Warren E. Burger: We'll hear arguments next in Randall against Loftsgaarden. Mr. Brunig, I think you may proceed when you are ready.
Robert A. Brunig: Mr. Chief Justice, and may it please the Court: This case presents the issue of whether economic benefits if any which flow from the tax deductions available to a defrauded limited partner are to be deducted from his recovery under the federal securities laws. The case involves two specific questions: do what the Eighth Circuit characterizes as tax benefits constitute income received, as that term is used in Section 12(2) of the Securities Act of 1933; and secondly, does the actual damage limitation of Section 28 of the Securities Exchange Act of 1934 mandate such deduction. We would argue that the answer to all of those questions is no. I'd like to speak about this briefly in its factual context. The petitioners here bought limited partnership associates in Alotel Associates. When they bought it, they bought it based on an offering memorandum. The offering memorandum projected losses for tax purposes in 1973 through 1975 which ranged from slightly above $20,000 to $476, and thereafter taxable income. The taxable income for the entire period through 1991 was estimated to be $96,000, and that these people would be required to pay taxes of over $52,000 during that period. Instead, they got something else. They got certain tax deductions which led to lesser tax payments in the amounts ranging from $29,000 to slightly more than $38,000 per unit. The reason that they got greater tax benefits was because B. J. Loftsgaarden, the general partner, created greater losses, either operating losses or greater deductions for other items that were involved, and those were not disclosed, and those were amounts which benefited him either directly or indirectly or benefited his affiliates. There was less income, in addition, because for example the motel could not operate as it was anticipated. Sixty of 159 rooms were not able to be occupied whenever it rained because Mr. Loftsgarden's wholly owned corporation, 2361 Building Corporation, had built a building that leaked through the walls. He of course did not sue himself or the architects, which was a firm of which he was a 30 percent stockholder. Now, to take that along, we look at that in the statutory context, and this is a question of statutory construction. The first question to be looked at is under Section 12(2) of the Securities Act of 1933, which provides that any person in a similar circumstance may recover the consideration paid for the security, with interest thereon, less the amount of any income received thereon, upon the tender of such security, and it offers an alternative remedy for those who have sold their securities, that is, damages. The Eighth Circuit at a number of points characterized this under Section 12(2) as a damage case. It is not, as the Eighth Circuit held in Austin One, a damage case. It is an actual rescission case. There was a tender, and in fact the formula applies: consideration paid, together with interest, less income received. The Eighth Circuit held that what is called tax benefits are not a reduction in consideration paid, and that's logical sense. If in fact a person bought gasoline for his or her automobile and used it for business purposes, and the price was $10, there would be no reduction in the consideration paid, just as here there was no reduction in the consideration paid. Each partnership unit had the consideration of $35,000. Respondents asked the Court, despite the lack of a counter-petition, to review that holding. It should not, both because it's not logical and because it's not appropriately before the Court. So, the case then goes to, do in fact the reductions in the taxes paid by these individual petitioners constitute income received. These tax benefits, as they are called, are not such income received.
Sandra Day O'Connor: Is it possible, Mr. Brunig, that the tax benefit features of a particular investment might be part of a bargained for exchange, or part of what caused the investors to make the investment in the first instance?
Robert A. Brunig: First of all, the short answer is yes. Every investment involves tax consequences, whether it be one which is characterized as an artificial deduction, or any other deduction. Every investment, as we know, has tax consequences and the Internal Revenue Code imposes those tax consequences.
Sandra Day O'Connor: Well, can they have a market value in the mind of the investor such as would affect the damages recoverable in the event such becomes necessary?
Robert A. Brunig: Well, every investor, including these, looked on this as an opportunity to recover a profit from the investment and to have certain tax consequences flow from that investment. That's true of every investment. But to look to the benefit of the bargain, respondents would have the Court look only at the income received aspects and say, well, there were tax benefits which flowed from it. The actual bargain is one which would have provided $96,000 in taxable income over a period of time, plus calculable appreciation. If we are to look at this as a benefit of the bargain case, we should be allowed to recover the entire benefit of our bargain. At the time of the investment, that projected stream of income had a valid... and we are not being allowed to recover any of that, and if we were allowed to we would be more than happy to go back and sue for the benefit of the bargain because we'd get much more.
Sandra Day O'Connor: Well, in this case I guess the... your clients brought the action under both Section 10(b) and 12(2)?
Robert A. Brunig: That's correct, as well as--
Sandra Day O'Connor: And 12(2) provides just for rescission?
Robert A. Brunig: --In the case of these investors it provides only for rescission. If they had in fact sold the securities, they might get damages but this provides only for rescission, that's correct.
Sandra Day O'Connor: Does 10(b) provide a different measure of damages?
Robert A. Brunig: 10(b) has no expressed statutory remedy. It has a limitation on a damage remedy provided by Section 28(a) which says you are limited to actual damages. That term itself is not described, although this Court in opinion prior to the adoption of the Securities Act of 1933 and the Exchange Act of 1934 had considered cases in which actual damages were involved, the L. P. Larson case, for example, and there the Court refused to consider the tax consequences under actual damages. It must be presumed that Congress was aware of that.
Sandra Day O'Connor: Well, when the two sections are both brought into the picture, then is it up to the plaintiff to select which measure of damages, or what do you do? Are you limited only to rescission because you've combined 12(2)?
Robert A. Brunig: The plaintiff is allowed to elect after the jury has returned a verdict, and the trial court in this case under 12(2) has made factual findings. The litigant may choose the result most favorable to himself or herself.
William H. Rehnquist: Both issues in... rescission and benefit of the bargain were submitted to the jury for findings of damages?
Robert A. Brunig: No, that's not correct. Rescission was submitted to the trial court, as it was here, and the trial court made specific written findings of fact with regard to Section 12(2). The 10(b)-5, the state Securities Act and the common law fraud claims were submitted to the jury. The trial court considered the result of the answers to the special interrogatories submitted to the jury in making his own findings, but he made much more extensive findings which are part of the Petition Appendix.
Sandra Day O'Connor: Was an election then made by the plaintiffs?
Robert A. Brunig: What happened was, the trial court said that the result was the same, that there was $35,000 per unit plus interest available to these people. The trial court also held that under a benefit... out of an out-of-pocket measure of damages, it would also obtain the same result because in an out-of-pocket measure it would have the price paid, less the value of the security at the date of the discovery of the fraud. The trial court held that as of the date of the discovery of the fraud the securities were worthless, and because they were worthless you get the same amount back, that is $35,000 per unit. In any event, when we talk about income received, the respondent's expert at the time of the retrial testified that these tax benefits were in fact not income. The Internal Revenue Code, both at the time of the adoption of the Securities Act of '33 and the Exchange Act of '34 would not have considered what are characterized as tax benefits to be income received. This Court, in United Housing Foundation, considered what we have here, that is, tax deductions which are available to a person and which may create a benefit because of other income which is had, as not being income or profit when locking at the definition of a security as it exists in Section 2 of the Securities Act of 1933, and said it was not income. In sum, this is not income received. Now, to look at the analysis which the respondents would have the Court adopt, they would say that you look first to Section 10(b) and Rule 10(b)-5, and the limitation imposed by Section 28(a) of the Securities Exchange Act of 1934 which limits recovery to actual damages. And they say, that must mean economic effect. Then, they would have the Court construe the Securities Exchange Act in pari materia with the Securities Act of 1933, and say, because the standard under the '33 Act is negligence, and scienter is required under the '34 Act, you can't get a greater remedy. We believe that that analysis is reversed, and it should go to the express remedy created by Congress in attempting to determine what Congress intended as the measure of damages. Clearly, the legislative history says that the person is to get his or her money back, to recover his or her purchase price. There is no suggestion that tax benefits which are created only by investors' other income, there are no tax benefits but for other income. One of the problems that will be created in the future will be one that is demonstrated in Freschi versus Grand Coal Venture. What happens if the individual investor determines that the deductions which are shown on the K-1 do not appear to be appropriate, and doesn't take the deduction on his or her individual income tax return? Is he then to be faced with question that he has failed to mitigate his damages by taking deductions which he believed to be fraudulent? That will be the issue to arise. We believe that Section 28(a) does not impose this kind of question. What Section 28(a) does is, it says that you can't get identical remedies under state and federal law and have two recoveries for those, and double up your recovery. It says that you cannot under the Securities Exchange Act obtain punitive damages. What we have here is a situation in which a promoter claims that he should be allowed to use the federal treasury to support his fraud, and to reduce his damages. As this Court has repeatedly said, the intent of the federal securities laws is to protect the investor, and to deter fraud by a promoter. That is based on the legislative history of the Act including President Roosevelt's remarks. In any event, if people are allowed to do this, the more money that they bleed from the limited partnership assets, the greater the tax deductions available to the limited partners and the less money the promoter will be required to pay to the defrauded investor.
