William H. Rehnquist: We'll hear argument now in Number 96-1829, Montana v The Crow Tribe of Indians. Mr. Smith.
Clay Riggs Smith: Mr. Chief Justice and may it please the Court-- The issue today is whether a Federal court may award to respondents, Crow Tribe and the United States, 58 million paid to the petitioners by a third party, Westmoreland Resources. Reduced to its essentials, the respondents' theory is that a Federal court has this discretion and in reality the obligation to make such an award merely because the taxes have been held preempted and the actual taxpayer has no entitlement to their recovery.
Sandra Day O'Connor: Mr. Smith, I'd like to pursue with you what you assert is the underlying cause of action here. Is it for some kind of breach of tribal sovereignty, some Federal cause of action, or is it limited to a cause of action for money had and received based on an implied contract?
Clay Riggs Smith: Justice O'Connor, we believe the action in this matter is limited to a cause of action for money had and received, a cause--
Sandra Day O'Connor: Well, that's interesting, because I thought it had been determined in earlier litigation that there was a Federal cause of action here based on a... an invasion of tribal sovereignty and a preemption by Federal law of any State tax law.
Clay Riggs Smith: --Your Honor, that is--
Sandra Day O'Connor: And I thought we had basically summarily affirmed that notion. Now, is that right or wrong?
Clay Riggs Smith: --Your Honor, that is correct in the Crow II decision, the 1987 Ninth Circuit decision.
Speaker: Right.
Clay Riggs Smith: The court of--
Sandra Day O'Connor: So are we dealing here in this suit with what remedy is appropriate based on that theory?
Clay Riggs Smith: --Yes, Your Honor, we are, but I would add, by way of further elaboration, that in determining the appropriate remedy I think the Court is confronted with the question of whether a Federal cause of action or a Federal common law claim should be recognized under these circumstances for--
Sandra Day O'Connor: Well, if it's been determined that there is some breach of tribal sovereignty by the State of Montana, and if what we at bottom are faced with here is what's the remedy, then I think your argument might focus on what should be the remedy, and it's entirely possible to me that it shouldn't be just a disgorgement of all the taxes but, rather, a requirement that the Court would have to look at what injury was suffered by the tribe in crafting the amount of the remedy. Is that an argument you make, or not?
Clay Riggs Smith: --Your Honor, that is not precisely the argument we make.
Speaker: No, I didn't think so.
Clay Riggs Smith: The argument we make, if I may go on, is that in this case we essentially dealt... played the hand we were dealt in terms of the respondent's theory and their theory of recovery, as set forth in their amended complaints and, indeed, in subsequent pleadings and in the pretrial order, was a theory which sought recovery of taxes paid by Westmoreland Resources. Had... had the respondents attempted to recover compensatory damages, that is to say, damages directed specifically to the injury that the tribe suffered with respect to the marketability of its coal, we would have an entirely different case than we have before us today.
Anthony M. Kennedy: And the complaint was amended, as I recall, after our affirmance in Crow II?
Clay Riggs Smith: Yes, Your Honor, that is correct. It was amended in 1989 by the tribe, it's fourth amended complaint, and the United States filed essentially the same complaint 6 months later in 1990.
Anthony M. Kennedy: Is money had and received the same as restitution?
Clay Riggs Smith: Your Honor, I would say not. Restitution is a broader concept which covers a rather extensive range of potential remedies.
Stephen G. Breyer: Why can't they just get restitution? Why couldn't... I mean, here why can't the... here's... I take it there's a person who paid some taxes to the State and the Indian tribe says, well, the State doesn't... isn't entitled to that money, and we're more entitled to it than they are, because probably we would have gotten at least some of it, so we would like it in restitution. Why shouldn't they have it? The State isn't entitled to it.
Clay Riggs Smith: Your Honor--
Stephen G. Breyer: I'll add that my law clerk found a bunch of cases that do seem, in restitution, to give one of the two competing entities in taxes... you pay it to the wrong one, well, the right one has a right in restitution to get it from the wrong one.
Clay Riggs Smith: --Justice Breyer, the claim that is sought, again, or is alleged, deals with restitution of a specific kind of payment, in this case taxes paid to the respondents by Westmoreland. It seeks, in essence, a traditional quasicontract remedy, and it has been the petitioners' position throughout that, given the nature of the quite specific remedy sought, that the traditional standards associated with quasicontract govern the respondents' entitlement to those moneys.
Ruth Bader Ginsburg: Mr. Smith, may I ask you to clarify in response to Justice Breyer's inquiry? I understood your brief to say it's not a question of one Government receiving the tax versus the other, like one county getting what belonged to another county. I think your position was that even if there had been no tax by the State of Montana there could not have been a tax by the tribe instead, because it didn't have the requisite Federal permission in the years in question, is that correct?
Clay Riggs Smith: That's correct, Your Honor and, indeed, the district court so found following the 1994 trial, the second trial in this matter.
Ruth Bader Ginsburg: So it's not like getting benefits that should have gone to you that went to somebody else, but your position is that it would have been... the tribe could not have gotten the tax.
Clay Riggs Smith: That's correct, Your Honor. The vast bulk of the taxes at issue were paid during the period betweenl 1975 and 1982.
Anthony M. Kennedy: Another way of saying that would be that there was no duty to pay the tribe.
Clay Riggs Smith: Yes, Your Honor, there was no duty on the part of Westmoreland to pay the tribe.
Anthony M. Kennedy: In the restitution cases there's usually a duty to pay the person that seeks to recover later on. Mr. Smith, judging from the number of times you cite it in your brief I gather you rely rather heavily on our decision in United States v. California.
Clay Riggs Smith: That's correct, Mr. Chief Justice.
William H. Rehnquist: And how do you fit that into your case?
Clay Riggs Smith: Your Honor, we believe that California stands for the general proposition that quasicontract relief is available as a matter of Federal common law only with respect to the entity or person who bears the legal incidence of the tax. Moreover, the facts in California are remarkably similar to the facts here, in the sense that the United States in that case, similar to the tribe in this case, was attempting to enforce in essence an independent obligation that may have existed between the Federal contractor in that case and the United States, just as the tribe in this case is, when you cut through the chaff, is attempting to enforce real or imagined obligations that the... that Westmoreland may have had to the tribe under the terms of the 1976 Tribal Tax Code.
