William H. Rehnquist: We'll hear argument next in No. 90-1491, Union Bank v. Herbert Wolas. Mr. Graham. Spectators are admonished to not talk until you get outside the courtroom. The Court remains in session.
John A. Graham: Mr. Chief Justice, and may it please the Court: The issue in this case is the proper interpretation and application of section 547(c)(2) of the Bankruptcy Code. Section 547(c)(2) is one of several statutory limitations on a bankruptcy trustee's right to recover payments from creditors, and it protects ordinary course of business payments. The plain meaning of the statute exempts all ordinary course payments, and the statute does not limit its protection to any particular class or type of creditor. We submit that the statute must control the result in this case, because this is not one of those rare cases where the literal words of the statute are in conflict with congressional intent. I also submit that this is one of... this is a very straightforward plain meaning case, because what is different in this case, as opposed to some of the other court cases, is that Congress amended the statute and deleted a specific time restriction which was contained in the 1978 Bankruptcy Code. Under the 1978 Bankruptcy Code, payments were only protected if they were made within 45 days of when the debt was incurred. Under--
John Paul Stevens: Mr. Graham, before you get into the legislative history of the prior statute, sticking for the moment with the plain language of the statute, how big was this loan?
John A. Graham: --$7 million.
John Paul Stevens: And are $7 million loans, borrowings, made in the ordinary course of business?
John A. Graham: Yes, for Union Bank, which is a large commercial lender--
John Paul Stevens: No, but for the... is it the ordinary course of business for the bank or the ordinary course of business of the borrower?
John A. Graham: --The statute requires it to be in the ordinary course of both the borrower and the lender.
John Paul Stevens: No, but my question is, is it the ordinary course of this borrower to make $7 million unsecured loans? Isn't that the... under plain language, isn't that the issue for us... or one of the issues?
John A. Graham: That would be a factual issue that would need to be determined in the trial court. It is this--
John Paul Stevens: If this is the only loan of this magnitude it had ever made, and never borrowed more than $1,000 before, what would you say?
John A. Graham: --Then I would say that as to that particular corporation or business' operation it was not ordinary. But the statute in this case, was determined by the Ninth Circuit not to apply to any long-term plan.
John Paul Stevens: I understand. I understand that.
John A. Graham: I do agree with Your Honor that there is a standard of ordinariness that must be analyzed on a factual basis.
John Paul Stevens: Both with respect to incurring the debt, and also with respect to the payments.
John A. Graham: That's correct, and I would turn... just for example... to Black's Law Dictionary that says something that is ordinary is normal and customary, and not characterized by peculiar or unusual circumstances.
Anthony M. Kennedy: On that same point, suppose there were a balloon payment, that this was a loan with monthly principal and interest payments. Suppose there's a balloon payment made just before bankruptcy, according to the terms of the note?
John A. Graham: Then I believe that if it was customary for that type of debtor to borrow money and pay by balloon payment, that it would not be considered to be unusual and out of the ordinary course.
Anthony M. Kennedy: The test is what is customary for the particular business?
John A. Graham: Yes, I think there would have to be an analysis both of... both of what occurs in the industry, and possibly what was proper and appropriate to this particular business... for instance, measuring their net worth, and an examination of their balance sheet at that time.
Antonin Scalia: Let's assume a small business that incurs a substantial loan at the outset of the business to purchase the real estate in which the business operates. You'd say that payments made off... made on that initial loan, which is far and away greater than any other debt the business incurred... that would not be allowable because it's not in the ordinary course?
John A. Graham: No, I... in answering the other Justice's question, I thought what I was saying is you would have to test it from a factual circumstance, by examining the particular business. For--
Antonin Scalia: Well, the particular business, this is the only loan of that magnitude it ever took out. But that's standard for a lot of small businesses.
John A. Graham: --And I would agree--
Antonin Scalia: So it isn't just the particular business, you say. It's businesses in general.
John A. Graham: --I would agree with your point. For instance, many individuals only take out one, large mortgage to buy their home.
Antonin Scalia: Of course.
John A. Graham: Yet that would not be considered to be unusual for that particular individual to buy a home and incur a large amount of debt for his personal residence.
Antonin Scalia: Quite so. And I think it would be the same for a business, wouldn't it?
John A. Graham: Yes, I agree, so long as that particular business, for instance, let's say, only needed one large working capital loan. So long as other businesses of that type also needed one working capital loan, I don't think that that makes it unusual or out of the ordinary. But the problem in this case is that the decision of the court below ruled, as a matter of law, that no long-term lender was entitled to protections of the statute... I don't think because they concluded that it was out of the ordinary course of business. They did not make a factual determination that this particular loan was out of the ordinary course of business. They simply concluded, on what a... we submit is a very, inadequate legislative history, that Congress could not have possibly intended to extend the protection of this statute to long-term lenders. The critical language of the statute, which I think the Court obviously needs to focus on, is as follows, quote, "a debt incurred by the debtor in the ordinary course of business or financial affairs. " And we submit that there really is no reason for this Court to qualify the word "debt", or to guess at legislative intent as to what Congress meant by the word "debt". And that is because debt is a statutorily defined term in the Bankruptcy Code, and it means liability on a claim... which surely includes long-term lenders. The Court need not make up a special definition of debt for this particular statute. Turning to the judicial... to the sometimes exception that there might be a judicial rule of longstanding or pre-Code practice, which would require this Court to look in a different direction than the plain meaning. For 80 years, prior to the enactment of the 1978 Bankruptcy Code, there was never any distinguishment between long-term lenders and short-term lenders. And there was never any reason, nor was there any purpose in the statute to distinguish the protections and... at the expense of long-term lenders. All creditors were protected, regardless of the time limits of their debt. When Congress eliminated the 45-day rule, what it really did was return bankruptcy law to a traditional state of affairs that had existed for 80 years. Also, most interestingly, many cases below, and commoners have put tremendous emphasis on the fact that only trade creditors and consumer lenders testified at the hearings from 1980 to 1984. And they say that because other groups didn't testify, there is no reason to extend the protections to those groups. I submit to this Court that the trustee's position that divining legislative intent by conducting a head count of the witnesses that appeared before Congress is really an absurd way of analyzing legislative history. The fact that one group sat on the sidelines and chose not to participate, either voluntarily or by subpoena to be called and testify, doesn't prove anything. In fact, in this example, the long-term lenders may have been quite content to sit on the sidelines, since the plain meaning of the statute was going to plainly protect them. If this Court were to part from the plain meaning, it would also have to deal with another vice that is not solved by the trustee's position. From the inception of Congress' analysis in 1980 to change the statute, the first group that triggered that review was the commercial-paper issuers. And they complained that the statute, which had an artificial time limit of 45 days, was excluding them from the protections of the ordinary course rule. And throughout the 4-year period, it was made clear that those commercial paper issuers were to be protected by the new statute... in fact, so much so, that Senators Dole and DeConcini, on the floor of the Senate, made statements to that effect right before the legislation was passed. The problem is that if this Court were to part from the plain meaning of the statute, you would be required to write in another special exemption to the statute for commercial paper issuers. The 1984 Congress made it clear that its goal was to promote and protect norr lized business dealings.
William H. Rehnquist: That was the year in which the 45-day provision was repealed?
John A. Graham: Yes, Mr. Chief Justice. It did follow a 4-year legislative review in which the 1978 Bankruptcy Code, which became effective in October of 1979... less than 1 year later complaints were laid at the doorstep of Congres and the investigation and congressional hearings ensued to determine what to do about the statute. It is petitioner's view that there is no reason to exclude long-term lenders because the goal of the 1984 Congress was to promote and protect normalized business dealings, and that... they held that that could be accomplished while discouraging unusual action in a race to the courthouse. I would point--
Byron R. White: It certainly narrowed the... preferences that could be recovered.
John A. Graham: --The new statute, Your Honor?
Speaker: Yeah.
John A. Graham: That's correct. But I don't know if--
Byron R. White: But they... so be it. That's... they intended to do so.
