Warren E. Burger: Mr. Rosenwein.
Sam Rosenwein: Mr. Chief Justice and may it please the Court. The issue that I'm devoting myself to is the issue of scienter, a question of guilty knowledge. And what is the mental element requisite for the constitutionally permissible prosecution. Now, the record is brought down below something like this -- and on a motion for bill of particulars with respect to the indictment would charge that the petition is knowingly mailed and used the mails to mail this obscene brochure. On that, in an answer to our motion for bill of particulars, the Government stated it was not claiming that these defendants knew in fact that the material was obscene. All it was claiming was that they knew the contents of the brochure and that that was sufficient to satisfy scienter requirement.
Warren E. Burger: Would you suggest, Mr. Rosenwein, that in order to make our case, the -- the handler of the material must take knowledge that it's obscene before he exposes it or distributes it?
Sam Rosenwein: My -- my contention is simply this. That one has to prove beyond a reasonable doubt that he knew the contents, and that he knew the obscene nature in character of the contents, and with that knowledge, intentionally disseminated the material with a specific intent to appeal to a prurient interest. That, I think, is a burden that is upon the prosecution in an obscenity prosecution. And we asked the court below, that to instruct generally along those lines. In answer to that, the Court constructed a jury and said to us that it would say no more that -- that the knowledge of contents of the envelope which the brochure was contained was all that was required in this case. He would charge, said the Trial Court, that the defendants are required that you should -- that the Government has to prove -- it has to be shown that the defendants knew the nature in character of material. The trial counsel said to the Trial Court, “What do you mean by nature and character of the material? Will you tell us, does that mean dealing with sex or sexually oriented or does it mean obscene nature in character?” The Trial Court said, “I'm going to instruct the nature and character and it means what it says.” And that's all he ever instructed the jury. So what this jury found was that the petition as in this case, knew the contents or the nature in character of the contents in the sense that, and one can only suppose, since obscenity was ruled out of the instructions. The -- the knowledge of obscenity of the material, or the non-obscenity of the material, was told to the jury as being irrelevant. It followed, therefore, that the jury found as -- that they knew that the contents of this brochure dealt with sex. And that was enough to establish the guilty knowledge that resulted in the imposition of these sentences. Now, what we have contended simply is this. The indictment charged us with knowingly mailing an obscene brochure. What is an obscene brochure? What are the qualities that go into a brochure that makes it obscene? At the time, when we were tried, there were three elements. One, that it exceeded contemporary community standards. It appealed to a prurient interest. It was utterly without social value. Those were the qualities that made it obscene. Obviously, if those are the elements of the offense, and this is true in any criminal case, it must be shown that the particular accused, knew those elements, knew those facts and knew the quality of that material exceeded in contemporary standards appealed to prurient interest, which was without value. But we have never contended that the Government is required to show that the accused knew what the law was. We have never contended it was required to show they knew what the standard were that were enunciated by this Court. We have not contended that there's any necessity for direct proof of the awareness. It can be by circumstantial evidence, but whatever the proof is that is necessary, we have contended that it must be shown by direct or circumstantial evidence that the accused was in some way aware that this material went beyond contemporary standards, appealed to a prurient interest and had no value. And it was up to the jury to decide without improvised presumptions, without judicial notice. It was for them to decide, whether or not, under those circumstances, the accused knew. We contend that is illogical. It -- it offends empirical evidence that one could point to, to say that today, one can look at some material dealing with sex and simply say, from knowing that these contents deal with sex or it's sexually oriented, that he knows that that material is obscene. That he knows that the material necessarily goes beyond standards that appeals to a prurient interest and has no value. Time after time, juries, judges have said “Why this is hardcore pornography, this is dirt for dirt's sake”, only to find the Appellate Courts, the Upper Courts, and this Court itself upheld “No, this material is not obscene. It's constitutionally protected.” Now, the lawyers who are asked for advice today, whether it's films or -- or motion pictures or books, or magazines may have difficulty in saying to a client that this matter dealing with sex is necessarily is or isn't obscene. Or offend some jury in opening Georgia. Prosecutors and judges and -- and juries have difficulty in determining this. A whole period has passed since the 1896 decision in Rosen, in which the -- a -- a virtual sexual revolution has occurred. And for anyone to say today, logically, or any other way that one looks at a book or a magazine or a film and by looking at its contents is saying, “Well this deals with sex.” I know one can tell just from that that he knows it's obscene would seem to us to be irrational and illogical. And so we have contended that under the circumstances, the standard for judging scienter. And I think one has to keep in mind that this is a federal offense. It is a statute that punishes with five years, $10,000 fine or $5,000 fine. Second offense is 10 years $10,000. Anyone who's convicted, Your Honors know, is immediately dubbed with the stigma of smut lover. Now, that's a serious thing both from a criminal charge and from the viewpoint of reputation. Therefore, the need before you put somebody in jail of proving the guilty mind is important. It's essential, and it seems to us not too much of a burden. We have not placed too much of a burden on the prosecutor to prove a case if by direct or circumstantial evidence, he merely establishes that the accused knew the obscene nature in character of the contents before he's found guilty. Now, the next point that I want to direct myself to is the Government has consistently argued that knowledge of contents is sufficient. We contend that the proof in the record here is absolutely barren of any proof that these petitioners knew the contents of this particular brochure. We have analyzed it and record I can't -- within the time limit, go too far but enough to say this. That if you take petitioner right, you will find that she is absolutely described even by the Government as the evidence against her is very attenuated, admittedly. All it -- an office manager and so forth. The material here, the brochure here, was mailed from 250 miles away from Los Angeles in North Hollywood. It was put in the mail that was inserted that the brochures were inserted envelopes by two people who knew nothing about these petitioners and never heard from them. They received the -- the brochures from someone called Regent House who are named as unindicted conspirators, never called by the Government as witnesses. They -- the -- the brochure was printed in North Hollywood, named by -- and the printer was named as unindicted -- be called conspirator, never called by the Government. As a result, there is nothing in this record to show that these petitioners Kemp, or Wright, or Thomas, or Hamling had anything to do with the preparation or mailing of this particular brochure. And that was the only charge that was made against these petitioners. They were not charged with being, as described the Government, pivotal characters flocked together. The Government talks about conspiracy here and what is the conspiracy? Well, they all were in business together. They were concerted. Well, if a conspiracy is made out by simply people working together in a publishing house, then all motion picture studios, all corporate bodies are in danger. A newspaper establishment is in danger, if some president signs a check in payment for a bill and the Government says “You can't hide behind this thing. There is nothing in the record to show any hiding behind anything. The fact of the matter is that this case was tried under the theory and with the purpose of doing away with scienter all together. That's the point of this case. The Government does not want to prove any guilty knowledge. It wants to try it like a traffic offense. All you have to do is put in the publication, give it to the jury and let them return a verdict. And that, with respect to a criminal trial in a Federal Court, the administration of criminal justice is, we submit essentially unfair. I think I -- thank you.
