Earl Warren: Number 42, Switzerland Cheese Association, Incorporated et al., petitioners versus E. Horne's Market, Incorporated. Mr. Toren.
David Toren: Mr. Chief Justice and may it please the Court. The issue before the Court is a jurisdictional one that has long vexed the Court of Appeals and has caused to deter the event. It reaches the Court on certiorari to the First Circuit and involves interpretation of that section of the judicial code which states and I quote, “the Courts of Appeal shall have jurisdiction of appeal from interlocutory orders of the District Court refusing injunction.” The question here is whether this language authorizes an appeal from an interlocutory order which refused a permanent injunction prayed for in a motion for summary judgment. The language of the statute is plain, simple and unconditional in authorizing appeals from refusals of injunction for all purposes. We therefore urge the Court to answer the Court in the affirmative. We do not prevent the issue as an abstract proposition but rather in the context of a cause in regard to which the refusal of the injunction has a far reaching and drastic effect on the business and rights of these petitioners. Petitioners are the exclusive representatives of the cheese producing community of Switzerland which for many centuries has produced quality cheese which is famous for its excellence throughout the western world including the United States. This cheese is generally and universally known outside Switzerland as Imported Swiss Cheese and has been marketed under this name by these petitioners for many decades in the United States. The respondent, a Boston cheese trader, sells as Imported Swiss Cheese an inferior, imitative, less expensive Swiss-type cheese product originating from Finland or Austria without informing the public that the cheese in fact comes from these countries. This conduct is infringement of our rights. It dilutes our trade name. It confuses the public. It lessens the goodwill which has been built up for the trade name and the cheese and of course it causes financial loss to these petitioners. Accordingly, by way of summary judgment procedure, we move for a permanent injunction enjoining this respondent from using our trade name on non-Switzerland cheese, unless and that is important, the respondent at the same time indicates the country of origin of the cheese. In other words, we are not asking for permanent injunction for all purposes. What we want is that this respondent when he sells Imported Swiss Cheese, he should indicate where the cheese comes from. The motion was denied without opinion by the District Court for the District of Massachusetts. We then appeal to the First Circuit pursuant to Section 1292 which as stated before authorizes appeals from interlocutory orders refusing injunction. When we answered the calendar call, last fall, the chief judge of the First Circuit, dismissed the appeal for want of jurisdiction and refused to hear oral argument. This Court then granted certiorari. In dismissing the appeal, the Court of Appeals of the First Circuit made the following statement which is if I may say the key sentence of the opinion. I quote, “Because of a general policy against piecemeal appeals, statutes permitting interlocutory appeals ought to be construed with some strict rules. On this basis, whatever may be the exact letter the spirit of Section 1292 is against plaintiff's position.
Abe Fortas: Well, in reality, does this case involve anything more than the question as to whether this Court is going to review and perhaps overrule a decision of the United States District Court on a motion for summary judgment that the case is not right for summary disposition that there is a genuine issue, a fact which the Court wants to try out. Is there anything more before us than that?
David Toren: May it please, Your Honor. The question which has been presented on certiorari is limited exactly to the proposition Your Honor just outlined. Now, my learned friend here in his brief has urged the Court to dispose of the subject matter pursuant of the matter and should limit itself to the question --
Abe Fortas: Well, I am not asking you that. Let's forget about that aspect of it but I have difficulty to state quite frankly saying where this does involve a question under the statute governing interlocutory appeals in general. It seems to me that this involves the quite familiar question, questions quite familiar to lawyers, a lot of lawyers anyway as to whether an order denying a motion for summary judgment is appealable. Well, presumably the United States District Court felt rightly or wrongly that there was a genuine issue of fact that was not satisfied to decide this case on the basis of the affidavits that had been submitted and the thought that the case should go to trial and that there should be a decision after a presentation of evidence. Am I right in understanding that that is the situation?
David Toren: Your Honor, I'm afraid I have to disagree.
Abe Fortas: Why?
David Toren: The question involved here as far as we are concerned is a question of law to which in our original motion for summary judgment we raised a legal proposition. We said that an international convention for the protection of industrial property which is implemented in the Lanham Act, the trademark statute which prohibits unfair competition and deceptive misuse of famous trade name. Now, that was the basis of our motion.
Abe Fortas: But that means -- that assumes --
David Toren: That's not a question of fact.
Abe Fortas: Well, it's not question -- I don't mean to call it a question of law because that assumes that in this particular case, there is a deceptive use of a trademark.
David Toren: Right.
Abe Fortas: Now, it's quite -- the Court -- the District Court wrote no opinion made no findings than after most of the summary judgments as I understand the law whether it's quite possible that the District Court thought that that was not satisfied on the basis of the affidavits that the respondents use of its mark, otherwise deceptive, and that they wouldn't have a full trial and just because you propose an issue of law in the District Court it does not follow, does it, that the District Court had to decide that issue of law?
David Toren: The District Court conceded that it was a matter of law.
Abe Fortas: Rather that -- it wrote no opinion and made no findings.
David Toren: Sorry?
Abe Fortas: It wrote no opinion and made no findings. All it did was to deny a motion for summary judgment, isn't that right which means in ordinary course that you'd have to go trial and make your proof, isn't that right?
David Toren: Correct.
Abe Fortas: Now, do you know of any other -- of any case on the books other than the decision of Judge Frank I think is and the Second Circuit?
David Toren: Oh, yes, the leading case is Federal Glass Company v. Loshin which has been dealt with at great length in our brief that the Circuit Judge Learned Hand. We said that there's much more decided in a motion for summary judgment than simply pushing the case back to trial because he said, it says a question of law involved --
Abe Fortas: Well, we're not trying --
David Toren: And the judge said, it denies it and then he had said as a matter of law you are not entitled to your remedy to your injunction and that's exactly is the present case. We say --
Abe Fortas: Was there a ruling to the effect that assume that the issue of this trademark is deceptive by the respondent and you are not entitled to relief?
David Toren: I think there was a ruling that I am not entitled to relief as a matter of law. And let's say --
Abe Fortas: Well, you're not entitled to relief, that's clear, isn't it? You're not entitled to relief as a matter of law. The courts don't decide abstract questions of law.
David Toren: Well, we say it isn't abstract because we have a statute and the treaty.
Abe Fortas: But the Court don't have to agree with you. The District Court could have said that is not satisfied that this is a deceptive use of a trademark and that it wants the case to go to trial.
David Toren: Right but it didn't --
Abe Fortas: But you didn't move after -- did you or did you not after the denial of the motion for summary judgment. Did -- was any final judgment entered or did you seek final judgment?
David Toren: No, Your Honor but we construed this as a final judgment.
Abe Fortas: Sir?
David Toren: We construed this order which denied the permanent injunction as a final judgment and if I may explain to you I --
Abe Fortas: As far as I am concerned, there's a very real question on that.
David Toren: Now, Your Honor, my question -- why we go to the trouble of petitioning for a writ instead of going back to the District Court in trying the case. Well, the answer is very simple, Your Honor. The trade in general is honest respects our trade name and they have no quarrel with the trade as a whole. However, there are few retailers like the present respondent who try to take advantage of our trade name which has a tremendous goodwill by selling inferior, less expensive cheese product under our trade name without telling the public where the cheese comes from. Now, we feel if we have a -- from the federal court a permanent injunction as a matter of law, as distinguished from an injunction which has resulted from a trial, we have a better weapon to defend ourselves against all these retailers otherwise we will have to try that case maybe 10 times.
Abe Fortas: That it seems to me that what you're seeking is something that may be unknown to our system of law.
David Toren: No, Your Honor.
Abe Fortas: That is to say I don't see how a court can give you an injunction except in terms of a fact of -- facts of particular cases and it seems to me that what the District Court did here was may have been to say that I am not satisfied as to the facts of this particular case and you got to go to the trial. Now, you're telling us now if I correctly understood your last statement that what you wanted was a general declaration of the law and without respect to the respondent's foreign practices here that you can use against the A&P and Safeway and anybody else regardless of the differences on the nuances and what they call a cheese with holes in it and I know of nothing like that in our law.
David Toren: Your Honor, as far as I am concerned the language of the statute is so plain and clear it permits for one interpretation only. The statute says the courts of appeals shall have jurisdiction of appeal from interlocutory orders refusing injunction. There's no distinction between a preliminary injunction or a permanent injunction. It says simple language. And in fact there are about 15 cases --
Speaker: Well, put the matter in another way, the Court of Appeals if I understand your position did not reach any of the questions of Justice Fortas has suggested to you. It simply said you had no right to be up there.
David Toren: That's right. No oral argument --
Speaker: An appeal. And if you got up there, why then these questions as to what the District Court did or whether you are entitled to injunction as a matter of law would be right for decision by the Court of Appeals. They didn't reach any of that.
David Toren: They didn't reach it. The chief judge wouldn't be onset, the calendar calls it dismissed for want of jurisdiction and in his opinion the chief judge said he disagreed with the Federal Glass Case which is a Second Circuit and he disagreed the case as Mr. Justice Fortas mentioned that is United States versus New York and New Haven Railroad where Circuit Judge Friendly and Judge Frank said what Mr. Justice Fortas said. Now, the issue was never reached in the Court of Appeals of the First Circuit and we feel that we're entitled to go there because the statute is clear.
Speaker: You're not asking us -- excuse me --
Abe Fortas: I beg your pardon.
Speaker: You're not asking us that up here to decide anything except the appealability question.
