William H. Rehnquist: We'll hear argument now on No. 89-393, Harry P. Begier v. Internal Revenue Service. Mr. Winterhalter.
Paul J. Winterhalter: Thank you, Your Honor. Mr. Chief Justice, and may it please the Court: Good afternoon. The third case before the Court today involves whether a debtor's pre-bankruptcy payment alone from its general operating account for trust fund tax obligations excludes that property from a bankruptcy estate subject to avoidance as preferential transfers under Section 547. For the reasons which I shall present to this Court, I would respectfully present that such transfers are, in fact, avoidable. The Petitioner in this case is the court-appointed Chapter 11 bankruptcy trustee in the matter of American International Airways. The debtor was a commercial airline carrier that provided scheduled passenger and air cargo service throughout the eastern and central United States. As a carrier, the debtor had many employees and was required to pay wages to those employees and was further required to withhold taxes from those employees' wages, was required to withhold individual income taxes, the employer's... the employee's share of Federal Insurance Corporation taxes, and was further required to retain certain excise taxes which it collected from the passengers' tickets. By the first quarter of 1984, the debtor had become... had experienced financial difficulties in the payments of its... of its debt... of its debts. Similar to many companies in this type of situation, the debtor failed to file and pay its tax returns on a timely basis. The debtor funded only net payroll. The IRS imposed extraordinary remedies for the enforcement of the collect... for the enforcement of these taxes. It issued a notice changing the debtor's tax filing requirements from a quarterly basis to a monthly basis. It also required the debtor to make deposits into a certain designated depository. The debtor followed these guidelines and on April 30th transferred two checks to the government, one out of the specially designated account and the second check in the amount of $734,797 from the debtor's general operating account. The debtor and the IRS agreed to specific application of these funds. Two further payments were made out of the general operating account just prior to the bankruptcy. One for $200,000, which was applied to 941 withholding taxes and the second in the amount of $11,636 which was applied to Federal unemployment taxes and also to Form 11 taxes for the year 1982.
William H. Rehnquist: All the payments you've described, Mr. Winterhalter, were within the preferential period?
Paul J. Winterhalter: That is correct, Your Honor. The debtor's financial difficulties continued, whereby on July 19th, 1984, the debtor filed its petition under Chapter 11. Problems persisted and a trustee was appointed two months later. During the administration of the bankruptcy proceeding, the trustee instituted this instant action, seeking to avoid the three transfers made out of the debtor's general operating account. Following a trial, the bankruptcy court ruled that the trustee was entitled to avoid $700,410. The District Court affirmed. On subsequent appeal to the Third Circuit, the United States Court of Appeals for the Third Circuit reversed the bankruptcy court and district court findings. The Third Circuit, relying principally on the dissenting opinion of the D.C. Circuit in Drabkin v. The District of Columbia, found the ability of the debtor to make the pre-petition payment of withholding taxes regardless of the source of those funds impressed those funds with trust characteristics, removing the property from the debtor's estate.
William H. Rehnquist: What particular funds was the court of appeals talking about?
Paul J. Winterhalter: Your Honor, I'm not certain I understand your question. The funds... the funds which the court of appeals was discussing were the funds that the debtor used to pay the Internal Revenue Service.
William H. Rehnquist: Simply money drawn on its general operating account?
Paul J. Winterhalter: That is correct. They were written on a regular check that the... that the debtor would pay any other creditor. It is respectfully presented that the holding of the Third Circuit is incorrect and should be reversed. The circuit's reasoning is wrong on four specific points. First, the court relies on the wrong legislative history to support its contention that Congress intended to preclude the avoidability of tax withholding payments.
Byron R. White: Well, what about the language of the statute?
Paul J. Winterhalter: My second point would be that the clear language of the statute--
Byron R. White: Well, you had better start with that, hadn't you? [Laughter]
Paul J. Winterhalter: --I would believe, Your Honor, that the clear language... the plain wording of the statute expressly requires that for this trust to be created the taxes must be withheld or collected. In this situation, we did not have that situation.
Byron R. White: Well, what does it... doesn't the... doesn't the law say that these withheld taxes are to be held as a trust fund?
Paul J. Winterhalter: Yes, it does. Section 7501 of the Internal Revenue Code--
Byron R. White: Yes.
Paul J. Winterhalter: --provides that--
Byron R. White: Yes.
Paul J. Winterhalter: --Justice White, provides that any taxes which are collected and withheld shall be held in trust. The wording of the statute... the plain wording of the statute expressly indicates that the... expressly indicates and is written in the past tense that the funds must be collected and withheld. There must be some type of segregation. This segregation does not--
Sandra Day O'Connor: Well, it doesn't really say that, does it? It says, the amount of tax so collected or withheld shall be held to be a special fund in trust.
Paul J. Winterhalter: --That--
Sandra Day O'Connor: It... it provides automatically by statute that whatever amount is withheld for these taxes is automatically in trust for the government. Isn't that what it says?
Paul J. Winterhalter: --The statute says expressly that, Justice O'Connor. I would represent--
Sandra Day O'Connor: So why does it have to be segregated to comply with the statute?
Paul J. Winterhalter: --I would represent to the Court, as has this Court on other occasions, that there must be a trust raised for a trust to be established. There must be something there. If... here the government suggests that they need do nothing, that payment alone is a sufficient designation to establish this trust. But there is no trust existence.
Antonin Scalia: You're... you're not now saying that it has to be segregated. You're just saying that it has to exist, that when somebody pays an employee $80 and fails to withhold the $10 or put that aside for the government, there... there is no $10 to... for the trust to attach to.
Paul J. Winterhalter: That is exactly correct.
Antonin Scalia: Now, that would be different for a sales tax, I suppose. If you collect a sales tax and it's provided that the sales tax shall be held in trust, you would actually get the sales tax and that could be held in trust.
Paul J. Winterhalter: That is exactly correct.
Antonin Scalia: But with the withholding of... of wages there's--
Paul J. Winterhalter: The property is--
Antonin Scalia: --there's nothing to identify.
Paul J. Winterhalter: --That is correct.
Antonin Scalia: You just paid him... paid him 80. You were supposed to put 10 aside, but there is no 10 that we know of that's an identifiable 10. Well, obviously there was money though, because they paid him.
Paul J. Winterhalter: Yes, there is money. But there is no--
Byron R. White: Well, whatever the law says... that... that amount is going be held in trust, and the money was there to be held in trust.
Paul J. Winterhalter: --Not necessarily so.
Byron R. White: Well, it was paid.
Paul J. Winterhalter: Yes, it was paid.
William H. Rehnquist: Mr. Winterhalter, let's go back to that second clause of 7501 that Justice O'Connor referred to. The amount of tax so collected or withheld shall be held to be a special fund in trust for the United States. Now, certainly Congress can legislate in a way that says a... a particular fund shall be treated in a particular way even though under the classic law of trusts there might not be any res, can't it?
Paul J. Winterhalter: Yes, it can. But--
William H. Rehnquist: You... don't you think that's... might be what it intended here?
Paul J. Winterhalter: --No, I do not believe it did. I believe the... when Congress enacted Section 7501, which was back in 1934, it had contemplated providing some protections for the government in the collection of their taxes. They have provided other statutes which expressly empower the government to enforce its collection efforts. Section 6672 would be an example.
Anthony M. Kennedy: Well, suppose what the company did in this case with respect to monies that was paid from the general account, drew one check to the general account and then immediately... pardon me... drew one check from the general check to the special account--
Paul J. Winterhalter: Yes.
Anthony M. Kennedy: --then a second check special account to the government. Does that create the trust?
Paul J. Winterhalter: Absolutely. I think there is the act of the segregation itself.
Anthony M. Kennedy: And... and you couldn't set it aside as a preference that putting it in the trust was a preference? I mean, how would that would be any different from the argument you're making now?
Paul J. Winterhalter: Well, I think in the situation which you have raised in your hypothetical, there is the... there is the designation. There is the creation of the trust res which allows it to come into existence. There is oftentimes suggested that the normal business operates properly--
Anthony M. Kennedy: But it's not... it's not a preference to create a trust res?
Paul J. Winterhalter: --No, I do not--
Anthony M. Kennedy: But it... but it... but it is... but it is a preference to directly to pay the IRS?
Paul J. Winterhalter: --Let me correct that statement.
Anthony M. Kennedy: That... that doesn't make sense.
Paul J. Winterhalter: I believe that it would be a preference to create a trust res for any party. But I believe under Section 7501 Congress had enacted a provision which gives the IRS special treatment under certain circumstances. And that is when the trust money is properly withheld.
Antonin Scalia: Mr.... Mr. Winterhalter, it... it seems to me... I don't... I don't understand why you say... why you say that there has to be a res in order for a trust to be created. But if the statute, as the Chief Justice pointed out... if it says it shall be created, the Federal Government can make it happen. I should think that... that the problem here is not whether it's created, but how you identify it, that when the government says in this statute that it will be a special fund in trust, you don't know what the res is. You don't know whether it's the bank accounts or the corporate... the corporation's real property or any of the other assets of the corporation. And, therefore, when it comes to... to identifying something that... that is subject to this special privilege, you can't identify it. It isn't that it couldn't be created, it's that it's not identifiable later. Isn't that your... your point?
