal law.

I think the questions are more likely to come up with respect to interpretation of terms of an arbitrated agreement where the State commission was--

Chief Justice Rehnquist: What is the actual question before the commission?

Is it, what did these parties mean by their agreement, and nothing more than that, or is it something with more legal overtones to it?

Mr. McDowell: --This has been sort of a moving target, because the FCC's orders have been subject to review and have been vacated, so... but the claim was that under the commission's initial order with respect to Internet calls--

Chief Justice Rehnquist: No, I meant the rules of the State commission, not the FCC.

Mr. McDowell: --Well, the State commission, after looking at the FCC's orders and the statute, decided that there was... the FCC had said it was permissible to adopt either rule, to read these agreements either as providing reciprocal compensation for these calls or not, and gave some factors that State commissions might look to in construing agreements, and that is what it did.

Chief Justice Rehnquist: For instance, if you go to a State court, I'm A, I'm suing B because we have a contract, the final decision of the State court isn't just necessarily the parties agree to this.

They have to go further and say, well, is this... is there any State law prohibition against this kind of an agreement, and what are the results in this particular case, does A owe B money.

Does the commission, State commission have that broad an area to deal with the contracts under this statute?

Mr. McDowell: Yes, and certainly it's subject to the standards of 252(d) with respect to assuring that the public interest, convenience, and necessity is served, and it needs to look at the polices as articulated in the Telecommunications Act and by the FCC in its regulations and orders, so it's a broader mandate than just looking at the parties' intent, yes.

Whether this will always present an issue of Federal law is, of course, not clear, but where there is a claim that what the State commission has done is contrary to the 1996 act, to the FCC's orders under the act, or to some other provision of Federal, constitutional, or statutory law--

Justice Ginsburg: Ms. McDowell, would you clarify what you define as the Federal question in this case?

There were a lot of arguments that were made by Verizon like, this is a Federal tariff, in effect, like the State commissioner simply is saying that it is for this purpose a Federal agency.

In your brief, the only thing that I recall... maybe I got this altogether wrong... was, you said the Federal question is an FCC order which would be controlling, and that FCC order, it turns out, has been vacated by the D.C. Circuit, so I'm really left at sea about what is the Federal question.

Mr. McDowell: --Verizon's complaint, and that's in the court of appeals joint appendix, was really quite bare bones.

It alluded to the FCC order that's since been vacated, as you mentioned, and to other principles of Federal law, and it just simply alleged that the Maryland commission's decision was inconsistent with Federal law, also with the language of the agreement, and is arbitrary and capricious, so it was a very general claim.

The district court construed Verizon's claim as being that the Public Service Commission's order is in direct conflict with a declaratory ruling of the FCC, and that's on pages 1 to 2 of the court of appeals joint appendix.

I think the principal--

Justice Ginsburg: That ruling has been vacated.

Mr. McDowell: --That's true.

There's now a new ruling, and that's being litigated in the D.C. Circuit.

I think as currently articulated Verizon contends that among other things the Maryland commission's order is contrary to section 252(a)(1) of the act, which requires these agreements to be binding, and the allegation is that the commission has violated that commission by writing additional terms into a party's agreement.

Whether that is a viable claim or not need not be decided at this point.

It's at least a sufficiently nonfrivolous claim to state a Federal claim.

Justice Breyer: Can I get a clear restatement, if you like, of just what you think... I mean, on the overall question I now see three possible ways you could go.

Way number 1 is just what we heard.

These contracts are creatures of the Federal law, so much so that everything about them is Federal, they all go into Federal court.

The opposite view, no, everything about them goes into State court, with one exception.

The exception is approval or rejection, which is a narrow proceeding that happens once.

That puts 98 percent of the cases in State court for everything.

Choice 3, the compromise, which is some form of which I think you're advocating.

That would have to be, the Federal questions come into Federal court under either 252 or 1331.

I don't know if it makes any difference, but they're in Federal court, the Federal questions, and where they're all mixed up with State interpretation you have three choices.

Each Federal judge is on his own.

1) It's their supplementary jurisdiction, 2) they have some form of abstention, to wait, 3) they do something else.

I don't know what it is, all right.

But in other words, let's call that a hybrid approach.

I want to know which of those three positions the Government takes, and I think it's the last one, and I want to know precisely how all this works out.

Mr. McDowell: I wish I could tell you precisely how it would work out in every case.

When the--

Justice Scalia: 5 minutes or less.

Unknown Speaker: [Laughter]

Justice Breyer: You know your favorite view of it.

Mr. McDowell: --Yes.

When there is a claim that a State commission order is contrary to controlling Federal law, that claim should come into Federal court.

If the only claim is a violation of State law, it should go into State court.

If there are both kinds of claims, they can perhaps be brought in Federal court under supplemental jurisdiction, but then there's a question of the State officials' sovereign immunity, assuming that they're a party and they haven't waived sovereign immunity, because the State law claims can't be adjudicated under... according to Pennhurst in Federal court.

So the optimal solution in many of these cases may be to bifurcate, or may be to bring the case in State court, and the State courts, of course, are competent to hear these cases as well, but we don't think that Congress intended to preclude the opportunity of parties to go to Federal court on these claims when they have a Federal claim under--

Justice Souter: Let's put the question the other way.

Why would Congress have wanted to provide for a bifurcated scheme, which we know is going to lead to all kinds of pleadings chicanery in order to get it into one court or another court, and we're going to have endless disputes about the pleadings.

Why would Congress have wanted that kind of a system?

Mr. McDowell: --Well, it is the system that we have generally, Your Honor.

Parties do have the option of taking their claims to State court or to Federal court, and Congress may have been--

Justice Souter: But I think you're... aren't you positing a system in which there... I was going to say, aren't you positing a system in which, as a system, we assume there is going to be some kind of a system of utility regulation, and there isn't going to be a system.

Some utility regulation through contract interpretation is going to be done in State courts, some of it's going to he done in Federal courts, parties in essentially the same situation are going to be making inconsistent choices, and you're not going to have a resulting coherent system.

Mr. McDowell: --Well, we already know, of course, under section 252(e)(4) of the act that a number of these cases are going to be in Federal court, and what seems particularly irrational is that if there was exclusive Federal court jurisdiction over some category of cases and exclusive State court jurisdiction over the same sorts of issues when they arise in an interpretation context as opposed to an approval context, so that seems clearly what Congress could not have meant.

Justice Stevens: May I ask... oh, excuse me.

May I ask just sort of a broader question?

My recollection is that all the cases we're familiar with so far run around as one issue about local calls to the Internet and so forth.

I have the... a feeling that there must be a pattern.

All these agreements have a great deal of similarity, same kind of issue, same kind of litigants on both sides.

I wonder if there really is a mountain of litigation out there, or if they only have... a very few test cases may resolve most of these issues.

What's your view on that?

Mr. McDowell: Well, I think this particular issue involves large amounts of money--

Justice Stevens: Right.

Mr. McDowell: --tens if not hundreds of millions of dollars, and that's why it's being litigated.

Justice Stevens: But are there similar issues bouncing around in State and Federal courts, or is this sort of the only thing they're fighting about?

Mr. McDowell: I wouldn't say it's the only thing they've been fighting about, and I'm not familiar with all the cases that may have been brought, but certainly these are the leading categories of cases at the interpretation stage.

Certainly at the initial approval stage there are a number of cases that have made their way to Federal court on a variety of issues which principally concern whether the State commission has--

Justice Stevens: At the approval stage, there's no doubt about where those go.

Mr. McDowell: --Right.

It also should be noted that most of these interconnection agreements build in some form of alternative dispute resolution process that there is some negotiation between the parties.

Sometimes there is formal arbitration to resolve these disputes, so it's not necessarily clear that they will all proceed through this particular process.

Justice Breyer: Do you know... do you have any sense of this in the hybrid... in the hybrid system that we're describing as concerning Justice Souter, that I agree with you is supposed to be the norm in respect to State agencies after the Chicago case.

Now, one of the concerns in Chicago, and you may have come across this in your reading, or just experience, would be there would be, then, a lot of cases, because it covers every State agency, where people would run into Federal court on a Federal question related to a basically State matter, and they'd bring in and get review through the supplementary jurisdiction of all kinds of State issues.

Has that happened?

I mean, is this the norm?

Do you have any sense of what actually happens in, let's say, the 40 million State proceedings that go on every week?

Mr. McDowell: I don't think there are nearly that many State proceedings.

In some of these cases involving reciprocal compensation for Internet calls, yes, parties have asserted, as they have here, State law claims as well as Federal law claims, and some Federal courts, at least where there's been no objection raised by the State commission, relating to sovereign immunity, have exercised supplemental jurisdiction over these claims.

Justice Scalia: Ms. McDowell, regarding your earlier answer to Justice Souter as to why Congress would have wanted such a crazy, hybrid system, I mean, this piece of legislation was an extraordinary intrusion of the Federal Government into local utility regulation, wasn't it?

I mean, this is an area that has traditionally been regulated by the States.

The Government has regulated interstate communications, but here they are getting into local communication regulation.

Mr. McDowell: But this isn't their--

Justice Scalia: And was there not a feeling in Congress that we should take as little as possible away from the States, if they want to continue their traditional regulation, and if it ended up in a hodge podge system, maybe many in Congress said, so be it.

Is that not a sufficient explanation?

Mr. McDowell: --That might indeed be a sufficient explanation.

I would preface this by saying that although local competition surely has traditionally been regulated by the States, this act dealt with something a little different, encouraging competition between local carriers, which was quite new at the time this 1996 act was adopted.

Justice Scalia: Well, it may be a new Federal policy, but to regulate concededly local telecommunications was a major step for the Federal Government, and maybe they didn't want to get into the business of doing that, which is why they leave it optional to the States whether they want to implement it or not.

The Federal Government didn't want to take on these things, neither at the FCC level nor, as far as we know, at the Federal district court level.

Mr. McDowell: Well, it certainly is clear from the act that Congress hoped that State commissions would want to regulate these agreements to bring their expertise with local conditions and with local telecommunications to bear, although Congress, of course, also gave States the option of allowing the FCC to do that.

Justice Souter: Let me ask the question Justice Scalia doesn't want to ask, and that is, do you have any legislative history that indicates that they really did intend the hodge podge?

Unknown Speaker: [Laughter]

Justice Souter: I mean, if they intended a hodge podge, I will say God bless the hodge podge, but I don't... I haven't heard anyone getting into the legislative background to indicate that they didn't.

Do you have anything?

Mr. McDowell: Not really, no.

The only arguable legislative history that seems relevant is that the State utility commissioners through their organizations came to Congress and said, we've started to do this, we would like to have a role in this, and Congress apparently heard them in enacting--

Justice Kennedy: What about the provision of the statute itself, that says if the States want to do it, they can do it?

On the other hand, if they don't do it, the Federal Government... isn't that... don't you start off with a hodge podge?

It's going to be State regulation some places, Federal regulation other places?

Mr. McDowell: --Yes, and that all argues all the more for Federal court review under 1331 to assure some uniformity in the application of the Federal standards in the act.

If I could reserve--

Justice Scalia: If there's FTC participation, the State doesn't participate and there's an agreement, does that subsequently raise some issues of State law interpretation, of interpretation that can go into State court?

Mr. McDowell: --I believe that if the FCC resolves these issues it may turn to State law.

It hasn't had the opportunity to issue a decision on this yet, but those decisions would be reviewable only in the courts of appeals under the Hobbs act, whether they involve State law or Federal law issues.

Justice Scalia: On the Eleventh Amendment point, if we find that there's a waiver under 252, rather than Ex parte Young as a theory, would that simplify the question of determination of State law issues?

Mr. McDowell: It might or might not.

One would think the extent of the waiver would be governed by section 252(e)(6), which refers to review to ascertain whether the agreement or statement complies with sections 251 and 252.

That might be too narrow to encompass State law as well.

If I could reserve the remainder of my time.

Chief Justice Rehnquist: Thank you, Ms. McDowell.

Mr. McDowell: The second person doesn't reserve.

You use it or lose it.

Justice Scalia: She's the first.

She's the first person.

Argument of Susan S. Miller

Chief Justice Rehnquist: Oh, Mr. Evans I thought was the first.

Ms. Miller.

Mr. Miller: Mr. Chief Justice, and may it please the Court: I'd like to start out with giving you a little factual background of what the commission considered and what Verizon appealed.

Essentially, the FCC issued an order saying that ISP calls to ISP's were largely interstate.

That order also said, for those companies that had already approved agreements, the State commission was to look at contract principles to see if the parties should be bound by their previous agreements, and whether their previous agreements should be interpreted to include calls to ISP's being local.

That's what the Maryland commission did in this instance.

Verizon appealed to Federal district court raising two issues.

The first issue was that, under Maryland contract law, the commission had misinterpreted the contract.

That's the first issue that they raised.

That was clear from their motion for summary judgment, which is part of the record of the case, but I don't believe it's included in any appendix to the case.

The second issue they raised is, after the commission had interpreted the contract principles, the commission determined that the FCC order required them to develop an intercarrier compensation mechanism until such time as the FCC had developed its own compensation mechanism.

Now, what Verizon said was that the commission was wrong, that the FCC didn't require that, that they made it discretionary for the commission, and those were the only two issued raised by Verizon in this case.

Justice Scalia: Excuse me, Verizon was objecting to a misinterpretation of Maryland contract law, but up here they're saying that this contract isn't governed by Maryland contract law, but rather by Federal contract law.

Mr. Miller: Their--

Justice Scalia: Is that a change of position?

Mr. Miller: --Their claim... what they argued on their motion for summary judgment was that Maryland contract law became Federal common law, and that thus it was--

Justice Scalia: Maryland contract law became Federal common law, I see.

Mr. Miller: --That was their argument.

Justice Scalia: So that we have a Federal contract law that consists of Federal adoption of the common law of each of the 50 States that--

Mr. Miller: Whatever their contract law is.

Justice Scalia: --I understand it, I guess.

Unknown Speaker: [Laughter]

Mr. Miller: So those were the two issues that were raised by Verizon.

Justice Kennedy: I just want to be sure I understand the thrust of your point.

That's entirely consistent with the argument we heard this morning, though, is it not, because they're basically saying it's all a matter of Federal law.

Mr. Miller: I just want to make clear that what they were raising was a contract issue.

They're claiming that all contract issues are also Federal law now.

Justice Souter: Right.

Mr. Miller: I just wanted to make sure the Court was clear that what... the sole thing they were raising was a contract issue.

Justice Kennedy: But they made the same argument at the district court level, if I understand you correctly.

Mr. Miller: That--

Justice Kennedy: Yes--

Mr. Miller: --It had become Federal common law, that's correct.

Justice Souter: --And the Federal law is borrowed law so far as it involves the interpretation of a contract.

Mr. Miller: That's correct.

Now, the Fourth Circuit dismissed the 1331 claim on the basis of three alternative grounds.

The first ground was that in relying on Jackson Transit they found that Verizon's claim did not meet the arising under standard contained in 1331.

According to the Fourth Circuit, the fact that interconnection agreements are creations of Federal law did not in and of itself raise a substantial Federal question.

The Fourth Circuit also relied on Shoshone Mining, which said that Federal question jurisdiction isn't established where local rules or customs would govern the result, which is what we have here, of course.

Maryland contract law is what governed the result here, that under... specifically under 252 the negotiating parties had absolutely no obligation to include anything from 251 and 252 in their contract.

For that reason, negotiated contracts are kind of taken away from those aspects of the Telecommunications Act.

Justice Scalia: Would you think the... would you assert that the result would be different and you would take a different position if this were not a voluntarily negotiated contract?

Mr. Miller: We still believe it wouldn't come under 1331, but for differences other than Jackson Transit.

Justice Scalia: It would be a harder question for you.

Mr. Miller: Yes.

Justice Scalia: Okay.

Mr. Miller: The petitioners really haven't distinguished Jackson Transits.

Both cases involve the precise question of whether an action for breach of contract arises under Federal law merely because the contract required... merely because Congress required the contract to be formed, or required that the contract--

Chief Justice Rehnquist: Mr. Evans offered one distinction, that there was substantial legislative history there saying that Congress wanted these actions to be brought in State court.

Mr. Miller: --I disagree with that reading of Jackson Transit They noted one sentence that they said led them to believe that Congress wouldn't have wanted these.

There are also several other circuit court cases, however, that have interpreted Jackson Transit to say that where State law governs the decision before the Court, then there is no Federal question jurisdiction regardless of whether the contract terms were required to be incorporated or not.

Justice Breyer: I saw two Federal questions, and either way it seems Federal.

His first point, as Justice Stevens said, was there's some words in this contract.

This contract is a creature of Federal law.

The interpretation of every one of those words is a Federal question, whatever source of law that you might come... turn to to figure out what Federal law is, whether it's Maryland, or whether it's Alaska, or whether it's some totally different place.

Argument 2, that the Federal Communications Commission in a series of decisions, whatever may be true of other words in the contract, has said that these words in the contract, A, B, C, D, mean, and then he gets the result he wants, all right, so he's looking both to the F... which obviously the FCC does have the power to do that, doesn't it?

I mean, it could say as a matter of FCC rule any contract that has words A, B, and C, must be interpreted to mean thus and so under this statute.

Mr. Miller: I believe it--

Justice Breyer: Okay.

Now, it seemed to me they're making some combination of those two arguments.

Is that right?

Justice Scalia: Excuse me, it can say that before the fact or after the fact?

Do you think the FCC has the power to say that after a contract has already been voluntarily negotiated?

Mr. Miller: --Well--

Justice Scalia: And the FCC can say, as a matter of Federal law, what the parties agreed to voluntarily is this, even though it plainly is not that?

Mr. Miller: --I think--

Justice Scalia: Can the FCC do that?

Mr. Miller: --I don't believe they can, and I think that was what was the problem with--

Justice Breyer: If I got us into this, I'd modify the question.

Unknown Speaker: [Laughter]

Justice Breyer: It's simply a matter of, wouldn't that state a Federal question?

I don't know what the answer is, but somebody who says just what I said has raised a Federal question, haven't they, just as somebody who says this contract is a creature of Federal law, the word interpretation is Federal, has raised a Federal question, and you would reply, you're wrong about what the answer to the question is, but that's different from saying you haven't raised a Federal question.

Mr. Miller: --I think under Jackson Transit what they've said is that you haven't raised a Federal question.

That's what Jackson Transit said.

If you take a contract, and your only basis of the contract was that it was required by Federal law, then that doesn't even raise a Federal question.

Justice Breyer: They're not saying it was required by Federal law.

They're saying that the words of the contract, what they mean is Federal law.

Mr. Miller: That would be a closer question as to whether that actually raises a substantial Federal question regarding whether... because it would obviously limit a State commission's interpretation.

The State commission could not interpret the word in a different way.

The second basis for the Fourth Circuit's dismissal of the 1331 claim was essentially based on this Court's Merrell Dow decision.

In Merrell Dow, the court found that where a Federal statute includes a limited grant of jurisdiction, that any other broader grant of jurisdiction would flout the intent of Congress.

Based on that, the Fourth Circuit found that 252(e)(6) was a limited grant of jurisdiction and that therefore it should not allow suit to be brought under 1331.

The respon... the petitioners have argued that the rule is otherwise that essentially the courts have this broad grant authority unless there is some limitation, but all the cases cited by the respondents involve Federal agencies, and there's a distinction here, because what the Federal agencies were arguing was essentially that there was absolutely no review of what was at issue, that you couldn't bring it under 1331, there was no other statute, essentially it was a discretionary act of the agency, and you couldn't bring it, and in that sense the Court--

Chief Justice Rehnquist: Oh, now-- --Your position is that there's no jurisdiction under 252, and there's also no jurisdiction under 1331.

Is that right?

Mr. Miller: --That's correct.

Chief Justice Rehnquist: And is it because 252 by implication prohibits 1331 jurisdiction, or just that 1331 isn't broad enough to cover this?

Mr. Miller: It's that 252 represents a limited grant of jurisdiction on behalf of Congress, and that Congress only intended such a limited grant of jurisdiction, and that therefore to use a broader grant of jurisdiction such as 1331 would defy congressional intent.

Chief Justice Rehnquist: In other words, Congress intended Federal jurisdiction over review of approval agreements, but didn't intend Federal jurisdiction over anything else?

Mr. Miller: That's correct.

Justice Souter: What do you say to the provision that your brother quoted to the effect that there will be no modification of Federal statutory law unless it's express modification, which would preserve the full extent of 1331, I suppose?

Mr. Miller: It... but it also preserves the... how 1331 has been analyzed in the past, and how 1331 has been analyzed under Merrell Dow is that you look at the statute, and if the statute has a limited grant of authority, then that's congressional intent that that be the only authority, so 601 didn't change the analysis, it just says you use the same analysis, and in this case the analysis is, under Merrell Dow, there is a jurisdictional statute in the statute at issue, so no other statutes... so 1331, which is a broader grant of jurisdiction, should not be used.

Chief Justice Rehnquist: What about section 251 of the Telecommunications Act, which does seem to have a lot of standards for these agreements.

Wouldn't that make it a Federal question?

Mr. Miller: Well, but they're... for negotiated agreements they're not required to incorporate anything involving 251 and 252, so they've made the choice to not include those Federal standards by negotiating an agreement rather than having it arbitrated, so in that sense, no, it would not raise a Federal question.

Justice Ginsburg: We're told that the agreements that are negotiated are not very far distant from what the standards are under the... of the statute.

The thing is so set up that the parties will come down to pretty much what's in the statute.

Is that not so?

Mr. Miller: I don't know that it's so in any... in every instance.

In this instance, for a matter of fact, the initial contract at issue with MFS and Telenet, Verizon actually agreed to a reciprocal compensation rate that was higher than the commission's arbitrated rate.

Now, for what reason, I don't know.

Presumably they traded something else for that.

So it's not necessarily so that whatever's in the statute the parties agree to, and if the parties agree to that, then they've chosen to agree to that rather than go to the State commission and say, Federal law requires this, we don't want to agree to it, but we recognize that you have the authority to order us to do it.

Justice Scalia: So you say that what has been created is this weird system in which challenges to the interpretation or validity of negotiated agreements can't go to Federal court, but if it's a challenge to an arbitrated agreement, it does go to Federal court?

Mr. Miller: Well, we think it would not end up in Federal court for other reasons, but we... but--

Justice Scalia: What are the other reasons, because it makes some difference to me whether there's going to be this strange line between negotiated and--

Mr. Miller: --Well, if you're talking about 13... going into Federal court under 1331--

Justice Scalia: --Yes.

Mr. Miller: --our argument would be the private right of action argument, that 1331, you have to look at the four court factors and things like that, and that therefore those wouldn't end up under 1331 either, and also the same argument--

Justice Ginsburg: But then you're blending together two things--

Justice Scalia: --Right.

Justice Ginsburg: --that I think this Court's decisions keep separate.

One is 1331, general Federal question jurisdiction.

Justice Scalia: Right.

Justice Ginsburg: That you have to have first, and then do you have, would you survive a 12(b)(6) motion, do you have a claim for relief, and you treated that in your brief, and now again, as though they're the same question, and they're not.

Mr. Miller: --I don't believe, in answer to Justice Scalia's question, I was treating them the same.

He asked me what other issues would we raise to say that this arbitration case shouldn't be in this Court, and that was one of the issues we raised.

I believe that there are cases that essentially say that a cause of action is a matter, a matter of subject matter jurisdiction.

There are several circuit courts that have interpreted this Court's Merrell Dow case in that manner, but I don't think it's necessary for the Court to even reach this, because I think the cases can be upheld based on the Fourth Circuit analysis, and any one of the three alternatives raised.

Justice Scalia: I thought we wrestled with that issue in Steel Co.,--

Mr. Miller: And--

Justice Kennedy: --You're not going to drag us back into that again, are you?

Mr. Miller: --Do you want to know what the Fourth Circuit... how the Fourth Circuit distinguished your Steel Co. case?

Justice Ginsburg: Yes.

I defended in Steel Co., so I'd like to know that.

Unknown Speaker: [Laughter]

Mr. Miller: What the Fourth Circuit claimed you were doing in Steel Co. is that you were distinguishing between Article III subject matter jurisdiction, which had to be decided before you reached the merits, and statutory subject matter jurisdiction, which you didn't have to decide before you reached the merits under that hypothetical jurisdiction issue.

That's how the Fourth Circuit has interpreted Steel Co.--

So in this instance I believe the petitioners are wrong in their analysis that you have 1331 jurisdiction unless Congress specifically precludes 1331 jurisdiction.

The only cases that has occurred has been with regard to Federal agencies, as I mentioned earlier, and that was because to find that 1331 wasn't broad enough to encompass a Federal agency would mean that there would be absolutely no review, so I think that there is a distinction that is important between the two cases.

The final reason the Fourth Circuit found that the 1331 claim should be dismissed was the Rooker-Feldman doctrine.

Under that doctrine, it involves essentially a statutory interpretation element and a federalism element.

The statutory interpretation element is that 1257 grants original jurisdiction to this Court and this Court alone over State... I'm sorry.

1257 alone grants this Court appellate review of State court decisions, and that the Federal district courts only have review over original actions, original civil actions, and that by implication, therefore, Federal district courts have no review over State court actions.

Justice Ginsburg: Well, how does that fit in with City of Chicago, where a Federal district court did sit on those supplemental jurisdiction claims as a reviewer of a State administrative agency?

Mr. Miller: I think that's distinguishable because in the case you referred to the district court already had jurisdiction over Federal claims that were totally separate and apart from the on-record administrative review.

Essentially, the Federal claims could have been brought without actually reviewing the record and the order in the case.

It was because the Federal district court already had that jurisdiction over those claims that this Court found it could exercise its supplemental jurisdiction and also hear those claims that involved the on-the-record State court... actually, I think it was actually a local administrative agency in that case, but the on-the-record review.

So I think this is different in that Verizon raises no claims that are separate and apart from the on-the-record review and decisions of the Maryland Public Service Commission, so in this instance the Federal district court will be acting as an appellate court, particularly since I believe virtually every Federal district court that has considered the issue has said in telecommunications cases it's not a de novo review, it is an on-the-record review, so in this instance they will be performing an appellate action rather than an original civil action.

Justice Scalia: Could you... in your opinion, if there is... suppose it isn't a communications case, it's common, isn't it, if, say the California State Coastal Authority, a State agency, orders someone to do thus-and-so, they could say in Federal court, that order violates a Federal statute, all right.

Now, in your case, if there were plaintiff just like this one, and he went into a Federal court and said, your State court order violates a Federal statute... so in other words, suppose it were much more clear, are you saying there, there's no jurisdiction?

Mr. Miller: There, there would be Federal jurisdiction if the basis of that claim didn't require the appellate... the Federal district court, excuse me, to actually... to review the determinations of the Maryland Public Service Commission to reach the conclusion that their order violated a Federal law, essentially--

Justice Scalia: Well, there may often be, with the California State Coastal Commission somebody says, this is a taking of my property, or something simpler.

Now, it could be that you have to look at the underlying State order in order to deal with the Federal question.

Mr. Miller: --To a certain extent you would be looking at the Federal... the State order, but you would not be overturning the State order on the basis that the State commission found.

You would be saying, yes, you found this, but the problem is, what you found now implicates this, so--

Justice Souter: Well, but what if the Federal objection was raised at the administrative level, so that the administrator, the administrative body had said, no Federal problem.

In that case, I take it, your answer would be no, they can't go into Federal court.

Mr. Miller: --That would be correct.

They would have to go through the State court proceedings in that, and have it resolved in that manner.

Justice Breyer: May I ask you a procedural question?

I hate to do this, but it seemed to be in the case.

Your client's the commission.

Mr. Miller: That's correct.

Justice Breyer: Now, it's my understanding that the commission first raised an Eleventh Amendment problem.

Mr. Miller: That's correct.

Justice Breyer: And then it was dismissed from the case.

Mr. Miller: We were not dismissed from the case The whole case was dismissed.

Justice Breyer: The whole case... how did the 1331 come up, then?

Mr. Miller: Well--

Justice Breyer: It decided as to your client, you're out of it because of Eleventh Amendment.

As to the rest of them they were out of it because of 1331, or--

Mr. Miller: --No, Your Honor.

At the Federal district court level, essentially the court decided that we had Eleventh Amendment immunity and that we were indispensable parties and, as such, the entire case had to be dismissed.

The Federal district court also addressed the 1331 issue and found that it would not imply a private right of action, and that the... and that his Eleventh Amendment analysis probably would pertain to the 1331 claim as well.

That's all I have, unless there are any other questions.

Rebuttal of Mark L. Evans

Chief Justice Rehnquist: --Thank you, Ms. Miller.

Mr. Evans, you have 1 minute remaining.

Mr. Evans: I would just like to read two provisions, very short provisions from the contract that's being interpreted here.

The first says, reciprocal compensation is as described in the act.

The second says, as described in the act means, as described in or required by the act, meaning the '96 telecom act, and as from time to time interpreted in the duly authorized rules and regulations of the FCC or the State commission.

Now, if you look at the decision of the agency here, the State agency here, it is full of a discussion of what it means, what reciprocal compensation is required under the act.

That was the basis for the interpretation.

The effect of the interpretation was to say, even though the act doesn't require it, you have to provide it, because your agreement says you're going to provide it, and we... this statement says just the opposite.

Chief Justice Rehnquist: Thank you, Mr. Evans.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Northwest Airlines, Inc. v. County Of Kent, Michigan - Oral Argument

Fri, 09 Jan 2009 14:49:50 +0000

Case:

Northwest Airlines, Inc. v. County Of Kent, Michigan

Media File:

92-97_19931129-argument.mp3

Related Transcript:

1993_92_97_argument.xml

Transcript:

Argument of Walter A. Smith, Jr.

Chief Justice Rehnquist: We'll hear argument next in Number 92-97, Northwest Airlines, Inc., versus the County of Kent.

Mr Smith.

Mr. Smith: Mr. Chief Justice, may it please the Court:

The Court has agreed in this case to decide whether the user fees that are imposed on the airlines and their passengers at the Kent County Airport are reasonable within the meaning of the Federal aviation laws and within the meaning of the Commerce Clause.

All parties here appear to be agreed that the criteria by which the Court should decide this question are those set out by the Court in the Evansville decision, and we believe those are the minimum criteria that the Court ought to apply in this case, and when the Court applies those criteria, we believe the Court should find that the methodology used by Kent County in fact violates the criteria in at least three different ways.

First, the fee methodology is not based on a fair approximation of use by the various users at the airport... that is, that the costs are not fairly allocated among users... second, the revenues that are produced by the fee methodology are vastly in excess of the airport's own costs in delivering service to the users, and finally, the airport's fee methodology deliberately discriminates against the airlines in favor of local aviation.

I would like to comment on each of these three requirements, and then, if time allows, I would also like to comment on an issue that we do not think is properly before the Court, but that the Solicitor General and the airport do... that is, whether or not, even if the fees are unreasonable, whether the airlines are permitted to bring a legal action to challenge them.

So let me start if I may with--

Unknown Speaker: That would be the private right of action point?

Mr. Smith: --Yes, Your Honor.

Unknown Speaker: And that is one of the questions presented in the petition, is it not?

Mr. Smith: It is not, Your Honor.

It was not presented in the petition, and it was not raised in the cross-petition, and in our view it is not properly before the Court.

Unknown Speaker: Very well.

Mr. Smith: Nevertheless, we realize the Court may elect to reach it, so we have briefed the matter in our reply brief.

I was going to start with the allocation issue first.

Under this Court's Evansville decision, airport fees must, in the first instance, be based on what the Court called 7, this means that the fee should not be higher than the airline's properly allocated costs, but in our view, this airport has not even attempted to comply with this requirement.

As the Court knows, at this airport, as at most, there are two main groups of users.

There are the airlines on the one hand, and the concessions on the other.

Both of these two groups of users benefit significantly from costs that the airport expends on what are called the air operations costs, and the reason for that is, without the airport spending money on taking and landing... takeoff and landing facilities, there would be no customers, either for the airlines or for the concessions, and for that reason, in our view, in order to fairly approximate the use, the airport was required to allocate at least some of the costs to the concessions, but they did not do so.

They allocated none of the costs to the concessions, and the result necessarily was, and mathematically so, as Judge Flaum found in the Indianapolis decision, the fair share of the costs to the airlines was too high.

They were in fact paying more than their fair share of the cost.

Unknown Speaker: Mr. Smith, how many other Federal statutes are there that confer ratemaking responsibilities upon Federal courts?

I mean, that is essentially what you're asking us to engage in here, isn't it, the whole process of ratemaking?

Mr. Smith: I think not, Your Honor.

Unknown Speaker: You're saying what you're entitled to are reasonable rates, which are going to be determined by Federal courts.

I know one Federal statute that requires that.

I don't know any others.

Mr. Smith: I think the court is often in the business of determining whether or not impositions made by a State in the form of user fees are reasonable.

After all, Evansville was a Commerce Clause decision, and we believe when Congress adopted the AHTA it essentially adopted in part the Evansville requirements, and the Court has often decided other cases where reasonableness in that context was required to be decided.

Unknown Speaker: You don't allow any profit in your assertion of reasonableness.

As I recall, one of the elements you've challenged was including within it what interest payments would have been made had they borrowed the money in order to provide these facilities.

Mr. Smith: I think that's right.

Congress intended that--

Unknown Speaker: In normal ratemaking, you're allowed a fair return on your capital.

Why isn't that reasonable?

Mr. Smith: --Not under the AHTA, Your Honor, because under the AHTA Congress recognized that the vast bulk of the revenues that fund airports are going to come from the Federal Government through taxes paid by passengers, and Congress wanted no further additional fees to be imposed on users of airports except those that would be absolutely--

Unknown Speaker: But the reason--

Mr. Smith: --necessary to keep... and to keep the airport self-sustaining.

That's the word in 2210.

