Earl Warren: Number 161, James P. Mitchell, Secretary of Labor, Petitioner versus Kentucky Finance Company Incorporated, et al. Ms. Margolin?
Bessie Margolin: Mr. Chief Justice and Your Honors. The specific question presented by this case is whether the retail or service establishment exemption from both the minimum wage and the overtime requirement for the Fair Labor Standards Act applies to the business of lending money on credit and purchasing conditional sales contracts, and taking life insurance to insure the borrowers, specifically the business of making small loans and discounting condition of sales contract. The broader and underlying issue that's inherent in this specific issue here is whether the 1949 amendment to the original Fair Labor Standards Act, which was enacted in 1938, whether the 1949 amendment so broadened the scope of the so-called retail or service establishment exemption as to make every and any business within the general coverage of the Act eligible to claim this exemption. The exemption and question is quoted on page 2 of the Government's brief in Section 13 (a) (10), and it provides that Section VI and VII, which are the minimum wage and overtime requirements of the Act, shall not apply with respect to any employee employed by any retail or service establishment under certain conditions. One, being more than 50% of its annual dollar volume of sales is -- of services is made within the State in which the establishment is located. And the second condition being that 75% of annual dollar volume of sales or services is not to resale and is recognized as retail sales or services in the particular industry.
William J. Brennan, Jr.: Is there any issue on the 50% borrowed here, Ms. Margolin?
Bessie Margolin: Well, there's no issue if we get to that. The Government's basic position is that this exemption has no application whatsoever to the business of lending money to credit companies. And therefore, that there is no occasion or need to determine whether or not 50 -- whether the percentage requirements are met so that -- although, the court below found that they did meet -- the Court of Appeals found that they did meet both of those conditions. The Government's basic position is that there's no occasion to go into those conditions. The Court of Appeals -- the business here, respondent's business is located in Louisville, Kentucky and they make loans both in Kentucky and Indiana which was stipulated. There's no question of their engagement in interstate commerce. It was a pretrial stipulation that they were engaged in interstate commerce and then they are in the production of goods for interstate commerce, their employees, sufficiently to be with the subject to this Act unless they came within this exemption. So that the entire evidence was directed to the exemption point. The rather voluminous records is explained by respondent's endeavor to prove that their lending of money and the purchasing of this discount favor thus constitute sales of services within the liberal language of the exemption. The Court of Appeals accepted respondent's construction of this Act, of this provision stating that the literal terms of -- that the statutory language was so clear and unambiguous and so plainly applied to any business that was engaged in the broadest sense of the term “engaged in sales of goods or in performing services,” that it was unnecessary to look to the legislative history to tell -- to determine what Congress meant by this attention. The Government's position is that this exemption does not encompass every conceivable business that might be said to be engaged in service. That it is limited to the particular kinds of businesses that are traditionally regarded as retail, and the services of a light character, except that the establishment of sales, services, instead of goods. This was definitely the interpretation of the original exemption which was enacted at the time of 1938 that the courts have upheld the law restricted interpretation, but it didn't. This exemption was not intended to encompass everything that could, in the economic sense and the broadest sense constitute a service. And it is -- it is clear that before the 1949 amendment, this exemption was given that limited construction both by the Administrator and by the Court. The exemption at that time, read, simply, that any employee engaged in any retail or service establishment, the greater part of who's selling their services -- servicing is in intrastate commerce. In other words, there was no spelling out except in the general terms of the 50% rule, but there was no spelling out of the 75% with respect to retail sales or sales not recognized or recognized as retail in the industry. Congress in enacting the 1949 amendment or -- as -- did as counsel -- as opposing counsel point out was dissatisfied with some of the Administrator's interpretations of this exemption. What counsel does not recognize, however, is that the legislative history makes it perfectly clear that Congress was dissatisfied with only a very limited aspect of those interpretations and the legislative history makes it so clear that Congress had no -- we had felt no dissatisfaction at all with the basic interpretation of the former exemption. That is, that it was limited to certain types of establishments and did not extend to categories in the financial field and the utility field and the real estate or in the insurance field. Legislative history makes that so clear, that we submit, that it is controlling and conclusive, and clearly shows the error of the Court of Appeals. Prior to the decision of the Court of Appeals in the instant case, every court which considered this issue, and that includes the First Circuit Court of Appeals, in the Aetna Finance case and all three District Courts in the Household Finance and Aetna Finance and in the instant case, every court which had considered this issue and examined the legislative history concluded that the legislative history was conclusive on this and as did dissenting judge in the instant case, Judge Miller dissented here. For that reason, in the limited time available, I would like to emphasize the legislative history. As I stated earlier, there was no question that the administrative interpretation prior to the 1949 amendment, was that this exemption had no application to banks, insurance companies, credit companies including personal finance companies, newspapers, telephone companies and the like that those -- those areas of industry according to the Administrator and the judicial interpretations might save because the personal finance company issue had not arisen, specifically of that issue, but the courts have pretty -- pretty generally upheld the basic classifications of the Administrator. When the proposal -- proposed amendment came before Congress, the sponsors explicitly asserted the legislative intent to do nothing to change, and I'm quoting, “to do nothing to change the previous non-exempt status of establishments” such as, and I'm quoting, “banks, insurance companies, credit companies, newspapers, telephone companies, gas and electric utility companies, telegraph companies, et cetera”. Now, this statement was made in the reports of both the House and the Senate as quoted on pages 25 and 26 of the Government's brief.
