Cases by Issue - No Merits

Citibank, N.A. v. Wells Fargo Asia Ltd. - Oral Argument

Fri, 09 Jan 2009 14:49:23 +0000

Case:

Citibank, N.A. v. Wells Fargo Asia Ltd.

Media File:

88-1260_19900319-argument.mp3

Related Transcript:

1989_88_1260_argument.xml

Transcript:

Argument of Robert H. Bork

Chief Justice Rehnquist: We'll hear argument next in Number 88-1260, Citibank v. Wells Fargo Asia Limited.

Mr. Bork.

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

Petitioner Citibank is here on writ of certiorari to the Second Circuit.

The outcome of this case will be of tremendous importance to the banking industry and to Federal regulators, but the case is not complex.

What happened was this.

Wells... the Respondent, Wells Fargo Asia Limited, made two deposits totalling $2 million, Eurodollars, in Citibank's Manila branch.

Before the time came for repayment the Philippine government entered a decree that made it impossible for us to repay in full.

Now, at that point Wells Fargo Asia sued Citibank in New York, saying that since the Manila branch could not pay, Citibank in New York had to pay.

We, of course, think the risk of what the Philippine government did was on the depositor in the foreign branch, in the Manila branch.

Now, a panel of the Second Circuit stated that normally a deposit is repayable only at the branch where it is made, but in this case, because there were routing instructions, routine routing instructions for putting the money back through New York on the way to repayment, that they had somehow... the banks had somehow agreed to repay in New York--

Unknown Speaker: Well, they found... the Second Circuit found there was a contract to that effect, a contractual agreement.

Mr. Bork: --That's right.

They found there was a contract.

And what that contract was, a routing instruction, it was a little odd because the routing instruction said that Citibank Manila would pay out of its bank account in Citibank... its bank account, not Citibank,... its bank account in Citibank, would repay Wells Fargo Asia's bank account with Wells Fargo.

But simply because it went through New York the Second Circuit decided that it was payable in New York, and then shifted the person who had to pay from Citibank Manila to Citibank in New York.

Unknown Speaker: Well, we don't usually review those very factual determinations, was there or was there not a contract to a particular effect.

Mr. Bork: Well, I think in this case what is up for review is a question of Federal law.

It is our contention that that question of law, when they construed that as a contract, is preempted by Federal law.

And you will notice, Mr. Chief Justice, that nobody in this case defends the Second Circuit's rationale.

Unknown Speaker: Well, do you contend that whatever the Federal law is, the parties could not agree otherwise by contract in a situation like this?

Mr. Bork: They could agree otherwise than by contract.

As we have said in our brief and as the Solicitor General says, this is clearly not a contract.

These are the routing instructions that are used in--

Unknown Speaker: Well, then you are just arguing about a very fact specific determination about the Second Circuit, it seems to me, if you agree that whatever view of Federal law one takes, the parties could change the result by agreement.

Mr. Bork: --Yes, but according to Federal law, Mr. Chief Justice, what I am saying is this cannot be a contract.

If it has been, then for 40 years the Federal Reserve Board and the FDIC have been interpreting these things wrong.

Unknown Speaker: Well, but if they can... if Citibank could have agreed to this liability by an express contract, you would know... you could protect yourself in every, every transaction after this by making sure that you didn't have such a contract.

Mr. Bork: No, we couldn't, Your Honor.

What we have here, all of these dollars are routed through New York, 90 percent of them.

That is the way the whole industry works.

If this were correct, all Eurodollars, which are payable offshore only, suddenly hundreds of billions of dollars suddenly become payable in New York.

Those are deposits offshore for which no reserves have been created, for which no insurance has been paid--

Unknown Speaker: So there are a lot of transactions out there already that--

Mr. Bork: --Already out there.

So you couldn't cure the existing obligations by contract.

Moreover, this is an oral market.

All of these deals are done, and there are hundreds of billions of them done a day, on the telephone by people who are about 25 years old.

And all they are allowed to do is give the amount, the interest rate and the time of repayment.

There are no other terms.

Unknown Speaker: --Well, they are allowed to make contracts, aren't they?

Mr. Bork: No, they're not.

That's it.

Unknown Speaker: People 25 years old in this job are not allowed to make contracts?

Mr. Bork: They are not allowed by their employer to make contracts other than the amount, the interest rate and the time of repayment.

It is an oral market, and it can't work with all kinds of terms being done that way.

Unknown Speaker: Well, does that say nobody ever gets out of line?

Mr. Bork: Never gets... I assume that if somebody gets out of line and makes a different kind of a contract over the telephone that drastic repercussions follow.

But that is not the point here.

The point is that we have Federal law that says that these deposits are payable only overseas at the branch where made, when a sovereign foreign government interferes with the power of the branch to repay.

Unknown Speaker: Well, Mr. Bork, I think the Solicitor General would offer a narrower approach than the adoption of some Federal common law rule.

I think you differ somewhat in that regard.

Mr. Bork: That is certainly true, Justice O'Connor.

The Solicitor General says he finds our rule attractive... and by the way, I am not arguing primarily for a Federal common law rule.

I am arguing primarily for a straight out preemption, which I think I can prove.

But the Solicitor General says you don't have to reach that issue because the common law, correctly interpreted, would give us the same result.

And he does stress that there in an enormous Federal interest here.

If you look at page 12 of his brief, page 18 of his brief, and towards the end of the brief, he says if the common law doesn't come out right they will have to come back and begin discussing whether or not there is a Federal law that preempts, or that there is a common law.

The fact is his position rests upon a notion that the law is the same all over the world and in all states.

That may be true, but nobody knows it.

And he may be willing to rest on that, but the banks and the banking regulators would find that situation present... nobody would know where the risk--

Unknown Speaker: What was the source of Federal jurisdiction here?

Was it diversity jurisdiction in the Federal court?

Mr. Bork: --Yes, and there is a bank statute that says that--

Unknown Speaker: Are you relying on Section 632?

Mr. Bork: --For jurisdiction, and also I think there was diversity jurisdiction here.

But--

Unknown Speaker: You think both existed?

Mr. Bork: --Yes.

I think that is right, Justice O'Connor.

But the fact is the Second Circuit's theory is one I had not planned to discuss, because nobody in this case, not the respondent, the amici, the respondent's amici, our amici, the government, nobody supports the Second Circuit's rationale, and nobody has ever seen that rationale before in this entire market.

Unknown Speaker: But I take it Wells Fargo supports the district court's rationale?

Mr. Bork: Wells Fargo has something more than the district court's rationale.

It has a really a very revolutionary proposition.

But even without a... it's not really the district court's rationale, I don't think, but even without an agreement, a deposit in Manila is repayable by Citibank in New York or anywhere else in the world that Citibank has a branch, whenever any foreign government interferes with repayment by the Manila branch.

Now that... that theory absolutely destroys the distinction between domestic deposits and deposits overseas in foreign branches.

And that is a distinction upon which the banking industry in this area is built.

It is the distinction upon which all Federal regulation in this area is built.

And in this case you have two Federal... you have two regulatory systems.

You have the Philippine regulatory system, which fully regulates the Manila branch, and you have the U.S. regulatory system.

Now, a depositor faces a trade-off, depending on which system he wants to choose to go into.

Deposit here and get all of the protections, reserves, insurance and so forth that the United States provides, or he can deposit abroad, without the cost of the U.S. regulatory system and get a higher interest rate.

What he can't do is get both.

Unknown Speaker: What are the risks that he takes?

Just the risk of a foreign freeze order?

Because everyone concedes that if the foreign branch is insolvent that the primary branch, that the primary bank is liable.

Mr. Bork: That is right.

That is right, by Federal law there, too.

In 1917 the Federal Reserve stated--

Unknown Speaker: So what are the risks?

Just a foreign freeze order?

Mr. Bork: --Foreign expropriation, freeze, anything that restricts the ability of the foreign branch to repay the debt when it is due.

That is called sovereign risk, and that is what the government has said, by law, rests with the depositor and not with the home office.

And it can't operate its regulatory system any other way, because if all of those deposits suddenly become payable in the United States, perhaps the Federal Reserve will have to create reserves against those deposits, and there are hundreds of billions of them out there.

Citibank, for example, and it is not alone in this, has many more deposits overseas than it has in this country.

And if they all came here to be repaid after they were lost to a foreign government, the situation would be pretty serious.

So, if Respondent's theory were adopted, what would happen is that the Federal Reserve Board would have to figure out whether it is going to require reserves against all of those deposits.

The FDIC would have no choice under its statute.

Unknown Speaker: Is your, is your suggestion that... the fact that... the holding that there was a contract to pay in New York or to expose Citibank's assets everywhere, that is just out of the case because nobody defends the holding below?

Mr. Bork: No, no, actually General Merrill is going to address that aspect of the case, and I had hoped to discuss the Federal law, but I am willing to discuss it too if you wish.

Unknown Speaker: Okay, no.

Mr. Bork: The, that's in the case, but I think by Federal law that is not the way to view standard routing instructions, because if you do all Eurodollars are wiped out and they all become domestic dollars.

But anyway, the law in this case was made in 1913 by the Federal Reserve Act, which delegated to the Federal Reserve Board the power to license foreign branches under such regulations, upon such conditions as they saw fit.

The Federal Reserve Board then--

Unknown Speaker: We will resume there at 1:00 p.m., Mr. Bork.

Chief Justice Rehnquist: We will resume argument now in Citibank v. Wells Fargo.

Mr. Bork.

Mr. Bork: Mr. Chief Justice:

Since General Merrill is going to discuss the issue of the routing instructions, I would like not to use up all of my time on that issue.

But I want to say just a couple of things.

There is only one finding of fact in this case about what those routing instructions mean.

That was by the district court.

The district court found as a fact that was not an agreement making the deposits collectable in New York.

The court of appeals did not find that clearly erroneous, it simply read the words of the telexes and said that's an agreement.

I think that is a matter of law, not of fact.

And these are routine transactions, and I think as a matter of Federal law they cannot be taken as agreements.

And in fact I think Federal law covers this entire field I have mentioned to you, Congress' delegation to the Federal Reserve Board to make all the regulations as to foreign banks.

The Federal Reserve Board did that in its most... its clearest statement of Federal law was in its 1970 bulletin opinion, which is to be found at page 87 of the appendix, and I will quote just three sentences from that.

It said said exemptions, that is, exemptions from... for foreign branches from reserve requirements and exemptions from interest rate limits, are intended principally to enable foreign branches of U.S. banks to compete on a more nearly equal basis with other banks in foreign countries in accordance with the laws and regulations of those countries.

Having given the policy of Federal interest, a Federal policy in having competitive foreign branches, in the very next sentence the opinion goes on to say, to lay out the law, a customer who makes a deposit that is payable solely at a foreign branch assumes whatever risk may exist that the foreign country might impose restrictions on withdrawals.

To make it still clearer, the very next sentence says when payment of a deposit in a foreign branch is guaranteed by a promise of payment at a banking office in the United States if not paid at the foreign office, the depositor no longer assumes such risk.

Unknown Speaker: What would you call that in the world of administrative law, Mr. Bork, an interpretive regulation or interpretation of a regulation?

Mr. Bork: It is an interpretation of the 1918 opinion, which is a regulation, and then you will have... I think this is a regulation.

I think you will see in 1982 and 1983 in the appendix staff opinions published by authority of the board which say the same thing.

They... but the important point is the matter of practical construction for decades and decades, since 1918 to the present day, the Federal Reserve Board and the FDIC since 1933 have been operating on that rule.

And among other things, the Federal Reserve Board and the FDIC for 40 years have been saying that these routing instructions, which every day send $750 billion through New York, every day, these routing instructions are not agreements to repay in the United States.

And the finding... the holding to the contrary by the court of appeals, I think, is clearly a holding of law and not a finding of fact.

But in any event, our brief discusses how the law was made at some length, and Congress has ratified in 1980 these interpretations and these regulations.

That is in our brief, too.

The clear fact is that Federal law had to be created, if we were going to have Eurodollar markets, if we were going to have foreign branches that are competitive with other countries.

Other countries don't have a rule of home office liability.

The risk of sovereign interference under English law and under French law rests with the depositor in the foreign branch.

That was the rule here up until this case.

But it is clearly the rule that the Federal Reserve and the FDIC have laid down and operate on.

Now, if the court of... if this Court--

Unknown Speaker: May I just interrupt for a second?

How do we determine whether the... whether a deposit is payable solely at a foreign branch?

For example--

Mr. Bork: --If it's made at the foreign branch--

Unknown Speaker: --if it is not insolvent it would have been payable somewhere else, wouldn't it?

Mr. Bork: --If it's... under the 1917 regulation of the Federal Reserve Board, if there is insolvency or a credit failure, it is payable by the home office.

Unknown Speaker: Then how can you say it is payable solely at the branch office?

Mr. Bork: In terms of sovereign risk, because of the 1918 regulation which said that the reserves will not be created by sovereign--

Unknown Speaker: Yes, but the... but your sentence you read to us says a customer who makes a deposit that is payable solely at a foreign branch assumes a certain risk.

Mr. Bork: --He assumes the risk.

The risk he assumes is that the foreign country might interfere with repayment.

Unknown Speaker: Right.

Mr. Bork: He does not assume the risk if the branch manager will run off with the funds.

Unknown Speaker: Well, I understand that, but if the branch manager does run off with the funds, it is payable someplace else.

So how can you say it is payable solely at a foreign branch?

Mr. Bork: Oh, it probably is payable... well, under... that is probably Justice Harlan's distinction he made, it's in our brief, which is that it is not payable at the home office.

You sue at the home office for breach of contract, recision, something of that sort.

But it is not the deposit itself that is repayable.

Unknown Speaker: It seems to me one of the tough issues in the case is whether or not this deposit was payable solely at a foreign branch.

That is one of--

Mr. Bork: If this one wasn't, then none are.

And the Federal Deposit Insurance Corporation and the Federal Reserve Board have been operating under their own regulations for decades and decades on a wrong interpretation of their own regulations.

Because this is an utterly standard routing instruction, utterly standard transaction.

Unknown Speaker: --Mr. Bork, isn't it possible to... I don't know whether we are quarreling over the right words, isn't it possible to have it payable at the home... at the home office, but not payable from the home office funds.

Couldn't you analyze it that way, saying even though you have made it payable there, in order to overcome the banking regulations here you have to make it payable there out of the home office funds?

Wouldn't that... that would give you the same result, wouldn't it?

Mr. Bork: No, the court has... here has said it is payable out of the home office funds, although the telexes don't say that.

They say payable out of Manila branch's funds.

And the transfer, the electronic transfer, takes place in New York because of this computer system that nets out $750 billion worth of these Eurodollar transactions a day.

That is why they all go through New York, and the only reason.

And that practical industry fact has been understood by the regulatory agencies not to be a contract that the home office will pay.

If the Court should rule as we ask the Court to, nothing in the regulatory system that has been in place for decades now will change.

Unknown Speaker: What would be our judgment if we agree with you?

Mr. Bork: You would reverse and judgment would be entered for Citibank.

Unknown Speaker: Nothing left... nothing left of the case to be decided below.

Mr. Bork: That is right.

That is right, Mr. Justice White.

If the Court should rule the other way, however, on these notions that Respondent offers, which are essentially unworkable, they don't do... for example, it says an attachment of a deposit, the risk of that is on the depositor, but a currency blocking, the risk of that is on the home office.

You can block currency for so long it becomes an attachment.

Unknown Speaker: But if we... if we... to agree with you we first have to say that there was no contract, don't we?

Mr. Bork: That is correct.

Unknown Speaker: Yes.

And secondly, and if there isn't any contract, there can't be any liability here, because of the Federal law.

Mr. Bork: That is correct.

The risk of laws rests with the depositor.

Unknown Speaker: You don't think New York or Philippine law has anything to do with it?

Mr. Bork: If it did--

Unknown Speaker: Let's assume there is no contract, and then you say well, is there some other basis for liability, and you say there can't be because of the Federal law, even if New York might say... the New York law might be that the home office is liable.

Mr. Bork: --Well, I don't think the New York law is that way.

Unknown Speaker: Well, I know, but what if it were?

Mr. Bork: But if it were I think that New York law is preempted because a foreign branch banking is an area of vital Federal interest.

These branches exist only because of Congress and the Federal Reserve Board.

And they have been regulated by Congress and the Federal Reserve Board all of this time.

And Congress said it wants healthy competitive foreign branches to help assist American business, to act as fiscal agents to the U.S. government, and so forth.

This is the area of almost exclusive Federal concern, and there is Federal rules on it which I think must preempt any rules to the contrary.

It is a very narrow preemption.

It is just about where the risk of sovereign laws lies.

Unknown Speaker: The agencies may have operated on this assumption for a long time that the home office is not liable, but there is no... is there some specific provision in a statute to that effect?

Mr. Bork: Well, the statute in 1913 said that the Federal Reserve may license foreign branches on such regulations and conditions as it deems necessary.

The Federal Reserve then began to make opinions and regulations of the kind I just read you, which says the risk of sovereign interference at the branch lies solely with the depositor.

In 1980 Congress passed the statute saying reserves... following the Federal Reserve practice... reserves are not creatable for deposits of foreign branches.

And the House report said that it is our intention not to disturb the administrative classifications that have been made under existing law, which I think is a ratification of what the Federal Reserve and the FDIC had been doing all of this time.

Unknown Speaker: Thank you, Mr. Bork.

Mr. Merrill.

