Warren E. Burger: Mr. Lauber, you may proceed whenever you're ready.
Albert G. Lauber, Jr.: Mr. Chief Justice and may it please the Court: This case is here on direct appeal, somewhat unusual for a tax case, because the district court declared a provision of the Revenue Code unconstitutional as a retroactive law that deprives Appellees of property without due process. In their brief on the merits Appellees, while not abandoning this constitutional theory, seem to place greater reliance upon the statutory construction argument, a variant of which they presented below, but which the district court did not pass upon. Before talking about either of these arguments, I'd like to explain briefly how the challenged statute works, which is a little bit complicated in some ways. The challenged statute is Section 210(c) of the Revenue Code, which Congress enacted in 1976. This is one example of many transitional rules that Congress from time to time puts into the Revenue Code to bridge the gap between an older statutory regime and an amended regime. In 1976 Congress overhauled the estate and gift tax quite comprehensively. One thing Congress did was to effect an overall reduction of estate taxes, particularly for smaller estates. Congress also brought about a degree of integration between the gift tax and the estate tax. For present purposes, the most relevant integrating thing Congress did was to repeal a pair of exemptions that were available under the old law... they were basically deductions... and replace them with a single unified credit under the new law. Under the old law, a taxpayer during life was entitled to exempt a total of $30,000 of his property in gift form from the gift tax. That was in addition to the annual exclusion of $3,000 per donee. The donor was free to claim this $30,000 exemption in whole or in part, whenever he wanted it. At his death, his estate was then entitled to exempt $60,000 of property from the estate tax, and the ability to claim that was independent of the donor's inter vivos claim of the gift tax exemption. In 1976 Congress abolished both of those exemptions and replaced them with a single unified credit, which was designed to replace both the gift tax $3,000 exemption and the estate tax $60,000 exemption. And the new credit was to be available against either or both of these taxes as first incurred. That meant that somebody could use part of the unified credit for gifts during life and what he didn't use would be available to be used against the estate tax by his executor after his death. Congress realized that there was a problem of continuity here, because some people would have claimed the $30,000 gift tax exemption in whole or in part during life for gifts they made prior to 1977. The effective date of the new law was January 1st, 1977.
Harry A. Blackmun: Mr. Lauber, had he waited until January 2, '77, he'd get the full... we wouldn't have a case here, would we?
Albert G. Lauber, Jr.: That's right, because after the new law was enacted that abolished the old gift tax exemption, and everything was then governed by the unified credit. So if he had made the gifts on January 2, he would have had to use up part of his unified credit or pay gift tax on the transfer. So if he gave away $30,000 on January 2, he would have had to use up--
Harry A. Blackmun: $45,000.
Albert G. Lauber, Jr.: --Well, it was 45, right, including the five little ones. He would have had to use up part of his unified credit in order to avoid paying gift tax.
Byron R. White: He'd have had to use it all up to avoid paying the tax.
Albert G. Lauber, Jr.: I think not all, because the credit is dollar for dollar against the tax, whereas the old exemption you only get a number of cents on the dollar equal to your marginal rate. Anyway, Congress saw there was a problem of continuity because if people who previously had claimed and been allowed their $30,000 gift tax exemption got the full unified credit, which was meant to be a replacement for the old exemption, they'd get the same thing twice. So to prevent this problem Congress enacted the challenged provision, Section 210(c) of the code. And it provides that the unified credit available to a person or his estate would be reduced by an amount equal to 20 percent of the aggregate amount allowed as a specific exemption under prior law for gifts made after the day the conference committee approved the new bill and before the end of the year. The purpose of the provision was to prevent what this Court has called a rush to the door by people trying to hurry up and make a lot of gifts at the end of the year in the hope of double-dipping by getting both the old exemption plus a full new credit. The reason why Congress picked 20 percent as the multiplier to work out this reduction isn't clear, but it's generally thought Congress figured that was equal to the average effective gift tax rate, and therefore... in fact, gift tax rates ranged from about three percent to 58 percent. But Congress apparently thought that the average effective rate paid by the nation's taxpayers as a whole on their gifts was about 20 percent and therefore that if you took that out of the unified credit you would be compensating for the tax benefit on average realized by most people who claimed the old exemption.
Harry A. Blackmun: You say it isn't clear. Why wouldn't something like that be in the legislative history?
Albert G. Lauber, Jr.: Well, it really, you would think it's something--
Harry A. Blackmun: It's an unfair question.
Albert G. Lauber, Jr.: --Congress would have thought about. They may have just picked the number out of their hats for all we know. As the Appellees have noted, the estate and gift tax provisions were a little bit of a last minute addition. The Senate I think hadn't incorporated a similar regime, and maybe Congress didn't flesh out what it was doing as well as it might have. But it picked 20 percent, apparently believing that would approximate the average of tax benefit that people realized who claimed the exemption before. Now, the facts of this case are that the decedent, Mr. Hirschi, made his gifts on September 28th, 1976, which was during the transitional period covered by Section 210(c). He made his gifts three weeks after the conference committee approved the bill, two weeks, about, after both houses of Congress passed the bill, but one week before the exemption signed the bill. He made his gifts to five people who were all objects of his bounty, being either blood relatives or in-laws. The amount of his gifts, $45,000, which was apparently tailored exactly to use up his full $30,000 lifetime gift tax exemption and his five annual exclusions for his five donees. In other words, he gave away as much as he could without paying any tax. Two days later he filed a gift tax return, on the last day of the quarter, claiming the entire $30,000 gift tax exemption, reporting zero taxable gifts and no gift tax due. And this return, for all the records show, was accepted as filed by the Commissioner and no gift tax was ever assessed against or paid by Mr. Hirschi. Mr. Hirschi died two years later, in November of '78, well after Section 210(c) was enacted into law. His executors claimed, who are Appellees, claimed the full unified credit against the estate tax. The Commissioner took the position that under Section 210(c), our transitional rule, that had to be reduced by $6,000, 20 percent of the $30,000 gift tax exemption that Mr. Hirschi had claimed during the transitional period. Even so, after the reduction of the unified credit from 34 to 28,000, still the estate paid less estate tax than it would have paid had Congress never amended the tax laws in 1976.
Byron R. White: Mr. Lauber, weren't the full amount of the gifts included in his estate?
Albert G. Lauber, Jr.: That's correct, Justice White, all $45,000 were included in his estate.
Byron R. White: Because they were gifts in contemplation of death.
Albert G. Lauber, Jr.: Right.
Byron R. White: So they were subject to the estate tax.
Albert G. Lauber, Jr.: That's right.
Byron R. White: Whereas if they hadn't been in contemplation of death, it wouldn't have... they wouldn't have been included in his estate?
Albert G. Lauber, Jr.: That's correct. There are other ways--
Byron R. White: Suppose the law had never been changed, and under the old law what would happen in a gift in contemplation of death where somebody made a gift in contemplation of death and took his exemption and paid some tax and then he had to pay his estate tax, too?
Albert G. Lauber, Jr.: --Well, under the old law, if he had made the gift in contemplation of death and say he claimed the $30,000 exemption and paid no tax--
Byron R. White: Yes.
Albert G. Lauber, Jr.: --You then have the property included in the estate, subject to estate tax, and he would basically have wasted the specific exemption, claimed it, but aside from the time value of money by deferring the tax he wouldn't really have gotten a great tax benefit.
Byron R. White: What if he had made $60,000 in gifts?
Albert G. Lauber, Jr.: And paid tax?
Byron R. White: And paid tax, and then it's all included in his estate.
Albert G. Lauber, Jr.: Then he'd get a credit against the estate tax in the amount of gift tax paid.
Byron R. White: Well, don't you think that makes some difference in this case, that he can't be double-dipping? He's going to get socked for the amount of his gifts in his estate tax.
Albert G. Lauber, Jr.: Well, no, that's not right, Justice White, because don't forget that the unified credit--
Byron R. White: Well, what good did his gift tax credit do him if all of his property is included in his estate?
Albert G. Lauber, Jr.: --Well, he got several things from it. First of all, he paid no gift tax in September of '76.
Byron R. White: That's right.
Albert G. Lauber, Jr.: Which would have had to have been otherwise paid.
Byron R. White: Yes.
Albert G. Lauber, Jr.: It was deferred until several years later. Furthermore, he deferred the tax... he avoided paying the tax himself, because there was no gift tax, and instead it came in the form of an estate tax--
Byron R. White: That's right.
Albert G. Lauber, Jr.: --paid by his estate. So he benefited. His estate, his heirs, may not be particularly happy.
Byron R. White: What you're talking to is you're dealing with the estate and you say the estate has to reduce its credit by $6,000.