Warren E. Burger: Mr. Wallace.
Lawrence G. Wallace: Mr. Chief Justice, and may it please the Court: Tax incentives are provided by Congress to stimulate certain kinds of investment or economic activity, not to subsidize securities fraud. That is basic reason why we submit that the proper approach to this case and to others like it which are in the wings, is to calculate restitutionary relief or other damage awards under the securities laws, wholly without regard to the tax effects of the securities transaction on the various participants, and to leave the further tax consequences after the fraud award to be determined between the Internal Revenue Service and each taxpayer, under principles prescribed by the Internal Revenue Code. This approach has the twin virtues of, number one, preserving without diminution both the deterrent and the restitutionary effects of the statutory remedies against securities fraud, and, number two, allowing the tax consequences to be determined by the normal operation of the Internal Revenue Code, and under our annual tax accounting system that will provide for some recapture of revenue by the Treasury by means of the tax benefit rule or other mechanisms, and it will further assure that any remaining tax benefits, after it has all been sorted out, will rest with the persons upon whom Congress conferred those tax benefits rather than being transferred to the perpetrators of securities frauds. As this Court knows from its 1983 decision in Hillsboro National Bank, it can be a complex and time consuming task to sort out the tax consequences in such situations, and the results can vary depending on other aspects of the particular taxpayer's circumstances in the taxable years at issue. But, that is the method that Congress and the courts have prescribed for applying the Internal Revenue Code to interrelated events that stretch out over more than one taxable year. The fundamental error of the Court of Appeals in our view, in this case, lies in its attempt through strained interpretation of the statutory terms to improve upon the system that Congress has prescribed by creating an unwieldy amalgam of securities law and tax issues to be resolved up front in the fraud suit. It is a bit like trying to solve an equation containing too many variables without any firm starting point in doing that, and the danger of such a contrivance is that it distorts the results ordained by each statutory scheme and thereby undermines the statutory policies of both Acts. The fact that the Eighth Circuit here and the Second Circuit have disagreed on the details of how to create such an amalgam is, in our view, merely symptomatic of the basic error of undertaking that enterprise in the first place.
Harry A. Blackmun: Basic error by both courts?
Lawrence G. Wallace: By both courts, of undertaking to make an amalgamation of the securities issues and the tax issues in the first place in the fraud suit, rather than applying each statute on its own terms and pursuant to its own processes in a straightforward way, seriatim, as the tax law provides and as this Court recognized in the Hanover Shoe case is the proper approach to these cases. We agree with the petitioner that perhaps the most egregious misinterpretation of this statute is to characterize tax benefits as income of an amount due is a right if the taxpayer has generated other income through his labor or his capital, to get the government to refrain from applying as much tax to that other income as it otherwise would apply. But, the tax benefit is not the income itself and it is not the economic activity that generates income. There would be no economic activity if the only income people had was tax benefits. And so, we believe that that is the fundamental error, rather than of the detailed differences in analysis between the two courts. If there are no further questions--
Warren E. Burger: Mr. Friedman.
John M. Friedman, Jr.: Mr. Chief Justice, and may it please the Court: There is no question here--
Harry A. Blackmun: Mr. Friedman, before you start, could I ask whom you represent?
John M. Friedman, Jr.: --All the respondents, sir, Mr. Loftsgaarden and his corporation.
Harry A. Blackmun: Mr. Loftsgaarden must be out of the picture now. He is an old St. Paul lawyer, as I recall.
John M. Friedman, Jr.: He is very much in the picture, sir.
Harry A. Blackmun: Where is the juice in this case? Is this a test case, or where is the Juice that keeps it going?
John M. Friedman, Jr.: I'm not sure I follow you.
Harry A. Blackmun: Well, where is the financial responsibility?
John M. Friedman, Jr.: With Mr. Loftsgaarden exclusively, and his corporations.
Harry A. Blackmun: Is there money in these corporations?
John M. Friedman, Jr.: I don't believe the... well, I don't know the status of the corporations.
Harry A. Blackmun: You've come out of New York, a large firm. I'm just wondering who's paying the bill. Mr. Loftsgaarden can't be paying the bill.
John M. Friedman, Jr.: Mr. Loftsgaarden is not paying the bill, sir. The investors have invested in a tax shelter. The tax shelter promised them savings on their taxes, and returned what was promised. Section 28 of the 1934 Act says that no person shall recover a total amount in excess of his actual damages on account of the act complained of. All measures of damage under the 1933 Act contemplate a return as well to the status quo ante. No punitive damages are awardable under either Act. The courts have held this for many years.
Warren E. Burger: Is it your position that deterrence is not one of the functions of the securities law?
John M. Friedman, Jr.: Deterrence is a function of the securities laws, sir, yes.
Warren E. Burger: Deterrence, by implication, embraces the idea of a penal sanction, does it not?
John M. Friedman, Jr.: Yes, and penal sanctions are found in the securities laws, but the provisions of the securities laws to be construed by the Court in this case are compensatory in nature. They are the civil damage remedies and no court has sanctioned an award of anything beyond such remedy in interpreting those sections. The lower courts tried to apply that principle carefully to the the facts of this case, and examined the investment each investor made and the returns, the economic benefits, that each investor received from this investment. The plaintiffs and the Government would have this Court ignore the returns so received by the investors, not because they were unreal, not because they lacked value, not because they were speculative and not because the petitioners failed to receive them, but because they feel as a matter of policy that making the petitioners more than whole would deter violations of the Securities Act or otherwise serve tax policy. The difference in an award made by the lower court, taking tax benefits into account, and an award sought by the petitioners, is the difference between an award of 20,000 some odd dollars, and an award of close to $300,000, the $280,000 penalty that is sought to be enforced against the petitioners... excuse me, against the respondents... even though the petitioners are not out of pocket anything. Now, I would propose to address--
Warren E. Burger: In terms of congressional policy in antitrust cases, for example, you have a trebling of damages, do you not?
John M. Friedman, Jr.: --Yes, sir.
Warren E. Burger: And that is for deterrence, isn't it?
John M. Friedman, Jr.: Yes, it is.
Warren E. Burger: There's nothing expressed in the Securities Act about trebling the damages, is there?
John M. Friedman, Jr.: That is correct. There is not.
Warren E. Burger: Well, would you suggest that this large amount would not function as a deterrent with respect to other people similarly situated?
John M. Friedman, Jr.: I expect it may. There is nothing in the record, or nothing I am aware of, to suggest that since Austin One was decided some four years ago, there has been an abatement of tax shelter litigation and I don't know that enhancing the penalty here would create such an abatement or would encourage people to sue or not, or would act as a deterrent. But as to the economic matter, it seems logical that the more penalty associated with an action, the less the action will occur, yes, sir. I'd like to talk about the arguments raised by the Government that to follow the rule of the Eighth Circuit and Second Circuit constitutes subsidizing fraud, and I would also like to address the statutory construction argument made by Mr. Brunig earlier. The Government and the petitioners are fond of speaking of fraud here. The statutes to be construed do involve fraud under the '34 Act, but the '33 Act statute is a negligence statute. In addition, Section 11 of the '33 Act, which would govern public offerings of tax shelters is a strict liability statute. The subsidy, so called, can best be viewed in the context, I think, of one of the petitioners, and I propose to use Dr. Austin as the example there. Dr. Austin originally invested $35,000. He was returned $33,000 through his tax benefits, and he stands out of pocket now $2,000. The so-called subsidy is represented by this $33,000 contribution of the government. The government is not subsidizing a fraud.
Sandra Day O'Connor: Mr. Friedman, do you know to what extent, if a rescission is obtained as a result of the securities fraud litigation, that IRS could come back later on the investor, seeking a recoupment of some of the tax benefits previously taken?
