Warren E. Burger: We'll hear arguments next in Chevron against National Resources Council. Mr. Bator, I think you may proceed whenever you are ready.
Paul M. Bator: Mr. Chief Justice, and may it please the Court, this case involves the validity of an important regulation issued by the Environmental Protection Agency under the Clean Air Act Amendments of 1977. The regulation addresses the question of what counts as a "source" for purposes of activating a permit program called the new source review program. Under the statute, the states must impose new source review in certain areas of the country in situations where construction or modification of a major stationary source of air pollution would lead to significant emissions increases, and the question is: What is a source? The regulation at issue allows the states... it doesn't compel them... it allows them to adopt a plant-wide definition of the term "source". This is sometimes called the bubble definition. The Court of Appeals of the District of Columbia held that the bubble definition is unlawful; that the administrator has no discretion in how to define "source"; that the statute compels one rigid definition; and we are here asking this Court to correct that holding and to hold that the regulation and the definition fell within the lawful discretion of the administrator.
Byron R. White: Do you suppose the Court of Appeals would have had the same view had the agency taken the same definition from the outset?
Paul M. Bator: We believe so. The Court of Appeals did not seem to be worried about the fact--
Byron R. White: That it's changed its mind.
Paul M. Bator: --that the agency has in fact exercised its discretion in a number of different--
Byron R. White: Ways, yes.
Paul M. Bator: --with a number of different resolutions of the problem from time to time. The relevant provisions of the Act, I want to give a little bit of background here to the statutory structure. They comprise Part D of the Act, and they were passed in '77 to regulate so-called 1977 met the original deadlines for attaining national air quality standards. For these areas, the Congress in '77 adopted a rather elaborately calibrated set of requirements which were designed to achieve three overall goals: One was to assure steady progress toward attainment; second, to encourage economic growth through the creation of new plant and equipment even during this period of movement toward attainment; and third, to assure that states should have increased flexibility in organizing their own antipollution strategies. These were the three central animating conceptions. Now Part D is comprised of a complex of provisions. The centerpiece is the obligation on the state to create new state implementation plans. These are the things called SIPs> ["], and these must require annual incremental reductions in emissions which constitute reasonable further progress towards attainment. The statute also requires the SIP to impose what is called "reasonably available control technology" on all existing sources. These requirements have nothing to do with a bubble. These are the principal engines that are supposed to drive the state toward attainment. In addition, as one element of the scheme, Part D creates the new source performance, sometimes called NSR... sorry, new source review, NSR program. Now this imposes stringent conditions before a permit may be issued to construct new sources of pollution. These conditions are very severe. For instance, one is a requirement that so-called state of the art, and therefore very expensive, control technology be installed on all new sources. It is this technology that in the trade is sometimes called LAER, or LAER technology. Now Part D does not itself define what is a source for purposes of activating this NSR program. In fact, the agency has ever since 1977 assumed that it has some discretion in how to define what counts as a source.
John Paul Stevens: Mr. Bator, can I interrupt you right there, because this is one thing I wasn't clear on from the brief. You say the statute does not define the term "source", and your opponents say it does.
Paul M. Bator: Part D does not define "source".
John Paul Stevens: Well, then, does the definition of 111--
Paul M. Bator: That is one of the big disputes in the case.
John Paul Stevens: --Oh, so it is an issue as to whether that--
Paul M. Bator: Whether that--
John Paul Stevens: --They don't agree with you, then, that there's no definition.
Paul M. Bator: --Right. We say it doesn't apply. We say even if it does, it does not exclude the bubble. So we take both positions. But there is a dispute about whether it applies--
John Paul Stevens: But there is a statutory definition of the term (a) the definition does not apply to Part D?
Paul M. Bator: --That definition, Your Honor, was enacted by Congress in 1970--
John Paul Stevens: I understand.
Paul M. Bator: --in Section 111 in the context of a separate program called the new source performance standard program.
John Paul Stevens: And it's your position that in 1977, was it, they intended the word "source" to have a different meaning than it had in the already enacted statute?
Paul M. Bator: We're saying that they did not intend to carry over or to incorporate the Section 111 definition. The Section 111 definition itself says, "for purposes of this section source means. " The provisions which are at issue here, which were enacted seven years later, do not make an explicit cross-reference to Section 111.
John Paul Stevens: And you think that would be necessary for us to assume--
Paul M. Bator: Not always, Your Honor, but in this case there is additional history, Justice Stevens. In this case in the Senate bill that was before the Congress in both '76 and '77, there was an explicit cross-reference to the Section 111 definition of source. The Conference Committee removed that. In fact, the Conference Committee rejected the Senate bill and adopted the House approach to new source review. The statute as it was enacted did include some explicit cross-references to other Section 111 definitions, but not to the definition of source. So we look to that history, and we say there seems to have been at least some indication that Congress did not want to tie the new NSR program to that definition of source. And that makes sense to us, Your Honors, because the fact is that the way that definition works in the 1970 NSPS program would be very different... that is, to carry it over would not make much functional sense, because that's a very different program and it operates in a very different way.
John Paul Stevens: --And of course the language of the definition tends to cut against you somewhat, I think, because it's any building or any facility, and you would say that if you've got three buildings in a plant, that you don't count the buildings separately.
Paul M. Bator: Your Honor, our position is that even if the definition applies, the most sensible reading of it is that within the definition there is room to adapt it, and that the Congress must have intended some administrative discretion to adapt it to the functional needs of the various Clean Air Act programs. An illustration of that would be, there is still another program enacted in 1977. That was the Part C program to prevent deterioration of air quality in areas of the country which had attained national standards. In that program also the agency has said that the bubble definition, even though using the same language as in the Section 111 program, has in that adaptation used the bubble definition. And oddly enough in that context, the Court of Appeals upheld it saying that there is discretion to adapt the definition to meet the various different substantive needs of the various programs.
Sandra Day O'Connor: Mr. Bator, even assuming, arguendo, that your position is correct that the definition of source in the previous legislation was not carried over for the new source review, what appears to me to have been done here is that EPA has defined source for purposes of 7503 in Part D two different ways. It's given a broad scope definition for purposes of structuring the bubble for emissions control, and then it's ignored the word source and referred to emissions units for purposes of engaging lowest achievable emission rate. So really EPA has defined source two different ways, it seems to me, within the same section for new source review. And would you explain that to me?
Paul M. Bator: Your Honor, the reference to what counts for purposes of the imposition of LAER technology, which is the latter example used, is not meant to be a definition of the word "source" at all.
Sandra Day O'Connor: Well, but it says "source" in the statute: The proposed source is required to comply with the lowest achievable emission rate.
Paul M. Bator: Well, of course in order to get into LAER it has to be a source, but once you get to the imposition of LAER technology of course we are there talking on a unit-by-unit or machine basis because that's what the technology is imposed on.
Sandra Day O'Connor: Well, it just seems to me that EPA has seized upon the word LAER purpose.
Paul M. Bator: Your Honor, I think that EPA was not purporting to create a definition there. When we get to the imposition of LAER technology: the only meaningful use of the word "source" is that a... is the particular piece of equipment because we're talking about technology-forcing equipment. So that these are two different contexts and two different conceptual universes. One is, when is a whole administrative scheme triggered at all? Once it is triggered and you are in section 1.73 and LAER has to be imposed, it has to be imposed on particular pieces of machinery and equipment. But it doesn't have much meaning to think about LAER, which is specific technology, in the context of a plant. So we don't think there really is an inconsistency, Your Honor, although there may be a verbal one. But we don't think that they were trying to define the term LAER requirement operates. It's an operational question in that context.
William J. Brennan, Jr.: Well, is that the same, Mr. Bator, that while they use the plant-wide definition to determine whether a source is new or modified, once they've determined that it's modified they impose only, as you said, the machine LAER requirements?
Paul M. Bator: Absolutely. The plant-wide definition cannot--
William J. Brennan, Jr.: Well, suppose they determine that it's a new, rather than a modified, a new source? Same thing?
Paul M. Bator: --There are statutory definitions of what is a new and what is a modified source, and they have somewhat different significance.
William J. Brennan, Jr.: Well, perhaps I'm getting into something a little different. That is, they impose the LAER requirement only on the particular machine after they've determined, using the plant-wide definition, that the source is either new or modified.
Paul M. Bator: Yes, sir.
William J. Brennan, Jr.: Now I understand that's done when they determine the source is modified, but what when they determine the source is new? Is that still the same thing?
Paul M. Bator: When a source is new, the plant-wide and the--
William J. Brennan, Jr.: Well, what about the--
Paul M. Bator: --individual--
William J. Brennan, Jr.: --What about the LAER standard? How is that imposed, on what, when they determine it's a new source?
Paul M. Bator: --When you create a new plant, then by definition you have a source because you don't have an offset. That is, when you build a new plant.
William J. Brennan, Jr.: So then the LAER requirements apply over the whole plant when it's a new source?
Paul M. Bator: The LAER requirement insists that when you're building a new plant, the state-of-the-art technology be imposed on all of the equipment--
Speaker: I see.
Paul M. Bator: --or on sufficient equipment within the plant so that the... so that the offset and other requirements are met, Your Honor.
