William H. Rehnquist: We'll hear argument now in Number 97-5310, David R. Beach v. the Ocwen Federal Bank. Mr. Rogow.
Bruce S. Rogow: Mr. Chief Justice, and may it please the Court: Ocwen Bank agrees that there is a right of rescission in recoupment after 3 years. Ocwen, however, says that that right in recoupment is a State safety net, that one can rescind in recoupment only if there is fraud or duress or coercion under State law principles.
Anthony M. Kennedy: Is right of rescission in recoupment, is that a term peculiar to Florida law, or is that how we speak of it generally? I always thought it... recoupment as simply being offset to damages, but rescission is an action of an equitable nature. I don't... and your brief talks in the same way. You seem to conflate the two terms.
Bruce S. Rogow: Justice Kennedy, rescission in this situation is statutory rescission, and I think it's important to note, too, that the right to rescind within 3 years is not an action in rescission under the truth-in-lending law. It is merely sending a notice of rescission within the 3 years.
Anthony M. Kennedy: Well, can't we say that without coupling it with the term of recoupment, or does that somehow help your case to talk about recoupment?
Bruce S. Rogow: It helps our case to talk about recoupment and, indeed, 1635(i)(3) talks about rescission in recoupment, a statute that the supreme court of Florida absolutely ignored in this analysis.
Anthony M. Kennedy: The statute itself talks about rescission in recoupment?
Bruce S. Rogow: Under State law, but the caption of (i)(3) is the right to recoupment under State law, and then the statute says, nothing in this section shall affect the right to rescission in recoupment under State law. Ocwen suggests that that only means State law rescission for fraud, duress, or coercion, and our position is, is it means more than that. It means the Federal Truth-in-Lending Act right to rescission, and several reasons support our position. The first is the notion that, when one looks at this statute, the word rescission used throughout the statute is Federal TILA rescission, and this Court's decision last week in National Credit Union reasserted a principle that, when one looks at statutes and the same words are used throughout the statute, then the word has the same meaning, and here the word rescission is used throughout section 1635 and it is referring to TILA rescission, Truth-in-Lending Act rescission, so under that--
Sandra Day O'Connor: Mr. Rogow, under the statute I guess, regardless of the timing of the discovery of a failure to comply with TILA, that the homeowner, your client, in effect, could in any event obtain damages that result from whatever failure to disclose was involved, is that right?
Bruce S. Rogow: --That is--
Sandra Day O'Connor: Without any time limit on that. You can get actual damages.
Bruce S. Rogow: --You can get actual damages, Justice O'Connor, and statutory--
Sandra Day O'Connor: And also twice the amount of any finance charge.
Bruce S. Rogow: --A statutory penalty with a maximum... in this case it was $1,000, and there was $1,000, in effect a penalty under 1640, plus the overcharge, and plus another amount of--
Sandra Day O'Connor: So that's available without time limit.
Bruce S. Rogow: --That is available.
Sandra Day O'Connor: But your client asserts in addition a right to rescind and recover all of the interest paid for the period of time that the mortgage was in effect and payments were made on it, is that right?
Bruce S. Rogow: That is right, Justice O'Connor, recover the interest paid, on the other hand have to pay back the principal. The rescission--
Sandra Day O'Connor: Yes. I mean, it could have been 20 years of payment under the mortgage, presumably--
Bruce S. Rogow: --It could be--
Sandra Day O'Connor: --when you discover there's some $7 deficiency here.
Bruce S. Rogow: --Well, a $7 deficiency--
Sandra Day O'Connor: I mean, that would be enough, wouldn't it--
Bruce S. Rogow: --No, it would not--
Sandra Day O'Connor: --under your theory?
Bruce S. Rogow: --It wouldn't be enough, Justice O'Connor, because under Congress' construct it would have to be more, but I think the answer to this is... because I understand--
Sandra Day O'Connor: Well, no matter how small the failing, and this was pretty small, and no matter how much time has elapsed, it's your position that there's this indefinite right of rescission to get back all of the interest paid, in addition to the damages and in addition to the statutory penalty, right?
Bruce S. Rogow: --Yes, Justice O'Connor, because Congress has said that is right, because the remedy--
Sandra Day O'Connor: Well, that's what we're here to decide. I'm not a bit sure that's what they said, but that's your position.