Argument of Thomas W. Merrill

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

The lower courts in this case adopted two general theories in support of the conclusion that a routine Eurodollar placed with a foreign branch of a United States bank is a general obligation to the bank as a whole.

The district court found that there had been no agreement between the parties as to where the deposit would be repaid, but concluded that as a matter of law that deposit obligation was an obligation of the bank as a whole.

The court of appeals disagreed with that statement of the rule of law, but found that in fact the routing instructions that the parties had agreed to for settlement of the deposit account in New York constituted an agreement to repay in the United States.

Let me briefly address why both of those are matter of deep concern to the Federal banking agencies and why we think in particular the court of appeals' judgment cannot stand as a matter of law.

It has long been understood by the banking community and by the Federal banking agencies that the relationship between a deposit agreement and instructions for settlement of a deposit through the New York clearinghouse bears roughly the same relationship as any type of contractual obligation pays to provisions for the clearance of a check that might be written in satisfaction of that contractual obligation.

Unknown Speaker: How do... first of all, how do you know this, Mr. Merrill, and second, how do we know it?

Was there expert testimony to this effect in the district court?

Mr. Merrill: Yes, there was testimony in the district court about the significance of the routing instructions.

And as far as I know, it was all to the effect that the routing instructions were not understood to be part of the obligation of the parties.

Unknown Speaker: And so, what you are telling us now about what everybody knows is based on the testimony of expert witnesses before the trial court?

Mr. Merrill: It is not a question of fact, Your Honor.

The district court found--

Unknown Speaker: Well, you... you're telling us that certain transactions have always been assumed to be just like this or just like that.

If that isn't a question of fact, I don't know what is.

Mr. Merrill: --Well, it is not a question of fact because the district court found the facts in this case.

The district court specifically found two things.

It found... it made a distinction between what it called the provisions for clearing... for repayment of... it defined repayment as the provisions for routing money between the banks, and it distinguished that from collectability, which it defined as where the parties could look to satisfy the obligation.

It found that there had been no agreement reached on collectability, which is what we understand to mean repayment.

Unknown Speaker: So, are... is what you are telling us, were telling us a moment ago that everybody knows, is that based on findings of the district court?

Mr. Merrill: We think that the court of appeals ruled as a matter of law that this is an obligation in New York.

It did not question any of the findings of the district court.

Unknown Speaker: Well, but your... your opening remarks, Mr. Merrill, were to the effect that there are a lot of things that people have been taking for granted for a long time, and this is how the cow ate the cabbage, so to speak.

And I am asking you what is the source of our knowledge that that is how the cow ate the cabbage?

Mr. Merrill: Well, two things basically.

One would be, of course, prior case law about the relationship between banking deposits and routing instructions, which is entirely... is completely consistent that the routing instructions have no effect on the modification of the obligation.

That is the holding of the Second Circuit in the Braka case.

It's the holding of the Fifth Circuit in the Callejo case.

Unknown Speaker: Well, but those cases aren't binding on us.

Mr. Merrill: No, those are cases construing as a matter of law that the type... those types of routing obligations don't constitute a contract.

The district court found that the routing instructions were not a contract that affected the obligation to repay.

Unknown Speaker: Well, how can you say then the court of appeals didn't disagree with any of the findings of the district court?

Mr. Merrill: Because the court of appeals accepted the findings that--

Unknown Speaker: That there wasn't a contract?

Mr. Merrill: --But construed the routing agreements to be a legal obligation to repay in the United States.

Unknown Speaker: Well, isn't that... in short there was an agreement.

Mr. Merrill: There was an agreement about routing instructions, but the court of appeals changed the interpretation of that as a matter of law to be an agreement to repay in New York.

There are approximately $1.5 trillion worth of Eurodollar deposits in existence in the world today; 90 percent of those are cleared through these banks in New York.

The Federal Reserve and the Federal Deposit Insurance Corporation have for years followed a basic two-step process in deciding the question of where an obligation is repaid... is repayable.

Whether it is payable only outside the United States or payable in the United States.

First they look to the agreement of the parties, the deposit agreement.

And if the deposit agreement specifically provides for a place of payment, that is where it is determined to be payable.

Secondly, if there is no agreement, it is presumed to be payable at the branch where it has been placed.

Now, if the court of appeals is correct that routine routing instructions, which are no different in any material respect from the routing instructions that accompany all of these Eurodollar transactions, constitute an agreement to make the obligation... the underlying obligation payable in the United States, then the entire understanding on which the banking agencies have been operating has been totally revolutionized.

The Eurodollar market would be called into question, and it would have significant implications for the security and stability of the United States banking system.

Unknown Speaker: Well, Mr. Merrill, in responding to the question you take a different position than Mr. Bork takes in how we should resolve it.

He would propose articulation of some Federal common law.

Mr. Merrill: I don't think there is any difference in our position with respect to the Second Circuit's rationale.

I think we both agree that as a matter of law that is simply erroneous.

Unknown Speaker: Well, if it isn't... if we don't say, as he suggests, that there, it is governed by some Federal law, then what law does apply here?

Mr. Merrill: Well, we have suggested in our brief that as a matter of New York and Philippine law there is no basis whatsoever for concluding that these are general obligations of the bank.

I can understand how the Court might be reluctant to wade into deciding questions of Philippine law, and our invitation brief we simply suggested that the matter be remanded to the Second Circuit.

Unknown Speaker: That isn't our reluctance.

Our reluctance is to say lucky thing for the Eurodollar market that New York and Philippine law provide this way.

Because had they provided otherwise all the chaos that you have just described would ensue.

You want us to say fortunately, in this particular case since it is either New York or Philippine law that governs, and since that law effectuates all the good things you say, everything works out okay.

The next case may be Louisiana, and we will worry about that when we get to it.

That is basically what you are telling us.

Mr. Merrill: Well, we think that if in fact New York and Philippine law had a contrary understanding, that that would have very serious implications for the way in which the Federal banking system operates, and we would at that point urge the application of some type of Federal common law rule to resolve this case.

Unknown Speaker: I see.

Mr. Merrill: Our reluctance to do so so far has been that we have been quite convinced that in fact there is nothing in either New York or Philippine law which suggests that it is in any way inconsistent--

Unknown Speaker: Well, but that is going to have to be done back at the court of appeals, isn't it?

Mr. Merrill: --That would be the most natural thing to do about that, and I can understand how the Court might not wish to do that, given that both parties have... that the Court granted certiorari.

We recommended in our invitational brief granting certiorari only on the second question about the routing instructions, but the Court has granted certiorari on both questions.

Parties have extensively briefed the question of what the underlying rule of law ought to be, and the Court may very well wish to consider a proceeding to decide that question.

The Federal government has no policy objection to the use of a Federal common law rule in this context.

We would in fact be quite delighted with such a rule.

We simply have been concerned--

Unknown Speaker: Why do you call it a common law rule?

Mr. Merrill: --Excuse me?

Unknown Speaker: Why do you call it... call it a common law rule?

Mr. Merrill: A Federal common law rule?

Unknown Speaker: Yes.

Mr. Merrill: We don't construe our regulations as being preemptive.

We think they are interpretive regulations which rest on the understanding that the common law rule, absent agreement--

Unknown Speaker: Well, they are evidence of what the common law rule is, you think.

Mr. Merrill: --Yes.

The Federal government has been operating on an understanding for years--

Unknown Speaker: And if there is a Federal common law rule, it preempts the state law, doesn't it?

Mr. Merrill: --It would in that, yes, Your Honor.

Unknown Speaker: Is what you're saying that the regulations follow not a sort of Federal common law, but the common law rule that has been in existence for a long time, that is shown by its state court decisions?

Mr. Merrill: Yes, the Federal scheme is keyed to the agreement of the parties.

The Federal banking examiners, when they go out and decide whether or not something is payable only outside the United States, will look to see if there is an agreement.

If there is no agreement they assume that the separate entity doctrine, which the banking system has followed for decades, applies, and that the agreement is... the deposit is payable only outside the United States.

This entire structure has been built up on that premise.

The Eurodollar market exists on that premise.

If the rule were to the contrary it would have serious implications for the United States banking system because it would mean that foreign governments could expropriate or place freeze orders on the assets--

Unknown Speaker: So Federal regulations really just adopted what they saw as being the law already in force in the majority of jurisdictions?

Mr. Merrill: --That is our understanding, Your Honor.

But if that turned out to be mistaken, it would have very serious implications for the integrity of the banking system.

It would mean, for example, that a foreign government... United States banks do business in many, many foreign governments that are subject to all sorts of political and economic instability.

Unknown Speaker: Do you think that the Federal Reserve Board would have the authority to put out a regulation to this effect, make it the force of law that--

Mr. Merrill: It's unclear, Justice White, and that's... that proposition has never been tested.

The Federal Reserve has broad authority over branch banks in foreign governments.

It can specify the terms and conditions under which those branch banks operate.

And it is conceivable that that statutory authority would be broad enough to justify the issuance of a preemptive rule.

But it is not the understanding of the Federal Reserve that it has at this point issued such a rule.

Its understanding is that it has been following the agreement of the parties, and that the agreement of the parties, when there is no express agreement of the parties to the contrary, that the intention is that the deposit is payable--

Unknown Speaker: --May I ask one question before you sit down?

In your view, if the deposit arrangement provided that the deposit would be repayable by the home office in the event of insolvency or act of God in Manila, would that... but not with regard to foreign risk, would that deposit be payable solely at a foreign branch within the meaning of the interpretive regulation that Judge Bork called our attention to?

Mr. Merrill: --Our understanding, Justice Stevens, is that a deposit in a branch in a foreign bank is always payable at that branch, and thus is always subject to the law of that branch.

If a credit risk occurred--

Unknown Speaker: You could answer my question yes or no, I think.

Mr. Merrill: --Our position is that if it were payable in whole or in part in the United States it would not be payable only outside the United States.

Unknown Speaker: Even if it is only conditioned on insolvency or act of God.

Mr. Merrill: If there were express agreement to that effect, that is correct.

If there were a guarantee of payment at the home office, that is correct.

Unknown Speaker: Thank you, Mr. Merrill.

Mr. Snider.

Argument of Darryl Snider

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

At the outset I will provide an overview of the four central points that I would like to leave with you today.

First, the Philippine decree in question, MAAB 47, did not in any way prohibit repayment of these deposits, a finding of the district court which was affirmed broadly by the Second Circuit in its opinion.

Second, Citibank's unconditional promise to repay is not limited to any particular assets.

Third, no Federal law or regulation limits Citibank's obligation to repay to any particular assets.

And fourth, and finally, policy considerations do not call for this Court now to create new Federal law in this area.

Let me then turn to my first point.

It is one that really hasn't been discussed.

It has been glossed over today; it was glossed over in the briefs.

And I think it is so fundamental to an understanding of this case and to the contractual relationship of the parties and what the courts below did that we must deal with it at the outset.

The brief of the petitioner and the argument today proceeds upon the false assumption that some action taken by the Philippine Central Bank prevented repayment of these deposits by Citibank.

And in fact that is exactly contrary to what both courts below held.

So we must begin by analyzing what is it that the Philippine government did, and how did that action relate to either the assets of Citibank on the one hand, or the deposits of Wells Fargo on the other hand.

If we look at the verbiage of MAAB 47 and the way it was construed and enforced by the Philippine Central Bank and the government, what we find, contrary to Petitioner's argument, is that it was only Citibank's assets in its Manila branch that were affected by the Philippine regulation.

What the Philippine Central Bank said was because of certain economic instability in our country we are going to request that you obtain prior approval from us if you are going to reduce the overall level of your loan activities in the Philippines.

It did not say, as in a Perez case or in a Garcia case or some of these other cases, we are going to seize the deposit, we are going to garnish the deposit of Wells Fargo, the debtor, the depositor here.

It did not take action that was directed at all at Wells Fargo.

Wells Fargo merely had two deposits for six months on deposit with Citibank at the time that this action occurred.

The deposits were made in June of 1983.

The regulation was adopted in October of 1983.

In December these deposits matured, and Citibank at that time had no legal excuse for nonpayment.

After Wells Fargo demanded payment at Manila and Citibank refused to pay, they then claimed that they had a defense of impossibility.

So it is important at the outset to understand that the--

Unknown Speaker: Well, is that quite correct?

They didn't really defend on grounds of impossibility.

They defended on the ground that Manila had imposed restrictions on the withdrawal--

Mr. Snider: --Justice Stevens, if--

Unknown Speaker: --and that that was in the nature of a contractual defense, that under the terms of the regulation if such restrictions are imposed they don't have to pay.

Mr. Snider: --In the answer that they filed, one of the affirmative defenses they pled, although they did not use the specific word MAAB 47 and the action taken by the Philippine government.

Unknown Speaker: But you do agree, do you not, that MAAB 47 was a restriction on withdrawals?

Mr. Snider: No, I disagree, Justice Stevens.

I think that is at the very root of the case.

Let me point to two pieces of evidence that were found by the court below to answer that very question.

First of all, in the spring of 1984 Citibank made a limited request to the Philippine Central Bank requesting that it have permission to repay only to the extent of its non-Philippine assets that it held in its Manila branch.

And having postured the question that way, which I would submit was part of their litigation strategy, they got back an answer which said of course, you can repay these deposits to the extent of your non-Philippine assets at the Manila branch.

But here is the question they didn't ask.

They didn't ask can we have permission under this regulation to repay with our assets that are outside the Philippines.

Because had they asked that question, they would have got an answer that they didn't like.

And Justice Stevens, we didn't just sit back then.

We asked ourself that question in December of 1984, and it's at page 95 of the Joint Appendix, the Philippine Central Bank sent a telex to Wells Fargo's counsel answering the very question, we have no objection, they said, to repayment of these deposits, as long as you do not in any way reduce the Philippine assets of Citibank at its Manila branch.

Unknown Speaker: Well, that would be true with any freeze order, wouldn't it?

And funds?

Mr. Snider: That's the point.

No action was taken to freeze the deposits.

The only thing that was frozen here, and only frozen for a limited period of time, were the assets of Citibank.

And so the question that is being raised is there some nexus or some link--

Unknown Speaker: Well, but I suppose that with any freeze order, if say France freezes money, I'm sure that France would be quite happy to say well, you can substitute one deposit for another so long as you keep the amount in deposit as of the time of our freeze order.

Mr. Snider: --Justice Kennedy, let me see if I can distinguish two things.

What the Philippine government was saying is with respect to the loans that you have made to Philippine borrowers, whether they be farmers or merchants, we do not want you to reduce, because we don't want an outflow of foreign currency.

We don't want you to reduce the overall level of those loans to Philippine borrowers.

You can call them in, you can collect them, you can pay them back, but you must maintain a level of overall funding in the Philippines.

They did not in any way go further and say, in addition, to the extent that you pay off Wells Fargo, you are going to have to in addition to that fund other borrowers that were putting in U.S. dollar deposits.

That was not part of the regulation at all.

If you just look at what the Philippine Central Bank itself said it did, rather than the way Citibank characterizes it, it's clear in Joint Appendix 95, it is clear with the wording of the stand still agreement, which is Joint Appendix 118, and moreover it is clear that by the time that the Philippine Central Bank gave partial permission to repay, based on the request that was made, which is at Joint Appendix 89 to 91, that they had no objection whatsoever to Citibank repaying these deposits after--

Unknown Speaker: Did you make this argument at the court of appeals?

Mr. Snider: --Yes, Justice White, and in fact--

Unknown Speaker: Well, that isn't the ground the court of appeals relied on.

Mr. Snider: --It is one of the two grounds of the court of appeals' opinion, Your Honor... Justice White.

Let me see if I can point you to that.

Part of the confusion that I heard this morning was over exactly what the Second Circuit decided and to what extent that related to decisions of the district court.

If you turn to Petitioner's Appendix, this is in the white--

Unknown Speaker: Petition for Certiorari.

Mr. Snider: --Petition for Certiorari, that Appendix, at page 7a.

At the bottom paragraph, the very first sentence answers one of the questions that you posed this morning to Mr. Bork.

In the present case, the district court found that the parties had agreed that repayment was to occur in New York.

That finding plainly is not clearly erroneous.

That was the first arm of the Second Circuit's decision, which I would submit is binding here and is a fact finding not generally to be reviewed by this Court.

But then the court went on, and on the bottom of that paragraph at page 7a said since MAAB 47 has no effect on a bank's obligations to perform acts outside of the Philippines, we conclude that the district court did not err in upholding WFAL's claim.

And that is the same finding that was made by the district court below, that MAAB 47--

Unknown Speaker: That may be, but suppose the... suppose the Philippine branch wanted to make the repayment?

MAAB 47 interferes with that.

Mr. Snider: --No, it did not.

Only... it only interfered with it if it used Philippine assets.

That is the key to this case.

Unknown Speaker: Well, that's pretty--

Mr. Snider: But they had more than Philippine assets.

And in fact what Judge Knapp held in his first ruling was that there was nothing in MAAB 47 that prevented Citibank from transferring assets from New York or elsewhere, anywhere else in the world that it had assets, into the Manila branch.

After all, that is an internal bookkeeping matter between the Manila branch and Citibank.

Unknown Speaker: --Mr. Snider, the Court granted certiorari on two questions, and the first, of course... you know them as well as I do.

The first assumes that the, there was a prevention by the Philippine decree.

Now, you are entitled to argue for affirmance on an alternate ground under our rules, but the Court is not ordinarily interested in getting into very fact-specific questions.