Unknown Speaker: --So you'd allow depreciation, would you?

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

Unknown Speaker: Is depreciation absolutely necessary?

Mr. Smith: They can recover their costs, Your Honor, and to the extent they had costs that they had to expend to purchase assets to serve users.

They can recover their costs, but--

Unknown Speaker: And can they retain some of those costs for future construction?

Mr. Smith: --I think they can, Your Honor, so long as they are costs absolutely necessary for additional assets or for replacement of assets.

Unknown Speaker: Well, the airport is saying here, you know, we're facing construction fees on reasonable projections of... you know, multiple millions of dollars, so there's nothing for example, terribly impressive about this surplus of $9 million, if they could anticipate future expense to that extent in, as you put it, recovering their costs.

Why is it wrong for them simply to, in effect, put the same amount of money aside calling it a surplus?

Mr. Smith: Because, Your Honor, here they accumulated surpluses far beyond airport needs.

As we show, that--

Unknown Speaker: Well, airport needs judged at what point, at what time?

Mr. Smith: --Defined even by the airport itself, Your Honor, after they had met all of their costs, all of their debt service, and had purchased every conceivable future capital expenditure that they could think of in their wish list all the way through the end of the decade, this airport still has substantial surpluses left over.

In fact, the airport was asked at trial, their expert witnesses, what were the purposes of these additional revenues?

Unknown Speaker: Weren't those surpluses generated by payments from the concessioners, not from the airline?

Mr. Smith: Part of them were, Your Honor.

Unknown Speaker: I thought it all was, basically.

Mr. Smith: No, Your Honor--

Unknown Speaker: I mean, the reason they have a surplus is the payments from the concessioners.

Mr. Smith: --No, Your Honor, that isn't so, because if they had fairly allocated costs at this airport it would then have become apparent that the surpluses are coming from the airlines, and if they hadn't attempted to recover their assets two and three times over through this mythical mortgage of pretending there was an 8-1/2 percent mortgage attached to assets they had acquired, they were recovering surpluses from the airlines through the mythical mortgage--

Unknown Speaker: Isn't it true that under--

Mr. Smith: --something on the order of $1 million a year.

Unknown Speaker: --under the Federal law, whatever surplus is there can only be used for airport purposes, it can't be diverted to general State coffers?

Mr. Smith: That is correct, Your Honor, but as the Solicitor General points out in his brief, revenues may not be accumulated indefinitely or in unlimited amounts, and what has happened here is--

Unknown Speaker: If that's true, that's a violation of a different statute.

You don't claim a cause of action under the Airport and Airway Improvement Act, do you?

Mr. Smith: --No... well, we did below, Your Honor.

Unknown Speaker: It's a violation of that statute that you're describing.

Mr. Smith: We believe, Your Honor, that when--

Unknown Speaker: Or perhaps a violation.

Mr. Smith: --when Congress imposed the requirement of reasonable fees, it did so in the light of the requirements of the grant assurance provisions, which all parties here have agreed ought to be taken into account in determining the meaning of reasonableness in the AHTA.

Unknown Speaker: Is it essential to your case that there be a finding that there has been an unreasonable surplus that violates section 2210?

Mr. Smith: No, Your Honor.

If you agree with us on the allocation question, then the methodology has to be set aside on that ground alone.

Unknown Speaker: And I wonder if there was any duty to... the duty in that section is to spend the money on airport improvements, and they... you're not alleging they've spent the money on anything else, and then the Government says, you also can't accumulate too large a surplus, but I don't know that you've alleged they've accumulated too large a surplus, have you?

Mr. Smith: We have alleged, Your Honor, that they have to have some evident purpose for the surplus.

Congress intended that they--

Unknown Speaker: In order to avoid the violation of that statute.

Mr. Smith: --In our view, Your Honor, the reasonableness of requirement of AHTA must be read in light of the AAIA, and its requirements that the airport only earn enough to be self-sustaining but not so much as to create financial windfalls.

I mean, as the Court knows, the only explanation--

Unknown Speaker: If there were no section 2210, they could go into the business of selling parking spaces and so forth and make all the money in the world and not use it on the airport.

It's only because of the existence of 2210 that you have a claim based on the excess surplus.

Mr. Smith: --I think that's not right, Your Honor.

I think that the reasonableness requirement from Evansville on the surplus issue... and let me read from the Court--

Unknown Speaker: Now, Evansville was a dormant Commerce Clause case?

Mr. Smith: --Right.

It was a Commerce--

Unknown Speaker: And you think that the dormant Commerce Clause analysis means that you achieve this result?

There can't be a surplus?

Mr. Smith: --I think, Your Honor, the requirement--

Unknown Speaker: That strikes me as a very tough argument to make.

Mr. Smith: --Well, let me try to persuade you otherwise.

The requirement of Evansville was that an airport not receive... receive funds that exceed the airport's costs and should do no more than meet past as well as current deficits, and we think in the AHTA Congress in fact intended to go further than that and impose even stricter requirements on an airport than even those the Court had imposed in Evansville, and this is an airport that has gone far beyond even what this Court would have permitted in Evansville.

Unknown Speaker: But Evansville was dormant Commerce Clause, and certainly your principal case here isn't under the dormant Commerce Clause, is it?

Mr. Smith: No, the principal case, Your Honor, is under the AHTA, which was adopted by Congress in light of the Evansville decision expressly, and the AHTA was intended by Congress to go even further than this Court had gone in its dormant Commerce Clause.

Unknown Speaker: What's your authority for that proposition?

Mr. Smith: Oh, the legislative history, Your Honor, of the AHTA, which is cited in our brief, makes clear--

Unknown Speaker: But... you know, we have a section of the statute here.

Why go back to the legislative history?

Mr. Smith: --Well, Your Honor, the meaning of the word that's here at issue is the word AHTA, and we believe that the Court should interpret the meaning of the word AHTA was adopted, and that purpose was to strengthen the requirements of Evansville, and if Evansville would not have permitted the surpluses that have been developed by this airport and we--

Unknown Speaker: Where does Evansville say you can't have surpluses?

Mr. Smith: --Well, Your Honor, I started to read from Evansville... we say that what this airport has done violates Evansville because that case says at 404 U.S. at 720,

"the funds received by local authorities should not exceed airport costs and should do no more than meet passed as well as current deficits. "

This airport, when asked to explain surplus in this case, as you know, either said they didn't know what the purpose of it was--

Unknown Speaker: But you're using a case that was... in which the airport succeeded in retaining its charges, right?

Wasn't that the case in Evansville?

Mr. Smith: --No.

In fact, Your Honor, the opposite was true.

In that case, the Court found expressly, in applying the criteria of the Commerce Clause, that in that case the airport had not received more revenues than were necessary to make--

Unknown Speaker: That's what I mean.

Mr. Smith: --Yes... sorry.

Unknown Speaker: The airport won the case, and you're using that case to say, but in this case the airport loses.

Mr. Smith: Yes, because the Congress said in letting the airport win, the Court didn't apply as strict prohibitions as it should have, and the Congress went further in the AHTA.

Unknown Speaker: And said, no head tax.

Mr. Smith: It said a lot more than no head tax, Your Honor.

It prohibited all charges, fees, head taxes of any kind, on passengers either directly or indirectly or on the carriage of air transportation.

Unknown Speaker: Mr. Smith, now, you could... your client could have gone the administrative route, I guess, here--

Mr. Smith: Presumably so.

Unknown Speaker: --to make its complaints about these charges.

Mr. Smith: Yes, Your Honor, that contention is made here, but we believe Congress didn't require us to do that, and certainly didn't make it administratively exclusive.

Unknown Speaker: And in any event, no effort was made here to go administratively.

Mr. Smith: None was made, Your Honor.

None was made in part because Congress, when it adopted the AHTA, didn't give any authorities directly to the Secretary to act in this area at all, and in fact the Secretary to our knowledge had very little experience or expertise in determining the reasonableness of fees.

In fact--

Unknown Speaker: He already decided one case, at least, involving the reasonableness of fees, didn't he?

Mr. Smith: --The Secretary?

Unknown Speaker: Yes.

Mr. Smith: I believe so, Your Honor.

Only one, and I believe it's from Massport, the Logan Airport case, and of course, that case came in 1988-1989, which was some 15 or 16 years after the AHTA was adopted, and at the time it was adopted, to my knowledge there had been no cases in which the Secretary had actually reviewed the reasonableness of fees.

Unknown Speaker: In your view, does the Secretary have the authority to make any more refined or precise allocations than does a court when you bring an action before the court rather than the agency?

Mr. Smith: He may, Your Honor, but the very policies that the Solicitor General describes that are the views of the Secretary are very much our own.

I mean, although he opposes them from--

Unknown Speaker: From your standpoint, a court can do whatever the agency can do, and vice versa, in this area of allocating?

Mr. Smith: --Perhaps not, Your Honor.

What we're asking you to do here is simply apply the bright line test of Evansville, and because we think all three of those bright line tests--

Unknown Speaker: The point of my question is, is to the extent the Court thinks that what you're asking for is simply too cumbersome and precise for courts to be involved in, if there's an equivalency, then it follows that the agency can't be involved in it, either.

Mr. Smith: --Well, Your Honor, as I say, we are not in this case, contrary to what the airport says, asking this Court to become involved in the intricacies of ratemaking.

We are merely asking the Court to apply the three bright line tests of Evansville, which, of course, was a case that merely applied bright line tests to the--

Unknown Speaker: When, when we decide the adequacy of a surplus and allocations between fuel taxes and other sorts of charges, it seems to me that's very close to ratemaking.

Mr. Smith: --Your Honor, with regard to allocation, we would merely ask the Court to require the airport to come up with some kind of allocation.

Unknown Speaker: Well, all we can do is decide this case, Mr. Smith.

Other courts, if your view prevailed, would be deciding lots of other cases, and we'd have the Indianapolis airport in the Seventh Circuit perhaps coming out different from the Grand Rapids airport in the Sixth Circuit.

At least if it went to the Secretary, the Secretary could establish a uniform system for the whole country, or the same machinery would be applied to determine reasonableness.

Mr. Smith: We think the uniform system that's described in the Secretary's policies, as stated in the S.G.'s brief, are the same ones we are espousing.

Unknown Speaker: You can have the same standards, but if you turn them over to 93 different district courts to apply, you're probably going to get a lot more differences than if you have one administrative agency applying them.

Mr. Smith: I would suggest not, Your Honor.

The difference between the Sixth and Seventh Circuits that are now before the Court are fundamental differences about how to apply the Evansville standards, and if both parties had gone to the Secretary first in those two cases, there still would have been an appeal available to the circuit courts from the Secretary's decision, and we would still have had a difference of opinion about what the meaning is of the word reasonable in the AHTA.

Unknown Speaker: You say all we're talking about is applying the Evansville standards.

Well, certainly it isn't apparent from the face of the statute that we're talking about here that it incorporated the Evansville standard.

All it uses is the word "reasonable".

Mr. Smith: That is true, Your Honor, and when the judicial action is brought, of course, the courts are required, as both the Sixth and Seventh Circuit recognized, to determine what Congress intended when it used the word "reasonable" in this statute, and both of them, in fact all of the many courts that looked at the issue, have agreed that what Congress was doing was in fact strengthening the prohibitions of the Evansville decision.

That was the entire--

Unknown Speaker: That may be one reason why we should decide there isn't any private right of action.

Mr. Smith: --Well, of course, Your Honor, we don't think you should decide there isn't a private right of action unless that's what Congress contemplated.

Unknown Speaker: Well, naturally.

Are you... you said you were going to address that?

Mr. Smith: Yes.

Unknown Speaker: Before you get to that, even your statement that it's clear from the legislative history that Congress was strengthening the Evansville standards, I mean, that leaves a lot of running room.

You're strengthening standards developed for dormant Commerce Clause purposes.

Strengthening them to what extent?

All we know is that they were strengthen... strengthening them to what extent?

To the extent that from now on it's going to have to be reasonable... not just enough to comply with the dormant Commerce Clause, but reasonable... and it seems to me it leaves open the whole field of ratemaking.

Mr. Smith: Well, except for the fact that this Court itself was in substance, in Evansville itself, deciding what were reasonable fees.

Unknown Speaker: Well, that may have been an erroneous approach under the dormant Commerce Clause.

What other examples can you think of where in a dormant Commerce Clause we decided we have to get into reasonableness of rates?

Mr. Smith: Your Honor, I would suggest to you that in all of your Commerce Clause decisions where fees or taxes or impositions by a State are being imposed on Commerce, you are in effect deciding... you do this in the Complete Auto--

Unknown Speaker: Well, isn't the Court looking more at whether there's a discrimination or an excessive burden on interstate commerce?

Isn't that the focus?

Mr. Smith: --That is true, Your Honor, and we believe, in fact, we have an excessive burden on interstate commerce in this case for the reason that I've said, because we have an airport not fairly allocating its costs and producing revenues far in excess of costs.

Unknown Speaker: Do you know any case where we validate a discriminatory tax, discriminatory as to out-of-State participants, on the ground that the revenue is recovered by some other tax that's imposed on local entities?

I know of no such principle.

Mr. Smith: Are you talking about the justification that's been offered for the--

Unknown Speaker: Yes.

I'm just talking to that straight Commerce Clause analysis.

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

Unknown Speaker: Do we compare two or three different taxes to see the total burden on all of the participants?

Mr. Smith: --I don't think this Court has ever--

Unknown Speaker: Correct me if I'm wrong.

Mr. Smith: --Well, I don't think this Court has ever approved what happened here on the discrimination point, which was essentially robbing--

Unknown Speaker: But has the Court--

Mr. Smith: --Peter to pay Paul.

Unknown Speaker: --ever entertained an analysis of a whole State's tax system to determine the burdens imposed upon interstate and... in-State and out-of-State participants?

No.

We look at... simply at the tax on its face.

Mr. Smith: I think that's right, Your Honor, but I would suggest to you that inasmuch as the AAIA prohibits all manner of unjust discrimination among users, it wouldn't matter whether it was an interstate... interstate or intrastate commerce situation, that here, by undertaxing general aviation, they've made up the money they say by overtaxing the concessions, and of course, as the Court knows, the concession fees here are paid for by the passengers.

So once again the end result is that the total fees being extracted by this airport from the airlines and their passengers are vastly in excess of this airport's cost of delivering services to those users, and that is the precise thing that Congress intended to prohibit in the AHTA.

Unknown Speaker: Well, it seems to me that your argument is valid under the standard, conventional Commerce Clause analysis if you show a discrimination between general aviation and the commercial aviation, but when you then have the concessions, and you start balancing revenues, it seems to me that's a very strange dormant Commerce Clause argument.

Mr. Smith: Well, but we believe there is discrimination just by looking at how they treated general aviation as compared with the airlines, Your Honor.

Unknown Speaker: Mr. Smith, I'd like you to back up on one point.

Mr. Smith: Surely.

Unknown Speaker: Why do you equate general aviation with intrastate commerce and commercial with inter?

What in the record supports... I know you get it from a decision in the Seventh Circuit that made this comment offhand, but I don't see anything in this record that tells us that the general aviation category is intrastate.

Mr. Smith: There was not explicit evidence on that issue, Your Honor, you're right about that, and the reason there was not was because the district judge dismissed our Commerce Clause claim at the beginning, and if we prevail here that we were entitled to have at least raised a Commerce Clause contention, we believe we would be entitled on remand to adduce the kind of evidence that you're talking about.

Unknown Speaker: Well, did you allege in your Commerce... the Commerce Clause section of your complaint that the general aviation was intrastate and the airport was... airlines was commercial?

Mr. Smith: That was our position, Your Honor.

Unknown Speaker: I said, did you allege it?

Mr. Smith: I believe that we did, Your Honor, but I'm not certain.

Unknown Speaker: Because certainly the... I don't see really why you're entitled to a remand just because the district court dismissed your complaint, unless you brought that out in your complaint.

Mr. Smith: Well, I guess I would argue, Your Honor, as you know from our second presented question here, that if, in fact, we were entitled to raise our Commerce Clause claim, which was dismissed prior to trial, had he correctly allowed us to proceed on the Commerce Clause claim, we would then have attempted to adduce the kind of evidence that Justice Ginsburg is referring to.

Unknown Speaker: What was the basis for the district court's dismissal of your Commerce Clause claim?

Mr. Smith: I think it was that he thought because Congress had taken some action in this area that is, under the AHTA... we were precluded from bringing a Commerce Clause claim.

Unknown Speaker: It wasn't, then, as you understand it, a dismissal on the merits?

Mr. Smith: Oh, absolutely not, Your Honor.

He never reached the merits.

He thought when there was legislation in the area it necessarily precluded there being a Commerce Clause claim.

Unknown Speaker: Did you concede, and do you now concede, that under the statute the distinction between burdens on intrastate and interstate commerce are irrelevant... is irrelevant?

Mr. Smith: Are irrelevant, Your Honor?

Unknown Speaker: Yes.

Mr. Smith: We do not believe that for purpose of the AHTA, that we have to show, as the airport contends, that there was interstate as against intrastate discrimination.

Congress intended through the AHTA to prohibit discrimination against the airlines in favor of local aviation.

We cite legislative history in our brief to that effect.

Congress didn't limit it.

Nothing in the language of the statute or the legislative history suggested that Congress intended to limit discrimination only among competitors or only between interstate or intrastate users of an airport.

Unknown Speaker: Mr. Smith, may I ask you a question?

Just going to the excess profits made by the concessions and putting on one side the general aviation question for the moment, would your objection to that aspect of the case be cured if the county charged... cut the rent to the concessionaires in half, or whatever it was, so they did not make any profit any more out of the concessions?

They would continue to pay... charge the airlines exactly the same.

Mr. Smith: Your Honor, if they fairly allocated the costs between the two--

Unknown Speaker: No.

I gather those... the concession revenues and all, they make money by renting out parking spaces and the rental car agencies and things like that.

If they charged them a lesser rent so it was no longer quite as profitable as it is, would your objection then, to the reasonableness of the fees you pay, be cured?

Mr. Smith: --It would not, Your Honor, because they would still not be fairly allocating costs between the users.

They have not attempted by any measure that we know of to try to assess how much of the air side costs should be charged to the concession, and that's a point we make wholly apart from the fact that the airlines and their passengers together... and the airline passengers pay the concession--

Unknown Speaker: These costs you're talking about, are they costs in the terminal, or are you talking about runway maintenance, or what are you talking about?

Mr. Smith: --When we talk about unfair allocation, we're talking only about the air side costs as they benefit the concessions, and that they create the customers for the concessions.

Unknown Speaker: By air side costs, you mean the nonoperational stuff?

Mr. Smith: Exactly, Your Honor, all of those costs that produce the takeoff and landing facilities.

Unknown Speaker: Well, if they totally eliminated that, they just closed all those concessions but continued to operate the same runways and charge you the same... well, they couldn't do that, because they'd have to have the terminal then, I guess.

Mr. Smith: They would.

Unknown Speaker: The thing that puzzles me is that I don't understand you to be challenging the reasonableness of the charges for what you actually use.

Mr. Smith: But we do, Your Honor.

Wholly apart from the allocation issue, which is why our fees are too high, we also claim that they're not permitted to charge us for this 8-1/2 percent carrying charge.

Those are the two points we make about the fees that are assessed directly on us... misallocation and the carrying charge.

Unknown Speaker: Mr. Smith, are you going to say something about private right of access?

Mr. Smith: Yes, I was going to, Your Honor.

Unknown Speaker: I was very interested in that.

As I understand it, your point is that if we reach that issue, it's apt... and the Respondent is normally allowed to raise any issue to sustain the judgment below... you say it would expand the relief.

Why would it?

Mr. Smith: It would, because we won in part below, Your Honor.

Unknown Speaker: I--

Mr. Smith: You could not... because the Sixth Circuit ruled in our favor on a portion of our--

Unknown Speaker: --On the CFR costs.

Mr. Smith: --Exactly.

Unknown Speaker: That's the only item to which it would expand it.

They assert that the CFR costs have already been assessed and that whatever happens here it won't make any difference as to whether you get that... whether you get that relief.

Mr. Smith: Well, but--

Unknown Speaker: Is that true or false?

Mr. Smith: --That's false, because the Sixth Circuit affirmed in part and reversed in part, and that entire judgment is now before the Court, and the Court, if it now reaches the private right of action issue, cannot affirm this judgment.

It will have to modify the judgment to take away from us the victory that we won in the Sixth Circuit.

It would have to, as the telephone case said, expand the relief in favor of the Respondent.

Unknown Speaker: That issue's fairly well joined.

Mr. Smith: Thank you, Your Honor.

I'd save the remainder for rebuttal.

Unknown Speaker: Very well, Mr. Smith.

Mr. DuMont, we'll hear from you.

Argument of Edward C. DuMont

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

The United States appears today primarily to support Respondent's position that ratemaking disputes such as this one concerning user fees charged to air carriers by the Nation's numerous local airports belong initially in an administrative rather than a judicial forum.

Neither the Anti-Head-Tax Act on which petitioners' claim relies, nor the FAA... Federal Aviation Act of which it is a part... nor any other statute provides explicitly for the private enforcement of any right that may be conferred by section 1513(b), which petitioners rely on.

Unknown Speaker: If the airlines refuse to pay the fees, they would be sued in court, would they not?

In other words, the airport authority would simply take them into a State or conceivably a Federal court to collect the money?

Mr. DuMont: They might very well.

Unknown Speaker: Okay, so there's no way to insulate these issues from court review.

Mr. DuMont: Well, we think that proceeding would normally be brought in State court.

First of all, that issue arises whether or not there's a private right of action for the airlines affirmatively to go in and challenge those.

Unknown Speaker: Oh, I grant you that, but just in sort of making the calculus of what Congress might have assumed, Congress certainly did... presumably started with the assumption that there was at least some circumstances in which these issues would be litigated as between private parties and in the kind of action that we've got here, except that it would be brought by the airport on the airlines' refusal to pay.

Mr. DuMont: We think the Congress assumed, or intended, that these issues would be dealt with primarily by the Secretary, and... for instance, we believe that a State court faced with this issue might very well say one of two things, either that it would defer to the Secretary's determination of reasonableness, to the extent that was the issue, or that it would simply refuse to hold the fees unreasonable unless the airlines could produce evidence from the Secretary that the Secretary believed them to be so.

That would be a fairly conventional sort of deference to administrative agency primary jurisdiction theory.

Unknown Speaker: They must do that, or just... they'll be nice guys and will do it?

Mr. DuMont: We have no position on whether a State court would be required to do that.

We think it would be appropriate for a Federal court if the issue arose in that posture.

Unknown Speaker: Are there cases in which State courts apply the doctrine of primary jurisdiction with respect to a Federal agency?

I just don't know.

Mr. DuMont: I'm not aware of a specific case, Your Honor, no.

Unknown Speaker: I'm not, either.

So at least it's an open question in your mind as to whether or not, in a State court action, the anti-head-tax statute is valid Federal defense.

Mr. DuMont: We think that's an open question, yes, and we also think that, as I said, it arises no matter what the decision is on the private right question, and that the question should be looked at independently.

For instance, there are cases this court has looked at... for instance, the second Pennhurst decision, which quite clearly state the view that whether or not a Federal issue may be diverted to State court by the appropriate decision on a particular point of Federal law, that is simply a consequence that may be accepted.

Unknown Speaker: I should think the airlines and the Congress would be quite amazed that the enactment of the anti-head-tax statute took away a Federal defense in State courts.

Mr. DuMont: We think the defense remains in one guise or another, and for instance, we think it would be quite appropriate for an airline to pay this tax under protest and then either sue for a refund or, for instance, go straight to the Secretary at that point, having paid the tax, and ask the Secretary to entertain a reasonableness challenge.

If the Secretary finds that he has the authority to do that and that the fees are unreasonable, then we think the Secretary would have the authority to issue affirmative relief at that point to the airport authority requiring a refund of those fees.

Unknown Speaker: Mr. DuMont, what's your response to the assertion that none of this is properly before us because if we acknowledged your contention we would expand the relief below and therefore this can't be entertained?

Mr. DuMont: Well, as you said before, Your Honor, that issue is fairly joined.

We don't agree that this would expand the relief granted below in any way.

What the court of appeals said was that crash, fire, and rescue costs had been unreasonably allocated, and it remanded to the court... the district court to determine a reasonable allocation.

The respondents have not challenged that, so when this goes back to the district court, the district court can assess a reasonable allocation of costs for those particular fees, and that will control.

Unknown Speaker: The remand has not been challenged?

Mr. DuMont: The remand has not been challenged as it relates to crash, fire, and rescue costs.

Unknown Speaker: How do we determine that?

Mr. DuMont: The... because there was no cross-petition filed on that particular issue.

Unknown Speaker: But if we were to say there is no private right of action, then the respondent would lose the benefit of the... or the petitioner would lose the benefit of the remand on that issue.

Mr. DuMont: We don't think that's necessarily true, Your Honor.

Although the decision that there was no prior right of action would undercut the logical basis for the remand, the remand would remain the law of the case because it has not been challenged in this Court, and the Court decision would only affect the fact that no other issues could be resolved on remand in the district court.

Unknown Speaker: Even if we were to say there's no private right of action, nonetheless the case would go back to the district court for deciding the proper allocation of the CFR fees?

Mr. DuMont: Assuming the parties are not able to resolve that issue amicably in light of this Court's decision, it would go back for remand on that one particular issue.

Unknown Speaker: Well, if we were to decide this, that there's no private cause of action, is that jurisdictional, then, for the district court?

Would we be saying there was no jurisdiction there at all?

Mr. DuMont: We don't think so, again, Your Honor.

We think, for perhaps the same reasons that this issue cannot be raised no matter whether it was raised below or not, simply because it's jurisdictional, for those same reasons the jurisdictional question would not control, and although this Court's decision would remove the rest of the district court's authority with respect to the case, that particular remand which was not challenged would remain in the district court and could be resolved as a matter of law of the case.

Unknown Speaker: May I ask you a question about your argument on the merits, assuming it's here for a second.

You cite a case involving the Boston airport which arose under the Anti-Head-Tax Act.

Are there any administrative proceedings that have been pursued under the other statute, the Airport and Airway Improvement Act, where you've challenged an airport's building up an excess of surplus or improper use of funds that have accumulated?

Mr. DuMont: I'm not aware of a formal proceeding that has been brought under the AAIA on that issue.

Unknown Speaker: So there's really no law on this issue about whether a surplus can sometimes be too large, or something, or they can review it after the fact, because that statute speaks in terms of conditions for a monetary grant, as I understand it.

Mr. DuMont: There is no decisional law on that issue.

There is administrative law in the sense that the FAA has issued an order under the AAIA, among other statutes, providing, among other things, for standards for reasonableness for airport user fees, and that authority, that order, does talk about--

Unknown Speaker: But those would be standards that would apply--

Mr. DuMont: --the unlimited accumulation of surpluses.

Unknown Speaker: --in advance to future grants of money to... are there any proceedings where a particular airport authority has been punished in any way or sanctioned in any way for failure to comply with that statute?

Mr. DuMont: I'm not aware of any.

I believe most of those issues are resolved on an informal level.

Unknown Speaker: Before the money is delivered, yes.

Mr. DuMont: Before the money is delivered, or without the necessity to resort to a former adversarial proceeding before the Secretary.

Because none of the statutes involved here confers an explicit private right, we have to look to Congress' intent, and it is the petitioner's burden to persuade the Court that Congress, with the single word 1513(b), whose major function, after all, is merely to make clear that the head-tax prohibition of section 1513(a) does not apply to user fees, petitioners must rely on that one word "reasonable" to engage the district courts all over the country in what is essentially a ratemaking proceeding, and we think that quite clearly contravenes the intent of Congress in placing the Anti-Head-Tax Act in the Federal Aviation Act, which provides quite a comprehensive remedial scheme.

In the FAA, section 1354, which is reprinted on page 6a of our brief, provides broad general powers to the Secretary, section 1482 makes it clear that any person may file a complaint raising any sort of issue within the jurisdiction of the FAA... I might point out, for instance, that my colleague, Mr. Smith, on behalf of many of the same airlines who are involved in this proceeding, has filed such a complaint last Wednesday with respect to Los Angeles airports, again raising claims under the AAIA... thank you, Your Honor.

Unknown Speaker: Thank you, Mr. DuMont.

Mr. Hunting, we'll hear from you.

Argument of William F. Hunting, Jr.

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

There is no precedent of this Court that mandates that a local governmental unit as owner and landlord must lease its facilities to a commercial tenant at rates that are less than the acquisition cost of the facilities so provided.

Likewise, there is no precedent of this Court that requires an airport to adjust its rates to one tenant based upon the varying business results of yet another different category of tenant.

The traditional fees at issue in this case are very simply landing fees and terminal rental rates, which clearly are permitted under the clarification language of section 1513(b) of the Anti-Head-Tax Act.

These charges being landing fees and terminal rental rates, are not direct or indirect taxes or illegal fees under section (a) of 1513 of the Anti-Head-Tax Act.

Unknown Speaker: You say, Mr. Hunting, that the crash, fire, and rescue charges are not at issue?

Mr. Hunting: They are not at issue, and if I could explain further--

Unknown Speaker: You agree that no matter what happens here, you've lost on that, and the district court should, on remand, decide that issue as though there is a private right of action.

Mr. Hunting: --Yes, but I need to define loss.

All the Sixth Circuit said was, it was inappropriate to allocate 100 percent of CFR costs to the commercial airlines.

Unknown Speaker: Right.

Mr. Hunting: We did not appeal that decision.

We do expect, depending on whether the remand holds up and whether they're amicable proceedings or not, to litigate before the district judge what percent less than 100 percent would be appropriate.

Unknown Speaker: And will not interpose the absence of any private right of action even if that were to be the conclusion of this Court.

Mr. Hunting: I am authorized to so represent.

We have made that position known in our brief.

We are not seeking to circumvent the rules of this Court as it relates to needs for cross-petition, and in particular I think the Solicitor General in the footnote on page 8 of its brief cited a number of cases that support the proposition that this Court can address that issue.

In addition, we are representing that we are not going to interpose any affirmative defense if the Court were to so rule that the CFR issue would not then be before the district court.

Unknown Speaker: Do you further represent that you cannot do it, even if you wanted to, or are you just being a good fellow?

Mr. Hunting: I believe that I could not do it, Your Honor.

Unknown Speaker: Well, but you certainly can't represent that the district judge when he looks at the case and reads our opinion that can argue... we may say there's no cause of action here... might say, well, there's nothing for me to do, then.

Isn't that a possibility?

Mr. Hunting: I would not--

Unknown Speaker: Even though you urged him otherwise, faithfully to your representation to us?

Mr. Hunting: --I think among the permutations that could arise from the unusual circumstance we have, that could be one of the permutations.

I only speak for what I'm authorized to--

Unknown Speaker: But if that happened, the petitioner would lose the benefit of a portion of his judgment.

Mr. Hunting: --In that event, if the district judge were to abstain, or to decline to take the case, or to defer it to the agency, under any one of those somewhat similar scenarios it would go to the agency, and we would then expect to abide by whatever the agency decision was on the allocation of CFR costs that are imposed under FAA rules and regulations.

Unknown Speaker: But the agency then... the agency would not be precluded by what the Sixth Circuit determined in this case, would it?

It would just be a fresh matter.

Mr. Hunting: Well, I think in a sense that all the Sixth Circuit decided was that it could not be 100 percent allocation to the commercial airlines, so I would submit to this Court that the agency would at least be bound by the narrow decision and the law of the case as it relates to this particular action, that the CFR costs could not in fact be 100-percent allocated to the commercial airlines.

Unknown Speaker: But the law of the case would be there never was a private cause of action in the first place.

That would be the law of the case.

Mr. Hunting: We recognize that, and I--

Unknown Speaker: That's the law of the other part of the case.

[Laughter]

Mr. Hunting: --I will be candid to acknowledge that it's with some reluctance that... having prevailed at the lower court that we've raised the issue, but we raised the issue at the trial court level dealing with the private cause of action as well as exhaustion of administrative remedies and other related concepts of deference to primary jurisdiction.

Unknown Speaker: No, but you did not cross-petition on it.

Mr. Hunting: We did not cross-petition, and we are not seeking to expand relief that could be obtained by the airport or relief that would be detrimental to the airlines.

I am authorized to make that representation to the extent it's relevant to the Court's inquiry on what might happen.

I would like to address briefly the three bright line tests, as Mr. Smith has called them, of the Interstate Commerce Clause test in the Evansville case.

This airport does not retreat from any kind of analysis of the merits of its methodology and the results of its methodology.

First, the charges must reflect a fair approximation of the use of the airport facilities from which the airlines do benefit.

In very simple terms, it would appear that could mean one, two, or three things, either that the user charged must receive some benefit from the item for which the user is charged.

We certainly pass that test, and to the extent that is a subpart, we agree.

To the extent that the benefit may mean that an airport cannot goldplate its facilities... for instance, to have Vermont marble on the ticket countertops or oriental rugs on the floor, we agree that benefit can mean that.

What we would suggest that is the critical issue in this case, whether it be viewed under the Evansville standard or any other standard, is a serious warping by the airlines of what benefit means when they suggest that somehow an airport in determining its charges to one tenant must look, either by cross-credit or by change in cost allocation to the varying benefit that yet a different category of tenant might receive from its business results.

We suggest that there is no precedent of this Court in any airport or other local governmental setting that would require that a local government as owner and landlord engage in such an evaluation of benefits.

With reference to benefits, I would point out very simply that the district court found in unchallenged fashion that the totality of all airport charges, including the reduced overnight aircraft parking fee and including 100 percent of CFR, constituted only 1-1/2 percent of the gross revenues received by the airlines at this particular airport.

The second, and I think the simplest of the so-called Evansville bright line tests, are that the airport charges may not be excessive in relation to incurred costs.

