Warren E. Burger: We will hear arguments first this morning in Brown against Hartlage. Mr. Goldberg, you may proceed whenever you're ready.
Fred M. Goldberg: Mr. Chief Justice, and may it please the Court: This matter is before the Court this morning on a writ of certiorari of the Court of Appeals of Kentucky. The issues raised involve issues of First Amendment rights of political speech, and specifically whether this speech has been infracted by Kentucky Revised Statute, which I may refer to as KRS, 121055. The Court will find that in the statutory appendix to the brief on the merits at page 11. That statute has been interpreted, in our opinion, in such manner as to encroach upon the Petitioner's rights under the First Amendment. The specific issues before the Court this morning will be vagueness and overbreadth, will be the creation of artificial distinctions based on content or speaker, and the threshold issue of clear and present danger and whether that doctrine was applied by the courts of Kentucky appropriately in this case or at all indeed. As applied in the facts at bar, this case or this statute would prohibit a candidate from promising in an election campaign the pro tanto reduction of taxes. Generally speaking, the proceedings below were that the trial court found that the statute had been violated, but on interesting findings which I will discuss with the Court in a minute found that the election should not be voided. To the contrary, he found that the Petitioner here was fairly elected. The matter was appealed to the Court of Appeals of Kentucky, and it found a violation of the statute as interpreted and found that the statute should be strictly applied and the election voided. On a petition for rehearing to the Court of Appeals of Kentucky... and the Court of Appeals of Kentucky is now our intermediate appellate court. At some points the cases will have come from the Court of Appeals of Kentucky, and at another point the case will come from the Supreme Court of Kentucky. I'll attempt to distinguish the two as we move through. The Court of Appeals on its petition for rehearing then reconsidered, found that the statute was still violated, but on the other hand expressed some reservation in regard to the constitutionality and the overbreadth of the statute, and nonetheless overruled the lower court. A petition was then filed or motion for discretionary review to the Supreme Court of Kentucky, our now highest appellate court, and that was summarily overruled. This Court granted certiorari and we're here on the following facts. Carl Brown, the Petitioner in this matter, sought the office of county commissioner of Jefferson County, Kentucky. Jefferson County, Kentucky contains the only city of the first class in Kentucky, and in that regard in the Joint Appendix you will find some statutes that refers to city of the first class. That is only in Jefferson County, Kentucky, if the Court will. But in any event, Carl Brown sought a seat on the Fiscal Court, which is our legislative body which along with the county judge executive forms the executive branch of government of the county, although it has legislative functions as well, pass ordinances, et cetera. This was in the election of 1979. Brown and a Dr. Bill Creech were running mates on a joint platform as the Republican candidates and ran against the Respondent, Earl Hartlage, as the Democratic incumbent. Now, the Petitioner and Creech campaigned on issues of governmental economy and the usual issues that one would expect of an election of that nature. Specifically, they zeroed in on some of Hartlage's spending and primarily in at least one press release that is available to you-all commented very unfavorably in regard to the salary which Mr. Hartlage had voted himself since he had been in office. In all events the election heated, and by August 15th, 1979 Creech and Brown issued a joint press release. That may be found at the Joint Appendix, page 2. And in that statement they attacked the frivolity of spending of Hartlage and almost in a manner as I perceive the statement and as it appears, almost in a manner of put up or shut up vein said to prove the strength of our convictions, we will reduce our salaries by the sum of $3,000 a year each. The statement was made, and within the next day or two a friend of Brown's contacted him and advised him that it may be arguable whether there was some problem legally with that statement or with that comment. Brown's a young lawyer, and he went to his office and indeed did some research and found that certainly someone had articulated an arguable question under the law of Kentucky, that there were some Kentucky cases that may look like they make that an illegal promise, that it is inconceivable that his election could have been voided. In all events on Monday, I believe, but the 19th day of August 1979, four days after the comment was made, Brown and Creech in a joint press conference, which received the same publicity and the same coverage as the original statement, retracted that statement. They acknowledged that the statement was perhaps arguably in error. They retracted the promise, said that they would not abide by the concept of that reduction. Now, the election was held on November the 6th, 1979, 78 days after the retraction. There had been no retreat from the retraction from the time it was made until the time of the election. The results of the election, of the 177,501 ballots cast, Brown received approximately 53 percent of the vote. He beat Hartlage by 10,151 ballots. And Dr. Creech was defeated. He was not elected, though having made the same commitment as Brown had made or the same promise. Seasonably, an election contest was filed in early December of 1979. An answer was appropriately filed and issues joined. In that answer the fifth affirmative defense raises the constitutional issues before this Court. They have consistently been argued and raised from the trial court through the Court of Appeals to this Court. Pardon me, please. The matter was tried in a bench trial on January 29th and 30th, 1980, and the evidence, among the rest of the evidence appears a stipulation by the Petitioner and by the Respondent that the retraction received as broad a coverage publicity-wise as the original statement. The trial court then rendered its decision and found that there was a technical, if you will... and that's my own characterization... a technical violation of KRS 121055, the statute which prohibited the promise to the electorate, but that the election was fair. And the trial judge found as a fact in his determination of the fairness of the election, he found five elements. He found that there was an almost immediate retraction. He found that there was no retreat from the retraction from the day it was made to the day of the election, and commented even though Mr. Brown had been challenged by Mr. Hartlage at some political conclave, Brown remained adamant in his retraction and did not deviate from that. The judge balanced the disenfranchisement of thousands of voters, as he put it, and the presumption of the will of the people and Creech's defeat, and found that the election was fair and that Brown should receive his office. Now, the Court of Appeals of Kentucky in its original opinion rendered August the 8th, 1980 followed an old decision in Kentucky that harks back to 1960, Sparks against Boggs. And it may be appropriate for me to digress for a moment and advise the Court as to the ramifications of Sparks against Boggs and a prior opinion that harks to 1925, Owsley against Hill. These two cases, in my judgment, are probably interpretive of some phases of the statute and require some comment. In the Owsley matter the county attorney offered to serve for a salary of $400 less than the previous attorney had received. His salary had not been sent by the county commissioner. His election was challenged. He won, and his election was challenged. In any event, upon challenge the then Court of Appeals of Kentucky... and it was our highest court in 1925... held that the reduction of salary was a legal possibility in the context of the fact that it had not been set, and also said in its opinion that a promise that is made to the entire electorate is not a bribe and not to be conceived as a bribe, but it differentiated that from a promise made to a smaller group of the electorate. In that case then it was held that the county attorney would be seated. In 1960 in the matter of Sparks against Boggs, which itself was the election of a group of city commissioners of the city of Hazard, Kentucky who ran as platform. The salary in that instance had been previously set by statute at $500 each per year. The commissioners promised as a plank of their platform that they would forego all but a dollar of that sum and contribute it to various charitable, some civic, Little League, and organizations of that sort. It was not a commitment to the entire electorate but to a select group in the electorate. The Court of Appeals of Kentucky in that case distinguished Owsley... again, that was our highest court at the time... distinguished Owsley and in effect said that the promise to serve for less was a bribe and as such should be barred. Now, in that light we find that the Court of Appeals of Kentucky in the Carl Brown case, the case before you this morning, in the Carl Brown case held that Brown could not legally do the act, he could not legally reduce his salary; and in that regard there was no exception in the statute for a retraction; in that regard that the other considerations of the trial court were inapplicable and not to be considered; and that the statement was not constitutionally protected under the aegis of the Constitution of the United States. Now, on the--
Speaker: Mr. Goldberg?
Fred M. Goldberg: --Yes, ma'am.
Speaker: Do you interpret these cases in the law of Kentucky to provide then that the statute forbids only campaign promises to perform illegal acts?
Fred M. Goldberg: Justice O'Connor, I perceive... yes. My answer to your question would be yes. However, the problem will arise in a moment in my argument as to how in the world we determine what's illegal or legal. But I perceive that interpretively speaking the statute prohibits illegal acts--
Speaker: Promising to do an illegal act.
Fred M. Goldberg: --I promise to do an illegal act, or perhaps better stated, if I may, an act incapable of legal accomplishment. There is some nuance of difference that's sort of fuzzy in my mind, I must tell you; but I think that's what it says. Now, in that regard then... I'm sorry. Did that answer your question?
Speaker: Yes. Do you take the position that what was stated by the candidates in this case was something that was not capable of legal accomplishment then?
Fred M. Goldberg: I do not necessarily take that position, but I think that I would have to take that position for the purposes of this case.
Speaker: Okay.
Fred M. Goldberg: Now, on the petition for rehearing rendered on October 29th, 1980, the Court of Appeals of Kentucky perceived that the Petitioner's position was not without logic or appeal, but suggested that if you want the relief that you request of us, we perceive your argument to be that one of overbreadth on a federal constitutional basis. But if you want that relief, go to the Court of Appeals... Supreme Court of Kentucky and they are the court that can grant you the relief that you seek. It would be judicial anarchy for us to overrule Sparks against Boggs. Now, on that state of facts obviously we petitioned the Supreme Court of Kentucky, and we were summarily turned down. This Court has granted us the writ. Now, at the outset of argument I would suggest to the Court that I concede that the Commonwealth of Kentucky has an interest in the electoral process. It would be foolish for me to say otherwise. However, I argue and urge that that is not an uninhibited interest, that is not uninhibited as to political speech particularly, but that that interest must be balanced against the intrusions on the First Amendment right. I don't think that your amicus or I disagree that this was political speech. The problem that we disagree on is where the interpreted statute impacts the rights of Carl Brown and where it crosses the bounds of propriety circumscribed around the First Amendment by this Court.
Speaker: Mr. Goldberg, do you think that under Kentucky law a campaign promise to try to cut government expenditures and reduce taxes would be legal or illegal?
