William H. Rehnquist: We'll hear argument first this morning in Number 88-952, United States versus Sperry Corporation. Mr. Wallace.
Lawrence G. Wallace: Mr. Chief Justice, and may it please the Court: In this case, the court of appeals for the federal circuit held unconstitutional an act of Congress, Section 502 of the Foreign Relations Authorization Act, that requires, as relevant here, the deduction and payment to the federal treasury of one and a half percent of an award made by the Iran-United States Claims Tribunal in favor of the United States claimant, and paid out of the security account established pursuant to the Algiers Accords that were described in some detail in this Court's opinion in Dames & Moore against Regan. The one and a half percent fee is stated by the text of Section 502, and I am reading from page two of the government's brief, to constitute reimbursement to the United States government for expenses incurred in connection with the arbitration of claims of the United States claimants against Iran before the Tribunal, and the maintenance of the security account. The statutory fee schedule not only was designed for that purpose, as the legislative history corroborates, but our experience to date has shown that the receipts from the fee in the aggregate not only do not exceed the purpose for which the fee was required, but, as we recount in some detail in our reply brief, page 12, note 11, they cover only about one half of the expenses of servicing the Tribunal and claimants before the Tribunal and the security account. And this is calculated against only the expenses of maintaining these institutions in operation. No component was included, as it well might have been, for the preliminary expenses that were incurred by the government in negotiating the Algiers Accords themselves and in the military deployments that were undertaken to support those negotiations. So--
William H. Rehnquist: At what point, Mr. Wallace, do you get to the point where it really wouldn't be permissible to attribute these costs to--
Lawrence G. Wallace: --Well, I am just... I think insofar as they can be related to a benefit that is conferred upon the special class of persons they could be included. I am merely making the point, Mr. Chief Justice, that the costs are... against which these fee receipts are being compared... are very conservatively calculated in showing benefits received by complainants who use the Tribunal and the security account. Because it is only the post negotiation maintenance of the Tribunal and security account that is taken into the calculations. There is no claim in this case that the award was an inadequate payment of the claim. Indeed, there is no basis for such a claim in this case, because the award merely effectuated the settlement between the parties that the appellees agreed to, and the award was paid in full from the security account. There is, accordingly, no basis in the facts of this case for the dis... the court of appeals invocation of the concern expressed in Justice Powell's separate opinion in partial dissent in Dames against Moore, that perhaps some of the commercial claims of particular Americans would be used as bargaining chips for foreign relations purposes, for release of the hostages, et cetera. Since... and perhaps the security account would prove inadequate to pay the claims in full, even if the award is properly made by the Tribunal. Nor, may I add, has experience in general with the functioning of the Tribunal and the security account borne out the concern that these claims might be sacrificed. We have, on page 21 of our brief, recounted that more than $1 billion of payments have thus far been made out of the security account to successful United States claimants, and that Iran has replenished the security account on 21 occasions when its balance fell below the $500... $500 million minimum that is, that requires it under the Accords to replenish the account. Thus far, it has been able to satisfy its obligations to replenish the accounts--
Anthony M. Kennedy: --Well, that's not really this case, is it? Sperry would say, I suppose, that we settled for a figure that was satisfactory to us but then the government added on the additional deduct, and that is what we are here to discuss.
Lawrence G. Wallace: --Exactly so.
Anthony M. Kennedy: And I would... I don't think they concede that the settlement was adequate if you take into account the deduct. I see nothing to that effect in the pleading.
Lawrence G. Wallace: Exactly so, Mr. Justice. The challenge here is solely to the one and a half percent fee rather than to the award itself, but it is a fact that the award was made by means of a negotiated settlement to which Sperry agreed, and that at the time the award was submitted to the Tribunal for its entry of an award and for payment of the fee, of the award, out of the security account, Sperry knew that the government had provided, through a treasury directive license, that two percent of the award would be deducted. So that there was a basis in the settlement negotiations for Sperry to take into account the likelihood that a fee would be deducted.
William H. Rehnquist: Well, you could say that, though, about a 25 percent fee, that didn't purport to be equal to the cost. It was many times the cost. You could say that Sperry knew about that when it made the settlement, so perhaps it should have gotten 25 percent more than it thought it should have.
Lawrence G. Wallace: Well, that is quite so, but the point nonetheless is relevant to the foreseeability of what the consequences of the settlement would be, and--
Anthony M. Kennedy: Well, of course, I suppose Sperry could foresee that that fee would be declared unconstitutional, or unauthorized rather, by the United States claims court, so that still brings us back to square one, it seems to me.
Lawrence G. Wallace: --Since Sperry did not waive its right to challenge the fee... there is, however, Justice Kennedy, another respect in which these aggregate figures are relevant here, and that is that, as we have pointed out in our footnote 16, thus far Iran has managed to satisfy its obligations to replenish the security account by means of payments out of an escrow fund that has been created for the interest earned by the security account. Therefore, Iran is able to make payments from the security account pursuant to awards entered by the Tribunal without having to call upon any other funds. It can make these payments from funds that are not otherwise at its disposal for any other purpose. So that the existence of the security account, pursuant to the awards, undoubtedly serves as an inducement for Iran to settle and discharge claims through that mechanism and through use of these funds that are not otherwise available to it. So there is, in that sense, a benefit being conferred in the negotiating process itself by the mere existence of the Accords and their implementing mechanisms. Now, the one and a half percent fee, as I have recounted, constitutes what is known in the law as a user fee, since it is reasonably calculated merely to defray the costs of services being provided by the government for the special benefit of a limited class of persons using those services. This Court has on numerous occasions upheld the validity of such a fee. One recent example was Kadrmas against Dickinson Public Schools, involving a fee for school bus transportation services. As the Court stated in Massachusetts--
Antonin Scalia: Mr. Wallace, excuse me. Do we know if Sperry had any security... or had any other means by which it could have effectuated its claim had the government not entered into these international agreements and set up the fund?
Lawrence G. Wallace: --Well,--
Antonin Scalia: I mean it just seems to me a little bit unreal to say, were I Sperry, I would feel a little bit aggrieved when the government says you cannot pursue your claims through normal legal means; we are going to erect a barrier to that. And then we are going to make you pay for the privilege, as well. I mean, that is what is going on here, right?
Lawrence G. Wallace: --Well, that depends on what you mean by normal legal means, Mr. Justice. Sperry had brought--
Antonin Scalia: Attaching any of the assets of Iran in this country and levying upon them.
Lawrence G. Wallace: --Eleven months after the president froze Iranian assets in this country, at a time when there was a threat by Iran to withdraw all those assets, Sperry did attach the assets. But under this Court's holding in Dames and Moore, that was entirely contingent and subordinate to the orders of the president saying that, while such attachments would be allowed, they could be nullified at any time, and the assets could be moved out of the country. The likelihood is that by the time Sperry brought its suit in the United States courts, there would not have been any assets to attach.
Antonin Scalia: Because of the government's order that we approved previously, correct?
Lawrence G. Wallace: Well, the assets were there only because the president froze them in the first place because of the international crisis that had arisen. When one is doing business with a foreign country there are risks involved beyond the risks of doing domestic business. For one thing, it is not easy to sue sovereign powers. They enjoy sovereign immunity and other defenses that other defendants would not enjoy. There is a limited waiver of that sovereign immunity in the Foreign Sovereign Immunities Act, but there is still active state doctrine defenses, difficulties in collecting judgments, if there are no assets here to attach. There is always a risk that a foreign government will fall, that our relations with the foreign power will change in a substantial way that would affect commercial relations and result in financial disputes. And those doing business with foreign governments do it against a long his... background of experience in which they share both the risk and the benefit that they may have to rely on the president's intervention to resolve financial disputes that otherwise would not easily be resolved in the courts. This is a risk that in some ways is comparable to the risk undertaken by doing business with a domestic corporation that may fail, and then instead of being able to pursue your claim against that corporation in the ordinary courts, you might find your claim subject to the automatic stay in bankruptcy, and to be submitted only in the bankruptcy court. And it is subject to--
Anthony M. Kennedy: You are saying that this is a user fee that has a nexus to the transaction that Sperry entered into, and therefore it is essentially reasonable. Is that the proposition?
Lawrence G. Wallace: --Well, that is correct. This Court--
Anthony M. Kennedy: What about the retroactivity aspect of it? I assume that user fees are generally related to the service provided. Can they be retroactive? Can the District of Columbia say we are in bad financial straits and we are charging a user fee of $100 every time the fire truck comes out? I assume they could do that. Could they make it retroactive, and say everyone who has had a fire truck in the last five years now has to pay us $100?
