William H. Rehnquist: We'll hear argument next in Number 92-1911, Public Utility District... the spectators are admonished to remain silent until you get out of the Court. The Court is... the Court is still in session, and I particularly expect members of the bar to abide that admonition. We'll hear argument next in Number 92-1911, the Public Utility District Number 1 of Jefferson County and the City of Tacoma v. the Department of Ecology of Washington State, Department of Fisheries, and Department of Wildlife. Mr. Shapiro.
Howard E. Shapiro: Mr. Chief Justice and may it please the Court: This case is here on a writ of certiorari to the supreme court of Washington. It concerns streamflow quantities for fish habitat at the proposed Elkhorn hydroelectric project on the Dosewallips River. The project is subject to licensing under part 1 of the Federal Power Act. Streamflow requirements determine the quantity of water in cubic feet per second that may be diverted by the hydroelectric project, and the quantity that must continue to flow in the stream. Now, the use of streamflow to generate electricity is at the core of the licensing scheme for hydroelectric projects in part 1 of the Federal Power Act. The question here is whether streamflow quantities at the proposed project are to be determined by the Federal Energy Regulatory Commission under the broadly balanced public interest considerations in part 1 of the Federal Power Act, or by conditions imposed in State certifications under section 401 of the Federal Clean Water Act. If Washington had attempted to impose the challenged streamflow conditions independently of the Federal statute, its action would have been preempted by the Federal Power Act under this Court's decisions in California v. FERC, decided in 1990, and in First Iowa Hydroelectric Cooperative v. FPC, decided in 1946. So another way of stating the question here is whether section 401 of the Clean Water Act shields a State's attempt to regulate streamflow quantities at a hydroelectric project from preemption by part 1 of the Federal Power Act. If the certification conditions in the State section 401 certification are outside of the scope of section 401, then there is no shielding effect.
William H. Rehnquist: Mr. Shapiro, wouldn't a decision as to preemption be premature here, since the Commission hasn't yet acted on the application for a license?
Howard E. Shapiro: No, Your Honor, it would not. The reason is that the process here calls for the certification to be issued as a condition precedent to the issuance of a license. Under section 401(d) of the Clean Water Act, the conditions in the certification become conditions in the license, so that--
William H. Rehnquist: The Commission is not capable, then, of saying that the amount of water set aside in the certificate is not consistent with the project we have in mind and therefore we're going to change it?
Howard E. Shapiro: --That is correct, Your Honor, and this point was quite correctly recognized by the supreme court of Washington at petitioner's appendix page 16a, where it pointed out the very thing I have said, that FERC has to comply with the certification condition regardless of its legality. Now, the case they relied on... U.S. Department of Interior v. FERC... was a case that involved a challenge by the State of West Virginia to licenses issued on the Ohio River, and in that case West Virginia said that the State of Washing... the State of West Virginia said that FERC was encroaching on its section 401 conditions. In its decision, FERC said no, we cannot impose different conditions, we will comply with what the State says in its certification, and that case was... the D.C. Circuit's decision in that case was based upon an acceptance of the FERC's representations that it was bound. Now, the United States in its amicus brief has suggested the possibility of a conflict, but I don't see how that can happen under the law as it is structured, since neither FERC nor any Federal court can review an initial section 401 certification. The entire process has to come up under the Federal statute, to be sure, but through the State court system.
Antonin Scalia: And certainly the consultation process that the Federal Power Commission, now FERC, is supposed to engage in with the State authorities before determining... before issuing the license and before determining what the proper flow is in order to preserve fish habitat and so forth, that consultation process becomes rather superfluous if the State has a trump card.
Howard E. Shapiro: That is exactly right, and that is really the essence of our argument that in effect we have a kind of a reversal of the preemption process. If a State puts in a condition that's outside of its 401 authority, that condition still must be included in the license. FERC cannot review it, and FERC never gets to the point of undertaking its responsibilities under section 10(j) of the Federal Power Act. Section 10(j) was enacted in 1946, and it said that the State... recommendations of State fish and wildlife agencies as well as Federal fish and wildlife agencies must be accepted as the basis for any conditions to protect fish and wildlife that the FERC includes in its license, unless it makes very specific findings after attempting to reconcile its differences with the State's or Federal wildlife agencies that the conditions are inconsistent with the purposes and requirements of the Federal Power Act. So what we have here is a situation in which the States can completely circumvent that process simply by imposing conditions in the 401 certification. In fact, that happened in this case, in a related case as one of the amici have pointed out at some length. Having... I think we should turn immediately to the language of section 401 of the act, because it's fairly forthright. It appears in petitioner's appendix at page 134a. There are two things that are quite apparent from that language. First, the certification process, which is a delegation of Federal authority to the State, is one that not only makes the certification a condition precedent to the Federal license, but it also... under section 401, the statute clearly distinguishes between certifications by the States and the licensing process. It doesn't transfer the licensing process to the State. Thus, the fundamental balancing process FERC is supposed to undertake remains in effect. Now, the second... and this is an important point about section 401... is that the State's delegated authority is limited by the text to certifying whether any discharge from the licensed activity complies with the applicable water quality provisions that are specifically enumerated in section 401(a). So States aren't authorized to regulate the activity itself... that is, to regulate the hydropower project. They are to regulate discharges from the hydropower project. Now, among the enumerated provisions specifically listed is section 303 of the Clean Water Act. Section 303 relates to water quality standards.
Antonin Scalia: What's the code number?
Howard E. Shapiro: I believe it is 1313, Your Honor. We have set it out in the appendix.
Antonin Scalia: You experts in the area always use the statute number, which makes those of us who only occasionally visit the field confused.
Howard E. Shapiro: Yes, Your Honor, and it is 1313 of 33 U.S. Code, and you will find the beginning at page 114a. It's a very long section, but the section which I'm about to turn to specifically is section c on page 116a and 117a, and what I would say very briefly about that is that that defines what constitutes a water quality standard. A water quality standard, according to section 303(c)(2) on page 117a of the petition... it's 2a... says that "A revised or new water quality standard shall consist of the designated uses. "
William H. Rehnquist: Where are you reading from, Mr. Shapiro?
Howard E. Shapiro: Page 117a of the petitioner's appendix.
William H. Rehnquist: Where--
Howard E. Shapiro: It's at paragraph 2a.
William H. Rehnquist: --Oh, thank you.
Howard E. Shapiro: "When a State revises or adopts a new standard, the revised new standard must be submitted to the EPA for approval. " "That new standard, such revised or new water quality standard shall consist of the designated uses of the navigable waters involved, and the water quality criteria for such waters based upon such uses. " That requirement for both a designation of uses and water quality criteria to protect those uses becomes quite significant to the first basis for the holding of the Washington supreme court. We have contended, both in the court below and in this Court, that water quality standards applied in a 401 certification are limited to pollution and discharges as opposed to streamflow levels.
David H. Souter: May I ask you a question that gets specific to the problem that I have with your argument there? 401(a) refers to... just to the need for discharges to comply with a series of sections: 1311, 12, 1316, and so on. 1311(b)(1)(C) refers to limitations "derived by the States including those necessary to meet water quality standards established pursuant. " --and I'm skipping one line here... "established pursuant to any State law or regulation under authority preserved by section 1370 or any other Federal law. " As I understand the argument that's being made, it's this: that in order for the discharge to comply, and hence be entitled to a certificate from the State, the discharge can in effect not be created at the expense of these water quality standards. The water quality standards established by the State include certain upstream flow requirements because they believe, or they have taken the position that they are necessary to preserve, among other things, the fisheries, and therefore that's the reason that they may object and hence fail to certify the discharge, because the discharge is being made at the expense of the violation of an upstream standard that this State is entitled under this section, subsection (C), to establish. Is that an unsound argument?
Howard E. Shapiro: Yes, Your Honor, for this reason. Your Honor has stated quite correctly that the discharge must comply with the State's water quality standards as approved by EPA, but the water quality standard has two elements. It must consist of the designated use, which in this case happens to include fish habitat.
David H. Souter: Yes.
Howard E. Shapiro: And it must also violate the criteria to protect that use. In short, the designated use alone is insufficient.
David H. Souter: If we disagree with you on that, do you lose this argument?
Howard E. Shapiro: I certainly lose this aspect of the argument--
David H. Souter: Yes.
Howard E. Shapiro: --because then the case becomes one in which all that's necessary to make a water quality standard is a designated use. At that point the phrase in the statute referring to criteria to protect that use drops out of the statute. It's as if Congress didn't have to enact it, they could simply say, just designate a use and do whatever you need to protect that use. Now, there's another reason, we have argued, why the statute would not... is not being properly applied here. Your Honor mentioned in your hypothetical a streamflow requirement by the State. Now, in the Court's decision in FERC v. California, the Court identified two kinds of water allocations, proprietary and nonproprietary. The allocation involved in FERC v. California was a nonproprietary allocation of water designed to... the allocation was intended to preserve fish and wildlife habitat. It was held to be preempted, but that nonappropriated allocation is still a water... is still an allocation of water quantity. This act does not, except as expressly provided, reach the allocation of water quantities, whether it's appropriative or nonappropriative.