Fred M. Goldberg: I'm inclined that the promise to cut taxes would be illegal, and that's part of the vagueness argument, Justice O'Connor; and it runs something like this. If we posit that the Owsley and Sparks decision prohibit the making of a promise that would to the benefit of all the public and it is incapable of being legally performed, I'd suggest to you that a candidate any office... in the Senate, in the legislature, or in executive branch of government... couldn't make that promise. The vagueness is inherent in the that no single member of any body of government without the cooperation of a majority of his house or a majority of his group and without the imprimatur of the chief executive can ever make such a promise. So I have a difficult time with that situation.
Speaker: What would be the situation, counsel, if he carefully phrased his remarks to say if elected I will advocate a program of reduction of salaries generally?
Fred M. Goldberg: Mr. Chief Justice, I think that the question or the problem presented by the phrasing of the hypothetical "if" prior may defeat the whole impact of what I perceive the First Amendment to award. This is an advocacy situation. It is projected in a political arena. I don't feel that the First Amendment or this Court has ever required that a man use the precision of words in political speech that would require him to wonder should I say this or not. To do that, Mr. Chief Justice, in my judgment would make me awful antsy if I were a candidate, because it would chill my speech. It would remove my thought processes from my head, and in the last analysis the interchange of ideas, sir, is the fundamental of the First Amendment.
Speaker: Well, supposing your candidate is speaking before a group of Little League people and says a elected I'm going to promise to get $5,000 for the Little League that they don't presently have coming out of the county treasury. Now, I take it that would violate the statute, wouldn't it?
Fred M. Goldberg: Mr. Justice Rehnquist, I believe it would.
Speaker: Now, do you say that's protected by the First Amendment?
Fred M. Goldberg: Now, sir, I do not.
Speaker: How do you distinguish that from--
Fred M. Goldberg: I distinguish that in this way, sir. Here we offer to the electorate as a whole to reduce taxes. The Little League question is a special interest group. I'm sorry. I may have given you all erroneous answer. It probably would because it singles out under Owsley... I'm sorry, sir; I wasn't quick enough for the question. Under the Owsley case in Kentucky it is a select group, and it would. My answer to your question would change, sir.
Speaker: --Well, in a sense taxpayers are a select group, too, aren't they? All of the people in the electorate are not necessarily taxpayers.
Fred M. Goldberg: I would agree with that, sir. I would suggest to you that in Kentucky the presumption of the electorate and the taxpayers, apparently from the Owsley case are one and the same. I would point out to the Court or to you, sir, that, for instance, a commitment, I shall aid the elderly, is a select group in my judgment. There are many select groups to which politicians appeal, and in that regard that's the problem I have with this statute in terms of vagueness. It really doesn't say that you could get out and run a rip-roaring political campaign, make legitimate promises... I'm not advocating any promise that is not usual, if you will, sir; but on the other hand, I feel that the inhibitive factors of this statute place a pall over political speech, and that's where I think that it's vague. There is no means by which a candidate of common intelligence in my judgment can ascertain exactly where do I cross that line.
Speaker: But your client did ascertain, and apparently as a result of his retraction felt that he may well have crossed the line at any rate and--
Fred M. Goldberg: He felt... pardon me, sir.
Speaker: --And made the retraction.
Fred M. Goldberg: Yes, sir. I concede that point. It's evident in the facts. But I am suggesting to you that he had to go research, as a young lawyer, he had to go research that problem out. And it is not without debate. Your amicus curiae and I both have argued both sides of the issue in this matter; and it occurs to me that the argument itself, Mr. Justice Rehnquist is dispositive of the vagueness of this statute; that there is no clear line of political speech that Carl Brown could have relied upon. In that regard then with the no notice concept in this statute, we have to look at another concept that these facts give rise to and which have been briefed; and that is that in Kentucky a county commissioner in a county containing a city of the first class has a benchmark salary and he has an escalated salary by what we Kentuckians call the rubber dollar concept to make up for the inflationary action on all salaries. The base salary for a county commissioner in a county containing a city of the first class is found in KRS 6530 sub 6, and that appears in the Appendix to the brief, and it sets that benchmark salary at $9,600. That is the legal salary, I don't know, except that I do know that it is permissible in Kentucky, the Fiscal Court may... it's written in the permissive... may escalate those salaries up to an administrative sum determined by the State Finance Department. Now, we get to the very interesting question in my judgment. Carl Brown offered to serve at the time for what amounts to $17,000. The rubber dollar concept had been applied to his situation or to the office which he sought. He in effect said I will serve for $17,000, not the $20,000 that Mr. Hartlage is getting. Does that create a legal impediment? The legal salary, if we are going to saddle Brown with determining that which is legal, then the legal salary would have to be brought down. The question would then arise does Brown have a right to give up that which is not part of the legal salary, the $9,600, or does he have a right to give up his rubber dollar theory or his rubber dollars. And there is a prohibition in the rubber dollar statute that reads to the effect that you shall not change your salary or you shouldn't change your salary during the term in which you're elected. Now, in that regard then I would suggest also that a threshold question to the restraint on advocacy has to have been announced by this Court long ago, and in Landmark Communications against Virginia we find the clear and present danger test used. In this instance and in the matter at hand, Brown retracted 78 days prior to the election. He never retreated from that retraction. His running mate who made the same comment and the same promise to the electorate was defeated. Brown won by a resounding number of votes. And in this regard I submit to this Court that there cannot possibly have been any threat to the compelling interest of the Commonwealth in regard to the Brown statement. It simply was not the reason the electorate chose him.
Speaker: Mr. Goldberg, does the state have to show that each such election promise constitutes a clear and present danger to the electoral integrity, or is it enough, do you think, that the state simply shows that the promises as a class tend to mislead the electorate?
Fred M. Goldberg: Justice O'Connor, I would suggest that I read Landmark Communication... and I'm not going to presume to tell this Court how to read it... but I read it to say that there should be a balancing mechanism whenever the issue arises. In that regard it was not used in this instance. It was ignored. To the contrary, our Court of Appeals said that a retraction and the other items, which really were a balancing mechanism used by the trial judge, are to no avail. Our statute stands as written, and if you cross or transgress that line, if those words cross our lips, I would pose the rhetorical question that suppose I use the word "not" or in my response to Justice Rehnquist a moment ago I corrected myself. Were Justice Rehnquist operating under the statute as I perceive it in Kentucky now, it would have been too late for me to correct myself; it had passed my lips. I'll reserve my remaining time, sir.
Warren E. Burger: Mr. Chauvin.
L. Stanley Chauvin, Jr.: Mr. Chief Justice, and may it please the Court: It is not particularly pleasant to become involved in an electoral dispute. Courts have historically restrained themselves from involvement unless there is clear, convincing, glaring and measurable irregularity which cries out for judicial intervention. The sanctity of the freedom of voters choosing their new leaders or retaining incumbents is indelibly etched in the history of our nation. One of the attractions of our system of government is the assurance of meaningful, participatory and effective suffrage. But Congress and state legislatures have set minimum standards for participating both as candidates and as voters. Education, experience, or social standing are not legitimate criteria. With some obvious exceptions such as years of admission to the bar before seeking a judgeship, legislative bodies and constitutions have required no greater qualification for those who seek election than for those who vote for them. Normally a length of residency requirement for state candidates but not even this for federal. Age is usually a requirement. So who may seek office and who may hold office is proscribed and encumbered minimally. As sure as restraint has been shown, response has been the key when the process has been corrupted or to avoid the appearance of corruption. It took a lot of years and effort to remove the government itself as a corrupting factor when citizens otherwise qualified were excluded strictly because of race from the electoral process by outright abuse and government legislation. This Court through its intercession and interpretation removed this cancer. This Court has repeatedly said that the minimal requirements are the only ones, and artificial, unreasonable, unscrupulous or unconscionable barriers will not be tolerated. The Court has promptly responded to criminal acts which corrupt the process. Bribing voters always, both state and federal, has been forbidden. As an aside, just as paying for votes is prescribed, likewise paying to vote by the means of a poll tax has been extinguished. It would trifle with this Court to review further the strong interest, both legislatively and judicially, which has been shown to forbid outright, overt, and damnably cruel acts to tamper with the electoral process. Another area, and difficult to administer, has been the regulating of acts which are neither constitutionally repulsive nor criminally measurable. It is with such an act the case at bar is concerned. The purity, honesty and fairness of the electoral process are compelling state interests. It is not difficult to recognize and punish bribery, but criminal acts such as bribery are not the only method of corrupting the process. It is easy and required to define a criminal act. It is, however, not so easy to define non-criminal corrupting acts if their existence is known and the putrefaction is recognized. In an attempt to keep pure the electoral process in Kentucky the constitution in 1895 set certain standards... this is in the constitution... set certain standards to be addressed by legislation. The statutes as enacted, interpreted and applied apply even-handed regulation. The criminal is obvious and addressed by the indictment process. Other, non-criminal matters are regulated by administrative agencies who monitor, not direct, conduct, compile information, and take steps to correct both civil and criminal violation. This is the state at work. This is state action directly involved in the electoral process. It directs reports to be filed, grants authorities to agencies, sets spending limits, requires listing of contributors, creates codes of conduct, holds hearings, assesses fines and penalties, initiates both civil and criminal action, issues guidelines and directives seeking the voiding of elections and other similar acts.
Speaker: Mr. Chauvin.
L. Stanley Chauvin, Jr.: Yes, ma'am.
Speaker: The literal language of the statute seems to say that no candidate shall promise to vote for or support any individual, thing or measure.
L. Stanley Chauvin, Jr.: Yes, ma'am.
Speaker: Does that mean that under Kentucky law a candidate couldn't promise to support some particular proposal for legislative action?
L. Stanley Chauvin, Jr.: Justice O'Connor, under Kentucky law it's my interpretation of the statute that a candidate can promise to do or not do anything which is not illegal or constitutionally forbidden. In this case--
Speaker: Has any Kentucky case affirmatively stated that proposition?
L. Stanley Chauvin, Jr.: --Yes, ma'am.
Speaker: Or do we rely only on the two older cases that were cited?
