Warren E. Burger: We will hear arguments first this morning in Transworld Airlines, Inc., against Franklin Mint and the consolidated case. Mr. Romans, you may proceed.
John N. Romans: Thank you, Mr. Chief Justice, and may it please the Court. The issue to be decided in this case is whether the United States courts are dutybound to enforce the limitations of liability of the Warsaw Convention, and if so, how the Warsaw gold franc, which is the unit used to express that limitation of liability, is to be converted into present U.S. dollars. The facts are agreed and quickly stated. Franklin Mint delivered four cartons to TWA in Philadelphia for shipment to London, England.
Harry A. Blackmun: When?
John N. Romans: In March of 1979, Your Honor.
Harry A. Blackmun: I don't believe the briefs put it out, but I am curious.
John N. Romans: That is when... March of 1979.
Harry A. Blackmun: And will you tell us how they were lost as you go along?
John N. Romans: Your Honor, if I knew how they were lost, we might not be here today. All we know is that they were not delivered in London, and we could not find them anywhere in the system. We do know that the four cartons weighed 714 pounds, that the entire fee to carry them to London was less than $550, and we do know that Franklin Mint told TWA that one carton contained "metal stamping dies, metal stampings, numismatic, articles of adornment. " and that the three other packages contained "metal stampings, numismatic". Now, when the packages did not arrive in London, Franklin Mint made a claim, and it claimed that it was entitled to $250,000 because it turned out that metal stampings, numismatic, meant gold coins. Now, Franklin Mint knew that TWA's limitation of liability was $20 per kilogram, and that its overall liability was $6,500, based on the weight of 714 pounds. Franklin Mint could easily have avoided this limit of liability if it chose to do so. It could have declared an excess value. It could have said, look, TWA, we have gold coins here, and they are worth $250,000. In that case, TWA would have said, yes, you have declared an excess value, and now we are going to charge an excess charge for this high value shipment. But Franklin Mint chose not to do that.
William H. Rehnquist: The procedure you just described is permissible under the Warsaw Convention?
John N. Romans: Absolutely right, Your Honor. No value was declared, and in the box for declared value, Franklin Mint typed in the initials NVD> ["], which mean no value declared, and the gold, of course, never showed up. Now, on oral argument before Judge Napp of the District Court, he commented that Franklin Mint knew that there was gold in those cartons. Evidently the thief knew that there was gold in those cartons. Only TWA was left in ignorance. Now, we moved for partial summary judgment in the District Court to reduce our liability to our limit of $6,500, and the question before the District Court, as is here today, is, how do you convert these Warsaw gold francs into U.S. currency? And we suggested two alternative conversion factors, one the last official price of gold, which would lead to the $20 per kilogram limitation. Our second one was the special drawing right, a unit of account of the International Monetary Fund. That would lead to a limitation of liability substantially the same. Franklin Mint countered and suggested that the market price of gold be used as the conversion factor. That would have led to a limit of liability approximately ten times higher, because the market price of gold at that time was roughly $420 per ounce. The District Court held that the last official price should apply because that was the conversion factor that the Civil Aeronautics Board ordered the airlines to use in their current and effective order. That was the conversion factor that all of the airlines listed in their tariffs, which are filed. And that conversion factor constituted as close as anything the government's interpretation of how this treaty should be construed. Now, the Court of Appeals affirmed, and after affirming it said, each choice has a powerful argument against it. Enforcement by a court is impossible, so 60 days from the issuance of the Court of Appeals mandate, the limitations of liability of this treaty will be unenforceable in United States courts. Now, I would like to briefly discuss the abrogation issue. The Court of Appeals correctly stated that U.S. courts do not have the power, absent a Constitutional infirmity, to abrogate U.S. treaties, put that in a very succinct footnote, Number 26, and you are absolutely right. Then it went ahead to hold that courts don't have the power under these facts to construe the Warsaw Convention in order to effectuate the intent of the drafters. Here, I feel the Court of Appeals was in error. They lost sight, in my view, of the primary purpose of this treaty, and that is, it sets a limitation on liability and also a floor. What is not always so readily recognized in the United States is that the laws of many countries, and there are over 120 which adhere to this treaty, the laws of many countries require limitations of liability which are much lower than the Warsaw Convention, and the Warsaw Convention says that the limit will be no higher than $20 per kilo, but it also says any agreement entered into prior to the loss which would result in a limit lower than $20 a kilo is void, so, the convention establishes both a floor and a ceiling. The Court of Appeals based its opinion on the fact that one section of the Par Value Modification Act had been repealed, and that is when the world went off the gold standard and adopted special drawing rights. They felt that it was impossible to select any conversion factor, and that therefore they were unable to construe this convention. We submit that neither the Repeal Act nor the legislative history mentions the Warsaw Convention, and that in order for a court to find that a later past statute has abrogated a U.S. treaty, there must be clear intent on the part of Congress to abrogate that treaty, and there is no clear intent. In fact, Judge Winter, writing for the Second Circuit, acknowledged that fact. He said, "Congress may not have focused explicitly on the convention in repealing the Par Value Modification Act. " Well, we have researched the legislative history, and there is no mention whatsoever. Now, he must have then decided that legislative silence was sufficient to abrogate a treaty, and pursuant to the cases in this Court, Weinberger v. Rossi, for example, in 1982, legislative silence cannot satisfy the requirement of the clear expression to abrogate a treaty. Furthermore, the legislative history indicates that the Congress knew very well that there would be uses for the last official price of gold after the repeal of this one section of the Par Value Modification Act. In the Senate Foreign Relations Committee report they stated, "While it is the express intent of the IMF. " the International Monetary Fund, "to move gold out of the international monetary system, there are vast numbers of legal and psychological mechanisms that will perpetuate some role for gold. " And it is our position that there are several roles of gold which are perpetuated today. The preferred conversion rate is the last official price of gold, and the most important reason for, or the basis for approving that conversion rate is that it is the conversion rate favored by the United States. The Solicitor General in his brief, and he is here to tell you today, favors the last official price of gold.