David H. Souter: Unless we accept use as being a standard applicable under subsection (C) and hence ultimately through 401(a)... 401(a) or 401(d).
Howard E. Shapiro: Either that--
David H. Souter: If we accept a use designation, or I suppose if we accept a nondegradation requirement as being a water quality standard sufficient to justify a certification limitation, then that's the end of that argument, is that correct?
Howard E. Shapiro: --Not as we read the statute, Your Honor. Our contention is that this statute, and section 1370, which Your Honor referred to when you read section 301, that's section 510 of the act, and it expressly provides that water quality allocations are outside the scope of the act.
David H. Souter: Could you give me the code number? Well, is it 1370?
Howard E. Shapiro: I believe it is 1370, Your Honor. We have reproduced it in our brief at... I'm sorry to refer you to so many documents... at page 7, footnote 3. It's in the blue brief at page 7, footnote 3, and we've set out two provisions, section 510, which is 33 U.S.C. 1370, and section 101(g). The history of that water quality... water quantity exclusion is that when water quantity issues were first raised in the Congress, when the first water quality standards act was considered by Congress in 1965, Senator Muskie said expressly to the western delegations who had asked him on the floor about it, he said on the floor, this act concerns water quality, not water quantity. A line was drawn. That line was reconfirmed in 1972, when section 510, which is 33 U.S.C. 1370, the second paragraph in our footnote 3, was enacted, and then section 101(g) was added to the act in 1977 because of concerns that the line was being broken. Senator Wallops proposed an amendment that would reconfirm water quantity allocation is not something that is being federalized under this statute. That was the purpose of it. Because the statute requires State water quality standards to meet EPA requirements... the EPA administers substantial portions of it, the Corps of Engineers administers substantial portions of it... the effect of these provisions was to leave the State's authority over water quality... water quantity allocations exactly where they would have been had there been no Clean Water Act.
David H. Souter: Mr.... go on, I'm sorry. What do you mean by degradation? Is it your position that... I assume what you mean by it is not degradation in use, but degradation in quality.
Howard E. Shapiro: That is correct, your Honor. The anti--
Antonin Scalia: So your--
Howard E. Shapiro: --degradation policy is a part of water quality standards under EPA regulations, and there is a... there... after many years, Congress in 1987 added an express reference to the antidegradation policy established under this section. Now, what anti... what degradation means is that the quality of the water will be lowered, and in this Court's decision in Arkansas v. Oklahoma, the Court affirmed a decision, or an action of the EPA relating to the application of the antidegradation policy. The policy was applied in a very practical way. The State of Oklahoma said that a discharge from a facility in Arkansas was going to degrade its high quality waters. The EPA applied a standard under which it said we have to have parameters to measure that decline. They drew those parameters from the criteria in Oklahoma's water quality standard, and that is the measure of degradation.
Antonin Scalia: --So a reduction in stream quantity would not constitute degradation unless by reason of the reduction in water quantity the percentage of pollutants would go up downstream.
Howard E. Shapiro: Yes. The discharge would in some way change--
Antonin Scalia: --the quality of--
Howard E. Shapiro: --the receding waters by either adding a pollutant or adding water that was inconsistent with water quality criteria.
David H. Souter: --If use designation may be considered, if it reduces the flow so as to preclude a designated use, and I realize you don't concede that use designation may be considered, but that would be the consequence if we did consider it for this purpose.
Howard E. Shapiro: Yes, Your Honor. If Your Honors were convinced that use alone were sufficient, then our argument is in serious trouble.
Anthony M. Kennedy: Is a change in temperature a degradation of the water?
Howard E. Shapiro: Yes, Your Honor. I think it would be helpful if the Court actually looked at the water quality standards applicable in this case, and it's in the red brief at the appendix, pages 10a and 11a, and I apologize for the type size, but they do tell us more concretely what we're talking about here. Now, you'll notice--
Anthony M. Kennedy: What was the page reference again, please?
Howard E. Shapiro: --It is page 10a and 11a, Your Honor, where the criteria are, but I think we probably should begin just for convenience at page 8a, which is where the water quality standards for the Dosewallips River are defined. The Dosewallips River is a class AA river in Washington. It's an extraordinary stream.
William H. Rehnquist: This is a regulation?
Howard E. Shapiro: This is a regulation--
William H. Rehnquist: A State regulation--
Howard E. Shapiro: --This is the water quality standard approved by EPA applied in this case.
William H. Rehnquist: --It's not a statute, it's a regulation.
Howard E. Shapiro: It is a regulation. Now, if we look at the provisions we see first that there is in subparagraph (b) characteristic uses. Those uses are enumerated, and they include various provisions relating to fish. They also include things like recreation. Now, below that in paragraph (c), we begin the water quality... the water quality criteria. Now, what are those criteria? Well, we have--
William H. Rehnquist: Where is... where is paragraph (c)?
Howard E. Shapiro: --Paragraph (c) is near the bottom, Your Honor, about five lines up.
William H. Rehnquist: Where it says, "Water quality criteria"?
Howard E. Shapiro: Yes, Your Honor.
William H. Rehnquist: Okay.
Howard E. Shapiro: Now, the first few of those criteria are really numeric physical measures. They refer to fecal coliform organisms, dissolved oxygen, dissolved gas, temperature, which... maximum temperature, actually... pH, the balance between acid and alkalinity, and turbidity. We now move with turbidity into something that is a little more of a condition than a pollutant. Then we have two narrative requirements, toxic radioactive, or deleterious material.
William H. Rehnquist: Where are we on the page?
Howard E. Shapiro: On the page we are now on 9a, and we're down near the bottom at (vii).
William H. Rehnquist: Now, (vii) is a subsidiary part of (c)?
Howard E. Shapiro: Yes, Your Honor. It is one of the enumerated criteria.
William H. Rehnquist: Okay.
Howard E. Shapiro: And we have a general narrative requirement for toxic, radioactive, or deleterious material concentrations. The emphasis is on material, and a further one dealing with materials that might offend senses of sight, smell, sound, or taste. Those are the measures of degradation, and one of the other effects of these provisions is that it isn't simply a laundry list of pollutants. The last narrative one, toxic, radioactive, or deleterious material, permits the State to deal with things that aren't specifically listed if they are toxic, and with that I'd like to save the remainder of my time for rebuttal, unless the Court has questions.
William H. Rehnquist: Very well, Mr. Shapiro. General Gregoire.
Christine O. Gregoire: Mr. Chief Justice and may it please the Court: The question before the Court today is whether Washington State can enforce its water quality, both the criteria and the antidegradation policy adopted consistent with EPA mandate pursuant to the Clean Water Act. What we have here are water quality standards adopted by the State of Washington, including three key elements: First, a designation of the uses of the water body, 2) The criteria necessary to protect those designated uses, and 3) an antidegradation policy. That antidegradation policy is intended to protect existing uses, those, in this case, of salmon and steelhead. At this proposed project is a dam 50 feet wide which will block the entire channel and divert, on average, 75 percent of the water down to the powerhouse. The central question before this Court then is, can Washington State enforce all of its water quality standards including its antidegradation policy by protecting those existing uses by setting a minimum instream flow or is Washington State limited only to its criteria and the amount of water that may be in that stream at the end of the construction of the project.
William H. Rehnquist: Now, General Gregoire, you say... where is the antidegradation policy, as opposed to the general water and use criteria classes, found.
Christine O. Gregoire: The antidegradation policy of the State of Washington is found in respondent's brief at 5a.
William H. Rehnquist: Is it a statute, or--
Christine O. Gregoire: It is a Washington Administrative Code provision, 173-201-035, adopted by the State as a result of the mandate of EPA. EPA has said they will approve water quality standards of the State only if they include an antidegradation policy. That policy there protects existing uses of a stream. In this case the existing uses are salmon and steelhead. That antidegradation policy has been long recognized by Congress. In 1972, when it put in place what is now the Clean Water Act, it specifically indicated "restore and maintain the chemical, physical, biological integrity of a stream. " and when it so stated "maintain", it has been long held to have meant an antidegradation policy.
Antonin Scalia: --Well, it certainly means antidegradation insofar as the quality of the water may cause a degradation of the use, but does it include degradation where the quality of the water is constant, or even higher? But the volume of the water, being lesser, affects use.
Christine O. Gregoire: Your Honor, very clearly EPA has said that antidegradation policy is intended to protect the existing use... here, salmon and steelhead.