Mr. Snider: Okay.

Let me move then to my second point, Justice Rehnquist.

Unknown Speaker: Could I ask you a question that relates to what you just referred us to in the court of appeals' opinion?

The court of appeals, as you quoted it, said in the present case the district court found that the parties had agreed that repayment was to occur in New York.

Mr. Snider: Yes, Justice Scalia.

Unknown Speaker: Now, can't one agree that repayment is to be made in New York without agreeing that that repayment is to be made out of the funds of the New York bank?

Mr. Snider: I think--

Unknown Speaker: The only factual finding made by the district court is that repayment was to be made in New York.

Even if we accept that and do not at all overturn it, it does not establish the point that repayment is to be made out of New York funds, which is what is asserted to be contrary to the Federal banking regime here.

Mr. Snider: --Yes.

And that... I agree with that.

And that essentially takes us to my second point.

In other words, you don't look to the agreement of the parties to where it can be collected.

You look to local law.

In this case--

Unknown Speaker: All right.

So you agree that no factual finding precludes us in this case.

The district court did not find that there was agreed to be repayment out of New York funds.

It just agreed that repayment would be in New York.

Mr. Snider: --I would agree that no fact finding absolutely prohibits your decision.

What I am saying is that, once the court made the fact finding that repayment was to occur in New York and it applied the applicable law of Sokoloff, which had been on the books for 60 years since Judge Cardozo decided that case.

And once you apply that law what you will see is essentially this distinction in the books.

And that is that when a foreign government seizes the assets of a bank, the depositor can still collect the deposit at the home office of the bank.

In a Perez-type case, if the foreign government goes further and takes a second step and seizes the deposit, or garnishes the deposit, or freezes the deposit in some respect, then that is a risk, indeed, that was taken by the depositor.

And unless you have a Garcia type guarantee in that situation then you are out of luck.

Unknown Speaker: But that... all of that assumes that Sokoloff and New York law is what governs.

And if we were to assume that it is instead Federal law that governs, there would be no factual finding at least that would prevent us from reaching the conclusion that this didn't have to be paid in New York, out of New York funds.

Mr. Snider: I think that the... the fact finding that is binding is that repayment was to occur in New York.

There is no fact finding on where those assets have to come from.

But both courts held... the district court held that it could be repaid in Manila without violating the decree.

The New York court merely narrowed that holding, the Second Circuit narrowed that holding by saying indeed, since we find it to be repayable in New York, we don't even have to reach that question.

Citibank has enough assets in New York; we find it to be payable there.

Unknown Speaker: I take it you, your position is you could not have gone to the Manila counter and demanded payment at the Manila counter?

Mr. Snider: Well, this was not a demand deposit in the first place, but we could have made a demand there because, indeed, in the trial of this case, we submitted it to the trial court on the basis that Philippine law applied and that it was repayable in Manila upon the maturity of the deposits in six months.

And the court held that indeed at the end of six months appropriate steps had been taken.

Wells Fargo had done what was necessary, and payment was to be made.

Its payment was unexcused.

There is no condition on the obligation here with respect to payment.

Let me then address the question of Federal law that Mr. Bork raised this morning, and I think Justice Scalia was driving at in his last question.

One of the questions that has now been raised for the first time by Petitioner at this Court and was not raised in the two lower courts is whether or not Reg. D and the 1970 Board interpretation can be construed to displace local law on this subject, which has been a set of dual regulation for the last 60 or 70 years, and has traditionally been the subject not of Federal law, but with respect to state law.

We are not talking about the question of reserves.

That has been a subject of Federal law.

We are talking about the traditional relationship between a bank and its depositors.

Unknown Speaker: Of course at the time these regs were adopted, and these provisions that Mr. Bork was reading to us, there was no difference between Federal law and state law.

I mean, there was assumed to be a common law.

I mean, we are talking today as though at the time these things... this thing was set up and these regs were issued people were thinking well, it is the common law, but is it New York common law or is it Federal common law.

In fact, this was before Erie, and we didn't think there was a difference, did we?

Mr. Snider: Not before Erie, but that was certainly the enactment of the Federal Reserve Act.

I think it's really the 1970 Board interpretation that Mr. Bork read to you in part today that they rely on.

That Board interpretation sets up a way of defining when reserves must be made with respect to foreign deposits.

It does not in any way purport to regulate the subject of when a depositor can be repaid from a foreign branch.

It is not a rule about liability.

I think that the petitioner here has mixed up cause and effect.

What the regulation says is that you look at the contractual relationship of the parties to assist you in determining whether or not reserves must be assessed.

It doesn't say the converse of that.

It doesn't say you look at whether reserves were paid, and then from having looked at whether reserves were paid you come back and decide whether there is liability or not.

And I would submit to you that that is indeed why the U.S. government here in its brief and in its argument does not contend that local law has been displaced by Reg. D or by the 1970 Board interpretation at all.

And in fact on this question we sought to clarify the matter with the Federal Reserve Board of Governors.

And one of the pieces of evidence that was put in at the trial court and is before you in Joint Appendix 135 is an opinion letter of the board of governors for the Federal Reserve Board in April of 1987, after this case was tried... after this case was filed.

And that opinion letter distinguishes the concept of liability on the one hand and reserves on the other.

It says that Reg. D and the 1970 Board interpretation regulate reserves but do not regulate the subject of liability as between a bank and its depositors, and goes on to say in fact nothing in Reg. D or the Board interpretation would prevent a bank from transferring assets from a U.S. office to a foreign office to effect a repayment in these circumstances.

And so, just as Justice Stevens was saying earlier this morning in his questioning, just like in the case of insolvency where the home office might well have to pay because the foreign branch office cannot pay, the same is true in this circumstance.

Now, that is not to say that Wells Fargo did not take any risk whatsoever.

We are not here to say that we took no risk and therefore somehow Citibank should have paid reserves.

That is not the issue.

But the question is what is the risk that Wells Fargo took.

The risk it took was a Perez-type risk that the foreign government might actually take an action that was directed at it as an individual.

After all, that is what Mr. Castro did in the Perez and Garcia cases.

He was taking a certain action to seize the deposits of certain political individuals that he wished to point out and to deprive of their assets.

That is a very minimal risk when you are talking about a banking institution in the inter-bank market.

We did not take the risk.

And I would submit that the expert of Citibank at the trial admitted that in this situation Wells Fargo did not take the risk that some other regulation might be adopted that interfered in some way with Citibank's assets.

It goes to the heart of the very question that is before the Court today.

And Mr. Ian Giddy, who is Citibank's own expert, on cross-examination gave the following testimony.

"And the expectations of bankers, the practice, that is what I am trying to get to, is that they would be repaid by the home office, isn't it. "

"Answer, under the circumstances where the branch had its assets restricted or seized, and that was a poor loan decision by the bank and it is their risk, they are still liable for the deposits. "

One of the important--

Unknown Speaker: Where are you reading?

Mr. Snider: --I am reading, I'm sorry, Justice Blackmun, I am reading from Joint Appendix 378, 379.

Our own expert, of course, came to the same conclusion.

Unknown Speaker: You cited as to the Board opinion that's at 135 and 136 of the Appendix, but I... if you would look on page 136, what that opinion says is that, under these provisions, deposits payable only at a particular office outside the United States are not subject to reserve requirements.

Then it goes on, however, this is true even if the depository institution, by which I gather it means the foreign branch, even if the depository institution may be contractually obligated to obtain funds in order to pay the deposit from another office of the depository institution located outside the United States.

Mr. Snider: Yes.

Unknown Speaker: It significantly seems to indicate that if it were required to get funds to pay the department from another office in the United States we would have a different problem.

And that is what you are arguing was the situation here.

Mr. Snider: Well, at worst it would mean that Citibank should have reserved against these deposits.

I don't think that this regulation--

Unknown Speaker: Well, but one must assume that if they don't have to reserve against them they don't have to pay them, unless we have a very crazy system in this country.

I mean, surely you would expect the reserve requirements to bear some relationship to the obligations of the institution.

Mr. Snider: --I think they bear a relationship, but I think once again that is reversing cause and effect here.

Nothing in this regulation or the interpretation of it in any way attempts to assess liability or to displace local law with respect to the relationship between a bank and its depositors.

Unknown Speaker: xxx the court of appeals' decision right across the board or not?

Mr. Snider: Yes, Justice White, I... it was heard this morning in this courtroom that no one supported that view, but I wanted to wait my turn to tell you that I did.

We support the Second Circuit's opinion, and we find that it has at least two important elements.

One, just a simple finding that the deposit was repayable in New York by Citibank was sufficient for the Second Circuit, having found such an agreement, to uphold the lower court's decision.

Because if it is payable in New York and the parties agree that it is payable in New York, then Citibank certainly has assets there.

Unknown Speaker: Yes, but the part, the district court didn't think that there... that the... whatever agreement he found, namely the district court found that it was repayable in New York, but that it was collectable elsewhere.

And certainly the district court did not rely on the agreement to make Citibank liable.

He had to go to the New York law.

Mr. Snider: He did have to go to--

Unknown Speaker: Is that right?

Mr. Snider: --That is right.

He did have to go to--

Unknown Speaker: So he did not rely on the fact that there was a contract.

Whatever kind of a contract he found, it wasn't the basis for liability in the district court.

Mr. Snider: --It takes more than just a yes or no answer, if you would permit me, Justice White.

If you look at page 16a of Petitioner's Appendix, we have the district court's second opinion.

And indeed he did find an agreement that the confirmations established an agreement that repayment was to occur in New York.

Unknown Speaker: Right.

Mr. Snider: Now, he goes on, on page 17a, as you said, to decide that there was not a specific agreement as to where things were to be collected, where the money was to be collected.

In other words, he found no limitation as to where it was to be collected.

But we need to put this in context.

This case was tried after summary--

Unknown Speaker: Well, put it in the context that the district court put it.

He said that, he said now I am going to have to look elsewhere for liability, besides their agreement, I have to look at New York law.

Mr. Snider: --He did.

Unknown Speaker: And he did.

Mr. Snider: He did.

But we need to go back--

Unknown Speaker: And that is not the ground that the court of appeals has cited on.

Mr. Snider: --The court of appeals narrowed that decision and, from finding that it was repayable in New York, decided that Citibank had to pay their... had assets.

Unknown Speaker: Just because it was going to, just because the funds were going to be transferred from there?

Mr. Snider: Well, it was more than that.

In fact, the testimony that had been given to the district court on the subject went beyond just the so-called standard routing instructions.

And in fact at pages 10 and 11 of our brief, and I won't go through all the testimony with you today, but it is there.

The testimony was given by Mr. Boughey, the testimony was given by Mr. Cole, who were called by Wells Fargo, and indeed the testimony was given by Mr. Howard, the chief financial officer of Citibank, that in addition to these routing instructions the parties expected and agreed that repayment would occur in New York.

And after all, we have got to realize that in the Eurodollar market we are dealing with dollars in which these transactions not only clear in New York, but there is a specific agreement embodied in the very nature of the Eurodollar transaction that the parties are agreeing that the bank, the institution, stands behind these deposits.

One of the important concepts--

Unknown Speaker: So you say that all this talk about what the regulatory agencies have been believing all these years, you think they for years have known exactly what you are just saying now?

Mr. Snider: --Oh, indeed, and in fact--

Unknown Speaker: That there should have been reserves all the time.

Mr. Snider: --No, not that there should have been reserves.

Indeed, if you go back to the 1918 interpretation you will see that the Federal Reserve itself acknowledges that the institution itself ultimately remains liable for the deposits.

But I wanted to go back to the context--

Unknown Speaker: I still, I still find it hard to understand why, if the New York domestic branches are fully liable for all Eurodollars, there are no... under any contingency, that there are no reserves required.

Mr. Snider: --Perhaps that was too broad a statement.

Let me come back.

What we have had since 1983, since Citibank defaulted in this case, is a situation in the world market, and much of this is discussed in the amicus brief of the Bank of Montreal, a situation in which banks now will only place money in secure money centers.

There are no longer inter-bank deposits in Manila, no longer inter bank deposits in Panama.

They are either in London or in Frankfurt or the Cayman Islands, in a secure location.

And the reason for that is because no one in 1983 assumed that the depositors were taking this kind of sovereign risk, and that is what the trial was all about, after all.

We moved for summary judgment.

The... Citibank came in and said we will prove a custom and practice that indeed depositors in the marketplace will not be repaid whenever there is any interference whatsoever with our assets or any repayment.

And the trial was had.

They had their day in court.

The witnesses were called.

And indeed the court found that there was no such custom and practice.

And one of the key points that the district court relied upon is at the very time that these deposits were made, in June of 1983, Citibank was offering a 10 percent interest rate in Frankfurt, London, Singapore and Manila, and yet everyone knew that in terms of political economic instability, the Philippines were a riskier location.

And yet the interest rates were identical.

Unknown Speaker: Well, based on what you say, then, the Federal Reserve assumes that deposits are safer in France than they are in New York.

Mr. Snider: No, I don't think that it assumes that they are safer.

I think that the only purpose now for the Federal Reserve regulation of reserves is no longer a concept that we have to have a certain amount of money set aside in case there is some kind of a run on the bank.

I think that was one of the original purposes.

As the 1980 amendments to the act provide, the only remaining purpose for the Federal Reserve regulation of reserves is monetary policy, the implementation of monetary policy.

Unknown Speaker: So you... I think you say that the Federal Reserve understanding is just wrong.

Mr. Snider: No, I don't, Justice White.

Let me try one more time.

The Federal Reserve understanding is that because they did not want... they wanted U.S. banks on the one hand to be able to compete in the Eurodollar market, okay.

To do that they had to make offshore deposits free from reserves and free from FDIC assessments, so that U.S. banks could be competitive and could offer the same kind of interest rates that banks abroad are offering.

Okay?

Having set up that exemption from reserves, they then were concerned about a situation like Garcia, and this whole interpretation came up because of a Garcia situation.

That's where the depositor not only made the deposit at the offshore branch, it simultaneously exacted a promise out of the bank saying but if anything happens to interfere with repayment, I've got a guarantee that I will be repaid in New York.

And the Federal government and the Board interpretation is saying no, you can't do that.

Unknown Speaker: I... if the... if the Federal Reserve Board had been asked how this case should come out you would say they would have said just like the Second Circuit did?

Mr. Snider: I believe they would say that, except for their objection here through the Solicitor General to the reliance upon routing instructions.

But I believe that they would agree that, in the absence of a Garcia guarantee, that the normal rule of Sokoloff applies, that when only the assets of the bank are interfered with or regulated by the foreign government and there is no action to take on the deposits.

In fact, the very language of the C.F.R. regulation that they rely on, 204.128, is when there is imposition of a restriction on a withdrawal.

And I ask you, has there been an imposition of a restriction on Wells Fargo's deposit with respect to withdrawal?

Both courts below have answered that question no.

The only action taken in the Philippines was to restrict Citibank's assets to require them to continue to invest in the Philippines until the Philippines could restructure its debt.

It had no objection, as it said in the telex, to repayment of these deposits with dollars in New York in the United States.

Let me just finish, since I have a limited amount of time left, with some policy considerations that I think are important here.

This market is one in which only two of the top 50 banks in the world are from this country.

This market is one in which, while there are billions of dollars of transactions taking place every day, they take place under terms and understandings that have been agreed to and agreed upon by bankers around the world, and the subject matter that we are talking about is one that is not appropriate, in my view, to regulation by a court through enforcement or interpretation of a regulation like Reg. D.

This is a matter that should be discussed... if we are going to change the rules, because all Wells Fargo contends is that the status quo should be maintained, but if Citibank wants to change the rules, it is a more appropriate subject either for private negotiation--

Unknown Speaker: xxx court.

Mr. Snider: --We went to court, Justice White, because under the rules at that time the depositor could be repaid, and in fact the court found that when Citibank announced this new rule, the depositors around the world reacted with outrage and despair.

No one else in the world had this understanding except Citibank.

And the court below said you know, it would have been a dead cinch, you had this view, you knew that nobody else was taking the view that they were taking the sovereign risk.

It would have been so easy for you either by way of contract, by putting a legend on your confirmation slips, by sending out a letter or some other means communicating to all these depositors that you had this unique view that everyone else was taking the risk.

And in fact I don't even believe Citibank had the view until after they defaulted.

Because what did they do right after they defaulted?

They sent a letter to us and to the other depositors and said now that you are assuming the sovereign risk we will pay you 1-1/8 percent interest over LIBOR, which is the London Inter-Bank Offer Rate.

They didn't do that before, they just paid us the 10 percent.

And both experts said we didn't pay any sovereign risk premium.

And as soon as this situation happened the, Citibank went out and it offered a point and an eighth over LIBOR.

Those offers by Citibank are found in the Joint Appendix 115 with respect to Wells Fargo, 116 for Marine Midland, and 399 for the Bank of Montreal.

So, Citibank, having come to its own unique view of the world, then attempted essentially to shift this loss to all of its depositors.

What it is asking this Court to do is to give it something that it couldn't accomplish in private arms' length negotiation, that it couldn't accomplish through the application of local law.

Thank you, Your Honor.

Chief Justice Rehnquist: Thank you, Mr. Snider.

The case is submitted.

Unknown Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.

