Warren E. Burger: Thank you gentlemen the case is submitted, we will hear arguments next in Marrese against American Academy of Orthopedic Surgeons. Mr. Murdock, you may proceed whenever you are ready.
Charles W. Murdock: Thank you. Mr. Chief Justice, may it please the Court, the facts, briefly stated, are these. Dr. Treister filed suit in state court to compel respondents to grant him a fair hearing on his application for membership. The Illinois appellate court in a case of first impression held that under certain circumstances Illinois courts can inquire into membership practices of a voluntary organization, but these circumstances are limited to the situation in which the membership in the organization is a matter of economic necessity. Accordingly, the Illinois appellate court dismissed the complaint. No evidentiary hearings were ever held. Petitioner then filed suit in federal court under Section 1 of the Sherman Act. The Seventh Circuit in a five-to-four en banc decision held that the federal suit was barred on the basis of claim preclusion. The position of the state can be summarized as follows. The preclusive effect, if any, of a prior state judgment on a subsequent exclusively federal cause of action should be limited to issue preclusion. The decision of the Seventh Circuit, standing as it does on claim preclusion, is unsound from a policy standpoint, unworkable and unnecessary from a practical standpoint, and unsupportable from a legal standpoint.
William H. Rehnquist: Mr. Murdock, in your amicus brief on behalf of the State of Illinois, you say, "The Attorneys General are greatly interested in the correct application of the laws of the United States. " Is there any more particularized concern that you as Attorney General of Illinois have in this case?
Charles W. Murdock: Actually, we are more concerned about the effect that this case will have on enforcement proceedings. In effect, it establishes a rule that when you have both a state claim and an exclusively federal claim, the federal claim must be brought in the first instance in federal court, and then under pendant jurisdiction the state claims must be appended to it or else under claim preclusion arising out of the federal proceeding they will be lost and could not be brought in a state proceeding. So, the net effect of this is that any time you have both a state claim and an arguably colorable exclusively federal claim, the state claim can never from a practical effect be determined in state court.
Byron R. White: It will just drive all plaintiffs to federal court.
Charles W. Murdock: That's right, and that is why from a policy standpoint you are going to increase the work load of the federal court.
William H. Rehnquist: So your concern isn't just that the state is a potential antitrust plaintiff. You do have a kind of a broader picture than that.
Charles W. Murdock: Yes.
Byron R. White: I suppose you would like to be able to have your own state courts enforce your own state antitrust act.
Charles W. Murdock: Well, not only our antitrust act, Your Honor, but the decision, we believe, also is unworkable because it assumes that when you bring... when you file your first suit, you know what you have, and that simply is not the case. If I can use an example derived from the Fifth Circuit's decision in Hayes versus Solomon, the lessor, when he files his state court proceeding, may realize that he has a breach of lease case, but it is not until discovery and investigation that he may realize that the breach of lease is part of a broader scheme that also gives rise to a federal antitrust claim. Now, under the Seventh Circuit's decision, arguably the federal claim is then barred because you started the state proceeding. If it proceeds to judgment, it will then bar the subsequent federal proceeding. What happens here is that, in the example that I have just illustrated, plus we have found often from our own experience that what starts out as a consumer fraud case, for example, may turn into a securities case, or an antitrust case, or civil RICO case, and what happens is, the state's claim, the state suit is properly brought in state court. Now, normally when there is discovery and additional investigation, and additional facts show there will be another claim, you simply amend your state court suit, but when what you discover is an exclusively federal claim you cannot amend your state court suit. Now, Justice Flamm's solution to this impasse is to file two suits, a state court suit, the state claim in state court, the federal court claim in federal court. But what then happens is, you have two suits proceeding simultaneously. You will have duplicative discovery, duplicative motion practice, and obviously one suit will go to judgment first. Then, if these do involve the same transaction, the first judgment will undoubtedly have some preclusive effect on the second suit, and that means that any of the proceedings, or at least some of the proceedings in the second suit are redundant. Now, this certainly is not judicial economy. Now, finally, or really, the state believes that issue preclusion will take care of most of the concerns that the Seventh Circuit raised. To take the parade of horribles example in Derish versus San Mateo, if you had a state antitrust statute that was identical to the federal antitrust statute and the state court suit first went to judgment and there was a trial, the second suit will be barred not on claim preclusion but on issue preclusion because a necessary fact for the federal suit will have been determined in the state suit. Finally, Your Honors, the Seventh Circuit decision is legally unsupportable. This Court last term in Migra held that a federal court must look to state law to determine the preclusive effect of a state court judgment, and Illinois law is absolutely clear that the first court must have jurisdiction to determine the claim sought to be barred in the second suit. There are two Illinois decisions that establish that principle, neither one of which is cited in any of the briefs. These cases are Barton versus Southwick, 258 Illinois 515, and Phelps versus City of Chicago, 331 Illinois 80. Phelps is directly on point. It involved a first action, an ejectment in which the City of Chicago did not assert the validity of certain tax deeds. While the suit was pending, a statute was amended which would have permitted such a claim to be brought in the ejectment proceeding. Later, the city in a partition proceeding sought to raise assert the validity of the tax deeds. The Illinois Supreme Court held that had the first suit gone to judgment before the statute was amended, the first suit would not have been res judicata with respect to the validity of the tax deeds because that claim could not have been raised in the first suit, but since the first suit went to judgment after the statute was amended, the validity of the tax deeds could have been asserted, and therefore the city was estopped, precluded... issue preclusion... from raising that. Thus Illinois clearly requires that the first court must have jurisdiction over the second claim in order for the second claim to be barred by issue preclusion. Accordingly, the state would ask this Court to reverse the decision of the Seventh Circuit.
William H. Rehnquist: Does the state take a position on the correctness of the Fourth Circuit's decision in the Nash County case?
Charles W. Murdock: Your Honor, the Fourth Circuit's decision may be right in the result but wrong on the reasoning, since it involved, first of all, a settlement, and arguably out of a settlement of a claim you can assume a waiver, although... actually were the documents that gave rise to the settlement. It can be rationalized on that basis. Also I believe it did involve a statute that was almost identical to the federal statute. Thank you.
Warren E. Burger: Mr. Sawyier.