Paul J. Winterhalter: My point is, Justice Scalia, that there must be some act, some separation. It does not have to be the deposit into the designated account. It does not have to be the deposit into the approved tax depository in the normal business sense. But there must be something. The... for the, for the trust to be created, there must be something to set aside. It can't just... it's not an abstract, as the government suggested in their brief. There must be the creation that the--
Antonin Scalia: It could be created in the abstract, but you can't give it effect in the abstract. Unless you can identify a res, you can't identify the trust corpus.
Paul J. Winterhalter: --I don't believe I disagree with that.
John Paul Stevens: But when must it be created? I'm not sure I understand your position on that. Supposing 30 days before bankruptcy they have $1,000 payroll and $200 withholding obligation. They have $1,200 in the bank and they pay $1,000 to the... to the employees and don't do anything to with the two hundred until after the bankruptcy. Or they pay the 200. Would that be... would that be a preference?
Paul J. Winterhalter: If they held the 200 in their general operating account?
John Paul Stevens: Yes.
Paul J. Winterhalter: And then paid it directly to the government?
John Paul Stevens: Yeah, a week later, but still within the preference period.
Paul J. Winterhalter: Presuming that the other elements of a preference have been satisfied, I would believe that that... I would believe that that would be a preference. I believe that's the situation here. We have funds being used which were in the account, but no connection being made between the $200 in your hypothetical and the $700,000 in this hypothetical which would connect the monies collected with the trust being created.
John Paul Stevens: Other than the fact that they did use the money to pay the government? That's not enough, of course.
Paul J. Winterhalter: That is... that is correct.
John Paul Stevens: Well, what do they... they have to put it... you're... they have to put in a separate account before the... in... in... before the preference period begins.
Paul J. Winterhalter: I'm... I'm not saying to create the segregation itself or to create the designation it has to be placed in a separate account. Again, many businesses operate under a three bank account system. They have their general operating account which they collect their revenues. They then have their payroll account and they have their tax account. They would collect revenues from the normal operation of their business, place them in their... place them... place those monies into their general operating account. Use the general operating account to pay their normal expenses, which would include their payroll and their wages. And once they provide gross wages into the payroll account, they then, in turn, would transmit the requisite funds to satisfy the withholding tax obligations. Upon doing that, I think the 7501 would come into effect.
William H. Rehnquist: Well, what if the statute... this clause we've been talking about... said any paid amount of tax so collected or withheld shall become the property of the United States?
Paul J. Winterhalter: I... I still don't believe you have reached that threshold of identifying the trust res. There is... the statute does not say--
William H. Rehnquist: But this statute would not have... the statute I'm talking about says nothing about a trust. It simply says the money that was withheld shall become the property of the United States.
Paul J. Winterhalter: --If there has been no withholding, Mr. Chief Justice, I do not believe that the trust... well, you're... instead of putting the property in trust, you're creating a statute which would in effect transfer title to the property directly to the government--
William H. Rehnquist: Yes.
Paul J. Winterhalter: --upon the operation of the statute. I'm not certain how that would work, Mr. Chief Justice. I would believe that if... if Congress specifically enacted that statute and expressly stated such in a statute, then, in fact, that would be controlling.
William H. Rehnquist: Well, I... I have the feeling that the statute Congress did enact is not far different from--
Paul J. Winterhalter: I would respectfully disagree with Your Honor.
Antonin Scalia: --I'm sure you do. [Laughter] Mr. Winterhalter, it's... it's my understanding of trust law that if you declare yourself to be a trustee of a res which is not in existence at the time, but later declare the res, it is effective. That is, if I tell my nephew I am putting in trust $500 for you and in fact I don't, but several weeks later I set aside the $500 and I say this is the... this is the trust corpus for my nephew, that's effective. So, you can do it later. Right?
Paul J. Winterhalter: I believe that Hornbook trust law would... would look to the intent to the trustee in that situation.
Antonin Scalia: Well, that's right. But I can do it later.
Paul J. Winterhalter: Yes.
Antonin Scalia: I don't have to do it at the moment that it's created.
Paul J. Winterhalter: Yes. That is correct.
Antonin Scalia: Now why isn't it... and it's also Hornbook trust law, as I understand it, that you can declare in trust a portion of a fungible account. So you can say $500 of this bank account is held in trust for my nephew.
Paul J. Winterhalter: Yes, you can.
Antonin Scalia: Okay. Now, when you put those principles... two principles together, why is it not the case that as soon as the corporation wrote out this check to the United States it identified a portion of that bank account as being the trust corpus that was owed to the government before it was transmitted to the government.
Paul J. Winterhalter: You would be talking... I... my... my response to that would be it would not be a trust because you would be transferring title to the funds to the government on that time.
Antonin Scalia: I'm not using it as check. I'm not using it for its conveyance purposes. I'm using it for its declaration of what is the corpus of the trust. As soon as you sign that check you have effectively expressed your intention that this is indeed the portion that belongs to the United States.
Paul J. Winterhalter: What in effect as--
Antonin Scalia: As opposed to my real estate. I agree with you, before that we have no idea what portion of the corporation's assets belong to the United States. We don't know that it was a real estate or whatever and I'm sure the government would use whatever... whatever was convenient at the time. But once the... once the corporation signs that check, the corporation has acknowledged a particular corpus.
Paul J. Winterhalter: --Mr. Justice Scalia, I would present to you that the trust which is required to be created in order for 7501 to be attached... to attach, this trust to be created, must relate to the funds collected from employees' wages. If these funds are dissipated... if the bank account goes down to zero, then you cannot take funds unrelated to the employees' wages and recreate them in a trust. Those funds will never be affected with the trust characteristics if in fact they came from funds which were not generated from employees' wages.
Antonin Scalia: There is no... there's no... how do you identify... look the statute applies not only to... to funds collected but also to funds withheld. There is no identifiable dollar withheld. When I pay you $80 and withhold $10 for Federal income tax, what identifiable dollar is that? It's no identifiable dollar. It is money I have not paid you.
Paul J. Winterhalter: But this is--
Antonin Scalia: So, you have to rely on my declaration of a fund later, it seems to me.
Paul J. Winterhalter: --I would respectfully disagree.
Antonin Scalia: That's for a sales tax. Yes. When I get the tax, you say that's it, that's what the trust attached to. But not for a withholding tax. The withholding tax never exists. There... there is no dollar it... it ever attaches to. It's just money I do not pay you.
Paul J. Winterhalter: The trust language, Mr. Justice Scalia, under 7501 does not suggest that the trust attaches to monies collected and which should have been collected. It only says that the trust attaches to monies which were collected.
Antonin Scalia: Or withheld.
Paul J. Winterhalter: --or withheld.
William H. Rehnquist: xxx the problem?
Paul J. Winterhalter: But if we fund only net payroll, if the employer pays only net payroll while the... the employee takes the advantage of the tax credit, the employer does not pay it. He does not fund gross payroll. He does not withhold the monies.
William H. Rehnquist: Well, he withholds by the act of paying the employee only the net, I would think. Withhold means deduct.
Paul J. Winterhalter: Yes. I agree.
William H. Rehnquist: So, he is with... if I... if I hire you for $100 a week and your gross is $100 and your net is $80, when I pay you $80, I have by definition withheld $20, even though I don't have the $20.
Paul J. Winterhalter: That's correct. But, Mr. Chief Justice, if you don't have the $20, then how can the trust attach to those funds?
William H. Rehnquist: Well, if you're looking for something that meets all the requirements of Bogurt on trusts, I agree that it can't. I... my view is that this statute does not require those. It cannot attach immediately, but I thought you conceded before that... that the res does not have to be in existence at the time. You can establish the res later. And why didn't that happen when the check was written, even using Bogurt?
Paul J. Winterhalter: Because there's been no connection between the funds withheld from the employees and the trust funds paid to the government.
Antonin Scalia: There doesn't have to be a connection.
Paul J. Winterhalter: I believe that there does.
Antonin Scalia: The res was created later. But you acknowledge that you can put it into a special account and that that creates a trust without a preference. And I just don't see how that follows from your argument.
Paul J. Winterhalter: I would represent to Your Honor that if there is the designation... if you... if you go through the steps to establish the existence of a trust res--
Anthony M. Kennedy: But... but why isn't the payment to the government the designation?
Paul J. Winterhalter: --Because--
Anthony M. Kennedy: Why... why is doing something directly less of a designation than doing it indirectly?
Paul J. Winterhalter: --Because in the payment to the government you are transferring title to the property. What the government wants to say is allow us to be preferred over every other creditor. We should be preferred. We should have some loophole. If that is what Congress intended when it enacted the Bankruptcy Code, it should have expressly stated so. But it didn't state that. It stated that the... that the IRS, that the government was going to be subject to the preference laws. It was going to be subject to the... a trustee in bankruptcy or the debtor himself from avoiding payments to the government.
Sandra Day O'Connor: Well, the Congress set up a scheme whereby avoidance could be had for items that were property of the debtor. These monies weren't property of the debtor. They were the property of the United States the minute they are withheld. It doesn't belong to the debtor anymore.
Paul J. Winterhalter: I would respectfully disagree.
Sandra Day O'Connor: Well, that's the statutory scheme.
