Warren E. Burger: We will hear arguments next in Butz against Economou, No. 709. Mr. Friedman, I think you may proceed whenever you are ready.
Daniel M. Friedman: Mr. Chief Justice and may it please the court. This case which is here on a writ of certiorari to the Court of Appeals for the Second Circuit is a damage suit seeking $32 million against various officials of the Department of Agriculture growing out of an administrative proceeding, they conducted under the Commodity Exchange Act.
Byron R. White: Mr. Friedman excuse me for interrupting you so soon but you say it is a damage suit growing out of an administrative proceeding. Did the government ever question the basis of the District Court's federal jurisdiction in this case?
Daniel M. Friedman: No Mr. Justice because the fact of this case is that complaint which filed and there was a motion to dismiss on the grounds of immunity. There has been no answer filed on this case yet and all of those questions are open under the decision of the Court of Appeals. Our position is that this case was properly dismissed at the outset.
Byron R. White: Does not that put us in something of an awkward position and that we are asked to rule on defense on the merits where in fact there might be no federal jurisdiction?
Daniel M. Friedman: Well, the problem Mr. Justice is the District Court dismissed this suit and the Court of Appeals reversed the dismissal saying that the immunity in this case was not what the District Court held and therefore as the case now stands it goes back to the District Court to consider these other issues and we have brought the case here because we think the threshold ruling on immunity was erroneous.
Byron R. White: What if I asked you what the jurisdiction was?
Daniel M. Friedman: Well the jurisdiction was asserted under a large number of different sections in the complaint.
Byron R. White: Would you think any of them is sustainable?
Daniel M. Friedman: I am not certain of that. Some of them it seems to me are clearly not sustainable. Their allegations of violation of constitutional rights are claim of an implied right of action for violation of the First and Fifth Amendments are claims relating to the federal jurisdiction.
Byron R. White: In terms of this jurisdiction, not whether they stated the cause of action or some of those -- is any of them sustainable?
Daniel M. Friedman: I suspect probably.
Byron R. White: You suspect probably?
Daniel M. Friedman: Yes, because it is in sense similar to many of these cases which have brought suits against government officials for damages based upon their actions taken in performance of their duty.
Byron R. White: Sort of the Bivens type of suit?
Daniel M. Friedman: We suggest this is not the Bivens type of suit because that in fact involved a constitutional claim. This has some constitutional allegations but basically we think this is comparable to a suit for malicious prosecution and defamation. I think that it is similar to the case that this court had before it and the companion to bar Howard against Lyons where a suit was brought against --
Byron R. White: That was diversity jurisdiction.
Warren E. Burger: Now you said Mr. Friedman you thought you suspect that. One or more of these several that are cited may afford a basis for jurisdiction? Can you suggest one, that you suspect?
Daniel M. Friedman: Well, the only one that I could see that they rely on that conceivably might be with Section 1331 which is the federal question jurisdiction. I think you have to stretch that a bit to say that that is the kind of thing involved in this case. But that would seem to be the only one under which they might possibly be a basis here or it were the Bivens type of suit alleging violations of the First and Fifth Amendment.
Byron R. White: That is a federal question type of suit too is it not?
Daniel M. Friedman: It is, yes. But I was thinking in terms of the claim of malicious prosecution and defamation so is growing out of the federal thing.
Byron R. White: Well what is the federal question in a case like that?
Daniel M. Friedman: I suppose the federal question would be whether these individuals that exceeded their authority in conducting the administrative proceeding which may be enough to bring it in. As I say, we have not focused on this question, this issue because this was not the case as we sought that came up to this court from the Court of Appeals decision. We would be happy, if the court wishes to submit a supplemental memorandum on this issue, if the court deems it desirable because we have not frankly focused on it or considered it.
Byron R. White: You mean in the motion to dismiss, no one ever moved to dismiss for want of jurisdiction?
Daniel M. Friedman: The only motion that was filed for want of jurisdiction was in respect to the suit against the Department of Agriculture in the commodity credit authority and that was on the ground that was barred by sovereign immunity. There was no claim, no suit, just motion made to dismiss for lack of jurisdiction in the sense of the court had not had its jurisdiction properly invoked.
Warren E. Burger: I suspect Mr. Friedman that the dialog continues that may well develop to be the case but we will affirm that up to the end of the argument?
Daniel M. Friedman: We will be if the court wishes we would of course submit a memorandum on this topic. Now, the issue on the case is I suppose by the Court of Appeals decision is whether these government officials who conducted this administrative proceeding have absolute immunity as we contend only qualified immunity as the Court of Appeals held. And the critical significance of that distinction, of course, is that under absolute immunity, the issues are relatively narrow whether the official is active within the scope of his authority and whether the action was discretionary. Whereas on the qualified immunity, you get into the whole problem of motive and intent and this involves a far more sweeping examination and the kind of thing that normally cannot be disposed off summarily on either motion to dismiss or for summary judgment. The Commodity Exchange Act provides a comprehensive regulatory system for the commissions futures business and under the Act people who are so called the commissions futures merchants are required to register with the Secretary of Agriculture. The secretary has promulgated a regulation that requires these individuals to meet certain minimum capital balances and to file reports on their balances. The respondent Mr. Economou, and his corporation were registered with the Department of Agriculture as futures commission merchants and he submitted one of these reports on his minimum capital situation and this raised some questions within the Department of Agriculture over the correctness of his report and whether in fact he was in compliance. As a result of this, an audit was directed of his books and records. The audit was made and eventually the Assistant Secretary of Agriculture issued an administrative complaint subsequently amended and broadened, charging that Mr. Economou and his corporation had willfully violated the minimum capital regulations. In accordance with the standard practice in the Department of Agriculture, this complaint was made available in the department’s press room with a cover sheet that stated exactly summarized what the complaint alleged and pointed out that the mere issuance of this complaint did not constitute any adjudication of violations. A hearing was held before a hearing examiner of the department who found that Mr. Economou had committed these willful violations, the hearing examiner proposed that Mr. Economou's registration be suspended for 90 days and for that period, he would be barred from any trading in the commodities markets. Under the statute, the Secretary of Agriculture has delegated to the judicial officer of the department, the authority to hear appeals in such cases. This matter was appealed to the judicial officer who upheld the decision of the hearing examiner and imposed this punishment. The Court of Appeals set aside this judicial order on the ground that the finding of willfulness was erroneous.