John M. Friedman, Jr.: Depending on the situation, the normal result would be that following rescission the monies received would be treated as income by the petitioners here. However, the income would not be taxed at anything like the 100 percent rate. Again, consider again Dr. Austin, who has already received a permanent tax benefit of $33,000. If he would receive his $35,000 back at this time, the most the government would take would be $17,000 or so, leaving him with a$15,000 windfall on this investment, contrary to the expressed requirements of Congress as the statutes have been interpreted by the courts, that he receive compensation and be made whole, and no more. So, the motion that the Ninth Circuit, for example, has advanced that tax benefits will be completely recaptured by the government, the government will get all its money back in some sense, is just false, an erroneous statement of tax law. The subsidy, though, is something worth addressing because the government is not subsidizing fraud. The government is subsidizing a motel. The motel is built and is functioning. I believe you can go to Rochester, Minnesota and find it functioning today. The government has--
Harry A. Blackmun: I know that motel.
John M. Friedman, Jr.: --I'm not sure how to take that, but-- [Laughter] The motel is functioning. Carpenters were employed, electricians, plumbers, masons, road pavers, roofers, whoever makes lumber, two by fours, in the Pacific Northwest have this factory running a little longer to help finish this motel. This is what the government sought to bring about. This is what was brought about by the building of this motel. And the notion that the government is somehow entitled to any measure of damages now to get back some of that money is preposterous. That's exactly what the Second Circuit held. They phrased it this way: they said, the government is not banking fraud, which was the expression used by the Ninth Circuit and by the petitioners today. The government is banking exactly what it agreed to bank, which is a type of economic activity. Having gotten that, I used the word "preposterous" and perhaps "disingenuous" would be a better word, the government is not entitled to get it back. The subsidy here is not a fraud. Injuries caused by fraud, Dr. Austin's $2,000 out of pocket loss, have been restored to him. That is what the Eighth Circuit did. There was no subsidy of the fraud. Now, I think the clearest way to illustrate this point, and I don't want to beat this horse to death--
Byron R. White: I suppose that if the fraud hadn't taken place in the first place there wouldn't have been any tax savings?
John M. Friedman, Jr.: --Well, let me examine that very scenario. Let's suppose that at the outset in 1973 the petitioners came to Mr. Loftsgaarden and said, we wish to rescind, take back our units, and he did, and return them each for $35,000 per unit. What would happen then? What would happen is, the motel would have been built and all the tax benefits associated with it would have gone to the owner of the units, Mr. Loftsgaarden. He would have received the tax benefits, not the petitioners. An that is the same economic--
Byron R. White: That may be so, but these people who invested, if they had... they probably wouldn't have invested if they had known what they should have known.
John M. Friedman, Jr.: --That's right.
Byron R. White: Or they may have acquired a tax benefit that was caused by the fraud.
John M. Friedman, Jr.: Yes, it was caused by the investment, induced by the fraud, that is correct. I don't know--
Byron R. White: Your clients were not entirely blameless for causing the--
John M. Friedman, Jr.: --No, they weren't. But as with any investment--
Byron R. White: --The government suffered from the tax benefit?
John M. Friedman, Jr.: --I don't think the government has suffered, and I think that's a vital issue here, and I think that's exactly what--
Byron R. White: At least it didn't collect these taxes from these investors.
John M. Friedman, Jr.: --But, it encouraged--
Byron R. White: And it may never be able to collect then from anybody?
John M. Friedman, Jr.: --It may not, but the reason it may not is because it sought to induce a kind of economic activity that was in fact induced, and brought about.
Warren E. Burger: Well, did the government lose anything by the fraudulent nature of the transaction that it wouldn't have lost if the transaction had not been accompanied by--
John M. Friedman, Jr.: Not at all, not at all, and that is what the Second Circuit meant when it said, the government is banking exactly what it agreed to bank. All the deductions and tax credits that led to the tax savings by the investors here have been audited, and were found to be completely proper. This is not a case where the government was cheated out of some tax revenues it otherwise might have received. The fraud went only to the incremental investment made by each of these investors, and they have been made whole. The illustration I used, which invited the Court to effect this rescission in 1973, I think shows that. The economic position of the parties would have been, had the transaction either not occurred or been rescinded right away, is the exact economic position they find themselves in today by reason of the action of the Eighth Circuit.
Byron R. White: --Do you think the United States, then, has a financial interest in this case at all, or is it just, they think this would be a sort of deterrent way of enforcing the securities laws?
John M. Friedman, Jr.: Well, they do have a financial interest. If the petitioners were awarded $300,000 instead of 20,000 some odd dollars, there would be more money to tax, and some of those tax benefits that the government gave out would come back, by no means all of them, but some would come back despite the fact that what the government sought to bring about by granting those tax benefits has occurred.
Byron R. White: So, the United States would stand to collect some more taxes?
John M. Friedman, Jr.: If the award was increased, yes, they would.
William H. Rehnquist: Well, I suppose the government might have an interest in appearing as amicus before any court reviewing any sort of awards to plaintiffs, urging that the awards be increased on that basis because the government would get more tax money?
John M. Friedman, Jr.: Well, they would have an incentive to do that, yes. I would like to turn, if I may, to the statutory interpretation argument that Mr. Brunig has made this morning, because I think it is erroneous. We have argued in our brief, and by no means abandoned the position, that the nature of these tax benefits is properly considered as a restoration of consideration paid for the investment by the investor. I won't rehash the arguments made in the brief because I want to address the income point, because I feel that if the investment is not regarded as a return of consideration, it must be treated as a form of income. And I think as a result, compelled in part by the Court's decision in the Norfols and Western Railway case in which the Court decided a few years ago that in determining the earnings of a railwayman killed in an accident for the purpose of awarding his wife his lost earnings, the taxes he would have to pay must be deducted like any other costs of his former life before the net amount was determined. And it seems to me that if the Court is recognizing, as it does, that the payment of a tax liability is a cost to be subtracted from income determining net amount, that it follows that relief from a tax liability is properly regarded as income, at least in an economic sense. And I don't want to suggest it's taxable income, but in an economic sense the status of person both before and after he invested in a tax shelter is different. Tax benefits enhance a person's wealth by reducing his taxes, and in that sense constitute economic income regardless of whether it constitutes taxable income. Indeed, Section 61 of the Internal Revenue Code, which I concede is not strictly applicable here, has underlying it an economic principle. It says that the forgiveness or release of indebtedness constitutes income.
William H. Rehnquist: What may constitute income for purposes of the internal Revenue Code can be quite different from what we think of normally as income, can it not?
John M. Friedman, Jr.: Yes. Yes, it can. I think people normally think of increments to one's wealth as income. The man on the street may not--
Warren E. Burger: Do you regard that as income too?
John M. Friedman, Jr.: --Pardon?
Warren E. Burger: Do you regard capital gains the same as income?
John M. Friedman, Jr.: They are a form of income, yes, sir. They're not the same as earned income, obviously, but--
Warren E. Burger: They're taxes somewhat differently, aren't they?
John M. Friedman, Jr.: --And they are taxed differently, certainly. But from an economic standpoint they can be a return on investment and a form of income in that sense. Now, I think if we stand back from this statute, and I'm referring here to Section 12, the purpose of this statute, and the Government appears to agree with this as well as the petitioners, the purpose is to effect a rescission and restitution, to return the parties to the status quo ante. I think an interpretation of income which closes its eyes to the economic necessities in achieving that end is a misinterpretation of the word "income" in the statute, and unless the word "income" is interpreted to include all the economic benefits that an investor receives from his investment, there will be misconstruction and the parties will not be returned to the status quo. That is an important fact in the statutory interpretation here. The purpose of the statute is to return the parties to the status quo ante. That can't be done unless the economic benefits received from the investment by the investors are taken into account. The Court, I believe, should not close its eyes to that principle. I think it's easy to lose sight of the facts of this case before the Court. It is essentially a simply case. An investment was made benefits were returned from the investment. The plaintiffs have been made whole. They have the same amount of money in their pockets they had before they got in to this investment. No policy requires making them more than whole in the face of statutes whose purpose and whose limitation is to avoid actual damages or compensation on account of the acts complained of. Thank you.
Warren E. Burger: You have five minutes remaining, Mr. Brunig.