Felix Frankfurter: May I ask this -- as I understand it, the original Act had the exemption or had exemption for retailers, the category that was exempted, the category or retail or service establishment, is that right?
Bessie Margolin: That's right.
Felix Frankfurter: The 1949 amendment didn't change those categories, did it?
Bessie Margolin: That's our point. We didn't --
Felix Frankfurter: Now, therefore --
Bessie Margolin: -- we didn't change it.
Felix Frankfurter: --instead of going to the legislative issue of ‘49 to tell me what it didn't change, would you mind stating what the legislative history was of the original Act, particularly in the reports of the Committee giving the de-limited scope to retailer service establishment that you are giving here.
Bessie Margolin: Well, the -- the original legislative history I haven't gone into here because this Court had pretty well expressed what it was in the Phillips case and in the Kirschbaum case, and --
Felix Frankfurter: But didn't -- did those cases turn on the -- on the inclusiveness of these terms?
Bessie Margolin: Yes, I think those cases did turn on the certain enroll and elected it too, that those terms did not -- were not used in the broad sense, but were used to -- in reference to the corner grocery store, the drug store, the department store, the -- and the beauty shop, the shoe shop, the -- the barber shop, and service establishments comparable to your traditional retail establishments. Never once was anything mentioned about any credit company being a -- or any financial institution or any bank being in that category.
Felix Frankfurter: It was the other way around. You are contending that those terms as used by Congress had to define this -- define meaning of which the corner grocery is -- is typical.
Bessie Margolin: Well, I'll say what this Court said in the Phillips case was that the reference was to establishments selling merchandise epitomized by the corner grocery, the drug store and the department store. And in the -- the Roland Electric, recognized the Administrator's interpretation that service establishments was a comparable type. Now, what the Administrator said with respect to service establishments was that, those akin to typical, these typical retailer establishments, except that they sell services instead of merchandise, such as restaurants, barber shops, beauty parlors, general homes, shoe repairs shops, et cetera.
Felix Frankfurter: (Voice overlap)
Bessie Margolin: But the Administrator explicitly said, he explicitly said, that this did not refer in the financial field to banks. It did not refer to utilities. Those were usually and ordinarily put in a different classification and they were so classified in Government standard classifications for the practical use for industry. And that it was obvious that Congress had not intended to include all of those in this one exemption because it has specific -- other specific -- one of the indications was it had other specific exemptions. For example, exempting small weekly newspapers whose circulation was largely within the State, small telephone exchanges. In -- and in these areas of the -- the -- Congress has indicated to what extent in these other areas exemption was to be granted.
Felix Frankfurter: What are these -- what are the classifications by these Senators? Where -- you said in other aspects of Government, there are some other classification. What generalized term is there for establishments that are not wholesale in the --
Bessie Margolin: Well, is -- there's real -- there's agriculture, there's real estate, there's financial industries, there's utilities, transportation, they are several well recognized areas.
Felix Frankfurter: Now, assuming you're right, that was fixed both by the administrative construction by the Court upholding of them, but as for the original act, this thing -- the amendment isn't changed, the categories to which the exemption is applied. Can you make them -- some changes with reference to those categories? But they didn't change their categories --
Bessie Margolin: That's exactly our point.
Felix Frankfurter: That's why I have to think the burden must be heavy to show, they meant to use the old terms with new meanings.
Bessie Margolin: Well, that -- that is the contention that they meant to use the old terms with new meanings and to create a self-sufficient, self-contained definition which any business could come in and bring in experts or bring in their own industry people to prove that they regarded their particular type of transaction is retail.
Felix Frankfurter: Because, in fact, they enlarged the exempted areas, enlarged the exempted opportunity, is that right?
Bessie Margolin: There's no question that Congress, in demanding this exemption, did enlarge it. We don't deny that. We think they enlarged it pretty --
Felix Frankfurter: And regarding it is --
Bessie Margolin: -- pretty substantially.
Felix Frankfurter: -- that for that enlargement of the qualifications for exemption, you enlarge the categories of exemption.
Bessie Margolin: That is the -- that's -- that's the respondent's case. That enlarging the qualifications for exemption, Congress opened up the whole exemption and just granted a field day and open season to every -- every and every -- every employer that could possibly be subject to the Act to come in and -- and prove and put the Government to -- to rebuttal. As this record indicates, this is a pretty complicated and complex and kind of a -- a battle of the experts that's involved in -- in trying to determine whether a particular transaction is recognized as retail in -- in a particular industry. We say that -- that the whole purpose of the voluminous legislative history and the whole purpose was to disavow any such intent to -- to open this exemption up to everyone. And the -- that the very reason why the legislative history is so voluminous is that the sponsors were required to answer the -- felt required to answer the charges and the criticism, that this would open -- this was going to expand this exemption far beyond anything that -- and -- that the -- the Congress would be willing to pass. Now, in this connection, I'd like to refer to -- to opposing counsel's reference to twice -- two or three times, he mentioned that the Administrator himself said that these amendments were -- was substituting a wholly, completely new definitions of the retail establishments. What counsel failed to note is that the -- that the Administrator's criticism was one of the very reasons why the lengthy debates were held. That the -- the debates took up the Administrator's charges and the sponsors disavowed repeatedly that there was any intent to expand this -- this exemption to any such extent, and specifically stated that they were adopting the Administrator's basic categories. Every reference that they made to the basic categories to be within this exemption was a paraphrase of the Administrator's basic category that the Court will compare it. We have gotten up because the counsel quotes some excerpts from the legislative history too, some general excerpts. We have prepared and it was submitted to the First Circuit in the Aetna case and to the Sixth Circuit below here. The substance of the legislative history and its -- we have filed copies of it in this Court which brings together in one booklet, all of -- virtually all of the legislative history that bears on this particular point.