Byron R. White: That was in the separate proceeding from this one?
Daniel M. Friedman: That was a separate proceeding. This proceeding, this lawsuit began during the time the case was pending on appeal from the Hearing Examiner to the Judicial Officer. And it was at that point that Mr. Economou began this case. It started as a suit to enjoin the department from conducting any further proceedings. But coupled to that complaint at the very end was a claim for $32 million in damages and then at a later stage in the proceeding the complaint was amended to expand on the claims and also to add another defendant who was the Judicial Officer.
Byron R. White: This complaint was filed then while review was either pending or open on Administrative Review in the Second Circuit.
Daniel M. Friedman: This was filed before that Mr. Justice. Let me give the chronology. The Hearing Examiner had decided the Administrative Proceeding adversely to Mr. Economou. He had appealed from that decision to the Judicial Officer and then he brought while at appeal to the Judicial Officer was pending, before the Judicial Officer had heard argument in the case, the present complaint was filed seeking both to enjoin further administrative proceedings and seeking the damages of $32 million. After the injunction was denied by the District Court, then the case proceeded to decision before the Judicial Officer, then the decision of the Judicial Officer was taken to the Second Circuit and the Second Circuit reversed that decision. And in the interim, the complaint was amended as I say to expand somewhat on the causes of action and also to bring in as a defendant, the Judicial Officer who had decided the case against Mr. Economou. The complaint named 12 individual defendants starting with the Secretary of Agriculture, the Assistant Secretary who had issued the complaint, the Administrator of the Commodity Exchange Authority who directed the whole proceeding in order of the audit, the Regional Director in New York under whose supervision the audit was conducted, three auditors who had gone in audited his books, a man named Davis who was a lawyer in the General Councils Office of the Department of Agriculture who had tried the case for the government, the Hearing Examiner who had initially decided it and the Judicial Officer who had affirmed the Hearing Officers’ decision. The amended complaint said that by maliciously and wrongfully instituting these proceedings against Mr. Economou, the people under the Department of Agriculture had tried to injure his reputation and put him out of business. And the complaint suggests that they did these things because he had been very critical of the way these people were administering the Act. More specifically, he makes three claims. He says first, the institution of the proceedings was unauthorized because the department had not given him a warning letter, which they normally would do and thus afforded him the opportunity to bring these mistakes into line to correct any deficiencies. Secondly, they said he had no authority to issue a sanction of any sort because prior to the time the sanction was issued, he had seized operating as a futures commission merchant. And third, the defendants were charged with issuing a defamatory press release, which I assume has reference to the release of the complaint in the covering memorandum to the press office.
Byron R. White: Where is that in the appendix if you have it right at hand Mr. Friedman?
Daniel M. Friedman: The complaint you mean?
Byron R. White: No, the press release.
Daniel M. Friedman: Oh, the press release itself is not set forth in the appendix but the cover sheet to the press release is set forth at page 150. All that there was, was that there was a cover sheet and the copy of the administrative complaint. The complaint was released to the press together with this cover sheet, which is set forth at page 150. Now, at the earliest stage of this case when Mr. Economou -- let me add one other thing, the complaint set forth ten different causes of action. Four of which were asserted to violate the respondent’s constitutional rights, rights under the due process clause and his rights to free speech. And as I have indicated, he sought damages of $32 million, which have broken down into various segments, six million for this, four million for that, 800,000 for something else. Now, at the earlier stage of the proceedings in opposing his application for a stay of the Administrative Proceedings, the defendants had filed an affidavit by the petition of Mr. Davis, the lawyer of the Agriculture Department that set forth in detail the functions performed by each of the individual defendants with respect to this case. On the basis of that affidavit, the defendants then moved to dismiss this suit on the ground that was barred by the doctrine of official immunity. The District Court so held and did dismiss it. The Court of Appeals reversed holding that while this courts decision in bar if it had been the last word on this subject might well induce them as it had the District Court to hold that these people were protected by official immunity. It believed that the more recent decisions of this court involving the immunity of State Officials sued under Section 1983 of Title 42 suggested that there has been a change in the law. And they thought that under these new cases, a qualified immunity, the good faith and reasonable ground tests suggested in Scheuer against Woods would be adequate to protect these individuals. Now as we see the case, there are two basic issues in the case, the first is whether the absolute immunity that this court recognized in Barr against Matteo is still a sound doctrine and if so whether the more recent cases under Section 1983, now indicate that only qualified immunity is appropriate. The reason for absolute immunity have been stated many times, and I cannot find any better statement than what Learned Hand said many years ago in Gregoire against Biddle which we have set forth to pages 17-18 of our brief and which this court quoted from extensively in bar and because of the time I will not quote it but what Learned Hand said in effect was, it goes without saying he began that if in fact a government official has misused his authority and has injured someone, it would be monstrous to deny that person recovery. But he said the problem is you cannot tell that until the case has been tried and therefore if you permit people to make these charges and force the respondent to defend on the merits, this is likely to inhibit all but the most fearless and all but the most vigorous from acting as they should act. Because as he said “again and again the public interest calls for action which may turn out to be founded on a mistake in the face of which an official may laid upon himself hard put to it to satisfy a jury of his good faith. And he said, it is so often the case the answer must be found in a balance between the evils inevitable and either alternative. In the instance that has been thought in the end, better to leave and un-redress the wrongs done by dishonest officers than to subject those who try to do their duty to the constant dread of retaliation.
Byron R. White: Mr. Friedman, in Barr, did the court indicate that the absolute immunity came up with there would apply to actions outside the scope of authority?
Daniel M. Friedman: It has to be what they say, that was --
Byron R. White: How do you interpret that?
Daniel M. Friedman: The outer perimeter of this authority?
Byron R. White: Yes. If he has to be doing the kind of thing, does he, that he is authorized to do under the statute?
Daniel M. Friedman: I would suppose so. It is a kind of thing that had to be someway connected.
Byron R. White: What if it turns out later that the court decides that he had no authority whatsoever to do it, he just made a mistake?
Daniel M. Friedman: Well, I think that is what the immunity was intended to protect, Mr. Justice.
Byron R. White: Yes, so it does not have to be within the scope?