Robert A. Brunig: Thank you, and may it please the Court: Counsel would say, we would like to return the parties to the status quo ante. Counsel does not suggest that Mr. Loftsgaarden would be returned to the status quo ante and required to disgorge the $70,000 which he paid to his wholly owned corporation as rent during 1973. He does not suggest that he be required to pay the in excess of $100,000 which the partnership paid over and above what was disclosed as the cost of constructing a motel. He does not suggest that Mr. Loftsgaarden pay the $23,100 mortgage commitment fee which he paid to Property Development Research Company, his 100 percent owned corporation, or the $23,100 he paid to Lyman Colt, a member of the board of directors of Alotel Associates. He does not suggest that Mr. Colt repay the undisclosed $25,000 real estate commission that he was paid. He does not suggest--
Byron R. White: Yes, but what about the relationships between the investors and him?
Robert A. Brunig: --I'm sorry, I don't understand the question.
Byron R. White: Well, are they being... are their relationships being returned to what they were before, the investors' relationship to Mr.... what's his name?
Robert A. Brunig: Loftsgaarden.
Speaker: Loftsgaarden.
Robert A. Brunig: Mr. Loftsgaarden got all the money to which he was entitled, plus a great deal more.
Byron R. White: Well, I know, but aren't these investors being returned to their pre-deal commission?
Robert A. Brunig: Had they had--
Byron R. White: Yes or no.
Robert A. Brunig: --They are not being returned under the present status--
Byron R. White: In what respect?
Robert A. Brunig: --Because as was the testimony of petitioner Newmann, for example, he was looking at a variety of very similar deals, all of which would have provided him with similar tax deductions, similar tax benefits. He cannot get that with he several thousand dollars which he's being awarded under the Eight Circuit's holding, because he would have had both the tax deductions and the real estate investments.
Byron R. White: And the profit?
Robert A. Brunig: And the ultimate profit, the capital gain on the apartment buildings in which he had invested previously, and would have invested at this time. What Mr. Loftsgaarden is saying is, the Treasury should pay out the $280,000 which he wishes to keep and would otherwise have had to pay back. Clearly, if these people had not had other income from other sources, these would have been no tax benefits and he would not have been able to deduct one penny from the recovery, even under the Eighth or Second Circuit holdings. But, there is no way to give these people their lost investment opportunity back again. They were the people at risk. They took certain risks, and Mr. Loftsgaarden imposed unilaterally other risks upon them.
Byron R. White: Did they get some benefit for the use of the money, for the money that was returned to them?
Robert A. Brunig: They were allowed to take certain deductions, but they got nothing other than that. Part of the deductions were obtained in a different way. It cost real dollars. These people had to make loans to the partnership which they were not allowed to recover by the district court, because the district court held that they had learned of the fraud before making the loan, therefore there was no reliance and therefore no recovery. So, these people put in money to be used for operating capital which was lost because of the fraud, and that is not and will never be returned, even if we should succeed, and certiorari be used to reverse the decision of the Eighth Circuit. So, that money is lost. These people were required to make those loans to get these deductions. It was real money. It was not artificial deductions. To answer the earlier question, would there be some recoupment by the government, certainly the mitigation provisions under Sections 1311 to 1314 allow the government to recoup some of that money, because when the status is changed by a subsequent judicial decision as we've noted in the brief, the government has a mechanism available in addition to the tax benefit. If there are no further questions--
Warren E. Burger: Thank you, gentlemen. The case is submitted.


Earl Warren: Number 72, John M. Lehmann, Petitioner, versus United States of America in relation to Bruno Carson. Mr. Fisher, we might -- I will proceed. I was waiting for Justice Black but he's delayed a little. You may proceed.
Roger D. Fisher: May it please the Court. This case and the companion case to be argued immediately after it are deportation cases which involve the construction of the Immigration and Nationality Act of 1952. They both reached this Court on certiorari from the Sixth Circuit, and they both turned on a single question of whether the 1952 Act made persons deportable who were not deportable just prior to that Act. The Act itself make persons theretofore, not deportable, deportable respondent Carson in this case, a native and citizen of Italy. He entered the United States as -- in 1919 as a stowaway. Stowaways at that time were among the classes then excluded by law. This was an illegal entry. Under the law at that time, if he'd been found within five years, he should have been deported. Under the law he would have been deported. In 1936, he was convicted of two separate -- on two separate occasions for the crime of blackmail. Shortly after that, 1937, while he was still in prison for those offenses, a deportation proceeding under the old Act was begun. This was continued when he got out of prison in 1941 and -- but by -- in 1945, Governor Lausche of Ohio gave him a conditional pardon for one of the two blackmail offenses. Under the law as it then existed, a conditional pardon was a sufficient pardon to bring one out of the deportation ground which was two crimes involving moral turpitude. The next -- the new -- this present deportation proceeding was begun in 1953, on the terms of the 1952 Act. There was a hearing, he was ordered deported by the inspection inquiry officer. The order was affirmed by the Board of Immigration Appeals. Respondent filed petition for habeas corpus in January, 1954. The District Court denied the petition. The Court of Appeals through the Sixth Circuit reversed. The United States petitioned for certiorari to this Court to review this construction of the Act, and because of a conflict with the Gagliano against Bonds in the Fifth Circuit and because we submit the conflict with the Marcello decision of this Court. The present deportation is based on two grounds, both under the present Act. I'll get to them in more detail, but one is the stowaway, the illegal entry in 1919. The second is the two crimes involving moral turpitude. Under the 1952 Act, a conditional pardon is not adequate to prevent deportation for two such crimes. It is agreed by the Government that prior to the adoption of the 1952 Act, Carson was not deportable. The deportation provisions of the Act on their face, however, make respondent deportable. There the -- these two grounds both raised the same issue, the issue of retroactivity. That the -- in construing the statute there are two sections which we are involved. The first is section 241, which outlines the grounds for deportation, and second is section 405, the general savings clause at the end of the statute. The Government contends that Section 241 is a specific provision which specifically provides that aliens who've done the things that Carson in this case and Catalanotte in the next case have done, shall be deported. The savings clause, on upon which respondents rely, does not apply to cases where it is otherwise specifically provided. The second contention is that in any event, respondent Carson here and Catalanotte, in the other case, did not have any status or other rights of the kind. They were carried forward by the savings clause. The mere failure of Congress to provide for their deportation earlier did not confer upon them a non-deportable status which would protect them against the provisions of the new law. Before getting to the legislative history in the construction of these, this section, section 241, has been before this Court twice before. In Schaumburg against the United States, decided in April, 1955, the Court held that the petitioner could not be naturalized while there was a pending deportation proceeding under this section. The Court at that time explicitly left open the question being argued today, that the savings clause might protect them from the deportation charge. During the next month, section 241 was again before this Court in the Marcello case, Marcello against Bonds in 349 U.S. The factual situation there is parallel to that here and identical to that in the Catalanotte case. Marcello, who had been -- had a narcotics conviction in 1938 under statute which at the time did not make him deportable, was not deportable prior to 1952 Act. This Court there found that section 241 was retroactive, in that made a conviction at any time a ground for deportation. In view of this decision, the Court went on and had to face the constitutional question of whether the 1952 Act was constitutional as -- or was it against the ex post facto provisions. The Court found the statute to be valid.
Harold Burton: It's because it's a civil case.
Roger D. Fisher: Because it's a civil case, because its deportation not punished, is not a crime. The Marcello case would be controlling here but for respondent's contention that this Court did not explicitly consider the savings clause and whether that clause overcame the provisions for section 241. In Marcello, the petitioner in that case filed a supplemental petition for certiorari raising the savings clause question. It was denied and although the savings clause was mentioned in both briefs it was not argued before the Court. The Court, however, had one month before had both the Menasche and Schaumberg cases devote exclusively to the savings clause and the record in the Marcello case raised the savings clause at which had been considered by the Board of Immigration Appeals below. The Court did not explicitly consider. Certiorari has been granted on these cases. And we'll now go to the question of whether section 241, which this Court found to be retroactive and which respondent concedes is retroactive on its face is overcome by the general savings clause section 405 at the end of the statute. The Government contends that the Marcello construction of the statute is correct, and that under the 1952 Act, aliens were made deportable who were not theretofore deportable. Respondent's decision is that section 241 is not a specific provision from the meaning of the savings clause. It does not specifically provide that this person should be deported, they said. He can -- respondent contends that persons nondeportable under the old Act had a certain nondeportable status which was saved under the language of the old Act. I'd like -- before -- I'll come to this later. But respondent's construction of the statute completely eliminates the retroactive effect of all the language in section 241 because anybody who was not deportable before would not be made deportable under the new provisions.
Harold Burton: Is the respondent's position that there must be a specific reference to section 405 (Inaudible)
Roger D. Fisher: That's one argument advanced by respondent. But to be specifically -- to be accepted from 405, there must be reference to 405.
