Warren E. Burger: We'll hear arguments next in United States against Caceres. Mr. Geller, I think you may proceed whenever you're ready.
Kenneth Steven Geller: Thank you Mr. Chief Justice and may it please the Court. This case is here on a writ of certiorari to the United States Court of Appeals for the Ninth Circuit. It presents the question whether a District Court may properly suppress probative and otherwise admissible evidence of a crime merely because the government agency failed to follow internal regulations that imposed duties upon it not required either by the constitution or by statute. We contend that suppression is inappropriate remedy in such circumstances; especially where as in this case, the agency regulation at issue was not intended to grant enforceable rights to individual defendants. The violation of the regulation was isolated and was not committed in bad faith and the defendant has been unable to demonstrate any prejudice as a result of the violation. The facts of this case may be summarized as follows. In January 1975, Agent Robert Yee of the Internal Revenue Service was ordered in respondent's individual and unemployment tax returns for the year 1971. At the conclusion of a meeting between respondent and Agent Yee on January 27, 1975, respondent proposed the so-called personal settlement of his tax difficulties. He offered Agent Yee a $1,000.00 if the agent would reduce his estimated tax liabilities by about one-third. Agent Yee immediately reported this bribe offer to Inspector Hill of the IRS Internal Security Division. At Hill's direction, Agent Yee called respondent on January the 30th and arranged the meeting for the following day at respondent's office. During this meeting, respondent gave agent Yee a partial payment of $500.00 for settling the tax audit as respondent had earlier suggested. Unbeknownst to respondent, this conversation was recorded by Agent Yee by means of a tape recorder concealed on the agent's person. Agent Yee also met with respondent on February the 6th and February the 11th 1975. At the February 6th meeting, respondent offered Agent Yee, an additional $2,000.00 to audit his 1973 and 1974 individual income tax returns to respondent's satisfaction. And on February 11th, respondent gave Agent Yee $500.00 as the second installment for the favorable termination of the 1971 audit. The February 6th and February 11th meetings were also secretly recorded by Agent Yee. The respondent was subsequently indicted on three counts of bribery prior to the second trial on these charges. He moved to suppress the three tape recordings on the ground that they have not been properly authorized under the applicable IRS internal regulations governing consensual monitoring of face-to-face conversations between agents and taxpayers. Those regulations require that except in exigent circumstances advanced approval for such monitoring, must be obtained by the Director of the IRS Internal Security Division from appropriate officials in the Department of Justice. The IRS man --
Warren E. Burger: Is this rendition applied to other types of monitoring or?
Kenneth Steven Geller: There's a -- the regulation also applies to telephone monitoring but there are there are different authorization requirements there and they're not at issue in this case. The approval of the Department of Justice is not required for telephone, consensual telephone monitoring, only for consensual face-to-face monitoring of conversations.
Warren E. Burger: Is there any history that explains the distinction between the two, the reasons for it?
Kenneth Steven Geller: I think that the --
Warren E. Burger: Is it regarded as more offensive to have a microphone under your necktie than you'll tap the wires?
Kenneth Steven Geller: Well, the sparse history that's available to explain the reasons for the adoption of these regulations does suggest, yes, that the Internal Revenue Service and the Attorney General thought it was marginally more intrusive of possible privacy rights to have face-to-face conversations recorded than telephone conversations. The theory being that conversations over telephone are going through wires, through offices, and circuits and there's just less reasonable of an expectation that they're not being overheard. Of course, consensual monitoring either by telephone or by face-to-face regulations as I'll get to face-to-face conversations doesn't implicate the either Fourth Amendment or any statute. And the IRS manual also provides that when exigent circumstances are present, emergency authorization for consensual monitoring may be given by the Director of the IRS Internal Security Division acting alone. Now, the facts in this case, show that on either January the 30th or January the 31st --
Warren E. Burger: Who is able to monitor and make a judgment of the exigent circumstances?
Kenneth Steven Geller: It's a judgment --
Warren E. Burger: If IRS says this presents exigent circumstances, can anyone review that in the --
Kenneth Steven Geller: I think the exigent circumstances that the regulations refer to are merely matter of time that's involved before the --
Warren E. Burger: But suppose the IRS makes that determination and the material is recorded then you get a case involving just the way this one goes. Is the soundness and correctness of the determination if there were in fact exigent circumstances opened?
Kenneth Steven Geller: Well, it's our position that the definition and interpretation of an internal regulation promulgated by an agency should be for that agency and that agency alone. Now the lower courts in this case found that the emergency provisions of the IRS Manual were violated. While we disagree with that conclusion, we haven't challenged it in this Court. And this Court, this case reaches this Court on the assumption that the regulations were in fact violated. The question is merely what the remedy should be. Now, as I was saying the facts in this case show that after Agent Yee had arranged the January 31st meeting with respondent, but before that meeting took place, Inspector Hill applied for authorization to monitor the conversations between respondent and Agent Yee. The request was transmitted to the IRS National Office here in Washington on January 31st but other county was not forwarded to the Justice Department until February the 7th. As a result of this delay, the Director of the IRS Internal Security Division acting pursuant to the exigent circumstances provision of the IRS Manual gave emergency approval to record the January 31st and February 6th conversations between respondent and Agent Yee.
William H. Rehnquist: Mr. Geller, let me go back a moment to follow up my question that Chief Justice asked you a moment ago. Supposing that in a lower court case a statutory issue and a constitutional issue are both decided against the Government. The Government decides to seek certiorari but seeks certiorari only on the constitutional issue. Do you think that would be a proper attack for the (Inaudible) Office to take?
Kenneth Steven Geller: Well, I hesitate to answer that question. In the abstract, Mr. Justice Rehnquist, I think that properly both that the statutory issue should be resolved before the constitutional one.
William H. Rehnquist: But you don't feel the same problem with respect to whether or not in this particular case, the agency regulation was violated and the more general question of whether or not what the remedy should be conceding as violated.
Kenneth Steven Geller: We have not challenged in this Court that the regulation was violated. I'm not aware what standards the Court would bring to resolve any question like that if the agency itself says that the regulation hasn't violated but that's part and parcel of the larger argument that we make here today that an agency regulation, the violation of a regulation standing alone does not give anyone any legal rights that are enforceable to court. It's our position which I hope to elaborate on later the argument. But only if the defendant is worse off by the promulgation and violation of an agency regulation then he would be if the agency had not promulgated the regulation at all, might it be appropriate for the court in construing the due process clause to grant some form of relief. Now the Justice Department eventually approved the IRS consensual monitoring request on February the 10th and therefore the recording of the February 11th meeting was fully authorized in advance. In full compliance with the IRS Manual and it's not an issue here. Based on this evidence the District Court granted respondent's motion to suppress the recordings of the January 31st and February 6th meetings, the court found that no true exigency existed and that IRS agent said therefore violated the procedures in the IRS Manual by not obtaining approval from the Department of Justice. The Government appealed the suppression ruling but the Court of Appeals affirmed. I think it's important to begin on discussion of this case by asking a critical question that Court of Appeals never attempted to answer and that is, what is the source of the District Court's power to suppress the highly probative tape recordings of respondent's conversations with Agent Yee merely because of the violation of an internal government regulation? First, there are several -- few answers to these questions seem reasonably clear. First, the power can't be found in the regulation itself. The IRS Manual doesn't contain an exclusionary rule and indeed it specifically provides for the wholly separate remedy of disciplinary action in appropriate cases against IRS agents who violate the manual. It's also clear that the authority to suppress can't be found in the Fourth Amendment or in any federal statute. This Court has said on a number of vacations that consensual recording of face-to-face conversations does not constitute a search or seizure within the meaning of the Fourth Amendment. And Title III also specifically excludes consensual recordings by law enforcement officers from its provisions. Finally, the Court of Appeals didn't purport to be ordering the suppression of evidence here as an exercise of its supervisory powers. And hence, whatever the legitimacy of the court ever using its supervisory powers to exclude probative evidence in a criminal case because of an agency's violation of its own rules we have substantial data --
Speaker: What if the regulation had itself said that if it's violated there shall be -- the evidence shall be excluded?
