Warren E. Burger: Mr. Gillespie, you may proceed whenever you are ready.
S. Hazard Gillespie, Jr.: Mr. Chief Justice, and may it please the Court. I speak for petition of The Boeing Company. This case is here by writ of certiorari to the Court of Appeals for the Second Circuit to review a 6-3 en banc decision of that court dealing with what it said it regarded as having unusual significance for the conduct of class action litigation. Specifically, whether attorneys for plaintiffs who successfully prosecute a Federal class action for money damages are entitled to look for their compensation to the total amount for which a defendant would be liable if all class members perfected their claims by filing proofs of claims or only from the amounts payable to those class members who do file proofs of claim and thus receive the benefits of the legal services rendered by the plaintiffs' attorneys. The Court of Appeals decision here under review held that the plaintiffs' attorneys were entitled to be paid not only from money actually claimed by their client class members but also from unclaimed money which that court in an earlier decision in this very case held will never belong to or become the property of any client of these attorneys. Now, it is the position --
Warren E. Burger: What would you think of the hypothetical situation that one of the members of the class wrote in to the Court and said, I think the court has been wrong in the decision, I don't think there is any money due me from Boeing Company, and therefore I refuse to accept it?
S. Hazard Gillespie, Jr.: Well, Your Honor, I think you have almost that situation right here. The brief that is amicus curiaed that has been filed by the Special Master appointed to administer this fund informs the Court that claimant, or rather holders of 128,000 face amount of these debentures have been identified, they have been in touch with and they have declined to file proofs of claim.
Warren E. Burger: They haven't affirmatively renounced, however, have they?
S. Hazard Gillespie, Jr.: No, they have not, Your Honor. But there is no question of their not being reached and told that they could do this.
Warren E. Burger: My hypothetical is a person who affirmatively renounces on the grounds that he thinks --
S. Hazard Gillespie, Jr.: I think that is an an a fortiori case under those circumstances, if he renounces there is no reason why his share of that recovery should be utilized to pay the attorneys for the class members who have claims, under this Court's decision.
Warren E. Burger: You think there is no difference then between an affirmative renunciation and a passive, neglectful --
S. Hazard Gillespie, Jr.: Quite right, Mr. Chief Justice; quite right. Now, it is our position, or the position of The Boeing Company on this appeal, and it was the position of a panel of the Second Circuit which decided this case prior to the en banc decision, that to allow plaintiffs' attorneys to be compensated for monies that are not claimed is two fundamental errors. One, that it is requiring claiming class members, or it is entitling claiming class members to benefit from monies to which they are not entitled. And second, that it would be a direct violation of this Court's holding in the Alyeska Pipeline Company case because the funds which are not claimed would revert to the defendant in the case and therefore if they had skimmed off of them sums to pay the claimants' attorneys, there would be a case of the defendants paying part of the legal expenses of the plaintiffs in violation of this Court's rule in Alyeska that each party should pay its own attorneys' fees. Now, before proceeding to spell out the detail of that argument I would just take a minute to describe the background of the action against which this question comes to Your Honors. This action is the consolidation of ten suits which were commenced in 1966 after Boeing, as part of its program to finance the construction of the 747 Boeing aircraft, called for redemption a $30 million convertible debenture issue which it had sold in 1958. Under the terms of the indenture pursuant to which these securities were issued, the holders had a specified period after a call for redemption within which to convert their debentures to Common Stock. Otherwise, the holder would be limited in the future to receiving only the face amount of his debenture and not any accrual that might have occurred in the value of the Common Stock at the time of the call. In this instance on the day when the right to convert expired, March 29, 1966, Boeing Common Stock was selling for a price at which $100 of principal amount of debentures if converted would have been worth $316.25, or $216.25 more than its face amount. These convertible debentures were unregistered bearer debentures and after the call for redemption and after the time to convert having expired, 1,544,300 face amount of the 30 million had not been converted. Boeing, faced with this problem of what it should do about those who had failed to claim, sought the advice of two law firms, whether in fairness to non-converting holders and also in fairness to its own shareholders, many of which had become shareholders by reason of converting in time, sought the advice of two law firms as to what it should do under these circumstances. I emphasize this because this is no case of fraud or impropriety on behalf of anyone. They were in a dilemma under the circumstances. The two firms advised them that they could not extend the time without violating the provisions of the indenture under which these securities had been issued. And under those circumstances Boeing followed the advice and very shortly along came these ten lawsuits. They were consolidated in the Southern District of New York and The Boeing Company moved for class action treatment under Rule 23, which the court granted.
William H. Rehnquist: What was the basis of jurisdiction in the Southern District of New York?
S. Hazard Gillespie, Jr.: Well, the basis of jurisdiction, there were claims made under the Trust Indenture Act and under the Securities Act of 1934.
William H. Rehnquist: But did -- were those the actual bases of decision in either the District Court of the Second Circuit or was it a principle of New York law?
S. Hazard Gillespie, Jr.: Well, are you referring to the compensation decision or the original decision under which the District Court dismissed this action on the ground that the indenture had been fully complied with; are you referring to that decision, Your Honor, or are you referring to the compensation decision which is here before the Court?
William H. Rehnquist: Both.
S. Hazard Gillespie, Jr.: Well, I think on the first decision, on the merits it is very clear that they went on the Trust Indenture Act and the Federal Securities Act. On the compensation question which is here, I think they went as a matter of general Federal law. They did not utilize New York law, although New York law in every respect as we see it is the same as Federal law with regard to this question.
William H. Rehnquist: This was not in any sense then at any stage of the proceedings a case of pendent jurisdiction.
S. Hazard Gillespie, Jr.: It was not, Your Honor. Now, the District Court after trial dismissed the complaint here, as I said a moment ago, holding that the indenture had been complied with and that there was no basis for these debenture holders recovering. Appealed to the Second Circuit and the Second Circuit agreed that the indenture had been complied with but concluded that the indenture provisions with regard to notice to these debenture holders did not provide, as they said, "reasonable notice." And said that these debenture holders were entitled to recover the difference between the $100 and the $316.25. They then sent the case back. That first appeal was known as Van Gemert One. They sent the case back, the District Court entered a judgment for $3,283,359, which was taking the face amount of the debentures, $1,544,000, and multiplying it by the $216 as to which each of these people were entitled, and said they were entitled to receive that amount of money if claimed. And that judgment provided specifically that each member of the class who had not redeemed his debenture, upon surrendering it would get $316 per debenture less his share of the attorneys' fees required to collect this judgment. Now, if that judgment had stayed the way it was we never would be here today. We were satisfied with it as a procedural matter and ready to proceed. However, the plaintiffs appealed a second time. They were not happy. And they raised a very important, significant point that is involved in this appeal here at the present time. They argued in the Second Circuit that the people who claimed were entitled not only to their own $216 over the $100 face amount but also to any amount that was not their share of any amount that was not claimed by one of their fellow class members, called a fluid class recovery. And --
William H. Rehnquist: Am I right in thinking this is not -- was not an opt in, opt out type of class action?
S. Hazard Gillespie, Jr.: You are quite right, Mr. Justice Rehnquist. This was 23 -- I think it is 1 or 2 -- there was no right to opt out. That is quite right. So they made that argument to the Court of Appeals for the Second Circuit, that they were entitled to get not only that $2.16 but whatever -- on top of that whatever anybody else their share did not claim. The Court of Appeals struck that down. They further struck down a second request which was that even if we can't get something for our pockets with regard to this, we at least ought to get the attorney's fees paid from that unclaimed portion as well. And the Court of Appeals for the Second Circuit three-judge panel held, no, you are not entitled to that because that itself would be an infringement on our rejection in the Eisen case of the fluid recovery doctrine. Furthermore, said the court, that would be a violation of the American rule on attorneys' fees as propounded in the Alyeska case because we would be taking money from -- that might go back to Boeing and using it to pay -- help pay the class members who do claim their attorneys' fees. So --
Byron R. White: Mr. Gillespie, at that point, you just said money that might go back to Boeing.
S. Hazard Gillespie, Jr.: Yes.
Byron R. White: Is it your position that any unclaimed portion does in fact go back to Boeing?
S. Hazard Gillespie, Jr.: It certainly is, Your Honor, but that has not been decided as yet.
Byron R. White: So that you would oppose any theory of escheat.
S. Hazard Gillespie, Jr.: We certainly would, Your Honor.
Byron R. White: Let alone as to which State it would escheat.