Harold Burton: (Inaudible)
Roger D. Fisher: He suggested the only cases those which refer to 405 (b) is good enough for 405 (a), but that's as far as we've got on that. I'd like to turn to the language of the statute and then take up the history of these two sections. For the convenience of the Court, we have reprinted the entire section 241 in the back of the Government's reply brief in number 72. It ran some nine pages. We've put in boldface type the -- the wording that has to do with the timing of the offense whether it should be before or after entry, before the Act, after the Act at anytime, this has been put in boldface to show the concern which the Congress had for this problem. I'd like to take for example on page 85 in the appendix of the reply brief, section 241 (a) (11) at the bottom of the Act relating to narcotics. Here in one paragraph, I think as clearly as anywhere else, you can see the timing and the concern of Congress that this be retroactive. This is the section under which respondent Catalanotte in the next case is being deported. Section 11 -- 241 (a) (11) reads, "That anyone should be deported who is or hereafter at any time after entry has been a narcotic drug addict or who at anytime has been convicted of a violation of any law or regulation relating to the illicit traffic in narcotic drugs." I think the contrast between that hereafter relating to the addicts and who, at any time, has been convicted relating to persons convicted of traffic and narcotics indicates on its face a retroactive intent. Any doubt, as to the intent of Congress by looking at the language itself of the statute, should be removed by section 241 (d) which appears on page 89 of the appendix to our reply brief. Except as otherwise specifically provided in this section, the provisions of this section shall be applicable to all aliens belonging to any of the classes enumerated in subsection (a) -- that's the section we're concerned with. Notwithstanding, that any such alien enter the United States prior to the date of enactment of this Act or (2), that the facts by reason of which any such alien belongs to any of the classes enumerated in subsection (a) occurred prior to the date of enactment of this Act. Faced with this language, respondent is compelled to admit that 241 is retroactive. They -- on page 28 of respondent's brief, "We admit as did the court below that some provisions of section 241 are retroactive and that others are not." Where a prospective application of section 241 was desired, the word "hereafter" was used. Except as provided in section 241, section 241(d) made the deportation provisions retroactive. Now I don't know what respondent means by saying that it is retroactive and then coming around and saying that the savings clause takes this all away. The savings clause under respondent's contention means that no person can be deported by reason of fact that occurred prior to the date of an Act unless under prior law they were made deportable.
Speaker: What did you do to your construction with the man provided the status under a special Act, special bill?
Roger D. Fisher: The --
Speaker: And who would be deportable under the 1952 Act?
Roger D. Fisher: The 1952 Act, as we read it, leaves him non-deportable. This is because the facts by reason -- one under section (d) which I just read to the Court -- the facts by reason of which an alien belongs -- and I interpolate -- or does not belong, which I think is the reason which you belong or do not belong to the class enumerated notwithstanding, they occurred prior to the date of the Act. In other words, the events of all kinds are to be judged by this law, not by the old law. You're to take the prior facts by reason of which he is or is not deportable and measure them against the present law. A suspension of deportation or private bill was valid for the old law; it's valid for the new law. If it occurred under the new law it will be all right. If the events by which it's deportable had occurred under the new law, is he deportable or is he not? Every private bill, every suspension of deportation, every adjustment of status is protected by the Government's construction of the statute. Let me explain, contrast that with respondent's case. He had two crimes involving moral turpitude and a conditional pardon. That those that occurred after the Act measured by this law, he is deportable.Under the old law he was not. Conditional pardon was enough from the old law. A conditional pardon is not enough under present law. He had an illegal entry and five years passed. On the old law, he can no longer be deported. If these events had occurred under the new law he would be deported. If during the many years respondent was here, he'd adjusted his status coming at -- had a private bill, had a suspension of deportation, those events being measured by the new law would be valid. He'd be protected. We do not -- and respondent I know in his brief spent sometime in all the thousands of cases that will be -- have to be taken up. That is not -- I think -- I think the language is quite clear, that the events are to be measured by the new law. In that there's no -- notwithstanding, any private bills, notwithstanding any suspension of deportation, not withstanding adjustments of status it merely says notwithstanding the facts occurred prior to the date of this statute.
William O. Douglas: How -- how do you think we'll interpret 405 (a) in it?
Roger D. Fisher: I interpret section 405 (a) which I plan to come to in some detail --
William O. Douglas: I'm -- I'm sorry I thought you were just discussing it.
Roger D. Fisher: No, this is -- this is -- I'm on 241 (d).
William O. Douglas: I understand that.
Roger D. Fisher: Mr. Justice Harlan's question was he thought this would be too broad. That if our construction of 241 --
William O. Douglas: I understood you just said this 405 (a) to cover the case of the private bill.
Roger D. Fisher: Yes, I -- I would think that -- that a person with a private bill -- we don't have to reach the question of whether or not he had status within 405 (a) -- I would concede that he did for the -- for the sake of argument because in 241, it does not specifically provide that he shall be deported. The only retroactive effect of 241 is as the persons who when judged by the new law would be deportable. I don't have it -- if 241 does not specifically provide for their deportation --
William O. Douglas: Well --
Roger D. Fisher: -- we don't reach the question of whether their status is -- is preserved or not.
William O. Douglas: But the way you read the provisions of the new Act it seems to me it'd swallow up 405 (a). It kind --
Roger D. Fisher: As to the -- as to -- as to the deportable status -- as to grounds for deportation as to which no other events occurred I do. For I read -- it cuts you off against the Government in the other way where this is narrower as for example in the case of a member of the who would have been deportable under the old Act. We do not contend that he has a deportable status that's preserved in the face of these specific provisions. A member of the totalitarian organization such as one who affiliated and supported Franco of Spain under the prior Act, anyone who supported the totalitarian organization which had and so forth was to be deported. On the new Act, anyone who supports such totalitarian organization is not deportable unless the organization plans to establish a totalitarian system in the United States.T his has narrowed it down. The prior deportable that we think is there's a specific provision and it's retroactive so it would not catch up. We would not be in an normal position of deporting people who were now admissible by the present standard.
Tom C. Clark: You mean it narrowed it down only as it's -- it's saying.
Roger D. Fisher: No, actually a totalitarian --
Tom C. Clark: With certain conditions, it would fit seem to fit suddenly.
Roger D. Fisher: Oh, but there are may be other -- you can read the two sections again to a great detail.
Tom C. Clark: I gathered from what you've said. I -- haven't -- wasn't familiar with it. It's the way and how to act when you described it. It was examined?
Roger D. Fisher: The -- the earlier provision -- let's see if I have the -- I can't find the language at the moment. The earlier provision was in a -- it wasn't affiliated with a totalitarian organization -- in any totalitarian organization. Now, it must be an organization seek -- seeking to set up the totalitarian form of government in this -- in the United States. That's -- that I must say the McCarran Act is much broader on grounds of deportation in general. This as far as I know is the only narrowing provision. Section 241, legislative history was in the first draft of the bill. The Senate report which was referred to in the brief, the Catalanotte case indicated they planned to have it retroactive in nature. As respondent points out, the most critical fact of this relation between the savings clause in section 241, in the legislative history is in the first bill, the savings clause was not applicable to section 241. The savings clause appeared at the end of the naturalization section rather than its present position five sections later at the end of the Act. So, in the first bill, the savings clause did not affect any deportation proceeding. And if the bill has been adopted and then drafted, respondent would have to concede that he's required to be deported. His contention is that when the savings clause was moved to the end of the Act, this showed an overwhelming intent by Congress that the status quo should be preserved in deportation cases. We see no such intent and -- and believe the contrary to the tenor of the history of that Act.
Harold Burton: Your position as I understand it when the -- what is the end -- they still accepted those that are specifically --
Roger D. Fisher: For which they had other specific provisions in the Act.
Harold Burton: And this you identified as one of those.