Kenneth Steven Geller: In that case we still think it would be up to the agency itself to decide whether or not to seek enforcement of hat provision as in fact it does in the Petite -- as the Department of Justice does in Petite policy cases.
Speaker: Yes.
Kenneth Steven Geller: Or whether or not to in effect pro tanto repeal that provision we think the courts cannot step unless unconstitutional or statutory right of the defendant has been violated.
William H. Rehnquist: When you say supervisory powers of the court, do you mean over the district court?
Kenneth Steven Geller: I gather, the --
William H. Rehnquist: Certainly, as the court's views as a supervisory power of an agency created by Congress?
Kenneth Steven Geller: Well, I see the District Court would have supervisory power presumably the argument would go would have supervisory powers over an agency and the Court of Appeals would determine whether the District Court has --
William H. Rehnquist: What if the District Court get any supervisory power unspecified by Congress over an agency?
Kenneth Steven Geller: Justice Rehnquist, I don't want to be put in the position of defending supervisory powers of courts over executive branch agencies because the position of the --
William H. Rehnquist: That isn't good for you.
Kenneth Steven Geller: Well, we took the position in the Jacobs case last year that district courts don't have any broad undefined supervisory powers and that's still the position of the Justice Department.
William H. Rehnquist: Well, but even the defendant's in the Jacobs case were just arguing that supervisory powers in the District Court or Court of Appeals extends to what shall be admitted as evidence in the District Court, might they?
Kenneth Steven Geller: That's correct. Although in the Jacobs' case, there was a question of how United States Attorney or Strike Force Attorney should act in a particular situation. Well, that leaves us with the claim that respondent urges most strongly and that the Court of Appeals appears to have accepted which is that the power to exclude the tape recordings flows from the due process clause of the Fifth Amendment. As we understand respondent's argument, he says that as a matter of constitutional due process, every agency must promulgate internal regulations restricting the unfettered discretion of its employees. Every agent, every employee must abide by the regulations of his agency. In every violation of an internal regulation constitutes a deprivation of due process. Key assertion is obviously the last one that is that any time an agency fails to comply with one of its mandatory guidelines. The person with whom the agency is dealing has been denied due process. The respondent relies for this assertion solely upon cases such as Accardi against Shaughnessy and Service against Dulles. But as the Court pointed out last term in Board of Curators against Horowitz, that line of cases merely announces a rule of federal administrative law not a principle of constitutional law applicable in non-adjudicated context. And these decisions certainly didn't equate every violation of an agency's regulation whether violation of the Fifth Amendment. Indeed, Sullivan against the United States in 348 U.S. was decided only a few months after Accardi. Yet the Court failed to mention Accardi in denying the defendant's motion to dismiss an indictment in that case because of the violation of an internal agency procedure. I should make clear that we certainly don't dispute that there may be circumstances where the Government's failure to follow procedures outlined in its internal regulations might operate to treat a particular defendant unfairly. It might cause the defendant demonstrable harm. And that conceivably may also be circumstances in which the magnitude of the unfairness by the Government and the harm to the defendant might be sufficiently substantial to constitute a due process violation that would entitle a defendant to judicial relief. One situation might, for example might be if a defendant reasonably relied on the existence of an internal government regulation and was then prejudiced by the Government's unjustified refusal to follow that regulation. Another might be if the government agent decided not to follow his agency's regulations in a particular case because of some invidious reasons such as a defendant's race or religion. But in our view, if there are circumstances such as this in which the defendant would be entitled to judicial relief. The relief would be based on the due process violation and not on the violation of the internal agency regulation. Due process, we believe, cannot be violated by a mere agency violation of its own rules. Defendant is no worse off from a violation of an internal regulation standing alone than it would be if the agency had never adopted the internal regulation in the first place. Hence, the existence of and failure to follow an internal agency regulation in our view is that most only of evidentiary significance. But one factor among many that must be considered in weighing the defendant's due process claim. Now, we've identified in our brief a number of the factors that we believe must be looked at to determine whether a particular defendant has been deprived of due process. The essential question of course is whether the Government's conduct is falling below a standard of essential fairness that the Court should not tolerate it. It is as the Court defined due process in Russell case whether the activity of government law enforcement agents was repugnant to the American criminal justice system so outrageous that the Government should be barred from invoking traditional processes to obtain a conviction. We think that the facts of this case demonstrate quite clearly that defendant was not treated unfairly in any way by Inspector Hill's failure to comply fully with the authorization provisions of the IRS Manual. Indeed, respondent really makes no effort in his brief to dispute that contention. For one thing, respondent's conduct could not have been affected in anyway by Inspector Hill's non-compliance with the IRS regulations. Respondent didn't know that his conversations with Agent Hill were being -- Agent Yee's, excuse me, were being recorded.
John Paul Stevens: Mr. Geller, could I interrupt just two thoughts? One, you say it couldn't have been heard. Maybe he would have turned down if he followed the procedure and there wouldn't have been any monitoring, isn't that a possibility?
Kenneth Steven Geller: It's not a possibility in this case and I hope to get to in just a moment. But even if it were turned down, our position would still be that the defendant is no worse off than if the regulations hadn't been promulgated in the first place.
John Paul Stevens: Well then in that point before you get through. You make some comments in Vitarelli against Seaton where the man was discharged he would have been no worse off if they didn't have all these procedures just to get him terminated.
Kenneth Steven Geller: Yes. Well, I think that Vitarelli against Seaton just like Accardi against Shaughnessy and Service against Dulles, that line of cases. We don't attack the decision in those lines of cases. In this case, those are adjudicated cases and I think that the courts were announcing rules of administrative law and not due process. I think what we're dealing with here in this type of case in the Leahey, Heffner, Sourapas lines of cases are judicial scrutiny of internal government regulations in connection with prosecute or law enforcement decision-making. And I thinking that the one, the due process standard that the courts announced in overseeing law enforcement techniques is much, much lower standard. The standard I articulated a moment ago whether the Government's conduct is so outrageous that the court should not allow judicial processes to be in foc -- to obtain a conviction. We -- there are many facets obviously to the question of, must agencies follow their own rules and we're only concerned here with the small facet of the question that involves criminal investigative of prosecute of policies and whether either the dismissal of criminal charges or the suppression of evidence in the criminal case is an appropriate remedy for those types of violations.
Warren E. Burger: And Vitarelli was dismissal from government service was it not?
Kenneth Steven Geller: Yes, yes it was. Now, respondent as I was saying didn't know that his conversations with Agent Yee were being recorded and he certainly didn't know that they were being recorded without Justice Department approval. In his incriminating statements to Agent Yee in the January 31st and the February 6th meetings wouldn't have varied in any respect if Inspector Hill have applied for and obtained monitoring authority pursuant to the routine rather than the emergency provisions of the IRS Manual as the District Court insisted he should have done. And by the same token, in connection with the question asked by Mr. Justice Stevens, there was no prejudice to respondent because if the IRS Manual had been fully complied with, it's absolutely no question on this record that the Department of Justice would have authorize Agent Yee to record his conversations with respondent. This is not a case in which the law enforcement technique of consensual monitoring was only of marginal utility for obvious reasons, instances of attempted bribery by IRS agents. It has always been considered to be among the most justified uses of consensual recording equipment under the IRS regulations. Indeed, as I mentioned earlier, the Assistant Attorney General actually approved the monitoring of the February 11th meeting in advance with the knowledge that on two prior occasions earlier that week, the IRS had engaged in consensual monitoring of respondent's conversations pursuant to the emergency exception to the IRS Manual. In fact there had been an incident in March of 1974 in which respondent also made a statement to Agent Yee that could have been construed as a bribe offer and at that time, Agent Yee also reported this to the Internal Security Division which had sought approval from the Department of Justice to monitor face-to-face conversations between Agent Yee and back in March of 1974, the Justice Department had also grant an approval and had in fact, I think, extended that approval for five consecutive months so there's no question that this is a case in which the Justice Department would have granted approval pursuant to the IRS Manual and the Attorney General's Memorandum. We therefore have a situation here in which the IRS has failed to comply precisely with its Internal Regulations, didn't treat the defendant unfairly in any way, didn't --
John Paul Stevens: Mr. Geller, on that point about certainty of approval, supposing we had a case in which it somewhat uncertain. Whether they would have approved it, would you make a different argument?
