UNITED STATES OF AMERICA, PETITIONER V. SAMSON E. SHONDE
No. 87-134
In the Supreme Court of the United States
October Term, 1987
The Solicitor General, on behalf of the United States, petitions for
a writ of certiorari to review the judgment of the United States Court
of Appeals for the Eighth Circuit in this case.
Petition for a Writ of Certiorari to the United States Court of
Appeals for the Eighth Circuit
TABLE OF CONTENTS
Opinions below
Jurisdiction
Statute involved
Question presented
Statement
Reasons for granting the petition
Conclusion
Appendix
OPINIONS BELOW
The opinion of the court of appeals (App., infra, 1a-3a) is reported
at 803 F.2d 937. The order of the court of appeals denying rehearing
(App., infra, 7a) is reported at 815 F.2d 475. The oral opinion and
written order of the district court (App., infra, 19a-24a, 4a-5a) are
unreported.
JURISDICTION
The judgment of the court of appeals (App., infra, 6a) was entered on
October 16, 1986. A petition for rehearing was denied on March 23, 1987
(App., infra, 7a). On June 12, 1987, Justice Blackmun extended the time
within which to file a petition for a writ of certiorari to and
including July 21, 1987. The jurisdiction of this Court is invoked
under 28 U.S.C. 1254(1).
STATUTE INVOLVED
8 U.S.C. 1251 provides, in pertinent part:
(a) Any alien in the United States * * * shall, upon the order
of the Attorney General, be deported who --
(4) is convicted of a crime involving moral turpitude committed
within five years after entry and either sentenced to confinement,
or confined therefor in a prison or corrective institution, for a
year or more, or who at any time after entry is convicted of two
crimes involving moral turpitude, not arising out of a single
scheme of criminal misconduct, regardless of whether confined
therefor and regardless of whether the convictions were in a
single trial;
(b) The provisions of subsection (a)(4) of this section
respecting the deportation of an alien convicted of a crime or
crimes shall not apply * * * (2) if the court sentencing such
alien for such crime shall make, at the time of first imposing
judgment or passing sentence, or whithin thirty days thereafter, a
recommendation to the Attorney General that such alien not be
deported, due notice having been given prior to making such
recommendation to representatives of the interested State, the
Service, and prosecution authorities, who shall be granted an
opportunity to make representations in the matter.
QUESTION PRESENTED
Whether the district court had "inherent authority" to vacate
respondent's guilty plea and dismiss the underlying indictment because
it believed that respondent's conviction might affect his immigration
status.
STATEMENT
1. Respondent entered the United States in 1974 on a temporary
immigration visa. In 1984, he owned and operated a grocery store in St.
Paul, Minnesota. He was indicted by a federal grand jury in August of
that year and charged with three counts of unlawfully dealing in federal
food stamps, in violation of 7 U.S.C. 2024(b). Akinsanya A. Cole was
named as respondent's co-defendant in Counts One and Two of the
indictment. App., infra, 2a.
On October 16, 1984, respondent pleaded guilty to Count Two of the
indictment, which involved a discounted cash purchase of food stamps
from an undercover agent of the Department of Agriculture. Respondent
pleaded guilty pursuant to an agreement that the other two counts would
be dismissed and that the maximum term of imprisonment the court would
impose was six months. The United States further agreed not to object
to work release as an alternative to imprisonment and that no fine would
be imposed, although restitution was to be in the discretion of the
court. See App., infra, 8a-9a. At the plea hearing respondent admitted
that he bought food stamps having a face value of $1,005 for $65 in
cash. Respondent further acknowledged that he knew at the time that
what he was doing was wrong. Id. at 9a-10a. After assuring itself that
the plea was knowlingly and voluntarily entered, the court accepted it
(id. at 9a-11a).
2. On the same day that respondent pleaded guilty, his co-defendant,
Akinsanya Cole, went to trial on Counts One and Two. The evidence at
that trial showed that respondent enlisted Cole to assist him in
purchasing food stamps on two occasions. On the second day of trial,
however, it became clear that the government was not going to prove that
Cole received any money for his part in these transactions. As a
consequence, the district court dismissed the case. The presiding
judge, the Honorable Miles Lord, stated to the prosecutor: "You could
technically make out a case, but it would get no sentence. All he would
have is a conviction on his record and get deported." App., infra, 13a.
The court then explained to the jury the reason for its mid-trial
dismissal of the charges against Cole (App., infra, 13a-14a). Because
that dismissal influenced the court's ultimate disposition of
respondent's case, we set out those remarks in some detail.
The court began by telling the jury that "(a) Judge has supervision
over law enforcement" and that he had personally "concluded that in this
instance the penalty does not fit the crime." App., infra, 13a. The
court noted that there was no proof that defendant Cole was to get any
money from the transactions or that these two instances were part of "a
pattern of conduct on his part." Rather, he was just helping out a
fellow countryman and deportation was too severe a penalty for that.
The court continued (App., infra, 14a):
There may be welfare cheaters. This man is not on welfare. He
monkeyed with this thing. He should not have done that.
But if he were convicted, I would not punish him severely --
you know it would be some nominal sentence.
Really the focus was on the grocery man (i.e., respondent).
Judge Lord noted that the jury could "agree with me or disagree with
me -- it does not make any difference because I have already dismissed
the case, you see -- but if there is another case and he's back in
there, they will get him again." The court concluded by stating: "I
have overruled the judgment of the U.S. Attorney in this instance, so
the case is over." App., infra, 14a.
3. On December 6, 1984, the court sentenced respondent to two years'
probation and ordered him to make restitution to the Department of
Agriculture in the amount of $746 (App., infra, 17a-18a). In addition,
at the request of respondent's counsel and pursuant to 8 U.S.C.
1251(b)(2), the court directed that respondent not be deported as a
consequence of his conviction (App., infra, 18a). /1/ The court
elaborated on the reasons for, as well as the implications of, its order
(ibid.):
Now I have indicated that I would indicate to the Immigration
Department and order them not to deport you. If that punishment
is to follow -- if they are to deport him -- I will entertain a
motion to dismiss this plea of guilty -- to withdraw it -- and at
that point I will dismiss the charges; because I didn't like the
way, I didn't think it was fair the way the Department of
Agriculture went about this whole process. That's why I dismissed
the other person (i.e., co-defendant Cole).
The court's judgment order contained a specific provision noting:
"(T)he defendant is not to be deported under this Court's authority
provided in Title 8, United States Code, Section 1251(b). If any
deportation proceedings arise in the future, this Court will entertain a
motion from the defendant to vacate his plea of guilty and dismiss the
charge." Judgment and Probation/Commitment Order, Crim. No. 4-84-74(01)
(D.Minn. Dec. 6, 1984).
4. On February 26, 1985, respondent, who had overstayed his
immigration visa, was ordered to show cause why he should not be
deported. By that time, however, respondent was married to an American
citizen, and his wife had petitioned to have his status readjusted to
that of pernament resident based on the marriage. The immigration judge
therefore dismissed the deportation proceedings on April 23, 1985, and
remanded the case to the district director for disposition of
respondent's adjustment of status application. App., infra, 2a.
Notwithstanding the dismissal of the deportation proceedings,
respondent subsequently moved in district court under 28 U.S.C. 2255 for
the vacation of his conviction and the dismissal of the indictment. In
his pleadings, respondent conceded that he was "not being deported
because of this conviction" and, indeed, that the deportation
proceedings had been dismissed. Motion to Vacate Plea of Guilty and to
Dismiss the Charge, Crim. No. 4-84-74(01) (May 21, 1985). See also
App., infra, 22a-23a. He claimed, however, that "the conviction is an
adverse factor which may be considered in exercising discretion * * * in
connection with defendant's adjustment of status application" (Motion to
Vacate Plea, supra). /2/
5. The district court vacated the guilty plea and dismissed the
indictment. At an oral hearing on July 2, 1985, the court rejected the
government's argument that there was nothing to indicate that respondent
would be deported and that, in any event, the court's order could be
enforced against INS without the "drastic remedy" of vacating the plea
and dismissing the indictment. The court responded (App., infra, 22a):
I think that my sentence leaves the Immigration people in a
posture where they can do it if they want to, and that my only
remedy -- I cannot enjoin them from following what they see to be
their duty; if they see it to be their duty to use that
conviction and to disregard my language, my only remedy is to
dismiss the conviction -- and that is permanent.
The court explained the reasons for its action in some detail (App.,
infra, 21a):
Do you know what's bothering me? Shonde is a pretty good
fellow. I think he's a good citizen and -- he'll be a good
citizen.
We want to deport him.
Then we have a little skunk like the man who just left here,
who has never done anything right in his whole life, and we give
him free board and room for four or five years and support five of
his children by five different women. We should have a
deportation mechanism for men like him.
But Shonde here is -- I think he'll be a good citizen, a
conscientious person, and bright, intelligent, decent.
And now we're going to send him off. We won't have a friend
here or there.
The court noted that it had dismissed the case against respondent's
co-defendant "on the basis that I didn't think the facts sustained a
conviction" (App., infra, 23a). At that point, the prosecutor
interposed and explained to the court that in fact "you felt that the
government had proved its case and that he had done something that he
shouldn't have done, but you felt that the penalty was too great in that
regard in that case, and you dismissed on those grounds" (ibid.). The
court stated, "All right, I remember that now," but nonetheless
continued (App., infra, 24a):
Well, here is what I am going to do -- and I don't think
anybody is going to be particularly injured by it.
On the basis of the information that was disclosed during the
trial of this case, I conclude that the facts were not sufficient
to sustain a conviction of this defendant, and I vacate the plea
and dismiss the case.
He's been punished -- the punishment that is coming to him he's
had already -- and the administrative proceeding that followed.
The conviction on the record is not representative of what I
believe to be the man's character, and therefore the conviction is
eradicated.
A formal order vacating resondent's guilty plea and dismissing the
indictment was entered on July 24, 1986 (App., infra, 4a-5a).
6. On the government's appeal from the dismissal order, the court of
appeals affirmed (App., infra, 1a-3a). Without citing any authority for
its decision, the court concluded that the district court had "inherent
authority" to condition the judgment of conviction on respondent's not
being deported and, when that condition was breached, the court was
justified in vacating the guilty plea and dismissing the indictment.
The court of appeals' entire discussion of the issue was as follows
(App., infra, 3a):
Without regard to the district court's authority under (8
U.S.C.) 1251(b)(2), the district court had inherent authority to
enter its order stating it would reconsider its judgment if
deportation proceedings were initiated by the government. Because
the government breached the order by bringing deportation
proceedings, it was appropriate for the district court to
entertain (respondent's) motion to vacate his plea of guilty and
dismiss the indictment.
The court of appeals denied the government's request for rehearing en
banc, with five judges dissenting (App., infra, 7a).
REASONS FOR GRANTING THE PETITION
The district court in this case arrogated to itself powers that are
not judicial, but are reserved for the Executive Branch. In that
regard, the district court committed three serious errors. First, the
court improperly set aside the judgment of conviction because the
immigration authorities took steps, subsequently withdrawn, to deport
respondent. Second, the court improperly permitted a collateral attack
on a voluntary and intelligent plea of guilty. Third, the court took
the drastic step of dismissing an indictment in a case that did not even
remotely fit within the limited class of cases in which that remedy is
justified.
The court of appeals approved each of these steps as being within the
discretionary authority of the district court. In fact, however, as
this Court has made clear, a district court may not vacate convictions
and dismiss criminal charges simply because the court questions the
wisdom of a particular prosecution decision or disagrees with other
steps the Executive Branch has taken against a defendant. The district
court's action in this case -- fully sanctioned by the court of appeals
-- reflects a disregard for the limits on a court's authority over a
criminal prosecution.
The view of judicial authority taken by the courts below would permit
a district court to upset a valid judgment of conviction and even
dismiss a prosecution altogether because the court disagrees with the
prosecutor's charging decision, or because the district court objects to
the government's treatment of the defendant in other respects. This
Court has repeatedly held that a district court's role in the criminal
process does not extend that far. The Court should grant certiorari to
reaffirm that the separation of powers does not authorize a district
court to exercise free-wheeling power to upset valid convictions and
dismiss charges brought by the Executive Branch whenever the court feels
that it is in the general interest of justice for it to do so.
1. The power of a district court to enter judgment against a criminal
defendant is exclusively statutory in nature. The court cannot impose a
greater or lesser punishment than sanctioned by the legislature. There
is no "inherent authority" to structure a sentence except as provided in
the applicable statutory grant of authority. Ex Parte United States,
242 U.S. 27, 42 (1916); United States v. Haile, 795 F.2d 489, 492 (5th
Cir. 1986); United States v. John Scher Presents, Inc., 746 F.2d 959,
961 (3d Cir. 1984); United States v. Missouri Valley Const. Co., 741
F.2d 1542, 1546 (8th Cir. 1984) (en banc); United States v. Cohen, 617
F.2d 56, 58 (4th Cir.), cert. denied, 449 U.S. 845 (1980).
Under the statute applicable to this case, 7 U.S.C. 2024(b), a court
may impose for a first felony conviction a term of imprisonment of up to
five years and a fine of up to $10,000, as well as barring the defendant
from further participation in the food stamp program. Alternatively,
the court may "withhold the imposition of the sentence on the condition
that (the defendant) perform * * * work assigned by the court for the
purpose of providing restitution for losses incurred by the United
States and the State agency as a result of the offense for which such
individual was convicted." 7 U.S.C 2024(b)(2). Neither Section 2024 nor
the general provisions governing sentencing, 18 U.S.C. (& Supp. III)
3561 et seq.; Fed. R. Crim. P. 32-36, authorize a judgment conditioned
on any other factors.
Nor does 8 U.S.C. 1251(b)(2) authorize the imposition of a
conditional judgment. Section 1251(b)(2) simply allows a court to make
a binding recommendation that a defendant not be deported under the
terms of Section 1251(a)(4) because of his conviction. That
recommendation has no bearing on the remainder of the sentence, and the
court is not authorized to condition its judgment upon compliance with
the Section 1251(b)(2) recommendation.
As respondent himself acknowledged before the district court (App.,
infra, 22a-23a), the deportation proceedings at issue here were not
commenced under Section 1251(a)(4). They were not based in any way on
his conviction. Rather, they were commenced because respondent had
overstayed his immigration visa. Thus, there was no violation of the
court's recommendation. /3/ But even if a violation had occurred --
even if, that is, INS had sought to deport respondent under Section
1251(a)(4) -- respondent's remedy would lie in an appeal from the
deportation order, not in a collateral attack on his conviction. See
e.g., Delgado-Chavez v. INS, 765 F.2d 868 (9th Cir. 1985); Cerujo v.
INS, 570 F.2d 1323 (7th Cir. 1978); Giambanco v. INS, 531 F.2d 141 (3d
Cir. 1976).
More generally, it is well established that a district court does not
have "inherent authority" to condition the finality of a criminal
judgment on future events unrelated to the prosecution. Nor can the
court enforce such a condition by permitting a collateral attack on the
conviction if the condition is not satisfied. See United States v.