David Toren: I have no objection if the Court rules on the matters of the case as my learned friend has urged in his brief but we haven't asked for it.
Speaker: You'll be very much surprised if we did.
David Toren: I would be very much surprised if you did.
William J. Brennan, Jr.: Well, actually you would be really (Inaudible) the State of the Court of Appeals you hear this appeal on the merits.
David Toren: That's correct Your Honor.
William J. Brennan, Jr.: Well, obviously you couldn't advise that, could you?
David Toren: No that's all I want. The question is presented in our petition in our brief exactly say that.
Byron R. White: Is there something not to be tried out of the Court. Let's assume that we -- let's assume that we turned you down here that you did not win here, and that the Court of Appeals doesn't have to hear anything more, is the case over?
David Toren: No. I would then go back to the trial court, to the District Court to try the case.
Byron R. White: But what is there to be tried if the dispositive issue of law has already been decided against you?
David Toren: Well, have there?
Byron R. White: Well, that's what I understood what you said.
David Toren: We say as a question law, it has been decided they gave us those but not if the (Voice Overlap).
Byron R. White: Well, how can you win then? How can you win?
David Toren: Well, I could bring in the 50 witnesses and the market --
Byron R. White: Well, you mean there are some disputed issues of fact?
David Toren: No, there are not.
Byron R. White: Well, what are you going to hear?
David Toren: There is a disputed issue of fact which has been raised by the respondent when he says --
Byron R. White: Well, then the Court is absolutely right, that the Court of Appeals is absolutely right when it said that the District Court merely held that an issue of fact making summary judgment inappropriate.
David Toren: No, that is wrong, it's an incorrect statement. We have pointed that out in our brief. The District Court judge said that is a matter of law.
Byron R. White: Yes, but the District Court judge also said the only question before me is whether or not there is any genuine dispute as to any material fact, that's on page 44 and stated again on page 47. If there's a genuine dispute of any material fact I cannot overrule the objection of another party. That's what District Court said and this is what the Court of Appeals said and if there is no issue of fact left in this case, I don't know how you can say this is anything to be tried out. What would you call witnesses too if there are those issues of facts in the case. Everybody has agreed on the facts. What -- what would you get witnesses to testify to?
David Toren: Your Honor, we say there is no fact which is (Inaudible) that is our contention. We say as a matter of law, the treaty and the statute rules in our favor, counts us to be entitled to this injunction. Now, the Court has turned us down for reasons I do not know because there was no opinion rendered by the District Court judge. All that he admitted at one point during the argument that the question of the treaty and the statute that is the matter of law so I have a right to --
William J. Brennan, Jr.: Well, I gather what you're really saying is you don't agree with the District Court in saying that there's an issue of fact but if you're stuck with it and you have to go back --
David Toren: Correct.
William J. Brennan, Jr.: -- then you proceed on the ground that there was an issue of fact.
David Toren: If I only may disagree with the statement that the District Court did not say --
William J. Brennan, Jr.: Well, whatever -- if it did --
David Toren: Yes.
William J. Brennan, Jr.: If the District Court said there was an issue of fact, even though you disagree with that. Nevertheless, if you're stuck with it, you have to go back and try the case on the premise that there is an issue of fact.
David Toren: Correct.
Byron R. White: Well then we have --
Speaker: We wouldn't even do that I would suppose if we go back to the District Court and say look (Inaudible) there's nothing but the question of law and we were denied for interogatory appeal to this kind of (Inaudible).
Byron R. White: If you think -- if you think it's -- if you really think it's only a question of law, I think Mr. Justice Harlan it's absolutely correct and I think the case is over except for getting a decent appeal on an issue of law.
David Toren: Well, Your Honor, the defendant has completely ignored the legal issue in the proceedings below and has said this is a matter of fact.
Byron R. White: Well, I know but you could have gotten a review on that, you wouldn't have ignored it if you have said instead of taking an appeal from -- on the what you call interlocutory appeal from the denial injunction, an appeal under merits, could you say well, the case is over please enter a primary judgment.
David Toren: Suppose the judge wouldn't do that. Suppose the judge would have said well I think that case should be tried because my learned friend here said there are some people who --
Byron R. White: No. I don't know about that suppose because that hasn't happen.
David Toren: It's only speculative. I don't know how this --
Byron R. White: But at least -- but wouldn't you -- why don't say here which I really understand you are saying that it doesn't make any difference why the District Court turned down the summary judgment whether it was because of an untried issue of fact or because he ruled against you on a dispositive issue of law. It doesn't make a bit of difference under the statute on appealability judgment?
David Toren: Correct, Your Honor.
Byron R. White: So then what part of argument about --
David Toren: I don't know. Mr. Justice Fortas started it.
Byron R. White: Yes, but you -- but your position is that it doesn't make any difference. This is the point.
David Toren: It makes no difference whatsoever.
Byron R. White: And even if the trial judge says what there's a disputed issue of fact here and I am going to turn down summary judgment and you say, yes that's exactly why he did it. You still would say you're entitled to an appeal.
David Toren: Right. The statute says --
Byron R. White: You go that far.
David Toren: Yes. Appeals from refusals of injunctions are allowed. Well, an injunction has been refused so I can appeal, it's that simple.
Byron R. White: (Inaudible)
David Toren: If I may develop my argument on that point, we concede that interlocutory appeals are not looked upon this favor. We have no quarrel with that but we feel that the reasoning of the court below is fallacious and unsound for three reasons. One, it ignores the purpose of the statute. Two, it ignores the plain wording and meaning of the statute, and three it is against the very purpose of summary judgment. Now, in respect of the purpose of the statute, the purpose of Section 1292 is to create an exception to the rule of finality that has been previously recognized by this Court, Mr. Justice Fortas and I refer you to Baltimore Contractors versus Bodinger which was decided in 1954 and the Court expressly stated that this section, Section 1292 is an expressed exception to the rule of finality. Now, the legislative history does not shed any light on the reasons why Congress modified the rules of finality in respect to interlocutory appeal. But this Court in devoting our case which I referred state it and I quote, “the changes seem plainly to spring from a developing need to permit litigants to effectually challenge interlocutory orders of serious, perhaps irreparable consequence.”
Earl Warren: Mr. Toren, I've been wondering why if you were satisfied, there was no issue of fact involved in this case and it was purely a question of law, why didn't you submit your case and ask for a final judgment?
David Toren: I didn't think I have to, Your Honor. I have a statute which I can appeal from the refusal of the injunction.
Earl Warren: Why did you want to come up on that kind of a record instead of a final judgment of your -- in your case. Was it because you weren't satisfied that there was no factual issue involved in the case?
David Toren: No, Your Honor.
Earl Warren: Well, what advantage -- what advantage do you get by going through this procedure which is at least arguable instead of going through the other one which will not be arguable?
David Toren: I must confess Your Honor when that matter came up, there was not a slightest doubt in our mind that that this is an appealable order. The plain clear meaning of the statute says that I can appeal from the refusal of an injunction. What else do I need? Why should I go through additional procedural if the statute tells me I can appeal?
Speaker: (Inaudible)
David Toren: I have the circuit against us but I have an overwhelming --
Speaker: (Inaudible)
David Toren: Well, I have the Fifth Circuit on my side that the International Forwarding case and I have the statute. What else do I need? I think Mr. Justice Fortas if I may disagree in respect I think the points raised by Your Honor completely ignore the statute.
Abe Fortas: Well, it's entirely up to you to think that. I just want to ask you one question. Suppose that the Court of Appeals had felt that this was an appealable order, what would the Court of Appeals decide?
David Toren: Pardon, I didn't --
Abe Fortas: What issue would the Court of Appeals decide? It wouldn't just say this is an appealable order. It's alright, this is an appealable order, now what's the issue of court would decide?
David Toren: The issue for the Court of Appeals is whether or not the motion was denied correctly or incorrectly.
Abe Fortas: That is whether there are or there are not, you mean on the merits?
David Toren: On the merits sure. It never reached the merits on the Court of Appeals.
Abe Fortas: Well, suppose the -- suppose the Court of Appeals looked at this and said that there are questions of fact.
David Toren: But that's not what the Court said.
Abe Fortas: I know but suppose they did.
David Toren: The Chief Justice went up and said dismissed.
Abe Fortas: I understand that that's what he said and he said it's not appealable but you came up from the District Court and for reasons of your own, you did not obtain the entry of a final order on the merits of your case. You came up from a denial of a motion for summary judgment.
David Toren: Correct.
Abe Fortas: A motion for summary judgment may be denied without passing on the merits of the case if the judge concludes that there are genuine issues of fact, isn't that right? And for all that we know and hope you'll correct me if I am wrong about this as I understand this case, for all that we know and the district judge have planned to pass on your motion for summary judgment, decline to grant a motion for summary judgment because the district judge thought that there were genuine issues of fact.
David Toren: I don't agree with that.
Abe Fortas: Now, for most circumstances, a Court of Appeals would pass on the question of whether there were or were not genuine issues of fact. That's the first question that it has to decide. Courts of Appeals don't usually supersede the District Court in passing on the merits of a matter before the District Court has passed on it in circumstances where the District Court has properly declined to pass on the merits because there are remaining issues of fact.
David Toren: Your Honor. Your Honor will agree with me that if the District Court would have granted a motion, he would have had a final judgment, a final order appealable under Section 1291.
Abe Fortas: Of course.