Kenneth Steven Geller: I'd make the same argument although if the argument -- if my same argument would be rejected then it would have to, I soon reach the question of prejudice to the defendant. We don't think that you have to even reach the question of --
John Paul Stevens: Well, there would always be prejudice I suppose if they got some recordings that they would not otherwise have gotten and they were material to the material level.
Kenneth Steven Geller: Well, I think don't think that's what we mean by prejudice in the due process since because --
John Paul Stevens: So you mean there's no unfairness, is it?
Kenneth Steven Geller: There's no unfairness because as I've said earlier, we think the inquiry is the defendant any worse off than he would have been if the regulations had not been promulgated in the first place.
John Paul Stevens: It's your position -- I just want to get it straight in my mind. Your position really is that that even if he would have been worse off, the violation of department regulation of this kind shouldn't justify the application in exclusionary rule?
Kenneth Steven Geller: That's correct. We don't think there's been a due process.
John Paul Stevens: I think that's your broad position.
Kenneth Steven Geller: That is my broad --
John Paul Stevens: (Voice Overlap) decide each case on whether we think they might or might not have gotten approval otherwise, it's kind of -- kind of a tough case.
Kenneth Steven Geller: I don't think the Court need to reach that in this case because I think our broader proposition is correct. We're dealing here now with a regulation. It doesn't provide any remedy for an aggrieved defendant and indeed as we show in our opening and reply briefs wasn't even primarily intended for his benefit. Finally, there's no finding by either court below of bad faith on the part of any of the IRS agents. We submit that in these circumstances, there's no conceivable basis on which to find that the Government's conduct treated respondent unfairly much less deprived him of due process. And that accordingly, the District Court was powerless to order the suppression of the tape recordings. I'd like to touch briefly on one more point before my time expires. The conclusion of some lower courts that the violation of an agency regulation alone should entitle a defendant to the suppression of evidence with the dismissal of criminal charges is premised to a large extent on the notion that regardless of the absence of harm to the particular defendant. Relief must be ordered in order to give agency an incentive to follow their agency's rules. I think that this notion is misguided for the reasons that were stated by Judge Friendly in the Leonard case in 524 F.2d. Executive branch agencies has substantial incentives wholly apart from any penalties imposed by the courts to ensure their own procedures are substantially observed. Executive branch agencies, presumably adopted the particular procedure which were not, which was not imposed by the constitution or by statute because it benefited the agency in some substantial significant way. The same factors that cause the agency to adopt the internal procedures should compel the agency and see that they're obeyed. Even if suppression would have some marginal deterrent effect however would be far outweighed in our view by the harmful consequences that would inevitably be produced by the exclusion of the evidence. Inherent in the voluntary adoption by the executive branch of internal guidelines is the expectation that the interpretation and enforcement of those guidelines will be left to the executive branch. If judicial sanctions are going to be imposed solely for violations of voluntarily adopted internal guidelines, the wisdom of adopting those practices in the first place would obviously have to be reexamined. Therefore, suppression would really punish society twice. First, the probative evidence of criminal activity would be excluded and criminal prosecutions would be impeded. And secondly, the Government would be dissuaded from adopting a great many beneficial rules and practices that go beyond what the Constitution or statute may require. Thus, at the time when the Court of Appeals candidly conceded there has been a growing disenchantment with the exclusionary rule we submit that it would be exceedingly unwise to extend the remedy of suppression to the situation such as this one whether constitution and federal statutes were fully complied with and there was at most an inconsequential violation of internal agency regulation. Thank you.
Warren E. Burger: Are any of the cases cited relied on why the respondent to your criminal prosecutions?
Kenneth Steven Geller: The only case that there's a criminal prosecution was the Yellin case which was a prosecution for criminal contempt of Congress. The Yellin case is in many ways a peculiar case the Court didn't really explain what the source of the power was. It was exercising in reversing that conviction although there were two threads that seem to run through the argument. One is that there might have been some reliance interest on the part of Mr. Yellin and we agree that if there has in fact been reliance interest created by a regulation there may well be a due process violation if that regulation is violated. And secondly, there was some notion in Yellin that it's not fair to prosecute someone for contempt of Congress if they are to comply with the rules of Congress when Congress itself hasn't followed its own rules. But the Yellin case is the only case I'm aware of on which respondent relies.
Warren E. Burger: But if I recall the opinion in the Vitarelli case correctly, was there not some announces by the Court of the use to contention which was referred to that the employees in the governments have the reasonable expectation that the procedures will be followed because the -- know what the procedures are?
Kenneth Steven Geller: That that's correct.
Warren E. Burger: Just as they would with reference to a civil service statute?
Kenneth Steven Geller: Yes, there was -- there was -- the Court did refer to that of course just repeat Vitarelli like Service against Dulles and Accardi were admitted adjudicative cases, administrative law cases and of course even in that context, there has to be some finding that a particular regular was for the benefit of the person who seeks to challenged its violation and I think that's what the Court was referring to in Vitarelli.
Warren E. Burger: And in Accardi also?
Kenneth Steven Geller: In Accardi and in Service against Dulles.
Warren E. Burger: That this internal procedures for the administrative hearings were made for the benefit of that category or class of people.
Kenneth Steven Geller: Precisely and of course in those cases, all that happen, all that the Court ordered was a remand for a new hearing at which these procedures would be complied with here of course the remedy ordered by the District Court and affirmed by the Court of Appeals.
John Paul Stevens: Well no, that's not right in Vitarelli. He ordered -- the court ordered reinstatement in --
Kenneth Steven Geller: But I believe the court also mentioned that this would not preclude the Government from immediately discharging Vitarelli and the proper procedures.
John Paul Stevens: The procedures are totally unnecessary for the employee or just when they charge him with the particular violation, they may come in a sympathy and the like.
Kenneth Steven Geller: That's correct. Thank you.
Warren E. Burger: Mr. Brosnahan.
James J. Brosnahan: Mr. Chief Justice and --
Warren E. Burger: You may elevate that lectern if you'd like.
James J. Brosnahan: No.
Warren E. Burger: I appreciate the (Inaudible) on the side.
James J. Brosnahan: Looks like I might make coffee with it, I'm not sure.
Speaker: We do it frequently.
James J. Brosnahan: Mr. Chief Justice and may it please the Court. We see the case before you differently and I'd like to state what we think the issue is. In the case where there is a mandatory published regulation by agencies of the federal government which has been approved on a nationwide basis for the protection of fundamental interest of citizens. Where that regulation is violated, where that violation is delivered, and where the evidence obtained after the violation is sought to be introduced in a federal district court in a criminal case. Should that evidence be suppressed because as we alleged it will deter a federal agents from committing future violation. There's been a lot of briefing in the case and I thought I would start by stating what we think the issue is and then saying at the outset that we believe that we can support each element of that standard in this particular case.
Warren E. Burger: Do you suggest Mr. Brosnahan that your client here conducted himself in reliance on the existence of this regulation in the sense for example that Vitarelli did in the -- in his case?
James J. Brosnahan: Mr. Chief Justice, only in this sense that as a citizen, one of many, one of millions and I don't mean to say to the Court to those are mental state in the doctor's mind that he focused on as clearly he didn't but there are many other cases where clearly it was true too. But as a general sense of a citizen from 1965, he had the right to believe that no one would ever electronically record or transmit what he was saying even to a federal agent unless the Attorney General of the United States or somebody designated by the Attorney General had approved it before.