Huss, 520 F.2d 598 (2d Cir. 1975) (28 U.S.C. 2255 not available to
challenge conditions of confinement); Freeman v. United States, 254
F.2d 352, 353-354 (D.C. Cir. 1958) (same for manner in which sentence is
executed); Costner v. United States, 180 F.2d 892 (4th Cir. 1950) (same
for calculation of good time credits). Cf. United States v. Dragna, 746
F.2d 457 (9th Cir. 1984) (reversing district court's reduction of
sentence under Rule 35(b) based on frustration of court's intent as to
where defendant would be confined), cert. denied, 469 U.S. 1211 (1985).
The decision of the courts below "confer(s) on the judiciary
discretionary power to disregard the considered limitation of the law
that it is charged with enforcing." United States v. Payner, 447 U.S.
727, 737 (1980). "(T)he supervisory power does not extend so far."
Ibid.
In United States v. Addonizio, 442 U.S. 178 (1979), this Court held
that a postsentencing change in the policies of the Parole Commission
that prolonged the defendant's actual imprisonment beyond the period
intended by the sentencing judge did not support a collateral attack on
the original sentence under 28 U.S.C. 2255. The district court in that
case, upheld by the court of appeals, concluded that its "sentencing
expectations" were frustrated by the Parole Commission's subsequent
adoption of new standards and procedures. The court therefore changed
the defendant's sentence to "time served." This Court reversed,
stressing the narrowly limited grounds on which a collateral attack on a
final judgment may be based (442 U.S. at 186):
The claimed error here -- that the judge was incorrect in his
assumptions about the future course of parole proceedings -- does
not meet any of the established standards of collateral attack.
There is no claim of a constitutional violation; the sentence
imposed was within the statutory limits; and the proceeding was
not infected with any error of fact or law of the "fundamental"
character that renders the entire proceeding irregular and
invalid.
The same is true in the instant case. There is no claim of any
constitutional violation. The sentence respondent received was well
within the statutory limits. And no finding was made that the guilty
plea and sentencing proceedings were in any way infected with legal or
factual error, whether fundamental or otherwise. Under these
circumstances, the sentencing judge's intentions concerning respondent's
immigration status will not support a collateral attack on the judgment.
The Court stressed in Addonizio that, with certain limitations,
Congress had given the Parole Commission the responsibility of deciding
when to release a lawfully sentenced defendant (442 U.S. at 188). Under
the statutory scheme, the sentencing judge has no enforceable
expectations with respect to the actual release date of a sentenced
defendant short of his statutory term. "The judge may well have
expectations as to when release is likely. But the actual decision is
not his to make, either at the time of sentencing or later if his
expectations are not met" (id. at 190). Thus, the only remedy of the
defendant from a decision of the Parole Commission denying him parole is
on review of that decision, not in a collateral attack on his sentence
(id. at 187, 190).
The same principles apply here. Congress has, with certain
limitations, committed immigration decisions to the initial discretion
of the INS. A judge sentencing a criminal defendant may have certain
expectations as to the effect of the conviction on his immigration
status; under Section 1251(b)(2), the district court may even direct
that the conviction not be used as the basis for deportation under
Section 1251(a)(4). But the actual immigration decision is wholly
separate from the judgment of conviction, and the only remedy available
to a defendant who is subsequently ordered deported is on review of the
deportation order, not in a collateral attack on his judgment of
conviction. By treating the judgment in this case as a conditional
judgment that the court could revoke at any time it believed the
conditions were not satisfied, the district court violated basic
principles of the law of criminal judgments, as set forth by this Court
in Addonizio. That departure from important and settled principles of
law is, in itself, sufficient to warrant this Court's review.
2. Even if the deportation proceedings had provided some basis for
the district court to reconsider its prior judgment, there would still
be no justification for the court's decision to vacate respondent's
guilty plea. This Court has continually stressed that a voluntarily
entered guilty plea may not be set aside in a collateral proceeding. As
the Court stated in Mabry v. Johnson, 467 U.S. 504, 508 (1984), "(i)t is
well settled that a voluntary and intelligent plea of guilty made by an
accused person, who has been advised by competent counsel, may not be
collaterally attacked." See also Tollett v. Henderson, 411 U.S. 258,
266-267 (1973); North Carolina v. Alford, 400 U.S. 25, 31 (1970);
Parker v. North Carolina, 397 U.S. 790.797-798 (1970); McMann v.
Richardson, 397 U.S. 759, 772 (1970); Brady v. United States, 397 U.S.
742, 747-748 (1970).
There was no claim in this case that respondent's plea was
uncounseled or that it was not voluntarily and intelligently entered.
Respondent's guilty plea fully complied with the requirements of Rule 11
of the Federal Rules of Criminal Procedure (App., infra, 8a-11a), and
there has never been any allegation that the plea was not informed and
consensual. Respondent's plea agreement with the government was not
conditioned in any way on a promise that he would not be deported.
App., infra, 8a-9a. The issue was not even raised until the sentencing
hearing, when respondent's counsel requested a recommendation from the
court under Section 1251(b)(2). App., infra, 17a. In any event, even
if the non-deportation recommendation under Section 1251(b)(2) could
somehow be construed as a condition of the plea agreement, that
condition could be enforced without disturbing the guilty plea. See
Santobello v. New York, 404 U.S. 257, 263 (1971). Since "(i)t is only
when the consensual character of the plea is called into question that
the validity of the plea may be impaired," Mabry v. Johnson, 467 U.S. at
509, the subsequent deportation proceedings provided no grounds for
vacating respondent's guilty plea.
One other justification offered by the district court in support of
its action -- although ignored by the court of appeals in sustaining
that action -- was that, after sitting through the trial of respondent's
co-defendant, the district court concluded that "the facts were not
sufficient to sustain a conviction of this defendant" (App., infra,
24a). Even assuming, however, that the district court intended to rely
in part on that ground, /4/ it was an improper one. It is well
established that "a counseled plea of guilty is an admission of factual
guilt so reliable that * * * it quite validly removes the issue of
factual guilt from the case." Menna v. New York, 423 U.S. 61, 62 n.2
(1975) (per curiam) (emphasis in original). More specifically, a
defendant is not "permitted to disown" a plea merely because, in
retrospect, the defendant concludes that the government might have had
difficulty in factually proving its case. Brady v. United States, 397
U.S. at 757.
On this issue as well, this case warrants review. Just as a court
may not upset a valid conviction absent error in the proceedings leading
to that conviction, a court may not vacate a guilty plea on collateral
attack absent a fundamental error in the proceedings leading to the
acceptance of the plea. See United States v. Timmreck, 441 U.S. 780,
783 (1979); Cf. Hill v. United States, 368 U.S. 424 (1962). The
decision of the courts below on this issue departs so sharply from the
role assigned to courts in addressing collateral challenges to guilty
pleas that this Court's review is clearly called for.
3. The final step taken by the district court in this case --
dismissal of the indictment -- took the court into the realm that the
Constitution reserves for the Executive Branch. Aside from its brief
allusion to the sufficiency of the evidence, the district court did not
even suggest a judicial basis for its decision. Instead, it simply
expressed and then acted upon its opinion that the prosecution of this
case was not in the public interest. "The conviction on the record,"
the court explained, "is not representative of what I believe to be the
man's character, and therefore the conviction is eradicated" (App.,
infra, 24a). The district court, in short, "overruled the judgment of
the U.S. Attorney" (App., infra, 14a).
In our constitutional system, prosecution decisions are committed to
the Executive Branch. Bordenkircher v. Hayes, 434 U.S. 357, 364 (1978).
District courts do not possess any authority to dismiss an indictment
on the grounds that the defendant is a "pretty good fellow." On the
contrary, it is well established that whatever "supervisory power" over
law enforcement a court might have, that power does not arm "the federal
judiciary with a 'chancellor's foot' veto over law enforcement practices
of which it d(oes) not approve." United States v. Russell, 441 U.S. 423,
435 (1973). As the Court stated in Russell (ibid.):
The execution of the federal laws under our Constitution is
confined primarily to the Executive Branch of the Government,
subject to applicable constitutional and statutory limitations and
to judicially fashioned rules to enforce those limitations.
The court of appeals attempted to justify the district court's action
by reference to its "inherent power" to respond to the government's
breach of the court's non-deportation order. Even if, however, one
accepts the court of appeals' premise -- that the government breached a
lawful court order by commencing deportation proceedings against
respondent -- dismissal of the indictment was not a legitimate response.
The sanction appropriate to such misconduct must be "narrowly tailored"
and "approached 'with some caution,'" taking full account of the
government's legitimate interest in prosecution. United States v.
Hasting, 461 U.S. 499, 506-507 (1983) (quoting United States v. Payner,
447 U.S. at 734). Dismissal of an indictment is "extraordinary relief,"
United States v. Morrison, 449 U.S. 361 (1981), which is appropriate
only in extremely limited situations. This Court stressed in Morrison,
449 U.S. at 365, that "absent demonstrable prejudice, or substantial
threat thereof, dismissal of (an) indictment is plainly inappropriate,
even though the violation may have been deliberate." There has never
been any suggestion that the deportation proceedings at issue here could
in any way have prejudiced respondent's criminal prosecution. It
follows that even if those proceedings did somehow violate respondent's
rights, the district court had no authority to dismiss the indictment as
a remedy for that violation.
The decision of the court of appeals in this case works an
unprecedented shift of authority to determine whether and against whom
criminal charges should be brought, from the Executive Branch (and the
grand jury), where it has heretofore resided, to the district courts.
That decision conflicts with decisions of other circuits which reversed
similar usurpations of power by district court judges. See, e.g.,
United States v. Cannon, 778 F.2d 747 (1985), after remand, 807 F.2d
1528 (11th Cir. 1986) (guilty plea to firearms violation vacated by
district court and judgment of acquittal entered on grounds that, in
district court's view, defendant should not be deprived of his right to
possess hunting weapons); United States v. Gonsalves, 781 F.2d 1319
(9th Cir. 1985) (indictment dismissed by district court on grounds that
the trial would be too complex and burdensome); United States v. Valle,
697 F.2d 152 (6th Cir.) (indictment dismissed by district court on
grounds that prosecutorial resources would better be allocated
elsewhere), cert. denied, 461 U.S. 918 (1983); United States v. Hudson,
545 F.2d 724 (10th Cir. 1976) (indictment dismissed by district court on
grounds that the defendant was ill).
At bottom, what the district court did in this case, with the
blessing of the court of appeals, was to grant respondent a pardon.
Pardons are the prerogative of the Executive. Schick v. Reed, 419 U.S.
256, 266-267 (1974); Ex Parte Grossman, 267 U.S. 87, 102-121 (1925).
This Court should grant review in this case to reaffirm that important
principle and to ensure that district courts are not permitted to assume
a generqal supervisory role over prosecution decisions that are strictly
the responsibility of the grand jury and the United States Attorney.
CONCLUSION
The petition for a writ of certiorari should be granted.
Respectfully submitted.
CHARLES FRIED
Solicitor General
WILLIAM F. WELD
Assistant Attorney General
WILLIAM C. BRYSON
Deputy Solicitor General
MICHAEL K. KELLOGG
Assistant to the Solicitor General
ROBERT J. ERICKSON
Attorney
JULY 1987
/1/ Under 8 U.S.C. 1251(a)(4), the Attorney General is directed to
deport any alien convicted either of two separate crimes involving moral
turpitude or of one crime involving moral turpitude where that crime is
"committed within five years after entry" and the alien is "sentenced to
confinement or confined therefor in a prison or corrective institution,
for a year or more." The sentencing court may, however, direct that
Subsection (a)(4) not apply to the conviction at issue. 8 U.S.C.
1251(b)(2).
/2/ As an additional reason for dismissing the charges, respondent
alleged that the indictment was insufficient to state an offense under
this Court's decision in Liparota v. United States, 471 U.S. 419 (1985).
In Liparota, the Court held that to prove an offense under 7 U.S.C.
2024(b), the government must show that the defendant knew that his
actions were unlawful. Respondent claimed that no such allegation was
contained in his indictment. That claim was never addressed by either
the district court or the court of appeals.
The indictment, in any event, specifically charged that respondent
"knowingly and intentionally" violated the Food Stamp Act. Furthermore,
at his plea allocution respondent acknowledged that he knew what he was
doing was wrong at the time he did it. His guilty plea therefore
conformed to the requirements of Liparota and to prior case law from the
Eighth Circuit, which Liparota followed. See Liparota, 471 U.S. at 423
n.4.
/3/ Even without the court's order, respondent could not have been
deported under Section 1251(a)(4). The instant case was his only
criminal conviction. Furthermore, the crime was committed more than
five years after respondent's entry into the United States, and
respondent was not sentenced to a term of imprisonment exceeding one
year. Thus, Section 1251(a)(4) by its own terms could not have been
applied to respondent.
We are informed by INS that respondent was granted permanent resident
status on June 16, 1986, at the behest of his American wife. Thus, he
no longer faces possible deportation.
/4/ In fact, it is clear from the court's comments as a whole that
the court acted as it did not based on any concerns about the
sufficiency of the evidence, but simply because it considered respondent
"a pretty good fellow" who would make "a good citizen" and who had been
punished enough for his wrongdoing. App., infra, 23a. Even with
respect to co-defendant Cole, the court never concluded that the
evidence was insufficient to sustain a conviction. Rather, the court
said that the government "could technically make out a case," but that
"the penalty does not fit the crime" (App., infra, 13a). The reason the
court gave for that conclusion was that respondent was actually the
party principally responsible for the crime: "Really, the focus was on
the grocery man" (App., infra, 14a).
Thus, it is clear from the court's comments at the time of the
co-defendant's trial that the court did think the facts were sufficient
to sustain a conviction of respondent. Furthermore, Rule 11(f), Fed. R.
Crim. P., authorizes a court to accept a guilty plea only if it is
"satisf(ied) * * * that there is a factual basis for the plea." The
district court assured itself in this case that respondent's plea had a
factual basis. App., infra, 9a-11a. Respondent admitted that he bought
the foodstamps for cash at a discount off their face value and that he
knew it was wrong at the time he did it. App., infra, 9a-10a. No
further factual predicate was required to make out a violation of 7
U.S.C. 2024(b). Liparota v. United States, 471 U.S. at 432.
Appendix
FEDERAL DEPOSIT INSURANCE CORPORATION, APPELLANT V. JAMES E. MALLEN
ET AL.
No. 87-82
In the Supreme Court of the United States
October Term, 1987
On Appeal from the United States District Court for the Northern
District of Iowa
Jurisdictional Statement
PARTIES TO THE PROCEEDING
There is one party in addition to those named in the caption:
Appellee, Farmers State Bank of Kanawha, Iowa.
TABLE OF CONTENTS
Parties to the proceeding
Opinions below
Jurisdiction
Constitutional and statutory provisions involved
Questions presented
Statement
The questions are substantial
Conclusion
Appendix
OPINIONS BELOW
The decision of the district court concluding that Section 1818(g) is
unconstitutional, declaring the Notice and Order of Suspension null and
void, and enjoining appellant from enforcing it against appellee Mallen
(App., infra, 1a-18a) is not yet reported. The district court's
decisions denying appellant's motion for an amendment of the judgment
(App. infra, 19a-23a) and denying appellant's motion for a stay pending
appeal (App., infra, 24a-26a) are also not yet reported.