David Toren: But then now -- suppose now the Court of Appeals would have held that motion should not have been granted because there were issues of facts, now the respondent to it would have had the opportunity to appeal. Now, why should we be in the worst position? In fact, --
Abe Fortas: Because there's no final disposi -- there was no judgment by the District Court passing on the merits of your claim.
David Toren: There was the statute that say I can appeal.
Abe Fortas: And in my system of jurisprudence, Courts of Appeals as I understand it ordinarily defer to District Courts and expect the District Court to pass on issues before they are passed on by the Court of Appeals and so far as I know the only issue that the District Court did pass on was whether there were or not genuine issues of fact.
David Toren: But, I disagree with that Your Honor because the District Court judge said this is a matter of law and this is a forum.
Potter Stewart: But even if -- let's assume that Mr. Justice Fortas is correct in his premise and it's your mistake in disagreeing with him and that what the District Court -- certainly what he -- what the District Court could have based this decision on was his finding that there are disputed issues of material facts. Certainly, that's true, isn't it?
David Toren: Okay, it wouldn't make any difference --
Potter Stewart: The question is the jurisdiction of the Court of Appeals under this statute, that's the question in this case, isn't it?
David Toren: Perfect.
Potter Stewart: And Mr. Fortas -- Justice Fortas is entirely correct in saying I should think that if the Court of Appeals does have jurisdiction, the very first question it's going to consider on appeal is whether or not there were disputed issues of material fact, and if they were the district judge regardless of what he might have said in colloquy about the law, he was quite right in denying the summary judgment for final injunction, isn't that correct?
David Toren: Correct.
Potter Stewart: But that's for the Court of Appeals to decide if it has jurisdiction as you tell us it has under the statute.
Speaker: Could I ask you one question about the (Inaudible)?
David Toren: No, Your Honor. What happened was one of our counselor sitting in the chamber as the case was called and it's supposed to tell the time of argument so our men went up and said one hour argument so the chief judge says, case dismissed for want of jurisdiction. That's it and that was the end of it. And then came an opinion.
Speaker: And the opinion was written without any argument?
David Toren: Without any argument. Now we feel that that this was correct.
Abe Fortas: Are you telling us, were there briefs?
David Toren: Oh yes.
Abe Fortas: There were briefs submitted on the merits?
David Toren: Pardon?
Abe Fortas: There were briefs submitted on the merits?
David Toren: On the merits.
Abe Fortas: So that what we have here is that the Chief Judge Aldrich and sitting with Judge Hamlin and Circuit Judge McCarthy said they didn't want to hear argument?
David Toren: That's correct. Now in our brief, we argued the appealability of the order but not only as an auxiliary matter because we sought that was more or less clear cut.
Potter Stewart: Was there a motion to dismiss the appeal?
David Toren: No.
Abe Fortas: Well then, you said that the judge -- the trial judge says that this is a question of law.
David Toren: That's correct.
Abe Fortas: Page 48 of the record there is the judge's order which clearly recites motion denied after hearing. Then what are you talking about?
David Toren: If I may refer Your Honor to our brief. On page 17 of our brief, I quote from the record pages 47 and 48 and I read from the brief. Mr. Toren, that's me, “Now the second point was the international conventional of the Lanham Act. It hasn't even been mentioned in Mr. Cole's brief.” Mr. Cole, for the respondent, now, that means he has not attacked it. The Court, “Apparently, he takes the position that it is not conclusive.” That is the position he takes from what he said Mr. Toren but that is not a matter of genuine issue of fact if he simply says with the Court that is the matter of law.
Abe Fortas: May I read the next two lines.
David Toren: Yes. Mr. Toren, this is a matter of law, the Court, if you what you claim is so.
Abe Fortas: Alright.
David Toren: Now from this I can -- I can infer --
Abe Fortas: As a matter of law, and on page apart from the fourth saying it's a matter of law, then on page 43, I draw your attention to the third -- fourth paragraph and the Court said, well the question before me is whether or not there is any genuine dispute as to any material of fact.
David Toren: Oh! Yes, I know that. Mr. Justice Fortas, as far as I'm concerned, it doesn't make any difference if that motion was denied because of an outstanding matter of fact or an outstanding matter of law. As far as I am concerned, we have a statute which permit appeals some refusals of injunction whatever the reason. Mr. Chief Justice my time is up but --
Earl Warren: You may answer the question, Mr. Toren.
David Toren: Thank you. I haven't been able to present my argument if I may so. So as far as we are concerned, it doesn't make any difference whether it was a question of fact or a question of law. The statute is abundantly clear, its plain meaning, its plain language is the Court of Appeals shall have jurisdiction from appeal from interlocutory orders refusing injunction. Here we have an order which refused an injunction well then therefore within the statute. Now, Mr. Justice Fortas, the court below admitted that we are within the exact letter of the statute but the Court says that the spirit of the statute is against us. Now, what does it mean? That means, if you read the statute literally, our appeal has to be allowed. But literal reading is taboo because of the general policy against interlocutory appeals. That means the Fifth Circuit spurns the meaning of the language, the plain meaning in favor of a doctrine for which this statute is the exception. I submit that this is the most unpersuasive reason to ignore the plain meaning of the statute. Thank you, Your Honor.
Earl Warren: Mr. Cole.
Harold E. Cole: Mr. Chief Justice and this Honorable Court. On this manner of the statute and whether or not this is an interlocutory appeal I maintain it's not interlocutory it's not interlocutory at all because if the motion for summary judgment is allowed that is the case. I am going to read from the hearing in the District Court. The clerk called a case and the Court says, “Does the plaintiff waive damages in this case?” Mr. Toren answered, “Yes, Your Honor.” The Court, “Does the plaintiff waive attorney's fees.” Mr. Toren answers, “Yes, Your Honor.” The Court says, “You waive for it?” Mr. Toren says, “Yes, Your Honor.” But now, if the permanent injunction is granted by the Court of Appeals that's the end of the case, there's nothing more to it. I don't see any point in calling this an interlocutory appeal agreeing that if it were a motion for a preliminary injunction then and was denied then he could appeal under the statute but he's asking for a permanent injunction to complete the case in the Court of Appeals for the First Circuit and if their decision is favored, that ends the case. In connection with this statute, this court has had something to say about it in the City of Morgan Town, West Virginia versus Royal Insurance Company, 376 U.S. 254 60 Supreme Court 1067. The Court said, page 258 but piecemeal appeals have never been encouraged. The growth of the law of procedure in the United States during the last half century has been steadily in the direction of simplicity and direction in the administration of justice and the appeal of order denied. In that case I should state that Mr. Justice Black and Mr. Justice Rutledge did dissent. But, however, it dealt with this statute although the matter was the denial of a jury trial in the District Court. Nevertheless, it reached this Court and the Court refused to expand the statute. Now, what the plaintiff petitioner is asking here is that this Court expand the statute and include motions for permanent injunction that are denied even though damages and attorneys fees are waived. That's what --
Speaker: Or is it the other way around?
Harold E. Cole: What's that?
Speaker: I should think it's the other way around what the statute was saying regarding this appeal?
Harold E. Cole: An appeal --
Speaker: What you are suggesting is that the Court of Appeals (Inaudible)?
Harold E. Cole: The -- the statute --
Speaker: A particular disruption on the jurisdictional statute (Inaudible).
Harold E. Cole: Yes but the statute deals with interlocutory appeals. Now, the word interlocutory has a clear meaning. It certainly doesn't mean an appeal where if it's decided the whole case is it that this isn't a case that will go back for damages ought to determine attorneys fees if the Circuit Court of Appeals decides the case where in it, where it is completed, that is that if they decide in favor of the plaintiff we never get a trial. Now, I want to argue a little on why Congress never amended the statute to provide for appeals when a motion for permanent injunction is denied. If -- well, we'll take the facts in this case and how abusive a process can be in court. This defendant respondent is a small retail meat dealer having two employees and he has a small meat stall in Faneuil Hall Market at Boston. He did not receive any notice in writing to stop using this little sign Imported Swiss Cheese. He happens to sell about 15 to 20 pounds of cheese that's imported either from Finland or Austria. He had to charge more for Imported Swiss Cheese so he merely put on top of the cheese with a little sign Imported Swiss Cheese which is a fact, it's true, it is imported. It came, I believe this cheese came from Austria but Swiss cheese is the well-known term that he was using honestly in the dictionary it's defined as Swiss cheese, a firm pale yellow or white cheese containing many holes, made usually from cow's milk, half skimmed. That's from the American College dictionary. Now, United States Department of Agriculture puts out a book on cheeses and in it, it defines Swiss cheese and it says Swiss, Emmentaler cheese which is a large, hard crust, curd cheese with an elastic body and a mild nut-like Swedish flavor. It's best known because of the holes or eyes that developed in the curd as the cheese ripens. The eyes are often one half to one inch in diameter and so on. And then it goes on to say Swiss cheese is made in many other countries beside Switzerland, including France, Denmark, Germany, Bulgaria, Italy, Austria, Finland, Russia, Argentina, and the United States. And then it goes on to say that most of the Swiss cheese is made in Wisconsin but some other countries also make Swiss cheese.
Speaker: (Inaudible)
Harold E. Cole: Well, first of all, I want to point out if you do allow an appeal from a denial of a motion for summary judgment, how much this split of a case? What damage you can do to a poor defendant. He is a fellow with a little market. He goes into court because he wasn't given written orders. Then there's an appeal, alright, if the Court, the circuit court denies the appeal, back it goes to the District Court then up to the Court of Appeals again all over one little word. He said the cheese was imported. It is imported.