In that regard, I would point out that the district court found as a specific critical finding of fact that only break-even costs as defined under the methodology and as shown under the evidence were charged to the airlines and as such I think that automatically satisfies the second charge.

And certainly I would indicate further that the Solicitor General has indicated that there is a reasonable latitude even above the incurrence and the allocation of actual costs and clearly that has been satisfied in this case.

The third criteria of Evansville is that the charge does not discriminate against interstate travel, and I would point out first that general aviation and the airlines are not in the same category of tenant under the Airport and Airway Improvement Act or under any other analysis that might be applied.

They do not, in fact, compete, and there is no evidence to show that they compete.

I would--

Unknown Speaker: Apart from that, is there a reason why the break was given to general aviation?

Mr. Hunting: --There are several reasons.

The economy of collection, which is a quotation from a portion of the Airport and Airway Improvement Act, certainly indicates that as to general aviation flights that are unscheduled it is very difficult, when they land without prior notice at an airport such as ours, to be able to apply a standard landing fee, and then to have a separate billing and to know where that billing should be sent.

And consequently this airport and, as the testimony indicates, other airports have gone to different means, which traditionally have included hangar fees, tie-down charges, and more often, also in accordance with the Airport and Airway Improvement Act, so-called fuel flowage charges on the gasoline sold by a local airport to those general aviation entities who may land there, or land there and stay there, and it is in that respect that the airport has chosen to approach the collection.

Unknown Speaker: Do I understand you to be arguing it would be too difficult to collect a landing fee from a private aircraft?

Mr. Hunting: No.

I'm saying that with the commercial airlines, at this airport and most airports, there are predicted scheduled flights.

Unknown Speaker: I understand that, but then I thought you went on to say because you don't know what the schedule is you couldn't collect a uniform fee from the general aviation--

Mr. Hunting: With general aviation, there is... these are not scheduled landings.

Unknown Speaker: --I understand that.

Mr. Hunting: So it is--

Unknown Speaker: Every time they land the tower knows--

Mr. Hunting: --The tower knows.

It has been determined by this and many airports to be more difficult to use a pure landing fee as the only mechanism by which to collect appropriate charges.

Unknown Speaker: --It's certainly not impossible.

Mr. Hunting: No, it is not impossible.

Unknown Speaker: But you're saying--

--It's done in a lot of airports.

--then it's just administrative convenience, as opposed to a decision that this category of transportation should be preferred?

Mr. Hunting: I don't believe that it's any intentional decision to prefer this particular category.

I think it is a reflection of practices that have prevailed here and elsewhere.

It is an economy of collection situation.

I think that what I think is perhaps more relevant on the general aviation issue is that they are not in the same category.

They do not compete.

The airport does not in any way financially impact the commercial airlines by virtue of this practice.

The concession revenues, which are not covered by the Anti-Head-Tax Act, are used to cover the so-called shortfall as that term has been used here.

Concession fees are not under the airport... excuse me, under the Anti-Head-Tax Act, and when you couple the finding of the district court that the airline charges did not in any way contribute to the surplus, I think that this becomes more of what the Court properly recognized as a lack of standing issue than as the airlines have characterized it.

Unknown Speaker: Mr. Smith doesn't concede that, does he--

Mr. Hunting: No, he does--

Unknown Speaker: --that the concession fees are not covered by the AHTA?

Mr. Hunting: --He does not concede that, no, and I did not mean to suggest that he did.

I would submit to the Court that the Anti-Head-Tax Act in its legislative history demonstrated no indication that concession revenues should at all be addressed by that statute.

The legislative history indicates that in fact Congress was aware that certain airports were in fact generating profits or accumulating surpluses.

I think the bottom-line analysis when looking at the statutes and the legislative history is that Congress chose to regulate the mandatory air side aspects of an airport and chose not to regulate the discretionary purchase concession side of the airports.

That's a decision that Congress has made.

Unknown Speaker: Well, I don't know how... I think it's a good argument, frankly.

I'm not sure it's all that clear.

You know, whether you're going to have something to eat while you're waiting for a plane, how discretionary is that?

Suppose the airport, you know, imposes a $20 charge on use of the restrooms in the airport?

Would that not be covered by the AHTA?

That would not be considered a charge on the persons traveling?

I think it--

Mr. Hunting: We... it could be considered a charge on the persons traveling.

We do not believe that that is covered by the Anti-Head-Tax Act.

Unknown Speaker: --Oh, really?

All right.

Mr. Hunting: It would not--

Unknown Speaker: Directly or indirectly?

Mr. Hunting: --Directly or indirectly.

Unknown Speaker: Other charge, directly or indirectly?

And you think that that's a good way around it... just really hit them for the use of the mens room.

[Laughter]

Mr. Hunting: I... there certainly could be a mandatory aspect of the question you ask, but I do not believe that the charge for that facility is covered by the Anti-Head-Tax Act, and I would suggest, Your Honor, that perhaps the simplest analysis of whether concessions are included in section 1513(a) of the Anti-Head-Tax Act is to analyze the argument of the airlines.

They claim concessions are included in section (a), and they claim that section (b) is a so-called savings clause.

If both of those premises are true, it is clear that section 1513(b) did not save concession charges as being illegal under 1513(a), which would leave you with the absurd and I think illogical result that all concession charges at the airport would be illegal, and I suggest that that simple analysis is perhaps the easiest way to approach the very important issue here as to whether concession revenues are at all addressed by or regulated by the Anti-Head-Tax Act.

And we suggest that there is no such regulation, that Congress has simply chosen to regulate the mandatory side of airports through, initially, the Airport and Airway Improvement Act, and secondarily, the Anti-Head-Tax Act, certainly in indicating by clarifying language that these types of charges are to be permitted.

Unknown Speaker: Mr. Hunting, I'm perplexed as to why the Secretary hasn't gotten involved in this thing more.

I mean, you and the United States are proposing that we leave all this to the Secretary, but the strange phenomenon is that the Secretary's had only one case involving this legislation, and there are very major issues such as the one we're just talking about, about whether, you know, concession fees are included, and so forth.

How can it be that it's really his bailiwick and yet he hasn't done anything?

Mr. Hunting: I would suggest something that I think is outside the record, but yet I think is certainly known, and that is that in many instances with other airports there have been leases that could be of duration, 10, 20, or 30 years, so that these charges have been established in one form or another by negotiated leases that cover long periods of time.

Consequently, much of the period of time that would have been taken care of in the seventies and eighties were, I think, at many airports covered by leases of very long duration, and I think that to that extent the issue is now percolating I think to a greater extent than it has before.

But I would suggest to the Court that in the very complex situation of the Massport case that the agency in fact did choose to entertain a complaint by a general aviation entity, chose to intervene in the other proceedings, and continued with an active role throughout all of that, and it was in fact the Massport proceeding that caused this airport to raise the affirmative defenses when it did in late December of '89 and early January of 1990.

And if I could address I think several questions that came from the Court, the dismissal by district court Judge Bell of the interstate commerce case was not solely on issues of law.

I hesitate to be before this Court and talking about answers to interrogatories and discovery, but the airport filed a combined motion under Rule 56 for summary judgment and 12(b)(6), and for the combined reasons of no factual proofs either to support an interstate commerce claim or, perhaps more importantly, to distinguish that claim from an Airport and Airway Improvement Act claim, or an Anti-Head-Tax Act claim, relying on that absence of factual proof and the rationale of the Merrion case, the district court so ruled.

And I would point out to the Court that the Sixth Circuit observed the nature of that ruling on pages 30 and 31 of its opinion, commenting that there was a factual aspect and lack of proof as well as to legal, and we stand here today, even without the absence of proof that in my judgment would indicate any violation of the Interstate Commerce Clause.

Unknown Speaker: Are you then taking issue with Mr. Smith, who said because it was cut off so early in the district court they didn't have a chance to show that general aviation coincides with intrastate traffic?

Mr. Hunting: I am.

Those records exist in the FAA tower independent of discovery directed to the airport.

The ruling by district court Judge Bell was in an opinion in the middle of January 1990.

We went to trial February 12, 1990.

That opinion was on the eve of trial, after considerable opportunity to adduce facts that would distinguish and/or support an Interstate Commerce Clause claim, so I'm suggesting that there were two prongs, or two aspects of the ruling of the district court as affirmed by the Sixth Circuit, and the Sixth Circuit noted the contentions of the airport on page 30 and 31 of its opinion in that regard.

Unknown Speaker: Is it your position that the airlines can't be in a deficiency position coming to court, that they have to pay and complain later, is that... it's only a refund that they can get.

Suppose they're sued in a State or Federal court?

They have to pay up, and then they can seek a refund?

Mr. Hunting: If I could explain to you specifically what we have done in our instance, I would hope that would answer you.

We reached a stipulation with the airlines, filed in this case at the district court level, that would make the payments from them to this airport subject to whatever the final results of this decision is.

We have a judgment supported by bonds for the difference between the old rates and the new rates from April 1, 1988 to the end of 1989, which was the end of the period of time covered.

In addition, we have a stipulation that would make the results of any CFR allocation, and/or any decision of this Court would be taken into account quantitatively by virtue of that stipulation.

Unknown Speaker: I mean for the future.

Your position is that there is no lawsuit that the airlines can institute.

They must either be in a defensive posture, resisting a suit for them to pay, or they can go to the FAA, or they can go to the Department of Transportation, but they can't... they can't come to court as a plaintiff.

Mr. Hunting: We are saying that the resort in the first instance for the airlines, if they are to challenge reasonableness, is to go to the agency.

The second question which I think you were positing to me is, as a practical matter, what position would be airport take about the interim usage of the airport during the period of time that a reasonableness dispute might be existing, I would hope that we would, if such a situation again arose, reach another amicable stipulation as we did at the trial court level.

Unknown Speaker: Thank you, Mr. Hunting.

Mr. Hunting: Thank you very much.

Unknown Speaker: Mr. Smith, you have 2 minutes remaining.

Rebuttal of Walter A. Smith, Jr.

Mr. Smith: Thank you, Your Honor.

First of all, at page 46-A of the appendix to the cert petition is where the district court quite clearly dismissed our Commerce Clause claim solely on the ground that Congress had taken action in the area.

Second, with regard to Justice Scalia's question about whether or not concessions are covered by the AHTA, we take the view that whether or not they are covered, whereas here the concession fees are being paid ultimately by the passengers, the right reasoning is the one that Judge Posner used in Indianapolis, and that is to say that whereas here the total fees being imposed on the airlines and their passengers through this fee methodology vastly exceed the airport's costs, that is precisely what Congress intended to prohibit in the AHTA.

And finally, let me address Mr. DuMont's point that we are relying only on the word 1513 on the merits of the private right of action issue.

That is not true at all, as we explained in our brief, but most importantly, whereas here Congress was intending to strengthen the prohibitions of Evansville, a case in which a right of action by the airlines had been recognized, it would be perverse to suppose that Congress was there by sub silentio taking away the most effective way of carrying out the indications in the AHTA of what the Congress wanted to achieve, and that, to us, is grounds enough alone to find we ought to win the private right of action issue even if the Court reaches it.

Finally, I would mention that even if Mr. Hunting is kind enough to give away the CFR issue, if this Court reaches the private right of action issue, it will have to modify the judgment below, and under this Court's precedents the Court is not permitted to do that, whereas here, Mr. Hunting elected not to file a cross-petition.

Thank you.

Chief Justice Rehnquist: Thank you, Mr. Smith.

The case is submitted.

Unknown Speaker: The honorable court is now adjurned until tomorrow at ten o'clock.

Attribution:

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Featured:

Arkansas Elec. Coop. v. Ark. Public Ser v. Comm'n - Oral Argument

Wed, 18 Feb 2009 07:11:12 +0000

Case:

Arkansas Elec. Coop. v. Ark. Public Ser v. Comm'n

Media File:

81-731_19830117-argument.mp3

Related Transcript:

1982_81_731_argument.xml

Transcript:

ORAL ARGUMENT OF ROBERT D. CABE, ESQ. ON BEHALF OF THE APPELLANT

Chief Justice Burger: We will hear arguments next in Arkansas Electric Cooperative Corporation against Arkansas Public Service Commission.

Mr. Cabe, you may proceed whenever you're ready.

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

This case arises out of an attempt by the Arkansas Public Service Commission to regulate the wholesale sales of power and energy by Arkansas Electric Cooperative Corporation to its member cooperatives.

This is an appeal from the decision of the Arkansas Supreme Court, affirming the PSC's assertion of jurisdiction over these wholesale rates.

The facts of the case, while undisputed, are most important to a determination of the issues before the Court.

AECC is a generation and transmission electric cooperative which makes no sales at retail to ultimate consumers.

It is engaged exclusively in sales at wholesale.

Most of these sales are to its 17 members who are themselves local distribution cooperatives.

The remainder of AECC sales are to other utilities which also generate, transmit and sell electricity in interstate commerce.

AECC's member cooperatives sell the energy they obtain to their customers, who are the ultimate consumers of the power.

The retail rates and operations of the member cooperatives are fully regulated by the PSC.

AECC is concededly subject to PSC jurisdiction for purposes other than regulation of wholesale rates.

AECC's rates, including the ones at issue before the Court in this case, are established by AECC's board of directors which includes two representatives of each of the 17 local distribution cooperatives who are the members.

Succinctly stated, AECC arranges for the power and energy necessary to supply the needs of its member cooperatives in the following manner.

First, it owns and operates generating plants.

Second, it contracts with three separate multi-state systems to buy energy when its facilities are insufficient to provide the needs or when it could even buy the power and energy more economically than it can generate it.

Third, because AECC has very limited transmission facilities, it arranges with these same three multi-state systems for dispatch and transmission on the part of the grid that is operated by each of these multi-state systems.

Pursuant to these arrangements, most of the output of the AECC generating plants is delivered to the grid.

AECC's member cooperatives then obtain from the grid the energy they need to serve their customers.

In fact, only about 10 percent of the energy which AECC sells to its member cooperatives is ever involved with transmission facilities actually owned by AECC.

The other 90 percent passes exclusively over the system or grid of the multi-state utilities with which it does business.

All of the systems which transmit energy for and sell energy to and buy energy from AECC have generating facilities both in Arkansas and in other states, and all of these generating facilities are tied into integrated systems among themselves.

When energy is delivered by the grid to a local distribution cooperative, the amount of the energy can, of course, be metered and precisely measured.

However, the generating source of that energy may have been at any plant attached to that grid whether inside or outside Arkansas, whether belonging to AECC or belonging to the generating facility of one of the other multi-state systems.

The PSC in this case does not appear to seriously dispute the proposition that AECC sales are sales at wholesale in interstate commerce.

The decisions in Attleboro and Colton make clear that the state is prohibited by the Commerce Clause from regulating sales at wholesale in interstate commerce.

Unidentified Justice: Mr. Cabe, it's your position that that prohibition arises from the Commerce Clause itself, I take it, and not from any other federal legislation.

Mr. Cabe: That is correct, Your Honor.

Unidentified Justice: So you're not arguing, then, that the REA has preempted.

Mr. Cabe: Our position has always been in this case, Justice O'Connor, primarily based on the proposition that the Commerce Clause, standing alone, prohibits state assertion of jurisdiction over the rates in question.

Unidentified Justice: You did write in the brief about the REA.

Mr. Cabe: Yes, Your Honor.

Unidentified Justice: Did you raise that argument before the Supreme Court in Arkansas?

Mr. Cabe: Pardon me?

Unidentified Justice: Did you raise that preemption argument in Arkansas?

Mr. Cabe: Yes, that argument was raised in the briefs filed with the PSC when the matter was originally heard by the PSC at that stage of the proceeding.

It was raised briefly in the briefs at the level of the Arkansas Supreme Court.

When we submitted our Jurisdictional Statement in this case, we relied exclusively on the Commerce Clause argument.

However, before probable jurisdiction was noted, the court invited the Solicitor General of the United States to state the views of the United States, and when the Solicitor General did so he employed a preemption analysis in support of the argument.

For that reason, we included the preemption argument, but it is our position that the Commerce Clause standing alone by itself prohibits state exercise of jurisdiction in this situation.

Unidentified Justice: You don't disagree, I take it, with the normal rule that an amicus curiae can't broaden the issues in a case.

That is, that the fact that the Solicitor General as amicus curiae raises an issue doesn't mean that it's necessarily... he's entitled to do so.

Mr. Cabe: Yes, Your Honor.

And I think, of course, the Court has within its discretion the authority to consider the point.

In our view, it is not necessary for the Court to reach that point.

The Commerce Clause standing alone is sufficient to decide the case.

Unidentified Justice: Do you think the state court rejected your REA submission?

Mr. Cabe: The state court specifically held... the state supreme court specifically held that the PSC--

Unidentified Justice: To reach its result it had to reject your REA submission.

Mr. Cabe: --I'm not sure the REA... we would call it a very strong REA submission, Justice White.

The supreme court specifically held in--

Unidentified Justice: It needs to have been... at least, it needs to have been presented to the highest court of the state before we have even jurisdiction to consider the question.

Mr. Cabe: --It was... Excuse me... It was raised in the petition for rehearing.

Mention was made of the--

Unidentified Justice: That isn't early enough.

Was it raised... did you say it was raised in the initial briefs or not?

Mr. Cabe: --It was raised in the initial briefs at the PSC level of the proceeding.

Unidentified Justice: But how about the supreme court?

Mr. Cabe: No, Your Honor, I don't believe it was.

Unidentified Justice: I'm not sure we have jurisdiction to reach the question.

Mr. Cabe: As I say, in our view it is not necessary to reach the preemption issue.

It is only necessary to consider the Commerce Clause aspects of the case.

Unidentified Justice: You tried two or three times to say what your idea was of what the supreme court said.

Would you tell me what you were going to say?

Mr. Cabe: I was going to say, Justice Marshall, that the supreme court specifically said that the PSC was neither prohibited by the Commerce Clause nor preempted by any federal enactment from exercising jurisdiction in this case.

The line of cases which culminated with Attleboro concluded with respect to the natural gas and electric utility industry that the Commerce Clause prohibited state regulation of the parts of those businesses that were national in character but allowed, in the absence of conflicting congressional enactment, state regulation of the parts of the business that were essentially local.

This division between what was essentially local and what was of paramount national importance was thus applied in the Attleboro line of cases to arrive at the rule that state regulation of wholesale sales in interstate commerce was not permissible, but states could regulate sales at retail by local distributing companies to ultimate consumers of the energy.

Unidentified Justice: Well, Attleboro wouldn't just automatically apply to any wholesale sale; it would have to be a wholesale sale in interstate commerce.

Mr. Cabe: Exactly, Your Honor, that's correct.

Unidentified Justice: And if this generating facility generated its own power and delivered it over its own lines to local coops within the single state, I wouldn't think... you wouldn't be here arguing that.

Mr. Cabe: Absolutely not, Your Honor, and that, in fact, of course, is the situation in Texas where at least until recently, utilities there generated, transmitted and delivered power strictly in interstate commerce without interstate connection.

But that's not the case here.

Unidentified Justice: What about the 10 percent that is delivered directly to customers within the state from a generating facility of the--

Mr. Cabe: It's not delivered directly from the generating facility; it passes over transmission lines that AECC owns.

Unidentified Justice: --I see.

None of it--

Mr. Cabe: After it has gone onto the grid, then it might come--

Unidentified Justice: --None of it is delivered directly.

Mr. Cabe: --Not by direct connection, no.

All of those plants, all of those local distributing cooperatives are tied to the grid, and that's where they obtain virtually all of the energy that they sell to their customers.

Unidentified Justice: I see.

Mr. Cabe: Given the limited transmission facilities that AEC owns... that AECC owns, and the desirability of buying energy and selling energy to the other interstate companies, AECC could not accomplish its purposes without these complex arrangements with the multi-state systems and grids, which involve energy generated outside the state of Arkansas as well as energy generated inside the state of Arkansas.

The Attleboro line of cases established an admittedly mechanical test for determining the limitation of state power and the area which must be regulated, if at all, only through exercise of federal power.

However, the court arrived at that test by careful consideration of what was national importance as opposed to what was essentially local and could be, therefore, regulated by the states.

I don't feel that that test has been changed or diminished in any way by later decisions of this Court in any cases dealing with the gas or electric utility industries.

Unidentified Justice: Well, Mr. Cabe, didn't those cases have, though, the fact that the Federal Power Act adoption which did result in a preemption by Congress.

And what do you do with the Illinois Natural Gas Company case which did recognize that there is a balancing line of questions, as well as the so-called mechanical bright line view, and in Illinois Gas declined to settle that question.

And isn't that the question we have here?

Mr. Cabe: In answer to your first question, the Attleboro line of cases was decided before passage of the Federal Power Act.

Attleboro itself, which culminated the line, was decided in 1927 and that act was not passed until 1935.

Unidentified Justice: Right.

Mr. Cabe: So it was decided without reference to any federal enactment.

Secondly, in the Illinois Natural Gas case, the court said that it was not necessary to reach that issue about whether the balancing type approach was appropriate in view of those other cases, although those cases did not involve decisions dealing with either the natural gas or electric utility cases.

In our view, the court did balance, back in the Attleboro line, when it determined what was essentially local and what was national in character.

It did take into consideration what was of such national importance that the states could not reach it.

Unidentified Justice: So I take it you say there's still a gap, then.

There's still an Attleboro gap because these rates aren't regulated at the national level, are they?

Mr. Cabe: Except to the extent that they are regulated or controlled or supervised by REA, Your Honor.

Unidentified Justice: Yes, but not by the federal--

Mr. Cabe: Not by the Federal Energy Regulatory Commission.

They are not regulated by that agency.

Unidentified Justice: --So the Attleboro gap still exists.

Mr. Cabe: Perhaps as to the cooperatives, yes, sir, it does still exist.

If you ignore REA, then the gap still exists.

While the test--

Unidentified Justice: Although Congress attempted to fill it, didn't it?

Mr. Cabe: --In the Federal Power Act?

Yes, Congress did fill the gap certainly with respect to investor-owned utilities, but the FPC at that time in the Dairyland decision in 1967 concluded that Congress did not intend to include cooperatives within the definition of public utility under the Federal Power Act.

And that result was concurred in by the D.C. Circuit in the Salt River Project case.

While the test has not been changed by any later decision, the Attleboro line of cases test has not been changed by any later decision, later decisions have commented on the scope and breadth of the test.

In United States versus Public Utilities Commission of California, this Court illustrated the clear and decisive nature of the test when it noted that Attleboro left no power in the states to regulate sales for resale in interstate commerce.

Unidentified Justice: And Congress thought Attleboro was the law, I take it.

Mr. Cabe: Absolutely.

Unidentified Justice: Whether it was right or wrong, they seemed to adopt it.

Mr. Cabe: Yes, sir.

Most clearly, the comments in the congressional history seem to indicate quite clearly that Congress assumed that Attleboro prohibited all state regulation of sales at wholesale and interstate commerce, and as indicated in the United States versus Public Utilities Commission case and the Colton case, this Court has affirmed that reading of the Attleboro line of cases.

Also in the United States versus Public Utilities Commission decision the court observed that the Natural Gas Act and the Federal Power Act established limitations on the Federal Power Commission which

"were designed to coordinate precisely with those constitutionally imposed on the states. "

Now, this brings us to the Colton case which concerned FPC jurisdiction over sales by Southern California Edison Company entirely to customers located in central and southern California, although the sales in issue apparently included some very small portion of energy which was generated outside the state of Arkansas.

Two of the holdings of that case are important in our view.

First, in view of the Federal Power Act's establishment of federal jurisdiction in precisely the area which had been denied to the states, the holding that Edison sales were sales at wholesale in interstate commerce under FPC jurisdiction leads us to the conclusion that AECC sales, also at wholesale in interstate commerce, are beyond state power to regulate.

Second, we think it important that Colton noted that the Attleboro line of cases and the test established therein and adopted by Congress made inappropriate a case-by-case analysis of the impact of state regulation of sales at wholesale in interstate commerce, but cut it cleanly and said that those sales were entirely within federal power to regulate and beyond state power to regulate.

Unidentified Justice: Mr. Cabe, suppose that Attleboro and Colton were not on the books, had never been decided.

Would you be here making the same argument?

Mr. Cabe: Yes, sir, I would.

Unidentified Justice: And then resting, what, on Pike against Bruce?

Mr. Cabe: If you want to apply the Pike versus Bruce Church analysis, Your Honor, we believe that state regulation of these sales is still inappropriate.

AECC as an electric cooperative is, by statute and command of law, a non-profit organization.

Its revenues must equal its expenditures.

If the state of Arkansas, through regulating the sales to the Arkansas local distribution cooperatives, reduces the revenues which AECC obtains from those sales, then AECC, to remain non-profit by command of law, would then have to raise the prices which it charges to these multi-state systems to and with which it sells and exchanges energy.

So for that reason, it would be our conclusion that even under a Pike versus Bruce Church analysis there would be such an impact on interstate commerce, in addition to all of the reasons stated in the Attleboro line of cases that regulation of these sales should be beyond state power, even if they have not already been so held.

It is our position in this case that Attleboro's recognition of the paramount national importance of the regulation of sales of electricity at wholesale in interstate commerce is even more appropriate today than it was in 1927.

This is because of the recent development of these vast, multi-state, interconnected grids and pools which are designed to provide power more reliably and more economically.

By utilizing both the facilities of these interstate systems or grids and by utilizing energy generated in several states including Arkansas, AECC makes the necessary power and energy available to its member cooperatives.

Attleboro, in our opinion, is still good constitutional law, and regulation of these sales by the state of Arkansas is beyond their constitutional power, and for that reason, we think that the decision of the Supreme Court of Arkansas should be reversed.

Chief Justice Burger: Mr. Broadwater.

ORAL ARGUMENT OF JEFF BROADWATER, ESQ. ON BEHALF OF THE APPELLEE

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

AECC's argument that state regulation of its rights is precluded by the Commerce Clause was heard and rejected by the Arkansas Public Service Commission and by a majority of the Arkansas Supreme Court.

Specifically, as you've heard AECC argue, that this Court's decision in Attleboro and the line of cases on which the Attleboro court relied, precludes state regulation of its sales to the retail cooperatives.

We disagree.

AECC has interpreted Attleboro as barring state regulation of wholesale sales in interstate commerce, and it is argued that its sales to the retail cooperatives are such sales.

Now, although these sales are physically intrastate, we agree that for purposes of determining the scope of congressional power under the Commerce Clause, these sales are in interstate commerce.

We do not, however, agree that Attleboro requires a reversal of the result below.

Factually, Attleboro is clearly distinct.

That case involved physically intrastate sales between utilities in different states.

This case involves physically... excuse me, Attleboro involved physically interstate sales between utilities in separate states.

This case involves physically intrastate sales between utilities in the same state.

AECC has not really relied on the factual similarities in the two cases, but it has relied on some of the language and analysis in Attleboro and in the Attleboro line of cases.

The Attleboro court I think started with the premise that the states could not impose a direct burden on interstate commerce.

Wholesale rights were generally seen to be in interstate commerce.

Retail rights were generally seen to be essentially local.

Rate regulation was seen to be a burden on commercial activity.

Therefore, the states could regulate the retail rates but they couldn't regulate the wholesale rates.

AECC's mistake, I think, is in assuming that this Court's analysis of Commerce Clause issues has not evolved beyond this point.

The doctrine that a state can never impose a direct burden on interstate commerce is simply no longer the law.

Professor Lawrence Tribe, in his book, "American Constitutional Law" discusses the Attleboro decision.

He doesn't criticize the result reached there, but he does say this of the analysis.

He says, the opinion was couched in terms of the now-discredited direct/indirect dichotomy.

And then quoting from the opinion,

"Being the imposition of a direct burden on interstate commerce, it must necessarily fall. "

I think the later decisions of this Court support Professor Tribe's characterization of the direct/indirect dichotomy as a now-discredited doctrine.

For example, in South Carolina--

Unidentified Justice: Or maybe you should say Professor Tribe correctly read our decision.

Mr. Broadwater: --I think so.

For example, in the South Carolina State Highway Department versus the Barlowe Brothers, the court says that indeed, in many instances, state regulation of interstate commerce has been upheld.

Mr. Justice Stone, writing for the Court, recited dozens of cases in which state regulation of a variety of subjects... railroads, navigable waterways, highways, quarantine laws, game laws... had been upheld, even though, he said, in each of these cases, regulation involves a burden on interstate commerce.

But so long as the state action does not discriminate, the burden is one which the Constitution permits because it is an inseparable incident of the exercise of a legislative authority which, under the Constitution, has been left to the states.

I think a more recent case reflecting the court's departure from the direct burden analysis used in Attleboro is FERC versus Mississippi, decided just last term.

In that case, the court said that retail rates were in interstate commerce, but noted... and I don't think anyone doubted it... that the states retained the power to regulate retail rates.

Now, under the direct burden test, if retail rates are in interstate commerce, the states can't regulate them.

The fact that retail rates are now seen to be in interstate commerce and yet, the state's power to regulate them isn't contested, I think is evidence of how far the court has come from the direct burden analysis used in Attleboro.

Now, the Colton case doesn't endorse the position... doesn't the support the position of AECC, and doesn't endorse the Attleboro decision.

The Colton case cites an earlier case interpreting the Natural Gas Act, the Illinois Natural Gas Company case.

And in both those cases, the court says that two lines of cases dealing with state power under the Commerce Clause exist.

The Attleboro line and the more flexible line.

And the court says that... I think implicitly in Colton and expressly in Illinois Natural Gas... that it doesn't have to choose... that in those cases it didn't have to choose between the two lines of cases.

That when Congress passed the Natural Gas Act and when it passed the Federal Power Act, it had Attleboro in mind, and it was trying to remedy what it saw as the jurisdictional back credit by Attleboro.

The court interpreted the Natural Gas Act and the Federal Power Act accordingly to simply achieve the intent of Congress, and Congress had Attleboro in mind when it passed those statutes.

Unidentified Justice: Counsel, let me ask a pragmatic question.

Why is the Commission so anxious to regulate these rates?

Isn't there a kind of a built-in safety factor that the Board and the members themselves would keep these rates at a reasonable level?

Mr. Broadwater: Well, I think whether or not the Commission ought to regulate AECC is a legislative question, and the legislature of the state of Arkansas has decided we ought to.

And I think there are some factors that support that.

I don't think AECC has really presented any evidence to us exactly how the self-regulation works.

I know it takes the Commission a team of accountants and engineers and economists and lawyers to set and design electric rates.

I think it's really unlikely that the average customer or the average retail cooperative is going to be in a position to be able to really participate in the making of AECC's rates.

I don't see how self-regulation would necessarily protect the interest of a minority within the cooperative.

I don't know what's to stop a majority within the cooperative from deciding they're going to force the minority to subsidize them.

And something I would note just in passing... each one of the cooperatives has the same representation on AECC's board, regardless of the size of the cooperative.

Which means the one man/one vote rule that this Court has said is required in the legislative bodies doesn't even exist on the AECC's board.

So I wonder how representative it may be of the members.

I think this Court in recent cases has, indeed, chosen between the rigid test selected in Attleboro and the more flexible test, and I think in Pike versus Bruce Church and in subsequent cases it has adopted the more flexible test.

Unidentified Justice: How do you respond to the argument of the appellant that even under the more flexible test, the Arkansas regulatory attempt must be found invalid?

Mr. Broadwater: I don't agree with that, because I think that first, the sales are essentially local.

They're between an Arkansas buyer and an Arkansas seller.

Virtually all the electricity is consumed in Arkansas.

AECC has three plants in Arkansas; it owns partial interest in three others; virtually all of the power is generated in Arkansas.

All the parties to the transactions have ready access to the political and legal processes of the state of Arkansas for the protection of their interests.

Now, AECC has said that well, since some of this power may come from out of state, it's not essentially local and the state shouldn't be allowed to regulate it.

In response to that, I would say that same power is the power that's sold at the retail level, and we're there allowed to regulate that.

So that the aside of generation may not necessarily be controlling.

So I think under Pike versus Bruce Church, first, we should prevail because it's essentially local, and second, really the only burden that the AECC has alleged, I think, is the burden of having to participate in a rate-making procedure before a state regulatory commission.

Well, that burden is no different than the burden we're allowed to impose at the retail level, and it's no different than the burden that Congress has imposed on the wholesale sale of investor-owned utilities before the Federal Energy Regulatory Commission.

So I think that a burden that is clearly permissible in these other contexts shouldn't be held to clearly outweigh the state interest in essentially local commercial activity.

And I think Pike versus Bruce Church is the proper test.

Unidentified Justice: What is the reason that these rates aren't subject to the Federal Power Act?

Mr. Broadwater: The Federal Power Act... the Federal Power Commission held that it didn't have jurisdiction over the rates, and the Federal Court of Appeals I think for the District of Columbia Circuit has also held--

Unidentified Justice: And what was the reason it didn't have jurisdiction?

Mr. Broadwater: --I think there's an exemption in the Federal Power Act for government instrumentalities.

Unidentified Justice: That's what it really turned on, isn't it?

Mr. Broadwater: I think on that--

Unidentified Justice: Not on its position with respect to wholesale rates in interstate commerce.

Mr. Broadwater: --No, Your Honor.

And I think it was that and also, we should remember that the Federal Power Act was passed, I think, in 1935.

The REA was passed in 1936, so when Congress passed the Federal Power Act they didn't have really a clear idea of what form the cooperatives were going to take.

And I think in part because of that, the Federal Power Commission was hesitant to exert jurisdiction over something that didn't really exist when the Federal Power Commission was created.

But it wasn't the distinction between wholesale and retail rates that was crucial.

The purpose that the Commerce Clause is designed to achieve is to, I think, promote free trade among the states and to prevent economic warfare among the states.

And I think that the more flexible test in Pike versus Bruce Church would better accomplish that purpose than a mechanical distinction between wholesale and retail rights.

For example, imagine a generating cooperative selling electricity... doing business in one state, selling electricity to a small rural retail cooperative.