Daniel M. Friedman: It was within the general scope of his authority.
Byron R. White: I mean the kind of thing --
Daniel M. Friedman: That is right. In this case for example, it was ultimately held by the Court of Appeals that the finding of willfulness was erroneous.
Byron R. White: What would you say if it had been decided in the case that an official had no authority to a certain act under a statute and in the next time, he did it anyway, knowing that he had no such authority?
Daniel M. Friedman: Then I would think he was clearly acting beyond his authority.
Byron R. White: Well, then no absolute immunity and no immunity at all?
Daniel M. Friedman: I would think not, I would think that because if he is acting beyond his authority, he does not have any immunity at all or if he is acting patently beyond his authority.
Byron R. White: What if a complaint alleges that he entered this person knowing that he had no authority into the statute to act as he did?
Daniel M. Friedman: I think it is not the allegation that he said knowingly, I think the question is whether in fact what he was doing was within his assigned duty--
Byron R. White: No, but the allegation is he did it maliciously in the sense he knew he was acting beyond the scope of his authority.
Daniel M. Friedman: I do not think that is enough Mr. Justice.
Byron R. White: Well, in my case then where he alleges, it was held last year that he had no such authority and yet he did it anyway knowing that he did not. Could you say that he could stay on that?
Daniel M. Friedman: I think that is a different case where it has been held, where it has been held that he does not have that authority but where the allegation is only that there was no authority --
Byron R. White: No, but the allegation is that he knew he did not have the authority.
Daniel M. Friedman: Well, that is the allegation that is always made in these cases Mr. Justice. It is always alleged that --
Byron R. White: I was just trying to find out what the content was of Barr’s rather careful indication that the officer must be acting within the scope of his authority and that it was a very close question in the Barr Case.
Daniel M. Friedman: Yes and it was a close question whether this particular official had the authority to issue press releases.
Potter Stewart: If you apply Learned Hand’s test though do you not come up with a somewhat different answer to my brother Mr. White’s question because you say it is alleged in all of these cases that he knew he did not have the authority? And I would think that the teaching of Learned Hand in Gregoire against Biddle is that it is something you ought not to have to try out every time.
Daniel M. Friedman: I would say except for the one case that Justice White poses where it had been previously held that he does not have the authority.
Warren E. Burger: By whom? Previously held by whom?
Daniel M. Friedman: I assume from Justice White’s question that was held by the courts.
Warren E. Burger: This court?
Daniel M. Friedman: Presumably by a court whose ruling the official would feel obliged to observe. I mean, we do know that there are instances in which officials of the government seek to obtain the conflict among the circuits and they do not consider themselves bound by a particular court. Now, if I may turn to the facts of this case to see what this charge involves and I would like to show why the importance of absolute immunity is in this situation. The affidavits show that everything that the defendants did in this case was all their actions were taken as part of their duties in enforcing this statute. Under the statute, the secretary is directed to investigate when an investigation is appropriate to see whether in fact there were violations of the minimum capital requirements. Once it appeared that there was a violation they would justify in issuing the complaint and once the complaint was issued Mr. Davis had assigned to him the trial of this case as part of his duties. The Hearing Examiner's sole connection with this case was deciding the case on the record before him as that was the function performed by the Judicial Officer. Now, going to Mr. Economou in a lengthy affidavit that he filed in this case, all of this was his plot against him. I would like to refer the court to Page 29 of the appendix, where Mr. Economou says in this affidavit, the action undertaken by the (CEA) Commodity Exchange Authority in their docket no.167 and various acts of officials and employees in connection therewith are in actuality, an organized conspiracy for the specific purpose of discrediting me in the Financial Community and with investing public and through me course of downfall and destruction of the American Board of Trading, a new exchange in market place. That was an entity that Mr. Economou was trying to organize.
Byron R. White: Mr. Friedman may I ask the question here. Do you suggest that we look at each of the defendant separately? Now some of the defendants you did not quite to were auditors rather that the higher ranking people. In some areas, there is a distinction between the positions of a prosecutor, say and a police officer, one gets absolute immunity, the other gets qualified immunity. Do you think that distinction might apply to the difference between an auditor and a Hearing Examiner for example or lawyer trying the case?
Daniel M. Friedman: We think that the auditors in this case were really performing factors which involved considerable discretion because in conducting an audit, you have to decide what you are going to look at, how intensively you are going to go into it, how much you are going to question these people and once again, it seems to us the threat of possible suit with these enormous damages being sought here. This is enough to deter the auditor for perhaps being as vigilant as he might be. Obviously, the farther down the line you go, the lesser the discretion involved and at some point it seizes to be discretionary rule of course but we think there is enough here in terms of the auditors that they did have enough discretion to make this inappropriate.
Byron R. White: Would you apply the same rule to an agent who is an accountant by training who is investigating a business crime or an auditor for internal revenue investigating the financial background of the possible tax prosecution, would those auditors be like FBI Agents and police or like the auditor here?
Daniel M. Friedman: I think it might vary form case to case but I think there would be more like the auditors in this case. I would think so. Let me just come to another aspect of this. All of these people are basically conducting an investigatory proceeding. A disciplinary proceeding to determine whether some sanction be imposed upon the respondent. I suggest that for instance that if there is the danger that at some later point, these officials are going to have to try to justify to a jury what they did in the face of these charges of a conspiracy and of course, it is colored by the claim that they were after him because he had been critical of the way they were administering the Act. If they have to justify this, it seems not unreasonable to conclude that in a close case they may share their decision.
Byron R. White: Mr. Friedman, does it make any difference in your argument that here there was an administrative review proceeding open to the respondent after these government officials had performed their tasks in which he could challenge their conclusions as opposed to Barr against Matteo and Howard against Lyons or if they did not get their relief in the independent judicial suit there, apparently they would not get it at all?
Daniel M. Friedman: This is one of the factors, the point that you do not have to subject government officials to personal liability in order to correct, if any errors that may have been created here. If everything he says about this proceeding is true it has been corrected because of the reversal of the decision against them.
Potter Stewart: His damages, his injuries have not been --
Daniel M. Friedman: His in juries of course have not been recompensed. But again, we come back, it seems to me to the basic policy underlying the immunity which this court has recognized in Barr and that which Learned Hand recognized that it has been considered better that there maybe are occasional instances in which somebody who has just claim will be denied it that that is outweighed by the importance in the public interest of making sure that government officials are not deterred from acting vigorously and fearlessly because of the threat of possible private liability.
