Earl Warren: Number 187, California, Petitioner, versus Federal Power Commission, et al. Mr. Bennett.
William M. Bennett: Mr. Chief Justice Warren and members of the Court. This is a case which has grave issues in it. It's a case which is of some length and it's a case in which the gravity of the errors can be understood only by a comprehensive and complete understanding of the facts. The facts are of great significance because they demonstrate the gravity of the three errors which I maintain exist in this record. I maintain that the Power Commission in this case erroneously, unlawfully and excessive jurisdiction decided an antitrust question not given to them to decide. I maintain that the Federal Power Commission absent evidence or upon inadequate evidence adopted an erroneous standard of public convenience and necessity in this case, and I maintain that California and other interveners in this case were denied a fair hearing and due process because of things done improperly or because of things omitted to be done and because of things done outside of the record in this case. And so at the beginning, I should like to point out to the Court that we're concerned here with three principal characters in this drama of corporate intrigue. We're concerned with the El Paso Natural Gas Company which at that time of this case was the sole out-of-state supplier of natural gas in the State of California. It is a company with a capitalization of about $1,300,000,000. It has a utility plant in service of approximately $800,000,000. It delivers two billion cubic feet of gas per day to the State of California on an average basis. It collects approximately $300,000,000 on an annual basis from the State of California and it did this at the time of this case without competition from any other pipeline. It operates a pipeline system extending 6700 miles in length. It extends from Mexico to Canada. It extends from Oklahoma to California and it traverses the Rocky Mountain States. This growth and this size which is relevant to this case, was caused by -- and I don't say this with any degree of criticism was caused by the growth of the State of California. California with its 16 million people and its five million gas consumers is the number one gas consuming state in the United States of America. And California as a State is unique with reference to natural gas. This is not a luxury item. This is not an automobile you may buy or choose. This is natural gas which you must have whether you are a householder whether you are an industrialist. It is essential to daily life in California presently and even more essential when we look into the future. California does not have coal. This heightens the dependence upon natural gas. The homes of California are not so constructed that the householders of California may revert to fuel oil. The industry of California even such industry as is adopted to converting the fuel oil on given days, peak days as we call them, generally speaking may not reject natural gas and utilize fuel oil because of small ordinances or small gloss. For example in the County of Los Angeles, from May until November, the burning of fuel oil is prohibited. This heightens the necessity and the need of my state for natural gas. 80% of the natural gas sold by the El Paso Natural Gas is purchased by the gas distributing utilities in California and they're in turn distributed and pass on the rates and charges to the ultimate consumers.
Potter Stewart: El Paso is a pipeline company only?
William M. Bennett: The El Paso Natural Gas Company Your Honor is a regulated natural gas company. It operates an interstate natural gas pipeline.
Potter Stewart: What else does it do, if anything?
William M. Bennett: It does many other things. It has 22 subsidiary corporations. It explores and develops for oil and gas. It has a --
Potter Stewart: It's a gas producer also?
William M. Bennett: It's also a gas producer on its own right.
Potter Stewart: And a pipeline?
William M. Bennett: And a pipeline.
Potter Stewart: And then it sells to local utilities in California.
William M. Bennett: It sells to the Pacific Gas and Electric Company in the north, the largest utility in the United States; it sells to the Pacific Lighting companies in Southern California, the largest single gas distributing utilities in the Untied States. It has two customers in the State of California both gas distributing utilities.
Potter Stewart: And that's all -- only those two consumers. It doesn't sell directly to any large industrial users or?
William M. Bennett: It sells directly to large industrial users in the States of Arizona and I believe New Mexico. It makes no direct sales in the State of California. It comes to the California border and its transmission stops at that point. It is picked up by our gas distributing utilities. I point out the size of El Paso, I point out the situation with reference to California because they will become exceedingly relevant as I get into the argument which I am about to make here and after. Now, the third corporation in this case is the Pacific Northwest Pipeline Corporation. This is a corporation formed in 1949 for the purpose of acquiring or obtaining a certificate from the Federal Power Commission authorizing it to transmit natural gas through an interstate pipeline, and it made a showing in support of that application that it filed to get this certificate. The showing was believed by the Commission and on June 30th, 1954, the Federal Power Commission in a decision and order found that the Pacific project would be economically feasible, that it was in the public interest. And the Pacific Northwest Pipeline was planned, conceived, engineered, designed and constructed to serve the States of Washington, Oregon, Idaho, Wyoming, Utah from a point on the western border between Canada and the Untied States extending down through Washington, Oregon, they're entering over down on through the Rocky Mountains and terminating in the San Juan Basin in the State New of Mexico. This was the area and the root. It was designed and authorized to serve.
Earl Warren: Mr. William, may I interrupt you to ask you what other corporation you have been talking about the Utah? This is the third company. El Paso was the only one that's stuck in my mind, what is the second one?
William M. Bennett: I misspoke myself, Your Honor. I referred to three characters in this drama and one of those actors is the State of California not a corporate actor, however.
Earl Warren: Right.
William M. Bennett: But these are the three principles to this point in the case. Now, Pacific, as I said, received the authority from the Commission to operate this pipeline to build it. And this was done upon the showing and the belief that the Commission had that this would be a good pipeline economically feasible and it was on that basis that it was authorized to construct and operate. And in April of 1955, the year after it acquired the certificate, its financing was completed. Apparently, the investors had some confidence in the project as it was proposed to be operated. Commencing in 1955, the El Paso Natural Gas Company commenced to make overtures toward the founders, the incorporators and the manage -- management of Pacific seeking to acquire it upon some basis or other. The map discloses and the record in this case discloses that at this time when Pacific in 1954 received its certificate, there were no other pipelines serving gas to the State of California. But while Pacific was authorized to serve in the States of the Pacific Northwest, the very fact of it serving in those States and the very fact that it was to extend its line to Portland, Oregon put it in a position to furnish gas to the State of California if it could make arrangements with California gas distributing utilities. So that at this point, the factor of competition was created and it was at this point that the El Paso people begin efforts to acquire the Pacific Northwest Pipeline Company. So far specific is concerned, there was never any question in -- in its mind that it could be competitive to El Paso and that it could furnish gas to the California markets. Mr. Fish, the founder of Pacific testified in this record that they considered the California market as being available to them. Mr. Fish, the founder of the Pacific Company came to California in May of 1956. He talked to the President of the Southern California Edison Company. He asked him whether or not they could get together on a gas purchase contract. So serious with these negotiations that they entered into a letter agreement providing for the delivery of 300 million cubic feet to the Edison Company from the gas reserves of Canada which Pacific Northwest had. This agreement was not consummated, however. Now, the reasons were not particularly nor clearly known but the reasons are suggested. The President of El Paso learning of the fact that negotiations were going on between Pacific and Mr. Quentin and Mr. Fish, Pacific and the Southern California Edison Company came to California, discussed these negotiations with -- with Mr. Quentin, told them he would oppose such a project and said such a project would not be in the public interest. This is in the record which is before this Court. Now, I can't say that this is why the Edison Company of California, a large electric distributing utility, did not consummate these arrangements. We can never know that and we could not find it out before the Commission but it certainly is an inference one can draw. Now, the record before the Commission on that regard shows that when I crossed examined Mr. Kayser of El Paso as to his interest in this arrangement between the Edison Company and the Pacific Company, that he said in answer to a question, “I said it was not in the public interest for him,” meaning Mr. Quentin “to buy his gas on a direct purchase outside and bring it in to the detriment of the business of the Southern California gas companies.” And I asked him, “When you referred to the public interest at that time, did you also have in mind El Paso's interest or was it entirely just public interest?” Answer, “I had in mind both.” And then dropping down, “You also told him, you would oppose Pacific Northwest, didn't you?” Answer, “I cannot say that I said that.” “Well, would you mind thinking very hard about that and recalling whether you said it or did not.” Answer,” Well, I don't remember saying it.” “Well, is it possible?” Answer, “Oh I could have said it sure.” And this I might observed was the question put to him by an attorney from California and not the attorney from the Antitrust Division in an almost casual, unprepared pleasant bit of cross-examination but with none of the resources that the Antitrust Division might have had upon this point at that particular time. So that in any event, there was competition, real potential, actual between Pacific in the north and El Paso in the south, and as a matter of fact, the Commission in its decision so found although it said it wasn't that kind of competition which could outweigh considerations coming from the Clayton Act. There is also evidence of other competition in the record. For example, in the Ana field which is a gas field in the Southwest part of the United States, the record shows that when the Transwestern Company, another pipeline which does now come to California as does PJT now come to California. I want to make that clear that in that case when the Transwestern people were trying to get gas to build up their reserves in order to make a showing to justify the getting of a certificate from the Federal Power Commission, that El Paso competed for that gas. The Transwestern people bid 14 cents then the bid went to 17 cents then the reserves, the gas went to El Paso at 20 cents. And here, you have the interesting phenomena of a bid for gas of pushing up for the price, all of it serving to increase the rates and charges, the cost of purchased gas of the El Paso Company which got the gas ultimately and all of it of course going to further increase the heights -- the heights to which the cost of produce gas has risen and all of which of course ultimately will be paid -- paid for by the consumers as operating expenses and under the law properly so even though this might have been prevented.
