Warren E. Burger: And we'll hear arguments next in Navarro Savings Association against Lee. Mr. Fischman, you may proceed whenever you are ready.
Bernus Wm. Fischman: Mr. Chief Justice, may it please the Court. Bernus Fischman of Houston, Texas for the petitioner, Navarro Savings. Your Honors, certiorari was granted in this case to review a decision of the Court of Appeals for the Fifth Circuit which held that the citizenship of a Massachusetts business trust, in this case, a real estate investment trust, was that of each of its trustees as opposed to its some 9500 beneficial shareholders. The petitioner believes that the case although one of first impression on the narrow point now before this Court, that is as to a real estate investment trust as a particular species of business organization, although it is a case of first impression that it is well governed by previous decisions of this Court. The -- the principal decision or pair of decisions which believe are governing in this case are Morrissey versus Commissioner, cited in the brief, and that of United Steelworkers versus R.H. Bouligny and company. The Bouligny case – well, let me do it first with Morrissey. Morrissey holds that a real estate investment trust is an association as opposed to some other species of entity. It says in effect in the – the holding of the case is that it would be taxed as an association under the applicable provisions of the Internal Revenue Code.
William H. Rehnquist: They don't purport to govern jurist -- diversity jurisdiction?
Bernus Wm. Fischman: No, Your Honor. The -- the Morrissey case is addressed particularly to the statutory construction of the Internal Revenue Act, but I think a careful reading of a case and we say this in our brief. The case does not confine itself to application on the narrow issue of what is this entity for purposes of the Internal Revenue Code. What it does say is this entity is a business trust and we will treat as such incidentally for tax purposes.
William H. Rehnquist: No. My -- my question was not so much that the Morrissey case may not have relied on the Internal Revenue Code, but that perhaps, it may have been wrong in relying on the Internal Revenue Code. Since we do have a diversity jurisdiction and for fairly, carefully defined statute setting out what shall be this test and for jurisdiction of the federal courts. Why go to the Internal Revenue clauses?
Bernus Wm. Fischman: I don't believe we're looking to the Internal Revenue Code, Your Honor, to determine where the jurisdiction lies. As we say in the brief, it's really a two – a two-point analysis. All Morrissey says is, “This entity is a business association.” We're not going to treat it as a conventional trust, because it has the features of continuity or perhaps perpetual life. It has the features of transferability of interest. It's an active, ongoing business organization that has the object of making money and distributing the gains to the -- the beneficial interest holders. It's not a trust. That's all that we say Morrissey holds. To find out where the jurisdiction lies, one must then look to the Bouligny case, which is in itself only the natural outcropping of it's antecedents, the prior decision of this Court in Chapman versus Barney in 1887 I believe, decision of this Court, in which it was held as a matter noticed by the Court as opposed to anything that was suggested by either of the parties in their -- in their briefs that -- that the District Court or excuse me, the Circuit Court at that time did not have jurisdiction because the -- the entity there was – it's called an express company. It was in essence, of joint-stock association and therefore, as it has been characterized, a -- a mere partnership. And the Court said, “We must look to the citizenship of each of the constituent members of this entity that have aggregated themselves for the purposes of conducting business. The next case to come along was the great --
Warren E. Burger: But you're talking about the 1887 case now?
Bernus Wm. Fischman: Yes, Your Honor.
Warren E. Burger: Do you think the changes in modes of doing business in that time with this was anything to do with how would this case should be viewed?
Bernus Wm. Fischman: None whatever, Mr. Chief Justice. We believe that the basic principle is one that is -- adheres from the earliest concepts of our federal – our -- our system of federalism which is, at ordinarily, this cases belong in the state courts and this was pointed out in the Carlsberg decision we've -- we cited in our brief. That there is a – this federalism concept that says these cases belong in the state courts, unless there is a good reason they belong in the federal courts. If you go back to the -- the problems that this Court -- in the antecedents that this Court had in -- in wrenching with the decision of what to do with corporations, they were artificial persons. They had no citizenship of their own. So originally, in Bank versus Deveaux, the Court said, “We're going -- we're not going to treat them as -- as an entity. We're going look to the citizenship.” The Court then reversed itself in the next case. And then finally, in the Marshall versus Baltimore & Ohio case, the Court said, “All right, we're going to treat this entity as being comprised of its individual shareholders, its beneficial interest holders, but we're going to indulge in the fiction that all of these people reside in the State of incorporation.” Now, this persisted until the 1958 Amendments to the judicial code which said, “We're now going to codify that fiction,” but there has been no other effort on the part of Congress to recognize real estate investment trust, limited partnership, joint-stock associations or other forms of unincorporated associations.
Warren E. Burger: But point you've just said suggested – suggest at least to me, that over the last century the -- the varying modes of business and practices have been reflected in decisions of the courts.
Bernus Wm. Fischman: This is true, Your Honor. But, if we look to the Bouligny case, we find that a labor union is certainly a type of entity that I don't believe existed in any great quantity during the -- the early part of the development of this country. The labor unions became strong, really as entities at the beginning of this century. In the Bouligny case this Court said – speaking to Mr. Justice Fortas that we will not extend this rule to comprehend the labor union. We will not indulge in the same fiction for the labor union that we have indulged in a corporation and the Court could conveniently say that I think, because at that time the corporation had been treated by Congress. And this is why the opinion says that please, for extension of the diversity jurisdiction should be addressed to the Congress. And I think that's what the -- what the respondents have argued here in – a part of their brief, we finally get down to it and they say, “This is what the rule ought to be.” This Court should create a fictional citizenship for this one particular type of entity, a Massachusetts business trust.
William H. Rehnquist: Wouldn't you agree to the place for contraction of the – diversity jurisdiction should be addressed to Congress?
Bernus Wm. Fischman: I don't believe it would represent a contraction, Your Honor, Mr. Justice Rehnquist, because the rule traditionally has been that it must be the citizenship of the individual person and not an, aggregations of persons. I don't believe it's contracting the – the federal jurisdiction, the diversity jurisdiction of the Federal District Courts.
Byron R. White: I take that you think that this decision expanded it?
Bernus Wm. Fischman: I think unquestionably, Your Honor. For example, the Carlsberg court treated – this was a Third Circuit decision and the Carlsberg court said that it would in fact be expansive of a -- of the jurisdiction. The Court says --
Byron R. White: Is there a Circuit Court case against you?
Bernus Wm. Fischman: No.
Byron R. White: Except to – except the one (Voice Overlap) --
Bernus Wm. Fischman: The instant case. There are other cases, Your Honor, and we have --
Byron R. White: About the Second Circuit?
Bernus Wm. Fischman: The Second Circuit has not ruled directly on this issue. The Second Circuit concerned itself with a case called Colonial Realty versus Bache & Company. And that case did not deal with the Massachusetts business trust. It dealt with a limited partnership. Now --
Byron R. White: But it gave the limited partnership a separate existence, didn't it?
Bernus Wm. Fischman: It did, Your Honor, and it care --
Byron R. White: And that traditionally –- and that would have been subject to the individual membership rule.
Bernus Wm. Fischman: It should have been and arguably that case is wrong.
Byron R. White: That was an -- that was an expansion of jurisdiction too, you think?
Bernus Wm. Fischman: We believe, clearly it was. The -- the Bache or Colonial Realty versus Bache case has been extensively criticized in the decision of the Third Circuit in the Carlsberg court, Carlsberg versus Cambria Savings & Loan. Now, that case likewise involved a -- a limited partnership. And what the Court said is, “We are unwilling to engraft upon traditional diversity principles, the provisions of Rule 17 to determine diversity, to determine the citizenship of the parties. Rule 17, if it does, do that and perhaps it conflicts with Rule 82 under the construction that the respondents have argued for, Rule 17 would become in effect, a jurisdictional rule as opposed to one that merely determines the capacity of the party. And I think that's what Rule 17 was directed at. The –- the -- it seems that the respondents have sort of put the cart before the horse. They're saying, “Let us look to Rule 17 to determine where the jurisdiction is and then we'll see if there's diversity.” It doesn't make sense. And this is what the Court in Carlsberg looked at and as the respondents concede in their brief, there really is no practically difference between the limited partnership and the real estate investment trust. Now, I would like to turn for just a moment and discuss the -- the cases that were cited extensively by the respondent. The -- the several lines of cases, Dodge versus Tulleys, Wyoming and Susquehanna Railroad versus Blatchford, and --
Byron R. White: Well, if we have taken the Second Circuit case and affirmed it, I suppose you would -- would probably be wouldn't even be here.
Bernus Wm. Fischman: Well, we're –- of course we're here, Your Honor, with all due respect, because the Court granted certiorari on the point of the --
Byron R. White: Well, I know (Voice Overlap) it -- it might not have petitioned. Do you think, if we happen to – if we -- if we had previously agreed with the Second Circuit in a limited partnership case, would that have ruled this case, you think?