Speaker: Could you pinpoint -- excuse me -- could you pinpoint exactly what it was that you find the 1949 amendment did to the old statute?
Bessie Margolin: Yes, the Administrator, in addition to making this distinction in basic category, said that some establishments, many in fact, frequently, establishments which one would regard as retail establishments also make wholesales or nonretail sales. For example a coal -- coal dealer will sell in small amounts, and he'll also sell in coal, load lots to hotels and apartments and industry. And the question was whether a retail -- whether an establishment that might look retail also engaged in a lot of this wholesale, this wholesale, a quantity of sales, sale for business use, whether that would defeat the exemption. The Administrator, taking cognizance of the fact that frequently, an establishment did both -- made both kinds of sale, adopted this 25% tolerance test which is the forerunner of the 75% provision in the amendment. He said that if a -- an establishment made such wholesale or nonretail sales, and it didn't exceed 25% of its total annual dollar volume of business, it would not defeat the exemption. And in connection with applying that test to the categories that he held were eligible, he said that he would treat it as a retail sale, a nonretail sales, sales for industrial use. This is where the so-called consumer use, “business use” test came in. Now, the Supreme Court adopted that view that a retail sale is something ordinarily for consumer use. And in the Roland Electric case, the Supreme Court approved that and stated it in general terms. Now, that was what Congress was dissatisfied with. They felt that there should be more leeway for your dealers, your coal dealers, and your paint dealers and your other shops to be able to engage in more sales for non-consumer use without losing the exemption. Undoubtedly, the sponsors felt that that type of establishment, even if it -- if it sold -- what -- for business use, was still of the traditional type of retail establishment. And therefore, they put in this provision that if they would -- instead of -- of having the consumer use, “business use” test determine, it should be what was recognized in the particular industry. Now, that was what they hold. If you can't read this legislative history without seeing that that was the thing, they were primary -- primarily concerned with, if not solely. And the sponsors themselves repeatedly said that was the only substantial difference between their proposed amendment and what the Administrator had been doing. That was the only substantial difference. And as I say, they repeatedly, explicitly said that credit companies, banks, public utilities, telephone companies were not to be -- were to remain non-exempt. They recognized they were non-exempt and so they were to remain that way. And of -- of -- what I want to point out is that the approach of respondents, the construction respondent's take of this amendment, and of the court below, means not only that credit companies or small loan companies, personal loan companies, not only that those would be eligible for this exemption, but they frankly concede that their reasoning, the manner in which they construed this exemption means that banks, insurance companies, newspapers, telephone companies, utility companies, telegraph companies, transportation companies, all of those can come in and if they can show that the 75% of their services to -- is to consumers or individual use, or that -- even if it isn't, if it's recognized in that particular industry, if they call it retail, they can show that they're entitled to this exemption. I'd like to refer from (Voice overlap)
Earl Warren: This had been uniformly against that, Ms. Margolin?
Bessie Margolin: The?
Earl Warren: The practice -- the administrative practice has been in contrary to that?
Bessie Margolin: It's -- it's been uniformly -- these -- this type -- these types of businesses, in fact, the courts have uniformly held that they are within the coverage of the Act.
Earl Warren: Yes.
Bessie Margolin: And the -- the legislative history on the coverage provisions repeatedly say that the utilities and the insurance -- not the insurance companies, the utilities and the newspapers, they have specifically approved all the decisions holding them subject to the Act. I think when it's realized that the reasoning of respondents carries and necessarily imply that all of these other businesses become eligible for this exemption, there can be no question that Congress has no such intent.
Felix Frankfurter: Ms. Margolin, would you enlighten me about the administrative practice. Name businesses that get rulings from the Administrator, as to whoever they are or are not covered in the exemption.
Bessie Margolin: Yes. Well, they -- he certainly gives a lot of rulings and they are protected by them. Of course they --
Felix Frankfurter: I mean -- I don't mean bulletin.
Bessie Margolin: Yes. He gives --
Felix Frankfurter: He did have a bulletin but made a John Jones where they go write and find out --
Bessie Margolin: Yes he may.
Felix Frankfurter: And you say that under the law --
Bessie Margolin: We --
Felix Frankfurter: (Inaudible) Is that right?
Bessie Margolin: We tried to -- we tried to advise them as much but of course, the volume sometimes gets too much for us and then sometimes the delay, but they certainly -- we certainly do send out many such opinions advising particular companies of -- of their view of the Act. I might --
Felix Frankfurter: There must be a -- there must be an area where you can't tell right off the bat what it is?