John A. Graham: --Right, and while some people complain about that policy, I think it's interesting to note that the very creditors who would be protected by collectively bringing in preference payments and distributing them equally, were the same group that went to the 1984 Congress and said this is not a protection that we seek. We would prefer to have our normal... normal business transactions immune from preference of tax, so long as they're within the ordinary course of both the debtor and the creditor's business.
Byron R. White: Yeah, we would rather enjoy preferences than have... having... have them be covered.
John A. Graham: Well, I imagine that's--
Byron R. White: I mean, so to speak.
John A. Graham: --So to speak. I think, though, that the concern of Congress was that the statute, as written with the artificial limitation, was requiring businessmen to change their practices. And that was the problem that the Congress addressed. We submit that since the key goal was to protect and promote normalized business... dealings, and to prevent a race to the courthouse, it makes absolutely no sense to carve out and exclude long-term lenders from that process. Long-term lenders usually hold the power to bring a debtor's business to a halt. In most cases, there is one or two key long-term lenders. And if the goal is to prevent a race to the courthouse, why exclude that lender from the protections of the statute? At that point, you've taken away the very incentive that Congress gave that long-term lender to deal with the debtor on a day-to-day, regular basis. If he's not going to get to keep his regular ordinary payments, why not call the loan covenant? Why not take more aggressive action? I would also point out that although there is much said about the idea of encouraging trade creditors to deal with the debtor on a repetitive basis, and to supply goods and services to that debtor, that is a policy which is covered under subsection c(4) of 547. In that subsection, Congress permitted a creditor who may have received a preferential payment, that if he continues to do business with the debtor, he will be able to offset any future goods or services he delivers to the debtor against that preference liability. So there is a specific statutory exception which responds to the concern and the policy of promoting creditors and trade suppliers to do business with the debtor. I also think that the Court need not attempt to try to reconcile the 1984 Congress' different view of what was the more important policy. The problem in this case is that since the statute is not ambiguous, if the Court attempts to reconcile the 1978 Congress' policy, which there... which favored more than quality of distribution policy, it puts the Court in the improper role, I believe, of trying to determine whether the 1984 Congress allegedly forgot in passing this statute, and deleting the artificial limitation to harken back to what, in 1978, was considered to be a more important policy. We submit that the case of West Virginia v. Casey states that that is exactly what this Court should not do, where the statute is clear, and therefore there's no reason. This is a case in which the Court cannot be faulted for literalism in applying the statute. The words which created the distinction and previously allowed trade creditors to benefit and sometimes other creditors not has been deleted from the statute. Once that artificial time limit was removed, the statute applies to all creditors. And we submit that the Court should reject the trustee's attempt to add words back into the statute which would change the statutory definition of the word debt. Mr. Chief Justice, unless there are any questions, I would reserve my time.
Clarence Thomas: Yes, Mr. Graham, if there... should we look at the fees that are due each month and the interest payments? Now, I understand this is a line of credit arrangement.
John A. Graham: Yes.
Clarence Thomas: Is there any distinction between the fees and the monthly payments of interest, and the actual pay-down of the principal?
John A. Graham: In this--
Clarence Thomas: Do the fees and the interest payments become... are they due monthly, or are they long-term debt also?
John A. Graham: --Let me answer the question factually, first, as to this case. In this case, it was a revolving line of credit... although much larger, very... similar to a person who has a bank Master Charge. The choice of whether to pay just interest or also pay principal down, in any particular month, was the borrower's choice by the express terms of the document. And so in this case, the payments which are at issue happen to be interest payments, since the loan was not what we would call a fully amortized loan. When it came due, at the end of its term, the principal would have to be paid in full, or the borrower would have to renegotiate for a renewal or an extension of the loan. However, if I might add a point, the American Bankers Association has filed an amicus brief and made the point that the debt of interest, which is distinguished from the debt of principal, probably was a short-term debt, because it was incurred month to month and paid month to month on a regular basis. But we submit to the Court that the issue that has been presented on the writ for certiorari is whether long-term lenders, whether they receive ordinary payments of interest or principal, whether they are excluded from the protection of the statute simply because someone has divined legislative intent based on who testified and some very unpersuasive statements in the legislative history. Mr. Chief Justice, I would reserve the balance of my time.
William H. Rehnquist: Very well, Mr. Graham. Mr. Wolas, we'll hear from you.
Herbert Wolas: If it please the Court, Mr. Chief Justice: We are here to determine whether or not, when Congress amended the statute in 1974, it intended to change, in totality, the preference rules.
William H. Rehnquist: 1984, you mean.
Herbert Wolas: '84. I stand corrected. Between 1979 and 1984, every bankruptcy court in the United States understood that when they were looking at section 67... 547(c)(2), that statute incorporated what was known as the current expense exception to the Preference Recovery Act. That is, everybody knew that these short-term, in-and-out transactions whereby suppliers of goods, utility companies, insurance premium payments, were not within the preference provisions; that these were part of the two-step discussion of contemporary exchanges which do not diminish the estate. Likewise, the current exchange... current expense theory provided assets for distribution to creditors. The question we have here, is is the Ron Pair decision applicable to this case. And I suggest that this statute, the 1984 statute, is... has not been written on a clean slate. It carries with it a long line of judicial and statutory interpretation. We should remember that 547(c)(2) is part of a larger statutory scheme. You start off with the basic... concept of 547(b), which is the preference rule. And the rule there says very clearly that if you received a preference within 90 days of bankruptcy, while the debtor was insolvent, you have to put the money back in the pot, and everybody shares in the dollars. The 547(c) exceptions are the exceptions to the general rule. If we are to look at the exceptions, exceptions are looked at narrowly and precisely. We have all kinds of exceptions, very precise exceptions. We should remember that Union Bank has made one major mistake in its brief. I quote it. At page 12, it makes a statement, that the Bankruptcy Act of 1898 protected most ordinary course payments as a preference, and that did not distinguish between short-term and long-term debt. Half that statement is correct. The statute did not distinguish between long-term and short-term debt. The statute did not protect ordinary course payments. A preference was a preference no matter what. And this is shown to us in the... this Court's decision in National City v. Hodgkiss. That's a 1913 decision, Justice Holmes. That case involved a day loan. The day loan was made to the broker at 10:00 a.m. in the morning for the purposes of financing an underwriting. The broker became insolvent at noon. At 2:00, the bank took a preference, took security; at 4:00, in bankruptcy, involuntary. The decision of that court: it was a day loan; it was a preference... short term or long term. It was paid in the ordinary course. It was, the bank got a preference. Right after that we see that the creation of two separate, overlapping and similar theories. One is the... contemporaneous exchange concept. And that's a concept where dollars came in, and dollars went out. And nobody really got hurt. Property came in and dollars went out. The debtor was really the same, and creditors were not... were not adversely affected. This shows up in the case of Dean v. Davis, a 1917 decision of this Court. In that particular case, there was a loan of money; a mortgage was signed and security given. The mortgage... the loan was on day 1; the mortgage was signed on day 7; the mortgage was recorded and perfected against creditors on day 8. The Court, in that case, bent the plain meaning of the statute, and said, well, it was substantially contemporaneous; nobody was really hurt. We allow that transaction. Subsequent to 1917, we see developing two, judicially-created exceptions to the bankruptcy preference laws. One is the one I just talked about. The other one is the current expense exception. And that current expense exception first started in the world of involuntary bankruptcies.
