William H. Rehnquist: We'll hear argument now in No. 90-913, Board of Governors of the Federal Reserve System of the United States v. MCorp Financial, Inc.-- Mr. Minear, you may proceed.
Jeffrey P. Minear: Thank you, Mr. Chief Justice, and may it please the Court: This case arises from the Federal Reserve Board's attempts to regulate MCorp, a Texas-based bank holding company that is operating in bankruptcy as debtor in possession. The basic issue is whether a district court sitting in bankruptcy may enjoin the Federal Reserve Board from conducting a proceeding to determine whether MCorp is engaging in unsafe and unsound practices. That issue turns on the meaning of Section 1818 of the Financial Institutions Supervisory Act, also known as FISA. Section 1818, subsection (b), provides that the Federal Reserve Board may initiate a proceeding like the one involved here to investigate a bank holding company's practices and to issue, if necessary, a cease-and-desist order. Subsection (h) further provides that an aggrieved party make seek judicial review of any such order accord... in accordance with the Administrative Procedure Act. Subsection (i) then states as follows, and I quote, "Except as otherwise provided in this section, no court shall have jurisdiction to affect, by injunction or otherwise, the issuance or enforcement of any notice or order under this section, or to review, modify, suspend, terminate, or set aside any such notice or order. " We submit that Section 1818(i) means what it says, and it prohibits any court, including a district court sitting in bankruptcy, from interfering with the Board's ongoing proceedings.
Byron R. White: Now Congress... suppose the district court hadn't done anything except to say... except to remind the Board that the statute says that there's an automatic stay of all proceedings.
Jeffrey P. Minear: Yes, Your Honor, the Bankruptcy Code does provide an automatic stay. It also provides an exception to the automatic stay. And if I may read that to you as well, I think it clarifies the stay is not applicable here. It states that the automatic stay does not apply to, and I quote, "the commencement or continuation of any action or proceeding by governmental unit to enforce such governmental unit's police or regulatory power. "
Byron R. White: Does that apply to everything that the Board was doing?
Jeffrey P. Minear: Well, it certainly applies to an action to cease and desist an unlawful practice, and that is what the Board has asserted here.
William H. Rehnquist: The lower court's ruling was not based on the automatic stay provision.
Jeffrey P. Minear: That is correct. It did not even reach that issue, and it rejected all of MCorp's bankruptcy allegations. The court of appeals, in fact, largely agreed with our construction of Section 1818(i), that it would prohibit any such proceeding in the bankruptcy court in accordance with bankruptcy law. It further held, however, that this Court's decision in Leedom v. Kyne, provided the court with inherent jurisdiction to enjoin the Board's proceedings. Now we have petitioned this Court to review the Leedom holding, while MCorp has petitioned on the bankruptcy law issues. And I would like to begin by addressing the question of Leedom, which has been a continuing source of confusion for the lower courts. Leedom arose out of a dispute before the National Labor Relations Board over a certification of a bargaining unit for certain Westinghouse professional employees. The labor act did not expressly provide for judicial review under the facts of that case. This Court held, however, that a judicial review action could proceed notwithstanding the absence of any particular judicial proceeding that was specified by statute. It reasoned that a cause of action could be inferred because the absence of jurisdiction under the specific facts there would amount to the obliteration of congressionally conferred right. This Court has described Leedom as a narrow and painstakingly delimitated decision. And whatever the wisdom of Leedom under its specific facts, it has no application to a case such as this. First, here, unlike in Leedom, there has been no agency decision. Rather, this case is like FTC v. Standard Oil. The agency has simply begun the process of making its decision by providing a notice of charges. Second, and again unlike in Leedom, Congress has expressly provided that an aggrieved party will be entitled to judicial review once the agency actually makes its decision. And third, again unlike in Leedom, Congress has expressly foreclosed all other judicial remedies. In short, Congress has carefully considered the question of appropriate judicial relief.
Sandra Day O'Connor: Mr. Minear, could I ask you whether under FISA the Board is ever able to compel the bank holding company to spend its assets to take care of the subsidiary banks before an Article III court has had a chance to review the Board's order?
Jeffrey P. Minear: Has it ever done so or can it do so?
Sandra Day O'Connor: Is it possible under the law that the Board can compel that transfer of assets before a court has had a chance to review it?
Jeffrey P. Minear: It could issue an order, but that order would immediately be subject to judicial review.
Sandra Day O'Connor: It's immediately subject to appeal and judicial review.
Jeffrey P. Minear: Yes, and the Board--
Sandra Day O'Connor: And the minute that happens, is it also theoretically possible then, that a bankruptcy court could have jurisdiction?
Jeffrey P. Minear: --That point might be debatable. One point, to clarify as to the first point that you made. The... an order from the Board will not be effective for 30 days from the point of issuance, so that provides a 30-day window to seek judicial relief. The second question you raised was whether a bankruptcy court would be able to review that. Under FISA Section 1818(h), a court of appeals is vested with the jurisdiction to review the orders of the Board. I suppose it's a possible argument that the bankruptcy court might have authority to review it under 1334(b).
Sandra Day O'Connor: Wouldn't you then get the priority section under the Bankruptcy Code if somebody went to the bankruptcy court and said, look, now we're here, and couldn't they apply their jurisdiction at that stage?
Jeffrey P. Minear: Well, first of all, this is not a claim in bankruptcy as you might... arise from a debtor. MCorp is not being obligated to pay any money at all to the Federal Reserve Board. Rather, it's been required--
Sandra Day O'Connor: It could happen, presumably.
Jeffrey P. Minear: --That MCorp could be required to pay money to the Fed?
Sandra Day O'Connor: No, no, no, no. That you could have this overlapping jurisdiction in a given situation, if the funds were ordered transferred.
Jeffrey P. Minear: It could be that there would be overlapping jurisdiction at some point, but I think that question, of course, is premature here. All we seek to do is go forward with our proceeding. I think it's a debatable point whether the bankruptcy court would, in fact, have... concurrent jurisdiction in that situation. It would depend in part on whether the order affected... was related to, the case... a case under Title XI, I think. And it would also depend on the scope with the preclusive effect of Section 1818(i).
Sandra Day O'Connor: Do you think there are any limits on the authority of the Board to determine what's an unsound banking practice and to the relief that it can order?
Jeffrey P. Minear: Oh, certainly there are limits, but nevertheless, Congress has not defined that term. And the Board is entitled to make a reasonable judgment on this, and its views are entitled to deference.
Sandra Day O'Connor: And has the Board been consistent in its view of its power?
Jeffrey P. Minear: On this particular question, yes it has. As with respect to unsafe and unsound practices, that opens up a broad array of possible forms of mismanagement that might arise.
Anthony M. Kennedy: You want to get Leedom, but while we're on Justice O'Connor's question, assume that the Board conducts its proceedings, issues its orders, and there is then an appeal to the circuit court which ratifies the Board's order. At that point, there is an order to MCorp to transfer property to subsidiary banks. At that point does 1334(d) come into effect so that the bankruptcy court then has jurisdiction to review the propriety of that order transferring property?
Jeffrey P. Minear: Well, 1334(d) gives the bankruptcy court exclusive jurisdiction over the property of the debtor. Again, we have to speculate here on what might happen, if I can follow the course that you've laid out. If the order has been approved, the first thing... has been subject of judicial review and has been upheld, the first question would be the content of that order. Now it might be that the order will simply direct MCorp to put together a plan for providing capital to its subsidiary banks. If MCorp is subject to such an order, I assume that it would go to the bankruptcy court and seek such relief, that this is outside the ordinary course of business. MCorp could provide money to its subsidiaries, provided it falls within 363(c) of the Bankruptcy Code, but it's a matter within the ordinary course of business. Assuming it's not, MCorp would go to the bankruptcy court and seek approval of its plan to comply with the Board's order. But the Board's order should simply be treated as a law that MCorp has to apply... has to comply with. And as this Court indicated in the Midlantic National Bank case, simply being a debtor in possession does not exempt you from other regulatory requirement.
Anthony M. Kennedy: And I take it works that way under the National Labor Relations Act. If a bankrupt is subject to an NLRB action, it simply goes to the circuit court, the NLRB is either... if the NLRB is affirmed, then any property transfer is under the control of the bankruptcy court, and the bankruptcy court is simply bound by that decree.