Warren E. Burger: Very well. Mr. Tuttle.
Speaker: Mr. Chief Justice and may it please the Court. Petitioners have raised a number of issues in their petition and here in oral argument. We believe the central issue in this case is the impact of this Court's this decision in Miller versus California and companion cases, decided last term, upon federal obscenity convictions which occurred before Miller was decided. In assessing this impact, I invite the Court to consider the material which is here for review. In the first place, it is not the book, not the illustrated version of the president's -- report of the president's commission on obscenity and pornography which the jury found obscene. The jury didn't return a verdict on that issue. What the petitioners were convicted of was mailing out an obscene advertisement. Now, the evidence shows that some 55,000 of these brochures were mailed indiscriminately around the country to various unsuspecting recipients. Many of them found the brochure to be quite offensive. The brochure consists of a single page. On one side, is a photograph of the cover of the illustrated report, together with the coupon indicating where copies can be obtained. The other side consists entirely of a collage of photographs showing a variety of sexual scenes, including group sex scenes, heterosexual and homosexual intercourse, sodomy, bestiality and masturbation. This is hardcore pornography by any definition and judged by the standards of any community. The petitioners nonetheless say that their conviction should be reversed. That they argue that Miller teaches us, that the federal obscenity statutes were unconstitutionally vague, at least until Miller was decided and those statutes were authoritatively construed and narrowed by 12 200-ft. Reels of Film. Now, we find no such implication in the Miller decision or in the companion cases. Miller reshaped the standards for judging obscenity in a number of ways, some of which arguably broadened the class of punishable pornography and some of which arguably narrowed that class. For example, when the Court substituted the requirement of lack of serious literary, artistic, political, or scientific, or artistic purpose for the Roth definition of obscenity as utterly lacking in social value. It's arguable that the Court expanded the class of punishable obscenity, because it's at least conceivable that something could be not utterly without redeeming social value and still lack a serious artistic or literary purpose. Now, at the time these brochures were mailed, Roth-Memoirs was the prevailing definition of obscenity. And the petitioners were tried and convicted and their convictions were affirmed under the Roth-Memoirs' definition. It's our feeling that to the extent, if at all, which Miller expanded the class of punishable pornography, it might be unfair to review their convictions under that expanded definition. And it's therefore our suggestion and our belief that these convictions should be reviewed under the stricter definition of obscenity contained in Roth versus United States and Memoirs versus Massachusetts. Of course, as I have indicated, they were convicted under those standards and their convictions were reviewed under those standards and their convictions were affirmed under those standards. We are only suggesting that this Court should do the same. Now, on the other hand, there are aspects --
Potter Stewart: I don't -- I want to be sure I understand that in the last June's decision in this Court. As I understood them, it was how that that the Roth standards were constitutionally deficient isn't that incorrect?
Speaker: That's not my understanding of the Miller decision. As I read Miller, the Court found that the Roth definition or some aspects of the Roth definition. For instance, the utterly without redeeming social value test was a constitutionally unnecessary and difficult to prove, if not impossible to prove, burden on the Government. And the Court formulated a different formulation. But I don't take it -- I don't take the Court to be saying when it decided that Miller would be the standards for judging obscenity in the future, that all the prior convictions using the -- using the Roth's definition were unconstitutional or unconstitutionally obtained, or that the formulation under which they were obtained made the convictions void. Now, there are other aspects --
Potter Stewart: In the -- and those cases went on to say that in order to be -- in order not to be deficient constitutionally, statutes had to be very specific, don't you think?
Speaker: Yes. Mr. Justice, I was going to say that on -- on the other hand, there is an aspect of Miller which arguably enhances the First Amendment protections available for defendants in obscenity cases, and that is precisely, as you mentioned, Mr. Justice. The requirement in Miller that the obscenity statutes be limited to depictions of sexual conduct, specifically described inapplicable state law. Now, it's our position that to the extent that Miller created new First Amendment protections for defendants in obscenity cases that this should be made available to petitioners or to any defendants whose conviction are non-final. In 12 200-ft Reels of Film, the federal obscenity statutes were given delimiting construction, which was required in Miller. And it was said that those statutes would be construed as applying to those depictions of hard-core sexual conduct which were given as examples in Miller versus California.
Potter Stewart: I don't have the language in front of me or even precisely in my mind, but I think you are referring to a footnote in that --
Speaker: Footnote 7 on page --
Potter Stewart: -- or in the original case --
Speaker: Yes.
Potter Stewart: -- which said, something along the lines, that we are prepared to construe or some such language as that. Am I mis-recollecting?
Speaker: That -- that -- it -- it says -- I could probably quote it to you. It says, “If and when a serious doubt is raised as to the vagueness of the federal statutes, we are prepared to construe them as limited to the examples of hardcore sexual conduct.” And the point of fact the statute --
Potter Stewart: One can't -- that can't very well be done after the -- after a conviction can it?
Speaker: Well --
Potter Stewart: I mean you run in all the concepts of the Blee against Blee -- (voice overlap)
Speaker: Well, I -- it's-- it's our filling of course. We -- we -- we are precisely trying to consider the Bouie kind of fair notice problem in our suggestion that the defendant should not be subjected to a definition of obscenity which was more inclusive than the one obtained -- in other words --
Potter Stewart: No, we are not talking about the requirement of the explicitness of the statute.