S. Hazard Gillespie, Jr.: That would certainly be a tremendous problem, but we would oppose that vigorously, Your Honor. Now, when this decision was rendered by the Second Circuit, my brethren here, did they petition for rehearing en banc of that? No. Did they petition for review in this Court? That was the decision. It went back to the Southern District of New York and lo and behold, the judgment -- this was Van Gemert Two is now out of the way -- the judgment which was proposed to the court followed the same procedure as previously with regard to the $3,280,000 which it claimed these debenture holders would get. But then it went on and said this and it is further ordered that the members of the plaintiffs' committee of attorneys be awarded their fees and expenses and disbursements as fixed by the court to be paid out of said total amount of this judgment. Now, we regarded this to be in direct violation of what the Second Circuit had done in Van Gemert Two and, moreover, we were astounded because at that time the plaintiffs' attorneys were asking for $2 million in counsel fees in this action. So for the first time The Boeing Company took an appeal to the Second Circuit. And when we went up there and argued in that deal before the panel, the panel of three judges agreed with us and said under our prior decision we said there cannot be any respect for the -- or acquiescence in a fluid class recovery and to allow the class members to get something from the non-claimers would be a violation of that. And furthermore it would be a violation of Alyeska. Petition for rehearing en banc for the first time and we get the decision 6 to 3, which is under review here. Now, before I proceed to give you very quickly the three reasons we think that decision en banc is wrong, I want to just report very briefly the status of the distribution of this fund at the present time. On July 8, 1977, just a few days following the decision of Van Gemert Two, Boeing deposited in an escrow account -- not a judgment but an escrow account -- as established by the District Court's judgment the $3,289,359 which I have been referring to and $2,459,646 of pre-judgment interest, which combined sum together with other deposits currently accruing interest is today over $7 million. As a result of published notices and two years of beating the drums and the work of this sole Special Master Mr. Solleder, 46 percent of the fact amount of the debentures unconverted on March 29, '66 have filed claims. To date the remaining 54 percent of potential claimants have either not been identified or having been located, Mr. Chief Justice, have to date declined to perfect their judgments.
Warren E. Burger: Now, let me get that clear. Is it 46 percent by number or 46 percent by amount?
S. Hazard Gillespie, Jr.: By amount, Your Honor. Forty-six percent of the face amount of the debentures which were not converted and 54 percent which were not converted have not claimed, 54 percent.
Potter Stewart: What were the terms of the escrow account?
S. Hazard Gillespie, Jr.: It is just -- well, I will --
Potter Stewart: That question is suggested by my Brother Blackmun's earlier question as to --
S. Hazard Gillespie, Jr.: Right.
Potter Stewart: -- there would be ultimate escheat.
S. Hazard Gillespie, Jr.: Well, -- just one moment -- the paragraph, Mr. Justice Stewart, of the judgment reads, Ordered that within 15 days after the entry of this judgment the defendant shall deposit the amount of this judgment, plus interest at the rate of 6 percent per annum to the date of such deposit in a commercial bank, and so forth, upon which interest shall accumulate until disbursed. And that such money shall be so held in escrow pending the further order of this court. Then in the final paragraph of the order, the Special Master is given instructions that he shall pass on the validity or invalidity of the claims. Now, we say that that therefore leaves the unclaimed funds up to further order of the Court at a later time.
Byron R. White: Of course it does speak of a judgment, doesn't it.
S. Hazard Gillespie, Jr.: It does, Your Honor; it does speak of a judgment. But after all, that is the judgment of liability which, as I understand it, in class actions is preliminary to whatever may be done by individual class members. Now, without repeating here the arguments and the analysis of authorities -- by the way, I would just say that you can see that 46 and 54 percent of $7 million, that the funds that are being dealt with here are not de minimis. Without repeating our arguments on the brief, there are three principal reasons that we believe the Court of Appeals en banc was in error. The most egregious error we believe is in the underlying premise which the majority advances to support its stated desire to avoid, and I quote, "unfairness to claiming class members" and to permit them to enjoy, and I quote, "the spoils of victory." Now, the court, which is its right to recognize those elements, by saying that its decision is sustained by longstanding precedent. Now, the two decisions of this Court which the Court of Appeals rely on are Trustees v. Greenough and Sprague v. Ticonic National Bank. I am sure Mr. Justice White is familiar with these, because they are dealt with in the Alyeska case and the very question that was before the Court of Appeals for the Second Circuit was dealt with in that opinion.
Byron R. White: But that wasn't the main question in Alyeska.
S. Hazard Gillespie, Jr.: No, no. But the contentions were made -- and I have the briefs here, Your Honor -- that those cases warranted the Court reaching a decision of imposing on the losing party the counsel fees. And the Court rejected it and explained the corollary to the American rule of attorneys' fees, that those cases embody and limited it. That corollary is to the effect that where a prevailing litigant has conferred benefits on other parties that can be identified, that those parties before participating in the benefits of the litigation must share their part of the cost of the litigation. This corollary to the American rule on lawyers' fees is founded on the common law principle against unjust enrichment. In other words, if somebody -- and it is on this very basis that the claimants who come into this case and collect -- the 46 percent who collect -- must obviously pay their share of the attorneys' fees, and with that we have no question. But that is the principle of those two cases that I just mentioned, Sprague and the Trustees v. Greenough.
John Paul Stevens: Mr. Gillespie, before you go on, and perhaps this has already been asked, but in your view of the case will all the fund be distributed at the same time or will the 46 percent get their share before other people make claims?
S. Hazard Gillespie, Jr.: Well, Your Honor, I think that in the first place we have had two years when the effort to locate these potential claimants has gone forward, claims have been filed, they have been reviewed. And as the Special Master reports in his little amicus brief, I think of the claims that have been filed, I am not sure of this, but there is about 30,000 which is still under review. Now, as soon as this question has been decided those will be paid off at once. And then the District Court has stated it will consider again how much longer it will extend --
John Paul Stevens: Well, in other words the 46 percent would be paid before you know for sure how many of the 54 percent would come in.
S. Hazard Gillespie, Jr.: That is correct, Your Honor.
John Paul Stevens: Now, what will they be paid? Assume you are right on fees and assume say a certain percentage I take it would be withheld out of the 46 percent.
S. Hazard Gillespie, Jr.: Well, no, I think what would be done is that the Court would determine what was a fair attorneys' fees in this situation. It would then assess against the claiming class holders who came in who are now there with their 46 percent --
John Paul Stevens: Right.
S. Hazard Gillespie, Jr.: -- and assess that against them.
John Paul Stevens: All right. And assume that --
S. Hazard Gillespie, Jr.: If thereafter someone else comes in and makes a claim, the same percentage as applied to each of the claiming ones previously would apply to the new claimant. And the plaintiffs' attorneys would receive that percentage at that time.
John Paul Stevens: So that your concept of the fee is not a dollar figure but a percentage figure that would be based on what is now available plus a guess as to how much more may become of it.
S. Hazard Gillespie, Jr.: Well, I don't think that is quite right, Your Honor. I think what the Court will do, it will take that 46 percent and then they will say, what is it that the plaintiffs' attorneys are entitled to here based on their services, the difficulty of the case, etc.
John Paul Stevens: Say they come up with a figure of a million dollars.
S. Hazard Gillespie, Jr.: Then that is applied --
John Paul Stevens: And then you apply that across the board of the 46 percent and say that amounts to 25 percent of each person's --
S. Hazard Gillespie, Jr.: Correct.
John Paul Stevens: But then if more people come in, they would get more than a million dollars in fees.
S. Hazard Gillespie, Jr.: Yes, they would, Your Honor.
John Paul Stevens: So that the determination of a reasonable fee would really be less than the amount they would actually receive.
S. Hazard Gillespie, Jr.: Well, I don't know whether the Court would take that into consideration or not. But the way the Court of Appeals for the Second Circuit when it sent this back in Van Gemert Two envisaged this being carried out was that just as I have explained to Your Honor at this time. And if the plaintiffs' attorneys thereafter, if other people came in and got the benefits of it, then they would owe the plaintiffs' attorneys a fee. And that fee would be measured as it had been measured in the case of those who had previously claimed.
John Paul Stevens: But in essence the fee would really be fixed as a percentage of the --
S. Hazard Gillespie, Jr.: I think as in all of this kind of case that the percentage would certainly be a very important --
John Paul Stevens: Well, it is the sole criterion after the order is entered, isn't it?
S. Hazard Gillespie, Jr.: Well, unless as Your Honor suggested, I think -- it is hard to say how the District Court will actually do this determination. I think it is fair to say that they will certainly give great weight to the services rendered and then I think they will give weight to the result achieved and thereby bring into effect a percentage which of course would be the same percentage that was ultimately applied the other claims.
Warren E. Burger: With respect to this $128,000 you more or less have seemingly at least waived their claims. Can you tell us from this record if we can find out if those are small claims where people just didn't want to take the trouble, or what is the explanation?
S. Hazard Gillespie, Jr.: Well, Your Honor, I -- there is nothing in the record with regard to this, I would say first. But from my considerable experience in this type of case where claims are not filed, very often a potential claimant has completed a tax year and does not want to go back and reopen by reason of additional income the entire tax picture, or has made some other arrangement.
Warren E. Burger: Well, I would infer from that then that they were fairly modest amounts.
S. Hazard Gillespie, Jr.: I would think they were fairly modest amounts, Your Honor. But it is $128,000 face amount of the $1,544,000. Well, now, I see just five minutes and I quickly say there are three specific grounds which we urge --
Warren E. Burger: That five minutes is the five minutes that you perhaps wanted to reserve for rebuttal.