JURISDICTION
The order of the district court declaring the Notice and Order of
Suspension null and void and enjoining appellant from enforcing it
against appellee Mallen (App., infra 18a) was entered on February 17,
1987. A notice of appeal to this Court (App., infra 33a-34a) was filed
on March 11, 1987. On May 4, 1987, Justice Blackmun extended the time
within which to docket this appeal to and including June 9, 1987; on
May 30, 1987, Justice Blackmun further extended the time to and
including July 9, 1987. The jurisdiction of this Court is invoked under
28 U.S.C. 1252.
CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED
The Fifth Amendment provides in pertinent part:
nor shall any person * * * be deprived of life, liberty, or
property without due process of law * * *.
Section 1818 provides in pertinent part:
(g) Suspension or removal of director or officer charged with
felony
(1) Whenever any director or officer of an insured bank, or
other person participating in the conduct of the affairs of such
bank, is charged in any information, indictment, or complaint
authorized by a United States attorney, with the commission of or
participation in a crime involving dishonesty or breach of trust
which is punishable by imprisonment for a term exceeding one year
under State or Federal law, the appropriate Federal banking agency
may, if continued service or participation by the individual may
pose a threat to the interests of the bank's depositors or may
threaten to impair public confidence in the bank, by written
notice served upon such director, officer, or other person,
suspend him from office or prohibit him from further participation
in any manner in the conduct of the affairs of the bank. A copy
of such notice shall also be served upon the bank. Such
suspension or prohibition shall remain in effect until such
information, indictment, or complaint is finally disposed of or
until terminated by the agency. In the event that a judgment of
conviction with respect to such crime is entered against such
director, officer, or other person, and at such time as such
judgment is not subject to further appellate review, the agency
may, if continued service or participation by the individual may
pose a threat to the interests of the bank's depositors or may
threaten to impair public confidence in the bank, issue and serve
upon such director, officer, or other person an order removing him
from office or prohibiting him from further participation in any
manner in the conduct of the affairs of the bank except with the
consent of the appropriate agency. A copy of such order shall
also be served upon such bank, whereupon such director or officer
shall cease to be a director or officer of such bank. A finding
of not guilty or other disposition of the charge shall not
preclude the agency from thereafter instituting proceedings to
remove such director, officer or other person from office or to
prohibit further participation in bank affairs, pursuant to
paragraph (1), (2), (3), or (4) of subsection (e) of this section.
Any notice of suspension or order of removal issued under this
paragraph shall remain effective and outstanding unitl the
completion of any hearing or appeal authorized under paragraph (3)
hereof unless terminated by the agency.
(3) Within thirty days from service of any notice of suspension
or order of removal issued pursuant to paragraph (1) of this
subsection, the director, officer, or other person concerned may
request in writing an opportunity to appear before the agency to
show that the continued service to or participation in the conduct
of the affairs of the bank by such individual does not, or is not
likely to, pose a threat to the interests of the bank's depositors
or threaten to impair public confidence in the bank. Upon receipt
of any such request, the appropriate Federal banking agency shall
fix a time (not more than thirty days after receipt of such
request, unless extended at the request of the concerned director,
officer, or other person) and place at which the director,
officer, or other person may appear, personally or through
counsel, before one or more members of the agency or designated
employees of the agency to submit written materials (or, at the
discretion of the agency, oral testimony) and oral argument.
Within sixty days of such hearing, the agency shall notify the
director, officer, or other person whether the suspension or
prohibition from participation in any manner in the affairs of the
bank will be continued, terminated, or otherwise modified, or
whether the order removing said director, officer or other person
from office or prohibiting such individual from further
participation in any manner in the conduct of the affairs of the
bank will be rescinded or otherwise modified. Such notification
shall contain a statement of the basis for the agency's decision,
if adverse to the director, officer or other person. The Federal
banking agencies are authorized to prescribe such rules as may be
necessary to effectuate the purposes of this subsection.
QUESTIONS PRESENTED
1. Whether 12 U.S.C. 1818(g), which provides that, whenever any
director or officer of a federally insured bank has been indicted for a
crime involving dishonesty or breach of trust that is punishable by
imprisonment for more than one year, the appropriate federal banking
agency may suspend such person from office if his continued service may
pose a threat to the interests of the bank's depositors or to the public
confidence in the bank, is invalid under the Due Process Clause of the
Fifth Amendment because it allows the agency a maximum of 30 days after
receipt of a request to conduct a hearing and a maximum of 60 days after
the hearing to issue a written decision whether the suspension order
will be continued, terminated or modified.
2. Whether 12 U.S.C. 1818(g) is invalid under the Due Process Clause
because it gives the agency discretion as to whether to receive oral
testimony at such a hearing.
STATEMENT
1. Appellee Mallen is the President and a director of appellee
Farmers State Bank of Kanawha, Iowa (App., infra, 2a). He is also the
largest stockholder in Kanawha Investment Holding Company, a bank
holding company that owns 92% of the stock of the bank (id. at 8a). On
December 10, 1986, a federal grand jury in the Northern District of Iowa
returned a two-count indictment against Mallen. Count 1 charged Mallen
with making false statements in a personal financial statement for the
purpose of influencing the actions of appellant Federal Deposit
Insurance Corporation (the FDIC), in violation of 18 U.S.C. 1014, a
charge that carries a penalty of up to two years in prison. Count 2
charged Mallen with making false statements to the FDIC in violation of
18 U.S.C. 1001, a charge that carries a penalty of up to five years in
prison. App., infra 2a.
Section 1818(g) authorizes the appropriate federal banking agency --
in the case of Farmers State Bank, the FDIC -- to issue a written notice
suspending a bank officer or director from office, or prohibiting him
from further participation in the conduct of the affairs of the bank, if
he has been indicted for a crime involving dishonesty or breach of trust
that carries a penalty of imprisonment for more than one year, if his
continued service may pose a threat to the interests of depositors or
may threaten to impair public confidence in the bank. If a judgment of
conviction of such a crime is entered, Section 1818(g) authorizes the
appropriate federal banking agency to remove the officer or director
from office.
Section 1818(g)(3) sets forth procedures applicable to suspensions
from office, prohibitions from participation in the conduct of a bank's
affairs, and removals from office. An officer subject to a suspension
or prohibition has the right, within 30 days after receiving a notice of
suspension or prohibition, to request "an opportunity to appear before
the agency to show that the continued service to or participation in the
conduct of the affairs of the bank by such individual does not, or is
not liekly to, pose a threat to the interests of the bank's depositors
or threaten to impair public confidence in the bank." The agency is
required to hold such a hearing within 30 days after receipt of such a
request. At the hearing, the suspended officer or director may "submit
written materials (or, at the discretion of the agency, oral testimony)
and oral argument." The FDIC has be rule delegated the authority to
decide whether to receive oral testimony to the hearing officer (12
C.F.R 308.61(e)). The agency is required to notify the suspended
officer, within sixty days after the hearing, whether the suspension
prohibition will be continued, terminated or otherwise modified. If the
decision is adverse to the officer, the agency is required to provide a
statement of the basis for the agency's decision. /1/
On January 26, 1987, the FDIC served on Mallen, with a copy to the
bank, a Notice and Order of Suspension stating that he was suspended,
effective immediately, from his positions as President and director of
the bank and prohibited from participation in the conduct of the affairs
of the bank (App., infra, 27a). One effect of the prohibition on
participation in the bank's affairs was to prevent Mallen from voting
his stock in the holding company (id. at 2a-3a). The notice explained
that Mallen had been thus suspended and prohibited because (1) he had
been charged in an indictment, filed by the United States Attorney in
the United States District Court for the Northern District of Iowa, with
the commission of or participation in crimes involving dishonesty or
breach of trust punishable by imprisonment for a term exceeding one
year, and (2) it appeared that continued service or participation by
Mallen in the affairs of the bank might pose a threat to the interests
of the bank's depositors or threaten to impair public confidence in the
bank (id. at 27a).
The notice of suspension informed Mallen that he had the right,
within thirty days of receipt of the notice, to request in writing an
opportunity to appear before the FDIC in order to show that his
continued participation in the bank's affairs would not threaten the
interests of depositors or public confidence in the bank. The notice
stated that the FDIC would schedule a hearing to be held within 30 days
of its receipt of his request and that the hearing would be conducted in
the manner prescribed in 12 U.S.C. 1818(g)(3). App., infra, 27a-28a.
By letter dated Friday, January 30, 1987, Mallen's counsel informed
the FDIC that Mallen requested an immediate hearing under the statute,
with the opportunity to present oral testimony as well as written
evidence (App., infra, 4a). The FDIC scheduled the hearing for February
18, nineteen days after the date shown on the request (ibid.). The
FDIC's regional counsel "initially took the position that the hearing
should simply be oral argument on written submissions" (ibid.), /2/ but
it never became "clear whether oral evidence would be permitted, since
denying permission to present oral evidence is in the discretion of the
hearing officer" (ibid.).
On February 6, Mallen brought this action in the United States
District Court for the Northern District of Iowa, asking that Section
1818(g) be declared invalid and that the FDIC be enjoined from enforcing
the notice of suspension and prohibition against him (App., infra,
1a-2a). Mallen argued that the suspension and prohibition deprived him
of liberty and property within the meaning of the Fifth Amendment. He
claimed that the post-suspension hearing provided for in the statute was
inadequate under the Due Process Clause because (1) the delay permitted
between his request for a hearing and final decision by the FDIC was
excessive and (2) the hearing officer was authorized, in his discretion,
to dispense with oral testimony. Mallen also argued that the statute
was unconstitutional because it does not provide for judicial review of
the FDIC's ultimate decision to continue, modify or terminate the
suspension. /3/ Mallen sought a temporary restraining order, a
preliminary injunction and a permanent injunction. Id. at 6a. The FDIC
responded that the statute afforded Mallen due process. /4/
2. On February 17, 1987, the district court enjoined the FDIC from
enforcing the notice of suspension and prohibition. /5/ The district
court determined (App., infra, 17a) that it had jurisdiction to decide
the constitutional issue under 28 U.S.C. 1331. The court then concluded
that both Mallen and the bank had property interests in Mallen's
continued employment and participation in the bank's affairs (App.,
infra, 9a). Citing this Court's formulation in Mathews v. Eldridge, 424
U.S. 319, 333 (1976), that due process requires "(an) opportunity to be
heard at a meaningful time and in an meaningful manner," the district
court next inquired whether it was permissible to suspend Mallen with no
pre-suspension hearing (App., infra, 9a). The court decided, citing
Mackey v. Montrym, 443 U.S. 1 (1979), that the Constitution does not
mandate a pre-suspension hearing because "in cases such as this there
generally is a compelling (governmental) interest in a summary
adjudication" (App., infra, 10a).
The court ruled, however, that the time periods set forth in Section
1818(g)(3) deprived appellees of a meaningful hearing. The court found
the situation analogous to that in Barry v. Barchi, 443 U.S. 55 (1979),
in which this Court invalidated the New York State Racing Commission's
procedures for summary suspension of horse trainers whose horses tested
positive for drugs. In Barry, the Court noted that while Barry had been
suspended for fifteen days, the Racing Commission's procedures gave the
Commission thirty days in which to rule finally on the suspension.
Thus, under the New York system trainers like Barry, subject to brief
suspensions, would never receive any process at all.
Noting (App., infra, 5a) that, under the Speedy Trial Act, 18 U.S.C.
3161(c)(1), which requires that a criminal trial begin within 70 days
(not including any "excludable time") after the filing of an indictment,
Mallen's criminal trial could be over (assuming minimal "excludable
time") before the expiration of the period permitted by Section 1818(g),
the district court concluded that the statute's post-suspension hearing
was a "toothless" remedy, because it would give Mallen meaningful
process only if the FDIC wanted it to (App., infra, 11a-12a). The
district court was unable to find any persuasive reason why the FDIC
should need 90 days to make a decision (id. at 16a).
The district court also found the statute unconstitutional because it
gives the FDIC discretion to receive or not receive oral testimony. The
court reasoned that "at some point, the plaintiff in a case such as this
should have an opportunity to present live witnesses" (App., infra, 15a)
and determined that the FDIC had given no persuasive reason why "denial
of the opportunity to present (oral)) evidence is in the sole discretion
of a hearing officer" (id. at 16a). Rather than order the FDIC to
adhere to a stricter timetable and to allow oral testimony at the
hearing, the court concluded that the post-suspension procedures
"violate due process" and enjoined the FDIC from enforcing the Notice
and Order of Suspension against Mallen (id. at 18a).
On February 27, the FDIC moved the district court to amend its order.
The FDIC proposed that, rather than being enjoined entirely from
enforcing the suspension order, it be required to provide Mallen with a
prompt hearing, to hear oral testimony, and to make its decision
promptly thereafter (App., infra, 20a). At a March 6 hearing before the
district court, the FDIC suggested that it hold a hearing on March 9,
with an oral disposition by March 26 and written disposition by April 8
(ibid.).
On March 10, the district court entered an order refusing to amend
its earlier order. It noted that Mallen's criminal trial was scheduled
to begin on March 16 and was estimated to last one week. Thus, as the
district court understood the situation, the FDIC's decision on the
suspension would be entered "only after Mallen has 'suffered the full
penalty' imposed by the suspension." App., infra, 20a (quoting Barry v.
Barchi, 443 U.S. at 66). The district court also thought it unfair to
Mallen to permit the FDIC to conduct a hearing on the suspension at a
time so close to Mallen's criminal trial (App., infra, 21a-22a). The
next day, the district court denied the FDIC's motion for a stay pending
appeal (id. at 24a-26a). /6/ The FDIC then noticed an appeal from the
district court's ruling to this Court (id. at 33a-34a).
3. Mallen's criminal trial began on March 16. On March 24, the jury
convicted him on both counts of the indictment. On May 1, the district
court (not the judge in this case) sentenced Mallen on the second count
to three years' imprisonment, suspended all but sixty days, and fined
him $10,000. The court set aside the first count, finding the
indictment defective. Mallen's appeal, and the Government's cross
appeal of the dismissal of the first count of the indictment, are
pending in the United States Court of Appeals for the Eighth Circuit
(Nos. 87-1590 and 87-1722); briefing has not been completed and oral
argument has not yet been scheduled.
A different provision of law, 12 U.S.C. 1829, prohibits any person
who has been convicted of a crime involving "dishonesty or breach of
trust" from serving as a director or officer of a bank insured by the
FDIC unless the FDIC consents in writing. After Mallen's conviction,
the FDIC informed him that it would not consent to his service at
Farmers State Bank. Mallen took the position that the Section 1829 bar
does not apply until his appeals are finally disposed of. The FDIC then
obtained a preliminary injunction, from the court that had heard the
criminal case, restraining Mallen from serving as a director, officer,
or employee of the bank (No. C-87-3053 (N.D. Iowa)). /7/ Although this
injunction now restrains Mallen from serving as the bank's President or
as a director, the injunction does not prevent him from otherwise
participating in the bank's affairs, including by voting his stock in
the holding company. Hence this injunction is, in a material respect,
less broad than the notice of suspension and prohibition at issue in the
present case. See Feinberg v. FDIC, 420 F. Supp. 109, 112-115 (D.D.C.
1976) (three-judge court) (challenge to earlier version of Section
1818(g) prohibition not mooted by conviction because Section 1829
disqualification not as broad as Section 1818(g) prohibition).
The FDIC now appeals from the district court's order holding Section
1818(g) unconstitutional.