Speaker: What you emphasize is what Court of Appeals (Inaudible).
Harold E. Cole: Yes, but the point is -- here is the way we started. In November 1963 the complaint was filed. A year and more later, when the case was nearly ready for trial, this motion for summary judgment was filed. Now, that keeps the case from being tried. So we hear the motion for summary judgment. It's denied. Now, he gets another year before trial. He goes up to the Court of Appeals for the First Circuit and we used up approximately another year getting up there in briefs and so forth. Now, I don't think Congress wants you to expand the statute to include a motion for summary judgment because of the unfairness and the hardship of a little defendant. Now, they are bringing this case up or trying to bring it up to the Court of Appeals again and have them decide that the words Imported Swiss Cheese mean (Inaudible) that is the Switzerland Swiss Cheese. It's a strange thing but while this case was going on an advertisement came out in the New York Times and the Ladies' Home Journal in which they said in their ad, “Imported Swiss cheese isn't good enough for you. Insist on genuine Switzerland Swiss Cheese.” They don't believe that they had any right in Imported Swiss Cheese but they can go on and on with a case like this. Right up one court to another then back to the other court then up to the other court and we can have a trial after something like three years now. We can't even get a trial.
Hugo L. Black: Did you attack this copyright?
Harold E. Cole: Oh he didn't have any. He didn't have any registration. He hasn't have any copyright.
Hugo L. Black: How did the court get it --
Harold E. Cole: They just --
Hugo L. Black: -- out in the federal court and get jurisdiction on a purely local case.
Harold E. Cole: They -- when they started the case, they attached a lot of patent office, trademark registrations but that's been dropped long ago. We didn't infringe those. Those trademark registrations covered Switzerland Swiss Cheese.
Hugo L. Black: But what's the end of it?
Harold E. Cole: Oh! He says that the plaintiff has exclusive rights in the words Imported Swiss Cheese.
Hugo L. Black: Imported Swiss --
Harold E. Cole: Swiss Cheese. That if anyone uses the word --
Hugo L. Black: Did you attack the right to get some kind of a trademark or a semi patent on the words Imported Swiss Cheese?
Harold E. Cole: Well, they haven't done any. What they say is that in the trade, when anyone uses the word Imported Swiss Cheese, they mean only the plaintiff's cheese and they put a couple of affidavits in. What I am pointing out is that same time the lawyers were doing that, this advertisement came out in the New York Times and the Ladies' Home Journal saying that Imported Swiss Cheese isn't good enough for you.
Hugo L. Black: Well, that would like be getting some kind of a right to use alone? Imported Russian fur.
Harold E. Cole: Well, that's what they want. That's what they're asking for. The sole argument in this case in there briefs is that is a question presented --
Hugo L. Black: Well, if the courts -- the courts below decided get on the facts that they allege, they didn't have enough, they didn't have jurisdiction regarding the thing that's no good. Would that give the court jurisdiction?
Harold E. Cole: Well maybe I don't understand, the Court only decided that they couldn't hear an appeal from a denial of motion for summary judgment, that's all they decided.
Hugo L. Black: But what did the District Court decided on?
Harold E. Cole: Oh the District Court said it was a question of facts. They said a number of facts.
Hugo L. Black: And then decided against them on the question of fact?
Harold E. Cole: What's that?
Hugo L. Black: And decided against them on the question of fact?
Harold E. Cole: Well, yes. They said it was a question of fact. But it seems the affidavits were contradictory and so they wouldn't decide that Imported Swiss Cheese means plain as is, they wouldn't decide that. They said the affidavits are contradictory. So there was the end of that part and I think Judge Julian made it clear several times because he did talk an awful lot as you see in the record about it that it was a question of fact and he was stuck. He says I can't issue a -- I can't grant you motion for summary judgment and he refused so he -- Judge Julian is very implying to grant the motion. If you read in the record here the number of things he said on the subject. Now, --
Hugo L. Black: Did you say or not that they do have a trademark?
Harold E. Cole: No they don't have trademark on Imported Swiss Cheese. They --
Hugo L. Black: They have no copyright on it?
Harold E. Cole: No, they have none.
Hugo L. Black: They have no patent?
Harold E. Cole: No. What they did they attached the patent office trademark registration to the complaint to get into the federal court. Once that they got it in there then they drop the whole thing. They don't claim --
Hugo L. Black: They drop the whole thing about the --
Harold E. Cole: Except the words Imported Swiss Cheese.
Hugo L. Black: Said they have been using that and that you're deceiving somebody. A plain order in that case --
Harold E. Cole: Yes, that's what they said. It is what he says in his brief. Petitioner says the exclusive representatives of the cheese manufacturers of Switzerland. They alleged that respondents use of the of the trade designation Imported Swiss Cheese on non-Switzerland cheese without indicating the country origin of the cheese is deceptive and an unfair trademark practice as a matter of law.
Earl Warren: We'll recess now Mr. -- Continue your argument.
Harold E. Cole: Thank you. I meant earlier in my argument to explain why I asked that the Court dismissed the case on the merits because there is authority and I refer to Patterson v. Alabama 294 U.S. 600 page 607. We have frequently held that in the exercise of our appellate jurisdiction, we have power not only to correct error in the judgment under review but to make such disposition of the case as justice requires and the Court has on different occasions dismiss the case. Well, of course we're anxious in that. I would argue would be dismissed because all we're using is the word “imported” and we don't want to go on from court to court fighting for our rights. In fact I better say this that this was a small sign and when the suit started the attorney for the defendant who isn't here told his client to take down the sign. The sign hasn't been up since then but what they want is an injunction and we aren't willing to have the injunction issue because you make use of an injunction naturally legally by advertising it so forth so that's where our difference. We don't consider calling Imported Swiss Cheese, any great event while you're only selling only 15 to 20 pounds a week and actually we aren't doing it. Now, I depended also on a case not in my brief but Your Honors will recall on that Sears, Roebuck v. Stiffel 376 U.S. 225. In that case, this Court made it clear that nothing was to be taken out of the public domain and given to anyone party. In that case, it happen to be a lamp that wasn't patented and they had gotten an injunction enjoining the defendant Sears Roebuck from using the lamp even though it was patented and this Court made it clear if there were no statutory protection for that lamp either by a design patent or regular patent or a copyright that anyone who's free to make it, in the same holds here as to the word imported. Anyone is free to use the word imported if it's truthful. Now, the Code of Federal Regulation Title 21 Chapter 1 defines in Section 2 Swiss cheese. I don't need to read the definition but in order for the import division, the treasury department to permit the entry of cheese they defined Swiss cheese and of course Swiss cheese it's coming from all these different countries. Another thing I should mention the defendant respondent never uses Switzerland, he never called this cheese Switzerland. He never called his cheese genuine. All he calls it is imported. Another thing during the hearing in fact the motion for summary judgment contain no proof or advertisement whatsoever that the plaintiff, petitioner here ever used the words imported Swiss cheese alone to describe its product. They presented no advertisement showing that. All the advertisements described the product as Switzerland Swiss cheese. Now, coming to the decision because while the Second Circuit Court of Appeals did permit an appeal from a denial of summary judgment I think the case of Morgenstern v. Schering 181 F.2d 160 from the Third Circuit is better reasoned. On page 162 the Court said the denial of summary judgment in the court below has no comparable significance. The Court has not reached much less decided the merits of plaintiff's claim for injunction. The motion for summary judgment is not an application for a preliminary injunction. Nothing has occurred in or as a result of the denial of the motion which precludes plaintiff from seeking a temporary injunction. Now, in the Court of Appeals for the Second Circuit where they did allow the appeal I think you will see the fallacy especially in Judge Frank's opinion where he said regarding the case of contrary conclusion by sheer ritualism would waste time for plaintiff the next minute after the denial of the summary judgment motion could present the same papers and changed except for a new label motion for a preliminary injunction. In other words, what --
Hugo L. Black: What is that case?
Harold E. Cole: What's that?
Hugo L. Black: What is that case?
Harold E. Cole: Oh that was Judge Frank's case -- What -- It's -- oh Second Circuit. I believe it's a Federal Glass --
Hugo L. Black: Judge --
Harold E. Cole: No this was Judge Frank. He followed Judge Hand out. Judge Hand had the first one.
Hugo L. Black: What --
Harold E. Cole: What's that? Oh this one here? The U.S.C. 276 F.2d 525.276 F.2d 525.
Hugo L. Black: That's Judge Hand?
Harold E. Cole: No that's Judge Frank.
Hugo L. Black: What's Judge Hand.
Harold E. Cole: Well, oh Judge Hand.
Hugo L. Black: Well, you don't have that in --
Harold E. Cole: It's in the Federal Glass Company versus Loshin 217 F.2d 936 Ca.2. But in the Second Circuit now, some of the judges who have been constrained to follow Judge Hand's and Judge Frank's decision said solely they do it with regret that they don't think it was good law but they of course feel they are bound to follow. On the other hand, we have the Third Circuit now and the First Circuit deciding the case otherwise. Now, that completes my argument.
David Toren: Mr. Chief Justice may I request some additional time?
Earl Warren: No. I think not. We'll have to get the rest from your brief. That's the regular routine of the Court then. I'm sorry.
David Toren: Thank you.


Warren E. Burger: -- first this morning in 72-90, United States against Chicago, Burlington and Quincy Railroad. Mr. Stone, you may proceed whenever you are ready.
