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Justice Blackmun | 1,974 | 11 | majority | Mississippi v. Arkansas | https://www.courtlistener.com/opinion/108972/mississippi-v-arkansas/ | Mississippi, prompted by the pendency of private title litigation in the Arkansas courts,[1] instituted this original *290 action against Arkansas in November 1970. The bill of complaint, which accompanied the motion for leave to file, prayed that the boundary line between the two States, in the old bed of the Mississippi River from the upstream end to the downstream end of Tarpley Cut-off, that is, the Spanish Moss Bend-Luna Bar-Carter Point area where Arkansas' Chicot County and Mississippi's Washington County adjoin, be fixed and determined. The river was originally established as the boundary between the States by their respective Acts of Admission. Mississippi's Act, (1817), described the line as "up" the river.[2] Arkansas' Act, (1836), described the line as "up the middle of the main channel of the said river." See, also, Arkansas' Constitution, Art. 1 (1874). Over 50 years ago the question whether there was any difference in the meaning of these two descriptions was resolved and the boundary was determined to be "the middle of the main navigable channel, and not along the line equidistant between the banks." That decision was in conformity with the rule of the thalweg enunciated in and followed, in the absence of special circumstances, in many subsequent cases. See, for example, ; New ; Arkansas responded to Mississippi's motion and moved that leave to file be denied and that the complaint be dismissed. The motion for leave to file, however, was granted. Thereafter, the Honorable *291 Clifford O'Sullivan was appointed Special Master. The Master's report eventually issued and was ordered filed.[3] Arkansas' exceptions to the report and Mississippi's response to those exceptions were forthcoming in due course and the case has been argued to this Court. Prior to 1935 Spanish Moss Bend was on the thalweg, or primary channel, of the Mississippi River. It has not been the thalweg, however, since the Tarpley Cut-off was established about five miles to the east in 1935 by the United States Army Corps of Engineers. The present controversy focuses on what is known as Luna Bar on the eastern bank of the old river at Spanish Moss Bend. The issue simply is whether Luna Bar came into being by gradual migration of the river westward, or, instead, by some avulsive process, also to the westward. Depending on the resolution of this factual issue, legal consequences ensue in line with established principles conceded by the two States to be the law relating to riparian accretion and avulsion. 1 U.S. 359 ; ; Bonelli Cattle These principles need no reiteration here. It suffices to say that if Luna |
Justice Blackmun | 1,974 | 11 | majority | Mississippi v. Arkansas | https://www.courtlistener.com/opinion/108972/mississippi-v-arkansas/ | no reiteration here. It suffices to say that if Luna Bar was formed by accretion, this litigation is to be resolved in favor of Mississippi, and, contrarily, if Luna Bar resulted from an avulsion, the suit is to be resolved in favor of Arkansas. Upon our independent review of the record, we find ourselves in complete agreement and accord with the findings of fact made by the Special Master.[4] Report *292 34. We therefore affirm those findings, overrule Arkansas' exceptions to the Master's report, confirm that report, and in general accept the Master's recommendations for a decree. We deem it unnecessary to outline at length the evidence adduced, or to reproduce here the detailed analysis of that evidence made by the Special Master. We note only that the dissent would regard the case as close because of three factors: (1) certain testimony as to ancient trees on Luna Bar indicated by the presence of three stumps that could not have lived and died there in the last 100 years, (2) some testimony as to soil on the bar "not compatible with the soil that would result from accretion," post, at 298, and (3) the bar's "hard core elevation," post, at 299-300, that coincides with the elevation "on the adjacent Arkansas bank." These factors, in our view, would be pertinent except that they reflect only the approach and testimony of Arkansas' witnesses and overlook pertinent and persuasive testimony to the opposite effect from expert witnesses for Mississippi. The latter are the witnesses that the Special Master credited, as do we, in the evaluation of the conflicting testimony. Arkansas conceded that Mississippi made out a prima facie case of accretion. Tr. of Oral Arg. 19. In addition, the Master was impressed with the total absence of *293 any known historical reference to an avulsion in this area that changed the course of the river by the necessary half mile. And the dissent acknowledges, post, at 295, as to how "Mississippi made its case," and concedes that the testimony "gives force to the argument that accretion formed Luna Bar," that there was testimony that in the Mississippi River "avulsion would shorten the course of the river, while here the course was lengthened," and that Mississippi's experts knew of no instance "where avulsion had worked the way Arkansas claims." So far as the ancient tree stumps are concerned, Mississippi presented evidence from forestry experts that the forest on Luna Bar was one predominantly of pioneer species with the expected small accompanying, scattered areas of secondary and climax trees, and with no tree more than |
Justice Blackmun | 1,974 | 11 | majority | Mississippi v. Arkansas | https://www.courtlistener.com/opinion/108972/mississippi-v-arkansas/ | secondary and climax trees, and with no tree more than 37 years old. This is consistent with the first appearance of growth upon Luna Bar depicted in early Mississippi River Commission charts showing the bar to be barren and without vegetation. Report 10. Mississippi's position as to the three particular stumps was that they had been washed in by floodwaters in preceding years; that one had moss on its roots, a condition incompatible with growth in place; and that, at the point where another allegedly was found in the elevation of the bar was at least 10 feet above what it had been 90 years earlier. Thus the stump necessarily should have been deep in the undersoil of the bar and not on its surface at the time of its removal. Report 11. The soil composition is purely a matter of conflicting testimony and we are persuaded by Mississippi's evidence. Deep borings, of course, would be below the riverbed, and would be expected to be consistent throughout the area on both sides of the river. And, as noted above, charts of 1882 and 1894, admitted into *294 evidence, show Luna Bar as a dry sandbar with no vegetation. The claim of similar elevations, too, encounters strong and convincing opposing authority. Dr. Charles R. Kolb, a highly qualified expert for Mississippi, testified that his study disclosed that the Arkansas bank, from the first comparative recordings until fairly recent times, was about 12 feet higher than Luna Bar. Report 15, 19. R. 354-357. And there is an absence of levee formations on Luna Bar, as contrasted with the presence of pre-1860 levees on the Arkansas bank. We agree with the Special Master's evaluation of the evidence and conclude, as he did, that Arkansas did not sustain its burden of rebutting Mississippi's conceded prima facie case, a burden the Arkansas court has described as "considerable." Upon our own consideration and our independent review of the entire record, of the report filed by the Special Master, of the exceptions filed thereto, and of the argument thereon, a decree is accordingly entered. It is so ordered. [For decree adopted and entered by the Court, see post, p. 302.] MR. |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | This case requires us to apply the materiality requirement of 10(b) of the Securities Exchange Act of 1934 (1934 Act), as amended, 15 U.S. C. 78a et seq., and the Securities and Exchange Commission's Rule 10b-5, 17 CFR 240.10b-5 promulgated thereunder, in the context of preliminary corporate merger discussions. We must also determine whether a person who traded a corporation's shares on a securities exchange after the issuance of a materially misleading statement by the corporation may invoke a rebuttable presumption that, in trading, he relied on the integrity of the price set by the market. I Prior to December 20, 1978, Basic Incorporated was a publicly traded company primarily engaged in the business of manufacturing chemical refractories for the steel industry. As early as 5 or 6, Combustion Engineering, a company producing mostly alumina-based refractories, expressed some interest in acquiring Basic, but was deterred from pursuing this inclination seriously because of antitrust concerns it then entertained. See App. 81-83. In however, regulatory action opened the way to a renewal of *227 Combustion's interest.[1] The "Strategic Plan," dated October 25, for Combustion's Industrial Products Group included the objective: "Acquire Basic $30 million." App. 337. Beginning in September Combustion representatives had meetings and telephone conversations with Basic officers and directors, including petitioners here,[2] concerning the possibility of a merger.[3] During 1977 and 1978, Basic made three public statements denying that it was engaged in merger negotiations.[4] On December 18, 1978, Basic asked *228 the New York Stock Exchange to suspend trading in its shares and issued a release stating that it had been "approached" by another company concerning a merger. On December 19, Basic's board endorsed Combustion's offer of $46 per share for its common stock, and on the following day publicly announced its approval of Combustion's tender offer for all outstanding shares. Respondents are former Basic shareholders who sold their stock after Basic's first public statement of October 21, 1977, and before the suspension of trading in December 1978. Respondents brought a class action against Basic and its directors, asserting that the defendants issued three false or misleading public statements and thereby were in violation of 10(b) of the 1934 Act and of Rule 10b-5. Respondents alleged that they were injured by selling Basic shares at artificially depressed prices in a market affected by petitioners' misleading statements and in reliance thereon. The District Court adopted a presumption of reliance by members of the plaintiff class upon petitioners' public statements that enabled the court to conclude that common questions of fact or law predominated over particular questions pertaining to individual plaintiffs. |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | or law predominated over particular questions pertaining to individual plaintiffs. See Fed. Rule Civ. Proc. 23(b)(3). The District Court therefore certified respondents' class.[5] On the merits, however, the District Court granted *229 summary judgment for the defendants. It held that, as a matter of law, any misstatements were immaterial: there were no negotiations ongoing at the time of the first statement, and although negotiations were taking place when the second and third statements were issued, those negotiations were not "destined, with reasonable certainty, to become a merger agreement in principle." App. to Pet. for Cert. 103a. The United Court of Appeals for the Sixth Circuit affirmed the class certification, but reversed the District Court's summary judgment, and remanded the case. The court reasoned that while petitioners were under no general duty to disclose their discussions with Combustion, any statement the company voluntarily released could not be " `so incomplete as to mislead.' " quoting cert. denied sub nom. In the Court of Appeals' view, Basic's statements that no negotiations were taking place, and that it knew of no corporate developments to account for the heavy trading activity, were misleading. With respect to materiality, the court rejected the argument that preliminary merger discussions are immaterial as a matter of law, and held that "once a statement is made denying the existence of any discussions, even discussions that might not have been material in absence of the denial are material because they make the statement made untrue." The Court of Appeals joined a number of other Circuits in accepting the "fraud-on-the-market theory" to create a rebuttable presumption that respondents relied on petitioners' material *230 misrepresentations, noting that without the presumption it would be impractical to certify a class under Federal Rule of Civil Procedure 23(b)(3). See -751. We granted certiorari, to resolve the split, see Part III, infra, among the Courts of Appeals as to the standard of materiality applicable to preliminary merger discussions, and to determine whether the courts below properly applied a presumption of reliance in certifying the class, rather than requiring each class member to show direct reliance on Basic's statements. II The 1934 Act was designed to protect investors against manipulation of stock prices. See S. Rep. No. 7, 73d Cong., 2d Sess., 1-5 (1934). Underlying the adoption of extensive disclosure requirements was a legislative philosophy: "There cannot be honest markets without honest publicity. Manipulation and dishonest practices of the market place thrive upon mystery and secrecy." H. R. Rep. No. 1383, 73d Cong., 2d Sess., 11 (1934). This Court "repeatedly has described the `fundamental purpose' of the |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | This Court "repeatedly has described the `fundamental purpose' of the Act as implementing a `philosophy of full disclosure.' " Santa Fe Industries, quoting Pursuant to its authority under 10(b) of the 1934 Act, 15 U.S. C. 78j, the Securities and Exchange Commission promulgated Rule 10b-5.[6] Judicial interpretation and application, *231 legislative acquiescence, and the passage of time have removed any doubt that a private cause of action exists for a violation of 10(b) and Rule 10b-5, and constitutes an essential tool for enforcement of the 1934 Act's requirements. See, e. g., Ernst & ; Blue Chip The Court previously has addressed various positive and common-law requirements for a violation of 10(b) or of Rule 10b-5. See, e. g., Santa Fe Industries, ; Blue Chip ; ; ; Ernst & See also The Court also explicitly has defined a standard of materiality under the securities laws, see TSC Industries, concluding in the proxy-solicitation context that "[a]n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote."[7] Acknowledging that certain information concerning corporate developments could well be of "dubious significance," the Court was careful not to set too low a standard of materiality; it was concerned that a minimal standard might bring an overabundance of information within its reach, and lead management "simply to bury the shareholders in an avalanche of trivial information a result that is hardly conducive to informed decisionmaking." -. It further explained that to fulfill the materiality requirement "there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the *232 reasonable investor as having significantly altered the `total mix' of information made available." We now expressly adopt the TSC Industries standard of materiality for the 10(b) and Rule 10b-5 context.[8] III The application of this materiality standard to preliminary merger discussions is not self-evident. Where the impact of the corporate development on the target's fortune is certain and clear, the TSC Industries materiality definition admits straightforward application. Where, on the other hand, the event is contingent or speculative in nature, it is difficult to ascertain whether the "reasonable investor" would have considered the omitted information significant at the time. Merger negotiations, because of the ever-present possibility that the contemplated transaction will not be effectuated, fall into the latter category.[9] A Petitioners urge upon us a Third Circuit test for resolving this difficulty.[10] See Brief for Petitioners 20-22. Under this *233 approach, preliminary merger discussions do not become material until "agreement-in-principle" as to the price and structure |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | become material until "agreement-in-principle" as to the price and structure of the transaction has been reached between the would-be merger partners. See field v. Heublein, cert. denied, By definition, then, information concerning any negotiations not yet at the agreement-in-principle stage could be withheld or even misrepresented without a violation of Rule 10b-5. Three rationales have been offered in support of the "agreement-in-principle" test. The first derives from the concern expressed in TSC Industries that an investor not be overwhelmed by excessively detailed and trivial information, and focuses on the substantial risk that preliminary merger discussions may collapse: because such discussions are inherently tentative, disclosure of their existence itself could mislead investors and foster false optimism. See field v. Heublein, 742 F. 2d, at 756; The other two justifications for the agreement-in-principle standard are based on management concerns: because the requirement of "agreement-in-principle" limits the scope of disclosure obligations, it helps preserve the confidentiality of merger discussions where earlier disclosure might prejudice the negotiations; and the test also provides a usable, bright-line rule for determining when disclosure must be made. See field v. Heublein, 742 F. 2d, at ; Flamm 8 F.2d 1169, (CA7), cert. denied, None of these policy-based rationales, however, purports to explain why drawing the line at agreement-in-principle reflects the significance of the information upon the investor's decision. The first rationale, and the only one connected to the concerns expressed in TSC Industries, stands soundly rejected, even by a Court of Appeals that otherwise has accepted the wisdom of the agreement-in-principle test. "It assumes that investors are nitwits, unable to appreciate even when told that mergers are risky propositions up until the closing." Flamm v. Eberstadt, 8 F. 2d, at 1175. Disclosure, and not paternalistic withholding of accurate information, is the policy chosen and expressed by Congress. We have recognized time and again, a "fundamental purpose" of the various Securities Acts, "was to substitute a philosophy of full disclosure for the philosophy of caveat emptor and thus to achieve a high standard of business ethics in the securities industry." 375 U. S., at Accord, Affiliated Ute ; Santa Fe Industries, The role of the materiality requirement is not to "attribute to investors a child-like simplicity, and inability to grasp the probabilistic significance of negotiations," Flamm v. Eberstadt, 8 F. 2d, at 1175, but to filter out essentially useless information that a reasonable investor would not consider significant, even as part of a larger "mix" of factors to consider in making his investment decision. TSC Industries, 426 U. S., -. The second rationale, the importance of secrecy |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | U. S., -. The second rationale, the importance of secrecy during the early stages of merger discussions, also seems irrelevant to an assessment whether their existence is significant to the trading decision of a reasonable investor. To avoid a "bidding war" over its target, an acquiring firm often will insist that negotiations remain confidential, see, e. g., In re Carnation *235 Exchange Act Release No. 222, 33 S.E. C. Docket 1025 and at least one Court of Appeals has stated that "silence pending settlement of the price and structure of a deal is beneficial to most investors, most of the time." Flamm v. Eberstadt, 8 F. 2d, at 1177.[11] We need not ascertain, however, whether secrecy necessarily maximizes shareholder wealth although we note that the proposition is at least disputed as a matter of theory and empirical research[12] for this case does not concern the timing of a disclosure; it concerns only its accuracy and completeness.[13] We face here the narrow question whether information concerning the existence and status of preliminary merger discussions is significant to the reasonable investor's trading decision. Arguments based on the premise that some disclosure would be "premature" in a sense are more properly considered under the rubric of an issuer's duty to disclose. The "secrecy" rationale is simply inapposite to the definition of materiality. *236 The final justification offered in support of the agreement-in-principle test seems to be directed solely at the comfort of corporate managers. A bright-line rule indeed is easier to follow than a standard that requires the exercise of judgment in the light of all the circumstances. But ease of application alone is not an excuse for ignoring the purposes of the Securities Acts and Congress' policy decisions. Any approach that designates a single fact or occurrence as always determinative of an inherently fact-specific finding such as materiality, must necessarily be overinclusive or underinclusive. In TSC Industries this Court explained: "The determination [of materiality] requires delicate assessments of the inferences a `reasonable shareholder' would draw from a given set of facts and the significance of those inferences to him" After much study, the Advisory Committee on Corporate Disclosure cautioned the SEC against administratively confining materiality to a rigid formula.[] Courts also would do well to heed this advice. We therefore find no valid justification for artificially excluding from the definition of materiality information concerning merger discussions, which would otherwise be considered significant to the trading decision of a reasonable investor, merely because agreement-in-principle as to price and structure has not yet been reached by the parties or their representatives. *237 |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | yet been reached by the parties or their representatives. *237 B The Sixth Circuit explicitly rejected the agreement-in-principle test, as we do today, but in its place adopted a rule that, if taken literally, would be equally insensitive, in our view, to the distinction between materiality and the other elements of an action under Rule 10b-5: "When a company whose stock is publicly traded makes a statement, as Basic did, that `no negotiations' are underway, and that the corporation knows of `no reason for the stock's activity,' and that `management is unaware of any present or pending corporate development that would result in the abnormally heavy trading activity,' information concerning ongoing acquisition discussions becomes material by virtue of the statement denying their existence. ". In analyzing whether information regarding merger discussions is material such that it must be affirmatively disclosed to avoid a violation of Rule 10b-5, the discussions and their progress are the primary considerations. However, once a statement is made denying the existence of any discussions, even discussions that might not have been material in absence of the denial are material because they make the statement made untrue." -749[15] *238 This approach, however, fails to recognize that, in order to prevail on a Rule 10b-5 claim, a plaintiff must show that the statements were misleading as to a material fact. It is not enough that a statement is false or incomplete, if the misrepresented fact is otherwise insignificant. C Even before this Court's decision in TSC Industries, the Second Circuit had explained the role of the materiality requirement of Rule 10b-5, with respect to contingent or speculative information or events, in a manner that gave that term meaning that is independent of the other provisions of the Rule. Under such circumstances, materiality "will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity." 401 F. 2d, at 849. Interestingly, neither the Third Circuit decision adopting the agreement-in-principle test nor petitioners here take issue with this general standard. Rather, they suggest that with respect to preliminary merger discussions, there are good reasons to draw a line at agreement on price and structure. In a subsequent decision, the late Judge Friendly, writing for a Second Circuit panel, applied the Texas Gulf Sulphur probability/magnitude approach in the specific context of preliminary merger negotiations. After acknowledging that materiality is something to be determined on the basis of the particular facts of each case, he stated: "Since a merger |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | particular facts of each case, he stated: "Since a merger in which it is bought out is the most important event that can occur in a small corporation's life, to wit, its death, we think that inside information, as regards a merger of this sort, can become material at an earlier stage than would be the case as regards lesser transactions and this even though the mortality rate of mergers in such formative stages is doubtless high." SEC v. Geon Industries, *239 We agree with that analysis.[16] Whether merger discussions in any particular case are material therefore depends on the facts. Generally, in order to assess the probability that the event will occur, a factfinder will need to look to indicia of interest in the transaction at the highest corporate levels. Without attempting to catalog all such possible factors, we note by way of example that board resolutions, instructions to investment bankers, and actual negotiations between principals or their intermediaries may serve as indicia of interest. To assess the magnitude of the transaction to the issuer of the securities allegedly manipulated, a factfinder will need to consider such facts as the size of the two corporate entities and of the potential premiums over market value. No particular event or factor short of closing the transaction need be either necessary or sufficient by itself to render merger discussions material.[17] *240 As we clarify today, materiality depends on the significance the reasonable investor would place on the withheld or misrepresented information.[18] The fact-specific inquiry we endorse here is consistent with the approach a number of courts have taken in assessing the materiality of merger negotiations.[19] Because the standard of materiality we have *241 adopted differs from that used by both courts below, we remand the case for reconsideration of the question whether a grant of summary judgment is appropriate on this record.[20] IV A We turn to the question of reliance and the fraud-on-the-market theory. Succinctly put: "The fraud on the market theory is based on the hypothesis that, in an open and developed securities market, the price of a company's stock is determined by the available material information regarding the company and its business. Misleading statements will therefore *242 defraud purchasers of stock even if the purchasers do not directly rely on the misstatements. The causal connection between the defendants' fraud and the plaintiffs' purchase of stock in such a case is no less significant than in a case of direct reliance on misrepresentations." Our task, of course, is not to assess the general validity of the theory, but to |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | to assess the general validity of the theory, but to consider whether it was proper for the courts below to apply a rebuttable presumption of reliance, supported in part by the fraud-on-the-market theory. Cf. the comments of the dissent, post, at 252-255. This case required resolution of several common questions of law and fact concerning the falsity or misleading nature of the three public statements made by Basic, the presence or absence of scienter, and the materiality of the misrepresentations, if any. In their amended complaint, the named plaintiffs alleged that in reliance on Basic's statements they sold their shares of Basic stock in the depressed market created by petitioners. See Amended Complaint in No. C79-1220 (ND Ohio), ¶¶ 27, 29, 35, 40; see also Requiring proof of individualized reliance from each member of the proposed plaintiff class effectively would have prevented respondents from proceeding with a class action, since individual issues then would have overwhelmed the common ones. The District Court found that the presumption of reliance created by the fraud-on-the-market theory provided "a practical resolution to the problem of balancing the substantive requirement of proof of reliance in securities cases against the procedural requisites of [Federal Rule of Civil Procedure] 23." The District Court thus concluded that with reference to each public statement and its impact upon the open market for Basic shares, common questions predominated over individual questions, as required by Federal Rules of Civil Procedure 23(a)(2) and (b)(3). *243 Petitioners and their amici complain that the fraud-on-the-market theory effectively eliminates the requirement that a plaintiff asserting a claim under Rule 10b-5 prove reliance. They note that reliance is and long has been an element of common-law fraud, see, e. g., Restatement (Second) of Torts 525 ; W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts 108 and argue that because the analogous express right of action includes a reliance requirement, see, e. g., 18(a) of the 1934 Act, as amended, 15 U.S. C. 78r(a), so too must an action implied under 10(b). We agree that reliance is an element of a Rule 10b-5 cause of action. See Ernst & Reliance provides the requisite causal connection between a defendant's misrepresentation and a plaintiff's injury. See, e. g., ; List v. Fashion Park, (CA2), cert. denied sub nom. (5). There is, however, more than one way to demonstrate the causal connection. Indeed, we previously have dispensed with a requirement of positive proof of reliance, where a duty to disclose material information had been breached, concluding that the necessary nexus between the |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | had been breached, concluding that the necessary nexus between the plaintiffs' injury and the defendant's wrongful conduct had been established. See Affiliated Ute -154. Similarly, we did not require proof that material omissions or misstatements in a proxy statement decisively affected voting, because the proxy solicitation itself, rather than the defect in the solicitation materials, served as an essential link in the transaction. See The modern securities markets, literally involving millions of shares changing hands daily, differ from the face-to-face *244 transactions contemplated by early fraud cases,[21] and our understanding of Rule 10b-5's reliance requirement must encompass these differences.