L. Stanley Chauvin, Jr.: The original case where the salary had not been set, that's the key to this case. The statute provides for the setting of the salary in May of the election year. The statute and the constitution of Kentucky say that a salary may not be scaled up or scaled down during the term. After May of the year of the election it is after that impossible and impermissible and constitutionally not permitted in Kentucky to change the salary; and that's the distinction. Does that answer it?
Speaker: What if he had promised here to refund the amount, $3,000, to the state treasury?
L. Stanley Chauvin, Jr.: That is a practice for some people, to accept the funds and then give it away.
Speaker: Well, give it to the state now. I'm talking about giving it back. The state treasury would benefit. It would be the same.
L. Stanley Chauvin, Jr.: I don't think there'd be any problem with him giving it back. I think it was the promise to not accept it. The treasurer of Jefferson County, Kentucky was compelled to cut a check.
Speaker: That's a pretty thin line, don't you... that distinction.
L. Stanley Chauvin, Jr.: Well, the line is not as thin as it sounds because there are acts which can be performed and those which can't be performed. This was an act which could not be performed under Kentucky law.
Speaker: So that your statute goes to the impossible as well as to the illegal.
L. Stanley Chauvin, Jr.: Yes, sir.
Speaker: There are those who say that President Reagan's promise to balance the budget is impossible. Would that be a violation of your Kentucky statute?
L. Stanley Chauvin, Jr.: No, sir.
Speaker: Why not?
L. Stanley Chauvin, Jr.: No, sir. I think he said he'd give it his best shot, and at that time the budget was not set. There's nothing in the Constitution of the United States that says in May of the election year the budget is set, so he would not have crossed the line.
Speaker: So, of course, none of your decisions have come right out and said that this statute is limited to barring promises to do something that's illegal or that are impossible. You extrapolate that from the two old cases, don't you?
L. Stanley Chauvin, Jr.: Yes, sir. They said it by implication, I think, when they talk about the salary has been set, and the constitution says it can't be changed.
Speaker: Of course, if the statute would purport to forbid a candidate from promising to support a reduction in taxes or I will support a measure limiting the real property taxes, or I will support a measure to increase state aid to local schools, and he's speaking to a group of local school boards.
L. Stanley Chauvin, Jr.: First Amendment. That's fully protected.
Speaker: Well, if the statute purported to prevent that, that certainly is literally within the language of the statute.
L. Stanley Chauvin, Jr.: It would go too far.
Speaker: And the whole statute then would be overbroad.
L. Stanley Chauvin, Jr.: No, sir. I don't think the whole statute rises or falls on this.
Speaker: In a state court maybe it wouldn't but--
L. Stanley Chauvin, Jr.: The problem being that--
Speaker: --How about the overbreadth argument under the First Amendment?
L. Stanley Chauvin, Jr.: --There's probably more merit to the overbreadth argument than to the First Amendment restraint.
Speaker: Well, the overbreadth argument is a First Amendment argument.
L. Stanley Chauvin, Jr.: Well, I don't see where the overbreadth argument is... the threshold is the promising of an act impossible of legal fulfillment.
Speaker: Well, I know. If you take that construction of the statute, why, that's another matter. So we have to make up our mind whether the Kentucky courts have construed the statute and put some limits to it.
L. Stanley Chauvin, Jr.: It has another value... I'm sorry.
Speaker: No, no. Go ahead.
L. Stanley Chauvin, Jr.: It has another value in that the penalty for the violation of this statute deserves some attention. It merely requires the rerunning of the election. This is a statute--
Speaker: How much does that cost in Jefferson County?
L. Stanley Chauvin, Jr.: --It could be expensive, but the purity of the electoral process is worth something.
Speaker: Mr. Chauvin, you've gone a little past my point, but is there any law in Kentucky that says you must take your salary?
L. Stanley Chauvin, Jr.: Yes, sir. The statute... I would say, Mr. Justice, there is no--
Speaker: You mean that if I'm an officer of Kentucky I can't just take the check and throw it away?
L. Stanley Chauvin, Jr.: --Well, you could do that or you could contribute it to a charity.
Speaker: Well, can I promise to do that?
L. Stanley Chauvin, Jr.: No, sir.
Speaker: Why not?
L. Stanley Chauvin, Jr.: Because--
Speaker: It's not illegal.
L. Stanley Chauvin, Jr.: --It--
Speaker: You said it's not illegal.
L. Stanley Chauvin, Jr.: --It's not illegal. You could promise that.
Speaker: Pardon?
L. Stanley Chauvin, Jr.: You could promise that.
Speaker: You could promise that.
L. Stanley Chauvin, Jr.: But you could not promise to serve for nothing.
Speaker: Well, if I promise to take the check and throw it in the wastecan, am I not serving for nothing?
L. Stanley Chauvin, Jr.: Pretty close.
Speaker: Pretty close? That's about even, isn't it?
L. Stanley Chauvin, Jr.: But you did not violate the statute. It is possible for you to do that, Mr. Justice.
Speaker: Does not some of this colloquy suggest that, using the language out of the Connally case that men of common intelligence must necessarily guess at its meaning, the meaning of this statute, does that have something to do with its vagueness?
L. Stanley Chauvin, Jr.: It has something to do with the vagueness potential, but it has the same as the 434(e) of the Election Act of 1971 when this Court had a problem over who was required to report. The statute merely said all of those who spend money on behalf of a candidate shall report it. In 434(e) there was a great problem for vagueness, but the Court looked at the overall purpose of the statute and interpreted the two classes required to report and narrowed it. Yes, sir.
Speaker: This illegal, did you know there's considerable controversy whether the extension of the time within which to ratify the Equal Rights Amendment is legal or not. Indeed, a court said it is not. Could a candidate for the legislature in Kentucky... I don't know whether Kentucky has ratified or not... suppose not, could he run and promise that if elected he'd vote to ratify the ERA?
L. Stanley Chauvin, Jr.: To answer your first question, Kentucky's done it both ways, passed it and repeated it. But I think that there is--
Speaker: Well, would he have to guess whether the extension was legal or illegal?
L. Stanley Chauvin, Jr.: --I don't think it would reach him. I think we're talking about something much narrower here.
Speaker: Well, how narrow?
L. Stanley Chauvin, Jr.: Narrow to the point that if it is a constitutional infirmative or impossibility in Kentucky, then that's the line. I don't think it would be constitutionally impossible in Kentucky. In fact, it happened that it was passed and then the approval was set aside.
Speaker: Was this during the extended period?
L. Stanley Chauvin, Jr.: Yes, sir.
Speaker: Counsel?
L. Stanley Chauvin, Jr.: Yes, sir.
Speaker: You've stated that it would be perfectly appropriate under Kentucky law to receive the salary and then give it away. Wasn't that precisely the question before the Supreme Court of Kentucky in Boggs: the people who ran there promised to give it to the Little League and religious purposes?
L. Stanley Chauvin, Jr.: The issue would be whether or not it had been set at that point. I think that was it in that case. They were making pronouncements of what they would do with it before they got it.
Speaker: But if they received it, I understood you to say that that would meet that objection.
L. Stanley Chauvin, Jr.: The disposition of funds is a right for anybody to do with as he or she chooses.
Speaker: But did the Kentucky court say that in Bogg? It said you couldn't receive money and give it away?
L. Stanley Chauvin, Jr.: The Kentucky court said I believe in that case, Mr. Justice, that the salary had already been set.
Speaker: The salary had been set but--
L. Stanley Chauvin, Jr.: That was a violation of it.
Speaker: --So that's the distinction. If a salary's been set, you can give it away.
L. Stanley Chauvin, Jr.: Yes, sir. It happens. The present Governor gives his salary away.
Speaker: So you not only can't receive it, but you can't give it away if the salary has been set.
L. Stanley Chauvin, Jr.: It presents a situation that injects into the political process the opportunity for someone to say I will serve for nothing; and they ask the other candidate will you serve for nothing, and he says no, I can't serve for nothing; I need the money. The implication is there that Candidate 2 isn't as interested in the job as Candidate 1 because he just wants the money.
Speaker: But are you still saying that in some circumstances a candidate may give his entire salary away?
L. Stanley Chauvin, Jr.: Yes, sir. I think at one time Senator Kerr and Senator Green used to distribute their salary among their staffs.
Speaker: But they didn't come from Kentucky.
L. Stanley Chauvin, Jr.: No, sir. But I say that practice is familiar, to give it to an assistant or give it to someone else.
Speaker: May I ask you a question kind of from a different angle? Is it rather clear on this record that this person could not have been convicted of a crime because he didn't realize at the time that his statement was inaccurate. And in a way he loses the election because of the inaccuracy, an unintended inaccuracy in his statement. Would it be appropriate to judge the First Amendment question by the New York Times standard of when he did not know it was unlawful or inaccurate and was not in reckless disregard for the truth, it's somehow wrong to punish him for an innocent falsehood.
L. Stanley Chauvin, Jr.: I would say that if the statute... that is a valid distinction with this concern. This particular statute which is before the Court reserves to a candidate the right to bring this action, and if a candidate made--
Speaker: There's always an interested candidate on the other--
L. Stanley Chauvin, Jr.: --But not the state.
Speaker: --Pardon me?
L. Stanley Chauvin, Jr.: Not the state.
Speaker: I mean it's almost as though he had slandered his opponent. That's really what gave me the thought, that there's really quite an analogy to a libel or slander case because the one person who's hurt by this innocent false statement is his opposing candidate. And if this were treated as slander under your law, it clearly would not be permissible as a matter of First Amendment law. And is it not correct that really the heart of the wrong here is the inaccuracy in the statement?
L. Stanley Chauvin, Jr.: The inaccuracy and the impossibility of the performance.
Speaker: Well, but he didn't realize it at the at the time, and as soon as he did he made a public disclaimer of any--
L. Stanley Chauvin, Jr.: I had problems... I wasn't in the case at the trial level.
Speaker: --I understand.