Albert G. Lauber, Jr.: Right, an account of the tax benefit that Mr. Hirschi got from the gift tax.
Byron R. White: Well, he certainly didn't get the benefit he would have had if it hadn't been in contemplation of death.
Albert G. Lauber, Jr.: Well that's true. He gambled--
Byron R. White: Because he now has to face the estate tax.
Albert G. Lauber, Jr.: --That's right. But it often happened in the prior law, Justice White, that people could waste their exemption, and people could claim a $30,000 gift tax exemption on a gift, but that gift could wind up being included in the estate as a gift in contemplation of death, as a transfer with a retained life interest, as a transfer with power of appointment reserved. In any of those cases, it would be subject to estate tax and he would have wasted his gift tax exemption. And there was no change in that from the old law to the new law, because what happened under the new law is the waste of the old exemption is reflected in the removal of that chunk of the unified credit.
Byron R. White: Well, it just seems to me that because these gifts were included in his estate, he's not exactly in the same position to have his exemption reduced as somebody who really got the benefit.
Albert G. Lauber, Jr.: Well, that's the statutory argument that the Appellees make, and perhaps I should just go right into that.
John Paul Stevens: Before you do, because I want to be sure I understand. I'm not 100 percent I do. You argue that he's better off under the new law than if the law had never been passed, as I understand it?
Albert G. Lauber, Jr.: Well, his estate, the group.
John Paul Stevens: Combining him and the estate as one for the moment. As I understand your argument... see if I state it correctly, because it's awfully easy to get confused... under the old law he would have paid no gift tax, but the amount of the gifts would have been included in his estate tax and he would have paid an estate tax on that amount that would have been included. And that tax would have been higher than under the new law where he got a $28,000 exemption or credit against the tax as to both of them, is that right?
Albert G. Lauber, Jr.: That's right.
John Paul Stevens: So the net result is he pays less tax, he and his estate together pay less tax, than would have been paid, because he paid no gift tax before and the estate tax would have been higher?
Albert G. Lauber, Jr.: If Congress had never amended the law, the figures we're comparing, what would have happened if he had... if Congress had never changed the law at all, enacted our provision--
John Paul Stevens: That's right.
Albert G. Lauber, Jr.: --the tax under those rates--
John Paul Stevens: He's better off than if the law had never been passed. But in both cases, assuming that these were gifts in contemplation of death.
Albert G. Lauber, Jr.: --Right. Assuming these same facts and that Congress either did or did not pass the law we're considering, he paid less tax overall, even with this reduction of $6,000.
Sandra Day O'Connor: You do agree that it would be appropriate to address the statutory question because by doing that we could avoid theoretically the constitutional issues, do you not?
Albert G. Lauber, Jr.: No. You could if you rule--
Sandra Day O'Connor: Well, if they prevail.
Albert G. Lauber, Jr.: --Yes, if you rule for them.
Sandra Day O'Connor: So it's appropriate to address it, I suppose.
Albert G. Lauber, Jr.: We agree with that, Justice O'Connor, yes.
Sandra Day O'Connor: And I gather it's your theory that the word "allowed" does not mean benefited--
Albert G. Lauber, Jr.: That's right.
Sandra Day O'Connor: --in substance. It means allowed, and it was allowed.
Albert G. Lauber, Jr.: What the statute says is that you've got to reduce the credit by any amount allowed as a specific exemption under prior law. And their theory is, although Mr. Hirschi claimed the exemption and although the Commissioner didn't disallow it, because he accepted the return as filed, in effect or ultimately it was not allowed because under the estate tax they wound up paying estate tax on that property anyway. And we think that argument is foreclosed by this Court's decision in 1943 in Virginian Hotel, where the Court held that the word "allowed" means claimed by the taxpayer and not objected to by the Commissioner. And the Court--
Harry A. Blackmun: In an income tax case?
Albert G. Lauber, Jr.: --Pardon me?
Harry A. Blackmun: An income tax case?
Albert G. Lauber, Jr.: That was an income tax case. That involved depreciation deductions, where somebody had claimed a depreciation deduction in the earlier year and had a net loss. So he didn't really get any benefit from the depreciation. And he asserted that the deduction wasn't allowed for depreciation, so he shouldn't have to reduce his basis in the property on that account. And the Court rejected that argument and pointed out that our tax code has no machinery for having a formal allowance of deductions. The IRS gets about 100 million tax returns--
Byron R. White: But I take it you would treat this taxpayer like the taxpayer who made the same gifts, except that they were not in contemplation of death?
Albert G. Lauber, Jr.: --Exactly right.
Byron R. White: And both of them would be reduced $6,000?
Albert G. Lauber, Jr.: Right. Both of them claimed the deduction, were allowed the deduction. One of them had the misfortune to die within three years, so that his estate suffered. But either way the donor, who claimed it, was allowed the specific exemption. And the Court pointed out--
Byron R. White: If you're only going to reduce it $6,000, the fellow whose gifts were not in contemplation of death, his estate taxes would be substantially lower.
Albert G. Lauber, Jr.: --Right, rather than only marginally lower, as his--
Byron R. White: Very much lower.
Albert G. Lauber, Jr.: --Overall, Congress has reduced everybody's estate tax in 1976. But the Court in Virginian Hotel pointed out that every year the Commissioner gets millions of tax returns that are claiming billions of deductions, and there's no way the Commissioner tells people, we have allowed your deduction. What happens is that the return is accepted as filed, and that means the deduction is allowed, because the tax is computed on the basis of the return as filed, including that deduction. And the taxpayer in Virginian Hotel argued that he got to tax benefit from this claim which was allowed, and the Court held that was immaterial. Now, what has happened here is that we think even if... we don't think that the premise of the Appellees' argument is correct. We think Mr. Hirschi did derive some benefit, not the one he hoped for, perhaps, but he derived some benefit from the claim of the exemption anyway. He deferred the tax for several years. He didn't pay it himself. His estate paid it instead.
Byron R. White: $6,000 worth.
Albert G. Lauber, Jr.: $6,000. Not quite, a little bit less. And what's really happened here is that the decedent probably got some not terribly good tax advice. He probably was ill advised to claim the specific exemption, because he was in the lowest possible gift tax bracket of about three to five percent. It would have been wise for him not to claim it at all, because the consequence was a reduction of 20 percent in his unified credit his estate would get. But despite the fact that he may have been unwise in claiming his exemption, nevertheless he got the benefit from it, and there's no indication that he ever regretted having claimed it. The President signed the bill in October and the return is not due for the calendar quarter until November 15th. There's no showing in the record that Mr. Hirschi tried to withdraw his gift tax return or amend it to disclaim the exemption, so he apparently died content that he had gotten his exemption. Now his heirs and executors have found out that if he hadn't claimed that and died within three years of making the gifts, they're worse off. But that does not mean Mr. Hirschi did not derive the benefit from the exemption he freely claimed on that gift tax return. I guess I should say a word about the constitutional argument of the holding of the court below. We think that that holding is wrong for at least four reasons. First of all, as Justice Stevens and I discussed, it's hard to see how anyone was deprived of property here by the law. Mr. Hirschi was deprived of no property because he paid no gift tax at all, and his heirs wound up paying a lower estate tax than would have been true if Congress had not enacted this law. So it's hard to see where anyone has been deprived of property in the least. Secondly, even if one could find a deprivation of property, we don't think that this statute was retroactive. That's because the statute was enacted two years before the taxable event, Mr. Hirschi's transfer of property at his death, occurred. And it is true that the law required the credit available to the estate to be computed by reference to certain events that had occurred in the past, but this Court has held that that does not, that fact, does not make a law retroactive. Indeed, the estate tax has always depended in computing the tax upon events that may have occurred many, many years before the testator died, as for example in the case of gifts in contemplation of death or gifts with a retained life interest. The mere fact that a statute effective at the date of death takes into account events occurring prior to the death of the testator does not make the statute retroactive. Thirdly, even if one could construe the law as retroactive, that wouldn't make in unconstitutional. This Court has repeatedly upheld retroactive tax statutes by looking at all the facts involved in the case. And the factors the Court has considered are factors like Congress' reason for making the law retroactive, the harshness of the result worked upon the taxpayer, and the degree of notice the taxpayer had of what Congress was going. We think all three of those factors here would make it clear this law could not be unconstitutional properly. First of all, Congress clearly had a rational purpose for making the law retroactive, if such it was, because Congress' purpose was to prevent this rush to the door by people who were trying to circumvent the effect, the purpose of the law, by taking advantage of a gap in coverage. That's clearly a rational purpose. Secondly, there was no harsh result worked on the taxpayer or his heirs here, because they paid lower, a lower tax than they would have paid had the law not been enacted at all. And finally, it seems clear there was adequate notice--
Lewis F. Powell, Jr.: Mr. Lauber, excuse me for interrupting you, but I'd like to know whether you think we have to decide both the statutory and the constitutional issue. Did the district court decide anything except the constitutional issue?