[22] "In face-to-face transactions, the inquiry into an investor's reliance upon information is into the subjective pricing of that information by that investor. With the presence of a market, the market is interposed between seller and buyer and, ideally, transmits information to the investor in the processed form of a market price. Thus the market is performing a substantial part of the valuation process performed by the investor in a face-to-face transaction. The market is acting as the unpaid agent of the investor, informing him that given all the information available to it, the value of the stock is worth the market price." In re LTV Securities Litigation, 88 F. R. D. 134, 3 Accord, e. g., 806 F. 2d, at ("In an open and developed market, the dissemination of material misrepresentations or withholding of material information typically affects the price of the stock, and purchasers generally rely on the price of the stock as a reflection of its value"); Blackie cert. denied, B Presumptions typically serve to assist courts in managing circumstances in which direct proof, for one reason or another, is rendered difficult. See, e. g., 1 D. Louisell & C. Mueller, Federal Evidence 541-542 The courts below accepted a presumption, created by the fraud-on-the-market theory and subject to rebuttal by petitioners, that persons who had traded Basic shares had done so in reliance on the integrity of the price set by the market, but because of petitioners' material misrepresentations that price had been fraudulently depressed. Requiring a plaintiff to show a speculative state of facts, i. e., how he would have acted if omitted material information had been disclosed, see Affiliated Ute -154, or if the misrepresentation had not been made, see cert. denied, would place an unnecessarily unrealistic evidentiary burden on the Rule 10b-5 plaintiff who has traded on an impersonal market. Cf. Arising out of considerations of fairness, public policy, and probability, as well as judicial economy, presumptions are also useful devices for allocating the burdens of |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | presumptions are also useful devices for allocating the burdens of proof between parties. See E. Cleary, McCormick on Evidence 968-969 ; see also Fed. Rule Evid. 301 and Advisory Committee Notes, 28 U.S. C. App., p. 685. The presumption of reliance employed in this case is consistent with, and, by facilitating Rule 10b-5 litigation, supports, the congressional policy embodied in the 1934 Act. In drafting that Act, *246 Congress expressly relied on the premise that securities markets are affected by information, and enacted legislation to facilitate an investor's reliance on the integrity of those markets: "No investor, no speculator, can safely buy and sell securities upon the exchanges without having an intelligent basis for forming his judgment as to the value of the securities he buys or sells. The idea of a free and open public market is built upon the theory that competing judgments of buyers and sellers as to the fair price of a security brings [sic] about a situation where the market price reflects as nearly as possible a just price. Just as artificial manipulation tends to upset the true function of an open market, so the hiding and secreting of important information obstructs the operation of the markets as indices of real value." H. R. Rep. No. 1383, at 11. See Lipton v. Documation, cert. denied,[23] The presumption is also supported by common sense and probability. Recent empirical studies have tended to confirm Congress' premise that the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations.[24] It has been noted that "it is hard to imagine that *247 there ever is a buyer or seller who does not rely on market integrity. Who would knowingly roll the dice in a crooked crap game?" Schlanger v. Four-Phase Systems Indeed, nearly every court that has considered the proposition has concluded that where materially misleading statements have been disseminated into an impersonal, well-developed market for securities, the reliance of individual plaintiffs on the integrity of the market price may be presumed.[25] Commentators generally have applauded the adoption of one variation or another of the fraud-on-the-market theory.[26] An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price. Because most publicly available information is reflected in market price, an investor's reliance on any public material misrepresentations, therefore, may be presumed for purposes of a Rule 10b-5 action. *248 C The Court of Appeals found that petitioners "made public, material misrepresentations and [respondents] sold Basic stock in an impersonal, |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | material misrepresentations and [respondents] sold Basic stock in an impersonal, efficient market. Thus the class, as defined by the district court, has established the threshold facts for proving their loss."[27] The court acknowledged that petitioners may rebut proof of the elements giving rise to the presumption, or show that the misrepresentation in fact did not lead to a distortion of price or that an individual plaintiff traded or would have traded despite his knowing the statement was false. Any showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance. For example, if petitioners could show that the "market makers" were privy to the truth about the merger discussions here with Combustion, and thus that the market price would not have been affected by their misrepresentation, the causal connection could be broken: the basis for finding that the fraud had been transmitted through market price would be gone.[28] Similarly, if, despite petitioners' allegedly fraudulent attempt *249 to manipulate market price, news of the merger discussions credibly entered the market and dissipated the effects of the misstatements, those who traded Basic shares after the corrective statements would have no direct or indirect connection with the fraud.[29] Petitioners also could rebut the presumption of reliance as to plaintiffs who would have divested themselves of their Basic shares without relying on the integrity of the market. For example, a plaintiff who believed that Basic's statements were false and that Basic was indeed engaged in merger discussions, and who consequently believed that Basic stock was artificially underpriced, but sold his shares nevertheless because of other unrelated concerns, e. g., potential antitrust problems, or political pressures to divest from shares of certain businesses, could not be said to have relied on the integrity of a price he knew had been manipulated. V In summary: 1. We specifically adopt, for the 10(b) and Rule 10b-5 context, the standard of materiality set forth in TSC Industries, 426 U. S., 2. We reject "agreement-in-principle as to price and structure" as the bright-line rule for materiality. 3. We also reject the proposition that "information becomes material by virtue of a public statement denying it." *250 4. Materiality in the merger context depends on the probability that the transaction will be consummated, and its significance to the issuer of the securities. Materiality depends on the facts and thus is to be determined on a case-by-case basis. 5. It is not inappropriate to apply |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | a case-by-case basis. 5. It is not inappropriate to apply a presumption of reliance supported by the fraud-on-the-market theory. 6. That presumption, however, is rebuttable. 7. The District Court's certification of the class here was appropriate when made but is subject on remand to such adjustment, if any, as developing circumstances demand. The judgment of the Court of Appeals is vacated, and the case is remanded to that court for further proceedings consistent with this opinion. It is so ordered. THE CHIEF JUSTICE, JUSTICE SCALIA, and JUSTICE KENNEDY took no part in the consideration or decision of this case. JUSTICE WHITE, with whom JUSTICE O'CONNOR joins, concurring in part and dissenting in part. I join Parts I-III of the Court's opinion, as I agree that the standard of materiality we set forth in TSC Industries, should be applied to actions under 10(b) and Rule 10b-5. But I dissent from the remainder of the Court's holding because I do not agree that the "fraud-on-the-market" theory should be applied in this case. I Even when compared to the relatively youthful private cause-of-action under 10(b), see Kardon v. National Gypsum the fraud-on-the-market theory is a mere babe.[1] Yet today, the Court embraces *251 this theory with the sweeping confidence usually reserved for more mature legal doctrines. In so doing, I fear that the Court's decision may have many adverse, unintended effects as it is applied and interpreted in the years to come. A At the outset, I note that there are portions of the Court's fraud-on-the-market holding with which I am in agreement. Most importantly, the Court rejects the version of that theory, heretofore adopted by some courts,[2] which equates "causation" with "reliance," and permits recovery by a plaintiff who claims merely to have been harmed by a material misrepresentation which altered a market price, notwithstanding proof that the plaintiff did not in any way rely on that price. Ante, at 248. I agree with the Court that if Rule 10b-5's reliance requirement is to be left with any content at all, the fraud-on-the-market presumption must be capable of being rebutted by a showing that a plaintiff did not "rely" on the market price. For example, a plaintiff who decides, months in advance of an alleged misrepresentation, to purchase a stock; one who buys or sells a stock for reasons unrelated to its price; one who actually sells a stock "short" days before the misrepresentation is made surely none of these people can state a valid claim under Rule 10b-5. Yet, some federal courts have allowed such claims to stand under one |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | federal courts have allowed such claims to stand under one variety or another of the fraud-on-the-market theory.[3] *252 Happily, the majority puts to rest the prospect of recovery under such circumstances. A nonrebuttable presumption of reliance or even worse, allowing recovery in the face of "affirmative evidence of nonreliance," would effectively convert Rule 10b-5 into "a scheme of investor's insurance." 647 F.2d cert. denied, There is no support in the Securities Exchange Act, the Rule, or our cases for such a result. B But even as the Court attempts to limit the fraud-on-the-market theory it endorses today, the pitfalls in its approach are revealed by previous uses by the lower courts of the broader versions of the theory. Confusion and contradiction in court rulings are inevitable when traditional legal analysis is replaced with economic theorization by the federal courts. *253 In general, the case law developed in this Court with respect to 10(b) and Rule 10b-5 has been based on doctrines with which we, as judges, are familiar: common-law doctrines of fraud and deceit. See, e. g., Santa Fe Industries, Even when we have extended civil liability under Rule 10b-5 to a broader reach than the common law had previously permitted, see ante, at 244, n. 22, we have retained familiar legal principles as our guideposts. See, e. g., Herman & The federal courts have proved adept at developing an evolving jurisprudence of Rule 10b-5 in such a manner. But with no staff economists, no experts schooled in the "efficient-capital-market hypothesis," no ability to test the validity of empirical market studies, we are not well equipped to embrace novel constructions of a statute based on contemporary microeconomic theory.[4] The "wrong turns" in those Court of Appeals and District Court fraud-on-the-market decisions which the Court implicitly rejects as going too far should be ample illustration of the dangers when economic theories replace legal rules as the basis for recovery. Yet the Court today ventures into this area beyond its expertise, beyond by its own admission the confines of our previous fraud cases. See ante, at 243-244. Even if I agreed with the Court that "modern securities *254 markets involving millions of shares changing hands daily" require that the "understanding of Rule 10b-5's reliance requirement" be changed, ib I prefer that such changes come from Congress in amending 10(b). The Congress, with its superior resources and expertise, is far better equipped than the federal courts for the task of determining how modern economic theory and global financial markets require that established legal notions of fraud be modified. In |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | require that established legal notions of fraud be modified. In choosing to make these decisions itself, the Court, I fear, embarks on a course that it does not genuinely understand, giving rise to consequences it cannot foresee.[5] For while the economists' theories which underpin the fraud-on-the-market presumption may have the appeal of mathematical exactitude and scientific certainty, they are in the end nothing more than theories which may or may not prove accurate upon further consideration. Even the most earnest advocates of economic analysis of the law recognize this. See, e. g., Easterbrook, Afterword: Knowledge and Answers, Thus, while the majority states that, for purposes of reaching its result it need only make modest assumptions about the way in which "market professionals generally" do their jobs, and how the conduct of market professionals affects stock prices, ante, at 246, n. 23, I doubt that we are in much of a position *255 to assess which theories aptly describe the functioning of the securities industry. Consequently, I cannot join the Court in its effort to reconfigure the securities laws, based on recent economic theories, to better fit what it perceives to be the new realities of financial markets. I would leave this task to others more equipped for the job than we. C At the bottom of the Court's conclusion that the fraud-on-the-market theory sustains a presumption of reliance is the assumption that individuals rely "on the integrity of the market price" when buying or selling stock in "impersonal, well-developed market[s] for securities." Ante, at 247. Even if I was prepared to accept (as a matter of common sense or general understanding) the assumption that most persons buying or selling stock do so in response to the market price, the fraud-on-the-market theory goes further. For in adopting a "presumption of reliance," the Court also assumes that buyers and sellers rely not just on the market price but on the "integrity" of that price. It is this aspect of the fraud-on-the-market hypothesis which most mystifies me. To define the term "integrity of the market price," the majority quotes approvingly from cases which suggest that investors are entitled to " `rely on the price of a stock as a reflection of its value.' " Ante, at 244 ). But the meaning of this phrase eludes me, for it implicitly suggests that stocks have some "true value" that is measurable by a standard other than their market price. While the scholastics of medieval times professed a means to make such a valuation of a commodity's "worth,"[6] I doubt that the |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | a valuation of a commodity's "worth,"[6] I doubt that the federal courts of our day are similarly equipped. *256 Even if securities had some "value" knowable and distinct from the market price of a stock investors do not always share the Court's presumption that a stock's price is a "reflection of [this] value." Indeed, "many investors purchase or sell stock because they believe the price inaccurately reflects the corporation's worth." See Black, Fraud on the Market: A Criticism of Dispensing with Reliance Requirements in Certain Open Market Transactions, 62 N. C. L. Rev. 435, 455 (emphasis added). If investors really believed that stock prices reflected a stock's "value," many sellers would never sell, and many buyers never buy (given the time and cost associated with executing a stock transaction). As we recognized just a few years ago: "[I]nvestors act on inevitably incomplete or inaccurate information, [consequently] there are always winners and losers; but those who have `lost' have not necessarily been defrauded." Yet today, the Court allows investors to recover who can show little more than that they sold stock at a lower price than what might have been.[7] I do not propose that the law retreat from the many protections that 10(b) and Rule 10b-5, as interpreted in our prior cases, provide to investors. But any extension of these laws, to approach something closer to an investor insurance *257 scheme, should come from Congress, and not from the courts. II Congress has not passed on the fraud-on-the-market theory the Court embraces today. That is reason enough for us to abstain from doing so. But it is even more troubling that, to the extent that any view of Congress on this question can be inferred indirectly, it is contrary to the result the majority reaches. A In the past, the scant legislative history of 10(b) has led us to look at Congress' intent in adopting other portions of the Securities Exchange Act when we endeavor to discern the limits of private causes of action under Rule 10b-5. See, e. g., Ernst & A similar undertaking here reveals that Congress flatly rejected a proposition analogous to the fraud-on-the-market theory in adopting a civil liability provision of the 1934 Act. Section 18 of the Act expressly provides for civil liability for certain misleading statements concerning securities. See 15 U.S. C. 78r(a). When the predecessor of this section was first being considered by Congress, the initial draft of the provision allowed recovery by any plaintiff "who shall have purchased or sold a security the price of which may have been affected |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | a security the price of which may have been affected by such [misleading] statement." See S. 2693, 73d Cong., 2d Sess., 17(a) (1934). Thus, as initially drafted, the precursor to the express civil liability provision of the 1934 Act would have permitted suits by plaintiffs based solely on the fact that the price of the securities they bought or sold was affected by a misrepresentation: a theory closely akin to the Court's holding today. Yet this provision was roundly criticized in congressional hearings on the proposed Securities Exchange Act, because it failed to include a more substantial "reliance" requirement.[8]*258 Subsequent drafts modified the original proposal, and included an express reliance requirement in the final version of the Act. In congressional debates over the redrafted version of this bill, the then-Chairman of the House Committee, Representative Sam Rayburn, explained that the "bill as originally written was very much challenged on the ground that reliance should be required. This objection has been met." 78 Cong. Rec. 7701 (1934). Moreover, in a previous case concerning the scope of 10(b) and Rule 10b-5, we quoted approvingly from the legislative history of this revised provision, which emphasized the presence of a strict reliance requirement as a prerequisite for recovery. See Ernst & at 206 (citing S. Rep. No. 7, 73d Cong., 2d Sess., 12-13 (1934)). Congress thus anticipated meaningful proof of "reliance" before civil recovery can be had under the Securities Exchange Act. The majority's adoption of the fraud-on-the-market theory effectively eviscerates the reliance rule in actions brought under Rule 10b-5, and negates congressional intent to the contrary expressed during adoption of the 1934 Act. B A second congressional policy that the majority's opinion ignores is the strong preference the securities laws display for widespread public disclosure and distribution to investors of material information concerning securities. This congressionally adopted policy is expressed in the numerous and varied disclosure requirements found in the federal securities *259 law scheme. See, e. g., 15 U.S. C. 78m, 78o(d) ( ed. and Supp. IV). Yet observers in this field have acknowledged that the fraud-on-the-market theory is at odds with the federal policy favoring disclosure. See, e. g., Black, 62 N. C. L. Rev., at 457-459. The conflict between Congress' preference for disclosure and the fraud-on-the-market theory was well expressed by a jurist who rejected the latter in order to give force to the former: "[D]isclosure is crucial to the way in which the federal securities laws function. [T]he federal securities laws are intended to put investors into a position from which they can help themselves by relying upon disclosures |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | from which they can help themselves by relying upon disclosures that others are obligated to make. This system is not furthered by allowing monetary recovery to those who refuse to look out for themselves. If we say that a plaintiff may recover in some circumstances even though he did not read and rely on the defendants' public disclosures, then no one need pay attention to those disclosures and the method employed by Congress to achieve the objective of the 1934 Act is defeated." 647 F. 2d, at 483 (Randall, J., dissenting). It is no surprise, then, that some of the same voices calling for acceptance of the fraud-on-the-market theory also favor dismantling the federal scheme which mandates disclosure. But to the extent that the federal courts must make a choice between preserving effective disclosure and trumpeting the new fraud-on-the-market hypothesis, I think Congress has spoken clearly favoring the current prodisclosure policy. We should limit our role in interpreting 10(b) and Rule 10b-5 to one of giving effect to such policy decisions by Congress. III Finally, the particular facts of this case make it an exceedingly poor candidate for the Court's fraud-on-the-market theory, *260 and illustrate the illogic achieved by that theory's application in many cases. Respondents here are a class of sellers who sold Basic stock between October 1977 and December 1978, a -month period. At the time the class period began, Basic's stock was trading at $20 a share (at the time, an all-time high); the last members of the class to sell their Basic stock got a price of just over $30 a share. App. 363, 423. It is indisputable that virtually every member of the class made money from his or her sale of Basic stock. The oddities of applying the fraud-on-the-market theory in this case are manifest. First, there are the facts that the plaintiffs are sellers and the class period is so lengthy both are virtually without precedent in prior fraud-on-the-market cases.[9] For reasons I discuss in the margin, I think these two facts render this case less apt to application of the fraud-on-the-market hypothesis. Second, there is the fact that in this case, there is no evidence that petitioner Basic's officials made the troublesome misstatements for the purpose of manipulating stock prices, or with any intent to engage in underhanded trading of Basic stock. Indeed, during the class period, petitioners do not *261 appear to have purchased or sold any Basic stock whatsoever. App. to Pet. for Cert. 27a. I agree with amicus who argues that "[i]mposition of damages liability under Rule |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | amicus who argues that "[i]mposition of damages liability under Rule 10b-5 makes little sense where a defendant is neither a purchaser nor a seller of securities." See Brief for American Corporate Counsel Association as Amicus Curiae 13. In fact, in previous cases, we had recognized that Rule 10b-5 is concerned primarily with cases where the fraud is committed by one trading the security at issue. See, e. g., Blue Chip And it is difficult to square liability in this case with 10(b)'s express provision that it prohibits fraud "in connection with the purchase or sale of any security." See 15 U.S. C. 78j(b) (emphasis added). Third, there are the peculiarities of what kinds of investors will be able to recover in this case. As I read the District Court's class certification order, App. to Pet. for Cert. 123a-126a; ante, at 228-229, n. 5, there are potentially many persons who did not purchase Basic stock until after the first false statement but who nonetheless will be able to recover under the Court's fraud-on-the-market theory. Thus, it is possible that a person who heard the first corporate misstatement and disbelieved it i. e., someone who purchased Basic stock thinking that petitioners' statement was false may still be included in the plaintiff-class on remand. How a person who undertook such a speculative stock-investing strategy and made $10 a share doing so (if he bought on October 22, 1977, and sold on December 15, 1978) can say that he was "defrauded" by virtue of his reliance on the "integrity" of the market price is beyond me.[10]*262 And such speculators may not be uncommon, at least in this case. See App. to Pet. for Cert. 125a. Indeed, the facts of this case lead a casual observer to the almost inescapable conclusion that many of those who bought or sold Basic stock during the period in question flatly disbelieved the statements which are alleged to have been "materially misleading." Despite three statements denying that merger negotiations were underway, Basic stock hit record-high after record-high during the -month class period. It seems quite possible that, like Casca's knowing disbelief of Caesar's "thrice refusal" of the Crown,[11] clever investors were skeptical of petitioners' three denials that merger talks were going on. Yet such investors, the saviest of the savvy, will be able to recover under the Court's opinion, as long as they now claim that they believed in the "integrity of the market price" when they sold their stock (between September and December 1978).[12] Thus, persons who bought after hearing and relying on the |
Justice Blackmun | 1,988 | 11 | majority | Basic Inc. v. Levinson | https://www.courtlistener.com/opinion/112022/basic-inc-v-levinson/ | Thus, persons who bought after hearing and relying on the falsity of petitioners' statements may be able to prevail and recover money damages on remand. And who will pay the judgments won in such actions? I suspect that all too often the majority's rule will "lead to large judgments, payable in the last analysis by innocent investors, for the benefit of speculators and their lawyers." Cf. (Friendly, J., concurring), cert. denied, This Court and others have previously recognized that "inexorably broadening the class of plaintiff[s] who may sue in this area of the law will ultimately result in more harm than good." Blue Chip at 747-. See also Ernst & 425 U. S., at 2; Ultramares Yet such a bitter harvest is likely to be the reaped from the seeds sewn by the Court's decision today. IV In sum, I think the Court's embracement of the fraud-on-the-market theory represents a departure in securities law that we are ill suited to commence and even less equipped to control as it proceeds. As a result, I must respectfully dissent. |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | Petitioner, an orthodontist by profession, on January 31, 1969, purchased the stock and assumed the management of three corporations engaged in the food vending business. The corporations were indebted at the time of the purchase for approximately $250,000 of taxes, including federal wage and Federal Insurance Contribution Act (FICA) taxes withheld from employees' wages prior to January 31. The sums withheld had not been paid over when due, however, but had been dissipated by the previous management before petitioner acquired the businesses. After petitioner assumed control, the corporations acquired funds sufficient to pay the taxes, but petitioner used the funds to pay employees' wages, rent, suppliers, and other creditors, and to meet other day-to-day expenses incurred in operating the businesses. The question to be decided is whether, in these circumstances, petitioner is personally liable under 6672 of the Internal Revenue Code of 1954, 26 U.S. C. 6672which imposes personal liability for taxes on "[a] ny person required to collect, truthfully account *241 for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof"for the corporations' unpaid taxes withheld from wages prior to his assumption of control. The Court of Appeals for the Sixth Circuit held that petitioner was personally liable under 6672 for the unpaid taxes. We granted certiorari.[1] We reverse. I The case arose from the filing by the Internal Revenue Service (IRS) of a claim for the taxes in a proceeding instituted by petitioner in July 1969 for a real property arrangement under Chapter X of the Bankruptcy Act. The facts determined after hearing by the bankruptcy judge, 74-2 USTC ¶ 9719 (ND Ohio 1974), are not challenged. Petitioner purchased and assumed managerial control of the Tas-Tee Catering, Tas-Tee Vending, and Charles Corporations on January 31, 1969. When he bought the stock, petitioner understood, and the purchase agreement reflected, that the corporations had an outstanding obligation for taxes in the amount of $250,000 due for payment on January 31, including withheld employee wage and FICA taxes (hereinafter trust-fund taxes). During the purchase negotiations, the sellers represented to petitioner that balances in the various corporate checking accounts were sufficient to pay these taxes as well as bills due other creditors. Relying on the representation, petitioner, on Saturday, February 1, sent four checks to the IRS in payment of the taxes. *242 On Monday, February 3, petitioner discovered that the accounts were overdrawn and stopped payment on the |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | that the accounts were overdrawn and stopped payment on the checks. Thus, at the time that petitioner assumed control, the corporations had no liquid assets, and whatever trust-fund taxes had been collected prior to petitioner's assumption of control had been dissipated. Petitioner immediately advised the IRS that the corporations had no funds with which to pay the taxes, and solicited guidance concerning how the corporations should proceed. App. 36. There was evidence that IRS officials advised petitioner that they had no objection to his continuing operations so long as current tax obligations were met, and that petitioner agreed to do so and to endeavor to pay the arrearages as soon as possible. Tr. 37-38. The IRS never represented that it would hold petitioner harmless under 6672 for the back taxes, however. To continue operations, petitioner deposited personal funds in the corporate acount, and, to obtain inventory, agreed with certain suppliers to pay cash upon delivery. During petitioner's tenure, from January 31 to July 15, 1969, the corporations' gross receipts approximated $130,000 per week for the first few months but declined thereafter. The corporations "established a system of segregating funds for payment of withheld taxes and did, in fact, pay withheld taxes during the period February 1, 1969, to July 15, 1969." App. 30. The bankruptcy judge found, and the IRS concedes, that the $249,212 in taxes paid during this period was approximately sufficient to defray current tax obligations. No taxes owing for periods prior to February 1, were paid, however, and in July 1969 the corporations terminated operations and filed for bankruptcy. Several provisions of the Internal Revenue Code require third persons to collect taxes from the taxpayer. Among the more important are 26 U.S. C. 3102 (a) and 3402 (a) (1970 *243 ed. and Supp. V) which respectively require deduction from wages paid to employees of the employees' share of FICA taxes, and the withholding tax on wages applicable to individual income taxes. The withheld sums are commonly referred to as "trust fund taxes," reflecting the Code's provision that such withholdings or collections are deemed to be a "special fund in trust for the United States." 26 U.S. C. 7501 (a). There is no general requirement that the withheld sums be segregated from the employer's general funds, however, or that they be deposited in a separate bank account until required to be paid to the Treasury. Because the Code requires the employer to collect taxes as wages are paid, 3102 (a), while requiring payment of such taxes only quarterly,[2] the funds accumulated during the quarter can be a tempting |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | the funds accumulated during the quarter can be a tempting source of ready cash to a failing corporation beleaguered by creditors.[3] Once net wages are paid to the employee, the taxes withheld are credited to the employee regardless of whether they are paid by the employer, so that the IRS has recourse only against the employer for their payment.[4] An employer who fails to pay taxes withheld from its employees' wages is, of course, liable for the taxes which should have been paid, 3102 (b) and 3403. The IRS has several means at its disposal to effect payment of the taxes so withheld. *244 First, once it has been determined that an employer has been inexcusably delinquent, the IRS, upon giving hand-delivered notice, may require the employer, thereafter, and until further notice, to deposit withheld taxes in a special bank trust account within two banking days after collection, to be retained there until required to be paid to the Treasury at the quarter's end. 7512. Second, with respect to trust funds past due prior to any such notification, the amount collected or withheld "shall be held to be a special fund in trust for the United States [and] [t]he amount of such fund shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including penalties) as are applicable with respect to the taxes from which such fund arose." 26 U.S. C. 7501. Thus there is made applicable to employment taxes withheld but not paid the full range of collection methods available for the collection of taxes generally. After assessment, notice, and demand,[5] the IRS may, therefore, create a lien upon the property of the employer, 6321, and levy, distrain, and sell the employer's property in satisfaction. 