S. Hazard Gillespie, Jr.: I would like to reserve two minutes, so I will get this off my chest in three minutes if I may, Your Honor. It is just so if any questions come up I could be able to answer them after the Respondents have completed. First, we believe that the decision of the Court of Appeals en banc violates the common fund principle of Trustees v. Greenough, as applied in Alyeska, in the opinion in Alyeska. Second, we believe that no judgment as far as an individual is concerned comes into being until a claim is filed, so that there is no common fund within the principle of those cases until a claim is filed. And last, and most important, we believe that any decision which encompasses using some of the unclaimed fund to benefit the claiming members is a clear violation of what is called the fluid class recovery, the rule that if it is a small amount perhaps, it may be fairly large, but it is allowing the claiming members, in effect, to benefit from those who do not claim from that fund. And that has been not only in the Eisen case, in the Court of Appeals for the Second Circuit was that ruled out, but in this very case it was ruled out. And for these reasons, Your Honor, we believe that this Court should reverse the en banc decision of the Second Circuit. Thank you very much.
Warren E. Burger: Mr. Winer.
Norman Winer: Mr. Chief Justice, and may it please the Court. May I begin by saying to you that Mr. Gillespie's figures are somewhat out of date, not grossly, but as of last Wednesday the claims filed amounted to 49.25 percent of the original face amount of the bonds. And may I add one other statistic which is in my brief, namely that 96.4 percent of these bonds were redeemed by Boeing and by the Special Master.
William H. Rehnquist: Mr. Winer, let me ask you the same question -- or at least I think it is the same question Mr. Justice Blackmun asked your opponent, and that is, What is your position as to the disposition of the unclaimed funds?
Norman Winer: Your Honor, my position must be in accordance with the decisions of the courts up to now. There are decisions in the Third Circuit and in the Eighth Circuit holding that the depositor of the amount of a judgment has no right to reclaim the funds.
William H. Rehnquist: Then what happens?
Norman Winer: What happens must be escheat. But this has not been decided here and was not decided in those two cases in those words.
William H. Rehnquist: What I am asking is what your position as a lawyer is.
Norman Winer: My belief is, sir, is that they would escheat, the funds would escheat.
Warren E. Burger: Would it be your view the recipient of the escheats have been benefited by the services rendered.
Norman Winer: Right, Your Honor. I feel that the recipient of the escheat would acquire the rights of the parties whose money escheated.
Warren E. Burger: Would not the same result take place if it went back to Boeing?
Norman Winer: I think perhaps it should. I think it should, yes, Your Honor, if it should. But there is no basis which I can find in law and no case cited in either of the briefs of Mr. Gillespie to the effect that the money goes back to Boeing. He has made that assertion and I don't know positively that it will escheat, so I wish to be cautious. But in my opinion, sir, whether it goes back to Boeing or whether it escheats to the State, the recipient of that money should take it subject to the fees.
Potter Stewart: If you take a position as to which State it would escheat to --
Norman Winer: No, sir, that --
Potter Stewart: -- the State of Washington would be in here in a hurry.
Norman Winer: That is right. That is another question. I should say to you the State of New York is claiming all of it. They filed briefs in the Court of Appeals, they did not file a brief here.
Warren E. Burger: But the issue isn't before us just now.
Norman Winer: Sir?
Warren E. Burger: The issue is not before us.
Norman Winer: No, sir; no, sir, and that is why I feel -- I don't know the answer. I know that the Third Circuit said it escheats.
Warren E. Burger: You can afford to be indifferent because the lien follows, I suppose.
Norman Winer: Right, I feel that is so, sir.
William H. Rehnquist: Yet to a certain extent one can't decide the basis on which attorneys' fees are to be recovered in a case like this without having some feel for the disposition of the unclaimed funds. It would be one thing to say that the persons who claimed not only got what they were entitled to but a portion of the unclaimed funds; and quite another thing to say it is escheated, I would think.
Norman Winer: Sir, we do not think that the plaintiffs are entitled to any part of the unclaimed funds.
Potter Stewart: In that case, they hardly have standing to be here, do they?
Norman Winer: I don't know --
William H. Rehnquist: Aren't you their lawyer?
Norman Winer: I don't know whether they have standing to be here, sir, but I think that Boeing has no standing here, in my opinion.
Potter Stewart: Insofar as Part II of your brief that point depends entirely upon the fact that Boeing has no further interest in these funds.
Norman Winer: That is correct, sir.
Potter Stewart: That they will escheat or something else will happen to them --
Norman Winer: Absolutely.
Potter Stewart: -- they will never come back to Boeing.
Norman Winer: Absolutely. And if --
Potter Stewart: So whether or not they will escheat is a factor in this case, isn't it?
Norman Winer: That could be a factor.
Potter Stewart: Because your whole Part II depends upon that, I think, doesn't it?
Norman Winer: No, sir, I think not. If I may develop the point a bit, let me put it to you this way. Number one, the money paid by Boeing does not belong to Boeing. Therefore wherever it belongs, the claimants should have the same right to pay only one fee rather than two fees. Let me put it to you this way, there is no shifting of fees here. Nobody has asked Boeing to pay one cent more than what it owes. A shifting of fees as in England would be if the plaintiff wins the fees of his counsel are thrust upon the defendant and there is a shifting of fees.
William H. Rehnquist: But there is a certain element of windfall. It is either a windfall to the plaintiffs' counsel or a windfall to Boeing.
Norman Winer: It may -- if it should ever be determined on some basis which has not been vouchsafed that the money goes back to Boeing, then it would surely be a windfall for Boeing. Why Boeing, of all people, the one that did the wrong? As Mr. Gillespie talks, you may think that these innocent plaintiffs did Boeing a wrong. But the only wrongs done here were by Boeing and if the money goes back to Boeing it would surely be a windfall of the worst sort. Now, as -- sir?
John Paul Stevens: Could you help me with the same question I asked your opponent. Assume your view of the case prevails.
Norman Winer: Yes, sir.
John Paul Stevens: Is it not correct that we will reach a point in time when your fees will be determined, they have not yet been determined.
Norman Winer: That is correct, sir.
John Paul Stevens: Now, if the judge should determine whatever a fair fee is, then how would he pay it to you? Would he pay it in the same way that your opponent described, as a percentage of the recovery?
Norman Winer: According to a decision of the Court of Appeals on that point it stated specifically that it would be taken off the top as in Trustees v. Greenough. The money would come off the top and the consequence of that would be that it would be allocated to each and every debenture ratably.
John Paul Stevens: In other words, you claim that the amount of your fee should be entirely unaffected by the estimate of how much money will actually be paid to former debenture holders.
Norman Winer: Yes, sir. And conversely, I feel that no plaintiff should be required to pay two fees simply because other people have not filed claims.
John Paul Stevens: But I don't understand how anybody would pay two fees.
Norman Winer: Under the American rule, sir, the victim of a breach of contract must be a loser. All he can get in damages is what the law says a victim of a breach of contract is entitled to get. So that when he pays one fee he cannot come out whole, he comes out with his righteous amount minus a fee. Now, if he is going to pay two -- what in this case I am calling the 49.25 percent a half -- so if the people who file half have to pay the total fee, they obtain double fee. Now, under the decisions of both the Second Circuit and --
Warren E. Burger: The fee is fixed. How do you know that?
Norman Winer: May I answer that. In the Lindy case in the Third Circuit and the Greenough case in the Second Circuit the court specifically rejected percentages of recovery for fees. They set up 12 different criterion, the hours spent, the quality of the work, the difficulty of the case, this, that and the other; and among other things was the amount of the recovery.
John Paul Stevens: Mr. Winer, let me pursue my line with you so you answer it.
Norman Winer: Right.
John Paul Stevens: Supposing, based on your theory of the case, the district judge now should conclude that a million dollars is a fair fee. If I understand your analysis, that money would be paid to you forthwith --
Norman Winer: Right.
John Paul Stevens: -- and you would go home. And whatever else money came in, that would be taken out of the fund right now.
Norman Winer: That is correct.
John Paul Stevens: All right, having taken it out, would there then be distribution to the people who have already filed their claims?
Norman Winer: Immediately.
John Paul Stevens: And they would bear the full --
Norman Winer: Well, according to my feeling they would bear one-half the amount and the other half would be taken out of the funds which are not claimed.
John Paul Stevens: So that everybody's share would be reduced by some percentage, roughly a sixth of the fund.
Norman Winer: Absolutely -- everybody -- plaintiffs would pay their fees and --
John Paul Stevens: And you would have all that you would ever get.
Norman Winer: That is all we would ever get.
John Paul Stevens: Now, under his view of the case, if he made the assumption you are entitled to a million dollars, as I understand him you get a million now out of the right percentage; and then you continue to get more as more people came in. It seems to me it is entirely possible that if he wins, you get a larger fee than if you win.
Norman Winer: Well, sir, it is possible. But really, sir, I think the people who are getting lost here are the plaintiffs. I really don't care --
John Paul Stevens: Well, let me tell you very candidly, I am lost because I am not sure you have a final appealable judgment on the issue you seek to argue.