John M. Harlan II: Is this -- (Inaudible)
William M. Bennett: This decision to merge Your Honor does it foreclose them? I say realistically, yes for reasons which I shall develop here and after. The answer to that question Your Honor despite the Natural Gas Act and coming from the realities of life, from the realities of Federal Regulation is yes, they are foreclosed.
John M. Harlan II: As a practical matter?
William M. Bennett: As a practical matter, yes. One other instance of competition I should like to recite. The Westcoast Transmission Company operates a pipeline in the western part of Canada and it endeavored to deliver Canadian gas through the Pacific System into the Northwestern States. As the record shows, El Paso injected itself into this contract arrangement between Westcoast and Pacific became a party to a three-party contract and obtained the piece of that gas as we say and when Mr. Fish, the Chairman of Pacific described this arrangement to his stockholders, he described it as meaning, “That El Paso's California market will be protected against the future competition.” The efforts which I've referred to previously of El Paso to acquire Pacific continued and all the time the efforts were continuing and negotiations were going on, Pacific was going head -- ahead with its building program. It completed construction sometime in 1956 but in 1965 in latter part of the year, Mr. Fish of Pacific and Mr. Kayser of El Paso agreed to a stock exchange and a stock acquisition of Pacific by El Paso. And here is where the case has its interesting aspects. This wasn't done without resort to legal advice. Apparently, there was some doubt as to the legality of that which was about to be done and so eminent counsel Sullivan & Cromwell were asked about the legality of this transaction. And this opinion and the paraphrasing of it is in the record in this case in the exhibits which are before the Court. But El Paso and Pacific were advised, put on notice, you might say, by Sullivan & Cromwell that statutory -- statutory immunity from Section 7 of the Clayton Act is not available. The matter was not entirely free from doubt but nonetheless, the transaction would appear to be alright so far the present law is being construed. And it also went on to state that the purpose of the transaction would be as you have represented to us in asking for our opinion. So here was notice that this thing was not entirely free from doubt. You can waive the doubt in your own minds as to whether it was great or small but at least it was noticed. When the offer was made to the stockholders to -- to exchange, they were advised and the SEC prospectus of November 1956 shows that they were advised that if they exchange offer is successfully consummated, it expected that Pacific will continue to be operated as a separate corporation and the management of the company has no present intent of merging Pacific into the company or of having the company acquire Pacific's assets. It is interesting to note that on January 8, 1957, 80% of the stock of El Paso had been -- of Pacific had been acquired by El Paso so that in reality, El Paso was now in control of Pacific. This was before the end of January 1957. In that same month, in that same year, January 1957, Pacific became operational and it became operational with El Paso having 80% of its stock. Several months later, it had -- it had acquired 99.8% of its stock. It became operational with El Paso owning 80% of its stock with the El Paso Company taking the President of El Paso and making him the Chairman of the Pacific Board with ten of the directors of El Paso becoming ten of the directors of Pacific. In short, Pacific as of January 1957 was not an independent corporation. Its policies, its decisions, its actions were those of El Paso. Those are the realities of life. The officers of Pacific who recommended to their stockholders that this stock exchange offer was good and indeed it was from their standpoint depute for money considerations were not entirely free from selfish reasons, understandable, but nonetheless perhaps inconsistent with the true public interest, the true public convenience and necessity of the rate payers of the Pacific Northwest. The California brief in this case on page 15 sets out the directors and officers of Pacific and the common stock each owned. And without mentioning each director and the holdings of each look to the fact that Mr. Fish, the Director and Chairman of the Board of Pacific had 118,892 shares of the common stock of Pacific. And understandably, the handsome offer made was such that the average or perhaps any individual having this kind of holdings in the face of that kind of offer and one of them with the stock option applicable to 30,000 shares could hardly turn down an offer such as this, no matter what other considerations might have entered his or their minds. The Department of Justice, the Federal Government enters the case at this point because of what has gone before. They had a curiosity about the stock exchange here and they made inquiry of the El Paso people. They had meetings with them and they ultimately advised them in July of 1957, that a complaint was going to be filed charging that this stock acquisition violated Section 7 of the Clayton Act. On July the 16th, after the El Paso people had been notified of this complaint about to be filed, the Board of Directors of El Paso met and authorized the filing of applications to the Federal Power Commission. On July 22nd, a complaint was filed in Utah charging violations of Section 7 of the Clayton Act. On July 22nd this was and on August 7th, applications were filed with the Federal Power Commission asking that the very business venture, the very stock acquisition which was attacked in Utah be declared whole by a federal agency here in Washington D.C. Now, it is true that they sought before the Commission, the authority to transfer the assets or the certificates. They never pretended to be seeking authority as to the stock acquisition.
John M. Harlan II: (Inaudible)
William M. Bennett: That is correct, Your Honor.
John M. Harlan II: (Inaudible) application but there wasn't any suppressive (Inaudible)
William M. Bennett: Oh yes, I do Your Honor.
John M. Harlan II: As far as (Inaudible) of the acquisition.
William M. Bennett: Yes I do, I do. I maintain that this was nothing more than a device to utilize a federal agency to defeat the action of the Court in Salt Lake City, Utah and the record in this case doesn't leave too much room for doubt on that score. The Commission -- the Commission in this case found -- the Commission found that the decision to file with the Federal Power Commission was considerably stimulated by the fact that the Attorney General of the United States was prepared to file an antitrust suit against us. This is in the decision of the Commission. The application with the Power Commission was filed on August 7th, 1957 and then a motion was filed the court Judge Ritter in Utah seeking to dismiss upon the ground of primary jurisdiction, It was denied. This Court denied certiorari from Judge Ritter's ruling in that case. The matter was sat down for hearing before the Federal Power Commission. I filed a motion on behalf of California asking the Power Commission to stay itself because of the confusion and difficulty which would arise and the trampling of the public interest which would occur, and that motion was denied. Following which hearings were held and the decision of the Commission ultimately was issued. Now, the examiner found that the Commission had the authority to authorize the transfer of one corporation certificates to the other even in the presence of things found to violate the Clayton Act. He assumed a statutory authority which didn't exist. He refused to examine economic impact or the effect of this merger upon rates and charges. He refused to let cross-examination occur as to that, and the Commission adopted this. The Commission was asked and changed its mind in a petition for rehearing filed in which the specific errors were pointed out to it. And it refused and the Commission on December 10th, 1959 set the matter down for argument and on December 23rd, 1959, it issued its decision. I sent a telegram to the Commission asking it to stay its order so that I could take a -- an effective appeal. It was denied. I filed a petition for rehearing in which I asked for a stay of the decision so that I could take an affective appeal, and that was denied. It was pointed out to the Commission in this case from the beginning of it until the last time the Commission had jurisdiction of it that what it was doing was harmful in terms of future consequences to the public interest because of what might happen in the State of Utah when the Clayton Act came on for trial if we are successful here. Now, those are the facts of the case, Your Honor. And I should now like to address myself to what I contend to be the error of the Commission and of the court below in the manner in which each disposed of the question relating to Section 7 of the Clayton Act. To begin with, I don't think there's any quarrel with the proposition that the Commission must consider the antitrust laws. The City of Pittsburgh case is rather clear on that. When it passes upon public convenience and necessity, one of the factors in that consideration or judgement is the monopoly question, and there was a monopoly question in this case. The Commission in denying the motion, I had filed to stay its proceedings until the Utah case terminated, at that point committed error. It denied unto itself, all of the proofs, all of the evidence and whatever judgement might have come out of Utah by electing to proceed despite the fact that there was an allegation filed by the Chief Law Officer of the United States saying that this was an unlawful stock acquisition. The Commission went ahead. And so we would ask ourselves, “Does the directive of the City of Pittsburgh case mean that when the agency considers or has to consider monopoly questions and antitrust questions, it can look to them read them and excuse itself from a duty to -- duty do anything more by saying we've considered them or does it have more meaning than that?” First of all, the Power Commission has no jurisdiction over authority or at least it thought it didn't at the time this case proceeded before it. Applicants didn't proceed in that premise nor did I, nor that did the Commission, the examiner nor anybody connect to the case of that point. So there was no examination, no looking into all of the arrangements, facts and details concerning the acquisition of stock. The Commission merely looked to the acquisition of so-called assets or acquisition of certificates, and it might be said here that California then nor the public got no hearing upon the lawfulness of the acquisition of the stock. And we could now take ourselves to the next step in this case where Judge Prettyman passed upon this. And he said that the stock acquisition in this case because it was so enormous, 99% of the stock is really tantamount an asset acquisition and the asset acquisition and the stock acquisition are on the same and it seems to be implying that the approval of the asset acquisition cures any deficiencies and the stock acquisition. Well, let us assume he is correct and that where the merger of the stock acquisition as of sufficient size that that does give the agency authority through asset approval to approve impliedly or inherently the stock acquisition. We then got no hearing upon it. We got no hearing upon it all. And interestingly enough, the Federal Power Commission just recently as I referred to our reply brief had set down an order to show cost, asking the Humble Oil Company and the Alden Corporation to show them why they should exchange stock one to the other, in view of the language in the California case and in Judge Prettyman's decision, so they are having a hearing in that case. And it seems to come down to this. If the Commission was right when it did not inquire into the stock acquisition then we got no hearing and properly so but the record was deficient as to whatever that might have disclosed in terms of its duty to comply with the doctrine of the Pittsburgh case. If Judge Prettyman is right and the stock acquisition and the asset acquisition are one on the same, we did not get our hearing. So in either event, there is error here. Error on the part of the Commission in not doing, error as Judge Prettyman sees it in doing it. So in either event, there is error, in the Commission decision or in the opinion of the court below.