Speaker: Well, and -- and I am trying to make, Mr. Justice, a distinction between the aspects of Miller which arguably make a more inclusive category of obscenity and those aspects which narrow a statute. Because it seems to us that when the statute is authoritatively narrowed, you are not faced with fair notice problems that are faced in Bouie, when a statute is after the fact, broadened to include what the defendants did because it's our contention that this conduct, in this publication, fall so clearly within the statute as authoritatively narrow or falls so clearly, if you will, within the Miller examples of hardcore pornography. That has applied to them, the statute was constitutional. Now, we argue this because on the one hand, you have a concession -- indeed a stipulation that the material here is sexual conduct, sexual activities. Now, the Miller examples referred to patently offensive depictions of sexual activities. But here, we have a jury finding, that these depictions which were concededly of explicit sexual conduct depicted that activity in a patently offensive way. Therefore we say, there is a finding here in the court below that this particular publication fell within the statute, as is it suggested that it should be narrowed in Miller versus California. And therefore, we say as applied, it was clearly constitutional. Now, to say that it is vague as applied -- to say -- to say that it's not vague as applied, and to say that the defendant's conduct fell within the specificity -- specificity requirement in the examples of -- of Miller, is in no way to imply that the statute was vague on its face prior to the decision in Miller versus California. And we think that there have been a number of decisions of this Court, beginning with Roth and as recently as three years ago in Reidel, where the Court held that the statute prior to Miller was not vague on its face. And as, Mr. Justice Stewart mentioned a moment ago in speaking of the footnote in 2012 200-ft Reels of Film. There, the Court said, if and when a serious question as to vagueness is raised with respect to the statute, then we will be prepared to construe them in this narrowing fashion. And we suggest that the Court's use of the term “if and when” suggests that such a doubt as to the facial validity of the statute has not yet been raised. And the examples themselves, the Miller examples which the Court said that it was prepared to read into the statute were themselves taken from this Court's experience under the statute and its regular and settled application. And therefore, we believe that this Miller -- these examples in Miller don't change the sweep of the statute but are simply in accord with a settled meaning of the statute. We contend therefore, that the statute was neither void on its face prior to Miller, nor was it unconstitutional as applied to these defendants, because their conduct fell clearly within the statute, as it has now authoritatively been construed. And it fell within that -- within those examples because the material was conceded to be explicit sexual material.
William J. Brennan, Jr.: Mr. Tuttle, I -- I expect that may not be significant in your submission but that footnote didn't deal with the statute under -- which these conditions --
Speaker: That is quite correct and --
William J. Brennan, Jr.: -- (voice overlap)
Speaker: -- we don't it's significant because it dealt with the Forfeiture Statute 1305 and the -- Interstate Commerce Statute 1462, which used the language obscene and lewd which is exactly the same language which you will find in 1461.
William J. Brennan, Jr.: Explicitly, we haven't dealt with 1461 yet and --
Speaker: Well, of course, explicitly you haven't dealt with those statutes either because that's --that's a -- that's an, if and when proposition. But I take it that it's perfectly clear. The only reason that I can see that those -- that the Court mentioned only those two statutes was because those were the statutes before the court on Orito and 12 200-ft.Reels of Film. I haven't any doubt that if you had a 1461 case, that that would have been part of the -- of the Court's footnote and I believe that it is -- to me, anyhow, perfectly clear that the Court would encompass, that interpretation would encompass Section 1461 with that -- within that interpretation. Now, the trial judge charged the jury that it was to apply a national community standard in judging the obscenity of these materials. It seems to us that it was clearly proper for the Judge to have done so at the time because this case occurred and was tried prior to Miller. And in fact in Miller, this Court spoke of a national standard of First Amendment protections, as being correctly regarded as limiting prosecutions under controlling case law. And in fact, petitioners here today have agreed with us that the Court was correct in applying a national standard. But they go further and they say, the application of that national standard, the concededly correction application of that national standard made the statute unconstitutionally vague as applied to them. They seem to be saying that no pre-Miller conduct, no pre-Miller obscenity could possibly be convicted, could be possibly be the subject of a valid conviction because they say the national standards should be applied but the national standard made the statute vague. And therefore, there can be no constitutionally valid obscenity prosecution prior to Miller.
Potter Stewart: You understand Mr. Tuttle, that the Court held in the cases last June that even under a federal statute of national application, that the test to be applied is one of local?
Speaker: I think -- I think to say that it was a holding -- might be -- go too far.I think the Court made it clear that if found that a test of obscenity judged by contemporary community standards; was as the Court said constitutionally adequate. And since the First Amendment, would seem to us to apply equally to state and the federal prosecutions. That at least, it would be constitutionally permissible for the federal prosecutions to proceed on the basis of a local standard and the Court, of course, went further in Miller. The Court --
Potter Stewart: And -- and even -- and under a statute, worded as 1461 is -- which is quite contrary of what I read in Miller of what statutes have to say.
Speaker: I'm -- I'm sorry, Mr. Justice Stewart.
Potter Stewart: -- (voice overlap). As I read it and I haven't re-read it. It said that state statutes -- Miller was a state case -- state statute --
Speaker: Miller was a state --
Potter Stewart: -- had to be very specific in what they -- in what they have prohibited.
Speaker: Well --
Potter Stewart: Do you agree with that?
Speaker: I -- of course, I agree with that. That's what the case said.
Potter Stewart: That is what I thought.
Speaker: And in 12 200-ft. Reels of Film, the Court indicated that it was prepared to find that specificity in the federal statutes and that was the footnote example that we spoke --
Potter Stewart: Was prepared to. That was a when or whatever it was.
Speaker: It has -- when Vegas was founded and --
Potter Stewart: In other similar statutes, but not in this one that it was prepared to. But now, then you're saying that -- even of federal statutes -- you understand the Court held that it should have different meanings in -- in different federal judicial districts?
Speaker: The Court said in Miller, we -- we do believe that the clear implication of Miller is that the federal -- that a federal jury trying a -- a case under a Federal Law of 1461 or -- or one of the other laws would apply or should apply or would be constitutionally privileged to apply contemporary community standards because the Court's discussions of national standards in Miller seemed to us to be as forceful in regard to a federal prosecution as a state prosecution.
Potter Stewart: Well, Miller -- Miller was dealing with a state law which had -- have no -- no wider scope than statewide. But here, we're dealing with a Federal Law. This would be -- if -- if -- if isomebody in the Solicitor General's office stood up and told us of the internal revenue code that would -- was to have different meanings and different judicial districts, it would be absolutely irrational but you're telling me that the Court held that a federal statute is to have a different meaning depending upon what judicial district --
Speaker: There -- there are off course many federal statutes which -- or at least some federal statutes which do have a different impingement depending on the geographical area were the conduct is undertaken. The Travel Act for instance, keys its concept of illegality to the jurisdiction in which the unlawful activity is undertaken are our reason for feeling that what the Court said in Miller or the clear implication of Miller is that local community standards, not local -- the community standards, whatever the appropriate geographical boundaries of that community might be, should be applied, is the Court's, to our mind, holding that in discussing the state statute where the said -- that the nation was too big and too diverse for the formulation of a single standard.
Potter Stewart: It would follow from that then that the Congress shouldn't pass any laws in this area if the nation is too big to have one law for the whole nation.
Speaker: Well, Congress passed a law forbidding the mailing of obscene material and I don't think that one can find in the congressional background of the case, any attempt or any suggestion that the Court had in mind a national standard such as - such as a -- a few members of this Court spoke of in Jacobellis and in Manual Enterprises. Congress was concerned with the mailing of obscenity and I -- and I would imagine they expected that to be tried in a -- in whatever jurisdiction the material was mailed in or wherever it was received or wherever it found its way into the public domain. When the Court says the quest for a national standard has been unrealistic and that national standards are hypothetical and the Court said unascertainable, those considerations, it seems to us, apply equally to a federal statute and a state statute and I believe that the reason why the Court returned to contemporary community standards in a state case was because it found that the jury's effort to articulate and grasp the national standard had not been wholly successful. If that's true, it's equally true with respect to a jury attempting to judge a federal obscenity prosecution. Conversely, if there had been no difficulty in articulating a national standard, I submit, the Court, very likely, would have followed the teachings of Jacobellis and applied a national standard in state cases.