Michael T. Sawyier: Mr. Chief Justice, and may it please the Court, this case presents the basic question whether the plurality opinion of the Seventh Circuit was correct in making what Justice Potter Stewart referred to as a completely unprecedented expansion of the res judicata doctrine for extremely dubious reasons. After two successively vacated panel decisions, both dissented to by Justice Stewart, a five-to-four majority of the Seventh Circuit held that the present exclusively federal antitrust action is precluded by claim preclusion as the result of the Illinois court's dismissal of the petitioners' two previous Illinois court actions against the respondent. However, because of the exclusive federal jurisdiction over federal antitrust actions, this action could not possibly have been brought in the Illinois courts. The actions that the petitioner did bring there were state common law actions, and had nothing to do with antitrust law, and those actions were dismissed at the outset for failure to allege a claim under that completely different body of law. In 1976 and 1977, when those state court actions were filed, no practicing lawyer would have imagined that their outcome might preclude by claim preclusion any subsequent exclusively federal claim, yet that is the radical and unjust result of the Seventh Circuit's claim preclusion decision as here imposed upon the petitioners, thus in effect denying them any day in court with respect to their present exclusively federal claim. At no point during the course of this action has the respondent dared to attempt to defend the merits of the exclusionary actions that it took toward the petitioners. Instead, it is argued to the District Court that the petitioners do not need to see their application files, because the information contained in them, and I quote, "would not substantially add to or detract from their general understanding of the facts. " The petitioners' general understanding of the facts, Your Honors, is set forth at Pages 4 to 5 of their principal brief to this Court. They have alleged that Dr. Treister was excluded from the respondent as a result of a conspiracy by the respondent's members to limit the output of expert testimony for plaintiffs in medical malpractice actions against orthopaedic surgeons in the Chicago area. They have alleged that Dr. Marrese was likewise excluded for inherently illegal anticompetitive reasons. They have further alleged that the respondent's entire nationwide admission system is procedurally arbitrary and unfair, so unfair that the respondent in fact purports to prohibit any rejected applicant from questioning in any manner an adverse admission decision. The petitioners have never received a hearing on these claims, and unless this Court reverses the Seventh Circuit's radical claim preclusion decision, they never will receive such a hearing. The states of the Seventh Circuit have ably demonstrated the strong policy objections to compelling plaintiffs with both state law and exclusively federal claims to bring their state law claims in federal court. Indeed, the spectacle of state governments having to litigate their state law claim in federal court is so objectionable that it by itself discredits the Seventh Circuit's approach. But the petitioners would emphasize in addition the following three decisive points, any one of which is sufficient to require the reversal of the Seventh Circuit's claim preclusion decision. First, there is an overriding federal rule of the nonpreclusion of exclusively federal claims by claim preclusion as the result of previous judgments when the previous tribunals lacked subject matter jurisdiction over such claims. Second, as the states of the Seventh Circuit have demonstrated to this Court, Illinois' claim preclusion rules have always recognized and applied this same fundamental could have been raised principle, which is the fundamental fairness limitation of the claim preclusion doctrine. Third, even if the Fourth Circuit's adoption of the identity analysis in Nash were correct, so that a state antitrust claim could ever conceivably substitute for an exclusively federal antitrust claim, this case is not that case. The Illinois antitrust actions that were the only antitrust actions which petitioners could previously have brought in the Illinois courts simply are not the same as the present exclusively federal action. There are two principal lines of authority for the overriding federal rule of nonpreclusion. First, the long-established prior jurisdictional competency requirement of federal claim preclusion as embodied in the could have been raised limitation of that doctrine. Second, the independent federal interest in what Judge Learned Hand referred to as the untrammeled jurisdiction of the federal courts over the various grants of exclusively federal jurisdiction.
William H. Rehnquist: Does this federal interest extend so far as to preclude a sort of issue preclusion if the same facts have been litigated in a state court action, albeit where you could not have litigated the federal claim, if that nucleus of facts has been litigated and the state court has made factual determination.
Michael T. Sawyier: Your Honor, the petitioners do not take a position on that issue except to point out that in the case of the previous state court actions that are here concerned, there were no determinations of fact, there were no determinations of law except for a determination that a technical pleading requirement of Illinois common law that has nothing to do with the antitrust laws was not satisfied. In fact, the petitioners have argued that the fact that there were no determinations in the Illinois court is itself an argument for the particular unfairness of the preclusion here.
William H. Rehnquist: So you don't have to deal with the Nash County decision one way or another?
Michael T. Sawyier: We believe that just as the states of the Seventh Circuit have stated, the Nash case and for that matter the Derish case, in fact support our position because of the material differences between the Illinois antitrust statute and the Sherman Act and the Clayton Act as well as the fact that no antitrust action was in fact brought in the state courts. But as for the question of issue preclusion as to issues of fact, the petitioners believe that issue preclusion of that sort may be consistent with the regime of exclusively federal grants of jurisdiction.
Byron R. White: Well, the plurality at least thought that Section 1738 just wasn't applicable in this case, didn't it?
Michael T. Sawyier: Yes, it did.
Byron R. White: What if we... you think that it is.
Michael T. Sawyier: Your, Honor, we believe that Section 1738 is generally applicable. The plurality's position that the statute was inherently inapplicable so that even in the absence of an overriding--
Byron R. White: Suppose we agreed with you and disagreed with the Seventh Circuit in that regard. Do we need to go any farther, or did they go on and say even if 1738 is applicable, we are giving no more effect to the state court judgment than the state courts would. Didn't they say that... didn't they disagree with you, or they disagreed with your position that the state courts would not give claim preclusion in this case?
Michael T. Sawyier: --The Seventh Circuit did not get into the question of state preclusion law.
Byron R. White: It didn't.
Michael T. Sawyier: That is correct. Judge Flamming referred in passing to his particular--
Byron R. White: If we disagreed with the Seventh Circuit on the applicability of 1738, why should we go any farther?
Michael T. Sawyier: --Because, Your Honor, there is an overriding federal rule of nonpreclusion which avoids the necessity to get into these questions of state preclusion law.
Byron R. White: I know, but I thought that if 1738 is applicable, the preclusion claim in the federal court has to be decided on the basis of how the state court would.
Michael T. Sawyier: In general, that is absolutely correct, Your Honor, but in Kremer v. Chemical Construction Corporation, this Court pointed out two exceptions to the general rule of Section 1738, and the petitioners believe that the more important of those exceptions is not the implied statutory exception, although in Brown v. Felson that implied statutory exception was clearly indicated. The petitioners believe that the more important exception was the full... the concept of the full and fair opportunity to litigate that is necessary for any preclusion. In Kremer--
Byron R. White: Yes, but your position is that under state law there would be no preclusion in this case.
Michael T. Sawyier: --Absolutely, Your Honor.
Byron R. White: I mean, if you follow their principle of preclusion, that you wouldn't get preclusion at all.
Michael T. Sawyier: That's correct.
Byron R. White: If you are right in that regard, why, we don't have to talk about what the federal rule would be, do we, if we disagreed on 1738.
Michael T. Sawyier: Your Honor, we believe that this Court should decide this matter on the basis of a federal rule so that it is not necessary in administering the various grants of exclusively federal jurisdiction to inquire into state preclusion rules, although, to be sure, the petitioners are unaware of any state's claim preclusion rules that would call for the preclusion of a claim that could not possibly have been raised in the previous tribunal. But, Your Honor, I would like to return to the concept of the full and fair opportunity to litigate in Kremer.
Byron R. White: You mean as a federal rule.
Michael T. Sawyier: Yes, Your Honor.
Byron R. White: Of preclusion... of nonpreclusion.
Michael T. Sawyier: Of nonpreclusion. Precisely. If even the relitigation of exactly the same issue may not be precluded, as this Court said in Kremer, even the relitigation of exactly the same issue may not be precluded.
Byron R. White: You said that.
Michael T. Sawyier: Unless the parties have received a full and fair opportunity to litigate it in the previous proceeding, then surely the initial litigation of an entire claim no aspect of which could have been litigated in the prior proceeding may never be precluded. The jurisdictional impossibility of bringing a claim in the previous forum is the opposite of the full and fair opportunity to litigate it which this Court said in Kremer is necessary for preclusion. The respondent has also been utterly unable to respond to the petitioner's third point concerning the materially different applicable standards of liability and damages as between the Illinois antitrust actions that they might have brought but did not and their present exclusively federal antitrust action. Here and now, the petitioners challenge the respondents once again to say anything in response to their analysis of the applicable standards of liability and damages.
William H. Rehnquist: Mr. Sawyier, under your theory of this federal rule that goes... it is bigger than 1738, I guess, is the way you are putting it. Supposing that there had been an Illinois antitrust action filed and it was litigated and one of the issues was the good faith of the respondent, and the Illinois trial court found that the respondent acted in good faith at all times. Now, supposing you now bring the federal antitrust claim, and for some reason the issue of good faith is again relevant. Now, can the respondent argue preclusion in the federal antitrust case by virtue of the earlier litigation?