L. Stanley Chauvin, Jr.: I had problems with this being called a retraction. If you read that second statement, I'm not sure at all that that was a retraction. I pointed that out in my brief. It was a restatement, but no one could object to the second because there was nothing in it other than to say I... 32--
Speaker: But whether the retraction was effective or not, the record is clear that he did not intentionally mislead or--
L. Stanley Chauvin, Jr.: --Well, I think that's right.
Speaker: --I think that's a fair--
L. Stanley Chauvin, Jr.: I think that's true.
Speaker: --Well, if it was a retraction, you'd be making the same argument, wouldn't you?
L. Stanley Chauvin, Jr.: Sir?
Speaker: If it had been a class A-1 retraction, you still would be making your same argument.
L. Stanley Chauvin, Jr.: I would not be--
Speaker: Wouldn't you?
L. Stanley Chauvin, Jr.: --Sir?
Speaker: Wouldn't you?
L. Stanley Chauvin, Jr.: No, sir. I wouldn't be. The problem that bothers me--
Speaker: So you think a retraction would correct this.
L. Stanley Chauvin, Jr.: --The state statute does not give retraction as a defense, just as in Arnett v. Kennedy, the case where the non-probationary federal employee could be fired "for the good of the Service. " And the person who did the firing could sit as a hearing officer. And this Court said that it might well have been better if Congress had done it some other way, but the fact is it didn't. And since it didn't, it was a matter which addressed itself to congressional correction. This statute could perhaps be more tolerable if the defenses which were available of retraction and not retreating from it, those five reasons the trial judge gave, if the legislature of Kentucky were to make these defenses in this type action.
Speaker: You don't think that's a little overbroad, a little, just a little?
L. Stanley Chauvin, Jr.: Got a shot at it.
Speaker: Pardon?
L. Stanley Chauvin, Jr.: The overbreadth question has concerned me as I did this brief more than the First Amendment, because I think the First Amendment, there's no question under given circumstances such as these that the First Amendment would be regulating. The question is whether or not it could include legal as well as illegal and thus chill the statement. That's the question.
Speaker: Going back to this matter I raised before, I have I think correctly observed that in each argument, your friend's argument and yours, you each, with respect to questions, changed your... after reflection changed your response. Now, I don't suggest that as a criticism because at that lectern I have changed my responses to the Court at times, sometimes change my mind here; but going back to this matter of the standard, whether men of reasonable... and they'd better change that... men and women of common intelligence must necessarily guess at the meaning, doesn't this colloquy and the matter of changing responses suggest that no reasonable person would know whether he or she was in violation of this Kentucky statute?
L. Stanley Chauvin, Jr.: Mr. Chief Justice, that is a valid observation on many statutes, this one not the least of which. But what malice aforethought, wanton reckless disregard. The problem of this, as I have viewed this case, the problem of this case is that there are, as the Court said in Arnett v. Kennedy, limitations on what you can do to define acts in a statute. And I submit to the Court this morning in all candor and all honesty that not only the English language but Spanish, German, French, Italian, Chinese, Japanese and Korean together are incapable of describing the possible acts of an election in Kentucky. It just can't be done, to make a list of the possible violations which people can come up with. And the highest court of Kentucky has limited and given candidates all the rights in the world... and I subscribe to it in my brief and this morning... to a full, free, rancorous, acrimonious debate, limited only, however, to acts which are legally impossible to perform.
Speaker: Mr. Chauvin.
L. Stanley Chauvin, Jr.: Yes, ma'am.
Speaker: Would a promise by a candidate to vote for a reduction in taxes pro tanto be an illegal promise under the Kentucky statute?
L. Stanley Chauvin, Jr.: Justice O'Connor, if the rate had not been set, the candidate could well do that. The violation in this case is that in August when this statement was made, the action which forbade it had already taken place.
Speaker: No. Just a blanket promise that if elected I will vote for a pro tanto reduction in taxes.
L. Stanley Chauvin, Jr.: No, ma'am, that's not a violation.
Speaker: Why then does the Kentucky court rely on that in its opinions as a justification for holding it invalid?
L. Stanley Chauvin, Jr.: I read that in the case, but I did not think of that as an overriding reason the Kentucky court... I think it was one of the reasons, but not the overriding reason that that case held that.
Speaker: Because if that would not be invalid, then I wonder whether the Kentucky courts have limited the application of the statute as you have suggested.
L. Stanley Chauvin, Jr.: In the first case the petition was dismissed, the highest court saying there's nothing wrong with what the candidate said because the salary hadn't been set. It was not an impossibility.
Speaker: Mr. Chauvin, may I ask another question? This is limited, as I understand it, to campaign promises that are legally impossible to perform. Normally in the free speech area we rely somewhat on the free market idea that you combat falsehood by allowing the countervailing statement to be made and considered. It seems to me that this would be the easiest sort of misstatement to refute. Why can't the opponent simply say my opponent's promise is legally impossible to perform; this demonstrates he's not qualified for office; and so forth and so on? Why isn't that an adequate remedy instead of saying he can't even make the statement in the first place?
L. Stanley Chauvin, Jr.: I think the voters are entitled to more protection than that. I would say that with all respect to the--
Speaker: The voters in Kentucky are not capable of evaluating these competing arguments?
L. Stanley Chauvin, Jr.: --Well, in some places the salary is not the great attraction to the office.
Speaker: No, but the question whether the man knows the duties of the office sufficiently well to make reckless promises that are legally impossible to perform is something that ought to be relevant in the context.
L. Stanley Chauvin, Jr.: I think that that could be pointed out, but I think also that--
Speaker: And you're suggesting that pointing it out isn't enough because the public might be deceived by it.
L. Stanley Chauvin, Jr.: --I think that tends to corrupt the--
Speaker: And an addition, they're not worried about any place but Louisville, so all the other voters are smart, but the Louisville ones are not.
L. Stanley Chauvin, Jr.: --No. This is the first one that has come up in Louisville.
Speaker: Well, there's no other one that can come up. Jefferson County's the only one.
L. Stanley Chauvin, Jr.: But I say that cases have come up from other counties around the state.
Speaker: On this statute?
L. Stanley Chauvin, Jr.: No, sir. On this same statute, yes. The candidates from up in northern Kentucky who said they'd pool the salary and hire a city manager. They said you can't do that. There's no provision in the law for a city manager, and besides that, you can't pull your salaries. That was up in northern Kentucky. Over in eastern Kentucky the tax assessor said... he'd been tax assessor before and said when I was tax assessor before you didn't pay taxes on certain things. Remember that when you vote for me this time. The Court of Appeals of Kentucky at that time said no, you can only exempt from taxation matters which the Constitution allows you to exempt, and it's impossible for you to do this.
Speaker: But don't you get in trouble if you try to enforce a rule that every politician must tell nothing but the truth? [Laughter]
L. Stanley Chauvin, Jr.: I'd say you sure had a big field out there to work on. It's the impossibility, though, that makes it an interest, a compelling state interest.
Speaker: Well, I have yet to hear a politician who doesn't say I will do two things; I will cut taxes, and I will raise expenditures. Well, that certainly is impossible.
L. Stanley Chauvin, Jr.: Hopeful-- But I think this matter can be corrected, if it deserves correction, by the legislature of Kentucky. The whole problem with this case was that defenses available in one statute were not available in this one. It might have been better often if Congress or state legislatures had done things differently. In this case it didn't happen. This is a legitimate state interest to protect this compelling interest in which the Commonwealth of Ketucky has an important and measurable interest, and it can be and should be, if necessary, corrected by legislation. I would be the last to limit anyone's First Amendment rights. I do not think this statute as applied and narrowed by the courts of Kentucky puts any chill or any untold or untoward effect on any candidate in Kentucky. It's seldom you can deal with a statute that says you can do everything but one. That's basically what these cases have said, that nothing is proscribed except that which is illegal and constitutionally impossible. I think that it is and would urge the Court, as the lower courts have, that this is a valid assertion by the state legislature of the interest of the Commonwealth of Kentucky and its electoral process. This was not a statute which was hastily contrived to defeat some purpose that the legislature found distasteful. The legislature passed this act almost word for word because the constitution commanded it to do it; and it is with that compelling purpose, that weighty, important reason, that the Kentucky court should be sustained. Thank you.
Warren E. Burger: Do you have anything further, Mr. Goldberg?
Fred M. Goldberg: I'll waive any comment, if the Court please.
Warren E. Burger: Thank you, gentlemen. The case is submitted.


William H. Rehnquist: We'll hear argument next in No. 87-654, New Energy Company of Indiana versus Joanne Limbach. Mr. Schwartz, you may proceed whenever you're ready.
Herman Schwartz: Mr. Chief Justice, and may it please the Court. This is an appeal by the New Energy Company of Indiana, an Indiana ethanol producer, from the fourth redecision of the Ohio Supreme Court on rehearing that rejected New Energy's Commerce Clause challenge to a 1984 amendment to Ohio's sales tax credit for the gasoline ethanol blend or 90/10 blend known as gasohol. Prior to 1985, Ohio had granted a credit to the motor vehicle fuel tax for gasoline for gasohol. On December 20, 1984, it amended the statute by denying the credit to gasohol containing ethanol produced in another state unless that foreign producer state grants a credit to ethanol sold there containing Ohio produced ethanol. The credit that Ohio grants is limited the amount of credit granted Ohio ethanol in that other state. Now, although the Ohio courts agreed that the reciprocity provision effectively excluded New Energy from the Ohio ethanol market, they nevertheless upheld it. Our position is that this 1984 amendment which was conceded by the Supreme Court of Ohio to be a forced reciprocity statute discriminating against out-of-state products by denying the tax credit unless the out-of-state product's home state provides a similar tax credit, must pass a strict scrutiny test, and that this clearly does not.