William H. Rehnquist: Well, I suppose, when Congress enacted the Assimilative Crimes Act, it chose to incorporate the law of various states into the federal criminal statutes. Perhaps for the same reason, it was difficult to find a national standard.
Speaker: I -- I think that's probably a better example Mr. Justice, than -- than the Travel Act example. It seems to me that the Federal Government can --
Thurgood Marshall: (voice overlap) -- that wasn't done when this statute was passed was it?
Speaker: What wasn't done, Mr. Justice?
Thurgood Marshall: Intended to apply on a local basis.
Speaker: I don't think Congress --
Thurgood Marshall: Even though -- even though assimilating in that -- would --
Speaker: Yes, and I -- I --
Thurgood Marshall: But one thing (Inaudible) They didn't know about Miller did they?
Speaker: They didn't know about Jacobellis either and it was the Court that -- that imported the concept of a national standard into the to the obscenity laws --
Thurgood Marshall: Well all of these statutes --
William O. Douglas: This amendment had something to do with the national standards?
Speaker: Well I mean, Mr. Justice Douglas of course, the Court construing the First Amendment developed a requirement of a national standard. All I'm saying is, in response to Mr. Justice Douglas -- Mr. Justice Marshall's question was, that Congress -- I don't think had in mind either a local or a national standard. They had in mind obscene material as a jury would find it and that again is the lesson of Miller. That that --
Warren E. Burger: I suppose it's true that running a non-licensed still in Kentucky or some of the other States might give a different reaction from jurors than it would in yet other States.where it is not so much a way of life; yet the statute would be the same statute, would it not?
Speaker: Yes, there are a number -- there are a number of -- of crimes. In fact, I would say in -- in most instances, where the crime is -- is subject -- it is analyzable in terms of concrete and readily demonstrable, objectively and scientifically provable elements, where --where the federal statute would have absolutely equal application in all places.
Thurgood Marshall: Well, could you say that in the State of New York, a still is not a still? It's either still or it's not still. That is the same still in New York than is it in Kentucky.
Speaker: I -- I quite agree, Mr. Justice Marshall, and that was why I said in those instances --
Thurgood Marshall: But in this, you can have carnal knowledge as still in Kentucky and not in New York.
Speaker: Carnal knowledge is -- may -- may be -- exceed the limits of candor of Albany, Georgia and carnal knowledge may in fact be found to appeal to the prurient interest of the average person in Albany, Georgia. But it still lies with this Court --
Thurgood Marshall: My -- my only --
Speaker: -- to determine whether or not it has redeeming social value.
Thurgood Marshall: Mr. Tuttle my only quarrel is I -- I thought you were referring that this statute was intended. I'm saying that what you are trying to say is that Miller changed the statute's determination.
Speaker: I -- I don't think -- Miller was simply a -- if you will --
Thurgood Marshall: Let me ask you. What did Miller do to the statute?
Speaker: Miller -- the statute speaks only of obscene material.
Thurgood Marshall: Right.
Speaker: The Court has, since Roth, undertaken to give content to what that means and in each of these cases, the -- the Court's formulation has been a slightly different formulation. Miller gave a formulation which has been recited today and Miller said that with respect to the community standards element, reference should be had to the contemporary community standards of the foreign community.
William O. Douglas: Would you be able to advise the plan -- particularly or not to explain to him whether this particular book of article is sufficiently cleared so that -- or is so -- so obscure that it's -- it's open just to -- to guess words?
Speaker: I think -- I think that -- that it's quite evident Mr. Justice, that the -- the concept of obscenity does not lend itself to the precise kinds of measurement that many other elements of criminal statutes do and --
William O. Douglas: Under this federal statute you could be innocent but the act of mailing it from New York could -- could be innocent and the act of receiving and selling it in California could be a crime, is that right?
Speaker: It's conceivable that -- that a jury -- it's conceivable. I -- we -- we would be speculating to know but -- it but -- it but it is conceivable. Yes, the -- the judgment of criminality would turn on the place in which the matter is disseminated and the crime is committed.
Warren E. Burger: Mr. Tuttle, the Court over the period of the last 15 years has had what? At least three different definitions but nothing new about altering these definitions is there?Going back from Roth to Jacobellis, to the other cases down the line. It's been a -- (voice overlap)
Speaker: It's been a continuing effort to -- to attempt to formulate manageable standards. No, there's nothing new but every time if it happens we are faced with a question of how -- what is the impact of that? That's why this case is here for the Court to determine what the relation of that definition is going to be to conduct which antedated --
Byron R. White: Mr. Tuttle you suggested that according to Miller, there was a third requirement that the material be utterly without redeeming social value. What cases do you rely on for that?
Speaker: I would rely on Memoirs versus the Massachusetts.
Byron R. White: How many votes did that test have there?
Speaker: That test had three votes. But our -- our reason for saying --
Byron R. White: Well, what case had -- under what case did it ever have five?
Speaker: Miller, excuse me, Memoirs is the case --
Byron R. White: (Inaudible)
Speaker: And -- and the reason -- and the reason why I think that there were five votes is, that you had two members of the Court who would -- who would not have punished the -- who would not -- who would have found the publication constitutionally protected under any circumstances. And you had three members of the Court who would have found it constitutionally protected unless, it was shown to be utterly without redeeming social value. Thus, it's a practical matter. Any person who kept his conduct within the Memoirs' definition could not -- could not be connected.
Byron R. White: Five members no -- no -- at no time did five members of the Court subscribe to that test.
Speaker: That's quite true. Only three members of the Court, but it became in -- in our view and I think in the view of -- of the public and the bar an operating definition. It let us know or let members of the bar advising publishers know what it was -- what was --what was the limit that could not be transgressed --
Byron R. White: Are there members of the Court that have any clear definition than the three?
Warren E. Burger: In what case Mr. Tuttle --
Speaker: Clearly said Mr. Justice.
Warren E. Burger: In what case was it that Chief Justice Warren said that there could not be no national standard in -- (voice overlap)
Speaker: There was -- there was the Chief Justice dissent in Jacobellis.
Warren E. Burger: No.
William J. Brennan, Jr.: Please tell us Mr. Tuttle, that all of this discussion suggests that maybe even Miller isn't the last word in this very troubled area?