Roger D. Fisher: As a specific provision, yes, Your Honor. The section 241 (d), which we believe would be meaningless under respondent's construction, was drafted to make this reading back, applying a new law to the old facts, and that's the way it reads. Respondent suggests that it was put in there so that persons who were deportable on the old Act, who've committed deportable offenses would still be deportable under the new Act. And he cites the General Savings Act in the case under it to support his position. The case cited seems to hold the contrary for the point to which he relies on it for. The case holds that the General Savings Act and the 1 U.S.C.109 carries forward any such liability. There, it was a criminal punishment and without the need of any express savings clause. We believe it does. The General Savings Act would apply. In any event, section 405 (a) as read by respondents would apply and they would not, 241 (d) would be completely superfluous and meaningless under respondent's construction because anybody who is deportable on the old Act would have a deportable status carried forward. Anybody non-deportable would have a non-deportable status to carry forward. The language in section 241 (d) itself shows no such intent to carry forward past deportable grounds. It has drafted the other way around. It says that the pass back is to be governed by the new law. It's just the reverse of the drafting anyone wouldn't use if he was merely trying to keep prior deportable grounds effective under the new Act. After the -- in the very first bill, the Immigration Service submitted their analysis to Congress which has been referred to by this Court, which says the language used, of course, its retroactive effect to deportation provisions of the bill. The question of adopting such provisions seems to be a matter of legislative policies. Now, at the very time the savings clause would move to the end of the Act and made applicable to deportation proceedings by a change in location, there were other changes within section 241 indicating that Congress had no intent to abandon its retroactive effect. The very section which I referred to you previously, subsection (11) (241) in the first bill had said, "Anyone who has been convicted of a violation of any law pertaining to narcotics." Following the change in position, the same time they changed the position was amended once in January 1951. So it read "Is or any time after entry has been a narcotic addict or who at any time he's been convicted of violation." They made a further change later in 1951. Again revised to insert the word "hereafter" as to addicts and to leave it at any time as to persons convicted of the offense.
Speaker: Can I come back to the question I asked you, I'm still bothered in mind.
Roger D. Fisher: Please do.
Speaker: Under the old Act, a man had had two convictions, is that right?
Roger D. Fisher: Of -- of involving moral turpitude --
Speaker: All right.
Roger D. Fisher: -- as to --
Speaker: Well, one narcotic conviction would not have been enough under the old Act.
Roger D. Fisher: The -- there is a -- an erroneous footnote in the Government's brief which --
Speaker: Well --
Roger D. Fisher: -- in 435. One narcotic --
Speaker: We will assume it for the purposes of my question.
Roger D. Fisher: All right. I'll assume.
Speaker: An -- a single narcotic conviction is -- is sufficient for deportation now, is that right?
Roger D. Fisher: That is correct.
Speaker: Now, let's take a man who is deportable on another ground under the old Act but who had a special bill passed giving him a nondeportable status. He still is convicted of one -- has one narcotics conviction. Why isn't -- why isn't he caught notwithstanding, this special bill by section 241 as you construe it?
Roger D. Fisher: I would take the prior facts the one narcotics conviction, the prior bill of Congress, and say, had these occurred under the new law would he be deportable? Had he -- had -- had these things taken place in this order? Had he had a narcotics offense, some other grounds for deportation, a private bill passed in his behalf? Had they all occurred after the 1952 Act? Would he be deportable? I assume not. I'm not clear as the -- I -- I do not know of the fact whether a private bill, some private bill go this way, some give him a permanent residence status and some relieve him of prior grounds. They may just only deal with the single narcotics offense, for example, or the other ground of deportation. But whereas a private bill gives him on adjustment of status, gives an alien something which if it had occurred under the present law would protect him and protect you. The -- the 241 that's (d) does not say the -- this is to be applied notwithstanding, everything else that may have occurred. It says this is to be applied notwithstanding, the facts by reason of which is in this category, occurred prior to the adoption of the Act.
Speaker: (Inaudible)
Roger D. Fisher: If you take all those reasons and put them after the Act, he remains non-deportable.
Speaker: The facts in my illustration that have occurred before are the facts to his narcotic conviction.
Roger D. Fisher: Right, and -- and subsequent to those facts you got a private bill. And I -- I think the entire -- all the facts, those that make it nondeportable as well as deportable, I'm judging by the new law. And if there's a thousands of cases which respondent fears that the Government had -- had found out it has a 108 cases they know that are pending which the retroactive effect of this Act (Inaudible)
Speaker: Well, upon this construction of the savings clause refers to the problem that actually doesn't arrive.
Roger D. Fisher: And if I can put Your Honor a question -- what do you make of the language of section 241? Because 241 (d) then means nothing all these verbs, the detailed care with which had Congress planned this, they might just as well step and begin the statute, "Hereafter anyone doing the following things will be deported." Let's start that off.
Speaker: As I've --
Roger D. Fisher: Also, if you take respondent's position that a person who has a nondeportable status, this is a substantive right, he might say well that other aliens has -- under the old law I had the right to commit, will say, a violation of certain narcotics law without being deported. That's a valuable status. I can do that under the new law. You can't change that status. Take that away from me and the new law would not have prospective effect of any alien in -- in this country on the same reasoning that's the valuable condition I have that I could do certain things. Alien here to continue his illegal residence in United States without being deported he could under the old law. He says, "I have that right, it's protected." I say any other alien could say I have the right to commit certain crimes under the old law and not be deported. My status is being able to continue those and be protected.Section 405 in its legislative history which I may discuss in more detail on the next -- on the next case gives no indication of any intent to overrule 241. The words "status and condition" which appear there were put in at the change from the 1940 Act when applied only to naturalization proceedings. Are those -- the only exceptions of section 405 are those -- the only stated exceptions adopting respondent's position are exceptions to 405 (b). And if I might take the point further, the words otherwise specifically provided would mean nothing on the respondent's construction. The single most dominant policy will be the preservation of the status quo since under his reading, there is no stated exception to 405 (a). He would apply the law to say unless expressly stated to be an exception, there's is no such language anywhere in the Act.
Earl Warren: Suppose the -- at the time of the 1953 Act went into effect there was deportation proceeding ending against this man, what law would he be governed by?
Roger D. Fisher: The pending deportation proceedings were -- were inserted in the savings clause at the time the Act was -- savings clause was moot and I believe the old law --
Earl Warren: -- without regard to -- to when it was put in there, what -- what would be the effect on the -- on that proceeding? Would it be governed by the old law or the new law?
Roger D. Fisher: It will be governed by the old law, Your Honor.
Earl Warren: The old law. Now in this case the man had had this proceeding and they had decided that he was not deportable, didn't they?
Roger D. Fisher: Yes, sir, they had.
Earl Warren: All right. Now do -- do you think that Congress intended to say that if a man had had his proceeding and -- and they had decided he was not deportable, that he would be governed by the new Act but that if a man, under the same circumstances, had a proceeding pending against him that he would be -- he would be governed by the old Act?
Roger D. Fisher: Oh, yes, Your Honor, I do. I believe that the --
Earl Warren: Why?
Roger D. Fisher: Let me explain. A -- a proceeding of this kind, deportation proceeding, is not res judicata. This proceeding, when it was started, was adequate grounds for deportation. There were (Inaudible) two crimes involving moral turpitude. While the proceeding was pending, he received a conditional pardon, which under that law, was ground that the case was -- the case was stopped.
Earl Warren: No, let's -- let's don't complicate it by that part. Let's just -- let's just take the case where -- where a man is not deportable under the -- the old law and he had a proceeding pending against him at the time the new law went into effect. You say there that the old law would apply.
Roger D. Fisher: I -- if I may correct any -- the proceeding would be continued as a valid proceeding in effect. I -- I construe the new deportation provisions. The ground as being retroactive, back and they could then amend the proceeding, put in grounds as to this person which should be valid. The proceeding will continue. It's not a -- we don't chop the things off. The -- the validity of the proceeding is to continue but the grounds under which he could be deported, even someone who had a pending proceeding, would be those -- include those in the new Act.
Earl Warren: I understood you rather fine.
Roger D. Fisher: I'm sorry, I --
Earl Warren: Yes.
Roger D. Fisher: -- correct me -- I'm glad I had a chance to correct my remarks.
Earl Warren: Mr. Carliner.