Attribution:

The OYEZ Project

Featured:

Webb v. Webb - Oral Argument

Wed, 18 Feb 2009 06:13:11 +0000

Case:

Webb v. Webb

Media File:

79-6853_19810323-argument.mp3

Related Transcript:

79-6853_19810323-argument_transcript.xml

Transcript:

ORAL ARGUMENT OF MRS. MARY R. CARDEN, ESQ., ON BEHALF OF THE PETITIONER

Chief Justice Burger: We will hear arguments next in Webb v. Webb.

Mrs. Carden, you may proceed whenever you are ready.

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

This cases arises on a writ of certiorari to the Georgia Supreme Court.

The issue before this Court is not whether full faith and credit should be applied to custody decrees in the abstract but rather whether a decree which meets all requirements for the application of full faith and credit was properly denied such full faith and credit simply because of its nature as a custody decree.

Although this--

Unidentified Justice: Ms. Carden, before you go on?

Mr. Carden: --Yes, Your Honor.

Unidentified Justice: How are you here?

Mr. Carden: Pardon?

Unidentified Justice: How did you get here?

Did you raise these federal questions below?

Mr. Carden: Yes, Your Honor.

The first time the federal question was raised was in the motion to dismiss in the trial court in Berrien County, Georgia.

We specifically requested that the court afford full faith and credit to a final Florida judgment rendered just days before.

Unidentified Justice: Did you cite the Federal Constitution?

Mr. Carden: No, we did not cite the Federal Constitution although we felt and we continue to feel that full faith and credit is such a clear issue, there is no reference to it in the Georgia Constitution or any other statute, and since it was implicit that we were referring to the U. S. Constitution, that that was not necessary.

And it was clear, I think it's clear from the finding of the Georgia Supreme Court, and of course we did raise it in our enumerations of error on appeal.

Justice White: Well, the Georgia Supreme Court didn't say a word about full faith and credit?

Mr. Carden: No, they didn't say a word about full faith and credit although they held that the Florida decree was a final decree and then continued on to say, nevertheless, it had no effect in preempting jurisdiction of the Georgia courts.

Justice White: And you regard that as a disposition of the full faith and credit argument?

Mr. Carden: Yes, Your Honor, we feel that that completely disposes of the full faith and credit issue since they ignored the--

Unidentified Justice: Now, you started to say that you raised it in your?

Mr. Carden: --Yes, we raised it in our enumerations of error to the Georgia Supreme Court.

Unidentified Justice: And what form did that take?

Mr. Carden: We requested that the trial court be found in error for failing to accord full faith and credit to the Florida decree.

Unidentified Justice: Again any reference to the Constitution?

Mr. Carden: No, Your Honor.

Justice Rehnquist: Doesn't the Georgia Supreme Court rules of practice require that any assignment of error that's not supported by argument or case citation shall be deemed abandoned?

Mr. Carden: There are some very specific rules to which I think the respondent was referring to that do deal with the raising of constitutional issues and the attack under the constitutionality of the statute.

Of course, that wasn't the case here.

And there are general rules that do say that you must argue your issues in your brief.

We felt that the entire brief was based on the full faith and credit issues, and although there were various state issues involved that the whole tenor of the brief was obviously a full faith and credit issue brief.

Justice Rehnquist: Are the briefs in the Georgia Supreme Court in the record somewhere?

Mr. Carden: Not the briefs, Your Honor, I don't believe.

I believe the Appendix, it contains everything but the briefs.

Unidentified Justice: I thought one of your major points was that the Georgia courts didn't follow the statute?

Mr. Carden: Below, Your Honor, we argued that... and I will get to this in more detail... that the Uniform Child Custody Jurisdiction Act, which was applicable in both Florida and Georgia, also prohibited the Georgia court from assuming jurisdiction, but that was an independent ground from full faith and credit, because the Uniform Child Custody Jurisdiction Act is only--

Justice White: You didn't have a separate section in your brief in the Georgia Supreme Court arguing full faith and credit?

Mr. Carden: --No, we didn't, Your Honor.

Justice White: You just argued the statutory question.

Mr. Carden: We argued that on the basis of the Uniform Child Custody Jurisdiction Act, but also on the basis of the Full Faith and Credit Clause, that the trial court was in error.

Justice Rehnquist: Did you cite the Full Faith and Credit Clause of the United States Constitution in your brief?

Mr. Carden: No, we did not, Your Honor.

We felt that unlike due process and some other more nebulous terms that may be found in numerous statutes and the state constitution, there was no question as to our reference to the full faith and credit provisions as being the United States Constitution.

There is no other reference in Georgia law to full faith and credit.

The facts of the case are fairly straightforward.

Mr. and Mrs. Webb were divorced in the Superior Court of Berrien County, Georgia, in September, 1977.

In November, 1977, the petitioner, Mrs. Webb, who was awarded custody of the minor child, moved to the State of Florida with the minor child and became a resident there.

Some 15 months later, in February of 1979, she took a two-day vacation to Miami leaving the minor child, according to her testimony, in the care of her next door neighbor, who was also her cousin.

During that two-day absence the respondent came to the State of Florida and removed the minor child from the State of Florida.

Chief Justice Burger: Weren't there some intervening events?

Mr. Carden: Yes, Your Honor.

The testimony of the petitioner in the trial court in Georgia, and the testimony there was restricted to the testimony of the petitioner and the respondent.

The petitioner alleges that he went to the State of Florida because of an emergency situation that existed there.

His own testimony indicates, though, that when he did get to the State of Florida he found the child with the next door neighbor who was the petitioner's cousin.

Chief Justice Burger: How did the Florida authorities get into the act in that interim?

Mr. Carden: Your Honor, we are totally uncertain because the only indication that we have that there was any problem at all was that of the respondent's testimony in the trial court of Berrien County.

No authorities were present to testify to corroborate his testimony.

That was really the first indication we had that there had been, if there was, any real problem there.

Unidentified Justice: Incidentally, Ms. Carden, I gather the youngster is back with her mother now in Florida.

Mr. Carden: Yes, Your Honor, in November of 1980 the respondent contacted the petitioner to pick up the minor child and the petitioner had had the minor child in Florida, although the respondent... pardon?

Unidentified Justice: What's there left to fight over?

Mr. Carden: Well, the respondent has specifically refused to agree to any kind of permanent custody disposition or modification.

Unidentified Justice: But he's turned the child back to the mother?

Mr. Carden: That's correct, but he still--

Unidentified Justice: Has he indicated that he wants the child back, ever?

Mr. Carden: --He has refused to agree to any modification of custody or to give any written agreement which would give any kind of permanence to this relationship.

Of course, that he still has legal custody and would be able to make his claim on the child at any time.

Unidentified Justice: Did he say why he was surrendering the child?

Mr. Carden: No, Your Honor, I do not have any personal--

Justice Rehnquist: Ms. Carden, in the absence of a violation of the Full Faith and Credit Clause in a case like this, there's no federal question for this court to consider, is there?

Mr. Carden: --That's correct.

Our sole issue is whether or not this particular judgment of the Florida court was entitled to full faith and credit.

After finding that the respondent had removed the minor child, the mother contacted local counsel and filed an action in the State of Florida seeking the return of the minor child, and also seeking a restraining order.

The restraining order after an ex parte hearing was granted to the mother on the date of filing in March, 1979, and specifically ordered the father to return the child to the State of Florida pending further litigation on the matter.

The father, the respondent, did not answer whatsoever in this Florida proceeding.

Instead--

Unidentified Justice: Service was made on him in Georgia, was it?

Mr. Carden: --That's correct.

He was personally served by a law enforcement officer with all the process in Georgia.

Unidentified Justice: Who was the law enforced by, Georgia or Florida?

Mr. Carden: Yes, it was a Georgia law enforcement officer.

There has never been any question concerning his having actual notice, nor of the sufficiency of service in this case.

But he did not file an answer and instead turned around ten days later and over a month after he had taken the child from Florida and filed an independent action in the Superior Court of Berrien County requesting custody of the minor child.

He did not alert that court to any pending proceedings in Florida.

Chief Justice Burger: Well, what is the real controversy that's remaining, as Mr. Justice Brennan suggested to you?

Mr. Carden: Well, of course, the legal custody of the child still remains.

Chief Justice Burger: You want us to set aside the Florida decree, I take it?

Mr. Carden: Yes, Your Honor, that is our... for Mrs. Webb to now regain custody she would have to seek a modification, she would have to go back to the Court in Georgia, and since we have a pending proceeding that isn't possible at this time.

Chief Justice Burger: Well, why not wait until that controversy arises?

Mr. Carden: Your Honor, the respondent right now has every right to go to the State of Florida to remove that child.

He would even be able to seek the assistance of law enforcement officers to get the return of the child now, so we are in a very precarious position.

Unidentified Justice: Can he do that under the new federal statute?

Mr. Carden: The new federal statute, the Parental Kidnapping Prevention Act, from everything I can determine is not effective until July 1, 1981.

It does provide a series of enforcement mechanisms for custody decrees and it's impossible to say exactly what effect it would have had on this case had it been effective.

Obviously, its intent is to provide an enforcement mechanism for custody decrees, even custody decrees that would not be enforceable under the full faith and credit clause because of lack of finality and other problems.

But, fortunately or unfortunately, we really at this point do not know what that effect would have been on our case.

After the respondent did not answer in the Florida proceeding, and after he had commenced his proceeding in Georgia, the Florida court did hold a full hearing on the issue, even though he was in default.

And at that hearing they entertained the testimony of the petitioner and made the following determinations.

(1) They determined that Florida had subject matter jurisdiction in that the petitioner and the minor child were residents of the State of Florida and that the minor child's absence from the State of Florida did not affect his status as resident of that state.

Secondly, they found that they would recognize the Georgia decree and would establish this decree in the State of Florida.

And according to respondent and the amicus curiae, that's all they did.

But of course the record indicates otherwise.

The court went on and found that it was in the best interest of the child to modify visitation, not just parroting the petitioner's request for modification of visitation, but setting out a full schedule of visitation which really did in no way decrease the respondent's visitation rights.

And lastly, and really most importantly, the Florida court reviewed the other provisions of the Georgia decree that were in force at that time and determined that there was no reason to change any of those provisions, that they should remain in full force and effect.

And, of course, one of those, the major one of those, was that the custody remained with the petitioner.

After the Florida judgement was rendered, the petitioner filed an answer with the Georgia court, or amended the answer she had already filed with the Georgia court and informed the Georgia court that the Florida court had already rendered a final judgment and requested in her motion to dismiss that, as we have indicated earlier, that the Florida judgment be afforded full faith and credit in Georgia.

The Georgia court, nevertheless, held a hearing on the matter and as I indicated earlier, restricted the testimony to the testimony of the petitioner and the respondent.

After hearing the testimony of the petitioner and the respondent, it entered a final order completely in favor of the respondent, awarding him custody of the minor child.

Unidentified Justice: When did the mother first acquaint the Georgia court with the action in Florida?

Mr. Carden: She filed her answer in March, 1979, and also at that time filed a motion to dismiss, and she informed the court at that time that there was a pending proceeding in Florida.

Unidentified Justice: Had anything occurred in the Georgia proceeding up to that time?

Mr. Carden: No; no.

The first thing that occurred in the Georgia proceeding after the filing on March 24--

Unidentified Justice: You mentioned earlier that the father had brought this proceeding in Georgia without informing the Georgia court of the pendency of the Florida proceeding, but as I now understand it that was of no significance.

Mr. Carden: --No, except to indicate that he had not made that disclosure.

Unidentified Justice: Because, right after the completion of the Florida proceeding you then filed an answer which fully acquainted the Georgia court with everything that had happened in Florida?

Mr. Carden: We had filed an answer previously, but, of course, all we could alert the court to was that there was a pending Florida proceeding and ask them to decline jurisdiction and allow Florida to decide the entire matter.

Then, after the final judgment was rendered, we amended that answer, informing them of the final judgment, and at that time requesting that it be accorded full faith and credit.

In the Georgia court order it did not mention whatsoever the Florida proceeding or the Florida judgment.

There was no ruling whatsoever as to the significance of either and it also found a material change of circumstances justifying its change of custody based on events all of which had occurred months and even, in several cases, a year and half prior to the rendition of the Florida order.

From the order of the Superior Court of Berrien County we did appeal to the Georgia Supreme Court and enumerate this error and failure of the Georgia trial court to give full faith and credit to this Florida decree.

Justice Marshall: Ms. Carden, can you tell me why the Georgia Supreme Court didn't mention the words "full faith or credit"?

Either one of those words?

Mr. Carden: I presume they thought that they didn't have to reach that issue because of the state grounds that they dealt with, but they did find that it was a final judgment of the State of Florida, and then they turned around in the next few sentences and said that that had no effect, or did not preempt jurisdiction.

Justice Marshall: No, it started off by saving that the case was there

"on the certain provision of Georgia's Uniform Child Custody Jurisdiction Act, Code Annotated 74501. "

That's the first sentence of it.

Mr. Carden: One of my enumerations of error was that the Georgia court just declined--

Justice Marshall: Well, why did they just ignore it?

My question is, why did they ignore it?

Mr. Carden: --I presume, Your Honor, that they thought they could make a decision on that ground alone and not deal with the full faith and credit issue.

That was one of our enumerations of error.

Justice Marshall: Did you say, full faith and credit of the U.S. Constitution in your brief?

Mr. Carden: No, we referred to the failure of the trial court to give full faith and credit to a final Florida judgment.

Justice Marshall: You didn't cite any constitutional provisions?

Mr. Carden: No, we didn't cite any constitutional provisions.

Justice Marshall: So you want us to say you don't have to cite the Constitution in order to invoke this Court's limited jurisdiction?

Mr. Carden: Your Honor, in many cases I think the failure to cite the U.S. Constitution would lead to confusing results.

Justice Marshall: I'm eagerly waiting for you to give me the citation.

Mr. Carden: Well, in the cases dealing with due process, for instance, this Court has held that--

Justice Marshall: What case?

Mr. Carden: --In cases dealing with due process this Court has held that a failure to specify which provision of the Constitution--

Justice Marshall: One of the cases... you cite it.

Mr. Carden: --Pardon?

Justice Marshall: Please cite me one case that says that.

Mr. Carden: That the failure to give the exact provision of the United States Constitution doesn't sufficiently raise a federal issue?

Justice Marshall: Yes, ma'am.

Mr. Carden: Well, I can cite to you cases which have held that if it is explicit in the entire record that the issue was appropriately raised, then this Court can decide the federal claim.

Justice Marshall: Was this case... well, where was the article of the Constitution of the United States raised in your case?

Never.

Mr. Carden: That's correct.

We did not cite to Article IV, Section 1, of the United States Constitution, but we feel that because of the unique nature of the full faith and credit clause, it has no other reference.

It's not something that the Court can mistake as being a reference to a state constitution provision for full faith and credit.

Justice Rehnquist: I suppose a state court can't simply evade a properly preserved federal question by writing an opinion saying that this case deals with a state law and simply treating state issues.

Mr. Carden: Well, that would be our feeling about the case because, of course, they did indicate, they recognized that the Florida judgment was final, had been rendered three weeks before, and yet then they went on and said, nevertheless, the Georgia court has jurisdiction.

So it indicates that their obvious result was that there was no full faith or credit afforded.

Justice Marshall: Then, why didn't you cite it here?

When you came to this Court you did cite it.

Mr. Carden: Well, we understood at that point that we did--

Justice Marshall: Was this the first time you heard of it, eh?

Is that the first time you heard of it?

Mr. Carden: --No, Your Honor.

Of course, in the state court, we had a number of grounds for enumerations of error and here it is our only ground and then of course we've raised it very specifically.

Justice White: Of course, the whole thrust of the Uniform Act is to, as some point, to persuade some state to respect the judgment of another state, and so that, to call it, it might be perfectly natural to refer to the obligations under the Act as a full faith and credit obligation.

Mr. Carden: Well, of course, the Act specifically refers to itself as being a comity-based statute and does not of course have anything to do with anything related to full faith and credit in the United States Constitution.

Justice White: Well, it attempts to convince a state it ought to give some respect to a judgment of another state.

Mr. Carden: That's correct; as a matter of comity, by making laws more uniform in order to have it recognized.

Unidentified Justice: Or as a matter of full faith and credit.

Mr. Carden: Well, we would argue that the Uniform Child Custody Jurisdiction Act, of course, changes state law, but it does eventually allow, mandates for the application of full faith and credit in the U.S. Constitution, and to that extent, yes, but the Act itself does not mandate full faith and credit be given.

In rephrasing the issue that we stated earlier, really all we are asking this Court to do is to look at the judgment rendered in this case and to afford it the same measure of full faith and credit as it would render or accord to any other judgment regardless of its nature as a custody decree.

We can find no evidence in either Article IV, Section 1, or in the earlier opinions of this Court that would indicate that just by its nature, as a custody decree, it would not be entitled to full faith and credit.

Obviously, there's nothing in the exact wording of Article I, Section 4, that says anything regarding custody decrees.

In the four cases that this Court has dealt with prior to this time in which a custody decree was sought to be accorded full faith and credit, this Court has examined the custody decree to determine whether it mandates full faith and credit to be applied to other judgments and found that the very custody decree examined did not meet certain requirements and the two that this Court has dealt with previously have been the lack of due process afforded to the defendant in the proceeding and also in the past, the lack of finality that custody decrees were accorded in the state in which they were rendered.

Unidentified Justice: Incidentally, Ms. Carden, I gather this uniform statute, it mandates, doesn't it, that the judge in Florida communicate with the judge in Georgia?

