Warren E. Burger: The Federal Trade Commission against Sperry Hutchinson. Mr. Mclaren?
Richard W. Mclaren: Mr. Chief Justice, may it please the Court. This matter is before the Court on writ of certiorari for the Fifth Circuit which overturned the Federal Trade Commission decision that respondent Sperry and Hutchinson, frequently referred to as S&H, has engaged in certain unfair activities in its Green Stamp business in violation of Section 5 of the Federal Trade Commission Act. The complaint in this case was in three counts. Count one was in the nature of a resale price maintenance charge that S&H issued stamps to retailers and required the retailers to dispense them to consumers in ratio of one stamp to each 10 cents worth of purchase. Second count charged conspiracy to carry out this program, the 1:10 ratio and count three was in the nature of an unreasonable restraint on the alienation charge that is that S&H carried out a policy of suppressing trading stamp exchanges and preventing anyone other than S&H from redeeming S&H stamps. And this count also contained a charge of conspiracy by S&H with other stamp firms to carry out this program. In all three counts, the complaint alleged that the practices were anti-competitive and to the detriment of the consuming public. Commission found violation under all three counts but S&H appealed only on count three and the Fifth Circuit vacated the Commission's order in a 2:1 decision. Judge Wisdom dissenting that majority decision is now here for review. There are two questions presented. The first principle question is whether the Fifth Circuit was in error in holding the FTC’s power under section five to declare particular methods of competition and particular acts and practices unfair is limited to conduct which violates the letter or the spirit of the antitrust laws. A subordinate question is whether the Commission erred as the Circuit Court seems to indicate in failing to give sufficient weight to decisions under State Law that operations of stamp exchanges and the retailers who redeemed S&H stamps were unlawful. The government’s position on these two questions since the first one is that FTC’s power is not limited to declaring practices unfair simply when they are antitrust type of conduct. Rather, we think the Commission has a broad mandate to consider the circumstances of particular cases to determine what is unfair in the light of the public interest and without trying to define the outer limits of this power. We think it is clear first that a practice maybe held unfair by FTC where it has analyzed all the facts and circumstances of particular case considered reasons for the practice, the need forth by the practitioner. Its impact on the various factors in Commerce and if FTC determines on this basis, that the practice may have or has had a significant adverse effect on competition. Secondly, we think that the practice maybe held unfair where it is detrimental to the interest of the consuming public entirely without regard to the question of effect on competition. On the second question, the State Law question, our position is that State Courts decisions on matters as between private parties are to be given little rate in a Government case where the issue involves the public interest and particularly where broad public policy considerations such as those found in Section 5 case are present. I have no doubt that the arrangements for example in the Brown Shoe case and the Gasoline Company TBA cases were entirely legal under State Law but as the Court will recall, those arrangements had to give way to the overriding policy of the Federal Trade Commission Act and its intent to protect a competition. Turning to the facts of the particular case, they are relatively simple and I think substantially undisputed. S&H is trading operation as the promotional service for retailers. Under the system S&H licenses, limited number of retailers to handle its stamps in each area. The retailers receives the stamps from S&H on consignment and the retailers pay a service charge in proportion to the number of stamps they received. This runs an average of $2.68 a book of 12 hundred stamps. The retailers in turn dispense the stamps to consumers in proportion to their purchases and this has been as I indicate earlier on a one for ten basis, one stamps to instant purchase and this book says, the S&H book says is compensation for cash payment. In other words, nature of the cash discount. Consumers however are only authorized to paste the stamps in books and to redeem the books with S&H for merchandise, nothing else. The books worth about three dollars on redemption and merchandise and the record indicates that somewhere between 5% and 14% of stamps go unredeemed as the records shows also that as of 1964 there were several hundred million worth of unredeemed stamps outstanding.
Warren E. Burger: For what period?
Richard W. Mclaren: That went back to the beginning of S&H.
Warren E. Burger: I assume rather long, a long period of time?
Richard W. Mclaren: A long period of time, yes. However, S&H's purchases runs some 320 million a year and it growth recedes. So this is more than a good bit more than one year. Turning to the trading stamps industry, we find that is a rather concentrated one with six companies having some 85% of the business. Although, there are some total of 400 companies. S&H is a good bit bank, the number one in the industry. About 40% of total industry receipts and some three times the size of its nearest competitor. Some 77 thousand retail outlets handle S&H stamps and nearly 60% of all American households according to record sale S&H stamps, that is around 35 million families. To give an idea of the overall economic importance of stamps in 1964, the stamps of all kind were issued on 40 billion dollars worth purchases and on some 43% to 46% of all food store purchase. In some areas, it went as high as 95% and the record shows that RX 24 that where stamps are prevalent. They tend to increase the level of retail prices and making the calculation of one stamp for a 10 cent purchase, this would come to about 2% on sales. Coming to the main issue of trading stamps exchanges and the redeeming retailers, the record indicates that exchange is developed to meet the desire of consumers to get more out of the various stamps that they were receiving as a shop. A good many housewives testified and I think it is fair to say from their testimony that they principally wanted to consolidate different stamps into one kind of a stamp. This permitted them to go out and redeem. They would not have to wait so long to fill up a single kind of stamp book. They could get their Christmas presents or whatever it might be to fill an immediate need or in some cases they wanted to cash them in. Perhaps they are leaving the part of the country where the stamps reused or they came to a part of the company where they were not in circulation, perhaps their military personnel going abroad, sometimes they wanted to get a better buy as they could get a better selection from one company stamp catalogs and from another or maybe the redemption center was more convenient. Within 25 miles you cannot mail in, you must come-in in person. If you do not have a card perhaps there is another company with a more center. In any event the exchanges grew up, the cumulative stocks of the different kinds of stamps as many as 50. Different kinds would be stocked. They would principally exchange and I think that was some 60% of their business. They would also sell stamps to help somebody get the 7th book, if we had six together, we would get a particular item something in that order and they would buy stamps from people who wanted to sell as I indicated. They charged a fee of around 30 to 50 cents per book for exchanging and they also had varying prices perhaps they buy for a dollar-and-a-half a book and sell for two quarter at 275 per book. The record also shows that small retailers got into the redemption business as a way of competing for business. They would give credit for stamps on purchases, perhaps small items would not be carried in the catalogues, work clothing, baby clothing, shoes, the hose, and things like that or in another cases retailers would accept the stamps as down payments on bigger items comparable to those in the catalogues and this was the way that some of the appliance stores and small department stores had competing in effect with the redemption centers of S&H. They take the stamps as down payment. Now, the pleadings and the evidence show that S&H had a very strong program with regard to these exchangers and retailers handling the stamps. They tried in every way, I think one of the executives testified to prevent that. They wrote hundreds of letters, they took court action to close down this kind of an operations and the record shows that they were quite successful in doing so. The businesses of some of the exchange or exchanges enjoined from handling as to make stamps dropped of 40% to 60%. Some closed down completely and many redeeming retailers stopped handling stamps. Some consumers testified that they would give or throw stamps away in the absence of exchanges because if you had to take through the whole length of time on a single brand, it just took too long to work that. Now S&H is just occasion for its program was given through the testimony of a Doctor. One Director that the free exchange and redemption by others would break the relationship between S&H and retailers and the consumer, would reduce the incentive of shoppers to patronize the S&H retailers to fill their books and it would reduce or eliminate this to redemption centers and over all would reduce the tie of the consumer to S&H. This would in turn cause the retailer to lose interest in S&H and they anticipated that they would lose their licensees. S&H did not offer any evidence that this in fact happened in any of these areas where the exchanges or the redeeming retailers operated in a number of them who testified were still on operation. They had not been enjoined. S&H showed no loss of licensees nor even complaints by licensees. No retailer took the stand to indicate that he had any loss of consumer business in the areas where the exchanges or other retailers were redeeming. Many housewives testified although they used the exchanges. This did not lessen their buying at S&H stores to change their shopping habits in any way and other evidence shows also that stamps are insignificant factor with housewives in deciding where to shop. In other words they decided where to shop based on price and specials on convenient and quality of the need or produced from this for particular basic goods. Many things other than stamps although a survey did show that some 16% of people will go out of the way to get particular stamps but only 16%. Now FTC’s decision on these facts is based on what I think it is fair to say as the rule of reason approach. They considered this, it is a very lengthy record. Many thousand of pages, they considered the justification of his claims. They considered the need for this restrictions. Mandate considered particularly the impact of the restriction. They found no good business reason for it. They found no necessity for the restriction and they held that the fears of S&H as officers, that they would lose licensees and so on were entitled the very little weight because they are in general terms. They weren't backed up by hard tracks and because they were contrary to the other evidence that S&H in fact had not been heard and they saw no signs. It would be heard by the extremes and to out or by retailers, the redemptions in the future. I think there is good precedent for rejecting that kind of testimony in here. I would to the Court's holding sold off a bank’s, where the opinions of Bank officers as to adverse effect on competition from the merger so that competition would be entered and so on, was not given very weight. FTC’s ultimate finding here was that the effect of S&H practices in quoting was to fair, unfairly suppress such exchanges and the business of such retailers to the detriment of the persons engaged therein and the consuming public and be to substantially impair and restraining competition. The commission concluded that the act in practices were ”to the prejudice and injury of the public that they unreasonably restrained, injured and impaired competition and thereby were unfair under Section 5.” I think it is important to note that both the complaint and complaint counsel's theory of the case throughout emphasize this restrictive policy on exchange and redemption had an unreasonable impact on the consuming public as well as an adverse effect on competition.