William H. Rehnquist: You're saying though, that the current expense exception was not statutory under the 1898--
Herbert Wolas: It was not statutory, Your Honor. It is judicially created. Because the plain meaning of the statute would not make an exception for either current expense or for substantially contemporaneous. Contemporaneous is protected, but substantially is, you know, just a little bit pregnant, and how far down the stream are you out of luck, when it's not any longer contemporaneous. So, we have developing this current expense exception. And the current expense exception deals with payment for wages; it deals with the suppliers receiving money for inventory just supplied, payments to the utility companies, payments to the rent, the landlord. And there's a whole line of cases talking about the current expense, and they use words like it was paid in the ordinary course of business, that start off in the involuntary area, and it was switched. Let me back up. Started in the involuntary area, because to put a debtor into bankruptcy, you had to allege an act of bankruptcy. And the most common act of bankruptcy was a preference. So you had to prove that the payment made to the utility company or for the wages was a preference. The Court did not accept that. It started off saying but these are necessary. They enhance the debtor. There was no diminution of the estate. We preserve... we protect the transaction. Debtor, you're not in involuntary bankruptcy. This, then, got switched over. And then in the cases where the creditor was sued because of the alleged preference, the payment, the creditor defended, hey, I was different; I provided inventory, ordinary course. I provided utilities, labor. And that's where the current expense exception came about. We have, now, a study of the bankruptcy laws from 1970 on up through 1979, with the intention of changing the bankruptcy laws dramatically. What they didn't change dramatically were the preference statutes. In the Bankruptcy Commission Report to Congress in 1973, they suggested to Congress a couple of revisions: (1) to make the law easy to understand, and (2) to make it fair. The easy-to-understand portion was they eliminated the reasonable cost to believe that the debtor was insolvent. And they put... they also made the presumption the debtor was insolvent when it took place. Because those were two areas that were subject to litigation. You had a swearing contest between the debtor and the creditor as to whether or not the creditor should have known the debtor was insolvent, had reasonable cause. And also, the evidentiary problem of a trustee in bankruptcy to prove insolvency is tough, because the records are terrible. So now we have a presumption. At the same time, the Bankruptcy Commission... and it was also picked up in the proposed judge's bill... recommended the incorporation of what we call the contemporaneous exchange exception, and the current-expense exception. This was done by suggesting to Congress that the definition of antecedent debt, an old bill, be modified to read: (1) a bill that was paid within 5 days is not an antecedent debt; (2) personal earning... personal services were not an antecedent debt; (3) if you pay the utility within ninety days, that was not an antecedent debt; and (4) if you paid for inventory which was purchased under ordinary trade terms and it was paid for in 90 days, in the ordinary course of business... that was included in the suggested language... it was not a preference. From 1973 to 1979, because the Congress did not move too quickly, there were numerous hearings. And at mock... at a mockup... a number of mock-up meetings... the intention was to make the law move more smoothly. Various interests said (1) 90 days was too long on protecting the sale of merchandise and the utility company. Also, by calling out utility company, and calling out the trade creditor, you leave other people who are current suppliers out in the cold. Is the service man who provides you xerox paper, is this inventory of the business? So what we get is 547(c)(1), which codifies the judicially-created, contemporaneous-exchange exception; and we get 547(c)(2) which codifies the judicially created current-expense exception. But the drafters wanted to make life easier. They said, let's give everybody a bright-line test on what is an old bill. And that bright-line test is 45 days. I'll represent to this Court that every bankruptcy decision... or virtually every one... from 1979 to 1984 fully understood that 547(c)(2) was a codification of the current expense exception... every case. The cases that the Union Bank relies on, my cases... all the cases in the middle talk about did 1984 change this current expense exception. Now, what do we really have? In the 1980... '80, '81, '82, '83... three groups came to Congress. The banks didn't come to Congress, because they didn't... in their wildest imagination... think they were going to be exempt, under any stretch of the imagination. The three groups that came to Congress were one, the trade creditors. And they said, we've got a problem. 45 days as a bright-line test doesn't work... in the toy business, in the clothing business, in the sporting goods business... dating is different. You ship in July, and you pay for the toys the day after Christmas. So 45 days kills those people. The second group that came to Congress was the lenders to individuals, the consumer lenders. And they said, my God, we know we make long-term debt, and we know we're under-secured most of the time; we've lent on the household goods. Protect us, because 45 days hurts us; we're in trouble with that. Who else came to Congress? The commercial paper holders. And they said, you know, we've got a problem. Commercial paper is written on a very short-term basis... but beyond 45 days. If you look at the statute as it's written, if the debtor goes insolvent, we have a give-back problem, okay?
William H. Rehnquist: --This is unsecured, commercial paper?
Herbert Wolas: Unsecured commercial paper. Unsecured commercial paper... let me take... that's the easiest one. Unsecured commercial paper is available to limited companies. Only the biggest and the best can deal in commercial paper. A few of them have gone insolvent. We have a terrible economy. But generally, the rating services say this company can issue commercial paper, and it's a regular, going market. When the statute was amended on the floor of the Senate, the question was... by Senator Dole to Senator DeConcini... does this statute now, protect the commercial paper holders? And DeConcini says yes. And in the reading... and the brief quotes the exact language, and I won't try to do that... but the essence of it was, yes. And he wasn't talking about whether it's long-term debt or long... or short-term debt. What he said was in the buying and selling of commercial paper between the monied people and the debtor, we presume that this is done in the ordinary course of business of both the commercial paper lender, and the commercial paper borrower. It was in the ordinary course of business. That was the key to that. With reference to--
Antonin Scalia: Mr. Wolas, I don't... I don't see where you're going... or I think I do see where you're going... so these were the three groups who had the complaint. But Congress satisfied those complaints by adopting a particular text. And the text simply eliminates the distinction between long-term and short-term debt. It takes out the 45 days, and doesn't put in any other... any other language that contains a distinction between long term and short term. Which satisfies these three people. These three groups are all satisfied. Now, it also happens to do other things. But so what?
Herbert Wolas: --Your Honor--
Antonin Scalia: Very often Congress enacts a provision that solves a problem and then goes beyond that. The way they chose to solve the problem, your brother says, is a way that happens... that happens to benefit his clients.
Herbert Wolas: --Justice Scalia, in Chambers, you explain that to us very carefully. You said, and I quote you, "Statutory construction is a holistic endeavor. " Then you went on to say, "A major change in existing rules would not likely have been made without specific provisions in the text of the statute. " "It is most improbable that it would have been made without any mention in the legislative history. " And the briefs are full of the statement that there's very little legislative history on the change of, quote, "long-term" or "short-term debt". Because never, in their wildest dreams, did the banks think that this change was being made.
William H. Rehnquist: You don't need legislative history to tell you that the 45-day rule is gone. That's right in the statute.
Herbert Wolas: That is correct. I don't disagree. The 45-day rule is gone. But was the statute intended to change and to emasculate the entire preference provisions of 547(b), because if this statute is to be read as the banks would like it read, there is virtually few transactions that are now preferences. And here then we have the exception to the rule swallowing the rule. And it's gone. And that is the real problem. It is--
Byron R. White: Do you apply your argument to both the interest payments and payments of the principal?
Herbert Wolas: --Oh, principal is even worse.
Byron R. White: I know, but so you say yes.
Herbert Wolas: I would say principal and interest are not protected under the bank--
Byron R. White: Well, isn't it that when you pay interest you're paying right now for the use of money?
Herbert Wolas: --No, Your Honor. I think that's where the Iowa Premium Court went astray. You're paying for a debt that you incur when you made the loan.
Byron R. White: Well, that may be, but you're keeping the loan from being called.
Herbert Wolas: That is correct.
Byron R. White: And you're paying your interest, and you're getting the use of money for another month.
Herbert Wolas: No, you've already--
Byron R. White: Or isn't that just like buying anything else, for cash?
Herbert Wolas: --One could say that, but you've already obligated yourself for the debt--
Byron R. White: But that wouldn't cover the payments on principal.
Herbert Wolas: --No, if the... if we were to read the statute the way the bank wants us to read the statute--
Byron R. White: It would cover the principal, too.
Herbert Wolas: --the payment of principal would also--
Byron R. White: Oh, sure.
Herbert Wolas: --be involved.
Antonin Scalia: Well, you have to read it that way because it's written that way. It isn't... it doesn't say paid in the ordinary course. It says incurred in the ordinary course. And both the... both the debt for the principal and the debt for the interest are incurred the say way, at the same time. Isn't that right?
Herbert Wolas: That is... that is correct.