Lawrence G. Wallace: --Well, it is common for tax laws to be made retroactive, as this Court has upheld many times, the United States against Darusmont, and others, where there is no specific service that was provided to the taxpayer, but Congress wanted to achieve uniform treatment of the taxpayers under this Court's decisions dealing with the question of retroactivity of legislation regulation economic relationships, the Pension Benefit Guaranty cases, and Usery against Turner Elkhorn. The question is whether there is a rational legislative purpose for the retroactive application itself. And here there clearly was a rational purpose of treating all claimants who benefitted from the Tribunal and the awards uniformly and having them all share the cost, rather than just having some of the claimants who benefit from these special institutions that we negotiated to protect American claims pay the cost.
Anthony M. Kennedy: So you would say that anyone who uses services of the government is under the contingent liability that they may be charged a retroactive user fee?
Lawrence G. Wallace: It does not exceed the cost to the government of providing those services... if it is reasonable to do that. We are not talking about a confiscatory fee of any sort here. We... Sperry received an award of $2,800,000 and has been charged a fee of $42,000, a very modest fee compared to attorneys' fees or other fees that are often incurred in securing such an award, and a fee that does not exceed the direct expenses to the government of maintaining these special procedures for the benefit of American claimants, such as Sperry, to enable them to recover their claims against the government of Iran.
William H. Rehnquist: Well, what if Congress decided that the filing fees in the district court have been low for a lot of years. They haven't nearly covered expenses. So we are going to now charge $200 to file a complaint in the district court and we are going to go back 10 years, and anyone who filed a complaint in the district court in the last 10 years will be assessed the difference between what the filing fee he paid was and $200.
Lawrence G. Wallace: That would raise problems considerably beyond the problems here since there was already a two percent fee prescribed before Sperry submitted its claim, even though Sperry had a legal argument that that fee would not be valid, and the fee is also much less than the five percent fee that historically has been charged under the Foreign Claims Settlement Act for the president's undertaking to settle claims of American companies against foreign governments, such as in the Shanghai Power case. So we had a history of more than 40 years in which fees in excess of this one and a half percent were regularly charged for this purpose.
John Paul Stevens: Mr. Wallace, is it not true that in this case Sperry filed its claim before the treasury two percent regulation was put into effect?
Lawrence G. Wallace: It filed its claim, yes, but submitted the settlement for the entry of the award after it went into effect.
John Paul Stevens: Well, I understand they settled it after it, but when they invoked the jurisdiction of the Tribunal, there was no notice that any claim would be filed, any two percent or one and half percent would be collected.
Lawrence G. Wallace: Not at that time, but--
John Paul Stevens: Under your rationale, would it be permissible for the United States, after the whole claims process is completed, then to say we think the claimants should pay the expenses, and then assess it at that time, rather than after claims are filed but before judgments or awards are issued. And then just figure out what the cost was and then send everybody a bill for their pro rata share.
Lawrence G. Wallace: --I think that that would meet the standards this Court has applied in its retroactivity cases, yes, but this is an easier case because Sperry--
John Paul Stevens: Would you say the same thing if the assessment also included the use of the claims Tribunal by unsuccessful claimants? They also invoked it, had the benefit of having their disputes resolved by the Tribunal, but they just didn't happen to recover anything.
Lawrence G. Wallace: --The, the fee could have been assessed against all claimants who invoked the Tribunal, but Congress chose not to do it that way. The fee is assessed only if a payment is made out of the security account.
John Paul Stevens: I understand.
Lawrence G. Wallace: And Sperry and Iran did not have to seek a payment out of the security account or an award from the Tribunal. There were benefits that Sperry got from using the Tribunal and the security account, much less risk that the award would not be paid or that it would be delayed in payment. And, of course, a delay in payment could result in a loss of much more than one and a half percent of the value of the award.
Antonin Scalia: You say Sperry did not have to seek an award from the Tribunal. What were the realistic options Sperry had?
Lawrence G. Wallace: Well, that depended entirely on settlement negotiations between the parties to the dispute, Sperry and Iran. They did settle one of their other claims, as we recounted in footnote 20 on page 31 of our brief, without seeking an award from the Tribunal. These claims often involved counterclaims and the like. We don't know, because there was no occasion for them to provide the government with the information, whether Iran made a payment to Sperry in settlement of that other claim.
Antonin Scalia: Never mind options that depend upon Iran's agreement to the options. That is not much of an option. What other options, within its own control, did Sperry have, other than proceeding to the Tribunal?
Lawrence G. Wallace: No other option within its own control, but--
Antonin Scalia: All right. Well, so then, you know, don't tell us well, they undertook this voluntarily.
Lawrence G. Wallace: --Well, it was Sperry who undertook to do business with Iran. We were not a party to the commercial transaction. And we provided the Algiers Accords, a $1 billion fund that Iran was obligated to keep in the security account, and a Tribunal to make awards on behalf of United States claimants. That was a considerable service that we were providing.
John Paul Stevens: Yes, but even with regard to the settlement that did not come from the payment from the Tribunal, they had first filed a claim with the Tribunal, had they not?
Lawrence G. Wallace: They had.
John Paul Stevens: So that they really, apparently at that time, didn't have any alternative but... for seeking relief, except through the Tribunal.
Lawrence G. Wallace: Well, that may well have been a part of their negotiation strategy. Many people file a claim and then settle the dispute as part of their negotiating strategy.
Antonin Scalia: Or the settlement may have been part of their litigating strategy.
Lawrence G. Wallace: That is quite true. It may have been related to the other claim that did go to judgment before the Tribunal. We don't really know that, because they were not required to disclose to the government what the terms of settlement were with respect to the claim that was not pursued before the Tribunal. In any event, there was a voluntary element in the sense that Sperry, as this example shows, was not required to proceed before the Tribunal in order to settle its claims with Iran if the parties could find another mechanism for doing that. Nor did the appellees in this case have either a property right or some other constitutional right to have their claim against Iran adjudicated in a particular Tribunal, in a United States court, or a cost-free forum. If the Court please, I would like to reserve the balance of my time for rebuttal.
William H. Rehnquist: Very well, Mr. Wallace. Mr. Seiver, we'll hear now from you.
John D. Seiver: Mr. Chief Justice, and may it please the Court: In this appeal, the Court is presented with four distinct constitutional challenges to an act of Congress which attempts to retroactively authorize the imposition of these deductions from the awards of the Iran claims, Iran-US. claims Tribunal. These deductions work as the taking of property without just compensation, a denial of equal protection of the laws, a denial of due process, and also run afoul of the origination clause of the Constitution. At the time litigants were forced to abandon their district court litigation and pursue their claims against Iran at the Tribunal, there was no legislative authority or policy in existence at the time which would have supported any user fee or any deductions from awards of the claimants at the Tribunal. The Algiers Accords, which established the Tribunal and forced us to proceed with our claims there, providing it as the only forum for adjudication, expressly provided that the governments would bear the costs of operating the Tribunal. There was no discussion of a user fee being charged or any deductions from awards. Similarly, the Tribunal modified its rules of procedure. At the time we filed our claim, UNCITRAL Rule 38 was modified to provide that the costs of running the Tribunal would be paid for by the contracting parties, that is the governments, not the arbitrating parties, and such costs could not be an item of an award between the arbitrating parties. Finally, in May of '81, when the Senate had before it authorizations for funding the Tribunal and paying the State Department for paying the expenses of running the Tribunal, the Senate said this Tribunal is very important to U.S. interests. We want the State Department to devote sufficient personnel and resources to the operation of the Tribunal to protect U.S. citizens interests abroad. Please keep us informed of the need for any additional resources or any additional personnel; nothing about charging a fee for the use of it, nothing about making a deduction from award to fund this particular expense. When the treasury went ahead and assessed its... and issued its directive license in June of '82, that was some six months after the filing deadline for claims of the Tribunal. It did so without any prior notice and without any authority. It did allege it had the Independent Offices Appropriations Act when it issued that license for a two percent deduction. But that just didn't apply. We challenged that in the claims court, and then Chief Judge Alex Kozinski agreed. The Independent Offices Appropriations Act could not be used to justify a user fee. So we have no express authority for charging user fees, we have no latent, perhaps inherent authority in the government to charge us a fee for any particular purpose for the use of the Tribunal.
William H. Rehnquist: Well, might not this come out of the Curtiss Wright doctrine where they say in foreign affairs, there is a much looser legislative delegation doctrine, and that sort of thing?
John D. Seiver: Well, we're not really in foreign affairs anymore. What we have here is a crisis that was settled, the Accords had been written, the Tribunal had been up and running and issuing awards, and now the deduction that we are challenging occurs in New York, when the Federal Reserve Bank of New York happens to get the award before it is passed on to the claimant. So the foreign relations power is not really implicated. And the government didn't even really rely on that.
William H. Rehnquist: But the fact that the deduction occurs in New York surely can't be a complete answer if a good deal of the rest of the transaction relates to foreign affairs. Wouldn't you agree with that?
