Warren E. Burger: -- in number 71, United States against Bass. Mr. Pauley you may proceed whenever you are ready.
Roger A. Pauley: Thank you Mr. Chief Justice and may it please the Court. This is a criminal case involving the construction and constitutionality of a federal gun control statute enacted in June of 1968. The case is here on writ of certiorari to the Court of Appeals for the Second Circuit, which reversed a judgment of conviction under the pertinent statutes which are codified in Title 18, United State Code Appendix, Sections 1201 and 1202. In view of the issues, I would like to briefly sketch the provisions of the statute before stating the underlying facts. They appear at pages 2 to 3 of our brief. In section 1201, the Congress makes various formal findings to the effect that to receive possession for transportation of a firearm by enumerated classes of person, including convicted felons, constitutes a burden on commerce or threat affecting the free flow of commerce, a threat to the safety of the President and Vice-President of the United States, an impediment or threat to the exercise of free speech or religion and a threat to continued and effective operation of the Government of the United States and of states. Section 1202 (a) then defines certain crimes, including the one of which respondent here was convicted. It provides and I am quoting the pertinent part; “Any person who has been convicted by a Court of the United States or of a State or any political subdivisions thereof of a felony and who receives, posses, or transports in commerce or affecting commerce after the date of enactment of this Act, any firearm” shall be guilty of a federal crime. The facts of this case are as follows. A federal undercover agent went to respondent's apartment in the Bronx in the later part of July 1969, to find narcotics. Respondent let him in and directed him down stairs where he made a narcotics purchase from an unknown individual. The next day, the same agent returned with a radio to exchange for narcotics and once again the respondent opened the door, this time respondent was holding an automatic pistol in his hand, which he explained he did as a precaution because of the large number of burglaries in the area. The two men then consummated a transaction in which the agent purchased seven bags of heroin from the respondent in exchange for radio and the agent left. He obtained an arrest warrant for respondent and a search warrant for his apartment and went back on the next day. Shortly after he was admitted on this occasion, other agent who had remained outside entered the premises, arrested respondent and searched the apartment pursuant to the warrant. They found the automatic pistol hidden under a bathtub and sawed off shotgun laying near respondent's bed. Respondent was charge as a previously convicted felon under Section 1202 (a) in two counts, with possession of the automatic pistol and of the sawed off shotgun. He was further charged in a count with carrying a firearm during the commission of a felony. The jury acquitted respondent of that account which thus is not here now, but found him guilty under the two Section 1202 p(a) counts. It was stipulated at trial that respondent had been convicted in the Courts of the State of New York of the felony of attempted grand larceny in the second degree. Respondent interposed no factual defense for the jury to the Section 1202 (a) charges. Following the verdict, he made a motion for the judgment of acquittal, contending that the Government had failed to either prove or to allege what he contended was an essential element of the offense, namely that his possession of the firearm, shown to have been in or to have affected interstate commerce. The District Judge denied this motion in an opinion set forth at pages 55 to 59 of the appendix, holding that the statute properly construed did not require proof of any such element and that as so construed it was constitutional, both under the Commerce Clause and as a rational exercise of Congress' power to safeguard the security of the President and Vice-President. On appeal, the Court of Appeals reversed, centrally adopting respondent’s contention as to how the statute should be construed. Four Courts of Appeals, the Fourth, Sixth, Eighth, and Ninth Circuits have held to the contrary and in accordance with the views of the District Court in this case that the statute does not require proof of an interstate commerce element with respect to a convicted felon’s possession of the firearm. Because of that conflict, we sought review by this Court and this Court granted certiorari last term, but there are essentially two problems. The first is whether the statute should be construed to eliminate the necessity for the Government to prove an individual case that a convicted felon's possession of firearm had been in or affected interstate commerce and secondly, if so construed, is the statute a permissible exercise of Congress' powers. The problem in construing the statue arises from the inclusion of the words and I once again invite the Court’s attention to pages 2 to 3 of our brief, where the statute is set forth, inclusion of the words in commerce or affecting commerce following the verb transport in Section 1202 (a). The Court below looking --
William J. Brennan, Jr.: Is this an issue that whatever Congress has constitutional matters that (Inaudible), if statute requires as an element of the advancements a proof of company in commerce or affecting commerce and your argument is although this requires (Inaudible), is that it?
Roger A. Pauley: Yes, Your Honor essentially we think that the--
William J. Brennan, Jr.: What I am trying to get at is, is there any constitutional question here?
Roger A. Pauley: There is a constitutional question assuming that you were to hold that the Court of Appeals was wrong, as we content it was in applying the in commerce or affecting commerce language to the receipt and possession branches of the statute, you would then have to reach, as four Courts of Appeals have done, the constitutional question of whether a statute, which eliminates the necessity for proof, in the individual case of any such effect is within Congress’ powers under the constitution.
William J. Brennan, Jr.: Well, I thought that is (Inaudible)
Roger A. Pauley: That is correct, Your Honor and the decision below came before this Court's Perez decision and it was written by the judge who had dissented in the Court of Appeals from the affirmance of the conviction in Perez case, but I would first like to address myself to the threshold issue of what the proper construction of the statute should be.
Potter Stewart: Further, in pursuant to my brother Brennan’s question, it's your submission I suppose that after the Perez case of last term, there is no serious constitutional question?
Roger A. Pauley: That is correct, Your Honor.
Potter Stewart: Certainly, in the Court of Appeals from the Second Circuit, their construction of the statute was reflected constitutional doubt test to the -- a doubt that some constitutionality on the different construction, did not it? (Inaudible)
Roger A. Pauley: Yes, it did Your Honor. This was -- they did not hold that the statute would be unconstitutional within the manner we urge, but they did say that it would raise a serious constitutional question --
Potter Stewart: And no doubt, we are part of the motivation for them to construe the statute as they did as I understand they are supposed to (Voice Overlap)
Roger A. Pauley: That is correct. We will argue at the appropriate time that not even serious constitutional doubt in our view were raised by this statute because as the Perez opinion indicated --
Potter Stewart: You know that one dissent is enough to raise actual constitutional doubt?
Roger A. Pauley: I realize you dissented in that case Your Honor, but as the opinion indicated the Court could purported at least, the Eighth to be following a long line of cases emanating from United States against Darby, 312 United States, and with respect to the statute constructed in similar fashion to this one, where Congress makes findings and then eliminates on the basis of them. The necessity for proof in an individual case that a particular transaction has affected commerce and so we think that on the basis of the prior precedence, the Second Circuit erred in this case even in holding that a serious constitutional doubt.
William J. Brennan, Jr.: But what I am pointing out is that when in (Inaudible) early. You are right then that there are not constitutional doubts that in commerce who affecting commerce does not modify receipts (Inaudible)
Roger A. Pauley: That is correct. We are arguing that the statute (Voice Overlap) is constitutional.
William J. Brennan, Jr.: That is right and that Second Circuit was wrong in suggesting that the -- without that modification it would be constitutional?
Roger A. Pauley: That is correct and in addition I should say, we think that are limits to the doctrine that statutes should construed to avoid constitutional doubts and that the legislative of history and other features of this statute make application of that doctrine by the Court of Appeals inappropriate here even were there constitutional doubts. The Second Circuit reasoned, looking at the text of Section 1202 (a) alone, that since the words in commerce or affecting commerce should be given some substantive content and since it was seem to be clear that they applied to the transportation benefits, that logic compelled their application also, to the receive and possession branches of the statute, since it would have made no sense for Congress to distinguish, in terms of elements of the crime between receipt and possession of the firearm by a convicted felon on the one hand and transportation of a firearm on the other, particularly since transportation which seem of necessity to encompass a convicted felon’s possession of a firearm. Now, this argument has a certain plausibility, although it does not accord with the grammar of the Section, when only the words of 1202 (a) are with that. But we submit that by confining its attention to the words of Section 1202 (a) alone, the Court below neglected to consider several other indicia of congressional intent which far out weighed the force of this argument. In the first place, the Court below neglected to take into account the implication to be drawn from Congress' inclusion of the formal findings in Section 1201. There, the Congress found that the receive, possession or transportation of a firearm by felons constituted a burden on interstate and foreign commerce. It would have been an irrational Act were Congress so to find were its intent merely to follow such a finding by the enactment of the statute, which included as an element in the individual prosecution.
William J. Brennan, Jr.: So, why raise the question and why they put in the modifier at all?
Roger A. Pauley: In 1202 (a) you mean, Your Honor?