6331 to 6344 (1970 ed. and Supp. V). Third, penalties may be assessed against the delinquent employer. Section 6656 of the Code imposes a penalty of 5% of the underpayment of any tax required to be deposited, and 26 U.S. C. 7202 and 7215 provide criminal penalties respectively for willful failure to "collect or truthfully account for and pay over" trust-fund taxes, and for failure to comply with the requirements of 7512, regarding special accounting requirements upon notice by the Secretary. Finally, as in this case, the officers or employees of the employer responsible for effectuating the collection and payment *245 of trust-fund taxes who willfully fail to do so are made personally liable to a "penalty" equal to the amount of the delinquent taxes. Section 6672 provides, inter alia: "Any person required to collect, truthfully |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | 6672 provides, inter alia: "Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over." Section 6671 (b) defines "person," for purposes of 6672, as including "an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs." Also, 7202 of the Code,[6] which tracks the wording of 6672, makes a violation punishable as a felony subject to a fine of $10,000, and imprisonment for 5 years. Thus, an employer-official or other employee responsible for collecting and paying taxes who willfully fails to do so is subject to both a civil penalty equivalent to 100% of the taxes not collected or paid, and to a felony conviction. Only the application to petitioner of the civil penalty provision, 6672, is at issue in this case. I When the same individual or individuals who caused the delinquency in any tax quarter are also the "responsible persons"[7]*246 at the time the Government's efforts to collect from the employer have failed, and it seeks recourse against the "responsible employees," see IRS Policy Statement P-5-60, IRS Manual, MT 1218-56 (Feb. 25, 1976), there is no question that 6672 is applicable to them. It is the situation that arises when there has been a change of control of the employer enterprise, here corporations, prior to the expiration of a tax quarter, or at a time when a tax delinquency for past quarters already exists that creates the question for our decision. In this case, petitioner assumed control at a time when a delinquency existed for unpaid trust-fund taxes, while the specific funds withheld but not paid had been dissipated by predecessor officers and when the corporations had no liquid assets with which to pay the overdue taxes. A Petitioner concedes that he was subject to personal liability under 6672 as a person responsible for the collection, accounting, and payment of employment taxes required to be withheld between January 31, 1969, when he assumed control of the corporations, and July 15, 1969, when he resigned. Tr. of Oral Arg. 8. |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | 15, 1969, when he resigned. Tr. of Oral Arg. 8. His contention is that he was not, however, a responsible person within 6672 with respect to taxes withheld prior to his assumption of control and that 6672 consequently imposed no duty upon him to pay the taxes collected by his predecessors. Petitioner argues that this construction of 6672 follows necessarily from the statute's limitation of personal liability to "[a]ny person required to collect, truthfully account for and pay over any tax imposed by this title," who willfully fails to discharge those responsibilities (emphasis added). He argues that since the obligations are phrased in *247 the conjunctive, a person can be subject to the section only if all three duties(1) to collect, (2) truthfully account for, and (3) pay overwere applicable to him with respect to the tax dollars in question. See On the other hand, as the Government argues, the language could be construed as describing, in terms of their general responsibilities, the persons potentially liable under the statute, without regard to whether those persons were in a position to perform all of the duties with respect to the specific tax dollars in question. Although neither construction is inconsistent with the language of the statute, we reject petitioner's as inconsistent with its purpose. Sections 6672 and 7202 were designed to assure compliance by the employer with its obligation to withhold and pay the sums withheld, by subjecting the employer's officials responsible for the employer's decisions regarding withholding and payment to civil and criminal penalties for the employer's delinquency. If 6672 were given petitioner's construction, the penalties easily could be evaded by changes in officials' responsibilities prior to the expiration of any quarter. Because the duty to pay over the tax arises only at the quarter's end, a "responsible person" who willfully failed to collect taxes would escape personal liability for that failure simply by resigning his position, and transferring to another the decisionmaking responsibility prior to the quarter's end.[8] Obversely, *248 a "responsible person" assuming control prior to the quarter's end could, without incurring personal liability under 6672, willfully dissipate the trust funds collected and segregated by his predecessor.[9] That this result, obviously at odds with the statute's purpose to assure payment of withheld taxes, was not intended is buttressed by the history of the provision. The predecessor of 6672, 1308 (c), Revenue Act of 1918, provided, inter alia: "Any person who willfully refuses to pay, collect, or truly account for and pay over [taxes enumerated in 1308 (a)] shall be liable to a penalty of the amount of the |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | be liable to a penalty of the amount of the tax evaded or not paid, collected, or accounted for and paid over"[10] The statute remained unchanged in this respect until 1954 when the successor section to 1308 (c)[11]*249 was revised to its present form. Both before and after the 1954 revision the "person" potentially liable under the statute was defined in a separate provision, 1308 (d), succeeded by present 6671 (b), as, including "an officer or employee of a corporation or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs." When, in 1954, Congress added the phrase modifying "person" "Any person required to collect, truthfully account for, and pay over any tax imposed by this title"it was not seeking further to describe the class of persons defined in 6671 (b) upon whom fell the responsibility for collecting taxes, but was attempting to clarify the type of tax to which the penalty section was applicable. Since under the 1954 amendment the penalty would otherwise be applicable to "any tax imposed by this title," the phrase modifying "person" was necessary to insure that the penalty provided by that section would be read as applicable only to failure to pay taxes which require collection, that is, third-party taxes, and not failure to pay "any tax imposed by this title," which, of course, would include direct taxes such as employer FICA and income taxes. As both the House and Senate Committees expressed it, "the application of this penalty is limited only to the collected or withheld taxes which are imposed on some person other than the person who is required to collect, account for and pay over, the tax."[12] Thus, by adding the *250 phrase modifying "person," Congress was attempting to clarify the type of tax to which the penalty section was applicable, perhaps inartfully, by reference to the duty of the person required to collect them. This view is supported by the fact that the Commissioner of Internal Revenue issued a regulation shortly after the amendment, limiting the application of the 6672 penalty to third-party taxes. (1957), now codified as Treas. Reg. 301.6672-1, 26 CFR 301.6672-1 We conclude therefore that the phrase "[a]ny person required to collect, truthfully account for, and pay over any tax imposed by this title" was meant to limit 6672 to persons responsible for collection of third-party taxes and not to limit it to those persons in a position to perform all three of the enumerated duties with respect |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | to perform all three of the enumerated duties with respect to the tax dollars in question.[13] We turn then to the Government's contention that petitioner was subject to personal liability under 6672 when during the period in which he was a responsible person, the corporations generated gross receipts sufficient to pay the back taxes, but used the funds for other purposes. *251 B Although at the time petitioner became a responsible person the trust-fund taxes had been dissipated and the corporations had no liquid assets, the Government contends that 6672 imposed civil liability upon petitioner because sums received from sales in carrying on the businesses after January 31, 1969, were impressed with a trust in favor of the United States for the satisfaction of overdue employment taxes, and petitioner's willful use of those funds to pay creditors other than the United States, violated the obligation to "pay over" imposed by 6672. The Government does not argue that the statute requires a "responsible person" to liquidate corporate assets to pay the back taxes upon assuming control, however; it argues only that a trust was impressed on all cash received by the corporations. Tr. of Oral Arg. 26, 28-29, 30-31, 32. We think that that construction of 6672 would not advance the statute's purpose and, moreover, is inconsistent with the context and legislative history of the provision and its relation to the Code's priority rule applicable to collection of back taxes. (1) The Government argues that its construction of the statute is necessary to effectuate the congressional purpose to assure collection and payment of taxes. Although that construction might in this case garner tax dollars otherwise uncollectible, its long-term effect arguably would more likely frustrate than aid the IRS's collection efforts. At the time petitioner assumed control, the corporations owed back taxes, were overdue on their supplier accounts, and had no cash. To the extent that the corporations had assets unencumbered by liens superior to a tax lien, the IRS could satisfy its claim by levy and sale. But as will often be the case, the corporations here apparently did not have such assets. The *252 Government admits that in such circumstances, the IRS's practice is to be "flexible," Tr. of Oral Arg. 27, 28, 32, 48, and does not insist that the corporation discontinue operations, thereby substituting for certain loss at least the potential of recovering back taxes if the corporation makes a financial recovery. It argues nevertheless that the "responsible person" renders himself personally liable to the 6672 penalty by using gross receipts to purchase inventory or pay wages, or |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | using gross receipts to purchase inventory or pay wages, or even by using personal funds for those purposes,[14] so long as any third-party employment tax bill remains unpaid.[15] Thus, although it is in the IRS's interest to encourage the responsible person to continue operation with the hope of receiving payment of the back taxes, if the attempt fails and the taxes remain unpaid, the IRS insists that the 6672 personal-liability penalty attached upon payment of the first dollar to a supplier. The practical effect of that construction of the statute would be that a well-counseled person contemplating *253 assuming control of a financially beleaguered corporation owing back employment taxes would recognize that he could do so without incurring personal civil and criminal penalties only if there were available sufficient borrowed or personal funds fully to pay all back employment taxes before doing any business. If that course is unattractive or unavailable to the corporation, the Government will be remitted to its claim in bankruptcy. When an immediate filing for bankruptcy means a total loss, the Government understandably, as it did here, does not discourage the corporation from continuing to operate so long as current taxes are paid. As soon as the corporation embarks upon that course, however, the "responsible person" is potentially liable to heavy civil and criminal penalties not for doing anything which compromised the Government's collection efforts, but for doing what the Government regards as maximizing its chances for recovery. As construed by the Government, 6672 would merely discourage changes of ownership and management of financially troubled corporations and the infusion of equity or debt funding which might accompany it without encouraging employer compliance with tax obligations or facilitating collection of back taxes. Thus, recovery of employer taxes would likely be limited to the situation in which the prospective purchaser or management official is ignorant of 6672.[16] (2) As noted in the previous section, 6672 as construed by the Government would, in effect, make the responsible person *254 assuming control of a business a guarantor for payment of the delinquent taxes simply by undertaking to continue operation of the business. That construction is precluded by the history and context of 6672 and cognate provisions of the Code. Section 6672 cannot be read as imposing upon the responsible person an absolute duty to "pay over" amounts which should have been collected and withheld. The fact that the provision imposes a "penalty" and is violated only by a "willful failure" is itself strong evidence that it was not intended to impose liability without personal fault. Congress, moreover, has not made |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | impose liability without personal fault. Congress, moreover, has not made corporate officers personally liable for the corporation's tax obligations generally, and 6672 therefore should be construed in a way which respects that policy choice. The Government's concessionthat 6672 does not impose a duty on the responsible officer to use personal funds or even to liquidate corporate assets to satisfy the tax obligations recognizes that the "pay over" requirement does not impose an absolute duty on the responsible person to pay back taxes. Recognizing that the statute cannot be construed to impose liability without fault, the Government characterizes petitioner's use of gross receipts for payment of operating expenses as a breach of trust, arguing that a trust was impressed on all after-acquired cash. Nothing whatever in 6672 or its legislative history suggests that the effect of the requirement to "pay over" was to impress a trust on the corporation's after-acquired cash, however. Moreover, the history of a related section, 26 U.S. C. 7501,[17] makes clear that it was not. *255 Section 7501 of the Code provides, inter alia, that the "amount of tax collected or withheld shall be held to be a special fund in trust for the United States [which] shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including penalties) as are applicable with respect to the taxes from which such fund arose." This section was enacted in 1934. Act of May 10, 1934, ch. 277, 607, 26 U.S. C. 3661 (1952 ed.). The provision was added to H. R. 7835, 73d Cong., 2d Sess., by the Senate Finance Committee, which explained: "Under existing law the liability of the person collecting and withholding the taxes to pay over the amount is merely a debt, and he cannot be treated as a trustee or proceeded against by distraint. Section [607] of the bill as reported impresses the amount of taxes withheld or collected with a trust and makes applicable for the enforcement of the Government's claim the administrative provisions for assessment and collection of taxes." S. Rep. No. 558, 73d Cong., 2d Sess., 53 (1934). Since the very reason for adding 7501 was, as the Senate Report states, that "the liability of the person collecting and withholding the taxes is merely a debt" (emphasis added), 6672, whose predecessor section was enacted in 1919 while the debt concept prevailed, hardly could have been intended to impose a trust on after-acquired cash. We further reject the argument that 7501, whose trust concept may be viewed as having modified the duty imposed under 6672,[18] |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | be viewed as having modified the duty imposed under 6672,[18] can be construed as establishing a fiduciary *256 obligation to pay over after-acquired cash unrelated to the withholding taxes. The language of 7501 limits the trust to "the amount of the taxes withheld or collected." (Emphasis added.) Comparing that language with 6672, which imposes liability for a willful failure to collect as well as failure to pay over, makes clear that under 7501 there must be a nexus between the funds collected and the trust created. That construction is consistent with the accepted principle of trust law requiring tracing of misappropriated trust funds into the trustee's estate in order for an impressed trust to arise. See D. Dobbs, Handbook on the Law of Remedies 424-425 (1973). Finally, for the reasons in the next section, a construction of 7501 or 6672 as imposing a trust on all after-acquired corporate funds without regard to the interests of others in those funds would conflict with the priority rules applicable to the collection of back taxes. (3) We developed in Part that the Code affords the IRS several means to collect back taxes, including levy, distraint, and sale. But the IRS is not given the power to levy on property in the hands of the taxpayer beyond the extent of the taxpayer's interest in the property,[19] and the Code *257 specifically subordinates tax liens to the interests of certain others in the property, generally including those with a perfected security interest in the property.[20] For example, the Code and established decisional principles subordinate the tax lien to perfected security interests arising before the filing of the tax lien,[21] to certain perfected security interests in certain collateral, including inventory, arising after the tax lien filing when pursuant to a security agreement entered into before the filing,[22] and to collateral which is the subject of a purchase-money *258 mortgage regardless of whether the agreement was entered into before or after filing of the tax lien.[23] As a consequence, secured parties often will have interests in certain proceeds superior to the tax lien, and it is unlikely, moreover, that corporations in the position of those involved here could continue in operation without making some payments to secured *259 creditors under the terms of security agreements. Those payments may well take the form of cash or accounts receivable, which like other property may be subject to a security interest, when, for example, the security agreement covers the proceeds of inventory the purchase of which is financed by the secured party, or the security agreement requires the debtor to |
Justice Brennan | 1,978 | 13 | majority | Slodov v. United States | https://www.courtlistener.com/opinion/109863/slodov-v-united-states/ | secured party, or the security agreement requires the debtor to make payments under a purchase-money mortgage by assigning accounts receivable which are the proceeds of inventory financed by the mortgage.[24] Thus, although the IRS is powerless to attach assets in which a secured party has a superior interest, it would impose a penalty under 6672 if the responsible person fails to divert the secured party's proceeds to the Treasury without regard to whether the secured party's interests are superior to those of the Government. Surely Congress did not intend 6672 to hammer the responsible person with the threat of heavy civil and criminal penalties to pay over proceeds in which the Code does not assert a priority interest. IV We hold that a "responsible person" under 6672 may violate the "pay over" requirement of that statute by willfully failing to pay over trust funds collected prior to his accession to control when at the time he assumed control the corporation has funds impressed with a trust under 7501, but that 7501 does not impress a trust on after-acquired funds, and that the responsible person consequently does not violate 6672 by willfully using employer funds for purposes other than satisfaction of the trust-fund tax claims of the United States when at the time he assumed control there were no *260 funds with which to satisfy the tax obligation and the funds thereafter generated are not directly traceable to collected taxes referred to by that statute.[25] That portion of the judgment of the Court of Appeals on the Government's cross-appeal holding petitioner liable under 6672 for wage withholding and FICA taxes required to be collected from employees' wages prior to January 31, 1969, is Reversed. MR. |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | In 1992, California enacted a statute limiting the maximum welfare benefits available to newly arrived residents. The scheme limits the amount payable to a family that has resided in the State for less than 12 months to the amount payable by the State of the family's prior residence. The questions presented by this case are whether the 1992 statute was constitutional when it was enacted and, if not, whether an amendment to the Social Security Act enacted by Congress in 1996 affects that determination. I California is not only one of the largest, most populated, and most beautiful States in the Nation; it is also one of the most generous. Like all other States, California has participated in several welfare programs authorized by the Social Security Act and partially funded by the Federal Government. Its programs, however, provide a higher level of benefits and serve more needy citizens than those of most other States. In one year the most expensive of those programs, Aid to Families with Dependent Children (AFDC), which was replaced in 1996 with Temporary Assistance to *493 Needy Families (TANF), provided benefits for an average of 2,645,814 persons per month at an annual cost to the State of $2.9 billion. In California the cash benefit for a family of twoa mother and one childis $456 a month, but in the neighboring State of Arizona, for example, it is only $275. In 1992, in order to make a relatively modest reduction in its vast welfare budget, the California Legislature enacted 11450.03 of the state Welfare and Institutions Code. That section sought to change the California AFDC program by limiting new residents, for the first year they live in California, to the benefits they would have received in the State of their prior residence.[1] Because in 1992 a state program either had to conform to federal specifications or receive a waiver from the Secretary of Health and Human Services in order to qualify for federal reimbursement, 11450.03 required approval by the Secretary to take effect. In October 1992, the Secretary issued a waiver purporting to grant such approval. On December 21, 1992, three California residents who were eligible for AFDC benefits filed an action in the Eastern District of California challenging the constitutionality *494 of the durational residency requirement in 11450.03. Each plaintiff alleged that she had recently moved to California to live with relatives in order to escape abusive family circumstances. One returned to California after living in Louisiana for seven years, the second had been living in Oklahoma for six weeks and the third came from Colorado. |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | Oklahoma for six weeks and the third came from Colorado. Each alleged that her monthly AFDC grant for the ensuing 12 months would be substantially lower under 11450.03 than if the statute were not in effect. Thus, the former residents of Louisiana and Oklahoma would receive $190 and $341 respectively for a family of three even though the full California grant was $641; the former resident of Colorado, who had just one child, was limited to $280 a month as opposed to the full California grant of $504 for a family of two. The District Court issued a temporary restraining order and, after a hearing, preliminarily enjoined implementation of the statute. District Judge Levi found that the statute "produces substantial disparities in benefit levels and makes no accommodation for the different costs of living that exist in different states."[2] Relying primarily on our decisions in and he concluded that the statute placed "a penalty on the decision of new residents to migrate to the State and be treated on an equal basis with existing residents." In his view, if the purpose of the measure was to deter migration by poor people into the State, it would be unconstitutional for that reason. And even if the purpose was only to conserve limited funds, the State had failed to explain why the entire burden of the saving should be imposed on new residents. The Court of Appeals summarily *495 affirmed for the reasons stated by the District Judge. We granted the State's petition for certiorari. We were, however, unable to reach the merits because the Secretary's approval of 11450.03 had been invalidated in a separate proceeding,[3] and the State had acknowledged that the Act would not be implemented without further action by the Secretary. We vacated the judgment and directed that the case be dismissed.[4] Accordingly, 11450.03 remained inoperative until after Congress enacted the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), PRWORA replaced the AFDC program with TANF. The new statute expressly authorizes any State that receives a block grant under TANF to "apply to a family the rules (including benefit amounts) of the [TANF] program of another State if the family has moved to the State from the other State and has resided in the State for less than 12 months." 42 U.S. C. 604(c) ( ed., Supp. II). With this federal statutory provision in effect, California no longer needed specific approval from the Secretary to implement 11450.03. The California Department of Social Services therefore issued an "All County Letter" announcing that the enforcement of 11450.03 would commence |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | County Letter" announcing that the enforcement of 11450.03 would commence on April 1, 1997. The All County Letter clarifies certain aspects of the statute. Even if members of an eligible family had lived in California all of their lives, but left the State "on January th, intending to reside in another state, and returned on April 15th," their benefits are determined by the law of their State of residence from January to April 15, assuming *496 that that level was lower than California's.[5] Moreover, the lower level of benefits applies regardless of whether the family was on welfare in the State of prior residence and regardless of the family's motive for moving to California. The instructions also explain that the residency requirement is inapplicable to families that recently arrived from another country. II On April 1, 1997, the two respondents filed this action in the Eastern District of California making essentially the same claims asserted by the plaintiffs in[6] but also challenging the constitutionality of PRWORA's approval of the durational residency requirement. As in Green, the District Court issued a temporary restraining order and certified the case as a class action.[7] The court also advised the Attorney General of the United States that the constitutionality of a federal statute had been drawn into question, but she did not seek to intervene or to file an amicus brief. Reasoning that PRWORA permitted, but did not require, States to impose durational residency requirements, Judge Levi concluded that the existence of the federal statute did not affect the legal analysis in his prior opinion in Green. He did, however, make certain additional comments on the parties' factual contentions. He noted that the State did not challenge plaintiffs' evidence indicating that, although *497 California benefit levels were the sixth highest in the Nation in absolute terms,[8] when housing costs are factored in, they rank 18th; that new residents coming from 43 States would face higher costs of living in California; and that welfare benefit levels actually have little, if any, impact on the residential choices made by poor people. On the other hand, he noted that the availability of other programs such as homeless assistance and an additional food stamp allowance of $1 in stamps for every $3 in reduced welfare benefits partially offset the disparity between the benefits for new and old residents. Notwithstanding those ameliorating facts, the State did not disagree with plaintiffs' contention that 11450.03 would create significant disparities between newcomers and welfare recipients who have resided in the State for over one year. The State relied squarely on the undisputed |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | over one year. The State relied squarely on the undisputed fact that the statute would save some $10.9 million in annual welfare costsan amount that is surely significant even though only a relatively small part of its annual expenditures of approximately $2.9 billion for the entire program. It contended that this cost saving was an appropriate exercise of budgetary authority as long as the residency requirement did not penalize the right to travel. The State reasoned that the payment of the same benefits that would have been received in the State of prior residency eliminated any potentially punitive aspects of the measure. Judge Levi concluded, however, that the relevant comparison was not between new residents of California and the residents of their former States, but rather between the new residents and longer term residents of California. He therefore again enjoined the implementation of the statute. Without finally deciding the merits, the Court of Appeals affirmed his issuance of a preliminary injunction. It agreed with the *498 District Court's view that the passage of PRWORA did not affect the constitutional analysis, that respondents had established a probability of success on the merits, and that class members might suffer irreparable harm if 11450.03 became operative. Although the decision of the Court of Appeals is consistent with the views of other federal courts that have addressed the issue,[9] we granted certiorari because of the importance of the case.[10] We now affirm. III The word "travel" is not found in the text of the Constitution. Yet the "constitutional right to travel from one State to another" is firmly embedded in our jurisprudence. United Indeed, as Justice Stewart reminded us in the right is so important that it is "assertable against private interference as well as governmental action a virtually unconditional personal right, guaranteed by the Constitution to us all." *499 In Shapiro, we reviewed the constitutionality of three statutory provisions that denied welfare assistance to residents of Connecticut, the District of Columbia, and Pennsylvania, who had resided within those respective jurisdictions less than one year immediately preceding their applications for assistance. Without pausing to identify the specific source of the right, we began by noting that the Court had long "recognized that the nature of our Federal Union and our constitutional concepts of personal liberty unite to require that all citizens be free to travel throughout the length and breadth of our land uninhibited by statutes, rules, or regulations which unreasonably burden or restrict this movement." We squarely held that it was "constitutionally impermissible" for a State to enact durational residency requirements for the |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | for a State to enact durational residency requirements for the purpose of inhibiting the migration by needy persons into the State.[11] We further held that a classification that had the effect of imposing a penalty on the exercise of the right to travel violated the Equal Protection Clause "unless shown to be necessary to promote a compelling governmental interest," and that no such showing had been made. In this case California argues that 11450.03 was not enacted for the impermissible purpose of inhibiting migration by needy persons and that, unlike the legislation reviewed in Shapiro, it does not penalize the right to travel because new arrivals are not ineligible for benefits during their first year of residence. California submits that, instead *500 of being subjected to the strictest scrutiny, the statute should be upheld if it is supported by a rational basis and that the State's legitimate interest in saving over $10 million a year satisfies that test. Although the United States did not elect to participate in the proceedings in the District Court or the Court of Appeals, it has participated as amicus curiae in this Court. It has advanced the novel argument that the enactment of PRWORA allows the States to adopt a "specialized choice-of-law-type provision" that "should be subject to an intermediate level of constitutional review," merely requiring that durational residency requirements be "substantially related to an important governmental objective."