Sandra Day O'Connor: Well, but the big difference, of course, is that in U.S. v. California the suit was based on money had and received, which this Court said required finding an implied contract, and the tax was found to have violated State law. State law. Here, you've got in earlier litigation resolved in Crow II a determination, affirmed by this Court, that the Montana law violated tribal sovereignty and was, indeed, preempted by Federal law. Now, that is a different cause of action, and maybe will give rise to some right for compensatory damages. I think U.S. v. California on that basis is distinguishable. How would you say it is not?
Clay Riggs Smith: Justice O'Connor--
Sandra Day O'Connor: You've got a separate cause of action here.
Clay Riggs Smith: --Justice O'Connor, as I said before if the tribe and the United States had pursued an actual or compensatory damages case, this matter would be quite different.
Sandra Day O'Connor: Well, is it too late? Maybe what needs to be done is to vacate and remand, so that the Court can address what is the appropriate remedy. The Court may well have found an improper remedy, just lumping all the taxes together and saying, fine, you get it, but they're probably entitled to something if they can establish injury.
Clay Riggs Smith: Your Honor, the respondents in this case made a very conscious decision not to pursue a damages claim with respect to Westmoreland. Indeed, they did pursue a damages claim with respect to Shell, the Shell transaction.
Sandra Day O'Connor: No. They're talking about some remedy against the State of Montana, which... and it is the State of Montana by its law that is said to have violated tribal sovereignty, not Westmoreland.
Clay Riggs Smith: Your Honor, I may have misspoke. The tribe attempted to amend its complaint in 1993 to allege, in essence, a damages claim against the State and the county with respect to the nondevelopment of a project on the reservation called Young's Creek, and we loosely call that the Shell issue, and that issue was resolved against it by the district court and by the court of appeals. With respect to Westmoreland, the tribe has consistently declined to pursue a damages claim. Indeed, the--
Ruth Bader Ginsburg: When you say with respect to Westmoreland you mean with respect to that operation, not suing... the tribe suing Westmoreland, I take it.
Clay Riggs Smith: --That's correct, Your Honor. The... when I say Westmoreland, I'm speaking of the production under the lease agreement between Westmoreland and the tribe, but as... and it's summarized perhaps in most detail in our opposition, which is Clerk's Record 600, to the United States and the tribe's motion to amend their amended complaints in 1993. We summarized in some detail the conscious decision by the respondents not to pursue a damages claim, and that description appears on pages 2 through 11 of Clerk's Record 600. There is simply no question, we respectfully submit, in this case that if there in fact could have been a damages claim the respondents made a conscious litigation decision not to pursue it, and that was not an unreasonable determination. The district court, following the first trial in this case, following the 1984 trial, concluded that there was no evidence to establish that Westmoreland had lost any prospective or existing coal contracts because of the State taxes. The district court in the second trial noted, based on testimony adduced at that trial, that there was, again, no further evidence that Westmoreland had lost any contracts because of these State taxes.
William H. Rehnquist: Well, Mr. Smith, was Westmoreland a plaintiff in some of these actions? I mean, did it sue the State of Montana?
Clay Riggs Smith: It did, Your Honor. It... excuse me. I'm sorry.
William H. Rehnquist: Yes, by--
Clay Riggs Smith: The... Westmoreland intervened as a defendant in 1978, shortly after this matter was initiated. It crossclaimed against the State, seeking a determination in 1978 that the taxes were unlawful. It amended its crossclaim in 1983 to seek recovery of the taxes paid to the State between 1976 and 1982.
William H. Rehnquist: --And how did that claim finally come out?
Clay Riggs Smith: That claim, Your Honor, was eventually dismissed with prejudice as a result of a settlement in 1991.
William H. Rehnquist: A settlement between the State and Westmoreland?
Clay Riggs Smith: That's correct, Your Honor.
John Paul Stevens: Could I ask, about that settlement... it really puzzles me. They had a claim for millions of dollars, as I remember it, and they settled for 50,000. Was there some other consideration given to Westmoreland in that settlement, other than 50,000? It seems very strange.
Clay Riggs Smith: No... there was no other consideration given, Your Honor. The... Westmoreland at that point in time had a claim that from the petitioner's view and I believe from Westmoreland's view had zero value, because at that point in time it had long since passed any... bypassed any opportunity to challenge the State taxes under State law.
John Paul Stevens: Well, the State statute of limitations in effect had run on its ability to recover.
Clay Riggs Smith: That's correct.
John Paul Stevens: I see.
Clay Riggs Smith: And so the 50,000 from its perspective was approximately 50,000 more than its claim was worth.
Ruth Bader Ginsburg: What is the State's procedure? Must you protest within a certain amount of time, or--
Clay Riggs Smith: Excuse me. I'm sorry.
Ruth Bader Ginsburg: --What did Westmoreland fail to do that made its claim, as you say, worthless?
Clay Riggs Smith: Your Honor, under State law... first of all, there are two taxes involved in this question, in this case, a gross proceeds tax and a severance tax, and there are actually different protest procedures for each of those taxes, but generally speaking for each tax the... Westmoreland was required within a specific period of time to file a protest and then with respect to the gross proceeds tax and the severance tax for a period of time to initiate a lawsuit in State district court. It failed to do that. The State procedures for protest with respect to the severance tax changed in 1983 retroactive to 1981, which provided for a protest procedure and then administrative review by the Department of Revenue and a lawsuit if the... if Westmoreland was dissatisfied with the resolution of its claim. So again, the... by the time the settlement agreement was entered into in 198... in 1991, Westmoreland's claim had, I think from its perspective, zero value.
David H. Souter: Mr. Smith, may I ask you about a possibly different way of looking at the case or characterizing the claim? Up to this point we've been doing it in terms of basically a competition between two taxing sovereigns. One taxed when it shouldn't. The other one could have and in effect wants the money that the first one wrongfully took. But there's another way, I think, to look at this, and that is to emphasize what I take is not subject to dispute either as a matter of the record or as a matter of economics, and that was that what the State of Montana took through its taxation was a very substantial percentage of the economic value of the coal. They were... the tribe was able to keep, or Westmoreland was able to keep on selling it with the tax added, but in fact the ultimate party losing was the party that owned the coal. So that if we look at it that way, what we have here is a contest between a Government which, through its taxation, took a substantial interest in the property of the tribe. Now the tribe, whether you call it a taxing authority or simply the owner of the coal, wants that wrongfully taken portion of its economic value back. The State of Montana does not have a legal leg to stand on as the taxing authority. That's behind us. We know that the tax was in fact an invalid tax, so as between the State of Montana, which took this substantial economic value, and the owner of the property, the owner of the value which was taken, why isn't it fairly clear that the owner of the value taken, the tribe, ought to get it back?