Speaker: I see.
Paul M. Bator: The bubble concept really has operational significance only in the context where you have an existing plant.
William J. Brennan, Jr.: Forgive me for interrupting you once more.
Paul M. Bator: Yes.
William J. Brennan, Jr.: NRDC says that the EPA regulations allow the use of the plant-wide definition even in states, even in states that haven't adopted a SIP. Is that true?
Paul M. Bator: I believe that is not so, Your Honor.
William J. Brennan, Jr.: That is not so?
Paul M. Bator: That is the plant... there may be an ambiguity there, and I just want to be very sure to be scrupulous. I believe the requirement was that the bubble definition could only be adopted by those states that were issuing SIPs that met all the other requirements of the statute... that is, that put down the requirements for reasonable further progress and for the installation of controlling technology on existing sources.
William J. Brennan, Jr.: Well, perhaps I should have asked NFDC to discuss that.
Paul M. Bator: It may be that they meant there the use of the bubble concept in the concept of the moratorium, which is a slightly different context, and it may be that that is what they're talking about. And there is a use of the bubble concept outside of the context of an approved SIP in those states which fall under the so-called construction moratorium. I think maybe it would be well for me just to say a word about how we think the bubble system works as a matter of the administrative technique that is involved. The point of the bubble system is that for purposes of determining whether this complex of administrative requirement is triggered, you look at the plant as a whole. And that assumes an existing plant. And you... it's as if the entire plant were encased in a plastic bubble with a single emissions hole at the top. Now if you have new construction or expansion within that plant that increases net pollution plant-wide more than a de minimus amount, then everybody's agreed that new source review comes into play. But under the bubble approach, within a plant an individual machine can be added or modified without new source review if additional pollution from that new construction is offset by reductions or elimination of another machine so that there is no significant additional net increase.
Sandra Day O'Connor: May I ask a question about your use of the word Mr. Bator? Section 75.11(a)(4), which I think governs the new source review engagement says that any increase in pollution engages the review. And the regulation seems to have adopted a "significant increase" definition, not just "any increase". And then there are a variety of levels imposed, 100 tons for certain kinds, and 60 tons for others, and so forth. What is the justification for that?
Paul M. Bator: Your Honor, the answer to this is I believe not in dispute between respondents and us. They way this works, that is the reason there are significance levels in this situation is because the statute only comes into operation if there is a major stationary source. That itself is defined as--
Sandra Day O'Connor: Well, that's defined, but I think the section does say any increase in pollution engages review under new source review, and I just wondered how we then by regulation got to "significant levels".
Paul M. Bator: Well, as I say, it comes in in a number of different ways. The statute first of all says that if you are building something that is less than 100 tons per year, that it's not a major source at all; and under either definition there is no new source review. That is, if I put up a new plant that is 99... this is now new plants. With respect to modifications, the statute says there has to be a major modification before any of this comes into play. Now the administrator issued regulations interpreting the term "major modifications". That was upheld by the Court of Appeals in the Alabama Power case as lawful. That is, as it were, the source of the significance levels, about which the legality of which I believe there is really no dispute, and which really operate whether you have a bubble definition or a plant-wide definition. That is, under the plant-wide definition, too, it is now the regulatory structure that if you have a modification that, for instance, increases a machine by less than 40 tons per year with respect to one of the pollutants, that the NSR review would not come into play under either definition, whether that is a source or not. I don't believe that there is a dispute between the parties about the legality of the establishment of the significant levels. The relevant authority on that is the Alabama Power case where the Court of Appeals examined this very question and said that, in light of the legislative history, it is inconceivable that Congress should have meant that a very elaborate and very expensive administrative mechanism come into play in the case of trivial changes in emissions levels. Of course our submission, Your Honor, is that it is not at all the case that every time there is a change in plant or machinery under the bubble definition that there is going to be any increase whatever. The plant definition may very well create reductions in emissions levels. Because if I have a machine that for instance pollutes at 500 now, an existing machine that pollutes say at the level of 500 tons a year, suppose that I want to install a brand new and very efficient new machine that only pollutes at 450. That would be a net decrease in 50. Under the bubble definition, NSR would not come into play at all because you have an offset, and therefore I can install the new machine. Under the plant--
Byron R. White: --If you install another machine that polluted 50 tons more than your old one, you could still install it if you reduced the emissions in some other part of the plant by 50?
Paul M. Bator: --Right, Your Honor. If we collect enough offsets within the plant so that there is--
Byron R. White: So you may in a modification... you don't have to employ the state-of-the-art in modifications.
Paul M. Bator: --If the net increase in the plant is offset with anything other than de minimus.
Sandra Day O'Connor: But you do require new source performance standards to be applied--
Paul M. Bator: Those are required in any event.
Sandra Day O'Connor: --apparently to the individual pieces of equipment.
Paul M. Bator: Those are required in any event.
Sandra Day O'Connor: But not the LAER--
Paul M. Bator: No, the LAER--
Sandra Day O'Connor: --if it falls within your--
Paul M. Bator: --That is right. The LAER is required only if you have a source that is a source within the meaning of new source review. The new source performance standard technology has to be installed across the board, whether the new source review program is or is no in operation.
Sandra Day O'Connor: --But if you look at Section 7501(3) it looks like LAER has to be applied. It just--
Paul M. Bator: I don't believe so. I don't think that that purports to be a definition of when the regulatory requirements apply. It purports to explain what happens to that piece of equipment once you've decided that the program is in operation. I think I would like to reserve the rest of my time for rebuttal.
Warren E. Burger: Mr. Doniger.
David D. Doniger: Mr. Chief Justice, and may it please the Court, as Mr. Justice Stevens has said, the question in this case is whether the statute defines the term "stationary source" for the purpose of this program, and we contend that it does. Section 110(a)(2)(D) is the key provision. Section 110(a)(2), as this Court has held in the Train case is what sets forth the mandatory contents of every state plan. Subparagraph (D) establishes what each state plan must contain in the way of new source review requirements. Subparagraph (D) uses the term "source" twice. One use of that term is explicitly tied to Section 111, and the definition of source in that Section 111 is, a source is a building, a structure, a facility, or an installation. The other use of the term is in a clause not five lines away which requires each state plan to contain a permit program as provided in part (D). The two uses of the term in the same subparagraph ought to be presumed to have the same meaning. That's the only reasonable conclusion, particularly when you look at the legislative history of subparagraph (D). Subparagraph (D) is the result of Congress' having looked at the new source review procedure that was provided in Section... in subparagraph (D) in the 1970 Act, deciding that it was inadequate, that it did not provide for careful review of new sources, and deciding that it needed to be strengthened by creating the permit program that we find in Section 173. It is not credible to suggest that when Congress amended subparagraph (D) in 1977 to add to it the permit program for stationary sources. It meant the term "stationary sources" to mean something new, something different than it already meant in the same subparagraph. Well, having established that the two uses of the term have the same meaning, what is that meaning? Again, as Mr. Justice Stevens has suggested, a term such as building and structure plainly refer to individual industrial units like boilers and blast furnaces, things that actually produce pollution. These terms, we contend, can't reasonably be defined exclusively as entire plants. The 1977 legislative history, moreover, specifically rules out the bubble definition that EPA has adopted. It explicitly bars a new project from escaping the permit review just by obtaining an offset from within the same plant. And I refer you to page 36 of our brief which quotes the statement of Senator Muskie who was chairman of the Senate Conferences, and he was explaining the meaning of the permit program required by the Conference bill to be included in every state plan. He said, ", a new source is still subject to such requirements as "lowest achievable emission rate" even if it is used as a replacement for an older facility resulting in a new reduction from previous emission levels. " He was there explicitly referring to the situation where someone takes a facility in a plant, retires it, and replaces it with a new one, a new boiler or blast furnace. And he said, you're still subject to permit review. You cannot net out of the permit review simply by getting an offset. Now the reasons why Congress was not satisfied with just an offset that keeps the pollution from increasing are plain in the requirements and purposes of Section 173. In enacting that section, Congress made it clear that it wasn't enough just to keep pollution from increasing. First, pollution had to be made to decrease. The offset that's required in Section 173(1) is an offset which is more than equal to the pollution that the new boiler is going to add. The pollution overall has to be reduced.
Byron R. White: Well, even under the government's position, though, the state plan is going to have to, whether it uses the bubble concept or not, is going to have to have an annual improvement in the air quality. The plan has to aim at that. It has to be reasonably aimed at achieving that.
David D. Doniger: The Government I think is arguing that if the plan makes up the lost ground by not having the source... not having the thing subject to the permit review, then it doesn't make any difference. But the Act itself--
Byron R. White: All I was saying is that even under the government's view, the air quality is going to have to steadily improve.
David D. Doniger: --That's correct.
Byron R. White: It would just improve faster and more under your view.
David D. Doniger: Well, what we have here is Congress deciding that new sources were going to have to play a specific role in that reducing of pollution, and the plan was going to have to make whatever residual reduction was necessary from any other source the state--
Speaker: Right.