Warren E. Burger: Then you're saying that he had a legitimate or reasonable expectation of having a private conversation when he offered this bribe?
James J. Brosnahan: We say, first there's been no conviction of course. There was a hang jury and no jury has ever found Dr. Caceres guilty and he's presumed innocent. But aside from that, we believe that from at least 1967, every one in the country including the Attorney General and the Commission of Internal Revenue Service and other high officials responsible for the passage of this regulation had the right to assume that there would be no such electronic surveillance. And Dr. Caceres is one of many that would be in that state of mind. I also would say at the outset that it seems to me troublesome that the Gove --
Thurgood Marshall: What difference does it make to the point involved as to whether the approval of the Attorney General would have or not?
James J. Brosnahan: We will --
Thurgood Marshall: How would he know that?
James J. Brosnahan: Well, he would not know that.
Thurgood Marshall: So what difference does it make to him whether it was or was not?
James J. Brosnahan: Precisely because the type of instrument being used is secretive. The fact that he would never know it is a greater reason for insisting on the projection of prior approval.
Thurgood Marshall: But he couldn't stop it? The only thing you insisted on is that he should have gotten approval with the Attorney General.
James J. Brosnahan: Well, --
Thurgood Marshall: Isn't' that pure show?
James J. Brosnahan: I think -- I think what I was about to say Justice Marshall is this. The Government argues in this case that to succeed the defendant must show personal reliance and harm. That to me is an inconsistent way to go out --
Thurgood Marshall: But that's not my question.
James J. Brosnahan: No. Well, I was going to say that the regulatory scheme and I think this is responsive to your question. The regulatory scheme is set up in such a way that surreptitious monitoring which no one knows is going on except the agents who are doing it, by its very nature, will not occur unless the Attorney General or someone designated has previously approved it. And Dr. Caceres or myself or any person have the right to go through the country and talk to a federal agent and believe that there would be no monitoring unless that approval is obtained.
Thurgood Marshall: And if it would not obtain, it would not be used? We have assumed that?
James J. Brosnahan: We know that.
Thurgood Marshall: Well how do you know that?
James J. Brosnahan: Because --
Thurgood Marshall: It was used in this case?
James J. Brosnahan: Well, because if the approval is not obtained --
Thurgood Marshall: Well is it true it as from now on people can't rely?
James J. Brosnahan: Well, I would say based on the audit that was done in 1974 and based on what's shown in this case and particularly if this Court would hold if its alright to used it in a criminal case that the public's perception whether that regulation is worth protection or not would be that if you can't rely on it and you are not going to know when you're --
Thurgood Marshall: I don't see how? My one point is --
James J. Brosnahan: Yes.
Thurgood Marshall: I don't see what benefit or wrong it is to the party involved as to whether or not the Attorney General had approved the bugging?
James J. Brosnahan: I would say for this reason.
Thurgood Marshall: That's what I'm listening to.
James J. Brosnahan: Alright. I would say for this reason. By the very nature that it's the Attorney General, the regulatory scheme when it was passed imagined that the high official would exercise very careful discussion.
Thurgood Marshall: Did it say the Attorney General himself?
James J. Brosnahan: Or his designee and that was the --
Thurgood Marshall: I thought this is what it say.
James J. Brosnahan: I've always used those terms together because that's what it said from the beginning and it was for a long time the Deputy Attorney General is only the number two person in the department that could do it if he Attorney General didn't do it. We argue from that in the legislative history and I defer in my point of view fro my colleague Mr. Geller on this is not sparse. The record that we have shown shows that the President of the United States, the Attorney General of the United States and the Commission of Internal Revenue all said that from 1965 on there would be a high official that would review this kind of electronic surveillance. And that was because it would be approved in limited cases and Attorney General Levi and I think this is helpful, in 1960 and 1975, I went to Congress, delivered the statement which is in our appendix dealing primarily with foreign problems. But in that the Attorney General said and surely believed it that these regulations were such that great time was taken by his office to review it to ensure that there would be no violation of private rights that it was always done in advance and that the Congress couldn't rely on that.
Thurgood Marshall: But he didn't do that in 1965?
James J. Brosnahan: 1975, I misspoke. 1975.
Thurgood Marshall: It was started in 1965.
James J. Brosnahan: In 1965 it was started and when it was started it was traumatic and I must say that I disagree with the Government's view of this. It was discussed at the presidential level.
Thurgood Marshall: It wasn't exactly discussed it was handed down by the President.
James J. Brosnahan: It was handed down and in the White case in the appendix there is a quotation from President Johnson in which he said that he would see to it, he asked if the agencies look at this because it involved very important rights.
John Paul Stevens: But none of those statements said anything about asking for court help and enforcing the regulation or in disciplining people who violated it.
James J. Brosnahan: Actually, the statement by Commissioner Cohen attached to the Government's reply brief did refer at least in passing to suppression of evidence.
John Paul Stevens: The Attorney General Levi statement did not or did it?
James J. Brosnahan: He did not address the question of suppression.
John Paul Stevens: Of remedy --
James J. Brosnahan: That we say is for this Court and for the Court's to deal with.
Warren E. Burger: We'll resume at that point at 10 o'clock in the morning.
James J. Brosnahan: Thank you.


William H. Rehnquist: We'll hear argument now in number oh oh eighteen thirty-one, United States versus Sandra Craft. Mr. Jones. [Inaudible]
Kent L. Jones: Mr. Chief Justice, and may it please the Court. The question in this case is whether the Federal tax lien that applies by operation of law to all property and rights to property of a delinquent taxpayer attaches to the interest of that taxpayer in a tenancy by the entirety. The taxpayer in this case was an attorney who, for ten years, failed to file a Federal income tax return and accumulated a Federal tax obligation of approximately half a million dollars. Excuse me. At the time the taxes were assessed and the notice of tax lien was filed, the taxpayer owned a real property in a joint tenancy by the entirety with his wife. He then conveyed his interest in that property to his wife for one dollar and when his wife then sought to sell the property the tax lien appeared in the title record. [Inaudible]
Anthony M. Kennedy: Now, th- w- tell us about the fraudulent conveyance proceeding. Does the fraudulent conveyance holding, or finding, make no difference one way or the other? If it was a fraudulent conveyance th- the husband has the property y- you you can well, if it was a fraudulent purveyance, you c- you c- you can pursue the property, and if it wasn't, the lien is still there anyway under your theory. Is that the way it works?
Kent L. Jones: I think that we would say that the lien, th- the question of the validity of the lien is the first question. If the lien is valid you don't need to address the fraudulent conveyance question. Indeed, we haven't presented the fraudulent...
Anthony M. Kennedy: Right.
Kent L. Jones: conveyance question in this case. If the lien were not valid, it would still be possible to go after property in certain circumstances if there had been a fraudulent conveyance, but on this record we're not challenging the determination that as a matter of State law...
Anthony M. Kennedy: Yes.
Kent L. Jones: there was not a fraudulent conveyance, except for this fraudulent enhancement portion that the court awarded. [Inaudible]
Ruth Bader Ginsburg: Mr. Jones, as part of the background, how did it come about that it's only the taxpayer who ha- has the liability? Did she file separate returns, or was she an innocent spouse?
Kent L. Jones: In this case, the taxpayer is the husband. The husband was an attorney, and he filed no return, and when th- there's two ways for this issue to come up. Eithe- either spouse may file either no return, or file only a separate return. It's only when they file a joint return that they are jointly and severally liable for the tax obligation, so if, as in this case, the taxpayer simply files no return at all, then the obligation is exclusively that the tax obligation is that of the nonfiler, in this case the husband. Indeed, Judge Ryan pointed out in his separate opinion that the decision of this Court, of the court of appeals is very amenable to abuse, because on this theory both spouses can earn income, neither of them can file a return, or they can both file a separate return, and then they can put all of their real and personal property in a tenancy by the entirety, i- i- including stocks and bonds in States like Michigan and Maryland, and claim a complete exemption of all of their property from Federal tax obligations. Now, i- in...