William J. Brennan, Jr.: Yes. Why do the interstate commerce or affecting commerce, if they meant the findings in 1201?
Roger A. Pauley: I do not think there is any sound answer to that Your Honor other than that the legislative history of the statute, which I was going to come to in a moment, indicates that it may have been put in there as inadvertence --
William J. Brennan, Jr.: In any event, you think it is (Inaudible)?
Roger A. Pauley: In any event, we think it should confined, not withstanding the possible logic of this position solely to the transportation branch of the statute. The explanation may in part rest on the fact that this statute received no scrutiny by any committees in either House of the Congress. It was introduced in May of 1968, by Senator Long on the floor of the Senate, as an Amendment to what is an enacted in the following month as the Omnibus Crime Control and Safe Streets Act of 1968. Senator Long on two occasions explained the purpose of this Amendment in such a manner as to make it totally clear that what was intended was a blanket prohibition on the possession or receipt of firearms by convicted felons. Indeed on one occasion in a colloquy with Senator McClellan which is set forth at pages of 12 to 13 of our brief, Senator Long was asked by Senator McClellan; under your Bill could a convicted felon have a firearm in his own home, the very case which on these facts is now before the Court. Senator Long's response was “No he could not.” In addition, the Court of Appeals below, they ought to take into account that since 1961, it has been a federal crime for a convicted felon to receive or transport a firearm in interstate or foreign commerce. Those Sections which formerly were codified in Title 15 of the United States code would carry forward as Title 4 of the very same Omnibus Crime control and Safe Streets Act to which Senator Long’s Bill was an Amendment. And, they -- Title 4 was sponsored by Senator Dodd, who pertinently inquired of Senator Long on the 4 whether his bill was intended to replace Title 4 and Senator Long responded, “No,” rather that it was intended to add to with the complement that Title. Now, it is true that even if Section 1202 (a) were to be construed in the fashion that the Court below did, so as to require proof of an interstate commerce element, as to a possession charge. If and Title 4 would not cover exactly the same grounds since they apply to certain different categories of persons, but the principle provision, both in Section 1202 (a) and in Title 4 is its prohibition on the class of persons who are convicted felons from possessing firearms. And so, we submit that Senator Long’s answer to Senator Dodd taken in conjunction with the rest of the legislative history and the inclusion of the formal findings in 1201 and the grammar of Section 1202 (a) make it abundantly clear that at least as to the crime of possession of a firearm, Congress intended not to require proof of an affect on interstate commerce in the individual prosecution, but rather to rely on the formal findings. Turning then to the constitutional questions, there are no --
Harry A. Blackmun: Mr. Pauley, let me ask one question about the construction aspect. The Senator (Inaudible) spoke in terms of felons, how is felon defined that the --
Roger A. Pauley: Felon is defined, the provision is Section 1202 (c) and is set forth at page 3 for our brief.
Harry A. Blackmun: Yes, in other words, this takes us to the several variant definitions of state statutes as well as to the definition of the federal law?
Roger A. Pauley: That is correct Your Honor, Justice --
Harry A. Blackmun: What maybe a felony in Missouri might well not be in California?
Roger A. Pauley: That is certainly true, Your Honor --
Harry A. Blackmun: Does this disturb you at all?
Roger A. Pauley: I do not think -- this is a point which respondent has raised in his answering brief and which both sides agree was not reached by the Court below and thus need not to be considered here, but were to be considered. We do not think it raises a significant constitutional question, since Congress’ power to incorporate state definitions of felonies has been exercised many times. For example, in a Assimilative Crimes Act and -- which seemed to be a rational need where Congress to legislate.
William O. Douglas: You do not seem to cite the (Inaudible) case, decided I think around 319, US 320, Justice Robert's opinion for the Court, where there was a presumption that a person who possess the firearm and has acquired it (Voice Overlap), this would seem to be another way of creating a conclusive presumption, is it not?
Roger A. Pauley: No, I do not think so, Your Honor. The power which Congress sought to exercise in -- in top was -- was limited to -- to cases in which it could could be shown that a firearm had -- had been in commerce and it -- it then sought to reach that result or at least to -- to authorize a jury to find that fact by means of a presumption flowing from the fact of possession itself and what this Court held was that the presumption was invalid because there was no rationale nexus between mere possession and a finding of that a firearm had moved in interstate commerce in an individual case. What Congress has done here on the contrary is to find that a class of activity is mainly in possession of firearms by convicted appellant in the aggregate affects interstate commerce, and therefore, it is not necessary for the Government in an individual case to -- to prove the existence of a significant impact on commerce from felon’s possession. Turning to the constitutional question then, we do rely on this Court's decision in Perez last term which involved a statute making it an offense to engage in extortion credit activities where the Congress first made formal bindings to the affect that this class of transactions as a whole had a detrimental impact on the commerce and then enacted crime defining sections which eliminated the necessity for proof in the individual case.
Harry A. Blackmun: And there Mr. Pauley, however, was specific congressional findings tying it in with organized crime as such, were they not?
Roger A. Pauley: That is correct, Your Honor, but--
Harry A. Blackmun: Had there been such finding here with your posture be a little stronger in the light of Perez?
Roger A. Pauley: It would -- it would be closer to the facts of Perez were that true, but the essential feature of Perez on which we rely is the test was assessing the constitutionality of statute of these species which the Court in Perez reaffirmed, and in that test is simply whether the findings made by Congress have a rationale basis. We have set forth in our brief, certain of facts before Congress at the time of enactment of this statute on which we submit that Congress could reasonably conclude that possession of firearms by convicted felons did have a detrimental impact on commerce. In essence, they are that the National cost in terms of monies taken alone from certain crimes such as burglary, robbery and larceny, was in 1967, much the better part of 1 billion dollars and now exceeds that figure. That further statistics show that a high percentage of such crimes was committed with firearms and that other statistics showed that a similarly high percentage was committed by recidivists, by persons with previous criminal records and based on the aggregate national cost the impact to our economy from the commission of the crimes by this class of persons, we think Congress could rationally conclude that to put firearms in the hands of convicted felons or not to attempt to punish that would not result in a serious detrimental affect upon interstate commerce. And we rely not only on the amounts taken as a result of such criminal conduct, but on the further back as Senator Long noted to his colleagues in the Senate that the possession of firearms by convicted felons would be deter large numbers of people from doing business which in turn would seriously affect commerce. In addition to the Commerce Clause basis of the statute, we also think the statute maybe sustained as the District Judge did on the basis of Congress' undoubted powers to safeguard the life of the President of the United States. The Court of Appeals below did not discuss this alternative finding by the District Court which has been adopted by the Court of Appeals for the ninth Circuit. This Court only recently in the Waltz (ph) case had occasion to note that the safety of the President is of course no matter of overwhelming national concern in view of the overriding nature of that interest and in view of the unfortunate history in this Country of assaults and assassinations by firearms upon former Presidents and other high public officials, we submit that it was not unreasonable for Congress to conclude that even though an indirect means, it would significantly for the safety of the President and Vice President to make it a crime for a convicted felon to possess a firearm. For these reasons, we submit that the judgment of the Court below should be reversed and of course remand it with directions to restate the judgment and sentence of the District Court.
Harry A. Blackmun: Is Second Circuit the only one that's held as they did?
Roger A. Pauley: Yes, it is Your Honor.
Harry A. Blackmun: And you have four at least the other way?
Roger A. Pauley: Yes, and for the Court's convenience I would point out that the Six Circuit's opinion which is one of the more extensive is now reported, it was not at the time of writing these briefs and it is in 440 F. 2nd one (Voice Overlap) 440 F. 2nd, 144.
Harry A. Blackmun: In the exert of one reported (Inaudible)?
Roger A. Pauley: Yes it is -- yes it is, Your Honor. It is set forth at 438 F. 2nd, 764.
William O. Douglas: Mr. Hellerstein.