John D. Seiver: Well, yes, I agree that is not a complete answer, but it demonstrates that really what is going on here is something that is removed from foreign relations and the general concept of what the executive has power to do in furthering foreign relations. There was nothing left to be done once the Accords were implemented and once the Tribunal was up and running. Because this occurred in New York we can say, really, there was no exercise of any foreign relations power. There was no dealing with a foreign sovereign, there was no regulation that was trying to say well, this is the way the claims are going to be presented or tried or adjudicated. There was nothing of that sort. It was a pure reaching into the pocket of the claimants and taking their property interest in that award. The government's... that wasn't the government's money that was represented in the award. The government hasn't challenged that. They originally said that was public money that was on its way back from the security account, but they abandoned that below. That was our award, and unless they had some separate authority, and the court of claims... the claims court did not think there was any inherent power over foreign relations to reach in and invade that particular property to pay for the costs of a Tribunal which had been up and running, and which they could not even justify by a reasonable calculation, we should pay for the use of the Tribunal.
William H. Rehnquist: Where did the Tribunal set?
John D. Seiver: In The Hague, in the Netherlands.
William H. Rehnquist: In The Hague.
John D. Seiver: When treasury went about promulgating its directive license, it made no reasonable calculation of what the costs were that could be attributable to successful claimants. What it did was make an estimate, and in a two-page document which is in the Appendix to our motion to dismiss or affirm, what the costs would be for one year, and extrapolated that out over a number of years to figure out, this is what our entire cost of operating the Tribunal would be, and then worked backwards to determine what percentage fee will reimburse us for this entire cost. Not whether certain claimants were getting more benefits or less benefits, whether some services would be used more or less by others, not whether--
John Paul Stevens: May I ask, may I ask you a question about this point, Mr. Seiver. Supposing, in ordinary litigation in the United States, Congress decided that it was too expensive to, unnecessarily... we were spending too much money collecting judgments, and they decided that they would impose a one and a half percent fee for the services of the marshall or whatever federal official had to go out and levy on bank accounts or property and all the rest. Could they constitutionally apply such a... and then they passed a statute based on a rough calculation authorizing that... could they apply that statute to cases that are pending?
John D. Seiver: --I think not, Your Honor.
John Paul Stevens: You think not.
John D. Seiver: I think that that, there would be a retroactive problem, but even as to cases that were pending, or the day before they were filed, we have a situation where a revenue-related assessment, that is purportedly to reimburse costs, has no relationship to the costs that are sought to be reimbursed. The perfect example of this, I think, was brought up. Those that use the services of the Tribunal but don't get an award, or if there was a possibility of getting an award from a separate account, don't pay a single cent for the use of the Tribunal. And that was exemplified by the way the banks handled their claims. Under the Accords, they could file and present their claims to the Tribunal, and they have settled their claims there. Their claims, though, and their awards, are not paid out of the security account; it is paid out of a separate account in England, and no deductions are assessed. So here we have a separate set of successful claimants that are at least... have benefited as much as Sperry, have the same ability to pay, but are not charged anything for their use of the Tribunal or the benefit, that is argued that was so strong for us, to have the availability of the Tribunal's procedures to adjudicate our claim. When Justice Kozinski looked at the revenue-related assessment, he also made note that the government really did not have any other authority. And if we look at what Congress has been told about the authority of the State Department or the treasury to assess these fees, in June of '85, when the act in question was under consideration, the State Department told Congress, we can't fashion an IOAA administrative fee that would satisfy the cost-benefit nexus. It would really take into account what are the costs of the benefits conferred as opposed to the costs of the benefits derived by users of the services. In December of '82, prior to us... Sperry, instigating this litigation, that was the, one of the first attempts at getting legislation. Mr. Michael, one of the State Departmen advisers told Congress well, we are going to go ahead with this administrative process. We have been doing it since June of '82. But we really need statutory support; we really need Congress to make the policy determination. So here we have now knowledge on the part of the government, be it through one of its executive agencies, that it was assessing fees without authority, a determination by the U.S. Claims Court that it had no authority, and now, some four years after the Accords, some three years after the claim period had been closed at the Tribunal, but three weeks after the ruling by the claims court, a retroactive assessment. Now, the denial of due process in the retroactive area is looked at with a analysis of the cases of Heinszen and Forbes. The government cannot reach back and retroactively change substantive policy, and that is what it was doing here when it reached back and provided the authority for the assessments. There had been no prior existing authority, no prior existing notice that any fee or deduction would ever be assessed against the ward, except for the illegal administrative assessment in June of '82.
Harry A. Blackmun: That is notice, isn't it?
John D. Seiver: Well, I think, Your Honor, if we take any illegal act by an executive agency as notice that that could be retroactively authorized by Congress at some future time when it wished, then we are subject to no control on the authority of the executive. They act pursuant to enumerated powers, as does Congress. If they can exceed their authority, and that we're going to have to cross our fingers and hope that they don't get a retroactive authorization from Congress, then really we're not living in a democratic government. That is not the way our system of laws have designed... have been designed. And the Court's opinions in Heinszen and Forbes made that clear, that a retroactive assessment could not really change substantive legislative policy.
William H. Rehnquist: Is it your view that the government here is bound by the claims court opinion that there was no authority in the various acts the government relied on for the assessment of this fee, prior to the congressional adoption of it?
John D. Seiver: Well, bound to the extent that they did not ever pursue another course of action except to go to Congress to ask--
William H. Rehnquist: Well, I mean bound in the sense of res judicata.
John D. Seiver: --Well, Your Honor, it has been mooted, and I am not sure whether or not we could have an argument for res judicata, but probably collateral estoppel. At least to the extent that they have abandoned the administrative assessments--
William H. Rehnquist: Well, I don't... thinking it over though, this is the same case, isn't it?
John D. Seiver: --Yes, it is, Your Honor.
William H. Rehnquist: Well, then, there wouldn't be any collateral estoppel. Collateral estoppel just applies to a final judgment.
John D. Seiver: Well, there wasn't a final judgment. Judge Kozinski did never, never issued an order finally adjudging the violation. But the action of the government estop... basically mooted the controversy in the middle, and I think from the government statements that they could not ever satisfy the IOAA with a fee. It appears that that really is on the verge of being res judicata. Now the argument that the government has also made--
Antonin Scalia: Excuse me, why is it that the government can apply a tax retroactively, but not a fee of this sort?
John D. Seiver: --Well, Justice Scalia, when a tax is applied retroactively, we look at it basically as it is involuntary. The receipt of income is something that we are not going to give up to avoid a tax. However, if we are going to use a government mandated service, generally it is looked at... you have to know what you are going to be getting into at the time you get into it. And even in the tax area, a voluntary transaction, for instance a gift, cannot be retroactively changed. I believe the tax legislation says that when it is a voluntary act, even a week or a month retroactivity would be unlawful.
Antonin Scalia: Now how much voluntary... it seems to me you are really trying to ride two horses going in different directions in some of your argument. This portion of it asserts voluntariness on your part, that had you known of the fee, you wouldn't have proceeded this way. Other portions of your argument emphasize the fact that you had no choice but to go to this Tribunal. Now, which is it, did you have a choice or didn't you?
John D. Seiver: Well, Your Honor, you are absolutely right. We didn't have a choice. And the reason we bring up the voluntariness aspect is because the government has said this is a user fee, and the user fees are imposed in the context of having a choice, because of--
Antonin Scalia: Is that so? Why?
John D. Seiver: --Well, generally that is the process of determining when someone has gotten a special benefit that is not available to everyone else.
Antonin Scalia: I can impose a user fee for water, couldn't I, for water services from the municipality, and I guess you would have a choice to not have any water, if you consider that a choice. Just as you had a choice not to get your money.
John D. Seiver: We had a choice to give up a $2.8 million settlement, or an $18 million claim, however we looked at it, but is that really a choice?
Antonin Scalia: No, it isn't. But neither is going without water.
John D. Seiver: Well, Your Honor, as far as the involuntariness aspect, that has been our main argument, and we only brought up the voluntariness to try and say this is not really a user fee, it is a tax.
Antonin Scalia: Are you saying a user fee can't be charged for items that are involuntary, is that it?
John D. Seiver: I believe if it is involuntary, then it is really a tax, because you don't have a choice. You can't say, I mean, I presume Your Honor is correct in saying if they want to put a charge on the water, people are still going to take the water. If they are going to say you are going to be charged for breathing the air, then presumably you are not going to stop breathing, of course. But with the involuntariness of being forced to go to the Tribunal, then really it does become a tax. But the government has said well, this is really not a tax because we wanted to go there. We voluntarily packed up our bags, left district court and went to The Hague. So we're only making the voluntariness argument to dispute their concept that we walked into this and should have expected that some fee would be charged against us for using the process of the Tribunal. I don't for the minute think that we had any other choice. I think that the stockholders of Sperry would have been very upset if we walked away from a claim. And that's, that's what really shows the power of the government here. It could have been two percent, it could have been 10 percent, it could have been 50 percent, 80 percent. Of course, we would have gotten something, and how could we have said well, we really don't want to go after it, walk away from $1 million or a half a million dollars.