William H. Rehnquist: Why should that be favored simply because the United States as a party litigant favors it?
John N. Romans: Your Honor, the United States is here amicus curiae. They are here to inform this Court of the views of the State Department, the Department of the Treasury, the Department of Transportation, and perhaps other units of this government, and they are here to tell you that the United States interprets this treaty--
John Paul Stevens: Do any of those units of the government have the power to abrogate or modify treaties?
John N. Romans: --Yes, Your Honor, they do. The executive does have the power, as does the legislature, but courts do not absent a clear Congressional intent.
John Paul Stevens: The executive by himself could modify this treaty?
John N. Romans: To abrogate the treaty. I am sorry. Did you say modify?
John Paul Stevens: Well, really, you are not contending it is no longer in force.
John N. Romans: No, Your Honor, I am not, but--
John Paul Stevens: You are arguing it is in force.
John N. Romans: --I am contending that for all practical purposes it has been abrogated, that the United States promised all of its treaty partners to enforce a certain limit and a floor, and that is not being done.
John Paul Stevens: Well, if it has been abrogated, what is the source of a limit of liability, any limit, now? Well, you mean it has been abrogated by the Second Circuit decision.
John N. Romans: Correct.
John Paul Stevens: Well--
John N. Romans: That's... yes. Yes, Your Honor.
John Paul Stevens: --But you are referring to all these other branches of the United States government. I am asking you, do any of those branches have the authority to redefine the terms of this treaty?
John N. Romans: No, Your Honor. That has to be done in a convention, with all the treaty partners present.
John Paul Stevens: So why are the views of the Solicitor General any more persuasive than those of any other litigant?
John N. Romans: Because it seems to me that when this Court interprets a treaty, it is very helpful to understand how the government, which is more experienced in the delicate areas of foreign relations, views the treaty.
Warren E. Burger: Well, it isn't just their experience, is it? Isn't it their concern? The government has a responsibility. The government's relations with other countries can be affected by how a treaty is construed.
John N. Romans: Absolutely right, Your Honor, and as the government has said in its brief, several treaty partners have communicated their displeasure with the decision of the Second Circuit, and the United States informs this Court that our foreign relations with those countries in the aviation area will be seriously affected, and this is a way, Mr. Justice Stevens, that the United States can assist this Court, bringing this kind of information to it.
Sandra Day O'Connor: I suppose, counsel, that even before the repeal of the Par Value Modification Act, the free market price of gold had fluctuated and might have been above that value, so people were well aware of that before the repeal, weren't they?
John N. Romans: Yes, Your Honor. They were very well aware that there was a two-tier system since 1968 until 1978.
Sandra Day O'Connor: And I guess no one then questioned whether it should be the official price that was followed under the Warsaw Convention.
John N. Romans: Not in the United States, Your Honor, because the law was very clear.
Sandra Day O'Connor: Right, I am talking about this country.
John N. Romans: That the Civil Aeronautics Board had issued an order, and that order is still in effect. We are commanded to make this conversion according to the last official price of gold. Moreover--
Sandra Day O'Connor: So, in the absence of any indication by Congress that it intended to alter the Warsaw Convention, there would be no reason to alter the formula that we follow, would there?
John N. Romans: --Precisely.
William J. Brennan, Jr.: Mr. Romans, is there any room here for an interpretation that the parties intended to take the dollar value of gold, which I gather is what you are suggesting, of the gold franc just before we went off the gold standard and inflating it by some appropriate index of inflation of the dollar since that time?
John N. Romans: No, Your Honor. Not precisely.
William J. Brennan, Jr.: Well, wouldn't that come closer to effectuating the signatories in fact?
John N. Romans: Well, actually, this question has been studied as late as 1975. There have been several conventions of the treaty partners, and in 1975, the Montreal Protocols to the Warsaw Convention were drafted and signed by the United States. Those protocols increased significantly the limits of liability for death and personal injury. However, it was determined that the limit of liability for cargo should remain at the same level. Now, that was expressed in terms of special drawing rights, 17 special drawing rights, but 17 special drawing rights amount to approximately $20 per kilogram, so that the parties felt that the limit for purposes of cargo should remain at that level, which is $20 per kilogram. Now, you wonder why, after all these years, and I submit to you it is because of the advent, really, of the jet engine. Planes today can carry efficiently much heavier cargo, and because the limit is based on weight, the weight of a heavy shipment will give that shipper sufficient protection. So that if... For example, Italians ship shoes from Italy to the United States, and the Warsaw limit is almost always in excess of the value of the cargo of those shoes. The feeling is that if you are shipping a very high value shipment, gold or diamonds, that all other shippers everywhere should not have to participate in the payment to ensure that extra risk. If you are shipping very valuable cargo, you should pay an extra premium, and you can do that by declaring an excess value to the airline and paying the extra charge, or you can buy your own insurance.