Clay Riggs Smith: Your Honor, I think there are two reasons why a negative answer is appropriate. First, the State of Montana did not take value during the period we're really concerned with, 1976 through 1982, from the tribe. It took value from Westmoreland Resources in terms of Westmoreland's taxes. Now, at that point in time, the district court found, and we believe the record supports the factual and legal conclusion that Westmoreland simply would not have paid the 19... paid taxes under the 1976 Tribal Taxation Code, so it was not as if the State of Montana--
David H. Souter: Well, it wouldn't have because Westmoreland couldn't have passed it on, either as a matter of the utilities law or as a matter of economics. What, as I understand it, Westmoreland was doing with respect to the Montana tax was simply passing it on to its customers.
Clay Riggs Smith: --That's correct, Your Honor, and--
David H. Souter: Yes. So Westmoreland was getting the same profit on its contract that it would have been getting if it had, in fact, not been subject to Montana tax.
Clay Riggs Smith: --That's correct.
Speaker: Okay.
Clay Riggs Smith: Because, again, the economic incidence of this tax was passed contractually through to Westmoreland's utility customers.
David H. Souter: But the fact that the coal was still saleable at Westmoreland's price, plus the 35 percent, is an indication of the value that was in the coal and ultimately that value belonged to the owner of the coal who was selling it, and that was the tribe, wasn't it?
Clay Riggs Smith: Your Honor, the... we would suggest that the value of the coal was the value... from the tribe's perspective was the value that it received under its 1974 lease agreement with Westmoreland.
David H. Souter: Well, maybe they didn't make a good lease agreement. I have no idea. But the fact is, even if they didn't make a good lease agreement, it doesn't follow that the State of Montana is entitled to take what they should have been getting for themselves. As between the State of Montana and the tribe, I don't see why the tribe's claim is not the obviously prevailing one, if that's a proper way of looking at the case.
Clay Riggs Smith: Well, Your Honor, again, I think that the issue in this case is whether the tribe has a legal entitlement to recovery of those taxes, even when the taxpayer itself does not.
David H. Souter: Well, we're in the position of fashioning a remedy for what was, in fact, a violation of Federal law, and I'm not sure that I agree with you that we are necessarily bound by categories of common law remedial practice in fashioning that remedy.
Clay Riggs Smith: Your Honor, if we depart from common law tradition in this regard, one must ask him or herself the question of why the tribe as opposed to Westmoreland, or for that matter Westmoreland's customers, is more entitled to these moneys. Westmoreland, through the legal incidence, and Westmoreland's customers through the economic incidence, actually bore the burden of this tax.
Antonin Scalia: But Mr. Smith, why... I'm not following this colloquy between you and Justice Souter. It seems... was the coal contracted for and the price fixed between the tribe and Westmoreland before the taxes were imposed?
Clay Riggs Smith: They were, Your Honor.
Antonin Scalia: So at that point, it seems to me, the value of the coal to the tribe was no more and no less than what it had contracted to sell it for.
Clay Riggs Smith: That's correct.
Antonin Scalia: Period. I mean, it might be worth more in the abstract, but if it made a bad contract its value to the tribe at that point is simply what it contracted to sell it for, I assume.
Clay Riggs Smith: That's correct and, Your Honor, indeed, the tribe did not make a bad contract.
Sandra Day O'Connor: Well, I guess the tribe is saying, though that, but for the subsequently enacted tax, that Westmoreland would have taken more coal out and been able to sell more and they would have gotten more royalties and what's more maybe there was some other land they could have leased out for coal removal, but because of Montana's tax they weren't able to do it. But that doesn't equate automatically with the amount of Montana's tax, it seems to me. I still think we need to pursue what really is the injury to the tribe in terms of dollars.
Clay Riggs Smith: Your Honor, I agree, and the injury to the tribe in terms of dollars would, at least in theory, have been best quantified through a compensatory damages kind of claim and, as I've said before, that is not the kind of claim that has ever been maintained in this action and, indeed, it is the kind of claim that the tribe and the United States disclaimed any interest in pursuing. The--
Antonin Scalia: You say that remedy was unavailable because it had not been sought. Is that your position here?
Clay Riggs Smith: --Yes.
Stephen G. Breyer: When you say common law authority, what common law authority? That is, I found... I thought restitution authority is you're supposed to do basically what's just, and if person A takes the property of person B and puts it to a use whereby he makes some money out of it, that money... you know, person A wrongfully takes the property of B and makes some money out of its use, and that money finds its way into the hands of C, I would have thought restitution would give it back to the original owner of the property.
Clay Riggs Smith: And--
Stephen G. Breyer: I mean, I didn't think there was some general, technical thing. I thought you're supposed to do basically what's fair. Here they had some property, and it was put to some use, and it ended up generating some money, and the money ends up in the hands of a person who has no right to it whatsoever, but they might have gotten it out of the property. Why shouldn't restitution or equity come back and put it where it belongs?
Clay Riggs Smith: --Your Honor, in fact the petitioners did not receive any property of the tribe. The tribe conferred no benefit on the--
Stephen G. Breyer: But they got 58 million which was tax, which tax was generated through the use of some coal that started out belonging to the tribe, and that coal generated some money that was used to pay a tax that went into the hands of a person who has no right to it.
Clay Riggs Smith: --Your Honor, but following that--
Stephen G. Breyer: I mean, is there some common law authority that says you couldn't do that, bring it back?
Clay Riggs Smith: --Your Honor, we believe there is, and we believe that the common law authority is United States v. California.
Anthony M. Kennedy: Well-- --If the tribe had executed its leases and the... and with the royalty agreements, and after the execution of those mining agreements or leases had then imposed a tax, would that have been inconsistent with the contract documents?