William H. Rehnquist: But the government says the fees were less than compensatory for its expenses, which would surely put a limit on the percentage.
John D. Seiver: Well, Your Honor, but what are the expenses that are being incurred on our benefit? There are expenses for others that we're paying for in that calculus, if you add up the total expenses of running the Tribunal. So, in a sense, to say well, we happened to be lucky, we didn't collect enough, really is irrelevant. It just happens to be a post hoc justification that they could have charged us more, so we shouldn't be upset that we're getting charged anything at all.
William H. Rehnquist: That may not be an answer to some other points in your case, but it seems to me it is an answer that this is no different than an 80 percent charge, or a 50 percent charge.
John D. Seiver: Well, I am trying to analyze it in the terms of what was the legislative and administrative record at the time these were imposed. I think that if we had a situation the government could have said well, we'll keep 100 percent of it, wait 10 years, see what has happened with the Tribunal, what the real expenses are, how many awards we have gotten, and how much we can take, and then distribute it. And I think that would have been a very arbitrary act on the part of the government, given the fact that this was our litigation and our claims which were suspended and sent to the Tribunal in order to obtain the resolution of the hostage crisis.
William H. Rehnquist: Well, how much chance for success would you have had in your litigation in the district court if the president hadn't frozen the assets?
John D. Seiver: Well, I guess we'll never really know what we would have done. The... we still would have had a judgment. The president could not have suspended our claims--
William H. Rehnquist: We all know that there are judgments and there are judgments, though.
John D. Seiver: --Perhaps we would have had a judgment for, let's say, the $18 million of our claim, and we'd go to Europe; we'd try to find some Iranian assets. Perhaps Iran would have been so upset when we found some assets that we could execute on, they would have said well, we'll give you 6 million. And we're not arguing that the suspension has somehow or other diminished our property rights in those claims. We're not arguing that today. What we are arguing is that particular award, which was a result of this process of settling our claim, was our property. And unless there is a separate justification, not that the government could have done something worse, could have made it less, not something that is allowing the government to say we created value so we can just take it away to whatever degree we might determine is reasonable at any point in time. If they could have come up with a situation where costs and benefits and everything was analyzed, and it wasn't a revenue-related fee, then we might have had a legitimate user fee. We never got our filing fee back from the district court, our $100, or whatever we paid down there. And that makes it a lot like the Webb's case. There a filing fee or a user fee was charged and then the state government sought to take all the interest that was earned on the interpleader fund. Now, the Court did not hesitate to strike that down as a forced contribution to governmental revenues of the state. And here the gov... the Congress is doing the exact same thing. They have not provided any reasonable relation between the fee that is charged and the use of the Tribunal.
Antonin Scalia: Mr. Seiver, you assert two reasons for that, two principal reasons for that, I think. One is that the fee is only assessed against those who use the fund and not other victorious claimants who chose not to get their payments out of the fund. Is that right? Or through the New York bank.
John D. Seiver: Well, the other bank claimants... we had no choice to take anything but our payments from the security account. The banks had established the procedure that they would always be paid from a different account in the Bank of England.
Antonin Scalia: But some victorious claimants did not have to use that procedure, and therefore didn't pay any fee.
John D. Seiver: That is correct.
Antonin Scalia: And that is one respect in which you claim you have been treated inequitably in the sense that what you pay doesn't have any relationship to how you benefit.
John D. Seiver: Yes, it is.
Antonin Scalia: And the other respect is that the losers get as much benefit as the winners.
John D. Seiver: Yes. There is an additional aspect to it in that the U.S. government is litigating its own claims against Iran, and in the Tribunal, Iran has official claims that it is litigating against our government. So those are additional claims which are not satisfied by the security account, from my understanding, and again that is a benefit which is not being apportioned out. And if I can add--
Antonin Scalia: Let's just take one of those, the fact that the fees are only assessed against the victorious claimants. You really think that is not an, a rational assessment of who gets the benefit?
John D. Seiver: --No, it isn't, Your Honor. Because if we look at the benefit of the Tribunal and when it was established in this situation, we didn't ask for it. We didn't want it. We... it culminated in a big fight in this Court to prohibit that to stay in district court. Iran didn't want us to stay in district court. Their demands had always been: terminate the litigation in district courts if you want the hostages back. Our claims were used really as bargaining chips to help resolve that crisis. And in that situation the benefits of the operational--
Antonin Scalia: That is water over the dam. But once you have the Tribunal set up, would it be irrational for a state to allocate its court costs on that basis, that those who recover in litigation shall pay one percent of their judgment award for court costs?
John D. Seiver: --Well, that contradicts the entire process of this country's adjudicatory process where losers pay costs. We always have a situation when we go into court--
Antonin Scalia: I didn't ask that. I said whether it would be an irrational way of allocating that.
John D. Seiver: --I think... I am using the prior existing policy of showing that it is irrational. It has been determined for hundreds of years that this is the system, that the costs... and when you go into it--
Antonin Scalia: Anything else has to be irrational therefore?
John D. Seiver: --Well, not necessarily everything else has to be irrational, Justice Scalia, but if we look at it, at least we know when we go to court what we're in for.
William H. Rehnquist: But those are two different kinds of costs, the costs that are assessed now against losers in favor of winners are the out of pocket costs of the party. What I think Justice Scalia's question is, these are the costs of operating the court system. And you could say that the party assessment of costs could remain and still the assessment of the government's costs could be different, I would think.
John D. Seiver: Well, Your Honor, yes. The filing fee, I presume, is supposed to be part of the cost process, cost recovery process. And that filing fee is one of the items that could be recovered in a successful district court litigation. The filing fee that is paid goes into a special fund to help offset the authorizations and expenditures for the running of the district court system. So you could recover the same kinds of costs back--
Antonin Scalia: No, but wait. We say we're going to go to a new system, we're going to really, really get all the expenses for the court, not this piddling filing fee. We're going to really try to recover, going to make, put courts on their own bottom, pay as you go, enormous fees to run the court system. And we decide we're going to take it out of the winner's judgment. That's, that would not be constitutional in your mind?
John D. Seiver: Well, in my mind, yes. But I don't think we even have to reach that, in this case. I think that is a question that we don't have to reach, whether or not they could have done it at the right time, with the right kind of concept, calling it a tax, suffering the political consequences, and dealing with it on that aspect. To bring it into the situation here, on the theory that it could have been done in another context, really doesn't justify it. Because then we have the situation here where it has not been analyzed what the costs are. Presumably before Congress would implement a fee such as that, for charging for services of use of the courts, there would be an extensive analysis of the use. For instance, in an administrative proceeding, the FCC charges a fee for people that go to hearing and for using other services of the commission, and that has been sustained under the IOAA as the government trying to recover the costs of its executive agencies. We don't have a policy like that for the court system. The adjudication of disputes and resolutions has always proceeded in the situation that everybody pays their costs going in, they pay their filing fee, and if the court believes that the winner is entitled to it, they can award the costs. At the Tribunal, we did not have that opportunity. The costs of operating the Tribunal could not be eliminated and be awarded to the winners, as they are in the court systems here.
John Paul Stevens: May I make sure about one point, Mr. Seiver. Would your position be the same if the original drafts of the Accords spelled this out and they had a plan from the outset to impose this kind of "user fee" on the victorious claimants?
John D. Seiver: --I think that is a very, much more difficult question, and one again which we don't have to answer, but I will venture one. That we probably would have had a more difficult time challenging it due to the treaty exception to the court's jurisdiction; if we wanted to say that was a take, you know, unconstitutional, then they might have said, well this is part of the negotiation of the Accords. But at least then we would have known on our way into court that there was going to be a user fee, and we could have either adjusted our claim or done something. We'll never know whether people--
John Paul Stevens: In the practical matter, you make a very forceful argument, that your choices were quite limited. And I am not sure if you really were put in a position where you really had no remedy except to go to the Tribunal. If that is true, presumably you would have done everything else exactly the same, even if you had known that one and a half percent was going to be deducted.
John D. Seiver: --Well, we might have added something to our claim to include the possibility of recovering that award from Iran, so instead of taking 2.8 million we would have taken 2.8 million, five hundred thousand dollars, or something that would have at least accounted for that. We had no notice of that, and as far as--
John Paul Stevens: I see. And the only reason you didn't get another 100, one and a half percent from Iran, was that you didn't know that you would need another $42,000. You could have gotten that, but you said heck--
John D. Seiver: --Well, this was our agreement. This was what we got.
Antonin Scalia: --You got as much money from Iran as you could get from Iran, I hope, didn't you?