Antonin Scalia: penalties for failing to file a return?
Kent L. Jones: There are some penalties, but the penalties, like taxes, have to be enforced against the property of the taxpayer, and if the taxpayer is allowed to exempt all of its property in this fashion, then there's literally no way that that the taxes can be enforced at least through civil procedures.
Kent L. Jones: [Inaudible] What about criminal procedures?
Antonin Scalia: Any criminal procedures...
Speaker: for failure, continued failure to...
Kent L. Jones: Of course, if you file a return, then you're not exposing yourself to any criminal obligations, and if you don't file a return, it would be I'm not familiar with a statute that makes that a crime by itself.
Speaker: tax...
Anthony M. Kennedy: not let the word get out.
Kent L. Jones: All right, well, I stand...
Speaker: I w- I I will defer...
Kent L. Jones: all questions on title eighteen to Justice Kennedy.
Speaker: simply not not...
Ruth Bader Ginsburg: we know as a matter of fact what her situation was? Did she not file also? Did she file a separate return?
Kent L. Jones: I don't know whether she had any income of her own.
Speaker: dollars of taxes of the husband.
Ruth Bader Ginsburg: how how that...
Speaker: came about.
Kent L. Jones: believe the record reflects.
Speaker: interest in the property.
John Paul Stevens: whether the taxpayer has a legal interest in the property? Isn't that the issue?
Kent L. Jones: That is the underlying issue...
Speaker: in this case.
John Paul Stevens: says no, there's this mythical entity called the marriage, or something like that is the that's the owner.
Kent L. Jones: Well, it's a real entity.
John Paul Stevens: But are any of those rights legal rights owned by the taxpayer.
Speaker: That's the que- the basic question isn't it?
Kent L. Jones: and indeed the s- s- su-, in fact, the supreme court in Michigan has so held.
Speaker: section...
Antonin Scalia: Strike that one.
Speaker: tenancy by the entirety. It's the marriage that sells it.
Kent L. Jones: That is exactly the interest that the taxpayer had in the Rodgers case in a homestead state.
Speaker: is that...
Kent L. Jones: Yes, and i- if I might go on, there are more interests involved.
Speaker: absolute...
John Paul Stevens: could get a lien on any of those things if they ever came into being.
Kent L. Jones: They are in being, and that's what the supreme court of Michigan pointed out in Dow versus State.
William H. Rehnquist: Be given notice by whom?
Kent L. Jones: Of an- of any action that might be brought with respect to the property.
William H. Rehnquist: How how did that case come up? I mean, who wh- was somebody suing the joi- the tenants by the entirety, or...
Kent L. Jones: I- in my recollection is that it was a a foreclosure-type case.
Speaker: quintessential...
John Paul Stevens: interrupt you once more? You, in dis- in describing the case, said that each of them was entitled to notice because each of them had a separate right in the property.
Speaker: is that your...
John Paul Stevens: sort of inter-
Kent L. Jones: It said that I the words well, I don't have the text...
Speaker: in front of me. It said the separate each spouse. It says each spouse...
Kent L. Jones: is entitled to separate notice...
John Paul Stevens: Right.
Kent L. Jones: because they have a significant interest in the property,
Speaker: and...
Ruth Bader Ginsburg: Jones, y- you're not asserting that the Government's lien gives it any greater right than he has, so the reci- recitation that you had, you're not saying that the Government lien means that they could preempt her right, are you?
Kent L. Jones: No.
Speaker: that proceeding.
William H. Rehnquist: any different if the if that transaction you just referred to hadn't taken place? Would the Government's case be weaker?
Kent L. Jones: The Government's case would be significantly different if the sale had not occurred.
Speaker: sale of it.
Kent L. Jones: What the Court explained was that s- Congress specifically provided in seventy-four oh three of the code that the foreclosure applies to the entire property, and that in that sale the rights of the innocent spouse are protected and, indeed, the the court district court has discretion not even to order a foreclosure if it so chooses.
Speaker: But...
Antonin Scalia: let let's assume you do foreclose because we find that, indeed, the the husband has a property interest in the in the tenancy by the entire, so you foreclose.
Kent L. Jones: Or if or if it's sold,
Speaker: and he's...
Kent L. Jones: entitled all of it if he's the survivor.
Antonin Scalia: Right.
Speaker: What do we...
Antonin Scalia: we have people come in and say how stable the marriage is, or what?
Kent L. Jones: This Court discussed that exact, pri- what the court- Court called the practical reality in in the Rodgers case, and gave a detailed example that I think took three or four pages of the Court's opinion in Rodgers, explaining how you would value the respective interests of the parties.
Anthony M. Kennedy: But in your view, you always value the taxpayer's interest at at fifty percent?
Kent L. Jones: No.
Speaker: but...
Anthony M. Kennedy: be a foreclosure to that extent?
Kent L. Jones: There there that was a h- I believe those were hypothetical facts that the Court discussed in Rodgers.
David H. Souter: Mr. Jones, during the continuance of the marriage can either spouse force a sale?
Kent L. Jones: No, and and nei- and then and that was the point made in Rodgers also, that in any kind of joint tenancy by the way, I should emphasize...
David H. Souter: But I thought joint m- I may be wrong in this.
Kent L. Jones: I o- I misspoke.
Speaker: It's not...
Kent L. Jones: in every joint...
Speaker: tenancy. It is...
Kent L. Jones: a common feature of joint tenancies that they can't be forcibly sold by one and, indeed...
David H. Souter: During the continuance of the joint tenancy.
Kent L. Jones: Correct, and and that that was the case in...
Speaker: Rodgers where the...
Kent L. Jones: right could not be...
David H. Souter: But I I take it from your earlier answer that there is, in in in tenancies by the entirety there is no such legal means of converting that tenancy into a tenancy in common which then can either be the subject of a forced sale or petition, is that correct?
Kent L. Jones: I believe that's correct, and I believe it was also true in Rodgers of the homestead estate, which is a common sim- other s- which is also a common estate.
Speaker: artificial State law...
William H. Rehnquist: taxpayer rights depend on State law, don't they?
Kent L. Jones: The realities of the traxpayer's [: taxpayer's] right are drawn from State law, but we're not supposed to I mean, in the Cou- words of the Court, let the artificial rules of State law blind us to the realities of those rights, and let me give you...
William H. Rehnquist: Well now, what's the difference, do you think between the artificial rules and the realities?
Kent L. Jones: Well, this this Court has said that difference can be seen in tenancies by the entirety, that the the realities are that the tenants I mean, it is a fiction there.
Speaker: word...
Kent L. Jones: fiction is what...
Speaker: is implied here as a...
William H. Rehnquist: say it's a fiction.
Kent L. Jones: What is a fiction is the idea that neither spouse actually owns an interest in this property.
Speaker: That's the fiction.
Antonin Scalia: corporation a fiction, but we don't tax the shareholders for for income of the corporation.
Speaker: at   community...
Kent L. Jones: The marriage...
Speaker: is a...
Antonin Scalia: purposes of the tenancy by the entirety.
Kent L. Jones: The marriage is the fact.
Antonin Scalia: These are all contingent rights.
Speaker: depending...
Antonin Scalia: upon what...
Speaker: contingencies...
Antonin Scalia: occurred?
Kent L. Jones: And and the Court made that point in Drye.
Antonin Scalia: Contingent.
Kent L. Jones: No, not a...
Speaker: contingency...
Kent L. Jones: It was...
Antonin Scalia: Expectancy.
Kent L. Jones: An expectancy, thank you.
Speaker: So if I'm sorry...
William H. Rehnquist: I am community property States, the concept of a marital community ha- has some significance, I think.