[12] The debate about the appropriate standard of review, together with the potential relevance of the federal statute, persuades us that it will be useful to focus on the source of the constitutional right on which respondents rely. IV The "right to travel" discussed in our cases embraces at least three different components. It protects the right of a citizen of one State to enter and to leave another State, the right to be treated as a welcome visitor rather than an unfriendly alien when temporarily present in the second State, and, for those travelers who elect to become permanent residents, the right to be treated like other citizens of that State. It was the right to go from one place to another, including the right to cross state borders while en route, that was vindicated in which invalidated a state law that impeded the free interstate passage of the indigent. We reaffirmed that right in United which afforded protection to the "`right to travel freely to and from the State of Georgia and to use highway facilities and other *501 instrumentalities of interstate commerce within the State of Georgia.' " at Given that 11450.03 imposed no obstacle |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | of Georgia.' " at Given that 11450.03 imposed no obstacle to respondents' entry into California, we think the State is correct when it argues that the statute does not directly impair the exercise of the right to free interstate movement. For the purposes of this case, therefore, we need not identify the source of that particular right in the text of the Constitution. The right of "free ingress and regress to and from" neighboring States, which was expressly mentioned in the text of the Articles of Confederation,[13] may simply have been "conceived from the beginning to be a necessary concomitant of the stronger Union the Constitution created." The second component of the right to travel is, however, expressly protected by the text of the Constitution. The first sentence of Article IV, 2, provides: "The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States." Thus, by virtue of a person's state citizenship, a citizen of one State who travels in other States, intending to return home at the end of his journey, is entitled to enjoy the "Privileges and Immunities of Citizens in the several States" that he visits.[14] This provision removes "from the citizens of each State the disabilities of alien age in the other States." ("[W]ithout some *502 provision removing from the citizens of each State the disabilities of alienage in the other States, and giving them equality of privilege with citizens of those States, the Republic would have constituted little more than a league of States; it would not have constituted the Union which now exists"). It provides important protections for nonresidents who enter a State whether to obtain employment, to procure medical services, or even to engage in commercial shrimp fishing, Those protections are not "absolute," but the Clause "does bar discrimination against citizens of other States where there is no substantial reason for the discrimination beyond the mere fact that they are citizens of other States." There may be a substantial reason for requiring the nonresident to pay more than the resident for a hunting license, see or to enroll in the state university, see but our cases have not identified any acceptable reason for qualifying the protection afforded by the Clause for "the `citizen of State A who ventures into State B' to settle there and establish a home." Permissible justifications for discrimination between residents and nonresidents are simply inapplicable to a nonresident's exercise of the right to move into another State and become a resident of that State. What is at issue in this case, |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | of that State. What is at issue in this case, then, is this third aspect of the right to travelthe right of the newly arrived citizen to the same privileges and immunities enjoyed by other citizens of the same State. That right is protected not only by the new arrival's status as a state citizen, but also by her status as a citizen of the United States.[15] That additional source *503 of protection is plainly identified in the opening words of the Fourteenth Amendment: "All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States;"[16] Despite fundamentally differing views concerning the coverage of the Privileges or Immunities Clause of the Fourteenth Amendment, most notably expressed in the majority and dissenting opinions in the Slaughter-House Cases, it has always been common ground that this Clause protects the third component of the right to travel. Writing for the majority in the Slaughter-House Cases, Justice Miller explained that one of the privileges conferred by this Clause "is that a citizen of the United States can, of his own volition, become a citizen of any State of the Union by a bonâ fide residence therein, with the same rights as other citizens of that State." Justice Bradley, in dissent, used even stronger language to make the same point: "The states have not now, if they ever had, any power to restrict their citizenship to any classes or persons. A citizen of the United States has a perfect constitutional *504 right to go to and reside in any State he chooses, and to claim citizenship therein, and an equality of rights with every other citizen; and the whole power of the nation is pledged to sustain him in that right. He is not bound to cringe to any superior, or to pray for any act of grace, as a means of enjoying all the rights and privileges enjoyed by other citizens." That newly arrived citizens "have two political capacities, one state and one federal," adds special force to their claim that they have the same rights as others who share their citizenship.[17] Neither mere rationality nor some intermediate standard of review should be used to judge the constitutionality of a state rule that discriminates against some of its citizens because they have been domiciled in the State for less than a year. The appropriate standard may be |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | for less than a year. The appropriate standard may be more categorical than that articulated in Shapiro, see but it is surely no less strict. V Because this case involves discrimination against citizens who have completed their interstate travel, the State's argument that its welfare scheme affects the right to travel only "incidentally" is beside the point. Were we concerned solely with actual deterrence to migration, we might be persuaded that a partial withholding of benefits constitutes a lesser incursion on the right to travel than an outright denial of all benefits. See *505 But since the right to travel embraces the citizen's right to be treated equally in her new State of residence, the discriminatory classification is itself a penalty. It is undisputed that respondents and the members of the class that they represent are citizens of California and that their need for welfare benefits is unrelated to the length of time that they have resided in California. We thus have no occasion to consider what weight might be given to a citizen's length of residence if the bona fides of her claim to state citizenship were questioned. Moreover, because whatever benefits they receive will be consumed while they remain in California, there is no danger that recognition of their claim will encourage citizens of other States to establish residency for just long enough to acquire some readily portable benefit, such as a divorce or a college education, that will be enjoyed after they return to their original domicile. See, e. g., ; The classifications challenged in this caseand there are manyare defined entirely by (a) the period of residency in California and (b) the location of the prior residences of the disfavored class members. The favored class of beneficiaries includes all eligible California citizens who have resided there for at least one year, plus those new arrivals who last resided in another country or in a State that provides benefits at least as generous as California's. Thus, within the broad category of citizens who resided in California for less than a year, there are many who are treated like lifetime residents. And within the broad subcategory of new arrivals who are treated less favorably, there are many smaller classes whose benefit levels are determined by the law of the States from whence they came. To justify 11450.03, California must therefore explain not only why it is sound fiscal policy to discriminate against those who have been citizens for less than a year, but also why it is permissible to apply such a variety of rules within that class. |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | to apply such a variety of rules within that class. *506 These classifications may not be justified by a purpose to deter welfare applicants from migrating to California for three reasons. First, although it is reasonable to assume that some persons may be motivated to move for the purpose of obtaining higher benefits, the empirical evidence reviewed by the District Judge, which takes into account the high cost of living in California, indicates that the number of such persons is quite smallsurely not large enough to justify a burden on those who had no such motive.[18] Second, California has represented to the Court that the legislation was not enacted for any such reason.[19] Third, even if it were, as we squarely held in such a purpose would be unequivocally impermissible. Disavowing any desire to fence out the indigent, California has instead advanced an entirely fiscal justification for its multitiered scheme. The enforcement of 11450.03 will save the State approximately $10.9 million a year. The question is not whether such saving is a legitimate purpose but whether the State may accomplish that end by the discriminatory means it has chosen. An evenhanded, acrossthe-board reduction of about 72 cents per month for every beneficiary would produce the same result. But our negative answer to the question does not rest on the weakness of the State's purported fiscal justification. It rests on the fact that the Citizenship Clause of the Fourteenth Amendment expressly equates citizenship with residence: "That Clause does not provide for, and does not allow for, degrees of citizenship based on length of residence." It is equally clear that the Clause does not tolerate a hierarchy of 45 subclasses of similarly situated *507 citizens based on the location of their prior residence.[20] Thus 11450.03 is doubly vulnerable: Neither the duration of respondents' California residence, nor the identity of their prior States of residence, has any relevance to their need for benefits. Nor do those factors bear any relationship to the State's interest in making an equitable allocation of the funds to be distributed among its needy citizens. As in Shapiro, we reject any contributory rationale for the denial of benefits to new residents: "But we need not rest on the particular facts of these cases. Appellants' reasoning would logically permit the State to bar new residents from schools, parks, and libraries or deprive them of police and fire protection. Indeed it would permit the State to apportion all benefits and services according to the past tax contributions of its citizens." -633. See also In short, the State's legitimate interest in saving |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | See also In short, the State's legitimate interest in saving money provides no justification for its decision to discriminate among equally eligible citizens. VI The question that remains is whether congressional approval of durational residency requirements in the 1996 amendment to the Social Security Act somehow resuscitates the constitutionality of 11450.03. That question is readily answered, for we have consistently held that Congress may not authorize the States to violate the Fourteenth Amendment.[21] Moreover, the protection afforded to the citizen by *508 the Citizenship Clause of that Amendment is a limitation on the powers of the National Government as well as the States. Article I of the Constitution grants Congress broad power to legislate in certain areas. Those legislative powers are, however, limited not only by the scope of the Framers' affirmative delegation, but also by the principle "that they may not be exercised in a way that violates other specific provisions of the Constitution. For example, Congress is granted broad power to `lay and collect Taxes,' but the taxing power, broad as it is, may not be invoked in such a way as to violate the privilege against self-incrimination." Congress has no affirmative power to authorize the States to violate the Fourteenth Amendment and is implicitly prohibited from passing legislation that purports to validate any such violation. "Section 5 of the Fourteenth Amendment gives Congress broad power indeed to enforce the command of the amendment and `to secure to all persons the enjoyment of perfect equality of civil rights and the equal protection of the laws against State denial or invasion.' Ex parte Virginia, 100 U.S. Congress' power under 5, however, `is limited to adopting measures to enforce the guarantees of the Amendment; 5 grants Congress no power to restrict, abrogate, or dilute these guarantees.' Although we give deference to congressional decisions and classifications, neither Congress nor a State can validate a law that denies the rights guaranteed by the Fourteenth Amendment. See, e. g., ;" Missis- sippi Univ. for *509 The Solicitor General does not unequivocally defend the constitutionality of 11450.03. But he has argued that two features of PRWORA may provide a sufficient justification for state durational requirements to warrant further inquiry before finally passing on the section's validity, or perhaps that it is only invalid insofar as it applies to new arrivals who were not on welfare before they arrived in California.[22] He first points out that because the TANF program gives the States broader discretion than did AFDC, there will be significant differences among the States which may provide new incentives for welfare recipients to |
Justice Stevens | 1,999 | 16 | majority | Saenz v. Roe | https://www.courtlistener.com/opinion/118286/saenz-v-roe/ | States which may provide new incentives for welfare recipients to change their residences. He does not, however, persuade us that the disparities under the new program will necessarily be any greater than the differences under AFDC, which included such examples as the disparity between California's monthly benefit of $673 for a family of four with Mississippi's benefit of $144 for a comparable family. Moreover, we are not convinced that a policy of eliminating incentives to move to California provides a more permissible justification for classifying California citizens than a policy of imposing special burdens on new arrivals to deter them from moving into the State. Nor is the discriminatory impact of 11450.03 abated by repeatedly characterizing it as "a sort of specialized choice-of-law rule."[23] California law alone discriminates among its own citizens on the basis of their prior residence. The Solicitor General also suggests that we should recognize the congressional concern addressed in the legislative history of PRWORA that the "States might engage in a `race to the bottom' in setting the benefit levels in their TANF *510 programs."[24] Again, it is difficult to see why that concern should be any greater under TANF than under AFDC. The evidence reviewed by the District Court indicates that the savings resulting from the discriminatory policy, if spread equitably throughout the entire program, would have only a miniscule impact on benefit levels. Indeed, as one of the legislators apparently interpreted this concern, it would logically prompt the States to reduce benefit levels sufficiently "to encourage emigration of benefit recipients."[25] But speculation about such an unlikely eventuality provides no basis for upholding 11450.03. Finally, the Solicitor General suggests that the State's discrimination might be acceptable if California had limited the disfavored subcategories of new citizens to those who had received aid in their prior State of residence at any time within the year before their arrival in California. The suggestion is ironic for at least three reasons: It would impose the most severe burdens on the neediest members of the disfavored classes; it would significantly reduce the savings that the State would obtain, thus making the State's claimed justification even less tenable; and, it would confine the effect of the statute to what the Solicitor General correctly characterizes as "the invidious purpose of discouraging poor people generally from settling in the State."[26] * * * Citizens of the United States, whether rich or poor, have the right to choose to be citizens "of the State wherein they *511 reside." U. S. Const., Amdt. 14, 1. The States, however, do not have any right to |
Justice O'Connor | 1,987 | 14 | majority | Karcher v. May | https://www.courtlistener.com/opinion/111967/karcher-v-may/ | Alan J. Karcher and Carmen A. Orechio, the former presiding officers of the New Jersey Legislature, seek to appeal a judgment declaring a New Jersey statute unconstitutional. Their appeal presents the question whether public officials who have participated in a lawsuit solely in their official capacities may appeal an adverse judgment after they have left office. We hold that they may not. I In December the New Jersey Legislature enacted, over the Governor's veto, a statute requiring the State's primary and secondary public school educators to permit their students to observe a minute of silence before the start of each schoolday. The statute reads as follows: "Principals and teachers in each public elementary and secondary school of each school district in this State shall permit students to observe a 1 minute period of silence to be used solely at the discretion of the individual student, *75 before the opening exercises of each school day for quiet and private contemplation or introspection." N. J. Stat. Ann. 18A:36-4 The New Jersey Attorney General immediately announced that he would not defend the statute if it were challenged. The statute became effective December 17, and within a month appellees a New Jersey public school teacher, several public school students, and parents of public school students challenged its constitutionality in federal court. Appellees sued under 42 U.S. C. alleging that the statute violated the Establishment Clause of the First Amendment and seeking both declaratory and injunctive relief. They named as defendants the New Jersey Department of Education, its Commissioner, and two township boards of education. When it became apparent that neither the Attorney General nor the named defendants would defend the statute, Karcher and Orechio, as Speaker of the New Jersey General Assembly and President of the New Jersey Senate, respectively, sought and obtained permission to intervene as defendants on behalf of the legislature. Appellees entered into a stipulation dismissing the suit against the named defendants, but the District Court refused to accept the stipulation out of concern for the effect it might have on the jurisdictional posture of the case. The legislature, through its presiding officers, carried the entire burden of defending the statute. After a 5-day trial, the District Court declared the New Jersey statute unconstitutional. Applying the test set out in the court held that the statute violated the Establishment Clause of the First Amendment because its purpose was religious rather than secular, because it both advanced and inhibited religion, and because it fostered excessive government entanglement with religion. *76 Karcher and Orechio appealed from the District Court's judgment in |
Justice O'Connor | 1,987 | 14 | majority | Karcher v. May | https://www.courtlistener.com/opinion/111967/karcher-v-may/ | Karcher and Orechio appealed from the District Court's judgment in their official capacities as Speaker of the New Jersey General Assembly and President of the New Jersey Senate. The named defendants filed letters with the Court of Appeals stating that they would not participate in the appeal, except to the extent necessary to protect themselves from having to pay attorney's fees. The Court of Appeals affirmed the District Court's declaratory judgment by a divided vote. The majority held that the statute did not promote or inhibit religion and would not foster excessive entanglement between government and religion, but affirmed the District Court's conclusion that the statute violated the Establishment Clause for lack of a valid secular purpose. The dissent concluded that the evidence was not sufficient to prove the absence of a secular legislative purpose. The Court of Appeals entered its judgment of affirmance on December 24, On January 14, 1986, Karcher and Orechio lost their posts as presiding legislative officers. Charles Hardwick replaced Karcher as Speaker of the New Jersey General Assembly. John Russo succeeded Orechio as President of the New Jersey Senate. A March 19, 1986, notice appealing the judgment of the Court of Appeals to this Court was filed on behalf of "Alan J. Karcher, as Speaker of the New Jersey General Assembly; the New Jersey General Assembly; Carmen A. Orechio, as President of the New Jersey Senate and the New Jersey Senate." App. to Juris. Statement 106a-107a. By letter dated May 6, 1986, appellants' counsel informed us that Senate President Russo and General Assembly Speaker Hardwick were withdrawing the legislature's appeal, but that Karcher desired to continue the appeal. App. to Motion to Dismiss or Affirm 1a-3a. Appellees moved to dismiss the appeal on the ground that the legislature's withdrawal left the Court without a case or controversy. We postponed consideration of *77 the jurisdictional question to the hearing of the case on the merits. We now dismiss the appeal for want of jurisdiction. II The power of federal courts to hear and decide cases is defined by Article III of the Constitution and by the federal statutes enacted thereunder. Karcher and Orechio seek to invoke this Court's jurisdiction under 28 U.S. C. 1254(2). That statute empowers us to review cases upon "appeal by a party relying on a State statute held by a court of appeals to be invalid as repugnant to the Constitution, treaties or laws of the United States." One who is not an original party to a lawsuit may of course become a party by intervention, substitution, or third-party practice. 9 J. |
Justice O'Connor | 1,987 | 14 | majority | Karcher v. May | https://www.courtlistener.com/opinion/111967/karcher-v-may/ | a party by intervention, substitution, or third-party practice. 9 J. Moore, B. Ward, & J. Lucas, Moore's Federal Practice ¶ 203.06 pp. 3-20 But we have consistently applied the general rule that one who is not a party or has not been treated as a party to a judgment has no right to appeal therefrom. United States ex rel. ; Ex parte Leaf Tobacco Board of Trade, ; Ex parte Cockcroft, ; Ex parte Cutting, Karcher and Orechio intervened in this lawsuit in their official capacities as presiding officers on behalf of the New Jersey Legislature. They do not appeal the judgment in those capacities. Indeed, they could not, for they no longer hold those offices. The authority to pursue the lawsuit on behalf of the legislature belongs to those who succeeded Karcher and Orechio in office. Federal Rule of Appellate Procedure 43(c)(1) provides that "[w]hen a public officer is a party to an appeal or other proceeding in the court of appeals in an official capacity and during its pendency ceases to hold office, the action does not abate and the public officer's successor is automatically substituted as a party." The current presiding officers *78 have informed us that the New Jersey Legislature is not an appellant in this case. Having lost their official status as presiding legislative officers, Karcher and Orechio now seek to appeal in their capacities as individual legislators and as representatives of the majority of the 200th New Jersey Legislature, the now-expired legislative body that enacted the minute of silence statute. They do not seek leave to intervene in those capacities. Rather, they assert, for the first time in their briefs to this Court, that they originally intervened and litigated the lawsuit in those roles. The fact that Karcher and Orechio participated in this litigation in their official capacities as presiding officers on behalf of the legislature does not mean that they became parties in all of their personal and professional capacities. In we observed that "[a]cts performed by the same person in two different capacities `are generally treated as the transactions of two different legal personages.' " quoting F. James & G. Hazard, Civil Procedure 11.6, p. 594 The concept of "legal personage" is a practical means of identifying the real interests at stake in a lawsuit. We have repeatedly recognized that the real party in interest in an official-capacity suit is the entity represented and not the individual officeholder. See ; ; We therefore agree with the Solicitor General's view that Karcher and Orechio's intervention as presiding legislative officers does not entitle them |
Justice O'Connor | 1,987 | 14 | majority | Karcher v. May | https://www.courtlistener.com/opinion/111967/karcher-v-may/ | Orechio's intervention as presiding legislative officers does not entitle them to appeal in their other individual and professional capacities. Brief for United States as Amicus Curiae 10-11. Karcher and Orechio may not appeal the Court of Appeals' judgment as individual legislators or as representatives of the 200th Legislature unless the record shows that they participated in those capacities below. *79 The course of proceedings in this case from the District Court to this Court make it clear that the only party-intervenor in this case was the incumbent New Jersey Legislature. At the District Court hearing on their oral motion to intervene, Karcher and Orechio represented to both the court and their opponents that they were intervening on behalf of the legislature and not as individual legislators.[1] The District Court permitted Karcher and Orechio to intervene as party-defendants *80 only in their representative capacities as presiding legislative officers. The intervention order provided: "Alan J. Karcher in his representative capacity as Speaker of the New Jersey General Assembly; the New Jersey General Assembly; Carmen A. Orechio in his representative capacity as President of the New Jersey Senate; and the New Jersey Senate; be permitted to intervene as direct party defendants." App. 53-54. The District Court's opinion on the merits identifies the defendant-intervenors as "the New Jersey Assembly and New Jersey Senate." In its separate opinion on attorney's fees, the District Court emphasizes that it gave the legislature leave to intervene to represent the interests of the State: "The Legislature itself, through the Speaker of the General Assembly and the President of the Senate, moved to intervene in the case. The Legislature was permitted to intervene because it was responsible for enacting the statute and because no other party defendant was willing to defend the statute. The Legislature sought to perform a task which normally falls to the executive branch, but which, in this case, the executive branch refused to perform." Record, Doc. No. 60, p. 20. The record in the Court of Appeals similarly identifies the appellant-intervenor as the New Jersey Legislature. The notice of appeal was filed by "Alan J. Karcher, as Speaker of the New Jersey General Assembly; the New Jersey General Assembly; Carmen A. Orechio as President of the New Jersey Senate and the New Jersey Senate, Defendants-Intervenors." Record, Doc. No. 64. The Court of Appeals' opinion identifies the appellants as "the New Jersey Senate and Assembly." The notice of appeal to this Court identifies the appellants as "Alan J. Karcher, as Speaker of the New Jersey General Assembly; the New Jersey General Assembly; Carmen A. *81 Orechio, as |
Justice O'Connor | 1,987 | 14 | majority | Karcher v. May | https://www.courtlistener.com/opinion/111967/karcher-v-may/ | the New Jersey General Assembly; Carmen A. *81 Orechio, as President of the New Jersey Senate and the New Jersey Senate." App. to Juris. Statement 106a-107a. Even the jurisdictional statement refers to the appellants as "the Legislature." Juris. Statement 5-6. Though appellants assert in their brief that Karcher and Orechio as individual legislators were proper parties in the District Court and the Court of Appeals, our review of the record satisfies us that Karcher and Orechio have neither formally sought, nor in any sense been granted, permission to participate in this lawsuit as individual legislators. We think it is also clear from the record that the party-intervenor at each point in the proceedings below was the incumbent legislature, on behalf of the State, and not the particular legislative body that enacted the minute of silence law. Nowhere in the record did Karcher and Orechio assert that they represented the 200th Legislature and no other. In sum, Karcher and Orechio participated in this lawsuit in their official capacities as presiding officers of the New Jersey Legislature, but since they no longer hold those offices, they lack authority to pursue this appeal on behalf of the legislature. Karcher and Orechio as individual legislators and as representatives of the 200th New Jersey Legislature are not "parties" entitled to appeal the Court of Appeals' judgment under 28 U.S. C. 1254(2). Accordingly, we must dismiss their appeal for want of jurisdiction. III Karcher and Orechio argue that if we dismiss their appeal we must vacate the judgments below. They advance two theories in support of this result. First they contend that the judgments below must be vacated because no proper party-defendant ever intervened in the case. This is so, they say, because New Jersey law does not authorize the presiding legislative officers to represent the New Jersey Legislature in litigation. Not only is this claim directly contrary to appellants' explicit representations *82 to the District Court,[2] it appears to be wrong as a matter of New Jersey law. The New Jersey Supreme Court has granted applications of the Speaker of the General Assembly and the President of the Senate to intervene as parties-respondent on behalf of the legislature in defense of a legislative enactment. In re Forsythe, 91 N. J. 141, 144, Since the New Jersey Legislature had authority under state law to represent the State's interests in both the District Court and the Court of Appeals, we need not vacate the judgments below for lack of a proper defendant-appellant. Appellants' second theory for vacating the judgments below is based upon our practice of vacating |
Justice O'Connor | 1,987 | 14 | majority | Karcher v. May | https://www.courtlistener.com/opinion/111967/karcher-v-may/ | the judgments below is based upon our practice of vacating lower court judgments when a case becomes moot on appeal. See ; United States Department of ; United In United States v. Munsingwear, we explained that when a case becomes moot in its journey through the federal courts we will reverse or vacate the "unreviewable" judgment below and remand with directions to dismiss. We reasoned that this procedure "clears the path for future retaliation of the issues between the parties and eliminates a judgment, review of which was prevented through happenstance." Karcher and Orechio contend that the rationale underlying the Munsingwear procedure applies to this case, for it is the happenstance of their loss of official status that renders the judgment unreviewable. *83 We reject this argument because its underlying premise is wrong. This case did not become unreviewable when Karcher and Orechio left office. Rather, under Federal Rule of Appellate Procedure 43(c)(1), the authority of Karcher and Orechio to pursue the appeal on behalf of the legislature passed to their successors in office. The rules effectuating automatic substitution of public officers were specifically designed to prevent suits involving public officers from becoming moot due to personnel changes. See Advisory Committee Notes on 1961 Amdt. to Fed. Rule Civ. Proc. 25(d)(1), 28 U.S. C., pp. 568-569. This controversy did not become moot due to circumstances unattributable to any of the parties. The controversy ended when the losing party the New Jersey Legislature declined to pursue its appeal. Accordingly, the Munsingwear procedure is inapplicable to this case. Because Karcher and Orechio are not parties to this case in the capacities under which they seek to appeal, their appeal must be dismissed for want of jurisdiction. It is so ordered. JUSTICE WHITE, concurring in the judgment. |