Bessie Margolin: Well, of course, there's some -- something that we -- some that we can't always tell, and we frequently say that our best information or advice on the present state of the law is such and such. I would like to reserve the remaining five minutes if I may.
Earl Warren: You may. Mr. Levin.
Harold H. Levin: Mr. Chief Justice and the Court. (Inaudible) my knowledge. Our position in brief is this. Congress never intended to encompass local activities within the Act. Mr. Justice Frankfurter and other justices of this and the former members of the Court have warned the courts not to absorb by -- by adjudication that which Congress left to the State. And it certainly is clear from the legislative history that local activity which can better be served under the jurisdiction of the States as Mr. Justice Black well knows, because of the statement he made in the -- in the polls of the Senate, that they were left to the States. And our claim is that this is the kind of an activity at the end of the stream of commerce. This does not affect interstate commerce which should be lodged with the States in general. Specifically, we would point out that -- and if Mr. Justice Frankfurter was expressing an opinion, I would have to take objection to it, to differ with him, the categories were not established by the first -- by the enactment of the -- of the Fair Labor Standards Act. The --
Felix Frankfurter: You're saying they were not changed by the amendment?
Harold H. Levin: I say they were certainly changed.
Felix Frankfurter: It wasn't.
Harold H. Levin: They certainly were changed and that it wasn't --
Felix Frankfurter: And it's the same words -- the same words were to be given different context from what they have been given, leaving out what -- what was or was not given.
Harold H. Levin: No, I wouldn't say that, Your Honor. I would say that when the original amendment had no definition, the Administrator was free as he did, to make interpretations of his own, and many of them were adopted by this Court. Congress was not only dissatisfied with the consumer versus the “business use” test. It would have been a very simple thing to add two lines to the amendment and say that this -- that the fact that something is sold to -- for business use, it was not to be considered necessarily wholesale or -- yes, wholesale. They were concerned greatly with the broad expansion of the Act in 1949. If, Your Honors, will recall, an amendment was made of the definition of production because that had been too broadened. The Beetle amendment had been virtually killed by the administrative interpretations of the amended Act. When they got around to talking about this retail exemption, the Administrator, appealing his oath, so to speak, had the Lesinski Bill introduced, which was designed to approve of all of the administrative interpretations. But what happened was that the Congress objected and the Harlan Lucas Bill was introduced in its stead, precisely because that the Congress found the interpretations inaccurate. They used such words out of thin air, “Vacillation,” and one of the Senators said, if you -- if you left it to -- to the Administrator, “You would exclude everybody from the exemption and include everybody under the Act whether they were local or not.” And so, they adopted a precise definition and they said specifically, and this is addressed to the statement about category. They said, “We're not going to have the same test in every situation. We're going to go to the industry. And whatever is regarded as retail in the industry is to be regarded as retail. What is regarded as wholesale is to be regarded as wholesale. ” And they said --
Felix Frankfurter: Was there any change made as to what -- what enterprise is to be judged whether it is retail, it doubtless made the changes as to what constitutes retail --
Harold H. Levin: Right.
Felix Frankfurter: -- something about that. But if they make any change or if they manifest any change in the starting point, in the base question namely, as to what enterprise you require words --
Harold H. Levin: Well, I think so and of course, that's a matter of interpretation. And if Your Honor pleases, we take the position as did the Court of Appeals. Was -- that when a statute is clear and unambiguous on its face and if you look to the legislative history, and you get confusing answers, as Mr. Justice Frankfurter once said, we have a right to take a look at the statute.
Felix Frankfurter: Was it -- was it made -- was that part the exemption? Made any clearer about the ‘49 amendment and it was by the city --
Harold H. Levin: I think most certainly. When the exemption merely read that “An establishment, the greater part of whose sales or services is intrastate, shall be exempt”, it meant nothing. It -- it had no definition, but when it got down to the 1949 amendment, and I'm going to come to legislative history which I'm going to read to you, where not only did they say, “We're going to go further, we're going to define what is retail,” what is a retail service establishment, Your Honor. Those very words were used by the Senate sponsor. And when they went that far, then I say that one has no right to say that the categories were not changed. They left it to the industry to determine what the categories are, and I might say a word about our establishment. It's inaccurate to describe it as one selling insurance or something of that sort or merely buying discount paper. This is a little store, ground floor office, where a poor working person comes in and borrows $5 to $300, the average is $200. They make an application and a telephone call is made to check on the employment record and they are given this money. At high interest rates, I'll agree. But much lower than the -- than the earlier, before the uniform small no longer established, the -- the sharks got after them and got much higher rates of interest. These are regulated by the State. That's one aspect of the business. Testimony is clear and undisputed that the purposes for which these loans were made were for household goods, for school expenses, for clothing, furniture. Nothing could be more local in the sense that this Court or rather retail in the sense that this Court described it when it talked about consumptive purposes rather than business purposes. And by the way, we claim we come under the amendment regardless -- we -- we come under the -- the exemption regardless of whether we are talking about the old or the new law. The courts never tested the ruling of the Administrator on this question. And so, we come to the discount operation. Now, what happens there? A person goes in to buy a radio or a television set and hasn't the money. A telephone call is made to this office and they check the credit of the individual and if the credit is good, the credit is advanced and allowed. We take the paper and we take the -- collect the money on the debt. So that as the court below found, also these establishments are a single unit engaged in lending money to individuals, not the businesses for consumptive purposes. There's no re-lending, no element of resale. Now, that brings us to this question of recognition in the industry, and if the statute is to be interpreted in its plain meaning and -- and language, the question arises whether the industries, the financial industry recognizes this establishment as a retail establishment. Well, we have testimony from Elmer (Inaudible) Trust Company of the First National Bank of Chicago, Mr. (Inaudible) Trust Company of New York and Leon Henderson, they all agreed that there is a very definite distinction in the financial industry between wholesale and retail. And that these small loan offices are regarded as a retail into the industry. That to tonight --
Hugo L. Black: Did you find anything in connection with the hearing's final report that indicated anybody else thought about this at all?