William E. Hellerstein: Justice Douglas and may it please the Court. It is our position that the Court of Appeals' interpretation is sound for many, many reasons, but let me first fire one bell in my -- one arrow in my bow that the Court of Appeals did not find necessary to even discuss but which this Court in similar situation has discussed, namely, this is a criminal statute. It's ambiguity is that conceded. In fact, it is so evident by the differences of opinion among the District Courts and a Circuit Courts and the government concedes only as ambiguous you must -- if we, we the Government are right read out an entire Section of the provision. That where there is an ambiguity of this degree, this being a penal statute, it should be narrowly construed in favor of a criminal defendant. But turning now to the reason, the facts in support of Court of Appeals' decision is; one the Court of Appeals was dealing with the statue as again the Government concedes was drafted passed with the greatest of haste, with an absence of legislative concentration and absence of finding and no hearing. The Government on oral argument has just made a further confession which is not in it's brief and in fact which my brief is not a virtue, is namely the government no longer as I understand their argument, views the redundancy argument which should make the page 16 and 17 of its brief as flowing as it does in its brief. Namely the argument against the Second Circuit's opinion was that, if its interpretation is adapted then Senator Long statute, in essence the entire Section of 1202, on page 17 of the Government brief they say it's better to cut out just the commerce transport Section. Now, it is to make the entire Section too (Inaudible). As I understand the Government, they now say it won't be (Inaudible) and that is a very good reason. And I apologize to Court for not really getting into with my brief because the answer is so obvious and it is prior to an error in the Government's brief at page 16 at footnote 4, footnote 10, excuse me. Footnote 10 of the Government brief says that Title IV extended the class firstly; who may not possess weapon -- who may not ship or transport weapons in the interstate commerce. That is not so. That expansion takes place in Title 1 of the Gun Control Act of 1968 which was passed four months after the Long Amendment. What you had at time the Long passed was old 18, 19, 22 (f) and (e) then transformed into (g) and (h) of Title IV by Title I of the 1968 Act. At the time of Senator Long's Amendment, all you had was a prohibition against the shipment or receipt In Interstate Commerce by felons. What Senator Long's Amendment does is vastly increase the numbers of persons who may not have weapons, namely persons discharged from the armed forces on the dishonorable condition, mentally competent, persons who have renounced citizenship and unlawful aliens. Also Title IV had a exclusion for white color felony. Title VII, Senator Long's Amendment was not. Also Senator Long's Amendment added the offense of possession as Title IV deals only with the receipt and shipment. And I say that Title VII, Senator Long's Amendment does include the terms “transport in commerce or affecting commerce.” So in essence what the Court of Appeals was done is on the legislative record before it, taken the statute which has terms apart that a key constitutional terms, namely “affecting commerce” and has interpreted the statute without further guidance in Congress that (a) avoids the reaching of a constitutional determination as to Congress' power to legislate against the mere receipt and possession without proof of a commerce nexus. It is to that question that the government's position was before this Court. Now as I have understood the doctrine concerning constitutional adjudication, it was applicable not whether or not the constitutional question was decided favorably for one party or the other, but whether or not it need be decided at all. Now, certainly this case does not present the weather ball for this Court, I think, to approach that question. I think the -- there two decisions of this Court which are so similar in my mind that it forms, sort of, a litigation model for how I as respondent's counsel suggest revolution in this case and I in out brief call Your Honors' attention to first the case of United States versus Denmark which really should be captioned United States versus Five Gambling Devices, an opinion by Justice Jackson and then the case last term of Rewis against United States. In both of those cases all the elements that we seek this Court to appreciate give our side were present. You had two statute dealing with Congress' power to affect intrastate determination. In Denmark it was whether mere registration of gambling devices that had no connection with interstate transaction was to be required. The statute as the Court wrote, could have been interpreted either way, but the legislative history in Denmark was silent, offered the Court no guidance as to what the intend of Congress was. And the Court said (a) this is a penal statute, (b) we do not have enough from Congress to make this determination and (c) there were other elements, namely that when we are dealing with intrastate matters, you also are dealing with the sensitivity of Federal and State relations and also indeed with the consequences to federal police enforcement powers, material for expended congressional involvement, federal involvement in the ordinary concepts of the criminal law normally associated with state police power. And in Rewis, again an opinion Mr. Justice Marshall, without help from Congress, clearly designating what its intent was although the statute was susceptible to two constructions, the Court given the nature of a case as a criminal case took the narrow construction. We think that the constitutional issue indicates that it is not as simple as the Government would have it. I believe in the prior argument, Mr. Solicitor General used the phrase that principles have a tendency to expand the limit to their logic. I would like to borrow that phrase because it does describe what I tried to communicate to the Court in point two of our brief. As I understand to those powers commerce of Congress under the Commerce Clause as this Court has decreed it in recent years. It is very vast, but it is not unlimited. It is a question of degree. The Polish National Alliance versus NLRB case talks which cite in our brief talks in those term. Now, a question of the degree means that you have to look on a spectrum of conduct and activity as I see it, to say when is that question of degree beyond Congress' power and here we think, regulation based on the haste to the Amendment absence of binding all like recognized that Court does not require findings on the question of constitutional power of the Congress. It requires as to look at what conduct that the Government's interpretation is right that Congress is really thinking off. A mere receipt or possession of a weapon in a man's own home without more. No requirement that the weapon transported in interstate commerce or came in to interstate commerce which leads me back again to another interesting question, the Casey Amendment which was debated in Congress at length after this statute was enacted, thought -- the subject of that Amendment was to make it a crime to commit a crime of any kind with a weapon that had traveled in interstate commerce. So, after you had Congress talking, as a Government would have it about not requiring a commerce nexus, yet to achieve the very results which the Government says this statute achieves there is still lengthy debate on Amendment that was preceded. But returning to the spectrum of criminal conduct, what you have essentially is a passive Act, and the word Act is even possibly a misnomer, a passive state of affairs, a weapon in a man's home, lying dormant and not affecting anything.
William O. Douglas: We will recess at this time.
William O. Douglas: The Chief Justice intends to sit in the cases argued this afternoon, although he is necessarily absent. Mr. Hallerstein.
William E. Hellerstein: Mr. Justice Douglas and may it please the Court. To pick up I would like to go back to the redundancy question, the redundancy of Title VII and Title IV and just add a thought about why I think that even if there is a slight redundancy in language with respect to dealing in Title VII interpretation of the Circuit print on it that essentially it is giving what Congress really would like to have in Title VII. I think if you read the legislate history of Title VII and the provision in addition to 1202 (a) (1) dealing with aliens, with mental incompetence, with dishonorably discharged persons, you will see that the conceptual natural of Title VII and I think what Senator Long wanted to have enacted and what Congress I think believed it was enacting albeit hastily was essentially an assassin bill that up to that time the Congress had concerned itself merely with felons and weapons, but given the assassination of President Kennedy, the Assassination Dr. Martin Luther King, you can tell from the legislative record, brief as it is that this was what was at issue when this bill was passed. That there was a feeling by Senator Long on getting to the question of assassins and people who were irresponsible and proscribing them from having weapons. With that in mind, I think Court, I must have for the constitutional issue to convince Your Honors that it is serious enough to at least forestall decision upon it until the case presents the necessity for it. This is not that case. As I stated earlier, the question is one of the degree, the Congress' power and I think that the degree must, of course, be very far removed for me to convince you that Congress does not have the power. But I think as I said on the spectrum of criminal conduct, the mere suggestion of a weapon goes to the utmost of that degree wherein Congress may not reach because it is essentially a passive Act regulated by most of the laws of the states, even when committed by a man with a prior felony. Perez of course is a tough case, but I do not believe it is indistinguishable. I believe if anything it points a way to resolution in our favor of the issue here if that issue must be decided. As Mr. Justice Blackmun pointed out, the spectrum of Mr. Pauley's argument, I think the thrust of his question was that, doesn't Perez have within it a replete, replete with interstate commerce nexus. The statute, the consumer Title II of the Consumer Credit Protection Act found that organized crime itself was interstate and international character and that a substantial part of the income of organized crime was generated by extortion of credit transactions. Subdivision 3 of that Section found that extortion of credit transactions are carried on to a substantial extent in the state and foreign commerce and to remove instrumentally of such commerce and then it fostered out the ancillary group of intrastate no trafficking activities. I read Perez as a traditional Commerce Clause case in the sense that Congress had opted to regulate, invoke conduct that was commercial, but in essence was intrastate in character. It was no different then Wickard versus Filburn where simply because there was a local wheat raising, the entire scheme of regulation, that was interstate in nature, it could not be -- could not include the affected of that intrastate wheat raising, the same as I read Perez. The thrust of the entire Title IV of the Consumer Credit Protection Act was to regulate organize crime, was to regulate interstate transactions and to bring into that regulation those intrastate activities that were ancillary and of course would affect the efficiency and effectiveness of the total essence of regulation. There is no such class of activity here in terms of gun possession, mere gun possession or receipt by a felon that is the