Albert G. Lauber, Jr.: --No, sir, it didn't.
Lewis F. Powell, Jr.: If we reverse on that issue, would we have to go any further?
Albert G. Lauber, Jr.: You certainly have the option, if you reverse the constitutional holding, to remand it to let the district court consider. I mean, the Appellees made a very similar statutory argument below. The district court, for reasons it's hard to guess, didn't even mention it. So the Court certainly could remand it for the district court to decide. But we think it's appropriate for the Court to avoid that need for a remand by deciding the statutory question here if they agree with us, if the Court agrees with us on the constitutional question. The old Court of Claims decided a very similar statutory issue, so you have the benefit of that decision as well as the briefs the parties have filed, which have addressed it quite thoroughly. But you're not required to decide the statutory question. The final factor I was going to mention is the factor of notice to taxpayers, and here the conference committee action approving the bill certainly constituted notice, constructive notice to taxpayers of what was going on. Indeed, the Court on many occasions has upheld retroactive laws when the retroactive activity date is back to the date of committee action. Thank you.
Warren E. Burger: Mr. Sutkowski.
Edward F. Sutkowski: Mr. Chief Justice and may it please the Court: I'd like to address your attention to page 2 of the Government's brief, which near the bottom summarizes their position and I think will make the decision in this case rather straightforward. Specifically, the Government proposes that: "Rather, the unified credit in such circumstances. " --relating to the transaction in this case... "was required to be reduced to reflect the transfer tax benefit-- "
Lewis F. Powell, Jr.: What page are you reading from?
Edward F. Sutkowski: --Page 2 of the Government's brief... "to reflect the transfer tax benefit that the transferor had already garnered. " Several questions have been raised by the Court with respect to that benefit, and counsel has referred to the Estate of Renick case, the Court of Claims case which is offered in support of the Government's position. In that case, the Court of Claims held that the taxpayer in essentially similar circumstances, although the taxpayer in Renick had made the gift on December 30 of the year, that is to say after the date of enactment, as contrasted with the taxpayer in this case who made the gifts prior to the date of enactment but after the applicable committee reports had been published. The Court of Claims held that it appeared that the taxpayer in Renick would benefit from the $30,000 exclusion. In any event, the single item of legislative history turning on the passing use of the word "benefited" does not warrant departing from the unambiguous language of the statute. Putting it another way, the Court of Claims held that, having tentatively benefited by this gift, this claimed exemption, is tantamount or the same as having garnered that forever. As a matter of fact, the real distinction to be drawn in this case is between the taxpayer who suffered the unfortunate consequence of having died within the three-year period preceding... succeeding the date of the gift and the one who had not. In the case of Mr. Hirschi, having no control over only that event, which incidentally was the only event that transpired after the effective date of this legislation, his death, he was docketed. He was not attempting to double dip. He was penalized. That is to say, the property that was subject to the lifetime transfer tax, the gift tax, suffering the reduction of his unified credit to the extent of 20 percent of the specific exemption allowed, i.e., $6,000, and the property was brought back into his estate for estate tax purposes and subject to tax under that system, with no corresponding restoration of the credit that had been absorbed by operation of the rule under 2010(c).
Byron R. White: That's... I suppose you could call this both a statutory and a constitutional argument.
Edward F. Sutkowski: Statutory in the sense that it focuses on the word "allowed" and "allowable".
Byron R. White: Right.
Edward F. Sutkowski: And in the Court of Claims, incidentally, Your Honor, they misquoted the statute as suggesting the word "allowable" in the first instance. But the statute in 2010(c) specifically provides that to the extent that the specific exemption was allowed, not allowable. The Court of Claims has simply misquoted the operative provision of the statute in the statutory sense, so it seems to me that the Renick case is--
Sandra Day O'Connor: Well, the Government says it was allowed because the taxpayer did not have to pay a gift tax at the time.
Edward F. Sutkowski: --By virtue of an event arising after the transaction, namely Mr. Hirschi's death, and by virtue of the Government--
Sandra Day O'Connor: Well, but at the time the gift was made the Government says he did not then have to pay a gift tax; therefore, it was allowed.
Edward F. Sutkowski: --That's correct.
Sandra Day O'Connor: And what's your response to that?
Edward F. Sutkowski: It was never allowed in the committee sense of the word. The relevant committee reports--
Byron R. White: It was later disallowed--
Edward F. Sutkowski: --Well, now they disallowed.
Byron R. White: --by taking it into his estate.
Edward F. Sutkowski: And the relevant committee reports provide that the taxpayer was to have benefited from the use of this transitional rule, suffered no detriment, not been penalized, but was to have been benefited by the invocation of this election. And incidentally, the reference to benefited was found in not just the conference committee report, but its antecedent the House Ways and Means Committee report, which has suggested that the unified credit be docketed, if you will, be decreased by 20 percent of the specific exemption if it had been absorbed by a taxpayer from the date of the enactment of the gift tax legislation, some 44 years ago. So we're not really focusing upon a 114-day window transitional period here in the sense of the use of the word "benefited". We're talking about a transaction that was put into place with reference to the use of the specific exemption from the date of the enactment of the gratuitous transfer tax.
Sandra Day O'Connor: Well, but that wasn't adopted, was it?
Edward F. Sutkowski: No, it was not. But that's the context in terms of benefit. In terms of the rush to the door to accomplish this objective, that is to say to decrease the revenues available to the Government or to redistribute wealth within the 114-day transitional period, I would merely suggest to the Court that there was no rush to the door in that sense of the word. There's no national emergency at issue here, as has been the case in several of the other retroactive income tax cases and one estate tax case. But in this gift tax here, there could have been no rush to the door inasmuch as all this individual did was to take advantage of a beneficial... an election which was to be beneficial. And as the individual died within the three year period beginning on the date of the gift, that was brought back into the individual's estate. And not only was a rush prevented, but Mr. Hirschi, the taxpayer, and his successors was penalized for having availed himself of what was to have been a beneficial election. Putting it another way, a distinction should be drawn as between Mr. Hirschi, who took advantage of the procedure set forth in the committee reports and had the misfortune of dying within three years, and an individual who did the same and did not have the misfortune of dying within three years. Those two taxpayers are treated quite differently, inasmuch as Mr. Hirschi is penalized to the extent of $6,000 for having availed Mr. Hirschi of that particular beneficial election.
John Paul Stevens: May I ask, do you agree with the first submission that the Government makes, that if the statute had never been passed and if he died within the three year period, he and the estate together would have paid a larger tax than they do?
Edward F. Sutkowski: I'm sorry, would you repeat that question, please?
John Paul Stevens: They say that what you're really saying is you didn't get as much of a benefit out of the new law as if the arrangement had been a little different. But is it not true that the net result of the new law is to impose a lesser total tax on the donor and the estate that would have been the case had the same facts occurred and no new statute ever been passed?
Edward F. Sutkowski: That's correct, except that we did suffer a detriment of $6,000 more than a similarly situated taxpayer who had not died under the same set of circumstances.
John Paul Stevens: Well, but it's also true, is it not, under the old law that if the donor had lived more than three years he would have been discriminated against? You have the same difference.
Edward F. Sutkowski: No, he would not. Under the new law--
John Paul Stevens: Because the gift then wouldn't have been included in the estate.
Edward F. Sutkowski: --Under the new law, Your Honor, my understanding of the operation of the new law for transactions occurring after 12-31-76, there was a conclusive presumption. The three-year rule automatically brought the property back in. And as was the case under the prior law, as Justice White brought out earlier in his question to counsel, under the old law 2035 would have operated to bring the property back into the decedent's estate and give credit against the estate tax base for the gift taxes paid.
John Paul Stevens: Yes, but you don't get the credit because you took the exemption.
Edward F. Sutkowski: Well, that's correct. But you didn't take the exemption. That is, you took it, but you didn't receive it, putting it another way.
John Paul Stevens: What I'm suggesting is the harm, the differentiation between the person who dies within three years of the gift and one who dies more than three years later, was true under the old law and is true under the new law. Both of them suffer by reason of their premature death.
Edward F. Sutkowski: That's not necessarily true, Your Honor. Under the new law, under the new system, this taxpayer suffered more than what a similarly situated taxpayer who did not die within the three-year period.
John Paul Stevens: But he wouldn't have been a similarly situated taxpayer. That's my point.
Edward F. Sutkowski: Well, by virtue of his death that's correct.