Paul J. Winterhalter: But there is no nexus between the funds collected and the monies paid to the government. There is no... in this case, there is absolutely no proof that the funds used to pay the Federal Government were those funds collected from the employees' wages.
Sandra Day O'Connor: Well, there is no tracing problem here. Once the check is drawn, that solves that. They've set it aside.
Paul J. Winterhalter: At that time they transfer title. They don't establish the trust. What you are enabling by such a ruling would be for the... for the principals of the corporation to in effect... to in effect avoid 6672, 100 percent penalty liability. You are, in effect, carving out an exception that does not exist in the statute... while it may have existed in the proposed Senate statute, it does not exist in the statute as enacted to allow a debtor corporation to avoid 100 percent penalty payments, to allow the Internal Revenue Service to be preferred over other creditors. This Court stated in United States v. Whiting Pools that the government should be treated no differently. That... it stated in United States v. Slodov that there must be a connection... there must be some nexus when discussing this trust. If the Court finds in favor of the government of today, it would be reversing the principles established by this Court in those two cases. It would be obviating the need for the government to impose any tracing whatsoever. It would just say that the trust arises by operation of law without anything further. The legislative history... the statute itself does not describe either way whether the government can or cannot avoid transfers of property. Several courts have attempted to interpret whether Congress intended when enacting the Bankruptcy Code to permit the government to do just this, whether a bankruptcy trustee can avoid a transfers of the government to a governmental authority if the property was properly withheld. Each of the courts have looked to the statute and said it's not clear and referred to the legislative history. The legislative history was... as this Court has recognized, was a long time in making. The statute involved 10 years of congressional debate.
William H. Rehnquist: This is the Bankruptcy Code you're referring to?
Paul J. Winterhalter: That is correct. And this... that is correct. The... when... when the statute was enacted, the House originally proposed House Resolution 8200. The House resolution was approved by the House Judiciary Committee, voted out of committee and a report was filed. The language in the report is the language referred by the Third Circuit in their opinion. The House bill was sent to the House floor, subject to several amendments and passed. It was then sent to the Senate. The Senate at the time was considering their own legislation, Senate Bill 2266. Senate Bill 2266 would have specifically authorized... would have specifically carved out an exception that the government desires today, that preference payments to the government are not avoidable. The Senate Bill was approved by the Senate Judiciary Committee. What they did, though, is they took... they tabled the bill, Senate 2266, put their language into House Resolution 8200 and sent it back to the House. Because of the lateness of the term, the two parties... the... the managers, the House leader and the Senate leaders, got together and, in lieu of formal committee, came up with this new statute, came up with a... with a hybrid which imputed parts of the Senate bill and parts of the House bill. This hybrid bill is reflected in the conference committee report, which is also attached to the legislative history. That... that language specifically references the fact that the provision in the Senate bill which allowed the government to have the ability to avoid taxes was specifically excluded. Senator DeConcini's statements stated that Section 547... 547(b)(2) of the House amendment adopts a provision contained in the House bill and rejects the alternative contained in the Senate amendment relating to the avoidance of preferential transfers, that is, the payment of a tax claim owing to a government unit. What in effect this says is that the... what the Senate proposed and what the government is proposing today was expressly not adopted.
William H. Rehnquist: Of course, Congress could have rejected that because it would have extended to state and local government units, too, the way you have expressed it, couldn't it?
Paul J. Winterhalter: That is correct. In Section... but what Congress did do in enacting the Bankruptcy Code in its final text, it provided under Section 106, which is sovereign immunity section, clear language that the government would be subject to the avoidance of preferential transfers. In this case, if the Court adopts the position as espoused by the government, you would in effect be overruling what Congress had expressed in the legislative history.
John Paul Stevens: Only as to the extent of trust funds, though. It wouldn't be as to all tax obligations... corporate... income tax, for example.
Paul J. Winterhalter: Yes. That is correct. There... there is a difference in those taxes, Mr. Justice Stevens. The problem, however, is that there was no express exclusion in the statute for the non-avoidability of even trust fund taxes. And certainly Congress was cognizant of that fact by its... by its protection of those... by the protection of those taxes in both Section 507, which is the priority section, and Section 523, which is the discharge section. What Congress said there is that we want to protect both taxes which were collected and which should have been collected.
Byron R. White: Well, on that basis it wouldn't do you any good to segregate these funds that you've withheld.
Paul J. Winterhalter: Under the Section 507 or 523 analysis?
Byron R. White: Well, I thought you said a while ago if you actually segregated these withheld funds, they would not become property of the estate.
Paul J. Winterhalter: That is correct.
Byron R. White: And there could be no avoidance.
Paul J. Winterhalter: That is correct.
Byron R. White: Well, but the argument you've just made from that other provision of the law on the preference I would think it would... I would think that would cover the withheld funds that are segregated also.
Paul J. Winterhalter: Mr. Justice White, under those sections they clearly had contemplated taxes which should have been collected and which were not collected. In the final draft of the... of the statute as enacted under 547, they did not include this type of reference and in the legislative history they equally did not include such a reference. Justice Marshall noted in the case in... in this Court that under 6672 they do in fact recognize taxes which were collected or which should have been collected. Under 547 and 7501 they do not. If the Court has no further questions, I will reserve my remaining time for rebuttal.
Byron R. White: Very well, Mr. Winterhalter. Mr. Martin.
Brian J. Martin: Thank you, Mr. Chief Justice, and may it please the Court: I'd like to begin where Mr. Winterhalter left off. In fact, Congress did pass the House version of Section 547, the Preference Bill, H.R. 8200. It rejected the Senate version which would have made all tax payments non-avoidable. It did that to reach corporate income taxes, unemployment taxes. It's plain that taxes held in trust and turned over to the government cannot be a preference. Every court has recognized that. The joint floor statements recognize that. So, the question in this case is whether a trust was created and maybe whether a trust was dissipated. The petitioner has argued that no trust was ever created. He has not contended that one was created and somehow spent and... and rendered unavailable. His argument has been that there was withheld taxes placed in a segregated account. In the first place, it's... it's plain that taxes were withheld. At trial IRS Forms 940 which detail the amounts of withholding were placed into evidence. And it's roughly about $350,000 withheld each month of... of the relevant months in questions. On the question of whether taxes--
Byron R. White: May I... may I interrupt you right there?
Brian J. Martin: --Yes.
Byron R. White: Those forms proved that that's the amount that should have been--
Brian J. Martin: No.
John Paul Stevens: --set aside?
Brian J. Martin: No. It's... it's a statement of these were withheld. It's not--
Byron R. White: But where were they withheld? Were they... could you... were they actually... there were actually funds there that were placed in a bank account?
Brian J. Martin: --There were no funds placed in a bank account. They were net wages in other words.
John Paul Stevens: I know, but when you have a... when you file a form that says gross wages X--
Brian J. Martin: Uh-huh.
John Paul Stevens: --and net wages X minus the tax, that isn't proof that the amount withheld was actually withheld. It's just a proof they filed a piece of paper that said they were doing it.
Brian J. Martin: The filing a piece of paper their identifying it court as genuine, and the document says--
John Paul Stevens: It's genuine.
Brian J. Martin: --And it says... it says we did it. It says we withheld. It doesn't say we were required to withhold it. It said we did withhold it.
Antonin Scalia: Well, withhold means simply not paid.
Brian J. Martin: Exactly.
Antonin Scalia: Well, okay. That doesn't suggest the existence that they've put a deposit of monies--
Brian J. Martin: Not at all.
William H. Rehnquist: --just that they did not paid that amount.
Brian J. Martin: Not at all. I'm just saying if you had an employer... not AIA, but another employer who paid... who paid gross wages, so there was no withholding in the first place, then we would have trouble reaching... finding a trust under 7501.
William H. Rehnquist: Oh, I see.
Brian J. Martin: But when there is a withholding, that's my simple point.
William H. Rehnquist: xxx.
Brian J. Martin: Right.
John Paul Stevens: I still don't... maybe I'm stupid. Say, they have enough money to pay net wages and they file a return that says we withheld the difference between net wages and gross wages. Would that be... but they actually didn't have any money. They have... it's a no-asset business. It's a sales operation of some kind, and all the money they had in... available to them they used to pay net wages, but they filed the return suggesting that we withheld this amount and we recognize an obligation to pay it when we get the money.
Brian J. Martin: There has been a withholding in that case. If--
John Paul Stevens: What has been withheld?
Brian J. Martin: --Well, they've have had to pay less... they've have had to pay less than they would have paid... they had to reduce... they cannot pay gross wages. In other words, if they only have enough money, they have to make payroll, and they have to deduct on the forms at least from the paycheck. A person's paycheck... the stub would say withholding of $105. The government cannot go after that $105 with respect to that taxpayer if there's been that much of a withholding. Maybe the individual would have a claim for wages against its employer.
John Paul Stevens: But there is no asset representing the amount withheld?
Brian J. Martin: Well, that's right. On... on the books, they didn't have to borrow the money either. Perhaps they could borrow the money if you wanted to find an asset. Withholding is just a deduction from gross wages. That's all it means.
Antonin Scalia: You just mean not paid.
Brian J. Martin: Not paid is all I mean.
Antonin Scalia: All right. So, the trust consists... the trust res consists of a liability? [Laughter] That's what you've said.