John M. Harlan II: In what view (Inaudible)
William M. Bennett: The court below did not precisely suggest nor indeed would have ordered a dismissal of the proceedings in Utah. But if you relate what it said to doctrines of primary jurisdiction and matters of committee which are inherent in this case, you read into it from his language that the asset acquisition embraces the stock acquisition and since the latter is lawful that there's hardly any point to looking into the stock acquisition. And the reality is despite any legal through which might obtain the reality is them that when this goes back to Utah if it does, that judge will have a very persuasive thing in front if him by way of dismissing those proceedings. And in view of the serious allegations here, if that event occurs, we will never have had a hearing upon the allegations made as to unlawfulness pertaining to Section 7 of the Clayton Act.
John M. Harlan II: The argument is very (Inaudible)
William M. Bennett: It comes down to that, Your Honor. It comes down to that. But it has certain other factors before we get to that point. You will note that the examiner in this case said that the Congress gave to the Power Commission the authority -- the authority to excuse violations of the antitrust laws even in the presence of those things sought to be prevented by the Clayton Act. Even in the presence of those things sought to the prevented by the Clayton Act, which must mean that even if a violation have been made note to him with the limited showing we're able to make in that case, it would have been of no moment because he was preceding under the erroneous notion that Congress gave the Commission the power to excuse violations of the antitrust law. And of course it did not. The RCA case, the Maryland Milk case are squarely inline with what powers this Commission has. But he purported to excuse a violation which might have been his mind and he didn't specifically find one yes or no, but he suggested one at least. He purported to excuse it upon the language in the opinion which he asserted that Congress gave the power to the Commission when a con -- when a transaction was duly consummated as Section 7 says to excuse a violation. He was relying upon that Section of the Clayton Act which says that transactions duly consummated pursuant to authority given by name of the agencies, one of which is -- one of which is FPC shall be exempt, pursuant to such statute vesting such authority in such agency. But that ignored the RCA case. It ignored the fact that Congress never at anytime in the Natural Gas Act gave this agency any power as to antitrust questions. The only power it has is under Section 20 where it must report a violation of such or may report it to the Attorney General. It isn't equipped by nature or staff to handle antitrust questions and then ensured it was never intended by the Congress that it should pass it on antitrust questions as he purported to pass upon them. The thrust of the decision of the Power Commission is that we may pass upon and excuse violations of the antitrust laws. And this is more, this is more than just considering them, this is deciding them. Now, aside from the authority, aside from the authority which I maintain doesn't exist, there was another question here and it goes to your question about abuse of discretion. I don't think there's any quarrel at all with the proposition that this agency simply does not have the power to decide antitrust questions as such. And if an antitrust violation appears before them in the case, they have no discretion to issue a certificate. But even assuming they did, let's talk about this and not as the law dictates the conduct to be followed but as the best way or the sound way of doing it within proper discretion. The Attorney General of the United States files a complaint saying Section 7 of the Clayton Act has been violated. We are not to presume that that complaint was likely filed, that it wasn't fortified by a wealth of investigation and material and that there wasn't something to it. That's the first thing. California asks the Commission to stay its proceedings. We predicted. We didn't know how successful we were, but we predicted that we would one day perhaps be in this Court upon this very question. We had in mind the mingling of assets, the public interests, the rates and charges that would be imposed by a combination said to be unlawful in which when the trial in Utah if it does conclude and may say that this was unlawful and the rates and charges collected, what happens to those in the meantime. I don't know what the answers to these things are. I do know that we've got a case in which the consumer interest because of the situation created by not waiting are being damaged greatly if the complaint in Salt Lake City be correct and it may well be proven to be correct. And this was the abuse of discretion. The other clear abuse use of discretion was in failing to state proceedings to take the material from Utah and have it before them to have their judgment one way or the other. And not doing that, how then were they complying with the doctrine in the City of Pittsburgh case to give consideration of monopoly or antitrust questions. It must mean meaningful and proper consideration.
John M. Harlan II: (Inaudible)
William M. Bennett: Yes, they did Your Honor. There was a series of letters exchanged between the Power Commission and the Department of Justice and each one was apparently reluctant to proceed. But it was not -- it was not until my motion was filed asking for a stay on September 8, 1958. It was not until that motion was denied that in October then, the District Court stayed its proceedings. And of course, the proceedings before the Commission had commenced in September. The motion was denied on the 15th. The proceedings commenced the 17th and the District Judge in Utah states his proceedings on October the 10th because the denial of California's motion as I take it was clear notice to the District Court, we are proceeding. And I maintain of course that discretion must be lawfully exercised that it can be abused and it was abused here.
John M. Harlan II: (Inaudible)
William M. Bennett: That is correct, Your Honor.
John M. Harlan II: (Inaudible)
William M. Bennett: I realized that Your Honor but --
John M. Harlan II: There's a great deal to it more than that.