same will have any colliery to the Consumer Credit Protection Act because there is only class of activity and I think that is key phrase in Commerce Clause motivation. Here is the class of activities is simply the unit of the local possession and receipt. There is no larger units of interstate regulation in the terms of effect on commerce. So, that Congress, if the Government is correct, has opted to regulate something that is not part of an interstate regulation scheme, but starts out as intrastate and ends being intrastate and I think that the language, Justice Hugo employed in dissent in Perez, although not shared by the other members of the Court, is the kind that the language that commends itself to resolution here because if this statute would be sustained as a proper exercise the commerce power, mainly mere possession on the theory that your possession would then prompt an Act and the Act itself would affect commerce, namely the robbery or the larceny, that Congress can rightfully regulate the possession. With that as your common denominator, mere possession, what you have is the ability of the Congress to regulate any type of crime, nearly any type of crimes so long as the logical extension is that somewhere beyond the crime commerce will be affected. Now, once again talking about the expended logic will open that case. I could not on a some logistic basis deny that some men with a gun might then opt to use that gun to commit a crime which then might bring itself within new realm of statistical materials that the Government offers to you as a rationale basis. But that I think really extends the commerce power quite a bit too far and it's interesting that the Congress has not yet attempted to regulate the act of crime which would directly affect interstate commerce or even indirectly affect interstate commerce. A robbery, a larceny and yet it has -- if the government is correct opted to jump over those acts and go right to the mere possession which may or may not have any affect that all on interstate commerce. I think in that context the Perez decision does not point a way for an easy resolution of the constitutional issue in this case. Unless is to say a especially in a case where there are no findings, there are no hearings that Congress may simply designate passive criminal conduct and again I use the word conduct cautiously, they simply designate that, posit that since crimes are committed with weapons, albeit local crimes that then, therefore, there was federal power to regulate and I would suggest that before Congress goes that far it ought to at least take intermediate step and have the question presented whether the regulation of a mere act of robbery could be properly within the federal scope. In this case, it does not. The Government's position in short I submit is really conjectural one that absent findings or hearings or finding as there are, but absent hearings, the statistics which the government posits really are of no help to the Court as I see it because they in a way prove too much and I should say that in the sense that they don't prove anything at all, to say that commerce is affected by large amount of robberies and larcenies does not get you to the point where you can simply resolve a constitutional question of the possession of the weapon as being not connected to commerce. Absent, any kind of explication by Congress of the relevancy of mere weapon's possession by a very narrow, limited group of personnel for a selling and its connection to commerce, I see very little basis on the record before this Court, both in this case and the legislative record for taking that serious step of expansion under the Commerce Clause. Again, I say that I do not think I have to convince you that the step for not be taking of that -- and I do believe that it is unconstitutional for Congress to that this far, but I always seek to convince that there is a serious issue, which the construction given in the statute by the Court of Appeals can help you avoid deciding that question on this particular record and in this particular case. Now the Government in its oral argument, but not in it's brief choose for the first time to rely on the power of Congress to protect the Vice President and the President as a means for sustaining the statute. This was a position taken by judge Franco, although rather personally and the Government does not -- did not take in its brief, but simply referred the Court to this prong of the findings as merely indicative of Congress' intent, but not of its power. I submit that reading of the congressional history whatever there is -- I think the Court below was collect still in viewing as really enacted under the commerce power. But even if that were not the case, there were two other powers, namely the power to protect the Republican form of Government, the power to protect rights under the First Amendment and third being that of protecting life of the President and Vice President. I think those three really are in the same category, namely that they are far removed from what Congress' power really is in the premises, namely the Watch (oh) case which dealt with the statute enacted to prohibit threats against the life of the President was a considered act of Congress on a very narrow issue to take direct action to say that the mere possession of a weapon, in one's home is a threat to the President and Vice President, once again I think on a syllogistic scheme of abstract logic might be defensible, but in term of constitutional power, again I think it falls short. Mr. Justice Blackmun touched on the third point in our brief which was raised in the Courts below, but not decided by the Circuit in light of their resolution of the issue, that is that Section 1202 (c) in defining felony for the predicate conviction in this case violates the equal protection clause. That is because in defining felony to be a crime other than misdemeanor, punishable by less than 2 years imprisonment, Mr. Justice Blackmun, is entirely correct in referring to vagaries and the differentials between the statute of the various states on crime. For instance, Mr. Bass convicted of attempted grand larceny in the Second degree in New York would have only been guilty of misdemeanor in California and in other state and yet in California that person committing the same act in this case as Mr. Bass could not have been punished or prosecuted under the statute. The issue is not raised, I raise it before this Court because it's my understanding the Unites State versus Specter that this Court can if it wants to decide the equal protection issue, if it feels there is no necessity for sending it back to the Court of Appeals, if it affirms on all other issues, if it reverses I should say on the other issues in the case. I would submit that in the interest of my client if this Court were to reverse, I will then ask for remand back to the Circuit for getting its wisdom on the equal protection issue, since it did not rule on that issue. However, just to recapitulate what I think this case involved is a statute callously drawn, quickly drawn whatever motivation for its withdrawing there may be, I think it is not very frequent that the Congress acts with such haste in drafting a statute or enacting a statue which affects matters never before affected under the any federal statute. Given that, in that is a criminal case where you normally apply rule of narrow construction and an ambiguous statute with avoids the constitutional issues, I think that the approach taken by the second circuit is far superior to that taken by the other circuits because the other circuits put the cart before the horse. The Eighth and Sixth Circuits said, we don't have any problem with the constitutional question at all, therefore, we will decide it and then decide the statute along those lines. The Eighth Circuit accepted the government’s argument of redundancy. I think the government no longer tendered it you in the same form it made in the Eighth Circuit or in its brief. I think what the Second Circuit does, is it takes the view that all the elements and even one that I did not -- that I mentioned but which the circuit didn't rely on the narrow construction of the rule, give what is before us in this case on this legislative record that the hanging of a criminal conviction which involves determination of constitutionality on this particular defendant makes little sense and the commerce clause issue which I would point out was decided -- was decidedly avoided by the circuit in this case was the same court albeit different members of the penal that decide the Perez case affirmatively and was affirmed by this Court. So the Second Circuit felt that Perez is a valid exercise of constitutional power, but seems to have great doubt with respect to this case. For these reasons I would respectfully submit that the judgment of the court below should be affirmed.
Harry A. Blackmun: Mr. Hellerstein could I ask one question? As I recall the First Circuit had a case called White concerning depressive drugs and if my memory serves me the Eighth Circuit also had a case called White, involving the same statute? Do you have any comment about those decisions which as I recall again was both to the same affect and each upheld the statute?
William E. Hellerstein: Yes, in the White case which was cited in the Second Circuit's opinion because the government heavily relied on it below, at page 15 of my brief Mr. Justice Blackmun, I cite through I -- and I view the White case as a Second Circuit did that, the circuit harmonized White with this case by noting that in sustaining Congress' power to regulate possession of depressant and stimulant drugs itself recognized the distinct problems inherent in the field of drug regulation. The First Circuit wrote that unlike many other objects of federal regulation, the presence of stimulating drugs are not passive subjects which often used talking to the realm of consumption. They exert influence on consumer. I think of the Circuit there with respect to drugs was concerned with, that drugs affect who get on highways who take all kinds of action which directly keeps the interest of regulation going, even though it’s intrastate matter.
Harry A. Blackmun: You would draw a distinction then with firearms from drugs, they get on highways too once in while, are they not?
William E. Hellerstein: Yes but they are not, they are not injected by the petitioner or the defendants. They are in a sense, were been active in even drugs essentially they are wholly inactive until something else activates them and I think the White is the tough case. I think that the Your Honor's question is, well, could I think that the line of distinction is primarily I would only know also that the this Court has not except we denied a certain White made any ruling on that issue but I think again the question in White with drugs is the complete flexibility and movement of drugs. I would submit even more flexible and more effective regulation and the movement to represent which this stature already does provide for, namely the receipt and shipment in interstate commerce of firearms. I don’t think that the drug regulation carries that. Also that drugs statute is part of a general scheme of regulation that has interstate policies to begin with. I would suggest that again it is more along the model of Perez in the Consumer Credit Protection Act than it is with respect to this Section.
Harry A. Blackmun: Well, the cases as group come together and somewhere there is a lot of sharing, is not there?
William E. Hellerstein: Yes, I think in this case, Your Honor, it is all things being equal, the litigation posture this case, the record before the Court, the Circuit Court of Appeals was certainly I think I had a better of it than avoiding entanglement of those constitutional questions.
William O. Douglas: Mr. Pauley, you have I think 3 minutes left.