Jeffrey P. Minear: I believe that is the case. And there are cases such as Nathanson v. NLRB, which is a pre-code case, which indicates that the bankruptcy court should defer to the agency in terms of even liquidating back pay agreements. Now, of course, that's far down stream from where we are right now. Our question is just whether the Board should be allowed to go forward with its proceeding in this case. The Board has been completely stymied in even going forward with its administrative proceeding here. Now as I was saying, Congress has carefully considered the question of appropriate judicial relief in this case, and that clearly distinguishes this case from Leedom. Congress has provided that MCorp will have full opportunity to seek judicial review of the Board's action once the Board definitively acts. At the same time, Congress has been quite express and explicit in stating that MCorp has no right to review at all until the Board completes its administrative investigation and determines whether it will issue an order. Now, no such order has issued here. The Board has simply filed a notice of charges. That's all that is issue... is at issue. As a result of the lower court's injunction, however, there is no administrative record, there has been no administrative proceeding, and it's unclear at this point what action the Board might take. MCorp really makes no serious attempt to defend the court of appeals' Leedom rationale. In fact, its brief it devotes a mere two paragraphs to the Leedom question. MCorp argues instead that Section 1818's limitations do not apply in the bankruptcy context. And as the court of appeals stated, that is simply not so. It is important to recall the precise language of Section 1818(i): except as otherwise provided in this section, no court shall have jurisdiction to enjoin the Board's ongoing proceedings. That provision contains no exception for bankruptcy courts, and the bankruptcy law itself contains no such exception. Now as I mentioned before, MCorp has attempted to find an exemption in the Bankruptcy Code's automatic stay provision. However, that stay is subject to an exception itself, and that exception precisely mirrors Section 1818(i). It allows the actions of the Board to go forward, notwithstanding the bankruptcy action, and it prohibits the court from... in effect from enjoining that type of action. It's important to remember also that the Board initiated the proceeding here to determine when... whether MCorp, which continues to function as a bank holding company, is in violation of the safety and soundness requirements of the Board. And as I stated before, the filing of a bankruptcy petition, in the Court... this Court's words, does not give a debtor in possession carte blanche to ignore regulatory requirements. Here MCorp has elected to continue in operation and continue to own banks and continue to operate banks. Thus the need for Board oversight remains. As long as MCorp continues such operations, it should be subject to the same regulatory requirements that apply to any other bank holding company in operation. MCorp also... attempts to find an exception to Section 1818(i) in the jurisdictional provisions of the Bankruptcy Code, as set forth at 28 U.S.C. 1334. The particular provision that MCorp relies on, however, does not continue the exception to Section 1818(i). It's no different than any of Title XXVIII's other jurisdictional provisions. They are all subject to Section 1818(i) of FISA. MCorp relies on the fact that 28 U.S.C. 1334(b) gives a bankruptcy court jurisdiction over civil proceedings related to a bankruptcy case. But that argument really takes MCorp nowhere. As an initial matter, all that's at issue here are administrative proceedings. Section 1334(b) does not speak to those. Second, Congress has specified exactly what civil proceeding is available for challenging the Board's order. And as I have explained, that is the petition for judicial review under Section 1818(h).
Anthony M. Kennedy: Excuse me. What we have here immediately is an administrative proceeding, right?
Jeffrey P. Minear: That is correct.
Antonin Scalia: But the attempt to review the propriety of that administrative proceeding is a civil proceeding.
Jeffrey P. Minear: That is correct as well.
Antonin Scalia: So you are within 1334(b). It is a civil proceeding related to a case under Title XI.
Jeffrey P. Minear: But what is the civil proceeding, Justice Scalia? That is the civil proceeding that Congress has provided in section 1818(h), which is a petition for judicial review of a final order. There's no final order in this case. So you have jurisdiction, but you don't have a cause of action. That's really the problem here, at least under your theory under here... under your theory of 1334(b) jurisdiction. I mean, there has to be a cause of action against the Government somewhere. I mean, that was the... that is one of the principal criticisms of Leedom, that it has inferred a cause of action against the Government.
Antonin Scalia: So your argument is not an argument of one statute's superseding the other, but just of no cause of action here, at this stage, essentially.
Jeffrey P. Minear: That is correct. There would be a cause of action once the agency acts. And again, this mirrors the APA as well. There is generally no cause of action until there is final agency action. So again you see under our theory all the pieces fit together quite nicely. Now MCorp has also asserted that jurisdiction exists under 28 U.S.C. 1334(d), the exclusive... which provides jurisdiction over property. And as Justice Kennedy inquired, the question there is whether there is any effect on property at this stage. And clearly, there is not. The court of appeals recognized this fact as well at page 20 and 25 of its opinion, joint appendix pages 20 and 25. The mere commencement and continuation of an administrative proceeding has no effect on property. Any effects on property will depend on what the content of the order that is issued ultimately contains. In short, we think that the court of appeals correctly ruled that there is nothing in the bankruptcy code that grants a district court jurisdiction to enjoin the Board's ongoing proceeding. Section 1818(i) provides that no court shall have that power, and there's no basis for making exception in the case of bankruptcy courts. That conclusion gives effect to the plain language of Section 1818(i) and avoids an inferred repeal of Congress' expressed and unqualified command. Moreover, our position really imposes no hardship on MCorp as well. If the Court adopts our position, the injunction will be lifted; the Board's proceeding will go forward. If the Board concludes that a remedy is warranted, it may issue a cease-and-desist order, and at that point, MCorp may obtain judicial review. Thus, the only hardship that MCorp faces here is the obligation to participate in the Board's hearing. And as this Court stated in FTC v. Standard Oil, that is no legally cognizable harm. It is simply part of the social burden of living under government. If this Court agrees with our submission that the courts below lack jurisdiction to interfere with the Board's ongoing proceedings, then there is no occasion to address the remaining question in this case: whether the Board has statutory authority to apply its source of strength as it relates to the facts here. Indeed, you'll face that issue only if you adopt the court of appeals' Leedom analysis. We think you should not follow that course. But if you do, then you should decide the source-of-strength issue in favor of the Board. The Board is certainly justified in treating MCorp's failure to contribute capital as an unsafe or unsound practice under the facts alleged in the notice of charges here. As this Court recognized in its Lincolnwood decision, the Board has long recognized and frequently reiterated that bank holding companies should be a source of strength to subsidiary financial institutions. MCorp has not challenged the facial validity of that regulation. The question instead is whether MCorp's failure to comply with that regulation is an unsafe or unsound practice under FISA in the particular circumstances that are presented there. Now FISA does not define the term "unsafe or unsound practice", and the question is whether the Board's interpretation of that term is reasonable. Here the Board has reasonably concluded that a bank holding company's failure to provide financial support to its bank subsidiaries when it is able to do so can be a form of mismanagement that threatens the financial well-being of the holding company, its subsidiary, and the public. First the holding company's failure to act as... failure to support or refusal to support in this case its subsidiary banks can result in the wasting of an asset. If MCorp's subsidiary banks collapse because of an absence of adequate capital, the holding company's own balance sheet will be affected.
Sandra Day O'Connor: Mr. Minear, if we agree with you on the first point, the jurisdictional argument, is it necessary for us to go ahead and address this second question?
Jeffrey P. Minear: Absolutely not. No. And in fact, that issue would not... the only way this issue arises is if you adopt the Leedom analysis. On that basis, I think that... you know, I can restrict my comments with respect to the source-of-strength policy. As I said, it can be an unsafe or unsound practice to refuse to supply capital to subsidiary banks because it can waste the holding company's own assets. It can also result in a run on the holding company's other banks if the public is under the perception that a whole... holding company stands behind its subsidiary banks. And finally, of course, the public bears the cost of any of these types of failures through the provision of FDIC insurance and access to the Fed's credit window. Thus, it's quite reasonable for the Fed to treat a bank holding company's refusal to aid its subsidiary banks as an... or to treat it as an unsafe or unsound practice in the facts of this case. The lower court's injunction has prevented the Board from conducting an evidentiary hearing, and we think the better course here is to reject the lower court's Leedom analysis and allow the administrative proceeding to go forward. But if the Court decides to reach the source-of-strength issue, it should decide it in the Board's favor. Unless there are any questions, I will reserve the remainder of my time.
William H. Rehnquist: Thank you, Mr. Minear. Mr. Miller, we'll hear now from you.
Alan B. Miller: Mr. Chief Justice, and may it please the Court: This morning the Government has asked the Court to overlook the fact that by statute Congress made available to bank holding companies the ability to take advantage of Title XI of the United States Code, that is to say, the Bankruptcy Code. And instead, based upon a congressional source that the Board is unable to identify, the Board has suggested that the entire Chapter 11, proceeding under Title XI may be eviscerated by the removal of all of the assets of the holding company from the holding company to the banks while it is in Chapter 11 to leave the holding company creditors of more than half a billion dollars high and dry.
William H. Rehnquist: Well, Mr. Miller, the completion of the administrative hearing here without any enforcement beyond that won't remove any property from the holding company, will it?
Alan B. Miller: It will not. However, it is our position that the orders issued by the Board in the fall of 1988, and particularly the third cease-and-desist order, which is at pages 84 and 85 of the joint appendix, go way beyond anything that the Government has represented today. That order reads, and I quote, "MCorp shall (a) take such actions as are necessary to use all of its assets to provide capital support to its subsidiary banks in need of capital, and (b) within 15 days of the effective date of this temporary order report to the Board of Governors on the identity of those subsidiary banks into which capital injections will be made by MCorp and the amount of capital to be injected into each such bank. "
William H. Rehnquist: Was that order enforceable against MCorp without any further proceedings?
Alan B. Miller: It was, Chief Justice. Paragraph 3 of that order reads, and I quote, "This temporary order shall become effective immediately upon service on MCorp and shall remain in full force and effect pending the completion or termination of the administrative proceedings initiated pursuant to the foregoing amended notice, except. " --and so forth. Now, the position of the Board on that issue, Chief Justice, has been that that order was suspended. And indeed, that order was temporarily suspended by a letter that is at pages 184 and 185 of the joint appendix, dated November 7, 1988. But 6 months later, the Board, on the 24th of May, and during the pendency of the Chapter 11 case, and this is at page 194 of the joint appendix, wrote in a notice of charges, "The provisions of this second amended notice do not supersede, modify, or in any manner affect the provisions of the notice of charges and of hearings issued against MCorp and MCorp management, Dallas, Texas, by the Board of Governors on March 30. " --and the important part... "or the status of the temporary orders issued on October 19 and 26, 1988. "
William H. Rehnquist: Now did the court of appeals view these orders that you've just quoted the same way you did or you do?