Sandra Day O'Connor: Mr. Schwartz, what if all we had in front of us was an Ohio statute that granted a tax credit to producers of ethanol in Ohio, no reciprocity provision. Would you be here, and would you think that posed a commerce clause problem?
Herman Schwartz: Yes, Your Honor, if it grants a tax credit only to Ohio ethanol, yes, Your Honor.
Sandra Day O'Connor: Do you think that would be true if Ohio had a serious concern about its citizens' health problems?
Herman Schwartz: Yes.
Sandra Day O'Connor: Do you think it couldn't provide a tax credit to encourage the production and use of ethanol in Ohio?
Herman Schwartz: Yes. But that is the kind of protection that must meet the strictest of all scrutiny. It's almost per se illegal, that kind of tax credit, as this Court has found. A tax credit that's limited solely to the in state product.
Sandra Day O'Connor: Well, let me ask you this. Do you think that Ohio could, instead of a tax credit, give some kind of bonus payment to producers of ethanol in Ohio?
Herman Schwartz: Yes. And States have done that.
Sandra Day O'Connor: It could do that?
Herman Schwartz: Yes. And States have done that.
Sandra Day O'Connor: You don't think that a tax credit is essentially the same thing as a bonus?
Herman Schwartz: No, it's not, Your Honor. A tax credit is aimed in the form in which you've raised it, it is aimed almost explicitly at out of state producers. It says, our people will get this. It's a discriminatory tax on its face. It is the kind of tax that I think it's fair to say the framers were concerned about right from the beginning.
Sandra Day O'Connor: Well, I guess it's a little hard though to distinguish between an outright grant of state money and an extension of a tax credit?
Herman Schwartz: Right. It is, Your Honor, but that kind of distinction is a distinction that this Court has always made, and frequently made, because ultimately almost everything that a State does when it spends money, whether it spends money on research, whether it spends money to facilitate matters in one way or another for its products, is an expenditure of money on behalf of its own. For example, in the Hunt case, the Court pointed out... and I think that was unanimous... that the State of Washington had spent a great deal of money to develop a grading system for Washington apples. And when North Carolina tried to match that by taking away that advantage that the State of Washington had created, this Court unanimously said, you can't do that. It's okay to spend money. But when you discriminate, when you set up a tax system and it is discriminatory taxes that the Commerce Clause is historically aimed at, when you set, and which this Court has again and again struck down--
Sandra Day O'Connor: So you would just distinguish the Alexandria Scrap type situation based on the fact that this is within the tax structure?
Herman Schwartz: --That's right. And the Court did so itself, Your Honor. In Alexandria Scrap and in the cases subsequent to Alexandria Scrap, Reeves, the others, particularly in Justice Blackmun's discussion in Reeves of the market participant doctrine, the Court said, the Commerce Clause is aimed at regulation and direct taxes. It is not aimed at the situation where a state enters the market. It is not aimed at the situation where perhaps the State even spends its own money.
Antonin Scalia: Mr. Schwartz, I'm not sure you'd really hold to that line. In the subsidy situation you were just addressing, it's assumed that the subsidy goes to the producer, no matter where the producer sells it. Suppose you had a state subsidy that applied to an in-state producer but only if he sells those products within the state, and he forgoes that subsidy to the extent he ships out of the state, would you say, well, that's not a tax so it's all right?
Herman Schwartz: Yes, Your Honor, I would say that.
Antonin Scalia: You would.
Herman Schwartz: Because it is not a tax. I think--
Antonin Scalia: As long as it's not a tax, you can do whatever you like to--
Herman Schwartz: --Well, you can spend your money in any way you want so long as you're not taxing. You can spend money on anything you want in your own state.
Antonin Scalia: --So I can subsidize an in-state produce but only if he ships nothing out of state and as soon as he ships out of state, he looses the subsidy and that doesn't interfere with the Commerce Clause?
Herman Schwartz: Well, I think that's right because I think at that point, it comes close to the market participant doctrine although there is a danger that that doctrine could swallow up the entire situation. In the tax area again and again, Your Honor, and I think you would referred to this yourself last year in the Scheiner case, things would seem the same which have the same effect will nevertheless produce different kinds of results. We are dealing here, as I think the Court said in, I think Justice Holmes said it in Towne against Eisner where a page of history is worth a page of logic.
William H. Rehnquist: A volume-- --A volume of logic.
Herman Schwartz: Pardon?
William H. Rehnquist: A volume of logic.
Herman Schwartz: I stand corrected. A volume of logic. In fact, it's much better. The point is lost in my version and it's reinforced in yours. It seems to me that this is precisely what we're dealing with here. States can spend their own money. They can do it in the manner they choose. But the tax structure has so many possibilities of discrimination built into it, and it's historically so dangerous because the alternative, Justice O'Connor, I think would be to have to repudiate a line of cases that goes back to Welton against Missouri in which states again and again have said, we are trying to help our local industry. The Hawaiian case just a few years ago, they said here is this struggling little brandy, Okolehau brandy... to an easterner, that's a little hard to pronounce, this little product which has almost no market, and then there's this pineapple wine which has no market at all. And we will give them a tax exemption from the twenty percent tax that we've established. The Court said... and on this point, I think there was no dissent... I think there was a dissent on the implications of the 21st amendment, on this point the Court said, you just can't do that. You can't help your own industry by a discriminatory tax. Now, if I may take a minute to sort of recollect where I was in my argument. Now, to go back, some ethanol was sold in Ohio in 1979 and 1980, but in 1981, the same year New Energy's Ohio competitor, Southpoint Ethanol, which is an intervenor in this case, was formed, Ohio adopted a sales tax credit for all ethanol sold in Ohio. It was about 3.5 cents a gallon of gasohol, which ultimately fell to 2.5 cents. Indiana had a comparable fuel tax credit which it repealed in early '84, effective July, '85, and it authorized at that time a production subsidy which in fact was dropped a year later again on July '86. In the fall of 1984, New Energy went into production in Indiana. And Southpoint's sales in Indiana began to fall sharply. On December 20th, the Ohio reciprocity provision was enacted. As the Trial Court found, Southpoint had lobbied the Ohio legislature for this provision, in fact, stressing to the legislature... and the word stressing was used twice by the Southpoint witness... how important Southpoint was to the most depressed areas of the Ohio economy. This reciprocity provision which also, by the way, excluded ethanol from almost all gas-fired plants and ethanol made from cane and beet sugar, this was done in order to pressure Indiana to restore the Indiana tax credit, and in fact it was aimed only at Indiana, for every other state that could be affected by this tax credit, the producers in other states like Tennessee, Illinois and elsewhere already had a credit which they were giving. Now, loss of the Ohio tax credit, when all of the New Energy's competitors continued to get this credit inevitably excluded New Energy from the Ohio market, as the Trial Court found. When New Energy challenged this Statute, the Trial Court found two, and only two legislative purposes. And I'd like to quote that, if I may. "To promote domestic industry and to affect the policies of other states. " The Court nevertheless upheld the statute because--
Sandra Day O'Connor: May I stop you on that point just for a moment. The Court did also adopt appellees' additional finding of purpose.
Herman Schwartz: --Right, Your Honor.
Sandra Day O'Connor: And it isn't altogether clear to me whether or not there was an additional purpose to provide a cleaner and safer environment for Ohio citizens.
Herman Schwartz: Your Honor, that's a-troubling point. I had a lot of trouble understanding that finding. The first sentence says, it is conceivable that there were other purposes. One of these was... now if conceivable modifies everything which is actually all there is, then it seems to me there is no such finding. And indeed when one looks at the intermediate appellate court's opinion, which lists the purposes, it does not include that.
Sandra Day O'Connor: If it was a purpose of the legislature, how does that affect the legal analysis?
Herman Schwartz: Not at all, Your Honor, because if it were, there would still be a least drastic alternative test. After all, in Dean Milk and many other cases, the Court said, and in Hunt, for example, the Court said we accept that this is a legitimate bona fide purpose. However, you have to apply the least drastic alternative. And in this case, I planned to get to it shortly, but I could get to it right now, there is just no question that this is not the least drastic alternative. How in the world do you increase the amount of ethanol by excluding ethanol just because it comes from a state that uses a different incentive, because it comes from a coal-fired plant, because it is made of cane or beet sugar. Indeed, it's counterproductive to that because New Energy's loss of the market may have gone to gasoline, not to gasohol, in which case the amount of pollution in the air would multiply rather than be reduced. Now, despite these findings which, again with the ambiguity that you've pointed to, the Court nevertheless upheld the statute because New Energy was the only producer affected and would not have been affected had Indiana not repealed the tax credit.
Anthony M. Kennedy: Do we have cases which say that it's improper to try to influence the policies of other states'?
Herman Schwartz: Yes, there are, but of course, it depends on the method of influence. There is nothing wrong inherently in trying to influence the policies of other states. It depends on how you do it. Indeed, even under the equal protection clause where that is an even more acceptable purpose in the Metropolitan Life case, the Court said, you can try to influence other states, but you can't do it by discriminating in taxes. So that it seems to me the answer is in itself neutrally there's no problem about trying to influence. If for example, you try to influence by improving the economic climate say by I suppose a right to work law or some other kind of economic or friendly regulatory climate, other states obviously may try to respond in other ways.
Anthony M. Kennedy: So the objective itself is legitimate to try to influence the policy of other states?
Herman Schwartz: That objective, yes, Your Honor, yes. To influence is correct, but it depends on how you do it.
William H. Rehnquist: What if Ohio felt that coal-fired energy plants in Indiana to the west of it were producing a lot of acid rain in Indiana. Could it instruct or regulate its utilities to tell them they couldn't buy from any coal-fired plant in Indiana?
Herman Schwartz: If that were the least drastic way of dealing with that very serious health problem, the answer would be, yes.
William H. Rehnquist: What's the leading case that you can think of that applies the least drastic alternative test in this situation?
Herman Schwartz: Well, I'm not quite sure by, this situation, but the cases I rely on are Dean Milk.