Antonin Scalia: Well, of course it is, but does it do so only by regulating quality? Isn't that the issue... whether it does so only by regulating quality, or also by regulating, or permitting the State to regulate volume?
Christine O. Gregoire: The two are inextricably linked in this case. There is no difference in petitioner's claim that the State of Washington could enforce its criteria if there was a degradation as a result of lowering of the temperature or dissolved oxygen as a result of that reduced flow. That is no different than that reduced flow putting at risk the salmon and steelhead, the existing uses in this stream.
Antonin Scalia: Well, it may be different in that only that violates... only by reducing the quality of the water do you violate the Clean Water Act, which is, after all, called the Clean Water Act not the Voluminous Water Act. [Laughter]
Christine O. Gregoire: No question, Your Honor, but the two are inextricably linked here. What we have--
David H. Souter: What's the textual basis for the inextricable link?
Christine O. Gregoire: --Well, again, if you look at 1987 amendments by Congress, what they said very clearly there in amending section 303 of the Clean Water Act is that they had long meant "maintain" to mean the antidegradation policy, and that any standards and permitting standards were subject to and had to be consistent with the antidegradation policy.
David H. Souter: Well, what if-- --Well-- --if you start with... pardon me, I'm sorry. Let me... where is that language that you just referred to? Where in your brief?
Christine O. Gregoire: With regard to section 303, Your Honor?
William H. Rehnquist: Whatever it was that you just referred to, the 1987--
Christine O. Gregoire: That is found at petitioner's appendix 121a, wherein it states, "For waters where the quality of such waters equal or exceed levels necessary to protect the designated use. "
William H. Rehnquist: --Where on the page are you reading from?
Christine O. Gregoire: Let me grab it here, Your Honor.
William H. Rehnquist: Is it capital B?
Christine O. Gregoire: Down at the bottom of the page, Your Honor, (4)(B), "Standard attained".
William H. Rehnquist: Okay. Thank you.
Christine O. Gregoire: And where it says that, "To protect the designated use" and then it goes on to talk about effluent limitation, it goes on to talk about water quality standards, it goes on to talk about permitting standards, and says, "They may be revised only if such revision is subject to and consistent with the antidegradation policy. "
William H. Rehnquist: And this is now saying to the States that these standards can't be revised?
Christine O. Gregoire: That's correct, Your Honor.
David H. Souter: But how--
Christine O. Gregoire: EPA... I'm sorry.
David H. Souter: --But how do we know that "standard" means the use designation as distinct from the criteria?
Christine O. Gregoire: Well, if you--
David H. Souter: Where's the definition in any of this of "standard" to make it clear textually that "standard" has the breadth of meaning that you are assuming?
Christine O. Gregoire: --Again, if I can talk about the process here, Congress mandated the partnership between the State and EPA. EPA mandates the State to adopt as part of their water quality standards an antidegradation policy.
David H. Souter: All right, and where does Congress use the term just as you have used it, as part of your water quality standard, "you've got to include an antidegradation policy and a use designation? " Where is that textual definition?
Christine O. Gregoire: What Congress has said is you have to list... as petitioner has indicated, Mr. Shapiro, you have to indicate the designated uses and the criteria to protect that.
David H. Souter: No, but you're telling me what they have done. I'm asking you where do I find it in a text somewhere?
Christine O. Gregoire: I'm sorry. Well, in the section Mr. Chief Justice just mentioned, subsection 303 specifically talks about the antidegradation policy.
David H. Souter: But does section 303 do so in a way that makes it plain, in your view, that water quality standard includes use designation and antidegradation policy?
Christine O. Gregoire: Well, the clear legislative history of that amendment--
David H. Souter: I guess the answer is no, it doesn't clearly make--
Christine O. Gregoire: --It doesn't articulate it in the way--
David H. Souter: --Yes.
Christine O. Gregoire: --in which you just said, Your Honor, but if one looks at that legislative history, it calls that antidegradation policy literally the cornerstone of the Clean Water Act. Every day, agencies such as Department of Ecology apply an antidegradation policy when submitting permits for various and sundry reasons. When they find that their criteria are not there, or insufficient to protect an existing use such as salmon and steelhead, then they resort to the antidegradation policy for purposes of permitting any applicant.
Antonin Scalia: Undoubtedly they do, but the question is whether antidegradation means that the quality of the water shall not go below the level necessary for extant uses, and let's look again at page 121a of the section that you were quoting from, (4)(B), standard attained. It reads, "For waters identified under paragraph (1)(A), where the quality of such waters. " not the volume or anything else, "where the quality of such waters equals or exceeds levels necessary to protect the designated use. " Yes, the quality has to be enough to protect the designated use. Then it goes on, "Any effluent limitation", blah, blah, blah, blah, "or any water quality standard shall be consistent with the antidegradation policy. " which means that that quality shall not go any lower. It seems to me that's the only sensible way to read it, and all it gets you is that you can't fiddle with the water quality, not that you can't fiddle with the water volume.
Christine O. Gregoire: But Your Honor, what we have here is a water quality issue putting at risk the uses, the existing uses in this stream. It is no different than the criteria applied in terms of temperature or dissolved oxygen. The result is the same.
Antonin Scalia: I understand that's very bad, perhaps, but the point is that the Clean Water Act doesn't seek to prevent degradation from all sources, it seeks to prevent degradation of quality. It seeks to prevent uses going... or being prevented, or going down to a lower use by reason of water quality, not by reason of volume. I don't see anything in the act about volume.
Christine O. Gregoire: Your Honor, if I could refer you to 33 U.S.C. section 304, it's found at the State's brief, 32 to 33, note 38. Therein is a clear recognition by Congress that dams constitute nonpoint pollution.
William H. Rehnquist: Now, this is page 32 and 33 of the red brief?
Christine O. Gregoire: Yes, Your Honor.
William H. Rehnquist: Note 38. Note 38?
Christine O. Gregoire: Yes. There is a clear recognition by Congress that dams constitute and can constitute nonpoint pollution, and that changes caused as a result of the construction of the dam insofar as movement, flow, or circulation of those navigable waters may constitute nonpoint pollution.
William H. Rehnquist: Is this part of the Clean Water Act?
Christine O. Gregoire: It is, Your Honor.
William H. Rehnquist: Is the full text of this... at least the sentences set forth somewhere else? I mean, if this is the key to your argument, I'm surprised it's only an elided sentence in a footnote.
Christine O. Gregoire: I apologize, Your Honor. The full text I think you will find, nonetheless, makes clear the State's argument here that nonpoint pollution caused by dams resulting in a change of flow or circulation--
Antonin Scalia: No, but change of flow or circulation may also affect quality of the water. If the flow is reduced and pollutants are coming in from another source in an unreduced quantity, that change in flow will affect the quality. So also turbidity, so that, you know, the rate of flow can affect the quality. There's nothing in that that's inconsistent with saying that the Clean Water Act deals with clean water and not with the volume of water.
Christine O. Gregoire: --The Clean Water Act deals with Congress' articulation of maintenance and restoration of the chemical, physical, biological integrity of the Nation's waters. What is put at risk in this case is the biological integrity of the Dosewallips River by putting at risk the existing uses of salmon and steelhead. EPA, by its regulation, makes clear that in carrying out the mandate of Congress all States have to adopt all three elements in order to have their water quality standards approved. Designated uses, criteria, and an antidegradation policy, and EPA goes on in their regulations and makes clear that at no time is a State allowed to use its antidegradation policy to reduce the quality of the water such that existing uses are put at risk. That is this case. That is what is happening here. That's the risk to the salmon and steelhead in the Dosewallips River.
William H. Rehnquist: You say that the State of Washington had no choice in this case but to do what it did.
Christine O. Gregoire: That's correct, Your Honor.
William H. Rehnquist: It wasn't something it just opted to do as within its latitude under the Federal scheme, it had to do this.
Christine O. Gregoire: We see no option for the State to carry out its water quality standards mandated and approved by EPA to do anything other than what it did in this case.
David H. Souter: But as I understand it, your answer to the broad argument that this act is concerned with quality, not quantity, is the answer that you gave to me, and that is that the act in effect requires the State and in any event requires licensees to respect the State's certification subject to limits for the purpose of preserving... of imposing State standards. The word "standard" is defined in such way as to make it clear that it includes not only criteria, but use designation and antidegradation policy. Use designation necessarily... as Washington has implemented it may necessarily include upstream flow, therefore, under the banner of standards, quantity is subject to regulation through the State certification under this act. Is that the... are those the steps?
Christine O. Gregoire: Yes. Could I--
David H. Souter: And the way to make sure you're right, you tell me, is to look at 303 and its legislative history, because that will make it clear, you tell me, that standards do include the three elements and not merely the element of criteria?