Bernus Wm. Fischman: It certainly would have a telling effect upon it.
Byron R. White: Yes.
Bernus Wm. Fischman: It certainly would. I don't know that the Court will see any distinction between the Second Circuit case and this case.I -- I honestly don't see any distinction between the limited partnership and the real estate investment trust. They all have continuity of interest. They all have a -- a body of shareholders who have delegated to a group of trustees, curators, managers, directors, whatever you would call them, the managerial duties of their entity. But it doesn't change the basic fact that they're the real parties and interest in this case, if real party and interest analysis is indeed, even the correct way to approach the case.
Warren E. Burger: Where all practical purposes, what do you regard as the differences between a corporation with -- with directors and 9500 stockholders and this situation, practical now.
Bernus Wm. Fischman: Mr. Chief Justice, I don't think there are any practical distinctions in the two.
Warren E. Burger: That's what the Fifth Circuit seemed to think of, wasn't it?
Bernus Wm. Fischman: I think that may be correct, Mr. Chief Justice. But I think what they're doing then is they're engrafting or they're establishing there, a whole new species of quasi-corporation if you will, into the diversity jurisdiction.
Warren E. Burger: With that –- that's been going on over the last 100 years hasn't it, to some extent?
Bernus Wm. Fischman: I think the decisions of this Court, Mr. Chief Justice, show that when it has reached this Court, the Court has held that the citizenship of the unincorporated association as that of its members. I think to say otherwise, is to in effect, overrule Bouligny at least implicitly and create for the labor union, for example, a form of a second class citizenship. I can't really see any -- any distinction between the modern labor union and the modern business trust. They are both comprised of aggregates of -- of people, of citizens, of live human beings who come together under one banner for the purpose of conducting their business and accruing gains or benefits to the party.
John Paul Stevens: One difference I suppose with the union is that – for most its litigation – not every case because Bouligny teaches to the country. Most of its litigation, it probably has a federal question that it can assert and when it sues an employer under the -- under the federal statute.
Bernus Wm. Fischman: I'm --
John Paul Stevens: There isn't an awful lot of litigation by, with unions that requires -- it's based on diversity is there, in the federal courts.
Bernus Wm. Fischman: I'm -- I'm really not prepared to answer that, Mr. Justice Stevens. I could only say this, “In the Bouligny case, the -- the issue involved a libel brought by the --
John Paul Stevens: Right.
Bernus Wm. Fischman: -- company against --
John Paul Stevens: Yes.
Bernus Wm. Fischman: -- the union which was clearly a state-created right and clearly belonged in the -- in the -- the State unless there was some bona fide basis for them. We want to respond briefly to the -- the cases that deal with the trust. Several of these cases that are cited, I think are distinguishable on the fact that all of the parties did in fact have diverse citizenship, even including the beneficial interest holders and including the trustees. That's the case of the Dodge versus Tulleys and Bullard versus City of Cisco. In those cases, which are relied upon by the trustees in this case, you already had diversity anyway, and I don't think that the -- the points made in those cases are necessary for the decision that was ultimately made. In the Wyoming and Susquehanna case Blatchford, the -- the Court held there was no jurisdiction, because the trustee in the case did have the same citizenship as one of the defendants. They were both residents of Pennsylvania. So I don't know how much those cases furnish a -- a dichotomy between the line of cases of Bouligny, Chapman versus Barney, Great Southern Fire Proof Hotel, which was a case that involved a limited partnership which was decided by this Court and is nearly as I can see, squarely conflicts with the Second Circuit case which this Court denied sort on, but certainly did not hear and -- and affirmed. I'll save the balance of time, Your Honors, if I may, for rebuttal.
Warren E. Burger: Very well. Mr. Ellis.
James A. Ellis, Jr.: Mr. Chief Justice and may it please the Court. First, I must disagree with my learned colleague as to the essence of the holding of the Fifth Circuit. It is my reading of the decision by the Fifth Circuit that the individual plaintiffs who alleged that they were trustees of a business trust were the real parties and interest and that it was their citizenship that governed the question of the diversity of citizenship jurisdiction. It was --
Byron R. White: That is the test you're proposing, real party and interest.
James A. Ellis, Jr.: That is I believe that essence of the test. That's correct Your Honor. Like Mr. Morrissey, in the Morrissey case the plaintiffs in this case were trustees of an expressed trust. The long ran of decisions that are cited in the briefs by both sides, hold two basic premisses that I think are essential to the analysis of this case. Those cited by Mr. Fischman on behalf of his clients including Chapman versus Barney, and Marshall versus Baltimore & Ohio Railroad and the Bouligny case, all stand for this proposition that in unincorporated group of individuals that by state law or otherwise have the right to sue in a joint name are -- that joint name is nevertheless not a citizen. Citizenship is a status that is attributed only to flesh and blood individuals and when there's a suit in a joint name, it becomes incumbent upon the Court to determine who really are the flesh and blood individuals that are suing in that name. The cases which we cited I think hold to the proposition that when a suit is brought in the name of a trustee for the benefit of a beneficiary, really and truly, then it is the citizenship of the plaintiff, the trustee and not the citizenship of the beneficiary that governs the question of diversity jurisdiction. Only when it is a non personal suit, that is a suit by an entity or in the joint name of several individuals do we have to question that counsel poses and that is trying to determine the citizenship of that name or that entity. To analyze this case, we think it's important that the Court consider the basic purpose of the diversity jurisdiction, Mr. Chief Justice Marshall early in this Court's history, commented that the draft of -- of the Constitution either had apprehension as to the impartiality of the state courts or at least viewed with indulgence, the possible fears and apprehensions in that regard, that suitors might have. The purpose of the diversity jurisdiction is to provide a device to give some protection against local prejudice. Another kind of prejudice that is -- prejudice is a subject that this Court deals within many ways -- of course, this is not prejudice based on race, religion, or sex, but it is prejudice against United States citizens based upon their domicile, their citizenship in a State other than the State of the opposing party, the State before.
Harry A. Blackmun: You wouldn't have that in Texas, should it?
James A. Ellis, Jr.: I'm sorry, I didn't understand you.
Harry A. Blackmun: So you wouldn't have that in Texas, would you?
James A. Ellis, Jr.: Your Honor, I must say that there is that apprehension among some litigants in Texas and I suspect in most of the other States also. I must say that that was one of the reasons that this case was brought in the federal court rather than the state court. Whether it's true or not, no one will know, but the apprehension of local prejudice is one of the motivating factors for bringing the suit in -- in --
Thurgood Marshall: And what basis is that for, to get the same jury? It's same people in -- on the juries?
James A. Ellis, Jr.: Your Honor, I disagree with that. In the federal court in Dallas, the juries are selected from the Dallas Division of the Northern District of Texas, encompassing both rural and urban localities. In the state court in -- of course, at Kinney County where this -- where then you would have been placed in the state court system here, the juries would have been selected only out of that rural county and that we feel that it is a significant difference to be able to choose both the broader spectrum of the jurors and the Article III judge to hear the case.
Thurgood Marshall: Do you have any formal -- any Article III judge to perform as state judges?
James A. Ellis, Jr.: Certainly, yes.
Thurgood Marshall: Yes. Judge Hughes, for example.
James A. Ellis, Jr.: Yes, sir. There are a number of Article III judges --
Thurgood Marshall: (Voice Overlap) --
James A. Ellis, Jr.: Yes. And I must say though that those judges who have become Article III judges in Texas, no longer have to stand for election in partisan elections, as other judges do and we feel have a greater capacity for impartiality.
Thurgood Marshall: Let's not get discussing what we don't know about.
Potter Stewart: No.
James A. Ellis, Jr.: Yes, sir.
Potter Stewart: That is as --
James A. Ellis, Jr.: I -- I'd like to move the --
Potter Stewart: -- (Voice Overlap) by my Brother Marshall, if you have a -- if there's diversity of citizenship here, then you have a right to bring your lawsuit in a federal court without showing any prejudice or anything else and if there isn't, you don't.