Clay Riggs Smith: I think Westmoreland, Your Honor, would have said was... it wasn't consistent, because Westmoreland saw the 1974 lease amendment as the complete economic settlement between the parties.
Anthony M. Kennedy: So it's not at all clear that the tribe could have imposed its tax if it had chosen to do so after executing the agreements.
Clay Riggs Smith: Well, the record shows the tribe in fact did attempt to impose their tax, but was prevented from doing so by the Department of Interior.
Speaker: That's what I thought.
Clay Riggs Smith: Because the Department had doubted the authority of the tribe to tax offreservation transactions, and the ceded strip is outside--
Anthony M. Kennedy: Well, was that a matter of the tribe's sovereign authority, or was part of that decision motive, it was one of the reasons offered in denial of the permission to tax, the fact that the tribe had already made a contract?
Clay Riggs Smith: --No, Your Honor. It was based solely on the tribe's constitution and the Department's interpretation that it did not permit offreservation taxation.
Sandra Day O'Connor: And there was a subsequent district court decision saying that in fact it was part... the ceded land was part of the reservation and the tribe did have the power to tax, isn't that right?
Clay Riggs Smith: Yes, Your Honor, that's correct, but that was in 1988, long after--
Speaker: Right.
Clay Riggs Smith: --the events we're concerned with occurred, and that decision was thereafter reconsidered by the district court in its 1994 decision, and in essence the district court stated that it was not intended to speak to any obligation that Westmoreland may have had under the 1976 Tribal Taxation Code.
Anthony M. Kennedy: But quite apart from the tribe's sovereign authority, Westmoreland might have had an argument that this... that the imposition of the tax was inconsistent with its contract negotiations.
Clay Riggs Smith: It did and, indeed, Westmoreland made that argument, but that is not the argument that the Department of Interior relied upon in disapproving the ordinance.
David H. Souter: Mr. Smith, in your answer to Justice Breyer's question a moment ago, your reliance on California and, I gather, in your answer to me, you're assuming that one... I think one of the things you're assuming is that in the question of, as it were, the value of the property to the tribe and what the tribe may properly claim as value taken from it, the tribe's contract with Westmoreland is in fact a limitation on what the tribe can claim. Why should that be a limitation as between the tribe and Montana?
Clay Riggs Smith: Your Honor, it should be a limitation between the tribe and Montana because the respondents are seeking a very specific remedy, Westmoreland's taxes. That is the remedy they have sought for the last 10 years.
William H. Rehnquist: Thank you, Mr. Smith. I think you've answered the question. Mr. Pelcyger, we'll hear from you.
Robert S. Pelcyger: Mr. Chief Justice Rehnquist, and may it please the Court-- I'd like to start by addressing some of the questions that were raised by the Court to Mr. Smith. First, I'd like briefly to refer to Rule 54(c) of the Federal Rules of Civil Procedure, which states that every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party's pleadings. That's quoted at page 24 and footnote 18 of our brief. I'd also like to bring the Court's attention to the district court's 1990 interlocutory decision, also quoted in that same footnote. It's in the petitioner's appendix at pages 74 to 76.
William H. Rehnquist: Which footnote is it in your brief, Mr. Pelcyger?
Robert S. Pelcyger: Footnote 18, page 24, Mr. Chief Justice, in which the district court denied the motion... this was in 1990, long before the trial in this case, in which the district court denied Montana's motion to dismiss, stating that the current phase of this case was an extension of the district court's previously invoked equity jurisdiction and that, once violations of significant tribal interest were established, the district court had "broad equitable powers" that refers... broad equitable powers to construct a remedy that refers to State law and is not defeated by it, so it was known throughout this litigation what this case was about, and this is not a pleading case.
Sandra Day O'Connor: Well, Mr. Pelcyger, why shouldn't the remedy be tailored to the damages suffered by the tribe? In other words, the loss to the tribe of royalties that it otherwise would have had if more coal had been taken by Westmoreland and sold, or other revenues that it might have derived if other people had not been discouraged by the amount of Montana's unlawful tax from making lease arrangements with the tribe? I don't see why the measure of damages should automatically be the amount of the taxes collected by Montana. I think it should be directed to the tribe's injuries.
Robert S. Pelcyger: Let me say first that that's not the question that's presented. The question presented was--
Sandra Day O'Connor: I'd like you to answer that question.
Robert S. Pelcyger: --I would be glad to answer that question and I'm glad you asked it. The court of appeals held twice, both in Crow II and in Crow IV, that Montana's illegal coal taxes, quote, took revenues that would otherwise go towards supporting the tribe and its programs. That was with reference to the coal that was actually mined, not the coal--
Antonin Scalia: I don't understand what that means. I mean, what does that mean, that would otherwise go?
Robert S. Pelcyger: --It means that Westmoreland--
Antonin Scalia: Because the tribe would have taxed it?
Robert S. Pelcyger: --The tribe would have taxed it.
Speaker: The tribe couldn't have taxed it.
Robert S. Pelcyger: Well, the tribe could have taxed it, Your Honor, and let me also say in response to Justice Kennedy's question that this Court held in the case of Hickory Apache Tribe... Marian v. Hickory Apache Tribe that in the absence of an expressed waiver of the sovereign right to tax, the tribe could go back... the circumstances there were virtually identical and the tribe could go back and impose taxes after entering into a mineral lease, so that issue was resolved by this Court.
John Paul Stevens: But there they had the consent of the Secretary of Interior.
Robert S. Pelcyger: They had the consent of the Secretary of Interior, that's correct.
John Paul Stevens: Which is a little different than this one.
Robert S. Pelcyger: Well, that's a... perhaps a complicating factor or a distraction, depending upon how it's viewed. But what the record shows here clearly and unmistakably, the first thing, Justice O'Connor, that needs to be looked at is what has actually happened in the absence of the State tax. The State tax was held invalid in 1987 in Crow II, summarily affirmed by this Court in 1988. Since that time, the tribe has, in fact, received 100 percent of the State... of taxes measured precisely by the amount of the State severance and gross proceeds taxes, so the best evidence of what would have happened but for the State taxes is what actually did happen.