John D. Seiver: Well, Your Honor, to... what went into the decision to take that amount of money at that point--
Antonin Scalia: I mean, to say I would have got another 42 if I had known I would have had this expense, my goodness, I should think the shareholders of Sperry would be very upset to know you just left $42,000 on the table.
John D. Seiver: --Well, Your Honor, we sued to get the $<forty-two thousand> [= 42,000] back, and had won. And we had found that that particular administrative assessment was illegal. The concept that the government could have done something differently at another time, and could have imposed a user fee if they could have designed one, really doesn't justify reaching back and changing it now, because they didn't do it at the proper time. They also established a mechanism that doesn't evenly charge the claimants who do successfully use it, whether it be to $40,000 or $4,000, it really doesn't matter, because it was taken without prior notice and without our ability to do anything about it. And we don't really need to speculate well, we could have gone and done something else, we might have gone and tried to get it paid from a different account, it might have changed our negotiations. And, really, we don't have to worry about that. In this situation, where the government has allowed banks to escape paying these, we really have an unfair assessment that is on a subset of American businesses, American claimants. And with the expectations from the Accords, the UNCITRAL rules, and the Senate report, that there was nothing going to be charged for the use of this, to reach back and change that is really, really where our focus is, the taking of our interest. Our founding fathers recognized that even democratic governments could take and tax citizens' property to excess, so constitutional limits on the exercise of these powers were imposed. Here the government has invented a new concept of a user fee that is supposed to be outside of these constitutional limitations. The Court should look closely at how the fee is defined and imposed before it gives the government constitutional carte blanche. With due regard for these constitutional safeguards, the fee at issue is violative of the Constitution. Thank you.
William H. Rehnquist: Thank you, Mr. Seiver. Mr. Wallace, do you have rebuttal?
Lawrence G. Wallace: Yes, Mr. Chief Justice. Under this Court's decision in Bradley against Richmond School Board, and related cases going back to the Schooner Peggy, appellate courts ordinarily are to apply intervening changes in the law to pending cases, even though those changes occurred after a final judgment was entered in the trial court, and even though the legislature did not specify whether the intervening change in the law would be applied to pending cases. Now, surely, that is relevant to the question that Justice Stevens posed, for example, about whether Congress could specify that a one and a half percent fee for enforcing judgments should be levied and should apply to pending cases. The bars to retroactive application on intervening changes in the law while pending, to pending cases, are simply not what they have been portrayed to be in this case. Even when the legislature has not specified, and under this Court's decisions, when there is a rational basis for the legislature to specify uniform treatment, including retroactive application, so that similarly situated persons will be treated the same, that legislative judgment should be respected by the courts. Now, the Appellees complain about the particular manner in which the fee is calculated and that it isn't more precisely calibrated to the extent to which particular claimants used the Tribunal, the security account, the federal reserve bank, et cetera. There is considerable latitude in the methodology for imposing user fees, just as there is in rate regulation. The--
Antonin Scalia: I agree with that, Mr. Wallace, and it doesn't seem to me that to make the winner pay is very bad, but I don't understand why only those who use the particular payment mechanism should be those that were hit with the fee. Why is that?
Lawrence G. Wallace: --Well, that... there is considerable expense involved in maintaining the security account and the services supplied by the federal reserve bank.
Antonin Scalia: True, but you didn't calculate the total amount of the fees that had to be collected solely on the basis of that account. You threw a lot of other weight into the total amount of the fee. So why should those, only those who use that particular aspect, be charged?
Lawrence G. Wallace: Well, that is a, an easy method to calculate what bottom line benefit from the whole mechanism a particular claimant is receiving through a payment being made through the security account and through the rest of the mechanism. And, incidentally, government agencies pay the one, the same one and half percent fee, as we recount in footnote 11. They get their payments from the security account... federal government agencies that have claims... and pay the same one and half percent fee. So there is no differentiation made there. It is true that bank claims are treated differently, but the government incurs relatively little expense. This was a reasonable and easily administered method of calculating how to apply the user fees without deterring claimants who might not succeed and use the entire mechanism. Of course, other methods would have been permissible. In New York City, there is a flat charge for using the subway and you can ride as far as you please. In the D.C. metro system, there is a fare card system that calibrates the cost according to the length of your ride. Neither one is an unconstitutional taking of property or an invalid user fee, any more than a museum is obliged to charge a different admission fee for someone who is going to leave in an hour.
William H. Rehnquist: Thank you, Mr. Wallace. The case is submitted.


Earl Warren: Francis Noto, Petitioner, versus the United States. Mr. Davis.
John F . Davis: Mr. Chief Justice, if the Court please. I will address myself first to a paragraph in the Court's order for rehearing which I did not reach yesterday. That is the question dealing with the application of the clear and present danger doctrine. The question as it was stated in the Court's order reads, whether the clear and present danger doctrine as interpreted by counsel has application to the membership clause. However, with respect to the accused, are with respect to the society, group or assembly of persons described in the statute, if that will hold whether such doctrine was or can now be properly applied in this case. In the Dennis case, Judge Hand held that the clear and present danger doctrine as interpreted by him to meet that situation did apply to a conspiracy to organize a group to advocate violent overthrow and did apply to a conspiracy to advocate violent overthrow. And he specifically found that on the record in that case, a clear and present danger then existed. Now, in the principal opinion of the four Justices on the majority side of this Court and there was no opinion for the Court in the Dennis case, but in the principal opinion in which four Justices erred. The Judge Hand's formulation of the rule and of the application to that set of circumstances was specifically affirmed. The concurring opinion of Mr. Justice Frankfurter however placed more weight on the congressional determination that speech should be regulated in this case and less emphasis upon the clear and present danger doctrine as applied by a Court. It is our position that this doctrine should apply to the membership clause in precisely the same to the -- precisely the same extent that is applied to the organizing clause or the conspiracy clause. If constitutional limitations on interferences with speech require some such overwriting limitations and the Court has generally held that it do, then it seems as though they should apply to all aspects of the Smith Act and reasonable of the application should be made here. I think that some danger in -- in making this application in the -- in the original language of the rule, I think that Judge Hand was carrying through the spirit of the rule but certainly varying it from its original applications. But for the present purposes I think that you do get a sufficient protection if you accept that rule. That is, that in each case that must be asked whether the gravity of the evil discounted by its improbability justifies such invasion of free speech as is necessary to avoid danger.
Felix Frankfurter: Do you mind telling me -- do you mind directing me where I can find out what content you give to that phrase, clear and present danger? Where should I go to find out what it contains --
John F . Davis: What it --
Felix Frankfurter: -- and means?
John F . Davis: How -- how --
Felix Frankfurter: How I'm to apply it? What it means?
John F . Davis: The only way that I know that when you find out what it means is to find out how it was applied to the original Schenck case, to the Gitlow case, the Whitney case and how -- and the American Communications against Douds.
Felix Frankfurter: Do you think if the original Schenck and Douds case, a real danger to the country?
John F . Davis: I think there's been a very real change in the application in -- in this rule and I think its -- I think particularly in the -- in the Gitlow case, that today we could hardly say -- would hardly say that this was a very real danger as far as the --
Felix Frankfurter: (Inaudible)
John F . Davis: Because --
Felix Frankfurter: Real danger in this country?
John F . Davis: Well, it -- its -- we must consider in some of these cases that the danger that was contemplated wasn't danger of overthrow of the government by -- by force and violence. Instead, the danger which was involved in the Debs case, the Abrams case was interference, a lesser interference and overthrow, but an interference was recruitment and all that was necessary in order to find a clear and present danger in that case was, if there was a clear and present danger that there would be some affirmative interference with enlistment and recruitment.
Felix Frankfurter: When the phrase was first used, it had nothing to do with danger to the country, clear and present danger become substantive subject matter --
John F . Davis: That it --
Felix Frankfurter: -- that Congress referenced to which -- the Congress legislature.
John F . Davis: That is right.
Felix Frankfurter: All that stuff about danger to the country is an infusion that was as far from Judges Holmes' (Inaudible) from anything I can imagine.
John F . Davis: Yes, yes. It's again --
Hugo L. Black: You agree with that?
John F . Davis: Well --
Hugo L. Black: What was -- was in Justice Holmes' mind (Voice Overlap) --
Felix Frankfurter: What he -- what's the word he used?
Hugo L. Black: What was in his mind when he wrote?
John F . Davis: Well --
Felix Frankfurter: I said, in the words that he used to explain his mind. He said a clear and present danger becomes substantive subject matter that Congress can deal with.
John F . Davis: Congress has a --
Felix Frankfurter: He wasn't talking about overthrowing the government at all.
John F . Davis: No.
Hugo L. Black: Do you know whether he was or not?
John F . Davis: Well, in the present -- in -- in the case --
Felix Frankfurter: Do you know whether there were any words in what he said that indicated that?