Speaker: is tha-
Kent L. Jones: I if I might, in in in a case called United States versus Mitchell, involving the community property right of a spouse to disclaim her interest in the in the income o- o- o- of of her spouse, this Court said that the disclaimer, this retroactive disclaimer, this fiction of State law would not be recognized and would not upset the application of Federal tax...
Speaker: principles...
Antonin Scalia: the...
Speaker: disclaimer...
Antonin Scalia: occurred there's no doubt who who was entitled to the money.
Kent L. Jones: We-
Antonin Scalia: and this this was more than a fiction.
Speaker: occured...
Kent L. Jones: recognizes these property rights.
Speaker: thirty...
John Paul Stevens: would you comment on one aspect of the case that that troubles me? Let's assume I think there are two court of appeals decisions out there that are squarely on point and against you, and you say are c- incorrectly decided.
Kent L. Jones: Yes.
John Paul Stevens: Let's assume they are incorrectly decided, but they've been the only guidance for the tax bar for forty or fifty years, and is there other reliance interests that the tax bar can say, well, we always thought that, given those cases that Congress had not sought to overrule, we have a right to follow them?
Kent L. Jones: Well, the tax bar is not th- a party to this case, and and...
John Paul Stevens: No, but...
Speaker: we have to be concerned about...
John Paul Stevens: reliance on on on decisions that have been given by...
Speaker: the Federal courts.
Kent L. Jones: question is that no, that that there is no embedded reliance in this principle because, as we pointed out in our brief, even in Michigan there is an express caution given by the State bar to title examiners saying that, in light of the nineteen seventy-five enactment of this statute that gives each spouse an equal right to all of the income and and and and and profits from the property, that the State bar advised title examiners that they could not give an opinion that the interest of an in- an individual spouse was not subject to the lien.
Speaker: expectations.
Antonin Scalia: case involves only Michigan, and if you have States that do not provide that the s- each spouse has an interest in the income, it might be a different...
Speaker: answer.
Kent L. Jones: indeed, a narrow basis that you just described for resolving this case, and and and it would be an appropriate w- way to resolve the case because we have the fund pres- we have here th- the voluntary the sale, with the proceeds available for distribution, so we don't have to reach the broader question of whether the existence of the right of survivorship, which is an undisputed personal interest.
Antonin Scalia: I I I I must say, I'm th- w- when you get to the survivorship, that's where I have real problems with your case.
Speaker: [Inaudible]
Antonin Scalia: I I could just your you you answered my earlier hypothetical by just saying, well, you know, there's a contingency that the will might be changed.
Speaker: of...
Antonin Scalia: a of of a of a defaulting taxpayer?
Kent L. Jones: The Government's lien attaches to the interests of the contingent remaindermen, and there are cases on that very point.
Speaker: and how would we value...
Antonin Scalia: reads.
Speaker: interest.
Antonin Scalia: And you're saying the taxpayer has an interest...
Kent L. Jones: Yes.
Antonin Scalia: in this trust...
Kent L. Jones: Yes.
Antonin Scalia: in which he has a c- a con- a future contingency.
Speaker: I mean, that's a...
Antonin Scalia: I...
Kent L. Jones: That's correct, but also that section seventy-four oh three reserves the right of a district court not to award foreclosure and, of course, foreclosure requires the Government to do...
Speaker: something.
Antonin Scalia: tenderhearted district judge.
Speaker: I don't think that that's...
Kent L. Jones: to so far as I know this co- this controversy that you're concerned about has not been presented in an actual case, so I'm not sure that it's a I mean, it's a theoretical issue that I don't believe has been confronted, but what has been confronted is is, does the lien attach to contingent remainders, and that's In re well, there's a lot of In re's.
Speaker: property...
William H. Rehnquist: how d- d- d- do you then value the contingent remainder?
Kent L. Jones: Well, as I was saying, I don't know of a case where a fli- foreclosure has been sought on a contingent remainder.
Speaker: that's...
Antonin Scalia: and and and wou- wou- th- the case you're talking about where a lien was asserted against the contingent remainder, what was it asserted against, after the remainder had had no longer be- been contingent?
Kent L. Jones: I would I'm I'm to be honest, I would be guessing, but my guess...
Speaker: is...
Antonin Scalia: do I mean, that...
Speaker: that's a...
Antonin Scalia: want a case in which, on the basis that the taxpayer had an interest...
Kent L. Jones: Right.
Antonin Scalia: had a purely continges [: contingent] interest in some corpus.
Speaker: extravagant.
Kent L. Jones: you use the word contingency, that would include Rodgers, because that was a case where there was a right of survivorship was was the valued interest, but there's also the Bank One case, Spendthrift Trust, the right of a person to obtain income from a Spendthrift Trust is subject to the Federal lien.
William H. Rehnquist: Very well, Mr. Jones.
Jeffrey S. Sutton: Thank you, Mr. Chief Justice, and may it please the Court: There are some serious misunderstandings about the meaning of Michigan law which go to the heart of the proper resolution of this case under Federal law.
Speaker: wouldn't destroy...
Jeffrey S. Sutton: it.
William H. Rehnquist: we're we're not used to resolving questions of State law here.
Jeffrey S. Sutton: Your Honor, f- ninet- eighteen eighty-five, Vinton versus Beamer, going forward to Sanford, going to Budwit versus Herr those are, you know, separated by twenty thirty years each.
William H. Rehnquist: And you say the nineteen seventy-five statute does not affect this case at all?
Jeffrey S. Sutton: It's irrelevant, Your Honor.
Speaker: Mr. Sutton,
Ruth Bader Ginsburg: how does it differ from other cases where under State law a predator can't touch the thing, like a Spendthrift Tru- Trust, or like what was involved in Drye? Even though not a single predator in that State could touch that inheritance, the Federal taxing authorities could, so there are many situations where the property is exempt from reach, an- even where the State doesn't call it property, calls it something else, but the elements of what th- the person had lead the Federal authorities to say this is the property of so-and-so, as in the Spendthrift Trust, as in the case of the disclaiming heir in Drye, so why is this any different?
Jeffrey S. Sutton: This is not a disclaimer or exemption case for this basic reason.
Speaker: interest.
Ruth Bader Ginsburg: that different from a State law that said Mr. Drye never had anything, we assume under our State's law that he predeceased his mother?
Jeffrey S. Sutton: d- Your Honor, under Arkansas law in Drye, the opinion notes that he did have a right to alienate that interest once his wife died.
Anthony M. Kennedy: Could the Congress with ease en- enact s- a statutory amendment to make tenancy by the entires d- entirity subject to liens?
Jeffrey S. Sutton: Ab- absolutely, Your Honor.
Anthony M. Kennedy: Well, I mean, if if you were a Senator from Michigan wouldn't you say, well, you're taxings property that doesn't belong to the taxpayer, this is improper as a matter of...
Speaker: law?
Jeffrey S. Sutton: exactly what Tyler recognized, the nineteen thirty-six or so U.S.
Speaker: interests. That's our case. That's this case.
Anthony M. Kennedy: universe here if is that the State defines what's property and the Federal Government defines what property can be liened.
Jeffrey S. Sutton: Yes,
Speaker: Your Honor.
Anthony M. Kennedy: quite work, because one of the sticks in the property definition is the right to be liening, and so we're we're we're compromising that dichotomy even by stating it, and it seems to me that all the Government is doing here is saying, we are saying what property can be liened, we're entitled to define that one stick in the bundle.
Jeffrey S. Sutton: I'm not relying, Your Honor, on what's lienable and what's not.
Speaker: mine, that it was...
William H. Rehnquist: about that, Mr. Sutton, then your statement that Congress could easily amend the statute to collect in this situation probably isn't correct.
Jeffrey S. Sutton: Well I, Your Honor, I did not mean to say I wou- I did say easily, and I misspoke, and I'm glad to have an opportunity to correct.
Speaker: them.
David H. Souter: Sutton, is is it true that any any conventional property interest in Michigan can be held in the en- m- in the entirety form.
Jeffrey S. Sutton: No, Your Honor.