Antonin Scalia: So the two would seem to go together, wouldn't it?
Herbert Wolas: That's right; that is correct. But, was the debt incurred in the ordinary course of the business of the debtor? The question was raised about a long-term mortgage on black acre, which is the only mortgage that that business makes. If it's an isolated transaction, I would say it is not in the ordinary course. If it's XYZ corporation, that has 50 locations, and historically it finances each of those pieces of property with a mortgage, a different argument could be made. In this case... and there's no dispute... in this case, (1) it was a one-loan transaction of $7 million; (2) the bank procured the authority... it's in the brief... to tack the account. It took the money out of the account by itself. It didn't need the debtor to pay it. It controlled the date it got paid. Now, I also suggest to Your Honor that bank borrowings are not ever in the ordinary course of business. And I will submit to this panel... to this Court, I apologize... that there isn't a bank that makes a loan to a corporation that doesn't require that corporation to execute a corporate resolution. Why? Because it's not in the ordinary course. Corporate resolutions are not necessary for incurring debt for trade, landlords, et cetera. Section 364 of the Bankruptcy Code allows a trustee or debtor in possession to incur debt in the ordinary course of business, without a court order. I will submit to this Court that there is not... there is not a bank lawyer in the United States that would allow his client to lend money to a debtor without a court order.
William H. Rehnquist: Well, maybe that's because other creditors are not as fussy as banks are.
Herbert Wolas: Well, I don't think banks are so fussy these days, Your Honor, but it's quite possible.
William H. Rehnquist: Well, they used to be. [Laughter]
Herbert Wolas: It's quite possible.
Antonin Scalia: Or are not loaning as much money. I mean, certainly it's a lot of trouble to ask a corporation to go through that for a small loan. It's not a lot... it's not unreasonable to ask them to do it when there are substantial sums involved.
Herbert Wolas: They... yes, Your Honor. I would submit that it makes no sense, there is no basis in the statute to say that the court came to the conclusion it did, when... let me... I apologize. Let me back up. I believe that the normal rules of statutory construction is that if Congress intends to change a major, underlying legal theory, it does so precisely. And I think that was Justice Blackmun's--
Antonin Scalia: But they did. There was a 45-day limit, and that is gone. What comes in to replace it? What is your theory of what constitutes ordinary course versus not ordinary course?
Herbert Wolas: --The theory of ordinary course is what is necessary to keep the debtor going from day to day: the purchase of inventory, the purchase of materials, the pur... the payment of labor, the payment of rent. If everything else... everything the debtor does is ordinary course. Borrowing $7 million from the bank, if that's ordinary course, what else is left to 547(b)? The tail destroys the dog.
John Paul Stevens: May I just interrupt with this? As I understood your opponent, when I asked him similar about this ordinary course, he said that's a question of fact that you resolved on remand. And if he wins, you can still make all the arguments we're making now, as I understand his response.
Herbert Wolas: Well, I would like to win without remand, Your Honor. I would like us to get a bright-line test from this Court. That's the hopeful result. Because--
John Paul Stevens: Well, would your bright... what would your bright-line test do with the case? Say, you have a very large debtor that borrowed $7 million every week. They were constantly borrowing big, revolving loans, just a huge company. So it was really a very routine transaction for them, and they were repayable in 7 or 8 months. But would that be ordinary course or not, under your view?
Herbert Wolas: --There is a--
John Paul Stevens: It was so frequent they didn't need corporate resolutions. They had a general authority that the president is authorized to borrow these amounts of money at weekly intervals.
Herbert Wolas: --Assuming your... assuming your facts, Your Honor, there is a case which protected lenders in this situation. I don't have the citation. But it was a lender who was a real estate lender and did numerous real estate transactions. And in that case, they determined that this, for this lender... for this debtor, it was its ordinary course of business. So, yes, there may be a factual step that's missing. But hopefully we got this far to get a bright-line rule.
John Paul Stevens: Well, what I'm suggesting is even your rule isn't entirely bright.
Herbert Wolas: Well, those are the problems. We look at the... we happen to look at everything now with a microscope, which we... which I wish we would have looked at more carefully at the trial court level. I would like to also point out, if I might... I still have some time left... that the cases that are... that supposedly brought us here, really have to be looked at much more carefully. For example, Iowa Premium. Iowa Premium, the court didn't deal with what is ordinary course of business. I call the Court's attention to the fact that that was stipulated to, that the transactions were in the nature of ordinary course. That was a stipulated issue. The Iowa Premium court, in my opinion, got confused over the 45-day period and how you counted it and when the debt arose. That's my personal opinion. Because almost all of the cases that deal with when was debt incurred disagree with Iowa Premium's conclusion, and say you date when the debt was incurred, when the loan was made, when the dollars were paid. That's when the asset was consumed. And the interest is not being paid today. It is... it was being paid for what was consumed later. That's different with... from the inventory. In the inventory situation, you're paying this week for what came in last week or 4 weeks ago. So I submit that Iowa Premium is not applicable to this situation. And if you read Iowa Premium carefully, that court points out that they understood that before 1984, the current expense exception was the law. And that was what 547(c)(2) was all about. We next turn... I have 5 minutes... we next turn to--
Harry A. Blackmun: Iowa Premium was an Eighth Circuit case, wasn't it?
Herbert Wolas: --Yes, Your Honor. Yes, Your Honor.
Harry A. Blackmun: Do you remember who the panel was?
Herbert Wolas: It was an en banc re-hearing, Your Honor. It was 5: 3 on the re-hearing. And I commend the Court to the minority decision. I think it is absolutely correct. In the Fidelity case, the Fidelity case is one clearly dealing with 547(c)(2). And in Fidelity, the Court made the finding that... the Court discussed the commercial paper situation. The debtor in that case was in the business of making small loans to a lot of people and acquiring its money by issuing certificates to many, many people... not too dissimilar from the Lincoln Saving situation. The Fidelity case found that the... yeah, Fidelity... found that in this particular situation, it was a normal course of the business of this debtor to borrow from all of these people, and repay them on a regular basis, and reloan to all these people. It also leaned very heavily on the DeConcini-Dole discussion, and likened the transactions to ordinary... to commercial paper transactions. Next, in the In re Finn case, that was the retailer... the consumer loan transactions. That court sent the case back to the bankruptcy judge to make a determination as to whether or not the borrowing was in the ordinary course of the financial affairs of the debtor. I respectfully submit that when 547(c)(2) was amended in 1984, it carried with it 90 years' worth of baggage; it carries with it substantial historical precedents... both legal and judicial. And that if Congress really intended to emasculate 547(b)... the statute... the statutory history would have discussed it. Unless there are any questions--
Byron R. White: Well, they could just have put in an... in a parenthesis, and said we really mean what this... what these words mean.
Herbert Wolas: --They could have done a lot of things. But they didn't.
Byron R. White: But they did use these... you don't say that it's an irrational construction of the statute, just on its face?
Herbert Wolas: I think it's an unreasonable interpretation, Your Honor.
Byron R. White: But only because of history.
Herbert Wolas: It was interesting that in Mid-Atlantic, you took language that was absolutely clear... clear language from the statute... the trustee may abandon property. And this Court said you can't look at just the language, when there judicial history, legislative history behind it. And that was judicially created restrictions on the trustee's ability to abandon--
Byron R. White: Well, there isn't any legislative history here to speak of. There's just history.
Herbert Wolas: --They're substantial judicial history. And the legislative history shows what was being dealt with on a very limited basis. What interest was being protected, and what interests were not being protected. May I thank you for letting me participate in this exercise.
William H. Rehnquist: It's more than exercise, Mr. Wolas. Thank you. Mr. Graham, you have 13 minutes remaining.
John A. Graham: Thank you, Mr. Chief Justice.
Antonin Scalia: Mr. Graham, before you get into it, would you tell me what you consider not in the ordinary course? Now, you say the distinction is not between long term and short term, which is what the court below held. What is not in the ordinary course?