Roger A. Pauley: I have nothing further, Your Honor, unless there are questions?
William O. Douglas: The case could be submitted. Mr. Hellerstein, we named to the Court, designate you attorney with respondent and we want to thank you for the fine public service you have rendered.
William E. Hellerstein: Thank you, Your Honor.


Earl Warren: Petitioner, versus Neifert-White Co. Mr. Martin.
John S. Martin, Jr.: Mr. Chief Justice and may it please the Court. This case is here on a writ of certiorari to review a judgment of the Ninth Circuit Court of Appeals, affirming an order of the District Court of the District of Montana, which dismissed the complaint in the government's action under the civil provisions of the False Claims Act against the respondent, Neifert-White Company. Respondent is a corporation which acts as a dealer in grain storage bins. The complaint in this action charged or alleged that, on 12 separate occasions in 1959, respondent engaged and made sales to various individuals. These sales were financed by loans obtained from the Commodity Credit Corporation. According to the applicable regulations of the Commodity Credit Corporation, the corporation was authorized to issue loans on storage facilities in an amount not to exceed 80% of the purchase price of that facility. The complaint in this action alleged that, in each of the 12 instances referred to, the respondent submitted to the Commodity Credit Corporations false invoices which fraudulently stated and inflated the purchase price of the bins in question. The result of this fraud being that, in each of the 12 instances, the Commodity Credit Corporation was caused to issue loans which were, in fact, in access of 80% of the purchase price that was actually paid by the purchases. In dismissing the complaint in this action, the -- and in affirming that dismissal, the court below ruled that a loan application is not a claim within the meaning of the False Claims Act. Therefore, the only and the sole issue presented by this case with this Court's decision is whether or not a loan application is a claim within the meaning of the False Claims Act. It is the Government's position that it is and that the court below was in error in narrowly construing the provisions of the False Claims Act. The relevant statutory language appears at page 2 of the Government's brief and, without reading all of that language, further Court-- the key language in this statute which is of concern here is that the statute applies to any claim upon or against the Government. The Government's position that that language means -- what the Court referred to -- this Court referred to in United States v. McNinch when it said that the conception of a claim against the Government, and this language appears at page 10 in our brief, the Court said, “the conception of a claim against the government normally connotes a demand for money over some transfer of property.” That is the test which we submit should be applied to determine whether or not there has been a claim against the Government. Is the applicant seeking the payment of government funds for the transfer of government property? We think that the construction that we urge is consistent with the legislative purpose in enacting the False Claims Act that it is supported by the language of the statute, is in line with the cases decided by this Court and, in addition, that the standard set down by the court below, whether or not there is an assertion of a legal right, is not a meaningful standard which can be clearly applied by either the Justice Department or the courts below. Looking first at the language of the statute --
Speaker: Does the court below split on this?
John S. Martin, Jr.: Well, Mr. Justice Harlan, the answer to that is this. The Courts -- this is the first case to come before this Court and also in the Courts of Appeals where the question of whether or not a loan is a claim within the meaning of the False Claims Act has been expressly considered by the courts. It has, in a number of cases, three cases appear in -- that came before this Court, United States v. Rainwater, United States v. Cato, and United States v. Toepleman were here before this Court and the issue raised in those cases was whether the Commodity Credit Corporation was the United States within the meaning of the False Claims Act. Implicit in the holding that sustained an action under the False Claims Act against those defendants was that a loan is a claim.
John S. Martin, Jr.: So that --
Byron R. White: Well, is that at -- Was that at issue?
John S. Martin, Jr.: No, it was not.
Byron R. White: It wasn't argued or anything?
John S. Martin, Jr.: It was not, Mr. Justice White, except -- with this exception, that the word -- the meaning of the word “claim” was argued in a slightly different context in a companion case. You had Cato and Toepleman were decided in the opinion of the Court in United States v. McNinch. McNinch involved an application for credit insurance.
Byron R. White: Well, did the Court in those cases disaffirm the idea that it had to be a legal right?
John S. Martin, Jr.: Well, the Court did not expressly deal with that question, Mr. Justice White. It did, as I just quoted in the Court's language in McNinch, and I think important in that is what Mr. Justice Black writing for the Court said in that case. He said that, in dealing with McNinch which was the case involving an application for credit insurance and the government was arguing that case that the application for credit insurance was a claim. And, Mr. Justice Black, speaking for the Court in that case, said that, normally, the term “claim,” this language is again in our brief at page 10, he recognized that, literally, the term “claim” could be considered to cover and I am quoting the assertion of “a right or privilege to draw upon the government's credit.” So, he recognized in that case that the term “claim” could have that reached under literal application, but he said in McNinch that the problem was that there was no demand for immediate transfer of government funds or government property. And, the Court said in a footnote in the McNinch opinion that we will leave to another day the question of what happens when there has been a default on the loan the Government is required to payout, whether that, in that context, becomes a claim. So that, the -- I do think that these cases have some value because the question of what was a claim was at issue, although in a different context, and no one ever dispute it, either the attorneys or the Court, that an application for a loan was a claim. We think that the construction that we urge is consistent with the legislative purpose. The Court made clear in McNinch and it had said in US ex rel. Marcus v. Hess that a claim-- that the purpose of the False Claims Act was to protect the public treasury. Certainly, in the type with as many government loan programs that we have today, this is an important method in which the public treasury can be depleted by fraudulent loan applications. Just to point out the statistics in the Commodity Credit Corporation alone, that last year they issued approximately $1.4 billion with loans on crops. The grains -- the storage facility program resulted in the issuance of approximately $15 million worth of loans. These are only two of the Government's loan programs and, we submit, as we said in our brief, that these government loan funds are entitled to the protection of the False Claims Act. I would also point out to the Court that counsel has stated in his brief that the government does not need the protection of the False Claims Act because it -- civil provisions because it does have the criminal provisions of Section 1001 of Title 18, and that any false claim in a loan application for a statement of loan application would be covered by that. However, I do think the statutory framework sets up a range of possible alternative action the government could take. Criminal action is one, but there are a number of cases where there may be false statements contained in loan applications or other types of claims where it's a single instance, it's relatively minor, where perhaps the invocation of criminal sanctions is too severe. It seems to us that the forfeiture provisions of the False Claims Act provide the Government with a reasonable alternative way of proceeding in that type of case, and so that this does perform a fairly substantial function.
William J. Brennan, Jr.: Has there ever been an effort, Mr. Martin, to get legislative amendments?
John S. Martin, Jr.: No. This is the first -- as I say, this is the first case in which the issue has come up.
William J. Brennan, Jr.: But, I gather though, the issue has been lying around for quite a while there.
John S. Martin, Jr.: No. It's never been raised. I don't think that it's ever been thought of until this --
William J. Brennan, Jr.: And it's been assumed --
John S. Martin, Jr.: It has been assumed --
William J. Brennan, Jr.: Along what application was it?
John S. Martin, Jr.: I take it, a loan application was a claim. It was assumed in the cases that have come before this Court. Now, as I stated, we think that our reading of the statute comports with the intent of Congress. We think that it is consistent with the decisions which deci -- the cases decided by this Court. We also think that the rule which the court below laid down is really not a meaningful test. To say that the False Claims Act will apply where there is an assertion of a legal right leads to the question what does that mean in the context of this case? These applications -- these loan applications were submitted under what we conceded below. I want to privies my remarks by saying we conceded below the person making a loan application could not go into Court and force the Commodity Credit Corporation to make the loan. There are, to a certain extent, some discretionary factors to be considered by the Commodity Credit Corporation. One, is there a need for the facility that is set out in the regulations? But, at the same time, we concede it was not an enforceable right, in that, you could not go into Court to enforce it. I would refer the Court to the language of the statute establishing the Commodity Credit Corporation, and that's set forth in a footnote at page 11 of our brief. It says that to encourage the storage of grain on farms where it could be stored at the lowest cost, the corporation shall make loans to grain growers needing storage facilities. The Commodity Credit Corporation views this as an expressed intent of Congress, that such loans shall be granted where the applicant otherwise qualifies so that there is, in a real sense, a right conferred on the farmer to apply for this type of loan. And, the Commodity Credit Corporation views it at -- as the duty of the corporation to make the loan where the farmer otherwise qualifies.
Byron R. White: What action would a fellow refuse the loan if he simply -- if the Commodity Credit Corporation said “Sure, we think you'd qualify but we just don't like you. We're not going to make the loan.”
John S. Martin, Jr.: Well, I think there's a broad discretion. I don't think an action normally lies. There may be situations--
Byron R. White: It wouldn't, would it?