Warren E. Burger: Could TWA by contract, by its contract, given all the limitations of the treaty and the statutes, have provided that liability should not be beyond the declared value of the shipment?
John N. Romans: No, Your Honor, because the Warsaw Convention includes in its provisions an Article 23, which says any agreement leading to a lower price is void. That is part of the floor. You see, you can't say to a shipper, we are going to make your limit less, either.
William J. Brennan, Jr.: Did you say what the declared value was here, or was there one?
John N. Romans: There was no declared value. There is just one other main point that I would like to say, and that is that the last official price of gold is being used today by the United States when it makes payments to the World Bank. The United States is obligated to make its payments to the World Bank in United States gold dollars, but those gold dollars for all practical purposes of this argument are the same as the French gold francs. They are a unit of liability, and the United States as late as December 1, 1982, made payments to the World Bank and it used the last official price of gold to make that conversion, so that the last official price of gold is very much in effect today. It is being used by the United States. They support its use for purposes of the Warsaw Convention, and I submit to you that that is the preferred conversion factor. If I may, I would like to reserve the rest of my time for rebuttal.
Warren E. Burger: Very well. Mr. Schwartz.
Joshua I. Schwartz: Thank you, Mr. Chief Justice, and may it please the Court. The United States has appeared in this case to urge rejection of the Court of Appeals' conclusion that the Warsaw Convention liability limitation for cargo is henceforth unenforceable. The overriding reason for the United States' concern about the decision below is that by judicial fiat it destroys the United States' commitment to an important treaty regime to which this nation has subscribed by the Constitutionally prescribed procedure of negotiation by the executive and advice and consent by the Senate. Contrary to the Court of Appeals' view, this untoward result was not required by any Act of Congress, and we do not believe that it is compelled by any Article 3 limitation upon the power of United States courts. Rather, we believe that the ordinary process of interpretation and construction of agreements, and treaties are in a sense an agreement, enables United States courts to give effect to the intention of the treaty parties that liability for carriers be limited. The Court of Appeals purported to recognize that it is not the province of the courts to abrogate treaties, but I don't think there is really any basis for disputing that the result of this decision is to destroy the United States' commitment that liability of carriers will be limited. The carrier in this case happens to be a domestic corporation, but perhaps this would be even clearer if you thought about a case involving a foreign carrier, perhaps even a foreign state carrier. The international conflict potential is clear. In light of the potential foreign relations repercussions of this decision and also the explicit Constitutional commitment of the treatymaking function to the executive, we submit that there simply was no sufficient justification for the Court of Appeals' pronouncement that the Warsaw Convention liability limitation cannot operate in the future. In treaty interpretation, the overriding imperative for the courts is to give effect to the intention of the parties, and in doing so it is necessary to take a liberal and, one might say, sympathetic approach to discerning the intent of the parties. The intent may not always be perfectly clear, yet the Court should go the last mile to discern that intent and to give it reasonable effect. In this case, we would submit that the Court of Appeals in its concern with the technical issue of which of the proffered standards of conversion was the technically ideal one lost sight of the fundamental point of the Warsaw Convention. The purpose of the contracting nations was to limit liability. That much we are certain of. Various choices confronted the Court of Appeals. The choice may not have been totally clear, but we do know this. The option it selected, no limit of liability, was the one choice that we can be certain was not intended by the contracting nations. And for that reason, we submit that it was an impermissible interpretation of the treaty. We don't find any basis in the repeal of Section 2 of the Par Value Modification Act for the Court of Appeals' conclusion that Congress intended to render a standard of conversion unavailable. The reasons for that are detailed in our brief, and rather than dwell on that somewhat technical issue, I thought it would be more pertinent to spend the time I have to address what seemed to underlie the Court of Appeals' concern about what it was asked to do in this case. The Court of Appeals seemed to believe that in this case it was asked to make a policy decision that lies beyond judicial competence, presumably because it was a non-Article 3 responsibility, but we submit that the kind of decision that the Court of Appeals was asked to make here was not of that nature. The relevant policy determinations are to be extracted from the Warsaw Convention and the negotiating history of that convention. The convention is an agreement, as I have said before. Courts are frequently called upon in an analogous context to make the kind of determination the Second Circuit was asked to make here. For instance, in an ordinary private contract case which may come into a federal court in a diversity matter, if there is a clear agreement between the parties, and even if its terms are not perfectly clear, the court may be called upon to interpret it, and I don't believe it has ever been suggested that a court... that simply because the right answer, the right interpretation is not perfectly clear, that a court can throw up its hands and say, we are not sure if it was right. We can't decide this case. It is non-justiciable. There are other contexts in which courts engage in similar determinations. We have mentioned some in our brief. I thought another--
William H. Rehnquist: Of course, Mr. Schwartz, there are cases under the law of contracts and contract remedies, aren't there, where the courts won't say that a particular contract is non-justiciable, but they will say that the contract is simply unenforceable, or that impossibility has arisen. There is a whole law of contract remedy.