Michael T. Sawyier: Your Honor, the petitioners are not opposed to the application of issue preclusion as to issues of fact from a state court proceeding to an exclusively federal antitrust proceeding. They do say, however, that that is not the issue in this case, because there were no issues determined in the Illinois actions except for the technical pleading requirement of Illinois common law. In conclusion, Your Honors, the petitioners respectfully ask this Court to reverse the Seventh Circuit's claim preclusion decision which the dissenters below rightly describe as an arbitrary and unjust denial of access to the federal courts. That decision was not only arbitrary and unjust. It offended the fundamental principle identified by Justice Stewart, the principle that parties, not judges, choose the forum. At the same time, and it is a necessary result of that decision, the petitioners respectfully ask this Court to reverse the criminal contempt decision. That decision was absolutely dependent upon the claim preclusion decision, as demonstrated by the petitioner's supplemental brief concerning Roland Machinery Company v. Dresser Industries, Inc. The standard of review of discovery orders in the Seventh Circuit is that of whether any reasonable person could agree with them. Your Honors, Justice Potter Stewart, Chief Judge Cummins, and the other dissenters on the Seventh Circuit agreed with District Judge Shader's discovery orders. Therefore, the only basis for the Seventh Circuit's criminal contempt decision must have been its holding--
William H. Rehnquist: Mr. Sawyier, as I read your petition, there are only three questions presented. I thought they all related to the res judicata.
Michael T. Sawyier: --That is certainly correct, Your Honor. However, in this case, the criminal contempt decision turned on the claim preclusion decision, and the entire case is before this Court.
William H. Rehnquist: Well, wouldn't it be more consonant with our rules if we rule with you on the res judicata point to reverse and remand the Seventh Circuit and let them decide whether one is contingent upon the other.
Michael T. Sawyier: The petitioners certainly are prepared to point out to the Seventh Circuit the fact that Judge Bowers' concurring opinion was a concurrence only in the result, and that Judge Bower was one of the members of the majority in Roland Machinery Company in which the Seventh Circuit emphasized the rule of discretion in the strong sense as to discovery orders such that the test is whether any reasonable person could agree with that. In terms of that test, the only explanation for the Seventh Circuit's criminal contempt decision must have been its holding, its express holding that the criminal contempt fell with the case. Thank you, Your Honors. We would reserve the remaining time.
Warren E. Burger: Mr. Griffith.
D. Kendall Griffith: Mr. Chief Justice, and may it please the Court, during the four years that this case has been pending in the District Court and the Court of Appeals, this Court has issued a series of opinions dealing with the application of the full faith and credit statute, Section 1738, to res judicata cases where a prior state court judgment is being asserted as a bar in a later federal court action. This case adds an additional element. That element is the fact that in this instance, the claim being asserted in the later federal court suit is within the exclusive jurisdiction of the federal courts. It is an antitrust claim. It is the respondent's contention that the addition of this new element does not alter the standards for applying 1738 in these types of cases that have been announced by this Court recently. We further submit that when the nature and the purposes of the policies of both finality of judgments, full faith and credit, and exclusive jurisdiction are examined and compared, they do not affect the principles of finality of judgment which these recent cases have announced. In Allen, this Court said that Congress specifically required federal courts to give preclusive effect to state court judgments when the courts of the rendering states would do so. In other words, the federal courts are to give the same preclusive effect to a state judgment that the state would. In Thomas versus Washington Gas, the Court noted that this means that it is the state that determines the extraterritorial effect of its judgments, but out of practical necessity, it must do so indirectly by prescribing the effect of those judgments within the state. In this instance, then, the court, the federal court must determine whether Illinois, in view of the final judgments which it has rendered, would preclude further litigation between these parties as a result of the denial of the membership application. The Illinois law of res judicata provides that final judgments by a court of competent--
Sandra Day O'Connor: I suppose we could remand on that question because the court below didn't deal with it, did it?
D. Kendall Griffith: --The plurality opinions did, Your Honor. Judge Flamm discussed the Illinois law in great extent.
Sandra Day O'Connor: Can you cite any Illinois case holding that a subsequent claim is barred by a prior proceeding in which that claim could not have been raised?
D. Kendall Griffith: I cannot cite any case which says the opposite, Your Honor. It has been represented here that Illinois has a jurisdictional competency requirement. That representation, we submit, is not correct. And it is the result of taking words out of the Illinois definition of res judicata and other words out of the language describing the difference between claim preclusion and issue preclusion and twisting them. The first language that is used is the Illinois requirement that the final judgment be by a court of competent jurisdiction. It is referring to the first court's jurisdiction to hear the first action, and the reason for that requirement is simple. If the first court didn't have jurisdiction, that judgment is null and void. A null and void judgment can be collaterally attacked, and collateral attack, preventing collateral attack is what res judicata is all about. Now, on the other hand, as the Court knows, there are two branches of preclusion, claim and issue. And they are distinguished by most courts by saying that claim preclusion precludes not only what was litigated, but what could have litigated. What they are talking about there is not, we submit, subject matter jurisdiction, because most res judicata cases and the cases in which that language was generated are two cases filed in the same court. The jurisdictions were the same, but what they are saying is just what happened in the Phelps case that Mr. Murdock cited to the Court. If the second claim hadn't matured, or if you had a continuing tort and the second claim involved actions which took place after the first suit, that is something that could not have been raised in the first suit. In the Phelps case, they were talking hypothetically, saying that if the case had been tried before this statute that was relied on in the second case was enacted then that matter couldn't have been raised in that first case because the statute wasn't in existence. In other words, that cause of action was premature. A fact necessary for it wasn't in existence. So, there is no jurisdictional competency requirement. What they are doing is saying there is a jurisdictional competency requirement, and furthermore we are going to measure it not from when the cause of action accrues and when the party makes a decision as to whether he is going to sue, where he is going to sue, what he is going to sue for, but you measure it after he has made that choice, after he, as Mr. Justice Potter Stewart said, has made the choice. It isn't the court that made the choice here. It is the plaintiffs. They chose to sue in Illinois. If you let a plaintiff... if you measure that from after the time the plaintiff has made the choice of where he is going to sue and selected the forum, you can always in exclusive jurisdiction matters, if he has got two claims cut of that single event, one of them is within the exclusive jurisdiction of some court, and others are common law, which he can bring in another court by waiting to measure could have been brought until after he sues he can always claim split. He can always ensure himself of multiple litigation of a single event.
Byron R. White: Suppose we disagree with respect to the applicability of Section 1738. What should we do? Should we stop there and remand were the Seventh Circuit to decide what the state... what effect the state rule would... the state courts would give to this--
D. Kendall Griffith: Well, that... maybe I don't understand, but if you decide that 1738 doesn't apply, that--
Byron R. White: --Does apply.
D. Kendall Griffith: --Oh, I am sorry. Does apply. I submit, Justice White, that you don't have to do that, because as I said, I think Judge Flamm--
Byron R. White: Well, suppose we did it.
D. Kendall Griffith: --defined... I think the plurality opinions defined what the Illinois claim preclusion law is.
Byron R. White: He didn't write the plurality?
D. Kendall Griffith: He did not write the plurality. That's correct, Your Honor.
Byron R. White: What do you think he said the Illinois claim preclusion law is or was?
D. Kendall Griffith: He said that the Illinois law would bar further litigation in Illinois between these parties resulting from the--
Byron R. White: Even though the second claim couldn't have been raised in the first?
D. Kendall Griffith: --That's right, that's right, because this is one... the action... the language could not have been raised. You really only apply that when you are trying to decide whether it is claim preclusion or issue preclusion.
Byron R. White: What was the vote in this case below? I mean, on the judgment.
D. Kendall Griffith: Five to four.
Byron R. White: Five to four. Well, if we disagree... Judge Posner didn't think 1738 was applicable, right?
D. Kendall Griffith: That's... yes, I think that is true.
Byron R. White: Yes. Do you defend that?
D. Kendall Griffith: No, I think 1738 is applicable, and I think if you apply it--
Byron R. White: Well, if that is so, what do you think the four people would say? They thought 1738 was applicable, didn't they?
D. Kendall Griffith: --That's correct.
Byron R. White: Well, now, if we disagree with Judge Posner, I would think then there would be a majority that would approach the case on the basis of what is the state law.