Bruce S. Rogow: --That is our position, Justice O'Connor, but we think it's informed by how one construes these statutes. Beginning with the first point that I make, Congress certainly has said rescission in recoupment, nothing in this section, which would be--
John Paul Stevens: Mr. Rogow, can I ask just one other detailed practical question? You do have to tender back the amount of the loan to principal, don't you?
Bruce S. Rogow: --Yes.
John Paul Stevens: And your client is here in forma pauperis, as I understand it.
Bruce S. Rogow: Yes.
John Paul Stevens: Does he have the money to do that?
Bruce S. Rogow: Well, at this moment, of course, he doesn't have the money to do that and what happens in these cases generally is, is that if the right to rescission is invoked, then the borrower is entitled to the return of the interest, but the borrower has to pay the principal back.
John Paul Stevens: Right.
Bruce S. Rogow: And in some situations, indeed, if one's house has appreciated in value, you can then refinance your house and pay back the principal. But I think the important thing here, Justice Stevens, is is that whatever the remedy is, is a remedy that Congress has constructed not as a penalty to the lender, but to force the lender to conform to the truth-in-lending law. The truth-in-lending law, its purpose is to protect consumers.
Ruth Bader Ginsburg: Mr. Rogow, you are so stressing the word rescission... you say that's used over repeatedly, and yet Congress used such distinctly different language in dealing with the 1-year time limit for damages. It says no action should be brought, traditional statute of limitations. Here, it talks about the right to rescind shall expire. One sounds like it's simply a typical statute of limitations and you can raise... and defensively you can recoup. The other, it sounds like expire, dead, over, after 3 years it's gone, and you make... how do you explain that Congress picked this word expire to describe the right of rescission, and then talking about the 1-year limitation, used traditional statute of limitations language?
Bruce S. Rogow: Two ways, Justice Ginsburg. The first is the right that expires is the right to affirmatively rescind. That right that they're talking about is the right within 3 years to say to the lender, I am rescinding this transaction. That is the right that expires.
Ruth Bader Ginsburg: Well, you say so, but what is there in the statute that indicates that, and anything that indicates that it's only... the same thing... what you're saying is, it is the same thing as the extension of the statute of limitations, which doesn't count if you're seeking only to recoup.
Bruce S. Rogow: Justice Ginsburg, (i)(3) says the right to rescission in recoupment shall not be affected and is available under State law, so even if one looks at 1635(f), the shall expire language, that is revived by (i)(3).
Antonin Scalia: Mr. Rogow, can I ask you about that? Do you want us to determine what Florida law says? I mean, let's assume we agree with you as to the meaning of (i)(3), should we determine that there is such a right of rescission in recoupment under Florida law?
Bruce S. Rogow: No, Justice Scalia.
Antonin Scalia: You would want us to remand--
Bruce S. Rogow: Yes.
Antonin Scalia: --to let the Florida supreme court decide that?
Bruce S. Rogow: Yes, because--
Antonin Scalia: So is that the most you're asking for?
Bruce S. Rogow: --It is.
Antonin Scalia: A right to remand to let the Florida court decide whether, under Florida law, there is such a right?
Bruce S. Rogow: To let the Florida court decide whether or not, under Florida law properly applying Federal law. The difficulty with the supreme court of Florida decision was--
Antonin Scalia: Well, wait, wait, wait. That's not what it says. It says, under State law, affects a consumer's right of rescission and recoupment under State law.
Bruce S. Rogow: --It says the right to... the caption of it says, the right to recoupment under State law. The question then becomes whether or not Florida permits recoupment under State law and whether or not it would permit rescission. Florida, in--
Antonin Scalia: But I mean, Florida may decide that this is a peculiar sort of an action, this rescission action, for which it will not allow recoupment. Is that not within the realm of permissibility?
Bruce S. Rogow: --It is not if it misapplies Federal law. The supreme court of Florida--
Antonin Scalia: Well, why would it say under State law, then?
Bruce S. Rogow: --Well, because--
Antonin Scalia: I mean, if it's a matter of Federal law they could have left out the phrase in (i)(3) nothing... it could have just said, nothing in this subsection affects a consumer's right of rescission and recoupment, period.
Bruce S. Rogow: --In (i)(3), the caption, I come back, that says the right of recoupment under State law--
Antonin Scalia: I don't care about the caption. I'm talking about the text. We don't go by captions. We go by the text.
Bruce S. Rogow: --And the right of rescission, Justice Scalia, is the right of rescission... TILA rescission and State law rescission. What Ocwen is... Ocwen agrees there is a right of rescission. They're claiming that that right of rescission is strictly a State law right of rescission, and when one reads a supreme court of Florida opinion, it is driven by its view that Congress has said that there shall be no right of rescission under Federal law. That's the heart of our argument, that was a mistake.