Speaker: It doesn't app-
Ruth Bader Ginsburg: bank accounts can't be...
Jeffrey S. Sutton: No, Your Honor.
Ruth Bader Ginsburg: And shares...
Speaker: can't be...
Jeffrey S. Sutton: No.
Antonin Scalia: What what about the income from the real estate? Is i- i- i- i- is it r- your your position that before this statute was passed even the income from the real estate was held...
Speaker: in tenancy...
Antonin Scalia: by the entirety?
Jeffrey S. Sutton: And let me give you a c- S and B Trust, it's one of the cases we've cited, says that very point, and that makes that makes sense.
Speaker: I want to go...
Stephen G. Breyer: differ from community property?
Jeffrey S. Sutton: Community property has several differences.
Speaker: or liened.
Stephen G. Breyer: owned by the community, which is a separate entity.
Jeffrey S. Sutton: No, Your Honor.
Stephen G. Breyer: Community property is not owned by a community which is a sep-
Jeffrey S. Sutton: N- no.
Speaker: tenancy.
William H. Rehnquist: sure you can generalize as to community property.
Jeffrey S. Sutton: Bu- w- y- Your Your Honor, you're right, and and if I'm...
Speaker: j-
Stephen G. Breyer: that we looked up just says that community property can be severed only with the consent of both spouses in the event of divorce, or in the death in the event of death of one of the spouses.
Speaker: S- I can-
Stephen G. Breyer: I don't know that that's authoritative, or maybe we made a mistake, but it certainly was my impression that community property is owned by a community, which is a different legal entity, and I also thought that community property couldn't be separate without the consent of the spouse.
Jeffrey S. Sutton: Well, that th-
Speaker: Your Honor, if...
Jeffrey S. Sutton: if if let's assume for the sake of argument, and I'm not i- i- let's assume it's true, you said it's true, that community property States are just like tenancy-in-the-entirety States.
Speaker: The exact same argument applies.
Stephen G. Breyer: if you're right, that in probably a third or more of the country, suddenly the IRS can't assert any liens, and it's a little tough to believe that Congress would have thought that that's what it was doing with this statute.
Jeffrey S. Sutton: Oh, Y- Your Honor, I I respectfully disagree.
Speaker: Mr. Sutton w-
Stephen G. Breyer: be, but why why I mean, here, a lot of p- a lot of property in this country is owned by communities, IE, the husband and wife together, and I imagine that people are quite free to take their real property in the form of tenancy by the entirety.
Speaker: Right,
Stephen G. Breyer: now wh- why should I accept an interpretation that's going to exempt about...
Speaker: vast...
Stephen G. Breyer: amounts of property from this...
Speaker: statute  under those circumstance?
Jeffrey S. Sutton: This is not a community property case, and I think it would be...
Speaker: dangerous for me to...
Stephen G. Breyer: to know what the implications are...
Speaker: because it's one thing if we're deciding a...
Jeffrey S. Sutton: find, in each of the States that you you're concerned about, the interests are defined just as they are in Michigan, which is to say, it's an indivisible interest, no shares, it follows just from what you've said in Rodgers and National Bank of Commerce that you can't lien the property, and what you've got to do is wait for a survivorship interest, wait for a sale, destruction of the tenancy.
Speaker: one hundred and thirty-six...
Jeffrey S. Sutton: years.
Ruth Bader Ginsburg: how many States are there that have tenancies by the entireties?
Jeffrey S. Sutton: Fourteen that have them in the traditional way we're talking about,
Speaker: where it's an...
Jeffrey S. Sutton: indivisibility of title, plus...
Speaker: the District of Columbia.
Ruth Bader Ginsburg: according to a case that both of you cited, do provide tenancy.
Jeffrey S. Sutton: Well, to the the extent Congress is worried about that, it's surprising in nineteen fifty-four that they didn't amend the statutes, even more...
Speaker: surprising...
Ruth Bader Ginsburg: this Court comment on that in the Rodgers decision by saying that the f- the fact that Congress didn't do something you can't infer much from not doing, according to this Court.
Jeffrey S. Sutton: The nineteen fifty-four history is relevant, I would think all would agree, when it comes to the notion that somehow this is a great tax-avoidance problem.
Ruth Bader Ginsburg: And this...
Speaker: Court...
Ruth Bader Ginsburg: commented on it, that maybe Congress didn't do anything because it thought that the this...
Jeffrey S. Sutton: Bu- well Your Honor, by nineteen sixty-six I mean well, by the present, we've got seven courts of appeals.
Speaker: critically...
Ruth Bader Ginsburg: case, wasn't the Sixth Circuit saying, well, maybe there are good arguments on both sides, but we've got that old precedent that we have to follow.
Jeffrey S. Sutton: Well, I I I'm not sure what the Sixth Circuit had in mind, but certainly followed its precedent, didn't think Drye, Irvine had changed the law...
Speaker: this area.
Ruth Bader Ginsburg: couldn't thought about Drye the first time around, because Drye wasn't...
Speaker: there.
Ruth Bader Ginsburg: They had already made the decision.
Speaker: Well, I I I...
Jeffrey S. Sutton: certainly don't know why each court of appeals has done what it did, including the Sixth Circuit, but the fact is, they've all done the same thing.
David H. Souter: I suppose, if you follow the tha- your rationale to its furthest extent in a State such as one Justice Ginsburg referred to in which business assets can be held in tenancy by the entirety, a a husband and wife could hold a a have a closely held corporation by the entirety and and on your theory, they wouldn't even be liable for income tax because it would be it would be the entirety alone that would be liable.
Speaker: the the the the fair consequence of what you're saying?
Jeffrey S. Sutton: sixty-one, which is the provision of the Internal Revenue Code that taxes property, income from tenancy by the entirety property is still taxed.
David H. Souter: No, but they the income goes into a bank account held by the in in in in held in entirety form.
Jeffrey S. Sutton: Well, I I'm I'm not going to be in a position to cite any cases for this poi- the point I'm about to make, so you're going to want to check me on it, but I don't think there's any doubt that when it comes to income from tenancies-by-the-entirety property, the case law, the code, the regulations make it clear that they're still there still taxable.
Speaker: attribution.
David H. Souter: there's any doubt, either, but I I I think the fact that there isn't any serious doubt about it is, at least so far as the States that Justice Ginsburg's example referred to, there there there also is an inconsistency between the fact that we have no doubt, as you say, about taxability and the consequences of your theory.
Jeffrey S. Sutton: Well, it's a v- they're very different concepts and maybe it's important, particularly in light of Justice Breyer's comment about this just seeming to be a fiction, there's a real function behind this concept, and the function is that, while the tenancy is premised on this nice notion of two hearts beating as one, the fact is that doesn't always happen, and the whole point of the tenancy and the indivisibility of title is that it precludes one spouse unilaterally from destroying or otherwise incumbering the tenancy.
Speaker: case.
Stephen G. Breyer: the critical factor is the factor that creditors under State law can't get a hold of it.
Jeffrey S. Sutton: No, Your Honor.
Speaker: it's that...
Stephen G. Breyer: you're saying it's the theory of the thing.
Jeffrey S. Sutton: It's...
Speaker: the...
Stephen G. Breyer: If it's the...
Speaker: theory of the thing. If...
Stephen G. Breyer: it's the theory of the thing, primarily, plus the fact all right,
Speaker: it's the theory of it, why w- m-
Stephen G. Breyer: If it's the theory of it, doesn't the same theory exist...
Jeffrey S. Sutton: [Inaudible]
Stephen G. Breyer: with community property? Doesn't the same theory exist with joint tenancies?
Jeffrey S. Sutton: u- u-
Stephen G. Breyer: For all I know, the same theory exists when people said, you don't own any land, you just hold it from the king, and you have feudal obligations unless you pass along the season.
Jeffrey S. Sutton: I r- I really hope I can clarify this because I do think it cuts the heart of this case.
Speaker: of your spouse.