Potter Stewart: Mr. Mclaren? May I interrupt you with a question. The Federal Trade Commissions opinion, both the opinion of commission by Commissioner Mcintyre is concurrent with Commissioner Elman of the defense seem primarily concerned with this one for ten policy. One per ten ratio of policy, has that dropped out of this case entirely. I gather from the brief here is not an issue before us at all.
Richard W. Mclaren: I am sorry; I did not make that clear Mr. Justice Stewart. The commission found against S&H on that proposition. Both as a unilateral enforcement and as the conspiracy and there was no appeal on that.
Potter Stewart: I see, that was the only count.
Richard W. Mclaren: It was only count three that came to the Court of Appeals and it is only count three that is here.
Potter Stewart: I think the concurring opinion of Commissioner Elman and the dissenting opinion do not really direct themselves to Count Three in any explicit kind of way at all?
Richard W. Mclaren: Mr. Elman’s opinion as I recall. He concurred in the result here but he had dissented from the issuance of the complaint originally on the theory that there are to be incomplete in --.
Potter Stewart: Industry wide study.
Richard W. Mclaren: Industry wide study, yes.
Potter Stewart: Right.
Richard W. Mclaren: And I think he simply concurred and reiterated that then Commissioner Jones I believe dissented only on the theory that the remedy did not go far enough with respect to the one for ten holdings. In other words there was a limit on maximum designation of the trading ratio but not on the minimum. She thought there ought to be both and I think she went by all the old record.
Potter Stewart: So there was no appeal by S&H on finding suggested on counts one and two?
Richard W. Mclaren: That is correct.
Potter Stewart: Thank you.
Richard W. Mclaren: Well, as the matter of law. We think that the Commission in this case could have based its decision on either of these two grounds. The adverse effect on competition or the detrimental effect upon the consuming public. As to the first ground, I think at least since Brown Shoe where the Gratz rule was official entered, this Court has recognized that although ultimate responsibility risks with the Courts, Congress has reposed on FTC very broad powers to give content to the term 'unfair' and to determine at exactly what point when a practice is otherwise lawful. At what point in its effect upon competition, the practice becomes unfair. As the Court said on the text called TBA case, “it is enough that the practice in question unfairly burden competition were not insignificant volume of commerce”. And here I think that standard was not only met but substantially exceeded since the commission found that with respect to exchanges, S&H had an exercise. Monopoly power over the trading stamps exchanges and they intended to eliminate a whole class of small businessman. As far as the retailers are concerned, they found that there is a restorative trade on these retailers and found stamps and other way of competing and serving their customers and those two points. I think fully support the commission on the anti competitive ground. As far as the unfairness for being detrimental to the interest of the public, I think that is fully supported as Judge Wisdom pointed out in its dissent, it was a very purpose of the Wheeler-Lea Amendment in 1938 to establish this proposition. The legislative history which Judge Wisdom outlined, various lower Federal Court decisions which we have listed in our briefs and the commission itself and of course under the rules of this Court and the commissions interpretation of its own statute is entitled to a great deal of way. The commission has interpreted a statute in that way. All in support of this particular proposition that whether it is adverse affect on the consuming public, there needn't be in effect, adverse effect on competition. In fact, FTC in a very analytical opinion going into the matter very carefully based its holding on both of these propositions and under the test applicable on these appeals, we think it is warranted in the record and there is reason in the law to support it and we would urge for these reasons that the Court reverse the decisions of Fifth Circuit and remand for a judgment.
William J. Brennan, Jr.: Mr. Mclaren would you mind telling me precisely what are your (Inaudible).
Richard W. Mclaren: It is at paragraph 5, Mr. Justice Brennan and in paragraph 6 and paragraph 7.
William J. Brennan, Jr.: Those were the only first.
Richard W. Mclaren: Yes,
William J. Brennan, Jr.: I gather S&H has five and the rest is the others, is that it?
Richard W. Mclaren: I assume that they are in process.
William J. Brennan, Jr.: At least it is not on appeal.
Richard W. Mclaren: Not on appeal.
Byron R. White: Could you tell me where is the Federal Trade Commission finding conclusions or opinion it relies on the entree to consumers?
Richard W. Mclaren: Mr. Justice White, the opinion itself speaks very little in the section under count three of the impact on consumers. I think that it is in the ultimate findings which I read, which were I think on page 125 there, and there are one or two other references in the Commissions opinion. Mostly, the Commission addressed itself to the question of the --
Byron R. White: Anticompetitive
Richard W. Mclaren: Anticompetitive effect and-
Byron R. White: Do you think, do you think really that a Court could affirm the Commission by putting aside the question of the anticompetitive effect in just resting it solely on the injuries of consumers even if there was no injury to competition?
Richard W. Mclaren: As the matter of law, I think in your question of course Mr. Justice White in this particular case.
Byron R. White: Would not be resting an affirmance on the ground that the Commission really reached?
Richard W. Mclaren: No, I think that in this particular case, the Commission saw this as a matter of impact upon the consumer from the elimination of these outlets and this runs throughout the opinion and the both Commission.
Byron R. White: I hope that the Commission and- do you think a fair reading of the Commission's opinion is that even if there is no injury to competition, we nevertheless find this as an unfair practice because consumers are injured?
Richard W. Mclaren: Yes. I think so and I would point the report --
Byron R. White: I certainly read your brief that way but I did wonder where you can find the appropriate commission.
Richard W. Mclaren: I look at order. At the order they say that S&H can no longer purport to reserve title and to restrain alienation of it.
Byron R. White: I know but the Commission expressly said in its opinion, they did not want to rest its opinion on any such narrow technical ground. Did it not?
Richard W. Mclaren: And it is not the opinion but the order goes to that and that have (Inaudible) to me.
Byron R. White: I know but the opinion said that it did not want to rest it on that technical ground. It would prefer to rest it on broader considerations of effect upon competitionm that's almost what --
Richard W. Mclaren: I think that it is true that the impact on competition caused the injuries to the consumer and --
Byron R. White: Well, so again I say, if the impact on competition then was essential to the FTC’s conclusion.
Richard W. Mclaren: That undoubtedly is true.
Byron R. White: Well then. But do you take the approach that regardless of its effect on competition. The judgment could be the Commission should be upheld because of the impact on the consumer?
Richard W. Mclaren: No. I do not think we quite say that Mr. Justice White. We say that the Fifth Circuit is wrong in saying that you must have a violation of sphere or the letter of antitrust law and we say they are wrong in two ways. You can have anticompetitive impact that is not a violation of the antitrust law as it violates section 5. You can also have an impact by consumers without regard to competition and you can hold the section 5 violation on that ground. That is a far reaching opinion, Mr. Justice White, in the Fifth Circuit and we feel badly needs rejection in order for the FTC to continue by its business.
Byron R. White: Well, maybe that is true but what I am truly getting at is whether or not an appellate Court would be free to affirm the Commission or Uphold the Commission on the so ground that injury to consumers rather than to competition. In light of the facts that the business is clear to me anyway that the Commission rest it on in such independent ground.
Richard W. Mclaren: As a matter of law, yes they could. On this record I think the Commission rested on both. I would like to call your attention to the phrase in the middle of page 177 where the Commission said that the trading exchanges had provided a useful and valuable function, but I agree with you. We do have two propositions here. One, the question of law where we are speaking to what the Fifth Circuit said, the other a question of this record and here I think the Commission rested on both, both the impact on the consumer and on the competition. I would like to reserve rest of time I have.
Warren E. Burger: Thank you, Mr. Mclaren. Mr. Russell?