D. Kendall Griffith: I think you are right, Your Honor, because Judge--
Byron R. White: We don't know what the people who joined Judge Posner would say about state law, do we?
D. Kendall Griffith: --Well, we know what Judge Flamm would say.
Byron R. White: Yes, Flamm, yes, but nobody else.
D. Kendall Griffith: That is one out of five.
Byron R. White: But that is not quite enough.
D. Kendall Griffith: That's true. If 1738 does apply, as we understand Allen and Kremer and the other cases, you are not really concerned, though, with whether this could have been raised in Illinois. You are concerned with what effect Illinois would give that judgment. Once that is determined, you take that effect and apply it in the federal court. The effect in Illinois is to preclude further litigation between the petitioners and the respondent over the rejection of this membership application. That is the effect. This is a suit between the petitioners and the respondent. It involves a rejection of the membership application. It would be precluded... that is what Illinois precludes, further litigation on that. Therefore this Court or the federal courts must give the same effect.
Byron R. White: Was this decision below, was that before or after Migra?
D. Kendall Griffith: It was about three or four days before.
Byron R. White: Right.
D. Kendall Griffith: That is correct. That is why Judge Posner went on the proposition that you need more.
Byron R. White: It may have been that we should have vacated and remanded on Migra rather than taking the case for plenary consideration. But here you are.
D. Kendall Griffith: That's right. I was going to say, Your Honor, I am here now. 0 [Generallaughter.]
Warren E. Burger: You are not inviting that result.
D. Kendall Griffith: Well, no, obviously, I would like to see the case decided now along the lines I have said, although I am not really fearful of that. I think that when Migra and these cases are examined, along with the Illinois law of claim preclusion, this is where we are going to come out.
Byron R. White: What do you think about your colleague's suggestion on the other side that there is an exception to 1738?
D. Kendall Griffith: Because of exclusive jurisdiction?
Byron R. White: Well, because of the overriding federal interest and that... yes. You are right.
D. Kendall Griffith: All right. I do not frankly understand that at all, and I guess it is because I--
Byron R. White: You don't think there is a--
D. Kendall Griffith: --I think that there is an interest. Obviously there is an interest because exclusive jurisdiction was granted, but I think you have to look at what is, just what does that mean, and I submit that it means that if an antitrust action is filed, and if it is maintainable, then it must be filed and maintained in the U.S. District Court. It does not mean that every antitrust claim must be filed. That decision still rests with the individual antitrust claimant, and if he never files it, and of course once he makes his decision he has to accept the consequences. If he never files it, he never has antitrust relief. If he files it but he delays too long for some reason and the statute of limitations has run, he does not have and cannot get antitrust. The exclusive jurisdiction does not mean that it must be maintained, or the courts must entertain it once it comes to them.
William H. Rehnquist: --If he wants to present a lot of evidence by hearsay and it is barred by the federal rules of evidence, he loses on the application of those rules of evidence just as someone would in any other case.
D. Kendall Griffith: That's correct. The purposes of exclusive jurisdiction, that is one of them, to give him the advantage of the discovery procedures in the federal court, the rules of evidence, the experience and expertise of the federal bar in antitrust, and to provide uniform enforcement. Now, all of these things relate to facilitating the prosecution and defense of an antitrust case. They all take place, and once a decision is made to file they all apply to actions that it was decided to present, and if the claimant decides not to file that action, none of those reasons really are there. They are not important. And the failure to file doesn't frustrate any of those purposes. On the other hand, if in this instance the claim is not precluded, then the purposes of finality of judgment in 1738 are frustrated, because you have multiple litigation of a single event. The respondent must defend a second time the claim that the rejection of membership was wrongful. A second court must entertain that action, and this is what claim preclusion, finality of judgments is all about. Their purposes will be frustrated if this claim is not precluded. The purposes of exclusive jurisdiction will not be. Those all relate to what happens if a claimant decides to file. Here, the petitioners were the plaintiffs in the state court. This was their decision. They chose. With respect to the argument of Mr. Murdock regarding the interests of the Attorneys General, if they are dragged into federal court, then you have party reversal, and that is not this case. That presents another problem when someone is coerced into a jurisdiction, and he himself has a claim that is within the exclusive jurisdiction of another forum. The state is either talking about that or they are talking about their own election to go to federal court first, and then they are afraid that they will be precluded from having their state forum. Well, again, that is their choice. If they, on the other hand, are made a defendant in a federal action, and they are worried about preclusion then of their state action that they would be bringing in the state as plaintiff, there you have party reversal. That is not this case.
William H. Rehnquist: They have a problem if they are simply substituting for the plaintiff in this case, don't they? Supposing they had sued the respondent in this case under the same state law the plaintiff did, and then lost on the state claim. Now, it is conceivable that perhaps they might have a federal claim of some sort, too, that would be precluded. I thought their argument was, we want to be able to take our state claims to state court first, and not have to just join them as pendent claims in a federal action.
D. Kendall Griffith: Well, in this situation... in other words, you are supposing that after the petitioners file this action in federal court, that the state then wanted to join it for some reason.
William H. Rehnquist: Let's posit a state antitrust law, and then the state sues to recover damages under the state antitrust laws, and loses for some reason or other. They say that they shouldn't be precluded from then filing a federal action because otherwise they will never file an action for state antitrust damages in state court. It will always be a pendent action to the federal one, because they can't risk going in two separate courts.
D. Kendall Griffith: Well, I am not so sure, in view of what the Court said in Migra, that they can't go in two courts. The problem here, of course, is that the petitioners waited until they had a final judgment in the state court, and then they brought a successive suit. They didn't bring a current suit. And as the Court noted in Migra, if a party files a state action and a federal action, he can preserve the federal action if the state action is decided first by indicating that he is reserving his right to proceed or his federal claim in the federal court. So, I think the options here are not just filing in the federal court and invoking pendent jurisdiction. The dismissal in state court can be without prejudice to the claim which is already pending and filed prior to the final judgment.
Byron R. White: Yes, without prejudice, but what if it is just decided?
D. Kendall Griffith: Well--
Byron R. White: What if it is just... two concurrent suits, one of them is... whichever one is decided first is going... may at least affect some issues in the other suit.
D. Kendall Griffith: --That's true.
Byron R. White: And finally preclude, they will issue preclusion based on whichever case finished first. And there may be claim preclusion.
D. Kendall Griffith: Unless, of course, that was... but that is what claim preclusion is all about, I submit, Your Honor. We unfortunately don't always get to have everything.
Byron R. White: But don't you agree that one effect of this decision below is that plaintiffs may more often take their whole ball of wax to the federal court than to start a state case?
D. Kendall Griffith: Yes, and I think another effect is--
Byron R. White: And which means that they will take their pendent state claims over to the federal court.
D. Kendall Griffith: --That's correct, but that they could do before this decision, and I think it also means that probably it will encourage more antitrust because they will not feel that they can wait, and they will make that decision in a timely way.
Warren E. Burger: Do you have anything further, Mr. Sawyier?
Michael T. Sawyier: Yes, Your Honor.
Warren E. Burger: You have four minutes remaining.
Michael T. Sawyier: The respondent has talked about the unfairness to it of the petitioners having had the opportunity to proceed in state court first and to exercise their right to a state court forum for their state law claims. The petitioners believe that the true unfairness is the fact that they never had any opportunity, much less a full and fair opportunity to litigate the exclusively federal claim in the state court forum, and yet the Seventh Circuit has held in its claim preclusion decision that the exclusively federal claim is barred by the technical pleading requirements of Illinois common law. The petitioners would return, Your Honors, to the fundamental concept of a full and fair opportunity to litigate that this Court emphasized in Kremer. Kremer, of course, laid down the general principle or followed the Allen case in extending the general principle of the full faith and credit requirement of Section 1738. But in Kremer this Court recognized that if the parties had not had a full and fair opportunity to litigate an issue in state court in the previous forum, then there would be no issue preclusion, notwithstanding the ordinary effect of Section 1738, and notwithstanding in particular what the state's preclusion rule said on that subject.