Norman Winer: Well, I understand that point and I must say that whether I didn't go into the appealability of it but I certainly argued that it was premature and I certainly do think it is premature. But it is here and apparently nobody --
Potter Stewart: It wasn't even in the Court of Appeals.
Norman Winer: Sir?
Potter Stewart: It is not here because it wasn't even in the Court of Appeals.
Norman Winer: Right.
Potter Stewart: It wasn't final.
Norman Winer: I argued there that it was premature but I did not succeed. And I am not sure -- I am not saying that as from a point of view of appealability it is not final because this is a matter for argument. But I am saying that I think they should have waited until the fee was fixed and then brought the whole thing here at once, because this case is only 13-1/2 years old, and now when we go back and the fees are fixed I don't know whether I will out live it.
John Paul Stevens: But it is possible that you could get a higher fee if he wins than if you do?
Norman Winer: Yes, sir, it is possible.
John Paul Stevens: What we are fighting about is that one of the factors that the judge will take into account when he ultimately reviews the 12 different factors you have described and finally fix a dollar amount. That is what this case is all about.
Norman Winer: Well, I haven't thought of it that way but I do not dispute that.
William H. Rehnquist: One thing you say, you are here to represent the plaintiffs, are you not? And yet you say one thing to you is clear, and that is that each individual plaintiff is not entitled to any override.
Norman Winer: That is correct. Nobody is entitled to more than the amount of his judgment; and he has got to pay out of his judgment a counsel fee, so he is going to come out with less.
William H. Rehnquist: Is that the kind of argument one would normally expect from a plaintiffs' attorney who was doing the very best he could to assure the success of his clients, so to speak, even though the Court might reject the argument, for the plaintiffs' attorney to simply say, "Well, certainly the plaintiff isn't entitled to this." Wouldn't you at least reserve judgment on the question?
Norman Winer: I am afraid, Your Honor, I do not understand the question. Are you talking about the non-claiming plaintiffs?
William H. Rehnquist: No, I am talking about the claiming plaintiffs, whether it is conceivable they might have any entitlement to more than their prorated share after a certain point in time when there is a large part of the funds still unclaimed.
Norman Winer: Well, sir, the case was decided in Eisen v. Carlisle & Jacquelin that there should be no fluid recovery, under no circumstances could a plaintiff get more than his personal damages; and so I have taken that to be law. This Court remanded on entirely different ground but it seemed to me approved that holding of the Second Circuit, that there should be no fluid recovery. Now, if I may continue then with what I said about the distribution. Professor Dawson of the Harvard Law School in the Harvard Law Review has written three articles covering this subject very fully. And he takes the view, or I will quote his words, to the effect that the question here is distributing the loss, distributing the loss which accrues to these plaintiffs by having to pay a fee to get back their money. And I think when it is presented in that way it is a very clear and correct analysis. What we have here is a question of who is going to take the loss of paying a counsel fee for getting back what was due to these people 13 years ago. Again, I want to say to you that Mr. Gillespie in going over quickly the question of benefit and unjust enrichment and so on has not quoted accurately or fully, I should say, the statement of this Court in Trustees v. Greenough which was when the acting plaintiff recovered the judgment for the benefit of the class of bondholders, he said two things. He said it would be unjust to the plaintiff if he were not reimbursed as well as enriching the other members of the class unjustly. Now, Mr. Gillespie has some justification for pounding only the second part of that sentence, because the courts have frequently done that. But the true fact is that what Greenough did was to follow the old English cases. A creditor came in with a creditor's bill to save certain property for the benefit of all creditors. Somebody who was interested in a charitable trust brought an action to save a charitable trust. Or a creditor brought an adverse petition in bankruptcy. Now, in all of those cases in England 200 years ago, and in this country ever since, anybody who produced a fund for the benefit of a number of people received reimbursement from that fund for all of the expense of the litigation and the net proceeds of the recovery were distributed among the class. Now this, as Judge Kaufman said, is the unbroken line of precedents in this country. This case has nothing to do with Alyeska. Alyeska involved a case -- involved a situation where there was no fund, there was no fund there, there was a public interest. And the doctrine of a private attorney general was adopted by the Court of Appeals in this Circuit and this Court said that that was a different question than the production of a fund and went on to say that the rule which has persisted in this Court since Greenough, which was 1881 -- getting close to a hundred years -- is still the rule in this Court. Now, --
William H. Rehnquist: In Alyeska the Court dealt both with the common fund and the common benefit theory, did it not?
Norman Winer: It distinguished the two, right.
William H. Rehnquist: But it had made the same statement as to both of them, that they were the English rule and not the rule in this country.
Norman Winer: No, sir, I believe that the Court was very careful and that the statements in the footnotes where these statements occur, where the only place common fund and common benefit are put in the same sentence, is very careful to distinguish the two. Now, the Court did not say that there is no such thing as a common benefit. In taking up for example the case of Mills v. Electric Auto-Lite, the Court did find that there was a shared benefit and that -- you recall that in that case stockholders brought suit to enjoin a proposed merger between a company which owned 54 percent of the stock and of the merges and that company. Now, in that case this Court held that although there was no specific fund the benefit was for the benefit of all -- was granted to all stockholders because they saved this corporation from a bad merger. Now, that I believe is the first real common benefit case decided by this Court. And then it went on to the Hall v. Cole case where it was decided that it was for the benefit of all the members of the union that the protagonists had provided freedom of speech for all members of the union. Now, those to the best of my knowledge are the only two common benefit cases decided here.
William H. Rehnquist: Wouldn't you say that you would be better off without the footnote which you referred to in Alyeska?
Norman Winer: No, sir; no, sir, I should not. I should say that the footnote in Alyeska is perfectly consistent with the longstanding rule of this Court. I don't know anything --
John Paul Stevens: On common funds, right.
Norman Winer: On common funds, right. And I think it was -- well, the rest --
John Paul Stevens: This case doesn't involve a shifting to another party.
Norman Winer: Not at all. In Alyeska, Alyeska was asked to pay the counsel fee of the Wilderness Society which had presumably protected the beauty of Alaska for the benefit of the whole American public.
John Paul Stevens: Where was the counsel fee going to come from in the Hall case and in the Mills case?
Norman Winer: The counsel fee in Hall v. Cole came out of the union treasury.
Byron R. White: And in the Mills case it a came from the corporation.
Norman Winer: From the corporation.
Byron R. White: So it was not a spreading of the less, it was an avoidance of any loss.
Norman Winer: That is right. It was for the benefit of everybody concerned, plaintiffs and defendants; they shared. Just as I say to you that this fee should be shared by all those who have a judgment. Now, anyone of these people may come in. With respect to the question of what will happen in the future, we don't know. But we do know that when the Court of Appeals wrote its opinion only 20 percent had filed claims. And as of last Wednesday, 49.5 percent had filed. Now, I should like -- and trust that I am not rude in saying that as far as letters, whether they are hypothetical or real, I have never heard. And Mr. Gillespie later said that this is not in the record, that $128,000, they rejected their claims. But I do feel from my experience with this case and with Boeing that I should be very careful whether those letters were written by Boeing employees or people who are beholden to Boeing. Anybody can write a letter and say, I reject it. And maybe for very good cause.
Warren E. Burger: Well, would it not be irrelevant entirely if your theory is, as I understood it to be, that your action has benefited someone and it is now merely a matter of 49 percent going to one group and perhaps 51 percent going to Boeing or New York or Washington? Someone will have benefited from it.
Norman Winer: That is correct, Your Honor.
Warren E. Burger: So then would it make any difference who those $128,000 are?
Norman Winer: Not according to my theory, not at all. Not at all. And I may say to Your Honor that I doubt that anybody has benefited more than Boeing. Boeing has held -- in the first place, Boeing is the one that moved to consolidate these actions, who made it into a class action. When I first heard of this case is when the motion had already been made by Boeing under Rule 23(b)(1) to consolidate into New York, the Southern District of New York four cases which were brought by individuals. This is not a case where the amounts of money are too small to fight about. These four of the ten cases which had been brought and consolidated were brought by individuals. We represent people with $50,000 worth of bonds individually who are entitled to $175,000. And I myself have a client with $20,000 worth of bonds, an old client of mine; and we have 60,000-odd. I would not wait looking for a class action, I wouldn't have brought a class action. But the thing was already made a class action by Boeing.
William H. Rehnquist: You are not relying here on any statutory provision for attorneys' fees in addition to the recovery of the principal, are you?
Norman Winer: In addition to?
William H. Rehnquist: I mean you are simply saying that you are going to collect from your client, in effect.
Norman Winer: Oh, no; no, no. I say that our clients are the class -- made the class by Mr. Gillespie's motion. We represent the class under 23 and I think Your Honor is the one who pointed out before that there is no way to opt out. And Mr. Gillespie created that situation for the benefit of Boeing so they wouldn't have to defend all these cases around the country.
William H. Rehnquist: And does this particular class action section that we have been discussing provide for an award of attorneys' fees in addition to the substantive recovery?