Ruth Bader Ginsburg: I don't follow that. They didn't have permission from the Department of Interior for those years, and at least Mr. Smith took the position that... both on brief and before us that, even if Montana hadn't tried to tax any part of this, the tribe could not without the Secretary's permission, which it didn't have in those years.
Robert S. Pelcyger: Well, this is not a case between the tribe and Westmoreland. This is a case... this is... in order to recover against the State... Westmoreland's not the wrongdoer. The State is the wrongdoer. We're seeking to recover not against Westmoreland. We're seeking to recover against the State of Montana. I see no reason why recovery against the State--
Sandra Day O'Connor: Well, why shouldn't it be measured by your injury? I would appreciate your answering that question before we go on to other things.
Robert S. Pelcyger: --I'm trying to... I'm trying to answer... I'm trying to answer the question. The record shows that Montana... and this is clear by the testimony of Montana's president, and it's clear by a 1976 letter that is in the record in the joint appendix at page 87 where Westmoreland says, and it's position from the beginning was that it was willing to pay one tax, not two, it didn't matter to Westmoreland who it paid the taxes to, and that Westmoreland was willing to pay the tribe any additional payments that the tribe was exempt from by virtue of its status and by virtue of its sovereignty. And that is exactly what the Ninth Circuit held below, relying on that 1976 letter which was quoted in the court of appeals decision.
Antonin Scalia: You mean, Westmoreland would have paid it without the Department of Interior permission on the part of the tribe?
Robert S. Pelcyger: I can't speak for Westmoreland, but--
Antonin Scalia: No. Don't you think they'd be liable to their stockholders if they did something like that?
Robert S. Pelcyger: --Your Honor, the record shows, and again it's very clear on this point, Westmoreland recognized what the traffic bore for Montana coal after 1975. Westmoreland recognized that one way or another it was going to have to pay, whether in the form of increased royalties or taxes, that additional amount of money.
Antonin Scalia: That's all very true. They didn't care who they paid the taxes to.
Robert S. Pelcyger: Right.
Antonin Scalia: But that still doesn't settle the question of whether the tribe could have imposed the tax.
Robert S. Pelcyger: Well, but again the question is, why... the Secretary of Interior made a mistake. Assume the Secretary of the Interior made a mistake. Now, in fact the tax was approved as to reservation coal and it was subsequently determined that this coal was reservation coal.
Sandra Day O'Connor: Well, not only that, the tribe's tax was 25 percent, Montana's was 35 percent, so even if the tribe could have taxed, it wasn't going to tax it the same amount.
Robert S. Pelcyger: Well, under--
Sandra Day O'Connor: I mean, this... we're just addressing what the injury is.
Robert S. Pelcyger: --Well, Montana, of course, was free to defend on that ground, that there was a disparity and, indeed, the law of restitution recognizes that if there is a gross disparity between the unlawful gain and the amount... restitution does not exist in order to give plaintiffs an unjust enrichment, and Montana was free to argue that. In fact, they did not argue that, not at all. What Montana argued was that we provided services to all the Crow members, the same services they would have received in the absence of this--
Sandra Day O'Connor: Well, I suppose it's not too late. We have to look now in this case at whether the remedy of disgorgement of all of the taxes and handing it over to the tribe is correct as a matter of Federal law. Maybe it's not. Maybe it ought to be sent back so we can look at what the injury to the tribe was.
Robert S. Pelcyger: --The critical question here is what would have happened in the absence of the State's unlawful taxes, and whether or not the tribe might have been able to recover against Westmoreland is beside the point. The question is, what would have happened but for the State taxes, and the record--
John Paul Stevens: May I ask in that connection, assume that Westmoreland had not been tardy in making its claim for a refund and it had promptly filed a claim for a refund and all of the money had been refunded to Westmoreland, would you still be able to maintain precisely the same claim that you're now maintaining?
Robert S. Pelcyger: --Of course, that's not our situation.
Speaker: I understand.
Robert S. Pelcyger: But I believe yes, we would, Your Honor, and the reason is that the Court's... the remedial powers of this Court should be guided primarily here by the purposes of the statute that was violated, but the purposes of the statute here were not to benefit Westmoreland. It was not to give Westmoreland a competitive advantage visavis other coal producers.
John Paul Stevens: What was violated was the Commerce Clause of the Constitution, wasn't it?
Robert S. Pelcyger: No. What was violated... and the Commerce Clause of the Constitution was not violated. In fact, this Court in CommonwealthEdison specifically upheld this same tax as applied to Federal coal. What was violated here was the tribe's sovereignty and the Indian Mineral Leasing Act under which the tribe's minerals are leased, not the Federal minerals, or not other people's minerals. So this is unique to the tribes, and the purpose... this is a very, very unique tax, because the tax... sorry. This is a very unique statute under which the tax was held invalid, because the purpose of the statute was not to protect the taxpayer. The purpose of the statute was to protect the tribe. Westmoreland, the taxpayer, was a bystander, caught in a big conflict, in the middle of a conflict between three sovereigns, Federal, State, and tribal.
John Paul Stevens: It wasn't exactly a bystander when it got back all the money in escrow.
Robert S. Pelcyger: No, but it was... no. Well, it didn't get back... no, the tribe got the money that was in escrow, Your Honor, not Westmoreland.
Speaker: Oh, that's right. That's right.
Robert S. Pelcyger: So--
John Paul Stevens: They did get a... didn't they get something back, Westmoreland?
Robert S. Pelcyger: --No. Westmoreland just got the 50,000 that you referred to.
Speaker: Okay.
Robert S. Pelcyger: So you have to look at the purpose of the Federal statute. The purpose of the Federal statute was not to confer a benefit on the taxpayer. Ordinarily, when taxes are held invalid the automatic assumption is, the taxes were held invalid, the taxpayer gets to get the money back because the taxes were invalid, but here the sole and exclusive intended beneficiary of the laws that were violated was the tribe, it wasn't Westmoreland, and for Westmoreland to escape with no taxes whatsoever would not be a result that is consistent with the purposes of the statute and would not effectuate the purposes of the statute--
David H. Souter: Mr.... I'm sorry. Mr. Pelcyger, I want to ask whether the terms of the lease might have a bearing on the answer to Justice O'Connor's question. Assume the following. Assume that at a given time the Secretary of the Interior said, you may not tax. Assume that Westmoreland says, as it did, I don't care who I pay the money to. I can sell the coal at this price, and you guys fight it out. If the tax at that point had been declared invalid, as it was, could the tribe... did the tribe have a right under its lease agreement simply to demand a renegotiation of the price at which it would sell so that it could have gotten as its lease price what the Department of the Interior was not allowing it to get by way of taxation?