And imagine a large investor-owned utility selling large amounts of power to a multi-national manufacturing concern.

Which has the greater impact on interstate commerce and on the national economy?

I suggest the retail sale to the large manufacturing company may really be of greater significance.

And I would also suggest that the abuses the Commerce Clause was designed to prevent may be more likely to occur in the case of the retail sales because there, the state commission may be tempted to set that industrial customer's rates very high so he can subsidize other customer classes, and then they'll expect him to recover his added costs through sales in other states or even in foreign countries.

The mechanical distinction between wholesale and retail rates would have the Commerce Clause I think ignore those kind of political and economic realities.

AECC in its brief argued the virtue of self-regulation.

It was the opinion of the Arkansas legislature that self-regulation was not the answer.

Twenty-five states have placed retail cooperatives under the Jurisdiction of state regulatory commissions.

Yet, AECC is one step farther removed from the ultimate customer than are the retail cooperatives.

And for that reason, I would suggest that the need for state regulation in the case of AECC is even greater than the need for state regulation in the case of the retail cooperatives.

And neither is REA regulation sufficient.

AECC admits that REA gives it considerable discretion in setting its rates, and no real evidence has been presented that REA examines, say, questions of rate design.

Even though the commission noted in its brief that we consider rate design issues to be as important as questions dealing with the level of rates.

I think the reason for the lack of scrutiny from REA is obvious.

There are over a thousand cooperatives subject to the jurisdiction of the administrator of the REA.

If only a fourth of those cooperatives seek rate increases annually, the Administrator of the REA is reduced to reviewing one rate case virtually every working day.

Unidentified Justice: Well, REA is basically a loan organization.

Mr. Broadwater: That's right.

That's right.

And there's even very little statutory authority that would, I think, justify their getting in the rate-making business.

Section 904 of the REA provides that before the administrator makes loans, he should certify that reasonable adequate security exists.

And that's really all there is, I think, in the Act from which you can infer any REA authority over the rates.

As a matter of fact, when the Rural Electrification Act was pending before Congress, the first administrator of the REA testified before a congressional committee that he thought the setting of rates was entirely a state matter, and that he didn't have any jurisdiction over the setting of rates within a single state.

Now, you might ask, did he have retail... only retail rates in mind or was he thinking in terms of wholesale rates.

I think it's very likely that the testimony went to both wholesale and retail rates because the original Act provided for the creation of both wholesale and retail cooperatives.

So I think clearly,--

Unidentified Justice: Was this Administrator Cook that you're referring to?

Mr. Broadwater: --Yes, sir.

So I think clearly, if these rates are to be given any real scrutiny, it's going to have to come from the state level.

AECC has argued that there could be conflict between state regulation and the REA.

Yet, 25 states regulate the retail rates; a dozen states regulate wholesale rates, and despite this extensive history, AECC has not produced a single example of an actual conflict between state regulation and the end regulation under the REA.

I would suggest that this failure of proof demonstrates that this alleged conflict is really mere speculation and that if it ever does occur, I think that's something that Congress could remedy.

Madame Justice O'Connor in her opinion in FERC versus Mississippi observed that the utility regulation is a field marked by valuable state innovation.

That, indeed, the whole body of experience in this area has developed at the state level.

We are simply--

Unidentified Justice: That opinion didn't persuade enough of my colleagues to agree, though, did it?

Mr. Broadwater: --That may be unfortunate.

But we're simply asking that this Court allow that development to continue.

Thank you.

Chief Justice Burger: Do you have anything further, Mr. Cabe?

ORAL ARGUMENT OF ROBERT D. CABE, Esq. ON BEHALF OF THE APPELLANT -- REBUTTAL

Mr. Cabe: Only one point, Your Honor, and that is that it would be our observation that the decision in FERC versus Mississippi is not inconsistent with the finding in the Attleboro line of cases of paramount national importance in matters of wholesale sales, in view of the Court's approval of the congressional finding.

Retail sales now have an immediate effect on interstate commerce and can be even totally preempted by Congress.

Thank you very much.

Chief Justice Burger: Thank you, gentlemen.

The case is submitted.

Attribution:

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Featured:

Ferc v. Mississippi - Oral Argument

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Ferc v. Mississippi

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Transcript:

ORAL ARGUMENT OF REX E. LEE, ESQ. ON BEHALF OF THE APPELLANTS

Chief Justice Burger: We will hear arguments next in... 80-1749, Federal Energy Regulatory Commission against Mississippi.

Mr. Solicitor General, you may proceed when you're ready.

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

At issue in this case is the constitutionality of the Public Utility Regulatory Policies Act, one of five statutes enacted in 1978 as part of a comprehensive effort to deal with this nation's energy problems.

It would be helpful to consider the statute in two basic parts.

The first part consists of Titles I and III, which share three common statutorily-identified goals.

The first is to promote the conservation of energy supplied by utilities; second is to optimize the efficient use of facilities and resources by utilities; and the third is to ensure equitable rights to consumers.

Title I deals with electricity, and Title III with gas.

Title I requires state regulatory authorities and non-regulated electric utilities to consider the adoption of one set of standards, six in number, dealing with electric rates, and a second set of standards, five in number, dealing with terms and conditions of electric service.

The rate standards, all of them, and some of the electric service standards are directed toward two objectives.

The first is to cut down the amount of electric energy, and therefore imported oil, that is consumed in this country.

And the second objective is to shift electric demand away from peak periods, thereby diminishing the use of less efficient generating facilities and scarce fuels; notably, oil.

As to gas, Title III requires consideration of only two of the terms service standards.

Each of the standards, both Title I and Title III, is to be considered in a hearing after public notice, and a written statement of the reasons for declining to implement or adopt... in the event of a declamation to implement or adopt... any of the standards is to be made available to the public.

In addition, Titles I and III require that within one year after enactment of the statute and annually thereafter for ten years, state regulatory authorities and non-regulated utilities report the progress of their consideration of these standards to the Secretary of Energy who in turn is to submit a summary and analysis of the reports to Congress.

The other part of the statute is Title II, probably the most controversial.

Specifically, Section 210, whose objective is to encourage the development of cogeneration and small power production facilities.

Cogeneration is the combined product of both electrical energy and useful thermal energy such as heat or steam from a single process.

It has great potential as a source of energy conservation.

At one time it accounted for some 15 % of this nation's energy total, but with the advent of cheap fossil fuel power, that has diminished to 4 %.

A small power production facility is a facility having a capacity of no more than 80 megawatts and using something other fossil fuels, defined by the statute as biomass, waste, geothermal or renewable resources such as wind, water, solar energy, for the purpose of producing electric power.

Congress identified two impediments to the potential of cogeneration and small power production facilities as additional sources of domestic power with consequent lessening of dependence on foreign oil.

The first was its conclusion that subjecting cogeneration and small power production facilities to the usual state and federal regulatory burdens was unnecessary and would unduly discourage their development.

The more controversial aspect of the congressional determination was the second.

These two types of facilities must rely on traditional electric utilities, both as a source of backup power, and also as a market for their surplus power.

They do not sell generally to the public.

They use them only for their own purposes.

Evidence before Congress showed that since these facilities are potential competitors of public utilities, utilities were often less than cooperative in supplying either backup power or markets.

PURPA deals with each of these impediments.

Its response to the problem of surplus and backup power is the most hotly-contested of the Act's provisions.

What Congress eventually adopted in this respect represents a compromise.

The administration's proposal, which passed the House and was sent to the Senate, would have established a regulatory program virtually identical to that upheld by this Court in the Virginia Surface Mining Act case last term, under which the regulatory burden would have been assumed by federal authorities in the event that state authorities chose not to participate.

At the other end of the spectrum, the Senate bill would have required the Secretary to follow basically the Title I/Title III approach, which is simply to recommend guidelines to state public service commissions that they could adopt or not.

Opponents of the administration House bill, by the time it got to the Senate, presented to Congress substantial testimony and arguments to the effect that it was state rather than federal officials who possess the necessary expertise to implement reforms.

The legislation dealing with these issues should be responsive to local needs and local differences, and that what might be appropriate for Florida might not necessarily be appropriate for Oregon.

And that the states should be allowed to continue to experiment in the national interest with different regulatory approaches.

The compromise that became law was responsive to these arguments, which were grounded in the preservation of state interests.

The Act, in fact, gives the authority to make general rules to the Federal Energy Regulatory Commission in order to achieve the general objectives of the Act, but with the more specific authority to implement the statute being left to the states.

The Commission has, in fact, adopted regulations which afford the states great latitude in determining how the congressional objectives are to be achieved.

Under these regulations, state implementation may be accomplished by any one of three ways.

First of all, by the issuance of regulations.

Second, and probably most important for purposes of this lawsuit, by the resolution of disputes between utilities and qualifying facilities on a case-by-case basis.

And the third is a general catch-all; by any other action reasonably designed to give effect to the Commission's rules.

This suit was brought by the state of Mississippi and its public service commission with Mississippi Power and Light being permitted to intervene, against the Secretary of Energy who has general responsibility for Titles I and III, and the Federal Energy Regulatory Commission which has general responsibility for Title II, Section 210, seeking a declaratory judgment that the entire Act is beyond the scope of Congress' Commerce Clause power and an unconstitutional invasion of state sovereignty as declared by this Court in National League of Cities and Towns v. Usery.

Judge Cox's decision holding the statute unconstitutional on both grounds preceded this Court's decision in Hodel v. Indiana and Virginia Surface Mining, and this appeal followed.

There are two independent reasons in the government's view why the decision of the lower court must be reversed.

First,--

Mr. Lee: May I ask, Mr. Lee, you did say that whatever federal regulations are needed have now been promulgated?

Mr. Lee: --That is correct.

That is correct.

And they are extremely deferential to the states.

They leave to the states as much discretion as the proponents of that approach before Congress said they should--

Mr. Lee: How long have they been effective?

Mr. Lee: --They were adopted... I'll find that out.

The two reasons why this decision must be reversed, in our view, are, first, applying the standards announced by this Court in Hodel and earlier in Usery, there is no constitutional violation, looking at it as an exercise of Congress' Commerce Clause power.

And second, the Act is also a legitimate exercise of Congress' power to provide for our national defense.

I will look at the Commerce Clause issues first.

Last term in the Virginia Surface Mining case, this Court identified three hurdles plus a balancing test that a challenge to a congressional exercise of the Commerce power on Tenth Amendment grounds must surmount.

Before turning to a specific discussion of those three issues, however, I would like first to point out the aspect of this case that distinguishes it from National League of Cities and Towns v. Usery, and simply makes the rationale of that case inapplicable to this case.

The evil against which this Court's holding in National League of Cities and Towns protects is intrusion by one sovereign in a federal system into the prerogatives of another.

And that problem simply does not exist where, as here, the only reason that the states are exercising authority in the field at all is that Congress chooses to permit them to do so.

This difference between the Act in both of the predecessors to this case and this case is illustrated both by the history and also by the content of this legislation.

The appellees concede, as they must, that the state functions of whose federal invasion they complain could have been totally preempted by Congress.

The reason that Congress did not do so is that it was persuaded by the advocates of Federalism that the wiser policy and the more effective policy was to preserve a larger role for the states.

Mr. Lee: Mr. Lee, do you think Congress could direct, for instance, a state legislature to consider certain statutes?

Mandate that under the Tenth Amendment?

Mr. Lee: I believe, Justice O'Connor, that if it was in an area, that if it was in an area, that clearly could be preempted by Congress, in which Congress itself could have acted, and then Congress--

Mr. Lee: So in the Commerce area you would argue that Congress could go so far as to even mandate state legislatures to consider certain laws.

Mr. Lee: --Of course, the word "mandate" triggers sensitive nerves in the Tenth Amendment area.

But mandate a consideration, particularly in a circumstance such as you have in Titles I and III where the only obligation is simply to consider but not to adopt one way or the other--

Mr. Lee: But these public utility commissions of states are an administrative arm of the Legislative Branch of the government, and they are being told that they must consider certain action.

They are not being told they have to implement it, but they must consider it, isn't that so?

Mr. Lee: --That is absolutely correct, and for reasons that I attempt to discuss, we believe that that is constitutional.

The principal reason is, aside from the three hurdles, when you consider the balance of relevant interests, state and federal, particularly as applied to this kind of case, it is not that much of an intrusion, certainly not an unconstitutional intrusion, when you're dealing in areas like the Commerce Clause... and I reiterate that there is no dispute in this case that the turf on which we are operating is federal turf... it is congressional turf, the kind of regulatory area in which Congress could legislate if it chose to do so.

Instead, what Congress concluded was that its federal purposes would be better served if it permitted the states to consider certain basic objectives, not to adopt them but simply to consider them.

Mr. Lee: General Lee, what is the mechanism by which the FERC is entitled to enforce this duty to consider?

Mr. Lee: The duty to consider the Title I and III standards is vested in the Secretary.

And the mechanism is as follows.

There is the authority in the Secretary as to both Title I and Title III to intervene before the state regulatory proceedings.

In the event that the matter then proceeds to court, as to Title I the Secretary has the authority to participate as a party as an intervenor.

As to Title III, with respect to gas, he has the authority to participate only as an amicus.

Mr. Lee: What court does it proceed to?

Mr. Lee: The state courts.

And whatever courts properly review the proceedings... whatever courts the states have designated as those that are proper to--

Mr. Lee: Well, the law says that the body must consider it.

How does it... if the agency just... nothing ever comes before the agency, they don't put it on the docket, no one... does somebody suggest to them that they are under a legal obligation?

Mr. Lee: --I suppose the Secretary could appear and suggest they are under a legal obligation.

Mr. Lee: Could appear before them and say I move you or perhaps you should... and then they reject him and then--

Mr. Lee: And then they reject him.

Mr. Lee: --And then he can take them to state court to review an administrative agency--

Mr. Lee: As I read the statute, what it is talking about is that in the event that it is taken to state court, he does have the right to take--

Mr. Lee: --Oh, if it is taken to state court.

Well, how does it ever get there?

The agency says we don't want to go to court.

Mr. Lee: --Right.

The way the Act handles that, Justice White, is that in the event that the regulatory agency does not consider it, then in the next rate proceeding, which is basically an adjudicatory proceeding to... well, whether adjudicatory or legislative... in the next rate proceeding, it must consider it at that time.

Now, there is, of course,--

Mr. Lee: What if it decides it isn't going to do it?

Mr. Lee: --There is always that possibility that it can simply decide not to.

We assume, in light of the fact that states recognize the rule of law and that this is an area of federal authority, that they will conform in one way or another.

Mr. Lee: Is there some authority or even if there isn't, could the Secretary bring a suit and get an injunction ordering them to consider it, or not?

Mr. Lee: Apparently not.

There is a--

Mr. Lee: There is no provision for it, anyway, in the Act.

Mr. Lee: --No.

Apparently, the only authority that the Secretary has to enforce through federal court is his right to intervene in state court.

Mr. Lee: Mr. Solicitor, is there anymore effectiveness to this than there is to the Constitution's provision that the state officers must take an oath and support the Constitution of the United States?

Is it anymore effective than that?

Mr. Lee: My opponent, I am sure, would say that it does impose more extensive obligations than that.

The obligations that are imposed on the state that are to be balanced against the very substantial interest that the federal government has in regulating its energy program with concomitant consequences not only on energy savings themselves but on no such lesser interests as inflation, interstate commerce and national security are as follows.

On the one hand, the state must consider it; it must hold hearings, must give public notice.

Second, it must give written determination or written statements concerning its reasons.

In the event that it decides not to adopt one of the Title I or Title III standards, then it must give written statement of the reasons to do so.

And finally, the fourth is that it has to report on an annual basis for ten years.

And that's it under Title I and Title III.

Now, with regard to Section 210... this, as I say, is where we go beyond considering and actually having to do something... it would be anomalous in the extreme, I submit, to hold the Surface Mining Act, held constitutional last term, constitutional, and at the same time hold an act unconstitutional which was enacted as a compromise in direct response, in direct reaction, to Federalism interests asking for lesser intrusion in the state prerogatives and hold it unconstitutional in the name of the Tenth Amendment, which of course preserves state prerogatives.

Because,--

Mr. Lee: Mr. Lee, in the Surface Mining case, couldn't the states continue regulating in that field as long as they didn't conflict with federal law?

I mean, there is a section preserving state law and procedure if it doesn't conflict.

And in this case, the state can't choose not to participate unless it just wants to get out public utility regulation totally.

So the choice for the states is much harder here, is it not, than it was in the Surface Mining case?

Mr. Lee: --Two answers to that, Justice O'Connor.

The first is I don't think it was harder because while both of them are complex pieces of legislation, the basic approach as to the Surface Mining Act was that state plans were submitted to the Secretary, and if they were acceptable, then the states could regulate.

Otherwise, the state took over and regulated directly.

Mr. Lee: You mean the federal government.

Mr. Lee: Excuse me, the federal government took over and regulated directly.

But the more persuasive distinction is that whatever the distinction, whatever the comparative intrusion on state interests, I think the best judge of that has to be the states themselves.

And it was organizations such as the National Association of Regulatory Utility Commissioners and others that presented extensive testimony before the Senate saying do not adopt the Virginia Surface Mining model because if you do, three things will happen.

One is it will be a greater than necessary intrusion in the state prerogatives; number two, we need the Flexibility in this area of electric generation regulation to make adaptation for the differences that exist from one locality to the other; and the final one is we need the opportunity to continue to experiment.

It was in... I think there is no doubt that if the House bill had passed it would be constitutional.

My opponents concede that it was a Virginia Surface Mining type statute.

The reason that the House bill did not pass was because the advocates of Federalism came in and said, this is too much of an intrusion under our prerogatives.

The other matter that needs to be mentioned in this respect--

Mr. Lee: I'm just curious, Mr. Solicitor, do we know what the recorded vote of the Mississippi senators and the House delegation were on this compromise?

Mr. Lee: --That's one thing I haven't checked into, Justice Brennan.

[Laughter]

But it is significant in that respect that the group that is perhaps the most intensely affected, the regulatory commissioners themselves, were at the forefront of this plea, don't adopt the Virginia Surface Mining model, and they were also the ones who praised before the Federal Energy Regulatory Commission the approach that was followed.

Mr. Lee: Well, maybe they just talked Congress into passing a law that gave them an unconstitutional order.

Mr. Lee: Oh, so that they could win in this lawsuit.

[Laughter]

At least if they did, they did a very sophisticated job of it in presenting their evidence before the Congress.

I'd like to deal now with the compliance by the states with the Section 210 requirements for the sale of surplus power and the purchase of backup power.

There are three opportunities; there are three ways that the states are given to comply, and the third one, of course, is the very broad one, "any other means" by which the policies of the federal regulation may be obtained.

But one of those options is simply to entertain disputes between regulated utilities on the one hand and qualifying facilities, cogeneration or small power production facilities, on the other on a case-by-case basis.

Thus viewed, all that Section 210, as certainly as implemented by the FERC regulations, does is simply to provide a federal rule of decision that is applicable in those cases where the state entertains lawsuits for other type of adjudicatory proceedings.

Thus viewed, regardless of what the constitutional rule might be in the event that regulations had been required,... in further answer to Justice O'Connor's question... or that legislation had been required, that obligation can be performed, can be satisfied, simply by entertaining disputes.

And that brings the case squarely within this Court's holding in Testa v. Katt, that it is not unconstitutional for the federal government, for Congress, to supply the rule of decision applicable in state adjudicatory proceedings so long as that same kind of rule, if enacted as a source of state law, would be constitutional.

I'd like to say just a word about the comparative weight of the federal and the state interests in this case.

This case demonstrates better than either of predecessor the wisdom of what this Court implied in National League of Cities and Towns, and expressly stated in the Virginia Surface Mining case, that the federal interest... that regardless of the three tests, that the federal interest nevertheless may be such that it justifies state submission.

On the federal side of the balance scale, it would be impossible to overstate the magnitude of this nation's energy problem.

It's important not only in its own right, but also because of its effect on inflation, the environment, interstate trade and national security.

Our opponents have said that it's in the future, and that it's not something that Congress has to deal with yet.

I submit that Congress is to be praised, rather than its statute to be held unconstitutional simply because it anticipated and dealt with the problem before we have, once again, such severe problems as we have had in the past.

The other side of the balance scale is the adverse effect on state interests.

I submit that for reasons discussed, these are minimal as to Titles I and III; they require only consideration.

And as to Section 210, since they can be satisfied by a means that has already been validated by this Court in Testa v. Katt, the comparative balance between state and federal interests clearly favors the constitutionality.

And finally, this statute is a proper exercise of Congress' national security powers.

The linkage between national security on the one hand, and on the other, the dependence on foreign oil in this case and controlling the price of timber sales involved in Case v. Bowles greatly favors the balance in this particular case.

The courts of appeals that have dealt with this issue have uniformly upheld congressional statutes enacted in the interest of national security when attacked on Tenth Amendment grounds.

I would like to reserve the rest of my time.

Chief Justice Burger: Very well.

Mr. Alston?

ORAL ARGUMENT OF ALEX A. ALSTON, JR., ESQ. ON BEHALF OF THE APPELLEES

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

I think probably the best place to start with the question of constitutionality of PURPA would be look at the Act itself.

The Solicitor General went through the Act with some detail, and the mechanics of the Act that he did discuss I do not disagree with.

However, this is certainly more than just simply a suggestion to the state of Mississippi on how to regulate their public service commission.

It's certainly more than just a study telling the public service commission what to do.

Mr. Lee: Do you agree that the federal authority could have done all the things that they hoped the states would do?

Mr. Alston: Mr. Chief Justice, if, as a matter of fact, in the findings they found that this did have a substantial effect on interstate commerce, and if indeed they found that the Act itself was reasonable to affect the utilities themselves, then perhaps they could do that.

It may be absolutely so.

I don't know the answer to that question.

They may could have preempted the area.

But in the field of Federalism, if we talk about Federalism, that does not destroy the principles of Federalism.

I disagree with the Solicitor General.

If the federal government takes over an area, if they have a constitutional right to take over that area in the Constitution if it's permissible under the Commerce Clause, the federal government at that point carries the burden; they are the responsible party to exercise that law.

One of the great principles of Federalism, as a citizen of the state of Mississippi, I can look to my public officials.

We elect our public service commissioners.

I can look to them to implement, to promulgate state law.

I do not want for them to implement federal law.

I have no control over that.

It's deceptively simple to say, when they are looking at a statute like this, to say well, this is good.

A transient majority of Congress may say look, this is very good for the state of Mississippi, and what we'll do is we're going to tell the state of Mississippi what they are going to do.

That makes it easy.

But it completely destroys the concept of Federalism.

I'm not looking now to my public service commissioners to implement state law.

The public service commission is the one that gets called when the rates go up.

The burdens should not be placed on them unless they have consented to, by the electorate in the state of Mississippi.

Mr. Lee: What specifically do you object to?

The fact that... the Act saying that they must consider certain things, put certain things on their agenda?

Mr. Alston: Mr. Justice White, they completely set up an agenda for the state of Mississippi, and I was just going to go over that before the question was asked by Mr. Chief Justice.

It starts out in Section 111,

"The state of Mississippi is ordered."

You are hereby required... Section 111 says... to consider very, very complicated rate-making standards.

Okay.

Section 113 says "You must" you are absolutely required, public service commission, to consider all of these other standards, six or eight standards.

Turning now to 302, 303 in the gas section, it says "You must" consider all of these standards.

Not only that, if the Court please, it tells you the procedure.

It sets the agenda for my public service commission, tells of the procedures that I have to follow.

Also, if these procedures disagree with what the procedures of the Act are, they override state law.

It's interesting, too, the Act says, that the purposes of this Act supplement state law.

Difficult to me to see how the federal government can supplement the state law to give our public service commissioners additional discretion.

But the Act goes further.

They mandate, they order that we do this, they tell the procedures that we're going to have to follow.

In addition to that, if you turn to Section 115, if the Court please, it says, here's the evidence you've got to look at when you consider these standards.

You go to 210... 210 is not just a minor section of the Act.

It says the state tax commission shall give notice and hearing and implement the rules as promulgated by the federal government, in connection with 210.

As far as any enforcement of the Act is concerned, I submit that the Solicitor General was just wrong in his answer to the Court, because as a matter of fact, under Section 123 it says any person can enforce upon the state tax commission what the Act is about.

You turn to the Conference Report, and I just happened to open to it when the Solicitor General was speaking... the Conference Report says specifically, this enforcement provision of obligation of state regulatory authorities and non-regulated utilities to hold hearings, to make... comply... requirements A and B.

They are reviewable under the orders of this Court, and they may be forced... the enforcement provision contemplates enforcement by writs of mandamus.

Furthermore, under--

Mr. Lee: Does the Act mention that in a--

Mr. Alston: --Yes.

The Act, in 123, if the Court please, says they can enforce these provisions; any person can enforce these provisions.

Mr. Lee: --What does that mean, can enforce the provisions?

Mr. Alston: I don't know, except what the Conference Report says, Your Honor.

Mr. Justice White, the Conference Report says they can enforce it by writs of mandamus or other proceedings.

Mr. Lee: Well, any person couldn't do that without a case or a controversy.

I mean, just some wiseacre off the street couldn't go in and enforce it.

So who--

Mr. Alston: Yes.

The statute says any person, including the Secretary, speaking of the Secretary of Energy may bring an action to enforce the requirements of this title in the appropriate state court.

Mr. Lee: --In the appropriate state court.

Mr. Alston: Yes.

Mr. Lee: So he could bring an action in his own name against the regulatory commission seeking an order or an injunction or a writ of mandamus to make them carry out their obligations under the Act.

That's the way you read the Act.

Mr. Alston: That's exactly the way I read it, if the Court pleases.

Mr. Lee: Has any such action ever been brought, do you know?

Mr. Alston: Not that I know of.

Furthermore, under Section 210... that's under Titles I and III.

Furthermore, under Section 210 they are subject to civil and criminal penalties, they are subject to any penalty under the Federal Power Act.

In turning to the Federal Power Act, refusal to comply with the provisions would subject you to the penalties under that.

Mr. Lee: If the Act had said we request, rather than order, and some state utility commission had complied with the request but rejected all... and went through the motions but then... would you object to the Secretary having the right to appeal and challenge the agency decision?

Mr. Alston: I believe I would, Your Honor.

Mr. Lee: Under the Tenth Amendment?

I know you object to it, but would--

[Laughter]

Mr. Alston: Yes, I believe, because... Mr. Justice White, are you talking about the intervention in the court proceedings and appeal from that?

Mr. Lee: I meant he can appear before the agency, I gather.

Mr. Alston: Yes, sir.

Mr. Lee: And suppose the agency has voluntarily gone through these motions.

They have been requested to but not ordered to, and they go through the motions.

They consider all these things.

They reject them all.

And the Secretary says, well, you certainly made a mistake; I'm going to go to court, I'm going to take you up.

And they say go ahead.

Would you say that's unconstitutional?

Mr. Alston: I think it would.

The fact that he can intervene in my state proceedings, and the fact that this is not consistent with the law of the state... you have to have a hearing, a determination, whether someone can intervene in any state proceedings, if the Court please.

That flies in the face of the principles and the procedures of our courts.

And then if he could appeal any of these decisions,... as a matter of fact, this appeal causes me some concern, Mr. Justice White, because if, really and truly, the federal government didn't care whether these were implemented or not, if they did care, why did they give them a right to appeal?

Mr. Lee: Well, what do you conceive the issue to be on appeal, say, before one of your state courts?

Or do you ordinarily hear an appeal from the utility commission?

Mr. Alston: I guess the issue on appeal would be whether or not the decision of the public service commission was arbitrary or capricious and not based on the proper standard, if the Court please, not based on substantial evidence.

Mr. Lee: So you think it would just be the ordinary state standard, and would vary from state to state, I suppose?

Mr. Alston: It would vary from state to state except that the procedure itself would be highly changed in connection with the state in the proceeding before the public service commission.

Because the rules of evidence and every other part of it would go into the question of whether or not the action was reasonable or based on substantial evidence.

Mr. Lee: I gather from that, the ultimate decision of your highest state court would not be reviewable here?

Mr. Alston: I think it would be reviewable under the Act all the way up to the United States Supreme Court, as by writs of certiorari and otherwise.

Review of the action in the Supreme Court in accordance with Sections 1257 and 1258--

Mr. Lee: Well, what federal question would there be?

That's what I... For 1257 there would have to be a final decision on the federal question, wouldn't there?

Mr. Alston: --A federal question would be perhaps, if we said we would not let the Secretary of Energy intervene, perhaps.

That--

Mr. Lee: Maybe, but he intervenes.

He intervenes and the court affirms the rejection of all the federal standards.

Federal question?

Mr. Alston: --Secondly, if the Court please, we fail to follow the standards as set out in 115.

We were mandated under this procedure to follow the federal guidelines, as they told us.

We failed to do that.

It may be a federal question involved--

Mr. Lee: Whether or not you did violate something by what you did might be a federal question.

Mr. Alston: --Yes, sir.

Mr. Lee: I didn't understand you were required to follow them.

Just consider them.

Take, for example, the--

--But you have a routine of how you consider them.

Is that it?

Mr. Alston: Yes.

Mr. Lee: Is that what you're talking about about the guidelines?

Mr. Alston: Yes, you do have a routine.

If you take, for example, the master metering standard, you would have to consider the master metering standard, and you're required to do it.

You have to then--

Mr. Lee: Say you considered it and you said we don't like it, it doesn't work well in Mississippi.

Wouldn't that discharge your federal obligation?

Under Title I, that is.

Mr. Alston: --That's true.

Mr. Lee: Let me ask.

Could a consumer in Mississippi raise the same question in some of your agency procedures?

Could a consumer come in and file a petition and say I'd like to ask the commission to adopt a rule against declining block rates, or whatever they are, time-a-day rates--

Mr. Alston: I think the rule is 25 consumers under certain procedures, under the procedures set up by the court, could come in and ask for changes in the rules and rate-making--

Mr. Lee: Would it have been constitutional for Congress to pass a statute saying that the Secretary of Energy can direct 25 federal employees within the city of Jackson to file such a petition?

Who are all consumers.

Mr. Alston: --I don't know that I know the answer to that question.

Mr. Lee: Under the procedures, you'd be required to consider the standard.

Mr. Alston: Yes.

If 25 consumers came before them, they would have to make the decision of whether or not they wanted to proceed further with whatever was before them, the agency, at that time.

If it please the Court, we contend that this... the manner in which this Act was written is most unique.

They did not follow, the federal government did not follow, the provisions as they followed, or the scheme that they followed in all of the other regulatory provisions.

They gave the state the option of whether or not... as they did in the Surface Mining case, if the Court please... the option of whether or not they would desire to follow the procedures or not, and gave them the right to get out.

They didn't want to.

Under those circumstances, the federal government, at that point, would take over the whole administration of that area.

This is entirely different from what we are talking about today.

As a matter of fact, I have been trying to find some statute or some authority... and certainly the Solicitor General hasn't given me any authority... that would be constitutional where a statute is mandated on a state regulatory commission and they are required to follow the mandates of that statute.

And as a matter of fact, they commandeer the public service commission's machinery into going about this Act.

The only cases that I think I saw that are closest to it were the EPA cases that came up to this Court in EPA v. Brown.

Mr. Lee: I'm not sure you really mean your statement.

There are a lot of federal laws that forbid a state agency from doing certain things.

Mr. Alston: Yes, sir.

They may be state laws that forbid, but I don't--

Mr. Lee: Federal laws that forbid state agencies from doing certain things.

Mr. Alston: --There may be, if the Court please, statutes that forbid state agencies from doing certain things where there is a conflict.

But I know of no case.

Mr. Lee: Well, all right.

That makes a conflict.

If the prohibition is constitutional, that is a conflict if the state agency purports to do something that it's forbidden to do.

Mr. Alston: Yes, sir.

The point that I--

Mr. Lee: I know that this is different.

Mr. Alston: --Yes, sir.

The point that I 'm trying to make, I know of no statute and I have seen no case where affirmative burdens are placed on an administrative agency of a state.

Mr. Lee: Have you been able to find any other statute like this?

Has there ever been one, do you know?

Mr. Alston: I don't know of any statute like this.

The closest I can recall are the EPA v. Brown that came before this Court.

As you recall, in that case, the--

Mr. Lee: I know, but the state still had an option.

Mr. Alston: --The issue was, in that case, whether or not the administrator of the EPA could require the state to implement certain rules and regulations.

Mr. Lee: That's right.

Mr. Alston: The Solicitor General admitted that it could not do that, and therefore, this Court held, I believe, in 1977 that the issue was moot.

The only other time that I can recall anything that has been considered, if the Court please, is when Congress was attempting to pass no-fault insurance.

And I remember that the then-Attorney General Edward Levy was asked what his opinion on the constitutionality of requiring certain affirmative obligation on the state, and he was quick to tell Congress in those hearings that indeed, they could not.

Mr. Lee: Mr. Alston, would you agree that at least some portion of Section 210 simply preempt, as a matter of federal law, some applicable rules and don't pose a Tenth Amendment problem?

Would you agree with that?

That certainly some sections of Section 210 don't have that kind of a--

Mr. Alston: Your Honor, I do agree with that.

I think Section (e) could have been passed separately, and I think that would be severable, so that the small power plants and the cogeneration could be exempted from the Federal Power Act.

I would think that primarily 210 was executed so that the federal government would implement these rules and the states were forced to comply with these rules to see that the utilities followed the federal mandate.

Mr. Lee: --Do you think that Section 210 would significantly hinder states in their ability to perform other functions?

Mr. Alston: I think that they would significantly impair the state of Mississippi and the public service commission in their choices.

Section 210, they have not chosen to go into the area that's mentioned in Section 210.

As a matter of fact, they don't even have authority to go into... in some of the areas that are mentioned in 210, they have no jurisdiction whatsoever over interstate rates.