THE QUESTIONS ARE SUBSTANTIAL
In Section 1818(g), Congress gave the federal banking agencies the
power to order the immediate suspension of any bank officer or director
who is indicted for a felony involving breach of trust or dishonesty.
The original version of Section 1818(g) provided for no pre- or
post-suspension hearing. After a three-judge court ruled (in Feinberg
v. FDIC, supra) that the Constitution requires at least a
post-suspension hearing, Congress added Section 1818(g)(3), which
provides that (1) the suspended director or officer may request a
hearing, (2) the banking agency must hold a hearing within 30 days after
receiving a request, (3) the agency may in its discretion receive or
decline to receive oral testimony, and (4) the agency must issue a
written decision within 60 days after the hearing. The district court
in the present case declared Section 1818(g) invalid on the ground that
it allows up to 90 days before a decision is issued, and on the ground
that it permits the agency to decline to receive oral testimony at the
hearing.
This decision, which essentially nullifies the banking agencies'
power of suspension under Section 1818(g), is erroneous. We agree that
Mallen's interests in his positions with the bank and in his ability to
vote his stock in the holding company are "property" protected by the
Fifth Amendment. But the district court erred in ruling that Section
1818(g) denies him due process of law. The time periods provided by the
statute comport with the requirements of due process under the
circumstances. The opportunity to present oral testimony is not, under
the circumstances, a requirement of due process, and even assuming it
were, the district court erred in invalidating the power of suspension
in its entirety rather than directing the FDIC to receive oral
testimony. This Court's review is plainily warranted.
1. a. Section 1818(g) was originally enacted as part of the Financial
Institutions Supervisory Act of 1966, Pub. L. No. 89-695, 80 Stat. 1028
(the 1966 Act). On its face, it reflects Congress's determination that
persons who have been indicted for serious crimes involving dishonesty
or breach of trust should be subject to summary suspension from
participation in the affairs of federally insured banks. Section
1818(g) is only one of several provisions reflecting the importance of
swift summary action by bank regulatory agencies to protect insured
banks from conditions that threaten their depositors or public
confidence. See, e.g., 12 U.S.C. 1818(c) (temporary orders to cease and
desist from unsafe or unsound practices). /8/
As originally enacted, Section 1818(g) did not refer to a threat to
the interests of the bank's depositors or to public confidence and
contained no provision for a hearing either before or after suspension.
Congress expected that suspension following indictment would be
"virtually routine" (S. Rep. 1482, 89th Cong., 2d Sess. 2 (1966)) and
apparently believed it constitutionally sufficient that the outcome of
the criminal proceedings would either terminate the suspension or lead
to permanent removal. The section as original enacted was challenged in
Feinberg v. FDIC, 420 F. Supp. 109 (D.D.C. 1976) (three-judge court).
Feinberg was indicted for conspiracy to commit mail fraud, and the FDIC
suspended him from his position as President and a director of the
Jefferson State Bank of Chicago and prohibited him from participating in
the bank's affairs. Feinberg brought suit, claiming that he had been
deprived of liberty and property without due process, since he had been
provided with nothing more than an informal conference with FDIC
officials prior to his suspension (420 F. Supp. at 111).
The court in Feinberg recognized the dangers to banks and their
depositors potentially arising from continued participation in their
affairs by persons indicted for serious crimes, and it fully appreciated
the need for summary suspensions. Based on its examination of the
statute and its legislative history, the three-judge court said, "there
is a strong governmental-public interest in speedily and efficiently
removing indicted officers, directors, or employees from financial
institutions, the viability of which depend on the public's confidence"
(420 F. Supp. at 119). The court added (id. at 120):
It is clear from the congressional history that Congress, in
passing 12 U.S.C. Section 1818, was concerned with the dangerous
effect of the public's loss of confidence in financial
institutions. Notably, section 1818 was introduced at the request
of the regulatory agencies, its purpose being the creation of more
effective regulatory powers to deal with crises in financial
institutions. 112 Cong. Rec. 10077-84, 20223-48 (1966). The
Senate Committee Report stated:
"Existing remedies have proven inadequate. On the one hand
they may be too severe in many situations, such as taking custody
of an institution or terminating its insured status. On the other
hand they may be so time consuming and cumbersome that substantial
injury occurs to the institution before remedial action is
effected." Id. at 20082.
In order to maintain the public's confidence, Congress agreed
with the agencies that immediate action was necessary where a
director, officer or employee of an insured bank was indicted for
a felony involving dishonesty or breach of trust. To delay this
action, which occurs in the form of a Notice and Order of
Suspension, would thus seriously and directly undermine the
congressional purpose behind Section 1818(g)(1).
Accordingly, the three-judge court ruled that a pre-suspension
hearing was not constitutionally required (ibid.).
The Feinberg court also observed that it "appears arguable that if
the issuance of a Notice and Order of Suspension were automatic upon the
return of an indictment or the filing of an information or complaint,
then there might not be a need for a hearing" (420 F. Supp. at 116).
Noting, however, that the statute required the agency to decide whether
the crime is one involving "dishonesty or breach of trust" and that the
word "may" (issue a notice of suspension) apparently contemplated some
exercise of discretion, the court ruled that Section 1818(g) as
originally enacted was unconstitutional for failure to provide any
hearing at all. The court stated that at a minimum due process required
an "immediate post-suspension hearing" (420 F. Supp. at 120). The court
added that in its view "notice, the opportunity to be represented by
counsel, for written submissions, and for oral argument, appear mandated
by the circumstances" (ibid.), but that "the nature of the relevant
inquiry' * * * does not seem to require any more than written submission
(of evidence)" (ibid. (footnote omitted) (quoting Mathews v. Eldridge,
424 U.S. at 343)).
In direct response to Feinberg, Congress amended paragraph (1) of
subsection (g), adding the reference to a threat to the interests of
depositors or to public confidence, and added paragraph (3) to
subsection (g), providing that a post-suspension hearing, following the
procedures outlined generally by the Feinberg court, must be convened
within 30 days, with a written decision to follow within 60 days. Pub.
L. No. 95-630, Section 111(a)(1), 92 Stat. 3665-3666. The House Report
accompanying this amendment explained that Feinberg had held that "the
removal statute was deficient since it did not provide opportunity for
hearing and review of an agency's action. Under the provisions of H.R.
13471 an individual will now have that opportunity" (H.R. Rep. 95-1383,
95th Cong., 2d Sess. 19 (1978).
Section 1818(g) thus reflects Congress's specific determination that
a summary suspension power is vital to the protection of insured banks
and that the procedures specified -- including the time periods allowed
and the discretion to accept or not accept oral testimony -- meet the
requirements of due process. The district court here exercised the
federal courts' "ultimate and supreme (power)" (Chicago & Grand Trunk
Ry. v. Wellman, 143 U.S. 339, 345 (1892)) in the face of this deliberate
congressional determination.
b. As this Court recently stated, "(a) facial challenge to (the
validity of) a legislative Act is, of course, the most difficult
challenge to mount successfully, since the challenger must establish
that no set of circumstances exists under which the Act would be valid"
(United States v. Salerno, No. 86-87 (May 26, 1987), slip op. 5).
Nevertheless, the district court, on the basis of an unsound analogy to
Barry v. Barchi, held the time limits chosen by Congress
unconstitutional in all cases.
In Barry, the Court invalidated a summary 15-day suspension, which
was subject to a 30-day post-suspension review, on the ground that under
those circumstances the review did not afford any meaningful process at
all. Here, the district court asserted that because of the Speedy Trial
Act the period of a Section 1818(g) suspension generally would be less
than the time allowed by 12 U.S.C. 1818(g)(3) for a hearing and
decision, rendering the post-suspension process similarly meaningless.
But the premise of this argument, that a Section 1818(g) suspension
would normally last less than 90 days, is demonstrably quite wrong.
First, the 70-day period provided for by the Speedy Trial Act is subject
to several categories of "excludable time," and a great many criminal
trials, including Mallen's, have taken more than 90 days from indictment
to verdict. More important, the court misunderstood the duration of a
Section 1818(g) suspension, which continues until "such information,
indictment, or complaint is finally disposed of or until terminated by
the agency." It is clear from the structure of Secion 1818(g) that this
refers to the completion of appellate review of a conviction, because
the ensuing remedy, permanent removal after conviction, cannot be
imposed until the conviction is no longer subject to appellate review.
12 U.S.C. 1818(g)(1). The district court in Feinberg understood this
point and noted that "such a final disposition, considering the possible
appellate avenues, presents the possibility of a substantial passage of
time" (420 F. Supp. at 119). Mallen's indictment has not yet been
finally disposed of for purposes of the statute, and may not be for a
considerable period. Meanwhile, had the district court not intervened,
Mallen would have had his hearing and final determination, on a
suspension that began last January 26, some time last April at the
latest.
The district court, relying on the misplaced analogy to Barry, made
no serious examination of whether Congress was justified in allowing up
to 30 days to hold a hearing, and up to 60 days thereafter for a
decision, before a person under indictment for a felony involving a
breach of trust or dishonesty may be returned to a position of trust at
an insured bank. As this Court has noted, "there is no obvious bright
line dictating when a (post-suspension) hearing must occur" (United
States v. Eight Thousand Eight Hundred and Fifty Dollars ($8,850), 461
U.S. 555, 562 (1983)). We respectfully suggest that in this instance
the congressional judgment was entitled to deference and should have
been sustained.
An indictment reflects the grand jury's determination that there is
probable cause to believe that the accused has committed the felony
charged (see United States v. Calandra, 414 U.S. 338, 343 (1974)); the
decision to indict "is made by a deliberative public body acting as an
arm of the judiciary, operating under constitutional and other legal
constraints" (James A. Merritt and Sons v. Marsh, 791 F.2d 328, 330 (4th
Cir. 1986)). Where the felony charged involves dishonesty or breach of
trust, the grand jury's determination plainly raises the most serious
questions about whether the officer should continue to participate in
the conduct of the affairs of a federally insured bank. /9/
Particularly in view of the fact that the grand jury determination
provides "an initial check against mistaken decisions" (Cleveland Bd. of
Educ. v. Loudermill, 470 U.S. 532, 545-546 (1985)), the 90-day maximum
period allowed for final decision on Section 1818(g) suspensions falls
well within the range this Court has found acceptable. See, e.g., Eight
Thousand Eight Hundred and Fifty Dollars, 461 U.S. at 565 (18-month
delay between seizure of currency and commencement of forfeiture action
"quite significant" but not excessive); Loudermill, 470 U.S. at 545-546
(nine-month delay in post-termination review acceptable where
pretermination hearing provided "initial check"); cf. Mathews v.
Eldridge, 424 U.S. at 341-342; Arnett v. Kennedy, 416 U.S. 134, 167-171
(1974) (Powell, J., concurring); Dixon v. Love, 431 U.S. 105, 109-110
(1977).
There are sound reasons for the statutory timetable. Where possible,
the FDIC schedules a hearing to be held in less than 30 days, as it did
here. But the FDIC, which does not employ any administrative law
judges, generally secures the services of a retired administrative law
judge to conduct the hearing. And the FDIC Regional Counsels' normal
practice is to offer oral testimony (subject to cross examination) and
not to object to the presentation of oral testimony by the respondent
(see generally Hearing Tr. 60-61). Finding a date that is mutually
convenient for the administrative law judge, counsel, and witnesses, and
which allows for preparation time, may in some instances require the
full 30 days Congress allowed.
The 60 days permitted for decision (accompanied by a written
explanation) is also not an unreasonable period, given the agencies'
other responsibilities (which in the case of the FDIC include insurance
and oversight responsibility for more than 15,000 insured banks) and the
high stakes involved. The decision of the FDIC to return to a position
of trust at a federally insured bank an individual who has been indicted
for a felony involving personal dishonesty or breach of trust is a
significant one. Indeed, because of the seriousness of felony charges
against "bank officers and savings and loan officers who are handling
other people's money by virtue of a special governmental license granted
to them in the public interest" (112 Cong. Rec. 20080 (1966) (remarks of
Sen. Proxmire, Senate sponsor of 1966 Act, explaining importance of new
regulatory powers)), Congress regarded suspension following indictment
as "virtually routine" (S. Rep. 1482, 89th Cong. 2d Sess. 2 (1966)).
Congress later reasonably provided enough time for prompt but meaningful
agency consideration before the agency acts on the suspended officer's
request that it terminate or modify the suspension.
The interest of the suspended officer is of course not insubstantial.
But in circumstances where it has been determined that there is a basis
for charging him with a felony involving breach of trust or dishonesty,
the suspended officer's interest simply cannot outweigh the public
interest in due consideration before he is returned to a post at a
federally insured bank.
2. The district court also held Section 1818(g) unconstitutional
because it gives the agency discretion (which the FDIC has delegated to
the hearing officer (12 C.F.R. 308.61(e)) to decide not to receive oral
testimony. This ruling was error for two reasons.
First, although as noted above it is the normal practice of FDIC
Regional Counsels not to object to oral testimony, the opportunity to
present oral testimony is not, under the circumstances, a requirement of
due process. The fact of indictment for a felony involving breach of
trust or dishonesty is itself constitutionally sufficient to justify
suspension from a position of trust at a federally insured bank, and as
noted Congress believed that suspensions would be "virtually routine."
The questions left to the agency are whether the crime charged is a
crime involving breach of trust or dishonesty, and whether continued
participation in the bank's affairs by a person so charged would
threaten the interests of depositors or public confidence in the bank;
these are primarily matters of law and expert agency judgment. /10/ The
officer is permitted, in person or through counsel, to address these
questions in written submissions and oral argument. but it is as true
under the amended statute as it was at the time of Feinberg, that "the
'nature of the relevant inquiry' * * * does not seem to require any more
than written submission" (420 F. Supp. at 120 (footnote ommitted)
(quoting Mathews, 424 U.S. at 343)). Cf. Greenholtz v. Nebraska Penal
Inmates, 442 U.S. 1, 16 (1979)).
Second, even if the Constitution did require the opportunity to
present oral testimony, the proper judicial course would have been' to
order the agency to receive it. Especially in light of this Court's
expressed willingness "to assume a congressional solicitude for fair
procedure" (Califano v. Yamasaki, 442 U.S. 682, 693 (1979) (citation
omitted)), a court might conclude that it could construe the statute as
not authorizing the FDIC to exercise its discretion in an
unconstitutional manner. Such a reading, under which the agency would
have to determine its constitutional obligations in order to comply with
the statute, would avoid attributing to Congress the "unusual doctrine *
* * that the (agency) may not construe its own statutory mandate in
light of federal constitutional principles." Ohio Civil Rights Comm'n v.
Dayton Christian Schools, Inc., No. 85-488 (June 27, 1986), slip op. 8-9
(citing NLRB v. Catholic Bishop, 440 U.S. 490 (1979)). Alternatively,
the court could simply order the agency to exercise its discretion in
the manner permitted by the Constitution. Finally, if the court
concluded that the statute could not be construed so as to preserve its
constitutionality, the proper course would have been to invalidate the
statute insofar as it purported to confer discretion to decline to
receive oral testimony -- not to invalidate the entire suspension
procedure. As this Court has often said, "(a) court should refrain from
invalidating more of the statute than is necessary.'" Alaska Airlines,
Inc. v. Brock, No. 85-920 (Mar. 25, 1987), slip op. 5 (quoting Regan v.
Time, Inc., 468 U.S. 641, 652 (1984)).