Norman Winer: No, sir; no, sir. The only provision in Rule 23, it occurs in Rule 23(d) where it is provided that the court may make such orders as are -- as in its discretion seem to be proper in the case.
William H. Rehnquist: So a court couldn't award an attorneys' fee over and above the actual substantive recovery.
Norman Winer: I can't believe that, I can't imagine that it could. I know no basis, none has ever been suggested to my knowledge, that the court could award a fee above it. I don't know -- oh, you mean out of --
William H. Rehnquist: Take your typical case where it says and in addition to the recovery the plaintiff shall be entitled to attorneys' fees. This isn't that kind of a case?
Norman Winer: No, sir. To the best of my knowledge, at least as far as New York law is concerned, that could happen only if a statute provided -- so provided. And there is no such statute here.
Byron R. White: You are claiming that the attorneys' fees are going to come off the top of the recoveries?
Norman Winer: Yes, sir.
William H. Rehnquist: And if there is escheat and the States say, well, where is the rest of my escheat, what is your answer?
Norman Winer: My answer is the benefit received by the State of New York was due to the work of the attorneys and is subject to the counsel fee earned by the attorneys.
Byron R. White: Now you are talking about New York.
Norman Winer: Yes, sir.
Warren E. Burger: Only New York?
Norman Winer: Yes, sir. I don't know if it should escheat somewhere else --
Byron R. White: Well, that prompts me to ask about these other cases that you say were consolidated or brought in.
Norman Winer: Yes, sir.
Byron R. White: Were they also venued in the Southern District?
Norman Winer: Originally?
Byron R. White: Yes.
Norman Winer: I don't believe any of them was. One came from Michigan, one came from Florida, two came from the District of Columbia.
Byron R. White: Well, they might claim escheat, too, then.
Norman Winer: You are right, they might claim escheat. But it seems to me clear that whether it escheats, wherever it escheats the benefit of the escheat should pay a sum which any plaintiff would pay, whether that plaintiff is one who claimed or whether that plaintiff is one of those who did not claim, and by virtue of his non-claiming --
Byron R. White: But if you happened to lose on your escheat point and Boeing got it back, then a lot of your argument is considerably damaged, isn't it?
Norman Winer: You mean if the State is entitled to --
Byron R. White: If Boeing is entitled to these unclaimed monies. I know you say they are not.
Norman Winer: May I answer that briefly. I believe not.
Byron R. White: Believe not what?
Norman Winer: Because --
Byron R. White: You believe not what?
Norman Winer: I believe that the money would not -- I believe that there would be no difference whether it went to Boeing or escheat. And the reason I believe that there is no difference is that Boeing would not be receiving that money back as defendant in its role as defendant.
Warren E. Burger: Right.
Norman Winer: It would be receiving it back because of a lack of some -- sort of a si prius doctrine, we can't give it to whom it belongs and therefore the next best class is Boeing. Now, I don't believe that is ever going to be decided. But in answer to your question as to whether the bottom would fall out of it went back to Boeing, I should say no.
John Paul Stevens: Well, you wouldn't be making the same argument though would you, about the basis for reducing the amount that went back to Boeing by the amount of the attorney's fee?
Norman Winer: I would be making my same argument, namely --
John Paul Stevens: You mean Boeing is benefited.
Norman Winer: Boeing would benefit, certainly.
William H. Rehnquist: From your services in the suing.
Norman Winer: Right. Now, may I just say --
Byron R. White: Getting money back they never would have gotten back before, although they never would have paid it out if you hadn't sued them.
Norman Winer: Well, now here we have, Your Honor, Boeing taking the side of the non-claimant. Now, has Mr. Gillespie any standing to come to this Court and say, don't take the money away from those non-claimants, when he knows that he wants those non-claimants not to get the money?
John Paul Stevens: Mr. Winer, their brief refers to $2 million claim for fees. Is the fee petition in the record; and does the record show the other factors such as the hours spent and so fourth in computing the fee?
Norman Winer: The record has a complete listing of hours, nature of services, and all that, only up to the point of the third appeal.
John Paul Stevens: Is it correct that the claim for the plaintiffs' fees amounts to $2 million?
Norman Winer: I am sorry.
John Paul Stevens: Is it correct that you are claiming $2 million in fees and expenses?
Norman Winer: I am not claiming even $1 million.
John Paul Stevens: Well, is it correct that the entire group --
Norman Winer: There are some lawyers in Chicago who have had virtually nothing to do with the case, and I think they are claiming a million dollars. If you put together all the claims in this case by people who had a remote relation to it, it does. I presume Mr. Gillespie is right. I didn't add it up.
John Paul Stevens: Has there been any evidence or any hearing at all on the question of what a reasonable fee is?
Norman Winer: There have been only very lengthy affidavits, very lengthy; but no hearing. I thank you.
S. Hazard Gillespie, Jr.: Your Honor, I just have one item that I would like to bring up. By the way, the District Court specifically reserved decision on the matter of counsel fees until this question was determined by the appellate courts and filed an opinion which is --
John Paul Stevens: Well, you agree, Mr. Gillespie, that if you win you might have to pay a larger fee than if you lose? It is entirely possible.
S. Hazard Gillespie, Jr.: It is entirely possible if the --
John Paul Stevens: Why isn't this strictly an advisory opinion, then?
S. Hazard Gillespie, Jr.: No, no. Excuse me, Your Honor, then I haven't understood you. If we prevail here, then no part of the attorneys' fees will be assessed against the non-claimant fund.
John Paul Stevens: No, but it is entirely possible that judge may think, based on what he knows, that the plaintiffs ought to get a million dollars in fees.
S. Hazard Gillespie, Jr.: Right.
John Paul Stevens: And he could do it in one or two ways. He could give them a million dollars off the top, and that is the end of it. Or he could give them a million dollars, thinking there are going to be no more claims filed, and say that will come out to 20 percent of everybody's recovery -- I mean it is 20 percent against everybody and future 20 percents might be paid to increase that fee.
S. Hazard Gillespie, Jr.: Conceivably from each additional claimant. And that is why -- the one point I wanted to respond in this reply is to Mr. Justice Potter's question about the finality of this judgment. The judgment which is appealed from here first says that the plaintiff shall recover their damages herein from the defendants the principal sum of $3,289,359. Then it goes on and says, ordered that the members of the plaintiffs' committee be awarded their fees, expenses and disbursements fixed by the court to be paid out of said total amount of this judgment. Now, we were faced when we saw that judgment with the fact that unless we raised that point now this would be final. And when the time came in as to where those monies should come from it would be saying, well, you never appealed from this judgment.
William H. Rehnquist: Well, nonetheless the amount of the fees was not fixed. So something remained to be done in the District Court.
S. Hazard Gillespie, Jr.: But still the determination of where those fees won liability and where those fees should come from was imposed on the total fund which we claim, and still claim, if unclaimed belongs to Boeing. And as to that extent it is final on that issue.
William H. Rehnquist: But there are lots of cases in which -- you know, bifurcated judgments -- liability is determined but damages aren't.
S. Hazard Gillespie, Jr.: Well, Justice Rehnquist, with due respect on this issue the point -- the clear point that re Loomis, as of this case have to pay part of the plaintiffs' attorneys' fees, whatever they may be fixed at, in due respect we believe was final. And if we didn't raise it and bring it up we would then be told we were bound by that determination. Right or wrong, that was our position. And it was raised in the Court of Appeals, not en banc, but earlier; and the court took the position and decided a res, the panel. Thank you very much.
Warren E. Burger: Thank you gentlemen. The case is submitted.


Warren E. Burger: The Court will hear arguments first this morning in United States v. the city of Fulton. Mr. Pincus, you may proceed whenever you're ready.
Andrew J. Pincus: Thank you, Mr. Chief Justice, and may it please the Court: The Federal government operates over 100 hydroelectric dams on the nation's waterways that generate electric power. This case concerns the scope of the Secretary of Energy's authority to set the rates at which this power is sold to the public. Specifically, the question presented here is whether the Secretary may place a rate increase into effect on an interim basis pending a final determination regarding the propriety of the new rate. In April 1978, the Southwestern Power Administration, the entity whose rates are in dispute, issued a public notice of a proposed rate increase. The notice stated that the SWPA was running a deficit of approximately $20 million and proposed a tentative 42 percent rate increase to enable the SWPA's revenues to cover its costs. The notice solicited written comments and the SWPA subsequently held public meetings to inform interested parties about the proposed rate increase and to obtain oral comments concerning the proposal. After considering the public comments, the SWPA reduced the rate increase to 33 percent and submitted it to the Assistant Secretary of Energy for his approval. The Assistant Secretary reviewed the public comments and observed that this was the first rate increase in the SWPA's general rates in over 20 years. He concluded that the rate increase satisfied the applicable statutory standard because it would generate revenues that would equal but not exceed the SWPA's costs of generating the power. The Assistant Secretary therefore issued an order confirming and approving the rates and placing them into effect on an interim basis pending final action by the Federal Energy Regulatory Commission. The Assistant Secretary's order specified that customers who paid the interim rates would receive a refund with interest if a lower rate eventually was placed into effect by the FERC. The FERC again solicited public comments regarding the rates and at first issued a decision disapproving the rates because they were too low. It founds that the rates in fact would not generate revenues equal to the SWPA's costs of producing the electricity. After reviewing additional data that was subsequently submitted in support of the rates, the FERC reversed itself and approved the new rates in January 1982, 33 months after the rates had been placed into effect on an interim basis by the Assistant Secretary. Respondents commenced this action in the Court of Claims seeking to recover the money paid pursuant to the rate increase. They did not... do not challenge the amount of the rate increase. They argue only that the Assistant Secretary cannot place rates into effect on an interim basis. The Court of Claims held that the Secretary lacked the statutory authority to place interim rates into effect and that Respondents' contracts with the United States also barred the interim rate increase. Following a remand to it for the calculation of damages, the Court of Appeals for the Federal Circuit reached the same conclusion.