Potter Stewart: Mr. Friedman, now that I have interrupted you, may I ask a couple other questions? I think perhaps the answer to my question is self-evident. The question is who defends federal officials when they are sued in cases like this? And I suppose, the answer is by your presence here that the Government of United States does.
Daniel M. Friedman: That is correct with one or two possible exceptions. There may be situations where we see something of a conflict of interest among all the defendants in which case will avoid this conflict by putting up, furnishing the funds for them to retain outside council or secondly where a charge and a suit like this suggest the possibility of some criminal violation. And of course, if the department might ultimately be prosecuting some of these people we do not attempt to defend them in a civil liability. In that situation, once again we do provide them with outside council.
Potter Stewart: The pay?
Daniel M. Friedman: We pay for the outside council.
Potter Stewart: So, this is done at government’s expense, by the government or government’s expense? If there were no immunity and there were a judgment against the officials based upon malicious action, who would pay the judgment?
Daniel M. Friedman: Ordinarily, the official would have to pay it out of his own pocket. Unless there are some statutes specifically authorizing the payment of such a judgment, the government has no funds ordinarily to pay those judgments. Now conceivably, in some situations, Congress might enact a private bill to pay for it; but normally it is the official who pays it out of his own pocket. And that is the thing that really has this almost in to (Inaudible) effect upon the official. It is coming out of their own pocket. A man may have his lifetime savings wiped out if a jury several years later should conclude that what it seemed to him at that time to be a reasonable action in fact was not taken in good faith. That is the thing that seems to me as the most serious and bothersome and dangerous about this thing.
Potter Stewart: Generally, then as a general rule, there will be no indemnification?
Daniel M. Friedman: Normally, there would not.
Potter Stewart: By the government employer?
Daniel M. Friedman: I might add that the Attorney General who has just recently proposed legislation under which these suits would be channeled away from the individual defendant to the United States. To amend the Tort Claims Act to permit this type of suit to be brought under the Tort Claims Act. That legislation has just recently been recommended because of concern that something should be done to rectify the situation where individuals have suffered damages as a result of the government action. But it seems to us that that is very different thing from subjecting the individuals personally to liability for what they have done in the course of their profession.
Byron R. White: I take it you think that would meet the problems that Judge Learned Hand was raising in the Biddle Case?
Daniel M. Friedman: I would think so and we are hopeful that this legislation will be enacted but when and how, it is difficult to predict. I may like to just come to one other thing which is the question of these cases that the court has decided Scheuer against Rhodes, Wood against Strickland under Section 1983. We think that those cases do not announce any modification of the salutary principle recognized in Barr against Matteo. We think those cases turn on the fact that in Section 1983, Congress provided a remedy against state officials for persons whose constitutional rights have been denied them by those officials under the color of law and this court has recognized several times. It would really vitiate that section, would rob it of its effectiveness, if because of the existence of absolute immunity those officials could not be held responsible for the conduct they had committed. Indeed this court has recognized that one of the things that Congress intended to do under 1983 was to provide a remedy for people against state officials who had under their state authority, done these things.
Warren E. Burger: Mr. Friedman, let me ask you just one question here at the end, it sounds very specific. Would you see some analogy between Judge Hand’s expressions that were alleged to that you have mentioned and philosophically, and the approach in the criminal law of strict rules of evidence and the strict enforcement of constitutional guarantees? Under that broad rubric, but it is better to have a hundred guilty men go free than one innocent man to be found guilty. Is there some relationship between these?
Daniel M. Friedman: Well, I am not sure. The only relation I could suggest is perhaps a suggestion that is better that occasionally, a particular individual not recover than at the large group of government officials be deterred. It is kind of a converse, I mean, in one case it is better that hundred guilty go free than one innocent go to jail. Here, it is that it is better than an occasional one not be able to recover than that the hundred government officials be deterred from acting vigorously.
Byron R. White: Mr. Friedman, how about the investigator, I mean, the government agencies acting within the scope of his authority as you understand it to for example make arrest without warrants or in unusual circumstances making searches without warrants, he just happens to make a mistake?
Daniel M. Friedman: Well, that it seems to me that the investigator brings up a different problem.
Byron R. White: Well these are Government officials; he has a great deal of discretion?
Daniel M. Friedman: This court has recognized in Pierson against Ray that police officers --
Byron R. White: 1983 is it not?
Daniel M. Friedman: 1983.
Byron R. White: I know that has nothing to do with it with the federal investigation, I thought you indicated.
Daniel M. Friedman: Yes, but also at common law traditionally, police officers have had in effect a qualified immunity that has been tradition --.
Byron R. White: So, there is some line somewhere in the federal hierarchy that there is no absolute immunity at this?
Daniel M. Friedman: At some lower level, if the discretion that a police officer exercises in deciding whether or not to arrest someone or whether to break down the door --
Byron R. White: Pretty broad discretion?
Daniel M. Friedman: It involves discretion but probably not the kind of policy discretion that the immunity principle is designed further. It has been said in some courts that a fair test of whether or not this is a kind of discretion. Is this the kind of action by the Government official that the possibility of substantial person liability is likely to deter him from taking that is the kind of thing? And police for centuries have been acting vigorously and they all know that if they exceed their authority they are sealed for false arrest.
Byron R. White: And they all have savings?
Daniel M. Friedman: What?
Byron R. White: And they may all have savings?
Daniel M. Friedman: They may, but this I think is a special case. The courts have not definitively decided yet the precise scope of the immunity of all federal officials and as we suggest in our brief, this court does not have to determine the outer perimeters of that immunity in this case because we think whatever may be those limits certainly all of these individuals as what they did in this case are well within the,-- if I may say so, the inner perimeter of their duties.
Potter Stewart: Mr. Friedman you have relied on this specifically on Barr against Matteo. There is one other class of government officials who has been established have absolute immunity from civil liability and that is prosecutors.
Daniel M. Friedman: Yes.
Potter Stewart: Do you think there is a sufficient analogy between at least some of these defendants and prosecutors to bring them under the umbrella of that doctrine?