Alan B. Miller: I don't believe the court of appeals considered them.
William H. Rehnquist: Well, you know, we grant certiorari on certain cases, and as Justice White says, we're not interested in having what we think is a case turn into a noncase, that just goes off on facts that either we weren't aware of or the court of appeals below didn't consider.
Alan B. Miller: But the court of appeals was considered below an important issue. And that was whether the statutory foundation for the issuance of this order, that is to say the alleged source-of-strength doctrine, exists and is valid or whether no such statutory basis exist.
Anthony M. Kennedy: Well, I had thought, please correct me if I'm wrong, that in any entity subject to one of these orders has the right to appeal to the circuit court and that only the circuit court's order makes it enforceable. Please correct me if that's wrong.
Alan B. Miller: I believe it's almost right, Justice Kennedy. In fact, temporary orders may be revoked, suspended, or modified by a district court. I believe the right provision is 1818(c)(2). It is final orders that go to the court of appeals. Here, immediately after the temporary order that I read from, and one other... indeed two others were issued... MCorp before the bankruptcy went to the District Court for Northern District of Texas under Section 1818(c)(2) and sought immediately to have that order revoked, suspended, or modified. The letter that I read to the Court represented an agreement by the Board of Governors to temporarily suspend the temporary order, and that continued until the bankruptcy was filed. It was after the bankruptcy that the Board, as I read from the notice of charges in May, then said, that's really reinstated. So we have--
Anthony M. Kennedy: But I still take it that the entity MCorp is under no obligation to make an actual transfer of proceeds until the circuit court affirms the order of the Federal Reserve Board.
Alan B. Miller: --Not at all. It believe they were as soon as the suspension... the bankruptcy was filed and the suspension was effectively lifted by the Board. The order that I read you said that it will make all available assets will be transferred to the banks. And that's where the tension arises. And what the Board is attempting--
Anthony M. Kennedy: Well, I want to make it very clear, is MCorp entitled to have a stay of that order pending its consideration by the court of appeals?
Alan B. Miller: --We believe it was.
Anthony M. Kennedy: All right, then I don't see how you come and you say, oh, all these assets are being transferred out of MCorp. That just isn't happening because the court of appeal's review stays it.
Alan B. Miller: The Board... the Board took the position that the temporary order requiring the down-streaming of the assets was in full force and effect. MCorp went into the district court in the Chapter 11 case... actually went into the bankruptcy court; the Board moved the case up to the district court... and went into the district court and said this order has no legitimate statutory foundation. These temporary orders ought to be stayed immediately. And furthermore, there's no purpose in going forward with a permanent proceeding because there is no validity to the source of strength. So we do have a very live controversy in the bankruptcy and in the Northern District of Texas on these issues. It is the 1334(b) jurisdiction under Title XXVIII that gave the bankruptcy court as well concurrent jurisdiction with the Northern District to review the temporary orders.
Sandra Day O'Connor: Well, suppose we think that the bankruptcy law that speaks of what court shall have exclusive or concurrent jurisdiction doesn't apply to ongoing administrative proceedings in an agency such as this board, and so that we think that section simply is inapplicable. Now suppose that's the situation, then where are you with regard to enforcement of the temporary order that says go ahead and pay all your assets over.
Alan B. Miller: Then, Justice, it seems to me that we must examine whether or not this order to put all the assets from the holding company into the banks has any... valid statutory source. Otherwise, there is never an opportunity to review that before the entire holding company assets are eviscerated, the Chapter 400 or whatever million dollars have been placed in them. It cannot be that the Court has no power to examine whether or not the underlying basis for the Government's assertion of the source of strength has any sound statutory footing. Indeed, there is as well as it relates to the temporary orders, the automatic stay. I only referred to one of the temporary orders that are at issue here. There is a second temporary issue ordered 1 week earlier. And that also was never suspended by the board pursuant to the letter agreement, never suspended by any agreement. That order required that MCorp not dissipate any of its assets. Dissipation is a term used by the Board included, unless otherwise accepted, paying your debts. And indeed that temporary order which is also in the record, said that MCorp could continue to pay debts previously contracted and it could continue to pay salaries... these were exceptions to dissipation... but it couldn't contract for any new goods or any new services, barring consent of the Federal Reserve Bank in Dallas. And that order was in full force and effect when the bankruptcy was filed. The automatic stay of the Bankruptcy Code prohibits anyone from taking any act to control the assets of a debtor or to obtain possession. Now that is not the section that Mr. Minear referred to. That is Section 362(a)(3).
Sandra Day O'Connor: Well, the automatic stay, though, I assume, presupposes that the bankruptcy court has some jurisdiction.
Alan B. Miller: Yes, it does, Justice.
Sandra Day O'Connor: And maybe it doesn't here of a case where there's no final administrative order.
Alan B. Miller: But the automatic stay is a congressional edict. It doesn't require an act of a court to exercise or put in place the automatic stay.
Sandra Day O'Connor: Yeah, but I think it presupposes a bankruptcy court with jurisdiction. And perhaps that isn't what we have here.
Alan B. Miller: But Congress also gave, under 1334(d), exclusive jurisdiction of the assets of a debtor wherever located to the bankruptcy court. And obviously, since the 1334(d) was enacted in 1984, it well succeeded the enactment of 1818(i).
William H. Rehnquist: When you went into the bankruptcy court, Mr. Miller, when you sought a stay in the district court, did you rely on the automatic stay provisions?
Alan B. Miller: Yes, we did. I believe that the record will reflect we asked for two things. We asked for a declaratory judgment that the automatic stay applied, and we asked for a Section 105 stay, which is the bankruptcy equivalent of the All Ritz Act against prosecution. We did so because the automatic stay applies with regard to the... any act to control assets of the estate are to obtain possession of the estate, and there are no exemptions to that in Section 362(b), none whatsoever. But in addition to that, the legislative history to Section 362(a) indicates quite clearly that the exemptions relied upon by the Board, and maybe overturned by the bankruptcy court in its discretion under the authority granted under Section 105(a). It shifts the burden to the debtor or other trustee to seek that stay, but it does not by virtue of section 362(b) disable a Chapter 11 debtor or a trustee from obtaining a stay under Section 105.
Anthony M. Kennedy: Now let me just understand. So you're now... you're saying that as of now, debts are being paid and properties are being transferred quite beyond the control or authority of the bankruptcy court to stay.
Alan B. Miller: No, I'm not saying that at all. What I'm saying is that, during the Chapter 11, administrative expenses may be paid despite the temporary order of the Board of Governors which would say that without their consent you cannot pay salaries, you cannot pay your lawyers to come to the United States Supreme Court, you cannot pay anything without the control of the Federal Reserve Bank in Dallas being exercised. What we're saying is, yes, the exclusive jurisdiction of Title XXVIII authorizes the court to administer the Chapter 11 case and to administer the assets during the Chapter 11 free from interference with the control over those assets by the Board of Governors. I hope I've answered your question, Justice.
John Paul Stevens: I gather you're also telling us the Board hasn't tried to enforce that order, that letter.
Alan B. Miller: It couldn't because, first--
John Paul Stevens: It never did try to. So that really isn't an issue before us, is it?
Alan B. Miller: --Oh, it is. It is because we cannot... if the Board were to have its way, we could not propose a plan of reorganization that would create new indebtedness because that temporary order would be staring us in the face.
John Paul Stevens: You also couldn't pay your lawyers.
Alan B. Miller: That's is correct.
John Paul Stevens: But you are paying your lawyers.
Alan B. Miller: Because there is a stay outstanding from the court of appeals that permits us to carry on the business of these debtors. But for that stay, or for the graciousness, if you will, of the Board of Governors, we would be unable to pay those obligations, Justice Stevens.
John Paul Stevens: And is the validity of that stay what we're reviewing now?
Alan B. Miller: Yes. Because the validity of that stay is based on the source of strength. The source of strength is the basis for the issuance of the temporary orders.
John Paul Stevens: Oh, okay.
Alan B. Miller: Indeed, the temporary orders were first initiated as a procedure preliminary to the final findings on the source-of-strength doctrine initiated by the Board of Governors in the fall of 1988. Now, we need not, we think, rely merely on the Leedom analysis of the court of appeals. We think the analysis is sound, but more importantly we think that statutory framework in which the source-of-strength charges were brought, and its counterpoint with the bankruptcy require an examination by the bankruptcy court of whether or not the proceeding may go forward. And the reason for that is that there is an automatic stay under Section (a)(1), and here we're now... we're off the issue of the temporary orders, and we're on to the main proceedings. And (a)(1) prohibits any suit or proceeding, including an administrative proceeding, that could have been brought prior to a filing of a petition from going forward. Now, the Board relies upon the exemption in Section 364... Section 362(b)(4), which says that a governmental unit proceeding under Section (a)(1) to enforce its police or regulatory power may, nevertheless, despite Section (a)(1), go forward to the point of judgment unless the judgment is a nonmonetary judgment. And then under Section (b)(5) for injunctive relief, it may be enforced. The issue then arises, it seems to us, for the bankruptcy, or here, the Article III district court, to determine whether this is a legitimate police or regulatory power enforcement action. Is there a police power or a regulatory power to be enforced? Because if there is not, then seemingly subsection (a)(1), the automatic stay, would apply, and at that point the proceeding would be automatically stayed.