Robert S. Pelcyger: --There was not... there was a provision for renegotiation of royalties, but on specific dates. I think the first one was 10 years after the original lease, not in 1975.
Speaker: Okay.
Robert S. Pelcyger: Because the lease was entered into in 1974, Your Honor.
Stephen G. Breyer: Are you going to be able to show... are you going to be able to show that if the Montana tax... everybody had known from the very beginning that they couldn't have done it, everybody would have known that you... that the tribe could have gotten more royalties from Westmoreland?
Robert S. Pelcyger: Well, I--
Stephen G. Breyer: It's the same pile of money. I mean, it's a pile of money that's traceable--
Robert S. Pelcyger: --That's right, and Westmoreland testified it didn't make any difference. They passed on both the royalties--
Stephen G. Breyer: --I know from West... we're talking about the damages, and what I'm interested in is whether you think you'd be able to show that in the absence of this unlawful tax, everybody knew it was unlawful. Everybody knew from the year 1800 that they couldn't do it. Now, if they had known that all in advance, would the tribe have been able, even if the Secretary of the Interior made the mistake about the tax, they say, okay, you're right, we can't tax you, Westmoreland, but what we can do is increase our royalties, and we will. Now, do you think that you can show that that's what would have happened?
Robert S. Pelcyger: --I can't predict what would have happened under those circumstances. What I can say is that the record before this Court--
Ruth Bader Ginsburg: Wasn't the price set... wasn't the price set before the tax was imposed? The--
Robert S. Pelcyger: --The royalty was set--
Speaker: --Yes.
Robert S. Pelcyger: --before the tax was imposed.
Stephen G. Breyer: Yes, but at that time... that's what I wonder, you see. At that time when they set the royalty, what was in the air? What did--
Robert S. Pelcyger: Well, that was--
Stephen G. Breyer: --I mean, I can understand my... to reveal what I'm thinking, I'm thinking that if this money can be traceable really to the sale of the coal, which is the tribe's, it is rather like somebody unlawfully taking my car and use it to sell pizzas, and earns money for it, and I should get it.
Robert S. Pelcyger: --Yes.
Stephen G. Breyer: But if you can't show that, it might be different.
Robert S. Pelcyger: Well, let me just say, the record leaves no doubt that but... and this is clear from Westmoreland's testimony, that but for the State taxes they would have paid the same amount of money to the tribe. They were not looking... Westmoreland was not looking to try to get something cheaper than the market conditions.
Sandra Day O'Connor: I thought the tribe's position was that had there been no heavy Montana tax, that Westmoreland would have been able to take and sell more coal, which would have generated more royalties to the tribe.
Robert S. Pelcyger: That's part of the position, Your Honor. There are two different discrete claims of injury here, both of which were found by the lower courts. The first discrete claim relates to the coal that was actually produced and sold, and there the claim is the tribe was deprived of its fair share of the economic rent. In addition to that, there's a claim with regard to... or an injury with regard to the coal that was not sold because the price was too high because of the State's tax. There's no damages sought now on the basis of that second category, but the first category is what we're talking about, and that's what the focus is on. Now, let me just say one other thing. There's no reason--
Sandra Day O'Connor: But as to that... as to that, the tribe had entered into an agreement before there were any taxes by either Montana or the tribe, or the amount of the royalties it wanted and would accept, and so it's hard to understand how the subsequent imposition of a tax which was passed on to the consumers by Westmoreland alters that.
Robert S. Pelcyger: --Well, again, the lease just dealt with royalties. The tribe is both the owner of the coal and the sovereign. Let me just make one thing real clear. There's no reason--
Sandra Day O'Connor: Well, at a time... at a time when the tribe was not permitted to impose its own tax, it's hard to equate that with the direct injury.
Robert S. Pelcyger: --Well, the reason... the tribe was permitted to impose its own tax. The Secretary made a mistake, because the Secretary didn't realize at the time that the ceded strip coal was part of the reservation. Now, the question is, why should the benefit of that mistake inure to the wrongdoer? The tribe--
Antonin Scalia: It was the reality, whether it was a mistake or not. It's not a question of why should--
Robert S. Pelcyger: --No, but the question is, this is a claim of the tribe versus the wrongdoer. This is a claim for violation of the tribe's federally secured rights.
William H. Rehnquist: --Thank you, Mr. Pelcyger. Mr. Lamken, we'll hear from you.
Jeffrey A. Lamken: Mr. Chief Justice, and may it please the Court--
William H. Rehnquist: Mr. Lamken, sometime in the course of your argument I'd appreciate your saying why this case isn't controlled by California v. United States. It's been suggested that California did not involve a Federal cause of action, and here it does, a violation of a Federal right, but as I read the California opinion, the Court's reasoning didn't turn on that fact. If you'll just address that sometime in your argument.
Jeffrey A. Lamken: --Yes, Your Honor. Why don't I begin with that. California involved a claim that the... the question was whether there was a Federal common law cause of action in the United States against the State of California where California had not violated Federal law and it had not invaded any sovereign right of the United States. The only reason the United States was in the case was it had voluntarily agreed to indemnify a third party that had paid the tax potentially in violation of State law. This Court held that the United States could not use its voluntary indemnification of that third party to create a Federal common law cause of action out of what was in essence a State law cause of action. In essence, the Federal Government did not obtain any greater rights than the third party that had indemnified had to begin with. Here, in contrast, there is a Federal cause of action. Montana violated not State law, but it violated Federal law, and it did not violate the law... the rights of a third party.
William H. Rehnquist: Well, you say a Federal cause of action. The United States v. California came up through the Federal courts, didn't it?
Jeffrey A. Lamken: Certainly, and--
William H. Rehnquist: So there must have been... the United States must have had a right to go into court to make the assertion that it should recover. I wonder if your denominated cause of action is right, or whether you don't mean that your argument is there was a violation of a Federal right.