For example, in purchasing power from a small power plant, that would be an interstate transaction, as I understand the law on it.

The only authority the Mississippi Public Service Commission has would be to... for the regulation of interstate rates.

Mr. Lee: Do you think that Congress could say not only consider these, but what if Congress just said we find that it is essential to regulation of commerce that in ratemaking, state public utilities commissions shall follow the following standard.

And it just says what the standard is.

They don't say consider it, they prescribe it.

Mr. Alston: Do I consider that to be constitutional under the Tenth Amendment?

No, sir, I would not.

If they say you will follow, Mississippi Public Service Commission, you will follow these standards, I would consider that to be an impermissible intrusion on the sovereignty of the state.

Mr. Lee: Well, would you say that a... there are a lot of federal laws that affect the rates that a public utility commission can allow.

Mr. Alston: I'm not familiar of any such law.

The interstate rates that are promulgated by the Mississippi Public Service Commission are promulgated under the authority of the Mississippi Public Service Commision, and I don't know of any federal law that would change--

Mr. Lee: Do you think the federal law could limit the ratemaking activities of the... say in the railroad business?

Mr. Alston: --I would think if there were a finding of Congress that, of course, that intrastate railroads have a significant effect on interstate commerce.

And--

Mr. Lee: I'm just saying now there is such a finding.

Mr. Alston: --Yes, sir, and they preempted that area of regulation.

Mr. Lee: They didn't preempt it; they just said, here is the standard you will use.

Mr. Alston: Under those circumstances, I believe that it would be unconstitutional just because... and I disagree with the Solicitor General on this point... just because the federal government could preempt an area that is in its constitutional power to do--

Mr. Lee: Well, it does, in a sense, preempt.

It says, here is the standard you will use.

Mr. Alston: --If Congress wanted to preempt the area, and take over all of the regulation of all of the utilities in the state of Mississippi, under those circumstances of course they could.

But it's a different thing I think, Your Honor.

I think it touches on sovereignty, the very sovereignty of the state of Mississippi.

The action is directly against the state as a state, it touches I think on attributes of sovereignty.

Mr. Lee: Let me put this slightly different question on what Justice White asked.

Supposing Congress passed a law saying that declining block rates shall be prohibited throughout the United States because we make findings that they use up too much energy?

Could they do that?

Mr. Alston: It's a possibility.

That's not putting an affirmative burden.

Mr. Lee: Well, it's an affirmative prohibition.

Could they say, then, we will require time-of-day rates in all parts of the country because they are in the interest of conservation?

Every state must have time-of-day rates.

And then if you say yes, to that, could they then say they must put them in effect unless they first consider them and decide not to put them in effect?

Would that be constitutional?

Mr. Alston: I don't believe so, Mr. Justice--

Mr. Lee: Then that crosses the line?

Mr. Alston: --Yes, sir, I think that would cross the line and be unconstitutional.

Mr. Lee: Well, what was your answer to Mr. Justice Stevens on there will be time-of-day rates everywhere?

Mr. Alston: Well, I would not--

Mr. Lee: And all the findings that you could possibly think of are made in this statute.

Mr. Alston: --That there will be time-of-day rates across the United States of America.

Mr. Lee: That's it.

And the necessity for it is spelled out in the findings.

Mr. Alston: That perhaps would be constitutional if that was... if they didn't tell the state tax commission how they had to implement the rules or how they had to go about the rules and it was certainly just the statement that everybody had to--

Mr. Lee: Well, suppose that the... let's say that that kind of a requirement would be constitutional.

And suppose a utility commission refused to put in time-of-day rates.

You apparently, if you say that rule was constitutional there must be some enforcement mechanism.

Mr. Alston: --I don't know of any enforcement.

Mr. Lee: How about the Solicitor General's Testa v. Katt reliance?

There, certainly, the federal government prescribed a rule of decision and said a state court had to follow it.

Mr. Justice Rehnquist, I don't think Testa v. Katt applies at all in this case.

As I read the case, I see it is that a state court simply cannot discriminate in a federal cause of action if they hear state causes of action under the same cause.

Of course, the statute that we're talking about goes much further.

The statute that is before the Court today, it first is an administrative agency, it is not a court, to start off with.

This is a legislative functioning, it's ratemaking, it's legislative in Mississippi, and these are affirmative burdens placed on the Mississippi Public Service Commission.

That's a far cry from what Testa v. Katt is being cited for.

Secondly, it would seem to me that certainly, the public service commission wouldn't even have jurisdiction over the question of wholesale rates in that connection, and certainly Testa v. Katt would never say that you can force jurisdiction on a court such as this.

There's no doubt that a statute such as we are talking about is attractive to Congress.

I can see where they can say that they do not want to take care of the burden of enforcing it, and put it on the states to enforce.

This is where we say that you run into the questions of Federalism, and this is where we say that we run into trouble.

Mr. Alston, the statute may also be more attractive to many states than the alternative of total federal regulation, wouldn't you say?

Mr. Alston: I don't know whether it would be more attractive or not.

I don't know how to answer that question.

I know it's not more attractive to the state of Mississippi.

I know it's not more attractive to the state of Louisiana, that also has filed an amicus brief in this case.

Mr. Lee: Federal preemption would be preferable, then.

Mr. Alston: No, I'm certainly not saying federal preemption would be preferable.

But I'm making the distinction in opposition to what the Solicitor General.

He said if you could preempt, of course, you have authority to do all of these things against state agencies.

I say that just does not follow.

Certainly, if you preempt that puts the burden on the national government.

Under our system of Federalism I know who to look to for my rate structure.

Mr. Lee: I suggest to you that there is that middle ground of preemption, and instead of taking over the whole regulatory job you just mandate a series of standards that must be followed.

There shall be time-of-day rates everywhere, or, they go right through the list.

They say this is what the rule of the game is.

That doesn't... and if that's constitutional, that doesn't mean the federal government is taking over the regulation.

Mr. Alston: But what it does, Your Honor, I think it runs completely afoul to the three tests of Hodel.

first, they are telling the state as a state what to do.

Certainly,--

Mr. Lee: They tell them the rules of the game, that's right.

Mr. Alston: --And they're telling them how to follow it, the rules they've got to play, what they've got to consider.

They've got to let anybody intervene under the rules.

As a matter of fact, the purposes supplement state law, the procedures would override state law.

In addition to that, it involves attributes of state sovereignty.

That's the paradigm of state sovereignty, the ability to pass laws and to pass regulations.

Thirdly, we contend that it significantly impairs the ability of the state--

Mr. Lee: Is a highway patrolman in Mississippi bound to enforce the 55 mile speed limit, or do you know?

Mr. Alston: --Yes, sir, he is.

Of course, that's under a spending clause, under clauses where if we take money from federal funds, we--

Mr. Lee: You mean, except for that, he isn't.

Is that it?

Except for the fact that they are in part supported by the federal government?

What about... is a state officer required to enforce--

Mr. Alston: --Yes, sir, would be to enforce the mile an hour speed limit.

Mr. Lee: --Even if it isn't tied with a grant for federal highways?

Mr. Alston: If it was not tied to the grant to federal highways, I don't know that he would be.

Mr. Lee: Well, if the 55 mile an hour speed limit is one promulgated by Mississippi because it feels that otherwise it would lose its federal highway entitlement--

Mr. Alston: That's true.

Mr. Lee: --Let's assume... I took Justice White's question to be... that if there were no grants involved and this wasn't a quid pro quo, a condition of the grant, if there is a federal statute for 55 mile speed limit for the purpose of conserving gasoline and energy in the national interest, in your view, must Mississippi enforce that or does it have a choice?

Mr. Alston: I don't know if it would be necessary that it enforce that obligation.

I am not sure that you can force a state officer to enforce a federal regulation of that nature.

Mr. Lee: Even if they're related to commerce and the national security?

Even if they have made that claim?

Mr. Alston: And the 55 mile speed limit is applicable to all of them?

I would think then under those circumstances that he would, if the Court please.

Mr. Lee: Would be enforced?

Mr. Alston: Yes, sir.

Mr. Lee: Mr. Alston, let's back up a minute.

Doesn't your public service commission feel itself bound by the Due Process Clause of the Constitution?

Mr. Alston: I think we all are bound by the Due Process Clause.

Mr. Lee: So that's... so it's not absolutely free.

Mr. Alston: That is absolutely so.

We are bound by the Due Process Clause of the Constitution.

And the public service commission--

Mr. Lee: I hear you talking about mandamus.

Do you have mandamus in your state laws?

Mr. Alston: --Yes, sir.

Mr. Lee: Right now.

Mr. Alston: Yes, sir.

Mr. Lee: So that's not anything new, either, is it?

Mr. Alston: Mandamus is an old remedy, if the Court please, that we have followed for a long time.

Mr. Lee: I thought so.

And it would apply against the public service commission under the right state of facts.

Mr. Alston: And under the right state of facts, they could.

Mr. Lee: And without this provision you read from the report.

Mr. Alston: Mandamus would apply if the public service commission did not comply with administerial duties in doing certain things; the writ of mandamus may just apply.

In conclusion, I just wanted to state that certainly, it's no question the government recognizes that these mandates are forced on state's estates.

Certainly, the right to make the laws of the state of Mississippi, certainly the right to promulgate the regulations of the state of Mississippi, is an attribute of sovereignty.

That is the attribute of sovereignty.

We further contend that certainly, this impairs, the Act impairs the ability of the state of Mississippi to structure its integral operations in area of traditional functions, and this is indeed a traditional function.

Chief Justice Burger: We will resume there at 1:00 o'clock.

Mr. Lee, do you have rebuttal?

ORAL ARGUMENT OF REX E. LEE, ESQ. ON BEHALF OF THE APPELLANTS -- Rebuttal

Mr. Lee: Two brief matters.

First of all, the FERC regulations were promulgated in February of 1980.

Second, and finally, aside from whatever this Court's decision in National League of Cities and Towns v. Usery, may mean in another context, we simply submit that it should not apply whereas here, you have a true example of cooperative Federalism, where Congress is sharing some of its authority with the states in the interest of both federal and state government and out of plea in response to the request of the states.

And that, at a minimum, must be what this Court's articulation of a balancing test, both in National League of Cities and Towns and also in Hodel, means.

With regard to Titles I and III, Congress clearly could have set the rates if it had chosen to do so.

What an anomaly it would be if the Tenth Amendment were to become the vehicle for preventing Congress from responding to state pleas for flexibility and experimentation in the perceived interest of both federal and state governments to give states a larger role in that particular governmental function.

With regard to Section 210, Mr. Alston distinguished Testa v. Katt on the ground that no state functions were displaced.

Really, they haven't been here, either.

The states are given several options as to what they can do, but they are not required to bring into existence any new entity of government.

They are not required to have any of their existing public service commissions perform any functions that they are not now performing.

The obligation imposed by Section 210 and the implementing regulations can be performed by simply entertaining disputes before appropriate adjudicatory entities.

And that does not mean that any new entity must be brought into existence.

That point is made, for example, with respect to Nebraska, which has no public utility commission with authority to set rates.

In Nebraska, presumably, that responsibility can be performed simply by entertaining that kind of suit before the courts.

And that, at a very minimum, is what Testa v. Katt says.

And in that respect, Testa v. Katt is indistinguishable, that states are simply required to observe a federal rule of decision that is prescribed by the federal government but to be observed in state proceedings.

Mr. Lee: In that respect, you analogize it, I suppose, to the 55 mile an hour hypothetical that we proposed.

Mr. Lee: Yes.

And clearly, Mr. Chief Justice, if the federal government has the authority under the Spending Clause to impose that kind of an obligation on the states, then clearly, under its--

Mr. Lee: Would that be purely under the Spending Clause, or under the Commerce Clause?

Mr. Lee: --Well, the Spending Clause or the Commerce Clause.

Then clearly, if you take into account the kind of balancing and recognition of the comparative weights of federal and state interests, particularly where in many instances, in the view of many states in this case, they are identical, then Congress certainly, in light of that balancing approach, should have that kind of flexibility.

And if it has that kind of power under the Taxing and Spending and the Commerce Clauses over a 55 mile an hour speed limit, then clearly, under its powers over national security it should have the flexibility to deal in as cooperative Federalism approach as it has in 1978.

Mr. Lee: Mr. Solicitor General, are you disturbed at all by the breadth of the Standing Clauses in this statute?

Clauses that provide standing for, in one section, any consumer of electricity, which means every citizen, really; and in another section, standing for any person providing attorney's fees and other reasonable expenses?

A field day for lawyers, at least.

Are there other federal statutes that have gone that far in changing the state rules of standing before regulatory commissions, or courts?

Mr. Lee: Well, of course, those are problems that will have to be worked out on a case-by-case basis as those matters come before the state.

Since most of the proceedings are going to be in state court, it is not the Article III case or controversy requirement that will apply, but rather, state rules.

And in my view, they're governed by state law.

Thank you.

Chief Justice Burger: Thank you, gentlemen, the case is submitted.

Attribution:

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Featured:

Firemen v. Chicago, R. I. & P. R. Co. - Oral Argument

Thu, 23 Aug 2012 18:10:50 +0000

Case:

Firemen v. Chicago, R. I. & P. R. Co.

Media File:

16_19681022-argument.mp3

Related Transcript:

16_19681022-argument

Transcript:

Argument of James E. Youngdahl

Chief Justice Earl Warren: Number 16, Brotherhood of Locomotive Firemen and Enginemen et. al., appellants versus Chicago, Rock Islands and Pacific Railroad Company et.al.

And Number 18 also, Robert N. Hardin, Prosecuting Attorney for Seventh Judicial Circuit of Arkansas versus the Chicago, Rock Islands and Pacific Railroad Company.

Mr. Youngdahl?

Mr. James E. Youngdahl: Mr. Chief Justice, may it please the Court.

This was an action by six large railroad companies in a three-judge federal court in Arkansas against officials of the State of Arkansas charged with enforcing two statutes.

The first applies to companies with it at least 50 miles of railroad track, when those companies are operating freight train with 25 cars or more, required the crew of an engineer of firemen, a conductor, and three brakemen.

The second statute applies to railroad companies with at least a 100 miles of track, when operating a switch train over public crossings in urban communities.

It requires a crew of an engineer, a fireman, a foreman and three helpers.

I represent four Railroad Brotherhoods which were permitted to intervene in the lower courts, speaking for the employees affected by these statutes of full crew laws in question, and our defendant interveners, the defendant appellants in this case.

At this stage of a case, it's the second time this case has been here, at this stage of a case, there are four constitutional issues.

The court below found that the statutes violated the Due Process Clause of the Fourteenth Amendment and constitute an impermissible burden of interstate commerce.

The railroads also urge in this appeal that there are classification infirmaries in the law in violation of the Equal Protection Clause and indiscrimination against interstate commerce.

The normal statement of the case would not apply in our view to this controversy because it has been 50 or 60 years long, when the opinion of the Court has written in this case, it will be the eleventh entry in the United States' reports on exactly the same Arkansas statutes.

There's been extensive substantive discussion of the same constitutional issues involving the same statutes in five previous opinions of this Court, all of which upheld the legislation challenge.

But evidently, the railroad resources are inexhaustible, and we are back again arguing substantially the same issues in 1968.

The first case on the particular statute was in 1911, where the freight crew statute was upheld against three constitutional contentions.

The railroads there argued that with automatic couplers and air brakes, a third brakeman was unnecessary and required an expenditure of a needless amount of money.

Generally, the Court found and held that those questions even then were concluded by former decisions involving railroads and involving similar constitutional issues.

As to the Commerce Clause, we found no violation until Act of Congress displaces the legislation; as to equal protection, several previous decisions involving mileage classifications were noted; and as to due process, the Court found some room for controversy, but found the statute were to remain to the object for this legislature had in view.

So, even if deemed unwise, where the court would not be overruled by the Court.

The 1916 case in this Court involved the switch crew statute.

More summarily, the railroads again, this Court again upheld the statute in question.

This time there were again Commerce Clause, equal protection, and due process argument.

The only new facts that the railroad brought up with respect to that statute in 1916 was that the switch crew statute does not apply to train of a 25 car length.

And that the exemption results in the fact that the covered railroad switch over the same crossing as non-covered railroads, therefore, having classification infirmities.

The Court know that's impossible for legislation to be all comprehensive, that the grouping was reasonable and the statute should be upheld.

The next attempt resulted in the Norwood decision of this Court in 1931.

This time there were four constitutional arguments: due process, equal protection, Commerce Clause, and the Supremacy Clause, arguing at the Railway Labor Act of Interstate Commerce, Comission regulation that preempted the laws.

The railroad made some new factual contentions, saying if there was improvement in road and equipment, that some collective bargaining agreements permitted a smaller crew, and that other states had smaller crews and operator law rights.

This Court found there was no preemption by the Railway Labor Act.

The other constitutional issues were in substance resolved.

And as a matter of fact, if bad faith of a litigation, dismissed the complaint with an extensive discussion about cost of compliance, pointing out if the railroad have completely failed to show that relative cost of compliance had increased.

That case was in trial on the merits before a three-judge court in the West District of Arkansas in 1933.

The Court after a long trial and extensive consideration issued a long and comprehensive decision going down fact by fact of Arkansas railroading but the three-judge court at that point thought that the issues were limited by this Court to a due process challenge of change of conditions and increased relative cost of compliance.

Both of those arguments so restricted were rejected by the West District of Arkansas which upheld the statues, this Court affirmed in a memorandum opinion of the same year.

The next discussion by this Court of the same statute in question was in the Landmark Southern Pacific against Arizona case in 1945, where while a train length statute of Arizona was invalidated by this Court, this Court in our view took great pains to distinguish the full-crew law decisions to point out for example that those laws do require such impediments of interstate commerce, which are stopping a state lines to pick up crew members.

But that those impediments were not of a kind, it made them constitutionally invalid, and pointed out that there in lay the distinction with the Southern Pacific against Arizona burden on commerce kind of rule.

The next consideration by this Court of the Arkansas full-crew law was in 1966, in this same case.

And I suggest that the off coast to the court on the preemption issue, which was the primary question at that time, the lower court had ruled against this on preemption, and we appeal and this Court reversed.

And in considering a preemption question, the opinion of Mr. Justice Black noted particularly that in view of Norwood and the previous cases, that even the preemption issue was presented narrowly, that it has specific things happens since 1933, to change the 1933 decision about preemption.

The Court found in the '61 decision, it had not.

The law was upheld, the discrimination against the interstate commerce argumentally with the railroads in 1966 was also rejected on the record before the Court at that time.

Further, all recent reported decision on the same issues by course of other jurisdictions, outside of a decision we're appealing from here today, have upheld the constitutionality of similar laws.

The Indiana Supreme Court refused even to take evidence on change of conditions, saying it's a matter for the legislature.

The Ohio open courts rejected all the identical constitutional contentions.

The New York Courts were extremely persuasive opinions, analyzed at great length that New York full-crew statute is very similar to those of Arkansas at time of the trial, rejected the railroad arguments, upheld the statutes.

It was affirmed by the appellate division, and about two weeks ago, it was affirmed 4 to 3 by the New York Court of Appeals.

The record here is massive and it is extremely difficult to brief or argue the detailed facts of dozens and dozens of witnesses who gave opinions and reasons for their opinions.

Pages and pages, and exhibits and huge exchanges of information about railroading.

I question whether would be advisable in any event to reiterate the intensive discussions about the duties of firemen, duties of brakemen and switchmen.

That discussion has been engaged in so many times by so many tribunals and have been substantially the same that there's argument on both sides, that there is room for judgment by reasonable men on both ways.

The judgment in this instance of the State of Arkansas on its legislative process was that it is important to the safety of the state to have these statutes.

As to the duty of the fireman, the most notable kind of situation is that firemen, in the sense of a man shoveling coal into a great have long time seized.

The firemen in the sense of maintaining the mode of power, providing inspection and lookout in relief and emergency duties have under sophisticated modern conditions of railroading have and continued to exercise is extremely important functions.

As to brakemen, the outstanding conclusion from the extensive record in this case is a brakemen do substantially now what they get in 1933.

They do a substantially, then the Court said what they did in 1916 and 1911, the previous analysis of this statute by this Court.

As to equipment and facilities, the evidence is that certainly there have been some improvements in railroad conditions, railroad equipment or railroad facilities.

Certainly as well, there have been some factors which have made railroading more dangerous than railroading was in 1933 and 1960, and 1911, and 1945.

There are faster and longer, and heavier trains, which are deteriorating, and deteriorate the equipment and the crossings over which they pass.

There is this factor combined with items like heavier highway traffic, the school bus program, for example in Arkansas, the record shows, was unknown at the time of the Norwood case.

Now, it's a large program involving the transportation of hundreds or thousand of children over the crossing of these trains passed.

Justice Harry A. Blackmun: Mr. Youngdahl, I gather your position is that whatever maybe the merits and all of these arguments or the bearing of these facts upon the question, it's nothing for courts to be concerned with that the Arkansas legislature is (Inaudible), is that it?

Mr. James E. Youngdahl: Yes Your Honor, that's the most important aspect of our argument.

Justice Potter Stewart: That is your argument with respect to the due process claim.

Mr. James E. Youngdahl: That is also our argument with respect to the burden on commerce.

Justice Potter Stewart: Well, it's not for the Arkansas legislation that it's determined, how much to -- in its unbridled discretion, how much to burden the interstate commerce, is it?

Mr. James E. Youngdahl: That is certainly true, Your Honor.

My response to that would be this, that the first evaluation is by the Arkansas legislature.

The second evaluation is judicial if it has not had held from Congress.

In this instance, there is a legislative evaluation of a kind of thing which this Court did in Southern Pacific against Arizona for example.

The intensive/extensive evidence was taken on the importance of crews to safety before Congress.

And the last decision of this Court analyze some of that legislative history.

Congress decided expressly, at least in expressed legislative history, not to preempt, still this Court found.

The reason for that decision, we would submit is a determination on the merit if there's some ground for states making these decisions.

I would suggest that that would be of considerable impact of the evaluation of this Court, even under the burden on commerce argument.

We contend that there are --

Justice Potter Stewart: What were the other claims that you have to meet?

Mr. James E. Youngdahl: Equal protection and --

Justice Potter Stewart: And discrimination against (Voice Overlap).

Mr. James E. Youngdahl: Yes Your Honor.

Perhaps I might refer briefly to them right now because I had not intended to later on.

Both of them say that they are classifications, which are somehow rigid.

Perhaps the cases aren't firm.

Our first argument as to those is that those questions have been resolved before.

The primary basis for the exemption argument, the 50 and 100-miliage of track made by the railroads is that exempt company switch over the same crossings is non-exempt companies.

This exact point was discussed and was a major element of discussion.

In the 1916 Arkansas full-crew case in this Court, St. Louis Iron Mountain, Southern Railway against Arkansas, fighting that while -- maybe the classification wasn't perfect.

There seem to be a considerable differences between 50-mile and a 100-mile railroads and large railroads.

There was a fact --

Justice Potter Stewart: (Voice Overlap) what happened to the Equal Protection Clause since 1916.

Mr. James E. Youngdahl: Well, that is true Your Honor, but a good deal has not happened in our view to Arkansas railroading with respect to that kind of fact.

Justice Potter Stewart: Well, what is this -- what's the length of the total line have to do with safety as in individual crossing?

Mr. James E. Youngdahl: Well, we can think of several things, the record shows the following kind of fact.

The smaller companies have lower speeds, whereas the companies that are appellees in this case go 75 miles an hour.

The only evidence in the record on the exempted company shows speed limits of 35 miles an hour for the company I happen to recall.

The evidence shows that the railroads represented as the appellees in this case have trains of a 150 cars long.

Whereas the trains represented by the exempted companies, the record shows, have consistently shorter trains.

For example, it is customarily the movement of one or two, or five, or seven cars of this Court in Southern Pacific against Arizona, recognizing -- recognized the increase danger involved in longer trains.

The 50-mile railroad company exemption has been repeatedly upheld by this Court.

And in 1950, in Morey against Doud, this Court observed that there was particularly, that that 50-mile railroad exemption was a kind of classification, which was sustainable as contrasted with the classification which was involved in that particular case.

Justice Potter Stewart: This -- these exemptions are what -- to refresh my recollection, 50 miles and also domestic corporations, is that it?

Mr. James E. Youngdahl: No Your Honor, something of a sort, purely 50 miles and 100 miles.

Now, after the interstate as against intrastate discrimination argument, there is not a perfect correlation --

Justice Potter Stewart: That could also be called as opposed as an equal protection argument, as well.

Mr. James E. Youngdahl: Either way it's in classification is infirmed in some way.

Now, as to those arguments, the record in a number of respects shows important distinctions.

Furthermore, the interstate/intrastate dichotomy does not fit the exemption dichotomy.

In other words, there are interstate railroad not covered by the statute because they do not have 50 or 100 miles of line and vice versa.

And so it is not a perfect as the railroads would probably suggest, but the facts of the record show that it's not.

Again, it seems to me that the class of that particular railroad classification principle by mileage of track has been upheld for a hundred years in respect to regulatory statutes and safety statute by this Court.

Justice Potter Stewart: Did the New York -- did the recent New York decision deal with classifications like that?

Did the New York law have a comparable classifications?

Mr. James E. Youngdahl: Yes Your Honor and the long opinion in the case of the opinion of Supreme Court, the trial court, which is a very careful discussion of that to deal in detail with it, I do not recall whether or not the Court of Appeals refer to that particular thing or not.

One further aspect to the 50 to 100-mile classification, which would support the classification that such in our view, the railroads have make a great argument of the fact that the cost of compliance is high.

I would like to say something about that in a moment, but if the cost of compliance is a factor and clearly it could be, the smaller railroad companies as I suppose are less able to assume the cost of compliance with these statutes and that might legitimately be a factor in a classification, not one which we would rely on wholly but certainly a factor.

Outside of the multitude of evidence on the duties of employees and the equipment and facilities of the railroads, the most persuasive part of a record altogether in our view is a mass of statistical material.

This is the first time in Arkansas full-crew law cases of a many that have been in this Court and the first time in any full-crew law case and other jurisdiction that I know of, where we now have experienced to look at, because in April 1964, with the effect of the 1963 legislation of Congress, railroads did in fact reduced their operating crew substantially.

Most firemen were taken off at a very rapid rate and a good many in a slower rate, brakemen and switchmen were taken off.

As a result of that, we have now a period of time to look at and I submit that the statistics from this period are most persuasive about the connection between these statutes and safety.

And at the very least, establish the right of the Arkansas legislature and the Arkansas people, because it's also been voted on populatory in Arkansas to make the cause and effect determination, resulting from those statistics.

Clearly from this evidence that railroading is a very hazardous business and continues to be, clearly number two, that beginning in April 1964 many crewmen have been take off of trains nationally, large percentage dropped.

Three, clearly since April 1964 or May, railroad accidents have increased substantially.

And number four, that when you analyze those accidents and you find those that are most attributable to crew side and crew performance, those accidents have increased, especially and the rate of those accidents have increased especially.

Now, a causal -- a cause and effect decision we say as primarily legislative, but there are some things to assist in that kind of evaluation here.

For example, collisions, it is conceded by all the parties that collisions are that type of accidents, most attributable to crew performance.

Accidents went up -- have gone up for a period of time, but beginning exactly at the time when many most firemen were taken off of freight trains in this country, collisions sky rocketed.

The rate of increase changed entirely as to collisions.

For example further, causes of accidents, causes such as disregard of stop signals, failure to secure handbrakes, running through switches, failure of the engineer to keep a look out, that kind of thing, most attributable to employee performance.

The rate of such accidents, accidents from such causes also rose sharply beginning in April or May 1964, extremely important causal factor.

Now, the railroads are hardpressed to answer this kind of testimony.

They answer it partly by using improper statistical techniques.

For example, let's say casualties have not gone up, because they measure casualties by billion grossed ton-miles.

A kind of exposure factor which no one else uses and even the railroads and other context, the record shows do not use.

They compare one year with another one year, instead of comparing periods of time.

The claimant there had been reporting defects and that the amount of train accident, dollar damage, in order to justify a report has stayed constant for the last several years.

But the fact that the Department of Transportation of the United States Government has found a startling and alarming rise and it repeatedly has told Congress that we need assistance in the railroad accidents field, which in the last few years had become more and more serious to the point of real dangerous calamity.

They say that the accident rate was increasing all along, but again it's possible to isolate that kind of accident, which is most attributable to crew performance, and furthermore the rate of the increase that the Department of Transportation notes, the rate of increase has gone up higher in the years, since 1964 than it have been going up since that time.

But even under the railroad statistics, comparing 1962 and 1966, the railroads with more firemen had a smaller increase in the collision rate.

Over the largest reported in a full-crew states had better accident and casualty rate experience than non full-crew states.

Arkansas train accidents have been increasing at a slower rate than state with smaller operating crews.

During the period with the same traffic density, casualty rates are no less for diesel and for steam locomotives, and comparing pre-1964 and post-1964 experience, Arkansas now have a smaller percentage of the national casualties, during the time where those crew sides had been proportionately larger.

One aspect of a railroad's case which we contend they have totally failed to prove, is the aspect of cost of compliance.

Both in Commerce Clause, the burden on commerce cases and in due process cases, the cost of compliance had been a major consideration by this Court.

The standards for the full-crew cases have been laid out expressly and in detail by this Court, in the 1931 Norwood decision.

This Court pointed out that it's not enough to say why we have to spend so much money last year, but there has to be a relative cost factor presented to the Court.

It has to relate to the operation of those employees per ton, per car, per mile, per something, and to say that we spent $5.00 more this year than we spent in last, has no due process relevance.

The railroads have this in front of them and yet, they totally failed to acknowledge in this case.

They simply put an evidence saying we spent $7 million in Arkansas in 1966 or 1965 in complying with the statute.

And on cross examination, they said, “Well, we added up all the wages of the firemen and all the wages of the third brakemen or switchmen and that's $7 million.”

Now, that alone is not enough, but we have more in this record, which reveal the deficiency as to this aspect of the case.

We have accidentally the operating papers used by one of appellee railroads, Kansas City Southern, in making their cost of compliance calculations, in which the actual mileage expense in Arkansas for train crewmen, people in the back part of the train, and for engine crewmen, the firemen and the engineer is presented.

And the startling result, totally uncontradictory in this record, the startling result from these figures is that Kansas City Southern did not experience any increase, in cost of compliance per mile of Arkansas railroading after the change in national crews in the other states in which operates and up-to-date or up to the period covered in the evidence.

In other words, railroads have failed generally as to this point.

When we look farther towards the kind of formulas which Norwood command, we find there's some evidence and that evidence show that there's no cost of compliance at all.

I found as startling when I first heard it and we began to inquire and there's evidence about what some of the causes might be.

Certainly, the railroads have ignored for example the fact that in places where engineers ride without a fireman or firemen are not required, the have to pay an extra allowance to the engineers, ignored completely by the railroad.

Certainly, everyone can see in the record, and the railroads make a big point of this in their briefs, that with a smaller crew, it takes a longer time to operate a train, with a longer time, it kicks in certain constructive and progressive allowances, which the people who are on the crew have to be paid.

Certainly, there is substantial evidence in which the Court, I'm certain that legislative could conclude that the accident rate goes up startlingly with a smaller crew, and that this perhaps account for.

But in any event, the only evidence showing related cost of compliance, not related to one year to other as a railroads argue, but related as to the kind of performance of these crew members shows that there is virtually no cost of compliance at all.

This is in our view a perfect case for the application of the principle that this Court does not fit as a super legislature, and a perfect illustration of why that is so is the opinion of a court below, because the opinion of the court below is no more or less in our view than a report of a committee, a legislative committee saying why they would like to change the law.

It does not as was the Norwood case, it does not as was the New York case a careful fact by fact, detail by detail analysis of what firemen do and what brakemen do, and what locomotives do, and what the crossing hazards are and all those things.

It is rather a general discussion of why the judges think that the full-crew library economically unwise, why are they unhappy with them.

They say for example that we suspect their primary paragraph on the evidence in the case.

It says the record is voluminous and massive, and there are films and pictures and testimony of dozens and dozens of witnesses, and depositions and so on, and said, “We are not going to make any attempt to discuss this."

Probably, we suspect that much of it is surplusage.

How can a court suspect that massive record is surplusage, if it has made a factual analysis?

An an analysis which would properly underlie a conclusion that there is no conceivable germane connection between a legitimate state purpose, the safety of its public and it's railroad men and the statue in question.

The court below notes that the legislation hamstrings labor relations and worries about the effect on the railroad in competition with a coming barge traffic in the Arkansas River.

These are classically legislative determinations and certainly not a basis for constitutional invalidations such with that of a court below --

Justice Byron R. White: Do you think there's any different in this respect between the freight crew law in the switching crew law?

Are they -- is that -- is there's a switching crew law involved?

Mr. James E. Youngdahl: Yes Your Honor.

There are two statutes, one freight was generally for over the road service and one switching for a switching in yards.

Justice Byron R. White: But how about the -- does this pass the same argument?

Mr. James E. Youngdahl: As far as -- as far as any legal standard, I don't see a difference at all.

There are some factual differences, a substantial one.

For example, the railroads argue that when a train is on the road, that they can put an extra brakemen in the cab, thereby making firemen unnecessary.

This is not true in a yard, where all the brakemen have to be passing signals and things to that kind and the firemen himself has to be passing signals to their factual differences in the functions of the people involved.

But in so far as the legal arguments, Your Honor, I see no difference whatsoever.

Justice Byron R. White: Yes, but there is a factual argument with in terms of discrimination against interstate commerce.

Mr. James E. Youngdahl: Well, there is the -- that difference and that that applies only to the freight crew law, I presume or the burden on commerce argument would apply only to the freight crew law, because the switching crews are not an interstate kind of situation.

Justice Byron R. White: Well, then why isn't there is discrimination against interstate commerce and the switching crew law?