Joshua I. Schwartz: --Yes, but if I could pursue that analogy, we would simply submit that while an analogous factor might operate here, in fact it does not, because it was not impossible to give effect to this contract, and the events that intervened were not of a kind that in light of the purpose of the liability limitation should be regarded as requiring a regime of unbounded liability. So, I can accept that analogy and not accept the result that the Second Circuit pointed to. If... In addition to the--
John Paul Stevens: Mr. Schwartz, could I ask you one question? Of the four alternatives that the Court of Appeals considered, which in the view of the government most closely approximates the language of the convention?
Joshua I. Schwartz: --The government's view is that the $42.22 per troy ounce most closely approximates the intent of the framers of the Convention. I don't--
John Paul Stevens: I understand that. I am curious to have an answer to my question.
Joshua I. Schwartz: --I don't... I am about to acknowledge that. It seems to us that there is no reason to look at the language apart from the--
John Paul Stevens: Do you prefer not to answer my question? Or don't you have an answer?
Joshua I. Schwartz: --I don't really think I have an answer that would be useful. If I could give one other example of situations in which the federal courts--
John Paul Stevens: I take it, though, you do not contend the position that you advocate most closely approximates the language of the agreement. You don't make that argument?
Joshua I. Schwartz: --I guess if forced to answer the question, I would contend that our alternative does, but the overriding government contention in this case is that that choice must be made whether it is perfect or not.
John Paul Stevens: But you would only refer to the plain language if forced to do so?
Joshua I. Schwartz: No, we would read the plain... we would read the language together with the history. I think no one in this case has disputed that the language on its face is opaque enough in light of modern circumstances to require elucidation, and the idea of courts filling in blanks or gaps or ambiguities in federal law, and the treaty in this case is a federal law, is really not such an anomalous one as the Court of Appeals seemed to believe. The examples are legion. In the case, for instance, of Section 301 of the Labor Management Relations Act, this Court held in Textile Workers against Lincoln Mills that Congress unambiguously intended federal courts to decide these cases, cases concerning... that is, cases concerning collective bargaining agreements, and that the substantive law should be fashioned by the courts from the policies of the National Labor Relations statutes. So, too, here, if there is a gap in the substantive law relating to the conversion rate, the courts are provided with ample authority to discern an adequate conversion standard. One more point that I think is useful in closing. The Court of Appeals saw this as a policy judgment, and it might well be a policy judgment if the question were, what standard of liability shall henceforth govern for this treaty regime in some abstract sense, but the court's task was not to legislate. The court in a sense put itself in the bind that it perceived. The court's task was to decide the case before it, to determine an amount of money to be awarded, and in determining that a particular amount of money, $6,500 in this case, for instance, adequately comports with the intentions of the framers of the Warsaw Convention. We see that as something quite... to the traditional functions of the courts. Accordingly, we submit that while the judgment of the Court of Appeals may be affirmed because it is consistent with our position, the court's declaration that the Warsaw Convention is henceforth unenforceable should be rejected. Thank you.
Warren E. Burger: Very well. Mr. Foster?
John R. Foster: Mr. Chief Justice, may it please the Court. This case is a perfect example of an issue which should be resolved by the other branches, but which by default has become a judicial problem, and a consequence of that fact is that no matter what this Court decides, the decision is going to be to some extent unsatisfactory. Now, before the Circuit Court, four possible ways of interpreting Article 22 were presented. The Circuit Court held that as to each possibility, there were powerful, devastating arguments against each. The Second Circuit's resolution of the problem was to choose a fifth course of action, and the government and TWA have been quick to point out the problems with that solution to the problem. Franklin Mint's position is that the gold franc in Article 22 can best be converted into United States dollars by reference to the free market value of gold at the time when the contract of carriage was breached. If the Court is unable to accept that conversion interpretation, the second best option is to adopt the conclusion reached by the Second Circuit, namely, that a political question is involved in making a decision as to the proper conversion factor, and that that decision really belongs to the other branches and not the judiciary. Now, Franklin Mint's position that the free market price should be used really rests on three grounds. The first is, going back to what Mr. Justice Stevens was pointing out, the text of the treaty. The treaty says 65 and a half milligrams of gold, and what Franklin Mint says is that in this case the cargo should have been delivered on March 26th, 1979. You look in the Wall Street Journal, the New York Times, the Journal of Commerce, you find out what the price of gold is, and that gives you a limitation.
Sandra Day O'Connor: Well, the treaty also expressly refers, does it not, to conversion to a national currency?
John R. Foster: Yes, Your Honor.
Sandra Day O'Connor: And at the time the treaty was adopted, that was clearly thought in this country to refer to the official rate of gold, was it not?
John R. Foster: Well, yes, Your Honor. The issue is--
Sandra Day O'Connor: You are just unhappy because the free market has changed so much and the Par Value Modification Act was repealed, but I don't see how that alters the intent of the drafters of the treaty at the time it was done.
John R. Foster: --Well, at the time that the treaty was drafted, Your Honor, there really wasn't a conflict between an official price and a free market price, because they were for all intents and purposes one and the same.
Sandra Day O'Connor: All right, but there certainly was, before the repeal of the Par Value Modification Act, there was quite a disparity, and nobody was objecting to the Warsaw Convention official rate price.
John R. Foster: Well, yes and no, Your Honor. What happened is that following 1968, when they went into this two-tier system, and there was a divergency between the official price and the free market price, starting in the early seventies, people started to say, how do we resolve this problem, and the Montreal Protocols that Mr. Romans mentioned was one way of resolving this problem. So, yes, you are entirely correct in saying that when the Par Value Modification Act was passed, the problem was well known, but it was also something that, although not raised in the context of the Par Value Modification Act, was felt to be a major problem that should be resolved, and was being resolved through negotiation of treaties.