Jeffrey A. Lamken: --Cause of action can be... the phrase, cause of action, can be used two ways. One is in the sense of a valid stated claim on which relief can be granted. The other one is the question of whether the litigant is within the category of potential plaintiffs who are entitled to bring that sort of claim. Regardless of which sense it is, it was... you use the word, it was clear in the United States v. California case that the United States could not bring that cause of action, and here it's clear that we are. The United States in this case did not only bring a case, it prevailed. It obtained permanent relief based on its claim, so here there is a cause of action. In California the substantive holding was there was no cause of action. Accordingly, the claim by the United States should have been dismissed, and it should not have been in Federal court to begin with. It simply was not a proper party to bring that case.
Anthony M. Kennedy: As I understand your theory, if California taxed a corporation that was doing business in California and Nevada and the corporation said, you know, really, this is interstate commerce, you can't tax our income, and settled with California, under your theory I guess Nevada could say, we don't have a corporate income tax, but you know, you took the tax that really should have been ours, so we'll sue you, State of California. I suppose under your theory Nevada would prevail.
Jeffrey A. Lamken: No, Your Honor, I don't believe that that case could be brought, and I think this is in part a response to Justice O'Connor's question, and that is that the purpose of a remedy such as restitution is to restore the parties to the position they would have occupied had Federal law been respected to begin with. Restitution begins that process by forcing the defendant to disgorge its unlawful gains. Now, it's important in tax cases to start with a disclosure and then let defendant--
Anthony M. Kennedy: Well, under that, Nevada says, you know, this money must belong to somebody. The company's settled. California, it's not yours. It should be ours.
Jeffrey A. Lamken: --Well, the next step, however, in the analysis, Your Honor, is, where there's a gross disparity between the two... between the injury to the plaintiff and the unjust gain to the defendant, the court can deny restitution because the restitution would not... the enrichment was not unjust visavis the plaintiff. Another way of looking at it is simply, if the plaintiff has no injury whatsoever it cannot seek restitution.
Stephen G. Breyer: Their point is that, that I take it that the, Montana's point is that in the absence of this unlawful tax of the 58 million, or whatever, the tribe couldn't have gotten the money. It couldn't have gotten the money through a royalty because it had long previously signed a definite contract. It couldn't have gotten the money through a tax because the Secretary of the Interior had said you can't tax. So in the absence of their having taken the money, the tribe could never have seen a penny of it, regardless, and therefore they are not a proper person to give the money back to. Now, I take it that that's basically their point, as I've understood it, and so what is your response directly to that?
Jeffrey A. Lamken: Our response to that is the same response that the court below had, which is, it's not supported by the evidence, and there's two reasons why--
Stephen G. Breyer: And what does... and fine, so what is... what does the evidence support, in your view?
Jeffrey A. Lamken: --First, the evidence supports that in the absence of the Montana tax, Westmoreland is willing to pay additional royalties to the tribe whether by way of tax or by way of royalty agreements in any amount that it saved from the Montana tax. In other words, any reduction in the Montana tax would have been... Westmoreland was willing to pay that to the tribe.
Antonin Scalia: Is that right? I mean, is that really credible? I mean, the tribe would have come and said, you know, this tax is unlawful, and we know we can't get any more royalties from you, we have a deal, and we know we can't tax you because we've been told by the Secretary of the Interior he won't give permission, and Westmoreland says, oh, that's okay, I'll give you the 38 million instead of the State. That's fine with us.
Jeffrey A. Lamken: There's a letter from Westmoreland to the tribe in joint appendix page 87, and during that it says that we have previously negotiated regarding additional royalties. However, any additional payments to you will have to be in lieu of the State tax and not in addition to. And in addition, at joint appendix pages 397 and 400 there are statements by Westmoreland to the effect that they were willing... any reduction in Montana tax that the tribe could obtain through its use of its governmental or sovereign authority--
Antonin Scalia: That's a quite different statement, any additional payments to you will have to be in lieu of instead of in addition to, and you characterize that as a sort of volunteering to give you the money that we save from the tax?
Jeffrey A. Lamken: --In light of the negotiations that had occurred, that is what it means, and on page 397 and 400 of the joint appendix, again there is testimony that they're willing to share any savings that the tribe could obtain from the Montana tax for them through use of its governmental authorities with the--
Antonin Scalia: Oh, so now they're willing to share it. That's a deal that I think the company might cut. That is plausible. If you get Montana off our back, we'll give you 19 of the 38 million.
Jeffrey A. Lamken: --That's correct, Your Honor.
Antonin Scalia: That's more plausible, but you've already cut your claim by 50 percent now.
Jeffrey A. Lamken: Your Honor, it's not... I don't think there is a precise one... necessarily a proven precise onetoone correspondence between the loss to this tribe in this case and the amount of restitution awarded by the court of appeals.
Sandra Day O'Connor: Well, exactly. Well... yes. I mean, that's the whole point, and why shouldn't this be sent back to determine what was the injury to the tribe? I... this business of equating it automatically with the amount of the tax I just don't understand.
Jeffrey A. Lamken: Well, I think Your Honor, equity starts... restitution starts with the unlawful gain to the defendant, and the reason it starts there... and I'll go to how it can get reduced. The reason it starts there is an important protection for the State. If it were simply a damages action the State's liability would not be limited to the amount of its unjust gain. It would--
John Paul Stevens: On that theory, I take it you disagree with your colleague on the same side, is that if Westmoreland had recovered all the tax itself, then the tribe would not be able to get any money.
Jeffrey A. Lamken: --If Westmoreland had recovered the money, under the doctrines of benefits conferred the claim would no longer be against Montana but upon... the beneficiary of the tax would be Westmoreland, so the tribe's action would have to run against Westmoreland and not the State of Montana.
John Paul Stevens: You mean they would have been able to recover this money from Westmoreland if Westmoreland had recovered it from Montana?
Jeffrey A. Lamken: The answer is potentially yes, and this is--
John Paul Stevens: But what... why was Westmoreland a wrongdoer? I mean, they have to have done something wrong to give up several million dollars, don't they?
Jeffrey A. Lamken: --Yes, Your Honor, and that would depend on the validity of the 1976 tax. The 1976 tax, although initially the Secretary declined to approve it, the Secretary did approve the tax--
Sandra Day O'Connor: The tribal tax. The amount of the--
Jeffrey A. Lamken: --Excuse me.