William H. Rehnquist: Mr. Pincus, what exactly do you mean by the term FERC?
Andrew J. Pincus: Yes, the rates... the rates are proposed by the SWPA or the other... any other power marketing administration. They are examined by the Assistant Secretary who issues an order directing the customers to pay the rate increase, but providing that the rate, that those amounts are subject to refund if the <FERC> [= FERC], which then considers the rate increase, determines that it is too high and substitutes a lower rate increase.
Warren E. Burger: What the Assistant Secretary was asking for is the pattern that was familiar with the Interstate Commerce Commission when tariffs were filed, was it not? The tariff would take effect immediately until the Commission set it aside, but you say that's not permitted here?
Andrew J. Pincus: Well, this case, this case is... in the Interstate Commerce Commission example, and indeed, in private utility regulation, the utility typically files a rate which will take effect but is subject to suspension by the relevant regulatory body.
Warren E. Burger: Subject to refunds. They segregate it, impound it?
Andrew J. Pincus: I don't believe that it's impounded. I think that the utility is under, simply under an obligation to repay the money if it is eventually found that the rate increase is too high. Here the rate before it is placed into effect is actually measured by the government, by the Assistant Secretary of Energy, against the applicable statutory standard here, the standard that rates should be set at a level that recoup revenues but don't provide any provide to the government. So here customers are actually in a better position than they are in typical regulation because the rates already have been assessed for their propriety by the government. So it is especially peculiar that in this context, where the rates already have been evaluated, even before they go into effect on an interim basis, the courts below found that the Secretary doesn't have this interim rate-setting authority.
Sandra Day O'Connor: Mr. Pincus, do you think that the statute and the contract in question would permit a retroactive rate increase? Has the government ever taken that position under the language of the contract?
Andrew J. Pincus: We haven't taken that position, and that question isn't presented in this case.
Sandra Day O'Connor: I notice that, I notice that the language of the contract says that there can be a change in the rates to increase, decrease, modify or change them, and they will become effective on the date specified in the order, and I just wondered if the government had ever taken the position that that would permit a retroactive increase.
Andrew J. Pincus: Not to my knowledge, Your Honor, and that's not what we're contending here. Here the date of the Assistant, that the Assistant Secretary issued his order in March 1979, and the interim rate took effect on April 1, 1979. So we are not contending for any retroactive authority here. The rates, the Respondents were permitted to comment on the rates before the Assistant Secretary reached his decision. The Assistant Secretary reached his decision, and only then did the rates take effect. So this case does not involve any retroactive rate increases.
William H. Rehnquist: You say it took 33 months between the time of the promulgation of the tentative rate or the interim, and the final approval?
Andrew J. Pincus: Yes, Your Honor, and that long delay is the problem that the Secretary faces in trying to recoup the cost of electricity for that what Respondents... the result that for which Respondents contend would have deprived the government of the incremental revenue for that entire 33 month period and essentially given them a windfall of paying rates that had already been determined to be below cost for that entire period of time.
William J. Brennan, Jr.: Are delays of that length, is that the usual?
Andrew J. Pincus: I understand from the Department of Energy, Your Honor, that the process has been speeded up somewhat--
William J. Brennan, Jr.: To what?
Andrew J. Pincus: --since these early days.
William J. Brennan, Jr.: How much have they cut it back?
Andrew J. Pincus: I don't have the specific amount of time, but I gather that it no longer takes approximately three years to place rates into effect, but the delay still can be substantial, and there's no reason why interim rates can't be placed in effect since Respondents essentially suffer no harm because if the rate is subsequently found to be too high, they are entitled to a refund. Since interim rates are such a typical feature of conventional ratemaking, there's no reason for the Secretary to be deprived of that authority here.
Byron R. White: Well of course, if you are right on your interpretation of the Energy Act, in that the Secretary has... in that you claim the Act gives the Secretary complete ratemaking power.
Andrew J. Pincus: Yes, Your Honor, we contend--
Byron R. White: And he's created his own problem by giving final approval to the FERC.
Andrew J. Pincus: --Well, Your Honor, we don't think it's a problem because we don't think that--
Byron R. White: Well, it is, it is if, it is if you say that, if there's a long delay. The Secretary doesn't need to delay anything.
Andrew J. Pincus: --Well, that's true, Your Honor, but what the additional review does is impose safeguards for taxpayers' rights to revenues that recoup costs and also safeguards respondents' rights by giving them an additional review to ensure that rates aren't too high. So we don't... there's no prejudice to anyone here.
Byron R. White: And here the FERC raised the rates, didn't it?
Andrew J. Pincus: The FERC at first thought that the Assistant Secretary was wrong and that the rates were too low, and it subsequently was convinced, upon getting some more information, that the rates were appropriate.
William H. Rehnquist: Is there any doubt about the FERC's authority to raise as well as to lower the proposed rate?
Andrew J. Pincus: Your Honor, the FERC cannot... can only approve or disapprove a rate. It cannot change the rate under the... under the scheme that the Secretary has set up in the delegation order. What would happen if the FERC in this case, for example, had adhered to its view that the rate was too low, that it would send the matter back the the Assistant Secretary who would then have to devise another rate that met the FERC's objection.
Sandra Day O'Connor: The... do you contend that the language of the contract goes no further than the language of the statute itself?
Andrew J. Pincus: Exactly, Your Honor. We think that the contract provisions simply say that the Secretary may exercise the full extent of his statutory ratemaking authority.
Sandra Day O'Connor: Because the language is a bit different. The statute says the rate schedules to become effective upon confirmation and approval by the Federal Power Commission. Now, do you interpret the statute after the new creation of the Department of Energy as substituting the Secretary of Energy for the Federal Power Commission, or do you conceive that FERC stands in the shoes of the Federal Power Commission under that language?
Andrew J. Pincus: Of the contracts, Your Honor?
Sandra Day O'Connor: No, of the statute which I read to you.
Andrew J. Pincus: We believe, we believe that the Secretary of Energy is substituted for the Federal Power Commission in the statute, that the Department of Energy Organization Act provides that except for authority, that with respect to authority previously possessed by the Federal Power Commission, it's basically divided into two parts. The Act specifically designates certain authority that is transferred to the FERC, and it provides that all the rest of the Federal Power Commission's authority shall be transferred to the Secretary, and since this authority under Section 5 of the Flood Control Act is not specifically set forth in the Department of Energy Organization Act as one of those bits of authority that is transferred to the FERC, it clearly is transferred to the Secretary of Energy by that statute, and that is set out in our brief and also in the Fifth Circuit's opinion in the Tex-La case, and we think the Court of Claims simply made a mistake in reading the statute to transfer that authority to the FERC.
Byron R. White: And the FERC's in the Act at all, you claim, just by the will of the Secretary.
Andrew J. Pincus: Exactly, Your Honor, and I should point out that Respondents in their brief do not take a different position. They agree that the Secretary could change the delegation order and provide that he alone exercises authority to confirm and approve rates and eliminate the FERC completely from the process, and that would be permissible under the statute.
William J. Brennan, Jr.: I gather the Fifth Circuit agreed with your position, did it not?
Andrew J. Pincus: Yes, the Fifth Circuit--
William J. Brennan, Jr.: And expressly disagreed with the Court of Claims' holding in this case.