Sandra Day O'Connor: Let me ask you why Franklin Mint didn't declare the value of these items--
John R. Foster: Well, two--
Sandra Day O'Connor: --when it shipped them.
John R. Foster: --Well, two points on that, Your Honor. First of all, on the standard form of a way bill, which is set by the International Air Transport Association, there are two boxes. One is the declared value for the purposes of carriage, and that was the box that Mr. Romans was referring to that was filled in with no value declared. There is another box for declaration of the value for Customs purposes, and that was filled in $67,000. So TWA knew that they had a valuable cargo. The second point is, to answer your question--
William H. Rehnquist: A valuable cargo for which the Franklin Mint didn't want to pay anything but the base rate.
John R. Foster: --Yes, Your Honor, and going back to Justice O'Connor's reason, the reason for that is that most at least sophisticated international shippers cover the problem by insurance. There is no reason for them to pay an insurance--
Sandra Day O'Connor: And I suppose... And Franklin got independent insurance coverage for these things?
John R. Foster: There's no reason why they should pay an insurance premium and increased freight rate, when the increased freight rate is solely for the benefit of the insurance underwriter--
Sandra Day O'Connor: --Well, if that is the case, why do you care, is it really a quarrel of the insurance carrier that is at issue here, wanting something back?
John R. Foster: Yes and no, Your Honor. Yes in the case... in the context of cargo, because this case comes down to basically a dispute between the insurance companies. No in the context of passengers, because in international transportation, the only person that isn't insured by and large are passengers, and that also has to be seen in the context of the history of the convention, because when the convention was drafted in 1929... well, Lindberg crossed the Atlantic in 1927, Earhart did it in 1928. Anyone who was flying planes had to be crazy, and certainly knew what the risk was, and one of the changes that has occurred since 1929 is, people willy-nilly hop on a plane to Montreal and don't know that the liability regime is drastically different than if they hop on a plane to go skiing in Colorado. So, the really... the real party with exposure in this situation are the passengers, and they are bound by the same gold franc unit, although the limits are different than cargo. In addition to the text of the treaty, the Franklin Mint's argument in favor of the free market value is also supported by the intent of the drafters. Now, the drafting minutes for the Warsaw Conference of 1929 are reproduced, the pertinent parts, in the Joint Appendix starting at Page 158. And what that shows is that going into the final conference, the drafters had a limit based on a gold franc, and that has to be also seen in the context of the time, because prior to World War One, most of the major currencies were on a gold standard. They went off during World War One, and following World War One, there was a great deal of economic instability, the classic example being the German hyperinflation of 1920-23, where people had to have a bushelful of Reichsmarks just to buy a loaf of bread. So, during the twenties, when the conference was being drafted, they knew the currencies could be radically devalued in a brief, short period of time, so what they took was international value. Going into the conference, they had this gold franc. France, which had just a short time previously stabilized its currency by going back on the gold standard, raised the suggestion that instead of having the gold franc, why don't we just have the regular French franc? The Swiss delegates' response was, what happens if you redefine the French franc? The French delegates said, in essence, what difference does it make? The convention is only for a couple of years anyway. The response to that was, I don't care if we take a gold dollar or a gold franc, but let's take a gold value. So, it was recognized then that the limit has to be based on a gold value. In the mid-1950's, there were a series of conferences to revise the Warsaw Convention, and in the Hague Protocol in 1955, the fact that a gold value was intended was retained in Article 22 of that protocol, which the United States did not adhere to, although they were one of the prime movers of the conference, and in that Article 22, the present Article 22 and the Warsaw Convention was kept, but there was a sentence added which said, "Conversion of the sums into national currencies other than gold shall in case of judicial proceedings be made according to the gold value of such currencies at the date of the judgment. " So, it was recognized in the mid-fifties that we are talking about gold, and in fact when the discussions leading up to the Hague Protocol were being made, the airlines themselves were offering as an argument for why they didn't have to increase the limit of liability the fact that the limits on gold had increased, and that therefore there was no reason to increase the number of gold francs because the increase in the value of gold had taken care of the problem. So, the text of the treaty, the intent of the drafters supports the use of a gold value. And the final point is the practice in the United States. From 1934, when the United States adhered to the convention, until the present time, there has been no question that a gold value has to be used. What has happened is that the price between the free market value and the official price has... there has been a wide divergence, and the official price has now disappeared. The airlines were given a subsidy in 1929 in order to protect an infant industry. The fear in 1929 was that with these new companies, a single crash could wipe out the company. They would have problems in attracting capital. They would have problems in obtaining liability insurance. That has radically changed now, and in fact, as the Solicitor General's office pointed out, there are foreign air carriers that are agencies of foreign governments. TWA itself is a big company and a subsidiary of an even bigger company. Just as Franklin Mint has its cargo insurance, TWA and the other air carriers have their liability insurance. So, that initial concern back in 1929 no longer exists, but what the carriers are trying to do is to keep that subsidy that they got in 1929. Now, one way of resolving the problem is by adopting the free market price of gold. The convention says gold, and by adopting the free market value, you adhere to the text and the spirit. The limit will increase, but it still exists. If the Court feels, though, that--
John Paul Stevens: --Mr. Foster, before you leave that, under your proposal that they take the date of the... due date of delivery, what would the limit have been in this case?