Harold L. Russell: Mr. Chief Justice, may it please the Court. At the outset, I would like to note that actually the only paragraph of the order with which we are concerned is paragraph 5 which appears at pages 127, 128 of joint appendix. All we want to do is to be able as I have said unilaterally and all by our selves to go to Court as we have done for 75 years to protect the quality and integrity of our stamp business by stopping unauthorized trafficking in stamps. S&H is in the business of licensing retail merchants to use its sales promotion system which is based upon the use of S&H trading stamps. Retail merchants subscribe to that service to increase trade and to maintain and enhance customer loyalty. They use stamps to get their customers to return to their stores again and again until they have collected enough stamps to secure redemption merchandise of their choice. Throughout the history of this company, non licensed retailers, stamps exchangers have attempted to cash in on the S&H system without paying for the S&H service. By purchasing, exchanging and making other Commercial use of S&H stamps without S&H authorization. Now the reason we have consistently sought judicial relief and the reason why the Courts have enjoined it. Is that if competing merchants were free to redeem S&H stamps issued by S&H licensees for their own merchandise or they could exchange S&H stamps for their own stamps or the consumers could get stamps of trading stamps exchanges rather than as a licensee. The S&H system had lost its attraction for the licensees to after all of the people who pay S&H for the use of its service. In fact, in the case of unauthorized redeeming retailer, the S&H system could be turned into an instrument to introduce the S&H licensee’s customers to the store of a non licensed competitor. This is a basic reason why the Court of equity has consistently granted judicial relief to S&H against unauthorized traffickers. Holding at these traffickers have been engaged in unfair competition and tortuous interference with S&H contractual and business relations. The central question presented in this case is whether S&H actions in preventing the unauthorized commercial use of its trading stamps by obtaining judicial relief against the abuse constitutes an unfair practice violating Section 5. The petitioner’s main argument is that S&H actions violate section 5 and that because of the Court restraints. S&H stamps savers do not have complete freedom of choice in the transfer of their stamps. This is alleged to be unfair to consumers who are said thereby to be deprived of the full value of the stamps. S&H contends on other hand that the challenged actions are essential to this successful conduct of its business for the reasons previously stated and the worst that could be said with regard to consumers that appealed them. The record does not show how many appealed them. Maybe inconvenience by S&H actions and preventing of stamp traffickers from offering to purchase or redeem stamps. I might say the reason show or the reason why the record shows, no experience in the matter of injury to S&H by the activity of these traffickers is that the Courts over a period of 67 years have restrained the activity of the exchanges on an unauthorized redeeming retailers. Although there are other defects in the Commissions decision which would preclude the affirmance as requested by petitioner. There are really two fundamental effects in petitioner’s position. First is that the Commission did not make findings of unfairness or inconvenience to consumers which the petitioner alleges would support its request. Secondly, if the Commission had made findings on accordance with petitioner’s contentions even if they had gone that far, they did not. The findings were not support of conclusion that S&H is conduct violated Section 5. In short, the requested order, petitioners requested order would be beyond the scope of Section 5 and upside the jurisdiction of the Commission. It has never before been suggested that inconvenience could be a basis for determination that Section 5 has been violated. The Commission, in fact purported to decide only an unfair competition case and entire competition case. Not an unfair to consumer’s case. It found that the action of S&H in stopping unauthorized trafficking in its stamps was an unfair method of competition. We appeal an argument really made the Fifth Circuit foreign to any arguments which you heard today but they are to remain to the basic issue before you which was the decision of the Commission tracked, it should be confirmed, affirmed. Now, the errors which we urged upon the Fifth Circuit in which are reasons why this Commission decision should not be affirmed or one, that a most flagrant error of the Commission was that it pointedly ignored the 43 decisions of the Courts and 8 Federal Districts and 19 States upholding unanimously our practice of proceeding against commercial practices and it likewise ignored the statutes of four States which make trafficking a crime. Now, we say that the Commission should have considered those decisions and found them controlling. The petitioner’s come a little bit to our view this morning and it said that they should be given some weight. But on either standards, the Commissions decision is wrong because it did not consider those decisions at all and it pointedly ignored them. Secondly, the Commission decision is an error because it says that the simple matter of writing letters in good faith, followed up with necessary by Court action based upon unfair competition that is a simple matter of going to Court constituted conduct, contravening section 5. The third thing that is wrong of this Commission decision is that the Commission erroneously fail to consider that the traffickers themselves as determined by the 43 Court decisions in the State statutes are engaged in unlawful activity and therefore they are not entitled to the protection of Section 5. And finally and this was an egregious error in the Commission decision. That Commission erroneously ignored the effect of its action on competition among and between Trading Stamp Companies. We said that the Commissions decision would make all brands of stamps interchangeable and would destroy trading stamp competition. The Court of Appeal agreed with this and it as did the Commission considered the case as one involving anticompetitive practices. It pointed out that all are fairly challenged to do so. The Commission had been unable to point that any antitrust law which S&H has violated even in letter and spirit and that the efforts of S&H to prevent that which time and time had been declared unlawful, did not constitute practices of the type which transgresses the spirit of antitrust laws. Fifth Circuit said that mere injury to traffickers was not enough to establish violation of Section 5, that the Commission itself had pointed out that trading stamps are involved on means of competitions at the retail level to come on integral and important part of retailing in America and they went on to agree with us that the order of the Commission would make all stamps interchangeable and would reduce as against other trading stamp companies the effectiveness of S&H as competitive too. Now, in seeking certiorari, the petitioner presented two questions. One as to whether the Court of Appeals restricted erroneously Section 5 conduct which violates the letters, sphere of the antitrust laws. And secondly, which the petitioner restated this morning which was did the Commission err in failing to give sufficient weight to decisions under State law. That was as it was presented this morning and indicated whether under petitioner’s view of that or our view, the Commission was wrong or it did not consider at all 43 decisions. Now, in some the petitioners urging you to affirm the decision of the Commission upon the basis of evidence which is not in the record before the Commission. Upon the basis of evidence not considered by the Commission, upon the basis of findings not made by the Commission and upon the basis of legal theories without support in the legislative history of Section 5 are in the decisions with the Court or in the decisions of the Commission. Some of the things that I think that are important, in this context is petitioners claim that the Commission found that S&H's activity in stopping traffickers was to the detriment of the traffickers and also to the consuming public. Now, therefore that the prejudice and injury of the consuming public. Now, those so called findings are not findings in any sense but are wholly naked, ultimate conclusions and are in fact there is simply mechanical repetitions of the conclusions contained in the original complaint. They are found on the 89 or 90 so called findings and then the second of a three conclusions and they are preceded by no discussion of any evidence of consumer injury by no mention of consumer injury, by no basic or underlying findings and more importantly they found, they form no basis for the action of the Commission.
Potter Stewart: Where are these findings in the appendix, what page?
Harold L. Russell: Yes sir, page 126 and that those are the ones that I have just mentioned and actually petitioner has two fragile straws upon which it relies 126 and 176.
Potter Stewart: Now that page 126 --
Harold L. Russell: Of the joint appendix one yes.
Potter Stewart: Page 126 finding 89?
Harold L. Russell: 89 and then the second of the three conclusions immediately below that.
Potter Stewart: All right, thank you.
Harold L. Russell: And then 176, you find the second straw where it is alleged and petitioner alleges that the Commission adopted the examiner's finding on injury to consumers. Now the Commission did not know such things and first full paragraph.
Speaker: 176.
Harold L. Russell: Yes. Excuse me Sir. 176 first full paragraphs the last five lines.
Potter Stewart: The effects found by the examiner?
Harold L. Russell: Right
Potter Stewart: Alright
Harold L. Russell: That is only referenced to consumers and it merely mentioned in passing and it did not adopt. As a matter of fact it pointedly I think refrained from adopting because the complaint counsel had asked for finding on this subject that the Commission made non and if you refer back Your Honor to the statement of the examiner and that to which the Commission referred and it appears at joint appendix 73. What the examiner said was that the stamp collector had less of a choice than she would have had if she could have used the stamps as currency anywhere she chose. Now, he went ahead to point out to make the stamps equivalent of currency would be for the Commission to exercise its power solely for the convenience consumers and he noted that Section 5 does not give the Commission such power or at the power only to prevent unfair action practices.
Warren E. Burger: You lost me there and Mr. Russell, what were your reading?
Harold L. Russell: I was reading at first your Honor. Mr. Chief Justice excuse me.
Warren E. Burger: Still at 176.
Harold L. Russell: At 176, the Commission referred and did not adopt the finding of the examiner.
Warren E. Burger: I am just trying to relate what were the several facts.