Harold H. Levin: No. Mr. Justice Black, I would have come to that right now, this business is about credit companies. Is that what you are referring to, Your Honor?
Hugo L. Black: But -- but this people being treated as a wholesalers or retailers.
Harold H. Levin: Well, there was nothing said about any particular industry. The only thing that was said, and I agree with my adversary, that mention was made of a number of the categories which she referred to. Well, I call this to Your Honor's attention that at the end of the list of establishments which they mention specifically, the Senate sponsor said, and he talked about taxicab company, (Inaudible) service companies and then he -- and hotels and so forth, and then he goes on to say and other establishments performing local services. That's the end of the --
Hugo L. Black: Who would you think should be a wholesale money lender?
Harold H. Levin: The -- the First National Bank of Chicago, whose vice-president testified in the Household case and the testimony came over to this case, lends millions of dollars to the Household Finance Company, which in turn lends it to the individual. In a recent article in the Life magazine, they'd talked about the merger of Morgan & Company with Chase -- no not Chase, First National Bank -- in any event, whatever company is it's -- whatever bank, is it Chase?
Speaker: Yeah.
Harold H. Levin: I quote it in my brief because I thought it'd be interesting to know that even in the -- even the general public talks about wholesale and retail in the financial industry. They say that both of these companies, both of these banks are wholesalers of credit as distinguished from those who lend money to individuals for consumptive purposes.
Earl Warren: There is a small building in the loan association about as much of local in character as you are -- so far as consumptive --
Harold H. Levin: Well except that --.
Earl Warren: -- was a concern --
Harold H. Levin: Well, it's a close one but the building and loan association is one which lends money for building purposes, which is something much more substantial than lending money for the buying of radio or television or to pay school expenses.
Earl Warren: That is with more money.
Harold H. Levin: Well, that's a very important element. In fact, my learned adversary would agree with me that size has a great deal to do with them. In fact, one of the things that the --
Earl Warren: Size of each of the --
Harold H. Levin: The size of the loans, yes, yes. The size of the -- the amount of coal that sell determines in the coal industry whether its wholesale or retail and the size -- size of the loan would definitely determine the --
Earl Warren: When you say loan to a person or a home was hosted, would you?
Harold H. Levin: Yes, I think it would be. I think it would be because it's not a small loan. It's not the kind of a loan that -- that it takes care of consumptive purposes, things that people -- people use up immediately. Now -- now then, to the legislative history. The -- in the first place, Mr. Justice Black, when he served as chairman of the Labor Committee of the Senate in connection with the original Act stated, and he is quoted by Congressman Lucas as an introduction to this Act, the bill carefully excludes from its scope -- no, that wasn't it. The -- the bill was not intended to and it did not attempt to fix minimum wages and maximum hours in the very peculiarly local business units of the nation. And then, Mr. Justice Black stated, "Businesses of a purely local type, which serve a particular local community, and which do not send their products into the stream of interstate commerce can better be regulated by the laws of the communities and of the states in which the business units operate. That's as to the original Act. Now, with respect to the 1949 Amendment, Congressman Lucas --
William J. Brennan, Jr.: May I ask you-- may I ask you, is the X dollar as regarded is the one that was said?
Harold H. Levin: The 1938 Act, yes.
William J. Brennan, Jr.: Is that the one the House said?
Harold H. Levin: I beg your pardon?
William J. Brennan, Jr.: Is that one House said?
Harold H. Levin: Yes.
William J. Brennan, Jr.: The one you understood?
Harold H. Levin: The one that you spoke of?
William J. Brennan, Jr.: It's pretty bad. It's pretty serious to change.
Harold H. Levin: I beg your pardon.
William J. Brennan, Jr.: I thought is pretty seriously changed in the House.
Harold H. Levin: Do you mean at the original Act?
William J. Brennan, Jr.: Yes.
Harold H. Levin: Well, then I -- I will give the Senate report on the bill which states, “The bill carefully excludes from its scope business in the several states that is of a purely local nature. It leaves to local state and local community their own responsibilities concerning those local service and other business trades that do not substantially influence the stream of interstate commerce, and this establishment certainly doesn't influence the -- the stream of interstate commerce.
William J. Brennan, Jr.: As I recall it, I may be wrong, the original bill that I was suggesting then is the same on some of that language.
Harold H. Levin: This language. Well this is a Senate -- this is a senate --
William J. Brennan, Jr.: (Inaudible)
Harold H. Levin: Your Honor, I am quite sure this is a Senate report on the final bill because it is quoted in one of this Court's cases and that's where I got it from.