James A. Ellis, Jr.: That's correct. That's -- that's correct. And the -- and the question is a simple question and we think that the answer is an easy question -- easy answer. Is this a controversy between citizens of different States? The question is who is the controversy between? We must examine the controversy that is the controversial facts, out of which the case arose, the case itself as pleaded by the plaintiffs and the parties to both the controversy and the lawsuit. The answer we think should be not mere theory, but a real and practical answer. Now, who is the controversy between? Is it between the plaintiffs on the one hand, all of whom are individuals who are citizens of a State other than Texas and on the other, a Texas corporation that has its principal place of business in Texas? What is the controversy? The controversy is a suit between the plaintiffs who alleged that in our capacity as trustees, they entered a business transaction that involved the defendant, Navarro Savings Association. They contend that they lent $850,000 and accepted a note payable to them as trustees and that as part of that transaction, they received a take-out commitment, a commitment to make loan from Navarro and that there was breach of that commitment. They claimed damages and seek relief. Of course, there was no trial in this case, it will be incumbent upon the plaintiff, upon remand to prove that they're entitled to the relief they seek including that they are entitled to receive that relief in their capacity as trustees. There was no challenge in the trial court that the plaintiffs, the individual trustees here, lacked capacity sue. That they were -- there was no challenge that they were not the real parties in the interest, there was no challenge that any of the 9500 beneficial shareholders were necessary or indispensable party to the lawsuit. There was no challenge that there was any improper joinder of plaintiffs, or collision, or any other improper device to create diversity jurisdiction.
Warren E. Burger: I assume all these trustees are shareholders?
James A. Ellis, Jr.: It is alleged that three of the eight are shareholders. The trial court dismissed the case apparently by following this argument. Premise number one, this is a suit by the trust rather by the individual plaintiff trustees. We disagree strongly with that, and the Court of Appeals of course held very specifically, that the trust was not a party to the lawsuit. It was the individual trustees, who were the plaintiff. But premise number one is that this is a suit by the trust. Premise number two is that the trust is not a citizen. We agree with that. The trust is not a citizen. Premise number three, is that we must determine what the citizenship of that trust is and we conclude that it is that of all the shareholders. And therefore, it is really a suit by 9500 people who were -- who were not involved in the transaction, who are named plaintiffs, who have no involvement in the litigation. That is the argument we contend that the trial court's dismissal of this case was based upon and we think that it is not correct and that the Fifth Circuit was correct in reversal. The proper analysis we think is this, assuming that we are in error as to the premise number one and that this really and truly was a suit by the trust, rather than by the trustees --
William H. Rehnquist: Counsel, when you at least say, “By the court trust,” are you using the term, “trust” to mean Massachusetts business trust as opposed to corporation or individual, as a method of doing business?
James A. Ellis, Jr.: I believe that that is the sense in which I'm using the word. Of course, a trust is hard to define metaphysically. It is a relationship between some beneficiaries on one hand and some trustees on the other. In this situation of course, there is a right to sue in the name of the trust. And the question is, who is it really that's suing in the name of the trust?
William H. Rehnquist: Is the trust a -- a person or a thing?
James A. Ellis, Jr.: Again, I believe that it is a -- a series of rights and responsibilities between some beneficiaries, some people here, and some trustees, some people over here, and that it is not a thing or a person.
Warren E. Burger: Well, if you had to choose between the two alternatives, Mr. Justice Rehnquist of course, gave you, wouldn't you say it's a thing?
James A. Ellis, Jr.: It is a thing in a sense that of course, it has no citizenship. It is not a flesh and blood person, of course.
Warren E. Burger: It's an entity.
James A. Ellis, Jr.: It is an entity. Is -- that's one way to view it. That's correct.
Byron R. White: What does it call itself when it issues things to its shareholders if -- over their interest -- over its interest holders?
James A. Ellis, Jr.: I believe --
Byron R. White: Its beneficiaries. What are they -- what does it call itself?
James A. Ellis, Jr.: It -- if calls itself generally Fidelity Mortgage Investors, using the name of the trust as -- as the thing that is communicating with the trust -- with the beneficiaries.
Speaker: Isn't the answer to the question that it is simply a name?
James A. Ellis, Jr.: It is a name. It is simply a name.
Speaker: It's -- It's a trust to which a name has been given?
James A. Ellis, Jr.: That's correct.
Speaker: Do you see any analogy to this trust and to the trust of a corporate trustee for mortgage or the venture holders?
James A. Ellis, Jr.: In many ways, I believe it is the exact the same --
Speaker: Do you have any authority that answers the question as to who's entitled to -- to sue with respect to diversity jurisdiction and where the party is a -- is a corporate trustee or the trustee under mortgage or the venture agreement?
James A. Ellis, Jr.: Your Honor, we have cited a number of those in our brief --
Speaker: Yes.
James A. Ellis, Jr.: -- decisions by this Court.
Speaker: Right.
Byron R. White: Well, that is the usual room for express trust isn't it that the trustees can sue?
James A. Ellis, Jr.: That's correct. And that is the rule that we relied on --
Byron R. White: But that wasn't -- but that wasn't the -- that wasn't the rationale of the court below, was it?
Speaker: I think it was. The trust agreement itself describes it as an express trust, doesn't it?
James A. Ellis, Jr.: Yes, it does.
Speaker: Who -- who holds title to the property?
James A. Ellis, Jr.: It is the trustees who hold legal title.
Speaker: That's what I'm talking about.
James A. Ellis, Jr.: That's correct.
Speaker: They're the only people, who can convey it, aren't they?
James A. Ellis, Jr.: That's correct. They are the only people who have right to manage it. The only people who have right to collect, that's owed to the body of the trust, the only persons who have right to sue for those rights.
Byron R. White: For them, first of all, did it analogize it to the express trust?
James A. Ellis, Jr.: I believe they in fact held that it was an express trust.
Byron R. White: And that's it's a -- and it's also like the limited partners in a limited partnership?
James A. Ellis, Jr.: By analogy, the court below referred to the limited partners in a -- in a limited partnership that is --
Byron R. White: As being the ones who -- who had the citizenship pursued.
James A. Ellis, Jr.: That is correct. The general partners have the citizenship that counts for purposes of a suit in the name of that partnership.
Speaker: (Voice Overlap) -- the limited partner?
James A. Ellis, Jr.: I -- I beg your pardon. The general partners, excuse me, Your Honor.
William H. Rehnquist: Well, then in the 9500 other people who have some sort of interest -- simply have interest in the corpus of the -- of the trust. They have no right to manage or convey proper, that sort of thing.
James A. Ellis, Jr.: Your Honor, that is correct. They have no rights in that regard at all.
Warren E. Burger: But they do have the right to take out trustees tomorrow if they want?
James A. Ellis, Jr.: They do have that right on a majority vote. That's correct.
Warren E. Burger: Well, is that fundamentally different do you think from the rate of stockholders to dismiss directors or no?
James A. Ellis, Jr.: No, Your Honor. I don't believe it's fundamentally different. I believe it is essentially the same. The question then is who sued in this case? We think this is the test that is most simple, most basic and most correct. Who sued? Who are the real plaintiffs? If it's an in -- some individuals who sued and if there is no need for adjustment of the parties by adding or subtracting parties or realigning the parties that is if the people, the individuals who sued are real parties and interest with capacity to sue, then it is their citizenship that governs and at this case, we contend, is decided by that principle. If on the other hand, it is a name that sues Fidelity Mortgage Investors in this case, the court must determine who it is that is behind that name. Whose citizenship must govern? In that regard, we think that it would be proper to look to the state law and to the documents establishing that trust or limited partnership to determine who has the right to sue as between the beneficiaries and the trustee on the one hand, who can be sued, who has limited liability, who has unlimited liability, who has the right to transact business from which the controversy arose. Who is the agent for whom? And by looking at those principles, it can be determined that in this case, the real people who sued even if it was FMI, the Fidelity Mortgage Investors who brought the suit, was the trustees not the beneficiaries. The Marshall decision cited by the defendants in the court below, in fact seemed to imply or at least it can be read to imply that even with regard to a corporation, it is the directors and officers whose citizenship governs. I'll be the first to admit that the language in that decision is not clear when the -- this Court created a conclusive presumption that a corporation has its citizenship for diversity purposes in the State of its incorporation. It was not clear whether the Court was presuming citizenship of the directors and officers on the one hand or whether it was presuming the citizenship of the shareholders on the other, I believe it can be read either way, but if it is read in the former, that is entirely consistent with -- with all of the analysis that we're suggesting to the Court. We think that the analysis that we are requesting the Court to adopt is consistent and supportive of the basic purpose of diversity jurisdiction. The -- the beneficial shareholders in this case will not be revealed or participate or revealed to the parties or -- excuse me, to the Court or to the jury, nor will they participate as plaintiffs in the lawsuit. It is not realistic we think to hold that they are really the parties to this lawsuit, that they are really the parities whose citizenship governs the diversity jurisdiction.
Warren E. Burger: Did they have anything to say about whether the lawsuits should be brought?