William H. Rehnquist: Well, that would mean you would have some sort of a merits inquiry with respect to every regulatory investigation that was being undertaken by the Government. You would say this exception doesn't apply unless there is authority for the Government agency to conduct this sort of regulation.
Alan B. Miller: We believe that in a bankruptcy, where the nature of the proceeding is one that is calculated to lead to the removal of the assets of a holding company, yes, that under those circumstances, the Court necessarily must examine whether there is a police or regulatory power, Chief Justice.
William H. Rehnquist: You say calculated to lead, Mr. Miller, but reading the court of appeals opinion here, (2)(a) and <three a@l> [= (3)(a)] of the petition for certiorari, it seems to me the court of appeals did not feel it was presented with your temporary stays that might have had the effect of removing... it's talking about notice of charges and hearings that were to be conducted. They didn't think there was any prospect of property being removed unless an order became final.
Alan B. Miller: Correct.
William H. Rehnquist: So what you're calling our attention to in these temporary orders was never called to the attention of the court of appeals. Is that correct?
Alan B. Miller: No, it was called to the attention of the court of appeals.
William H. Rehnquist: Well, they didn't consider them in their opinion.
Alan B. Miller: They didn't refer to it. And I was not just now referring to the temporary orders. I was referring to the notice of charges that Your Honor--
William H. Rehnquist: And that's why you had calculated to because certainly unless... until the administrative proceeding becomes final and is subject to some sort of review, it isn't going to have the effect of removing any property.
Alan B. Miller: --That is correct. Without the temporary orders, obviously. But here, we have a Chapter 11 case effectively being held hostage to the long process of the administrative proceeding to determine the propriety of the source of strength. We're not just in the administrative proceeding going to get into is there a statutory basis. We're now going to get into, during these proceedings, what are the needs of the banks, what are the capital of the banks, how much is it going to be going forward and backwards. It's going to be a long and difficult proceeding. And as this Court, we believe, urged in Timbers, the job in the Chapter 11 is to get on with it, not to prejudice the creditors who are creditors of the holding company, be they secured or unsecured, by a long proceeding, but to get on with it. And if the court, an Article III court, were to determine that there is no legitimate source-of-strength power, then it would seem to us that the court, in determining whether the automatic stay is in effect or not, has the ability to determine that issue. In effect, it's really determining if it has jurisdiction because under Section 1818(i), which is the preclusion or deferral statute, even the section says that no court shall take action by injunction or otherwise to stay a notice or an order issued under this section. So the question is, is the order really issued under this section. Is there a statutory power to enforce the source of strength. Now on that issue, we would submit that the record is hopelessly deficient to demonstrate a source-of-strength power. The only statute that comes close to authorizing a review of financial or managerial prospects and resources of the holding company is 1842(c), and that is that is the same statute that was reviewed by this Court in First Lincolnwood.
Antonin Scalia: Doesn't this get you back into a sort of Leedom kind of analysis? I mean--
Alan B. Miller: I'm reluctant to call it a Leedom kind of... it is a Leedom type of analysis.
Antonin Scalia: --Type of analysis. You're saying that there's no proceeding under this section if the proceeding is not proper under the section.
Alan B. Miller: Correct.
Antonin Scalia: Do you think that's what the statute means?
Alan B. Miller: Well, I think that 1818(i), which requires that you proceed either in the district court on temporary orders or in the court of appeals on final orders, is analogous to an exhaustion statute. And I think there are two attacks to an exhaustion statute: one, a constitutional collateral attack, and the other, the question of whether the agency is proceeding in fulfillment of a valid statutory purpose. And it is that analysis that we're asking the Court to make here on the source of strength. Because the only statute that relates to this is 1842(c), and that in a very limited sense authorizes the Board of Governors to look at the financial and managerial prospects at the time of acquisition or merger, not to give it a continual let's look at the financial resources and prospects and let's allow the Board of Governors to make an unlimited capital assessment of a holding company's assets for all time's sake. That would be an extraordinary transfer of the wealth of the holding company to the banks for the benefit of the FDIC. And there is nothing in this statute that seems to indicate the power on the part of the Board of Governors. Nor is there, we submit, in any other legislation, such a power. Indeed, in the thirties, in the 1930's, the Congress of the United States eliminated the shareholder assessment capability in a serious of four amendments in 1933, I believe 5, and then later stretching into the 1950's, despite testimony during those hearings, which is cited in our brief, that by the Comptroller of the Currency, that this was a valuable tool in allowing the regulatory authorities to work with the stockholders and management of then-troubled and failing banks. So that the Congress made a fundamental policy decision in the thirties to eliminate capital assessment abilities. And it is in the face of that elimination that the Board, nevertheless, seeks to enforce the source-of-strength doctrine here, under the guise of this very vague statutory term of unsafe and unsound, which we think could be interpreted to mean anything. This relief is extraordinary to say to an independent corporation, formed with its own shareholders and its own creditors, you must transfer all of your assets into your banks, whether or not it's going to help you. You must denude yourself of all of your assets. That just can't be the law without an express direction from the Congress, we submit.
Byron R. White: Well, at the conclusion of these administrative proceedings to which you object, if there was a final cease-and-desist order, would that be subject to judicial review?
Alan B. Miller: The final would be subject to review in the court of appeals.
Byron R. White: And would the validity of the regulation be at issue? Could it be an issue?
Alan B. Miller: Yes, it could be an issue, Justice White.
Byron R. White: So it's just a question of when you get this adjudication.
Alan B. Miller: Well, the difficulty with that is that the standard for review in the court of appeals, it would seem to me... as best I recollect it would be... whether or not the agency action is arbitrary and capricious. That is... I'm not sure that necessarily that would involve... I guess it would involve the determination of whether there was power.
Byron R. White: I don't think that's a standard for deciding whether the regulation is consistent with the statute.
Alan B. Miller: Well, it would be a question of deciding--
Byron R. White: A question of statutory construction or--
Alan B. Miller: --whether the determination was appropriate, and I think under those circumstances, the Administrative Procedures Act requires a finding.
Byron R. White: --And why is it, in a word, your opportunity for judicial review at the end of this proceeding wouldn't be adequate for your purposes?
Alan B. Miller: If we're just referring to the notice of charges, it seems to me that what we've done then is hold hostage the Chapter 11 that Congress has authorized the bank holding company to take advantage of until the long road at the end of the administrative proceeding. And that since this is a purely legal issue, it is not factual driven at all, this could be considered well before that by a court in the context--
Byron R. White: Well, I suppose you make this argument whether any of the assets of the bank holding company are in danger now.
Alan B. Miller: --That is correct.
Byron R. White: It's just the fact... just the fact that you... that the bankruptcy proceeding is being interfered with while the administrative proceeding going on?
Alan B. Miller: It's the determination of the extent to which the administrative proceeding is automatically stayed by the congressional act of Section 362(a). It is in that context that I make that suggestion, Justice.
Antonin Scalia: I think the delay is really the only problem, Mr. Miller, isn't it? I mean, the standard of review is going to be exactly the same. It isn't just arbitrary and capricious. It says arbitrary, capricious, and abuse of discretion or otherwise not in accordance with law. I mean, if it is a violation of law, it's a violation of law.
Alan B. Miller: I think that's correct. Yes, Justice. That is correct. To the point on the merits of source of strength, we would also point to the many, indeed I suspect a dozen, legislative initiatives that have occurred since 1987 when the Board of Governors first announced... announced for the first time in some 30 years... what the source of strength, at least in its view, was all about. It first indicated that the regulation why, under which it was purporting to adopt a policy statement, had something to do with down-streaming of assets from holding companies to banks. And subsequent to that date, virtually every other regulator has taken the position that this is either flawed, it doesn't exist, or it shouldn't exist for a variety of policy reasons. Accordingly, it is our belief that the Court should defer to the Congress on the question of source of strength, require the Congress, if you will, if they determine that it's appropriate to have a source of strength, to so state. And as a consequence, we would ask that the Court affirm the court below. That concludes my remarks. And, of course, I would be happy to answer questions of the Court.
Anthony M. Kennedy: Counsel, one question. During the pendency of these proceedings, has MCorp divested itself of any of the banks in question?
Alan B. Miller: Yes. If I could just take 1 minute. Before the proceeding began... that's not quite accurate. An involuntary proceeding was filed on March 20... I think it's March 24 of 1989. About 4 or 5 days later, 20 of the 25 banks were closed by the Comptroller of the Currency.
Anthony M. Kennedy: What about the remaining five?
Alan B. Miller: Of the remaining five, four have been sold during the Chapter 11 proceeding, one remains.
Anthony M. Kennedy: Which one is that?
Alan B. Miller: The name of the bank is Ambank New Braunfels, N-e-w B-r-a-u-n-f-e-l-s.
Anthony M. Kennedy: And that keeps the proceeding live in the Federal Reserve Board as to that bank?