Brian J. Martin: That's basically right. And this is the liability that if the law is followed, will be satisfied usually within about three to five days by a check to the IRS. It wasn't--
William H. Rehnquist: You're... you're not suggesting that in the strict sense of trust law, the filing of a withholding... a return showing tax withheld creates any sort of a res, are you?
Brian J. Martin: --No. No. I... I'm saying under 7501 whenever a trust is created and the amount of tax withheld... the amount of tax withheld shall be held to be a special fund in trust for the United States. It's a statutory trust. The trust is created by operation of law. It's in the amount of not paid. It's in the amount of withheld.
Antonin Scalia: Mr. Martin, I'm... I'm willing to concede that you can create a trust by law. You can just say by law there is a trust.
Brian J. Martin: Right.
Antonin Scalia: But you... you know, you can't make black white by law. You can't pass a law that makes black white. And what you're trying to do is to enforce a trust and... and... and that is an objective reality. You are trying to move on some corpus.
Brian J. Martin: Uh-huh.
Antonin Scalia: And you can't decree the existence of a corpus by law.
Brian J. Martin: I agree.
Antonin Scalia: So, we... we... we have to find some corpus to identify for the legal consequences that you want to attach.
Brian J. Martin: I agree.
Antonin Scalia: Now, at... until the check was written at least, that corpus could have been anything. It could have been the company's plant. It could have been any asset whatever of the company. I wouldn't know how to apply a trust law theory to that kind of a situation.
Brian J. Martin: And with that--
Antonin Scalia: But you... you would apply it even before the check was written. You... you would say that somehow you would have a preference on the corporation's assets even before there was any identification.
Brian J. Martin: --Yes. I think that we would... wherever we found... found in the commingled accounts of the withholder the amount of tax withheld, that that would be the trust.
Antonin Scalia: Wow, boy, that-- --We don't have to decide that in this case.
Brian J. Martin: But you don't have to decide that... fortunately. [Laughter] But let me just... you know, there is evidence that Congress thought that too in 1978. The joint floor statements addressed the question of commingled accounts and said that the IRS could use reasonable assumptions, with one such assumption being any amount remaining in commingled accounts is the IRS' money.
Antonin Scalia: I... I assume that what you assert the Federal Government can do by using the device of trust law, you are willing to acknowledge that state governments can do as well.
Brian J. Martin: Absolutely.
Antonin Scalia: So, a state government could say, henceforward, any taxes owed to the state shall be a trust and they would... they... they would acquire a preference under bankruptcy law. You think about that for a minute.
Brian J. Martin: If... if they have a parallel system, sure. I mean, if... if a trust is created under law, under private instrument, whatever it is, payments of trust funds cannot be preferences because they're not properties of the debtor. That's right. Let me go back to the question you asked about... okay, a trust has been created, but how do we know that the payments are payments of trust fund taxes. Well, we know in this case because of the black letter law that a trustee may designate any funds, its personal funds, its corporate funds, whatever it wants to, as trust funds taxes or... as the trust property. If they wrongfully dissipated the trust, they can restore it with any funds they want. So when they write a check that clears, as in this case, that's sufficient to identify the... the trust. And I think that's what Congress contemplated in the House report which this Court has viewed as authoritative of Congress' intent in 1978. When it said, in the House report... and this is at page 26 of our brief... that the payment of withholding taxes will not be a preference if they have been properly been held for payment, as they will have been if the debtor is able to make the payments. So, we think that Congress thinks that if the debtor is able to make the payments, if the tax withholder can make the payments, the checks clear, that no further connection is required. Now, there may be cases if... where trust fund taxes are not paid over, they file for bankruptcy, when the IRS wants to identify the funds. In that type of case, we would be entitled to use reasonable assumptions. One of the assumptions is that any... any amounts remaining in commingled accounts are the taxes. But here we have more than that. We know that there were amounts remaining. The checks cleared. And we also have the identification of the payments as trust fund taxes by the trustee... in this case, AIA.
Antonin Scalia: What other purpose is 7501 used for? I mean, it... it seems to me it might be possible to read the first sentence of 7501(a) as... as its whole purpose is simply to... to lay the basis for the second sentence. That is, the... the only reality that this fund has in the world is to enable the assessment, collection and payment in the same manner as the taxes out of which it arose.
Brian J. Martin: Well, that's... that's not what Congress was doing in '34. Until 1934, this liability was just a tax debt and had to be treated as such. And Congress wanted to... to say no, once the withholding has occurred, it's our money. There can be no higher secured interest. You know, if it's... it's secured, creditors can't take the money. It's our money. You can use trust concepts to segregate and collect. I think that's clear.
William H. Rehnquist: There was no withholding in 1934. That must have been added later, wasn't it?
Brian J. Martin: Yeah, in '34... it dealt with the excise taxes only and said that... that money was held in trust. It was added... I think it was '39 or '40. Whenever withholding began is when it was... 7501 was amended to apply to withholdings in addition to excise taxes. I think the last sentence of 7501(a) just means that the that the IRS can use the notice and assessment and levy and lien provisions with respect to trust fund obligations if it wants to. And we have to in many cases. So, just to summarize our position, we think a trust is created when there is a withholding, when... when net wages are paid. No segregation is required. We can require it under Section 7512 of the Code if there has been a poor performance by the employer. But we don't have to require a segregated account.
Anthony M. Kennedy: Mr. Martin, in... in the case of the special fund that is created that is a separate earmarked bank account, if the employer coming upon hard times decides to change his mind or its mind and takes the money back, is... is there some kind of criminal liability?
Brian J. Martin: Yes. 6672 is the 100 percent penalty provision for every responsible officer, and I think there would be a 100 percent liability there. And there is also a criminal penalty for willfully violating the trust fund obligations. And I think that would fall within that. It's a... I believe it's a misdemeanor punishable up to one year.
Anthony M. Kennedy: And... but that... but that special liability, that special criminal liability doesn't apply if there is simply a failure to earmark funds that are in the general account and those funds would then disappear or what?
Brian J. Martin: It could apply for willful--
Anthony M. Kennedy: If it's a trust in either event--
Brian J. Martin: --Right. No, it could apply in this... in this type of case as well. If... if... the IRS policy is to use the 100 percent civil penalty before it would use the criminal penalty. But there are criminal penalties for the failure to turn over the amounts of withholdings to the IRS.
Anthony M. Kennedy: --But... but is the gravamen of the offense the invasion of an identified trust corpus?
Brian J. Martin: No. It's not.
Anthony M. Kennedy: In other words, it's just failure to withhold?
Brian J. Martin: Failure to turn... to deposit--
Speaker: Failure to deposit.
Brian J. Martin: --into the U.S. Treasury the amounts of withholding. If there are no further questions--
William H. Rehnquist: Very well, Mr. Martin. Mr. Winterhalter, do you have rebuttal?
Paul J. Winterhalter: I do, Your Honor. The government suggested that the record before the bankruptcy court reflected that in fact deposits or tax payments were made and referred to Form 940 returns. Form 940 returns would reflect Federal unemployment tax obligations. That is not at issue in this case. What is at issue in this case is 941 taxes which would be reflected on the 941 returns. Government Exhibits Number 11 and Number 12, which were attached to the supplemental brief filed with the Third Circuit, clearly indicated that while the tax liability of the debtor corporation was identified, there were no tax deposits made during this time period. In addition, the record, the joint appendix, which has attached to it a copy of the record, clearly indicates when the Internal Revenue Service, Mr. Alan Zlatkin, the Revenue Officer, was being questioned at the trial, he clearly indicated--
William H. Rehnquist: Thank you, Mr. Winterhalter.
Paul J. Winterhalter: --Thank you.
William H. Rehnquist: The case is submitted.
Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.


Warren E. Burger: We will hear arguments next in 5935 Durst against the United States. Mr. Frisch, I think you may proceed when you are ready.