Speaker: Miller -- Miller gave us --
William J. Brennan, Jr.: Well, I just -- that's not my question. My question is, whether you think Miller is necessary as the last word as I was saying.
Speaker: Miller of course is not the last word because even if we're here today and we're here today with some problems but our problems relate to the application of Miller. We are not here to question the standards of obscenity articulated in -- in Miller but we're -- we are merely attempting to determine whether a pre-Miller conviction can be sustained under that definition. Now, we don't believe that the criticism of local standards which is contained in Miller versus California necessarily applies that all federal obscenity prosecutions antedating Miller have to be voided. And we don't think the Court had any such idea in mind.In the first place, there -- there have been, since Miller, a large number of cases which have been remanded to Courts of Appeals for reconsideration in the light of Miller. These are federal cases where the jury was charged to use a national standard, as was the jury here. And we believe that if -- if the use of a national standard had made the statute unconstitutionally vague prior to Miller, we would have had reversals and not remands. And to say that that -- that it -- that the standard is hypothetical is not to say that it can't be ascertained that is say, the national standard. It's to say that it is to some extent, supposititious and speculative and they were asking the jury to engage in a kind of generalizing which the Court found generally speaking, unfruitful, and not wholly successful. But it doesn't follow that it was constitutionally deficient when it was done as required by decisions of this Court. Indeed, as one Federal Court has suggested since Miller, the effort to identify a national standard seems to differ only in degree from the effort which was authorized and required in Miller to determine a statewide standard of a State as large and variegated and populous as the State of California. I would finally say that if there is a question of applicable standards, and if there is any question that the defendant was incorrectly tried under a national standard, we would say it was harmless error because this material is obscene under any standard and there is no community whose limits of candor are not exceeded by the petitioner's publication. Thank you.
Warren E. Burger: Mr. Fleishman.
Stanley Fleishman: Chief Justice. I'd like to start with the last and that is, the brochure simply is not obscene. It's not obscene under national standards. It's not obscene under local standards and in any event. We were not tried indeed, under any local standards. And I assume from all that has been said that at a minimum, petitioners are entitled to a trial by a jury. The prosecution says it's obscene by any standards, I would remind the Court that a film, Deep Throat which was thought to be obscene by any standards being found not obscene continuously throughout the country by local jurors. I'd like to focus, if I may, on the indictment. Because I think the discussion we've had here demonstrates the inadequacy of this indictment in this case which is merely in statutory language. Now, it's true, of course, that where the -- a statute has a clear, well-defined meaning, one can incorporate that by using statutory language but as every justice on the Court has mentioned here, we have -- do not have one single clearer definition of obscenity. There are three, four or five. In Orito, this Court sent the case back for a - - an investigation as to the sufficiency of the indictment. The Government in its brief states that since Miller and 12 Reels of Film had incorporated new specificity requirements into the statute, it would be necessary to consider the sufficiency of the indictment in light of those cases. Okay. Look at the indictment. Is the specificity there? No, it is not. The Government then says that the words obscene, lewd, lascivious, indecent, filthy and vile simply means the materials come within the legal definition of obscenity. Well, isn't that begging the issue? What was the legal definition of obscenity at the time that the indictment came down? Justice White suggests that utterly without redeeming social value was not part of it. For the present purpose, I don't care whether it was or was not part of the definition. I don't care whether it was a local standard or a national standard. I don't care whether you measure prurient interest by national or local standards or no standards. I do say, that where you have a statute which is so up in the air as this one is, absolutely the irreducible minimum is, that we're entitled to have in our indictment what the charge is. And not have these -- these vague words, lewd, lascivious and the like and say everybody knows what that is, of course. We have always known what that is. Now, we do have other points and I have a moment and I would like to emphasize, if I may, some of the vices that came from the infirmity of indictment. For example, we were charged in statutory language only, in response to a Bill of Particulars, we were told that the material was offensive because it -- it was -- appealed to the prurient interest of the average person and yet, we were tried with regard to a Michigan theory. The jury was told that the -- they could convict if it appealed to the prurient interest of the average person or a clearly-defined sexually deviant group.When we complained to the Court of Appeals, the Court of Appeals said we were right that it should have been solely measured by the average person, but it was harmless error. Now, the Government says, “No, the Court of Appeals was wrong. That it should have been charged -- tried on a clearly-defined sexually deviant group.” Again, my point here is, first, that it had to be in the indictment and secondly, on the merits. There wasn't the slightest basis for the use of a Michigan instruction. Pandering also, there isn't a word of pandering in the indictment. Nothing in the Bill of Particulars and yet, the jury was instructed that they convict -- that they could convict on a pandering doctrine without the slightest evidence of any pandering. There isn't a case that I know of which holds that an advertisement can pander itself and yet that's what --
Warren E. Burger: What about -- what was the situation in the Ginsberg case Mr. Fleishman? Was there anything?
Stanley Fleishman: No. In -- in Ginsberg, Your Honor, as I read Ginsberg, the Court held that the books involved were rendered obscene because the brochure advertising them in effect said that they were obscene and therefore, that could be taken into account. But Ginsberg did not at all suggest that the advertisement could pander itself. It's -- it's logically inconsistent because in this case that the brochure was made, either it's obscene or it's not obscene. It doesn't, in any way, lend itself to a pandering instruction and we did, as a matter of fact, called the Court's attention to the fact that there were cases which held that at a minimum, one would have to plead that in the indictment and it was not so pleaded. Thank you very much.
William J. Brennan, Jr.: Mr. Fleishman, does the record show has a mailing list of 55,000 people was compiled?
Stanley Fleishman: It does not, Your Honor.What we do have is a brochure that 12 people were offended. That's all we know. That 55 to 58 thousand who were mailed and that 12 people were offended. That's all the record shows.
William J. Brennan, Jr.: Does the record show whether any of the 55 to 58,000 people had requested the brochure?
Stanley Fleishman: The record is silent on that point, Your Honor.
William J. Brennan, Jr.: Does the record show whether it was received by any minors?
Stanley Fleishman: The record does show that it was not received by any minors, at all. The record also shows that there was total 100% compliance with Section 300 -- 3008 which is the pandering law. That is to say, that in every single instance, that there was a -- that is in -- ever since the instance of the 12 persons, the addressees had gone to the post office and said that they had received a brochure which they thought was sexually arousing for them. And they didn't want to receive any more mail of -- from the Library Service. In every instance, they testified that they never received another piece of mail from the Library Service. So, that was total complete, 100% compliance with the only statute that Congress had passed which was on this issue at the time, because it should be remembered that after Ginsberg, Congress passed two laws. First, there was Section 3008 which was found to be constitutional in Rowan, and secondly, they passed the next year the sexually-oriented ad section, which we find in 39 U.S.Code Section 3010. Now, that law was not yet in effect at the time that we mailed. That law was going into effect.About a month later, it would -- became effective on February 12, 1971. And the last mailing that we had was January 12, 1971. Had that law been in effect -- 3010 then -- then there was a -- a charge under that. We would have an entirely different situation but as it stands now, we have the situation where there was full compliance with the only specific Congressional Act that had been enacted dealing with the mailing of sexual material and that was Section 3008 which was the section involved in Rowan.