William M. Bennett: Yes, there's a great deal more to it than that because we are concerned here with whether or not jurisdiction has been properly exercise. Now, let's approach this case from the interest of great pairs or consumers along the entire system which is now one. The Power Commission has authorized the merger. Stock has been exchanged, debts cancelled, contracts made. There have been all manner of things done since that merger, that effect on January 1st, 1960. There was a proceeding in Utah which says that this entire thing is unlawful. The merger itself comes out of the stock acquisition. It grew out of the stock acquisition in the first instance. The stock acquisition may violate Section 7 of Clayton Act. Now in the interim, let us assume we can go back to Utah and tried this case. In the interim, and it's been two years now while we're in the limbo of non-determination as to lawfulness, what about the public? What is being done which might not be done if the agency had waited and the Court in Utah had proceeded the judgment, could California for example have another pipeline today? Is there a pipeline serving California today which is not being fully utilized because of this situation? I could ask all manner and kinds of questions as to the public harm which I think exist today because of the fact that the Commission proceeded first. The Attorney General of the United States filed the complaint. He said this violates the law. The Federal Power Commissions said it does not. And the Federal Power Commission thought it had a Section 5, 11 power such as the Interstate Commerce Commission has to exempt these antitrust violations from the antitrust laws. And in reality, it does not. And I might observe at this point Your Honors that there was no compelling haste to rush into the Power Commission and they get a decision out of it as quickly as it did. If the merger were that good, it would still be there after the judgment in Salt Lake City had been handed down. And if it were determined to be lawful, it would have been a sound way of doing it. As it is, whatever rights the public has in this case have been ignored now for almost three years. And I stand here before you today, we are being served by a pipeline corporation which still stands today charged by the Attorney General of the United States with being unlawful.And there's never been any determination of that. I should like to point out to this Court and this is suggested by the question Justice Harlan asked that there're seems to be inherent in his question the notion that we are being protected in some manner because this was done by a regulated Commission. And the briefs of the Government and the briefs of the El Paso companies speak of this complete blanket of regulation which is to protect this in the interim. There is a Natural Gas Act and there is regulation but there is not a complete and a pervasive scheme of regulation. And let me spell out what I mean. We're not dealing here with a public utility in the normal sense. We're concerned with the pipeline corporation which is regulated because as the access, it's effective with the public interest and because it makes the sale and the gas is resold in interstate commence. This Court in the CATCO case had occasion to comment about the inordinate delay on the part of the Commission in Section 5 proceedings. And I don't say that critically. There are reasons for that delay, but I say it factually. You said that in the Atlantic Refining case, in 1958, when you talked of the Section 5 proceedings which appeared interminable and reference was made there to the fact that the Commission had not yet gotten around to regulating producers and that is a fact. That fact has an impact upon other business before the Commission, rate cases, rate cases which have a priority under Section 4 of the Act or not getting that priority. Let me relate the experience of my -- my state under Section 4 of the Act. A docket known as G-4769 which was filed in October of 1954 took five years from the date of that filing to get a last order or decision from the Commission on it. That was five years. Since that time, we have had three other cases and we finally got hearings on them commencing in the middle of 1961. I don't say it critically perhaps but I say it factually. Committees of the Congress have criticized this factor which exists at the Commission. The FPC itself in recommendations to the Congress has asked for answers and remedies to this. The Power Commission has no complete authority or any authority over the security issuances of pipeline corporations. In short, it does not have that complete type of regulation which is to be advanced here today I presume which would be presented as a reason for having this pipeline merger regulated because that would protect the public interest. The answer to that is it is just not so. For example, rates, rates are set not by the Commission upon its initiative but rates are set by the pipeline companies upon their initiative by filings they make or filings they choose not to make. I should like to, at this point, take the Court through the chronology of events here to show the lack of discretion and to show also perhaps the lack of judgments on the part of the applicants below. You will recall that legal advice suggested that there was no statutory immunity so far as this transaction is concerned and it was not free from doubt. In December 1956, the Securities and Exchange Commission wrote a letter to the applicants asking about possible application of the antitrust laws to this transaction. On July 12, the meeting was held with the Antitrust Division of the Department of Justice concerning the antitrust application to this. On July 16th, they were advised by the Justice Department that complaint would be filed. On July 22nd, the complaint was filed. On August 7th, application was filed with the Commission. On September 8, California asked the proceedings be stayed at oral argument. The antitrust question was argued and the consequence is predicted. And the petition for rehearing, a stay was requested. Now, what I am saying is simply this, there is a great obligation here, a great obligation under the Natural Gas Act upon the part of management in this case to do that which is best and that which is right. Let us look at this for the moment from the point of view of management as trustees, officers, fiduciaries. Was it a wise thing regardless of whether it was lawful or not to take investor's money and put it into the state of hopeless confusion, which if the Justice Department succeeds in Utah, will be a condition which could have been avoided and certainly should have been avoided? There's that side of it. We're not just --
John M. Harlan II: The antitrust case might have been (Inaudible)
William M. Bennett: Your Honor, they were, to my memory, neither invited nor excluded. They did not participate at all. Of course, the RCA case points out quite clearly that there was no point for them to intervene in the RCA case. There was no obligation to intervene before the FCC because the antitrust enforcement responsibilities rested in the courts in that --
Felix Frankfurter: But they're not an independent legal entity with the right to intervene the antitrust division?
William M. Bennett: That is correct, Justice Frankfurter. But I assume that Justice Harlan meant that the United States of America intervene and --
Felix Frankfurter: Well, but Solicitor General of the United States is here. The Antitrust Division is under that general umbrella of the Department of Justice. This notion that separate divisions of the department can come in and litigate on their behalf, it -- it's a strange notion.
William M. Bennett: Well, it may be strange but they do intervene in proceedings before the ICC under that Act.
Felix Frankfurter: Well, maybe they do but they have an understanding here as such.
William M. Bennett: But that -- that is not my family, Your Honor.
Felix Frankfurter: Why not?
William M. Bennett: -- that's the other side of the table.
Felix Frankfurter: That's what I'm suggesting, Mr. Bennett.
William M. Bennett: Yes. But I was asked the question and I was giving it the answer the best of my ability.
Earl Warren: We'll recess now, Mr. Bennett.


William H. Rehnquist: We'll hear argument next in No. 89-1322, Oklahoma Tax Commission v. Citizen Band Potawatomi Indian Tribe of Oklahoma. Mr. Miley, you may proceed.
David Allen Miley: Mr. Chief Justice, and may it please the Court: This case involves a convenience store operated by the tribe on land held in trust by the United States Government for the benefit of the tribe. The tribe sells untaxed cigarettes and other convenience store items from its store to the general public at large without collecting the State taxes. The issues in this case are whether the State taxes are applicable to this tribal business and whether the doctrine of sovereign immunity prevents the State from collecting its taxes. Oklahoma law requires the vendor to collect these taxes. These taxes are validly imposed upon the citizens of this State. The vendor in this case is the tribe. Under the cases of Moe and Colville... Moe is a 1976 case and Colville from 1980... this Court required tribal sellers on a reservation in those cases to collect the State taxes against... on sales to nontribal members.
Sandra Day O'Connor: Well, now, you don't assert any right to collect taxes for sale to tribal members, I trust?
David Allen Miley: Yes, we do.
Sandra Day O'Connor: You assert that you can do that as well? Yes, I believe this case is on--
David Allen Miley: And what authority do you cite for that proposition?
David Allen Miley: --Well, I think this case is on point with the Mescalero Apache Tribe v. Jones decision of 1973, and there we had an off-reservation business operated by the tribe that was found to be reliable for $26,000 in gross receipts taxes on its sales and that it... and that that tribe-- --Well, if we think that this is on what amounts to Indian land, do you take that position?
David Allen Miley: Well, I think the McClanahan case and the Colville case find that the tribal members in those cases were not taxable because they... the sales occurred on the reservation or, in the McClanahan case, the individual earned her income on the reservation. And because the State taxation would infringe upon the tribe's right to govern itself within that reservation, those taxes were not allowed. Here we don't have a reservation situation, as this Court has found in the Oklahoma Tax Commission v. United States. The situation in Oklahoma is much different. There are no reservations as such as are found in other States. And the facts of this case show that in 1891 there was a sum certain session agreement that this Court held in the DeCoteau case... found that those... that... this specific session agreement which was mentioned in the case did disestablish the reservations that were involved in that agreement.
Sandra Day O'Connor: But the land on which this store is located is held in trust by the United States for the tribe, is that correct?
David Allen Miley: That is correct. The land... the particular land in this case was conveyed back to the... from the United States in 1961 and 1964 to the tribe in unrestricted status, in nontrust status, because the Federal Government did not want to maintain any supervision over the land because that would be too much trouble and expense for the Federal Government. So they did not want to maintain the land in any way. In 1976, though, the tribe did want to build some public buildings and a community center, and they wanted to apply for loans. The Federal... the Economic Development Administration for their protection wanted this land to be held in trust by the United States rather than in the tribe's own name. So in 1975 that land was transferred in trust under Section 501, but that section... Title 25, Section 501 of the United States code. But that section doesn't set up any reservation status for the land, and it is my position that the... in order to create a reservation, the Congress or the President of the United States must act to do that, and I don't think that's been done in this case.
William H. Rehnquist: Well, doesn't our McGowan case say that lands held in trust by the United States for the Indians have much the same status as reservation lands?
David Allen Miley: Well, I think the... there are cases that hold that trust land in the... for instance in the John decision, the trust land is a... has reservation status, but I believe in those cases there was a resident tribal population in those cases where the Government was supervising that land.
William H. Rehnquist: Here there's no resident tribal population?
David Allen Miley: Not... these are lands that are for the tribal headquarters and a golf course and public buildings here. But at any rate, even on a reservation the tax laws of the State of Oklahoma would apply to the transactions. And I think as we have seen in the population statistics that were located in our brief, we can see the assimilation of this tribe into the general community, and it's safe to say that most of the sales from this tribal store are not to tribal members. But I think the cases of Moe and Colville clearly stand for the State's rights. And I think the Mescalero point... the Mescalero case goes on to say that tribal businesses that are located off the reservation are subject to the same State laws as all other businesses. And I think in that Mescalero case, in note 11, the Solicitor argued in that case that that land was virtually held in trust for the tribe in that situation, although it was a lease from the Department of Interior I believe. However, it would have been useless to transfer the land in that situation, so that was in effect trust land in that case. So I believe this case is on point when you look at the cases of Oklahoma Tax Commission v. United States along with the Mescalero case. I believe that the Federal intent in Oklahoma was not to create this kind of situation, and clearly Congress did not want to go back to the reservation situation when they were passing the Indian Reorganization Act. They wanted to exclude Oklahoma from that and pass a separate act for Oklahoma because Oklahoma has gone past the reservation system, and I think that was... yes?