Harold L. Russell: The examiner's finding to which it referred appears at 73 and the examiners said that the stamp saver did not have, did not issue our currency which of course we could not do because we cannot get it whole sale, we cannot stand businesses. We cannot buy materials whole sale that our costumer redeem in that retail prices and furthermore 78 of the examiners decision. 70 records he pointed out that this is matter of mere convenience to the consumer. And at Section 5 does not give Commission the power over mere convenience. Now Commissions certain did not adopt the findings of the examiner on injury to consumer. The examiner did not find the injury to the consumer and the examiner found simply a matter of possible convenience to the consumer which did not want to exercise the Commission's power. Now, the big point is that the commission itself did not consider any way to evidence as to the fact of S&H actions upon consumers and since the Commission did not make a determination of facts. A large part of the petitioner’s argument has been taken up with the request that Supreme Court consider evidence not considered by the Commission that you make findings not made by the Commission. For example, the petitioner urges you to find that the cost of groceries is ordinarily higher but recalls stamps are issued by retailers, when stamps are issued by retailer. Now the Commission made no such finding. There was not more quest to do so by complaint counsel. As a matter of fact, complaint counsel asked the Commission to find that stamps reduced prices. I think it is just absolutely wrong for the petitioner to be coming here and saying, find the stamps raised prices when a contrary finding was asked to the Commission, and a matter of fact that 158 your Honors, the Commission found that stamps reflect a price reduction. Now, petitioner also asked you to make a finding not made by the Commission that under the order a higher percentage of stamps would be redeemed and that consumers as a whole would thereby get greater benefits from the stamps. Now the fact is that such a finding was requested by complaint counsel before the Commission refused to make such a finding. And the fact is that the Commission conceded that is much as 95% of S&H stamps are redeemed or maybe redeemed and there is no support in the record, petitioners cites the assumption that a higher percentage would be redeemed. Over an unchallenged finding, the examiner stated that competition forces S&H to invest the value of unredeemed stamps and greater values for savers and licensees. And Your Honor, the unredeemed stamps of which petitioner spoke amounted to 14% of those outstanding which were almost precisely the same in number as those issued in the preceding year and the record shows that there is a year lag between the issuance and redemption. As a matter of fact 13% were issued in the year 1964. The last year involved in this Compilation and here we have a situation where 95% of the people are getting a $3 redemption value for $2.68 cents cost to the retailer. We have a situation where we had seven consumer witnesses out of 35 million households who save S&H stamps, we have a situation where even those seven consumer witnesses did not complain about S&H practices, where a situation which they say that the most is more convenient sometimes for them to use the trading stamp exchange than it is to redeem their stamps. Now, the petitioner asked you to make other findings not made by the Commission. Such as this business about the man who owns no cart and not get to the redemption center but the examiner found and it would not dispute it that even if a man as within the 25 mile range of a redemption center which is inconvenient for them to get to the center. He can and does redeem by mail. That appears at pages 39 and 46 at the record before you, I could go on on others things. As a matter of fact the last night, I did a compilation from the respondent’s briefs and I found that they have asked you at least 50 times to consider smatterings of evidence not considered by the Commission and they have asked you at least six or eight times such as in this matter of effect on price. This matter of greater number redemptions to make findings which they recognize are essential to their position and which the Commission itself did not make.
Potter Stewart: Did the commission's order have anything to do with redemption for cash which I understand as required in two States Wisconsin and Wyoming and 16 other States require that the purchaser have an option of doing so, is that right?
Harold L. Russell: That is correct Your Honor, I think it is fair to say that no part of this treatment of count three was involved with that aspect of the trading stamp.
Potter Stewart: Trading stamp. No part of that question is before us?
Harold L. Russell: And I believe it is right. As a matter of fact I am sure it is right. Now, I would like to go on to the legal question which is before you and that is that petitioner says he has asked this Court to answer the question whether section 5 is limited to conduct which violates the letter's sphere of antitrust law. Now, on this question is has no difference between the parties. Obviously Section 5 is not so limited since its enactment Section 5 has been held a black not only to antitrust like conduct but also the deceptive practices and other forms of unfair conduct. The real question before the Court is how far can the Commission go in holding a practice which is not deceptive or in the nature of an unfair, of antitrust violation to be unfair. Are there any limits at all that the Commission have unrestricted of authority to condemned practices simply because it is of the opinion that they are not beneficial to add beneficial consumers as some modification might be. Now, when Section 5 was originally enacted, many were afraid that the language of a statute was too broad and in congressional debates, the daughters were reassured that unfairness of the competition actually had some limitations. And it was even said that the practice is covered or to be limit of those which shock the universal conscience of mankind. Now it is more than interesting to note. Your Honor that one of the unfair practices referred to in the debates. As being an unfair practices was that of inducing savers of S&H stamps to fill an trade their unfilled books of S&H stamps for the stamps of another company. That was a reference for the case of S&H versus Louie Weber and under the Commission's order in this case we could not bring that case which we brought in 1908 and which Congress said represented the type of unfair competition, unfair practice case with Section 5 was suppose to cover.
Potter Stewart: I did not quite understand. What was the supposed unfair practice that appears on the legislative history?
Harold L. Russell: That is a case of S&H versus Louis Weber, a Federal District Court case in 1908 and which it was held that S&H, I mean S&H got in injunction against this rascal who was swapping his stamps for S&H stamps and that were to some and substance of it although petitioner attempts a wholly and adequate distinction of the matter in which he says that first that this rascal was selling these stamps back to our licensees. The Court said, it does not appear that happened very much but the point is that under this Commission order, this rascal could sell these stamps back to our licensees. Is that the order runs on against re-issuance but non licensees, it is not our licensee. So it would be completely powerless to prevent what the Congress thought was an unfair method of the competition.
Potter Stewart: Who in the view of the Congressman who refer to this which who is being unfair; S&H or Mr. Weber?
Harold L. Russell: Louis Weber
Potter Stewart: Mr. Weber
Harold L. Russell: Exactly, exactly Your Honor. He referred to that as an unfair competitive practice and unfair trade practice.
Speaker: Mr. Weber operating in exchange or was he just (Voice Overlap).
Harold L. Russell: He was the competing stamps company. Now the broadest interpretation of the Commission's power as I believe could be found in its report on cigarette advertising and labeling in which to come right to the point insofar as we are concerned. The Commission said that something would be unfair and unfair or deceptive act or practices if in addition to be morally objectionable. It is seriously detrimental to consumers or others. Now, under no stretch, the imagination could have be said that our challenged actions violate that kind of standard. The principal argument of the petitioner is that we have been unfair to consumers and petitioner argues about raising the cost of goods, or the prices of the groceries and that the matters of greater redemption which as we pointed out for findings of Commission did not make at all in which the petitioner would have view like -- now, the basic question is, is it unfair for S&H not to offer the conveniences if there are any such of the Trading Stamp Exchange, unauthorized redeeming retailers which have some cost. You heard this morning about paying a dollar-and-a-half for a book of stamps which is worth $3.00. One of these Trading Stamps Exchange operators testified his principal part of his business came from door to door salesman who went around selling bibles and photos and they took S&H trading stamp books from the unsuspecting housewife and then took on the Rosenwasser and whose give him a dollar-and-a-half book form and then Rosenwasser went to S&H and got TV sets which Rosenwasser was able to sell to the TV store down the street for stock and trade. Now this is a principal part of this rascal’s business but this is a kind of thing which petitioner would have you protect. If it has been on a overreaching of the consumer at the consumer level, it is done by trading stamp exchanges and not by S&H. Now, is it unfair for S&H to prevent that kind of practice? Certainly, it does not seem so to me and the restrictions which do not, the restrictions on transfer ability which do not put a substantial burden upon the consumer are justified in this particular case without question. Now--
William O. Douglas: Did you say that the only provision or the order was paragraph 5 on page 127?
Harold L. Russell: Yes Mr. Justice Douglas.
William O. Douglas: That is the only one in this.