David D. Doniger: --provided. But Congress not only wanted the new sources to produce that reduction, but to do two other things, as well. The first was, they were supposed to put on the lowest achievable emission rate technology, technology which is defined as equal to the best that somebody of that kind is already using, in order to make the lowest possible... the least possible call on the air quality, on the pollution reduction opportunities that that state has. We have states which are way over the limit for the amount of pollution that they can have in compliance with the health standards. They have to reduce that. Most of that reduction is going to have to come from existing sources.
Byron R. White: Well, of course under... I guess suppose at least theoretically it may be that your position, if we adopted it, wouldn't improve the air quality in these regions any faster. Because even if you used a... even if you were required to use the best piece of equipment that you could, you may not... you may not go to the trouble of reducing the emissions in some other part of the plant that you would if you were allowed under the bubble concept.
David D. Doniger: Well, under Section 173 you have to do three things. You have to make that offset--
Byron R. White: Yes.
David D. Doniger: --so that you get a net reduction. You have to use the best technology which makes it easier, by the way, to meet that first requirement because your offset doesn't have to be as big. And the third requirement, which is in 173(3), is that the new source... the firm building the new source has to demonstrate that its existing sources are in compliance with the requirements that apply to them. These are three things that Congress wanted the permit process to provide. EPA is suggesting that if you only do one of those things, if you only offset pollution back to the starting point, you have done everything that Section 173 intended that Congress wanted done, and that is not correct. Congress wanted pollution offset beyond the starting point. Congress wanted the best technology put on these new facilities, and Congress wanted the company building them to make sure that it was complying with the law at each of its other facilities in the same state. Those things are lost.
Byron R. White: Well, under the government's view, I take it, that if a new piece of equipment could be brought into a plant that would increase emissions by 500, that would be permissible as long as somewhere else in the plant they reduced emissions by 500.
David D. Doniger: Well, by 460 because the levels allow actual increases.
Byron R. White: All right. In any event, as long as they reduced emissions sufficiently in some other part of the plant. You say that if it were possible in putting in the new piece of equipment to increase emissions less, they must use that.
David D. Doniger: That's right.
Byron R. White: Well, if they must do that, and if they did it, it may be that they wouldn't go to the trouble of reducing emissions somewhere else in the plant.
David D. Doniger: If, for example, in your hypothetical that the application of the advanced technology meant that the boiler would increase pollution by 400 instead of by 500 tons, then the offset would be correspondingly less and, to the extent that you had used up some opportunity for reduction, just to stay even with the new boiler, the state could use that reduction opportunity to make further progress towards the standards. So if you have poorly controlled new sources coming in, then just staying even requires going deeper into the well of offset opportunities, and it makes it even harder to meet the health standards or the deadlines which Congress has required they be met by. So a great deal is being given up when a major source is left out of the permit process. I want to point out that we're not talking about a minor exemption on the periphery of the law; we're talking about an exemption which applies to 90 percent or more of the major projects which are built in our cities which don't meet the health standards. Because the statistics that we have put forth, which no one in this case contests, are that almost every major project built in a polluted area is built within a plant, not at a new site. And in almost every case, they have shown themselves to be able to get their offset. When they comply with all three conditions, they get their offset from inside the plant. Anybody who can do that can certainly get the offset that the government would like to make available to avoid meeting the other requirements. So that 90 percent of the big projects are allowed to escape review. The purposes, I would like to amplify a little bit the purposes of the lowest achievable emission rate technology requirement and the compliance requirement. At page 39 of our brief we cite the three purposes given by the House report. The lowest achievable emission rate technology is there to make sure that these new sources contribute as little new pollution as possible to the area so that they minimize the conflict between allowing growth and making progress toward the health standards. The second condition... the second purpose is to make it possible for an area to have as many new sources as possible without compromising those health standards. And the third reason is to serve the purpose of advancing technology of improving the rate at which it's developed and deployed on new sources. All of those things are lost if lowest achievable emission rate technology is not applied to these 90 percent of the major projects. The third requirement is the requirement to demonstrate compliance. I refer you to page 39 of our brief again. The House report language... the House report passages discussed there are ones in which the House had found that there was an alarming level of noncompliance with the law in 1975 and 1976, and they sought to create a new incentive to comply by making someone who wanted to build a new source responsible for demonstrating that he was complying with the law with the sources that he already owned. These are important purposes which are rendered unachieved completely if nothing applies, if not of these projects fall under the definition of source and therefore under the permit requirement. It is a cardinal principle of statutory construction that an agency can't rewrite a definition to subvert specific statutory requirements that were adopted to serve specifically articulated congressional purposes, yet under this definition all three of the important purposes Congress intended Section 173 to serve are frustrated. Now I want to amplify on an aspect of Justice White's question of a few moments ago. The government has suggested in its briefs that it doesn't make any difference if all these things are lost, provided that there is a plan which will on paper at least project meeting the deadlines... meeting the standards by the deadlines of the law. Congress has clearly decided that it's not enough to have a plan that projects progress and attainment by the deadlines. It has established a two-track system which doesn't put all of its eggs in one basket. In 1970, and again in 1977, Congress specifically chose not to put total reliance on that plan. The history of the Act shows that that was a wise judgment, because the plans alone don't work sufficiently to meet the standards on time. In the early '70s under the obligation to develop a plan to meet the standards by 1975, every state submitted a plan which it projected would do that. But when the '75 deadline passed, although there had been progress, two-thirds of the nation's people still lived in areas that didn't meet health standards. In 1977, Congress called for a new round of plans to meet the deadlines by 1982. But by the end of 1982, there were still more than 100 major metropolitan areas which don't meet the health standards. The projection of attainment all by itself is useful but not reliable all by itself, and that's why it's backed up by specific requirements that apply to major stationary sources. It seems to me a novel proposition that by complying with one of those three conditions, albeit only partly the offset condition, something which otherwise would be a source, it's a thing by itself that emits the requisite amount of pollution is not a source at all anymore and can forget entirely about the other conditions that would normally... that it would normally be subject to. Now Justice Marshall asked a question about situations in which EPA is applying--
Warren E. Burger: Justice Marshall is--
David D. Doniger: --I'm sorry. Justice Brennan--
Warren E. Burger: --indisposed today.
David D. Doniger: --in situations where there is no state plan, that even on paper purports to provide a method for getting to the standards on time. And that situation is the construction moratorium situation, and also EPA's offset ruling, two situations. Both of those apply in situations where the state either has not yet written the plan, or is overdue for writing the plan. What EPA has said there is that it's okay to use a definition which lets 90 percent of the projects which would otherwise be subject to the moratorium escape the moratorium, regardless of whether they may increase pollution, and in spite of the fact that they're not even being built with lowest achievable emission rate technology and with a certification by the source builder that its other sources are meeting the requirements applicable to them. So in that case, the government doesn't even have the fig leaf of protection from the requirement that the state have a plan that promises to meet the standards on time. One final argument that I'd like to mention that the Government makes is that, on the assumption that it has some discretion in this area, on the assumption that the statute doesn't require coverage of these major units, the government is arguing that its definition actually makes things better. And the argument for that case is that, they say, that the older definition which EPA had for 10 years, which covered the units, might discourage in some instances the replacement of a project which might be cleaner than the thing that it was replacing.
Byron R. White: How long has this provision that we're fighting about been in force?
David D. Doniger: The original definition which covered units has been in effect from 1971 through October of 1981, and the revised definition which allows the units to escape the review has been in effect only since October of 1981. And in the 10 prior years, we had the units being covered. In fact, in 1976 EPA established the offset ruling... excuse me. I would like to return to a question about the law for a moment. One of the government's arguments is that a provision explicitly incorporating the unit definition was dropped from the Senate bill in the 1977 Conference Committee. In order to make that argument work, that the dropping of that Section 302(m) was meaningful and was intended to exclude... to drop the unit definition, have to be able to show that the House bill coming to the Conference intended something different than the Senate bill. And I believe we can show that the House bill covered units just as much as the Senate bill. The House bill provided for new source review by adopting into the law EPA's 1976 regulations. EPA's 1976 regulations specifically provided that every building, structure, facility, or installation which emits more than 100 tons was subject to this review process. So the House came into the Conference with a unit-specific definition; the Senate came in with a unit-specific definition; they conferenced their language to conform it into what we see in the final law; and at the end of the Conference Senate Muskie went back and explained to his colleagues that the bubble was not allowed. I think in that legislative history context it is not credible to claim that Congress left open the question whether units like boilers and blast furnaces were covered by the permit requirements.
John Paul Stevens: Would you comment on the... perhaps it's a superficial point, but the government makes the argument that there's some at least inconsistency between using the bubble concept in programs that are designed to maintain quality as opposed to those that are... and then to forbid it in programs designed to improve air quality. Is there some inconsistency there?
David D. Doniger: It's our position that all three of these programs ought to have the same unit definition. The Alabama Power case I think has been misinterpreted by the government and--
Byron R. White: You think it's been misinterpreted by the Court of Appeals, too?