Christine O. Gregoire: --That's correct, Your Honor.
David H. Souter: Okay.
Christine O. Gregoire: And the implementing--
Antonin Scalia: Well, that doesn't prove it. I mean, the standards have to include the element of use, because you cannot set a quality standard without knowing what the water is going to be used for. If it's going to be used for feeding cattle, it's one thing. If it's going to be used for people swimming, it's something else. So the mere fact that the statute says that the State shall first decide what it wants to use the water for and then set the quality standards doesn't prove that the statute guarantees that whatever the State says the water shall be used for shall for all purposes be protected even under the Federal Power Act, even as against matters that have nothing to do with water quality. The mere fact that you're authorized and required to select a use for the water doesn't prove that that use acquires Federal protection from everything as opposed to just deterioration of water quality.
Christine O. Gregoire: --Maybe I can help in this way, Your Honor. There is a difference between designated uses and existing uses. What Washington undertook in this case was to protect existing uses. Not something it hopes to attain at some time in the future, but what is currently in that stream. As a matter of what went on here, in 1982, by invitation of FERC, the State Department of Ecology and other State and Federal and tribal agencies together undertook a state-of-the-art scientific study of this stream. They tested it. They made three determinations: 1) what are the existing uses in that 1.2 mile reach, and what they found were salmon and steelhead. 2) Will the project, as submitted by the applicant in this case, put those existing uses at risk? The answer was yes. Those salmon and steelhead, existing uses in that stream today, would be put at risk.
Sandra Day O'Connor: Well, General Gregoire, is there any reason to think that FERC wouldn't protect streamflow in its license review? It has to consult with the State, and if FERC's own test show these problems, do we have any reason to fear that the Federal Government isn't going to consider the State's interests and the concerns about the fish and establish streamflow limitations?
Christine O. Gregoire: Your Honor, what the State did here was its very limited authority of water quality and ensuring water quality. The FERC process, the process that we talked earlier with Mr. Shapiro about under the Electric Consumers Protection Act, that's intended to look at the entire project and what-all could be put at risk.
Sandra Day O'Connor: Well, could you answer my question?
Christine O. Gregoire: I'm sorry.
Sandra Day O'Connor: Is there any reason to think that FERC won't impose streamflow limitations to protect the fish?
Christine O. Gregoire: I can't answer your question because they have not yet done anything in this case--
Sandra Day O'Connor: Well, they haven't done it because they have to get the conditions under the Clean Water Act first, don't they?
Christine O. Gregoire: --They do, Your Honor.
Sandra Day O'Connor: Yes, so of course they haven't acted yet.
Christine O. Gregoire: Right.
Sandra Day O'Connor: Yes.
Christine O. Gregoire: So I don't know that they would set an instream flow to protect the water quality of the State of Washington consistent with the 401 certification. The United States argument about whether this is right is in fact a question, one that we submit technically is correct.
Anthony M. Kennedy: Well, they would have to set the flow requirement and consult with the State, would they not?
Christine O. Gregoire: But they are not required... they are not required as a result of that 10(j) process to set that minimum flow solely to protect water quality standards. 401 of the Clean Water Act mandates as a necessary condition precedent to that act that water quality must be protected. That's what the State undertook here to ensure its limited role of protecting water quality was carried out. Then the FERC process would come about in which they would look at much broader issues, not the least of which would be, should the streamflow be greater? Should the streamflow be greater for enhancement? Should there be mitigation? Those all issues will come up in the 10(j) process with FERC, but it must defer to the State's 401 water quality certification with regard to the minimum necessary to protect water quality.
Antonin Scalia: Doesn't 10(j) require... require them to protect the fish? I mean, what you're saying is that they don't necessarily have to agree with you or with the State--
Christine O. Gregoire: Yes.
Antonin Scalia: --about what it takes to protect the fish.
Christine O. Gregoire: That's correct, Your Honor.
Antonin Scalia: But they must protect the fish, in their own judgment at least, right?
Christine O. Gregoire: Well, not necessarily.
Antonin Scalia: No?
Christine O. Gregoire: They do a balancing there, and they... it is required under 10(j)--
Antonin Scalia: Oh, really?
Christine O. Gregoire: --that if they disagree with whatever the Federal and State Fisheries & Wildlife Departments may recommend, they have to state why.
Antonin Scalia: If they disagree with it in the sense of saying we don't want these fish?
Christine O. Gregoire: No.
Antonin Scalia: They can't do that, can they?
Christine O. Gregoire: If they disagree in that they have balanced the need of consumer electrical power, et cetera, against the need for the protection of the fish, but that... that balancing act... that balancing act comes after the system that Congress has put in place in the Clean Water Act which says, under no circumstances will we allow the degradation of the water quality. That is the limited role of the State here. That's all it did. The FERC process is much greater... much greater.
Anthony M. Kennedy: Miss Gregoire, I have one collateral question.
Christine O. Gregoire: Yes, Your Honor.
Anthony M. Kennedy: Could the State of Washington under your State constitution simply pass a law telling the city to comply with the State standard as a matter of State law?
Christine O. Gregoire: Our position would be no. The only way in which this water quality standard was set--
Anthony M. Kennedy: No... no, my question, you just have a State law, and the State law says the city must follow whatever standard we set as a matter of State law.
Christine O. Gregoire: --No, not as a matter of State law, Your Honor--
Anthony M. Kennedy: No, this is my hypothetical.
Christine O. Gregoire: --I'm sorry.
Anthony M. Kennedy: I'm having a hypothetical statute--
Christine O. Gregoire: All right.
Anthony M. Kennedy: --that the State of Washington passes, and it says to all of its agents, its cities, you must comply with the water standards we set as a matter of State law.
Christine O. Gregoire: They can... yes, they can do that. That is the--
Anthony M. Kennedy: The State of Washington could do that under its State constitution?
Christine O. Gregoire: --It could do that, but that would not necessarily answer the question here as to whether it's a water quality decision under 401.
Anthony M. Kennedy: Well, it would certainly prevent the city from litigating.
Christine O. Gregoire: Thank you, Mr. Chief Justice.
William H. Rehnquist: Thank you, General Gregoire. Mr. Wallace, we'll hear from you.
Lawrence G. Wallace: Thank you, Mr. Chief Justice, and may it please the Court--
William H. Rehnquist: Mr. Wallace, Mr. Shapiro told us in his part of the argument that the FERC is bound as to the conditions that we're talking about now, and it could not change those, and he referred to a case from the D.C. Circuit. Does the Government agree with that statement?
Lawrence G. Wallace: --Well, we... in a sense, yes, that the statute says that any condition imposed in the section 401--
William H. Rehnquist: Well, what do you mean when you say, in a sense you agree?
Lawrence G. Wallace: --Well, because this Court's decision in Escondido points out that whilst FERC must recite such a condition in the license that it issues, it can also explain any basis it has for disagreeing with that condition, and in a lengthy footnote explain that FERC could then take the position in court that that condition is not a proper one in light of its statutory responsibilities under the Federal Power Act, and I'm referring to footnote 20 on page... at 466 U.S., page 778. In the Escondido case which we cite toward the end of our brief, this Court dealt with a similar certification required from the Secretary of the Interior when the hydropower project was to go on an Indian reservation and explained how FERC should proceed if it disagrees with the substance of the condition, but nonetheless is required by law to recite the condition.
William H. Rehnquist: It would have to go to court and say, we don't want this condition in the license we're about to issue?
Lawrence G. Wallace: It would make findings as well with respect to it, and probably the applicant would go to court and FERC could support the applicant in that respect. Now, I do want to begin by--
Ruth Bader Ginsburg: But Mr. Wallace, isn't it true that petitioners at least would be disabled. If they lose this case, then aren't they bound by the adjudication, so that they could not then come before FERC and argue for something less than the streamflow required?
Lawrence G. Wallace: --They are free to argue what the Federal Power Act, with our criteria applicable thereto, would lead to as a conclusion, and if they persuade FERC that its responsibilities under the Federal Power Act are inconsistent with this condition, then a question would be presented about how to reconcile the two statutes, so that it's possible that they could get a judgment that ultimately would supersede this condition, and it's possible that it would not ultimately--
Ruth Bader Ginsburg: They would be precluded with respect to what the Clean Water Act means, but they would be free to argue that there's another Federal... piece of Federal legislation, that the two Federal acts are at war with each other?
Lawrence G. Wallace: --Exactly. They would be precluded from arguing that this is not a proper condition under the Clean Water Act, but if I may, I would like to caution--
Antonin Scalia: Excuse me, Escondido was referring to different conditions.
Lawrence G. Wallace: --Yes, but it said how--
Antonin Scalia: Well, that makes a big difference, doesn't it? I mean, it's not referring to conditions under the Clean Water Act at all. It's referring to conditions imposed by the Secretary for protection of Indian reservations, wasn't that it?