Mr. Carden: Your Honor, I believe the exact language of the statute says that when a court is informed that there is a prior pending proceeding, that the court of the second state is to communicate with the court of the first state, but--

Unidentified Justice: So that if there was a deficiency--

Mr. Carden: --That's correct.

Unidentified Justice: --it was on the part of the Georgia judge--

Mr. Carden: That's correct.

Unidentified Justice: --not calling the Florida judge after he learned of the pendency of the Florida action, correct?

Mr. Carden: That's correct.

The Florida proceeding was pending and there has been no dispute that it was pending several weeks before the institution of the Georgia proceeding and the court--

Unidentified Justice: Have you had any experience with that provision?

Mr. Carden: --Pardon?

Unidentified Justice: Have you had any experience with that provision?

Mr. Carden: Well, I think now the Act is becoming more familiar to judges.

They are beginning to communicate with each other and trying to informally resolve these differences.

I'm sure that there are going to be exceptions to this.

Unidentified Justice: I wish that had been in effect about 30 years ago.

Justice Stevens: Ms. Carden, didn't the Georgia Supreme Court say both trial courts were at fault in failing to contact the other trial court?

Mr. Carden: That is what the Georgia Supreme Court held.

The actual wording of the statute actually says the court of the second state has the obligation to confer with the state in which the original proceeding is pending first.

Justice Stevens: Then, the question is, which is the second state?

In a sense, Florida was the second state because the decree was originally a Georgia decree.

Mr. Carden: Of course, but in Georgia... and Georgia may be very unique in this sense, Georgia courts do not exercise any continuing jurisdiction once the decree is rendered, so once the decree is rendered they lose their jurisdiction unless a second suit is instituted under similar residence and venue requirements, so there was nothing pending in Georgia.

The Georgia courts don't even construe it to be--

Justice Stevens: What is your view of what the Georgia court should have done?

Supposing the Georgia court had called up the Florida judge and said, well, we've entered this decree down here, there was an ex parte hearing, and the wife testified and so forth.

But we really didn't have a full hearing on the question of whether there had been changed circumstances since the original decree.

Wouldn't they then have gone ahead and had the full hearing he did have?

Mr. Carden: --If, according to the Uniform Act, the parties had... well, everything had gone as, I think, the Uniform Act considers it, upon learning of the pending Florida proceeding... and the Georgia court did know of that long before the order was rendered in Florida... there would have been communication between the courts concerning which was the appropriate forum and how the best manner in which evidence could be taken could be arranged.

Justice Stevens: Would you agree that in one court or the other it would have been proper then to hold a hearing on whether there'd been changed circumstances?

Mr. Carden: I think that the courts themselves can determine which is the most appropriate forum and upon that decision have the hearing.

Justice Stevens: But if you admit that, then you're not saying that the Georgia court was obliged to enter the same decree that the Florida court had entered?

Unidentified Justice: He's merely obliged take it into account in deciding what to do?

Mr. Carden: Had there been... I would say that it would not be impossible for the Georgia court to have had jurisdiction had there not been a final judgment rendered in the State of Florida, without that final judgment rendered in the State of Florida.

Unidentified Justice: Well, that's your full faith and credit argument, isn't it?

Mr. Carden: That's correct.

Unidentified Justice: Tell me, does the statute say... you suggest that it's the Georgia judge who should have called Florida judge under the facts of this case.

Does the statute say what happens if the Georgia judge didn't telephone the Florida judge?

Mr. Carden: No, there's no remedy provided in that regard, in the statutory law.

Unidentified Justice: I mean, no suggestion that a failure to call the Florida judge meant a loss of jurisdiction in the Georgia court, is it?

Mr. Carden: No, there's no penalty or remedy provided for the failure to comply with any of these sections.

Justice Rehnquist: I think you've made this point clear in an answer to previous question from me, that certainly we have no jurisdiction to construe the Uniform Act unless it runs afoul of the Full Faith and Credit Clause in some way.

Mr. Carden: Yes, I think the only... really the two sections of the Uniform Act that are important to the full faith and credit issue, one, are the provisions which provide for due process to be afforded to the respondent, which of course is required under full faith and credit.

Justice White: Does the Act address a situation where one state enters a final judgment like the Florida court did here, and yet another state goes ahead, like Georgia did?

Mr. Carden: The Act--

Justice White: Does it purport to permit that?

Mr. Carden: --In a comity-based sense the Act says that if one state has rendered a judgment in compliance with the Act, then the other state shall honor it.

That's the provision of the Act.

Of course, that's based on comity.

Justice Marshall: The Act is not before us, is it?

Mr. Carden: No, it's not, and the only other provision of the Act, other than the due process provisions which do afford jurisdiction to the--

Justice White: Well, that's a Georgia statute.

I suppose if a Georgia trial judge, after being informed of a final judgment being entered in a Florida court, if he went ahead and nevertheless entered a judgment of his own, he might be reversed in a Georgia court on the grounds that he's violated the state statute.

Mr. Carden: --That's correct.

Justice White: So that's obligatory.

It just isn't a matter of comity, I mean.

The statute says, you must... does it say that?

Mr. Carden: It says "shall".

"Shall enforce" the statute.

The only other section of the Uniform Child Custody Jurisdiction Act that's really relevant is the section which does make custody decrees final, binding, and conclusive, and does take away the previous status of the law which kept them on the breast of the court, modifiable at any time, and I think those are the only two areas where the Act really has relevance.

Chief Justice Burger: Ms. Carden, if the parties now stipulated to vacate the Georgia judgment, would there be any case left at all?

Mr. Carden: No, Your Honor.

In fact, we had hoped that that would occur after the child was exchanged in November.

We had hoped that there would be an agreement be the parties but evidently the respondent has not been willing to do so, and as a result we have no assurance as to the continuing legal status of the child.

Chief Justice Burger: But if there were a repeat performance after July 1, 1981, there wouldn't be any problem either, would there?

Mr. Carden: I hope there wouldn't be any problem although the new Criminal Kidnapping Prevention Act of course is based in principles of the Uniform Child Custody Jurisdiction Act, and it would be subject to the same kind of interpretation that perhaps has been handled in this case, and there could be similar problems.

In summary, Your Honor, really all we're asking the Court to do in this case is to scrutinize this custody decree in terms of the mandates for full faith and credit to any other judgment, and if it meets those mandates for the application of full faith and credit, to apply full faith and credit to this decree and allow... to reverse the judgment of the Georgia Supreme Court, not affording full faith and credit to it.

Thank you, Your Honor.

Chief Justice Burger: Very well.

Mr. Brown.

ORAL ARGUMENT OF MANLEY F. BROWN, ESQ., ON BEHALF OF THE RESPONDENT

Mr. Brown: Mr. Chief Justice and may it please the Court:

As the Court knows from our brief, the primary thrust of the respondent is that this is not, this case is not the proper vehicle for this Court to address the serious constitutional law problems which would be presented by this petition for certiorari.

Unidentified Justice: Well, you certainly didn't held us much in your response to the petition.

Mr. Brown: Well, begging the Court's pardon, I personally didn't file that, in defense of myself.

Justice White: Well, I know, but I say the state didn't.

Justice Rehnquist: We weren't alerted to the fact that--

Mr. Brown: Well, of course, that's the main problem with this whole case is that nobody, none of the lawyers in the court below ever saw any of these issues.

They were never dealt with, they were never properly raised, the Georgia Supreme Court never addressed them, and at the point where I came into the case--

Justice White: --But the petition said that the issue had been raised, and we no longer require the filing of records with our petitions for certiorari, like we did historically.

And so, nor... it's not unusual to credit a statement of a petitioner if the respondent doesn't say something about it, doesn't challenge it.

And it wasn't challenged here.

Mr. Brown: --Well, I thoroughly agree with Your Honor's observation.

All I'm saying in defense of myself is that I did not file a response to--

Unidentified Justice: You're appointed by us?

Mr. Brown: --I was appointed by the Court after the case--

Unidentified Justice: Yes.

Mr. Brown: --arrived at this level.

And at that point I raised every conceivable point that immediately occurred to me, namely, that the point had not been properly raised in the Georgia Supreme Court.

Because the portion of the record that fully exposes the fact that this issue was never even thought of in the court below is the motion for rehearing filed by the petitioner.

If you look at it at page 52 of the Joint Appendix and take cognizance of the fact that under Georgia law a motion for rehearing addressed itself to telling the court wherein you have made a mistake.

It's supposed to be used to point out to the Georgia court precisely what they did wrong.

And it's supposed to be to some extent a predicate for a certiorari petition to this Court.

If you look at the motion for rehearing, you'll see that it states only that the Georgia Supreme Court ignored relevant Georgia precedent and that it rendered a decision on an incorrect interpretation of the Uniform Act.

It never mentioned in any form, shape, or fashion whatsoever the full faith and credit clause of the Federal Constitution, Article IV, Section 1.

Now, those words were used a couple of times in the record but they were never used with very much precision, and ordinarily the Georgia Supreme Court would not totally ignore that issue.

As you look at other decisions of the Court you see that they have dealt with full faith and credit, and at least they would have graced the contention by saying that it lacked merit.

As it is, they didn't even mention it.

Justice Rehnquist: Here are two of your three justices dissenting from the disposition of the case, at Joint Appendix on page 53, and none of them refer to the Full Faith and Credit Clause.

Mr. Brown: Exactly.

They were complaining that the majority had returned to authorization of child snatching and had misconstrued that.

Unidentified Justice: Why do you suppose your Supreme Court didn't cite it's own rule 45?

Mr. Brown: I have no idea.

I imagine they just were never aware that the enumeration of error was intended to even raise a federal constitutional provision, because they regularly cite Rule 45 as to enumerations of error which have not been supported by evidence.

Unidentified Justice: While I have you interrupted, may I ask, Mr. Brown, what about the return by... he's your client now... of the child to the mother?

Mr. Brown: Your Honor, it's my understanding the child is not with the mother but the child is with the maternal grandmother.

That's in my brief, the initial brief I filed.

I was advised of that by prior counsel in the case.

Since that time I have been advised by Mr. Webb... I made that specific inquiry of him last week, because I knew the Court would ask about it... and he advised me again that the child is with his ex-wife's mother, and not returned to the--

Unidentified Justice: Well, does the mother live with her mother?

Mr. Brown: --No, she lives somewhere else.

She lives I think, in Jacksonville, Florida, and the mother lives on in Gainesville, so frankly I don't know exactly what the truth of the matter is, because I haven't seen with my own eyes where the child is.

I know the father does not have the child and it's my understanding that the maternal grandmother does have the child.

Unidentified Justice: Did your client say why he didn't want to keep the child?

Mr. Brown: No, sir.

And frankly, I don't know, I don't understand.

That's one of a number of things about this case, that as a practical matter, as a lawyer, you don't understand.

Unidentified Justice: But you just wonder what--

Mr. Brown: He doesn't want his wife to have the child back.

He's adamant about that, and adamant about continuing in this Court and not entering into the stipulation that they've invited, because I've asked him to do that, because it would have eliminated my job in this Court and would have eliminated the Court's work.

Now, in addition to the other points that we raised in our brief, and suggested to the Court, that this case ought not be heard on the merits, I want to suggest to the Court that in connection with this new federal act, the Parental Kidnapping Prevention Act of 1980, it's not at all clear, I don't think, that that particular Act goes into effect only on July 1 of 1981.

I think, in being candid with the Court, some argument can be made... and I'm not sure which one of us would win under the Act, but I think a reasonable argument can be made that the Act became effective on December 28 when President Carter signed the Act into law.

I say that because the Act was part of some social security amendments dealing with pneumococcal vaccine services and the Delayed Effective Date Act, if you read the language carefully, you see that it refers only to services provided, which clearly indicates that the Delayed Effective Date Act refers to the pneumococcal vaccine amendment and not to the Parental Kidnapping Prevention Act.

There are two other delayed effective dates in that legislative package, both relating to other sections.

There is no suggestion whatsoever in the Act that the parental Kidnapping Prevention Act of 1980 is to have a delayed effective date until July 1, 1981.

Justice Rehnquist: --Where in your brief is that?

Mr. Brown: If Your Honor pleases, the Act was passed sort of at the 11th hour, and I don't think we even had a copy of it until after I filed the brief and the reason I'm mentioning it to you in oral argument is because it's not in the brief, to try to give the Court that information.

And if we need to supplement that by way of additional brief, we'll do it, with the Court's permission.

In addition to that, the legislative history of this particular Act indicates that it was considered as part of several legislative packages.

In none of those legislative undertakings was it ever suggested that the Act should have a delayed effective date.

Chief Justice Burger: Ms. Carden has conceded... we wouldn't necessarily hold her to that... she has conceded that if the Act were in effect now, there would be no case at all.

She said, if it was only a problem between now and July 1... now, if you're telling us that there's no problem even now, between now and July 1, that might be relevant.

I suggest that you submit some observations on that subject.

Mr. Brown: With the Court's permission we would submit a supplemental brief on that point, if the Court desires.

Frankly, I don't know who wins under the new Act; it's not that clear.

Unidentified Justice: Well, anyway, Mr. Brown, if there is a cullable possibility that the Act is in effect, I suppose what we'd do is send it back for reconsideration under the Act.

Mr. Brown: Well, I think you could look at the Act in connection with the principles of Bradley v. School Board of Richmond, as to whether you would apply an act which came into being while the case was on appeal.

Unidentified Justice: But we wouldn't decide that in the first instance, probably.

Mr. Brown: I don't see any need to do it.

I'm just saying that the Court could, if it saw fit to do so.

At any rate, if the Act, if the Court concludes that the Act does not come into effect until July 1, 1981, it still has such an impact on this case that it sterilizes the constitutional issues in the case insofar as this particular proceeding is concerned so that it really does not make sense for this Court to get into these constitutional issues when an Act of Congress pursuant to Article IV, Section 1, is purporting to deal with this.

Now, I realize that this Act still doesn't cure the monumental, necessarily cure the monumental personal jurisdiction problem that underlies this whole problem between the states, but still it's a step in the right direction.

And I think the Court under the doctrine of such cases as Rice v. Sioux Memorial Park should consider that even though the Act is not in effect now, it has such an impact on this case that it would render of isolating significance this particular case.

Chief Justice Burger: Since you seem to have the matter well in the front of your mind, perhaps you can have that to us by the end of this week?

Mr. Brown: All right, sir.

We'll endeavor to do that.

Unidentified Justice: It doesn't have to be printed.

Chief Justice Burger: No, this can be typewritten, I assure you.

Mr. Brown: Now, there's one other issue that was not adequately briefed that I want to call to the Court's attention and it has to do with a question of cooperation between the Florida and the Georgia courts and what Florida should have done.

Frankly, there was a provision of this Uniform Act that's never been mentioned that in preparation for oral argument I came across it, and it said that--

Justice Rehnquist: We really have no jurisdiction to second guess the Georgia Supreme Court on the interpretation of the Uniform Act.

Mr. Brown: --Well, this provision has something to do, I think, with personal jurisdiction and how to go about handling the Act without triggering this type of question and causing it to come to this Court.

That's Section 19(b) of the Uniform Act, which is not exactly like the URESA provisions which this Court discussed in Kulko, in the footnotes in Kulko.

19(b) does authorize the Florida judge when a proceeding like this is filed to contact the Georgia judge and ask the Georgia court to initiate a proceeding over their resident over whom they have personal jurisdiction compelling him to come to Florida to participate in this child custody decision and the Georgia Act has the correlative section which is 20(c) which says that if they get a request from a Florida judge, they are bound to exercise personal jurisdiction over their resident and require the resident to go to Florida.

So that, what I'm saying is, it was unnecessary to get into the constitutional problems that you have in this case if the petitioner had simply utilized the provisions that were available in the Act.

They could have compelled Mr. Webb under penalty of contempt in Berrien Superior Court in Georgia to go to Florida, and this case, I submit, would never be here.

And I think that's another reason why this Court should consider just dismissing the case.

Justice Stevens: Mr. Brown, could they do that even now?

In other words, could not the mother file some kind of amendment in the Florida action and say, well, there've been changed circumstances in the last six months, the child's back in Florida, you've got jurisdiction over me and the child, please call the Florida judge on the phone and let's have somebody try this thing out with--

Mr. Brown: Certainly.

I think this thing is still a wide-open issue, I think it's the problem that this Court has always seen with child custody decrees, they're never final, there are no vested rights in this area.

As a matter of fact, there are changed circumstances, obviously.

My client doesn't even have the child now.

The child is back with the maternal grandmother.

So we're up here disputing about something that is already changed and under Halvey and the other decrees, under other cases of this Court that have recognized that proposition it'd be satisfactory to send the case back to the trial judge and say, judge, find out what happened in this case.

What's going on?

Why is the child gone?

Who has the child, and what disposition should be made?

It just means that there's no reason for this Court to get involved in something that raises serious and difficult questions of constitutional law.

Chief Justice Burger: --If we followed your suggestion of a dismissal, there would be no holding of the Georgia court on any federal question.

Mr. Brown: Absolutely not, because the Georgia court never followed the federal question.

If you look at the Georgia cases we have cited, where they've dealt with the Uniform Child Custody Jurisdiction Act and attacks on that Act of a constitutional nature, you'll see that they have always addressed themselves to the full faith and credit question and they've merely said, we aren't concerned with full faith and credit as a matter of Georgia law because we are enforcing this Act under comity.

That's what this Act was designed to be, it was a cooperative effort between the states.