David D. Doniger: --I think so, in that if you read that case, what it says is that... well, the issue in that case was whether EPA could aggregate small units that were not major, in and of themselves, but were built all at the same time into a group that together emitted more than the threshold amount of pollution, and then subject that group to new source review. And EPA had done that by adopting a definition that included the phrase "or combination thereof", combination of the buildings, and structures, and so forth. And the Court of Appeals said you can't do that; you're restricted to those four words, but we think that it would be reasonable for you to define "facility" or "installation" not only as a unit but as a plant, too. There you get the dual definition of the source.
Byron R. White: Didn't it require that different definition?
David D. Doniger: I believe it requires that--
Byron R. White: I mean, required, not authorized. It required that different--
David D. Doniger: --What it requires is that if you are building a bunch of small units at the same time, or you're adding a small unit, one that is not by itself large enough to qualify as a major source... i.e., by itself it's not a 100-ton emitter... then the only way EPA can subject that thing to new source review is by virtue of making it a modification of the whole plant. And if the only way it is subject to new source review is by virtue of it being a modification of the whole plant, then you ought to... then the symmetry of it is that you have to let the plant owner get an offset within the plant in order to eliminate the net increase in its plant's emissions. If that unit by itself is major in size, it does emit more than 100 tons, or in the case of that other program it's a higher level of 250 tons, but if those thresholds are crossed, that thing, that boiler is subject to review all on its own, regardless of whether it's located on a greenfield site or in a plant. But even if Alabama Power is rightly interpreted as mandating a plant-wide definition for the program to limit how much worse pollution can get where it's currently better than the standards, it is not consistent with the purpose of reducing pollution to let sources which it applies in this program, to let these big projects escape from all the pollution reducing requirements that are found in Section 173. So to the extent the distinction means that when the program is to reduce pollution it's not legal to let these sources out of it, it's right. To the extent that the distinction is used to say that ever in a pollution increasing program like part (C) you don't need the unit definition, I think that that's a misinterpretation of the opinion.
John Paul Stevens: --Well, your central position, then, if I understand you, is that if you need say three smaller units to be aggregated into one plant to qualify as a source, you just have to be consistent in treating that the same way.
David D. Doniger: That's right.
John Paul Stevens: And if each of the three was large enough to be a source all by itself, then you're dealing with three sources--
David D. Doniger: That's right.
John Paul Stevens: --and you can't aggregate them into a bubble.
David D. Doniger: That's correct.
Speaker: I see.
David D. Doniger: I want to return to the modernization argument for a moment, which I had started on. EPA's position is that... or argument is that sometimes in a few cases you will find that a project is delayed a little bit, which if it were allowed to be built even with poor controls, would be cleaner than the thing that it's replacing, and that this justifies changing the definition. What EPA has failed to do, though, is look at all the instances in which the poorly controlled sources result in more pollution than they would have if they were subject to the permit requirement and those three requirements were imposed. This is a case just like MVMA v. State Farm where the government's rationale... again, assuming it has some discretion... is defective because it only considers a small fragment of the problem before it. It doesn't consider what happens in all the instances where its definition makes things worse rather than better. If there are no further questions, I will stop here.
Warren E. Burger: Mr. Bator, do you have anything further?
Paul M. Bator: Yes, Your Honor. The difficulty here is that we, the government, simply doesn't recognize Mr. Doniger's description of the Act. It seems to us that he has collapsed into one a dazzlingly intricate statute, has given it a straightforward sort of one-purpose interpretation, that there's only one thing going on here, which is that Congress meant that things move as fast as possible toward maximum expensive technology. Now in fact Congress... and I don't know where he was reading from when he said "the following are the purposes of the statute. " We read those reports and we see that Congress had a number of different purposes in mind: state flexibility--
Byron R. White: What was Senator Muskie talking about, for example?
Paul M. Bator: --Senator Muskie, from the Conference Report, made one statement which we discuss in our reply brief, which does seem to presuppose... although it's somewhat ambiguous; he may just have been saying that what he was insisting was that the new provisions do apply to modifications as well as to new construction.
Byron R. White: What if that was what he was saying? Does that make any difference to you?
Paul M. Bator: I don't think, if that's all he was saying, that it makes any difference. But we think the most fundamental point here is that Congress was trying to balance a number of different problems. It found the '70 statute to be deficient because it did not sufficiently balance the problem of renewal and growth with the problem of achieving attainment. Congress said, we want a different scheme. So everything that Mr. Doniger says about the fact that ever since 1971 this is the way it was defined, we have here Congress saying we really want to take a slightly different path. We want the states to have added flexibility. And we have particularly in mind the problem of disincentives to growth. The bubble idea has behind it a very simple and elegant idea, which is: That you will have incentives to growth if you allow industry the flexibility to spend its pollution dollars in the most efficient rather than the least efficient way. If you can reduce pollution by spending a million dollars on machine A, that is a better idea than requiring you to spend two million dollars on having the same reduction by making you do it on machine B. If I have a machine that is a very efficient machine and I want to double its capacity and that will create 200 new tons of pollution, it may cost a million dollars to put LAER on that to bring that 200 back down and to eliminate the 200. But I might be able to get rid of the 200 simply by eliminating the next machine, which is an inefficient machine. Now Mr. Doniger's whole argument is that if we insist on LAER on the new machine and eliminate the old machine, we will get rid of 400 units. But you have created a one million dollar extra cost on the expansion of your efficient machine. The choice isn't between the new machine with LAER or the new machine with LAER, because the antecedent question is whether the plant will put in the new machine. That is, the question is on the incentives to renew at all. Under the source definition, under the tight definition that Mr. Doniger puts before you, we have the antecedent question: Will there be renewal at all?
Sandra Day O'Connor: Well, I guess the question is whether Congress has mandated that. That's all. It's really not for us to determine--
David D. Doniger: Yes. Absolutely.
Sandra Day O'Connor: --which policy makes the more sense. It's what Congress mandated.
David D. Doniger: And Mr. Doniger comes here and he says that Congress, by positive law, has eliminated the administrator's discretion. And we say: Show us where the law says that? Show us where the structure of the statute requires that. And then we get very complicated and rather artificial explanations of why Congress said one thing but meant another.
John Paul Stevens: Well, your argument of course is that they intended to change the statutory definition and delegate to the administrator the power to define source without saying so in so many words.
David D. Doniger: Your Honor, that statutory definition that he speaks about was never an all purpose definition even back in--
John Paul Stevens: No, but normally when you find a term defined in the statute and you don't find any alternative definitions, your first impression is it probably has the same meaning throughout the statute... at least that's the way I start when I read complicated statutes.
David D. Doniger: --Your Honor, in this case Congress was thinking about a particular program, which of course was machine-oriented.
John Paul Stevens: And one of the things they had to do was to redefine the term "source", but they just sort of did it implicitly, or allowed you to do it implicitly, or allowed your client to do it implicitly.
David D. Doniger: Your Honor, our submission is that Congress really wasn't focusing... wasn't focusing specifically on what should count as a "source" for new source performance.
Byron R. White: Well, I thought that part of your submission was that even with this alleged definition--
David D. Doniger: That is also the case.
Byron R. White: --that there is enough room right within that language of buildings and so on for the agency to do--
David D. Doniger: That is our alternative argument, Justice White, and that is the one that the Court of Appeals, at least in these other contexts, accepted.
Speaker: --Yes.
Warren E. Burger: Thank you, gentlemen. The case is submitted.
Speaker: The Honorable Court is now adjourned until Monday next at 10:00.


Earl Warren: Number 20, United States of America, versus Parke, Davis and Company. Mr. Friedman you may proceed.
Daniel M. Friedman: Mr. Chief Justice and may it please the Court. The principal issue in this case which is here on direct appeal to the District Court for the District of Columbia is whether certain actions taken by the appellee, one of the country's major pharmaceutical manufacturers in attempt to maintain resale prices in the District of Columbia and in Richmond, Virginia, amounted to an illegal conspiracy in restraint of trade in violation of the Sherman Act or whether as the District Court held in dismissing the case at the close of the Government's evidence, Parke Davis' actions did not amount to a conspiracy but constituted no more than the unilateral selection of its customers which is permissible under the doctrine of United States against Colgate & Co. The Government's civil complaint in this case charged Parke Davis with violating Sections 1 and 3 of the Sherman Act and the District Court as I say dismissed it on the ground that no conspiracy had been established and alternatively, the Court concluded that even if violations had been established, there was no need for injunctive relief because he found there was no reasonable probability that these attempts to maintain resale prices might be repeated in the future. Now, Parke Davis --
Felix Frankfurter: He didn't -- didn't retain the bill?
Daniel M. Friedman: Pardon me.
Felix Frankfurter: He did not retain the bill?