David Carliner: May it please the Court. As we hear the Government's oral presentation this afternoon, and as we read its briefs not only on the Carson case but in the Catalanotte case which follows, we hear only two ideas. The first argument that the Government makes is that retrospectivity of section 241 (d) and of the other section of provisions of section 241 in and of itself constitutes an exception to the savings clause. For reasons which I shall develop, we believe this is only the beginning of the argument, neither the end of the argument nor the answer to the question which the Court is concerned with as the Government has sought to make it. The second argument, it seems to me, is one of the less sapient ideas ever to have emanated from the Solicitor General's office and that is, that the question whether an alien is deportable or nondeportable, does not present a question of status. Now, apart from the broad sweep of the language of the savings clause which this Court had discussed in the Menasche case, the Solicitor General comes to this issue like a lexicographer, not even as a dictionary but with senate legislative history trying to make the word "status" a word of art. Now, it is clear that by use of the word "status," by use of the word "condition," by use of the very broad phraseology in the section 405 of the 1952 Act, Congress had no such intent that it was to be restricted as a word of art. The Act at dozens of places refers to the position of an alien who is deport -- who was pure lawfully and one who therefore by the outburst meaning who is here not lawfully as a question of status. In section 244 itself, the suspension of deportation provisions Congress has referred to the position of an alien who is deportable being adjusted to the position of an alien who shall no longer be deportable as a question of status. So, I shall not dwell long on that argument. We should concentrate most of our attention on what is the essential, the key issue before the Court, and that is whether the provisions in section 241 and particularly in 241 (d), which make the Act admittedly retrospective in many features is the specific provision which is intended by section 405 (a) of the savings clause and meets -- meet the degree of specificity which is required. At the outset, we believe that Mr. Justice Clark in speaking for the Court in the Schaumburg decision, has disposed of all the Government has had to say on this issue. In that decision, Mr. Justice Clark stated that if the grounds for deportation are the same under the prior law, as under the new Act, then nothing in the new Act affects the petitioner. Only where there's something in the new Act which introduces a change thereby, affecting one's status under the old law is the savings clause called into play. Only then is a specific exception to 405 required. Now, the case which the Court has before it, it is only because section 241 (a) (1) of the 1952 Act eliminated the statute of limitations with respect to stowaways and was only because section 241 (a) (1) by its language is admittedly retrospective. It is only because section 241 (b) removed the immunity to deportation which had obtained previously for aliens who had conditional pardons for crimes involving moral turpitude and it is only because section 241 (d) in the Act makes the provisions of the foregoing clauses in section 241 retrospective that the offenses which this alien has committed have become deportable offenses under the new Act, not under the old Act. It is only then that the savings clause becomes operative. So far from being an exception to the savings clause, all of the -- all of the language which the Government has set forth in his reply brief in blackface type and all of the argument which the Government has made to Your Honors this afternoon, far from being the exceptions as I say, those very provisions had been what have triggered the savings clause into action. For this reason alone, not section 241 (a) (1), not section 241 (a) (4), and not section 241 (d) can be construed to be exceptions to the savings clause. But we feel that we have more than the logic of the case on our side. We have what we feel is the specific legislative history of the 1952 Act.
Speaker: May I ask you one question?
David Carliner: Yes, Your Honor.
Speaker: What would be a proper -- a proper (Inaudible) How would – how would 241 be in our case?
David Carliner: Well, Your Honor, I can say in reply to your question that the -- the Immigration and Naturalization Service, when this Act is under consideration, thought that the proper clause was not reproached notwithstanding, provisions of section 405. And they've made that specific reference and that specific suggestion with regard to 405 (b) and I was intending to draw upon that later. Now, I do not argue as Mr. Justice Burton seems to suggest in his question to Mr. Fisher earlier that we need to have an express provision correlating it to Section 405. I think that a general reference to the prior law may have obtained notwithstanding the provisions of the prior law and notwithstanding the provisions of the savings clause without referring specifically to it by number.
Harold Burton: But you wouldn't say that, however, specific the other statute might be -- must refer back to the 405 (b) in some way directly or indirectly?
David Carliner: Well, in some way, Your Honor, it seems to me that Congress because it put in the savings clause at a later time would have had to indicate that 241 (d) was intended to be an exceptions of the savings clause other than by the very language which they -- which they had been using all along.
Harold Burton: Even though they said that it was applied prior to that?
David Carliner: And I shall explain my reasons for that, Mr. Justice Burton, if I may. Now, as I was saying this for its version of the legislative history, all the Government has had to show is the sharp hostility which it says and admittedly it is true that Congress had for stowaways and its intent to effect deportation provisions retrospectively. But what is relative to the issue are not the general hostility to stowaways or its attitude toward narcotics or whether they wished to have the retrospective effect of the law, but what is -- what is essential is whether intended 241 (d) to be a specific exception to 405 of the savings clause. Now, as my Brother Fisher has pointed out, the genesis of the Immigration Nationality Act was Senate Bill 3455 which was introduced by Senator McCarran in the 81st Congress in April of 1950. It was the culmination of three or four years of study of immigration laws and is intended to be a codification of all that had gone before. Now it is very significant that in that statute Congress omitted -- and this that my Brother Fisher has pointed out, it omitted a savings clause with respect to deportation provisions. And it was more than an omission and unconscious omission because the 1917 Immigration Act did have a savings clause with respect to deportation offenses which carried forward as Mr. Justice Clark summarized the history of savings clause as in the Menasche case. Now, when Senator McCarran introduced Senate Bill 3455 he, it would seem to me by the very fact that it was omitted from the deportation provisions, omitted that with regard to deportation and confined it solely to naturalization and nationality. And it was included in title 3 and made applicable only with regard to the matter set forth in title 3 namely, naturalization and nationality matters. Now, one would -- now in the -- the second bill bearing on the issue was Senate Bill 716 which was introduced some nine months later in the 81st Congress. Now, my Brother Fisher seems to indicate that it was a simply a matter of moving it from one title to another title. But it was far from that because it was introduced in 716, the language of it was changed, whereas, before the savings clause said nothing contained in this title unless otherwise specifically provided therein and so on. When it was put in title 4 of the Act in the miscellaneous title, the clause stated, nothing contained in this Act shall etcetera. Now, obviously, to change the word from title to Act is more than a question of moving it from one House to another. It's giving the savings clause a much larger umbrella, one which covers not only deportation but exclusion in all the other provisions in the -- in the Immigration and Nationality Act. Now, one would suppose that at section 241 (d) or any provisions in section 241 were intended to be an exception to the savings clause that that phrase, that clause would have come into the Act at the same time that the savings clause was made applicable to the Act at large. As my Brother Fisher has pointed out, section 241 (d) was there all along.It was there at the very beginning when there was no applicability of the savings clause to deportation offenses. Now, for the purpose -- and I'm directing myself now to the questions which Mr. Justice Burton and Mr. Justice Harlan had asked. The purpose we feel of section 241 (d) was at least two-fold. Its first purpose and we insist on this very strongly and we believe that the question which -- that my Brother Fisher has directed to Mr. Justice Harlan is based on a false premise and is an error. The first purpose of the Act of 241 (d) was to continue the deportability of those aliens who were deportable under the prior statute. Now, we say that was necessary because section 403 of the Act repealed all prior immigration laws. To say that title 1 of -- 109 of title 1, the General Savings Clause, would be applicable to deportation provisions is a novel and a fresh suggestion. It has never been relied upon by the Immigration Service. We doubt very much whether that Congress intended it. The 109 says very specifically that it's applicable to penalties, forfeitures and liabilities. Now, this Court has said much to our chagrin, as attorneys for aliens, that a deportation is not a penalty or a forfeiture and that we have urged that upon the Court and with respect to the ex post facto argument. Whether it is a liability is far from certain. And I'm certain -- if I am certain of anything that the General Savings Clause was not relied upon by Senator McCarran when he deleted the savings clause from the deportation provisions of the bill. If that were so, even if we assume the correctness of the Government's argument, the very fact that in the second bill, in Senate Bill 716, the savings clause was made applicable to deportation matters, we believe is an argument which is a grease to our mill because the General Savings Clause, the Title 1 Savings Clause, is one which -- is a one way street in favor of the Government. It permits the Government to conduct prosecutions and suits and proper action for penalties, liabilities and forfeitures. But the savings clause in 405 protects both the Government and the alien.Indeed, the Solicitor General in his brief to this Court in the Menasche case indicated that was the very purpose of the savings clause, to protect the public as well as the Government. So, if that argument of the Government be correct we feel that it supports our proposition that 405 was intended to protect an alien. But we believe that not only this 241 (d) was made necessary to continue forward the old grounds of deportability, but it was needed to support deportability even under the new Act. And this we believe is very important because far from being a nullity, 241 (d), if it were absent from the Act, would make the deportation provisions which the Government takes to enforce some of them a novelty – a nullity. Now, there are some, we've been told there are some 700 grounds of deportation set forth in the new statute and it's very difficult in a half hour to go into and -- and apply immigration law session to apply each one of the 700 grounds with respect to restrospectivity. I will discuss, however, very limitedly the applicability of 241 (a) (4) which is the section that the Court is concerned with in our case if 241 (d) were missing from the statute. Suppose an alien entered the United States in 1950 prior to the effective date of the Immigration and Nationality Act, and committed a deportable offense, a crime involving moral turpitude within five years from 1950. Suppose, he committed it 1953, as 241 (a) (4) reads, "It provides that an alien shall be deported who is convicted of a crime involving moral turpitude committed within five years after entry." The very first problem the Government would have is a problem of the word "entry." Normally a -- any statute is construed prospectively. If two -- if the first section of 241 (a) -- 241 (d) were not in the statute, namely, the one providing that entry shall be an entry notwithstanding, that the alien entered the United States prior to the date of enactment of this Act, an alien who entered in 1950 but who committed a deportable offense in 1953 could not be reached by this provision without 241 (d)'s first section. Suppose a second case. An alien entered the United States in 1930. He commits a crime involving moral turpitude in 1945. 