John S. Martin, Jr.: I would think it would not normally lie. There may be situations where, if there were some type of act of discrimination being practiced by the corporation that a right might be created by the Court through a mandamus proceedings but I think, normally, this is -- Congress left this discretion to the Commodity Credit Corporation, but I don't think that means that the applicant doesn't, in a meaningful sense, have a right. I'd also point out to the Court the problems that exist in trying to interpret this. If you say that the loan application is not a claim, does a claim accrue under this statute, under these regulations which provide the regulations setting up the loan program, which appear at 7 Code of Federal Regulations Section 1474.727.
William J. Brennan, Jr.: Is that in your brief, Mr.
John S. Martin, Jr.: No, it is not, Mr. Justice Brennan. But, those regulations indicate that the way these transactions are handled or that the loan application is made when it is approved, the -- by a county committee that processes the loan applications, when the county committee approves the loan, a commitment is issued in which the Commodity Credit Corporation agrees that it will issue the loan. Now, at this point, there's a binding legal obligation on the Government on the corporation to issue the loan once the other qualifying acts take place, so that it is then do we have a situation where to question the word “claim” depends upon whether or not there is a commitment or whether or not, as under other programs, if you have the loan application made and the funds immediately dispersed, would you say that that is not a claim but if you have a loan application with a commitment issued and then an ap -- another step taken before the loan is actually issued, does that become a claim? It seems to me that that ype of incongruous result follows from the test which the Court laid down below. We do not think that that's a meaningful test. We think that the test should be, as we've indicated, whether or not the application calls for the disbursement of government funds or the transfer of government property. It's a clear test. It's a test that is within the intent of Congress. It's a test that provides very -- it's very easy of application for it's a clear standard. We think it is the one that should be adopted by the Court in this case. We feel, for these reasons, that the judgment below should be reversed. I'd like to reserve whatever time I have left.
Speaker: What's the measure of the penalty?
John S. Martin, Jr.: The penal -- the civil provisions provide for $2,000 forfeiture, also for double the amount of actual damages proved.
Patrick F. Hooks: May it please the Court. We believe that the issue stated by the government is somewhat too broad. Quite selfishly, we believe the issue to be whether these particular loans and the filing of the invoice in connection there with -- in connection there with in the 12 several counts are a claim within the meaning of the False Claims Act. I think one reason, in answer to Mr. Justice Brennan's question to Mr. Martin, that this particular question has not been before the Circuit Court because this is a somewhat different loan situation in other government programs and, in particular, that in Rainwater and Kegel. They were dealing, and I think this is illustrated in U.S. v. Templeton, a Circuit Court decision cited in the Government's brief, they were dealing with the form of subsidy. It isn't really a loan in the normal sense because the farmer goes in, in wheat situations.
Byron R. White: Well, it isn't even a loan, is it?
Patrick F. Hooks: It isn't really a loan. It's a--
Byron R. White: It's a guarantee.
Patrick F. Hooks: It's a purchase. The farmer, if the market goes up, can pay off the loan and sell on the market.
Byron R. White: Yes, but in Rainwater, what is it?
Patrick F. Hooks: I -- the facts aren't set forth in sufficient length in the opinion, Mr. Justice White, for me to understand the cotton loan, but it looks just like a wheat loan that I am familiar with. But, here, we're dealing with a loan that's on all fours with the bank loan. The regulations provide that when the committee -- if the committee does exercise its discretion and grant a loan for a farm storage facility, they take a channel mortgage. They take a severance agreement. They have the right, in addition to a channel mortgage, to take a mortgage on, first mortgage, on the farmer's real property. The regulations provide that the farmer pays all the recording cost and filing fee. He also -- before disbursement can be made, the facility, as erected, must be inspected by the Government.
Byron R. White: Yes, but what would you say if there was a -- the Government was really obligated?
Patrick F. Hooks: Well, I think if they were obligated, the Circuit Court would be wrong.
Byron R. White: So, it wouldn't make any difference whether it was a loan or not or a secured loan.
Patrick F. Hooks: No, but we do point this out, that this is a situation. I think there is one point there, Mr. Justice White. I think you then would get involved in the question of whether there was financial detriment to the Government because, really, aren't they -- they are just changing assets. They have the security. I think a bank, when they make --
Byron R. White: Yes, but they put out the funds.
Patrick F. Hooks: They put out the funds but they take back the security.
Byron R. White: The security could be destroyed, especially when it doesn't change the possession, which it doesn't.
Patrick F. Hooks: We believe that the concession made by the Government was dictated by the facts that there was no legal obligation on the part of the Government. The court below, citing U.S. v. Cohn at 270 Montana which I believe to be the first false claim decision decided by this Court, said that this is not a claim situation because it does not involve a claim for money or property to which a right is asserted against the Government based on the Government's liability to the claimant. Now, since 1926, that has been the accepted definition of what is a claim under the False Claims Act. That decision was cited as having relevance in the McNinch case at 356 U.S. The Government argues against this interpretation and says Cohn is no longer of importance because of Marcus v. Hess. We disagree violently with that interpretation. All Marcus v. Hess holds is that the one committing the alleged fraud does not have to be the claimant. There, we had collusive agreements between a bunch of contractors on a program which the PWA was entered into -- had entered into certain municipalities and school districts in Pennsylvania. Because of the fraud practiced by the contractors, the Government money was paid out, but to hold that that is not a claim situation because the contractors could not sue the Government would be to say that the Government could back off at any time from paying the municipalities. The Government was in the program. It was a claim situation, and the only thing Marcus v. Hess stands for in that regard is that the False Claims Act touches everyone who causes a false claim to be made. An excellent example of the Hess Doctrine is found in U.S. v. Lagerbusch in the Third Circuit. There, Lagerbusch worked for Hercules Powder Company. Hercules had a cost plus contract with the Government. Lagerbusch submitted some kind of false payroll record or somehow got excess moneys to which he was not entitled from Hercules. It was cost plus. Hercules filed a claim based in part on that. There was a claim situation, a right asserted. Lagerbuschcould not sue the Government but the Government had a right asserted against it.
Speaker: Do you think it could have been prosecuted under this set of facts under the false claim?
Patrick F. Hooks: Neifert-White? Neifert-White was prosecuted, Your Honor.
Speaker: They were?
Patrick F. Hooks: Were prosecuted not under a false claim, the criminal but -- under 317 (m), I believe, of the Commodity Credit Act on two counts.
Earl Warren: What were the charges?
Patrick F. Hooks: Pardon?
Earl Warren: What were the charges?
Patrick F. Hooks: Filing a false statement. The exact statute is 15 U.S.C. 1771 --714 (m)(a), two counts but there was no false claim. It is not the counterpart -- the criminal counterpart of the civil statute. It's just a false statement.
Byron R. White: What's that citation?
Patrick F. Hooks: 15 U.S.C. paragraph 714 (m)(a), whoever makes any statement knowing it to be false, whoever willfully overvalues any security for the purpose of inducing action with the Government, and so forth.
Hugo L. Black: Well, that's very much alike, except there's not the call of false claims -- presenting the false claims. The facts seem to be very similar.
Patrick F. Hooks: It's merely a false statement.
Hugo L. Black: It's a false statement which is found -- which does apply.
Patrick F. Hooks: Which really set--
Hugo L. Black: Made the Government due, why?
Patrick F. Hooks: For the purpose of influence in any way the action of the Commodity Credit Corporation or for the purpose of retaining for himself another money, property, or anything of value.
Hugo L. Black: Well, wasn't that the purpose of money -- obtaining money under this False Claims Act? Can you not describe it pretty well?
Patrick F. Hooks: I think the language is significantly different.
William J. Brennan, Jr.: But, I gather, the identical facts that we have here upon which that prosecution rested, didn't it?
Patrick F. Hooks: Yes, Your Honor.
William J. Brennan, Jr.: The same application.
Patrick F. Hooks: Same, in fact, I can't recall the two particular counts but there were two there in --
Byron R. White: Which case started first?
Patrick F. Hooks: The criminal action was commenced and concluded long prior to the civil action.
Byron R. White: Concluded by a conviction?
Patrick F. Hooks: I believe, nolo contendere.
Byron R. White: I see.
Patrick F. Hooks: Both counts. Because, very frankly, I represented the client at that hearing and we're guilty of making a false statement but that's a far cry in our opinion for making a false claim under the civil section.
Speaker: What was the fine?
Patrick F. Hooks: I believe it was $250 on both counts.