John R. Foster: --In this particular case, Your Honor, as I recall, the limit would have been approximately around $80,000. Now, the declared value of the cargo was, as I said, I think about $67,000. That was based on the Customs value. The amount stated in the complaint, which was $250,000, was based on the fair market value of the goods at the time and place of destination, which is a different standard than the Customs value. Now, the Second Circuit's decision--
Harry A. Blackmun: Why is there that great difference between 67 and 200?
John R. Foster: --Well, because, Your Honor, the Customs value was based on the sale by Franklin Mint Company in Pennsylvania to Franklin Mint, Limited, in England. What they were was not actually gold coins. They were, as the way bill said, they were metal stamping dies used to produce the silver coins, actually, that would be used to market, for example, art treasures of the Vatican, things of that sort. And those dies being used to produce silver coins would have resulted in a fair market value of the goods at the time of delivery of about $250,000.
William H. Rehnquist: The cargo really had three different values, then, the real value, the Customs value, and the declared value of TWA.
John R. Foster: Yes, Your Honor.
Harry A. Blackmun: I am bothered by the way these different values are tossed around as though they are completely insignificant, that there is a virtue in inconsistency.
John R. Foster: Yes, Your Honor. Now, the government and TWA have, I think, somewhat misstated the problem by presenting the Second Circuit's decision as being one of abrogation. This isn't a situation where you have, for example, the normal way in which it has arisen is some sort of revenue or tariff provision being in conflict with a U.S. treaty. The conflict here involving the Par Value Modification Act and the treaty is much deeper, more fundamental, because what was being done by the Congress is removing an assumption on which Article 22 had been interpreted for the past 45 years. In other words, an official price of gold. Now, the Article 22 as it now stands is a gold clause. If you take special drawing rights or $42.22 per gold, what you are doing is changing that gold clause into a currency clause, and that is most clearly the case in the special drawing rights, because a special drawing right is just an average of five currencies, and what happens then is, a claimant's recovery rises or falls based on what happens to those currencies. What the drafters of the convention intended was that the recovery be tied to gold. Less clearly, although still the case, is the situation if you use $42.22. That was the last official price of gold, and by taking a price, fixing it in time, what that means is, from here on in, a claimant's recovery rises or falls based on the value of 42.22, and not anything dealing with gold, and it was again, as I said, the drafters' intention to have it tied to gold. Now, Franklin Mint's position is that Article 22 can be interpreted consistently with the text and the intent of the convention's drafters by using the free market price of gold.
William J. Brennan, Jr.: Mr. Foster, you don't support the Second Circuit's conclusion that the convention is unenforceable for the future?
John R. Foster: Well, I think, Your Honor, that the best way of avoiding the whole problem--
William J. Brennan, Jr.: Well, do you support it?
John R. Foster: --Yes, Your Honor, although not as a first option.
William J. Brennan, Jr.: As I read your... you ask us to reverse and direct the entry of a judgment for the actual amount of Franklin Mint's damages.
John R. Foster: Yes, sir.
William J. Brennan, Jr.: Or alternatively to enter a judgment for Franklin Mint for the lower of the two amounts.
John R. Foster: Based on--
William J. Brennan, Jr.: How does that support--
John R. Foster: --Well, Your Honor, it is based on Franklin Mint's preferred resolution of the problem--
William J. Brennan, Jr.: --I know, but that is by interpretation of the convention, isn't it?
John R. Foster: --Yes, Your Honor, taking--
William J. Brennan, Jr.: So you are not asking us to say, as the Second Circuit said--
John R. Foster: --Well, Your Honor--
William J. Brennan, Jr.: --that the convention is unenforceable for the future, are you?
John R. Foster: --Well, if the Court is unable to take the free market value, then I think the only alternative is to adopt the Second Circuit's rationale.
William J. Brennan, Jr.: I don't reach your conclusion.
John R. Foster: Well, the conclusion, Your Honor, is based on when the case is remanded to the District Court, there will be a trial or a finding on damages. The District Court should enter judgment for either the market value of the goods or the limit based on free market value, whichever is lower.
William J. Brennan, Jr.: Well, you say, enter a judgment for the actual amount of Franklin Mint's damages. What are they?
John R. Foster: Well, that's... I mean, the theoretical possibility that, say, Franklin Mint is bound by the amounts stated for Customs purposes, which could be lower than the amount of the limit using the free market value, but... in other words, if the free market value limit is $80,000, and Franklin Mint's damages are $67,000 because of the Customs value, then the Court would have to take the lower amount. Now, the reason why I say that the Second Circuit's decision is the second best option is because you an avoid the whole problem by taking the free market price of gold. The problem with not taking the free market price of gold is that you then get into these options that have been proposed by the government and by TWA. And the interesting point is that in the lower court... well, in the District Court and the Second Circuit, TWA was also pressing for the current French franc, and in this Court that has sort of dropped by the wayside, and in the District Court the preferred measure was the special drawing right, and in the Second Circuit and in this Court it has become the last official price of gold, so--
Sandra Day O'Connor: Mr. Foster, these arguments sound very much like arguments that might well be addressed to the Congress rather than the courts, and I wonder whether the Congress is presently considering any legislation to correct--
John R. Foster: --Well, Your Honor, in March the Senate had before it the Montreal Protocols, and that set of protocols would do... would resolve the whole problem. Namely, it would change the gold franc unit to a special drawing right. The problem is that the Senate soundly rejected that treaty. Apparently, it was the first time since about 1960 that the Senate had rejected a treaty. Now, either the Senate by adopting... giving its advice and consent to a treaty, or both Houses of Congress through domestic legislation could do exactly what Your Honor is suggesting. The problem is, they haven't done so, and there is no... there is nothing as far as I am aware of, proposals to do exactly the same. As you point out, what is done in other countries is exactly that. There is domestic legislation that resolves the whole problem. For example, in England, they have statutory instruments which are similar to administrative regulations, although of somewhat stronger effect, and they say, this is how you resolve the problem. We don't have anything of that sort here, which is, as I said at the beginning, it has become a judicial problem.