Andrew J. Pincus: --Yes, Justice Brennan. The Fifth Circuit said, in fact, that in its view the Court of Claims had simply misread the statute, and it pointed out the reasons that it was clear from the statute that the Federal Power Commission's authority had been transferred to the Secretary of Energy. The Court of Claims invalidated the rest of its decision invalidating the rates on three bases, most of which we've talked about. First, it found that the interim rate increases were barred under the contracts, but as I've discussed, the contract provisions simply provide that the Secretary of Energy may exercise his full statutory authority. So really there is no separate contract question in this case. The contract question is the same as the statutory question, whether the Secretary has the statutory authority to impose interim rates. The second ground relied upon by the Court of Claims is its view that Congress did not transfer the Federal Power Commission's authority to the FERC. However, as the Fifth Circuit pointed out and as we demonstrate in our briefs, it's quite clear that the Department of Energy Organization Act expressly transfers that authority to the Secretary of Energy, and that the FERC's involvement in this process is solely by virtue of the fact that the Secretary determined that review by the FERC was appropriate in his delegation order. So the only issue really in this case is whether the Secretary has the authority to place rates into effect on an interim basis, and we think that that authority is supported on two separate grounds: first of all, on the basis of Section 5 of the Flood Control Act which broadly empowered the Secretary of the Interior to sell electricity at the lowest possible rates to consumers, consistent with sound business principles, and in using such a general term to describe the scope of the Secretary's authority, Congress plainly intended to give the Secretary substantial leeway in selecting the manner in which to administer this program. Basically Congress... this is a proprietary program selling Federal property, and Congress has directed the Secretary to dispose of it in whatever manner he thought appropriate consistent with the way a business would dispose of a similar asset. And Respondents have presented no reason that interim rate increases should be excluded from this broad grant of authority. And in fact, interim rate increases are a typical conventional ratemaking procedure, and rate regulation schemes governing private utilities typically provide that rates may be placed into effect on an interim basis pending the final regulatory determination. And the reason for that rule is very simple. The judgment has been made that the regulated utilities should not be required to bear the burden of financial... of the loss of revenues due to regulatory delay. And interim rates allow the utility to obtain the revenue that it needs and at the same time safeguard the customer's rights because the customer is entitled generally to a refund with interest if the regulatory body later finds that a lower rate is appropriate. The Federal Power Act, for example, permits private utilities to file their rates and permits the rates to go into effect on an interim basis, subject to a refund if the lower rate is adopted by the FERC. We think it would be anomalous to construe Section 5 in a manner that deprived the Federal Government of this ratesetting technique.
Sandra Day O'Connor: Mr. Pincus, what evidence is there that under the old scheme, before there was a Department of Energy, that the Federal Power Authority interpreted the Act as giving it the power to set interim rates?
Andrew J. Pincus: Your Honor, there are three examples, three cases in which the Federal Power Commission did set rates into effect on an interim basis, one example under this statute, one example under the very similar language of the statutes governing the Bonneville power projects. I think that those interpretations of the statute by the administrative entity that administered it are entitled to deference and show that the position for which we contend is the appropriate interpretation of the statute. And Respondents make much of the fact that those are the only examples, but this Court has held several time that the mere fact that an agency has not exercised its power does not mean that the power doesn't exist, and we think that is all that is true of the situation cited by Respondents here. Respondents' basic argument that Section 5 does not confer interim rate authority is their claim that the statutory provision, the statute bars the rates by providing that rate schedules become effective upon confirmation and approval by the Federal Power Commission, but we think this language simply has nothing to do with any prohibition of interim rates. All the statute... the statute does not require complete administrative action before the rates are placed into effect. It simply requires a decision by the Federal Power Commission or the entity that exercises the Federal Power Commission's confirmation and approval authority here, the Assistant Secretary, and here the Assistant Secretary did specifically that. Before the interim rates went into effect, he issued an order discussing whether the rates met the statutory standard and expressly confirming and approving the rates on an interim basis, and we think that is all that the statute requires. There simply is no requirement that all administrative action be completed before the rates are placed into effect. In addition, it's clear that Congress' purpose in requiring the Federal Power Commission to act is not at all furthered by requiring final approval of rates. All that Congress wanted was the Federal Power Commission to apply its expertise in evaluating a rate before the rate was placed into effect, and that's exactly what happens under our interpretation of the statute. Before an interim rate is placed into effect the rate is evaluated under the statutory standard by the government entity that possesses that authority. I would also like to briefly address our second argument, that independent of Section 5 of the Flood Control Act, the Secretary's now plenary authority over the rates under the Department of Energy Organization Act also permits the Secretary to use interim rates. We think that this Court has recognized that this type of plenary authority carries with it the authority place rates into effect on an interim basis when that is necessary to serve the public interest, and we think that that is the situation here. Interim rates serve the public interest, especially in this case where the SWPA's revenues had fallen so far behind in recouping its costs, and do not harm consumers because the consumers, first of all, have the right to comment on the rates before they go into effect, have the review of the rates by the Assistant Secretary, again before the rates go into effect, and have the final level of review by the Federal Energy Regulatory Commission and a refund if the FERC decides that the interim rate was too high. In that situation, we think there's simply no reason to deprive the government of the right to place interim rates into effect. Unless the Court has any questions, I'd like to reserve the balance of my time.
Warren E. Burger: Very well. Mr. Wheatley.
Charles F. Wheatley, Jr.: Thank you, Mr. Chief Justice, and may it please the Court: In view of the argument that the government has made, we think there are three main issues that are before this Court relating to the question of whether or not the Department of Energy could impose an interim rate structure on the rates. The first question is whether or not the contacts the government entered with these three cities, by their terms, do not allow an interim rate but require the final rate, approved by the Federal Energy Regulatory Commission.
Sandra Day O'Connor: Mr. Wheatley--
Charles F. Wheatley, Jr.: Yes.
Sandra Day O'Connor: --do you think the contract provisions have independent significance apart from the statute, or does the contract permit what the statute permits?
Charles F. Wheatley, Jr.: Justice O'Connor, I believe that the contracts have independent validity because when you read the language of those contracts, they are more explicit and more definitive than in fact the language of the statute.
Sandra Day O'Connor: Well, as I read the contract, it would even allow a retroactive increase.
Charles F. Wheatley, Jr.: Well, the language of the--
Sandra Day O'Connor: So the language of the contract, if that's what you are relying on, may be more generous than the government even urges.
Charles F. Wheatley, Jr.: --Well, I don't see how the language of the contract could reach a retroactive result because it says the new rates shall thereupon become effective in accordance with and on the effective--
Sandra Day O'Connor: On the effective date specified.
Charles F. Wheatley, Jr.: --date specified in the order. Now, it says "thereupon". In other words, the FERC and its predecessor the Federal Power Commission, would have to confirm and approve the increase, and they cannot approve the increase and confirm it until they do that in a final order. Now, the words FPC, that refers to the final approval process, so that you need... the Commission would have to be making its final approval. A case directly in point on that is New York State Electric & Gas v. FERC at 712 F. 2d 762 or 768. The FRC... neither the FPC nor the FERC nor anyone involved in these rates since they have been in effect have ever sought to put them into effect on a retroactive basis, and I think it comes from the language in the contract and also from the language of the Flood Control Act which says that the rate increases cannot be put into effect until a confirmation and approval, which by the legislative history of the statute means final approval. So the Commission could not after final approval attempt to backdate the contract. That issue hasn't come up, but the language certainly is clear regardless of the question of retroactivity, that the language of the contract is more explicit and more detailed than the language of the statute.
Sandra Day O'Connor: But you take the position that in any event, it wouldn't be allowed under the statute either, is that right?
Charles F. Wheatley, Jr.: We say that, first, if you read the contracts, the plain language of the contracts and the consistent practice under those contracts, and up to this case as well as the interpretation of the words in the contract by other courts and by the Federal Power Commission, those kinds of words in the whole group of Sierra-Mobile cases, if you take that whole--
Sandra Day O'Connor: But what if all you had was the language of the statute and the history of its application by the Federal Power Commission? Could it establish interim rates?
Charles F. Wheatley, Jr.: --If you put... no, clearly not. If you put aside the clear language of the contracts which go beyond the language of the statutory in being explicit that you need a final order and that interim rates are not permitted, you still have the language of the Flood Control Act which, as it was construed in the legislative history, required a final order by the FPC, and under the administrative practice, consistent administrative practice under the Flood Control Act up until this case, that Act was consistently construed as requiring the final approval by the Federal Power Commission, and even as we read... every court that considered this, it was three district courts and the Court of Claims, the Federal Circuit Court and the Fifth Circuit, all six of those courts, to our opinion, in construing Section 5 of the Flood Control Act, have construed that that act required a final decision by the Federal Power Commission or the Federal Energy Regulatory Commission. The Fifth Circuit opinion--
Byron R. White: Well, that is certainly true, but your question is whether, whether you needed a final order before any rates could go into effect.
Charles F. Wheatley, Jr.: --That's correct. That's what we think the Section 5 of the Flood Control Act, Justice White, requires, and the Fifth Circuit in its construction of Section 5 of the Flood Control Act, if you read the opinion closely, seemed to reach the same conclusion. They got a different result, not under Section 5 of the Flood Control Act but saying the Department of Energy Act modified and amended Section 5 of the Flood Control Act. So it is the Fifth Circuit which alone of all the courts that considered this, have said interim rates are possible, has reached that result on the basis of the decision of Congress in their minds in the DOE Act, but when you track through the exact provisions of the DOE Act, an it was only a transfer, the legislative history was quite clear that it was not to be an amendment of the prior laws, the prior statutes, and each of the exact provisions of the DOE Act, we think that the Federal Circuit reached a better opinion.
Byron R. White: Do you think the FERC inherited power to approve rates directly from the FPC?
Charles F. Wheatley, Jr.: No. I think what happened was that--
Byron R. White: You think that FERC derives its power from a delegation of the Secretary.