John Paul Stevens: If you call a taxpayer who dies within the three years similarly situated to one who dies later, then you're absolutely right.
Edward F. Sutkowski: My concern would be, Your Honor, what sort of rationale legislative purpose could be ascribed to the drawing of a distinction between an alive and a dead taxpayer, especially in light of the committee reports that suggest that this taxpayer had the right to make this election and avail the taxpayer of a benefit and then, having made the benefit, was deprived of $6,000 in additional property. I'm wondering if the difference should be if it--
Byron R. White: Well, the difference between somebody who dies in three years and someone who doesn't is not the Government would deduct $6,000 from both of them, but the difference would be in the estate tax. I mean, there would be more in the estate. In your client's estate, the gifts would be included. In the one who didn't die within three years, it wouldn't be included.
Edward F. Sutkowski: --Well, it depends upon what system we're visiting about here.
Byron R. White: We're talking about it under the new law.
Edward F. Sutkowski: Under the new law, the three year rule was conclusive. It would automatically be within the transfer tax base.
Byron R. White: Exactly.
Edward F. Sutkowski: Except that in our situation, because we were within the transitional period, we suffered a double tax. The issue has been considered, I believe, as to the absence of property being taken. It's our position that $6,000 in additional property was taken by virtue of the operation of this rule. The Government has asserted that the district court, the court below, has mischaracterized this 2010(c) as retroactive legislation. I think a review of the relevant facts will suggest that this indeed is retroactive legislation and one that should not be countenanced by this Court. Specifically, the events giving rise... the material events giving rise to the transaction were as follows. On September 14th of '76, a conference committee report was issued which displayed the language about benefit to be availed by the taxpayer making the selection. Mr. Hirschi made his gifts on September 28th, filed his gift tax return in a timely fashion. I'm not quite sure what's to be made of the fact that he filed his tax return on September 30. I suppose any taxpayer that files their tax returns on January 1 of the year succeeding the year in question is to be looked upon as someone who is evil. On October 4, the legislation was enacted and was deemed to be retroactive to the date before these gifts were made. Mr. Hirschi, as is suggested, had the misfortune of dying within the three-year period. It seems to me that, as was the case in the first gift tax case of significance decided by this Court, when all events giving rise to the transaction occurred before the date of the enactment, it's constitutionally impermissible to go backwards and impose a tax upon the completed gift. And I think in reviewing the three different types of taxes... that is, the income tax, the estate tax, and the gift tax... very real distinctions are to be drawn as among those three. As to the income tax, where retroactivity seems to be the day, for good reason, the taxpayer has either the cash generated from his, the taxpayer's, activities, or the property which has been the subject of the sale from which to pay the tax. Moreover, there is a national objective to be served in protecting the revenue accounting periods, fiscal periods, in the administration of that statute. In the estate tax area, it's been universally recognized that the facts in existence at the date of the taxpayer's death govern the transaction. We see this as the case with joint tenancy properties and in the case of retained life estates, life insurance policy transfers. In all situations, the facts in existence at the date of the taxpayer's death, after which period the taxpayer has no need to store up money with which to live.
John Paul Stevens: May I ask you a question on that point? Supposing Congress were to make the period measuring a gift in contemplation of death four years instead of three years. Could they do that and have that apply to gifts that had been made during the last year or two?
Edward F. Sutkowski: This Court is Milliken suggested that if the change was in the mere rate, which was essentially that sort of case... that is, if you're speaking of a situation where we had the transfer in contemplation of death issue available to us and we're merely changing rates--
John Paul Stevens: No, I'm not suggesting changing rates. Changing the date. In other words, in this case if they extended the period a year and he had died a year later, it would still be in contemplation of death.
Edward F. Sutkowski: --I do not think they could constitutionally in the gift tax area.
John Paul Stevens: You don't.
Edward F. Sutkowski: The reason the gift tax area differs from the other two areas I think is quite obvious. Namely, the taxpayer measures the amount of the gift which is to be incurred before proceeding to engage in a voluntary, irrevocable act.
John Paul Stevens: He also makes a judgment about how long he's apt to live, too.
Edward F. Sutkowski: And how much money the taxpayer needs.
John Paul Stevens: And if he had real good reason to figure he'd live, say, three and a half years, so he said he's go ahead and do it, and then Congress changed the rules on him and made it four years instead of three, he would have been cheated in exactly the same way that you described.
Edward F. Sutkowski: That's correct, Your Honor. That taxpayer measures the excess of the property the taxpayer has over what the taxpayer needs, and if--
John Paul Stevens: See, in both cases the liability would be determined on the basis of events that had occurred without regard to the amendment. I forget how you phrased the test.
Edward F. Sutkowski: --Well, the test that counsel has alluded to is that we look to the facts and circumstances in existence at the date of death. But when we're talking about 2035, a transfer in contemplation of death, that's by definition a bring-back statute. It seems to me that in Untermeyer v. Anderson, the critical case in this area involving the gift tax, the application of the gift tax retroactively to transactions completed, if the facts suggested by the Justice would be applied to that case the result would be precisely the same. That is to say, you cannot enact a piece of legislation that purports to go back four years before it's effective date and picks up a gift tax transaction and brings it back into the taxable estate of the transferor, as contrasted with an income tax situation, where the assets are there, the income has been made. Darusmont, minimum alternative tax case, in which this Court sustained the ability of the legislature to impose a new minimum alternative tax upon completed transactions. Pension Benefit Guaranty Corporation v. Gray, where we had a multi-employer pension plan withdrawal liability at issue, where several months after the employer withdrew from the particular multi-employer plan it was met with a retroactive legislative enactment that imposed a $211,000 plus imposition. We have an ongoing business transaction. We have a national emergency, if you will, a specie of disintermediation occurring, people withdrawing plans, less wage base, pensioners in a very bad position, an avowed national purpose to be served. In this estate and gift tax, the gratuitous transfer tax area, this tax had been on the books for over 40 years. It had been the subject of repeated attempted rehauls for a period of time, and as a matter of fact only after this piece of legislation came on the books did we have an overhaul, an attempt to systematize the overall mechanism of the transfer tax base, which incidentally, my understanding, doesn't account for a terrific amount of revenue, which is not to say it's meaningless, but it is to suggest that this was not a situation that warranted a national knee-jerk reaction, to let's punish those that availed themselves of this particular benefit, but was specifically designed to provide some sort of transitional rule that would prohibit someone from taking advantage of both systems, achieving the ability to use $30,000 worth of gift tax-free transfers and yet not sustain any detriment in terms of the ensuing unified credit which was under the new system. Mr. Herschi and his successors were not of a class that attempted to take advantage of that, that is to say were not of a class that were double dipping.
Byron R. White: They may have attempted to, but they--
Edward F. Sutkowski: I suppose that's why we're here.
Byron R. White: --In the long run, in the long run it didn't work.
Edward F. Sutkowski: Yes, it didn't work. And I would suggest it's not because of ill-advised tax planning. I would suggest it's as a consequence of very highly sophisticated, knowledgeable tax planning on the part of counsel for Mr. Hirschi, that suggested to Mr. Hirschi, if anything, I'd suggest that you take advantage of this election that is a one-time 114-day window period benefit available to you, and that you make the election irrespective of whatever else may arise and proceed. And he did.
Byron R. White: He just probably thought he was healthier than he was.
Edward F. Sutkowski: Well, unfortunately I have yet to find an individual who knows when the grim reaper will be--
Byron R. White: Let alone a lawyer.
Edward F. Sutkowski: --Let alone a lawyer. There are many things that we are supposed to know. That's one that I'm not sure that even I can guess at. In this particular instance--
Byron R. White: Or an accountant.
Edward F. Sutkowski: --Well, I think they know most of it. The actuaries know everything, I understand, in terms of mortality.
Byron R. White: It didn't work out here.