James A. Ellis, Jr.: They have nothing whatsoever to say, Your Honor. Under the trust document, they have not right to participate in that decision. It's the trustees alone who may do that. The rule that we are suggesting is a simple and realistic approach. It requires no analysis of the birth naturalization and domicile of those 9500 people who are uninvolved in this transaction and in this litigation. We submit then, the Court of Appeals was correct, but if we have a -- a second position that I would brief -- briefly mention Your Honors and that is this. That if the metaphysical question is decided that this way that it really is the 9500 share who -- holders who are the real patties here and who should have sued or who should be the parties, the three plaintiff individuals who are beneficial shareholders, alternatively brought this action as representatives of all of the other shareholders. Rule 23.2 of the Federal Rules, specifically provides that as an alternative method for -- for creating diversity jurisdiction, when it is an unincorporated association.
John Paul Stevens: Mr. Ellis, do the members of the beneficiaries have any rights as individuals? Isn't the right if it exist, the right in the entity? I mean, how can you have this a class action in that way?
James A. Ellis, Jr.: Well, Your Honor, we -- we do not agree that the rights of the individual shareholders are the rights that issue in this lawsuit.
John Paul Stevens: Then it's not a -- then it can't be a class action on their behalf, can it?
James A. Ellis, Jr.: That's correct. It cannot be. If -- if our assumption is correct.
John Paul Stevens: Then is the merit -- then is the merit to your alternative argument.
James A. Ellis, Jr.: Well, it is our alternative argument. Our primary argument is that it is the trustees whose citizenship governs. It is the trustees who are the real parties. Our alternative --
Potter Stewart: (Voice Overlap) it wouldn't be your alternative argument, is that it?
James A. Ellis, Jr.: Well, Your Honor, we were surprised when this case was dismissed, that is our alternatives argument, we think our major argument is the -- is the proper position to take in the case. In --
Byron R. White: (Voice Overlap) that the question --
James A. Ellis, Jr.: Again that is another alternative argument that we have and that is that the Court of Appeals failed -- excuse me. The -- the trial court failed to -- to develop the record or to allow any development of the record, before it decided that there was no federal question in the case. The Court of Appeals did not make any determination of the propriety of that and we would merely say that if the Court should conclude here that there is no diversity of citizenship jurisdiction in this case, the case should at least be remanded to the Fifth Circuit for determination of the federal question.
Byron R. White: And then -- and then what? Where there's --
James A. Ellis, Jr.: If the Fifth Circuit determines that there is a federal question alleged in the case, then it should remand the case for trial and development of that federal question.
Byron R. White: On what, on what, on the federal question or on some pendent issue?
James A. Ellis, Jr.: It should remand it for a trial on the -- on the issue of which it has jurisdiction namely, the federal question jurisdiction, but of course it also has pendent jurisdiction in that instance to all causes of action arising out of the same circumstances.
Byron R. White: But the issue -- the -- the thing you want tried is really a pendent issue, isn't it?
James A. Ellis, Jr.: If pendent to the federal claim, that's correct.
Byron R. White: And so it's not a -- there's some discretion as to whether it was -- to whether -- to entertain it.
James A. Ellis, Jr.: I don't believe there is discretion. If the Court has jurisdiction, it must entertain it. If it --
Byron R. White: What -- what, a jurisdiction over the federal question and therefore, you must entertain pendent issue?
James A. Ellis, Jr.: I believe that that is correct, that the Court does have pendent jurisdiction over --
Byron R. White: I -- I -- yes, you have it -- you have it, if you want to exercise it. Do you think there some -- some requirement of it?
Potter Stewart: I thought (Inaudible) said to the contrary?
James A. Ellis, Jr.: Your Honor, and you may be correct on that. I -- I'm not familiar with that case at this time. In conclusion, we would merely urge the Court to affirm the Fifth Circuit. We think the reasoning there is proper, correct and practical and reaches a just conclusion. Thank you.
Warren E. Burger: Mr. Fischman, do you have anything further?
Bernus Wm. Fischman: Thank you, Mr. Chief Justice and may it please the Court. It would seem that the -- the primary question that's developed here is exactly what it Fidelity Mortgage Investors, is it an entity? Is it an unincorporated association? Is it an aggregation of individual or just what? The -- the entity is in fact, an unincorporated business association. It is not a trust in the traditional sense of an express trust. It may call itself one, but if one reads -- reads carefully, the declaration of trust in this case, one could find that this entity can be almost anything it wants to be because, for example, in -- as pointed out in the declaration of trust which is in the appendix to the briefs. The -- the trust can delegate or that excuse me, the trustees have the power to delegate their authority to anyone of their membership -- anyone of the trustees --
Byron R. White: Well, that maybe so but -- but short of that, what power does an individual member have?
Bernus Wm. Fischman: The same power, Mr. Justice is that --
Byron R. White: Is that to vote out the trustees?
Bernus Wm. Fischman: Precisely the same power which the shareholders of the corporation have and that is by whatever the appropriate majority is to vote out the people that are either defending a lawsuit that they would like compromised or to compel the institution of a lawsuit that they want. There is absolutely no difference in terms of the economic functions of a real estate investment trust and the modern corporation or for that matter a limited partnership or general partnership such as a joint-stock association.
Potter Stewart: But a corporation is a plaintiff or the -- or defendant regardless of who its shareholders or directors, or officers are --
Bernus Wm. Fischman: Precisely, Mr. Justice.
Potter Stewart: -- corporation, that's a party.
Bernus Wm. Fischman: Only by active -- by originally by judicial fiat of this Court by creating --
Potter Stewart: And now, by a statute?
Bernus Wm. Fischman: And now by a statute. Our whole point is centered on the fact that this might be a wonderful argument. It might be just an absolutely magnificent idea for real estate investment trust to have access to a federal form, but it's up to Congress to make that determination as this Court has aptly determined in the Bouligny case. I would think --
Warren E. Burger: You should think there is a fundamental difference between a labor union and all the other categories we've been talking about?
Bernus Wm. Fischman: Only in the sense that the labor union is not organized in the ultimate sense for a financial profit, but it does have as its goal, the distribution of benefits to its membership. It is ongoing. It has business. It has officers. It has members who control ultimately the decisions of its managers, its presidents, its stewards. So in that sense, there really is no real difference. I think if the Court here extends diversity jurisdiction in effect and expands it to accommodate the Massachusetts business trust, you create an infinite possibility for deceptive practices if you will, to create jurisdiction. I think that is as clearly an issue which the Court will have to confront. And I would point out to the Court that this -- that this particular lawsuit was not originally commenced in the Federal District Court in the Northern District of Texas. It was commenced in the State District Court in Dallas, Texas. And only when a plea of privilege was sustained to transferring this case to the county in which Navarro has its headquarters, was the suit dropped and refiled in the Northern District. So, some of the argument that there is the local prejudice doesn't completely reign through. It was the particular forum within the State of Texas that the -- that the respondents were seeking to -- to invoke. Now, this Court must consider the Marshall versus Baltimore & Ohio Railroad case, where it was simply stated that in creating this fiction, we're not going to disregard the fact that the corporators and those were in fact the people who were referred to in that opinion, I -- I can understand counsel's confusion with that term with the corporators as used in that -- that somewhat quaint or antiquated language, simply means the shareholders of the corporation where the ones whose residents would be looked to, to determine citizenship for diversity purposes. I would respectfully submit to the Court that you must in order to hold there is diversity jurisdiction in this case. You must overrule Marshall versus Baltimore & Ohio Railroad. You must implicitly overrule Bouligny and the cases which are in its antecedents. And I think you will do so with all the attendant risk that you will increase the -- the litigation which will be filed in federal forms as a direct result of that -- of that holding. I would also respectfully point out to the Court that the -- in this particular case, for example, it and -- of course it doesn't appear particularly from the record one way or the other, whether all of the trustees of the Massachusetts business trust are before the Court, but it should be pointed out that there is no requirement under the argument which respondents advanced that all of the trustees be before the Court. Supposing, for example, they had several trustees who were residents of the State of Texas, it would be rather convenient to simply ignore their existence and bring the -- the action in the name of only those trustees who were non-Texas residence. And there is nothing in what the respondents argue that would make that in effect, a collusive joinder to confer jurisdiction. It's simply an omission to bring forward those parties who would in effect, destroy the diversity jurisdiction of the federal court. The -- the trust cases, the express trust cases Dodge versus Tulleys, first, as we pointed out, we believe, we respectfully submit, are distinguishable, an express trust in the sense of a mortgage indenture or in the case of Dodge versus Tulleys or -- excuse me, Bullard versus City of Cisco, you had a bondholders committee. But that bondholders committee was organized for one limited purpose and also, all of the shareholders, a close reading of the case, says that the persons who elected to join with the bondholders committee, number one, had citizenship diverse from all of the -- the defendants, that was the first point. Moreover, all of those bondholders who contributed their bonds to the committee --
Thurgood Marshall: If decisions are raised on this agreement, give to the trustee's right to file a suit?