William J. Brennan, Jr.: Yes.
Harold H. Levin: And it ends with a statement for example, the policy in this regard is such that it is not even intended to include in its scope those purely local establishments located near state lines and therefore, the -- the retail exception. Now, Senator Holland --
William J. Brennan, Jr.: Did you find any indication that any other possess that, the one between wholesale and retail into the money?
Harold H. Levin: No, I don't think that it was even thought of, but I think I said I was going to take up that credit company business which seems to be bothering some of Your Honors. We had a ruling, Mr. Justice Frankfurter. A ruling was asked by the personal loan companies as to whether or not they were covered by the Act and whether or not they fitted in to the retail exemption. And the ruling encompassed banks, insurance companies, building and loan associations, and personal loan companies, all grouped in that order. Now, the strange thing happened when the question was put, obviously, on half of the Administrator in the courts of the debates as to whether or not this category was to be exempt or not under the amendment. And curiously, there were credit companies which substituted for personal loan companies, which indicates the danger of giving too much reliance on legislative debates, because credit companies, if we read the dictionary, refers you to the commercial credit companies. As we all know, they're obviously wholesalers. Credit companies were thrown in with banks and insurance companies, also obviously wholesalers. Now, my adversary, in her fine brief, says – well, a small loan company is a credit company. Our answer is, so is a pawn shop, so as a credit retail store, or a furniture store which sells goods on credit. But certainly, they were encompassed by this credit company classification. If the Administrator wanted a definite opinion, whether we agree or not that legislative history should be planted so that it can be used at the time of the harvest, makes no difference. But I have no objection to the -- to the legislative history being injected with the question of that kind. But why it wasn't made clear that they were talking about personal loan companies? Exactly the same language is used as in the ruling except for this substitution of credit companies for personal loan company.
Felix Frankfurter: What -- could you tell us what the rule -- what ruling you got?
Harold H. Levin: What would what?
Felix Frankfurter: What ruling did you get?
Harold H. Levin: I got a ruling that it was not --- they were not in the exempt list but the Administrator never dared to go to court to test it.
Felix Frankfurter: By the way, have there been a ruling on the pawnshop, what are they?
Harold H. Levin: Oh, the pawnshops are clearly on the administrative exempt list, also a retail.
Felix Frankfurter: Is it like a corner grocery?
Harold H. Levin: Oh well, I don't know what he calls it, a corner grocery. He doesn't restrict his -- his exempt list to corner groceries by a long shot, unless Your Honor, thinks, that a crematorium and a dance hall, and a hotel is also a -- are also --
Felix Frankfurter: Have they been all ruled on? They've all been ruled on?
Harold H. Levin: All have been ruled on, yes.
Felix Frankfurter: (Inaudible)
Harold H. Levin: They are all considered exempt retail establishment.
Felix Frankfurter: Or anything that have to be included what might be called the neighborhood?
Harold H. Levin: No, I think that everything that could -- that would exclude any concept of wholesale. You can't have a wholesale crematorium and you can't have a wholesale loan to an individual to buy his good.
Felix Frankfurter: I'm sorry to hear they have some (Inaudible)
Harold H. Levin: I beg your pardon?
Felix Frankfurter: They could have a wholesale crematorium.
Harold H. Levin: I know. I'm sorry to say that too, Your Honor, and I share your view on it. Now, the Senator Holland was asked whether this amendment would add to the number of the exempt people and his answer was no. Insofar as concerns, those who are exempted under the proper meaning of the original Act, the answer will be yes, as to an undetermined number which are included in the field that has been included within the jurisdiction of this Act by interpretive ruling. Now, the word “traditional” was used here that the -- the establishment must be retail in the traditional sense, but this is what the House sponsor said about -- about traditional. He used the word “traditional”. He says, "My amendment clears that up by exempting the establishments which are traditionally regarded as retail. It is only in that sense that it clarifies such doubt that my amendment can be regarded as expanding the present exemption, but in real sense, it is not expanding the exemption but simply confirming it, for those establishments which Congress always intended to exempt” and this was said in the spirit of criticism. “The contrary view must assume” and this is important on the word “traditional,” “that in granting the retail and service establishment exemption, Congress intended to reject what is traditionally recognized as a retail or service, as a retail sale or service, in an industry and to adapt an arbitrary concept of what is retailing or servicing.” Then later, the -- the --
Hugo L. Black: Who said that?
Harold H. Levin: I beg your pardon?
Hugo L. Black: Who said that?
Harold H. Levin: This is the House sponsor as I recall it or is it the Senate sponsor, one of the two.
Hugo L. Black: Are you depending -- are you relying on the word “retail” or “service” establishment?
Harold H. Levin: Service -- service -- retail service establishment, I think you have to read the -- read two together in a sense.