John A. Graham: Well, I can refer to definitions of what is not considered ordinary... things that are exceptional, unusual, not customary. But the problem, of course, is that the word "ordinary", you have to put it in a factual situation in order to measure that ordinariness. And I thought that one of the other Justice's question regarding a large business, General Motors, for instance, obviously a $7 million loan cannot be considered out of the ordinary for a company of that size. And later I will reintroduce myself to Mr. Wolas, because I am one bank lawyer who would not require, necessarily, great formality in loaning $7 million to General Motors. I mean, that simply... if it was in accordance with ordinary business terms... you know, there is a third part of the test that would assist Mr. Wolas factually in a particular case. And that is, that the loan must also be in accordance with ordinary business terms. So if you had a $7 million loan to General Motors that was large enough to support that type of loan, and the bank was a large commercial bank, where its lending limits were not being exceeded and there was no fraud at the bank level, then you would still have to go to the third part of the test, which is whether the loan was being made... being paid... being made in accordance with ordinary business terms.
William H. Rehnquist: Well, suppose you've got... you simply have an unsecured... you've issued an unsecured promissory note and you promise to pay it in 90 days. And the bank comes to you at the end of 30 days and says look, we're not really happy without any security. Give us some security. Now that is certainly not in the ordinary course of business, is it?
John A. Graham: Most probably not... if the facts show that one of the reasons the bank was asking for security was a concern with respect to the credit. In fact, the five cases cited by Mr. Wolas to prove that there's a judicial history, that in some of those cases, the action of the creditor was in response to a declining financial situation of the debtor. And the attempt to gain advantage by changing the terms of the loan or changing the rules of the loan, clearly... in those cases the trustee would be entitled to recover the preference. Congress sought to promote normalized business relationships. But when those transactions deviate from the ordinary course... including if they're not--
Byron R. White: Well, certainly, if you've got an acceleration clause in your promissory note, and there's a failure to make an installment payment, it's ordinary business course to accelerate.
John A. Graham: --Usually it is, if there's no reason why... acceptable reason to the lender why the borrower is not making the payment. In fact--
Antonin Scalia: Well, we're talking about whether it was incurred in the ordinary course, not whether the payment was made in the ordinary course, right? I mean, isn't that--
John A. Graham: --Well, the test--
Antonin Scalia: --Just to keep our eye on the ball? Isn't that what the statute says?
John A. Graham: --Well, there are three balls here, Justice Scalia. It has to be incurred by both the debtor and creditor in the ordinary course, and it also has... the payment has to be made in the ordinary course.
Antonin Scalia: Yeah, but the difference between long-term and short-term debt is a difference that hinges on (a) whether... whether the debt was incurred in the ordinary course or not.
John A. Graham: That's correct, so long as the terms of the loan are also according to ordinary business terms.
Antonin Scalia: Right, now, the example you gave a minute ago about loaning $8 million to General Motors leads me to believe that maybe you're backing off from a position you took earlier... I must say I rather invited you to take the position, but maybe I shouldn't have... and that was you now seem to say that whether it's in the ordinary course depends upon whether it's ordinary for the particular business, not whether it's ordinary for all businesses, for example, to make one enormous borrowing at the beginning of their business life.
John A. Graham: I believe--
Antonin Scalia: Do you recall that exchange we had earlier?
John A. Graham: --Yes, I do. And I believe there are actually two parts to the test. As to a particular debtor, the trial court would have to test whether or not the size of the loan was ordinary and customary as to that debtor's balance sheet. For instance, $7 million would not be extraordinary for General Motors. But if for a small manufacturer who might borrow 60 or 70 percent of its asset base, there might be a question about whether that was in the ordinary course of that particular business. I believe there would also be a secondary test, which is that is to whether or not in the business community of that type of debtor, whether that type of loan was out of the ordinary course and unusual. And the fact that there are--
Antonin Scalia: We don't have to decide here whether this loan was in the ordinary course or not. All you want us to decide is that the mere fact that it was a long-term debt does not disqualify it from this provision?
John A. Graham: --Yes. And I believe that with respect to Mr. Wolas' statement to this Court that there is a judicially recognized exception of longstanding, which he calls the current expense rule, I must respectfully disagree. There are a smattering of cases referenced in Colliers where the courts, under the old Bankruptcy Act, struggled with certain types of debts, in unique circumstances. The classic example is the example of the landlord who is usually paid at the first day of the month, as opposed to the last day. And sometimes in those cases, he received the payment in the middle of the month or towards the end of the month. And the court, not wanting to declare that an act of bankruptcy, or the court not wanting to consider that preferential, said that that was a current expense and not for an antecedent debt. Those cases as focused on the concept of what was antecedent. And in the new Bankruptcy Code, you have section (c)(1), which says that the payment, the exchange between the creditor and the debtor, does not have to be precisely contemporaneous. It has to be substantially contemporaneous. And if those cases were presented, there would have to be a factual determination as to the debtor and creditor... whether it was substantially contemporaneous within the conduct of their business. But I would invite the Court to look at those cases, and you will discover that they dealt with either rent, or they dealt with creditors who had a given value to the debtor, after receiving a preferential payment. And the court did not want to assess that creditor with the full preference he had received before. For example, if he had received $10,000 on an antecedent claim, but then had re-delivered $5,000 of merchandise to the debtor, the court struggled with the concept by saying, well, he was assisting the debtor in the current operations, and therefore would not be subject to preference liability for the full $10,000. That concept is embodied in section (c)(4) of 547, in which we bankruptcy lawyers tend to call the net result rule. If you have received $100,000 preference payment, but the debtor says ship me some goods, I'm in trouble, I need some additional goods... if you ship the debtor $60,000 of goods, you will only be subject to the trustee's right to recover $40,000. That concept is already embodied in the 1980... has been embodied throughout the 1978 Bankruptcy Code. And there really is no judicial rule of longstanding. In fact, search as you may, you will never find the word 1978 legislative history, let alone the 1984 legislative history. The result in this case should be controlled by the case of West Virginia v. Casey. Because what Mr. Wolas is asking this Court to do is to try to reconcile his view of the 1984 statute with a prior congressional intent. And I think in the West Virginia case the Court pointed out that it is not the role of the Court to try to mesh inconsistent legislation between a past Congress' enactment and a new Congress' enactment... unless the statute is ambiguous. Then, when it's ambiguous, you have no choice but to go into the two statutes and try to reconcile them and make sense out of them. But there's no reason to do that here, because the statute is plain on its face. There was a simple time limitation which created this statute's artificial limitation to most... which allowed most trade creditors to be protected under the old law. When Congress deleted that statement, there really was nothing further to prevent the statute to be applied to all. Finally, if I have been mistaken in my brief with respect to the fact that the 1990... the 1898 Bankruptcy Act did not draw a distinction between avoidability of preferential payments on short-term debt and avoidability of preferential payments on long-term debt, then so is the respondent... at page 16, footnote 35. He says the same thing. We both agree that under the old Bankruptcy Act--
Antonin Scalia: Are you both wrong or are you both right? [Laughter]
John A. Graham: --We are both right, Your Honor. [Laughter] And that could have been the only way my answer came out.
Speaker: Now... now you are.
John A. Graham: It's very clear that there was never a distinction drawn on the classification of a debtor, whether they were long term or short term. The fact that for 1 year there was a statute that created an artificial limitation, and the fact that there was a stampede to Congress to get that statute changed, the Court should follow the plain meaning of that new statute. Thank you.
William H. Rehnquist: Thank you, Mr. Graham-- The case is submitted.
Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.


Earl Warren: Number 57, United States, Petitioner versus Gaetano Lucchese, et cetera. Mr. Barnett.