CONCLUSION
Probable jurisdiction should be noted.
Respectfully submitted.
CHARLES FRIED
Solicitor General
RICHARD K. WILLARD
Assistant Attorney General
LOUIS R. COHEN
Deputy Solicitor General
JOHN HARRISON
Assistant to the Solicitor General
ANTHONY J. STEINMEYER
NICHOLAS S. ZEPPOS
Attorneys
DOUGLAS H. JONES
Deputy General Counsel
RONALD R. GLANCZ
Assistant General Counsel
JAMES A. CLARK
Senior Attorney Federal Deposit Insurance Corporation
JULY 1987
/1/ The statute thus allows a maximum of 90 days to elapse between
the request for a hearing and the agency's decision. The FDIC has
provided by rule that, at the request of either the officer or the staff
of the FDIC's Office of General Counsel, the record shall remain open
for five days after the hearing for the parties to make additional
sumbissions (12 C.F.R. 308.61(g)). The regulations provide, however, in
accordance with the statute, that the FDIC is to make its decision
"(w)ithin 60 days following the hearing or receipt of written
submissions" (12 C.F.R. 308.62). Thus, the period during which the
record may be kept open does not extend the 90-day period allowed by the
statute. The district court, which referred to "95 days" (see App.,
infra, 4a) appears to have misunderstood this point.
/2/ Another subsection, 12 U.S.C. 1818(e), sets forth a procedure by
which the appropriate federal banking agency may remove or suspend any
director or officer of an insured bank who, in the opinion of the
agency, has engaged in specified misconduct that, in the agency's
judgment, has injured or may injure the bank or the interests of its
depositors. Removal is effective after notice and a hearing (12 U.S.C.
1818(e)(5)). Where an individual's conduct is deemed to pose an
immediate danger, he may be suspended pending the removal proceeding (12
U.S.C. 1818(e)(4)). Suspension is effective immediately upon written
notice and continues through the removal proceeding, unless stayed by a
court as provided in the statute (see 12 U.S.C. 1818(e)(4) and (f)).
In late 1986 (before Mallen was indicted), the FDIC had conducted a
two-week administrative hearing to determine whether to remove Mallen
pursuant to Section 1818(e)(5) on account of his activities at the bank.
No result was reached because the administrative law judge in that
proceeding recused himself before ruling. See App., infra, 3a n.1. The
Regional Counsel's position that oral evidence should be dispensed with
in the present case was set forth in a letter dated February 2, 1987, to
the Executive Secretary of the FDIC and to Mallen's counsel (attached to
complaint) and was based in part on the fact that the record of that
recent adversarial proceeding, which produced 1400 pages of sworn
testimony, was available.
/3/ The court did not reach this question. 12 U.S.C. 1818(i)
provides that "except as otherwise provided in this section no court
shall have jurisdiction to * * * review, modify, suspend, terminate or
set aside any such notice or order." The FDIC took the position that
this provision does not preclude judicial review of notices of
suspension under Section 1818(g) and that it is constitutional to do so.
Mallen also alleged that Section 1818(g) violates the Due Process
Clause of the Fifth Amendment "because it discriminates against those
indicted for federal offenses, but not similar state law offenses."
Complaint 7. The district court never ruled on this count. The statute
refers to violations of "State of Federal law" (12 U.S.C. 1818(g)(1)).
/4/ The FDIC also contended that the district court lacked
jurisdiction over the case because 12 U.S.C. 1818(i)(1) provides that
"except as otherwise provided in this section no court shall have
jurisdiction to affect by injunction or otherwise the issuance or
enforcement of any notice or order under this section, or to review,
modify, suspend, terminate or set aside any such notice or order." There
is no provision elsewhere in Section 1818 for judicial review of notices
and orders under Section 1818(g). The district court understood,
however, that it was "not contended that the Court has no jurisdiction
to review the constitutionality of the statutory scheme," and found that
it had jurisdiction under 28 U.S.C 1331 (App., infra, 17a). We do not
argue that Section 1818(i) deprives federal courts of jurisdiction to
consider the constitutionality of Section 1818(g). Cf. Johnson v.
Robison, 415 U.S. 361, 366-367 (1974).
/5/ The district court did not make clear whether its injunction was
preliminary or permanent. On the one hand, it explained (App., infra,
1a) that it was ruling on the motion for a preliminary injunction,
recited the standard for granting preliminary relief (id. at 7a-8a) and
later described its ruling as "based only on the record that had been
made to the date of the preliminary injunction hearing" (id. at 19a
n.1). On the other hand, the bulk of the court's discussion was on the
merits of the claim, no further hearing was set and the Order was
permanent in form (id. at 18a). Especially in light of the district
court's subsequent refusal to modify its order, we understand it to have
issued a permanent injunction. The injunction is appealable to this
Court in any event (see 28 U.S.C. 1252).
/6/ The district court did stay its order "(t)o the extent that this
Court's rulings have an impact on other cases involving indicted bank
officers" (App., infra, 25a). Mallen and the bank were the only
plaintiffs in the district court proceeding.
/7/ The FDIC has moved for a permanent injunction. No date has been
set for a hearing on this motion.
/8/ See also note 2, supra.
/9/ Federal crimes for which the penalty may exceed one year in
prison may be prosecuted only by indictment, unless the defendant waives
that right (Fed. R. Crim. P. 7(a) and (b)). Section 1818(g) also
permits suspension of officers and directors accused in a complaint
authorized by a United States Attorney or in an information, including
an information charging a state crime. A suspension based on an
accusation not amounting to a determination of probable cause might
present statutory or constitutional questions not presented in this
case.
/10/ In particular, the agency's task does not include evaluating the
likelihood that the officer is guilty of the crime charged: that is the
responsibility of the criminal process, and FDIC regulations preclude
consideration of this issue (see 12 C.F.R. 308.56(a)). The question for
the agency -- one of law and expert judgment -- is whether the acts
charged are such as to suggest a threat to the bank's depositors or to
public confidence.
Appendix
COMMISSIONER OF INTERNAL REVENUE, PETITIONER V. ESTATE OF ARTHUR H.
MCCOY, DECEASED, ROBERT MCCOY, EXECUTOR
No. 87-75
In the Supreme Court of the United States
October Term, 1987
The Solicitor General, on behalf of the Commissioner of Internal
Revenue, petitions for a writ of certiorari to review the March 2, 1987,
order of the United States Court of Appeals for the Sixth Circuit in
this case.
Petition for a Writ of Certiorari to the United States Court of
Appeals for the Sixth Circuit
TABLE OF CONTENTS
Opinions below
Jurisdiction
Statute involved
Question presented
Statement
Reasons for granting the petition
Conclusion
Appendix
OPINIONS BELOW
The order of the court of appeals forgiving the interest and penalty
(App., infra, 1a-2a) is unreported. The opinion of the court of appeals
sustaining the tax deficiency (App., infra, 3a-15a) is reported at 809
F.2d 333. The opinion of the Tax Court (App., infra, 19a-27a) is
unofficially reported at 50 T.C.M. (CCH) 1194, and the decision of the
Tax Court (App., infra, 28a) is unreported.
JURISDICTION
The judgement of the court of appeals sustaining the tax deficiency
(App., infra, 16a-17a) was entered on January 23, 1987. The order of
the court of appeals forgiving the interest and penalty (App., infra,
1a-2a) was entered on March 2, 1987. On May 26, 1987, Justice Scalia
extended the time for filing a petition for writ of certiorari to and
including July 13, 1987. The jurisdiction of this Court is invoked
under 28 U.S.C. 1254(1).
STATUTE INVOLVED
The relevant portions of Sections 6601, 6651, and 7482 of the
Internal Revenue Code (26 U.S.C.) are as follows:
SEC. 6601. Interest on underpayment, nonpayment, or extensions
of time for payment, of tax
(a) General rule
If any amount of tax imposed by this title (whether required to
be shown on a return, or to be paid by stamp or by some other
method) is not paid on or before the last date prescribed for
payment, interest on such amount at an annual rate established
under section 6621 shall be paid for the period from such last
date to the date paid.
SEC. 6651. Failure to file tax return or to pay tax
(a) Addition to the tax
In case of failure --
(3) to pay any amount in respect of any tax required to be
shown on a return specified in paragraph (1) which is not so shown
(including an assessment made pursuant to section 6213(b)) within
10 days of the date of the notice and demand therefore, unless it
is shown that such failure is due to reasonable cause and not due
to willful neglect, there shall be added to the amount of tax
stated in such notice and demand 0.5 percent of the amount of such
tax if the failure is for not more than 1 month, with an
additional 0.5 percent for each additional month or fraction
thereof during which such failure continues, not exceeding 25
percent in the aggregate.
SEC. 7482. Courts of review
(a) Jurisdiction
The United States Courts of Appeals (other than the United
States Court of Appeals for the Federal Circuit) shall have
exclusive jurisdiction to review the decisions of the Tax Court,
except as provided in section 1254 of Title 28 of the United
States Code, in the same manner and to the same extent as
decisions of the district courts in civil actions tried without a
jury; and the judgment of any such court shall be final, except
that it shall be subject to review by the Supreme Court of the
United States upon certiorari, in the manner provided in section
1254 of Title 28 of the United States Code.
(c) Powers
(1) To affirm, modify, or reverse
Upon such review, such courts shall have power to affirm or, if
the decision of the Tax Court is not in accordance with law, to
modify or to reverse the decision of the Tax Court, with or
without remanding the case for a rehearing, as justice may
require.
QUESTION PRESENTED
Whether the court of appeals exceeded its authority in granting a
taxpayer's request to forgive interest on a tax deficiency, and to
forgive a statutory late-payment penalty, "in order to achieve a fair
and just result."
STATEMENT
1. Arthur H. McCoy died testate on April 23, 1980, and respondent
Robert McCoy was appointed executor of his estate. The defendent at the
time of his death owned an undivided one-half interest in land used for
his family farm, which had a fair market value of $235,140. Section
2032A of the Internal Revenue Code /1/ allows an estate to elect a
special method for valuing certain real property, including farm
property, for estate tax purposes. This method generally produces a
lower valuation and hence a lower estate tax. At the time relevant
here, this election was available only if the land was "qualified real
property" and only if the election was made "not later than the time
prescribed by Section 6075(a) for filing the (estate tax) return * * *
(including extensions thereof) * * *." 26 U.S.C. (1976 ed.) 2032A(b) and
(d)(1). Since an estate tax return under Section 6075(a) must be filed
within nine months of the decedent's death, and since respondent did not
obtain an extension of time to file that return, respondent was required
to make an election under Section 2032A, if he desired to make one, no
later than January 23, 1981. App., infra, 4a, 20a.
It is undisputed that the decedent's farmland was "qualified real
property" as that term was defined in 1980. Respondent, however, did
not file an estate tax return electing to value that property under
Section 2032A until February 11, 1981 -- 19 days after the election was
required to be made. App., infra, 4a, 20a. The election was therefore
untimely. The Commissioner accordingly concluded that the farmland had
to be valued for estate tax purposes at its fair market value
($235,140), and not at the lower figure ($103,305) that respondent had
reported in reliance on Section 2032A. App., infra, 20a. Based on that
conclusion, the Commissioner determined a deficiency in estate tax in
the amount of $22,159.72. No additions to tax were imposed at that
time. App., infra, 19a-20a.
Respondent sought redetermination of the deficiency in the Tax Court.
Respondent conceded that his election was untimely -- and therefore
ineffective -- under the law in existence at the time of the decedent's
death. See App., infra, 21a. But respondent contended that the time
for making the Section 2032A election had been extended retroactively by
the effective-date provisions of the amendments to Section 2032A
contained in the Economic Recovery Tax Act of 1981 (ERTA), Pub. L. No.
97-34, Section 421(k)(5), 95 Stat. 314.
The Tax Court rejected this contention and sustained the deficiency
determined by the Commissioner. The court held that the relevant ERTA
provisions afforded an additional period to make the Section 2032A
election only to estates that had been ineligible to elect the benefits
of that section prior to ERTA's enactment. The court ruled that
Congress had not intended to confer a windfall on estates, like the
instant estate, that were previously eligible for Section 2032A
benefits, but which had not qualified for these benefits because their
executors simply had failed to make a timely election (App., infra,
24a-27a).
The court of appeals unanimously affirmed (App., infra, 3a-15a).
Although it suggested that the original language of ERTA lent support to
respondent's position (see id. at 6a-11a), it concluded that the
Technical Corrections Act of 1982, Pub. L. No. 97-488, 96 Stat. 2365,
which amended ERTA retroactively in order to clarify the relevant
effective-date provisions, made clear that Congress did not intend the
ERTA provisions to benefit previously eligible estates (App., infra,
11a-14a). Accordingly, the court held that respondent's election was
untimely and ineffective, as respondent conceded it was under pre-ERTA
law.
2. After the Tax Court's decision, respondent failed to file the
appeal bond required by Section 7485 of the Code to stay assessment and
collection of the deficiency that the Tax Court had determined. While
the appeal was pending in the Sixth Circuit, therefore, the Commissioner
duly assessed the deficiency and later issued a notice and demand for
payment of the tax. See I.R.C. Sections 6201, 6213(a), 7485(a) and
6303. When respondent did not pay the deficiency within 10 days of
notice and demand, an addition to tax under Section 6651(a)(3) thereupon
accrued. That section provides that, if a taxpayer fails to pay a tax
within 10 days of notice and demand therefor, there shall be added to
the tax an amount equal to 0.5% of the tax (but not exceeding 25% in the
aggregate) for each month that the failure continues, unless the
taxpayer shows that his failure was "due to reasonable cause and not due
to willful neglect."
Shortly after the Sixth Circuit issued its judgment sustaining the
tax deficiency, respondent filed, on February 7, 1987, a petition asking
that court to "forgive" the interest that had accrued on the deficiency,
as well as the Section 6651(a)(3) late-payment penalty. Respondent
stated that the total amount of delinquent estate tax, interest, and
penalty then exceeded $50,000. Respondent asserted that it would be
inequitable to require the estate to pay the interest and the penalty in
view of the fact that it had litigated in good faith the validity of its
Section 2032A election.
On March 2, 1987, the court of appeals entered an order granting
respondent's petition, without requesting a response from the government
(App., infra, 1a-2a). /2/ The court asserted that "interest and penalty
should be forgiven in this case in order to achieve a fair and just
result." The court therefore "ordered that the (Commissioner) collect
only the tax assessed against (respondent) and that all interest,
penalties and other late charges are forgiven." Ibid.
REASONS FOR GRANTING THE PETITION
The court of appeals' order is made of whole cloth; it has no basis
whatever in law. To begin with, the questions of respondent's liability
for interest and the late-payment penalty were beyond the scope of the
Tax Court decision being reviewed by the court of appeals. Those
questions, therefore, were outside the appellate court's jurisdiction.
Apart from this jurisdictional defect, the court of appeals' ruling is
insupportable on the merits. It was issued in defiance of the statutes
that Congress has enacted, it conflicts with decisions of other
appellate courts, and it seriously undermines settled principles of tax
litigation. Such an arrogation of judicial power should not be
countenanced by this Court.