Hugo L. Black: (Inaudible)
Harold H. Levin: Well, they say retail --
Speaker: (Inaudible)
Harold H. Levin: Yes, they say retail or service. I'll accept, Your Honor's correction, but I'm not sure that you wouldn't have to consider them also a retail in the -- in the sense that we've been talking about it. Now, the Senate -- Senator Taft said, in those power of Lucas said, that the amendment was to have the effect of confirming the exemption for the various local neighborhood businesses, to call it was the original purpose of the existing law to exempt. And on the subject of definition, as Senator Holland said, and this has to do with the question of categories. Senator Holland said, “It is our desire to clarify entirely the status of retail and service establishments by defining them, defining establishments and letting them know, beyond per venture, of doubt whether and when they are in fact, exempt from the provisions of the law. It is of you, the sponsors of the amendment, that is, the duty of the Congress at this time while the Act is being amended,” and they weren't just talking about consumer test. “To clarify the meaning of the terms ‘retail establishment' and ‘service establishment.” I think your father is -- is right above that, and service establishment so that every person affected thereby, both employers and employees, including, of course, the administrator and the staff, will know who is intended to be covered and who is not. And then, as my friend said, the -- the Administrator objected to the Act, precisely because it would supply a definition. And this is what he wrote to the -- to one of the Senators and it was read in the Senate. He said, “The bill would substitute a completely new set of definition.” And I'd like Mr. Justice Frankfurter to hear this because he talked about categories, you'll excuse me for suggesting it. “The bill would substitute a completely a new set of definition”, said the Administrator, “Of a retail or service establishment in place of the clear definition now recognized by the courts. Years of litigations,” he said. “He would be required to determine how the exemption should be applied. The amendment would give rise to exceedingly difficult problems in administration since it is by no means clear what different industries regard as retail sale.” So, that I think there was an intention to provide a binding and controlling definition and if there's any -- if you aren't convinced of that, I have one more, says that here.
Hugo L. Black: Do you think he was talking when he said retail sale, about retail services?
Harold H. Levin: He -- he was including both. There isn't any question about that. I don't know whether I cut it off before the end of it, but -- but I think -- I think that there isn't any doubt that he was talking about retail sales or services.
Felix Frankfurter: I can give a consult to -- but you called my attention, quite properly, by saying he's naturally worried of having exemption defend on what witnesses will testify is regarded by the investor and not regarded by the industry. That opens up not a difficult question, doesn't it?
Harold H. Levin: Yes, sir.
Felix Frankfurter: Do you have to put witnesses on the stand?
Harold H. Levin: Yes, it does.
Felix Frankfurter: That is, the administrator puts conduit witnesses.
Harold H. Levin: That's right, Your Honor, but -- but that objection is not new.
Felix Frankfurter: No.
Harold H. Levin: It was raised in the Senate. It was raised --
Felix Frankfurter: What I'm -- what I'm saying is that he addressed himself to that difficulty.
Harold H. Levin: He addressed him --
Felix Frankfurter: But does not thereby imply that you open up a whole new door as to what is a retail business. I don't even (Inaudible) I -- I don't think I'll be called about it daily, so I have to be given an end.
Harold H. Levin: All right. Now, let's take -- take the next one. Senator Holland said that under the third test any sale or service, absolute resale will have to be treated by the Administrator and the courts as a retail sale or service, so long as such sale or service is recognized in the particular industry as a retail sale or service. And he went on further and said, “The Administrator and the courts, as well as the people who are in business, are warned that the rules prevailing in the business, the understanding of the terms in the business, would apply with the complete knowledge that the same would not apply in every industry.”
Earl Warren: Well, I don't see on that how then you can make a distinction between a small local building and loan and the small loan company? Now, it just seems to me that there isn't any difference between the two.
Harold H. Levin: Well, perhaps -- perhaps I ought to be prepared on that, Your Honor, but well, I am not here representing a building and loan association or a small or -- nor do I know how they operate. I know some of them operate in very fancy buildings and like banks and lend very substantial sums.
Earl Warren: There are some very big credit companies too --
Harold H. Levin: There are big credit --
Earl Warren: -- and small -- small loan companies nationwide --
Harold H. Levin: There are, there are but the --
Earl Warren: -- they could be.
Harold H. Levin: That's correct, but you're talking in terms of what the employer is or does. I agree with Your Honor 100%, but if you're talking about -- and this doesn't happen to be one of those. But if you're talking about what happens and what the employees do, and we certainly have been warned sufficiently by this Court. That is what the employees do that counts and not what the employer does, then I think the question is, are these employees engaged in a local activity or aren't they? Are they engaged in an activity where they are dealing at the end of the stream of commerce to “the Administrator” or are they not? And I -- I assert that the Congress, in adapting this amendment, definitely indicated that it was going to leave it to the industries, that is not leave it to the industries, but permit the industries to say what is their custom and practice and then have the courts or the Administrator, and the Administrator determine what is correct. Now, the fear that this would open the -- the door to a tremendous number of -- of cases is not -- has not been realized. This is the first case on the subject, in this Court, and the only -- there are only two or three cases besides the small loan cases that -- that I have come across in all of the Circuits. I want to call, Your Honors' attention, if my time is not up. I think I have five minutes. I want to call attention to -- to this aspect, the one referred to by the Chief Justice. One of the objections to the amendment in Congress was that it would leave it to the industry, and that therefore, it wasn't a good idea. This industry recognition test was therefore called a joker. But the answer given by the sponsors was and I quote, “Under the amendment, the courts would decide the question of what sales or services are recognized as retail in a particular industry.” Now, that decision has been made by three -- every court that's heard it. Each of the three lower courts have agreed that this business is recognized as retail in the financial industry. They have the qualifications where we lost, based on the claim that you cannot apply the retail exemption to personal loan company. Now, Senator Holland said, “How better could the matter be left than by recognizing the dividing line between retail sales and wholesale sales in a particular industry of the thousands of industries which will be affected by the law.” And Senator Taft said, hardly, and this is the answer given in the House of Congress, “Hardly, an industry can be found in which the question of what is retail and what is wholesale had not been settled for years. It is a question of fact, just as much as any other question of fact. It is a question of fact which we are perfectly able to determine.” Now, with those pronouncements, I don't see how it can be said that an establishment, which is recognized as retail, as a retail service establishment in an industry, can't qualify unless it meets some preconceived idea of what is a retail service establishment, whether that preconceived idea comes from the Administrator or anybody else. And I might say this to, Your Honors'. I know that you have held and we are reminded that the -- great weight must be given to the Administrator, but the Administrator in -- for a long time has served as an advocate to expand this very good Act and to limit exemptions under it. And when he's defeated in Congress, he turns to the Court. In fact Judge Magruder had occasion to -- to comment on that in connection with the (Inaudible) amendment where he said that the administrator would have us decide this -- this case as though the amendment had not been adapted, and that's what the Administrator is trying to do in this case. Thank you, Your Honors.