Bernus Wm. Fischman: Unquestionably, Mr. Justice.
Thurgood Marshall: Well, how do you retain that that be given away?
Bernus Wm. Fischman: By simply voting out the trustees, Mr. Justice.
Thurgood Marshall: What I mean, how can you file a lawsuit?
Bernus Wm. Fischman: I don't follow the Court's question.
Thurgood Marshall: Yes, you delegated the trustees the right to control, to sue and what have you. Why do you now have the right to be in a lawsuit?
Bernus Wm. Fischman: You mean as individuals?
Thurgood Marshall: Yes.
Bernus Wm. Fischman: Because the delegation is merely the creature of those parties.
Thurgood Marshall: Well, what action have you done --
Bernus Wm. Fischman: It doesn't --
Thurgood Marshall: -- to withdraw that delegation?
Bernus Wm. Fischman: Because in -- we're obtaining --
Thurgood Marshall: Have you withdrawn it yet?
Bernus Wm. Fischman: They have not because --
Thurgood Marshall: (Voice Overlap) --
Bernus Wm. Fischman: -- they have not, but they ultimately as the true parties and interest, if that is indeed the appropriate analysis at all, have that power simply by removing those trustees. Totally --
Thurgood Marshall: They haven't done it.
Bernus Wm. Fischman: No, that's true. They have not in this case.
Thurgood Marshall: What else can you --
Bernus Wm. Fischman: But --
Thurgood Marshall: -- tell me about this one?
Bernus Wm. Fischman: I understand it, Mr. Justice Marshall, but I believe that the point is that they may do it in -- in positing that power in the shareholders, you make them no different than the shareholders of a corporation. But the only reason that a shareholder of a corporation -- it was not a party and --
Thurgood Marshall: And there's another difference. A corporation has a state statute declaring it to be a corporation and given it the right to sue and be sued.
Bernus Wm. Fischman: But I would --
Thurgood Marshall: And you don't have that.
Bernus Wm. Fischman: I would respectfully submit that that means that you then refer the federal court to the law of the States to determine federal jurisdiction, which I don't believe this Court has ever held, was properly the function of the federal form. The -- the -- it is pointed out in the Carlsberg case that jurisdiction has to appear from the record itself. It has to be there to begin with. Under -- under that particular argument, the only reason that a corporation has, if you will, a birth certificate, is because the State gave it one. That's fine. But that is -- does not change the ultimate fact that the corporation metaphysically exist only in the contemplation of the law. It doesn't exist. I can't reach out and touch the corporation. I can only reach out and touch individuals who own property and who have some conflict with my client. What I cannot see is any difference between that type of entity and the corporation. It's the same thing. And the only thing that gives a corporation the right to be there is because originally, a court-created fiction and then ultimately, an Act of Congress. Thank you, Your Honor. Thank you, gentlemen. The case is submitted. We'll hear arguments next in --


William H. Rehnquist: We will hear argument next in No. 85-1656, James A. Lynaugh, Interim Director, Texas Department of Corrections, versus Gregory Allen Petty. You may proceed whenever you are ready, Mr. Palmer.
Charles A. Palmer: Mr. Chief Justice, and may it please the Court, this is a statutory habeas corpus case brought by a Texas prisoner serving a 50-year sentence for aggravated robbery. The first question presented is whether the petitioner was required to plead prejudice in order to avoid dismissal of the Sixth Amendment claim by the District Court. I believe it is clear under Strickland versus Washington and Hill versus Lockhart that he was required to do so, and I do not intend to dwell on this point. I believe the important question for the Court's decision is the propriety of the Fifth Circuit's disposition of the new issues which Petty raised on appeal. Petty was tried on his plea of not guilty and convicted in state court in 1979, and his conviction was affirmed by the state appellate court. He then filed a state application for collateral relief, raising two grounds, one of which was that his counsel's representation had been constitutionally inadequate. The convicting court found that Petty had not pled facts which would entitle his to relief and recommended that the writ be denied. The state appellate court denied the writ on this basis. Petty then filed a habeas petition in Federal District Court in which he raised six claims, including ineffective assistance of counsel. Petty's federal claim was couched in the same conclusory terms as had been his state claims. Accordingly, the state's answer pointed out that Petty had not alleged facts which if true would entitle him to habeas relief. The magistrate to whom the case was referred agreed and recommended denial of the writ because Petty's pleadings were insufficient under existing Fifth Circuit law. Petty did not object to the magistrate's recommendation, and it was adopted by the District Court, which denied the writ. On appeal to the Fifth Circuit Petty raised for the first time in any court specific factual allegations as to his counsel's performance and how it allegedly affected the outcome of his trial. The Fifth Circuit reversed and remanded, holding that Petty should be allowed the opportunity to amend his petition in the court below to include the allegation that counsel should have investigated a possible defense of insanity. The Court of Appeals recognized the general rule that issues raised for the first time on appeal ordinarily are not considered, but ignored the rule because in its words, the fact that Petty has now made these allegations indicates that he would make them in the District Court if he were given the opportunity to do so. The problem with this standard is that it is no standard at all. There will never be a case where new issues are raised on appeal that will not come within this rule. Under the reasoning of the Court of Appeals, habeas petitioners are entitled to a remand as a matter of right whenever they bring forth new issues on appeal. We believe the Court of Appeals approach is contrary to the admonitions of this Court as expressed, for example, In Rose v. Lundy, that habeas petitioners should marshall all their claims in a single petition and make but one trip to the state and federal courts in seeking relief. What is worse, under the reasoning of the Court of Appeals there is absolutely nothing to prevent Petty from bringing forth additional new issues on a subsequent appeal and obtaining yet another remand with directions to allow him to amend. The end result is that there will be absolutely no semblance of finality in criminal cases.
John Paul Stevens: General Palmer, what it really boils down to, isn't it, that you want to be able to argue effectively that there is an abuse of the writ because even it they had just not taken this disposition, he could still have filed a second habeas petition, but you would have claimed it would be an abuse of the writ if he had?
Charles A. Palmer: That is correct, Your Honor.
John Paul Stevens: But why can't you still argue on remand to the District Court that there is an abuse of the writ here because he should have raised these things the first time around?
Charles A. Palmer: We could argue that. I believe it would be futile. I can't imagine the District Court granting our motion when the remand with directions to allow an amendment was expressly ordered by a higher court. If the Court of Appeals had followed the normal procedure and simply affirmed the District Court without reaching this issue, Petty would have had to initiate a new lawsuit in order to raise this claim.
John Paul Stevens: Then should we really construe what the Court of Appeals has done as in effect holding that given the particular history of this case we don't think it would be an abuse of the writ for him now to raise these issues so let's just have him raise them in this case instead of filing a new proceeding?
Charles A. Palmer: No, Your Honor, the abuse issue was never raised by either party. It was not briefed. Whether or not a petitioner has abused the writ is a factual issue. The burden is on the state to plead abuse of the writ. Once the state has done so the burden then shifts to the petitioner to shot that he was unaware of a particular claim or claims. None of this has been developed in the District Court or in the Court of Appeals. What the District Court did was simply give Petty an end run around the abuse doctrine and it spells it out quite clearly in its opinion. It says once the case is remanded to the District Court the state will be allowed to plead failure to exhaust state remedies because it is clear Petty has not exhausted his state remedies as to these claims, If the state does so the District Court will have to dismiss on that ground. Its dismissal will be without prejudice, and then Petty rill be free to initiate a new lawsuit. I think the only fair reading of what the Court of Appeals did is to relieve Petty of his burden of justifying not bringing this claim earlier.
Byron R. White: Why couldn't you argue in the Court of Appeals that allowing this amendment would be an abuse of the writ? And also you could argue if there hasn't been any exhaustion of this particular issue, you could argue there was no exhaustion.
Charles A. Palmer: Well, the Court of Appeals recognized that there had been no exhaustion. In remanding to the District Court it opined that perhaps the state would wish to waive the exhaustion defense.
Byron R. White: How about abuse? Did you argue abuse?
Charles A. Palmer: No. Your Honor, because abuse is a factual matter, and the Court of Appeals is not the proper forum to develop a factual issue-such as abuse.
Byron R. White: I know, but they might, have remanded and said we have to consider abuse of the writ before the amendment.
Charles A. Palmer: They might have done that, Your Honor but that is not the case before the Court.
Byron R. White: Well, you didn't ask them to.
Charles A. Palmer: No, that is true. We didn't.
Antonin Scalia: I don't understand. What would the abuse of the wilt have consisted of? Not--
Charles A. Palmer: The fact that Petty--
Antonin Scalia: --Not saying something? I wouldn't have seen any basis for arguing an abuse of the writ.