William H. Rehnquist: Did that use the term, least drastic?
Herman Schwartz: Yes. Yes, it did, Your Honor. I'm quite sure that it did use the term. And I think the A&P case did as well.
Anthony M. Kennedy: I thought Dean used the reasonable alternative analysis, it said whether there's a reasonable alternative.
Herman Schwartz: I don't think so, Your Honor, because I think as I recall Justice Black was unhappy because it was using First Amendment doctrine, and I think he commented on that. I'm not sure. I think the phrase in A&P there's one reference here to less drastic alternative, and there are I think other ways in which the Court stressed that you've got to look at other alternatives that create less problems. Indeed, the Pike v. Bruce Church test itself says that even when something regulates evenhandedly, which I think this does not, even when something regulates evenhandedly under those circumstances, and for a legitimate purpose, you still have to look to see where there are other ways that could accomplish the same thing.
William H. Rehnquist: But, Mr. Schwartz, it's one thing to say you have to look at other alternatives.
Herman Schwartz: Right.
William H. Rehnquist: It's quite another thing to say you must employ the least drastic of these alternatives.
Herman Schwartz: Well, Your Honor, even if it's not least drastic, the Court certainly has insisted on less burdensome, and there are less burdensome. Indeed, the initial statute, the initial tax credit in Ohio in 1981 which allowed the credit for ethanol, just like that, ethanol or methanol itself was quite an adequate alternative without the reciprocity. We are not challenging the tax credit which was made available in '81 to everyone. We're challenging the reciprocity and we're saying that the tax credit without the reciprocity which now some eleven states have and which in 1985 approximately 23 states had, that that is a less burdensome alternative which accomplishes the same purpose. After all, over the years, the rate of usage of ethanol, of gasohol, I think, has risen from something like 400 or 500 million gallons to 900 million gallons during this period without, with very few of these reciprocity statutes operating. Now, if I may return, our argument, which is of course what we've been talking about here is that reciprocity statutes face strict scrutiny and for a very good reason. They involve facial discrimination, they create most favored nation enclaves, precisely the kind of preferential trade areas that the Commerce Clause is supposed to prevent, and they threaten economic isolation in an effort to control the policies of other states. All of those I think have been touched on by this Court. Now, the Ohio courts recognized the applicability of strict scrutiny, but they ruled that because others from outside Ohio, besides New Energy, could come into Ohio, there was no violation. Now, that logic this Court has never adopted. In some cases for example that this Court has dealt with, only one out-of-state company was involved. That's true of the Pike case, it's true of Lewis against Bete Investment. In A&P, for example, many other states, I think it was something like eight states, had reciprocity agreements with Mississippi. Louisiana did not. And the Court still struck that down unanimously. There is no requirement either that there be an absolute bar. I think this Court has recognized right from the beginning that taxes can have the same effect as an absolute bar, and in fact in this case as the Trial Court recognized, it had precisely that effect. New Energy was excluded. The fact is with the competitors getting the credit, there was no way New Energy could compete in the Ohio market. Now, with respect to the health claim, I think I've already touched on that, unless there are some further questions on it. And indeed, there's some question as to whether any credit is necessary for health, because over the years, there has been a decline in the use of any tax credits and an enormous increase in the use of ethanol. And as I pointed out before, it's very possible that New Energy's loss in Indiana may have been diverted not to another ethanol producer, but to gasoline, which in turn would produce increased pollution. And I think the record quite beyond dispute shows that the purpose here was to pressure Indiana to restore that tax credit for the benefit of the Ohio competitor, an important employer in perhaps the most depressed area of the State that used a great deal of Ohio corn and coal. And as I said, this was stressed at the legislative hearing. Now, an argument has been made--
Antonin Scalia: Mr. Schwartz, before you go on to the new argument, will you tell me why this is different from what we have clearly allowed that is facially discriminatory and that is the assessment by a state of a compensating use tax. In that situation, the state is just equilibrating matters between itself and other states. It's worried that its sellers will be at a disadvantage because of its tax if other states don't impose taxes so it imposes a use tax on any imports. It seems to me the state here is doing the same thing. It's worried that its sellers will be at a disadvantage abroad, viz a viz, the sellers in the state that does not give the same credit that it does. So it's just making things even.
Herman Schwartz: --Your Honor, I think the difference is, and the case you're talking about is obviously Henneford v. Silas Mason, that line of case.
Antonin Scalia: Right. And they're tax cases.
Herman Schwartz: Right. Oh, yes, they're clearly tax cases. The difference is that that's a situation in which a state itself has imposed a tax burden on its own people, and it says that we don't want to hurt our own people too much so therefore we will equalize matters by saying that if you buy something outside and use it here, our people will not be at a disadvantage. But it's a disadvantage that the state itself created. In this case, there was no disadvantage when the tax credit went to everyone, and indeed there was no disadvantage had there been no tax credit at all. Ohio created a disadvantage whereas in the Silas Henneford Mason (sic) case by the reference to other states, Ohio undid a disadvantage to its people, or the State of Washington, actually, that the State of Washington itself had created. And it was a straight equalizer, penny for penny. Whereas here, when there's an attempt to equalize whatever advantages other states have, we have an attempt to mix apples and pears. If for example another state provides research help, here we're providing a discriminatory tax. There's no way of knowing whether they are in any way equal. Henneford Silas Mason (sic) it was calibrated exactly to the penny and as I think it was Justice Cardozo who said it, equality is the hallmark. Not true here. This statute does not create equality. Now, I have just a couple of minutes more before the close of my argument, and I'd like to respond briefly if I may make a couple of points with respect to as I say Justice O'Connor's raising before of this issue of bounties and subsidies and market participant. The market participant is a narrow doctrine designed to deal with that situation whereas the Court has said, and I think the most detailed statement is in Reeves and I think other Justices have quoted that Reeves statement, where the State acts as the equivalent of a private business, where it is buying or it is selling or it is manufacturing.
Sandra Day O'Connor: Well, that doesn't explain Alexandria Scrap, I don't think.
Herman Schwartz: It doesn't explain it fully except Justice Powell referred to the case as, I think the Reeves case as a situation in which the State was really acting as a purchaser. What happened in Alexandria Scrap, of course,--
Sandra Day O'Connor: Well, I don't think so. The situation appears at least to be one where the state wanted to encourage disposal of the old auto hulks, just like Ohio might want to encourage the use of ethanol.
Herman Schwartz: --Yes. But the Court, I think, has characterized it, and indeed in the subsequent cases certainly treated both Alexandria Scrap and the line of cases as a line of cases where the states act as a private trader. Indeed, the justification I think that was given in Reeves v. Stake is that it acts as a private trader and may indeed even be subject to the constraints of a private trader, which a plurality of the Court then applied subsequently in the South Central Timber case, imposing restraints on an alienation and in effect preventing an effort to control a downstream operation, namely, processing of timber. And unless I think the rule is cabined and limited that way, it could easily swallow up the entire Commerce Clause, because again almost any tax credit can be called a tax expenditure. And indeed an expenditure. And at that point, the Court would have to reexamine and in effect overrule this lengthy line of cases which go as recently as last year. I think I will sit down now and reserve the rest of my time for rebuttal. And simply conclude by saying that this Statute is clearly unconstitutional under the Commerce Clause and the decision of the Supreme Court of Ohio on rehearing the second Ohio Supreme Court decision should be overruled and reversed.
William H. Rehnquist: Thank you, Mr. Schwartz. Mr. Farrin, we'll hear now from you.
Richard C. Farrin: Mr. Chief Justice and may it please the Court. The issues in this case are twofold. The first issue to be decided is whether the Ohio tax credit scheme is the type of state action that is subject to the restraints of the Commerce Clause. Within this one issue there are actually two questions to be considered by the Court. Initially as this Court has heard during the initial argument in this case, whether or not the market participant principle applies to the ethanol tax credit scheme. The second issue, which is also a matter that was touched upon by this Court in the Alexandria Scrap case but not decided, is whether the Commerce Clause prohibits state action effecting a flow of commerce that is dependent for its existence upon a state subsidy rather than on the private market. The second issue is whether assuming this scheme is subject to the Commerce Clause restrictions, whether it is valid under the various tests established by this Court. As New Energy's counsel has pointed out, the Ohio General Assembly initially enacted its tax credit provision in 1981 to provide an encouragement for the use of ethanol as a substitute for lead in gasoline. The result of this use would be to protect the environment of Ohio because as has been stipulated throughout these proceedings, ethanol is the most environmentally benign substitute for lead in gasoline. Other benefits of the use of ethanol are the creation of an alternative market for corn and a reduction of the country's dependency on foreign oil. It's undisputed that these purposes are legitimate purposes for the State to pursue. The portion of the scheme that is the subject of the challenge before this Court is the enactment in 1984 which became effective in 1985 of the reciprocity provision that limited the credit given to motor vehicle fuel dealers to the use of ethanol that was produced either in Ohio or in any other state that granted similar credits for the use of ethanol to Ohio dealers to Ohio produced ethanol. This scheme, including the reciprocity scheme, does not put any prohibition on the sale or distribution of ethanol in Ohio, nor does it regulate the conditions under which the flow of ethanol may occur in Ohio. By this scheme, Ohio has simply entered the market by providing a subsidy to build up the price of ethanol. This subsidy is necessary in order for ethanol to compete with gasoline in the marketplace.
John Paul Stevens: When under your view of it did Ohio enter the market, in 1981 or 1984?
Richard C. Farrin: Justice Stevens, I believe Ohio entered the market initially when it first enacted the credit provision 1981. Its purpose at that point in time was the same, to bid up the price of ethanol so that it might compete with gasoline in the marketplace. Because of the production costs involved with ethanol, absent both Federal and state subsidies, ethanol simply could not compete in the free private marketplace with gasoline. And the evidence in the record affirms that fact.