Lawrence G. Wallace: --By the Secretary of the Interior under other statutory authority.
Antonin Scalia: Well, that doesn't say at all that the same scheme applies under the Clean Water Act.
Lawrence G. Wallace: It doesn't say that it does, but it's a strong suggestion by analogy, because these are comparably conditions required to be recited in the license. I want to start by cautioning the Court about the scope of the issue before it. If petitioners are correct that section 401 certificates must be constricted in the way they espouse, the effect cannot be confined to hydropower projects under the Federal Power Act that are... and licenses that are issued by FERC, taking into account that entire balancing process. Section 401 on its face requires a certificate to be obtained by any applicant for any Federal license or permit to conduct any activity, or construction or operation of any facility which may result in a discharge into the navigable waters. This includes nonhydropower facilities that have to be licensed by the Corps of Engineers, by the Secretary of Interior, by the Secretary of Agriculture, many statutory schemes cited en passant in these briefs. However, they do not contain the same kind of balancing criteria that are spelled out in the Federal Power Act, and a good example of that is the Federal Land Policy and Management Act which is cited in petitioner's reply brief. It's at 43 U.S.C. 1761, which authorizes the Secretaries of Interior and Agriculture, depending on which Federal lands we're talking about, to issue rights of way for reservoirs, canals, ditches, pipelines, slurry and emulsion systems, conveyor belts for timber, power lines, means of transportation, et cetera. There is a much less precise statutory backstop there--
Antonin Scalia: And you think that the way the Federal Government decided uniformly for all these old statutes the whole hob... you know, bundle of them, to require all Federal agencies to abide by State streamflow requirements was the Clean Water Act. You think that significant thing was done so clearly by the change?
Lawrence G. Wallace: --There's no doubt that they have to comply... they have to get 401 certificates. They have to comply with the Clean Water Act. The question is the scope of what those certificates can address.
Antonin Scalia: It's an indirect way to have such a significant effect upon Federal action.
Lawrence G. Wallace: Well, the effect will be there because petitioner admits that the criteria have to be satisfied. We're really arguing about what is the scope of the water quality standards that can be specified in these 401 certificates, and if there's one thing that's conspicuous, and conspicuously relevant about the face of the Clean Water Act, it's that water quality standards are required to be adopted not for their own sake, or to satisfy some scientist in a laboratory, but to preserve and protect certain beneficial uses of the waters as well as the public health. And the beneficial use that is relevant here is use as fish habitat, and that is the use designated by Washington, and in interpreting the operative provisions of the act, we should not lose sight of two very simple but very basic propositions that you cannot have fish habitat without fish, and second, that fish--
Sandra Day O'Connor: Well, are you here telling us, Mr. Wallace--
Lawrence G. Wallace: --need water to survive.
Sandra Day O'Connor: --Are you here telling us that the Federal Government can't protect these habitats under any and all licensing schemes that it has, that it can't and it won't? You're here representing the Federal Government, telling us don't trust the Feds, they're not going to do it.
Lawrence G. Wallace: This is a Federal--
Sandra Day O'Connor: Is that it?
Lawrence G. Wallace: --statutory program, the Clean Water Act, and these standards have been approved by EPA. Of course there are other... other agencies have responsibilities, although they're not all as specific, and we happen to be dealing with a rather dramatic kind of fish habitat that practically any Federal agency would protect, but the Clean Water Act is not limited in its protections just to that. I would like to--
Antonin Scalia: I assume you're speaking for FERC as well as for the rest of the Federal Government, is that right? I mean, your views we can take any of those--
Lawrence G. Wallace: --We do represent all of these interests in the Court. FERC is not a signatory to this brief, but they've been consulted in what we have filed here.
William H. Rehnquist: --Thank you, Mr. Wallace. Mr. Shapiro, you have 5 minutes remaining. Mr. Shapiro, may I ask you one question before you get started? Do I correctly understand your position to be that even if there never was a Federal Power Act at all, that this condition would nevertheless violate the Clean Water Act?
Howard E. Shapiro: Yes, Your Honor.
Speaker: Okay.
Howard E. Shapiro: The State has focused on the uses here, saying that uses are the ultimate standard. In effect, therefore, we don't need any criteria. The focus on uses has a reason here. The State admits at page 24 of the red brief that there is no violation by this project of the criteria. The phrase they use is, it is likely that there is no violation. When the certificate was issued, the certificate, which is in the record at petitioner's appendix 83, expressly says that the streamflow requirements are in excess of those required for water quality standards. When the case was before the Pollution Hearing Control Board on motion for summary judgment, that board said that it is clear that these streamflows are not based on and were not intended to be supported by water quality standards. It wasn't until we got to the supreme court of Washington that we got to antidegradation policy, which came back into the case as a part of the water quality standards. Now, antidegradation policy... it's all recognized... is established under section 303. That is what the 1987 amendments refer to, the antidegradation policy established under this section. Our position is, quite simply, that if it's established under section 303, it has to comply with the requirements of section 303, and those requirements are that a water quality standard shall consist of uses and criteria, and that in fact is what we're... what's involved with here. The antidegradation policy applied here was the policy for protecting existing uses. That's set forth at petitioner's appendix, page 7a, in the supreme court of Washington's opinion. Protecting existing uses under EPA's regulations and practice requires that there be criteria to protect the existing uses. In short, you don't get away from criteria in this case.
Antonin Scalia: Well, your argument has to be a little more than that. Your argument has to be that criteria are the only thing that count--
Howard E. Shapiro: It's the--
Antonin Scalia: --that the uses are just the means of determining what the criteria ought to be.
Howard E. Shapiro: --That's correct.
Antonin Scalia: If you concede that both uses and criteria are independently in there, then you lose, because you're not allowing this use to continue, according to the State.
Howard E. Shapiro: I think that is an accurate statement of the State's position. Our position is that the phrase in section 303(c) about uses and criteria is conjunctive, and Congress didn't intend there to be uses independent of criteria, because then there would be no need for the act. We could take that long administrative regulation I referred Your Honors to in the red brief and just throw out all the criteria. In fact, you wouldn't need most of the Clean Water Act. Now, the Clean Water Act expressly says in section 101(a) that it is intended to achieve the physical, chemical, and biological integrity of water, but it also says in the second sentence of section 101(a) that these goals are to be achieved consistent with the provisions of this act. The implementation of that goal is what the fight has been about for nearly 20 years in shaping the Clean Water Act, and therefore I suggest that the Clean Water Act has to be read, particularly when you're dealing with the delegations to the States in section 401, in accordance with the limitations that Congress has provided, otherwise the act turns into something absolutely shapeless. There was a reference by the United States to the Escondido case. Now, the Escondido case was a case involving the authority of the Secretary of Interior or the Secretary of Agriculture to impose a condition on a hydroelectric license under the Federal Power Act if the hydroelectric project is located on reservations subject to the control of those officials, and the Court said that while the condition had to be included in the license, the applicant or FERC could challenge... the condition's reasonableness was subject to judicial review. But of course, that is a condition specified under the scheme of the Clean Water Act... under the scheme of the Federal Power Act.
William H. Rehnquist: Thank you, Mr. Shapiro.
Howard E. Shapiro: Thank you.
William H. Rehnquist: The case is submitted.
Speaker: The honorable court is now adjourned until Monday next at ten o'clock.


Warren E. Burger: We’ll hear arguments now in number 71-858 Ricci against the Chicago Mercantile Exchange and others. Mr. Torshen.
Jerome H. Torshen: Mr. Chief Justice, may it please the Court. This case involves the issue of primary jurisdiction. Specifically, the issue is whether a complaint alleging a group boycott to exclude a competitor from the marketplace per se violation of the Sherman Act brought against the commodity exchange, certain of its officer, a member and another individual must first be referred to the Commodities Exchange Commission or to the Secretary of Agriculture for decision before it may be referred to the District Court, the antitrust court. Very briefly and capsulated, the facts are that petitioner purchased the membership on the Exchange, another member claimed to be the owner of it. It is alleged that the claimant induced the officers of the Exchange to transfer the membership to a third party and as a result petitioner was deprived of his trading privileges and excluded from the marketplace willfully, knowingly, and maliciously as a result of the conspiracy between these parties. The history of the case too, must be stated so that we can get to the issues and clear away some of the underbrush that appears in the brief. In the District Court, this case arose on the pleadings and was resolved on motions to dismiss for lack of jurisdiction, specifically lack of jurisdiction over the subject matter for the reason that the antitrust laws did not apply. In the Court of Appeals, the Court filed unanimously that the complaint did allege a per se violation of the Sherman Act and hands on the pleadings, reversed the District Court. However the Court sua sponte without the issue of having been argued, grieved, or raised at any time during the proceedings in a two-to-one opinion invoke the doctrine of primary jurisdiction and directed that the case be remanded to the District Court with the directions that the District Court stay proceedings pending reference of the matter to either the Commodities Exchange Commission and/or in the terms of the Court, the Secretary of Agriculture. I mentioned those facts because we do have here a case upon the pleadings although depositions had been taken by one side and are quoted in the briefs here by respondent. The deposition testimony is not properly a part of the record and was rejected by the court below. We think, Your Honors that the extension of the doctrine of primary jurisdiction in this case involving commodities markets is particularly inappropriate especially with regard to this claim brought under the antitrust laws and particularly with regard to the policy in support of the private enforcement of antitrust laws. It may be well in determining what the primary jurisdiction or jurisdiction if you will of the Secretary of Agriculture is to determine what his powers are under the Commodities Exchange Act. First, the Act gives no exemption from the antitrust laws. Secondly, --
Byron R. White: Let’s assume a rule of the exchange that it was authorized to issue and which was not disproved by the Secretary. Let’s assume that one of those rules in anybody’s parlance would be a violation of the antitrust laws.