Sandra Day O'Connor: taxability at bottom a question of Federal law, do you suppose?
Jeffrey S. Sutton: I would s- submit, Your Honor, that when it comes to the tax lien statute the Court is has said several times that Congress did not dis- define the words, property, rights to property belonging to.
Speaker: to State law...
Sandra Day O'Connor: Federal law, and as a policy matter we generally look to State law? But isn't that itself a question of Federal law, the extent to which we're going to look to State law?
Jeffrey S. Sutton: Well, Your Honor, I had thought that y- you take the State law's property interests as you find them in the fifty or fifty-one jurisdictions, h- depending on how you want to look at it, and then, depending how the...
Speaker: States de-
Sandra Day O'Connor: tax purposes, I'm just wondering if at bottom it it isn't, in fact, a question of Federal law.
Jeffrey S. Sutton: It is a question of Federal law what the, quote, consequences of those State law definitions are, but let me give you, I think, a good indication of this, and it relates to a hard issue raised by Justice Ginsburg.
Speaker: there's...
Ruth Bader Ginsburg: talking about now?
Jeffrey S. Sutton: National Bank of Commerce, nineteen eighty-five, joint bank account.
Speaker: when it comes...
Ruth Bader Ginsburg: I think that there was considerable attention in the Drye case to exactly what it was you look to State law for.
Speaker: the State law gives.
Jeffrey S. Sutton: what've I said that makes you think I'm disagreeing with...
Speaker: that?
Ruth Bader Ginsburg: thought you said that whether it's property is determined by State law.
Jeffrey S. Sutton: I'm I'm simply saying the interests in the property are determined by...
Speaker: State law.
Ruth Bader Ginsburg: what the taxpayer has is determined by State law.
Jeffrey S. Sutton: Exactly.
Ruth Bader Ginsburg: But not the label that we put...
Speaker: on for Federal tax pur-
Jeffrey S. Sutton: and I'm sorry if I left that ambiguous.
Speaker: classic...
Stephen G. Breyer: your point there is right is right there.
Speaker: of the of...
Stephen G. Breyer: that interest.
Jeffrey S. Sutton: Absolutely, Your Honor.
Speaker: To t- use the sticks...
Stephen G. Breyer: those things have to be true, the theory and the...
Speaker: practice. All right.
Jeffrey S. Sutton: T- to use the sticks in the bundle analogy, every interest under State law in Michigan regarding this tenancy, each stick has to be exercised two by two, not one by one, but every one of them is two by two, husband and wife, and certainly not three by three, which is what the Federal Government is saying here.
Speaker: We now have...
Anthony M. Kennedy: the Federal Government to determine to what property the lien extends.
Jeffrey S. Sutton: I I I couldn't a- agree more, Your Honor.
Stephen G. Breyer: I mean, their point to the contrary is basically, you're right, th- s- or assuming you're right, it's still definite enough to get at, and and you really violate State law policy there only if you sell the property, you see, but as long as and, in- indeed, if they sell it on their own, that's their problem.
Speaker: community or if they don't...
Stephen G. Breyer: sell it on their own, then it becomes a question of how th- the judge will enforce the lien, and there your your clients or the equivalent would be free to go in and say, don't force me to sell the...
Speaker: property, et cetera.
Jeffrey S. Sutton: I hope I'm responding to your question.
William H. Rehnquist: You say Sandy.
Jeffrey S. Sutton: Excuse me, Your Honor.
Speaker: consequence...
Ruth Bader Ginsburg: to ask you one question about Michigan law in origin, because you said this goes back to eighteen sixty-six, so it was probably before the Married Women's Property Act, so, at least in some States it was, so whatever rights there were to control and make decisions, they were all in the husband at that time.
Jeffrey S. Sutton: Most of the Married Women's Property Acts were, almost all of them were passed before eighteen sixty-six, so first of all that defect, I would call it, in the old tenancy simply was no longer true, and even in the St- even in some States where that continued, it was still this, I guess it's jure uxoris concept, that it it wasn't the husband as an individual having an opportunity to do this, it was the husband acting on behalf of the wife, but that just isn't true under Michigan law.
Speaker: I thought, Mr.
Ruth Bader Ginsburg: Sutton, this is a question of what the Federal taxing authority can do.
Jeffrey S. Sutton: Your Honor, the only I agree with you, Michigan could change the law, though I think at that point the rationale...
Speaker: and the effect would not line up.
Ruth Bader Ginsburg: Michigan law, just as Arkansas law, continues to say, creditors, you can't get at this disclaimed property, same thing Michigan can say.
Jeffrey S. Sutton: The the problem for people like the Crafts is that they've already said it.
Speaker: so I agree with you.
David H. Souter: concern that the tenancy not be destroyed, in effect as a result of a consensual act by one of the spouses, an alienation by a spouse alone...
Speaker: the the in the...
David H. Souter: incurring of debt by one spouse alone as a consensual act, IE, going on a spending spree? But here, the consensual act of the spouse has nothing to do with it.
Speaker: and therefore it...
David H. Souter: seems to me outside the rationale that you're proposing for the...
Speaker: tenancy.
Jeffrey S. Sutton: respectfully disagree, Your Honor.
Speaker: up.
David H. Souter: sure it is.
Jeffrey S. Sutton: But Your Your Honor, it's a unilateral act, number one, by the spouse, and number two,
Speaker: it is a lot like it is a lot like the loan.
Jeffrey S. Sutton: It is a lot like the loan, Your Honor.
Ruth Bader Ginsburg: And then, if Congress said this explicitly, the same thing would follow, everything that you said.
Jeffrey S. Sutton: They could do what they did in the estate tax, which is regulate it specifically.
Speaker: easy concept.
Ruth Bader Ginsburg: oh.
Jeffrey S. Sutton: Why why doesn't Mrs. Craft have a takings argument the minute this lien attaches for the entire value of her property? Why is that not the case? It's not obvious to me.
Speaker: If the prop-
Ruth Bader Ginsburg: just as Mr. Drye didn't when his State law said...
Jeffrey S. Sutton: But there was only one taxpayer in Drye.
Speaker: Thank you, Mr. Sutton.
William H. Rehnquist: Mr. Jones, you have three minutes remaining.
Kent L. Jones: Thank you.
Speaker: Dow case...
Antonin Scalia: if it's in the statute you're quoting to us.
Kent L. Jones: We- I what I will what is in the statute that that I h-
Antonin Scalia: In the statute you're...
Kent L. Jones: What I have i- in in my possession is a copy that says that the effective date is nineteen seventy-five, and I do know that in Dow versus State, decided by the supreme court of Michigan in nineteen seventy-six, they applied that statute to a tenancy that had been created prior to nineteen sixty-five.
Speaker: i-
Stephen G. Breyer: didn't.
Kent L. Jones: No, not at all.
Speaker: I'm saying that...
Kent L. Jones: we have such a lien in this case, both from the right of survivorship, if we ever had to get there, but more importantly because the we have a lien in the right to receive proceeds.
Speaker: the management.
John Paul Stevens: can I ask you one question? I I hate to take up your reply time bu- In your view, will the decision in this case control in community property States, er rai- raising the same question?
Kent L. Jones: Well, I think the principles that you apply will, of course, control,
Speaker: and...
Kent L. Jones: And and and whether yo- whether a decision in this case addressed principles that would extend or apply in that situation as well as this, I can't say.
Stephen G. Breyer: Can they do they in a d- a community property State, can one spouse force division over the r- oh to an unwilling...
Speaker: spou-
Kent L. Jones: State law there are there are limitations, but those State law limitations have already been held to be ineffective against Federal tax...
Speaker: provisions.
Anthony M. Kennedy: property is subject to the debts incurred during the marriage?
Kent L. Jones: That's correct and and and in and again in the Mitchell case the Court held that that that State law fictions about the r- relative rights in in community proper [: property] States are no more binding on the Federal tax collector than in other contexts.
William H. Rehnquist: Thank you, Mr. Jones.