William J. Brennan, Jr.: --Perhaps I don't understand you, Mr. Foster, but you just told me that if we don't adopt your suggestion of the free market value price of gold, that then we should, what, affirm the Court of Appeals? That is your alternative?
John R. Foster: Yes, Your Honor.
William J. Brennan, Jr.: And affirm including the $42.22, whatever that price is?
John R. Foster: No, Your Honor. The one point where Franklin Mint disagrees with the Second Circuit--
William J. Brennan, Jr.: Well, I didn't think so.
John R. Foster: --is that if--
William J. Brennan, Jr.: Well, what are we going to replace that with, if we reject your free market value of gold?
John R. Foster: --Then what the Court should do is say... and take it a step further than the Second Circuit did, that as of April 1st, 1978, given the changes in the nature of gold in our system, the Article 22 limit is unenforceable, and it is up to the other branches to resolve the problem, because the problem here is, if you take SDR's, if you take $42.22 an ounce, you are changing the basic nature of Article 22 from a gold clause into a currency clause, and that isn't interpretation. It is modification of a treaty. And that is a political question that should be done by the other branches.
William J. Brennan, Jr.: So what you are saying is, that applies as much to the portion of the District Court judgment to fix $42.22 insofar as it did--
John R. Foster: Yes, Your Honor.
William J. Brennan, Jr.: --as it does to the rest of it.
John R. Foster: Yes, Your Honor, because--
William J. Brennan, Jr.: And we should just say that this is something beyond judicial competence to handle, and--
John R. Foster: --Yes, Your Honor.
William J. Brennan, Jr.: --toss the whole problem to the Congress.
John R. Foster: It goes back to Baker v. Carr, Your Honor. In other words, is--
William J. Brennan, Jr.: Well--
John R. Foster: --In other words, is this an issue that has been delegated by the Constitution to the other branch? Making treaties is. Is it a subject in which the other branches have expertise? It certainly is. If you are going to change Article 22 from what it presently is, a gold clause, to a currency clause, that is a political question. It is not interpreting a treaty. A clear example of interpreting the treaty is one of Mr. Romans' earlier cases, Day v. TWA. That involved people who were standing in line, waiting to get on the plane, and they were... some terrorists threw a bomb, and the question was, people standing in line, are they covered by the convention or not, and that is the typical problem in interpreting a treaty having general language referring to specific facts.
John Paul Stevens: --May I ask you a question, Mr. Foster? You have indicated that another branch of the government should take care of the problem, and in other countries something approaching legislation, not necessary the statute in England has done, but why then isn't the CAB order the sort of thing that has answered the question for this country?
John R. Foster: Well, Your Honor, because--
Speaker: You haven't really talked about that.
John R. Foster: --first of all, the CAB order that Mr. Romans referred to was promulgated during the time when there was an official price of gold, and what happened was, as the official price of gold would periodically change, the CAB would come out with an order saying, this is what the new limits are. The CAB itself has really been... there are internal memoranda discussing what they should do with the problem, and one of the documents in the Joint Appendix which was originally presented by Mr. Romans was a memorandum in which the writer said, "The board has for the past five years been engaging in a legal fiction, namely, the $42 figure. " and that is at Page JA-40, and going on, saying, "Use of the last official rate of gold, however, may at times prevent passengers from recovering the full extent of damages caused by the carriers. " "Carriers may no longer need the protection of these low limits, given the maturation of the aviation industry since 1929. " It goes on to say that the best thing to do is get together with State, with Treasury, with Transportation, and let them worry about it, because the CAB is going out of business, and it will be up to them to resolve the matter in the future. In a later order, and that is CAB Order 81-3-143, which is in the Joint Appendix before the Second Circuit, the CAB in an order dealing with SDR's dropped a footnote and said, and this order was in 1981, "We don't indicate by this order any views as to what the value of the gold franc in the convention is. " So, there is really, as the Second Circuit said, the CAB order has really been retained more by the law of inertia as opposed to any concrete policy decision, just simply because they recognize that the CAB is going out of business, in essence, and other people are going to have to worry about it, and quite frankly, if the Senate approved the Montreal Protocols, that would take care of the problem. If the Congress passed legislation, that would take care of the problem as well. So, going back to the whole problem of the Second Circuit's decision, which is one of the principal issues, the problem is, what is the nature of Article 22. Franklin Mint contends it is a gold clause, and that the only way you can interpret it as a gold clause--
William H. Rehnquist: Mr. Foster, above all, isn't it a limitation of liability clause more than anything else?
John R. Foster: --Yes, Your Honor. That was the whole point back in 1929, to protect the infant airline industries.