Jerome H. Torshen: Well, I think if a rule would be a violation of the antitrust laws, I suppose that could be attacked here of course we’re not --
Byron R. White: You wouldn’t say that -- you wouldn’t say that Congress intended that any rule that the Secretary didn’t disprove should be immune from antitrust attack?
Jerome H. Torshen: Absolutely not. I think the mere disapproval should not ren -- their failure to disapprove should not render --
Byron R. White: But that’s the scheme under this Act. They submit the rules and if the Secretary doesn’t disprove them, the Acts are -- the rules are enforced, isn’t it?
Jerome H. Torshen: With regard to trading requirements and terms and conditions of contracts this is the case. The Secretary --
Byron R. White: Well, let’s just assume, one of the rules about trading requirements otherwise would violate the antitrust laws? Is that where that rule be vulnerable?
Jerome H. Torshen: Yes, we would think that it is. Yes, Your Honor. Here we are not attacking any rule of the Exchange. The allegations are that the actions of the exchange in consort with the number and again we’re not talking about the generalized action of the Exchange as a consort of its membership but the action of the Exchange and a member in specific violation of the rule constituted a violation of the antitrust laws. And if we examine the statutory scheme to see what the Secretary of Agriculture can do in addition to this ability if he so sees fit to disapprove certain rules pertaining to trading or terms and conditions of contracts, he can conduct investigations, make reports, obtain registrations, approve certain rules relating to minimum financial requirements, hold hearings with regard the manipulations of future’s prices, false statements and CEA violations. He can suspend from trading and he can report for criminal prosecution violation of the Act. Although, it specifically provided that he need not report what he considers to be minor violations of the Act. Certainly, here what we have on the part of the regulatory officer is a generalize supervisory power to guard against certain trading abuses. Not the power to setup or to establish any overall scheme or plan or even to enforce or protect against violations of those rules which are setup. It’s a very generalized type of system, and there is nothing in the character and objectives of the Act which is incompatible with the maintenance of a private antitrust action for those sorts of violations that are alleged in this particular complaint. There is nothing in the regulatory scheme, which might enable the Secretary of Agriculture or the Commodities Exchange Commission which is sort of a femoral body composed of the Secretary of Commerce, the Secretary of Agriculture and the Attorney General, their representatives with power which in anyway gives them power to enforce or consider antitrust objectives or antitrust claims. The Court over the years has developed a number of standards or tests relating to the doctrine of primary jurisdiction granted it’s a flexible concept and no particular rule can be applied in any given case. But there are standards which the cases have developed. There’s a requirement of a pervasive regulatory scheme and I think here we do not have such a pervasive regulatory scheme. And the Court has been very careful to delineate an exemption from the antitrust law either specifically stated in the regulatory statute or implied therein and we have no such exemption stated in the statute nor in this general supervisory scheme to perhaps protect someone against cornering and manipulation do we have an implied exemption? And it’s interesting to note in this regard what reference can be made to the legislative history, the Commodities Exchange Act and its predecessors were both drafted by Congresses which were well aware of antitrust laws and antitrust implications. The predecessors came about during the debates on the (Inaudible) that act in which there were specific antitrust exemptions and the present Commodities Exchange Act was enacted by the Congress and debated contemporaneously with the Robinson-Patman Act. So certainly here, we’re dealing with statutes which were enacted by Congress which were well-aware of the antitrust laws. And these statutes give neither to the Secretary of Agriculture nor to any other body the power to and grant an immunity from the antitrust laws, or to enforce that act immunity, nor do they give a mechanism to readdress a violation or to determine issues which might be brought under the antitrust laws. In fact, it’s interesting to note that under the Act if petitioner felt himself aggrieved, he could bring a complaint before the Secretary of Agriculture but he would not have standing unless he was given the right to intervene to appear in support of that complain. Moreover, we have no conduct such as we find in some of the other cases dealing with primary jurisdiction, which is of at least debatable legality which can be justified with reference to some broad plans set down by the agency or by agency action, or by the need within the particular industry for some sort of noncompetitive action imposed upon the members of the industry by the agency. We just don’t have it here. Moreover, action in this ad hoc situation by the District Court acting as antitrust court cannot in any way disrupt he administration of the Commodities Exchange Act or impinge upon the regulation of this contract market. We have here an ad hoc decision, which we ask to be made in connection with particular facts relating to this petitioner. There is no question of uniformity of agency rule. We are dealing with a past violation. Incidentally, it’s interesting to note that with regard to the powers of the agency in this case to give redress for wrongs to individuals, there are none. The agency can issue a seize-and-desist order. It can suspend from trading. It can apply various similar sanctions or it can refer to the Attorney General for the prosecution of a crime. But it can’t give the particular remedy of damages which might redress a private wrong. And in this particular case, when we’re dealing with a resolution of a fact controversy and the application of the antitrust laws there's nothing in the history or in the record or in common sense which might give to the agency a greater expertise than the antitrust court in deciding these issues. And it’s ironic to know, I think here as we stand before this Court, that even though people do not like to make work for themselves agencies are generally jealous of their prerogatives and their powers. And we don’t see the Secretary of Agriculture here and the only member of the (Inaudible) that we do see here that’s a member of the Commodities Exchange Commission is the Attorney General who has filed his brief in support of petitioner’s claim as amicus. Again, we’re not making an attack on the rules. We think the rules have been violated and they’ve been violated by the Exchange acting with one of its members not just because of generalized conduct of the Exchange. We think Your Honors that there is no good policy reason that might protect this sort of anticompetitive behavior or to be used to permit the exchange machinery to be used to suppress competition on the exchange. We think we have nothing more here than a garden variety, conspiracy to exclude a member from the market. Again, referring to Silver and the footnote in the dissent by Mr. Justice Stewart, we’re dealing with a specific act of a member of the Exchange setting up an independent violation of the antitrust laws as distinguished from the generalized conduct. We think this Court over the years has considered the policy of private antitrust enforcement to be an important one. Certainly here, it would not surprise me if the Secretary of Agriculture would say that this conduct with regard the petitioner was a minor violation of the Exchange. I don’t think that it rests upon the Government or governmental bodies to seek redress for every antitrust wrong. I think that’s why its been left to private parties and here we have a case in which there is a good example of a private party seeking redress and seeking enforcement of the antitrust laws in an area where only he can seek redress. We think the action of the Court below, the Court of Appeals, in limiting and seeking to limit trouble damage action or to delay that action over a period of time really doesn’t accomplish the purposes of the antitrust laws certainly doesn’t advance the cause of justice in this case. And in all due conscience and propriety we think that the doctrine of primary jurisdiction, a doctrine of judicial modesty should not be applied in this case.
Warren E. Burger: Thank you Mr. Torshen. Mr. Freeman.
Lee A. Freeman, Jr.: Mr. Chief Justice and may it please the Court. The expression that this is an ad hoc situation does violence to this Court’s standing. This Court does not deal with ad hoc situations. Whatever decisions made here will have broad application and involved principles. What is involved here is the application of the primary jurisdiction principle and in your recent decisions, I find the rule expressed as a judicial abstention where the protection of the integrity of the regulatory system dictates primary result to the agency. This was expressed in Philadelphia Bank and in Carnation Milk and in Silver, a decision to which I will more fully refer. The important point in these instances that we don’t seek exemption from the antitrust laws, we seek and the Seventh Circuit did order a judicial abstention until the administrative agency had an opportunity to determine whether or not there was compliance with this particular exchange with its rules and with the regulatory system established.
Warren E. Burger: Do you agree with your friend that the agency cannot give any monetary redress or not?