Richard B. Stone: Thank you, Mr. Chief Justice and may it please the Court. This is a corporate income tax case here on the writ of certiorari to the United States Court of Claims. The sole issue presented in the Government’s petition for certiorari is whether the respondent railroad is entitled to take depreciation deductions with respect to certain to properties paid for by governmental agencies for the purpose of improving safety and traffic flow at highway -- railroad intersections. The issue is governed as I shall explain by provisions of the Internal Revenue Code of 1939 which are no longer applicable under the Internal Revenue Code of 1954. The resolution of this question of construction of the 1939 Code, however, will continue to effect tax returns filed for many future years, especially with respect to the railroading utility industries because the relevant amendments to the 1954 Code do not apply to properties paid for as for those in issue here prior to 1954 and most of these properties have very long useful lives, in some cases, as many as 50 or 60 years. The background of the properties with respect to which respondent seeks depreciation deductions here is as follows. Beginning in the early 1930s, respondent and many other railroads entered into agreements with various State Governments for construction of facilities to improve the safety and traffic flow conditions at highway-railroad intersections. The initial agreements between the railroads and the States provided that the states would substantially, though not entirely, reimburse the railroads for those facilities which it was the railroad’s obligation to construct. Shortly after these initial agreements were reached, Congress passed a series of statutes which authorized the Federal Government to pay at least part of the state share of the construction cost of these facilities. This is set forth in the National Industry Recovery Act at 48 Stat. 195, Section 203 and is a 1933 statute. In the years following the initial agreements and the initial authorization of partial federal reimbursement of state expenses, the railroads who presumably felt that these facilities designed to improve highway traffic conditions were tangential to the profitable operation of their railroad business displayed great reluctance to share substantially in the construction costs and disputes between the railroads and the states were quite frequent over allocation of the costs. In order to settle these disputes, the Congress passed the Federal Highway Act of 1944 which was basically a stepped version of the prior act and this act authorized the Federal Government to reimburse the States for the entire cost of the facilities such as those at issue here, subject only to the limitation that to the extent that the railroad was deemed to receive direct benefit from these facilities, it should reimburse the Federal Government on a pro rata basis up to a maximum of 10% of the cost of any particular facility. The result was that the States initially absorbed all or most of the cost of the facilities for which they were reimbursed by the Federal Government and the railroads paid only so much as was deemed to reflect the benefit which the railroad derived from the facilities and this Court in no event exceed 10% of the cost. Now, although there is some question as to whether respondents or the States have title to the facilities under the terms of these agreements. The agreements do provide that respondent is obligated to maintain the facilities “directly related to railroad use,” such as rail bridges and roadbeds and tracks and the states are correspondingly required maintain the facilities directly related to motor vehicle use such as highway bridges and approaches. The majority of the Court of Claims here appears to have assumed that the obligation to maintain these facilities includes the obligation to replace worn out equipment. Judge Davis found that questionable proposition, but he Court of Claims appears to have found the respondent had the obligation here to maintain and replace those, at least those facilities, most directly related to railroad use. And at this point, I should point out that the Government and respondent appear to be in some disagreement as to precisely the type of facilities which respondent seeks here to depreciate. The Court of Claims did not make a specific finding as to what percentage of the facilities at issue here were of the type closely related to the railroad business and correspondingly what percentage were closely related to highway use and this would bear for example, upon the question whether respondent was obligated to maintain and replace the facilities that it seeks to depreciate, a question which to be sure, we do not believe to be dispositive of this case. The Court did find and this finding is at page 55a of our certiorari petition that about a million and a half or a somewhat more than $2 million of property at issue here, was in the category of “Highway under crossings or highway over crossings.” We assumed perhaps in some haste, that highway under crossings and highway over crossings referred to highway facilities over railroad tracks and concluded on that basis that at least 71% of the amount in controversy represented facilities in the category most directly related to highway use. Judge Davis appears to have assumed the same thing and I refer you in that connection to footnote 2 on page 48a of the petition. Respondent now asserts in his brief that it is not claiming any highway structures here and that the items in its account 6 which the Court of Claims described as highway under crossings are in fact railroad bridges of some sort. In this connection, it cites the joint exhibit found at page 51 of the appendix in which the items in account 6 are described simply as bridges. Respondent claims that the bridges in this account are all rail bridges and that in spite of the finding of the Court of Claims, it has not sought to depreciate any highway under crossings or over crossings. Now, our examination of the record in this case including an inspection of the tax returns filed by respondent does not provide a satisfactory answer to the question whether the items in account 6 include highway crossings and if so, to what extent and the litigation as I think quite rightfully not focused closely on this point. We felt it is desirable to bring this discrepancy between our reading of the record and respondent’s assertion to the Court’s attention, but for reasons which I shall refer to several times in the course of this argument, hopefully, our position is in no way dependent upon the answer to the question whether the bulk of the facilities in question were directly related to highway use or railway use.
William H. Rehnquist: As a matter of terminology both highway under crossing and highway over crossing could refer to the railroad structures. They would not necessarily include highway --
Richard B. Stone: I think it is right, they could Mr. Justice Rehnquist and in that connection, it may have been hasty of us to assume that it referred to highway structures. I believe Judge Davis assumed the same thing because in this footnote 2 on page 48a of the petition, he refers to the fact that three quarters of the structures in question were those were highway over crossings or under crossings and that part of the agreements between the States and the railroads included the condition that the railroads would not -- that the States would not have to pay for an easement with respect to those structures. And I assume that if there is any question involving the State applying for requiring an easement in order to make the construction it would probably refer to a highway construction in which it was the state's obligation to constructing not a rail construction, that isn’t crystal clear either. In any event, we do not believe that this is at all dispositive of the issues in the case and I shall have occasion to explain why in the course of the argument. I want to bring out one more background to this case. In the series of events described at length in our brief and in the opinion of the Court of Claims, respondent as a condition to obtaining the permission of the Internal Revenue Service to change its basic depreciation accounting technique, respondent entered into a terms letter agreement with the Internal Revenue Service in which the respondent promised among other things that it would not take depreciation deductions with respect to properties that had been donated to it. And so for years, respondent declined to claim depreciation deductions with respect to the assets at issue here. Suddenly in 1965, respondent brought a law suit in the Court of Claims alleging that it overpaid its income tax for the year 1955 and that is the year at issue here when it failed to take depreciation deductions on these properties paid for by the Government. And the Court of Claims held by a margin of four to three, Judge Davis dissenting vigorously that respondent was indeed entitled to include the value of these properties in its depreciation base and to take deductions though it had incurred no costs in the acquisition of these assets.
Harry A. Blackmun: Mr. Stone, there are other cases backed up behind this one, aren't there, involving other railroads?
Richard B. Stone: Yes, there are Mr. Justice Blackmun?
Harry A. Blackmun: Do those cases have a terms letter wriggle to as this one does?