Charles A. Palmer: --The abuse doctrine goes to whether the petitioner was aware of the claim at the time he filed his federal application and failed to raise that claim, and then in the second federal petition raised the claim--
Antonin Scalia: He has to have raised the claim. It is the second time around when he raises the claim that the writ is abused. He never raised the claim.
Charles A. Palmer: --That is correct.
Antonin Scalia: How could there have been an abuse of the writ? Maybe you could say it was an abuse of the appellate process to raise the claim on appeal when he hadn't raised it below, but I don't know how that could be considered abuse of the writ. Do you?
Charles A. Palmer: Your Honor, we are not here arguing--
Antonin Scalia: I am trying to help you, General.
Charles A. Palmer: --We are not arguing that this is or is not an abuse of the writ. As we stated in our brief--
Antonin Scalia: Is there any basis on which it could nave been an abuse of the writ?
Charles A. Palmer: --Well, we cited the Court to Woodard v. Hutchins, in which the Court opined or stated that a claim like this, an insanity claim surely was known to the petitioner, and failure to bring it would obviously constitute an abuse of the writ. What is important to keep in mind, I believe, is not whether or not Petty abused the writ. He may or he may not. Once the state is allowed the opportunity to plead abuse of the writ, Petty will be allowed an opportunity to respond to that, anti depending on Petty's justification tor withholding the claim, it may or may not constitute an abuse of the writ. What is at stake here is, the state is not allowed the opportunity to plead it. Petty is sent back to the District Court and allowed to amend. It is all the same case. It is not a new case, and the abuse doctrine simply does not apply.
Antonin Scalia: Abuse of the writ does not consist in withholding a claim, does it? I can file a writ without making a claim. I am not abusing the writ. If I choose not to like a claim, I don't have to. Abuse of the writ consists in filing a writ that makes a claim that could have been made previously.
Charles A. Palmer: Exactly, Your Honor.
Antonin Scalia: Isn't that what abuse of the writ consists of? And there is no possible way he could have been guilty of that here, because he never made the claim in a writ.
Charles A. Palmer: He never made the claim when he filed his writ in the District Court.
Antonin Scalia: And simply failing to make a claim when you file a writ is not conceivably abuse of a writ.
Charles A. Palmer: I agree with that. But the point is, if the Court of Appeals had followed what I understand to be normal appellate procedure it would not have considered this matter whatsoever. It simply would have said this was a claim that was not raised in the court below. We are not entitled to consider it. It would have reviewed the claims Petty raised and affirmed on that basis.
William H. Rehnquist: And then if he had raised... filed another petition making the claim which the Court of Appeals actually considered on this one, then you could have argued abuse of the writ.
Charles A. Palmer: Precisely, Your Honor. Now, Justice White has suggested that perhaps once Petty was allowed to amend, we could have pleaded abuse at that point, and perhaps we could, but once the Fifth Circuit had sanctioned the amendment it is very difficult to conceive that the District Court would sustain the state's abuse argument. Petty makes several arguments in this Court to uphold the propriety of the Fifth Circuit's disposition, the first of which is that the District Court's dismissal was due to a defect in pleadings and therefore was not on the merits. We do not believe that is an accurate statement of how habeas cases are disposed of. In a habeas case such as this, when the District Court considers the pleadings and the state court record, its decision to deny relief necessarily goes to the merits of the petitioner's claim, and the dismissal then is with prejudice. The dismissal with prejudice on this record in no sense is unfair to habeas petitioners, however, because unlike ordinary civil suits there is no principle of res judicata. Habeas petitioners are free to re-litigate the constitutionality of their convictions again and again subject only to the abuse of the writ doctrine. Petty also argues that the District Court abused its discretion in not ordering discovery under Rule 6 or expansion of the record under Rule 7. Of course, the District Court was under no duty to do so, and given the vague and conclusory nature of Petty's allegations there was simply nothing to suggest to it that utilization of those rules would be appropriate in this case. Finally, Petty argues that he was not put on sufficient notice of the inadequacy of his pleadings. Petty filed his federal petition on March the 7th, 1984. More than seven months previously when the state convicting court filed its findings, it noted that he had not pled sufficient facts to justify relief on a Sixth Amendment claim. The forum which Petty used to file his federal writ instructed him that it was necessary to raise all the facts in support of each of the claims, and even advised him that it is permissible to attach additional pages to include the facts if necessary. Both the state's answer and the magistrate's report pointed out to Petty that he had not pied sufficient facts to justify relief. Given this record, it is at best disingenuous to suggest that Petty was not afforded an opportunity to plead his case in the District Court.
John Paul Stevens: May I go back to the facts for just a second. In this case the initial pleading alleged ineffective assistance of counsel and recited a lot of facts that did not establish it, according to the magistrate. It did not allege the theory that the counsel failed to investigate the possible insanity of the defendant. Is that correct?
Charles A. Palmer: that is correct.
John Paul Stevens: And on appeal the counsel became aware of this alleged shortcoming of counsel. What, in your view, should counsel who has just been appointed, what should the counsel have done at that point?
Charles A. Palmer: Well, Your Honor, it was not appointed counsel for Petty on appeal who raised this. It was Petty himself in his pro se brief. It was only after Petty raised this matter in his pro so brief in the Fifth Circuit that counsel was appointed to represent his.
John Paul Stevens: Oh, I see, so that Petty himself raised the failure to investigate the insanity. I was thinking the lawyer did that.
Charles A. Palmer: No, Your Honor.
John Paul Stevens: I see.
Charles A. Palmer: Now, of course, the matter was also included in the brief filed by counsel in the Court of Appeals.
John Paul Stevens: So what your view is that they should have just affirmed and then let him take his chances on tiling a second habeas petition making these allegations.
Charles A. Palmer: Absolutely, Your Honor, and I am aware of no authority which allows for the disposition made by the Court of Appeals. It is an anomaly, and it is one that is unfair to the states and burdensome to the courts.
John Paul Stevens: Well, I suppose, though, if he had just... if they just affirmed and he filed the second petition the District Court would have had to dismiss it because it hadn't been exhausted. Isn't that right?
Charles A. Palmer: Well, if it had been affirmed he would have had to go back to state court and exhaust his remedies before he would be entitled to file a second petition. Yes.
John Paul Stevens: But they are going to dismiss this one anyway, and he has to go back to state court. I am just not quite clear on how much difference it all makes.
Charles A. Palmer: Well, the big difference, the significant, difference is, given the way the Fifth Circuit handled the case, Petty is allowed to amend to raise this claim. This claim is unexhausted.
John Paul Stevens: Right.
Charles A. Palmer: Therefore the amended petition will be dismissed for failure to exhaust.
John Paul Stevens: Right.
Charles A. Palmer: That dismissal will be without prejudice. A dismissal without prejudice does not trigger the abuse of the writ doctrine. When Petty comes back into state court... into federal court after exhausting the state remedies, the state will have no opportunity whatsoever to plead abuse because there has been no adjudication on the merits. If the Fifth Circuit had followed normal procedure--
John Paul Stevens: Well, there would be no adjudication on the merits of the defective assistance of counsel based on the failure to investigate insanity then.
Charles A. Palmer: --There would have been no adjudication on the merits of any of the claims. The District Court denied relief on the merits. The Fifth Circuit failed to affirm, sent the case back.
John Paul Stevens: Oh, I see.
Charles A. Palmer: And once the exhaustion issue is raised after the remand, the dismissal for failure to exhaust will not be on the merits, it will be without prejudice. There will never have been a final adjudication of Petty's first petition on the merits. On the other hand, what the state is arguing for and what we understand to be the normal procedure is simply to affirm without considering this matter. Then there is finality to the District Court's determination that Petty's first petition was without merit. There is a dismissal with prejudice which has been affirmed. The only way Petty can raise this claim then is by initiating a brand new lawsuit in the federal court in which he relies the latter because there will have been a disposition on the merits. The state then is entitled to raise its 9B defense. In conclusion, we ask the Court to hold that the Court of Appeals abused its discretion in its disposition of Petty's appeal. The Courts of Appeals would thereby be put on notice that their discretion in this area is not unlimited, that it may not be exercised in such a way as to deprive the state of its opportunity to plead abuse of the writ. The result we ask for is consistent with the equitable nature of habeas corpus in that it upholds society's valid interest in finality and in the orderly administration of justice, and it in no way impinges on the rights of habeas petitioners to raise these new claims. In this case as in any other similar to this a petitioner always can justify raising this new claim if he can show that he was unaware of it or that he did not abuse the writ. For these reasons, we ask that the judgment of the court below be reversed.
William H. Rehnquist: Thank you, Mr. Palmer. We will hear now from you, Mr. Breihan.