1. Section 7482(a) of the Code grants the courts of appeals
jurisdiction to review decisions of the Tax Court "in the same manner
and to the same extent as decisions of the district courts in civil
actions tried without a jury." Section 7482(c), entitled "Powers,"
states that the courts of appeals "shall have power to affirm or, if the
decision of the Tax Court is not in accordance with law, to modify or to
reverse the decision of the Tax Court." In reviewing a Tax Court
decision, therefore, the duty of the court of appeals is to consider
whether the Tax Court committed error. See generally Marbury v.
Madison, 5 U.S. (1 Cranch) 137, 175 (1803) ("It is the essential
criterion of appellate jurisdiction, that it revises and corrects the
proceedings in a case already instituted, and does not create that
cause."). A court of appeals plainly lacks jurisdiction to decide
issues that were not the subject of the Tax Court proceeding or to grant
relief that would be beyond the powers of the Tax Court itself. See,
e.g., Taylor v. Commissioner, 258 F.2d 89, 93 (2d Cir. 1958);
Vandenberge v. Commissioner, 147 F.2d 167, 168 (5th Cir.), cert. denied,
325 U.S. 875 (1945); cf. Commissioner v. Gooch Milling & Elevator Co.,
320 U.S. 418 (1943) (recognizing limited jurisdiction of Board of Tax
Appeals). /3/
The court of appeals violated its jurisdictional bounds in this case.
Its jurisdiction was "to review the decision() of the Tax Court"
(I.R.C. Section 7482(a)), and the decision of the Tax Court was that
"there is a deficiency in the amount of $22,159.72 in (respondent's)
Federal estate tax" (App., infra, 28a). Because the court of appeals
ruled that this decision was correct, the court should have done no more
than affirm it. Instead, the Sixth Circuit went on to decide new
questions relating to interest and penalty -- questions that were not
presented, and could not possibly have been presented, to the Tax Court
-- and to grant relief that the Tax Court itself would have had no
jurisdiction to provide.
The Tax Court itself could not have entertained a request by
respondent to "forgive" interest on the estate tax deficiency. Interest
on tax deficiencies is mandated by statute (I.R.C. Section 6601(a)), and
it is well established that the Tax Court, as a court of limited
jurisdiction, lacks general equitable powers. Commissioner v. Gooch,
supra; Continental Equities, Inc. v. Commissioner, 551 F.2d 74 (5th
Cir. 1977); Morse v. United States, 494 F.2d 876 (9th Cir. 1974);
Schwartz v. Commissioner, 40 T.C. 191, 193-194 (1963). Indeed, the Tax
Court does not have jurisdiction even to determine the correct amount of
interest to be imposed on a deficiency. See, e.g., Commissioner v.
Kilpatrick's Estate, 140 F.2d 887 (6th Cir. 1944); Estate of
Baumgardner v. Commissioner, 85 T.C. 445, 452 (1985); Chapman v.
Commissioner, 14 T.C. 943, 946-947 (1950), aff'd, 191 F.2d 816 (9th Cir.
1951), cert. denied, 343 U.S. 905 (1952). It is for that reason that
the Tax Court's "decision" is limited to "an order specifying the amount
of the deficiency." I.R.C. Section 7459(c); T.C. Rule 155; App.,
infra, 28a. The Tax Court's decision makes no reference to interest,
which is computed subsequently and independently by the Commissioner.
The Section 6651(a)(3) penalty was also outside the scope of the
appeal. That "addition to the tax" is imposed when a taxpayer fails to
pay a tax "within 10 days of the date of notice and demand therefor."
"Notice and demand" for a tax cannot be made until the tax has been
assessed (I.R.C. Section 6303), and the deficiency here was not
assessed, and could not have been assessed, until after the Tax Court
had entered its decision (I.R.C. Section 6213(a)). In the instant case,
therefore, there was not even an occasion for imposition of a Section
6651(a)(3) penalty until after the Tax Court's decision had been
rendered. It is thus obvious that no challenge to that penalty could
have been mounted in the Tax Court, and that no reference to that
penalty could have been made in the Tax Court decision under review here
by the court of appeals. /4/
The fact that the interest and late-payment penalty could not have
been challenged in the Tax Court does not mean that the estate was
without an opportunity to litigate the validity of those items. The
proper procedure would have been for respondent to have paid the
statutorily-imposed interest and penalty and then sued for a refund in
the district court or the Claims Court. The Sixth Circuit in the former
case, and the Federal Circuit in the latter, would then have had
jurisdiction to consider those issues on appeal from a judgment of the
appropriate trial court. But the Sixth Circuit's undertaking to
"forgive" the interest and the penalty, in the course of reviewing a Tax
Court decision that did not address and could not have addressed those
questions, quite plainly exceeded its jurisdiction.
Indeed, besides transgressing general principles of appellate
jurisdiction, the Sixth Circuit's order violates the specific mandate of
Section 7421(a) of the Code, generally known as the "Anti-Injunction
Act." That statute provides, with exceptions not relevant here, that "no
suit for the purpose of restraining the assessment or collection of any
tax shall be maintained in any court by any person." The purpose of this
provision is to allow the United States to assess and collect its taxes
without judicial intervention, and to channel disputes over the
correctness of such assessments and collection to the forums designated
for refund suits. See, e.g., Bob Jones University v. Simon, 416 U.S.
725, 736 (1974); Enochs v. Williams Packing & Navigation Co., 370 U.S.
1 (1962). In particular, the Anti-Injunction Act prohibits injunctive
relief with respect to the collection of interest on taxes (Transport
Mfg. & Equipment Co. v. Trainor, 382 F.2d 793, 797 n.8 (8th Cir. 1967))
and with respect to collection of additions to tax imposed under Section
6651 (Professional Engineers, Inc. v. United States, 527 F.2d 597 (4th
Cir. 1975); Shaw v. United States, 331 F.2d 493, 496 (9th Cir. 1964)).
The Sixth Circuit here, by "order(ing) that the (Commissioner) collect
only the tax assessed" to the exclusion of interest and penalty (App.,
infra, 2a), has restrained the Commissioner from collecting those latter
sums. The court thus violated the limitation on judicial power set
forth in Section 7421. /5/
2. Quite apart from its jurisdictional defects, the court of appeals'
order forgiving the interest and the penalty is insupportable on the
merits. Section 6601 of the Code provides that, "(i)f any amount of tax
imposed by this title * * * is not paid on or before the last date
prescribed for payment, interest on such amount at the annual rate
established under Section 6621 shall be paid for the period from such
last date to the date paid" (emphasis added). The interest mandated by
Section 6601 is not a sanction for late payment; rather, it represents
compensation to the government for interest foregone due to the
taxpayer's delay in payment. See, e.g., United States v. Childs, 266
U.S. 304, 309-310 (1924). The interest requirement is absolute; the
statute contains no provision for judicial waiver of the interest
requirement in order to achieve what the court of appeals described as
"a fair and just result" (App., infra, 1a).
Accordingly, the courts of appeals have uniformly rejected the idea
that a taxpayer can be relieved of his obligation to pay interest on a
tax deficiency because of supposed equitable considerations. The Ninth
Circuit has simply noted that the language of the statute is
unequivocal. Grauvogel v. Commissioner, 768 F.2d 1087, 1090 (1985).
The Tenth Circuit has pointed out that the purpose of the interest
provision is to compensate the government for delay in payment, not to
penalize the taxpayer; it accordingly has concluded that "(a) taxpayer
cannot seek redetermination and review of a deficiency in tax, enjoy the
delay, and when unsuccessful be heard to say that interest should not be
exacted." Owens v. Commissioner, 125 F.2d 210, 213 (1942). And the
Sixth Circuit itself, in reversing a district court order that had
abated interest after one year because of court delays, has stated that
such an order is "beyond the court's equitable powers * * * (and)
plainly erroneous." Johnson v. United States, 602 F.2d 734, 739 (1979);
see also United States v. Means, 621 F.2d 236, 238 (6th Cir. 1980).
The court of appeals' action in forgiving the late-payment penalty
was equally erroneous. Whereas Section 6601 makes the imposition of
interest unconditional, Section 6651(a)(3) does excuse a taxpayer from
the late-payment penalty if he shows that his failure to pay the tax on
time was "due to reasonable cause and not due to willful neglect." But
the court of appeals did not rest its order on any such finding.
Indeed, it could scarcely have done so, since the existence of
"reasonable cause" entails a question of fact (see United States v.
Boyle, 469 U.S. 241, 249 n.8 (1985)); that factual question was not
considered and could not have been considered by the Tax Court (see page
9, supra), and that question could not have been decided in the first
instance by the court of appeals. /6/
If respondent wished to contest his liability for the late-payment
penalty, his proper course was to pay it and then file a refund suit.
In that case, the appropriate trial court would have determined whether
his failure to make timely payment was excusable for "reasonable cause,"
and the appropriate court of appeals could have been asked to review
that finding. But the Sixth Circuit here had absolutely no authority --
with or without the benefit of factual findings below -- to forgive the
penalty "in order to achieve a fair and just result" (App., infra, 1a).
3. The decision of the court of appeals evades the clear mandate of
two statutory provisions that arise almost daily in federal tax
litigation. In enacting Section 6601, Congress has determined that a
taxpayer who wishes to halt the accrual of interest must pay the
deficiency while pursuing his claims in court. The decision below
effectively grants taxpayers an interest-free loan while they are
pursuing their claims in court, thus imposing on the government the cost
of delay occasioned by unsuccessful taxpayer litigation. Similarly, in
enacting Section 6651, Congress has created an additional incentive for
taxpayers to pay their taxes promptly, providing for the exaction of a
modest penalty where a late payment is not due to "reasonable cause."
The decision below reads those words out of the statute, holding that
the penalty is inapplicable whenever a court chooses to forgive it.
These twin rulings, unless reversed, will only encourage taxpayers to
pursue wasteful and dilatory litigation and could have a severely
deleterious effect on the public fisc.
Moreover, the court issued its decision in a casual, almost offhand,
manner. It made no effort to explain its jurisdiction or its result, it
ignored conflicting decisions of other appellate courts, and it did not
even cite the statutes that it was purporting to construe. Compare
Sumner v. Mata, 449 U.S. 539, 548 (1981). The court issued its
unprecedented order without requesting a response from the government,
and, when presented with a petition for rehearing from the government,
evidently chose to ignore that document rather than address the
arguments in it.
The court of appeals' order is unpublished, and we do not often seek
certiorari from unpublished orders, erroneous though they often seem to
us. The Sixth Circuit's action here, however, is not the only example
of its seeming willingness to ignore the language of tax statutes in a
misguided effort to do equity. See Asphalt Products Co. v.
Commissioner, 796 F.2d 843 (1986) (construing Section 6653(a) negligence
penalty), rev'd per curiam, No. 86-1053 (June 1, 1987). And we do not
think that a court should be permitted to ignore Acts of Congress,
whether or not it chooses to publish its decision.
CONCLUSION
The petition for a writ of certiorari should be granted, and the
March 2, 1987, order of the court of appeals should be summarily
reversed.
Respectfully submitted.
CHARLES FRIED
Solicitor General
MICHAEL C. DURNEY
Acting Assistant Attorney General
ALBERT G. LAUBER, JR.
Deputy Solicitor General
ALAN I. HOROWITZ
Assistant to the Solicitor General
JONATHAN S. COHEN
DOUGLAS G. COULTER
Attorneys
JULY 1987
/1/ Unless otherwise noted, all statutory references are to the
Internal Revenue Code (26 U.S.C.), as amended (the Code or I.R.C.).
/2/ The government treated respondent's post-judgment petition for
forgiveness of interest and penalty as a petition for rehearing, which
is not to be responded to absent a request by the court. See Fed. R.
App. P. 40. On March 16, 1987, the government filed a timely petition
for rehearing of the court's March 2 order, together with a motion to
recall the mandate, pointing out that the court's order exceeded its
authority. On April 14, 1987, the court denied the motion to recall the
mandate (App., infra, 18a), and the clerk subsequently informed the
government that this denial should be treated as a denial of the
government's petition for rehearing. Out of an abundance of caution, we
have computed the time for filing this petition from March 2, 1987, the
date of the order sought to be reviewed; Justice Scalia subsequently
extended the time for filing the petition to and including July 13,
1987.
/3/ There is of course no jurisdictional bar to a court of appeals'
consideration of arguments not advanced in the Tax Court, although
appellate courts are usually reluctant to entertain such arguments for
prudential reasons. See Hormel v. Helvering, 312 U.S. 552 (1941). But
such arguments, if entertained, must relate to an issue that was
actually the subject of the Tax Court proceeding and that affects the
correctness of the Tax Court decision being reviewed.
/4/ Section 7485 of the Code provides that the assessment and
collection of a deficiency determined by the Tax Court may be stayed
while the taxpayer appeals the Tax Court decision, but "only if the
taxpayer * * * has filed with the Tax Court a bond" to ensure payment.
I.R.C. Section 7485(a)(1); T.C. Rule 192. Thus, respondent could have
avoided the requirement of immediate payment of the deficiency following
the Tax Court's decision and, by the same token, could have avoided
imposition of the penalty that arose when the estate neglected to make
timely payment. Respondent, however, failed to post the requisite
appeal bond.
/5/ There is an extremely limited exception to the prohibition of the
Anti-Injunction Act, namely, where the taxpayer has no adequate remedy
at law and "it is clear that under no circumstances could the Government
ultimately prevail." Enochs v. Williams Packing & Navigation Co., 370
U.S. at 6-7. That exception obviously has no application here, since
respondent could have raised its contentions about the interest and the
penalty in a subsequent refund suit, and since respondent's contentions
about the interest and the penalty are in any event incorrect, as we
demonstrate below.
/6/ The court of appeals, in its order forgiving the late-payment
penalty, recited respondent's allegation (App., infra, 1a) that he had
"reasonably relied" on the retroactive ERTA effective-date provision in
litigating the validity of the estate's Section 2032A election.
Whatever the truth of that allegation, it was wholly irrelevant to the
question of respondent's liability for the late-payment penalty. That
penalty was imposed, not because respondent was negligent in maintaining
his legal position (compare I.R.C. Section 6653(a) (providing for a
negligence penalty)), but because respondent failed to pay the tax after
it had been properly assessed. The Code permits a taxpayer to postpose
assessment while he litigates his position on appeal, but it requires
him to post an appeal bond in order to do so (I.R.C. Section 7485(a)).
When respondent failed to post an appeal bond, the tax was assessed and
payment became due. See note 4, supra. In determining whether
respondent had "reasonable cause" within the meaning of Section
6651(a)(3) for failure to pay at that point, the reasonableness of the
legal theory that prompted him to initiate the litigation was completely
immaterial.
Appendix
UNITED STATES POSTAL SERVICE, PETITIONER V. NATIONAL ASSOCIATION OF
LETTER CARRIERS, AFL-CIO
No. 87-59
In the Supreme Court of the United States
October Term, 1987
The Solicitor General, on behalf of the United States Postal Service,
petitions for a writ of certiorari to review the judgment of the United
States Court of Appeals for the District of Columbia Circuit in this
case.
Petition for a Writ of Certiorari to the United States Court of
Appeals for the District of Columbia Circuit
TABLE OF CONTENTS
Opinions below
Jurisdiction
Statutory provisions involved
Questions presented
Statement
Reasons for granting the petition
Conclusion
Appendix
OPINIONS BELOW
The opinion of the court of appeals (App., infra, 1a-6a) is reported
at 810 F.2d 1239. The opinion of the district court (App., infra,
7a-13a) is reported at 631 F. Supp. 599.