Richard B. Stone: I’m not sure whether all of them do Mr. Justice Blackmun, but if -- I am told that the terms letter agreements were very widespread in the railroad industry. They are basically involved, the post second World War changes from retirement to depreciation accounting and I am told that that was such a widespread practice due to the fact there was such low retirements and high profits during the second World War and most railroads and most industries generally, did their accounting on the basis of -- did their accounting on the basis of retirement, but it became much more profitable after the war to do it on the basis of straight depreciation technique. But I don’t know specifically, if there are any cases backed up right now which do not involve the terms letter. In deciding this issue in respondent's favor the Court of Claims held both that the depreciation deductions were allowable on the applicable provisions of the 1939 Code and then in addition, respondent had not given up its right to take depreciation deductions on donated properties when it entered into these terms letter agreements. It is our position that even if the 1939 Code allowed the respondent a depreciation deduction in these circumstances which we certainly believe it did not, respondent was precluded from taking these deductions as a result of the binding terms letter agreement it entered into. This is a question of contract interpretation essentially. It is quite thoroughly covered in our brief and I shall focus my attention in this argument on the primary question with respect to which we sought certiorari here which is whether the respondent is entitled under the terms of the 1939 Code, to take deductions in these circumstances for the depreciation of properties in which it has incurred no cost. The fundamental concept of the depreciation deduction and this is virtually an (Inaudible) since its inception has been that tax payers deduct from taxable income that portion of their assets which is used up in earning that income. The deduction for depreciation is essentially an expense deduction. It’s designed to reflect approximately that portion of a taxpayer’s expense incurred in the purchase of its assets which is attributable to the production of income in any particular year. Accordingly, both the 1939 and 1954 Internal Revenue Codes provide that the basis on which depreciation is allowed is the same as the basis for determining gain or loss in disposition of the property and in most instances, this is the expense that the taxpayer has incurred in purchasing the asset which is of course the taxpayer’s cost. If an asset has caused the taxpayer nothing, its gradual consumption represents no expense to him and there is ordinarily no reason to give him an expense deduction. Now, there ought to be sure certain refinements of the general rule that the depreciation basis is the taxpayers cost. In certain situations for example, the tax laws have historically provided that a taxpayer to whom assets are transferred in certain well defined types of transactions, takes over the basis of the transferor rather than acquiring a new basis. This is known commonly as a carryover basis. This is true for example where a taxpayer receives property in a transfer which the code characterizes as a gift. There is also a carryover of the transferor's basis in many situations in which property is transferred to a corporation by its shareholders for example. Section 358 of the Internal Revenue Code of 1954 provides a classic example of carryover basis which is a carryover basis for property transfer to a corporation in a Section 351 transfer which is transfer in exchange for stock or securities in a corporation controlled by the transferors. The reasons for providing a carryover basis in these situations are various and they are quite complex and would not fruitfully be explored in the context of this argument. But I would suggest that close analysis justifies the conclusion that these provisions do not really represent departures from the notion that basis is fundamentally a function of cost. Rather these special provisions reflect the legislative view that in certain circumstances, well defined and for certain reasons, the purposes of the Code are most consistently and effectively carried out when the basis of an asset is unchanged in the hands of a transferee or if you will, when the cost basis of someone else other than the transferee taxpayer is the most appropriate basis. Now, what is the situation that we deal with here? Section 113 (a) (8) (B) of the 1939 Code, provided that corporate taxpayers could take over that transferor’s basis, a carryover basis, in this case to be sure that assets we’re dealing with are new and so that the question is not one of whether it is a carryover basis or a taxpayer’s cost basis because those are one of the same, the question is simply whether the taxpayer takes over any basis at all on these assets. Section 113 (a) (8) (B), provided that corporate taxpayers could take the transferor’s basis including for purposes of depreciation in property transferred as “A "contribution to capital"” and that is the term we are dealing with here. Ordinarily, that term “"contribution to capital"” refers to a transfer of money or other property to a corporation by a shareholder. In this situation, the "contribution to capital" is quite logically considered a part of the shareholder’s investment in his equity interest in the corporation and it’s treated much the same way as consideration paid for example for the issuance of stock. But the Internal Revenue Code of 1939 did not restrict the right to acquire a basis and correspondingly to depreciate assets donated as contributions to capital -- to assets donated by shareholders. It simply provided that the corporation acquired the transferor’s basis and a "contribution to capital." Consequently, it appears that the 1939 Code contemplated that non-shareholders could also make contributions to a corporation’s capital and that the corporation could take over the transferor’s basis in these assets for depreciation purposes. Significantly by virtue of this Court’s holding in Edwards against Cuba Railroad 268 U.S., a property transferred in these circumstances was held not to constitute income to the transferee corporation. Nonetheless, under the 1939 Code, corporate taxpayers who received the donated assets which could be categorized as contributions to capital, were able to take depreciation deductions with respect to these assets in which they had no investment and which they had received entirely for income tax liability. Congress changed the situation when it enacted the Internal Revenue Code of 1954. Section 362 (c) of the current Code provides that contributions to capital made by non-shareholders after June 1954 have a basis of zero for depreciation and other purposes in the hands of the transferee, so that the basis is no longer carried over from the transferor. But for cases such as this one which involved assets transferred before the application -- the applicable date of Section 362, it is still necessary to inquire whether the transfer in question can be classified as a "contribution to capital" within the meeting of Section 113 (a) (8) of the 1939 Code. Let me make it clear that we are not in any way whatsoever implying that respondent should be deprived of a benefit which the 1939 Code provides to it. We are not attempting to make the amendments contained in Section 362 of the 1954 Code retroactive because they are explicitly made prospective in application only. The specific issue in this case, however, is the definition of the term "contribution to capital" as used in Section 113 (a) (8) (B) of the 1939 Code and that term is not defined in the Code. As I’ve indicated, it is a term ordinarily associated with transfers by shareholders or persons with underlying equity interests in a corporation. The question in this case is, what does the term "contribution to capital" mean in the context of a transfer to a corporation by a non-shareholder? With respect to this question, we believe that it is highly relevant to understand that the allowance of a depreciation basis in this circumstances was a departure from the traditional notion of depreciation as a reflection of expense actually incurred as an asset is used up and we believe it is reasonable to conclude from the context that the term "contribution to capital" was not intended to apply to all transfers made to a corporation without immediately apparent consideration, but that the term was intended to have a rather specific meaning and it is that meaning which we are attempting to uncover here. Indeed, we submit that the decisions of this Court rendered while Section 113 (a) (8) (B) was still in effect have interpreted the term "contribution to capital" in the context of non-shareholder transfers in a very specific and limited way. Essentially, we deal with two cases in which this Court specifically considered whether transfers of assets to a corporation by a non-shareholder constituted contributions to capital. In both of these two cases, the Court tested the assets in question in terms of the donative intent of the transferor. Specifically in terms of whether the transferor’s intention was to increase the corporation’s capital, whether he was making a contribution to the corporation’s capital. Thus, in the Detroit Edison case, decided in 1943 at 319 U.S., the taxpayer was a utility company which claimed depreciation deductions with respect to electric power lines which its customers have been required to pay for in order to induce the company to provide its services in that neighborhood. The Court held the taxpayer’s customers had not contributed these assets to taxpayer’s capital. Justice Jackson said at 319 U.S. 102, it overtaxes imagination to regard to the farmers and other customers who furnish these funds as makers either of donations or contributions to capital. The payments were to the customer, the price of service. Then in 1950, seven years after Detroit Edison, the Court decided the second case construing the term "contribution to capital" in the context of non-shareholder transfers and that case is the Brown Shoe Co. case decided at 339 U.S. In that case and it is a fairly standard model for a whole group of cases, community citizen groups which were intending to induce taxpayer to locate its operations in that community for the purpose of generating economic benefit to the community donated factory buildings and other assets for use in the construction of the taxpayer’s basic new plant facilities. The use of the assets was unrestricted except that they were to be used in the taxpayer’s business at that location for a specified period of time. The Court in that case noted that the intent of the community groups was immediately to add assets to taxpayer’s working capital without imposing restrictions and the Court held that the transfer is “Manifested a definite purpose to enlarge the working capital of the company” for which reason, the Court distinguished the Detroit Edison case where the transfers had been made by customers for compensation for service and it held that the transfers constituted depreciable contributions to capital under the 1939 Code. Now where is this case fit in the spectrum between Detroit Edison where the Court found that the donations were intended as payment for services rather than as contributions to enlarge the taxpayer’s capital. In Brown Shoe where the Court held that the donations made to induce taxpayer to locate its plant in a particular area were intended to increase the taxpayer’s capital. The Court of Claims in this case, recognized that the governmental agencies which contributed to the highway railroad facilities at issue or let us more properly say which paid for the facilities at issue, did not intent to enlarge respondent’s working capital in any way. For the Court specifically found that “The facilities were constructed primarily for the benefit of the public to improve safety and to expedite highway traffic flow and that finding is at page 57a of the petition. The Court found further that the transferors were motivated entirely by considerations of highway safety and convenience and that they gave no consideration to respondent’s need for capital. Nonetheless, the court held that the instant case was controlled by Brown Shoe rather than by Detroit Edison and that the transfers were contributions to capital. Its reasons and they are amplified by taxpayer in its brief reflecting our view an incorrect interpretation of these two cases and an excessively broad meaning of the term "contribution to capital." To begin with, both the Court of Claims and respondents seize upon the reference in Detroit Edison to the fact that the power lines were contributed by taxpayer’s customers in order to obtain taxpayer services. They seize upon this language and in spite of the Court’s emphasis in Detroit Edison on the lack of intention to enlarge the company’s working capital they would restrict the application of that holding to situations where the properties in question are paid for as compensation for services. They set up in either or a test. Conversely, the Court of Claims and respondent would read Brown Shoe and this is nearly incredible in view of the language of that case not to require a finding of intent to enlarge taxpayer’s capital. Under their argument, a transfer to a corporation without obvious consideration constitutes a "contribution to capital" unless it can be categorized as compensation for services. This is a very broad conception of the term "contribution to capital." It’s rather cleverly contrived to fit the facts of this case in which the assets would clearly and as the Court of Claims found not donated with the intention of enlarging or contributing to taxpayer’s capital, but in which the pay -- the transfers also cannot be categorized as payment for services. We simply do not see how this conclusion can be reconciled with the opinions in these cases or indeed with the whole statutory scheme governing the depreciation deduction. And indeed there is a vital aspect of the case bearing quite specifically on this question of intention which is ignored by the Court of Claims altogether, for which makes it even clearer perhaps than in the Detroit Edison case that no contribution has been made to taxpayer respondent’s capital. In Detroit Edison, the parallel lines which the taxpayer’s customers donated to it, though they were not to be sure of transfered with the intention of expanding the company’s capital were at least assets which were directly beneficial and relevant to the taxpayer’s business, assets which in fact made a substantial addition to the taxpayer’s corporate capital. Here in this case as the Court found, the assets were only tangentially related to respondent’s business. The contribution was worth very little to the extent that there was any at all. Though increased safety at highway railroad crossing is a goal that no one presumably would oppose it is not especially relevant to the profitability of the railroad business, a fact which is doubtless reflected in the railroad company's constant resistance to sharing in the cost of these facilities. This resistance is what resulted in Congress’s authorization of total federal reimbursement for the facilities subject to the 10% maximum payback by the railroads. And indeed this is perhaps, the most significant fact in the case to the extent that respondent was deemed to benefit to receive any tangible benefit from the construction of the facilities in issue here, it was required to pay for them. Nothing was contributed, whatever the respondent was deemed to have benefited from, he paid for it. I take it everyone agrees that it is entitled -- the respondent is entitled to depreciate any portion of these assets, which it may have had to pay for. The agreements specified as I’ve said earlier, that this benefit was not to exceed 10% of the cost of the facilities and this is presumably a reflection of the party’s judgment, of the legislative judgment that the facilities were not financially important to the railroads. Indeed testimony before the Court of Claims hearing commissioner and I point specifically to page 76 of the appendix, indicated that the railroads frequently asserted in arguing how much of the cost they would have to bear that the benefit they enjoyed amounted really to only 1% or 2% of the total cost of the facilities and it did not seem to matter for this purpose whether the facilities of the type directly related to rail use or the type directly related to highway use. In sum, these assets with respect to which respondent seeks depreciation now were neither transferred in consideration of respondent services as in the Detroit Edison nor were they contributions to respondents capital as in Brown Shoe. The railroads and the governmental agencies here have merely apportioned among themselves the costs of improving traffic flow at highway railroad intersections. Their respective shares of these costs reflect the relative benefit that the railroads and the Government representing the people respectively derive from the assets. In the case of the railroad, this is not much benefit and so the railroads don’t pay much. But neither can it be said that these governmental agencies in absorbing the share of the costs which reflects the public's interest in these assets it cannot be said that they have contributed or donated that share of the costs to respondent’s capital. Essentially, it may be helpful to think in terms in which respondent and these agencies are simply like any two persons who share a cost together in proportions which reflect their respective interests in an asset. Two adjoining land on this, for example, may decide to construct the fence or dig a well together. They may find it convenient to locate the fence or the well on one side of the other of their property line. Presumably, their apportionment of the cost of this asset that will reflect their respective uses of the facilities. The land owner on his side of the line, the well is dug or the fence erected has certainly not received a donation from his neighbor and cannot include his neighbor’s cost in this depreciation basis. This is essentially, we believe, the nature of the case here. We would add finally that the great emphasis placed in respondent’s brief on the fact that it was obligated to maintain some or it argues all of the facilities, may and may not be true that it has this obligation, but it is irrelevant to the question of appreciability and relevant to the question whether this is a "contribution to capital" because I want to say relevant, the question is certainly not depended upon it. Depreciation as it’s well known is an expense deduction for a current expense. It is not an anticipation of a future expense and a cost which the tax payer has never incurred. The taxpayer cites in this regard certain cases in which it is unclear who has made the underlying investment in equity asset and in those cases it has been relevant to inquire who has the maintenance obligation and so far as that sheds evidence on the question who is the underlying owner or has the underlying cost the basis on the asset. But the mere obligation to undertake a speculative future expense does not under any circumstances give rise to a depreciation deduction. For these reasons, we believe that this decision ought to be reversed.