Georgia didn't buy this act with a view toward having this Court telling them that they had to construe the Act a certain way, by virtue of Article IV, Section 1.

If you read--

Unidentified Justice: This is not a uniform act that the Congress consented to, is it?

I mean, it's not a compact?

Mr. Brown: --No, sir.

Unidentified Justice: An interstate compact.

Mr. Brown: It's just a uniform act--

Unidentified Justice: Among the states.

Mr. Brown: --Somebody lobbies in each legislature, and if they want to pass the thing they put it into effect, and that's exactly what Georgia has done and they didn't accept it on the basis of any mandatory full faith and credit type of compulsion, and the... Commissioners noted that, specifically to Section 12, which has to deal with the binding effect of res judicata, and Section 13 states that it's not intended to establish personal jurisdiction over a nonresident.

It's based on the philosophy of Justice Frankfurter in his concurrence in, I believe, May v. Anderson, where he said a state may not be bound to do certain things, but it may do it if it wants to.

That's all that the Act is based on and it's right in the Commissioner's notes and it makes no sense to me at all to try to apply the mandatory standards of full faith and credit to a comity-based act.

Now, this case to some extent is like the Halvey case.

It's virtually like it factually in that you have a Florida decree which was not recognized in a sister state.

In Halvey New York didn't recognize the Florida decree and what this Court said there was that under Florida law this decree could have been changed even by the Florida court on the basis of changed circumstances.

So New York didn't do anything Florida couldn't do, and we say that Georgia didn't do anything that Florida couldn't do.

The decisions are in our brief at Footnote 25, three cases have not been superseded by the Uniform Child Custody Jurisdiction Act.

They continue to be cited by the Florida courts right up to this very minute.

They're still good law.

The Florida court didn't hear about this lady's trip to Miami, when she left this six-year-old child at home alone untended, unattended, and Georgia did hear that evidence and the trial judge didn't like it.

That's exactly the fact that caused him to take the child away from her.

Now, if you accepted their argument, it would mean that no court could ever hear about her misconduct.

No court could ever make that decision because all you do under the Uniform Act is run next door and file a decree, you don't even have to file under other proceedings.

In a couple of decisions that this Court has suggested in the past, I think Riley and Williams v. North Carolina, that you have to file another action in order to make a judgment of one state the judgment of another state.

But this Act allows that to be done by the simple act of filing.

And it would be a terrible precedent if a parent used this Act--

Justice Marshall: The Act is not before us.

Mr. Brown: --It certainly is not.

But what I'm saying, if you did what the petitioner wants you to do, if you made the application of full faith and credit that the petitioner wants, then you are giving the petitioner, or you are establishing a precedent where an heir apparent can hide his misconduct right behind this decree, and we submit that that's not--

Unidentified Justice: Do you want us to get rid of full faith and credit?

Mr. Brown: --Do I want you to get rid of full faith and credit?

Unidentified Justice: Yes, sir.

Mr. Brown: No, sir, I don't want you to apply it in this case.

I think it has its place.

Unidentified Justice: You'd just like them to raise it?

Mr. Brown: Certainly, I certainly agree with that.

I think a lawyer ought to be held to a lawyer's standards, and that includes raising an issue at the earliest possible time, and if they mean Article IV, Section 1, of the Constitution of the United States, they got to say that.

That's our position in that regard.

The irony of this situation is, in effect what they're saying is, Georgia, you have to give full faith and credit to your own decree.

And, that does not make sense to me, in any way whatsoever.

This was a Georgia decree.

They went through a perfunctory type of proceeding in Florida where changed circumstances weren't even considered, just adopted the Georgia Act and turned around and told Georgia and said, now, you've lost all rights to deal with your prior decree.

That's not what the Full Faith and Credit Clause was intended for.

If you look at the new act, Section (d) of the new act, the new federal act, is designed to protect the decree of the original court, because it provides in that act that there shall be continuing jurisdiction in the court which renders the original decree and it forbids another state such as Florida, in this case, from dealing with an act, dealing with a prior decree from a sister state.

And finally, I'll just mention, and I don't think the Court is of a mind to ever get to this, but if you got over the problem that the petitioner wants to get over, the problem's about not properly raising this question, you finally get around to the merits.

Then you get into this first class question of personal jurisdiction.

And under Kulko it doesn't look like the Court is going in that direction.

It would require a liberalization of what the Court said in that case.

And we submit that very definitely there is no reason to do that; you would have to repudiate May v. Anderson, and the Court, in Mr. Justice Marshall's opinion in Kulko, cited May v. Anderson, so it gave the case a pat on the back.

It didn't lock like you were getting ready to repudiate, because you recited it in that decision.

And our basic position is, there's no reason to get that far and to get into that type of difficult problem in this case.

Under this new act the issue may be back to this Court.

It'll certainly be in a different form, it'll be in connection with the new act, there will be no risk of the Court handing down an opinion which might conflict with the terms of that act, and it just makes good sense to essentially dismiss this case on the grounds that the writ of certiorari was improvidently granted.

Thank you, Your Honors.

Chief Justice Burger: Thank you, counsel.

Do you have anything further, Ms. Carden?

You have two minutes remaining.

ORAL ARGUMENT OF MS. MARY R. CARDEN, ESQ., ON BEHALF OF THE PETITIONER -- REBUTTAL

Mr. Carden: I'd just like to make a few remarks in response to Mr. Brown's comments.

First of all, of course, comity as we mentioned before doesn't demand full faith and credit and in this case Georgia did not afford full faith and credit to the Florida decree, regardless of the Uniform Child Custody Jurisdiction Act.

So no decision in this matter even thought Georgia may have not said, we don't think Article IV, Section 1, does not apply, the opinion still is there that Georgia under precedent of Webb v. Webb does not have to give any kind of importance or consideration to a final judgment of another state on the basis of that decision.

Also, he mentioned the case of Halvey v. Halvey.

And at that time Florida law provided that custody decrees could be modified even on the basis of facts that were not before the court at the time of its original decree, and I believe that was the reason that this Court had such a difficult time applying full faith and credit to Halvey.

Since that time that law has been changed with the Uniform Child Custody Jurisdiction Act, and the only possibility for modification does deal with a material change of circumstances occurring after the original decree.

One cannot go back and question the decree.

Finally, he mentioned that there was, as he called it, kind of a rump hearing in Florida.

Well, his client, the respondent, was given every opportunity to appear and to raise any problems or any of the facts that he thought were there.

Obviously, the Florida court knew of the events, at least from the mother's perspective in February, because the restraining order was issued on the basis of the facts that appeared before the court at that time.

So they... and they held a full hearing, the fact that the father didn't appear shouldn't give him the right to go to another state and file a new action.

Chief Justice Burger: Thank you, counsel.

The case is submitted.

Unidentified Justice: The honorable court is now adjourned until tomorrow at 10:00.

Attribution:

The OYEZ Project

Featured:

Vermont v. New York - Oral Argument

Thu, 23 Aug 2012 18:14:58 +0000

Case:

Vermont v. New York

Media File:

50orig_19720229-argument.mp3

Related Transcript:

50orig_19720229-argument

Transcript:

Argument of Fred I. Parker

Chief Justice Warren E. Burger: -- number 50 original, State of Vermont against the State of New York and others?

Mr. Parker.

Mr. Fred I. Parker: Mr. Chief Justice, may it please the Court.

This original jurisdiction suit is a suit by the State of Vermont against the neighboring State of New York and against a citizen of that state, namely International Paper Company.

It is a controversy over a sludge bed which is sitting on the bottom of Lake Champlain which lies over the interstate boundary between the two states.

We have alleged in our Bill of Complaint that, that sludge bed constitutes a public nuisance that it also constitutes a continuing trespass because it is encroached over the state line on to lands for the State of Vermont, that it is giving rise to an interstate boundary question because its presence is causing a shift of the channel in the direction of the State of Vermont and that it is depriving, and has deprived, Vermont citizens of their right to freely use Lake Champlain.

It is my intension to spend some portion of the original part of this argument in discussing of facts which I think are very important and a very short time on the legal issues which I think are simple to comprehend, although they might be difficult to administer.

The states of Vermont and New York, as I said, are neighboring states.

Lake Champlain lies along the boundary between the two states.

It is a 170-mile long lake, a very narrow one, 12 miles wide at its widest point and it flows in a Northerly direction.

The situation that we describe, the sludge bed situation, is one which exists in the Southerly portion of the lake, almost at what would be the head waters, if you are viewing this long lake as a stream.

Chief Justice Warren E. Burger: Would you give me, so I am going to get at least little better, and more complete picture of the geography, that the total size of Lake Champlain?

What are it's dimensions?

You said 12 miles in its widest part, is that correct?

Mr. Fred I. Parker: Yes Your Honor it -- the length is 107 miles long, 12 miles at its widest part which is about the midpoint of that 107-mile stretch and it narrows down in the Southerly portion at the place, we're describing to about a mile and it narrows down in the Northerly portion where it joins the -- it crosses the Canadian boarder to about a mile and I would say that it fairly regularly narrows.

That is, it starts about a mile wide expands to 12 miles and then comes back to about a mile wide.

Chief Justice Warren E. Burger: I recall that driving in that part of the country it has the characteristics of a river rather than a lake.

Have been -- I would like to get to the picture, how much of that total is affected directly by the sludge?

Mr. Fred I. Parker: The evidence that was presented in the interstate conference that was held on this matter indicated that the sludge bed itself was approximately 300 acres and that the water that it then affected was about 1600 acres.

Now at that time, there was a continuing discharge from the International Paper Company plant which has since ceased and I expect that now the water is being affected somewhat less than they were at that time because of the discontinuance of the discharge.

At the place where the sludge bed exists, there is a stream which is coming from New York, Ticonderoga creek which runs between Lake George and runs into Lake Champlain, and that stream, while the lake is running in a North-South direction, the water flowing Northerly, the stream joins the lake in a South-Easterly direction, so that the waters of the stream run into the lake and buck the current that exists there in the lake and as a result of that the -- well let me back up for just a second, the International Paper Company has been operating a mill, a paper producing mill and pulp mill on Ticonderoga creek for a period of 45 years and it has discharged waste from those paper making operations for that period into the stream.

The discharges have deposited out along the stream and especially at the place where the stream joins the lake, is such a point that it has formed this huge 300 acre sludge bed which consists of organic and inorganic materials that are in a state of septic decay.

And that --

Justice Potter Stewart: The operation is now finished, isn't it?

Hasn't that perhaps closed?

Mr. Fred I. Parker: Yes Your Honor, it has.

It shut down partially in December of 1970 after this suit was instituted and fully shut down in April of 1971, but the --

Justice Potter Stewart: A new plant has been built few miles away?

Mr. Fred I. Parker: That's correct.

Justice Harry A. Blackmun: This is on the lake, the new plant?

Mr. Fred I. Parker: New plant is on the lake and it contains a treatment system.

At this point in time, we haven't seen measurable degrading effect from the new plant although we are monitoring that situation.

Justice Potter Stewart: As of now, there is no complaint against the operations of the new plant?

Mr. Fred I. Parker: That's correct, Your Honor.

The situation that does exist --

Justice Harry A. Blackmun: Is the new plant discharging anything into the lake?

Mr. Fred I. Parker: Yes, it discharges a treated effluent from the plant.

Both the domestic sewage in the plant and the waste from the paper making operation are treated and an effluent is discharged.

We do see some discoloration, but so far we haven't measured detrimental effects.

The sludge bed however, remains on the bottom of the lake and it is sitting on land of the State of New York.

We believe that that sludge bed constitutes a continuing nuisance in that, it will continue to decay and take oxygen from the waters.

It will continue in it's decay to give off gaseous emissions causing severe smell in that area.

It will continue to constitute a interference with navigation.

The situation is there that the sludge has actually filled in to depths of 12 feet to a point at low water.

In much of that area, you can't bring a boat through there and the situation has existed for many years that as this sludge bed decays, the gases formed in the sludge bed cause huge mats of the sludge to rise to the surface and the prevailing Westerly winds cause them to float on the water to the Vermont shore.

We believe that this condition will continue.

We also believe that there will be a continuing trespass.

We have measured using older maps that show the midpoint of the deepest channel in the lake which constitutes the boundary.

We find that, that deep channel has been filled in such that the deepest channel now has moved toward the Vermont shore and that the sludge sitting there constitutes a trespass and in addition, it gives rise to a question of where boundary will be.

The existence of that sludge bed over the years and it's continued existence in the water deprives Vermont citizens of their right to fish in the water, the fish life there has been seriously depleted by virtue of the oxygen robbing qualities of the sludge and --

Justice Harry A. Blackmun: Is that admitted Mr. Parker?

Mr. Fred I. Parker: It's admitted in part and denied in part.

I think that the posture of -- I don't mean to speak for the defendants.

I think the defendant posture at this point is that the continuing effect of the sludge bed will have no detrimental effect as I understand their position.

Justice Harry A. Blackmun: But was there some action taken with the (Inaudible) recently which produced results?

Mr. Fred I. Parker: As I understand it, the studies of the defendants in this case indicate that the conditions in that area have improved and our own studies indicate that the conditions have improved greatly, since the discharge is ceased.

But our experts inform us that we can expect a continuation of the prior circumstances, based on that fact that the recent studies were done, were done last summer at a time when the water was unusually high down there and the temperatures did not rise as much as they have in past.

We expect that given a situation where the water is lower and get heated up as it has in past years that we will return to the situation that existed over past years and probably not as severe because of the discontinuance of the discharges.

Justice William H. Rehnquist: Mr. Parker, why can't the State of Vermont get relieved against International Paper, putting to one side the question of State of New York, in our own courts but the type of wrong that you've just described?

Mr. Fred I. Parker: If it turns out in the proof of this case that the remedy, the best remedy is removal of the sludge, then of course we may end up with incomplete relief because New York is now taking the position that to remove the sludge would constitute a threat to the ecology of the lake.

New York has control over those waters and New York owns that land.

I assume that New York could prevent International Paper Company from removing the sludge from its land and --

Justice William O. Douglas: Under the Federal Act, you got as far as the Attorney General?

Mr. Fred I. Parker: No, we didn't get that far.

Justice William O. Douglas: How far did you get?

Mr. Fred I. Parker: We got through two conferences and a letter from the Secretary of the Interior suggesting action on the part of State of New York, then the, then Secretary of Interior Hickel left and the powers of the Interior were transferred to EPA and we have requested action from EPA, but their response has been negative at this point.

We haven't seen any action.

Justice William O. Douglas: They declined to Act or just not answer to your inquiry?

Mr. Fred I. Parker: We invited them to join this suit and they said, they are very concerned about it, but didn't care to act at this point and I understand that they are -- attached to the latest brief of the State of New York is a indication that the State has corresponded with EPA indicating that their recent study show that nothing further should be done.

Justice William O. Douglas: As I read the Section 10, of the Federal Act, Sub division (g), EPA may request the Attorney General to bring a suit on behalf of United States to secure the bed?

Mr. Fred I. Parker: That's correct John.

That's --

Justice William O. Douglas: There is no edit -- that hasn't been changed to a must or Its pretty discretionary?

Mr. Fred I. Parker: That's right, that's the frustrating business of attempting to deal through these conferences with Federal Government.

We have no way of getting them to Act, if they don't care to.

And I have no way of knowing whether the federal Government disagrees with our position or for some other reason has declined the Act, but they have not gone fully.

Justice Harry A. Blackmun: In this respect, Mr. Parker, enlighten me, what does Vermont feel that New York should do that it hasn't done at this point?

Mr. Fred I. Parker: We feel that that sludge either should be removed from the water or should be covered over so that the it doesn't affect the water quality in the future.

Chief Justice Warren E. Burger: Covering over on the entire 300 acres, does the record show what kind of coverage would be required to be adequate?

Mr. Fred I. Parker: I am not sure that record shows this, but the Federal conferences that were held in this case, the Corp of Engineers did the study which suggested that a sand cover could be laid over sludge.

There is an disadvantage in that remedy because we already have a problem with navigation which of course wouldn't be solved by leaving sludge there.

Chief Justice Warren E. Burger: That's why I have put that question if you -- I don't know whether it's six inches or six feet of coverage that would be requiring but anything you put in would be a further interference with navigation unless the interference with navigation is in such a small part that you can have a dredging operation first?

Mr. Fred I. Parker: I think that's one possibility is accommodation of the two remedies to dredge some and to cover some, but I think that if this Court does take jurisdiction, also it would be one of the problems that we would be trying to workout in trying this case.

Chief Justice Warren E. Burger: Let's suspend it, until after lunch.

[Luncheon Break]

Mr. Parker, you may continue.

You have 15 minutes remaining in all.

Mr. Fred I. Parker: Mr. Chief Justice, may I please the Court.

I indicated just prior recess that we're seeking as remedies in this case either the removal of the sludge bed or its covering whichever seemed most appropriate at the time when the remedy that when we would receive a remedy and in addition, I should indicate that we do have a claim in this Bill of Complaint for money damages.

We have sought over the years alternative relief to litigation.

Early in the 1960s in the New England Interstate Water Pollution Control Compact, the State of Vermont began negotiations which lasted over a period of 10 years with the State of New York, seeking some remedy of the situation which existed in the Lake Champlain.

And as I recited earlier under the Federal Water Quality Act, we have -- there have been held two Federal Conferences at the request of the State of Vermont.

In the first conference, held in 1968, it was determined that there was a problem in that area of the lake.