Michael S. Frisch: Mr. Chief Justice and may it please the Court. The issue presented by this case is whether a fine or requirement of restitution may be imposed upon one sentence to probation under the terms of the Federal Youth Corrections Act, 18 United States Code Section 5010 (a). Each petitioner entered a pleaded guilty to a misdemeanor violation of federal law before United States Magistrate in Maryland and each was placed on probation under the terms of the Youth Act. Petitioner Rice being sentenced under the terms of that Act which extends it to young adult offenders. Each was ordered to pay a fine to the United States and additionally petitioner Durst was ordered to make restitution on a stolen check. The District Court in this case and the other lower federal courts which have held fines to be permissible under the Youth Act have essentially relied upon two sections of the statute and inferred these two sections a congressional intent to permit fines. The first of these sections is Section 5023 (a) of Title 18 which in effect incorporates the indult probation statute Section 3651 of Title 18 into the Youth Act, and the courts have reasoned that since fines are a permissible condition of probation for adults, they are also permissible under the Youth Act. What we respectfully suggest that this argument ignores is that the power to impose a fine does not originate with Section 3651, rather it originates with the substantive statute under which a person is convicted. We respectfully suggested the Court that when one is sentenced under the Youth Act, once a finding of benefit is made under that Act, once one is deemed to be worthy of the treatment and rehabilitation provided for by that Act, they are no longer punished for the offense. As provided for by Rule 3651, rather they are made subject to the treatment and rehabilitation of the Act, and as a result of that we suggest that reference to 3651 which can not be read as a penalty provision within itself, can in now way be read in such a way as to permit fines under the Youth Act. Now the question might naturally arise what was the purpose of enacting 5023 (a) by Congress if it were not to impose fines. Unfortunately the legislative history with regard to the Act is not really very helpful in this regard. There are perhaps, however, a number of reasons why 5023 may have been enacted rather than to permit fines. I think perhaps the best of these reasons has to do with the nature of the Youth Act itself. Congress knew when it enacted the Youth Act that it did not create any specialized programs of treatment and rehabilitation for Youth Act probationers as oppose to those sentenced under the imprisonment provisions of 5010 (b). Realizing that, Congress made it quite clear by enacting 5023 (a) that whatever programs of treatment and rehabilitation were available to adults under 3651 are made equally available to Youth offenders by the operation of 5023 (a). Additionally, the argument has been made and adopted number of judges in the District Court of Maryland that as a result of the operations of 5023 (a) and the incorporation of the general probation statute that a split sentence can be imposed under the Youth Act that is to say a sentence of imprisonment of up to six month to be followed by a period of probation. By doing this it gives a court in fact a middle ground between 5010 (a) and 5010 (b) without requiring the indeterminate sentence of up to four years. Additionally, a fair reading of 3651 which we suggest to this Court demonstrates that intent to fine does not exist fairly clearly, absolutely clearly sets out that restitution is permissible under the Youth Act and we are prepared to concede at this time. It is quite clear under 3651 that restitution is a permissible condition of probation. The second section of the statute that the courts have relied upon in order to permit fines under the Youth Act is in fact changed in the original language, the proposed language of 5010 (b) which originally read that imprisonment under Youth Act was in lieu. Penalty otherwise provided by law, and this was changed in the present form of the law to penalty of imprisonment. There is a letter cited in the Government’s brief in support to the proposition that this permits fines. In response to that we would make two argument to the Court: First and most importantly, 5010 (b) is not the issue before this Court. That is a separate and distinct sentencing alternative from 5010 (a) and not the one for decision in this case. As Mr. Chief Justice Burger in Dorszynski stated at Page 43, the Act creates two new sentencing alternatives, and the one before this Court is the probation alternative and not the incarceration alternative.
Thurgood Marshall: It was just an ordinary you are talking about.
Michael S. Frisch: Mr. Attorney General Biddle --
Thurgood Marshall: That was a letter from the Attorney General of the United States. It was not just an ordinary letter.
Michael S. Frisch: Not an ordinary letter.
Thurgood Marshall: It gives me a straight impression, it was just a letter.
Michael S. Frisch: Well, it was a letter written to the House Committee considering the bill, I believe, transmitted from the Judicial Conference considered to the Youth Act.
Thurgood Marshall: Yeah, from the Attorney General of the United States.
Michael S. Frisch: That is correct Your Honor. Secondly, if the Court does --
Thurgood Marshall: And it said explicitly, a fine was to be included.
Michael S. Frisch: That is correct with reference to be Your Honor.
Thurgood Marshall: And that was the reason for the amendment.
Michael S. Frisch: That is correct Your Honor. If the Court is convinced --
Thurgood Marshall: Have you anything against that, any legislative history to contradict that?
Michael S. Frisch: No, I do not Your Honor. But I think the important point to be made is that, that letter and the change language was referenced to the incarceration alternative. I would direct the Court’s attention to the language in 5010 (a) which states that the sentencing judge may suspend imposition or execution of sentence. If Congress was aware of the necessity to change the language with respect to (b) to add the language in lieu of penalty and imprisonment, I think the question might reasonably be asked, why a similar change was not enacted as to (a)? Why that same limiting language was not put into (a)? The Government in its brief, I believe, response to this argument by stating that it would be illogical to conclude that Congress intended fines with respect to the incarceration alternative but not with respect to probation. I would suggest to the Court that there is a logical distinction between people sentenced under 5010 (b) and people sentenced under 5010 (a). I believe a sentencing judge makes a qualitative distinction between one who is in need of the incarceration alternative and one who is only in need of probation supervision and at this shows a different type of person that is being treated by the Court with respect to (b) as oppose to (a).
William H. Rehnquist: What about restitution? Would your same argument, as defines, apply to a requirement that the defendant make restitution?
Michael S. Frisch: No Your Honor. I am prepared to concede that restitution is proper from the fair reading of Section 3651. I believe the distinction to be made between fines and restitution is that the power to impose restitution resides right in the probation statute. With respect to fines, it refers back to the substantive offense with which a person is committed. The final concern of courts that have found fines to be permissible under the Act is that to hold otherwise would deny the benefits of the Act to otherwise qualify the young offenders, and I can not state to the Court that this is not at least the possibility. However, I would hope that sentencing judges, particularly those cognizant Mr. Justice Marshall’s concurring opinion in the Dorszynski case which describes of Youth Act as a preferred sentencing alternative which still treated as such and not deny the benefits of the Youth Act to an otherwise qualified individual, merely because Congress did not provide for a fine in the sentencing scheme. Secondly, having conceded that restitution is permissible and appropriate under the Act in the correct case, I would think that in most cases where a fine would be called for where the individual had either financially profited from his offense or caused his victim to cause some loss, the fact that restitution is available under the Act might go along way toward procuring that concern of the Fourth Circuit and the other courts that have permitted fines with respect to denying the benefit of the Act. Regardless of that, we do suggest to the Court that the real issue here is one of statutory constructions, one of the fair readings of the Act and that although fines maybe a wise policy under the Act. That is not the question before this Court; it is merely a question of what Congress provided for. That a fair reading of this Act, reading 3651, and the change in language with respect to 5010 (b) is simply not a sufficient indicator of Congress’ intent as to this penalty. Unless there are any questions, I would like to reserve five minutes for rebuttal. Thank you.
Warren E. Burger: Very well. Mr. Solicitor General.
Ward H. McCree: Mr. Chief Justice and may it please the Court. The Government contends that the decision of the Court of Appeals is supported not only by the literal terms of the Youth Corrections Act but also by the Act’s legislative history. The provisions under which petitioners were sentenced, 18 U. S. C. Section 5010 (a) provide, if the quarters of the opinion that the youth offender does not need commitment, it may suspend the imposition or execution of sentence and place the youth offender on probation. Now nothing in this provision or in any other provision of the Act precludes the imposition of a fine, and since my brother concedes that restitution is not proscribed, I will not labor that. Indeed, such 5023 (a) of the Act expressly provides that nothing in this chapter shall limit or affect the power of any court to suspend the imposition of execution of any sentence and place the youth offender on probation, or be construed in any wise to amend, repeal, or affect the provisions of 18 U. S. C. Section 3651 relative to probation. When we advert to 3651, we find that language provides, while on probation and among the conditions thereof, the defendant maybe required to pay a fine in one or several sums and maybe required to make restitution or reparation. Now I understand my brother to concede that this statutory provision that permits the Court to require restitution as found in 3651 eliminates that element from the consideration of the Court in this appeal. I submit it similarly eliminates from this Court’s consideration or its contentions that a fine might not be imposed. I think probably we could conclude our argument at this point. I would emphasize that the letter of Attorney General Biddle, as the Court has suggested in its questioning, is not a mere letter, but it is a letter that purports to communicate to the Congress the consensus of all the interested persons outside of the legislature that were considering this piece of legislation. The Judicial Conference of the United States and the Department of Justice including the Bureau of Prisons and the Parole Board, I think it makes it very clear that fines were not to be proscribed. And in the words of this Court in Dorszynski the purpose of the Youth Corrections Act is indeed to afford additional sentencing options to the District Court. We submit that with counsel’s concession and with that view of the statute that the judgment of the Court of Appeals is eminently correct as indeed it was in Oliver --
Byron R. White: Does 3651 permit the imposition and fine as a condition of probation when the underlying statute does not impose a fine?
Ward H. McCree: Mr. McCree: I would not so contend. I would suggest that it permits the imposition of a fine only when the underlying statute calls for fine and/or imprisonment, and it does indeed in this case.
Byron R. White: Doesn’t this case simply go for sentence the amount of that provision?
Ward H. McCree: No, they do not sentence the amount of that provision but that --
Byron R. White: What under 3651?
Ward H. McCree: Well, 3651 incorporates the offense that was committed that brought the person before the Court by reason of the indictment. If the Court has no further questions the Government will submit its argument at this point.
Warren E. Burger: Thank you Mr. Solicitor General. Do you have anything further Mr. Frisch? Thank you gentlemen. The case is submitted.


Warren E. Burger: arter against the Jury Commission of Greene County, Alabama. Mr. Amaker.
Norman C. Amaker: Mr. Chief Justice and may it please the Court. This case arising from Greene County, Alabama is on appeal from a three-judge court for the Northern District of Alabama. Like the Turner case heard at the close of yesterday's session concerning Georgia's jury selection law, the issue posed is that of the constitutional validity under the Fourteenth Amendment of Alabama statute which vest successive discretion in jury officials in that state in the selection of jurors. Our submission is that the use of statutes such as these in those states like Alabama which have a demonstrated history of discrimination against black people in the jury selection process is the major cause of the continuing phenomenon of racial exclusion of blacks from the opportunity for jury service in state courts. That's a phenomenon which is all too common place as this Court's experience in jury discrimination cases for the past 90 years attests.