Daniel M. Friedman: We have suggested that Mr. Justice. Certainly with respect with respect to Mr. Davis, the lawyer who tried the case at the administrative level, his function is basically that of a prosecutor and the auditors by the way in addition to conducting the audit also testified as witnesses and witnesses traditionally have immunity and also participated and aided the prosecutor in presenting the case. The Assistant Secretary, who issued the complaint might viewed as perhaps analogous to the prosecutor who gets the indictment before the grand jury. As we set out in our briefs --
Byron R. White: The witnesses maybe absolutely immune for their testimony?
Daniel M. Friedman: Yes.
Byron R. White: But the auditors might have been witnesses that are absolutely immune for that but they also were investigators, were they not?
Daniel M. Friedman: They were investigating and that we think --
Byron R. White: In that role are they more like Federal Bureau of Investigation or a police or what?
Daniel M. Friedman: It is hard to say, they are somewhere in between I think. They are somewhere in between, the audit is somewhat different from what the FBI Agent does but it also has some similarities.
Byron R. White: The Court of Appeals for the Second Circuit discussed briefly casually but did not take it much further, this analogy between at least some of these defendants and prosecutors. In Footnote 8, I think that Judge Mansfield's opinion from the court-- .
Daniel M. Friedman: The Court of Appeals suggested some distinctions which we do not think stand up, we think the basic purpose of the immunity is the same whether they are prosecuting a criminal case or bringing this kind of an enforcer.
Byron R. White: Was that immunity would not even if stretched to its limits would not cover every one of these defendants? Would it?
Daniel M. Friedman: No, but we think that some of them are covered by that and some of them are some of them are covered by various other facts.
Byron R. White: By various (inaudible) generally?
Daniel M. Friedman: Generally, and for example we think the Judicial Officer and Hearing Examiner have an immunity comparable with that of the Judges traditionally.
Thurgood Marshall: The auditor that made the audit and made the report testified and then held a press conference out on the steps of a building saying that this man is a dirty crook, ought to be shot, quartered and etcetera.
Daniel M. Friedman: I would think the auditor would be liable in that situation.
Thurgood Marshall: You would have any problem with?
Daniel M. Friedman: Because that is not a part of his job to hold a press release and call the names.
Byron R. White: Mr. Friedman, in this case, deprivation of the constitutional rights are alleged, this is not true in Barr. Do you think this makes a difference in the resolution of the case in anyway?
Daniel M. Friedman: We do not Mr. Justice and let me explain why. It is very easy when a complaint is being drawn to charge that the actions of the government officials denied you your property without due process of law. I suppose in any case where an administrative proceeding were brought to revoke someone’s registration or suspend their license or something like that it is very easy to allege that this resulted in the denial of due process of law.
Byron R. White: But before you said they always --
Daniel M. Friedman: They do it more and more. This is happening more and more here of the ten courses of action, four of them assert a violation of constitutional right.
Byron R. White: But it is a factual distinction between the two complaints?
Daniel M. Friedman: It is a factual distinction but not one that we think warrants a different immunity in the case of the constitution. In this case for example, the different courses of action shift back and forth and it seems to us, we are most strange to say well, with respect to six of his courses of action the Government officials have absolute immunity but with respect to the other four which are very similar but where he is alleged a violation of Constitutional rights they have only qualified immunity. We think the fact that a charge is made that the action of the Government officials violated the Constitutional rights of the plaintiff should not cause any different result. We have discussed that at some length in our brief.
Warren E. Burger: Very well. Mr. Buxbaum.
David C. Buxbaum: Mr. Chief Justice and may it please the court. The factual circumstances surrounding this case are very important. I should point out that this case was decided on the district level on a motion to dismiss. There was no discovering in this case. There were no affidavits attached to the motion to dismiss and we must therefore regard the allegations and the complaint as being true. Now, the factual circumstances are these; Mr. Economou had long been in the commodities business as a member of one of the more established exchanges in Chicago. He, through the years, had come to some conclusions about the way the commodity business in his particular area was being run and he felt that there were substantial problems of the commodities industry and with the regulatory agencies that were regulating. At that time, the regulatory agency was the Commodity Exchange Authority which was a portion of the Department of Agriculture. He made it known, very well known his complaints about both the Commodity Exchange Authority and about the industry itself. He set off on his own leaving the Chicago Mercantile position that he had and establishing his own exchange registering and offering with the Security and Exchange Commission, registering some other trading organizations with the Security and Exchange Commission, preparing to register his exchange known as the American Board of Trade with the SCC, and doing a number of other things. He formed an organization which he was and still is the President of, called the American Association of Commodity Traders I believe and this was designed to change the concepts which existed in the commodities business at that time. Now people, and this is all alleged in the complaint and also in the affidavit which is the first part of the appendix, people in the industry and people who are regulating the industry took umbrage at this particular activity of Mr. Economou. Now, it so happens that Mr. Economou was not the only person pointing --.
Speaker: How you know they did?
David C. Buxbaum: How we know they did? Well, one of the reasons we know they did is because the actions they took against him in this particular case.
Speaker: Well, you do not know their actions for that reason?
Warren E. Burger: It is alleged in the complaint and we assume it is true.
David C. Buxbaum: We certainly have alleged it and which it must be deemed as true for the purposes of this particular argument.
Speaker: Well, that is in so far as you know.
David C. Buxbaum: Well, we believe we have more evidence than that.
Byron R. White: And we must take that as though as true?
David C. Buxbaum: Yes, I would think so.
Speaker: That is your point.