Antonin Scalia: I'm not sure what your... I'm not sure what your... are you arguing there has to be a declaration of reservation status before the Indian tribe would have sovereign powers in the area?
David Allen Miley: Well--
Antonin Scalia: Because I don't think our cases support that. I think we've clearly said to the contrary. I think we said in Johns that the test is simply whether the land has been validly set apart for the use of the Indians as such under the superintendence of the Government.
David Allen Miley: --Correct and--
Antonin Scalia: And we've held in other cases, haven't we, that it doesn't have to be a formal declaration of reservation status.
David Allen Miley: --Correct. But I believe in this case when... the McClanahan case, specifically states, and also in Williams v. Lee in a footnote, that when they were talking about the Arizona situation, the Navaho reservation and that situation, they say these notions of Indian sovereignty are not applicable in cases such as where Indians have left or never inhabited reservations, such as Oklahoma Tax Commission v. United States. So--
Antonin Scalia: Not applicable when Indians have left? You mean when the tribe is not in residence? Is that the key that you say makes the difference here?
David Allen Miley: --Well, yes. Well, in the situation of these Indians in this State, in Oklahoma, there is not that reservation status as that status is recognized in other States.
Antonin Scalia: Why? If the test is whether the land has been validly set apart for the use of the Indians as such under superintendence of the Government, that test would certainly apply here.
David Allen Miley: Well, it would apply to a certain extent, but it's not... the land was transferred in trust in 1975 in order for the tribe to qualify for loans. Before that time the Federal Government has no interest in ever supervising this piece of land. So I think there is a difference in this case. But you are correct in other situations this Court has held differently. But I don't think we have these facts, and I don't think Congress really intended for reservation status to be developed again in Oklahoma because of the failure of that system in... previously.
Sandra Day O'Connor: Well, the Solicitor General doesn't agree with you on this point I take it?
David Allen Miley: I don't believe the Solicitor General does.
Sandra Day O'Connor: No.
David Allen Miley: No. At any rate our position is that whether it is a reservation or not, and even if it is held to be a reservation, the sales are still taxable. However, what we are experiencing in this case is that although this Court has found that in 1976 in Moe, in 1980 in Colville, in 1985 in the Chemehuevi decision out of California that tribal stores just like this one should collect the State's taxes--
Byron R. White: On sales to nonmembers.
David Allen Miley: --On sales to nonmembers which--
Byron R. White: Now, would you claim they should collect it on sales to members, too?
David Allen Miley: --Well, yes, I do.
Byron R. White: xxx.
David Allen Miley: But if they collected sales against nonmembers in this situation, they would be collecting taxes on 99 percent of their sales. So--
Byron R. White: But the SG says the court of appeals was wrong in enjoining you from collecting the tax.
David Allen Miley: --Collecting the tax.
Byron R. White: To nonmembers.
David Allen Miley: Well, the Tenth Circuit--
Byron R. White: No, the SG, the Solicitor General, says that the court of appeals was in error in enjoining you from collecting the tax.
David Allen Miley: --Correct.
Byron R. White: All right. Then how would... let's just assume that the SG is right that there was there that that injunction should be vacated... the injunction enjoining you from collecting the tax. How would you collect it?
David Allen Miley: Well, in this case we have issued an assessment--
Byron R. White: You can't... you can't... under the SG's view the tribe is immune from suit. You couldn't sue them. How would you collect it?
David Allen Miley: --Well, that is the problem we are faced. We cannot collect it unless the tribe cooperates.
Sandra Day O'Connor: Could you sue the store manager?
David Allen Miley: Well, we have--
Sandra Day O'Connor: To require the manager to set aside the money and do what's necessary?
David Allen Miley: --Well, under Oklahoma law the owner of the store is responsible rather than employees. We could not hold an employee liable even though it might be their duty. We have to go against the owner, and the owner in this case--
Sandra Day O'Connor: You don't think you would have jurisdiction to go after the employee not to hold him liable but to require by way of an injunction or other court order that the employee set aside this money for the taxes?
David Allen Miley: --Well, we have had in another case in the Chickasaw Nation case that was up here a few years ago, we did try to sue the manager of the store but the Tenth Circuit opinion, which was vacated in that case, is now before the Oklahoma Supreme Court. But the Tenth Circuit had held in that case that we could not get around tribal sovereign immunity by assessing tribal employees for the tax.
William H. Rehnquist: Well, but this Court isn't bound by any ruling of the Tenth Circuit--
David Allen Miley: Correct.
William H. Rehnquist: --as witness to the fact we've got this case here on certiorari.
David Allen Miley: Correct. That's correct. I was just merely stating that we've been unsuccessful thus far in that tact.
Anthony M. Kennedy: Could you require the wholesaler to affix the stamps on 100 percent of the cigarettes and then just rebate the tribe for those that were sold to Indians?
David Allen Miley: Well, that's what... we do require the wholesaler to do that, however, when the tribes in Oklahoma purchased their cigarettes from as far away as Tennessee or Nebraska from wholesalers who have no nexus with the State of Oklahoma, they will then ship those in on common carrier or otherwise, basically bootleg them into the State and--
Anthony M. Kennedy: They're not doing business in the State of Oklahoma by the end sale?
David Allen Miley: --No, no. If they don't have a presence within the State... if they merely ship on common carrier to a certain location, they have... there's no sufficient nexus if they don't have any trucks or warehouse or anything in Oklahoma, we can't make those other wholesalers pay the tax. So, at that point, although it is perfectly fine for someone to buy cigarettes from an out-of-state wholesaler... that's not disallowed, but at that point the retailer is then obligated to purchase the stamps because the retailer is located in Oklahoma. We do have jurisdiction over the retailer. And in that case the retailer would be responsible. If those taxes were not properly paid, then the retailer would be responsible for the delinquent liabilities. And that puts us back facing the tribe again, and the only other way to enforce that would be seizures of the shiploads of cigarettes coming in. And that is--
Anthony M. Kennedy: We can pursue it some other time. But I don't see how you would have authority to seize and not authority to require that the tax stamp be affixed.
David Allen Miley: --Well, we do not have the authority for... to require a wholesaler in another State to comply with our laws. If they are not themselves coming into this State to make the deliveries or if we do not have any evidence that they are coming into this State to make those deliveries. And so we kind of have to catch them in the act and then we would have to hold their property, like a truck, in order to enforce that. So we have trouble enforcing the laws across State lines. That's why we look to the people that are located in Oklahoma to enforce this law against. And so that brings us to the examination of tribal sovereign immunity and of course, as this Court has held in the United States Fidelity and Guaranty case in 1932 and again in the Puyallup case in 1977, this tribe is immune from suit. However, it is my position that circumstances have changed such that this doctrine should be reexamined. Back in 1932 that case involved a lawsuit by the United States to protect tribal coal royalties that were owed to the tribe and the tribe was held to be immune from a counterclaim in that suit because the United States Government was trying to protect the fragile existence of the tribal ward, and it was necessary in that circumstance. I think, however, the scope of the tribal entity has increased greatly from those days and they are not reaching into the community of the State where State laws do apply. I think this is quite a drastic change and requires us to look again at the sovereign immunity doctrine. Now I'm not saying that sovereign immunity of an Indian tribe should be abandoned for all purposes or that it would be... should be absolutely abrogated in any way. I'm just trying to accommodate the interest of the State and the interest in collecting the taxes from the State citizens who are properly taxable. The sovereign immunity, I believe, is a limited sovereign immunity for an Indian tribe which should be limited to, properly, the tribal courts and the internal and social relations of the tribe certainly, and in the tribe's commercial area, where they are dealing with people who stand on maybe a different footing in the State of Oklahoma, I can see where they could assert sovereign immunity in that case. But here we don't... we aren't dealing with a consensual relationship as such and we are faced with a situation where we are trying to get the tribe to cooperate with the tax laws of Oklahoma, which we feel, under previous decisions of this Court, that we have a right to have them administrate on our behalf. I think this Court has found that that administration is such a burden on the tribe that it would infringe tribal self-government, and we certainly recognize the government of the tribe. But I believe that the sovereign immunity of this tribe does not go so far as to displace these valid State laws. And I believe that that's what the tribe, as differentiated from how the sovereign immunity doctrine has been used in the past, this tribe is using the sovereign immunity doctrine to evade valid law enforcement. I will reserve the balance of my time.