Lee A. Freeman, Jr.: I, number one, the Exchange if I may answer your question obliquely. The Exchange itself has a great, many self-regulatory rules which involve penalties and monetary redress. The agency, the administrative agency, does not have a power to award damages. But as this Court said in Pan American, if the regulatory system is sufficiently comprehensive and if it deals with the issues that are involved, the fact of an absence of remedy or full remedy in that instance did not violate the need for primary jurisdiction resort and in case Justice Douglas did. So holding there’ve been several decisions since then. But let me just, briefly if I may, indicate the scope and character of the Commodity Futures regulatory system. It involves an important segment of our economy. The quoted prices in a free auction market become the price basis for national and international trade. It becomes the price basis these quotes from day to day, from hour to hour, from minute to minute of the prices at which the farmer sell their product in the country. The processors and exporters pay for that product and the consumers also pay for it. The principle feature of this regulatory system is self-regulation by the Exchange mandated by Congress. This is an important difference from every other regulatory system that this Court has considered in determining primary jurisdiction except the Silver case where also a self-regulatory system was mandated by Congress with respect to the Securities and Exchange Commission.
Thurgood Marshall: Would it be fair that the Commodities Exchange Commission could decide that with any way help this antitrust case.
Lee A. Freeman, Jr.: Thank you Justice Marshall. I was trying to answer Justice White’s inquiry. The Commodities Exchange Authority has delegated to the agency and to the Exchange almost complete authority to deal with all of the antitrust problems that might be involved. Let me enumerate them. The act prevents or seeks to prevent manipulation of prices and imposes the first duty on the Exchange to do that. This is price fixing, eliminate price fixing. It does provide for the prohibition of restraints of trade in that it provides against specifically provides against various predatory practices, various unfair methods of competition and imposes that responsibility on the Exchange. It seeks --
Thurgood Marshall: Let’s put in another way, suppose they rule with you on every point you say, does the antitrust violation go?
Lee A. Freeman, Jr.: Is the antitrust violation --
Thurgood Marshall: Would that insulate?
Lee A. Freeman, Jr.: There would be justification.
Thurgood Marshall: Will it insulate you from an antitrust case?
Lee A. Freeman, Jr.: In the event, the rule that I seek to apply here is that in the event the Exchange were proceeding in good faith in fulfillment of its congressionally mandated self-regulatory system and impose a limit on competition or even a per se what would normally be a per se antitrust violation, it would be justified and it would be immunized. Let me give you an example. The Exchange has various types of rules. For example, there is a rule that prohibits the fluctuation of daily future’s prices beyond certain limit. A certain half a day, up or down—
Thurgood Marshall: Is there anything in any of this that says specifically that this is in lieu of [Voice Overlap]?
Lee A. Freeman, Jr.: No, there is -- there is no reference to the antitrust law as anywhere in the statute.
Thurgood Marshall: How could this possibly immunize you?
Lee A. Freeman, Jr.: There is no immunization by express grant. But the whole system --
Thurgood Marshall: So where is your primary jurisdiction if it doesn’t immunize you?
Lee A. Freeman, Jr.: Well, Your Honor the system that has been established here and I might say that -- I want to ask you a question directly. Silver, you see found that the Securities and Exchange Commission did not have the statutory power to review particular instances of enforcement of exchange rules. In 1968, Congress amended the Commodities Exchange Act. The Commodities Exchange Act incidentally was enacted in 1922. It was the forerunner of the Securities and Exchange Act. It was the pioneer of marketing devices that will introduce then and were ultimately adopted by the Securities Exchange Act and the Commission. And in 1968, in view of Silver which had been announced several years prior, the statute was amended number one to specifically grant the Secretary and the administrative agency. The power to disaccrue rules that where adopted and promulgated by the agency -- by the Exchange. Secondly and most important to impose a duty upon the agency -- upon the Exchange to enforce those rules; and thirdly to require review of the enforcement of those rules by the administrative agency and in the event of failure of enforcement to provoke disciplinary action. The disciplinary action could take the form a cease-and-desist order, suspension as a designative contract market on which futures trading only can legally be performed or revocation. Now, the primary jurisdiction --
Thurgood Marshall: Or damages?
Lee A. Freeman, Jr.: No damages, but you see in the Silver case, the court recognized that there was not this agency review. The court as a matter of fact spoke specifically about seeking. And antitrust function to be performed either by the administrative agency in review of the exchanges function or by the Court failing to find administrative review, the court then turned to the antitrust laws, but was quick to say that a different case would occur if agency review was found. And also said, Your Honor that in the event, the agency review occurred that court would find like under the egis of the rule of reason, the exchange would have sufficient breathing spell -- a breathing space to function as a self-regulatory agency in a very important field and avoid the implications of antitrust claims. The functions that the Commodities Exchange Authority and its exchange the -- in this instance the Chicago Mercantile Exchange performed are very, very important. And I was pointing out they do have the functions of avoiding price fixing, of avoiding restraints of trade, of avoiding monopolization because of this obligation to avoid corners of the market. They are specific provisions in the Act providing for the prevention and prohibition of unfair methods of competition and of predatory practices. There are specific provisions in the Act committing the exchange to past rules that limit competition. For example, the Exchange and the Agency courses a cessation of futures trading for a period of time in the contract months to permit delivery of cash -- the cash commodity. This is an imposition of restraint on competition. Secondly as I pointed out, there is this provision that the Exchange has always had a hundred years of limiting the fluctuation of prices on a daily basis. This in the parlance of antitrust is a per se violation, but completely justified. The Exchange does provide for hours of trade, time of trade, manner of trading in future’s contracts and all to assure that a free auction market is maintained where the quoted prices truly reflect the competing, contending, conflicting opinions of traders based upon informed judgment on economic factors that are reasonably presented in a very complex, a very complex on dynamic marketing situation.
Warren E. Burger: Now, to help me out --
Lee A. Freeman, Jr.: Yes.
Warren E. Burger: -- would you relate what you just been outlining to the issues of this case under the complaint.
Lee A. Freeman, Jr.: In this instance, there is nothing more or less than a dispute over membership. The Exchange’s entire duty and responsibility is exercised through its members. The statute so provides. The members are required to report and keep records subject to inspection and not manipulating all of the circumstances that you can think of. The membership becomes an important fulcrum through which this self-regulatory duty is achieved. In this particular instance, Ricci claimed a membership and there was a membership dispute. The rule provides that where there is an authorization to transfer. It becomes almost an administrative decision of the exchange to acknowledge the transfer and make a transfer of membership. In this instance, Ricci objected after he had been notified that there was such a movement of foot.
Warren E. Burger: Hypothetically, if you had a situation where there was a claim where the membership was in process of transfer by a forgery.
Lee A. Freeman, Jr.: Yes.
Warren E. Burger: That would be under the disciplinary reach of the Commission from your point of view.
Lee A. Freeman, Jr.: Oh! Yes. Well, first you see there is the exchange procedure which has a tremendous amount of procedural due process. There are all of these exchange provision for arbitration for instance which was rejected here. There are all these exchange provisions first, and then if the Exchange decides wrongly, there is the administrative review and the commission and there is judicial review from the commission. There is a system established and the system has worked very well for these 52 to 100 years and the antitrust issues that have been inherent in the system. For example, you must decide that the Exchange has the power to pass a rule which in the orthodox sense might be restrictive of competition because if you don’t, then you are completely rejecting the congressional mandate that this shall be a free and open auction market which will avoid sudden environment fluctuation and prices the way you’re dealing with traders on a daily and almost momentary basis. And let me tell you about the regulation that occurs.
Byron R. White: You don’t want us to go any further in Silver, do you?
Lee A. Freeman, Jr.: No! I want you to apply Silver here. Silver -- the dictates of Silver, of course the primary jurisdiction issue was not reached in Silver and it was not reached in Silver because the court --
Byron R. White: Because Silver said -- Silver said that to the extent some rules are necessary to carry out the objective of the Act. That should be a decent answer to antitrust complaint.