Speaker: Supposing you didn't have this history of discrimination, would you still say the statute is unconstitutional?
Norman C. Amaker: If you didn't have that history of discrimination, I would say that the statute is susceptible of abuse and therefore, if a different kind of demonstrated injury were made to appear that the Court would have to hold the statute unconstitutional.
Speaker: I'm going to sharpen the question. Supposing there was no evidence that it was affirmatively demonstrated that there had been no discrimination other to say about the statute?
Norman C. Amaker: I would say that the statute is vague, lacking in standards, susceptible of abuse. I would say that the Court would knock the issue of whether the statute was constitutional would not be present because there would be no history of the application of the vague standards to a situation in which one could demonstrate that constitutional rights had been violated. That's not this case. Every single -- all of the vagueness cases in this Court, the free expression area and the criminal area are cases in which some litigant came to the Court and said that the cause of these vague standards which give excessive discretion to officials, my constitutional rights are being violated and until a case of that kind reaches this Court, and it reaches this Court in this case and in Georgia and it has not as for example in Wisconsin or Maine, the kinds of questions that we were discussing yesterday. The Court obviously has no occasion to declare the unconstitutionality of the statute. But that has been the consistent pattern of litigation and decision making in this Court.
Warren E. Burger: Then it is the statute as applied that is the --
Norman C. Amaker: Only in --
Warren E. Burger: -- back in the complaint, isn't it?
Norman C. Amaker: Only in a very narrow sense. If what you're talking about is the matter in which the jury officials have used their discretion, which is what this --which is what the issue here is concerned with, then you're talking about -- then that's a different question from the way the District Court addressed the question. They simply said that if we issue an injunction, which tells these jury officials that they are no longer to discriminate that that's sufficient. What I say is that does not deal with the problem of discretion. That does not deal with the capability for discrimination that the statute invites, and therefore the only way that you can deal with that is to deal with the source of the problem which is the statutory standards itself. That's exactly what this Court did in some of the cases that we cited in our brief involving discrimination against blacks in voting. That's what this Court has done in all the vagueness cases that have come before it. This is by now no novel doctrine in this Court. You know in challenging this case, therefore Alabama's jury selection statute, I stressed of the outset of firm belief that this longstanding problem of racial discrimination in jury selection will not be solved, unless the Court respond to this challenge by voiding to provisions of the statute involved here and requiring the use of fairly administered objective standards for determining what person shall be listed on the roles of perspective juries on the State.
William J. Brennan, Jr.: What would be your suggestion Mr. Amaker as to objective standards?
Norman C. Amaker: The kind -- one suggestion, I think it's exemplary only are kinds that the Congress enacted in dealing with the same problem in the context of the federal jury selection system. After the key man system had been exposed as an apparatus whereby discrimination was being practiced against groups and the groups involved avail of principally Negroes. In the federal system, Congress responded to that challenge by enacting the jury selection in Service Act of 1968.
William J. Brennan, Jr.: Am I right that Congress was asked to enact those same standards for selection of state jurors?
Norman C. Amaker: It -- well, let me show up in that they -- the proposed, there were two Bills. They were both part of the 1966 Civil Rights package. Now the Bill with respect to federal jury selection was taken out and enacted last year. The Bill that was proposed in 1966 passed the House. Now, they were in that -- there was in that Bill, Sections 203 (a) and (b) which together gave to the District Courts the judgment of whether they could require objective criteria in the state jury selection process. So it is pretty clear that the response --
William J. Brennan, Jr.: Does that Bill suggests what the criteria would be?
Norman C. Amaker: The Federal Act does and they are --
William J. Brennan, Jr.: What I mean, one that where the related selection of jurors in the State?
Norman C. Amaker: So far as I know Mr. Justice Brennan, it did not state what they should be. The Federal Act stated the very simple ones of age, residency, absence of a felony conviction and the ability, the simple ability to read and write the English language as determined again objectively, not subjectively as determined by a person's ability to fill out a juror qualification form. Now, that is the system that is in fact in operation throughout the federal system. As I indicated in my reply brief in this case, District Courts throughout the country who have been faced with suits of the kind that this is an affirmative action seeking injunctive relief have directed or suggested to state officials that they ought to take a look at what the Congress did with respect to that federal statute, as a means of remedying the problem. That means to me is that it is pretty clear that 90 years of litigation and the repeated admonition to jury officials that they must reform their system really hasn't worked. And the only kind of reform that is an essential step is to deal with the source of the problem which is the discretion vesting statutes like the one involved in this case.
Potter Stewart: But do your really think that's the source of the problem, or do you think the source of the problem is simply an unreconstructed intention required to discriminate on the basis of those who were the job of picking juries?
Norman C. Amaker: Well, it's pretty clear Mr. Justice Stewart that that's true, but if the question that you have to ask is what can you deal with, what can a court deal with? How do you remedy the problem?
Potter Stewart: Well, now --
Norman C. Amaker: I don't think that it's possible for this or any other court to remedy that problem by an injunction which says, administer the statute fairly. The Court has done that consistently for 90 years. What it can do consistent with the decisions in this Court under the vagueness doctrine is to deal with the State enactment which permits those unreconstructed attitudes to be effective.
Potter Stewart: But on this case, and I'm just looking at a paragraph in your own brief on page 10 in which you summarized the injunction that was granted, it was against systematic and exclusion of Negroes from the jury roll of Greene County, and also an order requiring at a new jury roll showing the race and if available the age of each juror be filed with the court within 60 days, and a report showing the procedure used in compiling it. Now, isn't that the way to get at this rather than to excise a couple of adjectives from the statute which --
Norman C. Amaker: No, that isn't the way to get at it. If that were the way to get at it, Mr. Justice Stewart, you would not have the constant re-appearance of these jury discrimination cases in this Court and in courts throughout the nation. And why I'm talking about the nation, I'm talking about the courts in that Southern Tier States where the problem has past persisted. And just excising the language isn't effective. What you have to do is to require that there be objective standards. It doesn't strike neither that is such a tremendous problem. Now, there are 22 states to be sure which have similar language.
Speaker: You mean that we write the standards?
Norman C. Amaker: Pardon me?
Speaker: You mean that we should write the standards?
Norman C. Amaker: Oh! I don't think so. I don't think -- I think that the Court can say one of the district judges in cases we've cited here simply said, "We suggest to you that you use objective criteria and to help you, we refer you to what the Congress did in the Jury Selection Service Act." I don't think that there would be really anything wrong with the Court indicating what kind of objective criteria would be desirable, but I think that it's important for the Court to indicate that there must be some kind of objective criteria. Of the States in the union, there may be 22 which have this kind of vague language and you can document that in a number of them. It has been used and employed for discriminatory purpose, and that's why the case is here but that still means that the majority of the States have not found it necessary to operate a fair jury selection system by using language of this sort. My own submission is that when you have language of this sort and you put that, you give the discretion to persons who are then reconstructed in their attitudes and who are all white in a community like Greene County which has a black majority that you get the kind of results that are shown on this record, and those results have been documented for several years. There was a prior case in the District Court showing what happened and there was declaratory relief there, that didn't work. Now, when you issue an injunction to jury officials, it was really telling them to do better. It seems to me that that has been the decision making process in this Court for decades.
Warren E. Burger: Are there some states which have more precise standards that which still practice discrimination in this regard?
Norman C. Amaker: There may be Mr. Chief Justice. I don't know about the case. What I do know is that the cases which have come to this Court and the cases in which this issue has normally raised are cases which have states -- which have standards like these.
Warren E. Burger: Well, are all the Southern States using vague standards are some of the 22 --
Norman C. Amaker: Well, not --
Warren E. Burger: -- all of the 22 including the Southern Statesdon't
Norman C. Amaker: Well, not all of them. Of the 22 are, I think there were seven are Southern States. That's one out of three. If by defining Southern States, you're talking about 11 or 12, I get it. That's still a majority. But the question it seems to me is really not how many states are or not employing language of this kind. It's the abuse creating mechanism that language of this kind gives. And again, I resort to what this Court has done on the vagueness cases traditionally. That's exactly what was done in United States versus Louisiana and some of the other cases that we've cited here. There is a second issue that's presented here and that is whether the District Court in this case and on this record, should be upheld in refusing what we think is an essential element of the relief to which appellants are entitled in this county with its history of racial exclusion of blacks from the opportunity for jury service. That is the vacation of the all white jury commission of Greene County, Alabama.
Potter Stewart: Which has state the jury commissioners are appointed by the Governor?
Norman C. Amaker: They're appointed by the Governor who was a -- who's named at the complaint as a defendant.
Potter Stewart: Unlike yesterday's case --
Norman C. Amaker: Unlike yesterday's case --
Potter Stewart: -- where they were reported by superior court judge.
Norman C. Amaker: -- by the judge, right.
Potter Stewart: And what's your suggestion as to the remedy that should be accorded in the event we agreed with you on the merits of this point.