William J. Brennan, Jr.: But suppose there was no way to tell the number of children in the 55,000 homes into which this brochure was mailed?
Stanley Fleishman: No, but I would say this instance, we are supposing Your Honor. I know that the -- the list was purportedly a list of persons who had previously indicated the desire to receive sexually explicit material. Those are the only mailing lists that are worth anything because one tries to mail to those persons who are interested. If you want to sell cat food, you want to mail material to people who have cats. So, the truth of the matter is, that the brochure was mailed as fully as one could to those adults who had indicated that they did want it. Now, that's not in the record. I don't want to mislead the Court. But I think that is the -- the true answer as to who was in fact the recipient of the ads. We have -- they say 12 people who were offended. There are 12 people who are offended by receiving many political brochures, too, Your Honor.
Warren E. Burger: Thank you Mr. Fleishman.
Stanley Fleishman: Thank you very much, Your Honor.
Warren E. Burger: Thank you, gentlemen. The case is submitted.


Earl Warren: Securities and Exchange Commission, Petitioner versus National Securities, Inc. Mr. Solicitor General.
Erwin N. Griswold: Mr. Chief Justice and may it please the Court. This case is here on a writ of certiorari to the Ninth Circuit Court of Appeals. It involves the construction and application of the McCarran-Ferguson Act and its interrelation with Section 10 (b) of the Securities Exchange Act of 1934. The text of those two statutes is given on pages 33 and 34 of the Government's brief and this case. I would call attention to the provision in Section 10 (b) which makes it unlawful for any person to use or employ any connection with the purchase or sale of any security registered on the National Securities Exchange or any security not so registered. The net result of those two phrases is simply to apply to any security any fraudulent device as defined by the rules of the Securities and Exchange Commission and the relevant Rule 10b-5 is set out at the bottom of page 34 and on page 35. The text of the McCarran-Ferguson Act is on page 33 of our brief and the relevant portion there although it's all relevant but the part that comes closest is Section 2 (b), no Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any state for the purpose of regulating the business of insurance or which imposes a fee or tax upon such business unless such acts specifically relates to the business of insurance and I would suggest that the keywords in that provision of the McCarran-Ferguson Act are the business of insurance. The present case began in March 1965 when the Securities and Exchange Commission filed its petition in the District Court for Arizona. It sought to have that court enjoin the respondent here, the National Securities, Inc. and it subsidiary and certain officers and employees from violating Section 10 (b) and Rule 10b-5 on the ground of asserted fraud in connection with purchase or sale of securities. In due course the defendants filed a motion for judgment on the pleadings or in the alternative for summary judgment, the motion for judgment on the pleadings was granted by the District Court and this was affirmed by the Court of Appeals. As the Court of Appeals stated in its opinion in this situation, the allegations and the amended complaint must be presumed to be true. And these allegations may be summarized this way. It is alleged that the respondent, National Securities, Inc. is a holding company which owned two-thirds of the slightly more than a million shares outstanding of National Life which was in Arizona insurance company. Producers Life Insurance Company was another Arizona company. It had some 881,000 outstanding shares held by approximately 14,000 stockholders in many states. In other words, it was quite widely distributed. The allegation is that the defendants formed an illegal scheme contrary to Section 10 (b) under which National Securities would acquire control of Producers Life, National Life, and Producers Life would be consolidated and the consolidated company would pay a large part of National Securities cost of acquiring control of Producers Life. In carrying out the scheme, National Securities purchased the stock in Producers which was held by four of Producers' directors and agreed to pay them a very large sum for there agreement not to compete with Producers Life or any successor company. The National Securities also purchased from Producers Life more than 50,000 shares of its treasury stock and assumed some $600,000.00 of liabilities of Producers Life arising out of previous agreements which had been made with other persons not to compete with it. It was further alleged that National Securities did not disclose to Producers Life or its stockholders that it intended to impose both of this liabilities with respect to agreements not to compete upon the corporation which would result from the plan consolidation of Producers Life and National Life. After obtaining control, the Producers Life according to the allegations again, National Securities cause the latter to mail to its stockholders materials soliciting them to approve the propose consolidation with National Life. And it was then alleged that this material was false and misleading on four grounds: (a) That it did not disclose the liability on the agreements not to compete. (b) That it predicted substantial consolidated earnings without disclosing that Producers Life and National Life had each had losses in the prior year. (c) It set forth on the pro forma balance sheet for the consolidated company and asset shown as treasury stock in the amount of more than a million dollars that was alleged to be illusory and finally that it did not disclose in its report to the -- that in its report to the Arizona Insurance Commission, the National Life had written down the value of its investment in Producers Life by more than a million dollars. The court allowed the defendants to submit the proposal to the Arizona Insurance Commission and to the stockholders. Both approved the plan and that was carried out. It was then that the Securities and Exchange Commission filed the amended complaint which is now before the Court seeking such relief as might be appropriate under the circumstances. In its answer to the amended complaint and in its motion for judgment on the pleadings, the defendant contended that the District Court has no jurisdiction because the matters complained of are entirely within state jurisdiction as provided in the McCarran Act, thus, raising the issue which is here. The District Court accepted this contention as one of its grounds of decision and the Court of Appeals affirmed the District Court's judgment on this ground alone. The opinion of the Court of Appeals is in rather sweeping terms. The relevant portion for this part of my argument appears on pages 156 and 157 of the appendix near the bottom of page 156, we are left then with a general intention to set the insurance business outside the scope of all existing and future legislation regulating interstate commerce without any more direct evidence that Congress had in mind in the Securities Exchange Act. However, Congress was apparently seeking to define an exemption for insurance and then the word is conterminous but I supposed we usually say co-terminus with its power to regulate interstate commerce. The Court is there saying that with respect to insurance in so far as Congress would have power to regulate any aspect of it under its commerce power, the effect of the McCarran Act is to say that that power is not being exercised. And over on page 157, just above the middle, the court said and equally vital purpose of the McCarran Act was to preserve intact from any federal intrusion based on the Commerce Clause existing and future state regulation of the insurance industry. Thus the sole issue is here whether this construction of the McCarran-Ferguson Act and determination of its effect are correct. Or whether the facts alleged are sufficient state of cause of action under Section 10 (b) of the Securities Exchange Act of 1934 despite the provisions of the McCarran-Ferguson Act which was passed in 1946. I will now turn to the legal questions involved in the case. It maybe that I have a somewhat narrow alleged stand on but I think the footing is firm. When Section10 (b) was enacted in 1934, there was no doubt that it applied to fraud and the purchase and sale of all securities, you'll recall the phrase in the statute is any security including those in insurance companies. This was true despite the