Edward F. Sutkowski: In the case... in the Government's brief, they suggest that the astute taxpayer, the knowledgeable taxpayer, should have waited until November 15th of that same year, with a view toward comparing the relative advantages and disadvantages of making this election. I submit to this Court that the taxpayer had to perform one other act within that period, and that's die. He had to also be sure that the statute as read really meant what it didn't mean, meant what it didn't say. Put another way, the word Mr. Hirschi. In terms of the notice aspect which counsel has alluded to, he states in the reply briefs and in the original brief, the suggestion on page 24, and I quote, was that: "In any event, the committee reports provided him, the decedent, with constructive notice of what the effect of claiming the specific exemption was very likely to be. " I suggested at page 24 of our brief that, in reviewing that rule, the House report provided that there was to be a docking of 20 percent of the amount allowed as a specific exemption in computing the taxable gifts under the present law, and thus in the case where a donor had benefited from the use of the full $30,000 gift tax specific exemption under present law, the maximum unified credit allowable would be reduced by $6,000. On page 24 of our brief, I suggest that notice, if that's the issue, the notice would have apprised the taxpayer of the consequences of this election, not just that the taxpayer was to receive a benefit of the election, but if the taxpayer made the election and then had the misfortune of dying within three years from the date of the gift that property would not only be brought back into the taxpayer's taxable base, but there would be no restoration of the credit that had been absorbed by virtue of the transaction. And to that end, the committee reports should have added to them, and I suggested, that even if the property which was the subject of the claimed $30,000 gift tax specific exemption is subsequently included in the donor's estate by reason of 2035, that the result would then be dictated as the Government has suggested. Phrased differently, there was no actual notice, there was no constructive notice. In fact, there was a bit of a snare for the sophisticated taxpayer with sophisticated tax advice, to the effect that if we make this beneficial election we'll have the benefit of that election forever. In terms of the constitutional arguments, I would suggest that this case is not an income tax case. This case is not as estate tax case in the sense that there was reference in the amicus to this Hafner case, where that's a completely different issue, but all sorts of gifts of taxable or exempt bonds, depending upon someone's perspective, that were transferred before dates of enactment. There was perhaps a rush to the door in Hafner and its progeny. This was not a national emergency case, as the case of Gray v. the Pension Benefit Guaranty Corporation. There was no double dipping in the case of this taxpayer, and the events giving rise to the transaction, the completed gifts, all occurred before the date of enactment. But for the death of this individual within the three year period, we I suppose would not be here.
John Paul Stevens: May I ask one more question. Is the net result of the district court judgment that you got $6,000, a refund in effect?
Edward F. Sutkowski: The net result, yes.
John Paul Stevens: So that's the amount in dispute?
Edward F. Sutkowski: I only wish it were for 60 and 600, and perhaps, if it were 500, the constitutional and statutory arguments would be more momentous. But it seems to me that the retroactivity issue and the constitutional issue are equally applicable, as is obviously the case.
John Paul Stevens: Think of how many lawyers would have been here if it was $600,000.
Edward F. Sutkowski: You haven't seen Hafner yet, Your Honor.
Warren E. Burger: Do you have anything further, Mr. Lauber?
Albert G. Lauber, Jr.: One very brief point. One way of looking at the tax benefit that Mr. Hirschi got, aside from deferring the tax to his heirs and the time value of money, is that he took a gamble. He gambled that if he claimed this benefit and he lived three years he'd never be taxed, either under the gift tax or the estate tax. He took a betting man's risk.
Byron R. White: He would still have to... he would get his unified tax cut by $6,000.
Albert G. Lauber, Jr.: Right, that would happen. But that property he gave away would never be taxed by the United States under any circumstances. So what really happened here is the decedent took a bit of a gamble and lost. But at this Court held in United States and Manufacturers National Bank at 363 U.S. 201, the executor should not complain because his decedent gambled and lost.
Warren E. Burger: Thank you, gentlemen The case is submitted.
Speaker: The Honorable Court is now adjourned until Monday next at 10:00.


William H. Rehnquist: We will hear argument this morning in No. 86-870, Phillips Petroleum Company v. Mississippi and Saga Petroleum. Mr. Gressman, you may proceed whenever you are ready.
Eugene Gressman: Than you, Your Honor. Mr. Chief Justice, and may it please the Court: This is an equal-footing case. It arises out of the fact that Mississippi became a member of the Union in 1817 on an equal footing with the original 13 states. The "equal footing" doctrine in this context means that each new state that enters the Union, like Mississippi, acquires sovereign title from the United States to certain underwater lands to be held in trust for the benefit of all the public. Now, in this situation, and in an unbroken line of decisions of this Court, dating back 145 years, to the case of Martin v. Waddell, this Court has uniformly stated that the sovereign title that attaches to a subsequently-admitted state, relates only to lands beneath navigable waters that are usable by the public for commercial purposes of navigation or other commercial activities, such as fishing. This has been the unbroken line of authority in this Court, that state sovereignty equals title to lands under commercially navigable streams, rivers and lakes. And by "navigable", this Court has always meant "navigable in fact". Now, it is our position that the decision below by the Mississippi supreme court is diametrically opposed to this long line of authority in this Court. For example, on page 10A in the Opinion below, as it appears in the Appendix to the Petition, the supreme court of Mississippi says that the top of the page that, "It is our view that as a matter of federal law, the United States granted to this State in 1817 all lands subject to the ebb and flow of the tide and up to the then-mean high water liable without regard to navigability. " Now that is incorrect; it is inconsistent; it is in conflict with every decision that this Court has ever rendered. He cites, for example, the court cites Illinois Central Rail Road Company v. Illinois. One turns to that reference, that citation to the Illinois Central case and we find the Court announcing that "ownership by the crown... and therefore, by any sovereign State, of title to lands under waters, is founded not upon the existence of tide over the lands, but upon the fact that the waters are navigable. "
Antonin Scalia: Mr. Gressman, excuse me. Is it not possible to read all of those cases as extending the doctrine rather than limiting it; that is, as saying, "if waters are navigable, the. " trust "doctrine applies, whether or not the oceans' ebb and flow extends to those waters. " Is that interpretation not... although if the ebb and flow does extend to the waters, the "trust" doctrine does extend to the waters, the "trust" doctrine applies despite their non-navigability. Is it not possible to interpret all of... is there any of those cases that would be inconsistent with such a theory? That is, navigability is the extension of the "ebb and flow" jurisdiction?
Eugene Gressman: No, Your Honor, I do not think that is a fair reading of the Decisions of this Court. I do not think that this Court has ever addressed a case before today where all that you had were non-navigable waters plus a tidal influence. In every case--
Antonin Scalia: We have not addressed it either way: we have not said "yes", and we have not said "no".
Eugene Gressman: --That is true, but I think that if you look at the purposes of the "public trust" doctrine, this Court has consistently said that the purpose of the doctrine, the purpose of the "equal footing" doctrine, is premised on the public need to use the waters as navigable highways of commerce, and that is the critical fact that justifies reading the Decisions of this Court as meaning that, if you have a non-navigable body of water that happens to be subject to tidal influence, that kind of underwater land can never become part of the public trust domain for the very reason that there is no purpose served; there is no commercial navigability that is possible. And therefore, the reason--
Antonin Scalia: What do you do about the last ten feet of the ocean, near the shore, which last ten feet are not navigable? Does that mean that that portion is not subject to--
Eugene Gressman: --Certainly not, Your Honor.
Antonin Scalia: --And why is that?
Eugene Gressman: Every navigable body of water, be it the ocean, the Mississippi River, or any other large body of water, has at its shore, or at its edges, a non-navigable shoreline.
Antonin Scalia: Right, now, how do you know where the ocean ends? Why is it not reasonable to say that the ocean ends at the point where the ebb and flow stops?
Eugene Gressman: Because--
Antonin Scalia: Once you have accepted the principle that "navigability" is not the test... as you just have... you have to decide where the ocean ends: why does it not end where the ebb and flow start?
Eugene Gressman: --There are various explanations of that. That is a natural phenomenon, of course, and if the body of water is subject to tidal influence, such as an ocean, one can measure the extent of that navigable body of water by the mean high water mark of the tide. That is not to say that you are granting state ownership of the entire body of water because of the tidal influence, because you are simply measuring the inner boundary of that body of water by the tide. At the same time, you see, this was part of the confusion that grew out of the English experience where all navigable rivers, due to the geography of England, were the same as tidally-influenced waters: the tide ebbed and flowed to the ends of most of the navigable rivers. And so it became... a synonymous expression of the royal ownership of the navigable of the tidally-influenced waters of England. But we found in this country that that kind of reliance or reference to tidal influence certainly does not explain how the state gets domain over fresh-water streams that have no tidal influence. And it took a number of cases, particularly the Genesee Chief case, which dealt with the Admiralty jurisdiction, to dispel the notion that the critical element with respect to the extent of federal admiralty jurisdiction extended only to those rivers that were tidally influenced. Another point, Your Honor--
William H. Rehnquist: Mr. Gressman, certainly Chief Justice Taney's Opinion in Genesee Chief, as Justice Scalia says, extends Admiralty jurisdiction to navigable waters that were non-tidal, there is nothing indicating that all tidal waters were not also included.
Eugene Gressman: --As long as they were navigable.
William H. Rehnquist: Well, but I do not... when you say that Admiralty jurisdiction extends to "tidal waters", and then you go on and say "even if they are not tidal, it extends to them if they are navigable. " I do not know if the necessary inference is that the tidal waters which are not navigable are excluded?