Justice Powell | 1,981 | 17 | dissenting | Steadman v. SEC | https://www.courtlistener.com/opinion/110417/steadman-v-sec/ | The Securities and Exchange Commission (SEC), acting under the antifraud provisions of the Investment Company Act of 1940 and the Investment Advisers Act of 1940, has imposed severe sanctions on petitioner. He has been barred permanently from practicing his profession and also forced to divest himself of an investment at a substantial loss. In making its findings of fraud and imposing these penalties, the SEC applied the "preponderance of the evidence" standard of proof. The Court today sustains the action of the SEC, holding *105 that 7 (c) of the Administrative Procedure Act (APA), 5 U.S. C. 556 (d), commands the use of this standard in disciplinary proceedings brought under the securities laws. The Court recognizes, however, ante, at 95-96, that the general provisions of the APA are applicable only when Congress has not intended that a different standard be used in the administration of a specific statute. The critical inquiry thus is the identification of the standard of proof desired by Congress. The SEC acted in this case under 9 (b) of the Investment Company Act of 1940, 15 U.S. C. 80a-9 (b), and 203 (f) of the Investment Advisers Act of 1940, 15 U.S. C. 80b-3 (f). Sanctions imposed under these sections are the functional equivalent of penalties for fraud. At common law, it was plain that allegations of fraud had to be proved by clear and convincing evidence. E. g., ; ; ; Bank of ; Congress enacted the Investment Company and Investment Advisers Acts against this common-law background. There is no evidence that Congress, when it adopted these Acts, intended to authorize the SEC to abandon the then-applicable standard of proof in fraud adjudications. See ; Collins Securities The APA, upon which the Court relies, did not become law for some seven years after the enactment of the two statutes under which the SEC imposed these penalties. Again, the Court points to no specific evidence that Congress intended the APA to supplant the burden-of-proof rule generally applicable when the securities laws were enacted. Thus, the APAthe general statute applicable only where a specific *106 statute is notshould have no bearing on the proof burden in this case. I imply no opinion on the question whether the evidence supports the SEC's allegations against petitioner. It is clear, however, that the SEC's finding of fraud and its imposition of harsh penalties have resulted in serious stigma and deprivation. Cf. In the absence of any specific demonstration of Congress' purpose, we should not assume that Congress intended the SEC to apply a lower standard of proof than the prevailing |
Justice Thomas | 2,001 | 1 | majority | Pollard v. EI Du Pont De Nemours & Co. | https://www.courtlistener.com/opinion/118441/pollard-v-ei-du-pont-de-nemours-co/ | This case presents the question whether a front pay award is an element of compensatory damages under the Civil Rights Act of 11 We conclude that it is not I Petitioner Sharon Pollard sued her former employer, E I du Pont de Nemours and Company (DuPont), alleging that she had been subjected to a hostile work environment based on her sex, in violation of Title VII of the Civil Rights Act of 42 US C e et seq After a trial, the District Court found that Pollard was subjected to coworker sexual harassment of which her supervisors were aware The District Court further found that the harassment resulted in a medical leave of absence from her job for psychological assistance and her eventual dismissal for refusing to return to the same hostile work environment The court awarded Pollard $107,364 in backpay and benefits, $252,7 in attorney's fees, and, as relevant here, $300,000 in compensatory damagesthe maximum permitted under the statutory cap for such damages in 42 US C 1981a(b)(3) *846 The Court of Appeals affirmed, concluding that the record demonstrated that DuPont employees engaged in flagrant discrimination based on sex and that DuPont managers and supervisors did not take adequate steps to stop it The issue presented for review here is whether front pay constitutes an element of "compensatory damages" under 42 US C 1981a and thus is subject to the statutory damages cap imposed by that section Although courts have defined "front pay" in numerous ways, front pay issimply money awarded for lost compensation during the period between judgment and reinstatement or in lieu of reinstatement For instance, when an appropriate position for the plaintiff is not immediately available without displacing an incumbent employee, courts have ordered reinstatement upon the opening of such a position and have ordered front pay to be paid until reinstatement occurs See, e g, ; In cases in which reinstatement is not viable because of continuing hostility between the plaintiff and the employer or its workers, or because of psychological injuries suffered by the plaintiff as a result of the discrimination, courts have ordered front pay as a substitute for reinstatement See, e g, ; For the purposes of this opinion, it is not necessary for us to explain when front pay is an appropriate remedy The question before us is only whether front pay, if found to be appropriate, is an element of compensatory damages under the Civil Rights Act of 11 and thus subject to the Act's statutory cap on such damages Here, the District Court observed that "the $300,00000 award is, |
Justice Thomas | 2,001 | 1 | majority | Pollard v. EI Du Pont De Nemours & Co. | https://www.courtlistener.com/opinion/118441/pollard-v-ei-du-pont-de-nemours-co/ | Here, the District Court observed that "the $300,00000 award is, in fact, insufficient to compensate plaintiff," but it stated that *847 it was bound by the Sixth Circuit's decision in which held that front pay was subject to the cap On appeal, Pollard argued that was wrongly decided because front pay is not an element of compensatory damages, but rather a replacement for the remedy of reinstatement in situations in which reinstatement would be inappropriate She also argued that 1981a, by its very terms, explicitly excludes from the statutory cap remedies that traditionally were available under Title VII, which she argued included front pay The Court of Appeals agreed with Pollard's arguments but considered itself bound by The Sixth Circuit declined to rehear the case en banc The Sixth Circuit's decision in was one of the first appellate opinions to decide whether front pay is an element of compensatory damages subject to the statutory cap set forth in 1981a(b)(3) Contrary to the Sixth Circuit's resolution of this question, the other Courts of Appeals to address it have concluded that front pay is a remedy that is not subject to the limitations of 1981a(b)(3) See, e g, ; ; at 1153 1154; ; ; We granted certiorari to resolve this conflict II Plaintiffs who allege employment discrimination on the basis of sex traditionally have been entitled to such remedies as injunctions, reinstatement, backpay, lost benefits, and attorney's fees under 706(g) of the Civil Rights Act *848 of 42 US C e5(g)(1) In the Civil Rights Act of 11, Congress expanded the remedies available to these plaintiffs by permitting, for the first time, the recovery of compensatory and punitive damages 42 US C 1981a(a)(1) ("[T]he complaining party may recover compensatory and punitive damages as allowed in subsection (b) of this section, in addition to any relief authorized by section 706(g) of the Civil Rights Act of ") The amount of compensatory damages awarded under 1981a for "future pecuniary losses, emotional pain, suffering, inconvenience, mental anguish, loss of enjoyment of life, and other nonpecuniary losses," and the amount of punitive damages awarded under 1981a, however, may not exceed the statutory cap set forth in 1981a(b)(3) The statutory cap is based on the number of people employed by the respondent In this case, the cap is $300,000 because DuPont has more than 500 employees The Sixth Circuit has concluded that front pay constitutes compensatory damages awarded for future pecuniary losses and thus is subject to the statutory cap of 1981a(b)(3) ; For the reasons discussed below, we conclude that front pay is not an |
Justice Thomas | 2,001 | 1 | majority | Pollard v. EI Du Pont De Nemours & Co. | https://www.courtlistener.com/opinion/118441/pollard-v-ei-du-pont-de-nemours-co/ | discussed below, we conclude that front pay is not an element of compensatory damages within the meaning of 1981a, and, therefore, we hold that the statutory cap of 1981a(b)(3) is inapplicable to front pay A Under 706(g) of the Civil Rights Act of as originally enacted, when a court found that an employer had intentionally engaged in an unlawful employment practice, the court was authorized to "enjoin the respondent from engaging in such unlawful employment practice, and order such affirmative action as may be appropriate, which may include, but is not limited to, reinstatement or hiring of employees, with or without back pay" 42 US C e 5(g)(1) This provision closely tracked the language of *849 10(c) of the National Labor Relations Act (NLRA), 49 Stat 454, 29 US C 160(c), which similarly authorized orders requiring employers to take appropriate, remedial "affirmative action" 160(c) (authorizing the National Labor Relations Board to issue an order "requiring such person to cease and desist from such unfair labor practice, and to take such affirmative action including reinstatement of employees with or without back pay, as will effectuate the policies of this subchapter") See also Albemarle Paper Co v Moody, 422 US 405, 419, n 11 The meaning of this provision of the NLRA prior to enactment of the Civil Rights Act of therefore, gives us guidance as to the proper meaning of the same language in 706(g) of Title VII In applying 10(c) of the NLRA, the Board consistently had made awards of what it called "backpay" up to the date the employee was reinstated or returned to the position he should have been in had the violation of the NLRA not occurred, even if such event occurred after judgment See, e g, Nathanson v NLRB, 344 US 25, ; NLRB v Reeves Broadcasting & Development Corp, 336 F2d ; NLRB v Hill & Hill Truck Line, Inc, 266 F2d 883, ; Berger Polishing, Inc, 147 N L R B 21, 40 ; Lock Joint Pipe Co, 141 N L R B 943, 948 (1963) Consistent with the Board's interpretation of this provision of the NLRA, courts finding unlawful intentional discrimination in Title VII actions awarded this same type of backpay under 706(g) See, e g, Culpepper v Reynolds Metals Co, 442 F2d 1078, ; United States v Georgia Power Co, 3 FEP Cases 767, 790 In the Title VII context, this form of "backpay" occurring after the date of judgment is known today as "front pay" In 1972, Congress expanded 706(g) to specify that a court could, in addition to awarding those |
Justice Thomas | 2,001 | 1 | majority | Pollard v. EI Du Pont De Nemours & Co. | https://www.courtlistener.com/opinion/118441/pollard-v-ei-du-pont-de-nemours-co/ | specify that a court could, in addition to awarding those remedies previously listed in the provision, award "any other equitable relief *850 as the court deems appropriate" After this amendment to 706(g), courts endorsed a broad view of front pay See, e g, Patterson v American Tobacco Co, 535 F2d 257, (stating that where reinstatement is not immediately feasible, backpay "should be supplemented by an award equal to the estimated present value of lost earnings that are reasonably likely to occur between the date of judgment and the time when the employee can assume his new position"); EEOC v Enterprise Assn Steamfitters, 542 F2d 579, ; Bush v Lone Star Steel Co, 373 F Supp 526, Courts recognized that reinstatement was not always a viable option, and that an award of front pay as a substitute for reinstatement in such cases was a necessary part of the "make whole" relief mandated by Congress and by this Court in Albemarle See, e g, Shore v Federal Express Corp, 777 F2d 1155, ("Front pay is simply compensation for the post-judgment effects of past discrimination" It is awarded "to effectuate fully the `make whole' purposes of Title VII"); Brooks v Woodline Motor Freight, Inc, 852 F2d 1061, ; 624 F 2d, at (upholding award of front pay where continuing hostility existed between the parties); Cassino v Reichhold Chems, Inc, 817 F2d 1338, By 11, virtually all of the courts of appeals had recognized that "front pay" was a remedy authorized *851 under 706(g)[1] In fact, no court of appeals appears to have ever held to the contrary[2] In 11, without amending 706(g), Congress further expanded the remedies available in cases of intentional employment discrimination to include compensatory and punitive damages See 42 US C 1981a(a)(1) At that time, Rev Stat 1977, 42 US C 1981, permitted the recovery of unlimited compensatory and punitive damages in cases of intentional race and ethnic discrimination, but no similar remedy existed in cases of intentional sex, religious, or disability discrimination Thus, 1981a brought all forms of intentional employment discrimination into alignment, at least with respect to the forms of relief available to successful plaintiffs However, compensatory and punitive damages awarded under 1981a may not exceed the statutory limitations set forth in 1981a(b)(3), while such damages awarded under 1981 are not limited by statute *852 B In the abstract, front pay could be considered compensation for "future pecuniary losses," in which case it would be subject to the statutory cap 1981a(b)(3) The term "compensatory damages for future pecuniary losses" is not defined in the statute, and, out of |
Justice Thomas | 2,001 | 1 | majority | Pollard v. EI Du Pont De Nemours & Co. | https://www.courtlistener.com/opinion/118441/pollard-v-ei-du-pont-de-nemours-co/ | losses" is not defined in the statute, and, out of context, its ordinary meaning could include all payments for monetary losses after the date of judgment However, we must not analyze one term of 1981a in isolation See Gade v National Solid Wastes Management Assn, 505 US 88, When 1981a is read as a whole, the better interpretation is that front pay is not within the meaning of compensatory damages in 1981a(b)(3), and thus front pay is excluded from the statutory cap In the Civil Rights Act of 11, Congress determined that victims of employment discrimination were entitled to additional remedies Congress expressly found that "additional remedies under Federal law are needed to deter unlawful harassment and intentional discrimination in the workplace," without giving any indication that it wished to curtail previously available remedies See Civil Rights Act of 11, 105 Stat 1071, 2 Congress therefore made clear through the plain language of the statute that the remedies newly authorized under 1981a were in addition to the relief authorized by 706(g) Section 1981a(a)(1) provides that, in intentional discrimination cases brought under Title VII, "the complaining party may recover compensatory and punitive damages as allowed in subjection (b) of [ 1981a], in addition to any relief authorized by section 706(g) of the Civil Rights Act of from the respondent" (Emphasis added) And 1981a(b)(2) states that "[c]ompensatory damages awarded under [ 1981a] shall not include backpay, interest on backpay, or any other type of relief authorized under section 706(g) of the Civil Rights Act of " *853 (Emphasis added) According to these statutory provisions, if front pay was a type of relief authorized under 706(g), it is excluded from the meaning of compensatory damages under 1981a As discussed above, the original language of 706(g) authorizing backpay awards was modeled after the same language in the NLRA This provision in the NLRA had been construed to allow awards of backpay up to the date of reinstatement, even if reinstatement occurred after judgment Accordingly, backpay awards made for the period between the date of judgment and the date of reinstatement, which today are called front pay awards under Title VII, were authorized under 706(g) As to front pay awards that are made in lieu of reinstatement, we construe 706(g) as authorizing these awards as well We see no logical difference between front pay awards made when there eventually is reinstatement and those made when there is not[3] Moreover, to distinguish between the two cases would lead to the strange result that employees could receive front pay when reinstatement eventually is available but not when |
Justice Thomas | 2,001 | 1 | majority | Pollard v. EI Du Pont De Nemours & Co. | https://www.courtlistener.com/opinion/118441/pollard-v-ei-du-pont-de-nemours-co/ | front pay when reinstatement eventually is available but not when reinstatement is not an optionwhether because of continuing hostility between the plaintiff and the employer or its workers, or because of psychological injuries that the discrimination has caused the plaintiff Thus, the most egregious offenders could be subject to the least sanctions Had Congress drawn such a line in the statute and foreclosed front pay awards in lieu of reinstatement, we certainly would honor that line But, as written, the text of the statute does not lend itself to such a distinction, and we will not create one The statute *854 authorizes courts to "order such affirmative action as may be appropriate" 42 US C e5(g)(1) We conclude that front pay awards in lieu of reinstatement fit within this statutory term Because front pay is a remedy authorized under 706(g), Congress did not limit the availability of such awards in 1981a Instead, Congress sought to expand the available remedies by permitting the recovery of compensatory and punitive damages in addition to previously available remedies, such as front pay * * * The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion It is so ordered Justice O'Connor took no part in the consideration or decision of this case |
Justice Rehnquist | 1,974 | 19 | dissenting | Vachon v. New Hampshire | https://www.courtlistener.com/opinion/108905/vachon-v-new-hampshire/ | Appellant Denis M. Vachon operes the Head Shop in Manchester, New Hampshire, where he sells various beads, dresses, posters, and the like. In July 1969, a 14-year-old girl, accompanied by her girl friend, went to the shop seeking to purchase a button or pin like the *481 one purchased by her friend the previous week. She found the button, inscribed "Copulion Not Masturbion," and purchased it from a salesperson in the store. It was conceded in the New Hampshire courts th appellant was in control of the premises where the sale was made. At a jury-waived trial, appellant was convicted of contributing to the delinquency of a minor, a stutory offense proscribed in these words: "[A]nyone who shall knowingly or wilfully encourage, aid, cause, or abet, or connive or has knowingly or wilfully done any act to produce, promote, or contribute to the delinquency of [a] child, may be punished" N. H. Rev. St. Ann. 169:32 (Supp. 1972). The Supreme Court of New Hampshire affirmed appellant's conviction. 113 N. H. 239, The Court decides th appellant's conviction under this stute violes rights secured to him by the Due Process Clause of the Fourteenth Amendment, concluding on the basis of its "independent examinion of the trial record" th "evidence is completely lacking th appellant personally sold the girl the button or even th he was aware of the sale or present in the store the time." I In one sense there can be no doubt th the Court's conclusion is based upon an "independent examinion of the trial record," since the claim sustained here was neither made in constitutional form to the Supreme Court of New Hampshire, nor even presented by appellant in his jurisdictional stement in this Court.[*] *482 A litigant seeking to preserve a constitutional claim for review in this Court must not only make clear to the lower courts the nure of his claim, but he must also make it clear th the claim is constitutionally grounded. The closest th appellant came in his brief on appeal to the Supreme Court of New Hampshire to discussing the issue on which this Court's opinion turns is in the sixth section ( 17-18), which is headed: "The Ste's failure to introduce any evidence of scienter should have resulted in dismissal of the charge following the presention of the Ste's case." Appellant in th section makes the customary appelle arguments of insufficiency of the evidence and does not so much as mention either the United Stes Constitution or a single case decided by this Court. The Supreme Court of New Hampshire |
Justice Rehnquist | 1,974 | 19 | dissenting | Vachon v. New Hampshire | https://www.courtlistener.com/opinion/108905/vachon-v-new-hampshire/ | decided by this Court. The Supreme Court of New Hampshire treed these arguments as raising a classic ste law claim of insufficient evidence of scienter; nothing in th court's opinion remotely suggests th it was treing the claim as having a basis other than in ste law. The Court purports to decide the scienter question on the basis of Rule 40 (1) (d) (2) of the Rules of this Court, which provides: "1. Briefs of an appellant or petitioner on the merits shall be printed as prescribed in Rule 39, and shall contain in the order here indiced "(d) (2) The phrasing of the questions presented need not be identical with th set forth in the jurisdictional stement or the petition for certiorari, *483 but the brief may not raise additional questions or change the substance of the questions already presented in those documents. Questions not presented according to this paragraph will be disregarded, save as the court, its option, may notice a plain error not presented." The very language of this rule makes it clear th it applies to this Court's review of cases in which it has previously either noted probable jurisdiction or granted certiorari. The cases cited by the Court in support of wh it does here are therefore necessarily cases in which review had been granted and which had been orally argued; in addition, each of those cases arose in the federal courts. See Columbia Heights Realty ; ; Blonder-Tongue Laborories, Whever the import of Rule 40 (1) (d) (2) in cases arising in the federal courts, it surely does not give this Court the power to simply ignore the limitions placed by 28 U.S. C. 1257 on our jurisdiction to review final judgments of the highest court of a Ste. Th jurisdiction permits review in this Court by appeal where a ste stute has been upheld against a federal constitutional challenge, or by writ of certiorari where a federal constitutional challenge is "specifically set up or claimed" in ste court. Our prior cases establish th we will "not decide federal constitutional issues raised here for the first time on review of ste court decisions." See Since the Supreme Court of New Hampshire was not presented with a federal constitutional challenge to the sufficiency of the evidence, resolution of this question by the Court is inconsistent with the congressional limition on our *484 jurisdiction to review the final judgment of the highest court of a Ste. II Even if appellant's sufficiency-of-the-evidence contention in the Supreme Court of New Hampshire could be said to have been presented |
Justice Rehnquist | 1,974 | 19 | dissenting | Vachon v. New Hampshire | https://www.courtlistener.com/opinion/108905/vachon-v-new-hampshire/ | of New Hampshire could be said to have been presented as a federal constitutional claim based on I would nonetheless be unable to join in the Court's disposition of it. In Thompson, the only ste court proceedings reaching the merits of the case were in the Louisville Police Court from which there was no right of appeal to any higher ste court, and there was therefore no ste court opinion written which construed the stute under which Thompson was convicted. This Court therefore had no choice but to engage in its own construction of the stute and upon doing so it concluded th the record was "entirely lacking in evidence to support any of the charges." Thompson was obviously an extraordinary case, and up until now has been saved for extraordinary situions; it has not heretofore been broadened so as to make lack of evidentiary support for only one of several elements of an offense a constitutional infirmity in a ste conviction. Here, however, the Supreme Court of New Hampshire construed the ste stute defining contributing to the delinquency of a minor, and held th the evidence adduced the trial was sufficient to support a finding on each element of th offense. While the Supreme Court of New Hampshire did say, as the Court indices, th the Ste was required to prove th the accused acted " `voluntarily and intentionally and not because of mistake or accident or other innocent reason,' " 113 N. H., it said this in a context of several paragraphs of trement of the elements of the offense. Just as those reading and relying upon our opinions would *485 be ill-advised to seize one phrase out of context, I think we are ill-advised to so tre the opinion of the Supreme Court of New Hampshire. Th court had several observions to make about the stutory offense which bear on the issue of "wilfulness" upon which this Court focuses: "It is uncontested th the defendant was in control of the premises where the sale was made. There was evidence th a girl friend of this minor had previously purchased there a pin `like th.' These pins were displayed on a card on a counter. The trial court saw the minor and had an opportunity to conclude whether her minority should have been apparent to whoever sold the pin. The court could find th the defendant was aware of the character of the pins which were being offered for sale and sold in his establishment. "Defendant is charged with wilfully contributing to the delinquency of a minor by |
Justice Rehnquist | 1,974 | 19 | dissenting | Vachon v. New Hampshire | https://www.courtlistener.com/opinion/108905/vachon-v-new-hampshire/ | with wilfully contributing to the delinquency of a minor by selling or causing to be sold to her the button in question. To act wilfully is `to act voluntarily and intentionally and not because of mistake or accident or other innocent reason.' [Citions omitted.] The trial court could properly find and rule th the sale of this button to the minor was intentional. The trial court could further conclude th the seller of this type of button should have realized th it would tend to be harmful to the morals of the purchaser or others. R. S. A. 169:32 (Supp. 1972). This would warrant a finding and ruling th the defendant wilfully contributed to the delinquency of this minor as charged in the complaint. [Citions omitted.]" The Court simply casts aside this authoritive construction of New Hampshire law, seizes one phrase out *486 of context, and concludes th there was no evidence to establish th the appellant "[knew] the girl to be a minor, personally sold her the button, or personally caused another to sell it to her." The word "personally" is the contribution of this Court to the New Hampshire stute; it is not contained in the stute, and is not once used by the Supreme Court of New Hampshire in its opinion dealing with the facts of this very case. Indeed, the entire thrust of the opinion of the Supreme Court of New Hampshire is th appellant need not personally have sold the button to the minor nor personally have authorized its sale to a minor in order to be guilty of the stutory offense. The only fair reading of the above-quoted language from the Supreme Court of New Hampshire is th the word "wilfully" in the stute does not mean "personally," and the facts th the appellant controlled and opered the shop, th the same type of pin had been previously purchased the shop, and th the pins were prominently offered for sale were sufficient evidence on the issue of willfulness. This may seem to us a somewh broad construction of the language "wilfully" or "knowingly," though our own cases make it clear th we are dealing with words which may be given a variety of meanings by their context: "The difference between willful failure to pay a tax when due, which is made a misdemeanor, and willful tempt to defe and evade one, which is made a felony, is not easy to detect or define. Both must be willful, and willful, as we have said, is a word of many meanings, its construction often being influenced |
Justice Rehnquist | 1,974 | 19 | dissenting | Vachon v. New Hampshire | https://www.courtlistener.com/opinion/108905/vachon-v-new-hampshire/ | a word of many meanings, its construction often being influenced by its context. United Stes v. Murdock, It may well mean something more as applied to nonpayment of a tax than when applied to failure to make a return. Mere voluntary and *487 purposeful, as distinguished from accidental, omission to make a timely return might meet the test of willfulness." Spies v. United Stes, But since our authority to review ste court convictions is limited to the vindicion of claims of federal rights, we must take the meaning of the stute, and of the words "wilfully" and "knowingly" which it uses, as given to us by the Supreme Court of New Hampshire. I would have thought such a proposition well settled by our prior decisions: "We of course are bound by a Ste's interpretion of its own stute and will not substitute our judgment for th of the Ste's when it becomes necessary to analyze the evidence for the purpose of determining whether th evidence supports the findings of a ste court." We do have constitutional authority in approprie cases to hold th the Ste's construction of its stute is such th the stutory language did not give a criminal defendant fair warning of the conduct which is construed to be embraced within it. ; But this is a far cry from our own rewriting of a ste stute in order to make it require a highly specific intent, and then turning around and saying th there was no evidence before the ste courts to prove the kind of intent which we have said the stute requires. I would least note probable jurisdiction over the appeal and set the case for oral argument. Since the Court instead chooses, without ever having heard argument, to rewrite the New Hampshire stute and substitute its interpretion for th of the Supreme Court of New Hampshire. I dissent. |
Justice Scalia | 2,003 | 9 | majority | Jinks v. Richland County | https://www.courtlistener.com/opinion/127912/jinks-v-richland-county/ | The Supreme Court of South Carolina dismissed petitioner's lawsuit against Richland County (hereinafter respondent) as time barred. In doing so it held that 28 U.S. C. 1367(d), which required the state statute of limitations to be tolled for the period during which petitioner's cause of action had previously been pending in federal court, is unconstitutional as applied to lawsuits brought against a State's political subdivisions. The issue before us is the validity of that constitutional determination. I A When a federal district court has original jurisdiction over a civil cause of action, 1367 determines whether it may exercise supplemental jurisdiction over other claims that do not independently come within its jurisdiction, but that form part of the same Article III "case or controversy." Section 1367(a) provides: "Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such *459 supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties." As the introductory clause suggests, not every claim within the same "case or controversy" as the claim within the federal courts' original jurisdiction will be decided by the federal court; 1367(b) and (c) describe situations in which a federal court may or must decline to exercise supplemental jurisdiction. Section 1367(c), for example, states: "The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if "(1) the claim raises a novel or complex issue of State law, "(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction, "(3) the district court has dismissed all claims over which it has original jurisdiction, or "(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction." Thus, some claims asserted under 1367(a) will be dismissed because the district court declines to exercise jurisdiction over them and, if they are to be pursued, must be refiled in state court. To prevent the limitations period on such supplemental claims from expiring while the plaintiff was fruitlessly pursuing them in federal court, 1367(d) provides a tolling rule that must be applied by state courts: "The period of limitations for any claim asserted under subsection (a), and for any other claim in the same action that is voluntarily dismissed at the |