Hugo L. Black: What did he make the false claim for? What do you want to get by inventive?
Patrick F. Hooks: Well, Your Honor, it's the same case. It's outside the record that these loans were fully repaid. There isn't any loss to the Government.
Hugo L. Black: There's what?
Patrick F. Hooks: There's no loss to the Government here. The loans were fully repaid. This man actually was passing on --
Hugo L. Black: Suppose there hadn't been a loan?
Patrick F. Hooks: It still would not be a false claim, in our view, because there is no legal right asserted to -- against the Government for money or property of the government based on the Government's obligation to any claimant.
Hugo L. Black: The scheme is based on, I gather, based on the idea that the Government is liable to lose something that they are liable to have to pay a claimant.
Patrick F. Hooks: Well, I can't see how the Government could any -- ever lose in this particular transaction.
William J. Brennan, Jr.: Well, is it in the element under the False Claims Act that the Government in fact loses?
Patrick F. Hooks: No. The payment of money?
William J. Brennan, Jr.: No, even though the Government -- as happened here, I gather, the loans were fully repaid, nevertheless if it was -- if the application was a false claim, there'd still be liability under the statute, would there not?
Patrick F. Hooks: There would. In Rex Trailer v. U.S., in a footnote, this Court -- and I think this destroys a good portion of the Government's argument, the thrust of it seems to be that there has to be an outgo of money. That isn't so. In Rex Trailer Sales v. U.S., this Court said, in viewing Marcus v. Hess, that in the Marcus situation the Government discovered some of the fraud on behalf of the contractors before they paid it. So, they didn't pay but that was still a claim situation. And, the Third or Fourth Circuit in the Ridglea Bank --State Bank case which is cited in the Government's reply brief is the same situation. A claim is a claim. The payment of money per se is not necessary to make it so. But, in answer to your question, Mr. Justice Black, I can't conceive of how the Government could lose money in this situation. I would deny vigorously that that was ever the intent.
Hugo L. Black: On the intent of Congress?
William J. Brennan, Jr.: It would only be gross in aptitude on the part of the ASC officials, it seems to me, and that's the local committee who handles loans because they have the discretion. They have all these protections for security.
Earl Warren: Well, he wouldn't have been eligible at all unless he'd have the units or whatever it was that they falsely represent his entitled to, would he?
William J. Brennan, Jr.: For the farmer or Neifert-White, Your Honor?
Earl Warren: The farmer. He'd have to have the units, didn't he?
Patrick F. Hooks: He had to purchase the grain bins.
Earl Warren: Yes.
Patrick F. Hooks: Under this program, the purpose was to encourage farm storage of grain products.
Earl Warren: Yes.
Patrick F. Hooks: They could borrow up to 80% and, if they were qualified and went through all the rigmarole to get the loan, then they had to go out and buy one. These were just --
Earl Warren: Well, was he qualified?
Patrick F. Hooks: The farmers in these cases?
Earl Warren: Yes.
Patrick F. Hooks: Yes, each and all of these farmers qualified.
Earl Warren: They qualified on his false affidavit?
Patrick F. Hooks: They qualified on their own. They had to do that first.
Earl Warren: Well, you mean if he hadn't --
Patrick F. Hooks: The only place Neifert-White comes in is that -- it's provided in the regulations that the farmer, in connection with his application, must submit an invoice showing the price of the bins, price of the product that he buys, and that's what Neifert-White. They put in a statement based on the butler list price, a fair trade price, FOB towns in Montana. The actual price that Neifert-White charged the bins out to the growers was somewhat smaller.
William J. Brennan, Jr.: Well, let's see. That is if the item was actually sold to the grower at $100. It was invoiced for the purpose of the loan, say, at $200. Is that it? Whatever the figures are, is that the way the thing worked?
Patrick F. Hooks: Yes, they're on from $38.40 --
William J. Brennan, Jr.: Yes.
Patrick F. Hooks: To $366, the high and the low here.
William J. Brennan, Jr.: But is -- I mean, is this the way it worked?
Patrick F. Hooks: Yes.
William J. Brennan, Jr.: That, in fact, the grower was charged by Neifert-White, say, $50 or $38, whatever it may be, but they were invoiced at some higher price for the purpose of the loan. Is that it?
Patrick F. Hooks: That's right.
William J. Brennan, Jr.: Yes.
Patrick F. Hooks: It was -- it would be about $120 invoice price and the farmer paid $100. That would be roughly comparable. We believe and submit to this Court that the view of the Ninth Circuit is one not only consistent with Cohn, consistent with McNinch, but it's consistent with all of the cases decided because -- and cited in the brief because, when you go through those cases, in most of them you will find there is a claim situation. US v. Brown is an example. U.S. v. (Inaudible). There -- that's the follow up of the McNinch case where there was a default in the FHA loan but, there, there's no discretion in the Government. Once there's a default, there's a demand and the Government is going to pay. We believe that, as the Court said in Tieger, that -- the Circuit Court said in Tieger and quoted in McNinch, that normal usage of the language that when you have a claim it's a demand and, when you demand, you have a right to get it. Here, that's not present.
Abe Fortas: Well, is your posi -- is it your position that there was no claim here because the farmer did not have a right to get the loan?
Patrick F. Hooks: That is our position, Your Honor.
Abe Fortas: Now, the farmer, under the statute, had some thought of a right, didn't he? That is to say the statute authorized the making of these loans, right?
Patrick F. Hooks: The statute and the regulations authorized the making of the loans.
Abe Fortas: And, is it your position that that was totally discretionary?
Patrick F. Hooks: Totally discretionary with the Commodity Credit Corporation. They have found --
Abe Fortas: I thought that --
Patrick F. Hooks: I'm sure he used good faith and the Government has conceded that in the --
Abe Fortas: Doesn't the Act -- doesn't the Act authorize the Commodity Credit Corporation to make loans to the farmer's needing storage facilities, when the growers shall apply? Do you construe that as totally discretionary?
Patrick F. Hooks: Well, certainly it's something that a farmer, if he were denied, could not seek legal redress. That's our position.
Abe Fortas: And, you don't challenge -- if you assume that we get over that hurdle, if the Court gets over that hurdle, you don't make any point about the culpability or the involvement of Neifort-White under 3490, do you?
Patrick F. Hooks: Under the -- the fact that the filing of an invoice is a claim, no, sir. We – it --
Abe Fortas: Your --
Patrick F. Hooks: That situation is clearly covered by the statute.
Abe Fortas: Your sole point here, as I understand, is that since the Commodity Credit Corporation had discretion to make or not to make the loan, therefore it's not a claim under the Act.
Patrick F. Hooks: It is not a claim. It doesn't come within the definition of Cohn. We don't feel it comes within the definition of any of these other cases.
Earl Warren: Is it your position on the question of discretion that if two farmers come in and have identical -- make identical representations on the identical set of facts that they have the discretion to make a loan to one and not to the other?
Patrick F. Hooks: Yes, sir.
Earl Warren: And, on what basis do they do that?
Patrick F. Hooks: Well --
Earl Warren: Can they do it?
Patrick F. Hooks: They can do it on the farmer's past growing history, his need --
Earl Warren: No.
Patrick F. Hooks: You have --
Earl Warren: I'm saying, on the identical set of facts. On the identical set of facts, can they -- do they have discretion to give it to one and deny it to another?
Patrick F. Hooks: So far as I can read the statute and the regulations, they would. I think it would be an arbitrary discretion -- arbitrary exercise of the Government's power.
Earl Warren: Well, it wouldn't be illegal if it were exercised with them, would it?
Patrick F. Hooks: All I -- as I read the regulations, Mr. Chief Justice, they could grant it at their whim.
Earl Warren: Well, certainly, these programs are not for the purpose of letting some minor official pick and choose among his friends whom you'll give the benefits of the Act to, are they?
Patrick F. Hooks: Well, no. In this particular circumstance, the committee de -- the determination is a committee rather than an official and they're elected by the farmers themselves.
Earl Warren: Sure, but they don't have the right to just pick and choose who they want to give the right to, do they?
Patrick F. Hooks: I would not believe so.
Earl Warren: That's all I want -- all I was interested in.
Patrick F. Hooks: But, I -- from the regulations and the statute, I think it's quite clear that they have -- they do have the right to deny.
Earl Warren: Yes, of course. I have some discretion under that point.