Wayne G. Barnett: Mr. Chief Justice, may it please the Court. This is actually two cases and they are consolidated for argument. The Lucchese case is here on writ of certiorari, but also the Costello case Number 59 is being argued with Lucchese on one question that that question that was raised by the motion for leave to amend the petition in Costello. In the 1955 term, this Court held in United States v. Zucca that a denaturalization proceeding could not be maintained without filing in Court the affidavit of good cause required by Section 340 (a) of the Immigration Act. These cases arise from the Government's attempt to comply with those requirements. In both of these cases as in Zucca, the affidavit of good cause was not filed with the original complaint. After the Zucca decision however, the Government did file affidavits in attempt to cure the original defect. The Second Circuit in both cases held that that late filing was adequate. This Court, however, granted certiorari and in per curiam orders, reversed the judgments and remanded the cases with directions to dismiss the complaints saying and the order appears in new Lucchese at page 29 an affidavit showing good cause as a prerequisite to the initiation of the denaturalization proceedings. The affidavit must be filed with the complaint when the proceedings are instituted. On remand of the -- of these two cases to the District Courts, Lucchese to the Eastern District of New York and Costello to the Southern District, the Government submitted proposed judgments dismissing the complaints without prejudice. The District Courts in each case, however, felt that they were bound by this Court's mandate simply to dismiss without specifying the effect of the dismissal orders and the order in Lucchese is in the record at page 30 and 31. The dismissal order in Costello is not printed in the record, but we are -- by stipulation filed copies which I believe were distributed to the Court. As the Court will see there substantially identical and simply reciting the prior proceedings and judging that the complaints be dismissed. Now up to that point, the two cases are identical for all material purposes and it's only after that point that they're filed separate. In Costello, the Government did not appeal from the dismissal order, but rather simply filed the new complaint with the required affidavit. It was met, however with the claim by Costello that since the dismissal order of the prior action did not specify that it was without prejudice, it operated by force of Rule 41 (b) as a dismissal with prejudice and barred the new action. Both the District Court and the Court of Appeals rejected that argument and it's that question that Costello seeks to raise by the motion to amend the petition. This Court granted the main petition in the Costello which raises other questions which are being argued separately, did not act on the motion to leave to amend the petition and set that motion down for argument together with Lucchese. Now, in the meantime, because of the res judicata argument being made in the Costello, the Government sought to protect itself in Lucchese by appealing in the original proceedings themselves from the refusal of the District Court to act without prejudice to a dismissal order. The Court of Appeals dismissed that appeal on the ground that the District Court had no power on remand to do anything more than dismiss as this Court had said without embellishment or elaboration. The Court granted certiorari on the Government's petition and as I say, consolidated that with the Costello motion.
Potter Stewart: Mr. Barnett, it's a little complicated procedure to follow. The basic issue is simply not I expected sure enough. What was the chronology in the Court of Appeals for the Second Circuit? Did the Costello appeal get there ahead of the Lucchese appeal?
Wayne G. Barnett: No. The Lucchese appeal was -- I'm not sure when they were filed. The Lucchese appeal was decided before the Costello.
Potter Stewart: Before?
Wayne G. Barnett: Yes and we had filed our petition before Costello petition was due here for that reason. And actually, we filed our -- our petition was primarily a protective one just in case the Court took the question in Costello so we would be protected in Lucchese. I would like to clarify my position on the motion to amend in the Costello. Now, when that was filed we opposed it for among other reasons, the fact that there was no good cause but failing to raise issue in the original petition and the Court ought not encourage peace bill petitions, but now that the Court has granted Lucchese, they said in there, the Costello motion is somewhat different. The questions are obviously closely related and if the Court is going to hear and determine Lucchese on the merits, we don't see how we can continue to oppose hearing also the question in the Costello. So unless the Court concludes that it should dismiss Lucchese also, we don't oppose the motion to amend. Turning the merits, I'll deal first of the Costello case and the question there posed the effect of the dismissal order on later proceedings, because I think that's the basic question. His argument, as I say is that, since the order did not specify, there was without prejudice that operated under Rule 41 (b) as a dismissal with prejudice. The Court of Appeals said that argument is based entirely on pure technicality since judgment (Inaudible), because one thing that is clear is that no Court that has ever been involved in these proceedings intended or contemplated that result. In the prior proceedings from the Zucca case itself, the Court affirmed the judgment dismissing the complaint without prejudice to new proceedings. When these cases were here before, they were here with four -- with two other cases, a total of four cases. In the Lucchese case and in the Costello -- well, in the Lucchese case and the Diamond case from the Ninth Circuit, the District Courts had dismissed without prejudice because of the lack of the affidavit and in the Costello case, the District Court had dismissed without prejudice though for other reasons. In the fourth case that came up, the Mattels case the District Court had refused to dismiss at all. Now, in the Second Circuit to which three other cases went and the major opinion was written in Mattels, the Court stated the question to be whether the late filing of the affidavit was sufficient or whether the Government was required to institute a new proceeding with a new service or process. That was the question and this Court, when it took the case and simply stated that the complaint had to be filed with the -- the affidavit had to be filed with the complaint and directed the District Court to dismiss, decided nothing more than that. I think that is clear. So, the main problem is how we can avoid that unintended result of how the Rule 41 (b) can be fairly construed not to produce that result. The Rule, it's quoted in our Costello brief at page 5, the last sentence, by the way when I speak of Rule 41 (b), I'm referring only to the last sentence which is the only part involved here, with pertinent substance that unless the Court otherwise specifies in the order a dismissal other than dismissal for lack of jurisdiction or venue shall operate as an adjudication on the merits. Now there are two ways to approach the interpretation of the rule One, adopted by the District Court is to say that the dismissal here was for lack of jurisdiction. That by the way is the characterization of the dismissal that was adopted I think by all of the defendants in the prior proceedings when they moved to dismiss. They filed their motions to dismiss under Rule 12 (b) as motion to dismiss for lack of jurisdiction. Now the jurisdiction of course means different things for different purposes and I think the question really is how should be construed for purposes of this rule and that turns on what purposes of the rule are and the basic purpose I think is evident. The rules give to the Court a discretionary power in a number of instances to specify the effect of the dismissal, to make it with prejudice or without prejudice. That is true of dismissals for one of prosecution for failure to state a claim, for failure to comply with an order and for insufficiency of proof by the plaintiff. Now, having the discretion to make the dismissal either way, you needed a presumption to control the case where the Court failed to say which way he was exercising his power and that's what Rule 41 (b) does. It says that unless it is otherwise specified, he shall be deemed to exercise the power to dismiss with prejudice and that I think is not -- is not too great of a burden on the plaintiff because he knows in that kind of situation that the dismissal maybe one way or the other. He can see to it specifies but it's intended.
Charles E. Whittaker: That's all (Inaudible) in the dismissal of silence is a dismissal of this prejudice? The Rule exempted that other than a dismissal (Inaudible)
Wayne G. Barnett: Yes sir. No I'm sorry. I didn't make that clear. That is one of the exemptions and the District Court held that we are within that exemption and that is really what I'm arguing.
Charles E. Whittaker: But that is not what the judgment says. If it it's not revived, the dismissal would direct you to one jurisdiction, the dismissals are not in place.