Justice Scalia | 2,003 | 9 | majority | Jinks v. Richland County | https://www.courtlistener.com/opinion/127912/jinks-v-richland-county/ | in the same action that is voluntarily dismissed at the same time as or after the dismissal of the claim under subsection (a), shall be tolled while the claim is pending and for a period of 30 days after it is dismissed unless State law provides for a longer tolling period." *460 B On October 14, 1994, Carl H. Jinks was arrested and jailed for failure to pay child support. Four days later, while confined at respondent's detention center, he died of complications associated with alcohol withdrawal. In 1996, within the applicable statute of limitations, petitioner Susan Jinks, Carl Jinks's widow, brought an action in the United States District Court for the District of South Carolina against respondent, its detention center director, and its detention center physician. She asserted a cause of action under Rev. Stat. 1979, 42 U.S. C. 1983, and also supplemental claims for wrongful death and survival under the South Carolina Tort Claims Act. See S. C. Code Ann. 15-78-10 et seq. On November 20, 1997, the District Court granted the defendants' motion for summary judgment on the 1983 claim, and two weeks later issued an order declining to exercise jurisdiction over the remaining state-law claims, dismissing them without prejudice pursuant to 28 U.S. C. 1367(c)(3). On December 18, 1997, petitioner filed her wrongful-death and survival claims in state court. After the jury returned a verdict of $80,000 against respondent on the wrongful-death claim, respondent appealed to the South Carolina Supreme Court, which reversed on the ground that petitioner's state-law claims were time barred. Although they would not have been time barred under 1367(d)'s tolling rule, the State Supreme Court held that 1367(d) was unconstitutional as applied to claims brought in state court against a State's political subdivisions, because it "interferes with the State's sovereign authority to establish the extent to which its political subdivisions are subject to suit." 349 S. C. 298, 304, We granted certiorari, *461 II A Respondent and its amici first contend that 1367(d) is facially invalid because it exceeds the enumerated powers of Congress. We disagree. Although the Constitution does not expressly empower Congress to toll limitations periods for state-law claims brought in state court, it does give Congress the authority "[t]o make all Laws which shall be necessary and proper for carrying into Execution [Congress's Article I, 8,] Powers and all other Powers vested by this Constitution in the Government of the United States" Art. I, 8, cl. 18. The enactment of 1367(d) was not the first time Congress prescribed the alteration of a state-law limitations period;[1] nor is this the |
Justice Scalia | 2,003 | 9 | majority | Jinks v. Richland County | https://www.courtlistener.com/opinion/127912/jinks-v-richland-county/ | alteration of a state-law limitations period;[1] nor is this the first case in which we have ruled on its authority to do so. In Stewart v. 11 Wall. *462 493 (1871), we upheld as constitutional a federal statute that tolled limitations periods for state-law civil and criminal cases for the time during which actions could not be prosecuted because of the Civil War. We reasoned that this law was both necessary and proper to carrying into effect the Federal Government's war powers, because it "remed[ied] the evils" that had arisen from the war. "It would be a strange result if those in rebellion, by protracting the conflict, could thus rid themselves of their debts, and Congress, which had the power to wage war and suppress the insurrection, had no power to remedy such an evil, which is one of its consequences." Of course 1367(d) has nothing to do with the war power. We agree with petitioner and intervenor United States, however, that 1367(d) is necessary and proper for carrying into execution Congress's power "[t]o constitute Tribunals inferior to the supreme Court," U.S. Const., Art. I, 8, cl. 9, and to assure that those tribunals may fairly and efficiently exercise "[t]he judicial Power of the United States," Art. III, 1. As to "necessity": The federal courts can assuredly exist and function in the absence of 1367(d), but we long ago rejected the view that the Necessary and Proper Clause demands that an Act of Congress be "`absolutely necessary'" to the exercise of an enumerated power. See Rather, it suffices that 1367(d) is "conducive to the due administration of justice" in federal court,[2] and is "plainly adapted" to that end, Section 1367(d) is conducive to the administration of justice because it provides an alternative to the unsatisfactory options that federal judges faced when they decided whether to retain jurisdiction over supplemental state-law claims that might be time barred in state court. In the pre- 1367(d) world, they had three basic choices: *463 First, they could condition dismissal of the state-law claim on the defendant's waiver of any statute-of-limitations defense in state court. See, e. g., ; Financial General Bankshares, That waiver could be refused, however, in which case one of the remaining two choices would have to be pursued. Second, they could retain jurisdiction over the state-law claim even though it would more appropriately be heard in state court. See That would produce an obvious frustration of statutory policy. And third, they could dismiss the state-law claim but allow the plaintiff to reopen the federal case if the state court later held |
Justice Scalia | 2,003 | 9 | majority | Jinks v. Richland County | https://www.courtlistener.com/opinion/127912/jinks-v-richland-county/ | reopen the federal case if the state court later held the claim to be time barred. See, e. g., That was obviously inefficient. By providing a straightforward tolling rule in place of this regime, 1367(d) unquestionably promotes fair and efficient operation of the federal courts and is therefore conducive to the administration of justice. And it is conducive to the administration of justice for another reason: It eliminates a serious impediment to access to the federal courts on the part of plaintiffs pursuing federal-and state-law claims that "derive from a common nucleus of operative fact," Mine Prior to enactment of 1367(d), they had the following unattractive options: (1) They could file a single federal-court action, which would run the risk that the federal court would dismiss the state-law claims after the limitations period had expired; (2) they could file a single state-law action, which would abandon their right to a federal forum; (3) they could file separate, timely actions in federal and state court and ask that the state-court litigation be stayed pending resolution of the federal case, which would increase litigation costs with no guarantee that the state court would oblige. Section 1367(d) replaces this selection of inadequate choices *464 with the assurance that state-law claims asserted under 1367(a) will not become time barred while pending in federal court. We are also persuaded, and respondent does not deny, that 1367(d) is "plainly adapted" to the power of Congress to establish the lower federal courts and provide for the fair and efficient exercise of their Article III powers. There is no suggestion by either of the parties that Congress enacted 1367(d) as a "pretext" for "the accomplishment of objects not entrusted to the [federal] government," nor is the connection between 1367(d) and Congress's authority over the federal courts so attenuated as to undermine the enumeration of powers set forth in Article I, 8, cf. United ; United Respondent and its amici further contend, however, that 1367(d) is not a "proper" exercise of Congress's Article I powers because it violates principles of state sovereignty. See Respondent views 1367(d)'s tolling rule as a regulation of state-court "procedure," and contends that Congress may not, consistent with the Constitution, prescribe procedural rules for state courts' adjudication of purely state-law claims. See, e. g., Bellia, Federal Regulation of State Court Procedures, 110 Yale L. J. 947 (2001); Congressional Authority to Require State Courts to Use Certain Procedures in Products Liability Cases, 13 Op. Off. Legal Counsel 372, 373-374 (1989) (stating that "potential constitutional questions" arise when Congress "attempts to prescribe directly the state court procedures |
Justice Scalia | 2,003 | 9 | majority | Jinks v. Richland County | https://www.courtlistener.com/opinion/127912/jinks-v-richland-county/ | when Congress "attempts to prescribe directly the state court procedures to be followed in products liability cases"). Assuming for the sake of argument that a principled dichotomy can be drawn, for purposes of determining whether an Act of Congress is "proper," between federal laws that regulate state-court "procedure" and laws that change the "substance" of state-law rights of action, we do not think that *465 state-law limitations periods fall into the category of "procedure" immune from congressional regulation. Respondent's reliance on Sun Oil which held a state statute of limitations to be "procedural" for purposes of the Full Faith and Credit Clause, is misplaced. As we noted in that very case, the meaning of "`substance'" and "`procedure'" in a particular context is "largely determined by the purposes for which the dichotomy is drawn." For purposes of Erie R. for example, statutes of limitations are treated as substantive. Guaranty Trust Stewart v. -507, provides ample support for the proposition that if the substance-procedure dichotomy posited by respondent is valid the tolling of limitations periods falls on the "substantive" side of the line. To sustain 1367(d) in this case, we need not (and do not) hold that Congress has unlimited power to regulate practice and procedure in state courts. We therefore reject respondent's contention that 1367(d) is facially unconstitutional. B Respondent next maintains that 1367(d) should not be interpreted to apply to claims brought against a State's political subdivisions. We find this contention also to be without merit. The South Carolina Tort Claims Act, S. C. Code Ann. 15-78-10 et seq. confers upon respondent an immunity from tort liability for any claim brought more than two years after the injury was or should have been discovered. In respondent's view, 1367(d)'s extension of the time period in which a State's political subdivisions may be sued constitutes an impermissible abrogation of "sovereign immunity." That is not so. Although we have held that Congress lacks authority under Article I to override a State's immunity from suit in its own courts, see it may subject a municipality to suit in state court if that is done pursuant to a valid exercise of its enumerated powers, see Section 1367(d) tolls the limitations period with respect to state-law causes of action brought against municipalities, but we see no reason why that represents a greater intrusion on "state sovereignty" than the undisputed power of Congress to override state-law immunity when subjecting a municipality to suit under a federal cause of action. In either case, a State's authority to set the conditions upon which its political subdivisions are |
Justice Scalia | 2,003 | 9 | majority | Jinks v. Richland County | https://www.courtlistener.com/opinion/127912/jinks-v-richland-county/ | to set the conditions upon which its political subdivisions are subject to suit in its own courts must yield to the enactments of Congress. This is not an encroachment on "state sovereignty," but merely the consequence of those cases (which respondent does not ask us to overrule) which hold that municipalities, unlike States, do not enjoy a constitutionally protected immunity from suit. Nor do we see any reason to construe 1367(d) not to apply to claims brought against a State's political subdivisions absent an "unmistakably clear" statement of the statute's applicability to such claims. Although we held in that 1367(d) does not apply to claims filed in federal court against States but subsequently dismissed on sovereign immunity grounds, we did so to avoid interpreting the statute in a manner that would raise "serious constitutional doubt" in light of our decisions protecting a State's sovereign immunity from congressional abrogation, As we have just explained, however, no such constitutional doubt arises from holding that petitioner's claim against respondent which is not a State, but a political subdivision of a State falls under the definition of "any claim asserted under subsection (a)." 1367(d) (emphasis added). In any event, the idea that an "unmistakably clear" statement is required before an Act of Congress may expose a local government to liability cannot possibly be reconciled with our holding in that municipalities are subject to suit as "persons" under 1983. * * * The judgment of the Supreme Court of South Carolina is reversed, and the case is remanded for further proceedings not inconsistent with this opinion. It is so ordered. |
per_curiam | 1,976 | 200 | per_curiam | United States v. Pomponio | https://www.courtlistener.com/opinion/109549/united-states-v-pomponio/ | After a jury trial, respondents were convicted of willfully filing false income tax returns in violation of 26 U.S. C. 7206 (1).[1] Based on its reading of United the Court of Appeals held that the jury was incorrectly instructed concerning willfulness, and remanded for a new trial. The United States petitioned for certiorari. We reverse. The respondents were charged with falsifying tax returns in two principal ways: (1) they allegedly caused corporations they controlled to report payments to them as loans, when they knew the payments were really taxable dividends; and (2) they allegedly claimed losses as deductions knowing that the losses were properly attributable to *11 a corporation. Their defense was that these transactions were correctly reported, or at least that they thought so at the time. The jury was instructed that respondents were not guilty of violating 7206 (1) unless they had signed the tax returns knowing them to be false,[2] and had done so willfully. A willful act was defined in the instructions as one done "voluntarily and intentionally and with the specific intent to do something which the law forbids, that is to say with [the] bad purpose either to disobey or to disregard the law." Finally, the jury was instructed that "[g]ood motive alone is never a defense where the act done or omitted is a crime," and that consequently motive was irrelevant except as it bore on intent. The Court of Appeals held this final instruction improper because "the statute at hand requires a finding of a bad purpose or evil motive." In so holding, the Court of Appeals incorrectly assumed that the reference to an "evil motive" in United and prior cases meant something more than the specific intent to violate the law described in the trial judge's instruction. *12 In we held that the term "willfully" has the same meaning in the misdemeanor and felony sections of the Revenue Code, and that it requires more than a showing of careless disregard for the truth.[3] We did not, however, hold that the term requires proof of any motive other than an intentional violation of a known legal duty. We explained the meaning of willfulness in 7206 and related statutes: "The Court, in fact, has recognized that the word `willfully' in these statutes generally connotes a voluntary, intentional violation of a known legal duty. It has formulated the requirement of willfulness as `bad faith or evil intent,' [United States v.] Murdock, 290 U. S. [389,] 398, or `evil motive and want of justification in view of all the financial circumstances of the tax-payer,' Spies |
per_curiam | 1,976 | 200 | per_curiam | United States v. Pomponio | https://www.courtlistener.com/opinion/109549/united-states-v-pomponio/ | view of all the financial circumstances of the tax-payer,' Spies [v. United States], 317 U. S. [492,] 498, or knowledge that the taxpayer `should have reported more income than he did.' Sansone [v. United States], 380 U. S. [343,] 353. See ;" Our references to other formulations of the standard did not modify the standard set forth in the first sentence of the quoted paragraph. On the contrary, as the other Courts of Appeals that have considered the question have recognized, willfulness in this context simply means a voluntary, intentional violation of a known legal duty. United cert. denied, ; United (CA7) cert. denied, ; United (CA3), cert. denied, ; United (CA9), cert. denied, The trial judge in the instant case adequately instructed the jury on willfulness. An additional instruction on good faith was unnecessary. As an alternative ground for ordering a new trial, the Court of Appeals held that respondents were entitled to instructions exonerating them if they believed that the payments to them were loans and that the losses belonged to the Our inspection of the record indicates that such instructions were given and that they were adequate.[4] The respondents' other allegations of error which the Court of Appeals found it unnecessary to reach should be considered by that court in the first instance. The petition for certiorari is granted, the judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion. It is so ordered. |
Justice Powell | 1,984 | 17 | majority | Armco Inc. v. Hardesty | https://www.courtlistener.com/opinion/111213/armco-inc-v-hardesty/ | In this appeal an Ohio corporation claims that West Virginia's wholesale gross receipts tax, from which local manufacturers are exempt, unconstitutionally discriminates against interstate commerce. We agree and reverse the state court's judgment upholding the tax. I Appellant Armco Inc. is an Ohio corporation qualified to do business in West Virginia. Its primary business is manufacturing and selling steel products. From 1970 through 1975, the time at issue here, Armco conducted business in West Virginia through five divisions or subdivisions. Two of these had facilities and employees in the State, while the other *640 three sold various products to customers in the State only through franchisees or nonresident traveling salesmen.[1] West Virginia imposes a gross receipts tax on persons engaged in the business of selling tangible property at wholesale. -2c[2] For the years 1970 through 1975 Armco took the position that the gross receipts tax could not be imposed on the sales it made through franchisees and nonresident salesmen. In addition, because local manufactures were exempt from the tax, see 11-13-2,[3] Armco argued that the tax discriminated against interstate *641 commerce. After a hearing, the State Tax Commissioner, who is appellee here, determined that the tax was properly assessed on the sales at issue, and that Armco had not shown the tax was discriminatory.[4] The Circuit Court of Kanawha County reversed, holding that the nexus between the sales and the State was insufficient to support imposition of the tax. The West Virginia Supreme Court of Appeals reversed the Circuit Court and upheld the tax. W. Va. Viewing all of Armco's activities in the State as a "unitary business," the court held that the taxpayer had a substantial nexus with the State and that the taxpayer's total tax was fairly related to the services and benefits provided to Armco by the State. at 303 S. E. 2d, at 714, 716. It also held that the tax did not discriminate against interstate commerce; while local manufacturers making sales in the State were exempt from the gross receipts tax, they paid a much higher manufacturing tax.[5] at 303 S. E. 2d, at 716-717. We noted probable jurisdiction, and now reverse. Since we hold that West Virginia's tax does discriminate unconstitutionally against interstate commerce, we do not reach Armco's argument that there was not a sufficient nexus between the State and the sales at issue here to permit taxation of them. *642 II It long has been established that the Commerce Clause of its own force protects free trade among the States. Boston Stock ; One aspect of this protection is that a State |
Justice Powell | 1,984 | 17 | majority | Armco Inc. v. Hardesty | https://www.courtlistener.com/opinion/111213/armco-inc-v-hardesty/ | ; One aspect of this protection is that a State "may not discriminate between transactions on the basis of some interstate element." Boston Stock That is, a State may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State. On its face, the gross receipts tax at issue here appears to have just this effect. The tax provides that two companies selling tangible property at wholesale in West Virginia will be treated differently depending on whether the taxpayer conducts manufacturing in the State or out of it. Thus, if the property was manufactured in the State, no tax on the sale is imposed. If the property was manufactured out of the State and imported for sale, a tax of 0.27% is imposed on the sale price. See General Motors (similar provision in Washington, "on its face, discriminated against interstate wholesale sales to Washington purchasers for it exempted the intrastate sales of locally made products while taxing the competing sales of interstate sellers"); Columbia Steel The court below was of the view that no such discrimination in favor of local, intrastate commerce occurred because taxpayers manufacturing in the State were subject to a far higher tax of 0.88% of the sale price. This view is mistaken. The gross sales tax imposed on Armco cannot be deemed a "compensating tax" for the manufacturing tax imposed on its West Virginia competitors. In the Court refused to consider a tax on the first use in Louisiana of gas brought in from out of *643 State to be a complement of a severance tax in the same amount imposed on gas produced in the State. Severance and first use or processing were not "substantially equivalent event[s]" on which compensating taxes might be imposed. Here, too, manufacturing and wholesaling are not "substantially equivalent events" such that the heavy tax on in-state manufacturers can be said to compensate for the admittedly lighter burden placed on wholesalers from out of State. Manufacturing frequently entails selling in the State, but we cannot say which portion of the manufacturing tax is attributable to manufacturing, and which portion to sales.[6] The fact that the manufacturing tax is not reduced when a West Virginia manufacturer sells its goods out of State, and that it is reduced when part of the manufacturing takes place out of State, makes clear that the manufacturing tax is just that, and not in part a proxy for the gross receipts tax imposed on Armco and other sellers from other States.[7] *644 Moreover, when the two taxes |
Justice Powell | 1,984 | 17 | majority | Armco Inc. v. Hardesty | https://www.courtlistener.com/opinion/111213/armco-inc-v-hardesty/ | sellers from other States.[7] *644 Moreover, when the two taxes are considered together, discrimination against interstate commerce persists. If Ohio or any of the other 48 States imposes a like tax on its manufacturers which they have every right to do then Armco and others from out of State will pay both a manufacturing tax and a wholesale tax while sellers resident in West Virginia will pay only the manufacturing tax. For example, if Ohio were to adopt the precise scheme here, then an interstate seller would pay the manufacturing tax of 0.88% and the gross receipts tax of 0.27%; a purely intrastate seller would pay only the manufacturing tax of 0.88% and would be exempt from the gross receipts tax. Appellee suggests that we should require Armco to prove actual discriminatory impact on it by pointing to a State that imposes a manufacturing tax that results in a total burden higher than that imposed on Armco's competitors in West Virginia. This is not the test. In Container Corp. of the Court noted that a tax must have "what might be called internal consistency that is the [tax] must be such that, if applied by every jurisdiction," there would be no impermissible interference with free trade. In that case, the Court was discussing the requirement that a tax be fairly apportioned to reflect the business conducted in the State. A similar rule applies where the allegation is that a tax on its face discriminates against interstate commerce. A tax that unfairly apportions income from other States is a form of discrimination against interstate commerce. See also Any other rule would mean that the constitutionality of West Virginia's *645 tax laws would depend on the shifting complexities of the tax codes of 49 other States, and that the validity of the taxes imposed on each taxpayer would depend on the particular other States in which it operated.[8] It is true, as the State of Washington appearing as amicus curiae points out, that Armco would be faced with the same situation that it complains of here if Ohio (or some other State) imposed a tax only upon manufacturing, while West Virginia imposed a tax only upon wholesaling. In that situation, Armco would bear two taxes, while West Virginia sellers would bear only one. But such a result would not arise from impermissible discrimination against interstate commerce but from fair encouragement of in-state business. What we said in Boston Stock -337, is relevant here as well: "Our decision today does not prevent the States from structuring their tax systems to |
Justice Rehnquist | 1,997 | 19 | majority | United States v. Hyde | https://www.courtlistener.com/opinion/118114/united-states-v-hyde/ | Rule 32(e) of the Federal Rules of Criminal Procedure states that a district court may allow a defendant to withdraw his guilty plea before he is sentenced "if the defendant shows any fair and just reason." After the defendant in this case pleaded guilty, pursuant to a plea agreement, the District Court accepted his plea but deferred decision on whether to accept the plea agreement. The defendant then sought to withdraw his We hold that in such circumstances a defendant may not withdraw his plea unless he shows a "fair and just reason" under Rule 32(e). A federal grand jury indicted respondent Robert Hyde on eight counts of mail fraud, wire fraud, and other fraudrelated crimes. On the morning of his trial, respondent indicated his desire to enter plea negotiations with the Government. Those negotiations produced a plea agreement *672 in which respondent agreed to plead guilty to four of the counts. In exchange, the Government agreed to move to dismiss the remaining four counts and not to bring further charges against respondent for other allegedly fraudulent conduct. That afternoon, the parties appeared again before the District Court and submitted the plea agreement to the court, along with respondent's "application for permission to enter [a] plea of guilty." After placing respondent under oath, the court questioned him extensively to ensure that his plea was knowing and voluntary, and that he understood the consequences of pleading guilty, including the possibility of a maximum sentence of 30 years. The court asked respondent what he had done, and respondent admitted committing the crimes set out in the four counts. The court then asked the Government to set out what it was prepared to prove, and the Government did so. The court asked respondent whether he was pleading guilty because he was in fact guilty of the crimes set out in the four counts. Respondent said that he was. Finally, the court asked respondent how he pleaded to each count, and respondent stated "guilty." The District Court concluded that respondent was pleading guilty knowingly, voluntarily, and intelligently, and that there was a factual basis for the The court therefore stated that it was accepting respondent's guilty It also stated that it was deferring decision on whether to accept the plea agreement, pending completion of the presentence report. One month later, before sentencing and the District Court's decision about whether to accept the plea agreement, respondent filed a motion to withdraw his guilty His motion alleged that he had pleaded guilty under duress from the Government and that his admissions to the District Court had |
Justice Rehnquist | 1,997 | 19 | majority | United States v. Hyde | https://www.courtlistener.com/opinion/118114/united-states-v-hyde/ | Government and that his admissions to the District Court had in fact been false. After holding an evidentiary hearing, the court concluded that there was no evidence to support respondent's claim of duress, and that respondent *673 had not provided a "fair and just reason" for withdrawing his guilty plea, as required by Rule 32(e). The court therefore refused to let respondent withdraw his guilty The court then accepted the plea agreement, entered judgment against respondent on the first four counts, dismissed the indictment's remaining four counts on the Government's motion, and sentenced respondent to a prison term of 2[1]20442 years. The Court of Appeals for the Ninth Circuit reversed, holding that respondent had an absolute right to withdraw his guilty plea before the District Court accepted the plea agreement. The court reasoned as follows: First, before a district court has accepted a defendant's guilty plea, the defendant has an absolute right to withdraw that at 780 ). Second, the guilty plea and the plea agreement are "`inextricably bound up together,' " such that the court's deferral of the decision whether to accept the plea agreement also constitutes an automatic deferral of its decision whether to accept the guilty plea, even if the court explicitly states that it is accepting the guilty ). Combining these two propositions, the Court of Appeals held that "[i]f the court defers acceptance of the plea or of the plea agreement, the defendant may withdraw his plea for any reason or for no reason, until the time that the court does accept both the plea and the agreement." 92 F.3d, at The Courts of Appeals for the Fourth and Seventh Circuits have reached the opposite conclusion on this issue. United ; United We granted certiorari to resolve the conflict, and now reverse. To understand why we hold that Rule 32(e) governs here, we must go back to Rule 11, the principal provision in the Federal Rules of Criminal Procedure dealing with the subject *674 of guilty pleas and plea agreements. The Court of Appeals equated acceptance of the guilty plea with acceptance of the plea agreement, and deferral of the plea agreement with deferral of the guilty Nothing in the text of Rule 11 supports these conclusions. In fact, the text shows that the opposite is true: Guilty pleas can be accepted while plea agreements are deferred, and the acceptance of the two can be separated in time. The prerequisites to accepting a guilty plea are set out in subdivisions (c) and (d) of Rule 11. Subdivision (c) says: "Before accepting a plea of guilty |