Patrick F. Hooks: And, I again point out that we concur on the Government's concession on this point, as did the Circuit Court, that there was no legal obligation. The Government contends in brief at some length that this, of course, is an open door in connection with all of their programs. I think the cases cited in all of the circumstances under false claim reflect how the variances occur between programs, whether there is a claim situation or not. And I don't certainly -- personally have facts of all of these programs where you could -- where I could differentiate them. I think it's something that will have to be determined on a case by case basis because I think each program is in fact different.
Abe Fortas: Suppose a farmer went to an appropriate agency within the Commodity Credit Corporation and said “will you lend me money to buy a grain storage bin or whatever it is?” And the Commodity Credit Corporation said “Yes. Upon presentation of an invoice, we'll lend you the money.” And then, Neifert-White gave him this presumptively false invoice. What about that? Could Neifert-White be pros -- be sued under the statute?
Patrick F. Hooks: We would say no, Your Honor.
Abe Fortas: Sir?
Patrick F. Hooks: We would say no.
Abe Fortas: Why not?
Patrick F. Hooks: Because it's basically what happened here.
Abe Fortas: Well, that's what I was --
Patrick F. Hooks: And it is not a --
Abe Fortas: That's why I asked you the question.
Patrick F. Hooks: It is not a claim situation because --
Abe Fortas: That's why I asked you the question because the problem here is, on your theory, is whether this is really totally nothing more than an application for the favorable exercise of Government discretion or whether there is something resembling a legal right. If the Government -- if the Commodity Credit Corporation said, “Yes, Mr. Farmer, you may have the loan upon presentation of an invoice.” And if he had come in with a proper invoice and no question that he would have been entitled to the loan, isn't that right?
Patrick F. Hooks: At that time, he'd be entitled --
Abe Fortas: And here, you came -- what happened here is -- the only thing that happened here is, as I said, is that came -- the farmer came in with a fraudulent invoice.
Patrick F. Hooks: We believe that, certainly, this situation is narrowly squarely within Cohn. That test has to be observed but, as pointed out in McNinch, what we're dealing with here is essentially a criminal statute and, as this Court said in McNinch, its provisions must be carefully restricted. And, as the Court also observed in McNinch, it's not designed to reach every fraud perpetrated upon the Government, and the Cohn definition which is the foundation of the Circuit Court decision has been the accepted definition in all of the false claims decisions since 1926. The Government's open door argument, I think, should properly be addressed to Congress rather than to the Court if the Government in fact, in the proliferation of government programs, needs additional sanctions which they can impose civilly. Certainly, it would be relatively easy to do so in connection with the legislation enacting the programs and as we have discussed before, they have the criminal provisions. The criminal provisions have been criminally enforced against Neifert-White here. We believe that, just as in McNinch and Tieger where the Government sought to extend the provisions of the Act beyond a historic definition of Cohn, beyond the purpose of Congress, the Courts said “no, we'll not go that far. It is not designed to reach every fraud.” This Court should likewise reach the same result and affirm the Circuit Court opinion.
Earl Warren: Is there anything in the legislative history that will help us in determining what the purpose of Congress was?
Abe Fortas: I believe so. The Government brief cites, all of the Government brief in the case, all the way along the line, have cited the speeches of Senator Howard in 1863 that the purpose is -- was to prevent plundering.
Hugo L. Black: To prevent what?
Patrick F. Hooks: To prevent the plundering of the treasury. This statute came out of the Civil War and apparently, there was a horrendous and widespread raid on the treasury. And we think that the legislative history shows just that plundering a financial outcome, the Government being defrauded, payment of money is on an assertation of right.
Earl Warren: Well, it became common practice to what these petitioners did in this case or the respondents read it. It would result to a plundering of the treasury, wouldn't it?
Patrick F. Hooks: Well, there, again the Government never lost a nickel in this situation.
Earl Warren: They didn't on this deal but, to everybody, it had gotten into the habit of making those false inventories in order to get bones that would eventually result in all probability, will it not, the plundering of the treasury?
Patrick F. Hooks: It would only result if there was a breakdown on the local level where they did not get adequate security. It's the only way it could result in that. Here, it should be borne in mind that the Government only loaned, in one case, $38 more than they should've on a $400 loan. These are set forth in the complaint. We're dealing with a very minor amount of money. In our view, it is not in any sense a plunder situation.
Abe Fortas: You're not suggesting, are you, that the statute applies only to major fee rates?
Patrick F. Hooks: No, Your Honor.
Abe Fortas: Not to minor fees.
Patrick F. Hooks: No, Your Honor, but I expressed those figures because it does not, with a security, seem to us it is a plunder situation that was contemplated by the enactors of the False Claims Act in 1863. Thank you very much.
Earl Warren: Mr. Martin.
John S. Martin, Jr.: If the Court please. First, I'd address myself to this very question which counsel ended that as a situation of can there be damaged to the Government. Certainly, there is in the particular situation before the courts. There is security of nature. There is some attempt by the local committees to check on that security. However, the rule which was laid down by the court below would apply to any loan situation and I think that I suppose I'm somewhat onerous by my own experience having been in New York at the time the Salad Oil Scandal broke when the greatest frauds in a country's history was perpetrated in all loan situations as the greatest losses that we've had, I'm sure, in the financial world in the last decade where all loans obvious -- supposedly secured loans. But, in fact, there was no such security. Now, the Court's reading below would apply to that situation as well as the one we have here. I'd also like to address myself to counsel's reliance on the case of United States v. Cohn. As we set forth in our brief, Cohn was a situation which a shipment of cigars that come in from the Philippines, they're being held in a customs house. These were non-dutiable at the time. Cohn procured Cato's so far as out of customs custody by falsely representing that the Bill of Lading hadn't arrived and by falsely procuring a bond that the Bill of Lading would be produced. In fact, the Bill of Lading had arrived and it's being held in a bank for payment and he was -- Cohn was supposed to make the payment and then take the Bill of Lading to the Customs people. So, he procured goods from Custom's custody by use of this false statement. However, it was non-dutiable merchandise and the Government had no interest in it. It was on the basis of those facts because the Government was not dispersing any of its property or its money. Then, the Court held that there was no claim. I think that is the exact distinction which this Court placed on the Cohn case in U.S. ex rel. Marcus v. Hess and we've set out the language at page 15 whatthe Court in Hess said. And, I think it applies here also, quoting from Hess, “the situation here is in no sense like that discussed in United States v. Cohn, 270 U.S. 339, 345-347, where the Government acted solely as barely and no person had any claim against it for a payment.” The Court in Co -- in the Cohn case held that there had been no wrongful obtaining of money of the governments. Well, there has been such a wrongful obtaining here on claims which were presented either directly or indirectly to the Government with full knowledge by the claimants of the fraudulent basis. I think also significant is the fact that, in US ex rel. Marcus v. Hess, the false statements that were involved, if it were involved, were the fraud that was perpetrated all predated the contract. As I read the facts of that case, what happened was that there was a Public Works Administration project proposed and the collusive -- it was collusive bidding which was the fraud involved in Marcus. So that, the fraud took place before there was any obligation on anyone's part to make any type of payment. What happened was there was a collusive bidding. That was the fraud. Then, contracts issues binding the local government to make payment for the work done and that was supported through government payments also, but you have very much the situation as Mr. Justice Fortas point out here where the -- you have the fraud then a contract and then payment. Well, here, you have the situation of the loan application, a commitment, and then payment. Now, I agree, Mr. Justice Fortas, with your analysis that, here, there was a binding obligation. We also submit to the Court that we don't feel that that distinction should be applied. We think that whether or not a loan is handled through a commitment procedure or whether the loan, when the loan is approved, the funds are immediately dispersed, whether that should be a controlling difference in the application of the Act. But, I think that the fact that you do have the situation here where you literally fall within the definition of the court below shows that the rule which the Court set down is not a helpful one. As I said, we feel that the -- a rule that said that any time you're making an application for the payment of government funds, the disbursement of government property, that is a claim against the Government. All of the programs that we're dealing with, whether or not they involve discretion on the part of the issuing officer where they give him some discretion to determine of the available funds who shall get them or whether there is a need and, even if that discretion is not reviewable in the Court, all of these programs manifest an intent of Congress that, in certain situations, these loans shall issue. And, they place a duty on that officer, who was sworn to enforce the laws of Congress, to make the loans when the situation is right for such a loan to be made. So, there is a right in the individual who applied. Whether or not that right may be enforced in the Court of law is another question, but there certainly is a right to the payment. And, for all of these reasons, we would ask the Court to adopt the test that we suggest and to reverse the judgment of the court below and reinstate -- order the reinstatement of the complaint.