Warren E. Burger: Thank you Mr. Stone. Mr. Schreiber.
Richard Schreiber: Mr. Chief Justice and may it please the Court. We feel that the significant difference in the factual approach taken by petitioner and respondent is decisive of the outcome of this case. We submit that the obligation of replacement of these facilities is the critical factor in a determination as to whether or not respondent is entitled to these depreciation deductions. The finding of the court below is clear that respondent have this obligation in connection with the 173 facilities that we are talking about here today. Now, what are these facilities? They are simply railroad bridges, rail crossing protective devices that are located on respondent’s right of way, which he has the obligation to maintain and to replace. Now, we say we have the legal obligation of replacement of these facilities. In addition, we have a very real practical obligation because the rail bridge over the public highway is a vital link in our transportation system. If we are furnishing common carrier service to the public, each one of these locations is essential to that operation. Therefore, we feel that there is a definite need to set up a depreciation reserve both from an accounting standpoint in order to anticipate replacement and from the very real practical situation of replacing these bridges if they became inoperable and needed replacement.
Potter Stewart: In the Detroit Edison case, did the utility company have the obligation to maintain and if necessary replace those power lines or doesn’t that appear in this opinion?
Richard Schreiber: I don’t believe it appears Mr. Justice Stewart, but I think it probably could be assumed if they want to continue in business that they would have to replace this facility although, it was not part of the agreement between the prospective customer and the Detroit Edison company.
Potter Stewart: But the lines became the property of the utility company of the Detroit Edison?
Richard Schreiber: Yes they did Mr. Justice.
Potter Stewart: Presumably, they had the same obligations as your client does in this case, didn’t he?
Richard Schreiber: They had --
Potter Stewart: And in nay event the Court did not put any weight on that at all, didn’t even mentioned it?
Richard Schreiber: Not in the Detroit Edison case Mr. Justice, but we feel that the legal obligation and the practical obligation of replacement that we have makes our case more persuasive for justifying a claim for depreciation deductions on 113 (a) (8) (B) than the Brown Shoe case.
Potter Stewart: Well, the point is that exactly the same obligation might have existed in the Detroit, so far we know did exist in the Detroit Edison case and yet the Court did not as I say, find that if it were true find it persuasive at all?
Richard Schreiber: No, because of the overriding considerations that the payments from the prospective customers in Detroit Edison.
Potter Stewart: Were part of this cost of services?
Richard Schreiber: Right.
Potter Stewart: And part of the prices --
Richard Schreiber: Yes that’s true.
Potter Stewart: Rightly or wrongly, the Court does not seem in other words in either case, neither Detroit Edison nor Brown Shoe to have considered the fact that you are not talking about as dispositive either way, isn’t that true? In Brown Shoe, the Court made a stress on the fact that the purpose of those who gave the assets was to benefit Brown Shoe and then directly therefore to benefit the community, isn’t that right?
Richard Schreiber: We feel that the teaching of the Brown Shoe case was that the contributions made by the local citizen proves to the Brown Shoe Company was to benefit the public at large.
Potter Stewart: Right.
Richard Schreiber: In other words, the -- to create additional job opportunities with --
Potter Stewart: Through Brown Shoe?
Richard Schreiber: Yes. And the means they used to achieve this public purpose was to make these contributions to the working capital of the taxpayer. We feel that that is strictly analogous to the factual situation we have here. The primary purpose of the Federal-Aid Highway Act was to benefit the public at large by enlarging the network of highways and also to increase safety at these intersections between highways and railroads. Now the means that the Government chose to use to reach this laudable objective was to make these contributions to this taxpayer in order to benefit the public, but in so doing did so by contributing to our working capital. In fact, I might enlarge on that just a bit. The agreements between the respondent that was with the local or state governmental unit provided for the construction of these railroad bridges and these rail crossing protective devices and subsequent to that, the respondent taxpayer was then reimbursed in cash through the Federal-Aid Highway Program. So, the initial expenditure was out of respondent’s working capital to fund the construction of these projects and then this cash that went to the construction of these facilities was reimbursed directly into respondent’s working capital.
Warren E. Burger: Mr. Schreiber, I’m not sure it is important or even relevant but in recent times at least spur tracks off the railroad yard running into an industry to pick up their freight have been constructed at the cost by the railroad, that the cost of the industry. What do the railroads do about that, do they claim depreciation on those spur tracks?
Richard Schreiber: Well --
Warren E. Burger: Industry tracks?
Richard Schreiber: The industry tracks if the payment is made initially by the prospective customer without any right of reimbursement that money would never appear in the respondent’s accounts because it is assumed that the prospect of customers paying for that right to have the track in there to serve his business.
Warren E. Burger: Isn’t that quite a bit like Detroit Edison?
Richard Schreiber: That is more like Detroit Edison than the instant fact situation, yes Mr. Chief Justice.
Warren E. Burger: And how do you -- how would distinguish it? Tell me how, you think that’s distinguishable in what respect from your case?
Richard Schreiber: The spur track situation? It’s different because there, the prospective customer is making payment in order to obtain services that might not otherwise be available to him. Unless there is a legal obligation on the respondent to construct the facility, it’s within its his discretion as to whether or not it will do so and that is comparable to the Detroit Edison case. Here, Mr. Chief Justice, we have a situation where this respondent railroad had a preexisting legal obligation to construct these facilities in accordance with the laws of the states in which we operated. The state regulatory commissions did and frequently did issue orders requiring railroads to construct these types of facilities on their property. Generally, that was done as a result of a petition from residents of the local community if they wanted a signal light or a crossing gate at particular location in their town and they would go down to the state public service commission and as a result of the proceedings there we were frequently ordered as the record below indicates to construct these facilities. So, there was a preexisting legal obligation on respond it to construct these facilities, which distinguishes it from the situation in Detroit Edison case and from the situation with regard to the spur track.
Potter Stewart: If a spur track is constructed, who owns it? Who has title to it?
Richard Schreiber: The title would be dependent on whether or not the track was certainly on the prospective customer’s property or whether it was on railroad right of way. If it was on railroad right of way, the title would -- legal title would assume to be on the railroad. But if it was on as most of the siding tracks for serving customers' plant facilities are located within that particular plant facility area.
Warren E. Burger: But some part of it is always on the right of way of the railroad, is it not?
Richard Schreiber: Probably the lead in Mr. Chief Justice, would be in order to get in to the property line.
Warren E. Burger: But the railroads don’t claim any depreciation for that part?
Richard Schreiber: Well, the prospective company would only be paying for the track that’s located on its property, in other words, a side track up to a door inside of its building in order to serve that particular company. The -- what we call a turnout from the rail track off the railroad right of way to the property line of plant would be our cost and of course the --
Thurgood Marshall: What happens if 50 years from now, that viaduct of such and such road collapses, and just wears out, and several of them wear off, and rail roads comes in and says we can’t afford to build it, to rebuild it and the Government said, “Okay, we’ll do like we did before, we’ll give you the money?”