But the switching crew law applies to all 100-mile railroad, does it?

Mr. James E. Youngdahl: That's correct.

Justice Byron R. White: And yet you say it's a local operation.

Mr. James E. Youngdahl: Well, that's correct, but --

Justice Byron R. White: Well then, why wouldn't it apply to local trains then?

I mean if shortline intrastate railroad, you just said they are --

Mr. James E. Youngdahl: Well, there is no evidence in the record.

Or the evidence in the record consists of this kind of thing, the railroad say that at X location, in X tower in Arkansas, 100-mile companies and less than 100-mile companies switch across the same crossing with different size crew as a result of the statute.

Justice Byron R. White: They do, don't they?

Mr. James E. Youngdahl: That is correct.

That is, however, a limited condition.

The intercity large companies and their distinction in the statute is not interstate/intrastate and the classification does not -- is not contiguous.

Justice Byron R. White: I know, but 100-mile in some other -- but the local railroads, the intrastate railroads, less than 50-mile railroads don't have to comply with the switching crew, do they?

Mr. James E. Youngdahl: That is correct.

Justice Byron R. White: Why don't they?

If the -- if the switching is really a local operation, what difference does it make, whether you own a 100 miles of track or only 50?

Well, I suggest that the longer trains come in, the bigger the companies come in to that switching area, with longer trains, they switch more cars, they have more complicated movements to attend to, they're less able to take care of a cost of compliance, which is involved.

With the facts as which occurred to me offhand, I think that I see no reason to disagree with this Court's 1916 decision in respect to what seems to me to be an identical arguments.

Primarily, we feel, that there are all kinds of basis for factual and opinion clashes and many aspects of this case, and the record is of voluminous and facts can be found to support a judgment of any reasonable man or any reasonable legislature.

And under the rules of this Court about judicial intervention, we respectfully urge that the decision of the court below reversed1 -- reversed and the complaint dismissed.

Chief Justice Earl Warren: Mr. Light.

You are going to complete the argument now, very well.

Argument of Robert V. Light

Mr. Robert V. Light: Mr. Chief Justice Warren, may it please the Court.

I suppose it is not often that a lawyer, even a country lawyer comes to this (Inaudible) chamber and conceived (Inaudible) that he is not prepared to discuss the intricacies of the record or the law in a particular case.

However, that job has been undertaken by the counsel for brotherhoods and that is the case in this instance.

I do simply want to emphasize on behalf of the State of Arkansas, the unequivocal position that the full-crew acts, which are presently under attached by the railroads are a legitimate expression by the people of the State of Arkansas, both through their elected representatives and by the initiative petition process which is granted by the Seventh Amendment in our Constitution.

And that the people all convinced that these full-crew acts are necessary, as well as desirable, both for the safety of the travelers in the state and for the welfare of railroad employees.

The fact that attorneys for the State of Arkansas have not been deeply involved in the details of this case, should not be construed by any means to indicate that the state is disinterested in the outcome thereof.

The appellees have suggested in their brief that the state has made a minimum presentation and that that minimum presentation indicates some absence of conviction on the points.

This is emphatically not so, the State of Arkansas is not a rich state financially.

We've got a rock of fellow there temporarily, but there are many demands made on the Office of the Attorney General and when we learned that the brotherhoods had intended to make a thorough and complete evidentiary and legal presentation, we realized that our limited resources could best be applied elsewhere.

Justice Potter Stewart: How many -- how many states have laws like this?

I know of that course they're not identical.

I gather that Arkansas perhaps (Voice Overlap).

Mr. Robert V. Light: I understand it, five Your Honor, I believe

Justice William O. Douglas: New York.

Mr. Robert V. Light: New York and Wisconsin, Indiana, Ohio, Arkansas.

Justice Potter Stewart: And each is a little different, I suppose.

Mr. Robert V. Light: Yes sir.

It's my understanding that they are.

Justice Potter Stewart: Does Arkansas have a crew concess law relating to passenger trains?

Mr. Robert V. Light: No sir.

I beg your pardon, yes.

Justice Potter Stewart: But it's apparently, it's not an issue here?

Mr. Robert V. Light: No, it is not an issue.

Justice Potter Stewart: Maybe you don't have fast trains anymore.

Mr. Robert V. Light: We have very few, very few.

They have not only discontinued them, they have taken up the tracks in many areas.

Our -- I'm informed by counsel for the brotherhoods that the total legal tab for this case is going to run in the neighborhood of $100,000.00.

Our entire litigation budget for the Attorney General's Office is $15,000.00 a year.

In 1958, it was pointed out in the briefs, this issue was presented once again to the people through the initiative petition process.

And the preamble to the question presented to the people, which is shown on page 12 in our brief, is essentially the same as the in treatise which are now made by the railroad to this Court.

The campaign was as interesting as an Arkansas political campaign can be with handbills, newspaper ads, Radio Times, etcetera.

And the results were decisive.

The people expressed their desire 130,465 for appeal, 162,748 against the appeal, and that's pretty good turnout in 1958 for the State of Arkansas.

This Court has recently had presented to it another case from our state, which was inherited as this one was.

I only want to emphasize that this case -- in this case we're as dead serious as we can be.

The State of Arkansas' position flatly and unequivocally here.

Justice William J. Brennan: You mean unlike the other two.

Mr. Robert V. Light: No sir, just in case that the same newspapers had been circulated up here as were circulated down home.

I wanted the Court to know that we are serious as we can be about this railroad case.

Chief Justice Earl Warren: Mr. Light.

Mr. Robert V. Light: Mr. Chief Justice, may it please the Court.

In my presentation I'll touch on some points concerning the history of this case and also on the legal standards applied by the court below in reaching the unanimous conclusions that are contained in its opinion and decree.

I'll also discuss some phases of the proof that led the District Court to conclude that these statutes in practical operation bear no reasonable relationship to the safety of railroad operations as they are today conducted over the United States and particularly as they are conducted today in Arkansas.

And finally, I'll briefly discuss our position that these statutes constitute an impermissible discrimination against interstate commerce entirely aside from the undue burden against commerce argument and also that they violate the Equal Protection Clause.The District Court find it unnecessary to pass on either of these constitutional challenges because it found the statues to be clearly unconstitutional on two other distinct grounds.

My colleague Mr. Lucente will expand the discussion of the factual basis for the findings of the court below, which will include these statistical evidence relating to the safety of railroad operations as it bears on the question of whether the minimum crew required by these Arkansas statutes of six men on both freight and switch crews makes any contribution to railroad safety.

He'll discuss the findings of the many boards, commissions and other quasi-judicial public bodies that have tried and decided substantially the identical fact issues that are presented in this case.

And finally, he'll describe the staggering burden of these statutes to the appellee railroads in terms of cost of compliance.

When this case was before the Court on the earlier appeal about two years ago, the appellants took the position that the constitutional challenges were so insubstantial as to make the case an inappropriate one for three-judge District Court.

This Court rejected that argument and remanded the case to the District Court for trial and determination of the constitutional issues, which of course have had not undertaken to decide in draining the summary judgment that it had earlier entered.

As we understand the plain language of this Court's decision on the earlier appeal it simply meant that the complaint filed in this case in April of 1964 sufficiently alleged facts that would cause these statutes to be unconstitutional if those facts were proven and if the railroad companies could prove what they'd alleged in the complaint, they were entitled to the relief sought.

It was in this context that the District Court on remand scheduled and then undertook a massive trial on a massive record, as Mr. Youngdahl indicates, over a hundred witnesses testified, a tremendous volume of other evidence and exhibits were received by the Court.

All directed toward permitting the District Court to decide the central factual issue of whether these Arkansas statutes in practical operation today really have any rational relationship to railroad safety.

I stressed that the issues addressed to the District Court were almost entirely factual and not legal as that Court indicated in its own opinion, the opinion from which this appeal is prosecuted, that the governing legal principles are clear and indeed are not substantially disputed.

And the Court then based on the massive record before it made this factual finding.

We find from the overwhelming weight of the evidence by the mid-1950s, if not before, the firemen on a diesel locomotive and the third brakemen or helper had in general seized to perform significant safety functions in the operation and switching of freight trains and cars.

Those findings of fact on this record supporting those findings of fact led inevitably in applying the constitutional principles that have been established by this Court to the lower court's central holding in this case, which was at under present conditions continued enforcement of the statutes makes no significant contribution to railroad safety.

And that statutes as they operate today are unreasonable and oppressive and violate the Due Process Clause and unconstitutionally burden interstate commerce.

I should note that the District Court of three judges in this case did not follow the example of the Norwood case and refer the matter to a special master.

Although quite obviously, it was going to involve a very extensive accumulation of the factual record but the three judges chose to hear the case because of the factual context.

It's necessary for them to pass on the credibility of the witnesses and of course, they enjoyed the superior position of being able to do that of hearing the witnesses that were actually presented and assessing the weight that was to be given to their conflicting claims or conflicting testimony.

The validity of these statutes has always turned on a fact question.

The Norwood case in 1933 involved the same sort of examination of the facts in the District Court after it had been remanded back to the District Court.

The accumulation of the sort of record that we have here today only on 1929, 1930, and 1931 railroad operating facts, and then the appeal from the conclusion of the Court at that time, the District Court, that there wasn't sufficient change to make the statutes then unreasonable, there wasn't sufficient improvement in railroad technology and safety.

When the appeal was taken from that, this Court regarded the entire matter as factual and in per curiam, once in its opinion, it said we see no reason to disagree with the determinations of fact of the District Court, the decree is affirmed.

We submit respectfully that that would be an entirely appropriate disposition of the case at bar.

The substance very briefly of the proof in this great record, and to make it perfectly clear, this is a very much abbreviated portion of the record, abbreviated by agreement of the parties, only typical extracts of the testimony and typical exhibits have put in here.

I would suspect that the whole record if printed would be six or seven times the volume of the three volumes that were printed.

The substance of that proof is that these railroads now before the Court, these six railroads and all the other American railroads are operating all over the United States with crews of less than the minimum of six required by the two Arkansas laws and that they've done it without sacrifice of safety.

The appellee railroads operations outside of the State of Arkansas are down with crews of three and four and in some infrequent situations, five with no sacrifice of safety.

Approximately 40 operating employees of these railroad companies were presented by the intervenors as witnesses in this case to testify as experts on railroad operations.

And each, although expressed in an opinion that it was good for safety to have the six men described by the Arkansas statutes was familiar with railroad operations conducted with a lesser crew.

Many of the them, if not most, had participated in such operations on crews of four and five, and sometimes three, either in other states where the appellees operate or had observed such operations of the exempted railroads in Arkansas, the 17 intrastate railroads that don't have to comply with these statutes and consequently have crews ranging from two up to six.

And none of these employees notwithstanding that opportunity to acquire expertise in railroad operations and to note about what cause the accidents.

None of them could cite a single accident that they could attribute to the absence of additional men on those crews smaller than six.

Mr. Youngdahl referred to the decision a couple of weeks ago of the New York Court of Appeals --

Chief Justice Earl Warren: I thought that the counsel said that many of the accidents were caused by collision, an increased number of collisions and that the collisions were caused by the lack of observation because there were fewer men in the cab.

Mr. Robert V. Light: That's the contention of the other side Your Honor.

We respectfully submit that the facts in the record don't vary out.

Chief Justice Earl Warren: Is it untrue, the fact that there were collision accidents.

Mr. Robert V. Light: As I indicated Mr. Chief Justice, Mr. Lucente is going to discuss the statistical evidence as I understand the statistical evidence --

Chief Justice Earl Warren: Well, but you just made the statement that they couldn't show anything and I just want to ask you if it was a fact that the collision accidents had risen?

Mr. Robert V. Light: As I understand and I'm going to, if the Court permits, make an abbreviated answer to that question because just to say this is a part of Mr. Lucente's presentation, the statistical evidence in the case that there has been a increase in the number of reportable collisions.

And the number of reportable collision is one that produces more than a fix dollar amount as fixed by ICC regulation, I believe.

But the same statistics as I understand it, and I don't offer -- I have no expertise in this, show that that type of accident that produces injuries, that's what we're interested here in safety to persons, that type of accident that produces injuries has been on a decline, there have been a decrease of those.

In the decision a couple of weeks ago, the New York Central against Lefkowitz in the New York Court of Appeals, the Court was divided 4 to 3.

There was a vigorous dissent of the three judges, indicating that they would hold the statute, the single statute that was before them unconstitutional as make work legislation and not a safety legislation, but the majority of (Voice Overlap).

Justice Potter Stewart: They'd hold it unconstitutional under what operation of the Constitution?

Mr. Robert V. Light: I take it under the Due Process Clause.

Justice Potter Stewart: Or was it the state Constitution they were talking about?

Mr. Robert V. Light: Mr. Justice Stewart, I don't recall whether they specified, the entire Court, the only issue upon which the entire seven justices of the New York Court of Appeals were agreed, is that it had to be tested as safety legislation, and if it didn't pass most of their, it failed because it could not constitutionally be justified as an economic measure or a measure to a just employment relationships.

Justice Potter Stewart: That could of course, had been a matter of state constitutional law?

Mr. Robert V. Light: That's possible and I do not recall whether the Court was explicit about which Constitution.

But the majority, four in that case, merely held with on the evidence, the trial courts fact-finding that it was not clearly unreasonable to require a firemen in a locomotive under a certain set of circumstances was supported by the record, it was a permissible fact-finding for him to make on this massive record.

And the majority explicitly distinguished the opinion of the court below and the case at bar and said that was tried on Arkansas facts and the trial court made different fact-findings, so it's entirely a factual issue.

The similarity of the case ends with the fact that both dealt, both this case and that of New York case dealt with state regulation, a railroad crew concepts.

The New York Court was dealing with a statutory requirement of one man on a crew, otherwise composed of two, three or four additional members, fixed by the size of that crew having been fixed by the arbitrational ward 282 or collective bargaining subsequent to it.

The Arkansas Court was dealing with two statutes that have traditionally been the most burdensome railroad crew concess litigation in the United States which accounts no doubt for the frequent occasions, for judicial appraisal of the effect and validity of these statutes.

The six-man requirement in the Arkansas freight crew law is the greatest number ever required by any state.

Only Indiana, also requires six men in a freight crew and it applies it to longer trainings.

The six men requirement in the Arkansas switch crew is the highest requirement, higher than any other requirement ever assessed or fixed by Court of the -- by the State of the United States for a switch crew.

No other state has ever required six men in a switch crew.

I might say, with reference to the four other states Mr. -- and if this information is correct that there are four other states that still have some form of railroad crew concess legislation.

None of it is nearly as burdensome or even comparable to that before the Court today.

Justice Potter Stewart: Has there been a discernable trend, one way or the other legislatively, either toward the enactment of (Voice Overlap).

Mr. Robert V. Light: There's been a clear trend, which is acknowledged by my adversaries in their brief toward the repeal of such legislation.

At one time there was some 20 states with some form of the legislation or the other, it's down to five now, but it's a hall of suggestion to tell the appellees here that they need to go to the legislature of the people of the Arkansas to be relieved of this staggering burden because the railroads project trip by 1958, as our colleagues suggest without much success.

Justice Potter Stewart: Didn't -- this is not really much our point, but haven't I read that New York is talking about the repealing its statute?

Mr. Robert V. Light: Justice Stewart, the New York had three crew concess statutes.

One requiring a freight crew, as I recalled six, and one requiring of switch crew as I recall five.

It repealed those two statutes two years ago.

All three statutes were attacked in their lawsuit which began back in '63 or '64 and after the trial court had entered its decisions, sustaining all three, the legislature repeal those two leaving only the statute that required a firemen in engine crews under many circumstances.

The District Court tested the constitutional standards, are tested against the constitutional standards established by this Court, these laws under both the due process and Commerce Clause grounds.

It correctly apprehended that the statute would be valid if they were reasonably related to the safety of operations and if there were unduly oppressive or restrictive or costly in comparison the benefits if any that they conferred.

And the Court acknowledged that if the reasonableness of the statutes remained after an assessment of the evidence fairly debatable, the statutes would be sustained, because that court like this one does not sit to pass a legislative judgment.

But it found that conceding as late as Norwood that the statutes, the reasonableness of the statutes in that factual context 35 years ago was reasonably debatable that it does not continue to be debatable today on this record and that the continued debate of it by the brotherhoods does not make it so.

On the Commerce Clause test, the Court observed that since the statutes had a distinct impact on interstate commerce, it was required to make the judicial appraisal to weigh the purported local benefits to be derived from the statutes against the national interest in an unfettered flow of interstate commerce free from local restraint.

It relied on this Court's decision in the Southern Pacific against Arizona case, where the Court found on the factual record made there that the safety benefits from the Arizona train link laws were so -- I'm trying to think of the phrase, because I think it's significant, so slight or problematical as not to outweigh the national interest in an unfettered commerce and the train link law was declared unconstitutional.

The Court also relied on Morgan against Virginia decided a year later where the Court measuring the validity of a statue requiring the separation of passengers on interstate conveyances by race against the Commerce Clause only, that was the context in which it was presented, gave great stress to the need and desirability for uniformity of regulation of interstate commerce and found that uniformity in that sort of regulation, ordering the seating of passengers on interstate conveyances was desirable in a constitutional sense and that the statutes therefore must fall.

I point out that the burden here on interstate commerce of the full-crew laws is far greater and the impact far greater than that of the statute in Morgan against Virginia.

There, the passengers could move in accommodation to conflicting state regulations as the conveyance move from state to state and the conveyance didn't have to be stopped and presumably no cost was incurred to the interstate commerce in complying with that statute.

Here, the trains must stop or slow to comply with the statutes.

Here, the impact of the cost of compliance is overwhelming.

The Court concluded and we submit correctly so that the statutes are not reasonably related to safety and that that's not fairly debatable in light of present day railroad operations and it concluded that any contribution that these statutes might be argued to make to safety would be entirely out of proportion and is entirely out of proportion to the purported benefits they concur.

It's suggested in the appellant's brief that an economic justification can be offered as alternative to support the validity of these statutes.

The case made below with the factual case made below is so unwaived that the appellants feel they need to offer an alternative at this stage and in their motion to intervene, they've setup what that alternative was, what their interest in this case.

They said their interest was that they represented the employees whose jobs were protected by these statutes and who might lose their jobs if the statutes were repealed.

And they also had the further interest that if they had a diminution of membership as result of the clarity and validity of these statutes, it would cost them a loss of income, it cause the organization, the brotherhoods a loss of income.

The District Court rejected that argument and said that the earlier cases including the decisions of this Court had authoritatively characterized each statutes as safety statutes and safety statutes alone.

The Supreme Court and then it accepted that characterization and indicated that the statutes might well be violative of the Constitution of Arkansas if it was attempted to measure or support them on an economic justification rather than safety.

The Supreme Court of Arkansas said in the first one these cases coming before it in 1908 that this legislation can only be supported on account of its supposed promotion of safety of the public and the employees.

This Court in its 1916 case, referring to both of these statutes, the 1907 and 1913 statute said that they were designed for the purpose of ensuring or promoting railroad safety.

This entire case, as well as all of these other crew concess cases litigated over the years have been and has been litigated on the issue of safety, that's what the proof in this massive record went to.

And as I've earlier noted, the seven justices of the New York Court of Appeals were unanimous on that issue alone that the statute had the standard followed based on its contribution to safety.

Of all the evidence in the record, the most persuasive and most dramatic I think of the absurdities of these statutes and of the real impact they have on interstate commerce are these absurd rituals at or near the Arkansas state line, they require in putting on and taken off men as a train moves from another state into Arkansas or through the Arkansas unto another state.

There are many examples of these extra employees placed on the train for the sole purpose of complying on the Arkansas statute.

One of the best and I'll cite only one in interest of time is the run of Southern Pacific Railroad Company from the Coffeyville, Kansas to Van Buren, Arkansas, which passes through on most of these run, it's ran through the State of Oklahoma.

From Coffeyville, Kansas to Greenwood Junction, Arkansas, the train is operated by four-men crew.

At Greenwood Junction, the train is stopped, two additional employees climbed aboard and ride the train for the balance of the journey in Van Buren, Arkansas consisting of six miles.

On the northward trip, exactly the same thing in reverse is done, a six-man crew takes the train out of Arkansas for six miles to Greenwood Junction, Oklahoma, where two men get off the train, ride a taxi back to town and four men take the train through Oklahoma to Kansas.

There are many examples in the record of this, the same thing as illustrated by the yards of these railroads where the state line bisects the yards.

The South Pacific yard at Texarkana, Arkansas is bisected by the Texas Arkansas line.

In one end of the yard, four men do the same work that six men have to do, when one of the switch engines ventures into the Arkansas side of the yards.

Justice Byron R. White: That one state can a make different judgment as to what risks it's willing to put up with, couldn't it?

Mr. Robert V. Light: There's no doubt about it, if the judgment is rationally related to do the purported purpose of its regulation, Your Honor.

Justice Byron R. White: But I suppose the yard -- I suppose the same rituals can that take place if it still upholds the Arkansas law.

I mean it doesn't make the Arkansas law bad just because (Voice Overlap).

Mr. Robert V. Light: It just illustrates, Your Honor, that the train safely moves from Coffeyville to Greenwood Junction in charge of four men, and the other two men mounted and rendered no service for six miles.

And this is (Voice Overlap).

Justice Byron R. White: (Voice Overlap) that so.

Mr. Robert V. Light: Yes sir.

In the interest of time, I will not expand on the discussion in the brief concerning the discrimination against commerce contention and the equal protection contention.

Justice Byron R. White: Can I just ask you if the court below make findings on discrimination?

Mr. Robert V. Light: It did not Your Honor.

It founded unnecessary and specific --

Justice Byron R. White: It didn't reach that issue?

Mr. Robert V. Light: That's right.

Mr. Lucente will present the balance of the argument.

Chief Justice Earl Warren: Mr. Lucente.

Argument of Martin M. Lucente

Mr. Martin M. Lucente: Mr. Chief Justice and may it please the Court.

My presentation will deal primarily with the factual basis for the lower court's determination at the Arkansas statutes, they're not reasonably related to safety.

And I will in the course of that, Mr. Chief Justice, discuss the collisions to which you have referred and which you asked Mr. Light about.

If I may, I would like to discuss a preliminary matter before getting to that particular subject.

Chief Justice Earl Warren: All right.

Mr. Martin M. Lucente: Under safety issue, the District Court made several critical findings.

It found first that from the overwhelming weight of the evidence that since the mid-1950s, neither the firemen on the diesel locomotive nor the third brakemen or helper contributed to safety of railroad operations.

The District Court also found without regard to employee categories that trains have been operated safely in other parts of the United States for many years, with crews of less than six men that size required by the Arkansas statute.

And that the training operations with these small crews had been conducted with safety.

And finally, the District Court concluded from the evidence as a whole, under present conditions, continued enforcement of the statutes makes no significant contribution to railroad safety.

In reaching these conclusions and making these findings, the District Court relied heavily on evidence, have comparable and safe operations with smaller crews.

In other cases involving identical issues, the courts have relied on the same type of evidence.

In the Warrenburg case which is referred to and discussed in our brief, the Court relied on evidence of comparable and safe operations with 44 ton yards switching diesels without a fireman and found the ordinance requiring a fireman on that type of equipment to be unconstitutional.

In the Southern Pacific case particularly, this Court relied extensively on evidence of safe operations in states outside of Arizona, operating three of the 70 car limitation imposed by Arizona.

And it concluded on the basis of such safe operations in other states that the Arizona limitation had no reasonable relation to safety.

The record in the present case permits the same type of comparison and strongly supports the District Court's conclusion that the statutory requirements at issue do not promote safety of operations.

This comparative evaluation is greatly facilitated by the changes in crew size, which have occurred since 1964 as a result of the award of arbitration board number 282.

That award which was applicable to virtually every major railroad in the United States has resulted in the elimination of a majority of the firemen's positions and a reduction in the number of brakemen and helpers used on crews in road and yard service.

There's also available for the same period of time, extensive data relating to safety of operations.

This data permits a comparison of the safety of railroad operations over a period of time, and it also permits a geographic comparison between states.

And when this information, with respect to safety of operations is properly related to the change in crew size which have occurred since 1964, it is possible to draw conclusions as to the relative safety of operations with crews of different sizes under comparable conditions.

Justice Potter Stewart: You don't make any claim at the -- that the fewer men on a crew makes for a safer operation.

Mr. Martin M. Lucente: No, we do not Your Honor.

Our basic point is that the extra men required do not make any contribution to safety, the operation is as safe with the four-man crew as it is with the six-man crew.

Justice Potter Stewart: But you don't say, you're not safer?

Mr. Martin M. Lucente: No, we do not make --

Justice Potter Stewart: Because that kind of a claim could be and apparently was made in the Arizona case.

The claim that that being the state law that's limited to length of trains, limited to numbers of freight cars in a train.

The claim being that if there were shorter trains, there would be more trains and therefore, more great crossing accidents and so on, you haven't got that argument available.

Mr. Martin M. Lucente: No, we don't have that argument here, Your Honor.

Perhaps the most graphic of the comparisons which the record permits involves the Arkansas operations of the plaintiff railroads in this case and their operations in other states.

As these railroads reduced the crews under the provisions of the award of arbitration board number 282, it became and it remains common place for trains and through service on this railroads to operate with identical characteristics through Arkansas and adjacent states, except for differences in crew size, the size of the train, its motor power, the frequency or infrequency of stops, the characteristics of tracks, signal protection and terrain remain incomparable.

Only the size of the crew changes from the four-man crew in other states to the six-man crew required by the Arkansas statute.

Trains of the Frisco Railroad operating over its main line to Missouri, Arkansas, on Tennessee undergo these crew changes as they pass in to Weiner of Arkansas.

Trains of the Rock Island operating from Tennessee to New Mexico have the same experience, going from four-man crews in other states to six-man crews in Arkansas.

And the Missouri Pacific and Cotton Belt have a large volume of interstate operations, which also proceeds identical in operating features and characteristics, except for differences in crew size.

Now, in yard services, Mr. Light has pointed out there are instances where a border bisects the yard and where four-man crews do a switching in one part of the yard and six-man crew do the switching on occasions when they are required to go into Arkansas.

The other part of the record on this, in addition to the changes in crew size is the evidence which shows the relative safety of operations of the plaintiff railroads in Arkansas and in other states.

The record shows that during the five-year period, which the most recent five-year period available at the time of the trial, from 1961 to 1966, casualties arising from train operations were reduced by 13% in Arkansas and 16% in other states through which the plaintiff railroads operate.

I'm referring now to the reportable causalities comprehended by the regulations of the Interstate Commerce Commission.

Casualties were reduced in both Arkansas and in other states, but the reduction in other states on the plaintiff railroad is greater than in Arkansas.

Chief Justice Earl Warren: Casualities?

Mr. Martin M. Lucente: Casualities, the injuries to burden.

Chief Justice Earl Warren: How about the accidents?

Mr. Martin M. Lucente: Yes, accidents Your Honor are comprehended under the Interstate Commerce Commission term of train accidents.

A train accident to be reportable to the Interstate Commerce Commission must involve one basic requirement.

It must involve property damage to railroad equipment arising out of the operation of trains of at least $750.00.

Since 1961, there has been a trend of increases in train accidents reportable to the commission, and train accidents also comprehend collisions.

Collisions are one of the categories within the train accident category.

There has been an increase in train accidents reportable to the Interstate Commerce Commission since 1961.

But the fact is that casualties, injuries to people arising out of those incidents has been declining since 1961, so that by 1967, there's a 25% reduction in the casualties or injuries to people arising from these train accidents.

Chief Justice Earl Warren: Might not that be fortuitous, just the fact that you didn't have to happen to have any very large accidents that killed a great number of people and might not that be -- might not that also be to the fact the railroads have taken off most of their passenger trains, where people might be killed?

Mr. Martin M. Lucente: The evidence, Your Honor, shows that the reason for this increase in reportable train accidents is primarily the fact that the standard is stated in terms of damage to equipment and that one of the features involved in determining the damage to equipment is the amount of cost involved in repairing the equipment.

And this $750.00 standard, which has remained inflexible since 1961, has resulted in an increasing number of incidents falling within the reporting requirements, as equipment cost had increased, as labor cost have gone up, the proportion of incidences, in which in this -- becomes a reportable train accident has also increase.

So that the basic point that the record establishes in this connection, is that in so far as safety is concerned, in terms of injuries to people, that there has been improvement in that and that there has been at least a comparable improvement in states which do not require six-man crews.

Justice Potter Stewart: Don't you -- couldn't that be a direct reflection of the fact that there are fewer people in the crew?

In a train accident, the people most likely to be hurt are the crew of the train, if there are only four in there instead of six, that would account for fewer (Voice Overlap).

Mr. Martin M. Lucente: That could account for some of them Your Honor, but the fact is that only a very small number of train accidents have a potential for casualties.

The reported data for 1967 shows approximately 7200 train accidents.

The reportable casualties for 1967 to persons arising out of train accidents is 924, when -- so on its phase, the 924 against the 7000 produces something in the vicinity of 10% of train accidents that result in casualties of any kind.

And when the casualties in train accidents are allocated to specific accidents, so that you take into account the fact that some produce two casualties, others do not produce any, only 6.5% of the train accidents involve casualties.

So, our basic point is that the discussion of train accidents, the emphasis and what has happened to train accidents, is a concern with the mishaps involving property damage, which become increasingly reportable because of the yard stick, which I referred.

Chief Justice Earl Warren: I suppose you would agree that every collision carries with it, the possibility of the casualty, wouldn't you?

Mr. Martin M. Lucente: No, I would not Your Honor.

And may I state my basis for it (Voice Overlap).

Chief Justice Earl Warren: It's just been unlikely nowadays.

Mr. Martin M. Lucente: The collisions that we are referring to here Your Honor are not primarily collisions between two trains moving in same direction or even between two trains moving -- I mean in opposite direction or two trains moving in the same direction.

The commission's classification of collisions also includes collisions from one car raking the side of the other.

And it includes and they are reported as a great many collisions, what happens when a car goes over the hump in the yard at too greater speed, runs into another car at the receiving track and the classification yard and property damage of $750.00 occurs.

That's a collision, there may not be an employee within a great distance of that event.

So I would have to disagree with the statement that collisions inevitably involve a potential for casualties, because many of them occur when there is no potential for casualties.

Chief Justice Earl Warren: I suppose when the car went over an embankment, it might be of casualty so far as some of the employees are concerned, wouldn't it?

Mr. Martin M. Lucente: It might be, yes sir, if there were employees in that area.

Chief Justice Earl Warren: Wouldn't it be?

Mr. Martin M. Lucente: Yes, if there were employees in that area --

Chief Justice Earl Warren: Well, wouldn't there be employees on the train if one of them went over the embankment?

Mr. Martin M. Lucente: Not the switching cars to which I'm referring, you're referring to a train operating over the line which goes over an embankment.

Chief Justice Earl Warren: Yes.

Mr. Martin M. Lucente: The employees are in the caboose and on the head in.

If the derailment occurs in the middle of the train, the employees maybe a long distance from the point of derailment.

Chief Justice Earl Warren: Does that mean they wouldn't be hurt?

Mr. Martin M. Lucente: They might be hurt in the caboose from a sudden stop, but the likelihood of any injury in the locomotive would be fairly remote, with a 150 car train where one of the middle cars derails and goes over the embankment.

Chief Justice Earl Warren: You don't think that would endanger anybody who happen to be in the caboose?

Mr. Martin M. Lucente: If there would be a sudden stop in the caboose and unless the men weren't properly braced, there might be an injury.

But the caboose itself would not necessarily go over the embankment and --

Chief Justice Earl Warren: (Voice Overlap) to the embankment in order to have a casualty, would it?

Mr. Martin M. Lucente: It might, that is correct Your Honor, there could be a casualty from that type of an accident.

Chief Justice Earl Warren: It seems to me we've had recent cases in this Court or eight cases, I believe, where someone sitting in the caboose for a -- in times of a very slight accident up above was hurt very severely.

Mr. Martin M. Lucente: It is possible for that type of casualty to occur when a caboose -- when a train stops suddenly and the occupants of the caboose are not braced and they bounced around in the caboose that does happen.

But to return just a moment, Your Honor, to the collision -- the collisions that you inquired about earlier, page 985 of the record --

Chief Justice Earl Warren: Would you -- would you say from just as a matter of common sense that an increase made number of collisions was not a safety factor but it could be seriously considered in the matter of this kind?

Mr. Martin M. Lucente: I would not say that Your Honor.

I think an increase in the number of collisions without any explanation of why they are increasing would be something of the very great significance in a case of this kind.

But what I've tried to do is to explain the reasons why the reportable statistics do not pertain to anything of great significance with respect to the safety of individuals.

Chief Justice Earl Warren: Well, is there anything in the reportability of accidents that would effect the collision part of your argument, as to whether there might be casualties or not?

Mr. Martin M. Lucente: No, the standard to which I refer is $750.00 standard does not relate directly to casualty potential of the collision.

Chief Justice Earl Warren: But I understood counsel to say that in Arkansas or in other states, there was a much greater increase in collisions during a given period recently than in Arkansas.

Mr. Martin M. Lucente: I do not understand, I don't believe there is data there where it shows collisions by states.

Now, there is (Voice Overlap).

Chief Justice Earl Warren: Not by states by the rest of the country, the rest of the country was considerably higher than in Arkansas.

Mr. Martin M. Lucente: The data with respect to that --

Chief Justice Earl Warren: Is that true?

Mr. Martin M. Lucente: No, the data that I'm familiar with in the record does not permit a comparison between Arkansas and the rest of the country in so far as collisions are concerned.

It does in so far as the entire category of train accident is concerned, but I'm not aware of any breakdown with respect to collisions.

But there is a page in the record --

Chief Justice Earl Warren: We couldn't assume, could we, that if it were related to all accidents, some of them didn't relate to collisions?