William H. Rehnquist: Very well, Mr. Miley. Mr. Kneedler, we'll hear now from you.
Edwin S. Kneedler: Thank you, Mr. Chief Justice, and may it please the Court: It is the position of the United States in this case that the Court may dispose of the case by application of three settled principles. First that Federal law affords Indian tribes immunity from all suits except where Congress has expressly consented to such suits or the tribe waives its immunity. Second, that States may not tax sales of goods on an Indian reservation to members of a tribe. And third, that States may tax non-Indians who purchase goods from an Indian tribe or member of a tribe on an Indian reservation. The first of these points arises in connection with the Tax Commission's counterclaim against the tribe in this case. The tribe concedes that that counterclaim is barred under existing law, under the existing rule of Federal sovereign immunity. But it urges the Court to modify that rule or to abandon that rule in the context of this case. But this Court has said on several occasions that it is up to Congress to modify... excuse me... tribal sovereign immunity where Congress believes that that is wise. And it is Congress that could best take into account the various competing considerations: the infringements on tribal sovereign that might be implicated, the economic consequences for a tribe in exposing it to not only the cost of litigation but adverse judgments.
Sandra Day O'Connor: Mr. Kneedler-- --Well, Mr. Kneedler, it's a pretty empty right to be able to tax the sales if there's no way for the State to enforce it. What can the State do--
Edwin S. Kneedler: Well, there are--
Sandra Day O'Connor: --really as a practical matter?
Edwin S. Kneedler: --Well, there are a number of--
Sandra Day O'Connor: Can they sue and get some kind of affirmative injunction against the manager of the store to require the taxes to be--
Edwin S. Kneedler: --There are several possible remedies. Now, the Court made clear in Santa Clara Pueblo v. Martinez that tribal sovereign immunity extends only to the tribe. It does not protect... under a rational analogous to Ex parte Young, does not protect tribal officers from suit. So in this case the manager of the tribal store or other persons responsible for operating it would not be protected by sovereign immunity. Now there may be a question as to what forum such a suit could be brought in. But as the... as we read the tribal code, the tribal court, for example, would be available. But in any event the Tax Commission has not tried that. Also, although the Tax Commission argues here that it has no ability to enforce its law against wholesalers shipped from out of State even though it concedes it's coming from instate, that just happens to be the arrangement of Oklahoma law at the present time. It's possible that Oklahoma may be able to amend its law to impose a duty on wholesalers who ship from out of State or consign shipments to shippers who bring them into State to impose the tax stamps on the cigarettes in the same manner that it currently requires of wholesalers who have a place of business in the State.
Harry A. Blackmun: --Mr. Kneedler, it might... in your view should this Court be deciding that anyway?
Edwin S. Kneedler: No, it should not. In our view the proper course for the Court to follow would be to affirm the tribe's own immunity from suit and to vacate that... and therefore affirm the dismissal of the counterclaim. But with respect to the tribe's suit for affirmative injunctive relief, we think that all the Court really needs to do here is to vacate the injunction that the court of appeals ordered, premised on the view that it's a substantive matter. The tribe did not have to collect the tax on the sales to non-Indians or Indians. As we explained in our brief the court sought to distinguish this Court's holdings in Moe, Colville, and Chemehuevi that the State may collect taxes on the sales to the non-Indians on the ground that Oklahoma has not accepted jurisdiction under Public Law 280. As we explained in our brief, however, Bryan v. Itasca County held that Public Law 280 does not confer taxing jurisdiction on States that accept jurisdiction under that law. We think it follows that Oklahoma's refusal to accept jurisdiction under Public Law 280 does not withhold taxing jurisdiction from the State. In other words, Public Law 280 is simply put to one side on the question of the State's authority to tax.
Byron R. White: So the administrative court of appeals erred in entering the injunction against collecting the sales... sales tax on sales to nonmembers?
Edwin S. Kneedler: Right. And for that reason we think the Court should vacate the injunction that the court of appeals... or vacate the judgment below to the extent the court ordered that--
Byron R. White: I guess we left the States in that same position before.
Edwin S. Kneedler: --That's correct. In both Chemehuevi and in Colville there was a sovereign immunity claim against counter claims by tribes in essentially identical situations as this. And in Chemehuevi, although the court granted review and summarily reversed on the substantive tax question, it left standing the lower court's ruling on the sovereign immunity question. This is an arrangement that has been in existence for sometime, that the State has the substantive right to tax but cannot sue the tribe.
Antonin Scalia: Mr. Kneedler, even before the passage of the Foreign Sovereign Immunities Act my recollection is that at least some courts had adopted what most... what has been adopted internationally in exception to sovereign immunity in the case where the supposed sovereign is not acting in a governmental capacity but in a commercial capacity. Now if one applied the commercial exception to sovereign immunity here, would the result be different?
Edwin S. Kneedler: The result might be different, but we think that would not be within the Court's authority and even prior to the Foreign Sovereign Immunities Act, the Court did not take it upon itself to modify that rule. At that point--
Antonin Scalia: With respect to foreign countries, hadn't some of the courts of appeals done so in--
Edwin S. Kneedler: --I believe not until the Tate letter of 1953. In other words, it was... whichever political branch was responsible in the area of foreign sovereign immunity, the executive branch, prior to the Foreign Sovereign Immunities Act, made sovereign immunity determinations with respect to foreign countries. The court did not, in other words, take it upon itself. With respect to this aspect of travel sovereign immunity like all others, this Court has said that the occasions for when a tribe should be brought out from under the usual Federal rules that that's the responsibility of the political branches, because there is a political judgment.
William H. Rehnquist: --But it was this Court that first created tribal sovereign immunity, wasn't it? It wasn't an act of Congress.
Edwin S. Kneedler: It was not an act of Congress, but I don't think it's entirely fair to say that the Court created. I think the Court recognized it, looking to the status of Indian tribes within the constitutional scheme. The Constitution refers to Indian nations under the Commerce Clause and gives to Congress the authority to regulate commerce with the Indians. That's exactly... with the Indian nations, which is exactly what we have here: commerce with an Indian nation.
John Paul Stevens: Mr. Kneedler, what is your understanding of the source of the Indian tribal immunity? Where did it come from?
Edwin S. Kneedler: It derives from the status of Indian nations as sovereign entities that predate the Constitution in fact and that are recognized in the Constitution. Just like the Federal rule barring sale of Indian lands without the consent of the Federal Government, it stems from--
John Paul Stevens: Well, that's statutory.
Edwin S. Kneedler: --Well, but it predated the Constitution and, you know, neither the Court recognized it as a common law rule in additional to a statutory rule. But in any event as to both rules, the Court said that until Congress consents, the established rule, in that case against alienation of land and in this case against sovereign immunity, prevails until Congress creates an exception. And Congress has in fact acted on that assumption in numerous occasions, as we pointed out in our brief.
Byron R. White: Mr. Kneedler, your brief says the question of what remedies the State might have should be left in the first instance to the court of appeals.
Edwin S. Kneedler: If necessary. I mean, I--
Byron R. White: Well, how would that ever be... how would the question of remedy ever be up in the courtroom?
Edwin S. Kneedler: --Well, it depends--
Byron R. White: They would be passing on... the tribe brought the suit, wanted the injunction, and you say, well, they shouldn't have gotten an injunction.
Edwin S. Kneedler: --Well, they shouldn't have gotten--
Byron R. White: Is that the end of the case?
Edwin S. Kneedler: --Well, they shouldn't have gotten as broad an injunction as they did. The injunction the court of appeals held applied even to sales to nonmembers.
Byron R. White: xxx set aside that injunction.
Edwin S. Kneedler: Right. First of all if the tribe, recognizing that this Court will have held that it must collect taxes on sales to nonmembers, we think that the tribe should be given an opportunity to do so and that we should not assume that once the tribe and the court of appeals are disabused of the notion that Moe and Colville don't apply, perhaps the tribe will voluntarily proceed. But then there's the other possibility of a suit and also the possibility of seizing cigarettes.
Byron R. White: Well, but the court of appeals wouldn't necessarily get into anything about remedy.
Edwin S. Kneedler: No, what we--
Byron R. White: They would leave the State exactly where we put them before, wouldn't they?