John Paul Stevens: --The amount of the tribal tax is not equal to the amount of the--
Jeffrey A. Lamken: That's correct.
Speaker: --the Montana tax.
Jeffrey A. Lamken: That's correct, and when there is... and if Westmoreland objected on that basis a trial court would be justified in rolling back the restitutionary remedy and saying, well, the goal here is to return the parties to the position they would have occupied if Federal law had been obeyed. I think the--
David H. Souter: The same would be true for Montana, then, too, wouldn't it?
Jeffrey A. Lamken: --That's true.
Speaker: Okay.
Jeffrey A. Lamken: If Montana had raised and proven through evidence that the damages were grossly disproportionate, got much lower than the restitution or remedy, a court would be justified in rolling back the restitution or remedy.
David H. Souter: No, but isn't it clear on the record that if the criterion of what the tribe gets looks to the position that the tribe would have been in but for the tax, even on that criterion, the tribe, based on the record we've got, would not have gotten all that Montana took.
Jeffrey A. Lamken: I think, Your Honor, the starting point is always the gain to the defendant. At that point, it's the defendant's obligation to come forward and say, assert and prove that this inherent restitutionary remedy, based on its gain, is inequitable--
Speaker: Well, is this--
Jeffrey A. Lamken: --because it overcompensates the plaintiff.
David H. Souter: --Excuse me. Are you making this turn basically on procedure, that although there is indication in the record that the tribe in fact would not have received, either by lease negotiation or by taxation, what dollarfordollar Montana took, that somehow Montana nonetheless has got to give it all back because Montana did not go through some procedure of proving that, even though we've got evidence in the record that indicates that? Is that your position?
Jeffrey A. Lamken: Yes, Your Honor. The position is that if it's not grossly disproportional, a little bit of difference between the restitutionary measure and the damages measure does not make a difference.
Antonin Scalia: Well, it sounds... this-- --You're writing all of this from cases, moreover, in which the restitution is being made to the person from whom the money was taken. In this case, it would have been the corporation and not the tribe, and I think to simply use the same burden of proof rules in this very different situation is unreasonable. It is, indeed, reasonable to presume that the whole amount of wrongfully acquired money goes back to the person whom you took it from, and the burden would be on Benvenuto Cellini to show that in fact he gave added value to the lump of gold that he had stolen. That's very reasonable. But where you're asking us to give the money to a third party, not to the person from whom it was taken, it seems to me the burden of proof should be on that third party to show that I was injured by this taking from somebody else. Don't you... doesn't that seem reasonable to you?
Jeffrey A. Lamken: In the abstract--
Antonin Scalia: You want us to assume automatically that the tribe was injured 38 million worth.
Jeffrey A. Lamken: --The cases run exactly that way. Even where the money is not obtained directly from the plaintiff, it is the defendant's obligation to come forward and show that restitution would be unjust or--
Ruth Bader Ginsburg: Mr. Lamken, something happened in the district court, and the district court thought, I'm supposed to do something equitable, and that seems to have been forgotten by everybody, that here was a district judge, he said, I'm going to consider the factors on both sides. And one of the things that he said he thought might be relevant... I hope I remember this correctly... was from day one the tribe could have stopped Montana because the tribe is not blocked by the AntiInjunction Act, so he's kind of mixing all the equities. So... but he did take into account a lot of the things that we have been talking about. Where did he go wrong if we don't buy your theory that you start with every penny that Montana got and then, if we don't buy that, what's wrong with what the district judge did?
Jeffrey A. Lamken: --The first error the district court committed, Your Honor, is the district court failed to consider additional royalties as a possible source of gain to the tribe. The district court looked simply at the possibility of a tax, and even there the district court had conflicting holdings. On the one hand it held that the tax had not been approved by the Secretary, so Westmoreland wouldn't have paid it. On the other hand, it held that the tax had been approved by the Secretary because the ceded strip is part of the reservation and the tax was approved as to the... excuse me, the coal under the ceded strip was part of the reservation and the tax had been approved as to the reservation. Accordingly, under that holding, if Westmoreland had not paid the money to the State of Montana instead, the tribe would be proceeding against Westmoreland for the money.
Ruth Bader Ginsburg: But that was much, much later. In the years that we're talking about, '75 to '82, none of that was settled.
Jeffrey A. Lamken: The district court's holding came from 1990, that's correct, but the court of appeals had the same holding back in 1982 in Crow I.--
Ruth Bader Ginsburg: Even '82 was the end of this period. We're talking about '75 to '82.
Jeffrey A. Lamken: --That's correct, Your Honor, but I'm not sure why it would make any difference, because the point of the matter is, if the tax was valid the Crow tribe could go after Westmoreland for the tax. It's not doing so here because Westmoreland was not the party--
Ruth Bader Ginsburg: Well, if the United States didn't give the tribe permission to tax in '75, could a decision by a court saying, oh, United States, you should have authorized the tax, that the tribe meant to reach back 7 years and say, taxpayer, now cough up?
Jeffrey A. Lamken: --Actually, the court... the district court didn't say you should have given permission. It said that you in fact did. You may not have intended to, but the moment you said the tax is approved as to the reservation, a fortiori it applied to the coal in the ceded strip, because that is part of the reservation, so when the Secretary wrote down the words, approved--
Ruth Bader Ginsburg: And where does it say that Westmoreland would have been bound to pay the tribe because all those years later a court said, gee, we got it wrong the first time, or the Secretary got it wrong?
Jeffrey A. Lamken: --There is no district court holding on that point, Your Honor.
Ruth Bader Ginsburg: What about the Tax Injunction Act, that the tribe is in an advantageous position with respect to that, it can do what others can't do? It didn't. Why at no point didn't the United States and the tribe think about enjoining Montana from collecting this unlawful tax?
Jeffrey A. Lamken: It did, Your Honor. The suit was filed in 1978. The only reason they didn't get an injunction until 1982 was the claim was dismissed for failure to state a claim. Until the Ninth Circuit reversed that dismissal there's no chance whatsoever of our... of obtaining an injunction against the tax.
William H. Rehnquist: Thank you, Mr. Lamken. The case is submitted.