Eugene Gressman: Not necessarily, as long as they are navigable. Take the Mississippi River, for example. And this is the problem... one of the problems that Genesee Chief was talking about: you take the Mississippi River. Now, the Mississippi River is navigable for 1,000 miles, but the tidal influence is only for 30 miles up the river. Now, if you were to say that the public domain or Admiralty jurisdiction extends only for 30 miles, as long as there is a tidal influence, that made it impossible to extend Admiralty jurisdiction to the remaining navigable port... freshwater portions, of the Mississippi River. And this is intolerable.
William H. Rehnquist: The collision of the Genesee Chief took place on Lake Ontario, I thought?
Eugene Gressman: Well, but I think that an example, perhaps, is better shown... I think he talked about examples of various rivers in this country, like the Mississippi, but I think that affords an example of what he was talking about. Let me also add that what we are dealing with in this case is not a navigable body of water that happens to have a non-navigable shoreline. What we are talking about here is a discrete, inland tributary that contributes fresh water from the uplands and flows into a navigable body of water known as the Jordan River. Now, it cannot be said that the "public trust" doctrine was ever designed to extend public ownership up into interior streams completely surrounded by private riparian owners, streams that do not constitute part of the shoreline of a navigable body of water. I give an example of that from Justice Fields' concurring Opinion in the Knight v. U.S. Land Association case, where he pointed out that it would be absurd to suggest that the Chesapeake Bay, which obviously is a navigable body of water tidally-influenced, that you would consider as part of Chesapeake Bay, the Potomac River as far up as the tide affects the Potomac River, and it does affect the tide all the way up to Washington, D.C.-- He said, "it is absolutely absurd to say that the Potomac River is a part of the shoreland, or the boundary, of the Chesapeake Bay; that the tidal influence that is effected on this independent river, or stream, must stand or fall on its own navigability, not derivative from the body of water into which it flows and is not... certainly, does not constitute part of the shorelands or the tidelands of the navigable Chesapeake Bay. " And he said, "It was incredible that anybody should suggest that. " Yet that is exactly what the State of Mississippi is claiming here: they are claiming that, because this little, discrete, independent drainage stream that has no more use, no more function than to drain the heavy excess rainwater off the uplands, that because that has some tidal influence, therefore that must be considered part of the public domain, as if it were constituted some kind of a shoreland or a tideland or a tidewater of some other concededly navigable body of water. The State of Mississippi has never revealed what navigable body of water these little, discrete streams are a part of. Are they a part of... are they a tideland of the Jordan River, or are they the tidelands of the Bay of St. Louis? An inlet of the Gulf? Or are they the tideland of the Gulf of Mexico, which is only five or six miles away? We do not know.
John Paul Stevens: Of course, Mr. Gressman, under their theory it really does not matter, does it?
Eugene Gressman: Well, it does not matter except to say that it is totally incorrect as a statement of the basis on which you impose public trust dominion. Public trust dominion, as this Court has said over and over again, depends upon the navigability of the body of water over which the state seeks this trust dominion. And now, if it is a true tideland; if it is a shoreland; a mudflat; a beach of a navigable body of water, that need not deter us because that is simply a physical fact that most navigable bodies of water do have non-navigable shorelands... tidelands, tidewaters... however you want to describe them?
Sandra Day O'Connor: Mr. Gressman, the Submerged Lands Act, of course, has language that your opponent suggests affects the resolution of the problem: it says that all lands permanently or periodically covered by tidal waters are included as lands beneath navigable waters. Do you think that that has some bearing on this case?
Eugene Gressman: No, Your Honor. The submerged land act... and this was fully explored, by the way in Justice Rhenquist's Opinion in the State Land Board v. Corvallis Company in footnote no. 4 of that Opinion, at 429 at page 371 that the effect of the Submerged Lands Act merely was to confirm the states' title to beds of navigable waters within their boundaries as against the United States claims. And it does not alter the scope or effect of the "equal footing" doctrine. And quoting from the Bonelli case, which in other respects was overruled in Corvallis, quoting the Bonelli case, this Court stated... and I think this is a critical restatement of the... applicable law here: "A state cannot base its claims to lands... that means underwater lands... that are unnecessary to a navigational purpose. " Now, that means that the state can claim domain only over those waters considered by and of themselves that are necessary to serve as public highways of commerce a navigational purpose... a commercially navigational purpose. And that is the whole history; that is the whole meaning; that is the whole rationale... for the "public trust" doctrine, which has been incorporated into the "equal footing" doctrine. And the Court below simply turns away from that long history and states that lands... that title: property title, can be based solely upon the ebb and flow of the tide without regard to navigability. That is just totally inconsistent with this Court's long line of decisions. I do not know any case that has ever said that you can base public title solely on the basis of the ebb and flow of the tide.
Byron R. White: Oh, no. I do not think it says you cannot, either.
Eugene Gressman: Well, the inference is that if, from the fact that, if public title, public trust title, is the equivalent of navigability purposes, shall we say... that necessarily excludes from the public trust concept those waters that are not suitable for commercial navigation. And that is what this Court must have met in Illinois Central, and in other repeated declarations when it said that, "tidal" depends not on "ebb and flow of the tide. " but on the "susceptibility to commercial navigation". And that is the whole reason behind the doctrine, that is, to preserve the highways of commerce.
Antonin Scalia: But that was not the reason. That was not the sole reason at common law, Mr. Gressman. There were all sorts of things that attached... in particular, fishing rights, whether it was navigable or not... the fishing rights in ebb and flow waters belonged to the king, and not to private owners.
Eugene Gressman: No, Your Honor, the English common law, going back as far as 1604, in the River Banne case... and that has never been questioned in subsequent cases as far as I know... stated that there is a clear distinction between a navigable water and a non-navigable stream. And that the king owns and controls the navigable waters, but the non-navigable waters are subject to private riparian ownership, and that has been the history of the common law in this country.
Byron R. White: Even if the tide reaches them?
Eugene Gressman: I would say "yes, if it is not navigable by virtue of the tide reaching them. "
William H. Rehnquist: But if you read Chief Justice Taney's Opinion in Genesee Chief, you get the impression that at least that Court thought that navigability and tidal characters were coterminous in England.
Eugene Gressman: Well, they were because of the peculiar geography of England... such a small country that all this was set forth, explained not only in Genesee Chief, but down through the years and Illinois Central repeats this history again--
William H. Rehnquist: But then you never would get a situation in England where the river was navigable but non-tidal, or tidal but non-navigable.
Eugene Gressman: --Possibly not, but that was... that situation did not exist in this country. I mean, it was an entirely different situation, because here, as I used in the Mississippi River example. You have a certain portion of it that is both tidal and navigable. Whereas above the tidal influence, you have waters that are not subject to the tide.
William H. Rehnquist: Yes, but what I am uncertain about is how good an authority your River Banne case in England is in 1604? Which simply is applying the "public trust" doctrine in England where the two were really coterminous?
Eugene Gressman: Well, even in England, I suppose there are little streams... discrete little steams... tributaries, that are not navigable. I mean, that is the way Nature is. I mean, they can... Nature makes these large, navigable bodies of water by having a series of discrete, little streams and rivers. And that reference appears in a lot of the early common law cases, that it is these discrete, little streams and rivers that do not pass through the control of the Crown, but they are reserved for the private riparian landowner, and that has been the history in this country. The little streams that run through farmlands, or somebody's back yard; a little creek... that is not subject to state control. And if it just happens to have... unless it rises to the level of navigability. Navigability is the one criterion that is consistently referred to as the test of the "public trust" doctrine. I wish to reserve the rest of my time for rebuttal.
William H. Rehnquist: Thank you, Mr. Gressman. We will hear now from you, Ms. Sones.
Kathy D. Jones: Mr. Chief Justice and may it please the Court: The case, as Mr. Gressman stated, is one of the "equal footing" doctrine and the limits of each state's public trust, the question can be answered when we review these two doctrines together. Each new state upon entering the Union did so on an equal footing with the original 13 states and received all lands that were subject to the ebb and flow of tide regardless of the navigability of the water. Each new state could define the nature of her boundaries and the physical extent of the public trust lands, as the original 13 states did. Each of the original 13 recognized a public trust interest to shorelands that were subject to the ebb and flow of the tide and then defined the extent of the public trust shorelands either judicially or legislatively. The State of Mississippi's main concern is to preserve the ownership of the lands in question for the use and benefit of the public and this, by necessity, included the development of mineral resources. The ownership of the properties in question remained unchallenged until these leases were issued on these state waters for ail and gas purposes. At that time, the individuals who owned the lands adjacent to these tidelands sought to take these tidelands from Mississippi's public trust lands. The State then proceeded to defend its title in these lands, and this case is significant not only to Mississippi, but to all states which have a coastline. This case can potentially impact thousands of acres nationwide where states have relied upon their theories of what they owned in their public trust lands.