David C. Buxbaum: That is my point, always if there is jurisdiction. In any event, as I say, these matters were published as a matter of record and there were other people who were also pointing at the Commodity Exchange Authority in the way the commodities business was being regulated. Eventually Congress did away with the Commodity Exchange Authority and set up the commodity futures trading commission. Congress itself feeling it and I think properly so, that there were something wrong with the way the industry was being regulated at that time. An independent agency was set up in 1974 parallel to the Securities and Exchange Commission which now regulates the commodities business in a different way. In addition, just a to get a little bit technical for a second, Mr. Economou felt that it was too big a spread between the bidding asked price on the various exchanges and he looked to eliminate that bidding spread. He felt that they should be a specialist on the floor of the exchanges as they are on the securities exchanges to make an orderly market. All these things did not sit well as we alleged in the complaint with the industry and with the regulators. Now, he was withdrawing from the supervision of the Commodity Exchange Authority. He was closing out his business and was no longer involved in this particular business and he was in the process of closing out his accounts and as a matter of fact he closed out all of his accounts before the second amended complaint came down. Initially, a complaint was issued claiming that he was under financed on the basis of new regulations that had been issued just a short time before in the amount of several thousand dollars. He went to Washington and elsewhere asked how he might alter this situation and attempted to resolve the situation by meetings with Washington. He received no help whatsoever. As I say, he was in the process of liquidating his accounts when without notice, without an opportunity to be heard, without anything, his complaint came down alleging that his business was deteriorating at rate of $4,000.00 a month, number one and number two, providing this information to the Securities and Exchange Commission where he had several registrations that had already been approved and some that were pending. In essence what happened is that, this particular announcement had appeared in the press and by the way, the press release has been lost by the petitioners in this case and they cannot find it but the press release as reflected in the newspapers which we do have.
Warren E. Burger: I thought the release was on page 150 of the appendix?
David C. Buxbaum: Well, we do not believe that to be the case your Honor, we believe that, that particular document first of all is not part of any file in this case. It was made a part of the appendix over our objection and I want to point out that there were two complaints issued. It was the second one that was devastating and both the cover sheet and whatever was attached to the cover sheet has been alleged to be missing by the petitioners in this particular case. It does not exist. That was what we have been informed at the District Court level. Now, when this news came out and was brought to the attention of the Securities and Exchange Commission that its capital was being lost at the rate of $4,000.00 a month that devastated his entire business. It was not just a simple matter. He proceeded pro se up the ladder to appeal this decision and appear himself before the Second Circuit Court of Appeals without the assistance of an attorney and the Court of Appeals said that at least as a minimum, since there was admittedly no willfulness involved in this particular case, they dismissed it. There may have been 25 other grounds for the dismissal also but they said since it did not meet the test of willfulness, a threshold test, therefore the entire matter was dismissed. In the hearings that were held by the way, in the administrative hearings that were held below, the petitioners admitted that if they had informed Mr. Economou of the fact that they were going to come down with this particular allegation, that he would have and all likely had corrected it and therefore there would have been no need to proceed. In addition, it was admitted in one of the administrative hearings that the statement that his business was losing a capital at the rate of $4,000.00 a month was erroneous. It was an erroneous statement, a very substantial and harmful erroneous statement. This particular action as has been explained by Mr. Friedman was commenced to the idea of attempting to state these administrative proceedings, and as generally happens, these attempts do not bear fruit because the courts are probably quite concerned about protecting the public in a case where it is alleged, that a firm is under capitalized. Irrespective of the fact that this particular firm was actually just liquidating accounts, still the courts are concerned about that.
William H. Rehnquist: Well ordinarily, you could not go to court in a separate action could you and challenge an administrative determination where the statute authorizing the agency to make that determination provided for judicial review like was available in the Second Circuit Hearing?
David C. Buxbaum: Indeed, ordinarily could not. In any event, this attempt I supposed was made at a time and hope that since this was such a frivolous matter and clearly this institution was withdrawing from the business and clearly that it had no further jurisdiction over the particular respondent in this particular case that perhaps this court would stay these entire proceedings. In fact, of course, the court did not stay the proceedings and so a damage action was instituted. Now, as anyone in the securities or commodities business knows when you receive an announcement in the press that indicates that the capital of firm is diminishing at a rate of $4,000.00 a month, the chances of your continuing in business, especially small firm, among the members of the industry are very, very selective. The allegations in the complaint to get to the question of jurisdiction,the allegations in the complaint are one of the reasons that the entire proceedings here would commenced was to chill the speech of this gentleman who was athorn in the side of the Commodity Exchange Authority which was being subject to other criticism at the time also. And to chill his freedom of speech as I said and to take his business, to destroy his business, and to deprive him of his both First and Fifth Amendment rights. So there are Bivens-type Tort Claims clearly alleged in the complaint and explicated in the affidavit that is in the first part of the appendix which was prepared by Mr. Economou when he was appearing Pro se, it is somewhat lengthy but it does contain numerous essential facts in this particular case.
Thurgood Marshall: What in the judgment of a couple of a million dollars shield somebody else, in what they were doing?
David C. Buxbaum: Yes, our judgment will cover a million dollars if that was the judgment that was eventually granted.
Thurgood Marshall: Well, would a judgment of a small amount shield somebody in what they were doing and the job that they took oath to do?
David C. Buxbaum: Well, if we presume that.
Thurgood Marshall: Could they do that?
David C. Buxbaum: Excuse me?
Thurgood Marshall: Could they get?
David C. Buxbaum: It very well might. It might shield them from doing. It might prevent them in the future and take doing the wrong thing.
Thurgood Marshall: If might also prevent from doing the right thing?
David C. Buxbaum: Well, I do not believe that.
Thurgood Marshall: If they have to go in court every time they made a move?
David C. Buxbaum: Well, I would say.
Thurgood Marshall: And subject themselves to be sued because “you sue me for $8 million, I am flattered” what I mean is, some other people have problems.
David C. Buxbaum: I would say this that it is beyond per venture that most federal officials would have to the reasonable, good faith immunity, the limited immunity of reasonable good faith. So that even if they were wrong, if they behave reasonably in a good faith, they would be immune from suit, no one is denying them that immunity.
William H. Rehnquist: Was that something you prove after a jury trial where you have been de-posed for few days in that sort of thing.
David C. Buxbaum: I do not know. That is a common way of doing it, but certainly the Second Circuit points out this could be done by motion for summary judgment. And a motion for summary judgment gives us an opportunity , there has been no discovery in this case.
William H. Rehnquist: But how can, I would think under normal rules of summary judgment, if you simply allege that you are in good faith and you are the party that has the burden of proof on that issue, you could not win a motion for summary judgment on that basis, any sensible District Court would say, you go to trial on that.
David C. Buxbaum: Well, when you say motion for summary judgment could not be one you are talking about by the petitioners, I take it.
William H. Rehnquist: Right!