Edwin S. Kneedler: --Well, more completely I think the court of appeals could address that if necessary. We think that this is something best left to the tribe and the State to work out on remand.
Anthony M. Kennedy: Mr. Kneedler, why is there difficulty in suing the tribal store manager in an Oklahoma State court? Just because they can't physically get the jurisdiction?
Edwin S. Kneedler: No, because Oklahoma has not accepted jurisdiction under Public Law 280, civil adjudicatory jurisdiction at least with respect to an Indian on... in Indian country in Oklahoma would not reside in the State courts. But that simply follows from Oklahoma's decision not to assume jurisdiction under Public Law 280. With respect to the reservation status of this land, I'd like to point out that the Tenth Circuit's decision in this case follows not only from John and McGowan, where the Court said that a formal designation of reservation status is not necessary. But also decisions of the Fifth, Ninth, and Tenth Circuits, other circuits with Indian... considerable Indian country which have also held that tribal trust land such as this enjoys reservation status. And most recently Congress has affirmed that principle in the Indian Gaming statute which basically codifies the preemption principles this Court applied in Cabazon and specifically held that those preemption principles apply to tribal trust land, not just formal... formally designated reservation and specifically with respect to Oklahoma. And in fact this tribe has a bingo parlor on this very parcel of land and is protected by similar immunities. Thank you.
William H. Rehnquist: Thank you, Mr. Kneedler. Mr. Minnis, we'll hear now from you.
Michael Minnis: Mr. Chief Justice, and may it please the Court: The tribe has an entirely fundamentally different perspective on this case and how it arose. This case did not arose under any fact similarities to Moe v. Colville or any of the other cases. This case was a simple case in the court below, at least it began that way. It was a proposed tax assessment. This is not a case of collection. It's a case of a direct, proposed tax assessment against the tribe. The tribe sought... in filing suit sought one remedy and one remedy only and that was to enjoin that proposed tax assessment. And to this date, and we haven't heard it here today because they've been all talking about Moe v. Colville. We have no authority for the proposition that the State may tax an Indian tribe and they have no authority then what they were proposing to do was to take an action that was clearly illegal.
Byron R. White: I know, but the assessment was for sales tax that should have been withheld and wasn't.
Michael Minnis: Your Honor, I don't think that makes any different. If you're immune from tax, it doesn't make any difference whether or not--
Byron R. White: No. Well, you think we haven't held that the State may insist on the tribe withholding sales tax on sales to nonmembers?
Michael Minnis: --Yes, sir, you have held in certain cases that in certain States that the State may require Indian tribes to cooperate, and if they don't cooperate they're not entitled to injunctive relief. But you have never held, at least as far as I can tell, that an Indian tribe can be directly taxed by the State. In this case, there was no evidence of any prior collection or what have you. It was simply a raw, direct tax assessment, $2.6 million, that would have had to have been paid by the tribe, not from any precollection or any prior... arrangement.
Byron R. White: What does the... what do you mean an assessment? All they did was write them a letter, didn't they? What did they do?
Michael Minnis: Your Honor, the writing of that letter is a very critical--
Byron R. White: Well, I know, but I hear you say an assessment--
Michael Minnis: --I proposed assessment.
Byron R. White: --they just said, please pay us this tax.
Michael Minnis: And in 30 days if we had not filed a protest with the State, the tax would have been filed.
Byron R. White: Well, and then what would have happened?
Michael Minnis: Then they would have done whatever else it was that they could have done.
Byron R. White: Well, I know, but they... what would they have... what would... wouldn't have... if your tribe is immune, I don't know how they could have sued them or do anything else. But come on the land and attach the store or what?
Michael Minnis: Well, it's a little bit hypothetical to talk about what we might have done had they directly proposed assessment against the tribe. This case arose when they proposed the $2.6 million assessment against the tribal chairman who, in 30 days, he would have been personally liable. And given that situation, we felt that they had... we had no... we had no... we had to take action to protect this individual or he personally would have been liable for the $2.6 million. It was after we filed suit that the Tax Commission then said that they were proposing their assessment against the tribe.
Anthony M. Kennedy: Well, I'm not sure it's an assessment against the tribe, that the State's taking a position that they're taxing a transaction and the transaction is taxable.
Michael Minnis: Yes, Your Honor, that's what they're contending, but what I'm saying is that's not related to the action that they took. They did not take action to try and get us to collect it. They never came to us and said you ought to be licensed. They never came to us and said start collecting this. One day after we'd been doing... had been selling on the tribe's land for centuries... not centuries, however long we've been there... suddenly we get a $2.6 million letter.
Byron R. White: You know... the tribe knows what the law is about what the sales tax law is and you've never been withholding and returning the tax.
Michael Minnis: Well, I'm not sure--
Byron R. White: Isn't that right?
Michael Minnis: --I'm not sure it would be fair to say the tribe knows what the law is. Well, Your Honor, whether they do or not, I think this Court has said many times that you're bound by whether you know about it or not. I mean, I'm just saying I don't think it's necessarily true that they knew what the law was.
Sandra Day O'Connor: Well, Mr. Minnis, let's say that we follow the Colville case and the Solicitor General's position and that we agree that Oklahoma is entitled to tax the transaction of sale of cigarettes to nonmembers of the tribe... that that's a taxable event and the tribe... the State can require the tribe collect the tax and pay it over. Now is the tribe willing to do that?
Michael Minnis: I can't speak for the tribe in the sense that I'm not their business committee, but I would suggest that they have acted with... I think that they have acted consistent with what they perceive the law to be, even... Justice White asked me about whether or not... surely they knew what the law was. But we have taken the position in response to Moe v. Colville analogy that Oklahoma and this particular tribe is in a different situation than the tribes were in Colville and that different situation arises from the fact that the specific land that was involved here is land that the United States Government promised would never be part of the jurisdiction of any State, and we contend that that promise was codified in the Constitution.
Sandra Day O'Connor: Well, I asked though suppose we take the view that the Solicitor General has urged here that these transactions, at least as to sales to nonmembers, are taxable.
Michael Minnis: Yes.
Sandra Day O'Connor: Where does that leave us?
Michael Minnis: Well--
Sandra Day O'Connor: There have been sales to nonmembers, apparently substantial sales to nonmembers and that continues to this day I understand.
Michael Minnis: --That's correct.
Sandra Day O'Connor: Now let's say that we think those are perfectly taxable.
Michael Minnis: Well, then I would--
Sandra Day O'Connor: What's to be done?
Michael Minnis: --and I'm just assuming because it's a hypothetical--
Sandra Day O'Connor: Well, it's not very hypothetical.
Michael Minnis: --that they would either quit selling cigarettes or they would collect the tax.
Anthony M. Kennedy: But your contention is that neither this Court nor the courts that have heard the case previously has the authority to make that decision in this case because it's not an issue of this property before us?
Michael Minnis: That's correct, Your Honor.
Michael Minnis: As we view the case, the case is simply an assessment case. We're being assessed for failure to collect for a period of time from 1981, I think, to 1986. But they reversed the district court. The district court prospectively indicated that the tribe should collect the sales tax.
Michael Minnis: In response to the counterclaim by the State.
Byron R. White: Well, I know, but the court of appeals reversed them.
Michael Minnis: They reversed them on the basis that the tribe had sovereign immunity and that the court, the district court, should never have heard the case.
Byron R. White: Well... it couldn't even tax sales to nonmembers and if we say they were wrong in that, I suppose we would reverse them.
Michael Minnis: The relief that the Tenth Circuit granted was simply a reverse remanded for entry of order as prayed for, and the order that was prayed for by the tribe was simply an injunction against the proposed assessment.
William H. Rehnquist: But the court of appeals in its opinion certainly went further--
Michael Minnis: Yes, Your Honor.
William H. Rehnquist: --and said the injunction should cover not merely the sale of cigarettes to tribal members but to nonmembers because of its analysis of Public Law 280.
Michael Minnis: I don't think that they said that the injunction that would be entered after remand was supposed to be broad enough to cover that. I think what they said in dicta was we say that the Colville case is not... we noticed that the Colville case took place in a Public Law 280 State, and hence the arguments being made by the State are not valid. But when you get to the end of the opinion, all they say in the opinion is not to enter an injunction consistent with what we've said, but rather with the prayer.
Byron R. White: I take, then, it wouldn't bother you if we said there is no existing injunction against the State from collecting sales tax? That's what you say. The court of appeals didn't enjoin the State from collecting sales tax on sales to nonmembers.