Mr. Martin M. Lucente: Yes, that is correct Your Honor.

But the data with respect to collisions does permit a breakdown between railroads operating with firemen and railroads operating without firemen.

And at page 985 of the record there is such a breakdown.

The collisions reportable reported since 1961 are broken down at page 985 of the record into two categories: the collisions experienced by those carriers operating their freight and yard services with 33% of the positions occupied by firemen and railroads operating their freight and yard services with 67% of their service using firemen.

And that breakdown with respect to collision shows that from 1964 to 1966, the group operating predominately with firemen experienced an increase of 31% in collisions by the group operating predominately without firemen experienced an increase of 17%.

Chief Justice Earl Warren: That's yard service not --

Mr. Martin M. Lucente: That's freight and yard service, includes both of them Your Honor.

Chief Justice Earl Warren: We'll recess.

Mr. Martin M. Lucente: Thank you Your Honor.

And I wish to refer particularly to a report made by a so-called National Joint Board with respect to safety of operations following the award of Arbitration Board number 282.

The National Joint Board consisted of representatives of the railroads and of the two brotherhoods representing engine crew employees, the firemen and the engineers.

And the board's report discusses the safety of operations, which the parties make.

I emphasized particularly that the studies made by the Brotherhood of Locomotive of Engineers, which is discussed in this report disclose that the elimination of firemen's jobs had not adversely affected safety of railroad operations.

This report is made in January of 1966, almost two years after the effective date of the arbitration award.

The engineers, I emphasized, as a remaining members of the engine crews and freight in yard service have a most immediate and direct interest in safety of operations.

When the report in question was made, the engineers have been participating in such operations for a period of almost two years.

And the organization undertook to make it study representative of railroads throughout the United States.

The grand chief of the brotherhood relying on these studies stated in a letter to the Chairman of the Committee on Commerce of the United States Senate that the removal of firemen under the award had not aversely affected the safety of the remaining employees and I am quoting "that engineers are now efficiently and safely moving their trains over the road."

I emphasize again that this was a study by the Brotherhood of Locomotive Engineers based on data submitted by its members who had been observing operations without firemen for two years and that study supports the judgment of the District Court.

Chief Justice Earl Warren: Was there any question in there about the engineers getting more money if they didn't have a fireman?

Mr. Martin M. Lucente: Under agreements made with the Brotherhood of Locomotive Engineers, there have been wage increases, which were applicable to operations without firemen.

In other words, the first agreement, the only one which I'm familiar provided that engineers operating in freight service without a fireman would receive an additional of $1.50 per day, that type of agreement was made.

Thank you Your Honor.

Justice Byron R. White: May I ask you this one question, what if the Court didn't reach to (Inaudible), have you lost the case there?

Mr. Martin M. Lucente: I take it under the authorities, Your Honor, that we do have the burden of showing that the safety benefits if any arising from the statute are --

Justice Byron R. White: So, about the (Inaudible), do you still ask that the -- if we disagree with your path, do we then have to base the discrimination purpose?

Mr. Martin M. Lucente: I think the discrimination and equal protection argument --

Justice Byron R. White: (Inaudible) will make it discriminatory.

Mr. Martin M. Lucente: Yes, the discrimination and equal protection arguments might still be valid despite the finding with respect to safety.

Justice Byron R. White: Lower court did not have such --

Mr. Martin M. Lucente: That's right Your Honor, the lower court did not pass on any of those two points.

Justice Byron R. White: You don't think that the -- do you think that the very factors which would show that these laws are related to safety would also show that there's a difference between 50-mile trains and longer trains?

Mr. Martin M. Lucente: Now, the statutes in question Your Honor --

Justice Byron R. White: Roads not trains.

Mr. Martin M. Lucente: The statutes in question Your Honor apply with respect to length of road in the state and switching operations for large railroad can be precisely the same as switching operations for a small railroad.

Justice Byron R. White: Unless your opponents are right in saying that the longer roads have longer trains.

Mr. Martin M. Lucente: But in switching operations, Your Honor, the longer trains would not affect the movements of cars within the switching yard.

When the train first comes into the yard has broken up and operations thereafter are in terms of cuts of cars.

In fact in most instances are the same regardless of the size of the train that comes into the yard.

Justice Byron R. White: What about the freight?

That just go for the switching statute though.

Mr. Martin M. Lucente: The freight operations -- the question of whether the length of line means anything with respect to size of crew Your Honor is answered I believe in the evidence by the fact that the arbitration award of Board Number 282 laid down a series of guidelines, which provided considerations to be taken into account by special boards in determining what the size of the crew should be on particular runs or assignments.

Justice Byron R. White: This is the same kind of an argument that goes to whether or not these laws are related to safety at all or not.

Mr. Martin M. Lucente: The argument does depend ultimately on that, yes.

Justice Byron R. White: And so, if the laws are not related -- are related to safety, you would also lose your discrimination argument, at least in the freight area?

Mr. Martin M. Lucente: If the -- I believe though there is still a valid inquiry as to whether the 100-mile limit and the 50-mile limit is a differentiating circumstances as far safety is concerned.

Justice Byron R. White: Even in the freight area?

Mr. Martin M. Lucente: Even in the freight area.

Justice Byron R. White: Even though it has (Inaudible) on the road?

Mr. Martin M. Lucente: Over the road, a 100-mile railroad might hold a 150 car train, which is then interchanges with --

Justice William J. Brennan: Well, you think the record is such that we can decide that issue here or what we remanded if we don't agree on you --

Mr. Martin M. Lucente: The record does contain a great deal of evidence of the operation --

Justice William J. Brennan: It does?

Mr. Martin M. Lucente: It does, yes Your Honor.

Justice William J. Brennan: We don't have any findings, now do we?

Mr. Martin M. Lucente: There are no findings on that point, but there is a great deal of evidence on the record on the operations of the smaller railroads.

Justice William J. Brennan: Well, ordinarily we don't make findings of that kind, I guess.

However, complete the record, do we?

Justice Potter Stewart: Would you say there's enough evidence -- would you say that we should -- if we -- I suppose you would object just to our even doing it if we did it and ruled against you.

Mr. Martin M. Lucente: Yes.

Justice Potter Stewart: I mean even that you -- would you -- what would be your position if we should remand this case or not?

Mr. Martin M. Lucente: If the question turns on equal protection commerce and the discrimination against commerce points, I believe perhaps it should be remanded to the lower court for taking further evidence and for findings on those issues.

Justice Hugo L. Black: Was there no evidence taken under that issue?

Mr. Martin M. Lucente: There was evidence taken on it Your Honor, we put in a considerable amount of evidence on that point.

And if the question were only one of the adequacy of the record, I don't believe it would be necessary to remand, but Mr. Justice Brennan suggest the lack of findings may require remand in that respect, the findings I felt to be essential, then perhaps it should be remanded for both purposes rather than for just the one.

Chief Justice Earl Warren: Mr. Youngdahl.

Rebuttal of James E. Youngdahl

Mr. James E. Youngdahl: Mr. Chief Justice, may it please the Court.

With reference to Mr. Justice White's last point in the general issue about the justification of a 100-mile classification in switch crews -- switch yard, to be overly candid perhaps, I shutter at the fact of going back to try those case, again we've (Voice Overlap).

Justice Byron R. White: Well, what's the matter of trying it again or weren't these issues involve -- weren't the issues made up -- the issues which were made up in the trial court included discrimination and equal protection?

Mr. James E. Youngdahl: Certainly that is correct.

Justice Byron R. White: And so the case was tried with those issues in it?

Mr. James E. Youngdahl: Certainly, that is correct.

Justice Byron R. White: The record was made close.

Mr. James E. Youngdahl: Yes.

Justice Byron R. White: Which is the question of findings?

Mr. James E. Youngdahl: Well, I understand Your Honor that the compelling principle in a constitutional challenge is that the plaintiffs had a burden of showing that the laws is unconstitutional.

Now, there are cases that the Court is well familiar with, which state that if any state of facts known a reasonably can be conceived that would support the classification if that's sufficient.

Now, there's a good deal of evidence in here that the covered companies --

Justice Byron R. White: That maybe -- some cases that may have said that in equal protection area, but you think they've said that in the commerce area?

Mr. James E. Youngdahl: Well, I don't understand commerce to be involved in a particular --

Justice Byron R. White: Or the discrimination against interest commerce?

Mr. James E. Youngdahl: Well, Your Honor, as to discriminate against interstate commerce, our primary answer would be that the two groups are not all contiguous well-formed interstate covered, intrastate not covered, to the contrary without going into detail at this time.

As to the question of whether or not there's justification for 100-mile classification in yard operations, the evidence shows that companies operate longer trains that are covered, that are not covered, and that longer cost of cars are operated in contrary that as Mr. Lucente said that are covered, that are not covered.

The evidence shows that the companies that are covered carry more volatile materials for example.

Materials that tend to have more opportunity to blow up and blow up a whole town and company that are not covered.

Furthermore, we would rely heavily on the many years of decisions by this Court about mileage classifications and particularly the 1916 decision in this case, in which equal protection involve and all classification arguments involved only the Arkansas switching crew as distinguished from the road freight statute.

In reference to the question about one of the New York Court of Appeals rule on this point, if I may quote just a sentence or two from the decision of the New York Court of Appeals about two weeks ago, “Plaintiffs do not establish on the record, that the statute deny them equal protection of the laws.

Differences in the impact of statutes depend for validity and the rationality, the difference, citing Morey against Doud, and some differences applying to specifically the railroad have been sustained by this Court, citing New York Central against Williams, which was one of the case that we rely on in the previous Arkansas full-crew case.”

It goes on to discuss that further at length.

I'm sure the Court rule for me where I result with.

As to --

Justice William J. Brennan: Are copies of that opinion available?

Mr. James E. Youngdahl: We would be glad to make them available Your Honor, it was just issues about two weeks ago.

Chief Justice Earl Warren: Will you do that please?

Mr. James E. Youngdahl: I will, yes Your Honor, thank you.

As to the question about whether or not there's a passenger crew statute, I want to emphasize that there is a full-crew law statute in Arkansas applying to passenger trains.

The railroads have on some past instances challenge that statute, they do not hear, for reasons which I suggest to have some value in this Court's consideration now.

As to the questions of collision --

Justice Potter Stewart: I don't understand that --

Mr. James E. Youngdahl: I don't understand --

Justice Potter Stewart: What business do you suggest?

Mr. James E. Youngdahl: I don't understand why, if they contend that it's just as safe not to have a fireman, and not just a safe on a passenger train as it is on a freight train.

That -- that's what I mean.

As to the question of collisions, I urge the Court to look at the record in this respect, because I think that that contained extremely persuasive information.

On pages 419 to 500 of the appendix, on pages 48 through 53 of our brief in chief, we answer these or we discuss this matter, and a powerful evidence of the fact that the kind of accidents attributable to crew performance in absence of crew have gone up startlingly.

Since the crew was reduced nationally, now --

Chief Justice Earl Warren: What page was that in the appendix?

Mr. James E. Youngdahl: In the appendix it was pages 419 to 500, a testimony of Mr. Homer.

There were charts , particular charts involving collisions on many pages, including pages 11, 68 to 69, and those are discussed thoroughly in pages 48 through 53 of our original brief.

The railroad suggest that the whole matter here can be explained in terms of reporting requirements.

I point to pages 6 and 7 of our reply brief, with the Department of Transportation quotation, in pages -- issued on April 10, 1968, deals with the matter of railroad accidents and their alarming circumstances, under present and recently developed conditions.

Same thing such as the national transportation safety board review of data, during the past several years for train accidents shows progressively worsening trend in rates, occurrences, deaths, and damage.

Now, as the Court observed in questioning Mr. Lucente, the fact that the casualties may have dropped, could be explained by many thing.

Now, it was a very easy way to handle that, used as an exposure factor, as a factor for measuring casualties main hours, that's what everybody uses as the record shows.

That's what the railroad use in other context, but here they chose to measure casualties by such things as billion gross ton miles.

Obviously, the ton miles per employee is going up great as the crews go down, as passengers go down, as passengers crews go down, as maintenance of rail employees go down, etcetera and as car loading increases.

Obviously, when you measure casualties in terms of billion gross ton miles, you're going to get some kind of a drop, but casualties in terms of some of kind meaningful explanation do not at all result, the fact is they have risen along with train accidents since 1964.

But in any event, about all these statistics, and all of this information, there's a great deal of it in the record.

It seems to us that this is a peculiarly legislative decision, the cause and effect kind of thing, deciding whether it really was caused or really wasn't caused by something which follow another.

And we submit that this is a matter for the Arkansas legislature to determine.

We concede that there's been trend, legislative trend to eliminate full-crew law.

We think we can reverse it with these statistics I just been talking about, and we look forward to any opportunity we have on that respect, but hoped that it not be done to this traditional process.

Featured:

Railroad Trans. Service v. Chicago - Oral Argument

Thu, 23 Aug 2012 18:11:23 +0000

Case:

Railroad Trans. Service v. Chicago

Media File:

209_19670213-argument.mp3

Related Transcript:

209_19670213-argument

Transcript:

Argument of Amos M. Mathews

Chief Justice Earl Warren: Number 209, Railroad Transfer Service, Incorporated, Petitioner, versus the City of Chicago.

Mr. Mathews.

Mr. Amos M. Mathews: Mr. Chief Justice, may it please the Court.

Petitioner brought this action in United States District Court for a declaratory judgment that a Chicago ordinance is invalid on its face, a reason of conflict with the Interstate Commerce Act and the Commerce Clause of the constitution.

The city and the other respondents who are officials of the city filed a motion to dismiss for failure to state a cause of action.

The District Court dismissed in response to that motion and the Court of Appeals affirmed.

This Court granted certiorari.

Some of the issues in this case were presented to this Court are issues similar to those in this case, were presented to this Court in 1958 in Chicago against Atchison, Topeka, and Santa Fe Railway Company, 357 U.S.77.

In order to understand the issues in this instant case, it is necessary to refer very briefly to some of the facts in that earlier litigation.

Petitioner is engaged under a contract with the Chicago Railroads in transferring passengers between railroad stations in Chicago.

It frequently happens that a passenger engaged on a through journey through Chicago must transfer from his incoming to his outgoing railroad station.

The petitioner furnishes that service in specially designed buses.

The petitioner receives ultimate remuneration from the railroads that passenger pays nothing to petitioner.

Prior to 1955, this interstation transfer service had been performed for many years by the Parmelee Transportation Company.

During the time that Parmelee performed the service, the service was regulated by the City of Chicago along with taxicab service and other similar services by what is known as Chapter 28 of the Municipal Code of Chicago.

On June -- in June of 1955, the railroads notified Parmelee that as of October 1 of that year, they would discontinue using Parmelee service and would use petitioner instead.

About a month later in July of 1955, the City Council of Chicago passed an amendment to Chapter 28 that I've already mentioned, that imposed two very serious obstacles or barricades to petitioner and the railroads in their expectation of launching the new service.

In the first place the amendment gave what amounted due a perpetual franchise to Parmelee to perform the service.

Secondly, it provided that a newcomer to the field, such as petitioner, must prove to the satisfaction of the public vehicle license commissioner of the City of Chicago that public convenience and necessity required the new service.

This Court in the Atchison case that I've mentioned held the amendment to Chapter 28 invalid because in conflict with the Interstate Commerce Act.

I'd like to mention briefly here that the evidence shows in that earlier case and it is set out both in the opinion of this Court and in the opinion of the Court of Appeals which this Court affirmed, that this action of the Chicago City Council in amending Chapter 28 as I've said, was a well-planned, well-conceived scheme to keep -- to perpetuate Parmelee in the service and to keep -- and to put petitioner out of business.

After the decision of this case in the Atchison -- after the decision in the Atchison case by this Court in 1958, that restored the status quo regulatory wise that had prevailed as to this interstation transfer service before the 1955 Amendment.

In other words, in order to leave regulation or have regulation of the same type that had covered Parmelee for many years, all the City of Council had to do was simply do nothing.

But shortly after -- a few months after the mandate came down in the former Atchison case, the Chicago City Council started on a course of amendment of Chapter 28 again to the great detriment of petitioner and the Chicago Railroad.

The Council amended Chapter -- Section 28-6 of Chapter 28 by requiring that annually a person desiring a license to operate as a public passenger vehicle must file an application with the -- well, they already had to file an application but it amended those application proceedings to provide that a person filing an application must prove to the satisfaction of the Public Vehicle License Commissioner that the applicant was qualified to pursue the occupation of a cabman or a coachman.

Now that phrase qualified to pursue the application of a cabman or a coachman included petitioner within its scope because petitioner was defined as a coachman in the ordinance.

It also included taxicabs for the most part but taxicabs operators already had to prove that they -- the public convenience and necessity before conducting any operation since they were an intrastate operation, presumably that was valid, at least it's never been challenged as to the taxicabs.

In other words, this Amendment in 1959 to Section 28-6 the -- almost the entire force of it fell up on the petitioner.

This phrase qualified to pursue the occupation of a coachman was not in any sense, could not -- cannot in any sense, we submit, be considered a regulation within the legitimate police power.

It gave a discretion to the Public Vehicle License Commissioner to -- in his discretion, deny the application for a certificate to perform this service.

And so we say that -- and we cited the only case we can find on the point, the decision of the Supreme Court of Tennessee that the phrase “qualified to pursue the occupation” is a -- in substance a part of the proof that has to be made in proving public convenience and necessity.

So the Chicago City Council got back on the old -- in 1959, got back on the old 1955 track.

The Council amended another section, Section 28-31 of Chapter 28 required taxicab operators to furnish annually to the Public Vehicle License Commissioner a detailed financial statement showing profit and loss and all of the detailed information that and of a -- an intrastate operator subject to the jurisdiction of the City Council would need to submit for the purpose of rate regulation.

But the Council by a very clear and direct amendment to that provision required or made that provision applicable to petitioner.

In other words, it's something that the petitioner whose sole responsibility as to the railroads to -- it's furnishing the same kind of financial data to the Commissioner as taxicab operators.

Now --

Chief Justice Earl Warren: Do respondents agree that that -- if that was done, are you in agreement on that?

Mr. Amos M. Mathews: No.

No sir.

Well, the -- I'm not sure about that.

I'm coming to something now that I think might answer your question.

Chief Justice Earl Warren: Oh, very well, go ahead.

Mr. Amos M. Mathews: In part anyway.

And I'll cover that exclusively after I reached this point.

Chief Justice Earl Warren: Very well.

Mr. Amos M. Mathews: Respondents now in their brief on the merits, in this Court, concede that these two provisions, these two amendments that I've detailed cannot be applied to petitioner.

Now they did not make that concession in their brief opposing certiorari.

In our petition for certiorari, we made the same argument in respect to these two amendments that we now make in our petition -- in our brief on the merits and that I have outlined briefly in argument here.

So -- but for the first time in their brief on the merits, respondents say that these two provisions cannot be enforced against petitioner.

Now either that concession means that the amendments are not applicable in terms to petitioner or it means that they cannot lawfully be applied to petitioner.

Now we submit that the two amendments are just as clearly and precisely applicable to petitioner in their wording as an arrow hitting a bull's eye.

Therefore we say that this concession must mean that respondents are admitting that these two amendments are invalid on their face as applied to petitioner.

Now answering your question, Mr. Chief Justice, the -- we have spelled this out in detail in our brief but I think I can summarize it quite --

Chief Justice Earl Warren: Well, I --

Mr. Amos M. Mathews: -- expeditiously.

Chief Justice Earl Warren: You don't have to summarize for me, I just -- I know that there was some phase of the facts that were interpreted differently by both sides.

Mr. Amos M. Mathews: That is correct.

But I --

Chief Justice Earl Warren: But I wonder if this was the one?

Mr. Amos M. Mathews: This was the one, yes.

Chief Justice Earl Warren: This is the one.

Mr. Amos M. Mathews: The section regarding financial statements by taxicab operators was made in terms to apply to taxicab operators.

Among the definitions in Chapter 28, are these.

A person is defined as an individual, a firm, or a corporation, so that before the Amendment I'm referring to the taxicab Amendment -- the taxicab financial statement provision applied to taxicab operators who either were individuals or partnerships, or corporations.

It applied that plainly.

Now the City Council in bringing Parmelee -- bringing petitioner within the scope of that Amendment, used the word and made it applicable to every corporation that is a public passenger vehicle.

Now, petitioner is a corporation, petitioner is a public passenger vehicle.

So the language could not be any clearer, we submit.

Now --

Chief Justice Earl Warren: May I ask this?

Was that Amendment before or after the case was argued in the Court of Appeals?

Mr. Amos M. Mathews: It was -- the case went to the Court of Appeals.

The first -- the case has been to the Court of Appeals twice.

Chief Justice Earl Warren: Yes, I mean the last time.

Mr. Amos M. Mathews: It was amend -- it was before the last argument in --

Chief Justice Earl Warren: Was it raised?

Was the question raised in the court below?

Mr. Amos M. Mathews: Yes sir.

Chief Justice Earl Warren: Did they deal with it?

Mr. Amos M. Mathews: Yes sir.

Chief Justice Earl Warren: Okay, go ahead.

Mr. Amos M. Mathews: The Court of Appeals said that the requirement to furnish financial data or words to that effect is within the ul -- the legitimate police power of the city.

The Court of Appeals and the District Court too for that matter held the ordinance was valid on its face and they held that the city had taken no action of which petitioner could complain.

We submit that this concession amounts to an admission that in these two respects, the ordinance is invalid on its face.

Therefore, we submit there is a conflict between these concessions and the holding of the Court of Appeals.

And therefore, we further submit that in view of that, the judgment of the Court of Appeals should be vacated or reversed in order that a judgment maybe entered in the District Court in accordance with the concession now made in respondent's brief on the merits.

Justice Abe Fortas: Are you saying to us that if respondents have made a concession on these two points that that disposes of your grievance?

Mr. Amos M. Mathews: Not entirely, there are two other points that -- in which they have not made concessions, or does that answer your question?

Justice Abe Fortas: I thought so, and -- but are you still pressing those?

Mr. Amos M. Mathews: Those other two points?

Justice Abe Fortas: Yes.

Mr. Amos M. Mathews: Yes sir.

I was about to go to those.

There are two other points.

The ordinance was -- the ordinance requires in effect and there is some dispute about this that a petitioner -- any operator of a public vehicle be required to employ as chauffeurs only residents of the City of Chicago.

Now there is some dispute about that as to whether that is before the Court.

But the fact is that it was in the pleadings, it was the Court -- the both the District Court and the Court of Appeals held it with before the Court and both of them decided it.

And the Court of Appeals expressly decided that it is a valid -- within the police power of the City of Chicago to compel the petitioner to employ as chauffeurs only residents of the City of Chicago.

Chief Justice Earl Warren: Did the city argue to that effect below?

Mr. Amos M. Mathews: Yes sir.

Well at least -- yes sir, that's my understanding.

The other provision is this and it came in by an amendment.

The ordinance was amended after the first Atchison case to require that every public passenger vehicle operator must maintain -- if a corporation, must maintain its principal place of business in Chicago.

Now petitioner has engaged in Interstate Commerce.

And we submit that it is an invalid requirement under the Commerce Clause and under the Interstate Commerce Act as far as petitioner is concerned to say that a corporation engaged in interstate commerce in Chicago must maintain its principal place of business there.

Justice Potter Stewart: This petitioner's principal place of business is in Chicago?

Mr. Amos M. Mathews: Yes sir.

This petitioner's (Inaudible) it's only place of business is in Chicago.

But it is our position on that, Your Honor, that at some time in the future, we may want to move our principal place of business somewhere else without ceasing to do business in Chicago.

Justice Potter Stewart: I'm wondering if they -- if with respect to this issue, there is -- really is any right case with controversy now.

Mr. Amos M. Mathews: Well, I'm -- I -- with all due respect, Your Honor, we believe there is in this way.

We have encountered at times and we encountered it in this case in fact, it's raised in respondent's brief, in respect to Section 28-6.

In respect to 28-6 that was amended to include that qualification provision, despite the fact that that amendment was in Section 28-6, they say that since we didn't attack Section 28-6 in earlier litigation that Section 26 -- its 28-6 is valid on the principle of res judicata or at least the way I understand that argument.

Now when the time comes, if it comes, when we want to move our principal place of business, we don't want to be met with an argument that the question res judicata because we didn't raise it in this action.

As a matter of fact, I'd be perfectly frank if this Court should want to say that it isn't -- it wasn't -- isn't timely raised, it can't be raised now with adversary purpose just as well, because we wouldn't be met with the defense of res judicata.

The --

Chief Justice Earl Warren: And you don't -- then in most circumstances, you wouldn't consider it an important issue in the case where you said it wasn't raised?

Mr. Amos M. Mathews: That is correct, if -- well -- it -- well --

Justice Potter Stewart: You want us to make clear that you raised the point?

Mr. Amos M. Mathews: We'd want it, I -- yes, yes, sir.

We would want you to make -- the Court to make clear that we raised it but we wouldn't object if the Court said that if it wasn't ripe for consideration, yet.

Chief Justice Earl Warren: I see, yes.

Mr. Amos M. Mathews: Because in that way, that would avoid the defense of res judicata.

Chief Justice Earl Warren: Yes.

Mr. Amos M. Mathews: A great deal of the argument of the respondents is to the effect that the city has done nothing to hurt us.

But frankly, we submit and we believe that the city is trying to play the same cat and mouse game with us in this case that they tried to play in the former Atchison case.

In the Atchison case is the opinion of the -- the opinion of this Court reveals.

The city said the -- disclaimed any intention to use the phrase “public convenience and necessity” as an economic barrier to our operation.

They said that only compromises the reasonable incidence of the police power.

And this Court disposed of that by saying it's perfectly clear whatever language you apply to it that the city is still claiming some power to exclude or hamper petitioner's operations.

Now there's a rather curious inconsistency.

Well, I'll leave out the adjective and say it's an inconsistency in the opinion of the Court of Appeals in this.

That in a footnote in the opinion of the Court of Appeals, the Court says that respondents now admit that they have no power to stop petitioner's operations.

But right on the same page and not in the footnote, is this statement -- well anyway, the Court of Appeals says, finds that the ordinance confers the power on the Public and Vehicle -- Public Vehicle License Commissioner to deny an application.

In other words, after holding in the body of its opinion that the ordinance gives the city that power and thus as we say shows that the ordinance is invalid on its face, the Court in a footnote says that the city admits that it has no power to stop petitioner's operations.

The -- we think that in view of that omission -- admission by --

Justice Byron R. White: What if your client insisted on his drivers not having licenses, driver's licenses or chauffeurs' licenses?

Mr. Amos M. Mathews: Oh, we admit that it has to have some kind of a chauffeur's license.

Justice Byron R. White: Well, so that there are some grounds on which local authorities could suspend your operations or revoke your certificate or deny an app -- a new application.

There are some circumstances in which the local authorities would have power, isn't that true?

Mr. Amos M. Mathews: Under some circumstances, under the police power.

Justice Byron R. White: Well I -- in some circumstances and they would have the --

Mr. Amos M. Mathews: Yes, but they -- we say that they can base the -- they can't say -- they can say to us, “Your chauffeurs must have licenses as chauffeurs, driver or a chauffeur's license”.

But we say that they can't make the criterion for that residence in Chicago, that you must be a -- the licensee must be a resident in Chicago.

Justice Byron R. White: Well, but I was just -- I don't see that why the Court of Appeals necessarily inconsistent.

It simply said that the ordinance does give the power to the local authorities to suspend or revoke permits or to deny an application.

That doesn't mean it's invalid on the state because there are some circumstances and if that (Voice Overlap) --

Mr. Amos M. Mathews: There are circumstances within the police power but we think that the phrase used that he must prove he's qualified to pursue the occupation of transferring passengers between stations, gives the city the right to --

Justice Byron R. White: I know but --

Mr. Amos M. Mathews: -- exercise an economic power.

Justice Byron R. White: One example of proving your qualifications to prove that you've got drivers who are licensed for example to drive vehicles.

Mr. Amos M. Mathews: Oh well, but there are --

Justice Byron R. White: Now, isn't that true?

Mr. Amos M. Mathews: This is an addition to all of those others.

Justice Byron R. White: I know.

Mr. Amos M. Mathews: And it is not a sum -- it is not a summarization of them.

If you examine the structure of the --

Justice Byron R. White: Well, you don't even know what -- but, you don't know and I guess this is your point, what qualifications the city is going to insist though?

Mr. Amos M. Mathews: That is right.

Justice Byron R. White: You have no -- except that you have them because you're licensed.

Mr. Amos M. Mathews: That is right.

Justice Byron R. White: What's wrong -- what's the -- then why, why shouldn't the Court wait and see the circumstances in which -- or the qualifications on which the city is going to insist and the circumstances in which you might be denied the right to --

Mr. Amos M. Mathews: Because the city -- because -- two answers to that, because of our past experience with the city of deliberately trying to put us out of business and we think this is another attempt along the same line.

Justice Byron R. White: Yes, but they're licensed, I mean, if you -- license is every year.

Mr. Amos M. Mathews: No, we've had licenses in the first year which we obtained under the rest.

And since then, we've been depositing the license fee without obtaining licenses in the Office of the Clerk of --

Justice Byron R. White: Yes.

Mr. Amos M. Mathews: -- the District Court.

Justice Byron R. White: But they haven't refused the license fees?

Mr. Amos M. Mathews: No, they have not.

Justice Byron R. White: And --

Mr. Amos M. Mathews: But someday, we think they will under critical times.

Justice Byron R. White: Well, why is that --

Mr. Amos M. Mathews: Now the point is we don't --

Justice Byron R. White: Why is that -- why isn't that a good time then to test out the validity of this ordinance since there are some circumstances on which you admit they could deny you --

Mr. Amos M. Mathews: Those circumstances are spelled out in the ordinance and we don't attack them.

But to superimpose this discretionary qualified to pursue the occupation.

The only two cases we can find on that that used that language say unreserved a bit that that gives a discretion beyond ordinary police power qualifications.

I would like to reserve if I can just a few minutes I have left for --

Chief Justice Earl Warren: You may, Mr. Mathews.

Mr. Simon.

Argument of Raymond F. Simon

Mr. Raymond F. Simon: Mr. Chief Justice, may it please the Court.

At the very outset, the city would like to make it clear that it fully understands the opinion of this Court in Atchison.

The City of Chicago does not urge upon this Court any change or modification whatsoever in the opinion enunciated in Atchison versus Chicago, 357 U.S. 77.

In that case, this Court held at pages 88 and 89, the city retains considerable authority to regulate how Transfer vehicles shall be operated.

It could hardly be denied for example, that such vehicles must obey traffic signals, speed limits, and other general safety regulations.

Similarly, the city may require registration of these vehicles and exact reasonable fees for their use of the city streets.

All we hold here and all we construe the Court of Appeals as holding is that the city has no power to decide whether Transfer can operate a motor vehicle service between terminals for the railroads because this service is an integral part of Interstate Railroad Transportation authorized and subject to regulation under the Interstate Commerce Act.

It is not the city which is attempting to avoid this Court's opinion in Atchison, but rather it is Railroad Transfer which has been dissatisfied with the outcome of the litigation in Atchison which struck down only Section 28-31.1 relating to public convenience and necessity and sustained the entire remainder of the chapter, it's Transfer which has begun this litigation anew in its attempt to accomplish what it failed to accomplish when the first litigation took place.

Justice Byron R. White: Now could you help me out -- well, there's no suggestion that there is -- that there's anything wrong when they're litigating the validity of this ordinance, is there?

Chief Justice Earl Warren: No, Mr. Justice.

Justice Byron R. White: Well, would you -- are you (Inaudible) and you are sustaining or saying that neither -- that the District Court didn't have any jurisdiction --

Mr. Raymond F. Simon: No.

Justice Byron R. White: -- to entertain this suit?

Mr. Raymond F. Simon: The point, Mr. Justice White that I'm attempting to make is that throughout its briefs, Transfer argues that the City of Chicago is endeavoring to subvert the opinion of this Court in Atchison.

In the brief, Transfer argues that it was a hostile City Council, bent and subverting this Court's opinion which in a diehard effort to impair constitutional rights amended Chapter 28 and inserted the provision relating to as -- Transfer argues --

Justice Byron R. White: Well I'm not sure --

Mr. Raymond F. Simon: -- convenience and necessity again.

Justice Byron R. White: I'm not sure what helps to decide the case, to find out who was trying to subvert what --

Mr. Raymond F. Simon: Well, forget --

Justice Byron R. White: -- to be -- real -- isn't it really the issue is the validity of this ordinance under the constitution or no?

Mr. Raymond F. Simon: Yes, it is, Mr. Justice White and perhaps what would the city --

Justice Byron R. White: Well, was --

Mr. Raymond F. Simon: -- perhaps the city was just --

Justice Byron R. White: But the Court of Appeals decide that that there was no jurisdiction to decide the case?

Mr. Raymond F. Simon: The Court of Appeals really held that there was no controversy.

Justice Byron R. White: It says, but if --

Mr. Raymond F. Simon: But the question which you presented to Mr. Mathews was really the basis of the Court of Appeals' opinion.

They said there is no controversy.

Justice Byron R. White: Yes, but they said --

Mr. Raymond F. Simon: The City of Chicago has issued all of the licenses which Transfer his applied for.

What Transfer was required to present was simply a one page application, a one page financial statement, a list of its equipment, its corporate charters, certificate to do business in Illinois, its insurance policy, and its fees, and nothing more.

And the City of Chicago issued all of the licenses which Transfer applied for and the Court of Appeals could find no controversy.

Justice Byron R. White: But it says the District Court found jurisdiction to entertain Transfer's second amended complaint.

We agree -- do they say we -- you do have jurisdiction.

Mr. Raymond F. Simon: Yes sir.

Justice Byron R. White: And then they said there was no controversy?