John R. Breihan: Mr. Chief Justice, and may it please the Court, from Petty's perspective what this case is really about is the ability of the Circuit Judges to administer their dockets with flexibility and common sense. In other words, we are of the view that the Circuit Courts have the power to do what they consider is just under the circumstances. This case in federal court arose in 1984 when Mr. Petty filed his first and only habeas action. In that action he raised the issue of ineffective assistance of counsel by pleading that his counsel had not conducted a pretrial investigation and had not rendered any advice as to the charges against him and the issues raised at trial. The District Court dismissed this petition after first finding that his pleadings were insufficient. It is in this context that after that the... in his pro se brief to the Fifth Circuit Mr. Petty expanded upon his claim that his counsel had not conducted the pretrial investigation by then alleging that the pretrial investigation would have revealed facts that supported the insanity defense at the time of trial.
William H. Rehnquist: Was it agreed... did the Fifth Circuit opine on the question of whether that claim had been exhausted?
John R. Breihan: The Fifth Circuit stated in its opinion that that claim probably had not been exhausted, and that is why instead of reversing for an evidentiary hearing it reversed for amendment so that the state could respond and pursue its exhaustion defense if it chose to.
William H. Rehnquist: And you agree that the claim had not been exhausted? Let me... do you challenge the Fifth Circuit's--
John R. Breihan: At this point I don't challenge that issue. I have not given that a substantial amount of thought, Mr. Chief Justice. That is an issue that will be raised with whichever disposition comes of this case. It is an issue that will be before the District Court, the exhaustion issue.
William H. Rehnquist: --But what you are defending here is the Fifth Circuit's treatment of this amended claim on appeal.
John R. Breihan: What we are defending is the Fifth Circuit's power to handle its docket in the way that it considered appropriate under the circumstances of the case.
Lewis F. Powell, Jr.: Counsel, let's assume for the moment that you prevail up here and you go back and have a trial in the District Court and lose again. What in Judge Reuben's opinion for CA5 would keep you from coming back here, going back through CA5, saying that your client had discovered a new claim that he hadn't thought about raising below? In light of the language of the Court of Appeals' opinion, couldn't you come back a second and a third and a fourth time?
John R. Breihan: I don't know that there is anything in the language of the opinion that addresses that issue directly.
Lewis F. Powell, Jr.: But... well, take a look at F2 in your petition, amended petition for cert. It is a printed document. Well, I don't want to hold you up. Just carry on, counsel. That is all right.
John R. Breihan: I am sorry, Your Honor.
Lewis F. Powell, Jr.: I agree with you xxx say whether or not you can come back repetitively, but I think the rationale of its opinion makes it perfectly clear that the court thinks you can come back whenever a claim is presented at the Fifth Circuit level that had not been presented below.
John R. Breihan: I think, though, it is the exercise... it is the particular circumstances of this claim that caused the Fifth Circuit to exercise its discretion in this case, and I do think that the Fifth Circuit is limited in the exercise of that flexibility and discretion.
Lewis F. Powell, Jr.: So you think it is a a matter of discretion for the Court of Appeals?
John R. Breihan: Yes, Your Honor.
Antonin Scalia: Mr. Breihan, why isn't it the case that when a matter rises to significantly enough injustice that it would be a proper exercise of the Court of Appeals' discretion to allow the matter to be raised anew it would not also be significant enough to avoid the contention of abuse of the writ if the matter were raised in the normal fashion? I mean, this has to be an unusual situation. You can't have the Court of Appeals doing this all the time because it will, as your opponent suggests, string out these habeas proceedings until doomsday, but if the situation is extraordinary enough for the Court of Appeals to act in this fashion, why wouldn't it automatically be extraordinary enough that when an additional habeas petition were brought you could not be dismissed on the basis of abuse of the writ?
John R. Breihan: I am not certain that I understand Your Honor's question.
Antonin Scalia: You agree that the Court of Appeals can't do this sort of thing routinely, that it is--
John R. Breihan: I would agree.
Antonin Scalia: --To allow the new issue to be raised there has to be some extraordinary circumstance.
John R. Breihan: Yes, Your Honor. It is my position that the situation in this case that Petty had alleged at the trial court level that he had... that his counsel had failed to pursue any pretrial investigation. At the appellate court level after the trial court level... the trial court had dismissed that claim for insufficiency. At the appellate court level Mr. Petty showed in his pro se brief that he had... that he had a substantial prejudiced claim, that claim being that had his counsel presented, or had his counsel pursued a pretrial investigation she would have realized that he had facts that supported an insanity defense and brought that issue at the trial court below.
Antonin Scalia: I understand all that. The only point I make... I don't know how to put it to you more clearly... is that it seems to me if it is extraordinary enough for the Court of Appeals to step in and allow claims that haven't been made to be made in the Court of Appeals, it would also be extraordinary enough to cause the District Court to entertain a subsequent habeas petition--
John R. Breihan: Well, I think that... I think that is true.
Antonin Scalia: --So that therefore we really don't have to permit this kind of a procedure, which you acknowledge has its dangers, in order to preserve the rights of defendants to be defended against patent injustice.
John R. Breihan: My response, Your Honor, is that the actions of the Fifth Circuit under the extreme circumstances of this case was to expediate the... expediate justice, to send it back to the District Court for amendment so that the Court could get right to its business of considering this new claim. In that sense, it doesn't seem to me that this is an abuse case or indeed is a Rule 9 case of any kind, because what the Fifth Circuit has done is to limit Mr. Petty to one petition. It has sent the case back for amendment. Mr. Petty's first and only so far habeas petition has been now sent back--
William H. Rehnquist: What was extreme? You say this was an extreme case that provoked this reaction on the part of the Fifth Circuit. What was extreme about it that distinguishes it from any other habeas case?
John R. Breihan: --First of all, under the circumstances, the petition that Mr. Petty filed had alleged the fact of a lack of a pretrial investigation. He had not gone any further, but the District Court had purported to reach the merits of that claim though the issues raised by the lack of pretrial investigation claim, if you will, arise to a certain extent beyond the record, and a review of the record itself is not entirely sufficient to address that claim.
William H. Rehnquist: Well, is that something that almost never happens in other habeas cases?
John R. Breihan: I suppose that happens often enough, Your Honor.
William H. Rehnquist: So that doesn't make this case extreme.
John R. Breihan: What makes this case a special case to the Fifth Circuit is that Mr. Petty came forward with the issue of prejudice on appeal. The Fifth Circuit did not consider that issue. They didn't consider the truth of that issue. They simply sent the case back for amendment so that that issue could be addressed quickly and efficiently in the District Court.
William H. Rehnquist: But do you have reason to think that doesn't happen fairly often in habeas cases? I don't see what it is about that fact that makes this case so extreme so that, as you are saying, really it is a sport that we don't have worry about.
John R. Breihan: It is a... this is... in the interest of handling pro se litigation I believe it is simply an act of discretion.
William H. Rehnquist: But isn't a lot of habeas litigation pro se?
John R. Breihan: Certainly. Most of it probably is.
William H. Rehnquist: So it seems to me none of the factors that you have mentioned just now tell us that this case is any different from hundreds of others that may be going through the Court of Appeals, so therefore if the Court of Appeals were to follow the Fifth Circuit's decision here this would become a common practice.
John R. Breihan: It may become a common practice, but I do not think that that would mean that it would become a... it would be common for the Fifth Circuit to handle the case in this way.
Antonin Scalia: Wouldn't it be a logical common practice, especially for a capital defendant who has been condemned to death, to raise his defenses in exactly this way? Not be specific enough in the original habeas. Raise it in the Court of Appeals, causing the Court of Appeals to send it back down. Then when it is finally denied, he can rebring another habeas afterwards, string the process along.
John R. Breihan: Well, to me, Your Honor, the key issue is simply the fact that in this case the Fifth Circuit has sent it back... sent it back so that this can be the one and only petition that Mr. Petty files.
Antonin Scalia: Well, why will it be the one and only?
John R. Breihan: Well, because it--
Antonin Scalia: He can file a petition after this one even if the lower court denies this. He can then file another one, can't he?
John R. Breihan: --He could file another one, but not on these claims, absent being challenged by the abuse of writ doctrine from the state.
John Paul Stevens: The thing that troubles me a little bit about this case is that this... apparently this really isn't a new claim, the fact that the lawyer didn't investigate the insanity defense. Those are facts that tend to support the claim that was made. And he did allege a good many facts but just didn't include this particular group of facts.
John R. Breihan: Yes, Your Honor. I think that is one of the special circumstances in this case, and that is why I do not consider it an abuse of the writ case. I think it would fall within the first part of Rule 9, which is the part that addresses... if it falls within Rule 9 at all, it would fall within the first part, that addresses an issue that is not new and different and was considered on the merits below. Even that is in the discretion of the trial court whether or not they are going to rule. That was part of the Poolman decision, I believe, that said when it is an issue that is in the interest of justice goes to the factual innocence the lower court can go ahead and reach the merits of that case and the abuse defense will be waived.