Sandra Day O'Connor: Well, Ms. Sones, I guess the... Petitioners here had been paying taxes on these lands all these years on the assumption they owned them?
Kathy D. Jones: Your Honor, the lower court ruled on the issue that the payment of taxes was not at issue in this case simply because--
Sandra Day O'Connor: That may be, but is it not correct? I mean, the assumption of everyone had been that the lands had been owned by the Petitioners for the years since Statehood and before?
Kathy D. Jones: --Justice O'Connor, it is true that the Petitioners allege that they had paid taxes on the lands in question, but the State's--
Sandra Day O'Connor: Well, and they held some titles that purported to cover the lands in question?
Kathy D. Jones: --The title which they had were quitclaim deeds... in the nature of quitclaim deeds, by Acts of Congress.
Sandra Day O'Connor: And they had paid taxes on it and that was the common assumption until the State issued the mineral leases? Is that right?
Kathy D. Jones: That was their assumption.
Sandra Day O'Connor: Well, is that right? She is asking just a fact.
Kathy D. Jones: It is correct, Your Honor.
Sandra Day O'Connor: Yes, thank you.
Kathy D. Jones: One fundamental principle of law that we are concerned with here--
Harry A. Blackmun: It is a long time... it is over 150 years that they have been paying taxes, is it not?
Kathy D. Jones: --Your Honor, we would assert that the payment of taxes on these lands really did not affect what ownership that the State had in these properties.
Harry A. Blackmun: Yes, but the State of Mississippi or its subordinate municipalities gladly accepted the payment of taxes?
Kathy D. Jones: The municipality, even though it may have accepted payment of taxes on these properties, the lower court ruled that this issue did not resolve the question as to the title.
Harry A. Blackmun: I know what the lower court ruled, but the fact is there. And you cannot overcome it, can you, as a factual matter? If you prevail in this case, I suppose those taxes will no longer be paid.
Kathy D. Jones: On these 42 acres, they would not be.
Sandra Day O'Connor: Well, do you not suppose that if we were to Affirm, there would be additional lands that are now in private hands, or use, that Mississippi would in the future claim as part of its public trust? I suppose that we would not expect the State of Mississippi to stop with these 42 acres. Undoubtedly there would be other lands in the State that Mississippi would extend its claims to, if we were to Affirm?
Kathy D. Jones: Your Honor, this is not a new issue in the State of Mississippi. The State has always claimed--
Sandra Day O'Connor: But is that correct?
Kathy D. Jones: --Your Honor, there would be other lands that are affected by this.
Sandra Day O'Connor: Yes? How much land do you suppose, in all?
Kathy D. Jones: The State of Mississippi currently has at least around 600 acres that are tidally-influenced. We do not suggest that this would change any rights of ownership that these people have in them. These are lands which the State claims by virtue of the ebb and flow of the tide. We only have the one other case that is at issue with this one, where the same issue is involved. So as far as we know, the stability of titles will remain as they are with the exception of the one other case that we have.
William H. Rehnquist: Ms. Sones, with respect to the 42 acres that are in dispute here, would taxes paid on that as a separate parcel, so that a separate tax payment was made for lands entirely subject to tidal influence, or was it just a part of a larger parcel?
Kathy D. Jones: These lands were not issued separately. They were all one big parcel. The parcel that Petitioners own would have been in the nature of 640 acres, more or less, and they would have paid taxes on the whole amount, without any exceptions to this.
William H. Rehnquist: And now 42 acres of that 640 are being disputed by the State?
Kathy D. Jones: Yes, Your Honor.
Antonin Scalia: And the State did accept the money as a tax payment, did not understand that it was tendered to purchase the property, did it not?
Kathy D. Jones: No, Your Honor, these were donation claims where the Petitioners actually got their property. To determine the property rights of states and of individuals in the Public Trust area, we must look to the law of this nation as it existed in 1817 when Mississippi came into Statehood. Mississippi came into Statehood on an equal footing with the other states, and title to the lands which the federal sovereign held in trust vested in Mississippi at that time. The public trust was created and funded and title to these lands in the trust became the property of Mississippi. Mississippi adopted the common law of England which divided lands into three categories. Lord Hale in De Jure Maris, stated that there were fresh water streams, the seabed, and tidal waters. The tidewaters at page 378 included, "arms and creeks of the sea so far as the ebb and flow of the tide, as well as the foreshore between the high water mark and the low water mark. " In reliance upon the English common law, 14 states use the main high tide line in determining their line of ownership. Some states use the low water line; and other states... the other coastal states... use some variation of the main high tide line. These compilations can be found in a 1960 report that Colonel Gee made to the American Society of Civil Engineers. As the Coastal States' amicus brief indicates, there is no uniformity in the law as to what each state has done with the lands under its public trust. The lead case in this area is that of Shively v. Bowlby, an 1892 case which discussed at great length what the common law of England purported to do. The test asserted by Petitioners is that of a "navigability-in-fact" standard, something that was added once the propellered Genesee Chief case was handed down. And this was to give the Western interior states public trust lands which they did not have since they did not have a coastline. Shively, in summarizing the original 13 states law, made it clear that there was no uniformity in what each state had done with the lands under its tidewaters within its borders, but clearly stated at page 341, "each state has dealt with these lands according to its own views of justice and policy, reserving its own controls over such lands as it considered for the best interest of the public. " "Great caution is necessary in applying precedents in one state to cases arising in another. " Mississippi has always used the "ebb and flow" rule, and employed it to the parcels here in question. All of these parcels, these 42 acres, have daily tidal influence and are truly "arms and creeks of the sea. " as discussed in the treatise discussed by Lord Hale. Every navigable waterway has certain areas which are not navigable in fact, as Justice Scalia indicated. There would be some areas close to the shore; there would be estuaries which would not be navigable... even on a fresh water river, there would be areas near the river bank which would not actually be navigable, but this does not take away the definition of a navigable waterway. The law looks for certainty, and there is certainty to the main high tide line which Mississippi uses. By taking the main high tide line, a finite line is established by the use of surveying instruments, by the use of tidal datums over an 18.6 year period; and to use any other rule in our State to determine where the ownership of the State lands ends, just would not be consistent with the public trust lands in the decisions of our State.
Antonin Scalia: Let us not exaggerate it too much: there is a certain amount of... a degree of uncertainty, in the "tidelands" rule as well. I mean, to determine how far up a river the tide actually ebbs and flows... I assume it diminishes little by little until there is finally one molecule of water that moves up and down. That is not a very easy thing to calculate, is it?
Kathy D. Jones: It is not an easy thing to calculate, Justice Scalia, but it can be done. It is something that the National Ocean Survey does by the use of tidal datums by gauges they place in the water, and these... the actual boundaries of the main high tide line can be established by the use of these gauges and by the use of photogrammetry, which is the use of taking aerial photographs and actually marking out where the tide line would be established, and this is done by a metes and bounds description. It is a finite description of how far the tidal influence reaches. This is done over a period actually over 18.5 years for the tidal epic, but this is something that can be done by watching the gauge rise and fall every day, and they take the mean high tide line of all the high tides and the low tides together.
John Paul Stevens: May I ask you a question... excuse me? We are talking about in this case tributaries to the Jordan River, is that right?
Kathy D. Jones: These are tributaries on the east bank of the Jordan River... I am sorry, the west bank of the Jordan River, and this land is bounded on the south by Bayou LaCroix, which is a navigable, in-fact, waterway.
John Paul Stevens: Now, is the Jordan River a fresh-water river or a salt-water river?
Kathy D. Jones: The Jordan River is salt-water river.
John Paul Stevens: And are the tributaries also salt-water?
Kathy D. Jones: These tributaries are also salt-water. They, like any other waterway, also have fresh water that comes into them by drainage... you know, every time it rains you have a runoff. And so, at times, these rivers may in fact, be more fresh-water than salt-water.
John Paul Stevens: To the extent they contribute anything to the Jordan River, are they not fresh?
Kathy D. Jones: They are salt-water as... at times they would be fresh-water.
John Paul Stevens: To the extent they contribute water to the Jordan River, are they not entirely fresh?
Kathy D. Jones: To the extent they contribute to it, the Jordan River backs up into these tributaries.
John Paul Stevens: So that it is the effect of the backup that raises the level. Well, would it not be possible that a tributary that your rule would apply to would be made up entirely of fresh water? And just have the tidal influence raise the level of the water somewhat by reason of the backup?