David C. Buxbaum: While if the petitioner demanded to say while you acclaim that this was a conspiracy to deprive your client of his constitutional right to free speech and to take this property without due process of the law, you cannot just rely upon assertions in a complaint to that particular point, as a minimum, it would be our responsibility to come forth with some evidence, and if not, the court would certainly so was it was a frivolous claim the court --
William H. Rehnquist: But that does not go to the defense at all. That goes to your ability to sustain against the motion for summary judgment and motion to get you out of court on a merit.
David C. Buxbaum: I am pointing that frivolous claim. The only thing I am pointing to is that frivolous claims could not easily sustain a motion for a summary judgment.
Thurgood Marshall: In this case right here, the respondents have come in and said we did not conspire. The court would then say good, now we got both sides, let us have a trial.
David C. Buxbaum: Well, the court --.
Thurgood Marshall: Well, it could be if the court says that. One says yes and one says no. Trial.
David C. Buxbaum: If there is a legitimate dispute on the evidence yes, of course the court would say that.
Thurgood Marshall: Well, that is exactly what Gregoire and Biddle, and all of them said, we do not want to get involved in.
David C. Buxbaum: Well, it seems to me that the way the immunity law now exist that --first of all, I do not believe we should create a what jurors call, a new class. I do not believe that federal officials should be different than anyone else in society. I think there are important decisions of this court recently that indicate that everyone in the United States is subject to the law of the United States. I think these are matters that should be and must be accorded due respect.
Thurgood Marshall: And that includes prosecutors and judges?
David C. Buxbaum: Prosecutors and judges--
Thurgood Marshall: Or you can say they are not people?
David C. Buxbaum: Prosecutors and judges and legislators are in part pursuant to the constitution, in part pursuant to the rulings of this court in the areas in which they operate, where they require discretion in order evaluate either facts or law and come down with a decision rightfully we believe immune from suit. But if they act out, there is recent case for this court has granted cert where a judge I understand from my readings permitted sterilization of someone when he had no statutory authority to do so with notice and ex-party basis, without informing the person that they were to be sterilized. The operation took place and the person found out about it a number of years later. Now that sort of thing, it would seem to would not --
Speaker: It is a precedent?
David C. Buxbaum: That is not a precedent, this court has granted a certiorari in that particular case.
Speaker: Again that is even, no matter how that case is decided there is a difference because that was in 1983 Action against the state --. Your burden it seems to me is to convince us that there has been a retreat from Barr against Matteo. Or do you concede that if Barr against Matteo is still flourishing in full vigor that the dismissal would have been correct in this case?
David C. Buxbaum: No, even if it was flourishing in full vigor, I would not concede that a dismissal would be appropriate in this case. First of all, there had been no hearings; there was no factual information on that exact scope of activity of any of the petitioners in this case. All we have is one affidavit that was filed long before the motion to dismiss had no connection with the motion to dismiss was not referred to in the motion to dismiss and we had never had a chance to challenge. So I would say we do not know what the activities of the petitioners were in this case, number one. Number two, my reading of Barr versus Matteo is somewhat different from that petition of the petitioners. I do not think Barr and Matteo as some people have alleged grants all federal officials immunity from suit providing they are operating in the outer sphere of their authority. I do not think that is the proper reading of Barr and Mateo. I think what it does say is that immunity, full immunity, total immunity is not only to be granted to highest ranking federal officials, not only members of cabinet rank, but it can also be granted to other officials in policy making positions, who need such immunity so that when they make policy, they can clearly in this discretionary area make policy free of some belated quarterback, second guessing them as to the policy they made. I think that it what Barr and Mateo say. I do not think it said that everyone.
Speaker: It did not involve constitutional rights here?
David C. Buxbaum: Barr and Mateo did not involve constitutional rights here.
William H. Rehnquist: On that point counsel, do you think the reasoning of the court’s Bevins decision would necessary carry over to give you a claim under the Fifth Amendment based simply on a claim of denial procedural due process?
David C. Buxbaum: Well that is not our claim under the Fifth Amendment. Our claim under the Fifth Amendment in addition to that had been taking a property without due process of the law.
Byron R. White: Well, that is -- you were denied procedure or is that a condemnation type of claims?
David C. Buxbaum: Well, in essence.
Speaker: Confiscation of your property without compensation.
Byron R. White: So there is nothing that a hearing would have remedy.
David C. Buxbaum: Well, not a hearing that we alleged was a state hearing which everything had been pre-determined?
Byron R. White: No, then it is in effect a fair hearing claim rather than an eminent domain claim that you make under the Fifth Amendment.
David C. Buxbaum: It seems to me it is a little of both because I think the press release which may not have been within the authority at any way that the officer release it, alleging a false fact which was later admitted to be false namely that the business was depreciating at rate of $4,000.00 per month was enough in those circumstances to destroy the business.
William H. Rehnquist: Do you think your strictly procedural fair hearing claim is completely analogous to the Bivens claim?
David C. Buxbaum: I think it is completely analogous.
William H. Rehnquist: What about if Bivens was Fourth Amendment, you have a First Amendment?
William H. Rehnquist: You have a First Amendment and your denial of free of speech?
David C. Buxbaum: Right.
William H. Rehnquist: In Bivens, the Court held there was an implied basis for jurisdiction under 1331 where there was a Fourth Amendment violation.
David C. Buxbaum: Right.
William H. Rehnquist: Do you think a procedural fair hearing deprivation under the Fifth Amendment stands on all force with the Bivens Case?
David C. Buxbaum: No, but I do not think that is our only allegation.
William H. Rehnquist: Well, I had realized you made a number of other allegations. I was inquiring about that one.
David C. Buxbaum: No, I do not think it stands at all. I really have to think of that. I do not think it stands at all on force of Bivens. But I think there should be no distinction. We would argue between deprivation of First Amendment Rights and I would point to the most recent case of Dellums versus Powell and the Court of Appeals of the District of Colombia were in First Amendment rights were clearly violated and which Bivens-type suit did proceed and Fourth Amendment rights. I think all rights under the constitution which are under the First ten Amendments in which an individual can be harmed could give rise theoretically to a Bivens-type Tort and I do not think this court should differentiate Fourth amendment from First to Fifth Amendment Rights.
Thurgood Marshall: Would you have any case if the allegation that he had made these speeches was not indicated would you still have the case?
David C. Buxbaum: If we could not prove that no.