John Paul Stevens: Am I correct that in this case the magistrate did not go into the facts other than those set forth in the habeas petition, and apparently he also knew that the lawyer had represented the same defendant in some other matters, I guess?
John R. Breihan: The magistrate addressed... the magistrate first concluded that Petty's pleading was insufficient.
John Paul Stevens: Right.
John R. Breihan: Then reviewed the record to determine such things as the fact that his counsel had conducted a voir dire examination--
John Paul Stevens: Right.
John R. Breihan: --cross examined witnesses, and conducted a closing argument. 0.... I think it is important to note that the Fifth Circuit did not consider, if you will, the issues that were raised for the first time on appeal. It did not make any determination about the truthfulness of those issues. It sent those directly back to the District Court for factual findings and preserved the interest of the state and preserved the interest of the judicial system in efficiency, if you will, and to further the quick consideration of this claim. The key points that I would again repeat are that the Fifth Circuit's handling of this case is in everyone's interest. It has in this particular instance created a situation where these claims can be handled quickly at the District Court level. That is in the state's interest to limit Petty to a single petition. The Circuit Courts and the Circuit Judges in this case are--
John Paul Stevens: May I ask you one other question? I am just--
John R. Breihan: --Yes.
John Paul Stevens: --In the District Court when the magistrate reached his conclusions and wrote out his report, that, I take it, is sent to the prisoner so he had a copy of that.
John R. Breihan: Yes, Your Honor.
John Paul Stevens: So that at least it would have been... presumably in most cases if the pleading is a little... doesn't go into the facts enough he at least theoretically could have responded back at the District Court level and said you have overlooked these facts, the ones he calls to the attention of the Court of Appeals, and then it could have been processed in the District Court. That could have been done, couldn't it?
John R. Breihan: As a pro se petitioner he is limited in his ability, of course, to understand whatever he has been told by the--
John Paul Stevens: Right, I understand. Maybe he wasn't wise enough in the ways of the law to do that, but at least had he been fully informed and represented by able counsel at that time I suppose that is what the lawyer would have done.
John R. Breihan: --I suppose.
John Paul Stevens: And said that you have these additional facts that support the ineffective assistance claim, and I don't think there would have been any... dismissal with prejudice would have foreclosed that at that time. So the problem is that he didn't do it then, he did it on appeal for the first time.
John R. Breihan: Yes, Your Honor.
William H. Rehnquist: Mr. Breihan, do you think perhaps some change in the habeas form application in the District Courts might solve this problem?
John R. Breihan: Well, I think there is some... that issue is presented to the extent that Mr. Petty is a pro se petitioner and has followed the form pleading when he stated his case in summary fashion. He alleged facts which from his perspective were factual. He alleged that there was no pretrial investigation. He alleged that there was no advice given from his perspective. That is a factual argument, though, from the court's perspective and lawyers' perspective. Those are conclusions. It may help, to answer Your Honor's question, to change the language of the form to the extent of asking the petitioner to explain why it is that an error of counsel affected the outcome of the case. That may have gotten Mr. Petty over the hurdle by bringing his attention to the need to address that issue. One of the circumstances that was involved in this case was that Mr. Petty had filed his petition before this Court's decisions in Strickland and Hill versus Lockhart, so that not necessarily that he would have paid any attention to those decisions, but when the Fifth Circuit considers his petition they are aware that those pleading standards were in flux at the time that Mr. Petty's pleading was being considered.
John Paul Stevens: Is it not also true that the magistrate's disposition is not the traditional ruling on the legal insufficiency of the pleading, because it is kind of a mixture of his having looked at the record and satisfying himself, which would be good practice for the magistrate, that there was... there appeared to be effective assistance, so his dismissal was kind of a mixture of insufficiency on the face and not a full hearing, but yet enough of a look at the facts to come to that conclusion.
John R. Breihan: His dismissal was based on the record that was in front of him, but I repeat that the record in front of him doesn't include anything that reveals the extent of pretrial investigation other than by inference.
John Paul Stevens: Of course it wouldn't show that, but he did have a transcript of the trial proceeding, I assume.
John R. Breihan: Yes, he did.
John Paul Stevens: Because he talked about the voir dire.
John R. Breihan: And so to a certain extent issues that were raised, inferential inferences can be raised based on the fact that Mr. Petty... Mr. Petty's counsel was familiar with some facts, though that does not go to the advice given Mr. Petty during the course of the pretrial preparation. To sum up, I want to repeat that from our perspective the remand of this case serves the interest of all the parties by expediting the review of this case on the merits. It enables Petty to be heard on his expanded plea of ineffective assistance, and that is a plea that goes to the very guilt or innocence. It protects the state to a certain extent from piecemeal litigation by addressing that issue directly as quickly as possible, and in the interest of the court system it provides an opportunity for Mr. Petty's claim to be resolved quickly and efficiently. In these respects remand was a reasonable exercise of the court's power. It considered the circumstances, and it balanced the interest from its perspective in its discretion of those interests. Whatever this Court does with this case is going to send a signal, of course, to the Circuit Courts about the way that they handle complex problems such as pro se litigation. That signal should not be to tie their hands in a way to prevent them from addressing questions that were raised on appeal if the merits of the case support that. The message should instead be to let the judges do their job, the Circuit Judges to do their job as best as they see fit.
Byron R. White: Well, what if the Court of Appeals has said no amendment, you didn't raise it, no amendment?
John R. Breihan: I would say--
Byron R. White: Is that an abuse of discretion or error?
John R. Breihan: --No, I would not think that would be an abuse of discretion.
Byron R. White: So it could have said you have to file a new lawsuit or something, new petition.
John R. Breihan: It could have.
Speaker: Yes.
John R. Breihan: It could have sent it back for a new petition. It is for these reasons that I pray that the Court will affirm the Fifth Circuit's ruling.
William H. Rehnquist: Thank you, Mr. Breihan. Mr. Palmer, you have 12 minutes remaining.
Charles A. Palmer: If the Court has no further questions, I have no further argument. I believe Mr. Justice Scalia has zeroed in on the crux of the case. Anything that would excuse, that would justify the Fifth Circuit's disposition would also excuse Petty if he brought this claim in a new lawsuit, and as Your Honor has pointed out, there is nothing extreme or unusual about this case that justifies that disposition.
John Paul Stevens: May I ask you this before you sit down, General? Had he realized what he was supposed to do in the District Court, say he had gotten a copy of the magistrate's report and say he had then in the District Court said, hey, I should have explained the facts about my prior insanity or whatever it is. What would the magistrate or the District Court have properly done in response to those allegations in your view?
Charles A. Palmer: Dismiss for failure to exhaust.
John Paul Stevens: Dismiss just that part of the claim but not the whole--
Charles A. Palmer: No, the entire petition would have had to be dismissed.
John Paul Stevens: --Because there was an unexhausted claim. He did exhaust his... did he exhaust an ineffective assistance claim before bit just not making these factual allegations?
Charles A. Palmer: Right, and as is pointed out in the Fifth Circuit's opinion at F5 this new factual allegation is treated as a new claim.
John Paul Stevens: I see, so that had he done this in the District Court he would then have... there would have been a dismissal for failure to exhaust and... and that is exactly what is going to happen under the Court of Appeals disposition but you object to that because you cannot now argue abuse of the writ, but could you have argued abuse of the writ if it happened in the District?
Charles A. Palmer: No, we couldn't. The point is, Petty had his chance. He had more than ample chance. When the state convicting court made its findings it told Petty, you have not pied a case. Seven months later he came into federal court--
John Paul Stevens: It wasn't quite not plea a case because the magistrate did look at the record. He did go beyond the pleading, didn't he?
Charles A. Palmer: --No, Your Honor. I am talking about what the state convicting court did on Petty's state application.
John Paul Stevens: Oh, pardon me. I see.
Charles A. Palmer: The state convicting court said you allege only annotations and general statements. It was seven months later that Petty came into federal court with the same conclusory claims, and once he got into federal court the state's answer told him you still haven't stated the claim. The magistrate's report told him, you still haven't stated a claim.
John Paul Stevens: Well, but the magistrate didn't dismiss it without at least looking at the transcript.
Charles A. Palmer: No, Your Honor, he reviewed the entire transcript in light of what Petty had pled.
John Paul Stevens: Right.
Charles A. Palmer: It wasn't until the appellate level that Petty raised these matters, but he certainly had ample opportunity to do so.
John Paul Stevens: Thank you.
Charles A. Palmer: Thank you.
William H. Rehnquist: Thank you, Mr. Palmer. The case is submitted.