Justice Rehnquist | 1,997 | 19 | majority | United States v. Hyde | https://www.courtlistener.com/opinion/118114/united-states-v-hyde/ | 11. Subdivision (c) says: "Before accepting a plea of guilty the court must address the defendant personally in open court and inform the defendant of, and determine that the defendant understands," numerous consequences of pleading guilty. For example, the court must ensure the defendant understands the maximum possible penalty that he may face by pleading guilty, Rule 11(c)(1), and the important constitutional rights he is waiving, including the right to a trial, Rules 11(c)(3), (4). Subdivision (d) says: "The court shall not accept a plea of guilty without first, by addressing the defendant personally in open court, determining that the plea is voluntary."[1] The opening words of these two subdivisions are important: Together, they speak of steps a district court must take "[b]efore accepting a plea of guilty," and without which it "shall not accept a plea of guilty." Based on this language, we conclude that once the court has taken these steps, it may, in its discretion, accept a defendant's guilty The Court of Appeals would read an additional prerequisite into this list: A district court shall not accept a plea of guilty without first accepting the plea agreement. But that "prerequisite" is absent from the list set out in subdivisions (c) and (d), strongly suggesting that no such addition is warranted. *675 Subdivision (e), which covers plea agreements, also contradicts the Court of Appeals' holding. That subdivision divides plea agreements into three types, based on what the Government agrees to do: In type A agreements, the Government agrees to move for dismissal of other charges; in type B, it agrees to recommend (or not oppose the defendant's request for) a particular sentence; and in type C, it agrees that the defendant should receive a specific sentence. As to type A and type C agreements, the Rule states that "the court may accept or reject the agreement, or may defer its decision as to the acceptance or rejection until there has been an opportunity to consider the presentence report."[2] Rule 11(e)(2). The plea agreement in this case is a type A agreement: The Government agreed to move to dismiss four counts, did not agree to recommend a particular sentence, and did not agree that a specific sentence was the appropriate disposition. The District Court deferred its decision about whether to accept or reject the agreement. If the court had decided to reject the plea agreement, it would have turned to subdivision (e)(4) of Rule 11. That subdivision, a critical one for our purposes, provides: "If the court rejects the plea agreement, the court shall. advise the defendant personally that |
Justice Rehnquist | 1,997 | 19 | majority | United States v. Hyde | https://www.courtlistener.com/opinion/118114/united-states-v-hyde/ | plea agreement, the court shall. advise the defendant personally that the court is not bound by the plea agreement, afford the defendant the opportunity to then withdraw the plea, and advise the defendant that if the defendant persists in a guilty plea the disposition of the case may be less favorable to the defendant than that contemplated by the plea agreement." Rule 11(e)(4) (emphasis added). *676 Thus, if the court rejects the agreement, the defendant can "then" withdraw his plea for any reason and does not have to comply with Rule 32(e)'s "fair and just reason" requirement. This provision implements the commonsense notion that a defendant can no longer be bound by an agreement that the court has refused to sanction. Under the Court of Appeals' holding, however, the defendant can withdraw his plea "for any reason or for no reason" even if the district court does not reject the plea agreement, but merely defers decision on it. Thus, for the Court of Appeals, the rejection of the plea agreement has no significance: Before rejection, the defendant is free to withdraw his plea; after rejection, the same is true. But the text of Rule 11(e)(4) gives the rejection of the agreement a great deal of significance. Only "then" is the defendant granted "the opportunity" to withdraw his The necessary implication of this provision is that if the court has neither rejected nor accepted the agreement, the defendant is not granted "the opportunity to then withdraw" his The Court of Appeals' holding contradicts this implication, and thus strips subdivision (e)(4) of any meaning. Not only is the Court of Appeals' holding contradicted by the very language of the Rules, it also debases the judicial proceeding at which a defendant pleads and the court accepts his After the defendant has sworn in open court that he actually committed the crimes, after he has stated that he is pleading guilty because he is guilty, after the court has found a factual basis for the plea, and after the court has explicitly announced that it accepts the plea, the Court of Appeals would allow the defendant to withdraw his guilty plea simply on a lark. The Advisory Committee, in adding the "fair and just reason" standard to Rule 32(e) in 1983, explained why this cannot be so: "Given the great care with which pleas are taken under [the] revised Rule 11, there is no reason to view pleas so taken as merely `tentative,' subject to withdrawal before *677 sentence whenever the government cannot establish prejudice. `Were withdrawal automatic in every case where the defendant |
Justice Rehnquist | 1,997 | 19 | majority | United States v. Hyde | https://www.courtlistener.com/opinion/118114/united-states-v-hyde/ | prejudice. `Were withdrawal automatic in every case where the defendant decided to alter his tactics and present his theory of the case to the jury, the guilty plea would become a mere gesture, a temporary and meaningless formality reversible at the defendant's whim. In fact, however, a guilty plea is no such trifle, but a "grave and solemn act," which is "accepted only with care and discernment."` " Advisory Committee's Notes on Fed. Rule Crim. Proc. 32, 18 U.S. C. App., p. 794 in turn quoting ). We think the Court of Appeals' holding would degrade the otherwise serious act of pleading guilty into something akin to a move in a game of chess. The basis for the Court of Appeals' decision was its prior statement in Cordova-Perez that "[t]he plea agreement and the [guilty] plea are inextricably bound up together." 65 F.3d, at This statement, on its own, is not necessarily incorrect. The guilty plea and the plea agreement are "bound up together" in the sense that a rejection of the agreement simultaneously frees the defendant from his commitment to plead guilty. See Rule 11(e)(4). And since the guilty plea is but one side of the plea agreement, the plea is obviously not wholly independent of the agreement. But the Rules nowhere state that the guilty plea and the plea agreement must be treated identically. Instead, they explicitly envision a situation in which the defendant performs his side of the bargain (the guilty plea) before the Government is required to perform its side (here, the motion to dismiss four counts). If the court accepts the agreement and thus the Government's promised performance, then the contemplated agreement is complete and the defendant gets the benefit of his bargain. But if the court rejects the Government's *678 promised performance, then the agreement is terminated and the defendant has the right to back out of his promised performance (the guilty plea), just as a binding contractual duty may be extinguished by the nonoccurrence of a condition subsequent. See J. Calamari & J. Perillo, Law of Contracts 11-7, p. 441 (3d ed. 1987); 3A A. Corbin, Corbin on Contracts 628, p. 17 (1960).[3] If the Court of Appeals' holding were correct, it would also be difficult to see what purpose Rule 32(e) would serve. Since 1983, that Rule has provided: "If a motion to withdraw a plea of guilty is made before sentence is imposed, the court may permit the plea to be withdrawn if the defendant shows any fair and just reason." Under the Court of Appeals' holding, the "fair and just |
Justice Rehnquist | 1,997 | 19 | majority | United States v. Hyde | https://www.courtlistener.com/opinion/118114/united-states-v-hyde/ | Under the Court of Appeals' holding, the "fair and just reason" standard would only be applicable between the time that the plea agreement is accepted and the sentence is imposed. Since the decision whether to accept the plea agreement will often be deferred until the sentencing hearing, see Rule 11(e)(2); USSG 6B1.1(c), at which time the presentence report will have been submitted to the parties, objected to, revised, and filed with the court, see Fed. Rule Crim. Proc. 32(b)(6), the decision whether to accept the plea agreement will often be made at the same time that the defendant is sentenced. This leaves little, if any, time in which the "fair and just *679 reason" standard would actually apply. We see no indication in the Rules to suggest that Rule 32(e) can be eviscerated in this manner, and the Court of Appeals did not point to one. Respondent defends this cramped understanding of Rule 32(e) by arguing that the "fair and just reason" standard was meant to apply only to "fully accepted" guilty pleas, as opposed to "conditionally accepted" pleasi. e., pleas that are accepted but later withdrawn under Rule 11(e)(4) if the plea agreement is rejected. He points out that the "fair and just reason" standard was derived from dictum in our pre-Rules opinion in see Advisory Committee's Notes on Rule 32, 18 U.S. C. App., p. 794, and that Kercheval spoke of a guilty plea as a final, not a conditional, act, see He then argues that since the Rule 32(e) standard was derived from Kercheval, the Rule must also have incorporated the Kercheval view that a guilty plea is a final, unconditional act. Thus, since his guilty plea was conditioned on the District Court accepting the plea agreement, the Rule simply does not apply. We reject this somewhat tortuous argument. When the "fair and just reason" standard was added in 1983, the Rules already provided that the district court could defer decision on whether to accept the plea agreement, that it could then reject the agreement, and that the defendant would then be able to withdraw his guilty Guilty pleas made pursuant to plea agreements were thus already subject to this sort of condition subsequent. Yet neither the new Rule 32(e) nor the Advisory Committee's Notes accompanying it attempted to draw a distinction between "fully accepted" and "conditionally accepted" guilty pleas. Instead, the Rule simply *680 says that the standard applies to motions to withdraw a guilty plea "made before sentence is imposed." Respondent's speculation that the Advisory Committee, this Court, and Congress had the Kercheval view of |
Justice O'Connor | 1,989 | 14 | dissenting | Hernandez v. Commissioner | https://www.courtlistener.com/opinion/112271/hernandez-v-commissioner/ | The Court today acquiesces in the decision of the Internal Revenue Service (IRS) to manufacture a singular exception to its 70-year practice of allowing fixed payments indistinguishable from those made by petitioners to be deducted as charitable contributions. Because the IRS cannot constitutionally be allowed to select which religions will receive the benefit of its past rulings, I respectfully dissent. The cases before the Court have an air of artificiality about them that is due to the IRS' dual litigation strategy against the Church of Scientology (Church). As the Court notes, ante, at 686-687, n. 4, the IRS has successfully argued that the mother Church of Scientology was not a tax-exempt organization from 1970 to because it had diverted profits to the founder of Scientology and others, conspired to impede collection of its taxes, and conducted almost all of its activities for a commercial purpose. See Church of Scientology of aff'd, cert. denied, In the cases before the Court today, however, the IRS decided to contest the payments made to Scientology under 26 U.S. C. 170 rather than challenge the tax-exempt status of the various branches of the Church to which the payments were made. According to the Deputy Solicitor General, the IRS challenged the payments themselves in order to expedite matters. Tr. of Oral Arg. 26-29. See also As part of its litigation strategy in these cases, the IRS agreed to several stipulations which, in my view, necessarily determine the proper approach to the questions presented by petitioners. The stipulations, relegated to a single sentence by the Court, ante, at 686, established that Scientology was at all relevant times a religion; that each Scientology branch to which payments were made was at all relevant times a "church" within the meaning of 170(b)(1)(A)(i); and that *705 Scientology was at all times a "corporation" within the meaning of 170(c)(2) and exempt from general income taxation under 26 U.S. C. 501(a). See App. 38, ¶¶ 52-53; aff'd, As the Solicitor General recognizes, it follows from these stipulations that Scientology operates for " `charitable purposes' " and puts the "public interest above the private interest." Brief for Respondent 30. See also Moreover, the stipulations establish that the payments made by petitioners are fixed donations made by individuals to a tax-exempt religious organization in order to participate in religious services, and are not based on "market prices set to reap the profits of a commercial moneymaking venture." cert. pending, No. 87-1382. The Tax Court, however, appears to have ignored the stipulations. It concluded, perhaps relying on its previous opinion in Church of Scientology, that |
Justice O'Connor | 1,989 | 14 | dissenting | Hernandez v. Commissioner | https://www.courtlistener.com/opinion/112271/hernandez-v-commissioner/ | relying on its previous opinion in Church of Scientology, that "Scientology operates in a commercial manner in providing [auditing and training]. In fact, one of its articulated goals is to make money." The Solicitor General has duplicated the error here, referring on numerous occasions to the commercial nature of Scientology in an attempt to negate the effect of the stipulations. See Brief for Respondent 13-14, 23, 25, 44. It must be emphasized that the IRS' position here is not based upon the contention that a portion of the knowledge received from auditing or training is of secular, commercial. nonreligious value. Thus, the denial of a deduction in these cases bears no resemblance to the denial of a deduction for religious-school tuition up to the market value of the secularly useful education received. See ; ; Here the IRS denies deductibility solely on the basis that the exchange is a quid pro quo, even though the quid is exclusively of spiritual or religious worth. Respondent *706 cites no instances in which this has been done before, and there are good reasons why. When a taxpayer claims as a charitable deduction part of a fixed amount given to a charitable organization in exchange for benefits that have a commercial value, the allowable portion of that claim is computed by subtracting from the total amount paid the value of the physical benefit received. If at a charity sale one purchases for $1,000 a painting whose market value is demonstrably no more than $50, there has been a contribution of $950. The same would be true if one purchases a $1,000 seat at a charitable dinner where the food is worth $50. An identical calculation can be made where the quid received is not a painting or a meal, but an intangible such as entertainment, so long as that intangible has some market value established in a noncontributory context. Hence, one who purchases a ticket to a concert, at the going rate for concerts by the particular performers, makes a charitable contribution of zero even if it is announced in advance that all proceeds from the ticket sales will go to charity. The performers may have made a charitable contribution, but the audience has paid the going rate for a show. It becomes impossible, however, to compute the "contribution" portion of a payment to a charity where what is received in return is not merely an intangible, but an intangible (or, for that matter a tangible) that is not bought and sold except in donative contexts so that the only "market" price against which |
Justice O'Connor | 1,989 | 14 | dissenting | Hernandez v. Commissioner | https://www.courtlistener.com/opinion/112271/hernandez-v-commissioner/ | donative contexts so that the only "market" price against which it can be evaluated is a market price that always includes donations. Suppose, for example, that the charitable organization that traditionally solicits donations on Veterans Day, in exchange for which it gives the donor an imitation poppy bearing its name, were to establish a flat rule that no one gets a poppy without a donation of at least $10. One would have to say that the "market" rate for such poppies was $10, but it would assuredly not be true that everyone who "bought" a poppy for $10 made no contribution. Similarly, if one buys a $100 seat at a prayer breakfast *707 receiving as the quid pro quo food for both body and soul it would make no sense to say that no charitable contribution whatever has occurred simply because the "going rate" for all prayer breakfasts (with equivalent bodily food) is $100. The latter may well be true, but that "going rate" includes a contribution. Confronted with this difficulty, and with the constitutional necessity of not making irrational distinctions among taxpayers, and with the even higher standard of equality of treatment among religions that the First Amendment imposes, the Government has only two practicable options with regard to distinctively religious quids pro quo: to disregard them all, or to tax them all. Over the years it has chosen the former course. Congress enacted the first charitable contribution exception to income taxation in 1917. War Revenue Act of 1917, ch. 63, 1201(2), A mere two years later, in A.R.M. 2, 1 Cum. Bull. 150 (1919), the IRS gave its first blessing to the deductions of fixed payments to religious organizations as charitable contributions: "[T]he distinction of pew rents, assessments, church dues, and the like from basket collections is hardly warranted by the act. The act reads `contributions' and `gifts.' It is felt that all of these come within the two terms. "In substance it is believed that these are simply methods of contributing although in form they may vary. Is a basket collection given involuntarily to be distinguished from an envelope system, the latter being regarded as `dues'? From a technical angle, the pew rents may be differentiated, but in practice the so-called `personal accommodation' they may afford is conjectural. It is believed that the real intent is to contribute and not to hire a seat or pew for personal accommodation. In fact, basket contributors sometimes receive the same accommodation informally." *708 The IRS reaffirmed its position in 1970, ruling that "[p]ew rents, building fund assessments and |
Justice O'Connor | 1,989 | 14 | dissenting | Hernandez v. Commissioner | https://www.courtlistener.com/opinion/112271/hernandez-v-commissioner/ | in 1970, ruling that "[p]ew rents, building fund assessments and periodic dues paid to a church are all methods of making contributions to the church and such payments are deductible as charitable contributions." Rev. Rul. 70-47, 1970-1 Cum. Bull. 49. Similarly, notwithstanding the "form" of Mass stipends as fixed payments for specific religious services, see infra, at 709, the IRS has allowed charitable deductions of such payments. See Rev. Rul. 78-366, 1978-2 Cum. Bull. 241. These rulings, which are "official interpretation[s] of [the tax laws] by the [IRS]," Rev. Proc. 78-24, 1978-2 Cum. Bull. 503, 504, flatly contradict the Solicitor General's claim that there "is no administrative practice recognizing that payments made in exchange for religious benefits are tax deductible." Brief for Respondent 16. Indeed, an Assistant Commissioner of the IRS recently explained in a "question and answer guidance package" to tax-exempt organizations that "[i]n contrast to tuition payments, religious observances generally are not regarded as yielding private benefits to the donor, who is viewed as receiving only incidental benefits when attending the observances. The primary beneficiaries are viewed as being the general public and members of the faith. Thus, payments for saying masses, pew rents, tithes, and other payments involving fixed donations for similar religious services, are fully deductible contributions." IRS Official Explains New Examination-Education Program on Charitable Contributions to Tax-Exempt Organizations, BNA Daily Report for Executives, Special Report No. 186, J-1, J-3 Although this guidance package may not be as authoritative as IRS rulings, see ante, at 703, n. 13, in the absence of any contrary indications it does reflect the continuing adherence of the IRS to its practice of allowing deductions for fixed payments for religious services. There can be no doubt that at least some of the fixed payments which the IRS has treated as charitable deductions, or which the Court assumes the IRS would allow taxpayers to *709 deduct, ante, at 690-691, are as "inherently reciprocal," ante, at 692, as the payments for auditing at issue here. In exchange for their payment of pew rents, Christians receive particular seats during worship services. See Encyclopedic Dictionary of Religion 2760 (1979). Similarly, in some synagogues attendance at the worship services for Jewish High Holy Days is often predicated upon the purchase of a general admission ticket or a reserved seat ticket. See J. Feldman, H. Fruhauf, & M. Schoen, Temple Management Manual, ch. 4, p. 10 Religious honors such as publicly reading from Scripture are purchased or auctioned periodically in some synagogues of Jews from Morocco and Syria. See H. Dobrinsky, A Treasury of Sephardic Laws and |
Justice O'Connor | 1,989 | 14 | dissenting | Hernandez v. Commissioner | https://www.courtlistener.com/opinion/112271/hernandez-v-commissioner/ | Syria. See H. Dobrinsky, A Treasury of Sephardic Laws and Customs 164, 175-177 (1986). Mormons must tithe their income as a necessary but not sufficient condition to obtaining a "temple recommend," i. e., the right to be admitted into the temple. See The Book of Mormon, 3 Nephi 24:7-12 (1921); Reorganized Church of Jesus Christ of Latter-day Saints, Book of Doctrine and Covenants 106:1b (1978); Corporation of Presiding Bishop of Church of Jesus Christ of Latter-day A Mass stipend a fixed payment given to a Catholic priest, in consideration of which he is obliged to apply the fruits of the Mass for the intention of the donor has similar overtones of exchange. According to some Catholic theologians, the nature of the pact between a priest and a donor who pays a Mass stipend is "a bilateral contract known as do ut facias. One person agrees to give while the other party agrees to do something in return." 13 New Catholic Encyclopedia, Mass Stipend, p. 715 (1967). A finer example of a quid pro quo exchange would be hard to formulate. This is not a situation where the IRS has explicitly and affirmatively reevaluated its longstanding interpretation of 170 and decided to analyze all fixed religious contributions under a quid pro quo standard. There is no indication whatever that the IRS has abandoned its 70-year practice with respect *710 to payments made by those other than Scientologists. In 1978, when it ruled that payments for auditing and training were not charitable contributions under 170, the IRS did not cite much less try to reconcile its previous rulings concerning the deductibility of other forms of fixed payments for religious services or practices. See Rev. Rul. 78-189, 1978-1 Cum. Bull. 68 (equating payments for auditing with tuition paid to religious schools). Nevertheless, respondent now attempts to reconcile his previous rulings with his decision in these cases by relying on a distinction between direct and incidental benefits in exchange for payments made to a charitable organization. This distinction, adumbrated as early as the IRS' 1919 ruling, recognizes that even a deductible charitable contribution may generate certain benefits for the donor. As long as the benefits remain "incidental" and do not indicate that the payment was actually made for the "personal accommodation" of the donor, the payment will be deductible. It is respondent's view that the payments made by petitioners should not be deductible under 170 because the "unusual facts in these cases. demonstrate that the payments were made primarily for `personal accommodation.' " Brief for Respondent 41. Specifically, the Solicitor |
Justice O'Connor | 1,989 | 14 | dissenting | Hernandez v. Commissioner | https://www.courtlistener.com/opinion/112271/hernandez-v-commissioner/ | `personal accommodation.' " Brief for Respondent 41. Specifically, the Solicitor General asserts that "the rigid connection between the provision of auditing and training services and payment of the fixed price" indicates a quid pro quo relationship and "reflect[s] the value that petitioners expected to receive for their money." There is no discernible reason why there is a more rigid connection between payment and services in the religious practices of Scientology than in the religious practices of the faiths described above. Neither has respondent explained why the benefit received by a Christian who obtains the pew of his or her choice by paying a rental fee, a Jew who gains entrance to High Holy Day services by purchasing a ticket, a Mormon who makes the fixed payment necessary for a temple recommend, or a Catholic who pays a Mass stipend, *711 is incidental to the real benefit conferred on the "general public and members of the faith," BNA Daily Report, at J-3, while the benefit received by a Scientologist from auditing is a personal accommodation. If the perceived difference lies in the fact that Christians and Jews worship in congregations, whereas Scientologists, in a manner reminiscent of Eastern religions, see App. 78-83 (testimony of Dr. Thomas Love), gain awareness of the "immortal spiritual being" within them in one-to-one sessions with auditors, ante, at 684-685, such a distinction would raise serious Establishment Clause problems. See ; The distinction is no more legitimate if it is based on the fact that congregational worship services "would be said anyway," Brief for Respondent 43, without the payment of a pew rental or stipend or tithe by a particular adherent. The relevant comparison between Scientology and other religions must be between the Scientologist undergoing auditing or training on one hand and the congregation on the other. For some religions the central importance of the congregation achieves legal dimensions. In Orthodox Judaism, for example, certain worship services cannot be performed and Scripture cannot be read publicly without the presence of at least 10 men. 12 Encyclopaedia Judaica, Minyan, p. 68 If payments for participation occurred in such a setting, would the benefit to the 10th man be only incidental while for the personal accommodation of the 11th? In the same vein, will the deductibility of a Mass stipend turn on whether there are other congregants to hear the Mass? And conversely, does the fact that the payment of a tithe by a Mormon is an absolute prerequisite to admission to the temple make that payment for admission a personal accommodation regardless of the size of the congregation? |
Justice O'Connor | 1,989 | 14 | dissenting | Hernandez v. Commissioner | https://www.courtlistener.com/opinion/112271/hernandez-v-commissioner/ | a personal accommodation regardless of the size of the congregation? Given the IRS' stance in these cases, it is an understatement to say that with respect to fixed payments for religious *712 services "the line between the taxable and the immune has been drawn by an unsteady hand." United This is not a situation in which a governmental regulation "happens to coincide or harmonize with the tenets of some or all religions," but does not violate the Establishment Clause because it is founded on a neutral, secular basis. See Bob Jones Rather, it involves the differential application of a standard based on constitutionally impermissible differences drawn by the Government among religions. As such, it is best characterized as a case of the Government "put[ting] an imprimatur on [all but] one religion." That the Government may not do. The Court attempts to downplay the constitutional difficulty created by the IRS' different treatment of other fixed payments for religious services by accepting the Solicitor General's invitation to let the IRS make case-specific quid pro quo determinations. See ante, at 702 ("The IRS' application of the `contribution or gift' standard may be right or wrong with respect to these other faiths, or it may be right with respect to some religious practices and wrong with respect to others"). See also Brief for Respondent 41-42. As a practical matter, I do not think that this unprincipled approach will prove helpful. The Solicitor General was confident enough in his brief to argue that, "even without making a detailed factual inquiry," Mormon tithing does not involve a quid pro quo arrangement. At oral argument, however, the Deputy Solicitor General conceded that if it was mandatory, tithing would be distinguishable from the "ordinary case of church dues." Tr. of Oral Arg. 36-37. If the approach suggested by the Solicitor General is so malleable and indefinite, it is not a panacea and cannot be trusted to secure First Amendment rights against arbitrary incursions by the Government. *713 On a more fundamental level, the Court cannot abjure its responsibility to address serious constitutional problems by converting a violation of the Establishment Clause into an "administrative consistency argument," ante, at 703, with an inadequate record. It has chosen to ignore both longstanding, clearly articulated IRS practice, and the failure of respondent to offer any cogent, neutral explanation for the IRS' refusal to apply this practice to the Church of Scientology. Instead, the Court has pretended that whatever errors in application the IRS has committed are hidden from its gaze and will, in any event, be rectified in due time. In |
Justice White | 1,989 | 6 | concurring | Sheet Metal Workers v. Lynn | https://www.courtlistener.com/opinion/112172/sheet-metal-workers-v-lynn/ | , observed that "[i]t is readily apparent, both from the language of these provisions and from the legislative history of Title I, that it was rank-and-file union members not union officers or employees, as such whom Congress sought to protect" (footnote omitted). If that is so and if a case involves speech in the capacity of an officer, it should make no difference that the officer is elected rather than appointed. But in Finnegan, it was asserted that the officer was removed because of his campaign activities, as a member, in a union election, which was speech protected by Title I. In response, the Court said that under the union constitution the newly elected president had power to appoint and remove officers and that he was entitled to start out with officers in whom he had confidence. This was sufficient to dispose of the officers' claim under Title I. In the case before us, the speech for which respondent was removed was also speech in the capacity of a member. The duties of a union business agent are defined in the union constitution. Those duties relate primarily to collective bargaining and administering the collective-bargaining contract. They do not seem to include supporting the union president's proposal to increase union dues; and if they did, I am not so *360 sure that respondent would have spoken out against the dues increase at all. In this case, unlike Finnegan, respondent was not discharged by an incoming elected president with power to appoint his own staff, but by a trustee whose power to dismiss and appoint officers, for all that is shown here, went no further than the Local's president to discharge for cause, i. e., for incompetence or other behavior disqualifying them for the tasks they were expected to perform as officers. Respondent's speech opposing the dues increase was the speech of a member about a matter the members were to resolve, and there is no countervailing interest rooted in union democracy that suffices to override that protection Thus, I doubt that resolution of cases like this turns on whether an officer is elected or appointed. Rather its inquiry is whether an officer speaks as a member or as an officer in discharge of his assigned duties. If the former, he is protected by Title I. If the latter, the issue becomes whether other considerations deprive the officer/member of the protections of that Title. |