William H. Rehnquist: Don't you in order to get the lack of fair opportunity to litigate exception involved first show that the general principle is applicable, that is, that Illinois would say this was precluded? Then you would come in and say, well, even though Illinois says that, we didn't have a full and fair opportunity to litigate, but I don't think the exception makes a great deal of sense until you are first hooked by the general proposition, which was that Illinois would preclude this.
Michael T. Sawyier: In that sense, Your Honor, the full and fair opportunity to litigate concept might be regarded as something even more basic than an exception to Section 1738. It is a fundamental fairness requirement, and for that reason the petitioners maintain that the claim preclusion of an action that could not possibly have been brought in the previous forum is so fundamentally unfair, and so antithetical to the regime of exclusively federal rights that this Court should rule as a matter of a federal rule that no such claim preclusion can occur. Your Honors, the respondent has chided the petitioners for taking words out of cases and twisting them. The petitioners submit that the respondent's discussion of the most recent Illinois Supreme Court pronouncement on the res judicata doctrine is a classic example of the fault for which the petitioners are criticized. The respondent has noted that in Spiller the Illinois Supreme Court did not add the usual words in the original action after reciting the centuries old could have been raised test. Your Honors, on the very next page of the case report of Spiller the Illinois Supreme Court locked to the original action in the Illinois courts in deciding that there was no claim preclusion, and the three Illinois Supreme Court cases that it cited had all used those very words. Thank you, Your Honors.
Warren E. Burger: Thank you, counsel. The case is submitted.
Speaker: The Honorable Court is now adjurned until tomorrow at 10:00.


Earl Warren: Number 91, United States, Appellant, versus Roy Fruehauf. Mr. Gillespie.
S. Hazard Gillespie, Jr.: Chief Justice, may it please the Court. In this case, the Government appeals by direct appeal from the oral ruling of the United States District Court for the Southern District of New York, dismissing an indictment on motion before trial. The indictment which is in the record is in two counts. Charges in the first count that all of the defendants except the defendant Dave Beck were employers of employees in an industry affecting commerce and unlawfully paid and delivered and agreed to pay and deliver to Dave Beck, President of the International Brotherhood of Teamsters, a representative of the employees mentioned, a thing of value to wit money in the amount of $200,000. The second count charges that the defendant Dave Beck received and accepted and agreed to receive and accept a thing of value, to wit, this money, in the amount of $200,000. The close of each count, it is stated that the acts alleged in the respective counts, constitute a violation of Section 302 of the Labor Management Relations Act of 1947, the Taft-Hartley Act, which specifically makes it "unlawful” for any employer to pay or deliver or to agree to pay or deliver any money or other thing of value to any representative of any of his employees who are employed in an industry affecting commerce." The statute also makes it a crime to accept or receive money or thing -- other thing of value. Just prior to the trial of this case in the District Court, the Government filed a memorandum with the trial judge in which the Government acknowledged. What is the fact that this payment and delivery to Beck of $200,000 was made to him as a loan. The District Court, treating the memorandum as a judicial admission, ruled that since the payment and delivery and the receipt and acceptance of the $200,000 were on a loan basis. The statue was not violated and there was no offense as a matter of law. It is from this ruling of the District Court that this appeal is prosecuted. Motions to affirm were made in this Court at the early brief and probable jurisdiction was noted on October 10 of last year. In our submission, the District Court ruling is error. The plain language of the section prohibits any payments or delivery of money to a representative of employees except those expressly authorized. The purpose and the context of the Section, we believe accord with this literal meaning. And the legislative history shows the intent of Congress to prohibit all financial dealings except those specifically authorized. Now, I will expend on each of those three points briefly and then deal whether -- with what I understand to be the two principle contentions of the appellees which are as follows, as I understand them. First, the appellees contend that an amendment of the statute in 1959, in the Kennedy Urbandale -- Urbandale which included among other things adding the term "lend" to the prohibitions already extant against paying or delivering money. Evidence's, Congress' own understanding that the statutory prohibition had not theretofore included alone, and then, their second contention as I understand it that to construe the statutory prohibition in the earlier legislation of which was against paying or delivering money as including a prohibition against paying or delivering on loan, would deprive the accused of that unequivocal warning which every criminal statute should convey. As I said, I'll -- the converse of this second proposition of the appellees is the Government's first point. We insist, respectfully, that the plain language of the statute as enacted in 1947, made it lawful or unlawful for an employer to pay or deliver "any money or other thing of value to a representative of his employees as well as the receipt or acceptance thereof by the representative”. Now, deliver, which is the term of the statute according to the dictionary meaning, is to give or transfer. Receive. Again, according to the dictionary meaning is to take something that is offered. As we see it, every loan contemplates or has as an essential element, transfer, delivery and acceptance of the matter alone. When an employer makes a loan of $200,000 to a representative, he, to paraphrase the statute, pays or delivers money to the representative and then latter receives or accepts money from the employer.
Potter Stewart: Mr. Gillespie.
S. Hazard Gillespie, Jr.: Yes, sir.
Potter Stewart: This loan had been at 8% interest, would there be a statutory violation?
S. Hazard Gillespie, Jr.: Well, I would say, unquestionably so, Mr. Justice Stewart, without any question. I think that may bear on the subject of whether this was in other thing of value but it sees the position of the Government that the payment or delivery of money at the outset was a square violation of the clear provisions of the statute and no matter what the interest rate might be, there would be a violation.
John M. Harlan II: Your -- your argument assume that it's a bona fide loan --
S. Hazard Gillespie, Jr.: That --
John M. Harlan II: -- and the fair rate of interest --
S. Hazard Gillespie, Jr.: I think we must, Your Honor, for the question that has been put to the Court at the present time. The -- the jurisdictional statement makes it clear that it's just the question of loan and I think that Your Honors must assume that it was a bona fide loan at a fair rate of interest. Now, there's some colloquy in the record which is before Your Honors which indicates somewhat to the contrary but I think in fairness to the defendants that I must say that the question that was put before this Court is a bona fide loan.
John M. Harlan II: Supposing -- supposing the transaction had been a purchase of Beck's house and the purchase price have been paid to Beck, would that have been a --
S. Hazard Gillespie, Jr.: Well, Your Honor, there are some exceptions in the statute which permit certain transactions. I believe that a purchase of a house would come within such an exception.
John M. Harlan II: Is that exception in your brief?
S. Hazard Gillespie, Jr.: I believe it is at least -- no, as a matter of fact, it is not, Your Honor. The statue is set out but not all portions of it are there. But my judgment would be that that would come within one of these sections and my assistant has brought to my attention that there is as I thought such an exception with respect to the sale or purchase of an article or commodity at the prevailing market price in the regular cost of business. There is such an exception. Now --
Earl Warren: Isn't that the question that -- that this loan was for 2% instead of the normal interest rate with any concern with us in this case?
S. Hazard Gillespie, Jr.: Well, Your Honor, I -- I honestly think not.
Earl Warren: Well then, would you -- would you state why because we may make (Voice Overlap) --
S. Hazard Gillespie, Jr.: Well, only because I think in fairness to the defense, we must consider the question as it was put to the Court in our jurisdictional statement which was squarely the question presented is whether a loan of money comes within the foregoing prohibitions. And I think, to expand the question as we outlined it to Your Honors when you noted, probable jurisdiction would not be proper. Actually, the record does disclose that it was at 2% and that there were certain favors conferred with regard to that. But I feel that the question that Your Honors must address yourself squarely to with regard to this and -- and may very well been why Your Honors thought this was desirable to bring up and to -- or at least to consider this question, was this matter of loan as such, whether it comes within the square prohibitions as we feel it does of this statute.