And in between the two conferences studies were conducted by the Army Corp of Engineers and by the Water Quality Administration which studies dealt with the question of how best to remedy the situation?

One of them concluded that a major portion of the sludge bed did come from the International Paper Company plant.

The other studies concluded that the best remedy was cessation of a discharge and removal of the sludge and a technical committee of that conference concluded that the continued existence of the sludge bed in the lake would constitute a continuing problem.

The defendants of course disagree with that conclusion and that points up the reason why we have have to litigate this case.

Legal issues involved as we see them, the primary legal issue is whether --

Justice Potter Stewart: Just before you move to that, do I understand that the sludge bed is on the bottom of the lake on the New York side of the boundary?

Mr. Fred I. Parker: It is now on both sides of the boundary, Your Honor.

It emanates from the New York side and it is spilling over on to Vermont land.

Justice Potter Stewart: And is something in the record to the effect that it's been building up over many years and there are other contributors to it in addition to many other -- many other contributors in addition to the paper company, this paper company?

Is that -- the paper company is the sole cause of it?

Mr. Fred I. Parker: I don't think that we'll be able to prove that they are the sole cause, but they're certainly the major contributor to it and I think we can prove that.

The paper company alleges that others are also involved, but they don't set out the quantities.

The federal study done pursuant to the first conference concluded that the major source of the bed were from the paper company plant.

Justice Potter Stewart: And this is way down to the Southern tip of the Lake, is it?

Mr. Fred I. Parker: That's right.

Justice Potter Stewart: Down around Port Henry.

Mr. Fred I. Parker: South of their -- at Ticonderoga.

Justice Potter Stewart: Ticonderoga is not -- Is Ticonderoga on the lake?

Mr. Fred I. Parker: Its just pass the lake and yes the city -- the Ticonderoga boundary does have a plant along the lake but the city of Ticonderoga and the place where the mill is on Ticonderoga creek which is a tributary running into lake Champlain.

Justice Potter Stewart: How far from the lake?

Mr. Fred I. Parker: About a mile I believe.

Justice Potter Stewart: Thank you.

Mr. Fred I. Parker: As we see it the major legal issues whether jurisdiction is exclusive in this Court and contributing to that issue is whether we have an alternative forum or whether the principles of Ohio just wind out (Inaudible).

In addition there is the legal question just recently briefed, asked by the Court as to what law applies?

We think all of those legal issues turn on and are controlled by the question of whether New York is properly a party to this complaint.

The defendant's claim that we are simply alleging no administration of New York law in failing to control this situation over the years, that is not the case.

If we were to assume that there were no New York laws on this subject, we would still have a situation existing where the sludge bed lies on New York land and New York has control over that land and over that situation.

They are permitting and have permitted over the years, the continuation of a nuisance which is causing us harm and we think that once that question is resolved then the others fall into line.

Jurisdiction is exclusive one.

Justice Byron R. White: What is your cause of action against New York?

Mr. Fred I. Parker: Maintenance for public nuisance, Your Honor.

Justice Byron R. White: You are saying New York is doing that by letting the sludge to accumulate on its lake part?

Mr. Fred I. Parker: That's correct, on its property.

Justice William O. Douglas: That's a federal common law nuisance?

Mr. Fred I. Parker: Yes, if we litigate before this Court, it'll be a question of federal common law and that's the position that we took in the recently submitted memorandum.

Justice William O. Douglas: Could you get into a Federal District Court?

Mr. Fred I. Parker: I don't think we can because the state of Vermont is not a citizen for purposes of this diversity and both the 28 U.S. Code, Section 1251 provides that this forum is the exclusive forum where we can litigate state versus state.

So as long as New York is a party for this litigation, this is the only place that we can bring the suit.

Justice William O. Douglas: If this is a federal, we just assume for purposes of argument that it is a federal common law nuisance, can you litigate in a District Court?

Mr. Fred I. Parker: I don't think -- as I understand the law the District Court does not have jurisdiction to permit a suit between states.

Justice Byron R. White: But you have got two suits here, you got one against International Paper Company and one against the State, I mean at least you have got two parties?

Mr. Fred I. Parker: Yes, Your Honor.

We are dealing in this joint --

Justice Byron R. White: We already (Inaudible) that you could litigate against the International Paper Company in the District Court?

Mr. Fred I. Parker: Yes, Your Honor we could.

Justice Byron R. White: And that federal law would control it?

Mr. Fred I. Parker: I think that that's a problem.

If we conclude that state versus state, we look to federal common law in this Court and if we treat those as a case of joint tortfeasors, both litigated here, then I think that this Court would apply federal common law against both defendants.

Justice Byron R. White: But the (Inaudible) hasn't named New York at all and you sued them in the Federal District Court, sued International Paper in the Federal District Court?

Mr. Fred I. Parker: Yes, Your Honor.

Justice Byron R. White: You would be asking for the application of the same law that you'd be asking here, correct?

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

I think at that point then the substitute law which controls would be state law.

The choice of law rules would have to apply.

Justice Byron R. White: Well, why is that?

Mr. Fred I. Parker: Erie railroad v. Tompkins.

Justice Potter Stewart: There wouldn't be a diversity case, by definition.

You said that a state is not a citizen of another state, it wouldn't and couldn't be a diversity case and the Erie railroad rule is applicable to diversity cases?

Mr. Fred I. Parker: I was just -- I think it would have to be a diversity case in order to get there and that's why we can't go there.

Justice Byron R. White: Well, you would be --

Justice William O. Douglas: Will that be supposes that the decision of this Court, that you would -- you are governed by federal common law on this instance, we've never so held, have we?

Mr. Fred I. Parker: In cases involving state versus other states, the Court has consistently held that these kind of cases are governed by interstate common law or federal common law of nuisance.

In suits between states and citizens of other states, when a state was not involved, to me the law was unclear.

I can't find any clear holding --

Justice Byron R. White: What would you say if you were suing International Paper alone in this Court and surely that would be a case within our jurisdiction and you were claiming that this sludge bed was nuisance.

Now you would be asking every implication of federal law, wouldn't you?

Mr. Fred I. Parker: I would be, yes.

Justice Byron R. White: Why would you think that any different law would apply if you were suing in the Federal District Court which has contract jurisdiction in that kind of a case?

Mr. Fred I. Parker: Because as I understand it -- well the only way, I could understand to get into a Federal District Court --

Justice Byron R. White: You are asking for a federal -- you are just suing on a federal question as a matter of a federal law?

Mr. Fred I. Parker: I had never understood that to be the case.

Justice William O. Douglas: Well of course it hasn't really been decided.

Are you acquainted with the Pankey case in the Tenth Circuit?

Mr. Fred I. Parker: Yes, I am acquainted with it Your Honor.

I don't fully understand it.

It seems to stand alone and --

Justice William O. Douglas: Well that's a state assertion?[Attempt to Laughter]

Justice Byron R. White: Well, let's assume that it had been that -- let's assume that you are suing in this Court International Paper Company alone and this Court decided federal law applies and then in a identical suit on the facts between the state and another company, this suit is brought in the Federal District Court.

Wouldn't you think the same law would apply?

Mr. Fred I. Parker: I think if I were plaintiff in that suit in a federal court, I would urge that was a case, but I don't find that to be the law at this point in time.

I am afraid that the Federal District Court wouldn't let you litigate and therefore you'd be without a forum.

You'd end up in a state court --

Justice Byron R. White: But they did in (Inaudible), didn't they?

Mr. Fred I. Parker: Yes, it did and that's the only one so far as I know.

Justice Byron R. White: Well, it's the only way, there isn't anything against it either, is there?

Mr. Fred I. Parker: No, there are no holding --

Justice Byron R. White: And the only authority there is, this Pankey case?

Mr. Fred I. Parker: That's correct.

Justice Potter Stewart: What did Wyandotte had to say on this subject?

Mr. Fred I. Parker: Well as I understand Wyandotte, that case said, go back to the state court.

It did not direct the plaintiff in that case to go to the Federal District Court.

Justice Potter Stewart: But perhaps I should explain them all on the basis that the Court understood, that the State of Ohio was asserting an Ohio cause of action under the Ohio nuisance law?

Mr. Fred I. Parker: It's possibly the case and we may have that here in this case, if we have to.

If this Court does not take jurisdiction, we may very well end up back in a state court in Vermont.

But in that case, we would only be against International Paper Company and I don't believe that we could get complete relief, and that is my argument.

Chief Justice Warren E. Burger: Thank you Mr. Parker.

Mr Weinberg.

Argument of Philip Weinberg

Mr. Philip Weinberg: Mr. Chief justice and may it please the Court.

To accept this case, would be to undercut precisely what this Court held in Wyandotte, where the relief sought by the plaintiff was virtually identical namely an injunction against the alleged pollution of water of an interstate lake and damages therefore.

And It seems to us that Wyandotte is completely dispositive here.

The Court there properly held that in the case such as that involving complex issues effect and bottomed on local law, in which the factual questions were sharply contested and in which in this Court's phrase, novel scientific issues were involved, that although concededly there was jurisdiction in this Court, it was precisely the sort of question that the Court should not get entangled in.

Justice Potter Stewart: There is one very great big difference thought is there not?

In Wyandotte, there was no state, there was a defendant.

There was not a controversy between two states.

Therefore this Court's -- well jurisdiction existed in this Court, it was not exclusive jurisdiction.

Controversy between two states is exclusively within this court's jurisdiction, is it not?

Mr. Philip Weinberg: Certainly is Mr. Justice Stewart and it's precisely our of point that there is no genuine controversy between the two states here.

Justice Potter Stewart: Well that is a separate point but this -- that on its face is what differentiates this case from Wyandotte, among other?

Mr. Philip Weinberg: That's certainly true, once we go beyond the surface representation that two states are involved in and look at the realities of the case, however that it seems to me just close or broad because was in fact, New York was injected.

I don't want to characterize why New York was injected, but certainly, but the only reason for the presence of New York here is to obtain some sort of a possible jurisdiction in this Court, when in fact everything that Vermont wants, they want from International Paper.

It's conceded on this record here that the New York didn't contribute one scintilla of pollution to the lake.

New York had no more to do with creating the sludge bed then China did, and that's beyond dispute.

The sludge bed was created by International Paper and perhaps by other private parties as well.

Justice Thurgood Marshall: Except China had more authority to break international stuff?

Mr. Philip Weinberg: That's certainly true Mr. Justice Marshall.

Justice William O. Douglas: As an assumption though in what we quote that string that you agreed in Wyandotte that the state court that decided the case under the same common law of nuisance, on which our determination have relied.

That wouldn't be true if this federal common law of nuisance, would it?

Mr. Philip Weinberg: It would only be a federal common law of nuisance case under our view of the law if the state were a proper party, and if a genuine claim for relief existed as against New York.

Now the answer it seems to me is that in contrast to other situation such as the previous case that was argued this morning involving Milwaukee, New York has been more than diligent, it’s actually been aggressive in dealing with this problem.

We forced International Paper to cleanup the pollution that it was causing in Lake Champlain.

We took them to court.

The case is cited in our original brief.

We obtained a consent to create consent judgment of injunction, directing International Paper to cease its active pollution and it’s conceded now that there is no longer any active pollution from this source at all.

And following that, we represented to the Enforcement Conference at which Vermont and New York and the Federal agencies were all parties, we represented to them that we would take whatever steps were necessary or appropriate to abate the pollution caused by the sludge bed, and pursuant to that, we entered into a pilot study in which Vermont originally participated, prior to they kicking over the traces, and subsequent to that the study in which New York engaged a highly respected independent consultant, and the conclusion based on that study which has never been controverted by anyone except by Vermont in this lawsuit, not by any Federal agency, not by any New York agency, not by anyone else except Vermont, was that the pollution, the active pollution had now completely ceased that whatever damage the sludge bed was causing was due to the active pollution of the lake, and then in fact, the problem was dissipating and the sludge bed itself was stabilizing.

The report, a copy of the summary of which is appended to our supplemental brief plainly indicates that fish are now returning to that portion of the lake, and that of the various alternatives by far the safest one, by far the most practical and by far the most realistic from an environmental standpoint is to simply leave the sludge bed alone, because what’s happening now is a natural process of stabilization under which fish and other marine life are returning to the lake.

The thesis of (Inaudible) so on and the bubbling which have complained --

Unknown Speaker: That really goes within the merits and appropriateness of remedy?

Mr. Philip Weinberg: Yes sir it does, but it’s simply unavoidable to discuss that it seems to me in the context as this Court said in Wyandotte whether in prudence or in discretion it ought to accept this case.

Justice Potter Stewart: Well, Mr. Weinberg doesn't it also go to New York maybe -- New York state maybe a necessary party.

The sludge bed is largely on the sub -- surface of the lake on the New York side of the line, and its Vermont’s intention that the way to abate this nuisance, to get rid of it is to remove the sludge bed and New York strenuously says, no that’s absolutely the wrong thing to do.

So if a court should order the Paper Company to remove the sludge bed, and then New York would just step in and say, I am sorry, we enjoin you from removing the sludge bed and it’s on our territory, and isn't that the reason why New York state might be a necessary party to cleanup these factual issues in this litigation vis-a-vis the remedy of --

Mr. Philip Weinberg: The first answer to that it seems to me Mr. Justice Stewart is that these are issues which a State Court or perhaps even a Federal District Court could address itself to and if International Paper were ordered by the state court of either Vermont or New York to remove the sludge bed, then at that point it would be under an injunction and it would have to do so if New York wanted to step in then New York can do so in it's courts.

Justice Potter Stewart: They would enjoin this -- the removal of the sludge bed?

Mr. Philip Weinberg: Well, it could and that question would then be litigated in the state court of either Vermont or New York, that’s one answer to it, The second answer to it is that Vermont alleges in its own complaint, that part of the sludge bed is on its own territory.

Now Vermont had as much to do with putting that sludge bed there as New York did, virtually nothing.

Justice Potter Stewart: Perhaps you didn't understand my -- I was just directing myself to the questioning the reason and why New York state might be a necessary party as of course it could not be in either a State or Federal Court except for this Court, isn’t that right?

Mr. Philip Weinberg: That’s certainly true, but it’s highly speculative I think to assume that New York would attempt to block an injunction if Vermont could obtain one in its own courts or in New York state.

Justice Potter Stewart: Well, you certainly strenuously asserted in your brief and you just began to assert in oral either the removal of the sludge bed is exactly what would be the wrong thing to do?

Mr. Philip Weinberg: Yes, but this is something that could be litigated as between Vermont and International Paper in the state courts, and if New York wanted to become a party, New York could certainly be free to intervene as New York has done as a plaintiff or defendant in numerous occasions in its own courts, and I don't see any reason why it couldn’t do in the Vermont courts as well.

It’s even conceivable under Texas against Pankey that there is some sort of a federal cause of action here.

In any event there were certainly two or possibly three forums where all these difficult factual questions could be resolved, and if New York wanted to --

Justice Potter Stewart: (Inaudible) Vermont would be or to the defendant?

Mr. Philip Weinberg: No, but I don't see the reason for making New York a defendant here.

Justice Potter Stewart: Well, I just suggested a possible reason?

Mr. Philip Weinberg: If New York wanted to interpose assuming that an injunction were granted, a mandatory injunction requiring the sludge bed to be removed, if at that point New York elected to step into the case, it could move to intervene, and if it didn't, then it would have waived whatever objection it has.

So it seems to me that, that’s not a reason for having the court, this Court hear the case in first instance.

Justice William H. Rehnquist: Well Mr. Weinberg, does New York concede that if Vermont sued International Paper either in the Federal Court in Vermont or in the State Court of Vermont without New York being a party or an intervener, and Vermont got a decree of final relief calling for the abatement of the sludge bed, that the State of New York would be bound by that decree, so that it couldn’t interfere with carrying it out?

Mr. Philip Weinberg: In situations like that Mr. Justice Rehnquist which I have personally been involved, the New York has simply executed a consent under which the private party can remove whatever it is.

We had a case like that involving pollution of the Hudson by the Marathon Battery Company.

The case was heard in the Southern District Court.

It was brought by the United States Attorney.

New York was made a party defendant solely for that purpose, or intervened I believe it was, solely for that purpose, and we simply executed a consent for letting the defendant under the consent decree to go on the underwater land and remove what was allegedly causing the disturbance.

I think the point to remember here in regard to all of this is that when one talks about a state owning underwater land or owning the water of a lake, any water pollution whether it’s done by municipality or by any sort of an industry could be with the same logic that Vermont is asserting here, be blamed on the State, just as Ohio sued the Wyandotte Chemical company and the other defendants in that case, it could have sued the State of Michigan or the province of Ontario if it wanted to, using the same logic that they were depositing toxic material into Lake Erie and that consequently, it was the responsibility of the state.

And had that happened we would have had the same situation we have here, namely the spurious injection of a state in order to provide some sort of bootstrap jurisdiction for this Court which in fact is improper, and everyone of the reasons why this Court in the exercise of its prudence and discretion rejected this suit in Ohio against Wyandotte are applicable here.

There are many of the state bodies, including the Potomac right here as well as all of the great lakes, the Hudson river, the Delaware river, and others where the same sort of logic would apply.

Obviously, all the lands on one side or the other will cross interstate boundaries.

The underwater land is owned by one state or the other, and using the reasoning which Vermont is using here you could name the state as a party defendant and have any one of those plethora of cases litigated in this Court.