Mr. Raymond F. Simon: Your Honor was that relates to as in the initial complaint, the city asserted that the amount in controversy was not sufficient to give jurisdiction that the amount of fees that had accumulated was not equal to the jurisdictional amount.

And then Transfer amended and said that they seek jurisdiction based upon the Interstate Commerce Clause --

Justice Byron R. White: Yes.

Mr. Raymond F. Simon: -- the Commerce Act.

And it was on that basis that the courts said they do have jurisdiction.

But the sequence of events which led from the District Court through the Court of Appeals and to this Court illuminate with harsh clarity the insincerity of the arguments which Transfer advances in the present litigation in the District Court.

Both the complaint and the opinion of the Court indicated that Transfer was concerned about the payment of fees.

The District Court said and I quote from the record at page 133, “If I am to find the principal source of plaintiff's claim of grievance, it is that plaintiff has required to pay an annual license or tax to the City of Chicago for the privilege of operating its terminal vehicles whereas public utilities and other companies carrying out a similar business are not subject to the same requirement”.

The District Court found the classification was reasonable and dismissed the complaint.

Then in the Court of Appeals, Transfer tried a new attack.

And the Court of Appeals had complained that our ordinance was invalid because it did not provide for some administrative hearing before there might be consideration given to revocation of licenses.

And it argued that certain safety regulations were invalid because they required that a vehicle should be of a uniform color for example.

And they argued again that the requirement -- that the principal place of business of coachmen be in the city and that their chauffeurs be residents of the city.

All these arguments were advanced as to the invalidity of the Municipal Code of Chicago.

Justice Abe Fortas: Mr. Simon I am having one difficulty in finding out just what the issues are.

Mr. Raymond F. Simon: Mr. Justice --

Justice Abe Fortas: I'd like to ask you specifically in the 28-6.

Does the city now say that with respect to the petitioner here, the Commissioner does not have jurisdiction to make the planning that the applicant is qualified or is not qualified to engage in this business.

What is your position?

As I understand it, 28 -- under 28-6 petitioner takes position that they did file an application under duress and it was granted.

But that requiring them to seek a determination from the Commissioner that they are not qualified to carry on this business is in conflict with the Commerce Clause with this Court's decision in Atchison.

Then I understood counsel -- Mr. Mathews to suggest that perhaps you had conceded, he said he has conceded that 28-6 phrase that I read from 28-6 it is a dead letter.

Mr. Raymond F. Simon: Yes.

Justice Abe Fortas: But what is the city's position?

Mr. Raymond F. Simon: Mr. Justice Fortas, the city's position is that the record does not show whether Section 28-6 was applied to Transfer.

The reason I'm sure that the record doesn't show whether or not it was applied was that this argument was not the issue --

Justice Abe Fortas: I know --

Mr. Raymond F. Simon: -- down the District Court.

Justice Abe Fortas: -- but I'm asking you now.

I thought -- that's the issue that they're trying to present to us anyway --

Mr. Raymond F. Simon: And in regard to --

Justice Abe Fortas: And under what -- maybe it is or is not properly before us.

Mr. Raymond F. Simon: Mr. Justice, in regard to your specific question, the city in its brief was attempting to contradict transfer, not concede that qualified to pursue the occupation of a coachman was not applicable.

The city was attempting to deny that the interpretation of that phrase is correct.

The city takes the position that Section 28-6 must be read as a unity.

And the first sentence --

Justice Abe Fortas: Alright, I beg your pardon Mr. Simon, I don't want to press you unduly.

But it is stated to us that this phrase that I read to you --

Mr. Raymond F. Simon: Yes.

Justice Abe Fortas: -- was incorporated in these -- in this ordinance --

Mr. Raymond F. Simon: That's right.

Justice Abe Fortas: -- after our decision in Atchison.

And the petitioner here says that it should not be required to seek a determination from the Commissioner in the City of Chicago as to whether it is or it is not qualified.

And I think -- I'm sure I'd be very grateful to you if you just tell me plainly whether the city fixed the position that this phrase that I read is or is not applicable here.

And whether the petitioner does or does not have to submit an application, whether the Commissioner does or does not have a jurisdiction under the city's view to make the determination as to qualification of the petitioner.

Mr. Raymond F. Simon: Well, Mr. Justice, I -- really and truly, I'm not trying not to evade your question.

But the record does not show whether or not it was applied.

If it were to be applied, it must be applied in accordance with the entire Section so that if this Section 28-6 is read in its entirely, the word qualified means that the Commissioner finds that the applicant is a law abiding citizen with financial ability to carry on safe and comfortable service, maintain and replaces equipment and pay his judgments.

This is the list of qualifications.

And in this context, yes, the provision applies.

It can only be read together what counsel for Transfer is attempting to present to the Court as an interpretation which separates the first sentence of Section 28-6 from the second sentence.

Justice Potter Stewart: That's the way the 28-6 seems to read --

Mr. Raymond F. Simon: Well --

Justice Potter Stewart: It requires that the applicant specifically do all these things you've mentioned and then it said, and that the applicant is qualified to the city occupation of the cabman or coachman which seems to superimpose as your Brother, opposing counsel said, an additional requirement.

Mr. Raymond F. Simon: No, the first sentence would be meaningless --

Justice Potter Stewart: The word and --

Mr. Raymond F. Simon: -- Mr. Justice.

Justice Potter Stewart: -- would seems to be adding something additional.

Mr. Raymond F. Simon: Well, what the section says is that the Public Vehicle Commissioner shall determine if the documents that must be filed are properly executed and determine if the applicant is qualified.

And the lists of qualifications are those that are set out in the first sentence.

He must determine whether his character and reputation is that of a law abiding citizen.

He must determine that he has the financial ability to render safe and comfortable service.

He must determine that he is able to maintain and replace the equipment for such service and pay judgments that arise in the conduct of his business.

These are the lists of qualifications.

If he meets these qualifications, he does not get a contract to work for the railroads.

He gets his licenses.

And this is one of the essential fallacies of Transfer's argument is that there is a basic distinction between the city's attempt to regulate whether a particular terminal vehicle service can operate which is clearly unconstitutional

Justice Abe Fortas: Precisely what part of 28-6 was added after our decision in Atchison?

Was it just this phrase about the Commissioner finding that the applicant is qualified?

Mr. Raymond F. Simon: If --

Justice Abe Fortas: Is that the only thing that was added to 28-6?

Mr. Raymond F. Simon: No, the word that was added was to pursue the occupation of a cabman or coachman whereas in the past, it read, if he's qualified as a cabman, I believe.

Justice Abe Fortas: Well --

Mr. Raymond F. Simon: Now --

Justice Abe Fortas: -- that doesn't seem squarely pure interpretation (Voice Overlap) --

Mr. Raymond F. Simon: Well, the reason for the insertion is a very simple explanation and it's so unsophisticated that it's hard to present the City of Chicago --

Justice Abe Fortas: (Inaudible)

Mr. Raymond F. Simon: The City of Chicago has these categories of licensees, cabman which includes taxicab operators and every vehicle operators and sightseeing buses and terminal vehicles.

Now what the city did at the time it was amending this law was to separate cabman from all others because we have well over 5000 taxicabs in Chicago and that's the bulk of our regulation.

Then we took the word coachman and defined it to include busman, delivery vehicles, and terminal vehicles.

We no longer have a definition for the word busman.

That was completely dropped out of the ordinance.

It's not covered by coachman.

The word coachman was inserted here simply to make it clear that this is the universal inclusive of public passenger vehicles.

It includes cabman.

It includes coachman.

It's another way of saying it includes taxicabs, delivery vehicles, sightseeing buses, and terminal vehicles.

And that is all that this section was amended to change.

It's a very bland amendment.

But what counsel has attempted to do is to make equivalent to public convenience and necessity, the use of the simple words pursue the occupation of a coachman.

Now the city contends --

Justice Hugo L. Black: Well that would be true, would it not, if what you are seeking to accomplish by this --

Mr. Raymond F. Simon: No

Justice Hugo L. Black: -- just to --

Mr. Raymond F. Simon: No.

Justice Hugo L. Black: -- to decide that these people cannot operate this terminal facility.

Mr. Raymond F. Simon: Perhaps it would clarify it somewhat, Mr. Justice Black to say that there are two aspects of the occupation which we may focus on.

One is the aspect of operating the vehicles on the streets of the City of Chicago.

That's pursuing the occupation of a coachman.

Another aspect is contracting with the railroads to do their business for them.

Now the city maintains that this Court said, “We could not -- we could regulate how they maintain their vehicles”.

Justice Hugo L. Black: Do you say you could regulate with consequences that would have the same effect as licensing them to do this interstate business?

Mr. Raymond F. Simon: Absolutely not.

That's precisely what this Court told us we could not do.

And we contend we're not --

Justice Hugo L. Black: But I understood from you, I maybe wrong, I understood from you to say that he is required to do these certain things.

If he doesn't do it, he can't get a license.

Now what's the consequence if he is not getting a license --

Mr. Raymond F. Simon: If he doesn't obtain a license, we'll file --

Justice Hugo L. Black: -- in the city?

Mr. Raymond F. Simon: If he does not obtain a license, we'll file a lawsuit to compel him, to take out a license and pay us the fees because we have a right to know that their vehicles are safe.

This Court has held that that right is permitted to cities and unless they come in and submit their vehicles for testing and take out a license after they show their qualifications to the city, we won't know whether the vehicles are safe --

Justice Hugo L. Black: Would you require the railroad --

Mr. Raymond F. Simon: -- and this is an obligation which we owe to the people of Chicago.

Justice Hugo L. Black: Would you require this with the railroad?

Mr. Raymond F. Simon: The railroads don't operate on the streets of the city.

Mr. Justice, I'm sure --

Justice Hugo L. Black: But they operate through the city, do they not?

Mr. Raymond F. Simon: They --

Justice Hugo L. Black: (Inaudible)

Mr. Raymond F. Simon: -- do operate through our city.

There's no question that they do but you see railroad terminal is a unique kind of interstate operator.

Its sole business is limited to one or two square miles within the center of the City of Chicago.

It never leaves our city.

It operates its business completely upon the city streets.

And this Court has always held that there's a balancing between the inconvenience to the interstate carrier and the benefit to occur to the public.

And we maintain when their whole business is derived from transporting passengers on the city streets.

We have a right to impose reasonable safety regulations and collect fees for that.

And we believe that's consistent with this Court's opinion in Atchison.

Justice Hugo L. Black: Do I understand you to make the statement here about the City of Chicago that there's nothing in this ordinance which it thinks or believe to give it the right to attach consequences which would prevent this company from operating on the streets of Chicago?

Mr. Raymond F. Simon: Yes, Mr. Justice, that's true.

We do not believe that we can prevent Transfer from operating.

What we do believe we have a right to do, if they refused to take out licenses, if they just take the position that they're an interstate carrier, we'll have absolutely no regulation from Chicago, we'll file a lawsuit and we'll ask the Court to order them to meet the qualifications of our ordinance, to submit their vehicles for testing and to show that they are law abiding citizens with financial ability to maintain safe and comfortable service and to maintain and replace their equipment.

That's the city's position, Mr. Justice.

Chief Justice Earl Warren: How about your requirement that they maintain a principal place of business in Chicago and that all their employees must live in Chicago?

Mr. Raymond F. Simon: Mr. Chief Justice, we contend that this is not an issue in this litigation because the allegation and the complaint of Transfer states that they're a Delaware corporation with their principal place of business in the City of Chicago.

And we maintain that it is because their business involves transporting passengers from one railway station in Chicago to another railway station in Chicago that accounts for their residents and their principal place of business being in the city and that in a requirement of our ordinance.

Chief Justice Earl Warren: How about the requirement that all employees must live in the City of Chicago?

Is that a safety measure?

Mr. Raymond F. Simon: Yes, Your Honor, we believe it is in the sense that it was litigated in the Bulks (ph) case in the Illinois Supreme Court and in the sense that the Court of Appeals refers to it in this litigation in which they articulate the expression of accessible responsibility.

And by that expression they mean that if the residents reside within the city, they're within the reach of those investigative and police officials who have as their business supervising the conduct of taxicab and railway transfer vehicles in the city.

Their residents will be within the reach of those officials who have business with them.

Justice Hugo L. Black: Do you consider this a license which you require to be the equivalent of a charge to an out-of-state vehicle for actually using the roads, the actual value of the use of the roads?

Mr. Raymond F. Simon: No, Your Honor, we do not.

We consider this charge to be equal to the cost to the city to offset the administration of the licensing provision.

In other words, the amount of money which is paid to the city is equal to what it costs the city to have clerks to process the paper and to have men to test their vehicles.

Justice Hugo L. Black: Why did you put it in the form of a license rather than a charge?

Mr. Raymond F. Simon: Well it was cast in that regard historically, Your Honor.

And I don't think it would be material if it were on either manner.

It was --

Chief Justice Earl Warren: What is the license?

What is the license?

Mr. Raymond F. Simon: The license fee?

Chief Justice Earl Warren: Yes.

Mr. Raymond F. Simon: The charge?

I believe its $40 for a seven-passenger vehicle.

That's $40 for a seven-passenger vehicle.

Justice Byron R. White: Would you say there though, there's no criminal penalty to any kinds of -- or even (Inaudible) penalty to refuse for operating without a license?

Mr. Raymond F. Simon: No, I didn't say that, Your Honor but the city -- the Section relates to all of the public vehicles in the City of Chicago, cabman and coachman --

Justice Byron R. White: Because really the conflict, the city wanted to (Inaudible) having these there are ordinances to enforce the licenses?

Mr. Raymond F. Simon: It could file a lawsuit and attempt to charge a penalty, that's correct.

Justice Byron R. White: Criminally?

Mr. Raymond F. Simon: Yes, that's correct.

Criminal in the sense of fine, there's no imprisonment for operating without a license.

It's a fine, I believe, of a maximum of $200.

Justice Abe Fortas: How about the requirements of filing a balance sheet in the property loss statement, does the city require that of taxicab companies?

Mr. Raymond F. Simon: No.

Justice Abe Fortas: Which it filed balance sheet --

Mr. Raymond F. Simon: No.

Justice Abe Fortas: -- for property loss statement.

Mr. Raymond F. Simon: No, Mr. Justice, no.

That section that you're alluding to I believe is Section 28-30.1, am I correct?

Is that what you're --

Justice Abe Fortas: Well, I'm looking at the questions in petitioners' brief on page 3 and the specific questions that they present to us on number two.

Mr. Raymond F. Simon: Yes.

But what --

Justice Abe Fortas: Whether Chicago may by the ordinance compel the petitioner to file a statement of expenses and earnings in its balance sheet.

Mr. Raymond F. Simon: Yes, we take the position that that Section does not relate to Transfer.

That Section is 28-30.1.

It has not been applied to Transfer.

There's no showing in the record that it applies to Transfer.

And it's inserted in our ordinance in the Section that relates to the fixing of fees for taxicabs.

It's the Section that relates to rates.

Justice Abe Fortas: I see.

Mr. Raymond F. Simon: And the word --

Justice Abe Fortas: How about (b), to afford the city officials access to its business and financial books and records?

Mr. Raymond F. Simon: These are the provisions of the Section --

Justice Abe Fortas: (Inaudible) your answer --

Mr. Raymond F. Simon: -- which we contend does not apply.

Justice Abe Fortas: Your answer is the same.

The city agrees that it does not apply?

Mr. Raymond F. Simon: Correct.

Justice Abe Fortas: Now --

Mr. Raymond F. Simon: And when we --

Justice Abe Fortas: -- on the next page, employ only residents, that is an issue before us, isn't it?

Mr. Raymond F. Simon: Yes, we believe that there's (Voice Overlap) --

Justice Abe Fortas: Employ only residents of Chicago as drivers.

And the next one (d), to maintain the principal place of business in (Inaudible) you take the position that that is --

Mr. Raymond F. Simon: That is (Voice Overlap) --

Justice Abe Fortas: -- a question that's not properly here --

Mr. Raymond F. Simon: Yes.

Justice Abe Fortas: -- for decision.

Mr. Raymond F. Simon: Yes, Mr. Justice, that's correct.

Justice Hugo L. Black: What you have in effect as I understand you, there's a license to be charged, the operation of these interstate vehicles and for a violation of the law requirement of license, parties can either be fined or they can be sued?

Mr. Raymond F. Simon: That's correct, Mr. Justice but its important --

Justice Hugo L. Black: Do you have any other interstate vehicles that are required to be licensed?

Mr. Raymond F. Simon: No, Mr. Justice, there are no other vehicles in the entire City of Chicago like Railroad Transfer's vehicles.

Railroad Transfer is a unique --

Justice Hugo L. Black: You don't think --

Mr. Raymond F. Simon: -- or at least unusual.

Justice Hugo L. Black: You don't think you could license a railroad train, do you?

Mr. Raymond F. Simon: No, no Mr. Justice, I don't.

I don't think the city would contend that but the railroad trains --

Justice Hugo L. Black: In the context here --

Mr. Raymond F. Simon: -- do not operate on the city streets.

Justice Hugo L. Black: In the context here, what's the difference between licenses -- this interstate vehicle as licensing a train --

Mr. Raymond F. Simon: That this --

Justice Hugo L. Black: -- or parts of it?

Mr. Raymond F. Simon: That this interstate vehicle makes its sole living from the use of the streets of the City of Chicago.

Justice Hugo L. Black: Now the railroad makes a part of that living from the use of the streets, is it not?

Mr. Raymond F. Simon: No, Mr. Justice, they own their own railroad right away.

They do no travel upon the city streets and make their entire business from transporting passengers and baggage over the city streets.

Justice Hugo L. Black: What about buses, interstate buses?

Mr. Raymond F. Simon: The buses are not within the range of the city's ordinance.

Justice Hugo L. Black: Why not?

Mr. Raymond F. Simon: Because --

Justice Hugo L. Black: You could do it the same as you could do this one, couldn't you?

Mr. Raymond F. Simon: No, because our State Commission has preempted the regulation of --

Justice Hugo L. Black: Your state hasn't, but why couldn't it do that to the interstate buses if it can do it to this interstate bus?

Mr. Raymond F. Simon: Because the city's authority to regulate does not extend beyond its corporate limits.

And this interstate carrier operates solely within the municipality of the City of Chicago.

Its entire business is conducted --

Justice Hugo L. Black: Operate its interstate business within the City of Chicago?

Mr. Raymond F. Simon: That's correct, Mr. Justice.

Justice Byron R. White: Do you know whether or not you have a terminal railroad in the City of Chicago that operates fully interstate?

Mr. Raymond F. Simon: No, we do not have, unless you would look upon our mass transportation system as that kind of a railroad and even that extends into the entire county area.

We do not have an interstate railroad.

Justice Byron R. White: Do you think the Commission does that you have the -- does the -- Commission doesn't hold regulation (Inaudible)?

Mr. Raymond F. Simon: Our State Commission?

I don't know the answer, Mr. Justice.

The City of Chicago does not.

Chief Justice Earl Warren: Is there anything in the record to indicate to what extent the city intends to enforce this ordinance against the petitioner?

Mr. Raymond F. Simon: Mr. Justice, the record shows that the City of Chicago issued all of the licenses which --

Chief Justice Earl Warren: No.

Mr. Raymond F. Simon: -- Transfer applied for --

Chief Justice Earl Warren: That isn't the answer.

That isn't the answer.

I said, is there anything in the record to indicate to what extent the city expected -- intended to enforce the provisions of this ordinance for at least those provisions that are complained at in the complaint.

Mr. Raymond F. Simon: Are you addressing the question to Section 28-6?

Chief Justice Earl Warren: The one that's in question here.

Mr. Raymond F. Simon: The record is absolutely silent on whether that section has been applied.

And the reason of silent is that it was not the issue in the trial court wherever the -- where evidence was taken.

Our position is that if it does apply, it must be applied in the sense of the qualifications being those set out in the first sentence relating to safety requirement.

Chief Justice Earl Warren: I -- at some place, I got the impression that the city had stated that it intended to enforce all the provisions that are complained against here --

Mr. Raymond F. Simon: I know -- I know now --

Chief Justice Earl Warren: -- against -- against the --

Mr. Raymond F. Simon: I know now Mr. Justice what you're referring to.

Chief Justice Earl Warren: Yes.

Mr. Raymond F. Simon: That was a letter written by the Public Vehicle License --

Chief Justice Earl Warren: Right.

Mr. Raymond F. Simon: -- Commissioner when Transfer did not apply for licenses.

And it was a letter which was not a work of art written by attorneys.

It was a letter which in essence said, pay up or stop doing business in the City of Chicago.

The City of Chicago does take the position that we will not and that we cannot stop Transfer from operating because as Mr. Justice Black points out they are an interstate carrier.

And you told us in the Atchison decision that we could not decide whether they can operate.

All we're trying to do is to decide how they operate their vehicles.

In our ordinance we contend relates to safety requirements.

Chief Justice Earl Warren: Is that letter in the record?

Mr. Raymond F. Simon: Yes, it is.

It is in the record and the letter does say, “Apply for your licenses and pay the fees or cease-and-desist doing business.

We --

Justice Byron R. White: (Inaudible) don't say that now do you, and you'd still litigate (Inaudible) that a license is required for Transfer to operate --

Mr. Raymond F. Simon: We say a license is required but we deny that the way in which we'll enforce --

Justice Byron R. White: Yes, but whatever the qualifications are that you will insist on to get a license, you are insisting that the Transfer had.

Mr. Raymond F. Simon: That they -- yes.

Justice Byron R. White: That they must have the qualification to present --

Mr. Raymond F. Simon: That is correct.

Justice Byron R. White: They must be licensed and here the qualifications for licenses.

Mr. Raymond F. Simon: That is correct, Mr. Justice.

Justice Byron R. White: And those qualifications, are those in 28-6 (Voice Overlap)?

Mr. Raymond F. Simon: In the first sentence.

Justice Byron R. White: Are there any other?

Mr. Raymond F. Simon: Those are the qualifications.

Justice Byron R. White: Are there -- there are no others?

Mr. Raymond F. Simon: No.

No, no.

The payment --

Justice Byron R. White: And if the -- and if they --

Mr. Raymond F. Simon: The payment of fees and so on but no other qualifications, that's correct.

The qualifications are set out --

Justice Byron R. White: Why can't they use --

Mr. Raymond F. Simon: -- in those three phrases.

Justice Byron R. White: It seems to me like you do -- you concede or in a sense concede that you could not apply criminal penalties to Transfer for operating without a license because that's very close to saying you can stop the operation.

Mr. Raymond F. Simon: Well, what we're saying is that the City of Chicago would not stop them.

We would ask the Court to order them to comply with our ordinance.

I think Mr. Justice that the gist of our ordinance is that we want them to submit their vehicles so we can have a safety test.

We want them to carry insurance so that the public will be protected.

We want them to be law abiding citizens so that the management will be responsible.

That's in essence what that Section relates to.

Justice Byron R. White: Well what about financial ability?

It's to conduct the business of the cabin, now that's the -- (Voice Overlap) --

Mr. Raymond F. Simon: (Inaudible)

Justice Byron R. White: -- close to --

Mr. Raymond F. Simon: Yes.

Justice Byron R. White: -- the considerations that --

Mr. Raymond F. Simon: Yes.

Justice Byron R. White: -- the Commission would enter into --

Mr. Raymond F. Simon: I think the financial ability would be satisfied by the showing that they carry insurance.

Justice Byron R. White: We just don't know.

Are you --

Mr. Raymond F. Simon: That's correct because it wasn't litigated.

That's correct.

Justice William O. Douglas: You don't mention 202 (c) in your brief?

Mr. Raymond F. Simon: No because we don't --

Justice William O. Douglas: I think --

Mr. Raymond F. Simon: -- debate the question that this is a link in interstate commerce.

Justice William O. Douglas: Do you deny that it is?

Mr. Raymond F. Simon: No, we do not deny that it is.

No, we don't.

Justice William O. Douglas: Well, the way you just treat this in the same as if it were a rail carrier or --

Mr. Raymond F. Simon: Well they are -- I think --

Justice William O. Douglas: -- truck carrier --

Mr. Raymond F. Simon: They're really unique --

Justice William O. Douglas: (Inaudible) as they come.

Mr. Raymond F. Simon: They're in a unique situation, Mr. Justice Douglas because they're not regulated by the Interstate Commerce Commission in the same way that other interstate transportation companies are.

They don't test their vehicles.

They don't subject them to the requirements.

But they are deemed a link in interstate commerce and they are clothed with that protection of interstate business.

Thank you.

Chief Justice Earl Warren: Mr. Mathews.

Rebuttal of Amos M. Mathews

Mr. Amos M. Mathews: I want to refer very briefly to the concession that I mentioned in my argument and I want to read them or the part of them.

On page 16 of respondent's brief on the merits, “The city specifically denied that Transfer must prove annually that it is qualified”.

Justice Hugo L. Black: Denies what?

Mr. Amos M. Mathews: The City specifically denied that Transfer must prove annually that it is qualified.

Well, now what we say, as I said before the -- in as much as the Court of Appeals held that valid, that to affirm the judgment of the Court of Appeals would be to affirm a legal situation that the city now concedes -- cannot be applied to petitioner.

Then in respect to the financial statement Section 28-31, I quote, “Section 28-31 was designed to apply only to taxicab operators for use in determining rates.

It does not apply to petitioner”.

The trouble of it is, the Court has held that it applies to petitioner.

The Courts upheld this requirement of filing financial statements, I mean the Court of Appeals.

So you have a direct conflict here between the opinion of the Court of Appeals and these concessions.

That is why we say on these two points, there must be a vacation or a reversal to line up the judges so that the District Court may enter a judgment in accordance with these concessions which we submit are correct statement of the law, that they can't make us prove annually that we are qualified and they can't make us furnish these financial statements.

Now, one thing I overlooked doing in my opening argument was to call attention to the fact which probably is unnecessary that the Chicago Terminal Railroads with the permission of the Court have filed a brief as a friend of the Court urging reversal of this cause and advising the Court that they have precisely the same interest in this case as petitioner had because petitioner is in effect the alter ego of the railroads under 202 (c) that Mr. Justice Douglas mentioned and in the holding of this Court in the Atchison case.

In the Atchison case, the railroads may perform the service by themselves or by their authorized agent.

Thank you.

Chief Justice Earl Warren: Mr. Simon, may I ask you if in a word you can tell us whether the concessions you made in your brief have just been referred to calls for vacation or reversal of the case?

Rebuttal of Raymond F. Simon

Mr. Raymond F. Simon: Mr. Justice, we do not make that concession.

It's unfortunate that the use of the italics confuses the intention of the city.

Chief Justice Earl Warren: Where is -- where is (Voice Overlap) --

Mr. Raymond F. Simon: On page 16 in the --

Chief Justice Earl Warren: In your brief?

Mr. Raymond F. Simon: In our brief.

It says, “The city”, and it's in italics, “The city specifically denies that Transfer must “prove annually that it is qualified”.

We mean -- we deny their interpretation that they prove that they're qualified to contract with the railroads to perform their interstation business.

We do maintain they must annually prove they're qualified by showing that they're law abiding, that they have sufficient financial ability to carry on safe and comfortable service.

In other words, the qualifications that are in the first sentence of Section 28-6 do apply the assertion that we are interested in determining whether or not an interstate business is qualified to work for the railroads, we categorically denied.

What we're saying in the section that as Transfer interprets that language, we denied that they ever annually or ever must prove they're qualified.

As the language is clearly set out in Section 28-6 which relates to financial ability not Section 30.1 which Mr. Mathews alludes to, as the Section is set out in 28-6, we do assert that it's applicable to Transfer and we use the italics to call attention to the fact it was their interpretation.

Reading the Section completely disassociated with the first sentence that we denied.

Chief Justice Earl Warren: How about the other concession?

Mr. Raymond F. Simon: What other concession?

Chief Justice Earl Warren: What -- wasn't there another concession to --

Mr. Raymond F. Simon: No.

No, that is not another concession because --

Chief Justice Earl Warren: Right.

Mr. Raymond F. Simon: -- Section 28-6 uses the word financial responsibility.

That Section is applicable to Transfer.

Section 30.1 which requires the furnishing of financial data relates to cab companies and is intended to apply to fixing of rates and does not apply to Transfer.

So we're not making a concession that 28-6 does not apply when we say that they do not have to furnish the detailed financial records that are covered by 30.1.

Chief Justice Earl Warren: How much they established had been?

How much they established their financial responsibility?

Mr. Raymond F. Simon: What they did in the present instance was to furnish a one page financial statement showing their balance, the value of their equipment, and the outstanding liabilities.

And nothing more was required of them.

Justice Byron R. White: And you just --

Mr. Raymond F. Simon: And that's --

Justice Byron R. White: You just told me a minute ago they weren't even required to do that.

All they have -- for financial ability, you said all they have to do is prove their insurance --

Mr. Raymond F. Simon: In my opinion --

Justice Byron R. White: (Inaudible)

Mr. Raymond F. Simon: In my opinion their licenses would be issued if they had insurance.

The requirement of showing financial ability was satisfied by showing of a simple six-line financial statement.

I don't think the city would insist upon any specific dollar balance.

I think we ask for the statement simply to see what it says, to see if they have hundreds of tort judgments outstanding against them for running over passengers and pedestrians in the city.

Then we called to the attention of the railroads the kind of contracting party they're operating with.

Then we might file a lawsuit and attempt to enjoin them from operating.

That's what we mean by the Section.

Justice Hugo L. Black: What you are doing in the way of regulating them as for their financial ability I assume you would read that the Interstate Commerce Commission can do it if Congress authorizes them.

Mr. Raymond F. Simon: Yes, and if --

Justice Hugo L. Black: And if the city (Voice Overlap) --

Mr. Raymond F. Simon: And if they were preempt --

Justice Hugo L. Black: -- that the Interstate Commerce, that Congress has power to -- impose every regulation you've imposed?

Mr. Raymond F. Simon: But Mr. Justice --

Justice Hugo L. Black: Would it have?

Mr. Raymond F. Simon: I'm sorry, I didn't get --

Justice Hugo L. Black: Would Congress have a power and authority to impose every regulation you've imposed on this interstate carrier?

Mr. Raymond F. Simon: I believe they would, yes.

I believe they would but I don't believe that the city cannot exercise regulatory powers if they relate to safety in the same areas as the interstate commerce --

Justice Hugo L. Black: Why do you want to do it under the name of a license claim, put them in jail if they do not do it?

Mr. Raymond F. Simon: Well the Section as I point out Mr. Justice relates to the entire ambit of public passenger vehicle operators.

Cabman and coachman include every public passenger vehicle.

Transfer has 20 vehicles and as included in that section.

It was not designed primarily for them.

It applies to them, and we think the application is reasonable and should be sustained but the use of the license is because we have over 5000 taxicabs, several hundred delivery vehicles, a dozen or more sightseeing vehicles --

Justice Hugo L. Black: Do you mean you have --

Mr. Raymond F. Simon: -- all of which --

Justice Hugo L. Black: -- 5000 engaged in interstate commerce?

Mr. Raymond F. Simon: No, no.

No, Your Honor.

The section relates to --

Justice Hugo L. Black: Well this of course has to be put in a special spot because it's operated by interstate commerce for and a part of interstate commerce.

Mr. Raymond F. Simon: This Section that we're debating Mr. Justice relates only to safety requirements.

And this Court has said, we could impose safety requirements upon Transfer.

And this Court told us in the same sentence that Transfer was an interstate carrier.

In the opening Section which I quoted in this argument where it said, “All we hold is that the city cannot determine whether or not Transfer operates --

Justice Hugo L. Black: Cannot what?

Mr. Raymond F. Simon: This Court said, “All we hold in Atchison and all we construed the Court of Appeals is holding is that the city cannot determine whether Transfer may operate for the city retains --

Justice Hugo L. Black: Why couldn't it --

Mr. Raymond F. Simon: -- considerable authority --

Justice Hugo L. Black: Why --

Mr. Raymond F. Simon: -- to regulate how they operate”.

Justice Hugo L. Black: Why can't it determine whether they're not being operated?

Even if -- you all -- that you say you want to do here.

Why you couldn't that put them out?

Suppose this was an individual and you put him in jail for not getting a license --

Mr. Raymond F. Simon: Well --

Justice Hugo L. Black: -- could you do that?

Mr. Raymond F. Simon: Mr. Justice, the --

Justice Hugo L. Black: Could you do that?

Mr. Raymond F. Simon: We take the position that we cannot stop him from operating.

Justice Hugo L. Black: Well, but you --

Mr. Raymond F. Simon: We would have --

Justice Hugo L. Black: -- you could put him in jail couldn't you --

Mr. Raymond F. Simon: We've --

Justice Hugo L. Black: -- for violating this law?

Mr. Raymond F. Simon: We filed a lawsuit if --

Justice Hugo L. Black: Well, you could put him in jail too, couldn't you?

Mr. Raymond F. Simon: If the Court ordered that he was willfully refusing to submit his vehicles for a safety test, and if he refused to do that, yes.

Justice Hugo L. Black: If he violated --

Mr. Raymond F. Simon: I believe the Court could order it.

Justice Hugo L. Black: If he violated this very ordinance, he is an individual, couldn't you put him in jail?

Mr. Raymond F. Simon: Well we could fine him up to $200 under the law.

Justice Hugo L. Black: Now, you could --

Mr. Raymond F. Simon: And if he refuse to pay that fine --

Justice Hugo L. Black: You could -- (Voice Overlap) an ordinance passed to do other, would it?

Mr. Raymond F. Simon: Oh surely, Your Honor, we have no authority in the City of Chicago to punish by imprisonment.

The only authority we have for a violation of city ordinances is to punish by fine.

We have no authority to imprison.

Chief Justice Earl Warren: Suppose they don't pay the fine.

Mr. Raymond F. Simon: Then they can be imprisoned up to six months for nonpayment.

Chief Justice Earl Warren: Thank you.

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