Kathy D. Jones: It is possible that they could be mostly fresh water, if you go for a long period of time without any rain, then the salinity content of any of these areas would be very high. These would be times--
John Paul Stevens: Well, I suppose in that case, they probably would not get much influence from the tide, either, would they?
Kathy D. Jones: --Well, the tide would not change, since it is coming in from the Gulf of Mexico. The tidal influence would always be the same. It is the amount of the fresh water, the actual runoff form the rain that would make a difference.
John Paul Stevens: What is the purpose... and your opponent argues that the purpose of the "public trust" doctrine should be kept in mine, and it focuses on discrete bodies of water that can be named either as "bays", and so-forth... what is the purpose of the "public trust" doctrine as to what we are talking about in this case?
Kathy D. Jones: The "public trust" doctrine is used in Mississippi and the Record indicated what interest the public actually has in this land. There were testimony of at least seven witnesses who indicated that they had fished in these waters, in these 42 acres. They had fished for some salt water fish, including flounder and bluegill and catfish, and these areas were used by the public at least for 50 years, by one witness. Another witness stated that the mouths of the little bayous were fished because the fish would come out with the tide. These also were used by the public for hurricane protection of their vessels. When a hurricane was coming in, everybody would take their boat in and hide them in some of these estuaries that are in question. They were used for loading dock... well, there was a loading dock adjacent to one of these parcels where actually one of them was used to haul paper wood and pulpwood across these waters. The parcels were designated in the Record as a "small bayou, a bayou, an inlet, a bayou with several tributaries, and as a channel. " But all of these waterways connected to a navigable, in-fact, waterway: the Bayou LaCroix or the Jordan River. So they are all actually "creeks of the sea". They are "arms or creeks of the sea. " They are important estuaries in that their fish and other aquatic life that grow and prosper, the waters with their underlying soils have historically belonged to the people of the State of Mississippi.
Sandra Day O'Connor: Ms. Sones, if the decision below was correct, that the public trust land extends even to discrete, separate, small tributary streams, conveying fresh water into a tidally-influenced area, apparently, according to the brief of the American Land Title Association as amicus, if that is correct, there are literally millions of landowners throughout the United States who would be divested of their property contrary to the understanding and expectation of those owners and the title insurance company that have insured their title through the years. Is that a concern that we should we should have in viewing this decision? : Because it would extend, of course, beyond the boundaries of Mississippi.
Kathy D. Jones: It is a factor, but not one that we feel is something that would actually change land titles. For the states that have been using "ebb and flow" as the test of ownership, there would be no change in the title... the title, to tidally-influenced waters. Their assertion is that it would impact on titles, but in Mississippi, this has always been the law that we use the "ebb and flow" test. Because of this, we do not feel that it will disrupt titles in our State or others, as they have indicated.
Thurgood Marshall: How deep are these bayous? Are they as deep as the one in Louisiana?
Kathy D. Jones: These bayous... some of them. Some of these bayous are--
Thurgood Marshall: That is pretty deep.
Kathy D. Jones: --are I would say anywhere from two feet to four feet on up to 15 feet... the Jordan River itself is about 30 feet deep, and it is commercially navigable.
Thurgood Marshall: But some small bayous are also deep?
Kathy D. Jones: And some of these are also deep, particularly when the tide comes in. They are bayous just like Louisiana's bayous. The Submerged Lands act of 1953, which was discussed earlier, we feel confirms the State's title in tidally-influenced waters to the main high tide line. We do not assert that this changes any title that the State has. This is just a confirmation of what Mississippi already had in its tidally-influenced waters. There additionally were instances in the Record which show that a 14 foot flatbottom boat could get in on these waterways and actually navigate on them. These were people who came in to fish and to swim or to bathe. These were uses that the public has made of these areas and if the public is deprived of these areas, we are... this will undermine an important right that they feel they have in these 42 acres. We are looking to make sure that our land, as we have established it, the main high tide line, is used in this case, because the public needs to know where the definition of the boundary is. This is something that they have always thought they had by virtue of the fact that testimony had revealed that they had gone up in these waterways and they have used it for all sorts of purposes, particularly fishing. The test asserted by Petitioners, the "navigable-in-fact" test, was a test that was applied to interior waterways. Now, because these two waterways which we have in question here, the Jordan River is a "navigable-in-fact" waterway; the Bayou LaCroix on the south boundary, is also navigable. They do not assert any particular way to define where the cutoff will be. We would have to employ some other arbitrary rule on these waterways to take them out of the public domain, such as the quantity of tonnage, or the depth of the waterway, or perhaps the type of vessel that could navigate on the waterways.
Antonin Scalia: And anyway for some tributaries further up the Mississippi, are you not... or is the Mississippi tidal... throughout the State?
Kathy D. Jones: The Mississippi River, as Mr. Gressman indicated, is tidally-influenced up about 30 miles.
Antonin Scalia: So above that you are going to confront this same problem anyway. It is not as though you are coming out the way you want as to... would avoid the necessity of determining where a navigable river ends, and how much of a tributary to a navigable river is part of the navigable river, that is still going to be a problem, is it not?
Kathy D. Jones: It is our contention that where you have a "navigable-in-fact" waterway, you will always have some areas that you cannot navigate over. It might be a few inches toward the shoreline, but if you had determined that it was navigable-in-fact waterway--
Antonin Scalia: I understand that, but are you going to answer my question?
Kathy D. Jones: --I am sorry, Your Honor?
Antonin Scalia: My question is, the confusing difficulty you were just referring to, cannot be totally eliminated even if we come out the way you want us to on this case. It is still going to be necessary to determine with respect to navigable rivers that are above the tidal level where the navigable river ends. That is still going to be a problem is it not?
Kathy D. Jones: That is still going to be a problem, but that is a different type of law employed for fresh water as opposed to tidally-influenced waters. We would assert that the "ebb and flow" rule would be dispositive of this case because we are using it to mean "high tide line" as our definition of State boundaries. We respectfully request that Mississippi be allowed to continue our stewardship of the public trust domain over all lands that are tidally-influenced up to the line of the main high tide, and to protect our investment in the future of our State's public lands.
John Paul Stevens: May I ask one other question before you sit down? When I was asking you before about the fresh water and the salt water, you indicated that some of these tributaries were used for fishing. I think your opponent's brief said that some of them had also been used for things like cattle grazing and normal pursuits that would not be associated normally with the "public trust" doctrine. Is that correct as a matter of fact?
Kathy D. Jones: There was a witness who testified in the lower court that he had cattle that he saw at times would graze down to some of these areas in question, and also the Jordan River, which is primarily a salt water river, but you would find this on any waterway that also flows from the Gulf of Mexico or any other salt water body where at certain times of the year, if you had a lot of rain, the cattle could come down there and graze, but at other times the salinity content would be so high that it would be impossible for them to drink out of that water. He also further stated in his testimony that there were wells and other ponds on the land itself for the cattle to graze. You know, this was just at odd times that the cattle could graze from these waters.
John Paul Stevens: Thank you.
William H. Rehnquist: Thank you, Ms. Sones. Mr. Gressman, you have three minutes remaining.
Eugene Gressman: Thank you, Your Honor. I would just say immediately that neither the Jordan River nor these little tributaries are primarily salt-water in content. There is a very low salinity rate, and they are basically carrying fresh water either from the uplands or further back up the Jordan River area. But in any event, I would certainly state in further confirmation of Justice O'Connor's query about the impact of an affirmance of this decision upon the many landowners who have for generations thought that they had title to the little streams and rivers that run through their property. And by the way, Lord Hale, who Ms. Sones quoted, also said, among other things, that "there are little rivers which are private forming no part of the King's Highways. " Again, I reiterate, that the king's highways... the public highways today, are devoted... are there for the purpose of carrying on the commercial activities of the public, be it navigation, or fishing or whatever. And when Ms. Sones refers to the fact that there was an occasional fisherman engaging in fishing operations, he was not doing that as a commercial operation; and in any event, our problem is not what some lonely fisherman may do today, it is what was the purpose? Was there a commercial navigability purpose to these lands in 1817? Because that is where the federal question begins and ends, and we are concerned only with whether these lands, underwater lands, were commercially navigable in 1817 at the time of Statehood? And what has happened thereafter is of no consequence in determining that federal question. Now, with respect to the impact of this: there are untold numbers of landowners in Mississippi whose title to non-navigable, little streams running through their property will be put in jeopardy. More than that, there are before this court in the form of amicus curiae all twenty-two coastal states. Upon the Affirmance of the Mississippi court doctrine--
William H. Rehnquist: Your time has expired, Mr. Gressman.
Eugene Gressman: --Yes, they would be--
William H. Rehnquist: The case is submitted.
Eugene Gressman: --The case is submitted, right, Your Honor. Thank you very much.