Richard Schreiber: Maybe in regard to the possible reconstruction of the bridges and crossing signal protection devices? Well, if that were to be the case and of course we certainly hope that won’t be the case in connection with tax payer that would be the situation that would have to be determined at that time. But, as of today --
Thurgood Marshall: Could the Government -- could the Government deduct from what they gave you? How much you’ve depreciated in those last 50 years?
Richard Schreiber: Could they Mr. Justice I don’t have the answer to that question whether they could or not if like congressional act --
Thurgood Marshall: So, it would it be fair for them to do that?
Richard Schreiber: From the standpoint and the perspective of fairness, it might very well be fair and reasonable if at some future date due to a collapse of a particular railroad the obligation was placed back on the Government to replace these facilities to offset the depreciation deductions claimed. However, at that situation --
Thurgood Marshall: By that time all that money is gone, right?
Richard Schreiber: Pardon me?
Thurgood Marshall: By that time all the depreciation money that you got back has gone now, isn't it, 50 years from now?
Richard Schreiber: Well, it’s gone in the sense that it was available to the tax payer. But if in your situation, the tax payer railroad is becoming bankrupt, it wouldn’t have any taxable income so it wouldn’t be able to achieve any benefit from the deduction.
Thurgood Marshall: I didn't mean bankrupt, I mean it was scooping along as it was in the 60’s?
Richard Schreiber: Well, as long as its still viable --
Thurgood Marshall: Well you have to go to a Federal Government to get the money, didn’t you and you weren’t bankrupt, am I right?
Richard Schreiber: This, the Federal-Aid Highway Act of 1933 and the subsequent amendments there to were provided for the primary purpose of benefiting the public by enlarging a highway network and also to provide these safety facilities that --
Thurgood Marshall: What is -- the taxpayer has taken money for depreciation benefiting the public?
Richard Schreiber: The taxpayer claiming his legitimate right to depreciation deductions is exercising the rights as provided by statute.
Thurgood Marshall: But it isn't benefiting the public, is it?
Richard Schreiber: But the project itself has the primary purpose to benefit the public although that is true. As I’ve indicated before the question is the means that were utilized to achieve this primary purpose.
Potter Stewart: You I think started to say something else in response to my question.
Richard Schreiber: In regards to the track itself. The track is a non depreciable item from the standpoint of straight line depreciation. So, therefore, the depreciation on the tracks is not an issue here, It's only those items that we claim are entitled to straight line.
Potter Stewart: Railroad tracks are not depreciable?
Richard Schreiber: Under straight-line depreciation. They are under retirement accountings, Mr. Justice. Now, we submit that the issue here involves clearly and simply a question of the proper statutory construction of Section 113 of the 1939 Internal Revenue Code. Now the Section, we are relying upon is Section 113 (a) (8) (B), which provides for the transferee to assume the basis of the transferor on payments made by shareholders as paid in surplus or from any other person as spelled out in the regulation and in the statute itself. Now, this distinguishes the situation furthermore, from the Detroit Edison case because under Section 113 (a) (8) (B), there is no necessity for a requirement of donative intent as there would be under section 113 (a) (2), which is the gift provision and permits the donee to acquire of a donor’s basis. The donative intent only is of significance in connection with an interpretation of 113 (a) (2). Now as I have indicated previously, we feel that this case is controlled by this Court’s 1950 decision in the Brown Shoe case. Now, the logic and the rationale of this Court’s decision in the Brown Shoe case is equally applicable in connection with our case. The facts are parallel. The primary intent was to benefit the public at large, both in Brown Shoe and in this case. Secondly, the payments in the Brown Shoe case and in this case were not payments for goods or services to be rendered as they were in the Detroit Edison case.
Warren E. Burger: Is there one difference that in Brown Shoe, perhaps the industry would not have come into the area at all except the contribution?
Richard Schreiber: That’s correct Mr. Chief Justice that the –
Warren E. Burger: Not true here?
Richard Schreiber: That’s not the same factual situation here because we had this preexisting legal obligation to construct these facilities, yes sir?
Warren E. Burger: So you didn’t have any option about it that Brown Shoe had?
Richard Schreiber: That’s why we feel Mr. Chief Justice that the facts in this case are more persuasive to justify a claim under Section 113 (a) (8) (B). Brown Shoe Company agreed to maintain this new facility or the renovated facility within that community only for an initial period of 10 years. Now at the expiration of that ten-year period, the Brown Shoe Company could pick up and move on and conceivably they did. Here, we had the obligation of replacement on a continuing basis if we intended to continue an operation as an interstate railroad. That as I was indicating is the distinguishing characteristics we feel between Detroit Edison on the one hand and Brown Shoe and on the factual situation in this case on the other hand. Now, as mentioned briefly in partitioner's argument, as part of the over-all revision of the 1954 Internal Revenue Code, Section 362 (c) was added to apply a zero basis to these types of contributions, but to do so on a prospective fashion only as to those facilities constructed subsequent to June 22, 1954 and facilities that we’re talking about here today, these rail bridges, these rail crossing safety devices were all constructed prior to the cut off date provided for in Section 362 (c) of the 1954 Code. It is clear also, from the legislative history of Section 362 (c), that it was intended to overcome the effect of the Brown Shoe case, but to do so on a prospective fashion only. Congress had it within its discretion to apply this revision on the code provided for in Section 362 (c) both in a retroactive manner if it deemed prudent and advisable or in a prospective manner. They chose to do it on a prospective fashion only. Now, the Commissioner and the Government are coming in to Court here and saying that regardless of what the congressional intent was this 54 Code revision should now be applied retroactively to factual situations that the Congress specifically excluded when it amended the code. Now, I think it’s clear that as a general principle of law, no retroactive effect is to be given to a statutory amendment unless it is explicitly required by the terms and conditions of that statutory amendment. Here, the case is quite to the contrary that it was to operate prospectively only. Therefore, we assert that our rights to these depreciation deductions have matured exclusively under Section 113 of the 1939 Code and specifically Section (a) (8) (B). Finally, I just like to touch briefly on the so-called terms letter defense petitioner which we have been faced with throughout the trial of the case in the Court of Claims and on appeal to the court below. Petitioner asserts that certain illustrative language out of the so-called memo 58 guidelines is a bar to our claim for depreciation deductions in this case. Briefly, what transpired here is that in 1944, pursuant to a request by the taxpayer for a change over in method of depreciation accounting from -- retirement accounting to straight-line depreciation accounting revised or schedules were submitted to the Internal Revenue Service and an offer of a terms letter agreement, a consent of this change over in accounting was sent to the taxpayer. Included in that terms letter in 1945 was the document that has been referred to as memo 58 guidelines. It's our position, number one, that the memo 58 guidelines were never a part of the terms letter agreement between respondent and the commissioner. They were not incorporated either by reference or otherwise into the terms letter offer between respondent and commissioner. Then, upon receipt of the terms letter offer from the commissioner, respondent replied with a qualified acceptance indicating that in the event that any of the terms and conditions should be changed by statutory amendment, by operation of law or otherwise, that the taxpayer would not be precluded from the benefits of such changes. Now, considering the status of the law in regard to these depreciation deductions in 1945, it’s clear why these were not included in the schedule submitted by respondent to the Commissioner of Internal Revenue. In 1943, this Court decided the Detroit Edison case and subsequent to that decision, the commissioner began to disallow depreciation deductions to the Brown Shoe Company based on the Detroit Edison case. That’s what initiated the lawsuit by the Brown Shoe Company to be allowed to claim these depreciation deductions and that issue was resolved by this Court in 1950. So, from the period from 1943 to 1950, it was the position of the commissioner and the government that nobody was entitled to any depreciation deductions on contributions to capital similar to those at issue in Brown Shoe and here. Therefore, it would have been a meaningless act for us to, as a result of a request for change over in accounting raise the issue when that was the current understanding of the Commissioner and the Government. The terms letter itself and the memo 58 both specifically were qualified to indicate that depreciation was to be in accordance with Section 113 of the 1939 Internal Revenue Code and the regulations issued there under. Therefore, once it became clear as a result of this Court’s decision on the Brown Shoe case that contributions of this nature were properly depreciable. It affected a change in the terms and conditions of the terms letter agreement between respondent and commissioner and justified our claim for depreciation deductions even if the memo 58 guidelines could be considered as even partially incorporated into the terms letter offer from the commissioner to respondent. Finally, in conclusion, respondent would like to assert that it's a very simple factual situation we are dealing with here in this case. What we’re talking about are railroad bridges, rail safety facilities that are directly related to the operation of plaintiff’s railroad that we have the legal and practical obligation of replacement of these facilities if as we do continue to desire to stay in business as an interstate railroad. Further, that the Government should not be allowed as result of this litigation to apply a statutory amendment in a retroactive fashion when Congress of although it had it within its discretion to do so failed to do so. And finally, we assert that the so-called terms letter defense cannot be successfully used to defeat a valid claim of this taxpayer on a substantive issue of its entitlement to depreciation deductions when the illustrative language relied upon by petitioner is included in a memo 58 guideline enclosure to the terms letter agreement, which is qualified by providing that all applicable sections of the 39 Code will govern the situation in regard to depreciation. And when respondent’s acceptance of the terms letter agreement was so qualified to preserve its legal rights to contest the legitimacy of these depreciation deductions in a proper form by a timely claim for refund, which is precisely what the respondent did successfully both in the trial court and before the Court of Claims on review. If there are no further questions, thank you, Mr. Chief Justice.
Warren E. Burger: Thank you Mr. Schreiber. Thank you Mr. Stone. The case is submitted.