John F . Davis: In the -- in --
Felix Frankfurter: I have no other means of knowing except the words he used. I mean, defined what the danger was supposed to be. It was in his reference, become substantive matter regarding which Congress conversed with. Are those his words?
John F . Davis: Well, his word -- now, in -- in the first place, Justice Holmes was dealing not with the Smith Act or one of the State Acts which are similar to it. He was deal -- dealing with an Act which deals with -- with interfering with the draft in carrying on the -- the war. And his words were, his specific words were, the question in every case of whether the words used are used in such circumstances and are of such a nature as to create a clear and present danger that they will bring about the substantive evils that Congress has a right to prevent and here he was talking, I think Mr. Justice Black in this case about the particular substantive evils which were legislated against in the particular statute which he was trying to find out.
Felix Frankfurter: Not precluding, not precluding.
John F . Davis: Now, later on in -- when we get to Gitlow and Whitney, there we get the associations whose object is to overthrow government by force and violence.
Hugo L. Black: What did they say? What's the language --
John F . Davis: The statute --
Hugo L. Black: What's the language used there at the trial?
John F . Davis: The stat -- in the statutory language?
Hugo L. Black: The two -- no, the two that you've -- these two cases you're talking about.
John F . Davis: Well, in the two cases that I'm talking about the --
Felix Frankfurter: Knowing Gitlow because that receded.
John F . Davis: No, Gitlow followed the Schenck. It was in Gitlow against New York, It was an -- was an application of the clear and present danger doctrine to the New York statute --
Felix Frankfurter: (Inaudible)
John F . Davis: -- which is the -- the original prototype of the Smith Act and Whitney followed that.
Felix Frankfurter: Yes, Whitney followed.
John F . Davis: And the majority of the Court in Gitlow said, "Here, we have an Act which is addressed to free speech." The Act itself is suppose to -- it deal -- deals with advocacy. And so, the majority of the Court said, "We have no need of following the clear and present danger doctrine because the legislature in that case of New York legislature has made a determination that free speech should be restricted to this extent." Mr. Justice Holmes in his dissent joined in by Brandeis in the Gitlow case said that he felt he still had to have a clear and present danger, but here when he was talking about a clear and present danger, he was talking about a clear and present danger of the offense which was defined in the statute. And here the offense --
Hugo L. Black: What was the language he used there? Do you have (Inaudible) before you.
John F . Davis: The offense -- of the New York statute?
Hugo L. Black: Of the -- of the Gitlow case?
John F . Davis: No, well --
Hugo L. Black: The language you were talking --
John F . Davis: The language he quotes that there must be a clear and present danger from -- I don't have the language of it but he -- he says that he believes in the fact that the language which I have just read which was from the Schenck case should be applied in the -- to the Gitlow statute.
Hugo L. Black: Do you have the exact language that was used in the Whitney case?
John F . Davis: No, I don't.
Hugo L. Black: No.
John F . Davis: The Whitney case -- the Whitney state -- the Whitney case, I thought it was -- was Justice Brandeis'.
Hugo L. Black: Correct.
John F . Davis: And again he said that as in the Gitlow case, he felt that this rule, this clear and present danger rule -- I'm sorry I cannot quote it exactly.
Hugo L. Black: That's alright.
John F . Davis: But should be applied even though the legislature had made a determination itself that this speech should was -- be prohibited. And the difference between the majority and the minority in those cases was whether or not the clear and present danger doctrine should be applied when the decision has been made by the legislature in exactly (Voice Overlap) --
Felix Frankfurter: But nobody has suggested that in this field of judicial review isn't the same as it is in other things namely that the legislative word isn't (Inaudible). Has anyone suggested that?
John F . Davis: No, I think not. But it's a question of application and this Court will have to determine whether the legislative -- if even on that basis they have to determine whether it was a reasonable application in -- in a -- in a degree that gets back to the same point.
Hugo L. Black: Legislative word on what?
John F . Davis: On whether or not there is a clear and present danger from this activity.
Hugo L. Black: What do you construe that to mean? I -- just quite to get your --
John F . Davis: Well, what I mean is that --
Hugo L. Black: Do you mean that it means that anytime a speech could be reread anytime, the legislature declares that a clear and present danger that some valid law should be -- will be violated?
John F . Davis: No. I think that --
Hugo L. Black: Or -- or what?
John F . Davis: -- what it means is Congress in adopting the Smith Act, adopts an Act which says that advocacy which is a type of speech shall be restricted in these ways and they say it's necessary. Congress said it is necessary because of the subversive activities which are recurring and that these organizations are controlled by foreign countries and it's proved dangerous in other countries and they well proved dangerous here. And -- and a long, long basis of hearing from reports showing that it's necessary for this type of legislation in this restriction on free speech if you please, in order to protect the country from the danger of -- of violent overthrows. Now, the majority --
Hugo L. Black: You mean, violent overthrow or advocacy of violence to overthrow?
John F . Davis: Well, a violent overthrow itself.
Hugo L. Black: That -- that advocacy might bring it about.
John F . Davis: That's right. Now, Congress has made a determination when it passes this Act that this limitation on free speech is essential for the welfare of the country. And the question is, whether in that situation the Court should then, as a new matter make a determination of whether there is a clear and present danger or whether they should instead review and give weight to the determination by the Congress that there is a clear and present danger in that for this necessity of restriction on free states.
John M. Harlan II: Well there's still another view that might be taken and that is that even though you assume or trying that at the time the Congress acted, it was within its rights in making its legislative findings that take a long time for legislation to get appealed. Therefore, of course might take a look and say, "Now, as of this time those convictions are no longer the same."
John F . Davis: I think -- I think that is very true. I think that the Court would have to determine whether there has been such a change that its now -- although constitutional when passed that it -- in not -- in being applied at the present time, there is no (Voice Overlap) --
Felix Frankfurter: Well, that's true as to all this -- of this type --
John F . Davis: Yes.
Felix Frankfurter: -- of legislation --
John F . Davis: Yes.
Felix Frankfurter: -- that is challenged under the Due Process Clause, (Inaudible) regulation statute is found constitutional by this clause during the war and later on was found no longer to satisfy the requirement. That it had become by -- of course by circumstances clearly the advocacy.
John F . Davis: That -- that's right. I think Mr. Justice Harlan that this is the refinement on -- on the weight to be given the decision of Congress rather than a third approach to it. Although, you can cut this kind of argument and then you kind of (Inaudible) but it -- that's -- I would think that this was a -- was a refinement on the -- in giving weight to the congressional finding. The second part of the Court's questions here is whether the test, whatever test it should be and I think there's some danger in tying it down to specific words, but whether the test should be applied to the accused or to the group. Now, here we have a (Inaudible) different opinion with petitioners, both petitioners in -- in Scales and in Noto because we think it's perfectly obvious that the application under this statute should be to the group rather than to the individual. In this respect, the offenses charged here are comparable to the conspiracy statute. It's a type of statute which attacks the effect of group activity although the individual action of any one of the members of the group cannot itself be said to result in the -- in the effect which is to be prevented. In the ordinary conspiracy case which we're all familiar with and I -- I'm not asserting that this is a conspiracy case. It's of a similar nature. In the ordinary conspiracy case, the individuals involved very likely cannot bring about the -- the evil plan which the group has planned and it couldn't prove that anyone of them was primarily responsible and it isn't important that you should. And all that I'm suggesting is that it's not a strange concept to hold each one of these individuals responsible for the group actions to which he contributes even though you do not prove that there's any clear and present danger from his particular activity, the group activity which we are looking at. Now, I wish to return for just a minute to what we were talking about yesterday as the activity factor in defining membership. I don't think that this needs be considered as a complicated -- complicating additional element in the crime. Congress has prescribed certain action and it has used the term membership. And it's impossible for us to abide this Act to facts of individual cases without giving some meaning to that term membership. Now possibly, it could have been construed to mean that the person was carried and enlist on the party role for the Communist Party then he would be a member. But, in the first place it's far from clear that there are any party roles in this entirely -- seems entirely foreign to what Congress intended that they would want to impose a criminal liability on an individual because the party has put him on this role.
John M. Harlan II: What does it cost to join a Communist Party? I recall one witness, he said he paid 10 cents to in there.
John F . Davis: Well, the only evidence in -- in these cases so far as I know is it was 50 cents.
John M. Harlan II: 50 (Inaudible) What you're addressing yourself to is that the Court, you're asking the Court to give some content to this membership, but is independent as the vagaries and degree to different kinds of memberships. It might suffice, vis-a-vis the institution (Inaudible).
John F . Davis: That's -- well I -- yes, I think the Court has to give some content, Your Honor because -- I don't -- I -- I think that the term membership isn't -- isn't self-defining. I think it's got to be applied to particular facts in a --
William J. Brennan, Jr.: Well Mr. Davis --
John F . Davis: -- particular case.
William J. Brennan, Jr.: -- you go beyond that. You go beyond that, don't you? You asked us to give content to a membership which is not membership per se, whatever that is.