Wayne G. Barnett: That is right. That's right. And our argument is that it was for lack of jurisdiction as that term is used in this Rule. Now we acknowledge that it is not a jurisdictional defect for all purposes. It's certainly we would say does not subject a final judgment to collateral attack for lack of that requirement. But -- excuse me, you have to give jurisdictions used in this Rule quite a -- a broad scope to include what might be called quasi jurisdictional defects because I -- I can suggest the scope of dismissals where I think the rule would be -- produce the result that was certainly not intended otherwise. We -- the problem isn't limited to this particular dismissal here. There are a variety of dismissals which no one I think has ever thought would bar later proceedings, nothing in the rules purports to give the judge power to make them with prejudice and which can be accepted only if you put them under the heading of jurisdiction. For example, a dismissal of a tax refund suit for failure to file an administrative claim for refund, a dismissal for failure to exhaust the administrative remedies, a dismissal of a National Labor Relations Board application for an injunction against the temporary boycott -- a secondary boycott for failure to make a preliminary investigation, dismissals for lack of an indispensable party, for lack of the real party interest. If all of these kinds of standard or specialized grounds for dismissal rising out statutory preconditions to sue, which I do not think were ever intended to the grounds for dismissals with the prejudice and we would say that all of these ought to be characterized for this particular purpose as dismissals for lack of jurisdiction. What they have in common is that they -- as fair as I precondition to suit and it stops the litigation, a threshold is never an opportunity to litigate the merits and for -- for purposes of res judicata, they are exactly like any other dismissal for lack of jurisdiction. Now there's a -- a second approach which was adopted by Judge McGruder in his opinion for the Court of Appeals. And I think it can be best phrased as turning on a construction of the beginning words unless the Court in a dismissal order otherwise specifies. Now Costello says that -- argues that an order otherwise specifies only if it uses the magic words without prejudice, but we think that -- in light of the purpose to rule, there's no reason so limit it. As I've said, the main purpose is to remove the ambiguity in cases where it is not clear whether the dismissal is on the merits or whether the District Court has exercised a discretionary power to impose a dismissal with prejudice as a sanction for some dilatory tactic or -- or for castrating in part. Now, if that is the purpose of the Rule, it seems to me that an order specifies otherwise even if it does not say without prejudice, so long as it makes clear by any form of words that there has been no determination on the merits and that the District Court is not proportioned to exercise a discretionary power to impose a dismissal having the same effect as one of the merits. Now, that is precisely, I think, what the order in Costello shows. It clearly shows that -- as Judge McGruder said, that there's been no -- no determination on the merits and that the District Court did not exercise whatever discretionary power he may have had if he had any to make it with prejudice. And we think such an order is one otherwise specified. And, I think that is fully in accordance with everything that this Court has this far intended in these cases. I'd like to turn briefly to the Lucchese case, which actually the result will turn primarily upon the result in Costello. If a Court accepts our view in Costello that the original order was not barred with the second suit and for all practical purposes, that -- that moots the question in Lucchese because we were aggrieved by the failure to say without prejudice only because of the doubt of what the effects of the order would be otherwise and if this Court settles the doubt, there's no longer a practically important issue in Lucchese. On the other hand, if the Court disagrees who doesn't hope there is a bar, then I think it's clear from what I've already said that the District Court erred in Lucchese in not adding the words without prejudice. So I think the only separate question arising in the Lucchese is the procedural one raised by Lucchese, namely, whether the Government by appealing followed the wrong the procedure to correct the error. Lucchese's argument is -- is that the Court of Appeals has no jurisdiction. It just simply does not have power to decide questions of compliance with this Court's mandates and he argues that this is that kind of question. Now, even accepting the premise, I think the short answer is that this is not a question of compliance with this Court's mandate. It is clear that the Court in directing -- remanding case with direction to dismiss did not purport to pass on the question of the nature of the dismissal and that it should with or without prejudice and it was therefore in matter not within the scope of the mandate and a new issue which the Court of Appeals is free to review. And that's really all the Court has to decide in the case. But I would like to say that we, by no means, agree with the premise of Lucchese is that there are any limits on what the Court of Appeals can do in reviewing actions by a District Court, simply because it involves among other things or solely a question of interpretation of a mandate of this Court. The -- there are -- there are Court of Appeals' decisions supporting that. We think that they are the product simply of a historical oversight and I will only very briefly suggest what that is because I suggest that the Court needs to reach it. The -- in cases prior to 1891 in this Court, the Court established that questions of compliance with these mandates could be reviewed by it either on mandamus or by appeal. Now, of course before 1891 there were no Courts of Appeals and so it was perfectly clear that any appeal lay only to the Supreme Court. Now, it would seem to have followed that when the Courts of Appeals were created in 1891 and since the questions could be reviewed by ordinary Courts of Appeal that you could appeal the Court of Appeals from a final judgment. But the -- in later cases, this Court did not carefully make that distinction and continued to repeat the old language. In fact however, all the cases held were that the remedy of mandamus to enforce a mandate had to be sought in the Supreme Court and not in the Court of Appeals and although as I say that the -- some Courts of Appeals have said they have no jurisdiction of appeal, we think that there's no valid reason whatsoever for that. It simply confuses the processes of review. Lucchese says that if it raises a new issue, we must go to the Court of Appeals, but if it raises something within the scope of the mandate we must somehow come to this Court and -- but the question of whether or not the matter is foreclosed by the original mandate, is usually the very question. And so, you have to decide the merits before you decide jurisdiction and I think it would only produce unnecessary protective applications to this Court.
Potter Stewart: What did the Court of Appeals for the Sixth Circuit do with the Ringhiser case?
Wayne G. Barnett: I'm not sure.
Potter Stewart: I got the right the name -- the right name of the Act, (Inaudible) in that case in which there was some confusion or uncertainty as to what the mandate was that this Court meant?
Wayne G. Barnett: I'm not -- I'm not sure I recall that case. The -- as I say I agree there are some Court of Appeals cases and I think that is one of them declining to review questions of compliance. Our only point really is that historically there was no basis for that limitation on their jurisdiction and we don't understand what the obstacle is to their reviewing all questions of compliance with mandate. I would like, if I may, to reserve the rest of my time.
Richard J. Burke: May it please the Court. I'm speaking on behalf of the respondent Lucchese and I agree with the Solicitor that if the Costello case is decided adversely to Costello, then the question involved in the Lucchese case becomes entirely academic because the question involved in the Lucchese case has only to do ultimately with whether the District Court obeyed this Court's mandates or not when it entered its order of dismissal. I would like to initially answer Justice Stewart's question about the Ringhiser case in the Sixth Circuit because that has to do with the first point that I want to discuss and there the District Court purporting to obey a Supreme Court mandate had entered an order unsatisfactory to one of the parties and the party appealed to the Court of Appeals and the Court of Appeals dismissed the appeal stating specifically that the Court of Appeals had no jurisdiction of the question whether a District Court has or has not complied with the Supreme Court mandate and that is entirely a question for this Court to determine and a party complaining that the District Court is not complying with this Court's mandate must come to this Court. And the basis and authority for that proposition is not only in Court of Appeals cases but in this Court and I have cited the case in my brief. It's in 207 United States. It had to do where the case where a Circuit Court of appeals had assumed the power to determine whether a District Court was complying or not with the mandate and this Court there stated and I've quoted the language in my brief "The Circuit Court of Appeals had no jurisdiction of the matter." So, words couldn't be clearer it seems to me and therefore when the Government --
Hugo L. Black: What page is that?
Richard J. Burke: That case is entitled Ex parte First National Bank of Chicago Your Honor. I have cited that at page 5 of my brief. Therefore --
William O. Douglas: You -- you maintain that the only remedy of the Government was not by appeal to the Court of Appeals, but by motion in this Court?
Richard J. Burke: Correct, exactly. And --
Charles E. Whittaker: Well then, what was with the District Court passing the jurisdiction to pass this (Inaudible) from the question.
Richard J. Burke: I say no, Your Honor that the District Court had no jurisdiction to pass judgment. The District Court was acting in a ministerial capacity the cases say, in entering an order in compliance with this Court to mandate and had nothing to do but follow what this Court directed it to do.
Charles E. Whittaker: And it was not from (Inaudible) what would it do?
Richard J. Burke: It would have to use its best the judgment as to whether it were -- whether it was obeying what this Court had directed to be done. That's what both these District Courts did in this case and in the Costello case. Since this Court's judgment said nothing about the dismissal being without prejudice to a Government's right to bring a new action thereafter, but simply said it is remanded with directions to dismiss. Both District Courts felt that they should follow the unambiguous direction of this Court and enter an order dismissing this what the effect of such an order would be if it's not necessary for the Court to determine, but both Courts felt to add to what this Court had directed the words without prejudice to the Government's right to start a new action would be to vary the judgment that this Court had entered.
Felix Frankfurter: Let me ask you this Burke, do you think a distinction of the cases you have cite like this, you say that the ministerial duties of the Court -- the District Court involves that. Is that right?
Richard J. Burke: Yes.