Norman C. Amaker: Well, I start from the proposition that the District Court had a record of discriminatory action of a long period of time taken by jury officials all of whom were white. I look at the statement in Louisiana v. United States which indicates that the District Court when dealing with this problem of racial discrimination has the duty to render a decree that will give effective relief. Now, it is true that as on our first submission, an essential first step is to get rid of a vague standards and to require objective criteria, but it is also pretty clear that there may well be a time lag between the time that that relief becomes effective and that in any event, it is a practical impossibility to excise all discretion from the administration of laws. On that basis then, it seems to me that in a community, the majority whose citizens -- the vast majority whose citizens are black, where you can demonstrate that white officials have consistently discriminated and there is no easier demonstration to make than on this record. That as an essential item of relief, the District Court in order to give the complete relief to which the parties here were entitled should have required the appointment of some black members to the jury commission.
Potter Stewart: Now, as I understand it Mr. Amaker, there are three jury commissioners in each county?
Norman C. Amaker: That's correct.
Potter Stewart: Appointed by the Governor of the State.
Norman C. Amaker: Appointed by the Governor for an indefinite period until the successor is appointed by --
Potter Stewart: And your suggestion is that the Governor of the State should be required to appoint what, at least one of the three, or two out of three, or he should be requiring to appoint jury commissioners which reflected so far as possible the percentage of population of each county of that way?
Norman C. Amaker: Well, I don't think that you have to go that far. I think what the Court had before it was a situation in Greene County. The District Court could state as a matter of its discretionary relief. It could state that at least one, it could divide -- it could perhaps even order an election and in the county like Greene with now with the blacks on the voting roles and abundance for the first time they put there in the last couple of years, it was very probable. It had some options. I'm not prepared to say --
Potter Stewart: -- it would also then of course you're saying, it should also invalidate the state law that confers upon the Governor the power to appoint jury commissioners. Are you suggesting that --
Norman C. Amaker: I'm not suggesting that. I'm suggesting that --
Potter Stewart: Or if there were no election then this would be in violation of the state law which provides that the Governor shall appoint the jury commissioner.
Norman C. Amaker: No. Well, I'm simply saying that the course of conduct of the appointment of all white jury commissioners in this county has already violated the Constitution. And therefore, as a matter of relief, I see nothing wrong with the District Court stating that in order -- "Because of that of that, we are going to require you to, in this county at least, appoint commissioners in a different way." And that is, this Court has never indicated that under the supremacy clause, state laws and regulations once they were demonstrated to have play their part in the violation of the constitutional right could not be enjoined, or that the court could not as a court of equity, give the kind of relief to which the court deemed the parties were entitled.
Potter Stewart: Well then you are suggesting that at least with respect to Greene County, the Law of Alabama that converges upon the Governor the power and the duty to appoint jury commissioners is invalid?
Norman C. Amaker: That's right. That was the claim in the District Court, and that's the claim that we urge here. There is another point which I think I should address myself to that is the District Court's view in its opinion that it could not void the vague statutory standards because this Court had never held these criteria to be void for vagueness. And it's cited for that proposition, Cassell versus Texas which is one of a group of five cases involving the Texas grand jury system from -- decided in this Court from 1940 to 1954. I cited also an old 1910 case called Franklin v. South Carolina. Now there is an argument addressed to both of these in our brief. The submission is one that the Cassell case, in that case the issue was never raised on the court without inquiry indicated that the Texas statutory scheme was alright. The Franklin case it seems to me is a case which has now really been eroded entirely by the later development of the vagueness doctrine in this Court has no continuing validity. And neither of these cases, it seems to me, should be used to prevent the Court from granting the relief that we urge here. If there are no further questions, I will reserve the remaining time for rebuttal.
Warren E. Burger: Mr. Hall you may proceed whenever you're ready.
Leslie Hall: Mr. Chief Justice, members of the Court, I think I should first address myself to a little problem that came up yesterday afternoon, and that was in the Georgia case. There was a question about what a freeholder was. Now, that demonstrated that that was considerably from the Georgia case. In the first place, you don't have to be registered voter in order to be on the -- put on the jury roll. The Alabama statute provides that you can --
Speaker: You can be a householder?
Leslie Hall: Sir?
Speaker: You can be a householder.
Leslie Hall: Householder or freeholder, right sir. Now, that doesn't mean you have to own property. It means that you can even live in a house, you could be a tenant. The Alabama statute is much more liberal as far as qualifications of persons who are put on the jury roll. I'd like to point out to the Court what the District Court said on page 364 of the appendix. "Alabama is the most enlightened of the States in requiring that broadly inclusive community list to be consulted and that all eligible persons to be shown on the roll." Now, Mr. Amaker has made quite a point here about Greene County. Greene County, I have to admit, has had a whole lot of fault. There's no question about that, but on the other hand, we come around to this point and that is the point that it is not incumbent upon this Court or any other court that is say, to the Governor of Alabama who he should appoint as members of the jury commission. I think it's quite obvious, quite clear this Court and to almost any court in the land that we had three judges down there. Justice Goldbold, Justice Brooms, Justice Allgood who were very competent and capable and they do what they were doing when they set forth the guidelines for the jury commission of Greene County to do something about that thing. Now, we turn right around to this other point again. Mr. Amaker suggests that this Court dictate to the Governor of Alabama who he should appoint as member of the jury commission. Now that almost is like dictating to the President of the United States who he should appoint to some official position. I don't think that makes sense. I don't think this Court has any authority to do it, and I don't think any court in the land has the authority to say to a Chief Executive of a state or to the President of the United States or any other executive body who he should appoint.
Warren E. Burger: How does the Court reach then the questions --
Leslie Hall: Sir?
Warren E. Burger: How does the Court reach then under court of remedy for the situation that you seem to concede exists in Greene County? Let's assume for the moment that you're correct in your assumption that it would not be feasible if for no other reason, for a court to say who should be appointed to jury commissioner? What is a court to do when it finds it over a long period of time, a population which is roughly divided equally, let us say, turns up with no people of one group on the jury list or very few of them, do you suggest that's beyond the reach of the courts?
Leslie Hall: I don't think it's to the pretty right to the court to say who should be appointed as jury commissioners.
Warren E. Burger: No, I'm talking now about the selection of jurors after laying aside the question of the jury commissioner's appointment.
Leslie Hall: Well, --
Warren E. Burger: If the jury turned up all whites in Greene County or any other county for a long period of time, are you suggesting that nothing can be done about it?
Leslie Hall: We have 67 counties in the State of Alabama, Your Honor.
Warren E. Burger: Yes, but we're only dealing with Greene County today.
Leslie Hall: Yes, sir. And if this Court robs the scope of the thing to say that "We're bringing cash out to this net." Now couldn't that apply it to all 67 counties? I don't know. But the only thing I know is it was decided in this case, the Swain case. And Mr. Justice White wrote the opinion on the case that there has to be a broad representation, isn't that correct sir?
Byron R. White: You're making the argument.
Leslie Hall: Yes, sir.
Potter Stewart: Well, I suppose your answer to the Chief Justice's question is that the way to get out it is the way this District Court got at it. This Court in its opinions said there had been a declaratory judgment put down in 1967 and that had not remedied the situation, that there continued to be recalcitrance, and that now the time come for an injunction and this Court issued an injunction which was specific and stringent. And I suppose your answer is that the way to get out it is the way this District Court got at it, rather than to enjoin the Governor of the state as to who he should appoint as jury commissioners. Isn't that the answer to the question?
Leslie Hall: I would feel that way, yes sir. I don't think that court has the power to do it.
Potter Stewart: Going to do what -- Appoint the --
Leslie Hall: To issue an injunction to the Governor of the State of Alabama telling him to appoint one Negro, two Negroes, black people pardon me, or three on the permission.
Warren E. Burger: Certainly a federal court has not only has the power but the duty, doesn't it, under the Constitution of the Fourteenth Amendment of the Constitution to see to it that there is no racial discrimination on the selection of jurors in Greene County or any other county in any state of the union?
Leslie Hall: Oh! I think it's quite clear that Alabama -- they're trying to solve the situation, but we haven't barely solve that.
Warren E. Burger: But do you think the order which has now been entered by the district judge will produce a solution that's a reasonable one? Is that your position?
Leslie Hall: Well, we've got three very competent judges down there and I think it probably will solve it. I don't know why they're appealing from that portion of it anyway. The only thing I wonder about is why they're appealing from the other point.
Speaker: Why they wanted it?
Leslie Hall: Sir?
Speaker: What you're saying on the last part of your statement. The only thing you wanted about was why?
Leslie Hall: Well, I was wondering why the appeal from the -- they got a favorable decision on the first part, and now they wanted us to just change that old expression and have a court decree that the Governor's got to do this, that and the other. Now I don't think so.
Speaker: Probably not in the record, but what's happened in relation to the remedying this situation since this plea was entered, could you tell me in your time. Are there more new rolls on the jury of this?
Leslie Hall: Yes, sir. Considerably more, in fact I try to tell you so not too long ago in connection with the District Attorney and there's (Inaudible) turned up more Negroes than there were white people.
Potter Stewart: Has this injunction been complied with? I'm referring to the language appearing on 27 (a) of the jurisdictional statement. It said "Defendants are ordered to take prompt action to compile a jury list for Greene County, Alabama in accordance with the Law of Alabama and the constitutional principles set out in this judgment. They are ordered to file with this Court within 60 days a jury list and so compiled."