Michael Minnis: That's correct. All that we're suggesting is that the relief we've sought is all we're asking for is to enjoin them from assessing this tax against the tribe. That's the only relief we ask for.
William H. Rehnquist: From assessing the tax on sales to nonmembers or to members or to both?
Michael Minnis: In this case assessing the tribe, the proposed assessment against the tribe. We didn't ask them to future... to tell us that we could in the future not have to collect it. We didn't ask that we be given a declaratory--
William H. Rehnquist: Well, we're playing with words to a certain extent. Do you agree on behalf of your client with the court of appeals position that Public Law 280 means that the Colville and Moe cases and their doctrines do not apply in this situation?
Michael Minnis: --Yes, Your Honor, we're arguing that as an alternative in response to their counterclaim, that their counterclaim was not valid because in Oklahoma there's a situation that's different from Montana, Washington, and California, which were Public Law 286.
Anthony M. Kennedy: Well, when you invoke the jurisdiction of the Court to ask for its equitable powers to be exercised on your behalf in a situation as complex as this, why isn't appropriate for the Court to make an announcement that perhaps the tribe cannot be assessed directly but that the tribe has the duty and the responsibility to remit the taxes to the State?
Michael Minnis: Well, for one thing I think that there's no factual foundation for that in the sense that the factual dispute that caused the filing of the lawsuit in the first place. They've never asked us to collect this. They've never attempted to license us or what have you. The only thing that precipitated this lawsuit and the only fact that's in the case in this... in the case below is simply the proposed tax letter. In fact there's not even any factual dispute. Because of an anomaly there's really not any facts in the record concerning the counterclaim, because at the time that the matter was submitted to the court on briefs, the stipulations all went to the tribe's part of the action, because the parties erroneously thought that the motion to dismiss the counterclaim was still pending and it wasn't. It had already been ruled on. And it was only later that they found out that the counterclaim... the motion to dismiss the counterclaim had been overruled, so there's no factual record even on the counterclaim part of it. But that brings me to the second issue which I think is before the Court. The first issue is whether or not the tax assessment is proper, and the second is the counterclaim. And I would suggest that there is not a particularized reason now for doing away with the sovereign immunity and certainly not in this case. If, as we've argued, the proposed tax assessment is unlawful, then what this Court would be condoning would be condoning the State taking clearly unlawful action and using it as a way to bootstrap themselves to litigate issues that concern them. If the State was truly concerned about litigating the issue of collection, there are other ways that they could have brought this issue to court besides the issue of direct tax assessment for which they have yet to survive... provide this Court with any authority to what action that they took. If they wanted the Moe case or the Colville case, they could have taken actions that this Court has recognized in those cases that they could take since it's seizing cigarettes bound for the tribal reservation or what have you. And then they would have had the factual foundation to raise all the issues they would have raised had the tribe then gone in and sought relief. But here they went a route that I think has been at least implicitly indicated... even all those cases is not the proper route to take, which is to assess the tribe of the tax.
John Paul Stevens: May I ask you on that, supposing the State had seized a shipment of cigarettes destined for the tribe and presumably owned by the tribe, because they would shipped by a common carrier and... the property would presumably pass at the time of shipment. And the tribe brought suit and said, give us back our cigarettes. We have sovereign immunity and, therefore, our property is immune from seizure of this kind. How would you decide that case?
Michael Minnis: In favor of the tribe.
John Paul Stevens: Well, then what remedy does the State have? How can they collect their tax? I thought you said they could seize cigarettes, but now you say they can't.
Michael Minnis: Well, I... no, I'm suggesting that if they wanted to raise the issue of the propriety of seizing the cigarettes that that's the way they should have proceeded.
John Paul Stevens: But they'll still lose is that what's you're saying.
Michael Minnis: Well, we'd still defend that lawsuit. We wouldn't be defending another lawsuit.
John Paul Stevens: Yes.
Michael Minnis: That's the argument we're making here is that we're being asked to defend the lawsuit that they didn't bring that they could have brought and the one that they have brought is whether or not... the one that they solely define by the actions they took was the tax assessment. That's the way they brought this law... I mean, that's what caused this lawsuit to be brought, not some of these other things that perhaps they could have done.
John Paul Stevens: But they could have done with the same result is the problem I suppose.
Michael Minnis: But we would argue... we would argue this... the same result. In this case, of course, they did, as we later learned, they did assess the wholesaler for the same taxes that they are attempting to collect from us.
Byron R. White: Well, let's assume that we hold that the State is entitled to collect sales taxes on the sales by nonmembers and that the tribe should have been withholding those taxes and, of course, if they... and if they... of course, if they should from now on withhold, they should have withheld it in past. Now what's wrong with the State saying, writing a letter and saying, look you should be withholding and you haven't been withholding. Now pay us what you haven't withheld. Is that so insulting?
Michael Minnis: Well, I would think... well, if you... it is insulting if you contend that you are a sovereign and that you are immune from suit and you're immune from tax. The idea that they would have to directly renew, yes.
Byron R. White: No, but the State says, your immunity doesn't cover sales to nonmembers and cites these cases. Just because it's called a tax assessment doesn't... it may be a demand to pay, because you haven't been withholding. That's all it was, wasn't it?
Michael Minnis: Well, yes, Your Honor, but I mean, it's not as if they said, start collecting taxes--
Byron R. White: Well, the tribe owns the store. The tribe's the one that should have been withholding taxes, and they didn't withhold.
Michael Minnis: --Yes, Your Honor, but you still end up with who pays the money and the money would be paid by the tribe under a direct tax assessment.
William H. Rehnquist: Well, but perhaps the tribe is liable. If it should have been collecting a sales tax on sales to nonmembers.
Michael Minnis: Your Honor, that would presuppose that the Oklahoma State tax laws are applicable to the tribe, and if they are applicable to the tribe, are just those laws or are all State laws?
William H. Rehnquist: Well, certainly Moe and Colville said that Montana and Washington State tax laws were applicable to the tribes who were involved in those lawsuits.
Michael Minnis: In those cases the Court was clear to point out that the incidence of the tax was not on a tribe as it is in this case and that the collection of the tax was something that the tribe... those cases arose when the tribe sought declaratory and injunctive relief, and what this Court did was say, you're not entitled to the injunctive relief because you should have been collecting the tax and since you didn't collect the tax we're not going to give you the injunctive relief you've asked for to stop the trucks from coming into your reservation. For the reasons that have been expressed here and are further articulated in our brief, we would urge this Court to affirm the decision of the Tenth Circuit Court of Appeals. Thank you.
William H. Rehnquist: Thank you, Mr. Minnis. Mr. Miley, you have 3 minutes remaining.
David Allen Miley: Thank you, Mr. Chief Justice. I would just like to conclude by staying that first of all the State has the authority under State law to require this taxation. The tax assessment was made to enforce this tax collection. We... under the Moe and Colville decision, we believe we have the right to these taxes. We found no other way to enforce these taxes than by tax assessment in this case. It is my position that you cannot properly separate the collection of a tax from the enforcement of the tax, because as we have seen in this case the tribe will not collect if the only consequences of that is getting away with it. So they have operated for many years without collecting with our... likewise with the State's inability to ever enforce those laws.
Byron R. White: Has the State of Oklahoma or any other State as far as you know requested Congress to waive tribal sovereign immunity where the tribe has refused to pay... to collect sales taxes and to turn them over--
David Allen Miley: No, we have not requested Congress to do that. I think Congress is not in a position to do that, and I think--
Byron R. White: --What do you mean it isn't in a position to do that?
David Allen Miley: --Well, I believe Congress could do that if it wanted to. It just doesn't want to. They are not properly the tax collection agents for the State of Oklahoma. They are not concerned with collecting Oklahoma taxes, so the Congressmen don't--
Byron R. White: But they're concerned with the status of Indian tribes.
David Allen Miley: --That's correct, and they would be concerned and they have passed several laws like the bingo laws to encoarage economic development, but I think what we have here is an area where we do not need to go to Congress to ask Congress if the State of Oklahoma can collect its taxes. I believe we have--
Speaker: It's an area where that's exactly what you ought to do. I think it's amazing that the States haven't gone to Congress and said, look, we have a problem collecting these taxes. We're entitled to get them, no we need relief from you to waive sovereign immunity to that extent. I would suggest that that's a perfectly valid position for the States.
David Allen Miley: --We could take that position, although Congress... that would be a political decision that I don't think many Congressmen want to be put in a position faced with constituents who maybe feel differently about the issue than the State does. Thank you. That is all I have.
William H. Rehnquist: Thank you, Mr. Miley. The case is submitted.