Felix Frankfurter: How do you justify the pawnshop, Ms. Margolin?
Bessie Margolin: We do not say that a pawnshop, as such, is within this exemption. We say that to the extent that if it make sales, it might be, but its lending activities are not. As a matter of fact this is a --
Felix Frankfurter: (Voice overlap) pawnshop, is that right?
Bessie Margolin: It's a bailment more than a sale. We say to the extent that they make sales. They are engaged in retail sale, but we do not say that it is such, but its credit transactions are -- are retail. Now, these people are engaged in nothing but the extension of credit. They are dealing with money, not -- not goods or services. A loan is a loan. It's a service only in the broad generic sense that Mr. Henderson and the other economic experts testified and they admittedly testified -- some testified on the theory that every economic endeavor is either a service or sale of goods. Every economic -- couldn't think of anything they wouldn't be and that's the whole theory of the claim here. If you look at the language of this exemption and because I haven't argued it, doesn't mean that we are conceding that the court below was correct in saying this language as clear as a bail. We think the language on its phase is in apposite to the making, to the lending of money. As a matter of fact, the stipulation provides they are engaged in purchasing these accounts receivable. There is no sale of -- of anything there of goods or services.
Felix Frankfurter: If they purchased, somebody must have sold it.
Bessie Margolin: Yes, but they are not selling and this applies only to an establishment that's engaged in selling something.
William J. Brennan, Jr.: What's the classification of banks?
Bessie Margolin: I beg your pardon?
William J. Brennan, Jr.: What's the classification of banks?
Bessie Margolin: A bank is classified as non-exempt in the non-exempt financial category.
William J. Brennan, Jr.: Why? What's the basis for that?
Bessie Margolin: Well, the -- the original basis the Administrator originally adapted, he was following the stand -- primarily the standard -- industrial classification that the Government had established for other purposes. And as I say, that was approved by the Court. In fact, the record in this case, one of the exhibits of -- of the respondents carried over from the Household Finance case specifically state merchandising and -- and financing are two distinct industries.
Hugo L. Black: How does the local --
Bessie Margolin: I mean this was -- this was generally recognized. The -- the government's standard industrial classifications treats finance and manufacturing and real estate quite -- in wholly different categories from the service trades.
Hugo L. Black: What about a bank in a small town? What about that?
Bessie Margolin: A bank in a small town would not be exempt.
Hugo L. Black: What's the line of distinction there? For you it's not --
Bessie Margolin: That it's just not -- it's just not in the category of a retail establishment. Now, it may be that some of their -- that if they don't engage in interstate activities, many of their employees would not be exempt. This exemption was -- was originally, as this Court stated, put in to take care of -- to kind of --to kind of supplement the local retailing capacity exemption, in the Jacksonville paper that was stated. And it was early interpreted, to have nothing to do in the -- in the other distinct types of industries. Now, I did want them to make -- take some time to make a response to this picture of this little local basement office that counsel has painted. The stipulation -- in this case, the interstate activities of the small loan business was not developed or were not developed because of the stipulation that they were sufficiently engaged in interstate activity.
Hugo L. Black: Where that stipulation?
Bessie Margolin: The stipulation is -- is in the record and I don't think there's any question about it. If I don't need to take the term, it is definitely stipulated, but they weren't sufficiently engaged to be within the general coverage terms if they were not within this exemption. Now, I take it that the Court isn't concerned with this question related specifically to this particular small loan company. That what we're concerned with here is whether the -- this exemption applies to the small loan business generally in this country, and that is one of the -- the exhibits in this case. It says that a small loan business is not a small business. That's big business. It's a billion and a dollar a year annual business and its -- the bulk of it is in the hands of 20 huge chains, nationwide chains, closely integrated. And I see my time's expired, but I will refer the Court to the decision in the Aetna Finance case, the First Circuit's decision to see the interstate character of this business is -- but it's certainly not purely local.