fact that it was the common understanding at that time that the federal government had no power to regulate “the business of insurance.” A clear distinction was evident between the business of insurance on the one hand and securities of a company which is engaged in conducting the insurance business. In 1944, the South-Eastern Underwriters case was decided followed in 1946 part of the enactment of the McCarran-Ferguson Act. The South-Eastern Underwriters case undoubtedly involved the conduct of the business of insurance the way in which insurance companies operate together in fixing their rates and had nothing to do with transactions in securities of an insurance company. The distinction was explicitly made in the McCarran-Ferguson Act itself for it said that no Act of Congress should supersede any law enacted by any state for the purpose of regulating the business of insurance. Now these was emphasized in the report of the House Committee set forth on page 24 of our brief where the Committee said, it is not the intention of Congress in the enactment of this legislation the closest states with any power to regulate or tax the business of insurance beyond that which they had been held to possess prior to the decision of the United States Supreme Court in the South-Eastern Underwriters Association case. In short, the function of the McCarran-Ferguson Act was to restore the status quo to put things back where they were before the South-Eastern Underwriters case was decided except that it was made explicit that the Sherman Act, the Clayton Act, and the Federal Trade Commission Act should apply to the business of insurance to the extent that such business is not regulated by state law. It was only with respect to these three statutes that there is any indication that federal law should apply only if there was not an applicable provision in state law. Throughout their history, both before and after the enactment of the McCarran-Ferguson Act, the provisions of the securities law relating to securities and the security's law don't relate to the business of insurance. The provisions of the securities law is relating to securities have been regarded as applicable to securities and insurance companies. We have listed many of these instances in the footnotes on pages 16 and 17 of our brief. Thus, issues of insurance company securities have been registered under Section 6 of the Securities Act of 1933. Securities of insurance companies listed on National Exchanges have been registered with the Commission under Section 12 of the Securities Exchange Act of 1934. Persons who buy and sell insurance company securities have been registered under Sections 15 (b) of the Securities Exchange Act. Investment companies with portfolios consisting of insurance company securities have been registered under Section 8 of the Investment Company Act and persons selling insurance company securities and a fraudulent manner have been enjoined and convicted in a considerable number of cases. The decision of the court below which fails to recognize the distinction between the business of insurance to which the McCarran-Ferguson Act applies and dealings in securities which happen to be stocks and insurance companies would sweep all these away and broadly exempt all dealings and insurance securities from application of the federal laws. This is the effect of the decision below where the court said Congress was apparently seeking to define an exemption for insurance conterminous with its power to regulate interstate commerce. If Congress was intending to do that, obviously it swept away all applications of the insurance -- of the securities laws to dealings and insurance securities.
Potter Stewart: Mr. Solicitor General, one of my difficulties in reading the briefs and advanced argument in this case which continues now is that you and your adversary don't really seem to argue as to what this case is about. Is that fair to say?
Erwin N. Griswold: Well, I think there is something about that. Mr. Frank weighs a lot of other questions which present some difficulties which were not decided by the --
Potter Stewart: Well, I'm not referring to the purchase and sale difficulties. I'm talking really about the if not the broad question to which you are now addressing yourself and you are quoting to us some very broad language of the Ninth Circuit Court of Appeals but the decision was not part of the District Court as affirm by the Court of Appeals simply that the McCarran Act foreclosed the undoing of a merger that had been approved by the Arizona Commission. That's the holding in these cases, isn't it?
Erwin N. Griswold: Not exactly Mr. Justice Stewart.
Potter Stewart: Tell me why.
Erwin N. Griswold: We didn't ask for the undoing of the merger in the exclusively as our only relief in the amended complaint. We ask for such relief as would be appropriated under the circumstances and it may well be that the merger should be left merged. But that individuals who have profited by the transaction should be required in some way to account either by disgorging to the merged company or by making payments to the shareholders who did not participate from it, all the questions of relief are left undecided both by the District Court and the Court of Appeals because they didn't get to them having held that the McCarran-Ferguson Act eliminated the whole matter.
Potter Stewart: I didn't understand the District Court or the Court of Appeals really to have held that the neither the 1933 Act or the 1934 Act was completely inapplicable, or completely inapplicable to the dealings and securities of insurance companies.
Erwin N. Griswold: Well Mr. Justice, I can't read that language on page 157 or the Court of Appeals in any other way, and equally by it on purpose of the McCarran Act was to preserve intact from any federal intrusion based on the Commerce Clause existing and future state regulation of the insurance industry. And that would apply to any fraudulent sale of insurance stocks. Now it is true that this case does involve a merger of an insurance company and Mr. Frank argues that approving a merger is in some way analogous to the question of chartering and insurance company. I find it difficult even with that is fine anything in the McCarran-Ferguson Act which says that when this is done in a fraudulent way, that the provisions of the Securities and Exchange Act are superseded, are written off, are in effect repealed. I pointed out that the practice has been consistently to the contrary. Both before the McCarran-Ferguson Act was passed and I think that is very relevant before the South-Eastern Underwriters case was decided. It was then regarded as the appropriate construction of the Securities Acts that they were applicable to transactions of purchases and sales as the language of the statute with respect to insurance companies as to any other securities and we think that the effect of the decision of the Ninth Circuit is to make the insurance -- is to make the security statutes inapplicable to transactions to dealings, to actions with respect to securities in insurance companies and it is our contention that that is not the proper construction of the McCarran-Ferguson Act which relates to the business of insurance to the things done by insurance companies with respect to their policyholders but not to transactions done by other persons with respect to securities in insurance companies. There are obviously other federal statutes of general application which were applicable to insurance before the McCarran-Ferguson Act was passed and which continued to be applicable to insurance thereafter. This includes the copyright and patent laws and insurance company is not exempt from the telephone tax or the social security tax. It's not free to issue counterfeit money if it doesn't have enough to meet its legitimate claims. It's subject to the postal laws including those making at a crime to use the mails for the purposes of fraud. And I would point out that Section 10 (b) is based on the postal laws as well as on interstate commerce and that the mails were so used. And that there are a sizeable number of prosecutions both before and after the McCarran-Ferguson Act for using the mails to defraud with respect to the sale of insurance securities. These matters are not referred to in the McCarran-Ferguson Act but it cannot be supposed that Congress contemplated any change in the law with respect to them. As I've said, we're dealing here with the statute which is based in part on the postal power. There's no reason to think that Congress in passing the McCarran-Ferguson Act intended to allow an insurance company to use the mails to defraud stockholders.
Byron R. White: Mr. Solicitor General, I take it then you would say because this is a -- this is not a matter of regulating insurance but neglecting stock transactions that if there are federal regulations as to which should be in a proxy statement in connection with the merger conflict between the federal regulation, the state regulation. The state regulation approves a proxy statement and the federal authorities disapprove that Federal Act govern.
Erwin N. Griswold: At this particular time, there was no --
Byron R. White: Yes.
Erwin N. Griswold: -- federal provision with respect to --
Byron R. White: But you would say that the federal law would?
Erwin N. Griswold: The federal law would govern to the extent that the fraud was proved and found by the court.
Byron R. White: That it was a stock formed by the insurance.
Erwin N. Griswold: Yes, Mr. Justice.
Hugo L. Black: Oh! There had been no northeast -- southeastern case? None at all? Is it your belief that under the law there's a then existent Congress could have passed bill regulating this very thing under the Commerce Clause?
Erwin N. Griswold: Yes, Mr. Justice. It is our view that that's just what Congress did do in 1933 and 1934, that it passed a law regulating transactions of purchase and sale of any security and that that included securities in insurance companies and was so construed by the Commission and in a very few cases by the courts between 1933, 1934, and 1944 when the South-Eastern Underwriters case was decided.
Hugo L. Black: I asked you that question because I have been under the impression having some little addresses in South-Eastern Underwriters case that was the purpose of Congress to do away and time they would expect so long as relying on the Commerce Clause's concern and in insurance business, I admit that I agree with that, and would you not have to if that was the case. Would you not have to show that even without that will, if that case had never been decided would not change the rule. That Congress could have and would have passed this Act.
Erwin N. Griswold: Yes, Mr. Justice that's exactly the argument we do make that Congress had this power and exercise it before 1944 and that for that reason, the enactment of the McCarran-Ferguson Act which was intended to restore the status quo did not and was not intended to take away the effect of the statute which Congress had previously passed with respect to securities.
Hugo L. Black: Had there been any cases before the South-Eastern which so held?
Erwin N. Griswold: No cases in this Court. Certainly, there was a modestly considerable amount of practical experience in the Securities and Exchange Commission including registration of securities and things of that sort.
Hugo L. Black: It had not been challenged on that ground?
Erwin N. Griswold: Never had been challenged on that ground that I'm aware of. Now, --
Abe Fortas: But Mr. Solicitor General, I'd like to direct your attention again in this line of thought. As I understand your adversary, it says that the merger, the merger itself of these companies was proved by the insurance commissions. Now, arguably I supposed he would say that the merger is certainly insurance company talking about the merger of two insurance companies here. Now then along comes the SEC and says that this aspect of that merger is subject to federal law namely the terms of the offer of exchange the solicitation of the stockholders. It says that therefore it's in conflict with the McCarran Act because this is something, the merger that is insurance business. It's a merger of two insurance companies. I don't profess to state --
Erwin N. Griswold: Mr. Justice, I think you stated --
Abe Fortas: -- that's my understanding of it?
Erwin N. Griswold: I think you stated the issue and very clearly and very precisely. There is of course some overlap here. I think a considerable part of our concern is with the sweeping nature of the opinion of the Court of Appeals which says that the McCarran-Ferguson Act wiped out completely all aspects of the securities regulation with respect to insurance. When you come to the question of a merger, I think it is a nice question as to what is meant by the business of insurance and I think an argument can be made which is the one we stand on that the business of insurance relates to the internal operations of insurance and not to dealings in securities which Congress has so clearly taken over for a federal authority.
Abe Fortas: Let me see if I understand it because I do believe that this is where the argument of the two parties comes in collision. What you're saying is perhaps a merger of two insurance companies is the business of insurance for signs in some respects. But to the extent that it involves a solicitation of stockholders consent that a security holder's consent said that that is not. That aspect of it is not the business of insurance.
Erwin N. Griswold: The dealing with the security holders we would contend is not “the business of insurance” as was meant by Congress when it used those words in the McCarran-Ferguson Act. Let me -- there is one decision of this Court which is pretty close in many ways which is the United Benefit Life Insurance Company case decided only a short while ago. There the company was undoubtedly an insurance company and the decision of the Court that it could not sell variable annuity policies without registering them with the SEC is directly that the securities of an insurance company are subject to the securities laws and are not taken out of the provisions of the securities laws by the McCarran-Ferguson Act. In that case the --
Potter Stewart: But the holding of that case was that that company was engaging in selling securities not insurance policies. Suppose, if an insurance company went to the telephone business, they have to pay the tax on telephones.
Erwin N. Griswold: Mr. Justice that would be applicable to the Variable Annuity Life Insurance Company which sold nothing but variable annuities. But the United Benefit Life Insurance Company was undoubtedly an insurance company. It sold large quantities of what everybody would agree was insurance. It also sought to sell variable annuities. And this Court held that it couldn't do it without registering them with the SEC and that it seems to me is inevitably a direct decision that the securities of an insurance company are subject to the registration provisions of the securities laws despite the fact that Congress has passed the McCarran-Ferguson Act or to put it in other way that dealings in the securities of an insurance company are not “the business of insurance” within in the McCarran-Ferguson Act. That there are other cases which are close but I think that the United Benefit case comes very close to supporting our position. The decision of the court below would wipe out every application of the securities laws to securities and insurance companies. This is contrary to the long continued understanding in this area. It's not required by the language of the McCarran-Ferguson Act and it's inconsistent with that Act's purposes. Accordingly, the judgment below should be reversed and the case remanded for consideration there of the other questions involved in the case.
Potter Stewart: Good many insurance companies particularly life insurance companies these days are owned not by stockholders not by shareholders but are owned by the policyholders. I suppose the merger of two mutual companies would be I suppose these policyholders as owners would happen there. I guess there specifically _ on the --
Erwin N. Griswold: We would have to find something Mr. Justice if we constitute securities in such companies before Section 10 (b) would apply because it applies only to purchases and sales of any security. Now, conceivably in a mutual company, you could say that the policyholders are security holders --
Potter Stewart: Except I believe they are expressed exemptions in the Securities Acts, aren't they?
Erwin N. Griswold: With respect to mutual companies? There may be, I'm not sure.
Potter Stewart: There may be I'm not sure either.
Earl Warren: You may start your argument tomorrow Mr. Frank. We'll adjourn now.
John P. Frank: Thank you Mr. Chief Justice.