Antonin Scalia: Mr. Farrin, do you really think it solves matters to simply say it's the application of a state subsidy? I assume, for example, that a state could if it chooses subsidize all of its domestic industries in a lot of ways, by tax credits, or even by giving them money. But do you think a state could subsidize domestic production by only charging a sales tax on out-of-state products and not charging a sales tax on in-state products. And saying, well, that's all fine because all we're doing is subsidizing in-state industry which is certainly a laudable and valid goal?
Richard C. Farrin: Justice Scalia, initially I think from an economic standpoint, that's a very unlikely event. Secondly, I don't think this case requires the Court to so hold.
Antonin Scalia: I didn't ask either of those questions. I asked whether you thought that would be constitutional simply because it's the application of a state subsidy?
Richard C. Farrin: I do not think it would be to simply use a tax exemption to favor local business with no other purpose, I do not believe would be constitutional, Justice Scalia.
Antonin Scalia: So subsidy isn't the answer. I mean, it doesn't necessarily prove that this is okay.
Richard C. Farrin: Your Honor, I submit under Alexandria Scrap that a direct subsidy may in fact be unlimited. I think that case leaves the future unclear as to how it will be applied as it goes along the spectrum to the point that's suggested in your question. I submit though that at the least, Alexandria Scrap would allow a state to subsidize a local industry if it was part of a scheme that was effected to carry out a legitimate state purpose other than simply protectionism. In Alexandria Scrap, the purpose of the statute was to effect the removal of abandoned hulks in the state. In this case, the primary purpose of the ethanol credit scheme is not solely to benefit Ohio business. Its purpose is to encourage the use of ethanol which will have great environmental benefits in the State of Ohio, plus it will have other benefits including the increased market for corn and reduction on the dependency of foreign oil.
Anthony M. Kennedy: Well, it's purpose is to insist that other states do it Ohio's way, isn't it?
Richard C. Farrin: Justice Kennedy, I was speaking of the scheme as a whole, and I think that's what Alexandria Scrap looked at, the scheme as a whole was intended to further a legitimate state purpose. One aspect of the scheme--
Anthony M. Kennedy: But it did so in a way that penalized producers from one state and not others, and incidentally helped Ohio producers.
Richard C. Farrin: --Justice Kennedy, I don't think the record indicates whether or not it did help Ohio producers or whether it was intended to help Ohio producers viz a viz their foreign competitors.
Anthony M. Kennedy: Well, it didn't hurt Ohio producers, did it?
Richard C. Farrin: I would be amazed if it hurt Ohio producers, Justice Kennedy. But I think if you look at Alexandria Scrap, the same exact situation was present there. Maryland first enacted their scheme which provided subsidies to scrap processors. There's no difference in the--
Anthony M. Kennedy: Well, there, the State was actually buying the hulks. Are you saying the State enters the market any time it imposes a tax?
Richard C. Farrin: --Justice Kennedy, I don't believe that the State of Maryland was purchasing hulks in the Alexandria Scrap. They were simply giving subsidies to processors who bought hulks. In this case, Ohio is giving subsidies to motor vehicle fuel dealers who buy ethanol and use it in creating gasohol.
Sandra Day O'Connor: Well, it's giving a tax credit which has the same economic effect as a subsidy, isn't that right?
Richard C. Farrin: Justice O'Connor, that's correct, it's a tax credit, but I submit that it would be extremely formalistic to suggest that it is different in form.
Sandra Day O'Connor: Well, have we ever applied the market participant theory to a tax scheme in a state?
Richard C. Farrin: No, Justice O'Connor, this Court has not.
John Paul Stevens: Yes, but isn't there a difference in Alexandria Scrap the hulks that they wanted to get rid of were all located in Maryland, weren't they? The procedure generally was to get rid of these hulks that were in the State? And it didn't really matter whether it was an out-of-state wrecking company or an in-state wrecking company that bought them as long as the hulk was in Maryland. But here your interest is in having the gasohol that is consumed in Ohio be less contaminated than regular gas, and it is immaterial where the gas comes from as long as you have an environmental interest. You'd get the same benefit if Indiana gasohol were used in Ohio.
Richard C. Farrin: Justice Stevens, the reason why Ohio is attempting to encourage other states to pass similar credits is so that ethanol will be used in those states.
John Paul Stevens: But what does Ohio care about whether ethanol's used in those states. If the ethanol produced in those states is consumed on Ohio, that's what Ohio cares about, isn't it?
Richard C. Farrin: Justice Stevens, I think Ohio is also legitimately concerned in the clean air of other states.
John Paul Stevens: In Indiana? They're concerned about the clean air in Indiana?
Richard C. Farrin: Justice Stevens, that air comes into Ohio. I don't think the environment can stop at the state lines. When you're interested in cleaning up polluted air, you can't say if we just use it in Ohio, our air will be clean.
John Paul Stevens: Is there anything in the legislative history to support this theory?
Richard C. Farrin: There's simply no legislative history in this matter.
Anthony M. Kennedy: Is there anything in our precedents which says that one state can take action to influence the conduct and the policies of other states? I thought that's what the Commerce Clause was all about.
Richard C. Farrin: Justice Kennedy, I don't believe there are any decisions of this Court that suggest a state cannot encourage other states to act. We're simply encouraging the other states to pass similar credits so that there'll be a national market for ethanol. Another point in response to Justice Stevens' question is that the nature of the ethanol industry is such that it can't exist if there are simply a few states which allow credits so that it can compete with gasoline. In those states in which no credits are given, the ethanol industry will not exist because it can't compete in the private marketplace with gasoline.
John Paul Stevens: You seriously think the '84 amendment actually would encourage industry as a whole rather than discourage it?
Richard C. Farrin: Yes, I do, Justice Stevens.
John Paul Stevens: It certainly wouldn't help it any in Indiana.
Richard C. Farrin: It would help the industry greatly if Indiana took the encouragement of Ohio and passed some type of a credit for ethanol.
John Paul Stevens: Well, maybe Indiana has a better way of doing it. What if every state were to adopt the Indiana program of subsidizing the industry?
Richard C. Farrin: Justice Stevens, I--
John Paul Stevens: Why is one better than the other?
Richard C. Farrin: --I don't submit that one might be better than the other, but I do submit that it would have no difference in effect. I don't think there's any reason to distinguish a straight subsidy program, such as in Alexandria Scrap from doing the same thing through the granting of tax credits.
John Paul Stevens: Well, what do you say to your opponent's argument that maybe the Indiana gasohol that no longer comes into Ohio has been replaced by lead gas rather than gasohol?
Richard C. Farrin: Justice Stevens,--
John Paul Stevens: That's possible.
Richard C. Farrin: --I would first say that there's nothing at all in the record to suggest that. I would submit that the greater assumption, and the assumption that the Ohio Court of Appeals made on what evidence there was in the record was that it would be replaced from ethanol produced in other states which do have such ethanol credits. The evidence indicated that the largest and most aggressive producer of ethanol in the country was Archer Daniel Midland out of Illinois and they have the ability to fully fill any void in the market that might be left by New Energy's leaving that market.
Antonin Scalia: General Farrin, do these subsidy laws tend to predominate in those states that have a lot of air or those states that have a lot of corn? I mean, do you really think that that's what's going on here?
Richard C. Farrin: Justice Scalia, if you're referring simply to a subsidy provision such as the one that Indiana had at one time, I'm not aware that there are any, if many, of those types of provisions. Most of the states that I'm aware of have addressed this problem through their tax system.
Antonin Scalia: They are corn growing, aren't they?
Richard C. Farrin: Justice Scalia, I'm not an expert on agriculture, but it would not surprise me that those states that have large corn surpluses would find that also to be an additional reason for encouraging the use of ethanol, because clearly the more ethanol that is used, the more corn, which is a primary raw material, is used. I would point out that there is no restriction whatsoever in the Ohio statutory scheme that limits the source of the corn used to make ethanol. And in fact, the record reveals that one Ohio producer used as much Indiana corn as Ohio corn in producing it.
Antonin Scalia: There is a national market in corn, of course. You can take it from anywhere and the national market's going to help your domestic corn.
Richard C. Farrin: That's correct, Justice Scalia. And I suggest the same reasons point to the necessity for having a national market in ethanol. It's simply a matter of things such as economies of scale. If a producer is going to be limited to the market it can distribute its product, it's simply not going to get to the level where it can compete with the major gas producers of the country. The Ohio scheme has not caused any impact on the flow of ethanol from Indiana due to any prohibition or to any regulation on the way or method by which it can come into Ohio. The impact on the flow if any ethanol from New Energy is due to Ohio making it more lucrative for Ohio motor vehicle fuelers to use that fuel because they get a credit if they use fuel that's produced in Ohio or in any other state that grants a similar credit. This is not the type of State action which this Court has ever held the Commerce Clause was intended to prohibit. In fact, it does not interfere with the private market forces. It simply exerts a market force to encourage or give an incentive to motor vehicle fuel dealers upon whom the tax is applied and to whom the credit is given.
John Paul Stevens: General Farrin, how do you distinguish the Hawaiian tax case on these exotic beverages they had over there, the tax credit for those local--
Richard C. Farrin: Justice Stevens, perhaps the major distinction is that there was no purpose other than simply to protect local industry in that case. In this situation, I submit that the record demonstrates that there is a legitimate purpose for the statutory scheme involved.
Sandra Day O'Connor: --And that purpose is the health and environment purpose?
Richard C. Farrin: I believe it's the health environment purpose. I think it's also the resulting effects that encouragement of ethanol has on the corn market and in our attempts to reduce our dependency on foreign oil. And I would point out that's another reason why we allow an exemption for coal-fired plants, rather than gas-fired plants because we're looking for alternative sources of energy. One of the fast depleting sources is gas. If we allow the credit for plants that use gas, it simply defeats the purpose.
Sandra Day O'Connor: Well, has the Court required a close fit, even if the purpose is legitimate? In other words, does the scheme have to fit very closely to that legitimate purpose? And does this kind of reciprocity provision meet that kind of requirement?