Thurgood Marshall: If you did not allege that this was named at stopping you from speaking, would you have any case?
David C. Buxbaum: Well, we still think we have a case in the Barr vs. Matteo. We think we have a Bivens case also, Bivens-type Tort under the taking of property, the Fifth amendment, lack of due process hearing and Fifth Amendment taking a property through an essence that this press release which an essence destroy the business or helped to damage the business.
Thurgood Marshall: You do not see any difference between Bivens, Barr and Matteo.
David C. Buxbaum: I did. I do think so, yes.
Thurgood Marshall: That is right. With Gregoire against Biddle, what would you do with that? Gregoire against Biddle still do at law, do you think?
David C. Buxbaum: Yes, I suppose too.
Thurgood Marshall: After this Second Circuit have been?
David C. Buxbaum: Well, let me say this I think that --
Thurgood Marshall: But you have a choice between the two?
David C. Buxbaum: I would say this. I think that Scheuer versus Rhodes did modify and can very well be read to modify Barr versus Matteo. I think it can and should be read and I do not think that Scheuer should only be held to apply to 1983 cases. I think there should be a standard uniform policy with regard to both state and federal officials. I think that the petition has made a good argument that 1983 was enacted by Congress for specific purposes. I think that when it was enacted it was understood and expected that federal officials would be restrained by the first ten amendments to the United States Constitution and there would indeed be potential recovery against Federal officials, should they breach the civil rights of citizens?
Byron R. White: If 1983 was enacted now, neither then nor since has there been a federal counterpart in 1983. And when 1983 was enacted there was not even any arising under jurisdiction that was not an act until 1875, so when 1983 was enacted clearly there would have been no claim against any federal official under the existing laws in United States.
David C. Buxbaum: Well, when you say there would have been no claim I think there were claims made against federal officials. I think it is going back as far as US versus Lee, there were claims made against Federal officials. Certainly the Bivens-type situation had not been clearly enunciated by this court. I think there were expectations when 1983 was enacted and there has been no counterpart on the federal side because I do not think that the Congress felt it would be necessary to enact. I think it assumed that number one; that Federal Officials would not do these things -- .
William H. Rehnquist: Well Bivens certainly depended on the existence of arising under jurisdiction under Section 1331 which did not exist at the time 1983 was around.
Byron R. White: Mr. Buxbaum, just a trivial question, you were dismissed also as to the Department of Agriculture itself?
David C. Buxbaum: Yes.
Byron R. White: And the Commodity Exchange Authority?
David C. Buxbaum: Yes, that is correct.
Byron R. White: And you asked that that be overturned?
David C. Buxbaum: Well, we have asked that it be overturned in our brief.
Speaker: Did you cross petition?
David C. Buxbaum: No, we did not cross petition. We have in our brief before the court raised that issue and I wish to point to a recent decision that is referred to by the petitioners in this particular case where in the Expeditions Unlimited versus Smithsonian where in Judge Rookie's concurring opinion, he states that there are some serious question if they had to review the issue ab initio as to whether or not these Smithsonian which we regard as a Federal Institution was amenable to suit, but under those circumstances he would have to reconsider the whole matter in view of the legislative history. It has been said that historically the concept of the sovereign immunity which had been recognized by this court, and by others was something that should not have been made part of our heritage from our English brethren in a sense that at some of the earlier cases have said the people were presumably sovereign in the United States of America. There was no sovereign and there was no sovereign to grant the petitioner, right. And as such it was error from the inception to grant sovereign immunity to the Federal Government. That has been said and that I have realized that all that is gone since the initial time till today, it is a difficult argument to sustain. But I think there is something to be said for considering that particular, your Honor. I think that it is interesting that the Expedition Unlimited Case that makes reference to the Economou Case and it finds the Second Circuit its decision not in accord with its feeling however if the separate opinions are read, I think the separate opinions, the concurring opinions indicate that there is very serious doubt in the minds of at least three of the Justices in the District Court of Columbia as to whether or not Barr versus Matteo has the same vigor as it did in view of the decision in Scheuer vs. Rhodes. It is our feeling at any rate that Barr versus Matteo does not grant immunity to all Federal officials irrespective of their positions and their activities but only to those requiring having policy making position enacting within the scope of their authority. It seems to me that others are very well protective by a good faith reasonable defense to suit. I want to point out that individuals in --
Warren E. Burger: Mr. Counsel, it has been suggested to you before that does not protect him from being sued.
David C. Buxbaum: No, it does not but --
Warren E. Burger: But this is what Judge Harlan was concerned about and what the Biddle Case was concerned about that being exposed to the jeopardy in a civil sense.
David C. Buxbaum: That is a serious problem your Honor and yet people in private life and private industry, they are subject to suit and it does not prevent them from acting vigorously in corporate activity outside directors of corporations have been subject to more vigorous suit. Questions at disclosure had been raised to a new level by the Securities and Exchange Commission among corporate officers and corporate officers are subject to greatest scrutiny. People in the Commodities and Securities business, not only are they subject to suit individually under 10B5 for their own wrongdoing but for failure to supervise under the New York Stock Exchange Laws and under the laws in NASD. Private individuals and Private industry are subject to suit and they seem to be able to vigorously carry out their activities. Why not Federal officials? Why should they be any less subject to suit provided that they are given a good faith reasonable immunity, so when they act in good faith and reasonably, they will not be subject to harassing suits? It seems to me that there should be indeed a balance between private world and the public world of government. I think in view of the broadening responsibilities of private individuals in business that government and Federal officials act wrongfully. I might point out that there has been tremendous growth of federal bureaucracy if you want to use that word and of other government and it is alleged that there is a feeling among people that they have lost control over these bureaucratic institutions. They do not know how to relate to them and if they feel they are wrong and that they have a right to suit, it seems to me that it would help to bring legitimacy, the kinds of legitimacy to government.
Byron R. White: And when a private individual is deterred from acting by the threat of a suit, he is only deterred in pursuit of his own private interest where as if a government official is deterred from enforcing some governmental policy, he is conceivably deterred from acting in a way that would benefit a great number of people.
David C. Buxbaum: That is true except that most of these allegations where there are suits against Federal officials or allegations that the official is acting in a private and a narrow way rather than in a public way, that is the allegation.
Warren E. Burger: Thank you gentlemen. The case is submitted.