Alan B. Miller: I'm not sure what the position of the Federal Reserve Board is on whether this proceeding would be obviated by a disposition of that bank.
William H. Rehnquist: Thank you, Mr. Miller. Mr. Minear, do you have rebuttal?
Jeffrey P. Minear: Yes, Your Honor, I do. I'd like to begin with this question of the temporary cease-and-desist order, since it's been raised again. This is something that we addressed in a supplemental brief in response to MCorp's supplemental brief. As an initial matter, these three temporary cease-and-desist orders are all the subject of a pending judicial action in the Northern District of Texas. The complaint is set forth at page 174 of the joint appendix. So if you lift the injunction in this case, then it will then turn to that judicial action in turn of the status of the temporary orders. It's our belief that the continued viability of these order 3 years later is open to question. In the earlier proceeding, MCorp itself had raised that point. At 116 of the joint appendix, they make the argument that these temporary orders are in fact moot. They might well be. And that is something that could be determined in the Northern District of Texas in the judicial proceeding that they had filed, a separate judicial proceeding. Additionally, I'd like to touch upon this question of the title of the Board's action of eviscerating the bankruptcy--
Antonin Scalia: Excuse me, Mr. Minear, before you go on, you acknowledge those orders are outstanding or you do not?
Jeffrey P. Minear: --Two of the orders are outstanding, but we think that they are in effect, or their effect is questionable because of the bankruptcy proceeding. There is a judicial action to challenge them, but nothing has gone forward because the stay that's in effect in this case has prevented anything from going forward. The Board might take some action to withdraw those temporary orders, but it can't do anything until we resolve this proceeding first. With respect... those two are... to get into the details of this, one order provided that MCorp would not pay any dividends. The bankruptcy court has stayed that, the payment of dividends, as well. The second order prohibited any extraordinary disbursements or expenditures, such as bonuses to management. We believe the bankruptcy court will prevent that from taking place as well, so the orders, in effect, have no practical effect at this point. The third order concerned the source-of-strength proceeding. And as we explain in our supplemental brief, the Board has suspended the operation of that temporary order. And the language that Mr. Miller quotes concerning the second amended notice of charges that preserves the status of the temporary orders, it preserves the status of that order as being suspended. So in effect, these temporary orders are just not a part of the case. That's simply a red herring that I think that MCorp has raised. With respect to the bankruptcy proceeding being eviscerated by the Board's challenges, I think it's important to note that in our second amended notice of charges, the amount of capitalization that we indicated we felt would be necessary with respect to four of the five remaining banks was $21 million. MCorp has asserted in the bankruptcy proceeding that it has assets of 1.5 billion. So I think that there's... you know, a difficulty with that, the argument that they make here on that point. Concerning the long process that would be involved here, according to the stipulation of our proffer of facts that MCorp offered, the hearing before the Board would take 3 days on the part of the Board and 3 days on the part of MCorp. If this proceeding had gone forward as planned, it would have been completed long before this. Reorganization would be completed. As far as the record deficiencies, I think that that is quite true that there are deficiencies in the record. And the very reason there are deficiencies in the record here is because of the injunction that has prohibited any evidentiary hearing to flush out a lot of the allegations that Mr. Miller is making at this point. Finally, with respect to the question of extraordinary relief here, I think that the question of relief is something that we'll just have to wait for the ongoing proceeding to determine. The important point is to remember again, Section 1818(i), which provides that no court may take any action to enjoin the Board's proceedings except in accordance with that section. That is the matter that's at issue here. Unless there are any further questions, thank you, Your Honor.
William H. Rehnquist: Thank you, Mr. Minear. The case is submitted.


Warren E. Burger: We will resume the arguments in number 7, Gunn against the University Committee. Mr. Louisell you may pick up where you left off.
David W. Louisell : If your Honors please, in view of the time limits, we must submit the matter of appealability that we were discussing yesterday on our supplemental brief. We submit that it's covered there. If not a judgment we have here under the statute a reviewable order. I might only say that the appellees themselves in their motion to affirm with great candor acknowledge this, so far as it's relevant, and they pointed out on page 2 of their motion to affirm that under Reynolds against Sims, a reapportionment case, they had no doubt about the appealability of the order here. It would of course be very unfortunate I think from a viewpoint of judicial administration. The case have --
William J. Brennan, Jr.: If the Court was going to request, was all the question would not be appealability of an order, but whether there was any order at all which would be appealable?
David W. Louisell : Well, that's --
William J. Brennan, Jr.: That's what bothered me about it?
David W. Louisell : And of course as we point out in the supplemental brief but there is, is in the last paragraph --
William J. Brennan, Jr.: Yes.
David W. Louisell : -- of the Court's opinion. Your Honors, it seems to us that the crux of this case, the real turning point when it might have gone the right way was on the motion by the appellants to dismiss made very promptly within a day or two after all of the criminal complaints in the state court had been dismissed. At that point, we submit to Your Honors, there was no case or controversy. Anything more to be done was a simple matter of advice and advisory opinion and from the beginning of this nation to the present time, the teaching of this Court is there was no occasion, no reason, no right to go ahead and render an advisory opinion. The Court insisted on so-called using the phrase “we will carry this motion with the case.” If it had faced up to the motion explicitly, what happened might not have happened. Now remember, if I may say as far as Dombrowski goes and I wish there were time for a full review of it although there has been so much rethinking and refreshing by the Court in any event, I doubt it would be necessary. But far from the facts here invoking Dombrowski where there was a bona fide allegation of deliberate, intentional, none of good faith used of the very complicated statute to effect racial repression far from those facts being involved here, and even assuming every disputed fact or anything that we can imagine was disputed here in favor of the appellees, this was a one-shot proposition. This wasn't a continuing concert of effort to deprive anybody of his rights. Instead of Dombrowski being controlling, I submit to you there are controlling words in Cameron against Johnson. If the mere possibility of erroneous application of the statute, the mere possibility of such erroneous application of the statute does not amount to the irreparable injury necessary to justify a disruption of orderly state procedure. All the good that may be done --
Byron R. White: Well the -- are you saying there was no case of controversy or that there was not, but there was -- but the Court should not have entered either at the third for a judgment or an injunction?
David W. Louisell : I'm saying that when those criminal cases were dismissed Mr. Justice White, there was no longer a case or controversy. The state had given up every effort. There was no reason to go ahead with the federal three-judge case.
William J. Brennan, Jr.: Even if they had in this Mr. Louisell, I suppose you would say --
David W. Louisell : I would still say that it wasn't the type of situation, but with the dismissal any pretense of excuse --
William J. Brennan, Jr.: You mean that brings it within Golden?
David W. Louisell : Within Golden of course and the necessary or the necessary distinction between the declaratory judgment and injunction thinking, I invoke all that. But even within Golden, I would say would confirm, make more explicit of what I've said about the applicability of Cameron against Johnson.
Byron R. White: What would you say if criminal charges were dismissed and no criminal charges were pending but there were allegations that because of the statute and because of past conduct, we are now deterred from taking some following of course that we would have otherwise. Would that amounts to a case in controversy in your view?
David W. Louisell : If there were a genuine position to that effect, there might be within the doctrine of Golden from Dombrowski through Golden, there might have been. But there was nothing here far from meeting the strong requirement of the very words of Dombrowski. There wasn't even a serious claim that there was any concerted effort to keep --
Byron R. White: Oh, I understand that. There were no allegations of harassment or non-good faith application of the law, but the allegation is or suppose the allegation was that we know that the statute might be applied in these circumstances and we are now not holding anymore demonstrations or expressing our views at all because of the statute, and that gives us a case or controversy.
David W. Louisell : Well, if there were a bona fide -- if there were a real showing, a real position that they were so inhibited by the statute; that would be one thing, but I want to come to that and show that the statute has construed never in Texas had been attempted to reach the content of the speech. It was only a method of controlling disturbance in the historical meaning of disorderly conduct statutes.
Byron R. White: Well, was there an actual allegation here of deterrence?
David W. Louisell : There was an actual allegation of deterrence, but I submit there's absolutely nothing, but for narrow, conslusary mere allegation. Now, we all know even from the view point of the strongest support of the Dombrowski philosophy, Dombrowski is strong medicine in the federal state relationship and I respectfully submit that unless taken according to prescription, strong medicine is poison. But giving to the claims of the appellees every possible intend and then every assumption. Mr. Justice White, if it's true that they were being kept out of the county by a concert of action between these people, wasn't the remedy to grant an injunction against that sort of an abuse rather than to reach out and declare unconstitutional, a conventional orthodox disorderly conduct statute?
Potter Stewart: They declare the whole statute unconstitutional --
David W. Louisell : The whole statute.
Potter Stewart: Do you think?
David W. Louisell : At one point, they seem to be emphasizing one part of it.
Potter Stewart: Yes.
David W. Louisell : But the net conclusion is in the assumption among the lower courts of Texas apparently is the justices that all of 474 has gone.
Potter Stewart: Because that's one the difficulties in this case, there being no injunction you can't tell this part one.
David W. Louisell : You can't tell the precise notion the Court had in mind.
Potter Stewart: No.
David W. Louisell : But they did say entitlement to injunctive relief. I want to reserve a few minutes so I would just say now that of course historically, the purpose of this statute I supposed was to meet the conventional types of disorder, things on the street, disturbances in church and so forth. Today, the need for this kind of a statute is the kind of a situation where a mob may come to a school room, a classroom, and screech and shout so as to disrupt. Your Honors, that has nothing more to do with free speech than the fact that it involves the noise from the vocal chords.