Leslie Hall: That's been done sir.
Potter Stewart: That's been done?
Leslie Hall: Yes, sir.
Potter Stewart: That of course wouldn't be I suppose in the record, just because --
Leslie Hall: It wouldn't be reflected in our appendix, no sir.
Warren E. Burger: Very well. Do you have anything further counsel?
Leslie Hall: Sir?
Warren E. Burger: Do you have anything further to present to the Court?
Leslie Hall: No, sir. I thank this Court.
Warren E. Burger: Thank you Mr. Hall. Amaker you have --
Norman C. Amaker: Mr. Chief Justice, in response to Mr. Justice Stewart's inquiry as to what occurred. The District Court required the filing of a report as indicated in its opinion within 60 days. That report was filed in November of last year. It is in the -- the report is in the exhibits that are on file on the clerk's office. I looked at it yesterday. There is no numerical compilation, scanning it in the case that there are approximately 50% blacks on that list. I don't know which where the balance is tipped.
Potter Stewart: There are racial designations on the list, are there?
Norman C. Amaker: They were required on --
Potter Stewart: On accord with the --
Norman C. Amaker: Yes, yes they are. Now, whether the district -- whether the jury commissioners will consistently do that, I don't know. Prior to that injunction there were no racial designations. The --
Potter Stewart: Well, in the absence of some particularized reason, I suppose the complaint to be made of the fact that there -- were racial designations.
Norman C. Amaker: Well, I think that the particularized reason appear from these records, you see.
Potter Stewart: Right. In accord with this injunction this probably --
Norman C. Amaker: But that has been -- that was the same thing that Congress did you know, in the Jury Act, and in both the Jury Bills because the problem we've had in these racial discrimination cases over the years, Mr. Justice Stewart, is that you haven't been able to find out very often or at least not without you'd been able to would not about considerable amount of difficulty what the racial breakdown was. Now, the Congress recognized that that it was important in order to demonstrate racial discrimination that what the numbers were. But let me just --
Hugo L. Black: May I ask you, are you familiar with -- in the last election, how many colored people were elected to county office?
Norman C. Amaker: The very last one --
Hugo L. Black: In Greene County.
Norman C. Amaker: In Greene County?
Hugo L. Black: Yes.
Norman C. Amaker: There were at least three or four. This was after this Court's decision on Hadnott v. Amos.
Hugo L. Black: Yes.
Norman C. Amaker: There were --
Hugo L. Black: Now, in serving now.
Norman C. Amaker: There are about three or four, I --
Hugo L. Black: What offices are they?
Norman C. Amaker: I'm not entirely sure what the offices are Mr. Justice Black. They are on the county commission. And I think that's a three or four men-commission. They're on that county commission.
Hugo L. Black: As I recall it, there were some of the key officers of the county. I mean by key officers who could be helpful in bringing about the elimination of discrimination. Some of the key officers of the county were elected who were colored, were they not?
Norman C. Amaker: There were some blacks elected, yes. And as a consequence of after this Court's order in Hadnott.
Hugo L. Black: Of course because it had not been that way before. Not before the recent opinions that attempted to provide methods to see that each race had its proper right to vote.
Norman C. Amaker: Well that was true in that voting context, and that's really the cognitive. that's really our submission -- a part of the submission with respect to the jury commission that's in our brief here.
Hugo L. Black: Yes.
Norman C. Amaker: That, you know, the Civil Rights Commission's Report documented the alienation of blacks in -- throughout the south generally in Alabama and Greene County particularly. And we indicated that one of the ways you cure that since jury service is kind of a twin of voting service in terms of the general impact on the public life community that it's extremely important, particularly in a county like this just as it was in the voting situation to have black people serving on the jury commission. Now, --
Hugo L. Black: Now the Court have black people as bonus.
Norman C. Amaker: Oh! Of course, of course but the jury commission at this point is not an elective office as a general proposition. I'm simply saying that on this record of course --
Hugo L. Black: We must recall that if they could -- if we could take out of the State its power to select its officials in anyway they choose either by election or by appointment that that would cut against either one when become rules, wouldn't it?
Norman C. Amaker: Oh! I don't see --
Hugo L. Black: Say the courts could take the power instead of the legislative branch.
Norman C. Amaker: No, but I'm not -- the submission is not nearly that broad Mr. Justice Black. In Louisiana --
Hugo L. Black: I understand it is a --
Norman C. Amaker: Pardon me?
Hugo L. Black: It is a rather unique thing to suggest that the courts of the nation have a right to change the legislation in a state and say that instead of having appointments, they should have election. It might be wise, I'm not saying it wins, but it might be rather unique in the history of our building, wouldn't it?
Norman C. Amaker: Well, I think it has occurred on occasions and it has occurred and the decisions of this Court reflect those occasions. Louisiana v. United States for example, was a case in which the District Court and this Court later affirmed a decree by that court requiring the registrars not to use a citizenship test which because of its discriminatory impact on the right of Negroes to vote.
Hugo L. Black: That's right.
Norman C. Amaker: The last -- and that's one example, that was unique.
Hugo L. Black: Yes, but that's not an example is it of changing the law in reference to selection of officers saying how this shall be selected invalidating the law which provides to appointment of certain people.
Norman C. Amaker: I don't see that as an invalidation of the law because I see that only as a remedial aspect of the court's equity powers once you have a demonstrated constitutional violation.
Hugo L. Black: [Voice Overlap] get away from rules and semantics because here we are up against a real practical situation. You don't see that if we were to hold that the Governor can not appoint as the state law provide that that would be interfering with the election laws of the State?
Norman C. Amaker: Well, I don't -- no, I don't see that --
Hugo L. Black: That's through the core?
Norman C. Amaker: It's not an election law and --
Hugo L. Black: But it's an election law that he shall appoint, I mean it's a selection of officers that he shall appoint.
Norman C. Amaker: But when I addressed the question of how do you deal with this terribly intractable problem of racial discrimination when the Governor has consistently appointed only white jury commissioners, and those jury commissioners has consistently discriminated against blacks, I think our Constitution can reach that. And I think that this Court can say that as a matter of remedy in this situation without invalidating that law as general proposition --
Hugo L. Black: But why wouldn't it invalidate it?
Norman C. Amaker: I think if the invalidation occurs, Mr. Justice Black, it occurs only to in those to use your term, unique situations in which it is clearly demonstrated as it is in this case that this kind of wide ranging deep seeded discrimination has occurred. Last year for example, as a matter of remedy with respect to the teacher integration in the Montgomery County case, this Court upheld the decree whereby district judge decided that the way to get at this problem, because other methods had not solved the problem, but the way to get up the problem was to acquire a mathematical ratio in schools. I'm simply saying of course it's a unique proposition, but there are certain circumstances when the constitutional violation is so bold with this Court in the past has responded with that kind of unique relief. And not simply think --
Hugo L. Black: But -- things to have, that I recall.
Norman C. Amaker: Pardon me?
Hugo L. Black: I do not recall doing to this extent its essential vote to the as much to your people as it is to the white people that we preserve ancient landmarks for the Government and not depart completely from the idea if they can elect their officials or appoint them in the manner of the right on law. Someone suggested to me sometime ago that the way to prevent unfair trials in the south was to take defendants from down there quite differently and take them up in trial in Harlem. And they did it honestly. It was a belief that that was the best way to do it. Of course it's an exaggeration to say that this is the same, but I think you -- from what I read about Greene County, they've made it through members, almost miraculous progress over there in the right to the people to vote and select their own office.
Norman C. Amaker: They haven't made that progress without a concerted judicial effort.
Hugo L. Black: That's right.
Norman C. Amaker: Litigation after litigation after litigation.
Hugo L. Black: That's right but I don't --
Norman C. Amaker: And this case is entirely --
Hugo L. Black: I don't condole that we took away from that state its right to appoint jury commissions.
Norman C. Amaker: Well, if that --
Hugo L. Black: And as demanded it to be a Governor appoint a man of a certain title, (inaudible) a jury commission.
Norman C. Amaker: Well, it certainly seems that just as the majority of the citizens in Greene County are entitled to elect the persons that they choose. The jury commission which forms a very important public function in the community is entitled -- they're entitled also to have some representation of their group from that commissioner.
Hugo L. Black: No one can disagree with you I don't think who lives in the fair and equal government on that basis that they are entitled to. But the question here, I'm asking you because you and your group as much understood in carrying on the law fairly administered so that you don't break down the great structure of our democratic government by saying it to the courts and require that certain people or members of the race be appointed to office by the appointed power. Anymore than we could say they must elect them. Of course we can hold that they must adopt policy. I'm not arguing against your point that you do have a very righteous cause of complaint in connection with that county. But I am trying to point out that we have reached it yet a point and made a miraculous, almost miraculous progress, a man who lived at Alabama knows, almost the miraculous progress that has been made in Greene County without destroying any of the ancient landmarks of the Government.
Norman C. Amaker: My time is up, Mr. Justice Black. I can only say that that has taken very, very many decades and I don't -- it's not my judgment that that is a miraculous record.
Warren E. Burger: Thank you Mr. Amaker. Thank you Mr. Hall for your submissions. The case is submitted.