Daniel M. Friedman: No, Mr. Justice, he dismissed it. Parke Davis has accused the Government in this case of bringing an antitrust case before this Court for a trial de novo. They say that all the factual issues were determined adversely to the Government before the District Court and that should be the end of the matter. Now, I want to emphatically deny that we are asking this Court to retry the factual issues in this case. As I believe my brief statement of the facts will show, we don't think there's any real dispute into -- in this case as to what Parke Davis in fact did. I don't think there's any denial of the actual operative facts in the case. The critical issue is whether these actions taken by Parke Davis amounted to a conspiracy and that is the legal inferences to be drawn from the particular course of conduct. Now, the case grew out of an attempt in 1956 by Parke Davis to stop price cutting by certain retailers in the District of Columbia and in the City of Richmond, Virginia. At the time of this action, neither the District of Columbia nor Virginia was a fair trade area. So that, at that time, had Parke Davis attempted to enter into resale price maintenance with these individuals, the contracts would have been illegal. Parke Davis' distribution system entails selling directly to the retailers, primarily from its Baltimore area office, and also selling to certain selected wholesalers in the area and the wholesalers then in turn sell to the retailers. However, since Parke Davis gives quantity discounts, which it does not permitted wholesaler to give, it is cheaper to the retailers to purchase directly from Parke Davis than to purchase through the wholesalers. Now, the principal activities of Parke Davis in this case were taken against five retailers in this area. Parke Davis emphasized that they are only five out of some 200 involved because the five retailers who were singled out were the leaders in this price cutting campaign and that's why Parke Davis took action against them. The Parke Davis price policy towards the retail stores is set out in its price list and the Parke Davis price list policy states that in areas having Fair Trade Laws, these prices are to be followed and in areas which do not have Fair Trade Laws, these prices are suggested. In June of 1956, the manager of the Parke Davis' Baltimore office attended a meeting of the company at the company's headquarters in Detroit and at that time he raised the question what they could do about this price cutting that is going on in the district, and he was he told by the president of the company that they had a policy that they would not sell to price-cutting retailers in non-fair trade areas. When he returned from his meeting in Detroit, the branch manager called in his area manager for Washington and instructed this area manager to go and cut off these price cutting retailers if they refused to conform to Parke Davis' policy and at the same time also tell them to see to it that the wholesalers cut off any of the retailers who refused to go along with this policy. In 19 -- early in July 1956, the Parke Davis representatives visited a number of these price cutting retailers. They advised these price cutting retailers that Parke Davis had this policy of selling only to people who observed the state of resale prices and furthermore, warned them that if they didn't stop this practice of price cutting, Parke Davis would cut them off on its own direct sales and would also cut them off on the sales to wholesalers. In several instances, when they spoke to the retailers, they also advised them that they were seeing other retailers in the areas. Five of these people who were approached, refused to stop price cutting. Parke Davis then cut them off on direct sales and also told the wholesalers or requested the wholesalers to stop selling to them. Now, Parke Davis suggests that all it did in approaching the retailers and the wholesalers was to announce its policy to them and that's its basic defense in this case. They said, "We have a policy, we wouldn't sell to you, and we just announced this policy and left it up to them to decide what to do.” I would like to read to the Court the testimony, two sentences from one of the wholesalers, it's at page 198 of the record. This is the vice president of one of the wholesalers who was describing his conversations with the Parke Davis representatives when they came to visit them, at the top of page 198 and after he was asked if he could stop selling. Question, “What did you tell them, sir?” Answer, "I asked them if they were requesting it of me alone or would they go to the other wholesalers, and they said they would visit the local wholesalers and then I agreed to abide by it” and he repeated the same statement later on at page 206. So, that we think at this initial stage of approaching the -- the wholesalers and the retailers, Parke Davis then and there did far more than just announcing its policy. The testimony of, Mr. Grips, the area manager of Parke Davis in Baltimore is to the effect that he instructed his man to go and request them to give this out.
Potter Stewart: Who is this witness testify -- which witness was testifying on page 198?
Daniel M. Friedman: That is Mr. Estren -- I'm sorry Mr. Levin who was the vice president of the district wholesalers, one of the three drug wholesalers in the district, who -- Mr. Aspirin -- Mr. -- Mr. S -- Mr. Levin -- sorry, was initially was approached by Parke Davis and then sometime later, he was again approached by Parke Davis with a complaint from Parke Davis that they had found an invoice of this company in one of the retail stores and thereafter, instructions went out to completely discontinue dealing with the company.
Potter Stewart: That's the testimony. Was all that accepted as true by the District Court?
Daniel M. Friedman: Not -- well, it's -- we don't know whether it was accepted as true because the District Court did not refer to that. The District Court seemingly as far as we can tell, based his decision on the erroneous, we believe, legal conclusion that absent anything in a way of specific agreements, this conduct was perfectly permissible. Parke Davis did not put in its case. The case was dismissed at the conclusion of the Government's evidence and we just --
Potter Stewart: Well, there were quite elaborate findings of fact by the District Court.
Daniel M. Friedman: They were quite elaborate findings of fact, but the findings of fact do not deal with respect with this issue of the --
Potter Stewart: But the testimony be --
Daniel M. Friedman: -- of the testimony except to one extent and we do challenge the finding to the extent that it suggests that Parke Davis did not discuss with the individuals that visited, what it was doing with respect to the other ones and that finding, we think is somewhat ambiguous, but we are not attacking in this case, the any -- with two miles exception to the specific findings in that area. We are challenging what we believe to be the conclusory findings that all of these did not amount to an agreement. That is our basic attack on the District Court's decision. With one brief exception after Parke Davis had visited the retailers and the wholesalers, the retailers were unable to buy any Parke Davis products for approximately seven weeks, although there is evidence by the wholesalers that a few orders might have been filled. Now, we then skip to the end of August at which point the retailers had been cutoff on Parke Davis products. On that day, the two principal officials of the Baltimore office of Parke Davis, on their own initiative, visited three of the price-cutting retailers in the district. The first man they went to was the president of the Dart Drug Company, a Mr. Haft. There's a disagreement into the testimony as to where the suggestion emanated, but it is conceded that at that meeting it was suggested that if Mr. Haft would take down this sign, these advertisements in the windows cutting prices that Parke Davis would then resume shipping to him and at the point, Mr. -- and also the, some of the newspaper ads, at that point, Mr. Haft indicated that this was agreeable. They then left Mr. Haft and went to each of the two -- two other price cutters in the area and they told each of these individuals that they had discussed the matter with Haft and it was agreeable to Haft to take down his signs if Parke Davis would resume selling to them and queried them whether they would be willing to go along with such a proposal and each of these individuals in effect said yes, they would if the others were doing it. After these visits, the stores took down their signs although they were free under Parke Davis' suggestion to continue selling their products inside and Parke Davis resumed selling to them and also notified the wholesalers that the wholesalers might again resume selling to the price-cutting retailers. And of course the importance of the advertising and the signs is that if you are a price cutter, it's obviously terribly important that that fact be brought home to the members of the consuming public. For a period of about two-and-half months thereafter, with one exception again which apparently was inadvertent, there was no price-cutting advertising in the District of Columbia. In the middle of November, the situation as Parke Davis described, it blew up again when one of these people again ran an ad and thereafter, the price cutting again resumed. Now, these facts that I have stated, I believe are basically not disputed. I mean, Parke Davis does not deny that it approached the retailers and said it would cut them off, that it went to the wholesalers and it told the wholesalers that was dealing with others that it requested the wholesalers to cut them off on that on its own initiative, it subsequently approached the retailers and suggested a modification of the situation as it had existed.
Felix Frankfurter: Was there any explicit indication that it presents if they did not fall in with the policy of Parke Davis, Parke Davis would not sell to them?
Daniel M. Friedman: To the wholesalers Mr. --
Felix Frankfurter: Yes.
Daniel M. Friedman: There -- there was testimony by the wholesalers that they knew if they did not agreed to Parke Davis request', Parke Davis would cut them off.
Felix Frankfurter: I want to know if there's any expression by anybody on behalf of Parke Davis, not the inferences that would you please the likely inferences drawn by the wholesales. If Parke Davis ever make order that they would cut off wholesalers who didn't fall into the line.
Daniel M. Friedman: They --
Potter Stewart: I think the findings of fact on page 34 -- on page 34 finding of fact 13 seems to state the District Court's views on the subject, this portion, page 34 of the record.
Daniel M. Friedman: That as for -- that that the District Court concluded there was no evidence that they had solicited an agreement with them. I don't believe that --
Felix Frankfurter: I'm not telling you -- I'm not talk -- talking about the legal of consequences of the answer, whatever it may be to my question, but you're not challenging that finding, are you?
Daniel M. Friedman: We challenging it to the extent that it embodies a legal conclusion.
Felix Frankfurter: Well, I understand that but you're not challenging that the finding, you're not -- you -- you're not pointing to anything in the record whereby Parke Davis were explicit in saying if we do this of course you understand the consequences to any similar suggestions.
Daniel M. Friedman: I -- I don't think it was -- it was necessary, Mr. Justice.
Felix Frankfurter: What I said is a different question? I'm asking whether they were explicit?
Daniel M. Friedman: There is nothing to show that they explicitly came and said, "If you do not stop selling to these people, we will cut you off." There's nothing explicit about that statement.
Felix Frankfurter: Was there any evidence that -- is there any evidence that such, they knew that that the inference could be drawn, I'm going over to your suggestion of it, the inference would -- could be drawn because of past experience.
Daniel M. Friedman: Yes, Mr. Justice. The wholesalers testified that they knew if they did not exceed --
Felix Frankfurter: That isn't my question. I mean know something in sense that I draw an inference but the basis of that inference is what I'm after. Have they had experience?