Richard C. Farrin: Justice O'Connor, I don't think this Court has ever stated that you actually need an alternative purpose other than to protect the local businesses. In Alexandria Scrap, it seemed to be accepted by the Court that the amendment that resulted in favoring Maryland processors and in reducing the flow of hulks into Maryland was done for the purpose of protecting Maryland processors.
Anthony M. Kennedy: But that was because Maryland created a market that had not previously existed. And this is a market that exists quite without regard to the intervention of the State of Ohio.
Richard C. Farrin: Justice Kennedy, the majority in Alexandria Scrap found that the record in that case did not establish that the market in that scrap processing did not exist. Justice Stevens in his concurring opinion so found but the majority found that the record simply wasn't sufficient. I would suggest in this case the record is replete with evidence that shows that the ethanol market in Ohio would not exist without the State subsidy. It simply could not compete with gasoline in the naturally functioning market without the state subsidy.
Byron R. White: Well, how about gasohol from other States?
Richard C. Farrin: Justice White, gasohol or ethanol from, other States cannot compete with gasoline either without subsidies, and again, that goes back to what I submit is one of the purposes of the reciprocity provision. We're looking to have a national market which we believe is essential for the future of the ethanol industry. If all the states, or if a number of the states choose not to provide ethanol credits, the ethanol industry will not survive, at least at no significant level in those states.
Byron R. White: Well, how does keeping out a seller from another state that doesn't grant reciprocity, that doesn't grant Ohio people a credit there, how does keeping them out serve the health's interest of Ohio?
Richard C. Farrin: Justice White, it's because of the method by which that encouragement is taken. We are encouraging those states to enact similar credits so that ethanol will be used in those states and so that there will be a national market for ethanol which will be beneficial to the entire industry.
Byron R. White: Well, here's an outsider that wants to, that apparently has enough product to sell in Ohio. And if he can't come in, why his share of the market's going to be taken up by another ethanol producer, either an Ohio one or a foreign one, or by gasoline.
Richard C. Farrin: That's correct, Justice White. I don't think it will affect--
Byron R. White: Well, what difference does it make where the ethanol comes from?
Richard C. Farrin: --For the purposes of--
Byron R. White: Looks to me like the more sellers of ethanol you've got in Ohio, the more service to your health's interest you'd have.
Richard C. Farrin: --Justice White, that goes part of the way, I believe. And I think to follow out that thought, the more ethanol use you have in the country, it even further advances that purpose. And that is the purpose of the reciprocity. It's not simply to keep out... it's not because Indiana ethanol is any less effective. It's to encourage Indiana and other states to grant ethanol credits so that the national ethanol market will grow and so that all states will use the environmentally benign product so that the environment of the nation, which will affect all Ohio citizens plus citizens of the nation will be benefitted. Along the lines of the questioning as to where this Court is going with the market participant theory, I think perhaps a comment in a footnote of the Reeves case by the majority points out where the limits might ultimately be. In footnote 10, the Court noted that marketplace actions involving integral operations in traditional areas of governmental functions may not be subject even to Congressional regulation pursuant to the commerce power. And it went on to state that it follows easily that the intrinsic limits of the Commerce Clause do not prohibit state marketplace conduct if it falls within this sphere. To me that suggests that what the Court is thinking is that if you're dealing with a legitimate state purpose in your overall statutory scheme, you are not subject to the Commerce Clause. If you are not subject to the Commerce Clause, it doesn't make any difference whether or not portions of that scheme may have an effect on the flow of commerce.
John Paul Stevens: If you state it that broadly, I guess the Dean Milk case was incorrectly decided. Because there certainly was a legitimate health purpose in their regulation.
Richard C. Farrin: Justice Stevens, perhaps the distinguishing fact in Dean Milk was that it in effect barred, completely barred a product from coming into a marketplace unless it complied with the statute. In this case, there is no bar to ethanol coming into Ohio from any State. Any producer may sell its ethanol in Ohio if it can sell it in the marketplace.
John Paul Stevens: How much Indiana ethanol is sold in Ohio when you have this particular situation? There isn't any, is there?
Richard C. Farrin: Justice Stevens, the record doesn't indicate it because this case was filed before the statute went into effect, but I would not dispute that it is very likely that they sell little or no ethanol.
John Paul Stevens: None at all. It's the equivalent of an absolute bar.
Richard C. Farrin: Justice Stevens, I think it's different. I think there's a difference between a statute intended to encourage something that puts an economic incentive--
John Paul Stevens: Well, but maybe Madison, Wisconsin, because if we really want to encourage everybody else in the country to have the same strict health regulations we have, too, the best way to do it is to have everybody adopt this kind of protectionist ordinance that no milk can be shipped--
Richard C. Farrin: --Justice Stevens, if in Dean Milk, the ordinance said, you will do it within five miles of the city, I believe, or in a plant in another area which has the same requirements, I think that would have passed the Constitutional test. I think that's what Ohio does. It says, you shall use Ohio ethanol or you shall use ethanol which is produced in a state which has similar credits.
John Paul Stevens: --Not other ethanol, but meets the same physical requirements and health standards and all the rest but just that it's produced in states that adopt the same public policies of how to subsidize the industry that we think are the wisest.
Richard C. Farrin: That's correct, Justice Stevens, and I think that's a matter for the legislature to determine as to the wisdom of its course of action, and whether it believes it will effect that result.
Sandra Day O'Connor: Well, Mr. Farrin, this Court so far has invalidated all these reciprocity laws. It did so in Sporhase v. Nebraska; it did it in A&P Tea Company; it did it in Baldwin v. Seelig. Dean Milk. I mean, find some cases where we've upheld this kind of a scheme.
Richard C. Farrin: Justice O'Connor, I don't think in any of those cases, this Court struck down a scheme such as the one at issue here. In Great A&P Tea Company and in Sporhase, the reciprocity provisions themselves were not the subject of a per se rule of invalidity, it was the effect of those reciprocity provisions which was to impose an absolute ban on the sale or distribution or movement of a matter or a product in interstate commerce. I'd point out that in Great A&P Tea Company, this Court also recognized that the purported purpose by the State of Mississippi bordered on the frivolous. But in any event, I would submit that what the cases stand for is that you cannot impose an absolute ban on the movement of goods in commerce. Neither of those cases, by the way, dealt with a tax subsidy or a straight subsidy program.
Sandra Day O'Connor: I don't think the Court has distinguished between an absolute ban and a substantial burden on interstate commerce.
Richard C. Farrin: Justice O'Connor, I believe this Court has distinguished for purposes of determining which type of Commerce Clause test to apply whether it subjected it to a regular balancing test or whether it subjected it to a stricter scrutiny test, such as was used in the A&P case. I would submit that Baldwin was in fact not a reciprocity provision, to my understanding. They simply precluded the movement of those goods without any ability for other states to allow that movement by granting reciprocity.
Antonin Scalia: Do you think that Ohio could impose a penny tax on all gasoline from states that don't subsidize ethanol? I mean, if it's, you know, the national scheme is in its interest, why does it have to limit its incentives to ethanol? Why can't it start fiddling with other imports into the state, subsidize some of them and tax others in order to induce other states to subsidize ethanol? Is there anything in the nature of your theory that would require Ohio to limit itself to ethanol as a device to get other states to go along?
Richard C. Farrin: No, Justice Scalia, it would not be limited to ethanol. I think--
Antonin Scalia: That's scary, isn't it?
Richard C. Farrin: --I think what it would be limited to is whether or not they had a legitimate purpose that was carried out other than simply to protect their local businesses.
John Paul Stevens: It would be the same purpose you have in this case, to encourage other states to adopt this kind of an ethanol policy.
Richard C. Farrin: That's correct.
John Paul Stevens: You could perhaps tax all imports from Indiana unless Indiana adopted this type of tax credit.
Richard C. Farrin: I assume I would believe that this Court would not allow that broad a prohibition, of an absolute prohibition.
John Paul Stevens: No, I don't think it would, either, but I think your theory would.
Richard C. Farrin: The second issue that was discussed in the Alexandria case, but was not decided because the majority of the Court felt there was not an adequate record upon which to determine it, was whether or not the Commerce Clause forbids state action affecting a flow of commerce that is dependent for its existence on state subsidies rather than on private market forces. The majority noted in a footnote that if the facts had so shown, it would have hesitated to find that the Commerce Clause did in fact prohibit such action. Concurring opinion by Justice Stevens indicated that that Justice felt that the Commerce Clause did not prohibit such state action. I think the reasoning in both that footnote and in Justice Stevens' concurring opinion supports that thought. The Commerce Clause only prohibits state action which affects the operation of a free market or a natural functioning of the private marketplace. If there is no naturally functioning private marketplace, how can any burden that is imposed upon such a flow involve the Commerce Clause? It simply doesn't interfere with a subject that the Commerce Clause was intended to cover. While the record in Alexandria Scrap might not have been sufficient for the Court to determine that issue, the record in this case is replete with evidence that the ethanol market would not exist at its present level or at any significant level in Ohio, absent the state credit that's granted by this scheme. Thank you, Your Honor.
William H. Rehnquist: Thank you, Mr. Farrin. Mr. Schwartz, you have four minutes remaining.
Herman Schwartz: Your Honor, I am not going to take any rebuttal time unless the Court has questions for me. I will however confess with some embarrassment that the thrust of the Chief Justice's question about least drastic alternative was absolutely correct. The Court in Sporhase used the phrase, narrowly tailored. And in some other cases, it has referred to, less burdensome alternatives, but has not used that particular phrase of less drastic alternative. I don't have any doubt in my mind judging by the questions and so on that the point has been made that that are less burdensome alternatives, and that this was not narrowly tailored. But I did want to make that clear, Your Honor, to correct what was stated in my brief.
William H. Rehnquist: Thank you, Mr. Schwartz. The case is submitted.