Harold L. Russell: All we want to do is to be able unilaterally and all by ourselves to go to Court, to stamp out unfair competition as we have done for the 75 years of our company’s existence. Now, in conclusion, I come back to the request of the Petitioner. This Court affirmed the Commission's decision and gave you the reasons why it would be grossly inappropriate for the Court to take that action. Not to be repetitive but the Commission pointedly ignored the 43 decisions. The Commission erred in saying when we wrote letters in a good faith and brought litigation in good faith we were transgressing Section 5. The Commission erred in failing to consider that the traffickers themselves are engaged in unlawful activity and therefore entitled to no protection under Section 5. The Commission erred in over ruling its hearing examiner and holding that S&H is not harmed by unauthorized trafficking in their stamps. It erred in ignoring the fact that its action would destroy competition among and between the trading stamp companies. As petitioner appears to concede by its argument here, the decision can not be affirmed unless the Supreme Court of United States made factual findings on injury to consumers not made by the Commission and more importantly as petitioner appears to concede that an order can not be affirmed unless you conclude contrary to all authority and contrary to the Commission's broadest interpretation of its jurisdiction under Section 5 that inconvenience to consumers constitutes the violation of that section. Now, finally and I believe, also importantly, the Commission's action could not be affirmed upon the basis not relied upon by the Commission, namely alleged harm to consumers. A factor which has been stated by you in Burlington,Chenery lately an investment company, that the order may not be affirmed upon the basis of appellate counsel's post rationalizations. Now, the Commission is here your Honors is in my view, only because it is seeking a sweeping exposition of its powers in the consumers field and must be obvious to you I hope, that these case which was instituted at 1965, six years ago today, and tried in 1966 before this Commission became so acutely consumer conscience that this case is only in actuality (Inaudible) of a case out of which the Commissions desire that first decision can not be made. The Commission had never found that this matter of injury to consumers even initially justified that institution of the proceeding. As you heard this morning, there were three counts. This count although of great importance to us, was a small tail on a large dog. The Commission was primarily concerned with 1:10 was a conspiracy with respect to 1:10 and it would be to me shocking that this act or thought, bowl or plate pranked in mechanical reproduction of the complaint as to consumer injury. Without discussion of the facts of consumer injury could be found to support this decision of the Commission and even if we took the case to the point where petitioner, I think ended when he was questioned this morning that the Commission's decision should be affirmed because anti-competitive problems as well as consumers problems. You recall that when the Commission relies upon several factors and put some into conjunctive and one falls they all falls. On the matter of injury to competition, the Fifth Circuit was entirely right and the petitioners pointed out no reasons why in this anticompetitive aspect of the case, the Fifth Circuit should be reversed.
Warren E. Burger: Thank you Mr. Russel. Mr. Mclaren, you have four minutes left.
Richard W. Mclaren: Thank you Mr. Chief Justice. With regard to the question of the prices, RX 24, an exhibit of the respondent states “stamp cost clearly range margins when all or most retailers in an area employ them”. RX 24K that is. We think may it please the Court that this is a good debt more in a question of convenience of consumers as I indicated earlier, some 43% to 46% of all food purchases carry with them food stamps and there is testimony in the record and I think it is well justified. Housewives feel that they pay for these stamps and the witnesses who testified felt that they should have a right to deal with them substantially as they wished and not to be restricted in something that they had paid for.
Warren E. Burger: Where do we find the specific finding on that by the Commission?
Richard W. Mclaren: No specific Mr. Chief Justice I was quoting from the testimony of one of the witnesses.
Warren E. Burger: It was not, certainly, would the defender I hope that the commission made a finding on that force?
Richard W. Mclaren: I think it would. Chief Justice, on the other hand, I think where we follow the standard on judicial review, if we look for warrant in the record and reason in law and I think there is warrant in the record. This count three came at the end of the very long opinion that dealt in many respects with this whole stamp business and restrictive practices that S&H used and the fact I think that count three does not fully contain every little finding should not be read in isolation but rather the opinion should be looked at as a whole and as well as the fact that there is record support for these propositions that I think are inherent in the lengthy findings and the opinion of the prosecution.
Warren E. Burger: That is the case now, is it not?
Richard W. Mclaren: I beg your pardon?
Speaker: This is the heart of the case that is before us now, is it not?
Richard W. Mclaren: Well, the heart of the case is double findings that there is an adverse effect on competition, that there is an adverse effect on the consuming public. I think that that if the Commission had taken the approach solely of going by the proposition of the legal consequence of S&H having eliminated these outlets and focussed entirely on the fact that now all these outlets are out of the way, they have this restriction in the book that says you do not own the stamp and so on and so on. We find that just an ultimate finding, this has prevented consumers from dealing freely with stamps. This is an unfair method of competition or an unfair trade practice. I think that would have been enough but they did both. On the way to that finding, on the way to the consumer finding they said this has an adverse effect on competition that in effect will support an unfair holding. They are supported both ways and I do not think that say should be folded simply because they did not spell out the fact that here and they are along the way. This effect and not effect on the consumer, the effect on the consumer was tied in with the effect on the competition. The two things, the restrictive provision in the stamp and the elimination of the places where you could trade the stamps.
Potter Stewart: And you think Mr. Mclaren that in reading Commissioner Mcintyre’s opinion for the Commission reading that part of it which refers to issues rise under count three which is the only part. The only issue directly before us now but nonetheless we should sort of assume that there is an implicit incorporation by reference of the discussion in the earlier part of its opinion which is the lion share of the opinion, is that your point now?
Richard W. Mclaren: I think it need not be ignored Mr. Justice Stewart and I think that there is a solid finding and it is a finding at page 126 that way. It is not a conclusion. It is a finding and then they went on and they concluded that the effect of all of this was anti-competitive in contrary to this. Thank you.
Warren E. Burger: Thank you Mr. Mclaren. Thank you Mr. Russell. The case is submitted.


William H. Rehnquist: We'll hear argument now in No. 89-680, James B. Beam Distilling Company v. Georgia. Mr. Siegel.
Morton Siegel: Mr. Chief Justice, and may it please the Court: The James B. Beam Distilling Company is an out-of-state producer of alcoholic beverages. Under the taxing scheme that was in effect at the time Beam was required to pay an excise tax at twice the rate as producers of alcoholic beverages within the State of Georgia. The Georgia Supreme Court agreed that that tax was unconstitutional because Beam was not a producer in State. The tax, they concluded, followed this Court's long line of Commerce Clause discriminatory taxing structures, and said that it was parochial, protectionist, and it only benefitted the in-state producers. Thus, the tax is similar to the tax that this Court reviewed in Bacchus. Georgia in fact has a clear prescribed remedy under both the statute that the refund was filed under as well as its own constitution. Beam was denied a refund because the Georgia Supreme Court refused to retroactively apply its decision. Therefore retroactivity of Bacchus is now before this Court.
Speaker: What years were in question?
Morton Siegel: The first year of the refund was 1982 through 1984, so it covers a period prior to your decision in Bacchus.
Speaker: Just out of curiosity, does Georgia require that in order to get a refund the tax has to be paid under protest?
Morton Siegel: Georgia had no predeprivation statute. The relief that they provide by statute is post remedy. The only way that Beam could do business, the only way that they could ship product into the State is if they paid this tax.
Speaker: And they paid it.
Morton Siegel: They paid it, indeed, otherwise they would be precluded from being able to sell its fine products to the people of Georgia. Georgia was wrong not to apply this tax retroactively. Based upon the different opinions of this Court last term in American Trucking Association, there are two alternative ways to reach this conclusion. Clearly Beam would prevail under either of these tests. Under the view of five of the Justices, all civil constitutional decisions should be applied retroactively. Thus, the tax was unconstitutional when Beam made its very first payment in 1982. The per se rule would therefore result in a reversing of the decision of the supreme court on retroactivity and the case should be remanded for purposes of considering the remedy. If the Court was to adopt the view of the plurality in the American Trucking Association case, as it recognized the narrow exception that is set forth in the three-step test of Chevron, then it would be the burden of the State to show, as the Court explained in Ashland Oil, that first the decision of the Court was overruling a clear past precedent on which litigants may have relied, or it must be an issue of first impression which resolution was not clearly foreshadowed. Bacchus may be subject to differing viewpoints, but Bacchus in terms of its analysis of the Twenty-first Amendment was not revolutionary. It was not shocking. Bacchus contributed to the continuing jurisprudence of the Commerce Clause--
Speaker: Well, Mr. Siegel, do you think that's the test under the plurality view in... in American Trucking Association, that it should be shocking or revolutionary in order to be denied retroactive effect?
Morton Siegel: --That is the effect of what I see coming out of the Ashland language, although it was per curia. The language that was implied in there is that some type of strike of lightning, so that perhaps there, as I pointed out, there may be differing viewpoints. I fully recognize that three Justices dissented in Bacchus. But I don't believe that when Bacchus was decided anyone was taken by surprise, if we go back and take a look at the Commerce Clause cases, or indeed if we look at any other direction where the Twenty-first Amendment was judged in view of other constitutional principles. It is on that point, the test of the plurality, that I would like to continue with my remarks. The State would argue that Young's Market is the controlling case here. Young's Market was decided shortly after the country went through the noble experience of prohibition. It reflected, and I think there is some significance to this, the viewpoint that national control of the industry was not appropriate, that each State should be able to determine whether it or not it desires to permit the sale of alcoholic beverages or not to permit the sale of alcoholic beverages. I would submit, however, that if I was a lawyer working for the State of Georgia, understanding full well that there may be some respectful disagreement on this point, and I was to look in the year 1982 at the cases that have been decided by this Court from 1934... from 1930 forward, I would clearly see the Hostetter v. Idlewild decision in 1964, where a majority of the Court took a look at the Twenty-first Amendment, looked back on the cases that had been decided in the 1930's, and acknowledged the fact that the States were totally unconfined when it restrains the importation of alcoholic beverages destined for use. But the Court then went on to say, to draw a conclusion from this line of cases, that the Twenty-first Amendment has been repealed is absurd, and they went on to say it is bizarre and incorrect. At that point the Court stated that the Twenty-first Amendment, like other provisions in the Constitution, must be considered as it relates to the very factual setting, and it must take into account whatever competing constitutional provisions are applicable.