Felix Frankfurter: Unless the -- I beg your pardon (Voice Overlap) --
Earl Warren: What do the -- how did the Court of Appeals treat it? Did they --
S. Hazard Gillespie, Jr.: Your Honor, this was my direct appeal from the District Court --
Earl Warren: Oh, yes. Yes.
S. Hazard Gillespie, Jr.: -- being the dismissal of an indictment.
Earl Warren: How -- how did the Court treated it?
S. Hazard Gillespie, Jr.: Your Honor, it just said that because it was a loan, it didn't come within the provisions. The -- the -- it was an oral ruling very, very brief and -- and practically, nothing is said under such. I might say that another District Court has held that the loan of a tugboat for 24 hours came squarely within the provisions of the Act and upheld an indictment under -- that's in the Northern District of New York.
Felix Frankfurter: I was going to ask you, Mr. Gillespie or rather qualify your statement that this Court must treat it in the terms in which you put it to us, unless -- my unless is unless the record justifiably, it's going to be approved that this is a -- a contrive case and I think that there's nothing to justify there.
S. Hazard Gillespie, Jr.: I do -- I don't think so on this record and I think in fairness to the defendants, I should take that position squarely, Your Honor.
Charles E. Whittaker: I think that construed (Inaudible) back to a more collateral state of law?
S. Hazard Gillespie, Jr.: Your Honor, I -- I think that that again, I don't want to deprive the position that I'm taking of every advantage possible but I -- I really feel that the question that led Your Honors probably to consider this case was whether or not a loan, assuming it was a bona fide loan, came within the prohibitions of this -- of this statute.
Earl Warren: But where did we get the -- the information that this was a 2% loan. I don't see it in the indictment.
S. Hazard Gillespie, Jr.: It is not in the indictments, Your Honor but in --
Earl Warren: Did you raise it in your brief?
S. Hazard Gillespie, Jr.: -- it -- it was in -- it was in the memorandum of law which was filed with the Court at the opening of the trial and which was the judicial admission which the District Court said, gave rise to the fact that this was a loan and which led the Court under the circumstances to say, "A loan does not come within the prohibitions of the statute." I think I can point that out to you. I think, if Your Honors will turn to page 12 and 13 of the record, you will find a detailed statement of what was in the brief. And you will find at the bottom of page 13 on the right that only 4000 interest, approximately half of the interest due which was 4%, so there's only 2%, was actually paid and that was remitted in the form of a check dated May 3, 1950 from -- 1955 from Linda who was Beck's attorney to Seymour. Now, I think that is probably where the information with regard to the 2% came to Your Honors' attention. The loan was set up at 4% but only 2% was in fact paid.
John M. Harlan II: Because you -- your indictment alleges the -- the thing of value, the full proceeds of the loan. It doesn't allege the increment, the unfair increment that it might be involved into the (Inaudible).
S. Hazard Gillespie, Jr.: It does not.
John M. Harlan II: So you're -- if the -- your part from that position, you might run in trouble so as to the indictment, isn't it?
S. Hazard Gillespie, Jr.: That -- I think that is correct. I think that is correct, Mr. Justice Harlan. Well, this Court previously on both the Ryan case and the Arroyo case as we see it has ascribed their literal meaning to other terms used in Section 302. In the first of these cases, that is the Ryan case, the Court concluded as Your Honors will remember that the term in the statute representative of employees included the president of the union as well as the union itself even though by contract, the union was turned to the exclusive bargaining representative. And so doing, the opinion stated as the statute reads, "It appears to be a criminal provision malum prohibitum, which outlaws all payments with stated exceptions between the employer and representative." And then in the Arroyo case which of course followed by some years, the Ryan case, while the majority of the Court held against the Government's prosecution by deciding that one of the exceptions to the prohibitions of this Section had been precisely followed. The opinion noted in connection with the statute as a whole that a literal construction of this statute does no violence to common sense. Now, we ask no other consideration here than that. That the language of this statute be followed precisely and that the 1454 delivery of this money as the first step in this loan, fell squarely within its prohibitions. As of course, this Court knows, Section 302 of the Labor Management Relations Act of 1947 was enacted as a part of a comprehensive revision of federal labor policy. In the light of experience, came under the Wagner Act and was aimed to practices which Congress considered destructive of the integrity of collective bargaining. One way in -- in which Congress sort to preserve and protect that integrity was by outlawing all unauthorized payments between employers and representatives to ensure that they would deal at arm's length. Now, a loan of a large sum of money can be just as corrosive of that absolute separateness sought by Congress as an outright gift. Indeed, it would be our submission that the obligation of the representative would not be merely that of one who has behold him for have favored about him as in the case of a gift. But if the loan is for a large sum of money and is on demand or becomes overdue, it places the borrower at the absolute mercy of the employer. Boswell in the light of Johnson had this to say and I think it fits this situation rather perfectly. The way to make sure of power and influence is by lending money confidentially to your neighbors at a small interest or perhaps no interest at all and having their bonds in your possession. The specific language of 302 was intended to and did cover any delivery or receipt of money that might cause such an abuse.
John M. Harlan II: This is irrespective of the intent which is delivered.
S. Hazard Gillespie, Jr.: I think that is correct, Your Honor.
John M. Harlan II: This is not like the ordinary bribery statute where you have two --
S. Hazard Gillespie, Jr.: I think this Court has -- has said and has noted the fact, Your Honor that this is not a -- a bribery statute in that sense that you have to establish that two weeks before you are going into negotiations, you came around and slipped something under the table. This is an outright prohibition against the delivery or payment of money at any time or other thing of value at any time. It does not have to be shown in the context of an actual transaction as between the representatives.
John M. Harlan II: That has a bearing on ways to the way you construe the statute though.
S. Hazard Gillespie, Jr.: Possibly so, Your Honor. It possibly so but it seems to me the prohibition is clear there regardless. The structure of 302, I think also points towards the same construction. Subsections (a) and (b) which we've been dealing with thus far are the broad prohibitions. The exceptions to these prohibitions are set forth in (c), and these exceptions are carefully defined, extremely detailed and very narrow. I'm not going to take Your Honors' time now to go through them but when you look at those exceptions, you will see very clearly that the Congress knew what it was doing when it was drafting these exceptions and that it gave comparable consideration to the exceptions it wished to make. And that it accepted only those things which would be free from abuse like a purchase and sale of a house, the checking off of union dues with written authority and that type of thing. And this is persuasive evidence, we submit, to paraphrase this Court's opinion in the Bernanke case, the wiretapping case that had Congress intended to allow employers to pay or deliver money on loan, it would have said so. But not only the literal meaning and underlying purpose of the statute but the legislative history, supports the Government's view that all payments or deliveries of money, whether on loan or otherwise, were intended to be within the prohibitions. Almost exactly this same language of Section 302 first appeared at the second session of the 79th Congress in 1946 when Senator Byrd proposed an amendment to what was then known as the case bill. It covered almost identically what we have here. Speaking of the purpose of the amendment, Senator Byrd said, "It prohibits the employer to pay for any representative of any of these employees to collect or attempt to collect any money or other thing of value for the use of such representative or in trust or otherwise." Some senators were concerned over the broadness of the proscriptions particularly Senator Pepper was concerned. And he argued that language forbids every type of delivery by employer to employees and every type of receipt by employees from employer except to payment of compensation for services rendered and the so-called checkoff. Senator Taft who was also a strong supporter of the Amendment had this to say. "With regard to the very wording, I assert that once we permit an agent to obtain money for his own use or for any purpose, it is affirmatively a dubious practice, an immoral practice and unless it is used for purposes which are properly defined by law, it should not be permitted." Now, this Amendment was adopted by the full Congress, the House of Representatives passed it and then the President vetoed the case bill and it failed to pass over his veto. They went back the next year and went to work on this again and similar language was introduced in the Senate Committee. A majority of the Committee reported out against it but Senator Taft and Senator Ball and Senator Smith of New Jersey filed a minority report, brought the matter up, the specific language on the floor of the Senate in 1947 and over many protestations, the Section 302 was passed into law.