Justice White | 1,981 | 6 | second_dissenting | New York v. Belton | https://www.courtlistener.com/opinion/110559/new-york-v-belton/ | In Robbins v. California, ante, p. 420, it was held that a wrapped container in the trunk of a car could not be searched without a warrant even though the trunk itself could be searched without a warrant because there was probable cause to search the car and even though there was probable cause to search the container as well. This was because of the separate interest in privacy with respect to the container. The Court now holds that as incident to the arrest of the driver or any other person in an automobile, the interior of the car and any container found therein, whether locked or not, may be not only seized but also searched even absent probable cause to believe that contraband or evidence of crime will be found. As to luggage, briefcases, or other containers, this seems to me an extreme extension of Chimel and one to which I cannot subscribe. Even if the decision in Robbins had been otherwise and United and had been overruled, luggage found in the trunk of a car could not be searched without probable cause to believe it contained contraband or evidence. Here, searches of luggage, briefcases, and other containers in the interior of an auto are authorized in the absence of any suspicion whatsoever that they contain anything in which the police have a legitimate interest. This calls for more caution than the Court today exhibits, and, with respect, I dissent. |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | Chapter 13 of the Bankruptcy Code enables an individ ual to obtain a discharge of his debts if he pays his credi tors a portion of his monthly income in accordance with a court-approved plan. 11 U.S. C. et seq. To deter mine how much income the debtor is capable of paying, Chapter 13 uses a statutory formula known as the “means test.” (2006 ed. and Supp. III), 1325(b)(3)(A) (2006 ed.). The means test instructs a debtor to deduct specified expenses from his current monthly income. The result is his “disposable income”—the amount he has available to reimburse creditors. This case concerns the specified expense for vehicle ownership costs. We must determine whether a debtor like petitioner Jason Ransom who owns his car outright, and so does not make loan or lease payments, may claim an allowance for car-ownership costs (thereby reducing the amount he will repay creditors). We hold that the text, context, and purpose of the statutory provision at issue preclude this result. A debtor who does not make loan or 2 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court lease payments may not take the car-ownership deduction. I A “Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA or Act) to correct perceived abuses of the bankruptcy system.” Mi lavetz, Gallop & Milavetz, P. A. v. United States, 559 U. S. (2010) (slip op., at 1). In particular, Congress adopted the means test—“[t]he heart of [BAPCPA’s] con sumer bankruptcy reforms,” H. R. Rep. No. 109–31, pt. 1, p. 2 (2005) (hereinafter H. R. Rep.), and the home of the statutory language at issue here—to help ensure that debtors who can pay creditors do pay them. See, e.g., (under BAPCPA, “debtors [will] repay creditors the maxi mum they can afford”). In Chapter 13 proceedings, the means test provides a formula to calculate a debtor’s disposable income, which the debtor must devote to reimbursing creditors under a court-approved plan generally lasting from three to five years. and (b)(4).1 The statute defines “disposable income” as “current monthly income” less “amounts reasonably necessary to be expended” for “main tenance or support,” business expenditures, and certain charitable contributions. and (ii). For a debtor whose income is above the median for his State, the means test identifies which expenses qualify as “amounts —————— 1 Chapter 13 borrows the means test from Chapter 7, where it is used as a screening mechanism to determine whether a Chapter 7 proceed ing is appropriate. Individuals who file for bankruptcy relief under Chapter 7 liquidate their nonexempt assets, rather than |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | relief under Chapter 7 liquidate their nonexempt assets, rather than dedicate their future income, to repay creditors. See 11 U.S. C. 726. If the debtor’s Chapter 7 petition discloses that his disposable income as calculated by the means test exceeds a certain threshold, the petition is presumptively abusive. If the debtor cannot rebut the presumption, the court may dismiss the case or, with the debtor’s consent, convert it into a Chapter 13 proceeding. Cite as: 562 U. S. (2011) 3 Opinion of the Court reasonably necessary to be expended.” The test supplants the pre-BAPCPA practice of calculating debtors’ reason able expenses on a case-by-case basis, which led to varying and often inconsistent determinations. See, e.g., In re Slusher, Under the means test, a debtor calculating his “rea sonably necessary” expenses is directed to claim allow ances for defined living expenses, as well as for secured and priority debt. (A)(ii)–(iv). As relevant here, the statute provides: “The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service [IRS] for the area in which the debtor resides.” These are the principal amounts that the debtor can claim as his reasonable living expenses and thereby shield from creditors. The National and Local Standards referenced in this provision are tables that the IRS prepares listing stan dardized expense amounts for basic necessities.2 The IRS uses the Standards to help calculate taxpayers’ ability to pay overdue taxes. See 26 U.S. C. The IRS prepares supplemental guidelines known as the Col lection Financial Standards, which describe how to use the —————— 2 The National Standards designate allowances for six categories of expenses: (1) food; (2) housekeeping supplies; (3) apparel and services; (4) personal care products and services; (5) out-of-pocket health care costs; and (6) miscellaneous expenses. Internal Revenue Manual http://www.irs.gov/irm/part5/irm_05-015 001.html#d0e10 (all Internet materials as visited Jan. 7, 2011, and available in Clerk of Court’s case file). The Local Standards authorize deductions for two kinds of expenses: (1) housing and utilities; and (2) transportation. 4 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court tables and what the amounts listed in them mean. The Local Standards include an allowance for transpor tation expenses, divided into vehicle “Ownership Costs” and vehicle “Operating Costs.”3 At the time Ransom filed for bankruptcy, the “Ownership Costs” table appeared as follows: Ownership Costs First Car Second Car National $471 $332 App. to Brief for Respondent 5a. The Collection Financial Standards |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | App. to Brief for Respondent 5a. The Collection Financial Standards explain that these ownership costs represent “nationwide figures for monthly loan or lease payments,” at 2a; the numerical amounts listed are “base[d] on the five-year average of new and used car financing data compiled by the Federal Reserve Board,” at 3a. The Collection Financial Standards further instruct that, in the tax-collection context, “[i]f a taxpayer has no car pay ment, only the operating costs portion of the transpor tation standard is used to come up with the allowable transportation expense.” B Ransom filed for Chapter 13 bankruptcy relief in July 2006. App. 1, 54. Among his liabilities, Ransom itemized over $82,500 in unsecured debt, including a claim held by respondent FIA Card Services, N. A. (FIA). Among his assets, Ransom listed a 2004 Toyota Camry, valued at $14,000, which he owns free of any debt. at 38, 49, 52. For purposes of the means test, Ransom reported in —————— 3 Although both components of the transportation allowance are listed in the Local Standards, only the operating-cost expense amounts vary by geography; in contrast, the IRS provides a nationwide figure for ownership costs. Cite as: 562 U. S. (2011) 5 Opinion of the Court come of $4,248.56 per month. He listed monthly expenses totaling $4,038.01. In de termining those expenses, Ransom claimed a car ownership deduction of $471 for the Camry, the full amount specified in the IRS’s “Ownership Costs” table. Ransom listed a separate deduction of $338 for car-operating costs. Based on these figures, Ransom had disposable income of $210.55 per month. Ransom proposed a 5-year plan that would result in repayment of approximately 25% of his unsecured debt. FIA objected to confirmation of the plan on the ground that it did not direct all of Ransom’s disposable income to unsecured creditors. In particular, FIA argued that Ransom should not have claimed the car ownership allowance because he does not make loan or lease payments on his car. FIA noted that without this allowance, Ransom’s disposable income would be $681.55—the $210.55 he reported plus the $471 he deducted for vehicle ownership. The difference over the 60 months of the plan amounts to about $28,000. C The Bankruptcy Court denied confirmation of Ransom’s plan. App. to Pet. for Cert. 48. The court held that Ran som could deduct a vehicle-ownership expense only “if he is currently making loan or lease payments on that vehi cle.” Ransom appealed to the Ninth Circuit Bankruptcy Appellate Panel, which affirmed. In re Ransom, 380 B.R. 799, 808–809 The panel reasoned that an “expense [amount] becomes |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | 799, 808–809 The panel reasoned that an “expense [amount] becomes relevant to the debtor (i.e., appropriate or applicable to the debtor) when he or she in fact has such an expense.” “[W]hat is important,” the panel noted, “is the payments that debtors actually make, not how many cars they own, because [those] payments are what actually affect their ability to” reimburse unse 6 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court cured creditors. The United States Court of Appeals for the Ninth Cir cuit affirmed. In re Ransom, The plain language of the statute, the court held, “does not allow a debtor to deduct an ‘ownership cost’ that the debtor does not have.” The court observed that “[a]n ‘ownership cost’ is not an ‘expense’—either actual or applicable—if it does not exist, period.” We granted a writ of certiorari to resolve a split of au thority over whether a debtor who does not make loan or lease payments on his car may claim the deduction for vehicle-ownership costs. 559 U. S. (2010).4 We now affirm the Ninth Circuit’s judgment. II Our interpretation of the Bankruptcy Code starts “where all such inquiries must begin: with the language of the statute itself.” United As noted, the provision of the Code central to the decision of this case states: “The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the [IRS] for the area in which the debtor resides.” The key word in this provision is “applicable”: A debtor may claim not all, but only “applicable” expense amounts —————— 4 Compare In re Ransom, (case be low), with In re Washburn, (permitting the allowance), In re Tate, and In re Ross-Tousey, The ques tion has divided bankruptcy courts. See, e.g., In re Canales, 377 B.R. 658, 662 (citing dozens of cases reach ing opposing results). Cite as: 562 U. S. (2011) 7 Opinion of the Court listed in the Standards. Whether Ransom may claim the $471 car-ownership deduction accordingly turns on whether that expense amount is “applicable” to him. Because the Code does not define “applicable,” we look to the ordinary meaning of the term. See, e.g., Hamilton v. Lanning, 560 U. S. (2010) (slip op., at 6). “Ap plicable” means “capable of being applied: having rele vance” or “fit, suitable, or right to be applied: appropriate.” Webster’s Third New International Dictionary 105 (2002). See New Oxford American Dictionary 74 (2d ed. 2005) (“relevant or |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | New Oxford American Dictionary 74 (2d ed. 2005) (“relevant or appropriate”); 1 Oxford English Dictionary 575 (“[c]apable of being applied” or “[f]it or suitable for its purpose, appropriate”). So an expense amount is “applicable” within the plain meaning of the statute when it is appropriate, relevant, suitable, or fit. What makes an expense amount “applicable” in this sense (appropriate, relevant, suitable, or fit) is most natu rally understood to be its correspondence to an individual debtor’s financial circumstances. Rather than authorizing all debtors to take deductions in all listed categories, Congress established a filter: A debtor may claim a deduc tion from a National or Local Standard table (like “[Car] Ownership Costs”) if but only if that deduction is appro priate for him. And a deduction is so appropriate only if the debtor has costs corresponding to the category covered by the table—that is, only if the debtor will incur that kind of expense during the life of the plan. The statute under scores the necessity of making such an individualized determination by referring to “the debtor’s applicable monthly expense amounts,” (emphasis added)—in other words, the expense amounts applicable (appropriate, etc.) to each particular debtor. Identifying these amounts requires looking at the financial situation of the debtor and asking whether a National or Local Standard table is relevant to him. If Congress had not wanted to separate in this way 8 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court debtors who qualify for an allowance from those who do not, it could have omitted the term “applicable” altogether. Without that word, all debtors would be eligible to claim a deduction for each category listed in the Standards. Con gress presumably included “applicable” to achieve a differ ent result. See (“[W]e must give effect to every word of a statute wherever possible”). Interpreting the statute to require a threshold determination of eligibility ensures that the term “appli cable” carries meaning, as each word in a statute should. This reading of “applicable” draws support from the statutory context. The Code initially defines a debtor’s disposable income as his “current monthly income less amounts reasonably necessary to be expended.” (emphasis added). The statute then instructs that “[a]mounts reasonably necessary to be expended shall be determined in accordance with” the means test. Because Congress intended the means test to approximate the debtor’s reasonable expenditures on essential items, a debtor should be required to qualify for a deduction by actually incurring an expense in the rele vant category. If a debtor will not have a particular kind of expense during his plan, |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | not have a particular kind of expense during his plan, an allowance to cover that cost is not “reasonably necessary” within the meaning of the statute.5 Finally, consideration of BAPCPA’s purpose strengthens our reading of the term “applicable.” Congress designed —————— 5 This interpretation avoids the anomalous result of granting preferential treatment to individuals with above-median income. Because the means test does not apply to Chapter 13 debtors whose incomes are below the median, those debtors must prove on a case-by case basis that each claimed expense is reasonably necessary. See § and (3). If a below-median-income debtor cannot take a deduction for a nonexistent expense, we doubt Congress meant to provide such an allowance to an above-median-income debtor—the very kind of debtor whose perceived abuse of the bankruptcy system in spired Congress to enact the means test. Cite as: 562 U. S. (2011) 9 Opinion of the Court the means test to measure debtors’ disposable income and, in that way, “to ensure that [they] repay creditors the maximum they can afford.” H. R. Rep., at 2. This purpose is best achieved by interpreting the means test, consistent with the statutory text, to reflect a debtor’s ability to afford repayment. Cf. Hamilton, 560 U. S., at (slip op., at 14) (rejecting an interpretation of the Bankruptcy Code that “would produce [the] senseless resul[t]” of “deny[ing] creditors payments that the debtor could easily make”). Requiring a debtor to incur the kind of expenses for which he claims a means-test deduction thus advances BAPCPA’s objectives. Because we conclude that a person cannot claim an allowance for vehicle-ownership costs unless he has some expense falling within that category, the question in this case becomes: What expenses does the vehicle-ownership category cover? If it covers loan and lease payments alone, Ransom does not qualify, because he has no such expense. Only if that category covers other costs associ ated with having a car would Ransom be entitled to this deduction. The less inclusive understanding is the right one: The ownership category encompasses the costs of a car loan or lease and nothing more. As noted the numerical amounts listed in the “Ownership Costs” table are “base[d] on the five-year average of new and used car financing data compiled by the Federal Reserve Board.” App. to Brief for Respondent 3a. In other words, the sum $471 is the average monthly payment for loans and leases na tionwide; it is not intended to estimate other conceivable expenses associated with maintaining a car. The Stan dards do account for those additional expenses, but in a different way: |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | account for those additional expenses, but in a different way: They are mainly the province of the sepa rate deduction for vehicle “Operating Costs,” which in clude payments for “[v]ehicle insurance, maintenance, fuel, state and local registration, required inspection, 10 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court parking fees, tolls, [and] driver’s license.” Internal Rev- enue Manual and 5.15.1.8 reprinted in App. to Brief for Respondent 16a, 20a; see IRS, Collection Financial Standards (Feb. 19, 2010), http://www.irs.gov/individuals/article/0,id=96543,00.html.6 A person who owns a car free and clear is entitled to claim the “Operating Costs” deduction for all these expenses of driving—and Ransom in fact did so, to the tune of $338. But such a person is not entitled to claim the “Ownership Costs” deduction, because that allowance is for the sepa rate costs of a car loan or lease. The Collection Financial Standards—the IRS’s explana tory guidelines to the National and Local Standards— explicitly recognize this distinction between ownership and operating costs, making clear that individuals who have a car but make no loan or lease payments may claim only the operating allowance. App. to Brief for Respon dent 3a; see Although the statute does not incorporate the IRS’s guidelines, courts may consult this material in interpreting the National and Local Stan dards; after all, the IRS uses those tables for a similar purpose—to determine how much money a delinquent taxpayer can afford to pay the Government. The guide lines of course cannot control if they are at odds with the statutory language. But here, the Collection Financial Standards’ treatment of the car-ownership deduction reinforces our conclusion that, under the statute, a debtor seeking to claim this deduction must make some loan or lease payments.7 —————— 6 In addition, the IRS has categorized taxes, including those associ ated with car ownership, as an “Other Necessary Expens[e],” for which a debtor may take a deduction. See App. to Brief for Respondent 26a; Brief for United States as Amicus Curiae 16, n. 4. 7 Because the dissent appears to misunderstand our use of the Collec tion Financial Standards, and because it may be important for future cases to be clear on this point, we emphasize again that the statute Cite as: 562 U. S. (2011) 11 Opinion of the Court Because Ransom owns his vehicle free and clear of any encumbrance, he incurs no expense in the “Ownership Costs” category of the Local Standards. Accordingly, the car-ownership expense amount is not “applicable” to him, and the Ninth Circuit correctly denied that deduction. III Ransom’s argument to the contrary relies |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | denied that deduction. III Ransom’s argument to the contrary relies on a different interpretation of the key word “applicable,” an objection to our view of the scope of the “Ownership Costs” category, and a criticism of the policy implications of our approach. We do not think these claims persuasive. A Ransom first offers another understanding of the term “applicable.” A debtor, he says, determines his “applica ble” deductions by locating the box in each National or Local Standard table that corresponds to his geographic location, income, family size, or number of cars. Under this approach, a debtor “consult[s] the table[s] alone” to determine his appropriate expense amounts. Reply Brief for Petitioner 16. Because he has one car, Ransom argues that his “applicable” allowance is the sum listed in the first column of the “Ownership Costs” table ($471); if he had a second vehicle, the amount in the second column ($332) would be “applicable.” On this approach, the word “applicable” serves a function wholly internal to the tables; rather than filtering out debtors for whom a deduc tion is not at all suitable, the term merely directs each —————— does not “incorporat[e]” or otherwise “impor[t]” the IRS’s guidance. Post, at 1, 4 (opinion of SCALIA, J.). The dissent questions what possible basis except incorporation could justify our consulting the IRS’s view, post, n., but we think that basis obvious: The IRS creates the National and Local Standards referenced in the statute, revises them as it deems necessary, and uses them every day. The agency might, therefore, have something insightful and persuasive (albeit not control ling) to say about them. RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court debtor to the correct box (and associated dollar amount of deduction) within every table. This alternative reading of “applicable” fails to comport with the statute’s text, context, or purpose. As intimated at 7–8, Ransom’s interpretation would render the term “applicable” superfluous. Assume Con gress had omitted that word and simply authorized a deduction of “the debtor’s monthly expense amounts” specified in the Standards. That language, most naturally read, would direct each debtor to locate the box in every table corresponding to his location, income, family size, or number of cars and to deduct the amount stated. In other words, the language would instruct the debtor to use the exact approach Ransom urges. The word “applicable” is not necessary to accomplish that result; it is necessary only for the different purpose of dividing debtors eligible to make use of the tables from those who are not. Further, Ransom’s reading of “applicable” would |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | those who are not. Further, Ransom’s reading of “applicable” would sever the connec tion between the means test and the statutory provision it is meant to implement—the authorization of an allowance for (but only for) “reasonably necessary” expenses. Ex penses that are wholly fictional are not easily thought of as reasonably necessary. And finally, Ransom’s interpre tation would run counter to the statute’s overall purpose of ensuring that debtors repay creditors to the extent they can—here, by shielding some $28,000 that he does not in fact need for loan or lease payments. As against all this, Ransom argues that his reading is necessary to account for the means test’s distinction between “applicable” and “actual” expenses—more fully stated, between the phrase “applicable monthly expense amounts” specified in the Standards and the phrase “ac tual monthly expenses for Other Necessary Expenses.” (emphasis added). The latter phrase enables a debtor to deduct his actual expenses in particu lar categories that the IRS designates relating mainly to Cite as: 562 U. S. (2011) 13 Opinion of the Court taxpayers’ health and welfare. Internal Revenue Manual http://www.irs.gov/irm/part5/ irm_05-015 001.html#d0e1381. According to Ransom, “applicable” cannot mean the same thing as “actual.” Brief for Peti tioner 40. He thus concludes that “an ‘applicable’ expense can be claimed [under the means test] even if no ‘actual’ expense was incurred.” Our interpretation of the statute, however, equally avoids conflating “applicable” with “actual” costs. Al though the expense amounts in the Standards apply only if the debtor incurs the relevant expense, the debtor’s out of-pocket cost may well not control the amount of the deduction. If a debtor’s actual expenses exceed the amounts listed in the tables, for example, the debtor may claim an allowance only for the specified sum, rather than for his real expenditures.8 For the Other Necessary Ex pense categories, by contrast, the debtor may deduct his actual expenses, no matter how high they are.9 Our read —————— 8 The parties and the Solicitor General as amicus curiae dispute the proper deduction for a debtor who has expenses that are lower than the amounts listed in the Local Standards. Ransom argues that a debtor may claim the specified expense amount in full regardless of his out-of pocket costs. Brief for Petitioner 24–27. The Government concurs with this view, provided (as we require) that a debtor has some expense relating to the deduction. See Brief for United States as Amicus Curiae 19–21. FIA, relying on the IRS’s practice, contends to the contrary that a debtor may claim only his actual expenditures in this circumstance. Brief for Respondent 45–46 |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | his actual expenditures in this circumstance. Brief for Respondent 45–46 (arguing that the Local Standards function as caps). We decline to resolve this issue. Because Ransom incurs no ownership expense at all, the car-ownership allowance is not applicable to him in the first instance. Ransom is therefore not entitled to a deduction under either approach. 9 For the same reason, the allowance for “applicable monthly expense amounts” at issue here differs from the additional allowances that the dissent cites for the deduction of actual expenditures. See post, at 3–4 (noting allowances for “actual expenses” for care of an elderly or chroni cally ill household member, and for home energy costs, 14 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court ing of the means test thus gives full effect to “the distinc tion between ‘applicable’ and ‘actual’ without taking a further step to conclude that ‘applicable’ means ‘nonexis tent.’ ” In re Ross-Tousey, rev’d, Finally, Ransom’s reading of “applicable” may not even answer the essential question: whether a debtor may claim a deduction. “[C]onsult[ing] the table[s] alone” to determine a debtor’s deduction, as Ransom urges us to do, Reply Brief for Petitioner 16, often will not be sufficient because the tables are not self-defining. This case pro vides a prime example. The “Ownership Costs” table features two columns labeled “First Car” and “Second Car.” See Standing alone, the table does not specify whether it refers to the first and second cars owned (as Ransom avers), or the first and second cars for which the debtor incurs ownership costs (as FIA maintains)—and so the table does not resolve the issue in dispute.10 See In re Kimbro, (Fulton, J., dissenting) (“[O]ne cannot really ‘just —————— 10 The interpretive problem is not, as the dissent suggests, “whether to claim a deduction for one car or for two,” post, at 3, but rather whether to claim a deduction for any car that is owned if the debtor has no ownership costs. Indeed, if we had to decide this question on the basis of the table alone, we might well decide that a debtor who does not make loan or lease payments cannot claim an allowance. The table, after all, is titled “Ownership Costs”—suggesting that it applies to those debtors who incur such costs. And as noted the dollar amounts in the table represent average automobile loan and lease payments nationwide (with all other car-related expenses approxi mated in the separate “Operating Costs” table). See at 9–10. Ransom himself concedes that not every debtor falls within the terms of this table; he would |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | debtor falls within the terms of this table; he would exclude, and thus prohibit from taking a deduction, a person who does not own a car. Brief for Petitioner 33. In like manner, the four corners of the table appear to exclude an additional group—debtors like Ransom who own their cars free and clear and so do not make the loan or lease payments that constitute “Ownership Costs.” Cite as: 562 U. S. (2011) 15 Opinion of the Court look up’ dollar amounts in the tables without either refer ring to IRS guidelines for using the tables or imposing pre existing assumptions about how [they] are to be navi gated” (footnote omitted)). Some amount of interpretation is necessary to decide what the deduction is for and whether it is applicable to Ransom; and so we are brought back full circle to our prior analysis. B Ransom next argues that viewing the car-ownership deduction as covering no more than loan and lease pay ments is inconsistent with a separate sentence of the means test that provides: “Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.” The car-ownership deduction cannot comprise only loan and lease payments, Ransom contends, because those payments are always debts. See Brief for Petitioner 28, 44–45. Ransom ignores that the “notwithstanding” sentence governs the full panoply of deductions under the National and Local Standards and the Other Necessary Expense categories. We hesitate to rely on that general provision to interpret the content of the car-ownership deduction because Congress did not draft the former with the latter specially in mind; any friction between the two likely reflects only a lack of attention to how an across-the-board exclusion of debt payments would correspond to a particu lar IRS allowance.11 Further, the “notwithstanding” sen tence by its terms functions only to exclude, and not to authorize, deductions. It cannot establish an allowance —————— 11 Because Ransom does not make payments on his car, we need not and do not resolve how the “notwithstanding” sentence affects the vehicle-ownership deduction when a debtor has a loan or lease expense. See Brief for United States as Amicus Curiae 23, n. 5 (offering alterna tive views on this question); Tr. of Oral Arg. 51–52. 16 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court for non-loan or -lease ownership costs that no National or Local Standard covers. Accordingly, the “notwithstand ing” sentence does nothing to alter our conclusion that the “Ownership Costs” table does not apply to a debtor whose car is |
Justice Kagan | 2,011 | 3 | majority | Ransom v. FIA Card Services, N. A. | https://www.courtlistener.com/opinion/182567/ransom-v-fia-card-services-n-a/ | table does not apply to a debtor whose car is not encumbered. C Ransom finally contends that his view of the means test is necessary to avoid senseless results not intended by Congress. At the outset, we note that the policy concerns Ransom emphasizes pale beside one his reading creates: His interpretation, as we have explained, would frustrate BAPCPA’s core purpose of ensuring that debtors devote their full disposable income to repaying creditors. See at 8–9. We nonetheless address each of Ransom’s policy arguments in turn. Ransom first points out a troubling anomaly: Under our interpretation, “[d]ebtors can time their bankruptcy filing to take place while they still have a few car payments left, thus retaining an ownership deduction which they would lose if they filed just after making their last payment.” Brief for Petitioner 54. Indeed, a debtor with only a single car payment remaining, Ransom notes, is eligible to claim a monthly ownership deduction. But this kind of oddity is the inevitable result of a stan dardized formula like the means test, even more under Ransom’s reading than under ours. Such formulas are by their nature over- and under-inclusive. In eliminating the pre-BAPCPA case-by-case adjudication of above-median income debtors’ expenses, on the ground that it leant itself to abuse, Congress chose to tolerate the occasional peculi arity that a brighter-line test produces. And Ransom’s alternative reading of the statute would spawn its own anomalies—even placing to one side the fundamental strangeness of giving a debtor an allowance for loan or lease payments when he has not a penny of loan or lease Cite as: 562 U. S. (2011) 17 Opinion of the Court costs. On Ransom’s view, for example, a debtor entering bankruptcy might purchase for a song a junkyard car—“an old, rusted pile of scrap metal [that would] si[t] on cinder blocks in his backyard,” In re Brown, —in order to deduct the $471 car-ownership expense and reduce his payment to credi tors by that amount. We do not see why Congress would have preferred that result to the one that worries Ransom. That is especially so because creditors may well be able to remedy Ransom’s “one payment left” problem. If car payments cease during the life of the plan, just as if other financial circumstances change, an unsecured creditor may move to modify the plan to increase the amount the debtor must repay. See 11 U.S. C. Ransom next contends that denying the ownership allowance to debtors in his position “sends entirely the wrong message, namely, that it is advantageous to be deeply in debt on |
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