Daniel M. Friedman: There is nothing to show in this record that at anytime, a wholesale had been in the past --
Felix Frankfurter: The reason --
Daniel M. Friedman: -- cut off.
Felix Frankfurter: -- for my question is of course the Colgate case to which you will come, and the use of the term “coercion” by the judge in his opinion.
Tom C. Clark: Was there --
Felix Frankfurter: So I want to know what exactly the facts are for which I can draw my inference.
Tom C. Clark: Without finding 13, what does it say, if you -- what Parke Davis told the wholesalers at page 34, it says here and so the wholesalers in the District of Columbia generally that it would discontinue selling to them if they sold Parke Davis product to those retailers, (Inaudible)
Daniel M. Friedman: Well I'm -- I'm sorry, I don't recollect the specific evidence in the record that reflected this conversation but I assume this finding is based on the implicit understanding of the --
Tom C. Clark: You don't attack that, do you?
Daniel M. Friedman: Oh, no.
Tom C. Clark: Haven't told -- told you say, the inference? I have wondered if you're attacking it on --
Daniel M. Friedman: No, were not attacking that.
Felix Frankfurter: What you are attacking is the judges' failure to draw your inference on that finding.
Daniel M. Friedman: We -- we think the inference had to be drawn from that.
Felix Frankfurter: And that's what you're after?
Daniel M. Friedman: Yes. Now, I'd like to come to the basic law in this field which we think is the basic principles are not disputed. The Colgate case as it has been interpreted by this Court subsequently, has very strictly limited a right to the manufacturer in refusing to sell, where refusal to sell is a means of enforcing resale price maintenance. The cases have indicated that the manufacturer's right is limited to an announcement of the policy. They may announce in advance the policy, the conditions under which they will not sell and they will also -- may also cut off, refuse to deal with someone who does not exceed to that policy. The cases have also indicated, however, that a manufacturer cannot go beyond the simple right of refusing to sell and announcing his policy. Now, we think that in this case, what the record shows is something far more than unilateral action by Parke Davis in announcing a policy and refusing to deal with individuals who fail to comply with that policy. In the first place, Parke Davis cut off the wholesalers, the retailers and refused to deal with them when they didn't accede to its policy, it didn't stop at that point. It then went to the wholesalers and told the wholesalers that they too must stop selling to Parke Davis. This in simple antitrust language is what is called a boycott. Parke Davis in combination with the wholesalers brought the economic pressure to bear on the retailers. The evidence shows that the wholesalers were not only told of this fact, but were told -- not only requested to do this but were also advised that other wholesalers were being brought into this thing and this Court has repeatedly found that -- held the conscious participation in a common plan where the aim of the plan is restraint of trade is enough to establish a conspiracy. The evidence further shows that the brining of the wholesalers into the case was an integral part of the whole plan at the very beginning. The manager of Parke Davis' Baltimore branch told his assistant to bring pressure to bear not only on the retailers but on the wholesalers and the retailers in turn were warned, that if they didn't go along with Parke Davis, not only would they be cut off on purchases from Parke Davis but also on purchases from the wholesalers. Now, the participation of the wholesalers was of course a vital element in the whole plan because as long as the retailers had an alternative source of supply available, even at a somewhat higher price, there wouldn't be any very effective pressure on them. It was only when Parke Davis brought to bear the combined force of cutting them off directly and also indirectly that this thing would have a really vital pinch. And finally, we think the situation is doubly significant because not only did Parke Davis request the wholesalers not to sell to the retailers, but it didn't give them the green light to resume selling until after the retailers had indicated that they would take down their signs and stop their advertising.
Tom C. Clark: But that did -- one retailer would say that if they get down -- the others would likewise (Inaudible)?
Daniel M. Friedman: There was not quite in those terms, there was testimony that they advised each of the retailers as to what the other was doing and in one instance I believe, one of the men did say that if it's agreeable with -- if the other people are doing it, I will do it. There's not ever a I have a testimony showing --
Tom C. Clark: Who is referred to? Unless -- unless it means (Inaudible)
Daniel M. Friedman: Yes, Mr. Justice and also with respect to Mr. Strauss of State Drugs, pages 119 and 120 of the record another one of the --
Tom C. Clark: 119.
Daniel M. Friedman: 119 and 120.
Tom C. Clark: 19.
Daniel M. Friedman: The way about six or eight lines from the bottom of the page. “The gentleman asked if I would be willing to take my prices down, of course sell it on the inside if the other so called discounts stores ceased advertising in the paper. I informed them that I would be very paper happy to.” Now, another respect we think in which Parke Davis went beyond the mere exercise of its rights to select customers is the fact that after the retailers had been cut off, it was Parke Davis that took the initiative in re-approaching the wholesalers in an obvious attempt to see if this matter couldn't be straightened out. Parke Davis made its selection of customers when it cut these people off, but we don't think that the Colgate case permits a manufacturer and it selects its customers, to then come around and say, "We'll be glad to have you again as a customer, but we want you to do certain things which have the effect of minimizing the effectiveness of your price competition.”
Felix Frankfurter: But if he -- but he does, if he pursues that conduct without announcing it, would that be -- offends the Sherman law as you conceive it? Suppose he does all that, suppose these are all dumb people who can't speak but they do this thing without announcing what they are doing?
Daniel M. Friedman: I don't think it would make any difference whether --
Felix Frankfurter: But it would not.
Daniel M. Friedman: -- whether he used the words or not. It's -- it's the actual fact that happened, in other words the actual business relation.
Felix Frankfurter: It wasn't the fact that he announced that he is going to not deal with people who don't observe his price shifting, is that right?
Daniel M. Friedman: That is right and refuses to --
Felix Frankfurter: Are you asking us to overrule Colgate flat or you think that you can distinguish it?
Daniel M. Friedman: We think that it can be distinguished.
Felix Frankfurter: Would you mind doing that when you get around to it?
Daniel M. Friedman: I'll attempt to do it right now. The -- I think the distinction is that all that Colgate permits is the announcement of your policy and the refusal to deal with people who refuse to accede to your policy.
Felix Frankfurter: Both wholesalers and retailers.
Daniel M. Friedman: Both wholesalers and retailers.
Felix Frankfurter: And both announcing to wholesalers, they won't deal with them? I'm talking Colgate, I'm not announcing to the wholesalers, we won't deal with them, if they don't observe the price to the retailers and also the same thing to the retailers.
Daniel M. Friedman: If you had -- if -- if --
Felix Frankfurter: And announcing it and knowing that those consequences would follow?
Daniel M. Friedman: If -- if all we had was a mere announcement, I think that probably would be covered by Colgate, but that's not what we have in this case, we have a lot more than mere announcement.
Felix Frankfurter: What else have you got?
Daniel M. Friedman: We have the approaching of these individuals, requesting them affirmatively to cease dealing. We have the going back to the --
Felix Frankfurter: You don't think that was Colgate?
Daniel M. Friedman: No. I don't think so, Mr. Justice.
Felix Frankfurter: You think Colgate were much more general in -- in trying to effectuate their policy?
Daniel M. Friedman: No, but I think as Colgate came to this Court on merely a construction of the indictment, this Court held that under the Colgate doctrine, there had been no agreement alleged in that case.
Felix Frankfurter: So was there agreement here for the president of club? You can call them agreement?
Daniel M. Friedman: We -- we think there was an agreement going out of the fact that --
Felix Frankfurter: This has been -- this was consensual rather than coercive, do you think?
Daniel M. Friedman: I think it was --
Felix Frankfurter: Consensual.
Daniel M. Friedman: It was coerced, I think --
Felix Frankfurter: Well --
Daniel M. Friedman: -- economic coercion.
Felix Frankfurter: Where is your disagreement?
Daniel M. Friedman: But also (Voice Overlap) gave -- I think the coercion resulted a consensual undertaking.
Felix Frankfurter: But fellow that is coerced doesn't agree. He agrees on the compulsion and that is in consensual.
Daniel M. Friedman: Well --
Felix Frankfurter: Of course he does that rather than suffer the consequences of not being good.
Daniel M. Friedman: But I think they meant --
Felix Frankfurter: It wasn't an agreement?
Daniel M. Friedman: There are many situations where --
Felix Frankfurter: Or rather, is it an agreement different from -- from Colgate, that's what I want to know? Are you asking us to overrule Colgate?
Daniel M. Friedman: No. We're not, Mr. Justice.
Felix Frankfurter: You're not.
Daniel M. Friedman: No.
Felix Frankfurter: Why not? [Laughter]
Daniel M. Friedman: Well, I think because Colgate does reflect a basic right of a manufacturer, that a manufacturer has the right to select his customers. I think that an example of the exercise of that right is shown in this record. After Mr. Haft had testified at the criminal case which the Government lost here, Parke Davis sent him a letter saying, "We do not wish to have any further dealings with you and we're closing your account.” They cut him off, they did not attempt to persuade the wholesalers not to deal with them. They let him go have his business. I think that's the reason we're not asking this Court to overrule Colgate because we recognize that Colgate does represent a basic right of the manufacturer, but we are asking this Court to make -- to indicate that the rights under Colgate must be strictly limited merely to give the manufacturer the right to select his customers and to announce his policy that --
Felix Frankfurter: You think -- you think if this, if the Government wins this case and Parke Davis hadn't scrupulously followed Colgate, the result would be in the slightest different to the negligence or to commerce or to business or to anything.