Potter Stewart: You do understand that the District Court in fact did declare null and void under the constitution, those parts of the statute that have to do with indecent exposure and firearms and so on?
David W. Louisell : Of course, they didn't direct themselves to that specifically, but in the final conclusion of the Court, the whole statute went.
Warren E. Burger: They didn't carve out any exception?
David W. Louisell : No exceptions to the condemnation.
Thurgood Marshall: But it did say that the state could pass it as legal?
David W. Louisell : They did say that. Well of course, the next session of the legislature met and adjourned without taking any action as we point out in our supplemental brief.
Potter Stewart: Because that's the difficulty in the case when there's actually no injunction. You can't tell and that's the reason for the rule under law that it requires an injunction to be very carefully and precisely drafted.
David W. Louisell : That is --
Potter Stewart: And here's no injunction at all?
David W. Louisell : There is the concluding paragraph and of course, if we did have--
Potter Stewart: If the statement, if there any --
David W. Louisell : -- If the Court had been obedient to the notion that Your Honor just put, we would have a specific injunction. But you can go to the whole opinion of the Court including the so-called addendum opinion to see the completeness of the condemnation of Section 474.
Warren E. Burger: Thank you Mr. Louisell. Mr. Clinton?
Sam Houston Clinton, Jr.: Mr. Chief Justice and may it please the Court. We think the disposition of this case here for reasons about to be stated is rather simple matter and suggests that that disposition is to affirm what the District Court has done and remand for further proceedings not inconsistent with whatever action the Court does take.
Warren E. Burger: Well, are you addressing to that observation to the limitation of the injunction so that if they have some rational relationship to the events?
Sam Houston Clinton, Jr.: I am addressing it to remanding it to the court in order that then the court can actually enter an order for injunction if the court deems it now appropriate to do so.
Potter Stewart: We don't have any power at all to review a case in which an injunction hasn't either been granted or denied. And here your suggestion is we now remand it so an injunction can be granted. We don't have any jurisdiction to this case unless an injunction has been granted or denied under Section 1253.
Sam Houston Clinton, Jr.: Of course, the real problem here is I suggest that the -- that Court in real deference to the legislature of the State of Texas stayed any action under its opinion and with that occurring, counsel, prevailing counsel has just the practical matter is not going to try to bother the court below as getting some kind of order. We're still waiting for the legislative action. And may I --
Potter Stewart: But then as a practical matter, this Court has no jurisdiction to review anything under Section 1253. You know what its words say, don't you?
Sam Houston Clinton, Jr.: Yes sir.
Potter Stewart: And it was very understandable the courtesy and deference that the three-judge court showed to the sovereign State of Texas I suggest that the result of what it did is quite unfortunate because it leaves an essentially advisory committee -- essentially advisory opinion unreviewable.
Sam Houston Clinton, Jr.: Well, the opinion does in the last paragraph say that --
Potter Stewart: Express and reviewed --
Sam Houston Clinton, Jr.: -- we are entitled --
Potter Stewart: -- entitled to an --
Sam Houston Clinton, Jr.: We are entitled to declaratory.
Potter Stewart: But there is no order granting an injunction, there is no injunction.
Sam Houston Clinton, Jr.: I -- certainly, that's true. May I however clear up one thing that arose yesterday as to whether the District Court's own suspension of its order later somehow became effective by reason of a legislature meeting and adjourning. What actually happened was, the legislature did meet on June 4, 1968 in special session that was scheduled by the normal course of events to adjourn on July 3. In the meanwhile, the state, the appellants here applied to His Honor, Mr. Justice Black, and he on June the 12 I believe entered a stay order which in effect superseded whatever the District Court's stay of mandate meant and actually, we are still today under that stay order. I want to discuss what counsel says is the crux of the case that being the motion to dismiss and I'd like to put that in the context, if I may, of the events that led up to that. This particular occurrence was on December the 12. We filed our complaint by the 21. The single-judge granted a temporary restraining order holding things in status quo. We also filed a motion for preliminary injunction and requesting the convening of the three-judge court. In January 2, the TRO was extended as I recall by agreement. On the 19, the defendant's filed an answer to the motion for injunction joining issue on our allegations. And on January the 23, the TRO was extended to February the 23 which was also the date of the hearing set for the three-judge court. So by January of 23, everybody had their pleadings in order and the three-judge court had been convened and the application for the preliminary injunction was then pending. It was February 15, some two or three weeks later that for the first time, the motion to dismiss surfaced and was called to the attention of the Court in connection with a contemporaneously filed motion for a continuance seeking to have the Court put off the hearing that had already been scheduled on the pleadings and concentrate only on the motion to dismiss. The Court on February 20, three days before the previously scheduled hearing entered an order deferring the motion to dismiss or carrying it along with the case as we say down there and denying the motion for continuance. And then on the 23, the hearing was held on which date incidentally and for the first time the defendant's filed any character of proof, this being in the form of affidavits from some of them and some of the deputies. I think and submit that the Court was entitled with respect to the motion dismissed to be very suspicious of the validity of the good faith, coming not only as a matter of time when it did, and in fact as I recall, the presiding judge, Judge Thornberry raised that very question during the hearing as to the timing of that motion. If you thought he said, if you thought that these events had occurred on a federal enclave over which the state had no jurisdiction, why have you waited this long to call it to our attention? But in any event, the motion to dismiss if the Court please is directed only to that event. The motion to dismiss is limited to the fact that the --
Warren E. Burger: Where does that appear Mr. Clinton?
Sam Houston Clinton, Jr.: It's page 16 of the brown appendix, page 16.
Warren E. Burger: Thank you.
Sam Houston Clinton, Jr.: The last two sentences, the defendants would show the Court that no useful purpose could now be served by granting an injunction to prevent the prosecution of these suits because the same no longer exists. Plaintiffs can asked no greater relief in the instant case than that the complaints heretofore filed be dismissed for want of jurisdiction. Well of course, we can, not only can but did ask for more relief than just to stop to pending prosecutions where we had a prayer for declaratory judgment that the statute be declared unconstitutional. We had a prayer for preliminary injunction later permanent injunction. We have a prayer for general relief that I submit is so broad that if relief could be granted, we could still ask for monetary damages for the action vested upon the appellees here. And the Court had this kind of evidence before it too which I think this Court can easily conclude that the District Court not only considered but was impressed by it to justify this kind of evidence, to justify the sworn testimony in the sense of affidavits, we agreed and the stipulation that those affidavits meant that those people given the affidavits if called to testify would testify in the fashion shown on the affidavits, this was all done by agreement for the convenience of the Court. The appellees here, the three young men who were handled in Bell County as they were and other affiance called as witnesses through their affidavits, who were there also as a part of the demonstration, all said that they were limiting their activities in the committee it's peaceful protest that they would not return to Bell County, that they would not engage in any demonstrations in Bell County and some said elsewhere, so long as the statute was being used in the fashion that it was.
Warren E. Burger: Could that conceivably be form of protest against the statute as well as bona fide expression of a fear, -- the statute it's got to be a fear, an apprehension, doesn't it?
Sam Houston Clinton, Jr.: Well, I think it's an expression of fear maybe not or maybe it was stated directly to the statute itself, but it was stated in terms of if this is the way the statute -- if people can be charged for disturbing the peace for what we've done, well then, we are not going to do it until something is done about the statute. The point that I'm trying to get to is to suggest to the Court that when the District Court accepted those statements not only by the appellees but by their witnesses who were there in the demonstration, they have very good reason for accepting him and believing him and get writing relief based on that or indicating that we were entitled to relief based on that.
Warren E. Burger: Professor Louisell, I think argued yesterday Mr. Clinton that the 1871 Statute was not aimed at isolated or sporadic enforcement of a particular statute in a particular way, but systematic or pattern of the use of local statutes to inhibit constitutional rights. Do you think that going back to your original pleading, do you think you have a case of systematic conduct or pattern of conduct to deprive people of their constitutional rights here?
Sam Houston Clinton, Jr.: We did not allege that the defendants, the appellants here had previously used this statute, excuse me.
Warren E. Burger: Let's suppose, let me try hypothetical case that might illustrated that. I think someone said Texas had 365 or 367 counties?
Sam Houston Clinton, Jr.: It's actually 254.r.
Warren E. Burger: 254?
Sam Houston Clinton, Jr.: Yes.
Warren E. Burger: Well that's still quite a few --
Sam Houston Clinton, Jr.: Yes, it's still --
Warren E. Burger: Suppose you got a prosecutor in each county and you have one prosecutor in one of those counties who has some aberrations about a Texas statute and enforces it in a certain way. Is that the kind of state action which 1871 Act contemplated where it's one prosecutor in one of 265 counties or is that must have be something broader than that?
Sam Houston Clinton, Jr.: Well, I thought -- I think it is especially in this case where our Attorney General -- where the Attorney General appear -- our State Attorney General appears in the case --
Warren E. Burger: Well, that's --
Sam Houston Clinton, Jr.: -- a part of the State of Texas.
Warren E. Burger: That's after the event?