Felix Frankfurter: That would be suppose that there is no discretion as (Inaudible) if it's clear as day. If that is so, if it has failed to exercise its ministerial duties, they're not (Inaudible) the Court of Appeals of proper court to resort (Inaudible). If there is doubt with real ambiguity as to what the judgment of this Court talks about. And therefore it is not reducible to a ministerial act then I should think the proper place to come to it here as this Court, and ask what does your mandate mean? Is that distinction -- is there any validity to that distinction as it's been taken?
Richard J. Burke: Well, that particular distinction has not been taken to my knowledge, Justice Frankfurter. The distinction has been taken, but if a completely new issue is raised before the District Court which doesn't involve the question of compliance with this Court's judgment but then that can be reviewed by the Court of Appeals, but that I feel is not involved here and so did the Court of Appeals.
Felix Frankfurter: Really not, really not. That is not -- it isn't new method.
Richard J. Burke: That's right.
Felix Frankfurter: There is something that this Court has left open and it isn't a question of construing -- unless that be an issue, unless it is a question whether it was left open and I should think the proper thing to do it to come in and to put the matter to this Court.
Richard J. Burke: Well in its briefs, the Government here has taken both positions I'd say inconsistently but it's argued both ways. It has said primarily that it was implied in this Court's judgment that the dismissal should be without prejudice to a further proceeding. And then it has said conversely that if it was not implied, then it was a brand new matter and the District Court could take it up as a new manner without feeling that it was under any control, one way or another in this Court automatically.
Felix Frankfurter: I should think of that amount where there's space that I wrote almost one of my very rare (Inaudible) which involved this discretion, namely, as to what was left open whether it was a new matter and that's a very different and if that in controversy, then I should think you have to come in, you have to come here and ask the Court what does your mandate means? I think you need to be (Inaudible)
Richard J. Burke: I think that --
Felix Frankfurter: But it was so clear that there's no dispute if it is merely -- it's – if it is contented by the Government that Zucca established one loosely might be called a jurisdictional requirement namely necessary precondition to a suit and therefore it couldn't be that we -- when we send the case down that you can't begin this relief so you now can qualify -- can qualify within the requirements that constitutes the suit. But it's strictly a territory, I must say whether it's so clear that it's become ministerial or whether the petition question that you must ask a court that made to do (Inaudible) that is what it's meant.
Richard J. Burke: Well, oddly enough the Government maintains that it was so clearer that the District Court should have added these words whereas I maintain and the District Court, both District Courts in both cases and also the Court of Appeals in the Second Circuit felt that it was just as clear the other way that they had no business to add any such words to what is in directive to this Court.
Felix Frankfurter: Well, as I understand the per curiam of the Court of Appeals, they simply said that if the District Court uses the words that this Court has been using, it is obeying the mandate, isn't that right?
Richard J. Burke: That's right. In the -- in the Lucchese case, they said that one doesn't reach the question of the effect of the order. They simply --
Felix Frankfurter: That's for another day.
Richard J. Burke: That's right.
Felix Frankfurter: And the District Court did exactly what they did (Inaudible) to issue its mandate. What the legal consequences are that for this litigation?
Richard J. Burke: That is for another day and the other day came at -- the other day came a couple of weeks later in Costello and they decided that it didn't make any difference whether the words were in there or not, a different panel of the same Court.
Felix Frankfurter: So I guess we better decide Costello.
Potter Stewart: So far as it appears, there hasn't been a new complaint, but it's actually in relation with the Lucchese case.
Richard J. Burke: No there has not Your Honor.
Felix Frankfurter: (Inaudible) did.
Richard J. Burke: And they have not done that. Instead, they have become concerned about the form of the judgment, but the point that I would like to make is that the Government in the relief that is asking this Court for ignores the procedural posture in which the Lucchese case is here, because I moved in the Court of Appeals to dismiss their appeal on the ground that I have discussed a few moments ago that they lacked jurisdiction to consider the question at all and they granted my motion and entered an order which is in the record in which it states that a motion having been made to dismiss for lack of jurisdiction is granted. Then they added what I have maintained as a dictum the words that in any event the District Court, they don't say in any event. They said the District Court had no basis to take any other action then it did and we will not pass now upon possible effect of that on future litigation, but what I say is that if the Court of Appeals intended to consider this question on the merits as to whether the District Court should or should not enter an order without prejudice in cases like this or in this case, I would assume that it would have had a full dress argument and appeal on the matter rather than dismissing it on my motion to dismiss for lack of jurisdiction. It is what they did and what the Government is here reviewing by certiorari is whether a dismissal for lack of jurisdiction was correct in the Court of Appeals and they're asking for the relief that you direct the District Court to add the words without prejudice to the order in the Lucchese case.
Felix Frankfurter: Are you standing on the dismissal of the Court of Appeals and defending it on the ground that it should have come here? If not, you can defend it on that ground couldn't you?
Richard J. Burke: That is -- that is one ground that I'm standing on.
Felix Frankfurter: Yes.
Richard J. Burke: But -- but, not only on that ground.
Felix Frankfurter: I understand.
Richard J. Burke: Because -- and I -- and I finished speaking of that ground getting down. If this Court will -- intends to consider or does consider the question about whether to issue directions to the District Court and what sort of an order the District Court should have entered whether it did or did not comply with this Court's judgment and I want to discuss that question. Of course I feel as the -- as the Court of Appeals commented in its opinion and as both District Judges felt, that they had no business adding words to what this Court had directed, but the Government says that it was implied in this Court's judgment that these words without prejudice to refer the proceeding should be added to the order. And, it seems to me very clear that no matter what else one may say that no such thing was implied in this Court's judgment. This Court, if it had -- if it had adverted to that question and meant to either imply it or expressly say it could well have said in Lucchese that the Court of Appeals' decision which was adverse to Lucchese is reversed and the District Court's order is reinstated because the original District Court's order in Lucchese had been without prejudice to a further proceeding by the Government. But instead of simply reinstating the District Court's order that this Court specifically said it's remanded to the District Court with directions to dismiss the complaint and stopped there. So that I don't see how any District Court would imply or would think that it was implied in that statement that they should simply put back into effect their original order, this Court not having told them to do so.
Charles E. Whittaker: But this cited Zucca.
Richard J. Burke: It's cited at Zucca and there is nothing in Zucca, contrary to what the counsel says. I believe to indicate that this Court meant to hold in Zucca that the Government would have a right to start another action after the dismissal. The point was really not passed on at all in Zucca. That wasn't before the Court in Zucca as to what sort of a dismissal would be had. The only point in Zucca was whether the Government had to file the affidavit or not.
Charles E. Whittaker: Well the condition that these two (Inaudible) --
Richard J. Burke: Well, the language that was used in Zucca was a procedural prerequisite, but I don't reach the point Your Honor as to whether it's the jurisdictional under Rule 41 and so on. I don't believe I reach that point Lucchese that it's necessary for me to reach that point because all the -- all the District Courts had to determine was whether it was necessarily implied in this Court's order that it should add these words without prejudice. If it were -- if it were jurisdictional under Rule 41, there would be no occasion for adding the words without prejudice because it would be without prejudice anyway under the Rule. So there was no way that the District Court could feel that there was an applied direction to add without prejudice.
Felix Frankfurter: Well in all events, well in all events, you just said that either it's necessarily implied and we had to spell it out, you don't have to have a lawsuit to put in words that are very implicitly or if -- if that's in doubt all the government has to do it is to file a piece of paper, we will find out after finding it whether it is any good.
Richard J. Burke: That's right and if I may just add one sentence. What the Government is actually doing here under the guise of review by certiorari is trying to get a belated petition for rehearing of that judgment that was originally entered two years ago by this Court because they end up their reply brief by asking this Court to clarify its judgment, if that be necessary and I say I already had time on that.
Felix Frankfurter: I'm glad (Inaudible) both of you, but physically say now, you shouldn't have heard this case but held at Costello.
Richard J. Burke: We probably went to it in the wrong order, I agree.