John F . Davis: No. Well, as far as this -- as --
William J. Brennan, Jr.: Well, didn't you tell us yesterday that your position was that because of 4 (f), there maybe no constitution of the one who was a member per se.
John F . Davis: That is right.
William J. Brennan, Jr.: So that what you want us then to do is give content to something which is not membership per se.
John F . Davis: Well, the -- this -- I -- I'm not sure that active membership couldn't well be called membership per se. I'm trying to give the -- the definition of what membership is and I think that active membership might well be called, could be called. But the -- the reason that the Smith Act goes beyond membership per se is because it requires under the statute knowledge of the purpose of the organization and under the interpretation given in the Dennis case, it requires a specific intent to carry out those purposes. And these are the additional elements that show that membership per se is not sufficient but I am trying to believe that my present argument as to membership, meaning active membership would include -- that active membership would be -- couldn't be considered membership per se.
William J. Brennan, Jr.: Well, you -- you -- I see. Then your position is that whatever may be membership, before you get that which is criminal under the Smith Act, you have the elements, the knowledge and intent.
John F . Davis: That is right. And intent in the sense of the -- of the Dennis case of an -- in specific intent to see that the illegal objectives of the party is carried out.
Potter Stewart: Mr. Davis sir, something has been bothering me about your whole construction of the membership clause which as I understand is, I mean, as you presented to us, under that clause the Government has to prove associating a -- an association with an organization bent on the overthrow of the Government of the United States by force or violence. And this association has to be entered into by the defendant with a personal intent to overthrow the United States of America by force -- the Government by force or violence and that he has to be active in that association.
John F . Davis: That's right.
Potter Stewart: Now after you said all of that, haven't you proved enough to convict this man of the other provisions of the Smith Act without any reference at all with the membership clause?
John F . Davis: Well, I -- I -- in many cases, yes but not in all cases. Now, of course it won't come within the organizing factor, that's been thrown out so that we can now deal with conspiracy (Voice Overlap) --
Potter Stewart: Conspiracy (Inaudible)
John F . Davis: And I think that -- I don't think it would necessarily prove the advocacy feature. This is only a question of whether it can prove the conspiracy feature as such. A conspiracy has always been defined in -- as Mr. -- General Taylor points out yesterday, American Law Institute sticks to the thought that there must be an agreement. There must be a specific conscious agreement of -- rather than as we have in this case, a mere association together. It's very close and I'm not sure you couldn't prove a conspiracy in almost all of these cases but there are technical differences. There is a technical difference which at least the American Law Institute has recognized between the conspiracy doctrine and just being a -- just associating yourself with this group.
Potter Stewart: Now the -- in the Yates case, as I understand it, it was the Government's theory that the Communist Party itself with the -- was the conspiracy. And I -- I have read the Court's opinion had the Court read that the -- that the proof of incitement to action to overthrow the Government of the United States at some convenient time was sufficient. That -- that would have been a valid case under the -- under conspiracy section. And why -- how is that different at all from the -- from the membership section as you've now beat it up --
John F . Davis: Yes.
Potter Stewart: -- adding these three other elements or two other elements?
John F . Davis: I -- I want to -- I wanted and I haven't been trying to beat it up but I'm just trying to interpret it, but the -- the -- in your -- you're quite right, in Yates, there were two elements. We tried to prove conspiracy in two ways. We tried to prove it once through their participation, their -- their formal action in connection with the party as such and that the nexus was then, what the party itself proved. We also tried --
Potter Stewart: And that the Court didn't accept. I think purely as a matter of insufficiency of the evidence.
John F . Davis: That is right. Now, I think it's possible that in this case for example, certainly in the -- in view of Mr. Noto's conferences with -- with Lautner and his appearing with his joining together in -- in the various schools that you could've planned the conspiracy in this case. You -- you do have the overt and active -- well, you don't need the overt and active conspiracy in the Smith Act. But you do have the joining together, the specific joining together of this man with the other people to carry out the aims of the party and that would -- we could have put it under the -- the conspiracy charge. It's a little harder. You've got more to prove. You've got to prove specifically the he did sit down with other people and do certain things. I think it's proved in the case, but I -- the Government didn't undertake to make that proof in the case. They undertook to make the proof only that he was unknowing an active member and whether his activity was in conjunction with somebody else and did not -- didn't undertake to prove.
Potter Stewart: Now, in this -- in this case that you're now arguing, Noto, there was no instruction on the parameter of activity, was it?
John F . Davis: No, there wasn't. In this case that -- the -- the Court, the District Court told the jury, "You've got to find that he was a member." And they didn't attempt to define member in any way because they said it's not -- there's no -- in effect they said, "This is conceded and you don't need to -- well, I think he said in so many words. You don't need to be worry about membership, so there was no occasion by him to define membership or asked the jury to make any findings.
Earl Warren: Can we sustain the conviction that's in the situation?
John F . Davis: Well, yes if you think you can --
Earl Warren: On what theory?
John F . Davis: -- because -- on the theory that the elements of the crime was properly defined and with the nature of the party knowing membership in it with intent. Now, there was no dispute in this -- in this record as to membership, the nature of the membership. He was concededly an -- an officer for years, from 1933 on. Concededly he was not so that when the judge came to instruct the jury, he could tell the jury, "These are the elements, the nature of the body and membership." But there is no dispute about membership therefore I don't have to define the terms. They don't have to ask you to do anything about it. You can -- in effect you could -- he was telling them -- you can come in and -- and find as far as the -- the conviction is concerned. You can find membership without any -- anymore questions, its not in doubt. Not questions --
Earl Warren: You don't -- (Voice Overlap) -- telling us more than being a member per se.
John F . Davis: No because there was no -- there was just no issue in the case about the -- about Noto's activities in the party. There wasn't any chance of the jury finding anything else.
Earl Warren: Having thought of that, is that was in the sense of an ingredient at the time --
John F . Davis: Well --
Earl Warren: -- that the issue has been -- only been raised by -- by the Government proving it.
John F . Davis: Well, it is membership of course. There's an essential element of the crime but I --
Earl Warren: But not membership per se.
John F . Davis: Well, membership was -- well, membership plus knowledge plus intent is -- are the elements.
Earl Warren: Which -- was the effect?
John F . Davis: Well, because the statute says with knowledge and the Court in -- in Dennis says with intent so that these are necessary and the instructions in -- in Dennis, the intent was all we talked about, the necessity of proving intent. But if we comprehend activity as a part of what the word membership means, if membership means in effect, active membership rather than nominal passive membership. If there's no dispute in this case, if all of the -- if all of the evidence is that he was an active member and if the Court says the jury as far as membership goes, as far as being a member is concerned, there's no -- there's no issue for you to decide.
Potter Stewart: Wasn't -- wasn't that also true in the Scales case? Wasn't it conceded that he was the --
John F . Davis: That is --
Potter Stewart: -- boss of the party in North and South Carolina and yet in that case the Court did instruct the jury (Voice Overlap) --
John F . Davis: Yes. We -- we asked the Court to instruct it. It seems as though it was -- as thought it -- it would bolster the case to have an -- have an instruction in the jury findings.
Potter Stewart: I don't -- if that was true in that case it would be equally true in Noto.
John F . Davis: If it were necessary in Scales. If it were necessary in Scales by (Voice Overlap)
John M. Harlan II: But the point is that Noto was tried before the Government introduced this activity factor in the situation as to tracking down the Government.
John F . Davis: It wasn't formulated as -- as clearly as it was (Voice Overlap)
John M. Harlan II: Well, formulated but it wasn't articulated.
John F . Davis: That's right. That's subjective.
John M. Harlan II: Is that right?
John F . Davis: That is true.
John M. Harlan II: I don't say that doesn't mean that you can't hold his convictions that the -- that's the fact.
John F . Davis: That -- that is the fact although I may say that we find before the articulation or formulation that the Government in various (Inaudible) places in its brief, perhaps inadvertently refers to activity, of course with -- that -- as -- as an element in the party.
John M. Harlan II: The point is if you tried Yates in the context of your activity factor and in the context of Yates, and you put everything in, you thought --
John F . Davis: Withheld.
John M. Harlan II: -- withheld.
John F . Davis: That's right.
Earl Warren: Mr. Abt.
John J. Abt: May it please the Court. I should first like to say a little something more about the insufficiency of the evidence here. Mr. Maroney under questioning by the Chief Justice was unable to point to a single statement by Noto or by any party members during the entire 20-year period covered by the evidence, which on its face constituted an incitement to violent overthrow.
John M. Harlan II: What about the statement, neither that you referred to it? What -- what about the statement that he made that the newspaperman that came into somebody's house? It was the kind of a fellow that he would live to see the day when he would be up against the wall.