Daniel M. Friedman: I think it might, Mr. Justice.
Felix Frankfurter: Accept the words.
Daniel M. Friedman: I think it might, Mr. Justice, because I think without these devices of enforcing this policy that they will not be able carry the --
Felix Frankfurter: But -- but Colgate enforced them, people knew their business, they knew it, they didn't -- because they didn't live up that Colgate would cut them off, they told them so.
Daniel M. Friedman: Yes, but I think there's more here than is shown in the Colgate record. I -- I would like to refer briefly to one of the aspect of this case at this time which is the District Court's alternative holding that even if a conspiracy had been established, there was no need for any injunctive relief. The District Court based that holding on three different grounds. First, the District Court held that the practices had been abandoned. And then it went on to say the abandonment had been made in good faith and has been forced upon the company by the economic and business conditions in the field. And that in fact, the company could not resume these practices without heavy economic loss. Now, the only thing shown by this record as to the reason for abandonment is the testimony of Parke Davis' Assistant General Attorney that one of the reasons for abandonment was this antitrust investigation. There is nothing in this record to show that Parke Davis could not resume these practices without heavy loss or that they were forced upon it, this abandonment was forced on it by business and economic conditions. There is not even in this record a disclaimer by Parke Davis that it will not resume these challenged practices in the future, unlike the Grant case where the men involved in the interlocking the record state that he would not resume. There's no such evidence at all in this case. All that we had basically here is abandonment resulting in part from the investigation conducted by the Government. And we think that it's well settled that the mere fact of abandonment alone is not sufficient to deny the Government the right to injunctive relief and we think that on this face of the case too, the District Court erred in the case should be remanded for further proceeding.
Earl Warren: Mr. Gesell.
Gerhard A. Gesell: May it please the Court. This is the third time I've to argue this question to a Court. We had it in the criminal case and the judge threw the case out of the close of that record. They called the same witnesses and a few more in the civil case, I argued it again and he threw the case out. And now, I find myself in this situation that I come up before a nine of you gentlemen and I have to discuss a testimonial case. You could put the exhibits in this case in the back of this book and pay no attention to them. This is not exhibit antitrust case. There were 17 human beings who took the stand and who testified and their testimony was analyzed and examined by the judges who sat as triers of fact. Their testimony is conflicting. They said sometimes on cross something quite different than they said under direct when they were led by Mr. Kenny down the route, he wanted them to go. They said things differently than our witnesses said about the same transactions and the judge who tried this case had the obligation of weighing and deciding what the true facts were. Now, when the Government comes up here on one of these cases and the defendant has lost and the defendant says that the evidence in some way or other wasn't properly weighed by the judge, there are cries of anguish from the Government table that the rule of this Court must prevail, that the -- that you will not go back into a record and reexamine it that the findings will stand. If you want to read what I say in this case, just read what the Government said to you in the International Boxing case which I've cited in my brief. Now, that's by way of preliminary, but I -- I say to you that this is a case where if you follow the route that has been suggested to you by counsel who just argued, you will be obligated to go down into this record and makeup your own mind as to the trustworthiness and the reliability of conflicting testimony from witnesses. The principal witness here, Mr. Haft, who was the complaining witness to the antitrust division was working under the careful guidance of his own counsel looking forward to treble damage case. He was caught in frequent inconsistencies. And I say to you that if you sat in the courtroom and watched him gait when some these questions were asked and watched him squirm on the stand, you wouldn't have believed the word he said. Now, our position is simply this that we instructed our salesmen, Parke Davis instructed our salesmen to got out and say to the trade the following. “If you do not sell at our suggested minimum prices, we will cut you off.” And they went out, were instructed to go up to the wholesalers and say, "If you do not sell, if you do sell to price cutting retailers, we will cut you off." The Court found that those were the instructions and the Court also found that's exactly what the salesmen did. Now, I can't conceive of anything that is purer Colgate than that, a simple statement, announcement of the policy and a carrying out of that policy in accordance with the instructions that were given. And those instructions incidentally, are shown by this record to have been given to these people under confident legal advice as to what the guideposts were under this Colgate doctrine. Now I say to you that the Colgate doctrine is not some theoretical abstract idea, but this is a rule that has guided businessmen ever since the case came down and it's an integral part of our commercial life. And when these people who are responsible businessmen went about it with regard to their right to select their customer and the Court found that is all they did then it seems to me the findings must be sustained below, and there is no basis here for upsetting the judgment. Now, let's examine what the government says are the reasons why this case must be upset. They -- they say as I understand them in effect that a legal implication of agreement is essential here because of two aspects of the conduct. One, that the Colgate doctrine was applied as to wholesalers and the second, that some of these customers were reinstated. Now, those are the two points that would make you an argument today. There were wholesalers in the Colgate case. There were wholesalers in the Beech-Nut case. This Court has never said that the Colgate doctrine doesn't apply to wholesalers just as much as it does to any other class of customer or trade.
Potter Stewart: Did the Colgate case come here after the trial or just from an indictment?
Gerhard A. Gesell: Pure -- purely pleading question, Mr. Justice Stewart.
Potter Stewart: It's only a matter of date.
Gerhard A. Gesell: Very -- the absence of the indictment to plead agreement resulted in the indictment being thrown out. So, there was no --
Potter Stewart: (Voice Overlap) if there were allegations in that indictment of sales to hold up (Voice Overlap) --
Gerhard A. Gesell: That -- that is right.
Potter Stewart: (Voice Overlap) --
Gerhard A. Gesell: Their allegations in the indictment of sales, the wholesalers but it came up on purely procedural basis.
Potter Stewart: Yes.
Gerhard A. Gesell: There were also wholesalers in Beech-Nut when the decree there was passed in by the Court, there was no prohibition against defying the Colgate rule to wholesalers. Now, counsel here says, you -- this is a boycott, and that's simply an example of the use of a nasty word to get over a deficiency in his proof. If we reach an agreement with the wholesalers for concerted action, of course it would have been a boycott, but the question is, did we reach an agreement or did we as the Court found merely say to these wholesalers, “If you sell to price-cutting retailer, we'll cut you off.” That is no boycott, that's merely the exercise of a Colgate right. And when they suggest to you it's a boycott, they jump over the fact that the Court throughout here found there was no agreement of that kind with the wholesalers. Of course, if there was an agreement with the wholesalers, you don't have to call it a boycott. It doesn't come within Colgate anyhow. It's a price of arrangement and it's improper, but there was no such agreement on these findings. Now, I -- I think that perhaps what I can do here is to put this case in a bit more perspective than you had it today. In the first place what we're concerned with here is a case that involved conduct in this District of Columbia area for a period of about six or eight months at the most, in 1956. We -- counsel referred Parke Davis as one of the leading drug company, it's what it is. The record shows that in this market it had about 5% of the business. It had no system of policing, no card-index system, no marked goods, no cooperative arrangement with its wholesalers or its jobbers, no system of licensing, no joint trade activities of any kind. This -- this company was simply going ahead selling here in the District of Columbia like its many competitors and there was as between them very substantial price competition. What happened was, that a man by the name of Haft who ran Dart Drug Company, a -- a corporate drug house here in -- in Washington, began to advertise very substantial, very deep price cuts. The District Court found that that completely demoralized Parke Davis' trade. Why? Because when Mr. Haft advertised these deep price cuts, he was not advertising for the purpose of selling Parke Davis goods. He was advertising for the purpose of enticing into his store customers who came to get a bargain on Parke Davis and then he switched them to his own brands for his own purposes and that the Court found was one of the purposes of this price cutting. He was using our goods and our name as scenery to get people, as one of the witnesses said, to get people into his store so that his salesman who got a commission for selling his goods and didn't get any commission for selling Parke Davis goods could push his own goods on which he had a larger margin of profit. He was also demoralizing the trade because he was cutting these prices to a point where he was offering the products below the price of which the ordinary everyday corner drug store could buy these products. And so, all of these retailer drugstores lost interest in trying to promote Parke Davis goods and that was the trade in the traffic on which Parke Davis depend. So, what happened? Parke Davis representatives went to these various retailers, and there're five of them in this case and it said, “If you don't stop cutting prices, we will not sell to you” and these retailers said, “Well, in effect, we'll cut your papers” and they went right ahead cutting prices, and they cut prices throughout this entire period. They never stopped. They were never in a situation where they couldn't get goods because even though Parke Davis had gone to the wholesalers and said, “If you sell to price-cutting retailers, we will not sell to you.” It is not clear that all of those wholesalers exceeded or accepted that position. And in any event, the record is clear that the retailers continued to have the product and continued to sell it cut prices in the store. So, then we come to this question or reinstatement and it is suggested that there are some kind of element of contract in reinstating a customer. I don't understand that. I -- I don't see how that can be so. I don't see how they can be any different element of agreement there than when you say to a man strictly within your Colgate rule, "I will not sell to you if you cut prices" and he goes ahead and does not cut prices that you sell to him. There's just as much an element of agreement there, but what happened was that Parke Davis finding the price cutting continued, that it had been completely unsuccessful in eliminating any price cutting, went and suggested that they would continue to sell to these customers and that they would be free to charge any price they wanted in their store but they simply would not advertise in order to pull in these customers for other purposes. And for a period of about a month or six weeks, there were not cut price ads in the District of Columbia on Parke Davis goods. At the end of about six weeks, that was the end of that. An advertisement appeared on the paper. Everybody else began to advertise and Parke Davis threw up its hand and said, “Well, that's all, we've had it.” Just lots of -- as we suggest in the brief, supporting the position that Mr. Chaipy took in his article of this whole problem, famous article of this whole problem. He said, "Nobody really can prevent price cutting and maintain prices if he strictly followed the requirements of the Colgate doctrine.” We never were able to prevent it. We never did and price cutting continued throughout this period and has continued ever since. Now, I don't know what process this Court is going to go through if it undertakes to reexamine this record to see whether these various challenged findings are correct. The findings say that an agreement was not solicited. The findings say specifically as to each of these particular retailers and wholesalers that not agreement was made. The trial judge stated not only that he followed the testimony, but that he'd read the daily transcript. We had elaborate arguments about these findings. The government opposed our finding. They submitted alternative findings. They filed separate motion thereafter to set aside the findings. In all, I think we had two or three briefs in argument on this issue and the trial judge came to his conclusion. If you go through this evidence and you undertake this task of retrying this case, I urge that you not be misled by selective bits of the testimony such as been offered to you on argument today because you will find by a reading of the entirety of the record that are totally different kind of a picture of what occurred pertained than those by -- if you select a particular item, here or there.