Felix Frankfurter: Of course, if -- if Congress had used Senator Taft's language prohibiting any union officials from obtaining money for his use, you -- you wouldn't be here and wouldn't be bothered with the problem which is --
S. Hazard Gillespie, Jr.: Well, perhaps that -- perhaps that is so, Your Honor but still, I think the language is clear enough that -- that --
Felix Frankfurter: What I'm saying is --
S. Hazard Gillespie, Jr.: I'm afraid, you're probably right, sir. But nowhere in the course of the history of Section 302 is that it would be from any indication by explicit statement or implied suggestion that the Congress did not intend to forbid every sort of financial transaction except those authorized between the employers and representatives of employees. And we would say that further to indicate the burden of the intended coverage of the statute. Congress went beyond simply the delivery or payment of money when they prohibited also the delivery of any other thing of value, and a substantial loan of money which I mentioned just a moment ago, qualifies under both prohibitions of the statue.
Felix Frankfurter: How many specific exceptions are there, Mr. Gillespie?
S. Hazard Gillespie, Jr.: There are five.
Felix Frankfurter: Five.
S. Hazard Gillespie, Jr.: Yes, there are five.
Felix Frankfurter: Is there any -- is there one binding -- principle of binding differentiation of -- among the five?
S. Hazard Gillespie, Jr.: I would think not sir, except that -- that -- I would say that in a -- in the case of every one of them, they are not situations where they could be the subject of abuse in any way.
Hugo L. Black: And they're not printed in your brief, are they?
S. Hazard Gillespie, Jr.: They're not, Your Honor. They are not printed in the brief. They are very long and quite detailed because they involve the matter of these trust funds that could be created for that purpose. Now, if I may now turn to the appellees' contention that because 302 was amended in 1959 to include the words among others "lend" and "loan", this evidence is a view on the part of Congress. That previously, a payment or delivery of money or a thing of value on loan was not prohibited by the clear language of the statue itself and the unequivocal legislative history. The 1959 Amendment to 302 was not fashioned and cannot be reshaped to support their argument as we see it. The legislative history surrounding the 1959 Amendment shows that it was predominantly concerned with getting after middlemen and agents, the so-called labor consultant to whom the money might be given and then he might pass it on to the labor -- or to the representative of employees.
Felix Frankfurter: This Amendment came after this -- this provision, did it not?
S. Hazard Gillespie, Jr.: That is correct, Your Honor.
Felix Frankfurter: Was there any reference made to it?
S. Hazard Gillespie, Jr.: To --
Felix Frankfurter: Was there any reference made to this -- to this litigation?
S. Hazard Gillespie, Jr.: Well, there was no reference made to this litigation because the litigation didn't come until after the Amendment. The -- the Amendment came following the transaction that's involved heretofore. The Committee reporting on the bill, the Senate Committee reporting on this bill in 1959 had this to say, "The intent of these amendments is to forbid any payment or bribe by an employer or anyone who acts in the interest of an employer whether technically or not and to forbid the receipt of any such bribe by any person whether an individual, an officer or employee of a labor organization or a committee representing employees." Now, the very absence of any reference and the Senate Committee report is absolutely silent, there is no reference to -- specifically to loans or lending in this report, the Senate Committee report or to their being a noble appendage to this law. I think it indicates that the legislation was designed to deal with this problem of middlemen and --
William J. Brennan, Jr.: Was this transaction one of those investigated in connection with --
S. Hazard Gillespie, Jr.: It was, Your Honor, it was.
William J. Brennan, Jr.: Before the --
S. Hazard Gillespie, Jr.: It was one of those that were disclosed before the McClellan Committee. That is correct. Now, even the statement of the author of the bill, Senator Kennedy, which was made after he -- the -- the legislation had been passed. That it prohibits loans by employers or unions to union officers, does not mean that the 1947 Act did not also prohibit the payment or delivery of money on a loan basis. It think to -- to suggest that the words "lend" and "loan" crept into this legislation and they did so and I emphasize this, totally without comment in the Committee reports as an exaltation to prosecutors to go after what was already prohibited by the 1947 Act but which actually was only disclosed in these McClellan hearings which led to these amendments regarding labor consultants and so forth. And there is support for this suggestion in this part of the Committee report where it says, "Although these provisions of existing law would punish most forms of bribery or extortion, if they were vigorously enforced by prosecuting officers." The testimony before the McClellan Committee revealed loopholes which both employer representatives and union officials turned to advantage at the expense of employers -- employees. I emphasize again, there's nothing in the report with regard to the "lend" and "loan" being one of those loopholes.
Felix Frankfurter: But as -- in the hearings before the McClellan Committee, did non-prosecuted loans lay on, particularly, is it part --
S. Hazard Gillespie, Jr.: I think not, sir.
Felix Frankfurter: -- as against --
S. Hazard Gillespie, Jr.: No.
Felix Frankfurter: -- outright gifts?
S. Hazard Gillespie, Jr.: No, no, they did not, Your Honor. Now, turning to the second contention in a -- just one moment, of the appellees that by the absence of the words "lend" and "loan" from the earlier Act, it lacked the unequivocal warning to which an accused is entitled. This brings me back to where I started. We have seen that the statute clearly states that it shall be unlawful for an employer to pay or deliver money to a representative of its employees. And it's hard for me to see a more clear expression of the intent of the Congress and if we are correct that a payment or delivery of money is an indispensable part of a loan. And I submit that it must be, then appellees' contention comes down, it seems to me, to that out of the traffic violator who claims that because he backed up again, across an intersection after he went through a red light, he did not violate the ordinance prohibiting the initial transgression. The Government submits that the ruling of the District Court should be reversed and this case be remanded for trial.
Felix Frankfurter: May I ask whether your whole argument presupposes that there is no ambiguity in the legislation that a fair reading must -- and a part of the word almost necessarily that it would be torturing what is now written to exclude (Inaudible)
S. Hazard Gillespie, Jr.: I think so, Your Honor.
Felix Frankfurter: That is your position?
S. Hazard Gillespie, Jr.: Yes, it is, Your Honor. I think that language is -- is very clear indeed. Thank you.
Hugo L. Black: May I ask you just one question?
S. Hazard Gillespie, Jr.: Yes, sir.
Hugo L. Black: You're sent back for trial with the only case that would be tried whether this loan has been made?
S. Hazard Gillespie, Jr.: Well perhaps I'm speaking for the defendants when I say, I think it should be, Your Honor.
Hugo L. Black: Well, I --
S. Hazard Gillespie, Jr.: I -- I mean I -- the defendants might want it. There might be issues that the defendants would raise that I'm not familiar with in a moment but so far as the -- excuse me.
Hugo L. Black: What are the defenses, do you think could be raised under your argument.
S. Hazard Gillespie, Jr.: I believe, Your Honor there are no other defenses that could be raised.
Hugo L. Black: Well, the sole question would be whether you made a loan that would represent the employee of its employer.
S. Hazard Gillespie, Jr.: That is correct. Now, I don't want to speak for the defense in this regard. I don't think it's quite fair for me to do so but --
Hugo L. Black: Well, I -- I was just trying to find out.
S. Hazard Gillespie, Jr.: I believe that Judge Sugarman who was the District Judge who made this ruling felt that he had cleared everything else out of the way, as a matter of law, statute of limitations and various other considerations.
Hugo L. Black: Well, that of course, I didn't mean (Voice Overlap) --
S. Hazard Gillespie, Jr.: Well, I think that's stated. I'm not stating it on you.
Hugo L. Black: I think on the merits.