Now in contrast to what we heard earlier in case number 49, where there was a history of, I believe it’s fair to say, fair bit of grapple with the serious pollution problem in Lake Michigan on the part of the municipal authorities there, New York has aggressively acted and as I indicated took the state of Vermont – took the International Paper Company to court.

Thereafter we had the study, a summary of which is appended to my brief, and with Court's permission I would like to hand up by giving to the clerk at the conclusion of my argument, a copy of the full report.

Vermont attempts to steer around the Wyndotte case saying in effect that it’s clear that the sludge bed must be removed, but in fact no agency with jurisdiction over the sludge bed has ever said so.

The Army engineers have plenary jurisdiction over the state waters, and navigable waters, and they have never so much as suggested that there was any interference with what little navigation may exist on this part of the lake.

New York has been in constant communication with the department of the Interior and after that would be ECA.

There is a letter from New York’s State Commission of Diamond (ph) to Secretary Hickel, and next to International Paper's first brief, there is a subsequent letter to Mr. Wrickleshouse (ph).

There was never any reply to any of those letters which indicated the slightest displeasure on the part of the Federal Authorities with the course that New York has been taking, and New York has kept them appraised continually.

There just isn’t the – the problem here that Vermont insists there is.

Justice William O. Douglas: I understand the core of engineers has authority only over permits to make new discharge which is inevitable, that’s where they recently acquired (Inaudible).

Mr. Philip Weinberg: Yes sir, but they certainly have authority to abate any impediment to navigations such as Vermont alleges there is.

Justice William O. Douglas: (Inaudible) doesn't run the navigation but to health, am I wrong?

Mr. Philip Weinberg: It’s my understanding Mr. Justice Douglas that army engineers have the power --

Justice William O. Douglas: Vermont is complaining about the health, quality of the water, swimming not navigation in there --

Mr. Philip Weinberg: Well they do dwell in as a sort of a de minimis or make way to argument to impediments in navigations although they have never complained to the New York Authorities about that, except by bringing the suit --

Justice William O. Douglas: (Inaudible) a health case, isn't it?

Mr. Philip Weinberg: No I don't -- Vermont certainly alleges both and we submit that there is no merit to either claim and in direct contrast to every other pollution case this Court has ever accepted including Georgia against Tennessee Copper, and Michigan and Illinois and all the rest, where there were the most serious, dangerous of epidemic and large scale pollution of interstate waters and so on.

There is nothing of the sort involved here.

What we have here is a sludge bed which is rapidly stabilizing itself in any event which is only less than a half a square mile in size and in fact there is an existing suit which is referred to in our briefs.

Justice William O. Douglas: (Inaudible) [Attempt to Laughter]

Mr. Philip Weinberg: I'm not suggesting that it's attractive.

I'm simply suggesting that there is not the massive course of action here that Vermont insists there is and that we have to put the case in the proper context in contrast to Georgia against Tennessee Copper, and other cases nearly all of which in any event antedated the whole arsenal of statutory remedies which were available in a situation like this.

Any water pollution by definition that's in the state body of water is on some states under water lands and if there is any sort of sediment or anything, then it's going to fall on lands that are owned by one state or the other.

And to hold that this Court had jurisdiction solely on that basis, would be reflectively overrule Wyandotte in any case involving an interstate body of water and simply permit the plaintiff state to elect to name the other state, which it shares the body of water with as a party defendant.

For these reasons we maintain that Vermont has an ample forum in the courts of either state and its motion for to leave to file this complaint should be denied.

Chief Justice Warren E. Burger: Thank you Mr. Weinberg.

Mr. Whipple.

Argument of Taggart Whipple

Mr. Taggart Whipple: Mr. Chief Justice, may it please the Court.

I represent International Paper Company.

Our position in this litigation is, I'll say at the outset three-fold.

We agree with Vermont that the complaint does not state a real justiciable claim against the State of New York.

Secondly, that this Court should refuse to exercise jurisdiction as it did in Wyandotte.

Thirdly, that as far as governing law goes, the governing law in the state of Vermont's claim against New York is federal law, but as far as Vermont's claim against the International Paper Company goes it should be state law.

Before I get into the law, I'd like to perhaps amplify startly on some of the factual questions that were asked this morning.

With respect to your question Mr. Chief Justice about the area involved and so on, I visited the area, or I tramped through the two mills, one of which is closed, the new mill which is now open.

I think you should try to visualize this part of the lake as a very narrow, almost like the closing mouth of the funnel.

You fly over the latter part of the lake, you'll see that latter part of the lake, including Ticonderoga and Crown Point is mudding throughout as the lake broadens and gets to be clear and much different.

The sludge bed itself which lies in the northern Ticonderoga Creek which empties into Lake Champlain covers some 300 acres.

Some of it is covered by marsh grass.

In fact it amused me when I was there to see that one of the colored postcards that's sold at Port Ticonderoga shows the view over the sludge bed so there is no aesthetically difficult proposition here.

The area involved in contrast to the whole area of Lake Champlain is a very limited area indeed.

Finally, Mr. Justice Stewart and I believe Mr. Justice Blackmun talked about the new mill, I'd like to say a word about that.

The Paper Company has long been concerned about the discharge problem in the old mill.

Over five years ago, it planned this new mill, It cost $76 million.

It contains the most modern water treatment facilities that were available, which cost between $3-4 million, and as the State of Vermont said this morning there is no problem about the discharges from that mill.

In fact, you can drink the water when it comes out of those treatment facilities, and people have done it.

As to fish life, which is a legitimate ecological concern, we disagree with the statement this morning by Mr. Parker that while fish life was improved substantially since the discharge has stopped from the old mill, as they did completely in April 1971 that there is going to be a reversion to a minor and poor fish life.

In fact, it's not true as I understand it that conditions this summer, when the tests were conducted by a firm (Inaudible) favorable.

The temperature of the water rose to high level soon than it normally did and stayed there for a longer time.

I want to emphasize what Mr. Weinberg said.

There is a long standing dispute as to the best way to deal with this bed.

Mr. Chief Justice you've mentioned the possibility of recovering it.

There are at least three possibilities, one is to leave it where it is, covered it or not in some way; the second is to remove it and if you remove it, what happens?

I want you to visualize this bed as a light and feathery substance as Mr. Dime (ph) stated and Mr. Wrickleshouse (ph) had tested in the New York State supplement brief points out.

It's not a thick heavy bed.

Any attempt to dredge and remove this operation, we are told would destroy the ecological balance of the lake in a most harmful fashion indeed and there is a -- there is another question too.

If you remove it, where do you put it and what happens?

Certainly it would have to be removed some place fairly near to lake, and if it were done the best evidence from the scientist says that a lot of it will reach back into the lake so removal does not seem to be a realistic alternative.

Now as to the law, I don't need to add anything.

I think that Mr. Weinberg's position, which is basically that the complaining states of course have actions for maladministration against New York of its own laws.

However, as to whether this Court should exercise the jurisdiction, and we don't dispute the Court as jurisdiction, we contend that reasons of policy and principle militate against the exercise of the Court's jurisdiction.

Even insofar as Vermont's claim against New York is concerned, a state against state claim, the way the law has developed as we understand it, even though the jurisdiction which has given to this Court of state against state cases is exclusive, it is not mandatory.

In many cases, this Court has refused to exercise jurisdiction for strong and compelling reasons of policy.

In Wyandotte, while that was a state against citizen case, and obviously we're distinct here in the sense that New York as a party as well as the Paper Company, we contend that the same considerations which militated against the exercise of this Court's jurisdiction in Wyandotte should lead this Court to refuse to exercise jurisdiction here.

These factors are familiar, but I would like to just recite them and let them into the facts of our case.

In Wyandotte, the Court pointed out that the Court would be punished into a morass of novel, difficult scientific, technical problems.

The existence and the manner of treating this sledge bed so far as we know are entirely novel.

That is why we tried to get the best engineering experts we could last summer to look at it, and would advise us, then advise the State of New York as what ought to be done about it.

The mere differences to come up this morning between Mr. Parker's statement, Mr. Weinberg's illustrate and underline the difficulties of these problems.

I think it's beyond any argument that if this Court would have take the case, the Master would be plunged in to a extremely difficult problem of fact finding and recommending.

I don't think it's any answer as Vermont might suggest later on on to say a Master can do it all because as we understand it even after the Master does it, as Mr. Justice Stone pointed out in Georgia against Pennsylvania, there still remains in this Court, the duty of independently examining the evidence itself.

Moreover, it seems to us that the Court would be entering into an area that Congress has expressly refused to preempt and rather has left to the states.

The policy of course, we think would be great if this Court would have withdrawn of into the morass of tort litigation arising from water pollution at the expense of its ability to deal with the ever broadening range of problems that come before this Court in massive numbers and are federally oriented.

If you were to take this case, it's difficult for us to see how you can pick and choose between other pollution cases which would be sure to come here and with the environmental concerns that surround the countries (Inaudible) now we think inevitable they would come here.

We therefore suggest this case should be resolved at the lower level.

We suggest that the proper course of action is for the Court to refuse to take this case and to remit Vermont to the type of procedure that the Court has said again and again should prevail in these matters and that is conference, concessions, cooperation at the lower level where these things could and should be resolved.

Justice William H. Rehnquist: Mr. Whipple.

Mr. Taggart Whipple: Yes sir.

Justice William H. Rehnquist: You concede that International Papers is amenable to service of process in Vermont?

Mr. Taggart Whipple: We contend Your Honor, I was just about to get to that, that we are sueable in Vermont, we are sueable in New York, we are ready to stand sued there, there is no question about that.

This is the really available alternative that the State of Vermont has against us insofar as remedy goes, there's no doubt about that.

And I'll put it to one side, but I want to just advert to it, in a word, the availability of the administrative remedies, which we contend Vermont has failed to exhaust and I would suggest to this Court respectfully, that in deciding whether the exercise, the Court's discretion take a case of this nature one should look long and hard to the question as to whether the state that brings the case or seeks to bring the case here has in fact exhausted it's administrative remedies in the circumstances.

Justice Potter Stewart: It's a kind of a primary jurisdiction argument or a --

Mr. Taggart Whipple: Well, I don't know.

I would characterize it as an exhaustion of administrative remedies Mr. Justice Stewart.

I think you could call it primary jurisdiction too, it might be both, it might well.

But my point here is, I don't think that the State should come in here and call upon the really extraordinary remedy of original jurisdiction, which this Court has said time and again, should be sparingly exercised and only in unusual circumstances when it is refused as the state of Vermont refused in the fall of 1972 to proceed with this engineering study which Mr. Weinberg will leave with the Court.

The door was slammed and it seems to me in a novel for a State to stand before this Court and try to invoke the original jurisdiction, which should be sparingly exercised and which when it's been called into play and water pollution cases has raised a host of difficulties.

Mr. Justice Holmes spoke about this as early as 1900, 72 years ago and it certainly not any easy today than it was then.

So, I would suggest that an element and a strong element in this Court's discretion should be not only the availability of an alternative litigating board and we are subject to suits in Vermont.

We never questioned, and also in New York, but also whether the state has made a positive and a genuine effort to exhaust their administrative remedies and I contrast this case against some other cases argued here this morning.

I think there's every difference in the will.

Justice Byron R. White: In terms of the equitable law, which says a state law should control --

Mr. Taggart Whipple: Yes sir.

Justice Byron R. White: Let's assume you are sued in Vermont, what would be the governing law?

Mr. Taggart Whipple: I would think the State of Vermont law.

Mr. Justice White --

Justice Byron R. White: In New York, the same?

Mr. Taggart Whipple: I would think so, I think common law governs traditional nuisance.

It's one of the oldest types of complaint known to mankind.

I would think this --

Justice Byron R. White: What New York says that --

Mr. Taggart Whipple: Let me clarify one thing, may I?

You said that if we are sued in Vermont, the same thing.

I think probably, the law of the place of injury should govern.

Justice Byron R. White: Well, if you are sued, what if the -- what if under the New York law of the maintenance of the sludge bed is not a nuisance?

Mr. Taggart Whipple: Well, I find it hard to accept that hypothesis, but I will arguendo, if we are sued in New York, I would think that the New York court would look to the Vermont law because that's the place where their injury occurred.

Justice Byron R. White: Well, they are saying that the Vermont says if the injury is occurring from New York maintaining on its land this sludge bed?

Mr. Taggart Whipple: No, but the thrust of the injury, the harm visits itself across the border in Vermont, on Vermont shores, that's where the injury occurs, I think.

The existence of the bed is mainly, almost entirely in the State of New York, but is in Vermont, it's the citizen's of Vermont putatively at least in the complaint, where Vermont sues as parent's patria, quasi severan capacity, they are the people who suffer.

The impact is still there across the border and I will think the state law of Vermont should govern.

Justice Byron R. White: Well, you know that in some of the interstates river cases where a state sues a private company, what have been the applicable law?

Mr. Taggart Whipple: Well there is -- I am not sure what case you are suggesting to thinking of Your Honor?

Justice Byron R. White: Well, in Wyoming and Colorado, when there was some litigation there about a stream and it was between the state and a private company, didn't the doctrine of equitable portion of the Federal law apply rather than what the --

Mr. Taggart Whipple: Well, if the case is dealing with the apportionment of interstate waters and particularly with another state contact, then I think it's clear --

Justice Byron R. White: No one is state contact.

Mr. Taggart Whipple: Alright put that aside then.

If you are dealing with the apportionment, the apportionment of interstate waters, then it seems to me the Federal Common-law would govern, but here you are dealing with an environmental concern and I would like to call Your Honor's attention again to the provisions of the several Water Pollution Control Act that were mentioned in Wyandotte, where the congressional policy was clearly and explicitly stated to recognize, preserve and protect the primary responsibilities and the rights of the states in preventing and controlling water pollution.

Justice Byron R. White: Would you see anything inconsistent with your position that you suggested, perhaps there might be a Federal Common-law of nuisance cause of action, but also a safe one?

Mr. Taggart Whipple: No, I don't.

I've thought about is a deal and I've looked to some of your decisions and you talked about DeSilve (ph) yesterday and Commissioner against Stern which is not cited in our brief at 357 U.S, this Court stated uniformity is not always a policy and it pointed out in the Bankruptcy Act, for example, the validity of a transfer of property and fraud against creditors is governed by the laws of the states and it added that you could have 50 different laws governing.

I don't see a real inconsistency.

I will admit when I first thought about this case, the notion of a uniform Federal Common law blanketing all the rivers in the country seemed appealing.

But I think when you think about it and you realize that what this Court would be doing, would be evolving a new Federal Common law and laying a tier of new Federal Common law of nuisance on top of this existing state law, the result would be not to hinder and help this pressing problem to pollution that rides aback of the country, but it would be years before people could know what the Federal Common law of nuisance would be.

Justice Potter Stewart: Now Mr. Whipple there is a litigation (Inaudible) against your client --

Mr. Taggart Whipple: Yes sir.

Justice Potter Stewart: -- in the United States District Court for Vermont, is there?

Mr. Taggart Whipple: There is.

Justice Byron R. White: And Federal jurisdiction is bottomed on what?

Mr. Taggart Whipple: Diversity.

Justice Potter Stewart: Not on Federal question, on diversity?

Mr. Taggart Whipple: I don't think it is, no Your Honor.

It's a straight complaint of nuisance than it picks up in parts, for most of the complaint is on file here.

I would like to add one thing. --

Justice Potter Stewart: How far has that litigation gone, I am just curious to know whether -- how the District Court there feels about what kind of substantive law is applicable?

Mr. Taggart Whipple: The case was brought shortly after this one.

It's a class action.

We contested the class action --

Justice Potter Stewart: Who is John, what was he representing, the town's people or the ---?

Mr. Taggart Whipple: John and three other plaintiffs are landowners or lessees along the eastern shore of the lake, opposite the sludge bed and the class they can contend, they represent, can I finish my sentence, consists of the class along the lake in this county, it's a class of 200, New York's brief is mistaken, he says 600.

We contested the class action before the District Judge in Vermont, he agreed with us.

The case is now on appeal under a 1292 (b) certification to the Second Circuit, that is the status of the case.

Justice Potter Stewart: That's the propriety of the class?

Mr. Taggart Whipple: Exactly, yes, thank you.

Chief Justice Warren E. Burger: Thank you Mr. Whipple.

Mr. Parker, you have a three minutes left, I think?

Rebuttal of Fred I. Parker

Mr. Fred I. Parker: Mr. Chief Justice, may it please the Court.

It seems clear to me that the Court has well in mind the issues in this case and I don't have anything further except that I hate to leave the record reflecting the New York allegations of diligence and for suing International Paper Company, in this case.

The discharges in the Lake Champlain have occurred for 45 years and many, many years there were no suits, whatsoever.

It was several years after Vermont began pushing New York before any litigation was initiated and it's notable that no litigation ever sought a preliminary injunction.

In fact, what happened in each case was that International Paper Company would come forward with its schedule as to abatement and New York would agree with it and then there were delays and there were numerous changes of deadline until such time as the Paper Company finally did construct and began operation of its new mill at which point the question of the lawsuit became moot.

Unless there are questions I have further.

Chief Justice Warren E. Burger: There would be none.

Thank you Mr Parker, thank you Mr. Whipple, Mr. Weinberg.

The case is submitted.

Featured:

Thorpe v. Housing Authority - Oral Argument

Wed, 06 Jul 2011 19:35:25 +0000

Case:

Thorpe v. Housing Authority

Media File:

712_19670321-argument.mp3

Related Transcript:

712_19670321-argument.xml

Featured: