Earl Warren: William H. Burton, appellant versus Wilmington Parking Authority, et al. Mr. Solicitor General, you may continue your argument.
Archibald Cox: May it please the Court? Towards the close of the argument on Tuesday, I was beginning to develop those points of state participation or contact which lead us to the conclusion that it is fair to describe this case as one in which the State is operating a single, self-sustaining governmental unit in which the petitioners were denied equality of treatment, and which therefore violated the Fourteenth Amendment. I mentioned as the first of those factors, the circumstance that this is state-owned land, that the State retains a connection with it as lessor, and indeed we think that that would be ground enough to invoke the Fourteenth Amendment. The second significant circumstance is that these leased premises are physically an integral part of the building which is currently operated by the State and currently used by the State for a governmental purpose. This circumstance seems to me to distinguish all those cases where you have an isolated piece of property which the State may own and lease, and then ceases to have any contact with. Now I'd like to take a minute to describe in somewhat more detail, since the court below said it could take judicial notice of this building, just what the physical arrangements are. The parking facility is a building. It occupies all of one block on the street which it fronts principally, and it reaches back a good two-thirds of the normal block on each of the two streets running at right angles. On the front, it apparently is about three stories high, and the ground, I think, slopes down behind. So there are about three stories and a roof available for parking. On the front of the building, the upper portion is vertical with the street; that is, it reaches right out to the travel portion of the street and the stores which are along the front, with the coffee shop right in the middle, are recessed back in, so as to form sort of an arcade over the sidewalk. At either end of this arcade, anyone walking along the sidewalk to get to the coffee shop would see immediately over him, on the upper part of the building, "Wilmington Parking Authority," thus emphasizing that the whole building was a state building and this is true at either end. Then on the front of the building, directly over the coffee shop appears, "Mid-Town Parking Center," identifying this facility and separating it out from what I understand are some other parking lots owned by the Wilmington Parking Authority. On the front of the building, on the roof over the coffee shop, are two flagpoles, which on the ordinary days of the week fly the United States flag and the flag of Delaware. I emphasize these points for two reasons. In the first place, it does seem to me to underscore the integrity, the unity, of this building, and therefore of all the activities which take place in it. And second, it seems to me that it makes very plain a point which I mentioned Tuesday, towards anyone who was the victim of discrimination in this coffee shop could not escape the fact that the discrimination took place in a public building and literally, here, under the flag of the United States and of Delaware, and I think that --
John M. Harlan II: I didn't meant to interrupt you –
Archibald Cox: -- I just wanted to say I thought that distinguished this case from many others which might be put.
John M. Harlan II: The question I wanted to ask you was, is the restaurant itself, either on its menus or its advertising literature, carry any notation that it's identified in any way with the Delaware --
Archibald Cox: None that I know of. It would be identified only by the physical appearance, but I think -- I do want to say, I think anyone who saw this would realize, as I certainly did when I went to see it, that this was truly part of one building, and that, while the architecture is quite different, it was in a public building, almost as obviously as in the restaurant facilities in this Court or in another courthouse. The third point to emphasize is that, just as the building is structurally a unit, so is the entire enterprise bound up financially into a single project. The Supreme Court of Delaware, when it sustained the constitutionality of this statute against the charge that this was leasing for a private commercial purpose, and therefore not within the power of the State, ruled that the leases could be permitted only to the extent that such leasing is necessary and feasible to enable the Authority to finance the project. In other words, this isn't separate or surplus or extra property, of the kind of property mentioned in Derrington and Plumber. This property is essential to the conduct of this state enterprise. The fourth thing that I would call to your attention --
Felix Frankfurter: Well, may I ask you -- may I break in? That third fact would apply to every leasing because whether the State leases in order to derive money from the leasing or part of the money for maintaining the state enterprise, or whether it's to go into the fisc of the State, into the treasury generally, or whether any deficit is to be covered by taxation or unidentified state funds for purposes of the State Constitution, it seems to be immaterial. That's merely a choice of how the State does the financing, isn't it?
Archibald Cox: That isn't the view that the Supreme Court of Delaware took of it.
Felix Frankfurter: I understand that, but isn't that true, as a matter of -- as a significant factor, that it's merely an expression or a formulation or an exercise of a financial choice by the State in financing the enterprise.
Archibald Cox: It's an exercise of financial choice, and I think that I might well be making the same contention, but the fact that this is bound together and is viewed, whereas this would not have been permitted by Delaware had it been leasing of a separate property just to get revenues, whereas it was regarded that it'd be essentially by the State, that it be an essential part of one single enterprise, does seem to me to be another circumstance, perhaps not an essential one, binding it all into a unit.
Felix Frankfurter: You're not foreclosing, or you don't you want the Court to foreclose, assuming they're with you on these confirming or strengthening items, they're not confirming that any lease of state property is a mode by which the State exercises its power?
Archibald Cox: No, quite the contrary and perhaps I should say now something that applies not only to this point, but to a number of distinctions that I shall draw, that I think in this field it is important to consider how this case relates to others that it suggests, and that the Court might wish to satisfy itself that there were administrable and rational distinctions between this case and, for example, Justice Harlan's suggestion that this might have been leased for a private park, in all those cases, I think it s important for us to put them to one side. It's equally important not to prejudge them. In this field under the Fourteenth Amendment, we really can't foretell it's complete application, or even entirely know our own meanings, until experience and time have given us a greater insight.
Felix Frankfurter: The implicit starting point, the implicit premise of your argument I take it is that this is precisely a field where case-by-case unfolding becomes not only relevant but essential?
Archibald Cox: That's correct. Three other points deserve somewhat brief mention. The first is that this property was acquired by a state agency with the power of eminent domain. It in fact was all negotiated private sale, but the agency did have the power of eminent domain. And it seems o me that that fact, taken with the financial necessity for these leases, goes far to destroy the argument that's presented here by he appellees to the effect that this is extra property or surplus property. Indeed, the Supreme Court of Delaware, in passing upon the constitutionality of this statute, said of these leases, or one of these leases, “Clearly it does not fall within the scope of the rule permitting temporary commercial leasing of public facilities not immediately needed for public purposes” and then went on and said that this, all of this property, was being used for public purposes.
John M. Harlan II: Mr. Solicitor General, supposing this space had been sold, although physically remaining in the same way in which you have described it, instead of leased, would that make any difference in your opinion?
Archibald Cox: I think we'd have a very different case. What I said to Justice Frankfurter I think would be pertinent here, but in the law the lessor has long been regarded, as the Court knows, as having a continuing relation to the property that he leases, and certain responsibilities in connection with property that he leases. And therefore I would distinguish this case from all those cases in which there is, if I may be colloquial, a one-shot proposition. The State sells the land, the State grants a subsidy, or disposes of the chattel. Here there is, through this relation of lessor and lessee, a continuing tie, which fits in with these other bonds that I've mentioned.
John M. Harlan II: Of course, you are going to say you would have the same continuing -- these same factors that you emphasize —
Archibald Cox: You'd have the same physical tie, but you'd have a relationship that the law had long regarded differently and it might be thought that physical tie was not enough to impose the obligation whereas the relationship of the lessor, who had convented to keep part of this premises in repair is one which frequently carried affirmative duties in relation to the land. So I would say that was another of these cases which can be logically distinguished in that we shouldn't undertake to decide them now because they are different case.
Felix Frankfurter: May I revert to your prior point (Inaudible) did I understand you to say that this authority had to be (Inaudible)
Archibald Cox: It was to be self-supporting, yes.
Felix Frankfurter: I mean, by the law of Delaware, it had to be self-supporting?
Archibald Cox: These revenue bonds, these bonds from which these premises were built are to paid only out of the revenues from the profit.
Felix Frankfurter: Including both –
Archibald Cox: Including the parking charges and the lease. The difficulty which the State faced in setting this up was that to finance such a building without leasing some of it for commercial purposes, would have required parking charges so large couldn't have been erected, the bonds wouldn't sell as revenue bonds.
Earl Warren: But it wasn't entirely financed by revenue bonds, was it? There was no public --
Archibald Cox: No, that was – there were two additional points of public involvement that I was going to mention. One is the fact that record isn't entirely clear but at least a $10,800,000 of taxpayers' money went into this building and the second point is that this building is wholly tax exempt.
Tom C. Clark: What was the face amount of the bonds?
Archibald Cox: The record, according to my best recollection, doesn't show Mr. Justice Clark. Taking these facts all together it seems to us that two conclusions follow. First, that this project is bound together as a unit so that each part of it is colored by the characteristics of the other part and the second that the hole is infused with a public or governmental quality. In conclusion, I would like to emphasize that this is a view of the project, curiously, which the Supreme Court of Delaware took when it was passing upon the constitutionality of the statute. The challenge to the statute was very similar to the argument which is made here, to wit, that these would be private commercial leases and not a state activity and the argument that was made was that the State can't go into the business of leasing its property for private commercial purposes because this would enable it to go into every kind of private enterprise. The Supreme Court of Delaware rejected that argument, using the phrase that I have quoted so often, to wit, that this was not simply an ordinary commercial leasing, but that it was a single self-sustaining governmental unit. And one of the questions that was put to the court was whether it was proper to grant a tax exemption, or to give this Authority the power of eminent domain, and the court answered that question saying, “Since we have held the purpose of the project as a whole to be a public one, the answer must be in the affirmative.”
John M. Harlan II: What's the citation? Is that in your brief?
Archibald Cox: I think it's in a footnote, but the case is Wilmington Parking against Rankin. It's 34 Delaware Chancery, page 439, 105 Atlantic Second 614. In conclusion, I would like to emphasize two observations. The first is that when the framers of the Fourteenth Amendment sought to assure equality for all men in relation to the State, they plainly meant a State in all its activities and all its aspects. Similarly this Court has never been grudging in its interpretation of state action. It's not strained, as I read the decisions, for fine distinctions concerning the degree of state involvement necessary to call forth the guarantee of racial equality. Quite the contrary, it has struck down every form of discrimination that affected a man in his relation to his government, every form of discrimination between the citizen and his government. Since there was unquestionably such a relation here, since this project was one, and a project where the petitioners when they requested service in this restaurant, could not help knowing that they were on the property of the State, we submit that the Fourteenth Amendment is called into play, and that the judgment below should be reversed.
Felix Frankfurter: I don't want to go beyond the circumference of this case in all events, but is it within the circumference to ask whether the jewelry shop, is one of these things a jewelry shop?
Archibald Cox: There's a jewelry shop and a bookstore, and I had promised to comment on that and then forgot with the passage of time. May I comment on that somewhat obliquely? It seems to me that the central fact here is that this is a restaurant open to the general public, for which the proprietor has shown no interest in the selection of his customers except for this bit of racial discrimination. That kind of case seems to me to stand at one end of a rather broad range. At the other end would go a lease for an apartment or a social club, possibly a lawyer's office or a doctor's office, of state property in this building. In those situations, clearly there must be taken into account the interest in the private choice of friends, associates, possibly of his clients. Now, the restaurant is a place of public accommodation, in the Nineteenth Century language of William Sumner and others, I'm not quite clear whether the jewelry store or the bookstore belongs in the first category or in the same category as a restaurant. It seems to me that in most of our eyes a restaurant has a somewhat different characteristic from other shops and we must also recognize that there are certainly some stores which do make a choice among customers on non-invidious grounds.
Felix Frankfurter: You spoke at the outset, you said that this restaurant, as it were, invited everyone. As you well know, at the common law every business engaged in business was called a common calling and then that conception shrunk so far as there was a mandatory duty to serve everybody. But I should think the bookstore or the jewelry shop in this building are no less inviting Tom, Dick, and Harry, than this restaurant.
Archibald Cox: Well, that may be. I simply say that we don't know enough about them.
Earl Warren: Mr. Killoran?
Clair John Killoran: Mr. Chief Justice, Your Honors. The Wilmington Parking Authority, the appellee that I represent, respectfully submit that there's only one question in this case, that is on the merits and that is whether the action or the conduct of Eagle can fairly be said to be the conduct of the Authority, and thus state action inhibited by the Fourteenth Amendment. As we know, the courts have held on numerous occasions that private acts of discrimination are not as such illegal. When, however, governmental discrimination as opposed to private discrimination is charged, it then becomes the duty of the court to examine the facts, and if the facts support the charge, to prevent the discrimination and, of course, the Authority subscribes to those principles. The cases cited by all the parties in this case are rested on various grounds, but I think it is generally agreed that general definitions of state action are not apt in all factual contexts. Therefore, it would seem appropriate that we examine the pertinent facts, the real facts in this case, to see if those facts support the charge made by Mr. Burton, the appellant. After the Wilmington Parking Authority acquired the land at Ninth and Shipley Streets in the City of Wilmington, Delaware, on which the subject facility and subject restaurant are located, it retained experts to advise it on what type of structure should be erected to accommodate parking. The Authority was advised that the streets in this area would only accommodate a certain given number of motor vehicles, and that a multi-level masonry building should be constructed to accommodate that number of cars. The financial forecasts were prepared, and on the basis of those forecasts the underwriters concluded that the parking facility as planned could not be financed from parking revenue alone. So then the Authority elected to exercise a right granted to it under the Enabling Act and provide space for commercial leasing in addition to the parking space that was required and recommended by the consulting engineers. The parking space itself was not curtailed or diminished. The building was redesigned to provide for additional space which would be commercial space. With the anticipated revenue from rentals as well as the parking revenues, the underwriters purchased the bonds in the aggregate amount of 2.5 million dollars. Even though the City of Wilmington paid all the consideration for the land, the facility itself was constructed from the proceeds of the revenue bonds, with one exception. In respect to the commercial space, only roofs and walls and basements were constructed. In all the commercial space the tenants had to construct their own facilities, own finishings, own furnishings, own decorations, own air conditioning, at their own cost, without any right of reimbursement from the Authority. We advertised for public bids for commercial space, and prior to the closing date for the bids a Mr. Rankin, a taxpayer of the City of Wilmington, threatened to attempt to enjoin the Authority from entering the field of private enterprise by leasing commercial space. The Authority immediately filed a declaratory judgment action in our Court of Chancery, and under a provision of our State Constitution it was certified directly to our Supreme Court, which is our court of last resort. The Supreme Court sustained the right of the Authority to lease commercial space, to the extent but only to the extent that it was necessary and feasible to help finance the contemplated project. Now the Supreme Court ruled that we did not comply with the requirements of competitive bidding and that we had to request bids again. Now, after the Rankin case, the Enabling Act was amended in order to permit the Authority to negotiate the leases if after requests for competitive bids were made and none received, or if received, if rejected by the Authority, then the Authority could negotiate leases for this commercial space. After we requested competitive bids and none were received, over a period of time, and a substantial period of time, we finally negotiated four leases for the commercial space, one such being that of Eagle which is being discussed here. The Eagle lease appears in the record beginning on page 13. And if you'll examine the lease you will note, few minor items, with the exception of a few minor items that the Authority is to provide, Eagle at its own sole cost expense is responsible for constructing a restaurant, all finishings, all decorations, all fixtures, all air conditioning and Eagle retained its own architect, its own engineers, its own contractors, and paid for the construction of the facility out of its own funds without right of any reimbursement from the City, State, or the Authority. It's submitted, Your Honors, that the Authority in reality leased four unfinished masonry walls, an unfinished roof, an unfinished floor, and basement to Eagle, and Eagle constructed a restaurant, bars, cocktail lounges, and banquet rooms in and on the property of the facility. Now, Mr. Cox has mentioned about our signs --
John M. Harlan II: Could I, before you leave that subject, could you tell us briefly in what respects the Authority does contain control?
Clair John Killoran: The Authority provides heat only, and it only retains control in the event of default under the lease, whether through bankruptcy or any other manner of default, it can evict. It has no control over the restaurant as such and its operations, its policies or whatnot.
Earl Warren: Has it control over whether it remains a restaurant or goes into the shoe business, for instance?
Clair John Killoran: Yes, it does have that control, Chief Justice, because in negotiating leases we couldn't have negotiated successfully with Eagle if we're going to have another restaurant right next to it. So in the lease itself, it restricts the use to the restaurant purposes, including bars and banquet rooms. The lease so provides and provides they can only use it for that purpose. Now, when this restaurant was completed, the construction of it was completed, it was not provided, nor is there provided today any public entrance from the parking facility itself to the restaurant, or as a matter of fact, to any of the tenants are there public entrances from the parking facility to the tenant. The pubic entrance to the Eagle is on the street level on Ninth Street, and you enter directly into Eagle, and on the first floor level it has three large beautiful dining rooms, with a bar and cocktail lounge. You go to the basement level, it has banquet rooms and accommodations for upwards of 300 people. I bring this out at this time with the purpose of attempting to illustrate that it was not the intent of the Parking Authority to provide service for the benefit of the patrons of the Authority It had only one sole purpose, as expressed in the Enabling Act itself to obtain revenues, rental income. That was the only purpose.
Earl Warren: Is there anything in the lease having to do with segregation?
Clair John Killoran: The lease has the usual canned provisions as we refer to it that they will abide by all Federal, state, county laws, rules and regulations. That's all there is in it. There's no –
Earl Warren: Do you consider that those laws would not be binding on the Authority?
Clair John Killoran: Oh, I would think they would be binding on the Authority if, as a matter of fact, the Court answers the question in the affirmative that these facts do support the appellant's charge, certainly I do.
Earl Warren: Suppose you had entered into a lease with these people to the effect that they could not segregate. Do you have that power?
Clair John Killoran: Would I have that power?
Earl Warren: As the Authority, yes.
Clair John Killoran: I probably would have that power as the Authority, but I wouldn't have gotten any leases.
Earl Warren: Well, that's what I was going to ask you, if you had that power, and there's nothing said in the lease about discrimination, what is the interest of the Authority in trying to sustain this judgment which does discriminate against American citizens?
Clair John Killoran: I anticipated that question, Chief Justice. In the first place, I practically grew up with the Authority I wrote the Enabling Act and I wrote these leases and I negotiated the leases. And we negotiated them conscientiously and in good faith on the ground that we were leasing to private enterprise for a private use and secondly the Authority felt that we should appear so that this Court would have all the pertinent facts before it in order that it could examine those facts to determine if the charge should be sustained.
Earl Warren: Do you mean that the Authority intended that there should be segregation -- that segregation should be permitted?
Clair John Killoran: No, sir. I mean that we negotiated—that I have a different interpretation of the Supreme Court's decision than does Mr. Cox. We negotiated, we felt under the Rankin case with individual enterprise, private enterprise, to grant them a use that was private use and not a public use. The Fourteenth Amendment never entered our minds. We felt that we –
William O. Douglas: How about the provision about compliance with Federal law? What did that mean?
Clair John Killoran: The lease provides that the tenant or the lessee in the use of the property shall comply with all laws of public authorities, Federal, state, and city ordinances, and so forth and so on.
William O. Douglas: That's pretty broad language.
Clair John Killoran: That's pretty broad, and what would be meant normally in a case of this kind where there's no discrimination that they would comply with the local health laws, police regulations; assume the Congress extended the minimum wage to restaurants and retail outlets, to comply with that type of law, the Pure Food and Drug Act and various other things that we had in mind that they might -- we should have control over them to make them comply with.
William O. Douglas: But not the racial one?
Clair John Killoran: Not the racial one.
Felix Frankfurter: But I suppose, whether or not the Authority is bound to limit the leases which it negotiates in order not to permit discrimination is the very question that the case is here to decide?
Clair John Killoran: That is correct, Justice Frankfurter.
Earl Warren: Well, I am still wondering, I'm still wondering what the concern of -- if this is private enterprise, and it is between these lessees and these people who claim to have been excluded, why is that a matter of such great concern to the Authority?
Clair John Killoran: Well, we're a party to the contract.
Earl Warren: Well, the contract doesn't have anything to do with segregation, you just said so?
Clair John Killoran: It does not have a thing to do with segregation, but the Authority negotiated in good faith with these various tenants on the basis that it'd be a private use and not a public use, such as we're referring to. I think, in fairness to the tenants, in fairness to the people we negotiated with, they demand our support in this.
Earl Warren: Well, let me ask you this? Suppose one of these petitioners here owned a portion of that property as his home, and it was condemned from him, taken away from him by power of eminent domain and then you built this establishment on there. You believe that it's a duty of the Authority to maintain the position which would exclude that man from equal treatment in that property?
Clair John Killoran: Well, I don't know that I would in that particular instance. I'm talking about now only fairness and honesty in the negotiations that we conducted.
Earl Warren: But I think it's a matter of common knowledge that these parking facilities are very often developed in places where the buildings are substandard and where they want to get rid of the buildings and make a better use of the property and it's not at all uncommon to dispossess these very kind of people in order to have a public facility of that kind and where that is the situation I'm still wondering why the Authority feels it incumbent on them to take the position that these people have the right to segregate when it's their problem and not the part of the Authority.
Clair John Killoran: I think, Chief Justice, philosophically I would agree with you. However, we feel, on I think good grounds that I think I can still demonstrate, that there are two uses in this property. One is a private use and one is a public use, and our Supreme Court in the Rankin case so held. It expressly held that the commercial leasing was absolutely unrelated to the public use of parking and it permitted the Authority, the state agency, to trespass upon private enterprise slightly, because the dominant and underlying purpose of the Authority was to be subservient to a public use. I think the facts in the case are such that, from an attorney's point of view, at least mine in studying it, I feel that I should take the position that it's private use and not public use.
Earl Warren: Can you condemn property in Delaware for other than a public use?
Clair John Killoran: Well, we can condemn -- no, we can't except – there is one statute gives the power companies the right, and that's a private use --
Earl Warren: That's considered a public use.
Clair John Killoran: And the --
Earl Warren: Yes. Well, now if you had to condemn this property only for a public use, how can you disassociate the State entirely from it by saying the use they're going to put it to is a private use, and not a public use?
Clair John Killoran: I think for this reason. I think we've got to look at two or three different facets. One, the purpose of the commercial leasing was for revenue, and it's our position, and I think it's a fairly sound position, that merely because Eagle pays rent to the Authority, its private use as a restaurant does not change to a public one any more than a governing body exacting revenue through taxation from a private corporation places that private corporation in the category of a public corporation and also, if we keep these facts in mind, and the tests that have been laid down in the various cases, Eagle constructed its restaurant on this public property. Eagle spent over 240,000 dollars on this restaurant. That's not in the record, but that's a fact. Eagle was not invited there; it's a happenstance it's there, but when it did negotiate this lease, there was no thought or no intent on the part of either party that it should serve a public purpose, namely, serve the patrons of the Authority. And also there is, I would think, that if those facts are accepted, and the only reason is that income only was required, and there's no factual situation that indicates that it's being used for public use, I don't see how the Fourteenth Amendment applies.
Earl Warren: Could you have condemned this entire piece of property for restaurants and the other lines of business that are lessees in this building --
Clair John Killoran: Chief Justice, we could have condemned all the ground that we thought was necessary for not only the parking facility itself, but for the additional commercial space.
Earl Warren: No, that isn't the question I asked. I asked if you could have condemned this entire piece of property just for restaurants and jewelry stores and things of that kind.
Clair John Killoran: No, sir, we could not.
Earl Warren: All right. Then, if you could not, does it not become -- when you do it, does it not become an inseparable part of that which is a public purpose?
Clair John Killoran: It becomes an inseparable part of that which is a public building, but not a public purpose, I don't think.
Earl Warren: Well, do you mean that the State in order to finance a public project, can independently go into private enterprise and condemn property for that purpose?
Clair John Killoran: Our Supreme Court in the Rankin case answered that question in this manner - It said that -- it held that the Authority could condemn. It also held that it could enter private enterprise to the extent, but only to the extent, that it was feasible for financial purposes. Our Supreme Court in that case followed the New York Authority case. You'll recall in that case the New York Port Authority was to exercise certain obligations under a compact with New Jersey relating to transportation. It built a 14-story building, and it only utilized the first two floors and basement for the purpose of the Port Authority. The rest was rented, one, two, three floors rented to the New York Life Insurance Company and various ones. Ninety-eight percent of the income from that building was from private tenants. Now, in that case the Court of Appeals of New York held that the primary purpose was transportation, a public purpose; they sustained the right of the Authority to build this large building and to rent it for private uses, private purposes. Now, our court followed mainly that decision. But, answering your question one step further, I think that we got to distinguish between public purpose and a public building. Now, this was condemned for a public building; but it wasn't all to be utilized for a public purpose.
Earl Warren: Well, it had to be condemned only for a public use, doesn't it?
Clair John Killoran: It had to be condemned for a public purpose.
Earl Warren: Yes, for a public purpose.
Clair John Killoran: And, under our Enabling Act the -- and as sustained by our court, the Authority, being a public agency, can go beyond the public purpose to the extent necessary to finance.
Earl Warren: Well, can it go beyond the public purpose or can it merely engage in collateral activities that will make the public purpose (Inaudible)
Clair John Killoran: Well, I think it's correct. It can engage in collateral activities the revenue from which makes the public purpose self sustainable.
Earl Warren: Yes.
Clair John Killoran: That's right. But it appears to us Your Honor that this lease was not used for purpose of discriminating and under the lease itself there's no joinder in the enterprise on the part of the Authority or no reservation of control on the part of the Authority and the record discloses that the Authority has never even suggested or advised the Eagle on any policy of admission or exclusion. It seems to us that this – that the act of leasing here and the lease or the lease, does not belong to long series of strategems that governing bodies had employed in attempt to deprive the Negro of his birth right, namely, equal protection of the laws. There's only one single purpose here and that was revenue. It's a form of taxation. It's a form of obtaining revenue and that the Eagle was permitted to come in and on the property, public property, and to construct there on its facility at a great cost.
Earl Warren: But whatever -- but whatever the government did construct, it constructed with public money, did it not?
Clair John Killoran: It constructed with public money. The proceeds from the bonds are public money because the legislature must authorize the bonds and the proceeds must be devoted to a public purpose.
Earl Warren: But is the amount of money that the city itself put into it to be returned to it through the bond issue?
Clair John Killoran: No, sir, the land was a gift.
Earl Warren: Then to that extent these people and all other people in the community had contributed their tax moneys to that building, have they not?
Clair John Killoran: That is correct, it is correct.
Earl Warren: And you believe that, even though they have, that it can be -- you should be able to so administer it as to discriminate against those who have contributed through their tax monies?
Clair John Killoran: No, I do not sir. I don't -- we are not administering it. As I see it, we are leasing part of public property for private uses, which we have no authority to administer and the legislature, that's the legislative policy of the State, which supersedes, I would assume, the taxpayers' particular ideas. It's the legislative policy of the State that we can lease to private enterprise and the Enabling Act so provides, if necessary. That is the public policy of the State of Delaware.
Earl Warren: I don't think that's contested in here, is it?
Clair John Killoran: No, but in answering whether or not the taxpayers should have some particular complaint because they've paid part of the money, when they paid it they knew that part of the facility was going to be used for commercial purposes.
Earl Warren: When they paid what?
Clair John Killoran: Their taxes.
Earl Warren: Well, you mean they could have refused to pay their taxes and said we won't do that?
Clair John Killoran: No, I don't mean that. The philosophy of it is that if a taxpayer, when he pays his taxes, he's certainly not conscious of all the uses that they're going to put the funds to.
Earl Warren: He doesn't even know.
Clair John Killoran: He doesn't even know, but in this case, the taxpayer did know and tried to sue them. He threatened the Authority, he tried to enjoin the Authority because they were going into private enterprise by commercial leasing and the Supreme Court said no. The state legislature has declared policy that off-street parking is required, and in connection with the financing only now, you can't do this, you can't lease to a service station; you can't lease to certain things, but otherwise, and on competitive bidding, you can lease to private enterprise to assist you in obtaining the funds. I would like to make one final remark. As before stated, we do not feel that this lease is one of those strategems that's been used by the Authority, or Eagle either, to deprive anybody of any rights. In other words, we feel this lease does not fall within the category of the leases described and referred to in the decisions cited by the Government and by the appellant, for the reason that in those leases, all involved either a technique to evade state responsibility or that the property, though privately operated, was being used for public purposes.
Earl Warren: What difference does it make whether it's a strategem or not, as between the Authority and the lessee if the Authority takes the position that it's honor-bound to come into this Court and support this policy of discrimination?
Clair John Killoran: Well, I don't think we're honor bound to come into Court to support the policy of discrimination. I thin we're honor bound to come into this Court and give the Court the real background and circumstances surrounding the negotiation of these leases, which was on a private use basis.
Earl Warren: You mean that's all you're doing, is just stating –
Clair John Killoran: That's all I'm doing. As a matter of fact the record shows that the Authority does not discrirninate.
Earl Warren: Are you -- are you urging us to sustain this judgment?
Clair John Killoran: In that respect, my position is neutral.
Earl Warren: Your position is neutral?
Clair John Killoran: Right.
Earl Warren: Well, I didn't understand that.
Clair John Killoran: As a matter of fact, the Authority, over sixty percent of its employees are Negroes and anyone can park in the Authority as long as he has the ability to pay the uniform rate fixed for that. The record shows, Mr. Burton in this particular case, before he went to the Eagle, parked his car in the facility.
Felix Frankfurter: I don't understand what you say when you say when you say your position is – do you or do you not want this judgment below affirmed?
Clair John Killoran: In our brief we so request it.
Felix Frankfurter: Then I don't see why isn't perfectly proper for you to take that position?
Clair John Killoran: Well, I think it is – I think it is but I thought of it and I have talked to –
Felix Frankfurter: I'm not suggesting you shouldn't – you shouldn't consent for it. All I want to know is whether --
Clair John Killoran: And I agree with the Chief Justice that our position should be as I stated.
Earl Warren: Mr. Herlihy?
Thomas Herlihy, Jr.: Mr. Chief Justice, may it please the Court? In order to present the legal argument for the Eagle, it is necessary that I implement and restate certain facts which have already been made. These facts are essential to my legal argument. The Eagle was incorporated in 1934 and has conducted a restaurant business in the City of Wilmington, with the exception of few months, since that date. Now, the statute creating the Parking Authority provides power to lease a space in the facility, or spaces. The leases under such provision fall into, and under the statutory provisions, fall into two categories, where the lessee may carry on the sale of gasoline and accessories, and provide service to motorists, that's the first category, as the statute sets it out. Now, the second is where the lease may be for any commercial use and where the leasing is necessary and feasible for financing the operation of the facility. The statute provides for public notice, for invitations to bid for leasing space. Neither the legislative act nor the notice for the bids say anything as to what use is to be made of the space leased; nor is it stated anywhere in the statute or the bidding proposal procedure that the space was to be leased primarily to serve patrons of the parking facility. As was stated, it's by mere chance that the space was awarded to a restaurant. It could have been awarded to any other type of business. And at no time, either in the legislative history or bidding or negotiating procedure was it stated that the Authority would provide a restaurant for the parking facility patrons. The Eagle lease, as well as the leases of its neighbors, a bookshop, a camera shop, a retail food store, and a jewelry store fall into this category; that is, the second category of commercial leasing as provided for in this act. The main and only public entrance to the Eagle and these stores is on the street on which these lessees front. There are, as the law provides, fire exits. Now the street on which these stores front, is basically a street, where shops -- where business of a retail nature is carried on. The other two streets that are referred to by Mr. Cox are basically streets with the rear of buildings fronting on another main street, where they have other retail business shops and I pointed that out so that the Court would have that picture, that these are ordinary commercial businesses. The Eagle was awarded the space it occupied because it submitted a successful proposal and negotiated for the space. The public advertisement for the bid and the negotiations for this space put no restrictions upon the Eagle as to the patrons it would serve. The Authority granted the Eagle a lease for twenty years, and this lease, as well as all other documents, puts no restriction on the Eagle as to what patrons it will serve. The Authority at no time has made a statement of policy in this respect, nor has it attempted to dictate Eagle's policies. As was stated, the Eagle through its own capital furnished substantially all of the furnishings and fixtures, including the air conditioning, to enable it to carry on the business of a restaurant, cocktail lounge, and banquet rooms. In other words, the Eagle leased floor space and bare walls. Now, considering these facts, it is my opinion that the legal issue is, whether the Eagle as a lessee of the Parking Authority, performing a function not related to the parking services of the facility, has violated the Equal Protection Clause of the Fourteenth Amendment. Our position is that it has not been -- that there has not been a violation and in sustaining our position, we submit a two-fold approach which is in the alternative. One, there was no state action in this case because Eagle's function as a restaurant, which is unrelated to the function of the Parking Authority, excludes it from the concept of state action. Two, if it is established that there was state action in this case, then there is no violation of the Equal Protection Clause of the Fourteenth Amendment, because of the particular factual situation, because of the particular factual situation of this case. Now, as to the first proposition, we submit that there is no integral relationship between the activities of Eagle and activities of the Parking Authority. The respondent Eagle contends that the best method to determine whether or not a lessee of a state agency is part of state action is to analyze the functions of the state lessor and its private lessee and in this particular phase of the case, legal argument, developing what may be considered the functional answer in reply to the statements made by the Solicitor General. The statute creating the Authority states that the purpose of the Authority is to provide off-street parking for the general public. This legislative act further provides that the Authority may enter into a lease when the lessee may carry on the sale of gasoline, motor accessories, and services and again, let me say that this particular service would be part of the function of the Parking Authority, but there is no provision which directed the Authority to provide for any other particular service for its parking patrons, and there is nothing which states that it would provide a restaurant. As already indicated, it happens that Eagle occupies a space in the facility not because it serves food but because it was a successful bidder for that space. The area where the Eagle located is a prime area for a restaurant business, which was the situation there before the Parking Authority facility was constructed. All of the businesses occupying space in the facility including the restaurant, front as I've already stated, on a main business street. There is no public entrance from the parking area to the businesses. The bidding and negotiations, of course, put no restrictions on the Eagle. It was a bona fide landlord-tenant relationship. The lease contains no provision whereby the Authority would be able to control the policies of the Eagle as to what patrons will or will not be served. Nor does the record show that there was any subterfuge in the execution of this lease to control the Eagle's customer policies. There were no collusive practices here in order to carry on discriminatory activities. In the Wilmington area there is an atmosphere of racial tolerance and the motives of the Authority and the Eagle were to enter into a straight landlord and tenant relationship without any attempt to circumvent the Equal Protection Clause of the Fourteenth Amendment. It is our position that the mere fact that rental income from the Eagle is necessary to finance the parking facility is not sufficient to bring a lessee within the sphere of state action. To say that it is a controlling factor is to blow up that fact beyond its true proportions and in my opinion, to torture a landlord-tenant relationship into a possible principal-agent relationship when the principal is an instrumentality of the State, by making; the tenant an agent because the rental income there from is necessary for the landlord's continuance, is an arbitrary breakdown of legal relationships. In the Derrington case there was a bona fide lease, but the function of the lessee was to cater to the patrons of the courthouse and that part of the courthouse which the restaurant occupied was planned, equipped, and furnished by the county. The space that the Eagle occupies in this facility was neither planned equipped or furnished by the Parking Authority as a restaurant. To state that rental income alone is the determining factor will lead to the clear conclusion that every necessary business transaction between the State and any private business which furnishes income or service to the State would immediately bring the private business involved within the scope of state action. Let me take several examples. Suppose that a CPA firm is called upon to audit the accounts of the Parking Authority. This CPA firm comes on the premises. It begins its audit. It's a known fact that it's auditing the books and this firm has a record of discrimination, engaging in racial discrimination. Now, obviously its participating, it's providing services to the State. Is the Court going to say that this state action theory will reach out and say to that auditing firm, you are engaged in the discriminatory practices, you cannot carry on this work on the parking facility? Now let's take for example, suppose that they have a breakdown in the plumbing system and the plumber comes along and he puts up his sign that he's doing the plumbing work there. He is rendering services to the State and they find that the plumber was engaged in discriminatory practices, is the arm of the State to reach out and say, no you can't do this work with the Parking Authority because you engage in discriminatory practices? In other words, what I am saying is that to rest this case on rental income is to lead to such absurdities as I just indicated and furthermore, suppose you had an instrumentality of the State which took some funds put it in a certificate of deposit in a bank, and drew income, interest income from that, is that very fact alone to say, well, this now makes that bank –
John M. Harlan II: what do you say to the Solicitor General's argument that because of the physical juxtaposition of this restaurant in the Parking Authority that anybody going in there being excluded would assume that he was being excluded with the approval, if not on the authority of the Wilmington Parking Authority?
Thomas Herlihy, Jr.: Right.
John M. Harlan II: What do you say to that argument?
Thomas Herlihy, Jr.: Well, I say to that argument that you cannot just state or take as the – as he attempted to do to make the physical unit as one as seemingly appeared from the mere description and which I disagree with. I say they're not basically one. There is only -- the only physical connection, if I understand your question Mr. Justice Harlan, the only physical connection is the fact that there's the exit, the fire exit, into the Authority's building, but the customers come off of Ninth Street. They know this is business.
John M. Harlan II: And you are saying he couldn't, nobody could read him to draw those conclusions, but assuming that as sort of factual thing, supposing one took a look at the building and reached that conclusion, that one – that a person going in could reasonably say, this looks like the Wilmington Parking Authority's setup, what do you say then to the argument that there is no state action? You say that there is state action.
Thomas Herlihy, Jr.: Well, as I take his argument, he's basing it solely from the point of view that it's supplying rental income and rental income is part of the plan devised by the State to sustain this building, if I understand your question --
John M. Harlan II: No, but a person can't go in and examine the legal relationships between the Parking Authority and the physical relationships. He just deals with what he sees.
Thomas Herlihy, Jr.: Right.
John M. Harlan II: And the argument is that state action ought to reach to the point where the members of the public who go into a public place, go into a place which physically at least, bears all the earmarks of being a state enterprise, that's the argument.
Thomas Herlihy, Jr.: I would not go that far to the extent of saying that they should assume --
John M. Harlan II: I'm not accepting the argument. I'm asking you what's your answer would be.
Thomas Herlihy, Jr.: My answer would be that the circumstances -- certainly the individuals, I think the individual here would be aware that he was dealing with a private enterprise. I have grave doubt an individual going into any of these shops would think that he was dealing with some instrumentality of the State of Delaware, just because it's in the building.
John M. Harlan II: Well, that's a factual argument.
Thomas Herlihy, Jr.: Yes.
John M. Harlan II: Do you accept his legal proposition?
Thomas Herlihy, Jr.: No, I do not. I don't go quite that far, because I say --
John M. Harlan II: Well, why not? That's what I want to hear.
Thomas Herlihy, Jr.: From the point of view, I say there are two ways of approaching this matter. He bases his argument, the Solicitor General bases his argument on what is considered more or less, if I may state it, the functional theory. That is, we look at the functions. The function of the Eagle, according to the Solicitor General, was to provide income to the Parking Authority so that it could carry on its enterprise. I say you would have to break down the functions of the government lessor and the function of the private lessee. I think you have to separate them. That's where I take issue with it, and I had planned to just develop that right now, if you'll permit me to.
Tom C. Clark: Before you do, what do you do with the Boynton?
Thomas Herlihy, Jr.: Beg your pardon?
Tom C. Clark: What do you do with the Boynton case?
Thomas Herlihy, Jr.: Your Honor, I think that the Boynton case is well put and I think that when you analyze the facts of the Boynton case I think that you can see that what I'm trying to reach here is applicable. Now in the Boynton case the Court cut through all the legal relationships. It ignored the fact that there was an attempt just to overcome the restaurant-keepers' nonlease situation. It went back and stated; One, there was an agreement between the Trailways, the transit company or the carrier, and the terminal people. The restaurant, the keeper in that particular instance had no connection by lease or otherwise, with the facility, that is, the bus terminal and what the Court did, the Court looked at the function of the lessee, if I may make my point now, Mr. Justice Harlan, it looked at the function of the lessee, and it saw that the function of the lessee was to serve those persons who were in travel in transit. Now, we look at the function of the Eagle in this situation and ask ourselves, what is the function of the lessee in this case? The function of the lessee is to serve the general public, not just merely the patrons of the Parking Authority, but to serve the general public. And when you follow this functional theory to its natural conclusion, you can see very well, and to point this out I'd like to give you just a few of the tests that I would examine these situations on and I'm sure the Court must have examined them when they considered the Boynton case. I ask myself, in the analysis of these cases, in determining to see whether or not there were any standards by which you could evaluate these cases? Was there a bona fide transaction as a result of arm's-length negotiation? That was the first one. Then I took, was there any evidence of subterfuge in order to evade the provisions of the Fourteenth Amendment? And the third thing, is the lessee an integral part of the functions of the governmental lessor and fourth - Is there any statutory or administrative control of the lessee? And when I applied these standards to this situation, it was my opinion that the Eagle should not be brought within the orbit of state action. Now, if you take this case and the Boynton case, you'll see very well that it was rightly brought within the sphere of state action. In furtherance of our contention that there was no state action here, we should like to suggest to the Court that prior definitions of state action should be re-examined. Some modification 0f the approach to the solution of situation similar to our present case may be necessary. With the permission of the Court, I have a statement here I'd like to read, that Mr. Justice Frankfurter made in the Gomillion case, “Particularly in dealing with claims under broad provisions of the Constitution which derive content by an interpretative process of inclusion and exclusion, it is imperative that generalizations based on and qualified by concrete situations which gave rise to them must not be applied out of context, in disregard of the variant controlling facts.” And I say, Your Honors, that there are variant controlling facts in this case which should be examined in this particular situation.
John M. Harlan II: What bearing do you think the per curiam opinion of the Court in the Girard Trust case has got in this situation? Do you think that's germane?
Thomas Herlihy, Jr.: I think that it is germane, and I think it has to be taken into account and Mr. Justice Harlan, I would like to also state that in the course and I will develop it right now --
John M. Harlan II: How do you take that into account?
Thomas Herlihy, Jr.: Well, I take it into account in this way. Of course, there the private trust was administered by the Board of City Trustees of Philadelphia. The Court stated that was improper because of the fact that Mr. Girard in his will had provided only for the education of white male children. They removed the -- the Court stated that that was improper and that that was an exertion of a state power and when the case was remanded to the lower court, they were removed. Now then, what happened? The Orphan's Court in Philadelphia turned around and then appointed private trustees and there that was held to be a proper, although I say that was basically an exertion of state power, yet in that particular instance, when it remanded back to the Orphan's Court in Philadelphia, they turned around and substitute private trustees for public trustees and then subsequently the Supreme Court in Philadelphia held that that was not violative of the Equal Protection Clause of the Fourteenth Amendment. So I say that basically that was an exertion when they got back to private trustees. Then you had a matter of a private business and I state that it is difficult for me to really -- to challenge the holding, in one respect, but by the same time and I cite in my brief the Girard Trust Company case to show you that, in examining this whole principle of the matter of the exertion of state power, you've got to look at all aspects of it. With that principle in mind, let us review the cases. Usually the state action has been broadly and generally defined as an exertion of state power. This definition has been paraphrased to mean a touch of the government's thumb on the scale. Now, I develop from that to Berman versus Parker, in which the Court held that private property could be taken and then resold for a public purpose to private individuals and that's the starting point. Now, in the Dorsey case, which was a situation where the property was taken by a governmental agency, resold to a private developer who practiced a discriminatory practices. Now, these are designated as the blighted area cases. Now, they certainly indicate the power of the government was used to acquire a blighted area, clear the site, and then negotiate a resale of the land to private redevelopers. In this process of governmental action, it no doubt happened that the homes of Negroes were taken, as in the Dorsey case, which was a discrimination against Negroes by private developers. Yet, the Court was not concerned with violations of the Fourteenth Amendment when it was obvious that, in the Berman and Dorsey cases, there was an exertion of state power. Now, in the Derrington, the Derrington and Ashwander cases, now the Derrington case, of course, is the courthouse space where the space in the courthouse was leased, and the Ashwander case was where the Supreme Court upheld the right of the TVA to sell surplus electricity or to lease surplus electricity to private individuals. Now, these cases are labeled by us as the surplus property cases in our brief, and in developing this, I say that I am not drawing a direct analogy between the surplus cases or do I want to be taken as to say that this extra space that was set up in the Eagle for business purposes is to be considered surplus. I'm only trying to show to what extent the exertion of state power has gone without being considered as being violative of the Equal Protection Clause of the Fourteenth Amendment. These cases indicate that once surplus property is leased, the lessee is free to deal with its property almost without any possibility of being charged with a Fourteenth Amendment violation. And I argue by analogy that here we have a private lessee now in charge of the space that has been leased to it by the lessor, the governmental lessor, it is now in the category of a private lessee and has the right to enjoy all the privileges of a private lessee. Just to show you to what extent, in trying to determine the boundaries of what is meant by an exertion of state power, look at the licensing cases, where there has obviously been an exertion of state power in granting an individual the right to carry on a business. And in many instances the licensing may be in a discriminatory practice -- the licensee may engage in discriminatory practices. For example, we have a theater in Wilmington called the Ri-llto Theatre. Now, the State granted to that theater the license to carry on a theater. It censors the films that go on in that -- are carried on in that theater. Obviously, in my opinion that s an exertion of state power and yet, that theater engages in discnminatory practices. So I state that -- also I've now covered the Girard Trust use, but I would like to restate that certainly the acts of the Orphan s Court in removing the public trustees and substituting private trustees was an exercise of governmental power. And yet, that act, or that substitution was not considered violative of the Fourteenth Amendment.
Felix Frankfurter: Just as an approximation, how many callings in Delaware require permission from the State, i.e., a certificate, before you can pursue the calling, just roughly? Could they be six or sixty?
Thomas Herlihy, Jr.: Well, I would say there would be at least, broadly twenty to thirty at least, as a minimum.
Felix Frankfurter: Such as?
Thomas Herlihy, Jr.: Well, for example, the lawyers, and of course the doctors and the optometrists and the opticians, and similar professional groups of that type and there are some established restaurants get a license and a –
Felix Frankfurter: Plumbers have to get a license?
Thomas Herlihy, Jr.: License too, plumbers, and –
Potter Stewart: Barbers?
Thomas Herlihy, Jr.: Electricians and -- there's a question about barbers at the time. They do have to get a license, but whether they have to be examined for that license –
Felix Frankfurter: That's one of the mooted questions in Delaware?
Thomas Herlihy, Jr.: Yes.
Earl Warren: In distinguishing your theater case a moment ago, you said the State retained some control over them because of censorship –
Thomas Herlihy, Jr.: Of the movies.
Earl Warren: -- of the moving pictures. Now, was that a part of the lease or was that a -- they just censored them as they were subject to it because censorship was a part of your general law?
Thomas Herlihy, Jr.: Weil, censorship is part of the general law.
Earl Warren: All right. Well, don't you have the same thing in this case? We've got a provision in this case that says they must obey all laws, which would include laws of that character. They'd be police laws. That's exactly what counsel said a little while ago.
Thomas Herlihy, Jr.: I think Mr. Killoran is correct, that that's a standard phrase in most commercial leases.
Earl Warren: Yes.
Thomas Herlihy, Jr.: And it's a standard phrase in commercial leases where there's no possibility of it being considered violative of the Fourteenth Amendment because it's between two private parties.
Earl Warren: Yes, but the only point I was making was, I thought you distinguished the theater case from this case on the grounds that in that case the State retains supervision over an administrative power over them because of the censorship statute --
Thomas Herlihy, Jr.: Right.
Earl Warren: -- which was not incorporated in the lease, except to something of this kind. Now, you have the same thing in this case. You have the same provision, and they have to obey the health laws here.
Thomas Herlihy, Jr.: Correct.
Earl Warren: They have to obey the liquor laws. They have to obey all kinds of laws and why does that constitute a distinction?
Thomas Herlihy, Jr.: Well, I'm only showing the distinction to this extent that to state that I think we have to re-examine the general concept of state -- the exertion of state power or state action to determine just how far we want to go in determining what is state action. Now, I cited the movie case. I cited the situation regarding the occupations. That is state action, and yet there was no attempt to bring in the Fourteenth Amendment. Now, I say that what we have to determine is to say, well, where are we going to go in this matter of saying this is or this is not state action for determining whether or not there has been a violation of the Equal Protection Clause of the Fourteenth Amendment.
Earl Warren: What cases of this Court or of the Federal courts generally do you want us to reconsider?
Thomas Herlihy, Jr.: Well, I would say first of all that we have to start back with the Ashwander case and the Derrington case. I think we have to consider the matter of the, I think I gave the Berman versus Parker and those cases to see that their exercise -- and the Dorsey case. I don't think the Dorsey case, I don't recall whether that got into court or not, but the Dorsey case certainly has to be examined because right there is where there was an exercise of state power by the State of New York. It acquired the land and sold it to the Stuyvesant Corporation, who turned around and practiced racial discrimination. Now, I say that that in itself demonstrates that in one instance the court will say, all right, that is a violation of the Fourteenth Amendment, and in other instances it will. Now, I think there has to be some determining factor, and I think that when a business is basically a private business and can he put in that category, as I feel the Eagle should, then I think that we have to state that we cannot interfere in that type of business.
Felix Frankfurter: You referred to the Ashwander case several times. I'm bound to say I find it difficult to see the relevance of that case to the problem before this Court. It was relevant to the problem before the Delaware court as to whether when the eminent domain power is exercised it may be exercised although in its exercise you implicate some private enterprise. But that for me is a very different question as to what consequences follow by virtue of the relationship of the so called private enterprise to the State in regard to the Fourteenth Amendment. The Ashwander case didn't remotely consider the problem that we have before us.
Thomas Herlihy, Jr.: It did not, no.
Felix Frankfurter: It had nothing to do with this.
Thomas Herlihy, Jr.: Yes, but I say -- I start -- Mr. Justice Frankfurter, I preface my remarks. I start somewhere in building first of all the fact that we take this situation. That case did state that the Government could take and I must state it's by dictum, that the Government could take its property and sell it to a private individual.
Felix Frankfurter: Certainly, and therefore all that case did, and others, and that's true of, I should think, a good many eminent domain cases that you may condemn property although the property that is condemned isn't all of it used for the purposes of the condemnation?
Thomas Herlihy, Jr.: Right. I made the –
Felix Frankfurter: That's a very different proposition?
Thomas Herlihy, Jr.: Right. I started with a general proposition and I moved on from the Ashwander case to the Derrington case where again had a matter of what they called surplus property and I said I was not trying to draw an exact analogy between the excess property in the Derhngton case with this situation in our case. But I move on that there they could —
Felix Frankfurter: I'm for your moving on. I have difficulty with your starting point with the Ashwander case.
Thomas Herlihy, Jr.: Well, I start with private -- there is a right to deal with private enterprise.
Felix Frankfurter: That's because of the doctrine, the obvious doctrine of the courts, including this Court, of excess property condemnation.
Thomas Herlihy, Jr.: Right.
Felix Frankfurter: That's vague -- these are unrelated constitutional provisions.
Thomas Herlihy, Jr.: Yes, but I'm saying that there was an exertion of state power, and when the private lessee as a result of, maybe, using his electricity, was discriminated in any way, there is no question that that private lessee has a right to discriminate.
Felix Frankfurter: We haven't got -- the discriminatory aspect which you draw from the Ashwander case was not before the Court in the Ashwander case and hasn't been before the Court since and so we're not concerned about whether the TVA could, or its trustees, discriminatorily serve the farmers in that region.
Thomas Herlihy, Jr.: I'll just -- not to repeat my position, just let me say once again, however I am not using it for that particular point and as you just state, Mr. Justice Frankfurter -- Mr. Justice Frankfurter, you and I disagree on the starting point, but I in dealing with private property we have to start somewhere, and I start with the Ashwander case then I go to the Derrington case. Then I take and move onto what I call the blighted property area cases, that is the Dorsey case and the Parker versus Berman, and I come down than and state, well what does this all add up to and as I have already indicated it, and you may say, well where is this analysis getting us and that's where you came in on me with this question. Well, even though the decision in the Boynton case, as I indicated to Mr. Justice Clark, is not entirely in our favor. I do think that you do have to take the -- and use the analysis of the Boynton case, the Court in that case, and try to -- let's look at the relationship of the parties and see what functions that they perform and that basically is what I designate as the functional theory of my case.
Felix Frankfurter: As I get your argument, at least as I interpret it, your position is that allowing through excess condemnation, property to be used not for the public purpose for which the condemnation was made –
Thomas Herlihy, Jr.: Right.
Felix Frankfurter: -- therefore, having as a matter of economic employment, part of the condemned property used for private profits, that neither tells you whether the Fourteenth Amendment applies nor does it bar it from applying, isn't that right?
Thomas Herlihy, Jr.: That's right.
Felix Frankfurter: All right. So there we are. In fact, you're facing the question.
Thomas Herlihy, Jr.: Now –
Hugo L. Black: Is this property exempt from taxation?
Thomas Herlihy, Jr.: Yes, it is.
Hugo L. Black: Just the physical building part of it?
Thomas Herlihy, Jr.: That is right.
Hugo L. Black: The restaurant owner's part of it is not exempt from the taxation?
Thomas Herlihy, Jr.: Well, you see, the only tax that there is that would be applicable apart from any licensing, if a license were considered a tax, would be a real estate tax. There is no other tax except income and –
Hugo L. Black: The point is, no one has to pay any tax on the --
Thomas Herlihy, Jr.: The property as such, in the nature of a real estate tax?
Hugo L. Black: Yes.
Thomas Herlihy, Jr.: No, sir.
Hugo L. Black: What about the equipment inside, for the restaurant?
Thomas Herlihy, Jr.: Well, presumably there can be a personal tax, but there is no personal tax, as far as such, in Delaware or in New Castle County.
Hugo L. Black: I understood you to say there was 20,000 dollars spent on equipment and so forth.
Thomas Herlihy, Jr.: No, there was 220,000 dollars spent on equipment.
Hugo L. Black: 220,000. p"
Thomas Herlihy, Jr.: 220,000.
Hugo L. Black: 220,000 and you have no tax on that ordinarily in Delaware at all?
Thomas Herlihy, Jr.: As a personal property tax, no,
Earl Warren: Suppose that was in -- suppose that 220,000 dollars had been spent on the improvement of a private building that had no connection with the Authority at all, would there be any tax on that?
Thomas Herlihy, Jr.: No, sir. If this were in a private -- used by a private corporation in a private establishment?
Earl Warren: Yes.
Thomas Herlihy, Jr.: There would be no tax.
Earl Warren: Let me ask you this --
Thomas Herlihy, Jr.: There is no personal property tax.
Earl Warren: No, but let me ask you this? Counsel before you argued that practically all that the State gave them was a skeleton.
Thomas Herlihy, Jr.: That's right.
Earl Warren: And that they put the rest of it in themselves, these 240,000 dollars. Now, let's suppose that a private owner built the skeleton for Eagle, and then you put 240,000 dollars into the building to complete it and make it serviceable for your purposes. How would that property be taxed? Would it be taxed just on the skeleton, or would it be taxed on the skeleton plus the 240,000 dollars?
Thomas Herlihy, Jr.: I understand your question, I didn't comprehend it. If the improvements on the premises can be considered in nature as becoming a part of the really -- realty then they would be taxed as real estate.
Hugo L. Black: That's what I meant. How could you put all this equipment in on this skeleton without having it as part of the real estate? Why isn't the tax exemption greatly increased by the work that was done on that place?
Thomas Herlihy, Jr.: Right, but I would state that in most instances, if my reading of the lease is correct, that these particular fixtures and equipment the Eagle may withdraw, provided of course they put the premises back in the condition it was at the time of the leasing.
Tom C. Clark: It depends on the local law whether the tax is on realty or in its principal?
Thomas Herlihy, Jr.: That's right.
Earl Warren: Well, there must be some expenditures in this 240,000 dollars that would attach to the realty.
Thomas Herlihy, Jr.: Yes.
Earl Warren: Wasn't it?
Thomas Herlihy, Jr.: Yes.
Earl Warren: As to that you pay no taxes at all?
Thomas Herlihy, Jr.: That's right.
Earl Warren: If that was in a private building you would pay taxes?
Thomas Herlihy, Jr.: Yes, if it were considered as part of the real estate.
Earl Warren: Yes, that portion. That portion --
Thomas Herlihy, Jr.: Now except it may be that, taking the matter to the tax authorities and arguing that that is not an improvement of the realty as such, but is part of a leasehold interest, we may be in a position to justify and avoid a matter of taxation in that instance –
Earl Warren: Well that may–
Thomas Herlihy, Jr.: -- and that must be considered.
Earl Warren: Well, let me put it to you this way? You -- if you were in a private building that was delivered to you just as a skeleton --
Thomas Herlihy, Jr.: Right.
Earl Warren: -- and you built it up to the point where it's serviceable for your purposes, could you, when you leave, tear it down under this kind of a lease and leave a skeleton?
Thomas Herlihy, Jr.: In my understanding we have the right to remove fixtures.
Earl Warren: Where is that in your lease?
Thomas Herlihy, Jr.: Mr. Killoran informs me it only goes so far as fixtures and not those that would become part of the building.
Felix Frankfurter: Mr. Herlihy, the Solicitor General properly or naturally enough put to one side cases that he thought need not be decided in deciding this case. Would you agree that the simple question of whether tax exemption as such on property not at all entangled or involved or mixed up with anything of the State, merely for purposes of encouraging certain industries or certain enterprises, where the State exempts them from taxation —
Thomas Herlihy, Jr.: Right.
Felix Frankfurter: -- would you agree that we don't have to solve – we don't have to pronounce on that question, whether discrimination of such an enterprise, the situs in case of New York that this case is not that case. We've got ourselves a totally different problem.
Thomas Herlihy, Jr.: Yes, sir.
Hugo L. Black: Well, we do have that in this case, do we not for whatever relevance any particular member of the Court wants to give it?
Thomas Herlihy, Jr.: Right.
Felix Frankfurter: In other words, we can decide that case one way and this in another. It's a totally different question.
Thomas Herlihy, Jr.: Mr. Justice Frankfurter, I think that what we've got to look at in light of your own statement is to make sure that we examine the variants in each case. Now, in your particular case I would say that the Court, if it takes the position that if I give an exemption, an outright exemption to a particular business that may amount to state action. It certainly is state action --
Felix Frankfurter: Well all I'm saying is that we don't have to decide that case implicit in this case.
Thomas Herlihy, Jr.: No.
Felix Frankfurter: All right.
Thomas Herlihy, Jr.: Because I want to make, in answer to Mr. Justice –
Hugo L. Black: And you involved the rest of us in that case?[Laughter]
Felix Frankfurter: You understood I refer to – you understand I am just speaking from my own temperamental laziness in not deciding more than we have before us.
Thomas Herlihy, Jr.: Oh, yes indeed. But let me say this -- if I may take that point, Mr. Justice Frankfurter and use it insofar as Mr. Justice Black is concerned I would say this that if you have a business that has been induced to come into a community and it's held out to them that, here, you come in here and we'll permit you to be tax exempt for five to ten years or whatever it may be. To me that's an exertion of state power and in the definitions, it's the thumb on the scale.
John M. Harlan II: You may be referring further than the Solicitor General?
Thomas Herlihy, Jr.: Well no, but what I'm coming about to, I'm going to bring it back to my particular position, in this respect. Now, it may be necessary for that community to do just that to induce that business to come there, so that the general welfare of the community is as necessary. What I'm pointing out is this, that in these cases we have got to consider the general welfare of the entire community. All right, a particular group may suffer as a result of this taking or this exertion of state power, as the case may be, but by and large the downtown business area is saved, the community is saved from the usual decadence that goes with downtown business areas. It's improved. It means that the general welfare is in a much better position as a result of that and just before I close, I would like to call the Court's attention to one matter. This case started in equity. It's a chancery proceeding and I want to say this, that in the Jones versus Marva case, Marva Theater case, the Court considered an angle which I think merits attention. In that case the court stated, “Let's balance the equities in this situation.” Now, Marva Theaters in that particular situation had expended a lot of money in the theater. They stated they tried to work out some arrangement through his actions they weren't able to complete what was the suggested procedure. Now, here is Eagle. It expended a lot of money. The record shows that back in 1957 the class of which the plaintiff, the appellant in this case, is a part, could have very well come in and asked for a declaratory judgment and had this matter stated. But no, this matter goes on for all these years, and suddenly we're met, after the Eagle has been in business for a period of time. I think that that's inherent in this case, and I think that it's inherent in any court of equity to consider and balance these equities.
Earl Warren: You think that whenever the public is about to make a lease of its property, particularly when there's no mention made of segregation at all in the lease, that it's the duty of those who might be discriminated against to come in and ask for declaratory relief?
Thomas Herlihy, Jr.: I don't go that far, Mr. Chief Justice.
Earl Warren: Well, how far do you go?
Thomas Herlihy, Jr.: I say that when they know about it and they do come in and ask about it, as they did in this case, it's in the record. They did in 1957, although the contract had been let at that time --
Earl Warren: Okay, you say "they knew." How do you know they knew?
Thomas Herlihy, Jr.: When I say that this was a class, a member of this class, the same class to which the appellant in this case, the record shows that they came in in the 1957 and said to the president of the Parking Authority, put a policy in effect on Eagle, in the Eagle Restaurant, which will be against discrimination. And nothing was done, nothing went beyond the grievance. The answer of the president of the Parking Authority at that point was, the contract has already been let and there's no doubt that that would and it did happen.
Earl Warren: So that by reason of that all Negroes are refused the right to exercise their constitutional rights, whatever they may be?
Thomas Herlihy, Jr.: No, I'm not saying to that extent, Your Honor. But I'm saying that there's a time when you got – where we have we start off, as I contend in this case, that we do have a private business and I think that there is a basis to show that there is a private business here and if we do have that, then I think we ought to evaluate the equities of the situation. Now, if the Eagle had been part and parcel of a scheme to defeat the ends of the Fourteenth Amendment, I would look at it differently. Now, at no time did the Eagle make any pronouncement which in any way would consider that the people of the colored race were offensive to it.
Earl Warren: Were what?
Thomas Herlihy, Jr.: Offensive to it. It just made a categorical statement, as is in the answer. They refused to serve them. That's the end of it.
Earl Warren: I don't quite understand that.
Thomas Herlihy, Jr.: Well, they didn't just come out and state that the whole class was offensive as such. They said they refused to sell to a person of the colored race. That's in the record.
Earl Warren: Well, what is the distinction there?
Thomas Herlihy, Jr.: Well, a great deal was made here yesterday of the fact that the colored race was obnoxiously, as a matter of general knowledge, that the Court could take judicial notice of, was obnoxiously offensive to the Parking Authority. We do not go along with that.
Earl Warren: Well, you took the position though, that they're offensive to your people?
Thomas Herlihy, Jr.: Yes, in the particular situation.
Earl Warren: Beg your pardon?
Thomas Herlihy, Jr.: We did, but we didn't go to the extent of saying that the whole race was. We said this particular plaintiff, this particular petitioner.
Earl Warren: Well, I thought it was more or less understood in this case that it was here on the basis that you did discriminate –
Thomas Herlihy, Jr.: We did.
Earl Warren: -- solely because of the race.
Thomas Herlihy, Jr.: We did.
Earl Warren: Well then, how can you say that you didn't do it on the basis of race?
Thomas Herlihy, Jr.: Well, we did but it may have been on this particular as a member of that race, but we didn't say that they were obnoxiously offensive, and that's the point I wanted to make. We did discriminate against this particular individual because of his race.
Hugo L. Black: Your time is up, but there is one question I wish you would answer (Inaudible). As I understand it, you've argued this case, the case has been argued on the basis that the power and rights of the State in leasing property owned by all of your people of the State is no greater and no less with reference to the obligations imposed on it in leasing and though the State were a private human being. Your whole argument is on that basis.
Thomas Herlihy, Jr.: It's a private business.
Hugo L. Black: So that when the State owns property which it decides to use and lease, not sell, but lease, all the rights that a private person would have in making that lease the State must have although it can or could use that method of regulating the use of the property, instead of passing laws --
Thomas Herlihy, Jr.: It could very well --
Hugo L. Black: -- by lease?
Thomas Herlihy, Jr.: It could very well, because what happens in many government contracts Mr. Justice Black is there are specific provisions written right into the contract. And I brought along that, I'm not going to take the time to quote that to you, but in many government enterprises it's specifically stated that there shall be no discrimination and that would solve the question right here. If that had been in this lease, none of us would be here.
Hugo L. Black: They could have done it.
Thomas Herlihy, Jr.: They could have done it.
Earl Warren: Mr. Redding?
Louis L. Redding: Mr. Chief Justice, members of the Court. I would briefly like to summarize the position of the appellant here. However, before I do that I hope the Court will permit me to make one digression which is not in the record, and I would assume to do that only because there have been a number of references made to facts which are not in the record. Your Honor, the Chief Justice presumed a hypothetical case in which the land on which the facility is now erected had been occupied by disadvantaged members of a minority. This was not the situation in this case. This land was extremely valuable land in the center city which was then used for a commercial purpose. So that the plaintiff here was not disadvantaged in that manner, but the fact outside the record I'd like to mention is the fact that the plaintiff is a member of the City Council of the City of Wilmington, Delaware, a fact which is well known to all the parties in this matter, and was well known to the courts. Now, I mention that not as giving him any rights superior to the rights of any members of the class whom he represents, but as indicating that as a member of City Council, which under the statute which creates this Authority, has the right to confirm persons appointed to the Authority, he did have intimate knowledge of the operation of this parking facility. He brought his action merely as a member of the minority group, and the basis of his claim was that this was state property. Now, we've set forth in our brief all of the indicia of state property which associate with this particular facility. The most important aspect of the relationship of the lessee to the lessor here is that the legislature prohibits leasing except insofar as leasing is necessary to carry out a governmental function. To that extent, the lessee is an instrumentality of the public lessor for the purpose of carrying out a public function. And it is the position of the appellant here that this instrumentality of the public lessor should be affected by the same constitutional restraints that the public lessor is.
Felix Frankfurter: But as you indicate, does it make any difference to you that Mr. Chapman occupies the public position that he did? Does it make any difference to you?
Louis L. Redding: I said, sir, I tried to indicate that --
Felix Frankfurter: Does it make any difference to you that people may have known that this was a restaurant in a public building? Does it make any difference whether people did know or didn't know, to the legal question? Does it make the slightest difference?
Louis L. Redding: It does not, sir. It does not. Now, may I say – may I go -- however, that is one aspect, that is the fact that this is a public property, was the fact that brought him was the legal basis, that brought him in the court originally, After he got into the Court of chancery, he was furnished a second legal basis to oppose this discrimination. The defendants defended on the basis of a state statute, and they said that this state statute gave them the right to discriminate against this individual because of his association with the particular ethnic minority. Now, this was state action. That is, the interpretation by the court that this meaning which the defendants ascribed to the statute was a valid meaning, made the statute mean exactly what the defendants said it meant and so by state judicial action giving legal force and effect to a racially discriminatory statute, the defendant brings his appeal, and he bases his appeal on that. And we ask the Court not only to declare that there is state action here because of the fact that the private lessee is an instrumentality of the public lessor in effectuating the public purpose, but also because here is a statute of the State of Delaware which the highest court of the State of Delaware says may be used to discriminate against people because of an extraneous fact like their ancestry. And we say that time after time this Court has held that this is a violation of the Equal Protection of the laws. So for these -- on these two grounds, not only is the defendant in court, but on these two grounds it is our belief that the judgment below should be reversed and we respectfully request such a reversal.