Lee A. Freeman, Jr.: Of course, that’s all I would suggest and is a matter of fact, I am -- I feel that Justice Stewart and his dissenting opinion in Silver which was referred to by colleague. Justice Stewart quite properly points out that there must be a delicate balance that the court establishes for this mandate itself regulatory agency. The balance between fulfilling the responsibility of self-regulation which is anomalous in daily duty unhindered and not by the harassment of antitrust claims that every state of -- at every step of the way subject, however, to redress if it’s -- if it’s direct in its duties and the rule being that if it acts in a good faith or bona fide manner in fulfillment of its self-regulatory duties. It should have some -- it should have immunity from the antitrust laws. There is -- you should apply the rule of reasons for instance. Justice Brandeis in the case about 50 years ago, Board of Trade versus United States found that -- found that an exchange that had imposed a restriction on buying or selling at above a certain price after the market closed. He finds that that was a reasonable regulation of competition which actually promoted competition in the sense of maintaining an open auction market. With respect to Silver, I again emphasize that in Silver. First the court for the first time had before it a self-regulating marketing system. The Security and Exchange Act which is quite parallel to the Commodities Exchange Act and as I say that Commodities Exchange Act was the forerunner of it and was copied. In Silver, the court recognized that if there was a place for agency review that this would dispense within necessity of antitrust in -- antitrust courts involvement. Subject always to the fact that if there was some area that -- that went beyond nearly the concerted action of the Exchange within the bona fide and good faith operation of its self-regulatory duties. If there was some charge or some action beyond that, sure it subject to the antitrust laws. And if there was a remedy for damage issue that Your Honors have raised, if there was a remedy that the agency could not grant after the agency had determined that there were violations here. That were violations of the rules or violations of antitrust principles that were covered by a good faith compliance with self-regulatory duties, then the case should go back to the court, to the antitrust court, for the administration of that remedy. And the Seventh Circuit I think very closely followed the Silver dictates by providing for a stay of the District Courts proceedings until the agency had completed its determination. And the agency here is in daily contact with the Exchange. We have two or three investigators on our floor everyday, all the time. We are constantly subject to reporting and investigating process and the Exchange has a whole staff of -- which we called Department of Investigation and Audits which is constantly involved in the marketing process. It’s a delicate process. It’s a subtle process. It’s necessary to secure a price quote that does truly reflect the competing opinions on economic supply and demand factors rather than some arbitrary factor. And arbitrary factors have a way of entering into the marketplace from time to time and all of this function is performed through our members. And therefore, the Ricci problem standing alone is not very important, it’s a membership dispute, but looking at from the context of the issue has now presented to this Court. It means the difference between encouraging the exchange to proceed forcibly in its self-regulatory duties under the control of the agency and subject to judicial review. The agency is always subject to judicial review or to be subject to a great money harassments. Let me just point to the dilemma that faces the Chicago Mercantile Exchange right now. In the last several years, two or three years, we’ve been suggested to possibly seven or ten suits. Some for violation of our rule, some for antitrust violations, two of them pending in the Seventh Circuit, I think highlight what I would like to emphasize. In one case, the Exchange’s investigative staff watched the trading in a particular commodity. And at the end of a contract month, instituted proceedings, disciplinary proceedings, made charges of manipulation of the market and violation of its rules against a series of members. There were six weeks of hearings before the full 12 men Board of Governors that we have and everyone attended for six weeks. When we got through, we imposed the severest penalties in the history of regulation of the exchanges, yet we’re subject to a lawsuit in a District Court for having violated our rules in the antitrust laws. Take the other side of the coin, another case pending in this Seventh Circuit. In this particular instance, another commodity and another time, in the midst of trading, we found a very large concentration of position growing up which would have distorted price quotations, which have preventive this market operating properly. So the Board entered and order requiring liquidation of position, a divestiture of interest in the antitrust funds. Liquidation of position, it was a proper move we thought. It did resolve in the market totally liquidation. No violent price fluctuations occurred. What was subject to an antitrust suit there? Both cases pending in the Seventh Circuit and we refer to them on our briefs. Now, the Commodities Exchange Authority and the Secretary of Agriculture and the Commission are on our backs all the time with respect to all of these operations. They are constantly urging us to deal frankly or vigorously with any instance of market disturbance. But when we do, we’re done then when we don’t we’re down and this is the dilemma that faces us if we are subject to constantly harassing antitrust cases. Now, this Board has an opportunity of providing us with a principle that will permit us, vigorous self-regulatory powers and duties, and functions, and yet subjects us to whatever penalties are necessary because of any exchange their election. We don’t profess to be perfect and the system isn’t perfect, but it has worked and it has worked well and this now injections of antitrust attached and in this instance with a complaint that’s demonstrably false. On the basis of depositions that were taken by both sides, not one side, depositions that were taken by both sides and presented to the District Court by both sides in their briefs which demonstrate that there was notice to this individual that there was an attempt to arbitrate and there was no denial of it.
Potter Stewart: It had been in my understanding that the District Court disregarded those depositions and that therefore the Court of Appeals also did and took the allegations of the plaintiffs are true.
Lee A. Freeman, Jr.: Your Honor, I am force to say that this particular District Court would have great difficulty understanding what the judge was doing, but I have cited to a transcript which indicates that he did take it into effect. The important point is that the briefs that were filed on the motion to dismiss and there were motions to dismiss, not some of that. The briefs that were filed did -- both briefs made mention to all the depositions. And he did dispose of it and he asked us to file findings of fact which we did which would have been under a motion for summary judgment, but then decided that he would just make an oral judgment.
Potter Stewart: So I am not mistaken that in my understanding that the Court of Appeals at least understood that he did not take any consideration --
Lee A. Freeman, Jr.: The Court of Appeals -- the Court of Appeals read the same transcript and said he didn’t believe. They found that he did not into account anything beyond the motion to dismiss.
Potter Stewart: And it was a motion to dismiss so that --
Lee A. Freeman, Jr.: And it was a motion to dismiss and we have an attack for Court of Appeals decision.
Potter Stewart: And therefore, even though you know you may be quite right if this is frivolous and wrong-headed lawsuit with no merit to it. Nonetheless, in the posture of the case here, we have to take allegations of the complainants so true, don’t we?
Lee A. Freeman, Jr.: And if you take the allegations to the complainant as true, you’ll find that there is an indication that notice of the Exchange actions did occur, but there’s also the weaselly whistle expression that they didn’t get notice of the transfer to John Wright. You know John Wright is somebody nobody knows and maybe they didn’t get noticed of the transfer to him, but they were notified that the transfer issue was before the Board and that’s why they came up with an -- with an attempt to revoke that authorization.
Potter Stewart: Well let me post this way, do you deny that the allegations of the complaint just reading them state a colorable cause of action under antitrust laws?
Lee A. Freeman, Jr.: Yes, I do deny it because I feel that the allegations of the complaint are merely conclusory allegations in an attempt to get to a Federal Court instead of a state court where they may have been a commercial dispute between these two parties which could have been answered in the state court, but instead they added a few words of willful, conspiracy, and so on. And my colleague here in presenting his case, quite properly pointed out that it all it was is the dispute between his client and the other client and we decided it. And in every decision that the Exchange makes, there’s got to be a losing party who can contend that we were conspiring with the other side in violation of the antitrust law.
Potter Stewart: Well, then as I understand it, do you think that Court of Appeals was wrong in holding that the complaint did allege cause of action under the antitrust laws.
Lee A. Freeman, Jr.: I think the Court of --
Potter Stewart: And that the – and that the District Court was and that Court of Appeals should simply have affirmed the dismissal by the District Court.
Lee A. Freeman, Jr.: I think the Court of Appeal was wrong first in finding that the complaint stated the proper course of action and secondly, not finding that the matter was handled by the District Court as a motion summary judgment.
Byron R. White: Yes, but Mr. Freeman, let’s assume that -- let’s assume that we disagree with you on that. Do you think you’ve brought your case?
Lee A. Freeman, Jr.: No, no, I --
Byron R. White: How do you suppose that if you think a complaint is true, it also states of the rules of exchange are violated? The Exchange if it rules the Exchange were violated the verse of an agency to present the complaint to us.
Lee A. Freeman, Jr.: Yes, Your Honor.
Byron R. White: Which is different in Silver. There was no place you could [Voice Overlap].
Lee A. Freeman, Jr.: No place for Silver, a place here and I would -- I mean I think that the issue of primary jurisdiction should be decided by this Court rather than to throw this matter out as a frivolous complaint. I think the issue is presented and you must assume that the Court of Appeals because that issue has not been disputed here. The Court of Appeals has decided that the complaint does state an antitrust violation and you must come to grips with the problem of whether or not the agency should review to determine that the Exchange was acting in good faith.
Byron R. White: Well of course, it really stated difficult but it also stated in violation of the exchange rule.
Lee A. Freeman, Jr.: That’s right.
Byron R. White: And that the agency should deal with it first.
Lee A. Freeman, Jr.: The agency should deal with that issue first, yes Your Honor, and I think in that way, a judicial time has saved the agency can -- there isn’t a proper accommodation between the two systems, the integrity of the regulatory system which is the Commodities Exchange Authority and the Commission and the Secretary is preserved and you’ll follow the dictates of the various decision that have recently been rendered. Thank you.
Warren E. Burger: Thank you Mr. Freeman. Mr. Torshen, do you have anything further?
Jerome H. Torshen: No, I don’t think that a reply is necessary, Your Honor.
Warren E. Burger: Thank you gentlemen. The case is submitted.