Sam Houston Clinton, Jr.: Well, but he is in effect saying as he did in the pleadings that the statute was valid, that the events that occurred there were the disturbance of the peace and he's alleging really that local event in Bell County was proper and is effect for the State of Texas adapting that position. I think the Court was entitled to consider that.
Warren E. Burger: That's an argument over the factual issue of whether this was a disorderly conduct case or whether it was a repression of First Amendment rights, isn't it?
Sam Houston Clinton, Jr.: Yes.
Warren E. Burger: He's defending on the different ground quite different from your attack?
Sam Houston Clinton, Jr.: We contend it and we allege that what was happening in Bell County which is a focal point for such demonstrations for the reason that counsel pointed out was deterring the exercise of free speech of people that wanted to go to Bell County to demonstrate. We did not contend that the same thing was happening in other parts of the state because we weren't really trying that that all of these are true.
Byron R. White: But did you allege anything in your complaint that indicated that there was something you wanted to do that you hadn't done?
Sam Houston Clinton, Jr.: Actually wanted to do?
Byron R. White: That you haven't been? I mean specifically other than just generalities?
Sam Houston Clinton, Jr.: We alleged what the university committee did in terms of not only activities -- in terms of its activities, demonstrations, distribution of literature -
Byron R. White: That you alleged you've seized it?
Sam Houston Clinton, Jr.: And said that it had been -- if various individuals handle it different way, some individual says we have seized all activities, other said we have seized any activity in Bell County, we will not go back to Killeen in Bell County and the Fort Hood area.
Byron R. White: This was in your complaint or in the affidavits or what?
Sam Houston Clinton, Jr.: I believe it's in both. We allege in our complaint --
Byron R. White: You just said you say will?
Sam Houston Clinton, Jr.: That the sole purpose of these activities about the defendants were to deter, intimidate, hinder, prevent plaintiffs and the members from -- members of the university committee, his friends and supporters from exercising the rights guaranteed. We say unless the court restrains the operation and enforcement of the void and valid unconstitutional statute, plaintiffs and members of the committee will suffer immediate the --
Byron R. White: Yes, I know, I know, but that's a long way from saying that you had actually had then deterred from a course the conduct?
Sam Houston Clinton, Jr.: Well, we say as long as the charges are pending, we would it be fearful of exercising the rights, our federal rights guaranteed and then the affidavits come along and say that they have indeed ceased activities either state wide in the event of some of the parts or just in Bell County in the case of others.
Byron R. White: So, the details were in the affidavits?
Sam Houston Clinton, Jr.: The details are in the affidavits and what I want to try to point out at this time is to show why the court below was justified in accepting those statements against the background of the other evidence that was before the court, what counsel labeled yesterday as unfortunate events. Some of those unfortunate events included the following based on the evidence that was before the Court, Sheriff Gunn himself said to two of the demonstrators who were not actually handled, who were not arrested, who were not jailed Sue Granville and Phillip Juvenville get out of my county and don't come back, don't ever want to see your faces in Bell County again. Now Gunn contrary to counsels' suggested yesterday does not deny having made those statements. He denies having said other things to the specific appellees here in and out of the jail but he does not deny in his affidavit making those statements to Sue Granville and Phillip Juvenville.
Thurgood Marshall: Mr. Clinton, my problem is assuming that the officials in this county did exactly everything that you alleged they did, why is that sufficient ground to not have the the state wide statute? Do you allege that any other counties are going to enforce it?
Sam Houston Clinton, Jr.: No, we do not allege any experience in any other counties.
Thurgood Marshall: You alleged that any other person police official is going to use it the way it was used here?
Sam Houston Clinton, Jr.: This case relates solely to what happened, arises solely from what happened in the Bell County.
Thurgood Marshall: So, could you get the same relief by enjoining those officials from acting without knocking the statute out?
Sam Houston Clinton, Jr.: Well, it occurs to me that if the statute is of course it was invalid in Bell County, its invalid state wide.
Thurgood Marshall: Why?
Sam Houston Clinton, Jr.: And it's just -- excuse me, It just happens that this situation arose from Bell County.
Thurgood Marshall: Well, I respect to submit the situation would not arise again in Bell County unless the President of the United States came down now?
Sam Houston Clinton, Jr.: Well, no sir. That's exactly another threat of -- the point that's made throughout these affidavits.
Thurgood Marshall: Well, I can't leave that out?
Sam Houston Clinton, Jr.: Well, may I comment about that?
Thurgood Marshall: Well at first I want to know, can you get your relief without knocking the statute out? If so, you're going to understand it.
Sam Houston Clinton, Jr.: I don't see how we could. We'd have to allege as I understanding it under Dombrowski that the statute is unconstitutional, and that --
Thurgood Marshall: Well, what did Dombrowski said the statute was being used systematically over and over and over again. You say the statute was used once by one group of officers?
Sam Houston Clinton, Jr.: Well, we say it was used on this occasion and that they were threatening us in effect with using it again and again and again if we came back.
Thurgood Marshall: Where do you get that?
Sam Houston Clinton, Jr.: I infer that from all of these events that happened. The sheriff's saying “don't come back, we don't want to see your face here again. “ The other things that -- I have to call to the Court's attention, these other evidentiary events that happened at Fort end what would happen in the future.
Thurgood Marshall: Well, if this case -- did you ever apply for an injunction after the judgment in this case?
Sam Houston Clinton, Jr.: After the -- I'm sorry, I don't get your timing there, after the Court handed down its shall we say opinion? We did not apply because the Court said we're deferring any further action until the legislature acts.
Thurgood Marshall: And then the legislature closed?
Sam Houston Clinton, Jr.: The legislature met. The legislature -- while the legislature was in session, Mr. Justice Black entered a stay order which is still in effect.
Thurgood Marshall: Still in effect?
Sam Houston Clinton, Jr.: Yes sir.
Thurgood Marshall: But if this case is decided and sent back, then you apply for an injunction, will you get it or not?
Sam Houston Clinton, Jr.: We will --
Thurgood Marshall: Will you get that back?
Sam Houston Clinton, Jr.: As we pointed out in our brief, we will appear before the Court and make application for whatever relief then appears to be appropriate.
Thurgood Marshall: Well, what other relief is appropriate other than an injunction?
Sam Houston Clinton, Jr.: We think frankly that the declaration of the statute is unconstitutional, is sufficient to preclude any other bona fide prosecutions under the statute. We believe the state and local district county attorney will follow the law if it's declared unconstitutional, they won't --
Thurgood Marshall: Say you wouldn't ask for an injunction?
Sam Houston Clinton, Jr.: We may not in view of the problems that --
Thurgood Marshall: Well, If you're not interested in an injunction, where do we get our jurisdiction?
Sam Houston Clinton, Jr.: Well, I don't suggest we were not interested. I say we may not.
Thurgood Marshall: [Attempt to Laughter] What?
Sam Houston Clinton, Jr.: We may not, but I must again emphasize this point that I'm trying to make that the Court below acted very properly in seeing that there was a case and there was a controversy that it was continuing, that it was very live because of what the appellees said as to restricting their activities, and if they were justified and accepting that by reason of what had happened to them in Bell County and what was threatened would reoccur in the event, they went back to Bell County. I have indicated what the sheriff himself said when they were taken before the justice of the peace. He greeted them under the evidence of this case, he greeted them with the statement, “We don't like traitors around here. ” And he said -- he says, “You can plead guilty, you'd fined $200.00 or you can plead not guilty and I'll put you in jail until you can make $500.00 bond. ” And one of the appellees here said isn't that a little high? And he said “well sure, it's high, but I want you to make sure you're back here because I want to see that this case is tried. ” While after that happened, an officer of the law is there in JP's office and he confronts one of the appellees and he is toying with live bullets in his hands. And he says, “You know sonny, I shot a lot of mad dogs in my day and I could shoot a traitor, I could shoot a traitor and never give it a thought. It'd be just like shooting a mad dog. ” And then when they finally get moved from the Killeen City Jail and to be taken over to Belton community or town some 15 or 20 miles away to be put in that jail, the Killeen police chief tells them, “Don't come back here. We don't like your kind around here and tell your University of Texas friends the same thing because we got all the education we need right here at the junior college. ” All of these activities, all of this evidence, the whole point of bringing it up is to justify what the Court below found was a live controversy, a genuine good faith, solid based statement by each of the appellees and their associates that they were no longer going to engage in demonstrations because this is what happened to them and would happen to them.
Warren E. Burger: Let's assume they could have demonstrated with solid evidence that all of those allegations were true, those are just allegations now of course, do you think those allegations if true would bring it within the systematic pattern of conduct that Dombrowski case was talking about?
Sam Houston Clinton, Jr.: Well, -- not state wide, obviously not state wide but this -- sir?
Warren E. Burger: -- in Dombrowski, it was sustained over a period of time. Dombrowski opinion describes the series of events which had this inhibiting effects drying up contributions, acts that took place over a period of many months if not years.
Sam Houston Clinton, Jr.: Well, --
Warren E. Burger: Here you have one event on one day, don't you?
Sam Houston Clinton, Jr.: One event on one day with a threat of what would happen if they came back to have any other event on any other day. I don't -- It's occurs to me that we should not be required to keep testing the statements that these officers had made in order to have standing to complaint and say we're being put up on and we're being mistreated and we can't get a fair trial up there and come into federal courts for relief.