Speaker: Well, Mr. Siegel, now, your client didn't bring any challenge here until after Bacchus was decided.
Morton Siegel: That is correct, Your Honor.
Speaker: And yet you thought the law was clear before Bacchus, apparently. Why didn't you bring the challenge then?
Morton Siegel: The plaintiff in this case, Your Honor, James Beam Distilling Company, like other out-of-state distillers, engages in business in all 50 States. Every State has a pervasive system of regulation. The regulations vary from State to State. The Beam Distilling Company is not in the business of filing lawsuits. It rather would devote its resources to doing business, nor does it look kindly upon the prospect of filing suit against State Government, the very institution that regulates it. However, when this Court spoke in 1984 in Bacchus, it reignited our interest in these discriminatory taxing statutes, and it was at that time that they sat down and decided that after all they were at a great disadvantage doing business in the State. And that is the reason why they elected to file the claim after the Bacchus decision came down. So clearly the difference here is that we are dealing with a 3-year statutory period for a refund prior to Bacchus, as opposed to the case that you reviewed in McKesson. If that Georgia lawyer was to continue on into the 1970's it would take a look at Craig v. Boren, which applied the principles of the Fourteenth Amendment as it relates to the Twenty-first Amendment, and they concluded at that time that gender based discrimination could not be tolerated even under the Twenty-first Amendment. The case that I feel most clearly drives home the point that we may have differing viewpoints as to how the earlier 1930 cases were interpreted, I would contend first of all that the reasoning in those cases has been totally repudiated at this point. It may well be the opportunity for the Court to consider that point. What I think is important about Midcal is that it looked back and it took a look at the historical development of this fascinating Twenty-first Amendment. It acknowledged that some of the decisions of the Court have dealt squarely with the express terms of section 2. It also acknowledged that in some instances it applied a much broader application in the interpretation of the amendment. But it made it clear that where the core powers of the Twenty-first Amendment... importation, transportation, and what this Court has defined in Midcal as distribution... when those core powers are not involved in a particular case the Federal competing interests, so long as there can be shown that there was a longstanding interest such as the... a principle in favor of free and open competition that was the subject of the Midcal case, such as the Court's consistent declaration of not countenancing any type of discriminatory taxation--
Speaker: All of this, I take it, is on... you're still on the fact that that was a plurality opinion in the case last term?
Morton Siegel: --That is correct. Our position--
Speaker: And you are still on the first criterion?
Morton Siegel: --I am, Justice White, because I don't think the State can bear the burden of satisfying that first prong in order to get prospective relief in this case.
Speaker: How about the other prongs?
Morton Siegel: If we were to go to the second prong, the best example I can give you in the second prong being that you do not apply prospective relief in the case if it frustrates the very purpose of the... of the rule. Here you have a situation much the same as what you had in Florida. The original tax was knocked out. The legislature in Florida came right back. Parochial indeed, that is precisely what the second prong addresses. Georgia legislature did the same thing. It appears to me as though they have not yet been willing to accept the principles of this Court when it comes to discriminatory taxation. And if we were to go to the third point, which is to take a look at the hardship, we are talking about a total of $30 million. That's a lot of money, but it is not going to put the State of Georgia in a financial bind. At this point then--
Speaker: May I ask on that $30 million, is that the total amount collected or the amount by which, is that the discriminatory increment?
Morton Siegel: --My client, Justice Stevens, Beam, their claim for refund is $2.4 million. Two other companies filed refunds as well. The total is $30 million for this period.
Speaker: But if you, if they only give the amount of refund that the Federal Constitution mandates you would only get 1 point... you would only get half of that amount, is that right?
Morton Siegel: Would we settle for half?
Speaker: I mean, that's all you would be entitled to as a matter of Federal law. Maybe you would get more as a matter of State law.
Morton Siegel: That is correct. We are looking for equality, the point that you addressed in McKesson. There is no question about it. [Laughter] And the Attorney General is here, be delighted to talk with him right after the hearing. The point is in this entire discussion with regard to the Twenty-first Amendment that nothing really was revolutionary when Bacchus came down in terms of the pronouncements of this Court. The development of the Twenty-first Amendment law has been clear for everyone, and I think that even the Georgia lawyer that sat down and took a look at it at that point would have to agree that there was nothing so revolutionary--
Speaker: Well, three Justices thought we were pretty well doing away with some prior precedent, didn't they?
Morton Siegel: --They did. But even within that context--
Speaker: So what about a... what about a State official? Couldn't... a State official might have been misled too.
Morton Siegel: --I think the decisions have been very, very clear on this point, if they were just to take a look at Hostetter. And what is interesting about Hostetter is--
Speaker: Well, the dissenters took a look at it.
Morton Siegel: --They did. And the dissenters pointed out as well in Hostetter that although they didn't agree with the majority, they pointed out that this is a change in the decisions that we have rendered up to this point on the Twenty-first Amendment. That is the point of all this. There, they weren't taken by surprise. We may differ as to our analysis, but they were not taken by surprise.
Speaker: Yet Hostetter purported to reaffirm Young's Market, didn't it?
Morton Siegel: It did not reaffirm Young's Market, nor would I stand here and tell you that any of your subsequent decisions have totally overruled Young's Market. But what I do feel has happened is through the progression of the decisions in the '60's, the '70's, and the '80's... if we were to take a look at the Court's Twenty-first Amendment decisions since 1980... Midcal, Rice v. Williams, Grendle v. Larkin, Bacchus, Capital Cities... in every instance except your recent decision in North Dakota you have determined that the Federal interest that was competing with the Twenty-first Amendment was more significant than what the State was attempting to protect. Perhaps the one exception to that, Justice Rehnquist, would have been South Dakota v. Dole where you really didn't get into the Twenty-first Amendment that much. That says to me that there has been a historical progression here which has looked back and brought us up to the 1980's. So I think what is significant about Hostetter is the fact that it rejected any notion that the Commerce Clause had been repealed.
Speaker: At what point was an official in the State of Georgia on notice here that Young's Market could no longer be relied on? Was it back at the time Hostetter was decided?
Morton Siegel: Your Honor, just as it is my job to advise my clients of the development of the law, it is the job of the Attorney General's office or lawyers working in that office. How many times do we see governmental administrations come to their legislatures--
Speaker: Yes, but I am entitled to ask you a question, even though you are not consulting with the State of Georgia, as to when you think someone consulting with the State of Georgia should have realized that Young's Market was no longer a good law. Was it at the time of the decision in the Hostetter came down?
Morton Siegel: --Clearly 1964 in my judgment. That is the Hostetter decision. Because they came right out and repudiated what had been the thinking up to that point, and they said any idea that the Commerce Clause has been repealed is absurd, is incorrect. That is very strong language. And they then went further to state that in any Twenty-first Amendment case we balance the constitutional... competing constitutional interests in view of the context of the facts that are submitted at any particular time. I think that would have been the point in which the State of Georgia should have recognized that there is a change from the earlier rulings of this Court back in 1930. So under the Chevron analysis it is our judgment that the State of Georgia cannot bear the burden of satisfying the first prong, and therefore it would not be necessary to go any further. If that's the case, then the decision of the Georgia Supreme Court in not granting retroactive relief should be reversed. And as I pointed out in this instance, although this case is not directly involved with McKesson, clearly there is a prescribed remedy under the Georgia refund statute which would allow our client to get a refund consistent with this Court's decision in McKesson. Thank you.
Speaker: May I ask you one question before you sit down? You mentioned the refund statute. Your question presented in the cert. petition said when a taxpayer pays under protest the States tax and so forth. You left the words "under protest" out of your merits brief.
Morton Siegel: That is correct.
Speaker: What is the, what is the significance of that?
Morton Siegel: Well, actually when you are paying a tax, Justice Stevens, and you are forced to pay it really under duress, because if Beam was to ship goods into that State... what happens is they buy tax stamps. If the product comes in without those stamps it will be seized and their license to do business would be revoked. So they were obviously not in agreement with what was going on. They didn't file any official protest, but when they finally got around to recognizing that they were going to take advantage of the Court's decision in Bacchus they then went ahead and protested every subsequent payment.