William H. Rehnquist: Well, but if it should be decided that the infant airline industries are no longer infants and don't deserve protection any more, that is for Congress, isn't it?
John R. Foster: Yes, Your Honor, and in fact in the Airline Deregulation Act, they said... they expressed a strong policy argument in favor of free competition, but that doesn't resolve the Court's problem in saying how you convert those gold francs into dollars, and Franklin Mint says, use the gold franc... use the free market value of gold. That still gives the airline its limit, albeit at a higher level. Now, if you want to change it into a currency clause, though, that is for the other branches to do, and that can be done through the Montreal Protocols using SDR's.
William J. Brennan, Jr.: Mr. Foster, I gather it is not a political question case outside of judicial competence if we adopt your interpretation of free market price of gold. Is that right?
John R. Foster: I think that is the only way it can be put, Your Honor.
William J. Brennan, Jr.: But it is a political question case if we reject your suggestion?
John R. Foster: Yes, sir. The one point, though, where I would disagree with the Second Circuit is the question that the Second Circuit only applied its ruling prospectively. That type of ruling has traditionally been done in the context of criminal cases or this Court's decision on the Bankruptcy Code, and there is no reason that if the nature of gold changed as of April 1st, 1978, that that date should be used for the purpose of the Court's decision. Just to conclude, I would point out that the problem here is the fact that you have a convention drafted in 1929 for a different world, and the problem is trying to cram 1929 language into the realities of the 1980's. It can be done with a bit of bootstrapping, but by and large it involves problems that should really be handled by the other branches. The only way of doing it consistently is to take the free market value. Otherwise, the Second Circuit decision should be upheld but made retroactive as of April 1st, 1978. Thank you.
Warren E. Burger: You have four minutes remaining.
John N. Romans: Thank you, Mr. Chief Justice. In response to Justice Stevens' question about the words in the treaty, I would just like to save 1,000 words and refer you to Page 29 of the Joint Appendix. This is the market price of gold, this jagged mountain range. As discussed by Professor Lowenfeld, an expert in monetary... international monetary transactions, gold is now "a volatile commodity, not related to a price index or to the rate of inflation, or indeed to any meaningful economic measure other than the views of whoever made up the market about all the terrible things going on in the unpredictable world. " This is what you will do to a businessman if you choose the market price of gold.
John Paul Stevens: Mr. Romans, may I ask you a question?
John N. Romans: Yes, sir.
John Paul Stevens: Supposing the treaty had been drafted in the plainest of language, which said, we want to use the price of gold. We understand and expect for the next 50 years that is the most stable point of reference we can find. We don't anticipate any change. They spelled it out perfectly clearly. And then the market developed the way it is now. What would we have to do?
John N. Romans: Well, Your Honor, I contend that--
John Paul Stevens: The language clearly picked gold. Would it become unforceable, or would we substitute something else?
John N. Romans: --The language says gold, but... can I suggest that the language also says, to be converted into national currency.
John Paul Stevens: Well, I understand. Your argument is, it is not all that plain, and there is a lot of force to your argument.
John N. Romans: But the words in the treaty, the words in that Article 22 say, to be converted into national currency.
John Paul Stevens: I understand that. I am asking... My question is, supposing the language of the treaty were different, and unambiguously said, we want the point of reference to be the free market price of gold, and the legislative history shows nobody dreamed this would happen to the free market price. What would our duty be in those circumstances?
John N. Romans: Your Honor, that would be a more difficult case, obviously. 0 [Generallaughter.]
John Paul Stevens: Nobody wants to answer my question.
John N. Romans: However... no, no, no. The duty of a court, it seems to me, in the treaty area particularly, is to effectuate the intent of the drafters, and as Judge Kaufman said in the Day case--
John Paul Stevens: Well, but I have given you all the facts. What would our duty be on that hypothetical?
John N. Romans: --What would my argument be?
John Paul Stevens: What would our duty be on that hypothetical? Assuming plain language and this highly unanticipated development and undesirable development.
John N. Romans: All right. In my view, in order to effectuate the intent of the drafters, which has been restated as late as 1975 at the Montreal Conference, this Court should use the last official price of gold, because that would effectuate the intent of the drafters, just as in the Constitutional sense Judge Kaufman has said that we should not freeze the Constitution in 1787, I think, we should not freeze the Warsaw Convention. The duty of this Court is to effectuate the intent of the treaty's drafters in the light of changing circumstances and in the light of the subsequent conduct. The subsequent conduct of the parties to me is very clear, Your Honor. They have stated that the limit should be in the area of $20 per kilogram. I should think it is the duty of this Court to effectuate that intent.
Sandra Day O'Connor: Well, Mr. Romans, if for some reason the free market price of gold were the conversion factor, I suppose businessmen could protect themselves by buying gold futures or something of that sort.
John N. Romans: Well, I suppose that everybody could become a very sophisticated person, and I suppose we would have to adopt these kinds of things, buy and sell gold futures. I would suggest that that would add to the price of everything, but yes, that would be a way out. You could hedge every single transaction you made by buying gold futures. But I think, Justice O'Connor, you correctly stated that we are... a court's duty is not to decide what value should be made. That is the job of the legislature and treaty partners. And this Court is, of course, duty bound to effectuate the intent of the drafters. Thank you very much.
Warren E. Burger: Thank you, gentlemen. The case is submitted.