Hugo L. Black: May I ask you what -- that the Court made in the finding as to what the wholesalers did lamenting that count in finding 13 on page 34?
Gerhard A. Gesell: The finding is that the wholesalers, three of the wholesalers -- in finding 14, Mr. Justice Black, three of the wholesalers attempted to stop their sales of products to those retailers in order not to be cutoff themselves. Although occasionally, such products were sold by inadvertence to those retailers, I think that's the finding.
Felix Frankfurter: Where is this?
Hugo L. Black: This --
Gerhard A. Gesell: 14
Hugo L. Black: This count -- this count 13 means -- on the finding 13 means that what Parke Davis said, “If you continue to sell to these people, we will cut you off.”
Gerhard A. Gesell: Yes.
Hugo L. Black: So what does it mean if they do not continue to sell to them?
Gerhard A. Gesell: Well, if -- if they -- if they do not continue to sell to the price-cutting retailers --
Hugo L. Black: Suppose they agree with it.
Gerhard A. Gesell: -- then they would remain customers of Parke Davis.
Hugo L. Black: They agreed to continue not to sell?
Gerhard A. Gesell: No, sir. There's no question of agreement here.
Hugo L. Black: Don't have to agree to it, they just quit.
Gerhard A. Gesell: They're simply told a policy and they can accept the policy or not as they choose. The Court found that they accepted the policy not because of any agreement, but that they accepted the policy because of their own self interest. They desired --
Hugo L. Black: Suppose --
Gerhard A. Gesell: -- to remain --
Hugo L. Black: Suppose -- suppose they had not done that, what would have happened to them?
Gerhard A. Gesell: They would have been cut off, just as the retailers were cut off.
Felix Frankfurter: The point about Colgate is that if they agree, they can be sued for breach of contract. If they don't agree, you say Colgate says a businessman has a right to say, "I'll sell you my goods but on these conditions.”
Gerhard A. Gesell: That is right.
Felix Frankfurter: And free either to accept or reject the condition.
Gerhard A. Gesell: And --
Felix Frankfurter: That's the --
Gerhard A. Gesell: That -- that's what --
Felix Frankfurter: -- that's what the matter?
Gerhard A. Gesell: That's our position.
Hugo L. Black: Do you accept that argument?
Gerhard A. Gesell: Yes and our position -- our position is that in this case, none of the -- none of the facts -- none of the facts in this case fall within the ambit of the cases like Bausch & Lomb and Effo and Beech-Nut where you had a complicated pattern of systematic control of the market, tied together with license arrangements, tied together with espionage and reporting system with trade association and other types of cooperative activity. This is simply the conduct of a single seller in a small market, dealing for a short time unsuccessfully with a small specific aspect of his problem. And if -- if you say that Colgate doesn't apply to this, what you are doing is what I suggest the Government really wants you to do, you're making Colgate an absolutely meaningless rule of law.
Hugo L. Black: Suppose Parke Davis had gone to every -- every wholesalers here after having gone to the retailers and said to every wholesaler, "We're not going to sell to you if you sell to these people," yet obtained by that the refusal to sell. You would say that unless they used the word “we agree not to sell” that there is no agreement and it cannot be found?
Gerhard A. Gesell: No, sir. I do not think the magic words agree, Mr. Justice --
Hugo L. Black: (Voice Overlap) accepted to it.
Gerhard A. Gesell: -- Black determinant. I think this -- I think an agreement can be inferred from a course of conduct where there are elements of coercion and practice which would support that, but the Court found nothing of that kind here and there was nothing of that kind here. Take -- take your Bausch & Lomb kind of situation, where everyone is tied together by a system of licensing that makes each dependent on the other and where over a long period time, people in the status of wholesalers were working in collaboration with the seller to -- to report violators and bring information to their attention and to see that they were stamped out, then you get a pattern of conduct which in particularized cases could lead to particular results. But I say here, none of those elements are present and the Court found that none of those elements are present. And that this is simply the pure simple expression by the seller of his Colgate rights and if he hasn't the right to do this, he hasn't the right to do anything under the Colgate doctrine. Now, let's look at the practicalities of this matter, if I may will you for a minute. Reference is made to the fact that we -- there was some discussion concerning what others were doing. Well, in -- on occasion when a salesman went and said, “If you -- if you don't -- if you don't observe our policy and you cut prices, we won't sell to you.” The other fellow says, “What about the guy across the street?” Perfectly natural question to arise or a man says, you say to a man, "I will not sell to you if you cut prices," and he says, "I agree.” Is that an agreement within the Colgate doctrine? Or he says, "I'll abide by your wishes, alright I'll go along." These are just human discourse that has nothing to do with the question as to whether an agreement was sought, an agreement was solicited or an agreement in -- in any legal sense to coercion or otherwise, was obtained.
Hugo L. Black: Do you think our cement company -- cement case discussion and decision has any relevance in connection with this case?
Gerhard A. Gesell: No. The Government has suggested that it does and that Interstate Circuit from some of these other parallel conduct type of cases too. But as I see those cases, Mr. Justice Black, it seems to me there are certain elements present that are not present here. In -- in the first -- in the first place, it has seemed to me that some of the conduct that was parallel is conduct that is -- is conduct that comes for conspiratorial reason only and you infer therefore, collaboration because there is a working together in a manner that can only be explained in terms of conspiracy. The -- the movie cases are -- are classic example of that. Or they are situations where the parallel conduct remains wholly unexplained where there isn't any explanation of it. Well, in this instance, we have neither of those. The -- the conduct of the wholesaler is explained on this record and explained quite clearly, and it is not inconsistent with their own simple economic interest. It doesn't in anyway purport to collaboration or cooperation with the seller in his design or even if there's no showing that they have any stake in his design. There is not a single instance here of joint action, of interdependent action, of meetings of -- of group approach to this problem at all.
Hugo L. Black: Why do say they wouldn't have stake in the design. He would have a stake of getting his goods or not getting them.
Gerhard A. Gesell: Well, they -- they would have -- (Voice Overlap) if -- the only stake they would have would be of getting his goods and of course that they -- they have to cut him off in order to stay as a customer. So, they're -- they're operating contrary to that state and that's the only state they have. These wholesalers handle many, many products and many, many companies and they want to sell to everybody. They don't gain anything by this. This -- the -- this was a situation that Parke Davis was concerned about because of the protection of its own trade. Thank you, Your Honor.
Earl Warren: Mr. Friedman.
Daniel M. Friedman: Mr. Chief Justice and may it please the Court. Mr. Gesell has stated that all that was involved in this case was a simple expression of Colgate right as he calls them by Parke Davis. They just announced the policy and left it to individuals whether to accept the policy or to reject the policy. I just like to refer the Court briefly to the testimony of the wholesalers as to how this policy was put up to them. First, page 125 of the record, one of the wholesalers questioned by Mr. Gardner, "Did they say anything about you selling to retailers who cut prices?” “Yes, that was the statement that we shouldn't sell to retailers at cut prices” and at page 164, testimony by Mr. Russell, a wholesaler in Richmond, Virginia. About halfway down the page, “I was instructed -- called and instructed not to sell Parke Davis goods to Standard Drug Store or any of its branches. There -- there are several others, Mr. Chief Justice, also in the record which shows, we believe (Inaudible)