JURISDICTION
The judgment of the court of appeals (App., infra, 25a-26a) was
entered on February 13, 1987. A petition for rehearing was denied on
April 9, 1987 (App., infra, 27a). The jurisdiction of this Court is
invoked under 28 U.S.C. 1254 (1).
STATUTORY PROVISIONS INVOLVED
Section 101(a) of Title 39, United States Code, provides in pertinent
part:
The United States Postal Service shall be operated as a basic
and fundamental service provided to the people by the Government
of the United States * * *. The Postal Service shall have as its
basic function the obligation to provide postal services to bind
the Nation together through the personal, educational, literary,
and business correspondence of the people. It shall provide
prompt, reliable, and efficient services to patrons in all areas *
* *.
Section 101(e) provides:
In determining all policies for postal services, the Postal
Service shall give the highest consideration to the requirement
for the most expeditious collection, transportation, and delivery
of important letter mail.
Section 202(a) provides in pertinent part:
The exercise of the power of the Postal Service shall be
directed by a Board of Governors * * *.
Section 402 provides in pertinent part:
(T)he Board may delegate the authority vested in it to the
Postmaster General under such terms * * * as it deems desirable.
The Board may establish such committees of the Board, and delegate
such powers to any committee, as the Board determines appropriate
to carry out its functions and duties. Delegations to the
Postmaster General or committees shall be consistent with other
provisions of this title, shall not relieve the Board of full
responsibility for the carrying out of its duties and functions,
and shall be revocable by the Governors in their exclusive
judgment.
Section 403 provides in pertinent part:
(a) The Postal Service shall plan, develop, promote, and
provide adequate and efficient postal services * * *. The Postal
Service shall serve as nearly as practicable the entire population
of the United States.
(b) It shall be the responsibility of the Postal Service -- (1)
to maintain an efficient system of collection, sorting, and
delivery of the mail nationwide; * * *.
Section 1001(e) provides in pertinent part:
The Postal Service shall have the right, consistent with
section 1003 and chapter 12 of this title and applicable laws,
regulations, and collective-bargaining agreements --
(2) to hire, promote, transfer, assign, and retain officers and
employees in positions within the Postal Service, and to suspend,
demote, discharge, or take other disciplinary action against such
officers and employees;
(3) to relieve officers and employees from duties because of
lack of work or for other legitimate reasons;
(4) to maintain the efficiency of the operations entrusted to
it; * * *.
Section 1206(b) provides in pertinent part:
Collective-bargaining agreements between the Postal Service and
bargaining representatives * * * may include any procedures for
resolution by the parties of grievances and adverse actions
arising under the agreement, including procedures culminating in
binding third-party arbitration * * *.
Section 1208(b) provides in pertinent part:
Suits for violation of contracts between the Postal Service and
a labor organization representing Postal Service employees * * *
may be brought in any district court of the United States having
jurisdiction of the parties, without respect to the amount in
controversy.
Section 1209(a) provides:
Employee-management relations shall, to the extent not
inconsistent with provisions of this title, be subject to the
provisions of subchapter II of chapter 7 of title 29 (29 U.S.C. (&
Supp. III) 151-169 (National Labor Relations Act)).
1. Whether judicial enforcement of an arbitration award against a
public employer may be contrary to public policy where the agency has
reasonably determined that the award threatens its basic statutorily
defined public mission, although the award does not violate a specific
command of positive law or compel unlawful conduct.
2. Whether an arbitration award ordering the Postal Service to
reinstate an employee who has been discharged for, and criminally
convicted of, failing to deliver thousands of pieces of mail should be
set aside as contrary to public policy.
STATEMENT
Like United Paperworkers Int'l Union v. Misco, Inc., cert. granted,
No. 86-651 (Jan. 12, 1987), this case involves the question whether
considerations of public policy may preclude enforcement of a labor
arbitrator's reinstatement order (see W.R. Grace & Co. v. Rubber Workers
Local 759, 461 U.S. 757, 766 (1983)). Here, however, the order runs
against a public employer, the Postal Service, charged by statute with
the obligation promptly, reliably, and efficiently to carry out its
mission -- the delivery of the mails (39 U.S.C. 101, 403, 1001). The
arbitration award directs the Postal Service to reinstate a letter
carrier who was discharged for, and criminally convicted of, failing to
deliver more than 3,500 pieces of mail. The court of appeals
nevertheless held that enforcement of the award does not violate public
policy (App., infra, 1a-6a).
1. In 1984 police and postal inspectors made a lawful search of the
personal automobile of letter carrier Edward Hyde. They found more than
3,500 undelivered pieces of mail addressed to residents on his delivery
route and elsewhere. Some of the mail contained commercial and United
States Treasury checks; some had been delayed more than a year. See
App., infra, 8a. Mr. Hyde pled guilty to unlawful delay of the mail by
a postal employee, in violation of 18 U.S.C. 1703, and was sentenced to
18 months' probation, a condition of which was that he complete a
rehabilitation program for compulsive gamblers (App., infra, 8a).
The Postal Service discharged Mr. Hyde for his criminal dereliction
of duty. The National Association of Letters Carriers filed a grievance
on Mr. Hyde's behalf and ultimately sought arbitration. The arbitrator
ordered reinstatement of Mr. Hyde without back pay after a 60-day
medical leave of absence. App., infra, 8a-9a. Although stating that
the question presented was whether Mr. Hyde's removal was for "just
cause," the arbitrator refused to consider Mr. Hyde's unlawful
possession and delay of mail in themselves sufficient. Rather, while
acknowledging that he was unable to foretell the prospects of Mr. Hyde's
rehabilitation (ibid.), that "(t)here is the threat of recurrence of
misconduct" (id. at 23a), and that he was not persuaded that Mr. Hyde
could yet return to work (ibid.), the arbitrator ordered Mr. Hyde's
reinstatement (after 60 days) because he thought reinstatement was
necessary to Mr. Hyde's rehabilitation. The arbitrator explained: "if
any reasonable hope exists for the rehabilitation of * * * (Mr. Hyde)
and the returning of him to the work place, no one should deny him this
opportunity" (id. at 21a).
2. The Postal Service filed suit in the district court seeking to set
aside the award as contrary to public policy (see W.R. Grace & Co. v.
Rubber Workers Local 759, 461 U.S. at 766). The district court agreed
with the Service (App., infra, 7a-13a; 631 F. Supp. 599, 600 (D.D.C.
1986)). Following the First Circuit decision in United States Postal
Service v. American Postal Workers Union, 736 F.2d 822 (1984)
(enforcement of arbitrator's order to reinstate a postal employee who
admitted embezzling postal funds violates public policy), the district
court concluded (App., infra, 12a) that the award ordering reinstatement
of Mr. Hyde violates the public policy requiring a reliable and
efficient postal service. The court noted that it would "not lightly
discard the compassionate conclusions of the arbitrator" (ibid.), but
explained (id. at 11a-12a (emphasis in original; footnote omitted))
that Mr. Hyde
violated a public trust by failing to perform his own primary
duty, viz., properly delivering the mail entrusted to him, and his
conduct does no less mischief to the operation of the postal
system simply because it originates in deficits of character
arguably more forgiveable than cupidity. The inexorability of the
mails, upon which literally millions depend daily, is equally
compromised whether postal workers are derelict in their duties
for reasons of avarice, indolence, or distractive vices such as
gambling. The public policy which must prevail in such cases,
when a choice must be made, is that which gives best assurance of
an efficient and reliable postal service, and that policy is not
one of deference to arbitral autonomy in individual grievance
cases, no matter how conscientiously the arbitrator may have
sought to match the penalty to the culpability of the offender.
The Postal Service must retain the ability to remove postal
employees it does not fully trust from positions vulnerable to
breaches of trust; the mails are simply too important to the
country to make them dependent upon the vicissitudes of
rehabilitation of a single letter carrier.
3. The court of appeals reversed (App., infra, 6a; 810 F.2d 1239
(1987)). The court had previously held, in Northwest Airlines, Inc. v.
Air Line Pilots Ass'n Int'l, 808 F.2d 76 (D.C. Cir. 1987), petition for
cert. pending, No. 86-1548 (filed Mar. 26, 1987), and in American Postal
Workers Union v. United States Postal Service, 789 F.2d 1 (D.C. Cir.
1986), that an arbitrator's award may be set aside as contrary to public
policy only if the award itself violates established law or seeks to
compel unlawful conduct. The court reaffirmed that view in this case
(App., infra, 3a-5a), though it acknowledged (id. at 12a n.4) that its
approach was in conflict with that of the First Circuit in United States
Postal Service v. American Postal Workers Union, supra. On the
particular facts of this case, the court found no legal proscription
against the reinstatement of Mr. Hyde (App., infra, 5a-6a) and
accordingly remanded with instructions to enforce the arbitration award.
On April 9, 1987, the court denied the government's petition for
rehearing (App., infra, 27a). On April 24, the court refused to stay
issuance of its mandate (App., infra, 28a). On May 21, 1987, Chief
Justice Rehnquist, acting as Circuit Justice, granted the government's
application for a stay (App., infra, 29a-31a).
REASONS FOR GRANTING THE PETITION
The court of appeals erred in both its interpretation and its
application of the principle that federal courts must refuse to enforce
arbitration awards that are against public policy. The courts of
appeals are in sharp conflict over the scope of that principle not only
as it applies to private employers but also as it applies to public
employers (and, in particular, the Postal Service). The narrow view of
the principle espoused by the court of appeals in this case, whatever
its merits for the private-employer context, is erroneous as applied to
public employers, like the Postal Service, that are subject to
statutorily defined public duties. The arbitration award here, which
ordered the Postal Service to reinstate an employee who criminally
failed to deliver thousands of pieces of mail, must be set aside because
it is inconsistent with the Service's statutory responsibility and
authority to carry out its fundamental mission.
1. This case presents an important question regarding the scope and
application of the rule that a court may, indeed must, set aside an
arbitration award rendered under a collective bargaining agreement when
its judicial enforcement would be contrary to public policy. See W.R.
Grace & Co. v. Rubber Workers Local 759, 461 U.S. at 766 (if a labor
contract as interpreted by an arbitrator "violates some explicit public
policy, we are obliged to refrain from enforceing it"); Town of Newton
v. Rumery, No. 85-1449 (Mar. 9, 1987), slip op. 4 (footnote omitted) ("a
promise is unenforceable if the interest in its enforcement is
outweighed in the circumstances by a public policy harmed by enforcement
of the agreement"). The court of appeals interpreted this public policy
doctrine as permitting a court to set aside an arbitration award, in
public-employer cases and private-employer cases alike, only when the
award compels unlawful conduct or when its enforcement would viiolate
specific positive law. As applied to private employers, there is a
conflict among the courts of appeals on whether the doctrine is
restricted to specific positive-law violations. E.g., Northwest
Airlines, Inc. v. Air Line Pilots Ass'n Int'l, supra; E.I. DuPont de
Nemours & Co. v. Grasselli Employers Independent Ass'n, 790 F.2d 611
(7th Cir. 1986) (disagreeing with view of District of Columbia Circuit),
cert. denied, No. 86-184 (Oct. 6, 1986); S.D. Warren Co. v. United
Paperworkers' Int'l Union, 815 F.2d 178 (1st Cir. 1987) (same);
Amalgamated Meat Cutters, Local 540 v. Great Western Food Co., 712 F.2d
122, 124 (5th Cir. 1983) (same). This Court has granted the petition
for a writ of certiorari in United Paperworkers Int'l Union v. Misco,
Inc., supra, which presents the question, in a private-employer case,
whether the restrictive view is correct.
We do not here take a position on the proper scope of the public
policy principle as applied in Misco or in other private-employer
settings, although some of the reasons (set out below) why we submit
that the district of Columbia Circuit's narrow view is wrong in this
public-employer case apply as well in certian private-employer cases.
It is clear in any event that should this Court reject the restrictive
view of the public policy doctrine in Misco, the decision of the court
of appeals in this case could not stand. At the very least, the
decision would have to be vacated and the public policy question
reconsidered. Accordingly, at a minimum, the instant petition should be
held for Misco.
2. The decision of the court of appeals in this case warrants review
independent of Misco. In W.R. Grace & Co. v. Rubber Workers Local 759,
461 U.S. at 766 (citation omitted), this Court stated that, when the
public policy doctrine is invoked, the public policy "must be well
defined and dominant, and is to be ascertained 'by reference to the laws
and legal precedents and not from general considerations of supposed
public interest.'" Wholly apart from whether Misco or other
private-employer cases may involve such a policy, this case clearly
involves a public policy of the sort called for by W.R. Grace, and that
is so for a reason not present in Misco -- the presence of statutory
commands defining the mission and standards of operation of a public
employer.
Petitioner here, the Postal Service, is a public employer with a
public mission defined by statute. The Service "shall provide prompt,
reliable, and efficient services" in delivering the mail (39 U.S.C.
101(a); see also 39 U.S.C. 101(e), 403(a) and (b)(1), 1001 (e)(2), (3),
and (4)). This statutorily rooted public obligation is enjoined upon
the Postal Service, and the Service is not free to relinquish it.
Moreover, this fundamental obligation to safeguard and to deliver the
mails is necessarily implicated by any Postal Service action, including
compliance with an arbitral reinstatement order, that threatens to
undermine its mission. By contrast, private employers like the one
involved in Misco do not ordinarily operate under a statutorily based
public obligation that guides and constrains the exercise of their
discretion in the conduct of their business.
For this reason, the scope of the public policy doctrine as applied
to public-sector employers like the Postal Service raises a question
distinct from the private-sector issue presented in Misco. Because
statute-based public policy constraints are more demanding and more
focused and explicit, the discretion of the Service to conclude that
compliance with a particular award would be inconsistent with those
constraints, and the role of judicial review of arbitration awards for
consistency with public policy, must be correspondingly greater.
Accordingly, as we explain more fully below, even if the Court were to
adopt a restrictive view of the public policy doctrine in the Misco
context, a different result would be called for here. See App., infra,
30a (opinion of Rhenquist, Circuit Justice, on Application for Stay)
("Although (Misco) presents the issue in the context of a private
employer, (petitioner) presents a stronger case for setting aside the
arbitrator's award because it operates under a statutory mandate to
ensure prompt delivery of the mails. See 39 U.S.C. Section 101(a).").
The conflict among the courts of appeals on the private-sector issue
is mirrored in the public-sector setting. Indeed, the courts of appeals
are pointedly in conflict on the particular issue presented in this case
-- the scope of the public policy doctrine as applied to the Postal
Service. Compare App., infra, 1a-6a (decision below) with United States
Postal Service v. American Postal Workers Union, supra (1st Cir.). In
addition, the issue here is of obvious importance to the federal
government generally, since the Postal Service's statutorily rooted
public mission has parallels throughout the government, as does
arbitration under public sector collective bargaining agreements (see 5
U.S.C. 7121). Therefore, regardless of the decision in Misco, the court
of appeals' decision in this case merits review.