S. Hazard Gillespie, Jr.: On the -- that is correct, Your Honor.
Hugo L. Black: Your position is that making the loan even though bona fide, backed up by mortgage or anything else, would violate the Act.
S. Hazard Gillespie, Jr.: That is correct, Your Honor. Absolutely. That might be --
Earl Warren: But I wonder why you can't speak for the defendant, can you speak for the prosecution that this case went back. Wouldn't the prosecution relied merely on the fact that it -- it was a loan or -- or would you do as I gather from -- from the transcript that it was an irregular transaction throughout that it could not have been processed through any financial institution. And that there was only -- that the interest was -- was not paid and that the -- it was not the -- the interest on the loan was -- was not a normal rate of interest. That's the -- that's what you're trying to sustain, this indictment on in -- in the lower court as I read this transcript. Now, when it goes back, what is the issue? Is it just that it's a -- it's a mere loan or -- or is the issue that -- that it's a -- it's a fake loan that -- and that he -- he -- the borrower was acquiring something through that -- that loan that he could not acquire through a legitimate loan.
S. Hazard Gillespie, Jr.: You Honor, the case goes back to the District Court, if I am still in the position to prosecute it at that time. It would be my intention in trying the case to set out the facts of the loan just as we understand those facts to be. Our position would be, however, that this was a loan. That is the basis on which we're before this Court and we would proceed on that basis. Now, if the -- if there is denial in any form of the receipt of this loan or anything of that sort, I suppose it's within the power of the jury to determine the facts and that that would include as I understand it, the -- all the surrounding facts with regard to this transaction.
Earl Warren: But you say it's a -- in the Court, will you get back there, the prosecution says it's a loan.
S. Hazard Gillespie, Jr.: That is correct, Your Honor.
Earl Warren: The defense says, "Yes, it's a loan."
S. Hazard Gillespie, Jr.: That's right.
Earl Warren: And do you then say, "Well, we want to show that this -- this is not a regular loan." That this is an irregular transaction and that it had -- had ramifications that honest people wouldn't indulge into -- to -- in -- in making a $200,000 loan and it was not an honest rate of interest and so forth because all those things were raised -- raised by the district attorney in the court -- in the court below at the time this was -- at the time this was decided against you and -- and that's why I was a little surprised when you started right up and said, "We'll make no point of any of that. We'll -- we -- we just say it's a loan, period.
S. Hazard Gillespie, Jr.: Your Honor, I feel in fairness. The reason that I stick to that in this Court is that I feel that is the basis on which Your Honors --
Earl Warren: Well, suppose you let us decide on what basis we took it.
S. Hazard Gillespie, Jr.: Right.
Earl Warren: And you tell us what --
S. Hazard Gillespie, Jr.: Well --
Earl Warren: -- your theory is.
S. Hazard Gillespie, Jr.: -- that was the representation that the Government made, Your Honor. That I feel at the time that we -- in our jurisdictional statement and therefore, I didn't think it was proper to go beyond that on this (Voice Overlap).
Earl Warren: Do you want to limit -- limit it to that --
S. Hazard Gillespie, Jr.: I think we should, Your Honor.
Earl Warren: -- here but you -- you don't say how it would be if we decide it in your favor when it got back to the -- the -- to the lower court.
S. Hazard Gillespie, Jr.: I would say that when we came to try the case, we could put all of the facts before the jury.
Felix Frankfurter: Let me see if I understand it, the answer you made first to Justice Black and Chief Justice. You say that as a matter of law, if this indictment is sustained, you would put into evidence by whatever witness or documents necessary, the naked facts of this loan and if you chose, you would say, your -- the Government rests and would feel that the District Judge if the defendant also rest to that and let the case go to the jury.
S. Hazard Gillespie, Jr.: Absolutely.
Felix Frankfurter: The fact that it's within your prosecutorial privilege to do what prosecutors usually do trying to make in it -- sometimes redundant, a superfluous additional testimony to make the jury understand the human implications of the jury.
S. Hazard Gillespie, Jr.: My -- quite correct, Your Honor and of course the defense that may go in may call for certain rebuttal testimony. We just don't know where it would be.
Earl Warren: Well, I think there's -- there's one thing in your -- in your jurisdictional statement that also bore on this situation, says, the two counts of indictment filed on June 17th, 1959 in United States District Court for the Southern District of New York, charged five defendant employers that having paid and delivers money in the amount of $200,000 to a representative of their employees and charged the defendants' representative with having received the money in violation of Section 302. In the pretrial memorandum, the Government stated that it intended to prove that the defendant employers had loaned $200,000 unsecured and at an actual rate of about 2% to the defendants represented through an intricate exchange of checks. Now, why should we -- why should we have overlooked that when we -- when we granted this -- when we know that probable jurisdiction. Why did you state that to us if you didn't want us to believe that -- that that was the situation?
S. Hazard Gillespie, Jr.: Well, Your Honor --
Earl Warren: Why didn't you just say that the sole question is whether -- whether there was a -- a loan of $200,000?
S. Hazard Gillespie, Jr.: Well, Your Honor, I -- I believe --
Earl Warren: You might have saved a lot of time.
S. Hazard Gillespie, Jr.: Well, Your Honor, I thought that we were bound by what we have stated as the question presented here which is on page 2 of this jurisdictional statement and I felt in fairness to the defendants that we shouldn't go beyond that in trying to urge, Your Honors to come to -- I felt we were bound by that --
Earl Warren: But you did -- but you did in your jurisdictional statement.
S. Hazard Gillespie, Jr.: Well, Your Honor that of course is the judicial admission with which we were charged in the District Court. That statement which is of course is on the record but I feel that -- that Your Honors, in coming to your conclusion with regard to this are bound to consider this as a bona fide loan and -- and that that is the question that's before the Court. Thank you.
Hugo L. Black: If we do that then when we go down and try it again and you weren't here, there wouldn't be any question about it.
S. Hazard Gillespie, Jr.: That's right.
Hugo L. Black: Unless it's called in faith, it would be admitted to be a bona fide because our opinion would be based upon that.
S. Hazard Gillespie, Jr.: I just think that's so as -- as well, exactly.
Earl Warren: Then you wouldn't -- then you wouldn't maintain the law that it was not a bona fide loan.
S. Hazard Gillespie, Jr.: Well, I think Mr. Justice Frankfurter stated exactly what our position would be, Mr. Chief Justice that what we would do is to present the facts.
Earl Warren: But we've got -- we've got it from Justice Frankfurter --
S. Hazard Gillespie, Jr.: Right, right. But we would present the facts [Laughs], we would present the facts, Your Honor and take that position.
Earl Warren: All right.
S. Hazard Gillespie, Jr.: Thank you.
Earl Warren: Mr. Nizer. [Laughter]
Felix Frankfurter: Mr. Nizer.
Louis Nizer: May --
Felix Frankfurter: I don't say that I'm on both sides of this case. [Laughter]
Louis Nizer: May it please Your Honors. The notice of appeal as set forth on the question presented on this appeal on page 48 of the transcript of record, bears out, my learned friend's statement that this question as a jurisdictional matter is limited to the assumption of a bona fide loan because there, the question is presented as to whether the payment of money by an employer to a representative of his employees intending repayment of said money with interest is within the proscription of Section 302. And in page 2 of the brief of the Government, the questions stated a little more elliptically is -- the question presented is whether a loan of money comes within the foregoing prohibitions and the jurisdiction of this Court is based upon that assumption under the Havas case. Or else, if there were any questions of fact and we differ incidentally with the statements that had been repeatedly made here but to be consistent --
Earl Warren: Yes.
Louis Nizer: -- with the fact that this is the sole question before Your Honors. We wish to point out that under the Havas case which Your Honors recently decided, there would be no jurisdiction in this Court that this weren't simply a matter of construction of the statute on the assumption of a bona fide loan as stated in this case.
Earl Warren: We'll recess now Mr. Nizer.