John J. Abt: You're Honor, that kind of a statement about the newspaperman was a violation of the Smith Act or criminal intent. I'm just afraid that the -- it had prosecutions of several recent documents of the Whitehouse and would be indeed very difficult to get a form in either House (Inaudible)
John M. Harlan II: You've got to look at that statement in the context of a lot of other things. Didn't the statement just out of the blue expressing the violent disagreement with somebody which you don't like?
John J. Abt: At most, Your Honor, this was the statement of a desire violently to overthrow an individual, not -- not to overthrow the Government of the United States.
John M. Harlan II: Overthrow an individual?
John J. Abt: He said he'd like to line them up against the wall and shoot so and so. That -- that has nothing to do with overthrowing the Government of United States. He says, I -- the worst you can say about it is, he is saying, I hope the day will come when we'll have socialism in this country, the fellows on our side will be in power and we can line up -- line the guy like (Inaudible) against the wall and shoot him. It's not a very nice thing to say, but it has nothing to do with overthrowing the government by force and violence. Because as far as that statement is concerned, the transition to the kind of government that Noto liked could -- could come about in a perfectly peaceful manner.
John M. Harlan II: You say that's not a matter that the -- they submitted with the jury, considered by the jury in relation to the (Inaudible)
John J. Abt: I don't think so Your Honor. In addition to that Your Honor, that's all you -- all that can be dredged up in this record. There certainly is no evidence in this record of what Your Honors said in the Yates -- the Smith Act (Inaudible) and that systematic teaching of incitement of violence. If that's all, assuming that the -- the jury could considers that question, if that's all there is in 20 years, no -- no jury could reasonably find a systematic incitement of violence on that one episode.
John M. Harlan II: Who made that statement that Noto has made?
John J. Abt: Noto made it, I think -- I'm not sure Your Honor when 1948 or 1946, something.
John M. Harlan II: 1947.
John J. Abt: He was employed by a (Inaudible) newspaperman who has been writing half the stories published by Communist Party.
John M. Harlan II: This is a -- before the limitation (Inaudible) It was not during the --
John J. Abt: Was before the limitation.
Hugo L. Black: Where is that in the record? (Inaudible)
John J. Abt: Page --
Speaker: (Inaudible)
John J. Abt: Do you have it with you, Your Honor?
Speaker: (Inaudible)
John J. Abt: May -- may I go on? Mr. Maroney says in his argument that the Yates standard was met, not by the content of anything that they --
Potter Stewart: Page 11 of the Government's brief.
John J. Abt: Thank you Your Honor.
Hugo L. Black: Page what?
Potter Stewart: 11 --
John J. Abt: 11.
Potter Stewart: (Inaudible)
Speaker: Page 340 of the record.
Potter Stewart: Page 11 of the Government's brief.
Speaker: (Inaudible)
John J. Abt: Mr. Maroney says that the Yates standard was met not by what was said either by party members or by the petitioner here, but by the evidence on the party's concentration policy and the evidence as to the elaborate measures of concealment which were taken to protect party leaders and members. It shows inference of the purpose of these activities was to prepare for the day at some uncertain future time when conditions with the auspicious for an attempt of that forcible overthrow. It seems to me that all these inferences are, to say the least very farfetched. But even if they're reasonable, they don't help the Government's case because Mr. Maroney's error is that he confuses steps in preparation of insurrection of some future time with present incitement to forcible overthrow in some future time. The Yates case rejected evidence of precisely the kind that Mr. Maroney relied -- relies on. Mr. Justice Harlan said in his opinion in that case, however much one may abhor even the abstract teaching of forcible overthrow the government or believed that forcible overthrow was the ultimate purpose to which the Communist Party is dedicated. It is upon the evidence in this record and I assume that that means the evidence in this record on the question of incitement that the petitioners must be judged in this case. And Chief Judge Clark in the Second Circuit disposed of the Government's contention in the United States versus Silverman where he said and I quote him, "The prosecution stresses the proof of industrial concentration and of concealment." But these do not rationally raise any inference of the appellants engaged in a plot to advocate insurrection at the time they were hiding and seeking factory jobs. The industrial concentration possibly suggest the conspiracy to commit sabotage, espionage or political strikes going beyond mere labor proselytizing. But it not -- does not point very directly toward illegal exhortation. Similarly, concealment is consistent with any unpopular or illegal enterprise, but the jury could not tell the nature of the enterprise from the mere fact of concealment. Furthermore, Mr. Maroney did not and cannot point to any evidence of the advocacy of forcible overthrow even as a matter of abstract doctrine in the limitation period. And he has no reply to my demonstration that he can't convict the petitioner on the theory of a presumption of continuance. Now, not only is there is no evidence of party activity in the limitations period, but there's no evidence of any significant conduct by the defendant. My brief at page 65 -- 66, I summed up everything in this record with respect to the activity of the respondent during the limitations period and here it is. In September 1951, he solicited a $10 contribution to the party and talked about the American Labor Camp Party candidates with one witness. In the same month, he told another witness he was going under a disguise to conceal himself. Months later, he picked up some party publications which is -- his wife had left for him at the home of a witness and told this man that he had to move on. And in 1953 or 1955, he lived in New Jersey where he was employed by the Goodyear Rubber Company as a stock clerk under an assumed name. Now, how can any of that evidence be probative? Number one, that the petitioner knew that the Communist Party was engaged in incitements to violence or second that he intended to overthrow the government by force and violence. I say that obviously it can't to prove either of those propositions. And certainly, none of the evidence in this record, either about the petitioner or about the Communist Party within the limitations period can conceivably establish to anything they were doing in this period created a danger even remotely to the Government, let alone a clear and present danger. Now, I also want to say just a word about the -- in turning the -- the testimony about the man who was said to be on the lamb. That incident was supposed to have occurred in the early spring of 1951 and it likewise therefore is outside of the statutory period. All we know about that incident is the following, page 299 of the record. That Noto said one of our top peoples on the lamb. He said the government is trying to frame this man and throw him in jail. He said it was over what the newspapers call was Adam's spy business. He said it was necessary to get this man out of the country in order to get him out of the clutches of the law. And he wanted to know if I were to give him shelter in my home. But the man never showed up. Nothing other -- ever further happened about the whole business. There's nothing here to indicate that this man, whoever he was -- and by the way there's not the slightest suggestion in the record that he was either Rosenberg or in any way connected with Rosenberg. There's nothing to show that whoever he was, he was engaged in any criminal activity at all. At best, they mostly have is Noto's statement that the Government was trying to frame him. He may have been a perfectly innocent man. Even if he wasn't, as I indicated to Mr. Justice Stewart in response to a question yesterday, the whole incident might have some conceivable relevance to a prosecution for harboring or some crime of that kind that has nothing to do with incitement. Now, just a word about the constitutional issues. Mr. Davis said Dennis found a clear and present danger in the provisions denouncing conspiracy to organize and advocate and that takes care of all the crimes under the Smith Act. But that obviously is not true and Yates itself demonstrates that that is not true. Yates said that we construe the conspiracy to advocate provisions of the Smith Act as requiring proof of a conspiracy to engage in incitement now for future violent overthrow. We don't have some of the questions of the constitutionality of a conspiracy to engage in incitement at some time in the future. And we don't do it because a conspiracy to engage in incitement at some time in the future is one further removed from the advocacy itself. Now, Dennis have decided all clear and present danger questions under all offenses created by the Smith Act, but obviously there would have been no necessity for that reservation. It seems to me that the membership clause, even with all the garnishments that the Government gives it, is one step further removed either -- even from conspiracy to advocate incitement in terms of the incitement in the future. Obviously, therefore you've got to consider whether the membership clause itself satisfies the clear and present danger doctrine. Mr. Davis says, "Well, it's just like a conspiracy." I tried to analyze the Act -- the statute yesterday and to show that it didn't bear any resemblance to that period. All I want to say at this point is that it denies the defendant whatever is entitled to in a conspiracy case. And that is a jury trial on the essential issues in a conspiracy case. Was there a conspiracy? Was the petitioner for the accused a participant in the conspiracy? Did he perform some overt act in furtherance of a conspiracy? And in addition, in a conspiracy case, an accused is entitled to instructions as to the character of the evidence which would be introduced against third party declarations. Here, as I show in my brief and I haven't argued it here, time didn't permit. The petitioner in this case was convicted on third party declarations of -- which were completely outside of his knowledge. He knew nothing about and he didn't get the benefit of a conspiracy instruction that he would have had in a conspiracy case, to the effect that those declarations couldn't be used against him unless a jury first found that there was a conspiracy, that he was member of it, then the declarations and that the -- the client was also a member and that the declarations were made in furtherance of the conspiracy. And all this proves the point that I was trying to make yesterday. What the Government is asking for here is, is to validate this statute as a conspiracy law. As I say employed the -- the difficulties that they found in securing convictions in the Smith Act conspiracy cases. Thank you.