15 years after his entry, he's not deportable under the old statute. He commits a second crime involving moral turpitude in 1954, that being after the date of the new Act. Unless 241 (d) was there to make the -- the second section of it notwithstanding, the facts by reason of which he would belong in (a) (4), unless that were in there, that alien could not be deported under the new Act. So we believe that 241 (d), as we construe it, is no nullity at all. That it was there for the very express purpose of continuing all the grounds of deportability and of making effective the deportation provisions under the new Act. There's an additional reason. As the Government's appendix has pointed out, there are many time sequences set forth in 241 (a) (1). Some were hereafter.Some were has-beens. Some were at the time of entry. Some were at anytime. 241 (d), we submit, is a general clause designed to make it clear that with respect to the new law, Congress wanted it to be retrospective except as the time sequence in 80 -- at 241 (a) provided a different provision. So, we think that the savings clause can be construed consistently with 241 (d) and at the same time keeping 241 (d) far from a nullity but an implement of providing deportation for the alien. Now, there's a footnote to our legislative history which we think is very significant. And I comment upon it because the Government keep -- keeps dangling the phrase “magical passwords” before us in order to overcome the lack of specificity in 241 (d). In its reply brief, the Government has stated on page 6 that the origin of the savings clause is part of the naturalization provisions also explains why it is only in the naturalization sections of the 1952 Act that there are stated exceptions to the savings clause and then only to section 405 (b). Now, I can state categorically upon the basis of the legislative analysis which has been lodged with the Court, that this is just not so. The original bill, Senate Bill 3455 contained within it an explanation of the origin of that phrase and of the origin of the -- of the introduction of notwithstanding, section 405 (b) into the Immigration and Nationality Act. As I've indicated in section 3455, the savings clause was applicable only to the naturalization provisions. At that time, section 3455 had a provision at section 310 of Senate Bill 3455, which would -- which made petitions for naturalization, people who were eligible notwithstanding, their race or their marriage. And this language is in this provision. This section and I call this to Your Honors attention in order that the Court may note the difference between the specificity in this clause and the lack of specificity in section 241 (d). And the language says, and this appears in Senate Bill 3455, "This section shall apply to any person whose petition for naturalization shall hereafter be filed or shall have had been pending on the effective date of the Act." Now, in it -- in its analysis the Immigration and Naturalization Service has this to say. The last section of section 310 of the bill will make section 310 applicable to petitions filed after the effective date of the bill, as well as those pending when the bill was enacted. And this is what I call Your Honors attention to. In order to avoid any possible conflict with section 361 (b) of the bill, which was the savings clause, it is suggested that there be inserted at the beginning of line 5, page 160, of the phrase, "Notwithstanding, that section 361 (b)." That was done. It was done in between Senate Bill 3455 and Senate Bill 716. Now, as I previously observed, Senate Bill 716 had the savings clause applicable to the entire Act including the deportation provisions. That time, the -- the general counsel of the Immigration and Naturalization Service went over that bill with a fine-tooth comb and the general counsel made the very same suggestion with regard to 331 (d) of Senate Bill 716. And at that -- and he said in order to avoid any -- the language of 331 (d) was identical with the language of section 310, and the general counsel of Immigration Service said, in order to avoid any conflict of the savings clause, it is suggested that on such and such line and page, immediately preceding a certain sentence, there'd be inserted the clause, "Notwithstanding the provisions of section 405 (b)." This, Your Honors, was at a time that the savings clause was made applicable to the deportation provisions. Congress complied with this suggestion. And not only did it comply with that suggestion but it went through the entire Act when the savings clause was applicable to the entire Act and it added those magical passwords in all the sections where it now appears. Now, we think it is anomalous More than that, we think it is an irony occasioned perhaps more about the desire to win the case than it is to be right. That the very author of those phrase, who thought they were necessary in a clause which is far less ambiguous than section 241 (d), should now say that they were not needed at all. Now, besides the history, the legislative history and this footnote to the legislative history which I have cited, we feel that the language of the savings clause itself read together with the relevant provisions of 241 proved that nothing in 241 is an exception to the clause. The Government's approach to this issue, we feel, suffers because they regard the savings clause as a kind of barrel into which you put things and out of which you take things rather than looking at it as a series of separate and discrete concepts. Now, the first part of the savings clause states that nothing except in this Act, except as otherwise specifically provided, shall affect and a whole series of things are listed one of which, I shall note in passing, are acts done at the time that this Act shall take effect. Now, one of the acts done would be as Mr. Justice Harlan has pointed out, an Act passed by Congress. And I don't believe that my Brother Fisher has answered Mr. Justice Harlan's question adequately because Congress is passing -- passes legislation all the time regarding aliens who have entered the United States illegally or who have entered here legally and has committed deportable offenses and they have said notwithstanding, those offenses, they shall be regarded as legal residents of United States. Now, that is an act done by Congress. 241 (d) would go behind that and say that notwithstanding, the fact that he entered the United States prior to the date of the Act, even though Congress may have passed the law. Notwithstanding, he has committed the deportable offense, he shall be -- the provisions of section 241 making him deportable, shall apply. So, there's one section in section 241 (d) which provides for a specific provision to affect a status, a condition or acts done. Now, the respondent Carson had such an act done. In 1945, the Attorney General terminated his immigration proceedings because by virtue of his conditional pardon by the Governor of Ohio, he was no longer deportable. That act done, we believe, by operation of the savings clause, has continuing validity. It says proceedings shall be continued to -- and in fact as otherwise provided the proceeding shall be continued to be valid.Now, the Chief Justice has indicated, it would matter not if this -- if a alien had been subjected to deportation proceedings which are pending when the Act was passed, but to say that those proceedings are legal or valid, but to say that the -- that the new law shall govern because those proceedings cannot be valid under the old law. The answer which my Brother Fisher has given to the Chief Justice question, I believe, vitiate the legality of the proceeding if it is to say that the person can be charged during dependency of a valid proceeding under the new law with a -- with a deportable offense under the new law. It calls to mind the reasons of Dallas case in which the attempt was made to put things under the -- in the savings clause which operated in the future. In the same sense, I believe that my Brother Fisher is trying to put a new deportation offense in the savings clause to operate a continuing and old deportation proceeding. But there's a -- an additional requirement in section 405 and we think it is significant because Congress must have thought it was significant. When section 405 was first written and included in -- as a savings clause in as 361 (b) of the Senate Bill 3455, it had only one clause which read, "Except as otherwise specifically provided." But when it was put into title 4 of the savings clause and made applicable to the statute as a whole, it -- it added an additional "Except as otherwise provided clause." The first part of the sentence relates to declarations of intention, warrants of arrests, orders of deportation, statuses and so on; but as to all such prosecutions et cetera, the statutes or parts of statutes repealed by this Act are – and I emphasize -- unless otherwise specifically provided therein, hereby continued in force and effect. Now, that second "except as otherwise specifically provided herein" did not appear in Senate Bill 3455. It was not added to the bill until 716 when it was made applicable to the Act as a whole. Now, we believe that this indication and intent by Congress to reinforce and to strengthen the continuation of the applicability of the old law. Otherwise, there would have been no reason to have added this additional specific provision. Now, there two other provisions in the savings clause which pointed out, we believe, the absurdity and the error of the Government's argument. It has failed to observe that there are two dates, two conflicting dates here. The savings clause --
Earl Warren: You might still go on.
David Carliner: Thank you, Your Honor.