3. In a public sector case like this, even if not in a private sector
case like Misco, the court of appeals' restrictive view of the public
policy doctrine is erroneous. The court of appeals simply concluded
that, because the hiring of Mr. Hyde would not be clearly proscribed by
positive law, no statutorily rooted public policy is violated by
enforcing the arbitrator's award ordering his reinstatement. In
reaching that conclusion, the court of appeals ignored the statutorily
mandated public policy demanding a reliable and efficient Postal Serive,
a policy that plainly meets the W.R. Grace requirement (461 U.S. at 766
(citation omitted)) that it be "well defined and dominant, and * * *
ascertained 'by reference to the laws and legal precedents and not from
general considerations of supposed public interests.'"
a. Title 39 of the United States Code provides the statutory
framework within which this case arises. The Postal Service is
authorized by Section 1209(a) to enter into collective bargaining
agreements and by Section 1206(b) to provide in such agreements for
arbitration as a means of resolving grievances. The resulting grievance
arbitration awards are, in turn, enforceable in court to the extent
provided by Section 1208(b). That provision, however, like Section 301
of the Labor Management Relations Act (LMRA), 29 U.S.C. 185, which
applies generally in the private sector, does not define the substantive
law governing when and how collective bargaining agreements (and hence
arbitration awards) are to be enforced. Instead, it authorizes the
federal courts to develop common-law principles to apply in exercising
jurisdiction over "(s)uits for violation of contracts between the Postal
Service and a labor organization representing Postal Service employees"
(39 U.S.C. 1208(b)). See Textile Workers Union v. Lincoln Mills, 353
U.S. 448 (1957) (construing 29 U.S.C. 185 as authorizing such
development).
In fulfilling the obligation to develop substantive law governing the
enforcement of Postal Service labor contracts generally and arbitration
awards in particular, the federal courts should not automatically and
uncritically transfer to this special context every aspect of the law
developed under Section 301 of the LMRA, which does not apply to the
Postal Service. /1/ Although the principles developed in that
private-sector setting may certainly be borrowed, and indeed uniformity
is generally desirable, /2/ the federal courts must define Postal
Service labor arbitration principles in light of the distinctive
statutory structure defining the duties of the Postal Service. The
court of appeals in this case wholly ignored that obligation.
b. The scope of public policy review of Postal Service arbitration
awards under Section 1208(b) must be defined with reference to the
statutes, cited above, that define the Postal Service's public mission.
That mission is subject to implementation -- but not subject to dilution
-- by a collective bargaining agreement or an arbitrator's decision
under such an agreement. Hence, although the Service is permitted to
adopt arbitration as part of its ordinary means of resolving employee
grievances (39 U.S.C. 1206(b)), that authority does not allow the
Service to waive its statutory obligation to fulfill its public duties.
Nor may the Postal Service divest itself of the discretion plainly
required to determine how to carry out the broad statutory
responsibilities with which Congress has vested the Postal Service. /3/
The two statutorily based policies that are relevant here -- one
promoting the finality of arbitration when it is selected by the
Service, the other requiring the public employer to retain the authority
to carry out its public responsibilities -- are in tension in some
instances. The resolution of the tension between the two statutory
policies, like any accommodation of two competing but partly overlapping
statutes, is a task for the courts. But the judicial responsibility is
to accommodate both of the competing statutory policies, not to permit
one simply to displace the other, even if the courts generally resolve
the tension by holding the Service to its arbitration commitment as
itself a reasonable interpretation of its statutory mandate. In some
extreme instances, an arbitral award would effectively overturn the
congressional commitment of administrative discretion to the Postal
Service to determine how to carry out its basic mission. Accordingly,
the federal courts must decline to enforce arbitration awards that the
Postal Service reasonably determines to threaten its fundamental
obligation to provide reliable and efficient mail delivery. /4/
c. The aspects of arbitration under collective bargaining agreements
that distinguish the Postal Service from most private employers are
shared by public employers generally. Thus, while the statutory source
of judicial authority to review labor arbitration awards in most
private-sector cases is Section 301 of the LMRA, 29 U.S.C. 185, that
statute does not apply to the Postal Service, which is governed by 39
U.S.C. 1208(b), or to federal employers generally, which are governed by
5 U.S.C. (& Supp. III) 7121-7123. Moreover, public employers but not
private employers generally have a statutorily defined public mission
akin to that of the Postal Service. Because such a mission and other
statutory duties necessarily affect the scope of judicial review of
arbitration awards, the significant distinction between public and
private employers for this purpose is widely recognized. See Craver,
The Judicial Enforcement of Public Sector Grievance Arbitration, 58 Tex.
L. Rev. 329, 338-339, 350-352 (1980); Developments in the Law -- Public
Employment, 97 Harv. L. Rev. 1611, 1684-1687, 1691-1696, 1718-1724
(1984).
Further, although arbitration in the Postal Service bears strong
resemblances to private-sector arbitration, there are also important
differences. For example, unlike their ordinary private-sector
counterparts, Postal Service (and other federal government) employees
have no right to strike (5 U.S.C. 3333, 7311; 39 U.S.C. 410); thus,
the alternative to arbitral finality is not the stark economic warfare
that is more typical of the private sector (see Gateway Coal Co. v.
United Mine Workers, 414 U.S. 368, 377-379 (1974)). Moreover, as
explained above, more than mere contractual obligations are relevant to
a Postal Service arbitration. An arbitrator who is applying only
contractual provisions between private parties has broad leeway to fill
in and to elaborate those provisions according to the "common law of the
shop" (United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S.
574, 581 (1960); see also Gateway Coal Co. v. United Mine Workers, 414
U.S. at 377-379). When statutory duties of a public employer overlay
any contractual agreements, the contract and the law of the shop cannot
always be the last word. Rather, those public duties must also be
considered. To do so, of course, requires administrative and, then,
judicial interpretation: the meaning in a given case of the Postal
Service's public mission, like any question of public policy, "is
ultimately one for resolution by the courts" (W.R. Grace & Co. v. Rubber
Workers Local 759, 461 U.S. at 766).
d. Not only the Postal Service statute itself but also the
legislative history of that statute reveals congressional recognition of
the distinctive character of Postal Service collective bargaining (and
hence arbitration under collective bargaining agreements). Thus,
although Congress took private-sector labor relations as the model for
the Postal Service (see H.R. Rep. 91-1104, 91st Cong., 2d Sess. 13
(1970)), it was understood from the beginning of the legislative process
that it was only "in general" that the private-sector rules were to be
borrowed for the Postal Service (id. at 13, 57). Indeed, Congress
specifically recognized that "(c)ollective bargaining in public
employment involves factors that differ importantly from those
traditionally found in the private sector" (id. at 14).
In short, whatever the scope of "public policy" review of arbitration
awards in various private-sector cases, the public policy doctrine as
applied to the Postal Service (and other public employers with
statutorily rooted public duties) requires that courts review claims by
the Service that fulfillment of its fundamental statutorily based public
trust would be threatened by enforcement of a particular arbitration
award. /5/ The court of appeals wholly failed to consider this
question.
4. The court of appeals erred not only in refusing to undertake the
proper analysis. The result it reached is also erroneous. We think
there can be only one conclusion of a proper analysis of this case --
that the arbitration award at issue here violates public policy.
This case involves a simple determination by the Postal Service that
an employee who commits an offense that effects an egregious impairment
of the fundamental duty of the Postal Service -- to deliver the mails --
must be discharged. Mr. Hyde failed over the course of a year to
deliver more than 3,500 pieces of mail, including Treasury checks, on
which numerous individuals may vitally depend. Whatever the prospects
for rehabilitation for Mr. Hyde in particular, the Service has
determined that, for the sake of its mission as a whole, it cannot have
in its employment an individual who has committed such an offense
against the Service; nor can it place its patrons at risk by restoring
Mr. Hyde to his position of public trust. Enforcement of the
arbitration award ordering Mr. Hyde's reinstatement would, by example to
his co-workers and as a precedent, "seriously impair (the Postal
Service's) ability to impress the seriousness of the Postal Service's
mission upon its workers" and hence would deprive the Service of its
"ability to carry out its legal obligations" (App., infra, 30a-31a)
(opinion of Rehnquist, Circuit Justice, on Application for Stay).
As the district court stated (App., infra, 12a (footnote omitted)),
"(t)he Postal Service must retain the ability to remove postal employees
it does not fully trust from positions vulnerable to breaches of trust;
the mails are simply too important to the country to make them dependent
upon the vicissitudes of rehabilitation of a single letter carrier." In
this case, a general policy of deference to arbitral awards cannot
override the need, as the Postal Service determines it in the exercise
of its delegated responsibility, to protect the basic public mission of
the Postal Service. The arbitration award rejecting the Service's
determination of how to fulfill its public obligations in this case
should therefore be set aside.
CONCLUSION
The petition for a writ of certiorari should be granted. In the
alternative, the Court may wish to hold this petition pending its
decision in United Paperworkers Int'l Union v. Misco, Inc., cert.
granted, No. 86-651 (Jan. 12, 1987), and dispose of this petition as
appropriate in light of that decision.
Respectfully submitted.
CHARLES FRIED
Solicitor General
RICHARD K. WILLARD
Assistant Attorney General
LAWRENCE G. WALLACE
Deputy Solicitor General
RICHARD G. TARANTO
Assistant to the Solicitor General
WILLIAM KANTER
MARC RICHMAN
Attorneys
JULY 1987
/1/ Section 1209(b) (39 U.S.C.) generally applies Sections 151
through 169 of Title 29 (National Labor Relations Act) to the Postal
Service. The incorporated provisions, however, do not include Section
301 of the LMRA, which is codified at 29 U.S.C. 185. Moreover, the
incorporation of the specified Title 29 provisions is only "to the
extent not inconsistent with provisions" of the Postal Service statute
(39 U.S.C. 1209(b)).
/2/ See, e.g., Bowen v. United States Postal Service, 459 U.S. 212
(1983) (borrowing Section 301 law to hold Postal Service union liable
for certain damages for breach of duty of fair representation); Johnson
v. United States Postal Service, 756 F.2d 1461, 1465 (9th Cir. 1985)
(Section 301 law provides "guidance"); Abernathy v. United States
Postal Service, 740 F.2d 612, 614 (8th Cir. 1984); Melendy v. United
States Postal Service, 589 F.2d 256 (7th Cir. 1978); Malone v. United
States Postal Service, 526 F.2d 1099, 1109-1110 (6th Cir. 1975).
/3/ Congress has conferred authority and discretion over postal
operations on the Postal Service (39 U.S.C. 403(a)). Congress
specifically entrusted the Board of Governors with the obligation to
direct "(t)he exercise of the power of the Postal Service" (39 U.S.C.
(Supp. III) 202(a)). Although congress permitted the Board to delegate
its authority to the Postmaster General or to Board committees (39
U.S.C. 402), it did not provide for further delegation. Indeed,
Congress expressly provided that such delegations "shall not relieve the
Board of full responsibility for carrying out of its duties and
functions, and shall be revocable by the Governors in their exclusive
judgment" (39 U.S.C. 402).
/4/ Of course, even in the public-sector setting, courts must accord
arbitrators' findings and conclusions substantial deference and must
apply the public policy doctrine with care so as not to undermine the
system of ordinarily final arbitration. "Incantations of 'public
policy' may not be advanced to overturn every arbitration award that
impairs the flexibility of management * * *. Only when the award
contravenes a strong public policy, almost invariably involving an
important constitutional or statutory duty or responsibility, may it be
set aside" (Port Jefferson Station Teachers Ass'n v.
Brookhaven-Comsewogue Union Free School Dist., 45 N.Y.2d 898, 899, 383
N.E.2d 553, 554, 411 N.Y.S.2d 1, 2 (1978)). Moreover, the importance to
public employers of maintaining a mutually beneficial working
relationship with their employees' labor unions provides a strong
disincentive against public employers' too-frequent invocation of the
public policy doctrine to challenge arbitration awards. Although the
Postal Service is annually involved in thousands of grievance
arbitrations, it has challenged only a handful under the public policy
doctrine each year.
/5/ A similar conclusion may apply to some private employers that are
subject to statutory duties. In Northwest Airlines, Inc. v. Air Line
Pilots Ass'n Int'l, 808 F.2d 76 (D.C. Cir. 1987), petition for cert.
pending, No. 86-1548 (filed Mar. 26, 1987), the petitioner has argued
that, as an air carrier, it is subject to such overriding statutory
duties.
Appendix
NORTHERN IMPROVEMENT COMPANY, ET AL., PETITIONERS V. UNITED STATES OF
AMERICA
STEVE MCCORMICK, PETITIONER V. UNITED STATES OF AMERICA
No. 87-25 and 87-60
In the Supreme Court of the United States
October Term, 1987
On Petitions for a Writ of Certiorari to the United States Court of
Appeals for the Eight Circuit
Memorandum for the United States in Opposition
Petitioners contend that the court of appeals erred in reversing an
order that had dismissed an indictment on the ground that it was barred
by the statute of limitations.
On October 9, 1985, a grand jury sitting in the District of North
Dakota indicted petitioners on one count of violating Section 1 of the
Sherman Act, 15 U.S.C. 1. The indictment charges that, beginning at
least as early as 1975, and continuing at least through July 28, 1981,
petitioners engaged in a continuing agreement to submit collusive,
noncompetitive, and rigged bids for municipal street improvement
projects let by the Cities of Fargo, North Dakota; West Fargo, North
Dakota; and Moorhead, Minnesota. 87-25 Pet. App. 18-19; 87-60 Pet.
App. 8-9.
On April 25, 1986, the district court dismissed the indictment on the
ground that it had not been returned within the five-year period of
limitations in 18 U.S.C. 3282. 87-25 Pet. App. 29; 87-60 Pet. App. 19.
The court held that the conspiracy terminated on the day on which the
last rigged bid was submitted, rather than the last day on which a
conspirator accepted the profits from a contract obtained by a rigged
bid (87-25 Pet. App. 28; 87-60 Pet. App. 18). On March 24, 1987, the
court of appeals reversed. It concluded that, if the purpose of an
illegal agreement is the receipt of payments on an illegally obtained
contract, the acceptance and retention of those contract payments are
overt acts in furtherance of the conspiracy for statute of limitations
purposes. 87-25 Pet. App. 34-35; 87-60 Pet. App. 24-25.
Petitioners contend (87-25 Pet. 8-10; 87-60 Pet. 4-7) that an
antitrust conspiracy must be treated differently from other criminal
conspiracies -- specifically that, once a rigged bid is submitted, trade
is no longer being restrained and that any "objectives ancillary to the
objective of actually restraining trade" (87-25 Pet. 9) do not continue
the conspiracy for statute of limitations purposes. The corporate
petitioners also contend (id. at 10-14) that this antitrust conspiracy
did not continue past the bid date because the conspirators did not
engage in joint or "cooperative" action to divide the spoils of their
illegal agreement.
Whatever the merits of petitioners' contentions, they are not yet
ripe for review by this Court. The decision of the court of appeals
places petitioners in precisely the same position they would have
occupied if the district court had denied their motion to dismiss. If
petitioners are acquitted following a trial on the merits, their
contentions will be moot. If, on the other hand, petitioners are
convicted and their convictions are affirmed on appeal, they will then
be able to present their contentions to this Court, together with any
other claims they may have, in a petition for a writ of certiorari
seeking review of a final judgment against them. Accordingly, review by
this Court of the decision of the court of appeals would be premature at
this time. /*/
It is therefore respectfully submitted that the petitions for a writ
of certiorari should be denied.