Speaker: What you're saying is that every taxpayer in order to ship into the State, I mean, every liquor company must get the stamps, and that is enough, that is all the protest you need in order to file a refund action. Is that what you're saying?
Morton Siegel: Once you pay the tax you are... yes, you are entitled to--
Speaker: That is all that Georgia procedure requires.
Morton Siegel: --That is correct.
Speaker: Would that be true in a State that specifically required by law payment of tax under protest following certain procedures?
Morton Siegel: If we're talking about a predeprivation remedy?
Speaker: Yes.
Morton Siegel: Then obviously it would have applied the same way. And if that would have been the case--
Speaker: So your answer is you would ignore the State law?
Morton Siegel: --Oh, absolutely not. We would have... if we would have had that opportunity we would have taken advantage of it.
Speaker: If you had had an opportunity to file a statement that said we protest?
Morton Siegel: Yes.
Speaker: You don't think you had that opportunity?
Morton Siegel: No, I don't.
Speaker: You don't think you could have written a letter?
Morton Siegel: I think I could have, Justice O'Connor, but I don't think that the State of Georgia would have paid much attention to it. After all, in this particular instance when we filed our post-remedy claim for refund they took no action on that, even after Bacchus. And under the statute in Georgia we have the right if the State takes no action. So I don't think it would have meant, made any difference to the State of Georgia in this instance. Thank you.
Speaker: Thank you, Mr. Siegel. Ms. Baker.
Amelia W. Baker: Mr. Chief Justice, and may it please the Court: The only issue before this Court is whether the Georgia Supreme Court properly gave prospective effect to its decision invalidating a longstanding state alcoholic beverage tax statute. This is essentially the same issue that this Court addressed in the ATA case last term. We submit that the Chevron Oil test used by the plurality in ATA represents the appropriate approach for analyzing this case, and that under Chevron--
Speaker: xxx votes to the contrary.
Amelia W. Baker: --There are four votes in the Court that there should be retroactive application, however, Justice Scalia sided with the plurality in giving Scheiner prospective application in ATA. Although he did not use the analysis of the plurality, his reasoning allowed him to come to the same conclusion as the plurality in ATA did. We would submit that that is the appropriate approach in a case such as this. In a case where you have a decision such as Bacchus Imports, that establishes a new principle of law, we think it is appropriate and consistent with the precedent of this Court to apply the Chevron Oil test, because it is intended to protect the good faith reliance on prior law and to protect against the injustice and hardship of a retroactive application by permitting courts to give prospective application to decisions creating new principles of law. It is particularly important to protect reliance interest with State Governments, who must rely on presumptively valid statutes in conducting government operations. Protecting reliance, good faith reliance such as in this case on prior law is essential to permitting government operations to go forward and to protecting the financial stability of the State. Under the Chevron Oil test, as the petitioners recognize, there are three prongs that must be met before a decision can be given prospective application. Under the first prong Chevron Oil states that a decision creates a new principle of law where it overturns clear past precedent or decides an issue of first impression whose resolution was not clearly foreseeable. We submit that Bacchus established a new principle of law by overturning clear past precedent in the Twenty-first Amendment jurisprudence, by holding contrary to the holdings of this Court up until that time that the Twenty-first Amendment empowers a State to regulate the importation of alcoholic beverages into its borders without limitation by the Commerce Clause. As the dissent pointed out in Bacchus, the majority in Bacchus adopted a totally novel approach to the Twenty-first Amendment in that case by going beyond the express language of the Twenty-first Amendment and by going beyond the precedent of this Court in finding that for the first-time State regulation of alcoholic beverages must implicate some central purposes underlying the Twenty-first Amendment in order to outweigh Commerce Clause principles. The central purposes identified by the Court in Bacchus are not found in the language of the Twenty-first Amendment, nor are they found in the legislative history underlying the Twenty-first Amendment. Prior to this case never had the Court indicated that there were some central purposes that must be identified, but rather beginning in 1939 with the Young's Market case, the Court said that the language of the Twenty-first Amendment is clear. We don't need to go beyond the language of the Twenty-first Amendment, and the Twenty-first Amendment empowers a State to regulate or prohibit importation of alcoholic beverages without limitation by the Commerce Clause, period. The right to, according to the Court in Young's Market, the right to import free has been abrogated by the Twenty-first Amendment. This view of the Twenty-first Amendment, we submit, remained unquestioned until Bacchus. Even in cases where the regulations in effect constituted economic protectionism, the Twenty-first Amendment was still held to support State regulation of alcoholic beverages.
Speaker: Ms. Baker, your opponent says that the Hostetter decision in 1964 was the watershed, so to speak, rather than Bacchus. What is your response to that?
Amelia W. Baker: Mr. Chief Justice, I would disagree with the petitioner on that point. The Hostetter case represents one type of limitation that the Court did recognize in the Twenty-first Amendment, and that the Court said that where you... where the State attempts to regulate alcoholic beverages that are not being transported into the State for use therein as prescribed by the language of the Twenty-first Amendment, then the State cannot regulate alcoholic beverages. And in the Idlewild case the State was attempting to regulate alcoholic beverages that were ultimately destined for a foreign country, and the Court found that that regulation did not fit within the express language of the Twenty-first Amendment. It is also true that in that case the Court recognized that the Twenty-first Amendment did not divest Congress of its power to regulate alcoholic beverages. That's the important statement that was made in Idlewild, and the statement was made to make sure that the States were aware that the Federal Government, pursuant to the Commerce Clause, could continue to operate and enact statutes such as the Sherman Act that would also regulate alcoholic beverages. But nothing in Idlewild suggested in anyway that the State was limited in its ability to import alcoholic beverages into the State for use in the State. There is no limitation on a direct regulation of alcoholic beverages, which the State tax here clearly is. There are, there were a number of cases between Young's Market and Bacchus in which this Court did recognize some limitations on the Twenty-first Amendment, one being the jurisdictional limitation in Idlewild. There were a number of other limitations, but none of those limitations ever went to the State's ability to regulate the importation of alcoholic beverages. Mr. Siegel suggests that the Midcal case was sufficient to put the State of Georgia on notice. Midcal is entirely different from this case, and the regulations involved there are entirely different. In that case the Court said that in instances where you have a Federal statute enacted pursuant to the Commerce Clause, and you have a State statute that is not directly regulating alcoholic beverages but is peripheral to the regulation of alcoholic beve ages, then in those cases where you have a State statute, where you have a Federal statute and a State regulation that is not aimed at the core powers of the Twenty-first Amendment, we will engage in a weighing of interests to see whether the Twenty-first Amendment prevails. Again, in that case that Court recognized that the ability of a State to regulate importation into its borders was not limited by the Commerce Clause. Even up until 11 days before the decision in Bacchus in this case of Capital Cities Cable v. Crisp, also decided in 1984, this Court once again reiterated that a State's power to impose burdens on interstate commerce in alcoholic beverages is not limited by the Commerce Clause. We submit, therefore, that from the time of Young's Market until Bacchus there was absolutely no indication in the case law of this Court to put Georgia on notice that its statute was invalid. And that Bacchus clearly constituted a new principle of law, and it was noted by three members of this Court that it was a totally novel approach and it was unanticipated by any cases, and it was inconsistent, arguably, with the express language of the Twenty-first Amendment. Additionally, the State of Georgia relied on its own highest court, which in 1939 in the case of Scott v. State had upheld the same statute, in a different, earlier version, but essentially the same tax structure had been upheld against a Commerce Clause challenge.
Speaker: I suppose that it's a Federal question though?
Amelia W. Baker: We agree that it is a Federal question, because the case here does involve the constitutional violation. And that it is a Federal question as in ATA whether the Bacchus opinion should be applied retroactively or prospectively.
Speaker: Do we assume that Georgia would provide a refund here if we agree with the petitioner on the retroactivity of Bacchus?
Amelia W. Baker: I don't think that we would agree that--
Speaker: Or has that been decided?
Amelia W. Baker: --That issue has not been addressed by any court so far in the State of Georgia. And that issue, I think, would be open to be decided on a remand of this case, not inconsistent with the principles announced in the McKesson case.
Speaker: May I ask, Ms. Baker, under your refund procedure can the taxpayer get an injunction against... future collection of the tax?
Amelia W. Baker: The statute in Georgia does not provide for injunctive relief. But contrary to what Mr. Siegel said, there is ample case law in the State of Georgia which says that injunctive relief is an appropriate remedy for challenging State taxation. And although we did not cite these cases in our brief, I have a number of citations in which taxpayers have successively challenged the imposition of taxes--
Speaker: For the future.