Warren E. Burger: Well, that goes back again to what was suggested about the 1871 Act. It was aimed only at sustaining systematic, organized patterns of harassment of a particular group of people or a particular kind of conduct. Is that not true the 1871 statute?
Sam Houston Clinton, Jr.: I'll accept the professor's statement on that, but view that carefully --
Warren E. Burger: I think the Dombrowski case opinion reflects that too?
Sam Houston Clinton, Jr.: I'm suggesting to the Court that we have definitely shown in this case a chilling effect by reason of acts of conduct that happened there and that are threatened to reoccur every time any of these people or their associates or their friends and supporters ever again enter Bell County in order to engage in a peaceful demonstration. In order to do as what the counsel himself said to the Court yesterday was nothing improper about their protest and may I hark right back to the business about the President of the United States and that to show that not only does this evidence show that any other time they went up there for any other purpose, the same as likely to reoccur, but also to suggest that to protect the President on this occasion, all that was necessary was to once whoever the officers were that seized them and detained them and walked them out to the edge of crowd was then to suggest that they leave. There was no necessity in protecting the President. For these deputy sheriffs then, to seize them and handcuff them and frisk them and put them in the cars and take them down to the Killeen jail choking them along the way while they were down there and engaging in this further activity that really gave rise to the complaints.
Thurgood Marshall: Do you, since you push that point so far, do you think the sheriff or any of his people had the slightest idea that they will be going to use this statute where they just working them over?
Sam Houston Clinton, Jr.: Weren't they just what sir?
Thurgood Marshall: Working them over, period.
Sam Houston Clinton, Jr.: Oh, no. No. They --
Thurgood Marshall: And then later, they found the statute?
Sam Houston Clinton, Jr.: No. The sheriff while still -- the sheriff -- while an evidence shows, the sheriff while still at the scene told his deputy, who Deputy Strange, I believe his name is and Deputy Strange confirms this that while he was taking the appellees into the Killeen jail, he was in communication with the sheriff and told him to file disturbing of peace complaints.
Thurgood Marshall: That was afterwards, wasn't it?
Sam Houston Clinton, Jr.: Well, with just a matter of minutes.
Thurgood Marshall: Well, I mean but it was after. All I'm trying to say is your complaint is against some police officials of that county, not against the statute. Suppose --
Sam Houston Clinton, Jr.: No, wait. We don't think at this --
Thurgood Marshall: -- suppose there had been a Texas statute, a disorderly conducts statute that was satisfactory to you and the nine of us, and they did the same thing and you, there's no doubt, they would, you wouldn't be able to get to the statute, would you? The statute was just an excuse, wasn't it?
Sam Houston Clinton, Jr.: If the statute -- you're suggesting if the statute were constitutional?
Thurgood Marshall: Yes.
Sam Houston Clinton, Jr.: Well, no. We'd have to complain about the abuse of the statute, but here we're complaining about both. There's unconstitutional and we also alleged the other branch of Dombrowski too below.
Thurgood Marshall: I know, but the Court took one problem, the statutes were unconstitutional?
Sam Houston Clinton, Jr.: That's correct, yes, sir. Thank you.
Warren E. Burger: Thank you Mr. Clinton --
David W. Louisell : If the Court please --
Warren E. Burger: Mr. Louisell, you have two minutes left.
David W. Louisell : Before I forget, I just wanted to point out all that this Court has done to make freedom of speech really viable when it has an orderly procedure before it as contrasted with what went on here, I simply refer to your own recent decision in the Bachelor case for Maryland. And if I may add two California cases, certainly a court trying to be obedient to your teaching on free speech, they were too late to get into the brief. These case has shown how you don't reach out to strike down the California disorderly conduct statute because you got to grant some kind of relief, In re Cay in 1 California 3rd 930, In re Bushman, 1 California 3rd 767. Now the one thing that Mr. Justice Stewart directed himself to us all I will have time to comment upon, but I would like to call Your Honors' attention to the fact that we're not dealing here with Rule 65 that uses the phraseology preliminary injunction, temporary restraining order and permanent injunction. We're dealing with Section 1253, an order fortunately, I need to take Your Honor if even I had a time on this, Your Honors had occasion carefully to rethink this problem in the Goldstein case. In the Cole against Richardson proposition, that was referred to from the bench yesterday, that as I understand it from the concurring opinion, there was only very brief per curiam order and the dissenting opinion, in that case, the matter was one of mootness. There was no possible claim of mootness here Your Honors.
Potter Stewart: No, no. I had in mind Section 1253 and I point out to your own words and your motion for a new trial to the District Court. I'm quoting from you motion, you said that “the Court had given not a declaratory judgment, but an advisory opinion. ” And so according to your submission to that Court with which I agree, the Court has not even given a declaratory judgment much less entered or refused to enter an injunction.
David W. Louisell : But wouldn't it be a very serious commentary on judicial administration if an opinion that is so effective but for Mr. Justice Black's restraining order, his stay of mandate that is so effective as a practical matter and remember, there's no other review except to this Court --
Potter Stewart: An outrageous situation.
David W. Louisell : An outrageous situation and also I invoke, I invite the attention of Your Honor to the fact that you can't blame counsel for the appellants or for appellees for that matter because the very last sentence of Rule 58 provides “attorney shall not submit forms of judgment except upon direction of the Court, and these direction shall not be given as a matter of course. ” I have to leave it to the Court to find a way of avoiding the continuation of a reprehensible order that's operating de facto as an advisory opinion and arrest the processes of enforcing the law in the state. Something has to be done or the situation will become impossible.
Warren E. Burger: Just to pursue the point that I think Justice Stewart raised earlier, isn't the very function of the judgment which ordinarily follows the opinion on the expression of the Court as to what it's going to do, isn't the very function of that judgment defined precisely and narrowly and specifically the general thrust which the Court's memorandum opinion has articulated?
David W. Louisell : Yes.
Warren E. Burger: And wouldn't that be very likely that an injunction of this stringent nature would have been very precise and very specific as against the broad and sweeping language of the Court's opinion?
David W. Louisell : Hopefully, certainly it would.
Potter Stewart: Where can you find any such judgment in this appendix?
David W. Louisell : In the appendix Your Honor, and I again call your attention to the fact that in the docket entries, it is referred to as a judgment.
Potter Stewart: Yes, but where can you find the judgment, any judgment?
David W. Louisell : You must turn to the last paragraph of the opinion. You don't find as I said yesterday, you do not find any separately entered document. Rule 58 was again violated --
Potter Stewart: -- It's not even judgment here, is it?
David W. Louisell : But Your Honors --
Potter Stewart: -- paragraph of an opinion.
David W. Louisell : You will remember in how many instances, in fact the very rules provide that if findings of fact and conclusions are embraced within an opinion you can use that --
Potter Stewart: We're asking no --
David W. Louisell : Now, if you can substance a judgment is embraced within a form of words concluding an opinion, even though it isn't entered as the rule requires on a separate piece of paper, we respectfully submit it can constitute at least, I submit this Court should refrain.
William O. Douglas: Did you go back to the Court at any time asking them to --
David W. Louisell : No, and I think -- of course, I have nothing to do with the case at that stage but the Attorney General's office --
William O. Douglas: I'm talking about the last year. You had something to do with last year, didn't you?
David W. Louisell : Yes. The argument of first appeal, but the attorney --
William O. Douglas: My question was did any of the parties asked the Court since the last argument? This is the question raised last time.
David W. Louisell : To my knowledge, no. But Your Honors will note again the last sentence of Rule 58, this is a matter that's left to the Court and the Court has never entered what it should have done Rule 58, but that is --
William O. Douglas: Well, lawyers had something to do with it.
David W. Louisell : That isn't the question as we respectfully submit the question issue, Mr. Justice Douglas. The question is there any kind of an order under 1253 of the judicial code.
William O. Douglas: We understand it.
David W. Louisell : The language of 1253 is not in terms of a preliminary injunction. It is an interlocutory order granting or denying relief.
Thurgood Marshall: Well, is this anything more than a judgment of the Court that we will hold this case and retain jurisdiction? Is there anything else in that last paragraph?
David W. Louisell : There is, the explicit provision that the Court stay expires upon the termination of the next session of the state legislature.
Potter Stewart: Stay of what?
David W. Louisell : The stay of what the Court conceived out as its injunction.
Potter Stewart: There is no injunction. We can agree there is no injunction.
David W. Louisell : Your Honor, words are words, owe to distinguish the reality of things, criteria --
Potter Stewart: Let me reiterate in more questions I haven't implied any criticism of you at all sir. I just --
Thurgood Marshall: May I ask you one thing Professor? How can anybody given contempt to that piece of paper?
David W. Louisell : The whole problem of an establishment of a contempt of course would be a very difficult thing, but with the clear intend, with the intention that is deducible from the words of the opinion, I would say it's conceivable in any, you have being subject to a contempt order is not the definition of Section 1253 Mr. Justice Marshall.
Thurgood Marshall: But, it has something closely resembling an order?
David W. Louisell : Yes, but any --
Thurgood Marshall: Well, you don't have an order here, do you?
David W. Louisell : We have what the judge intended to embrace within his opinion as an order. However, it had to -- such a thing was done.
Warren E. Burger: Thank you Professor Louisell. Thank you Mr. Clinton. The case is submitted.