Charles F. Wheatley, Jr.: --I think it does arise from a delegation.
Byron R. White: And the Secretary would have had the... could have kept the entire power himself.
Charles F. Wheatley, Jr.: He could have kept that power, but he could have kept only the power that was granted by Section 5 of the Flood Control Act, and that power was limited by Congress. When you read the legislative history of Section 5, they did not intend to give plenary authority to the Federal Power Commission in the approval of rates. It was a very limited authority. It could only be directed to approve or confirm the rates. So--
Byron R. White: With the Secretary proposing them.
Charles F. Wheatley, Jr.: --Yes, what they propose. It could either act... veto it... just, Mr. Ickes in his appearance before the Committee when the Section 5 was being debated in its predecessor Act, the Bonneville Act, said quite expressly that it was a veto power. It required final action by the Federal Power Commission, but it was a limited authority to affirm. It was not a plenary grant of authority like the Interstate Commerce Commission has or like the Federal Power Commission has under their express statutes. Now, had Congress in 1944 in passing Section 5 of the Flood Control Act intended to grant the power to either the Secretary or to the Federal Power Commission to grant interim rates, it could have used the language that it had before it in the earlier Natural Gas Act of 1938 or the Federal Power Act of 1935, also the Interstate Commerce Act had express provisions in it that allow for interim rates and authorize interim rates. Section 5 of the Flood Control Act did not intend to do that, and I think the reasons for it are set forth in the analysis that the Fifth Circuit made of Section 5 wherein I think the Fifth Circuit came up with the conclusion that there wasn't any authority in the Flood Control Act of 1944 to permit interim rates.
William H. Rehnquist: It is rather extraordinary, though, isn't it, Mr. Wheatley, for a utility, public or private, not to have any ability to set new rates in force short of a 33 month delay.
Charles F. Wheatley, Jr.: Well, I think that the delay, Mr. Rehnquist, was a result of procedures which the Secretary of Energy and the <FERC> [= FERC], he could have increased, shortened that time considerably, and they have shortened it since that time. Furthermore, in the long history after the Flood Control Act was enacted, in '44, in all of the dealings with the cities under the SWPA, over that entire period of time up to the instance in this case, at no time did SWPA ever sought to issue an interim rate. That's up to '79. After the Court of Claims decision in this case in '82, SWPA went back to its old practice of not issuing interim rates, and in 1983 they issued a rate that was not an interim rate, and if the Court can take judicial notice of SWPA's annual report for 1984, they have done very well indeed since they've been following the practice. The report states... this is the annual report for '84... I'm pleased to report the Southwestern Power Administration was financially healthy when the books were closed at the end of fiscal 1984. We received record revenues of $100.5 million, of which $93.2 million was deposited with the U.S. Treasury, assisting in reduction of the federal deficit. This may be compared to the $52 million in funds appropriated by Congress for operation of the Southwestern Power system. Of this revenue, $21.8 million was available for debt retirement, which also, is also a record. Our previous accumulated debt retirement was $39.9 million. These records were achieved in a year of slightly less than average electric energy generation. So I think this report which was based on rates that were issued without violating the express language of the contracts of the cities, shows that SWPA through the Department of Energy and utilizing a procedure without interim rates, can operate to keep its books in balance and to do well. Now, the question of the contract itself, this case is one of the first cases to reach this Court from the new Federal Circuit, and Congress has set up that Court to have expertise in matters such as this dealing with the meaning of federal contracts. We have the result of both the Court of Claims before it was abolished and the Federal Circuit Court of appeals construing the language of the contract in this case as on its claimed language precluding a rate increase to these cities until such time as there have been a final confirmation and approval by the FERC. Now, that contract construction where the Court subsequently went into the course of conduct between the parties over the long period of time that the contracts had been in effect I think is entitled to great deference. The findings that both the Court of Claims and the Federal Circuit reached on the meaning of these contracts and the plain language and the course of conduct is within their scope of expertise to review and consider federal contracts. The Fifth Circuit in its opinion really didn't analyze the contracts. It really simply analyzed the statutory, and just assumed that the contracts would follow its construction of the subsequent statutes. We think that the Fifth Circuit was in error. There was a long pattern of conduct that started after the Flood Control Act was issued, where no interim rates were issued by SWPA. We have listed the cases at pages 36 and 37 from 1947 on up to the '70s. Throughout all of those cases until the present case, SWPA never sought an interim rate.
William H. Rehnquist: Of course, an interim rate isn't so important unless you've go a period of heavy inflation.
Charles F. Wheatley, Jr.: Well, the interim rate is I think a question of what... it could be important in an inflationary period, yes, but on the other hand, the contracts by their express language and their course of conduct, there was never any permission of an interim rate under that scheme.
William H. Rehnquist: Well, all I'm suggesting--
Charles F. Wheatley, Jr.: Yes.
William H. Rehnquist: --is, you know, this doesn't affect the argument based on the language of the contract or the language of the statute, but when you are arguing past practice, it may be that the regulators saw a need for an interim rate only in a time of heavy inflation.
Charles F. Wheatley, Jr.: Well, it could be that is so, but certainly when the Power Act and the Gas Act were enacted in 1935, Congress put in express interim rate authority, and it seems strange that in 1944, which is a few years after that, they didn't put the same authority in there if they thought it was important and necessary. And I think the reason they thought it wasn't necessary was... goes back to Secretary Ickes' concept in his sponsorship of the bill. He wanted a bifurcated system to review, but he wanted the Federal Power Commission review to be quite limited, and they would only have the limited function of approving, and they did not have any broad plenary functions like the Federal Power Commission would have or the Interstate Commerce Commission would have. And he wanted them also... he was very explicit about this, that they had to have the final say, that the rate could not go into effect, and we've cited his comments on this in our brief, until there was a final order by the Federal Power Commission, and that one ingredient is missing here even after the DOE Act. The Secretary of Energy, in his wisdom, decided that the wanted to delegate the function of confirmation and approval back to the FERC which was the successor agency to the Federal Power Commission. So he delegated that in his order, and at that point you come back to the express language of the contracts and the Flood Control Act.
Sandra Day O'Connor: But you take the position that even had there been no delegation to FERC, no interim rate would be possible, is that right?
Charles F. Wheatley, Jr.: I think that that is true because the Department of Energy Act, when it was enacted, simply transferred the situation as it existed under Section 5 of the Flood Control Act, to the Secretary of the Energy, and it's true that at that point the Secretary of the Energy had the power, the limited review and confirmation power of the FPC plus the power that the Secretary of Interior had under the Flood Control Act. He had both those powers, but those powers were never plenary under the Flood Control Act. The power to confirm rates was not changed substantively, and all Congress did in the DOE Act was transfer. They simply transferred what existed previously and didn't augment and increase it. And the Court reports and the Chairman of the bill, when it was enacted, made it quite clear they were not creating any new substantive power and authority in the Secretary of Energy. Well, the further sections relating to the DOE Act is 301(b) and 302(a)(1), both of those simply transferred functions, and as the Federal Circuit recognized, the meaning of the word "transfer" is clear, and it does not permit a definition that permits the augmentation of the prior powers. Now, nothing in the transfer gave any additional authority in addition to the Section 5 language, and also, there was a Section 501(a) of the DOE Act which expressly provided that any procedural requirements under any prior law that were transferred that were in addition to that which the DOE had itself were to remain intact and in place. This clearly brought with it the limitations that were implied or were expressed in the 1944 Act requiring final confirmation and approval by the Secretary or... and his delegee, the Federal Energy Regulatory Commission. I mentioned earlier the legislative history of the DOE Act also where Chairman Brooks, who was the floor manager, said the Secretary would not have any powers not already created by Congress, and that's cited at page 40 of our brief. And Chairman Dunham of the Federal Power Commission in the Senate hearings relating to the DOE Act said he could separate reorganization from substantive authority and he looked and construed the DOE Act as simply a reorganization act and not as an act investing the DOE with any additional authorities other than that which it had under the transferred acts. Now, the government's position that the consolidation of the Flood Control Act and the DOE Act gives plenary authority over rate increases and interim rate authority we think is patently wrong. And the decision by the Federal Circuit below adopted a District Court opinion in the Sam Rayburn Dam case, where that issue was gone over very carefully and clearly shows and demonstrates that the DOE Act did not intend to augment any powers that were previously involved. But regardless of the legislative history, I think there's one bottom line that comes out. That is that when the Secretary delegated his authority for the final approval and confirmation, he was at that point, to the FERC, at that point until that final approval and confirmation took place, there was no completion of the exact event which the statutory language in the Flood Control Act, which is still valid, had taken, had occurred, it would take place. Well, I think that that completes my argument. Unless there are further questions, I will just relinquish the rest of my time.
Warren E. Burger: Thank you, Counsel. Do you have anything further, Mr. Pincus?
Andrew J. Pincus: Not unless the Court has any questions, Your Honor.
Warren E. Burger: Apparently none. Thank you, gentlemen. The case is submitted.