Amelia W. Baker: --in the instances of unconstitutional statutes.
Speaker: I see. If there had been... I was just wondering, under your view of the law, if there had never been a Bacchus case, that we just had all the other law out there, Midcal and so forth, and this refund action had been filed, and the Georgia Supreme Court looked at those old authorities and, well, it's an awful close case, but then decided the same way as the majority did in Bacchus. Would the taxpayer have been entitled to a refund, do you think?
Amelia W. Baker: I think that that issue has not been definitively decided by the Georgia Supreme Court, whether the refund statute in Georgia mandates a refund in all cases. The court has indicated in Georgia that the term illegally assessed is sort of a term of art that they can interpret in appropriate cases, and in certain cases preceding this case the court found that where there is injustice and hardship by requiring a refund, they did not order a refund. So it is not clear what the court would have done, and based on the court cases I can't say definitively whether they would have--
Speaker: I think what you're saying then is that had there been no Bacchus case, this taxpayer would have had a better chance to get a refund in this case than he does now.
Amelia W. Baker: --I don't think that's true, because had there been no Bacchus there still was a State supreme court opinion in Georgia--
Speaker: Yes, but this, say this State supreme court overruled that case. It said we understand Federal law has progressed to the point where this is a burden on your state commerce, and so forth. You say that... I am not quite clear what you say.
Amelia W. Baker: --I think that even if our court had overruled and agreed with Bacchus, that there is still authority in Georgia cases and there have been instances where the Georgia Supreme Court has overruled statutes, and yet decided that because of the equities of the situation they would not order a refund. Even if they weren't using Chevron at that time, just under the basic principles of equitable notions.
Speaker: So are you... is your position then that whenever there is a close issue of constitutional loss, not clearly foreshadowed, you are just not 100 percent sure. But if a taxpayer thinks there is an unconstitutional tax being levied which is worthy of a challenge, that taxpayer has no hope of a refund but the best the taxpayer can get is an injunction.
Amelia W. Baker: I think that they do have a chance of a refund. I think that the cases in which the Georgia courts have not granted refunds are very limited. I mean they really are cases that meet the Chevron test, even if at the time the Georgia courts were deciding that cases they didn't call it Chevron. It is not a very liberal test, we'll say well this seems to be a new case so we're not going to give a refund. I think that the Georgia courts are committed to giving refunds except in very limited situations where the decision would create substantial financial instability and injustice. Under the second prong of Chevron, determining whether the rule at issue will be furthered or retarded by the retroactive application of the case, we contend for the same reasons in ATA that prospective application here of the Bacchus opinion is consistent with the Commerce Clause, because during the period, the refund period at issue, the state statute was consistent with the precedent of this Court and with the Twenty-first Amendment, and what had been considered legitimate State taxation at that time. And as the Court noted in ATA, it is not the intent of the Commerce Clause to prevent legitimate State taxation. Finally, under the third prong of Chevron, which requires a weighing of the equities, we clearly think that the equities here weigh in favor of prospective application. There is an extremely strong reliance interest by the State of Georgia on a State statute that had been upheld by its highest court, that was consistent with the precedent of this Court, and that was consistent with the express language of the Twenty-first Amendment. In light of this reliance interest and absolute lack of any challenge to that state statute from 1939 until 1985, and almost 1 year after the decision in Bacchus, Georgia was clearly entitled to rely on that statute. It would also, contrary to what the petitioner said, it would create a severe financial burden for the State of Georgia to have to pay some $30 million in tax refunds at this time. The State is in a tight financial situation and it would threaten possible government programs and services to have to pay back that kind of a refund.
Speaker: Is that really a valid constitutional argument?
Amelia W. Baker: I am not sure that it comes to the level of perhaps the reliance interest.
Speaker: In other words, if I am broke I shouldn't have to pay any income taxes?
Amelia W. Baker: I don't think that should be the determining factor for the Court here today. I think that the important factor is that the State in good faith relied on a statute that was consistent with case law of its own court, this Court, and the Twenty-first Amendment, and that it collected money under that tax statute and spent it in good faith for benefits for the entire citizens of the State of Georgia.
Speaker: May I ask one other sort of fly speck? Your opponent says there is a very small part of the total amount in controversy that was post-Bacchus. Is that correct?
Amelia W. Baker: I don't know the exact amount.
Speaker: But there is some--
Amelia W. Baker: There is some amount that is post-Bacchus.
Speaker: --And you don't deny they are entitled to that?
Amelia W. Baker: What I would say in response to that is that would be an issue for remand under McKesson.
Speaker: I see.
Amelia W. Baker: And I would just like to end by saying that--
Speaker: But don't end yet. [Laughter] Do you agree that all of the taxes that they are seeking recovery for were protested? That the payments were protested, effectively protested?
Amelia W. Baker: --I don't believe any of the taxes were paid under protest, either actual protest in that they wrote protest down on their tax whatever, receipt, or in fact that they paid the taxes under protest. Because it is clear, to me anyway, that during the time they paid these taxes they had no idea, no understanding that there was anything wrong with the Georgia statute. In fact I think they paid the taxes voluntarily. There was no threatened State action against them to pay the taxes, and they did have available to them injunctive relief if indeed they thought there was something wrong with the tax.
Speaker: Well, Mr. Siegel said that at least at some point there was a protest filed. You don't acknowledge that?
Amelia W. Baker: The protest was filed after the refund period was over, in I believe March or April of 1985, subsequent to the time that all the tax had already been paid, and subsequent to the time that this statute at issue here had been repealed.
Speaker: I am a little confused by the various responses. Does Georgia have a statutory or administrative protest provision?
Amelia W. Baker: There is no requirement for a protest in Georgia. The refund statute does not require a protest.
Speaker: So that if there is a reversal here the State of Georgia is not then going to defend, as it were, on new ground in the State courts and say there was no protest?
Amelia W. Baker: No, we are not.
Speaker: Okay.
Amelia W. Baker: In sum, we submit that the Chevron Oil test represents the appropriate approach for analyzing this case, and it is the appropriate way of protecting good faith State reliance on a statute that was presumptively valid, and which the State had no reason to believe would be invalidated. We believe that we satisfy each and every one of the three prongs of Chevron Oil, and we also believe that if the Court should find that we do not satisfy Chevron Oil or that the decision should be given a retroactive application for other reasons, that it should be remanded to the State court for determination of a remedy not inconsistent with McKesson.
Speaker: May I just restate... is this what you are saying when you talk about Chevron, that up until the date Bacchus was decided the tax was perfectly constitutional, and as of Bacchus it became unconstitutional?
Amelia W. Baker: Basically what we are saying is that based on the principles used in ATA that the court has the ability to determine when and how it will apply its decisions, and that--
Speaker: Well, I understand you... all this retroactive language. But is that the essence of your position, is the tax was fully constitutional until Bacchus was decided?
Amelia W. Baker: --It was our position it was consistent with the Constitution and with the case law of the Court up until the decision in Bacchus.
Speaker: Ms. Baker, is Georgia considering the adoption of some protest procedures so that if the worst of all scenarios happens and this Court decides that its decisions are retroactive, that Georgia will be protected against the unexpected obligation to pay back money? It will always know if a protest has been made that a certain amount of money in the treasury is subject to litigation.
Amelia W. Baker: I think that Georgia, along with many States, are investigating the possibility of changing their statutes to give them greater protection, whether it be limiting the statute of limitations for a refund, or adopting a protest requirement. But in light of the change in this Court's doing away with prospectivity, I think there is a great possibility the State would feel compelled to change its refund statute. If there are no further questions--
Speaker: Thank you, Ms. Baker. Mr. Siegel, do you have rebuttal?
Morton Siegel: Just a few minutes, Chief Justice. Thank you. Although the issue is not before this Court, I do want to make the point that there has never been a disagreement with the State of Georgia over the fact that the petitioner in this case did comply with the protest procedure for claiming refunds. It did not technically say you have to mark protest. It says you file a claim for refund and you set forth the reasons. There has never been any disagreement that for the tax period involved in this case we complied with that procedure. Secondly, I would like to point out that certainly the burden should not be on Beam to go beyond what the statutory structure of Georgia provides. Thirdly, I would like to just restate that the general rule here is in favor of retroactivity. And we may differ on how we are going to read Bacchus, but the fact of the matter is the decision did not come out and reveal any new rules and... as it applied to the Twenty-first Amendment. Therefore, I do not see how the State can get past the first prong of the Chevron case. And in that instance we would be entitled to relief, if this Court should see fit.
William H. Rehnquist: Thank you, Mr. Siegel. The case is submitted.