Antonin Scalia: I understand that. They say that under Federal law there can be no State law of... right of rescission, and you say that's wrong, but can't we... if we send it back, couldn't they still find that under State law, regardless of what the Federal law said, we don't think this is the kind of matter on which there should be recoupment?
Bruce S. Rogow: Not if they applied neutral principles of Florida law, because Florida law permits rescission in recoupment--
Antonin Scalia: Okay-- Mr. Rogow-- --But it's a question of Florida law.
Bruce S. Rogow: It's an ultimate question of Florida law applying--
Antonin Scalia: And what you say is neutral principles of Florida law may not be what the Florida supreme court thinks are neutral principles.
Bruce S. Rogow: --And they would not be if the Florida supreme court properly addressed 1635(f). By misconstruing 1635(f) and 1635(i)(3) the supreme court of Florida came to the conclusion really on two foundations, 1) that 1635(f) is a statute of repose. The right shall expire. It failed to address... indeed, it said that (i)(3) is not even relevant to this inquiry, and clearly--
Ruth Bader Ginsburg: May I clarify one thing, Mr. Rogow, because I think we lost a piece of this that's essential. I think... you said at the very beginning that the bank agrees there is a right to rescission in recoupment, whatever you--
Bruce S. Rogow: --Yes.
Ruth Bader Ginsburg: --But solely under State law. That is, as Justice Scalia asked the question, the... there is a concession, whatever, that whatever Florida law would be apart from TILA, TILA doesn't exist, if there's a right to rescission under State law that would apply here, but I think you're urging the double... the two things. That is, you must get TILA into it, otherwise there's no difference in your position.
Bruce S. Rogow: That is exactly right. Our position is, is that 1635 (i)(3) embraces TILA rescission and State law rescission. It leaves the door open--
Ruth Bader Ginsburg: But if you're right about TILA having this right of rescission in recoupment, then why do you need the provision that talks about State law? You've got... you say that under TILA in 3 years or 10 years, it doesn't matter, you can rescind if you're sued. Now, what extra does this add? If you have your right under Federal law, then what does the addition of the State law--
Bruce S. Rogow: --It makes it clear that Federal law is not preempting the field, but rescission in recoupment under State law would also be available for fraud, duress, or coercion.
Anthony M. Kennedy: --It's not a matter of preemption. It's a matter of ultimate source. You're saying, I think, that the obligation to make these disclosures and to make these calculations correctly arises under Federal law.
Bruce S. Rogow: It does, Justice Kennedy.
Anthony M. Kennedy: And it's for that Federal law Congress has provided a remedy for breach, rescission, but it says it can only be for 3 years.
Bruce S. Rogow: It says it can only be--
Anthony M. Kennedy: So it seems to me, as Justice Ginsburg is indicating, you're trying to have it both ways, but that's quite different from saying that there is simply a State law cause of action.
Bruce S. Rogow: --Well, what we're saying, Justice Kennedy, is... and the supreme court of Florida came to the conclusion that there is no Federal right to rescission after 3 years. If they are wrong about that, then their decision is not properly informed, and that's what we're arguing, that they are wrong about that.
William H. Rehnquist: But certainly section... subsection, or double subsection (3) of 1635(i), which says nothing in this subsection affects a consumer's right of rescission in recoupment... that does not give any Federal right.
Bruce S. Rogow: It leaves open the door to the Federal right.
William H. Rehnquist: It leaves... well, it leaves open the possibility that the State may give you a right.
Bruce S. Rogow: It certainly leaves open the State giving you a right, but it does not preclude, and I think that's the key to this case, is it does not preclude the use of the Federal right.
William H. Rehnquist: No, but it seems to me that your Federal right of rescission goes when it says an obligor's right of rescission shall expire 3 years after the date of consummation.
Bruce S. Rogow: That's 1635(f).
William H. Rehnquist: Well, and that is your right of rescission under this statute.
Bruce S. Rogow: That is your right to affirmatively--
William H. Rehnquist: What do you mean, affirmatively rescind?
Bruce S. Rogow: --By--
William H. Rehnquist: It doesn't say affirmatively rescind.
Bruce S. Rogow: --When one reads 1635(a) and 1635(b) in that section, they're talking about sending a notice of rescission within 3 years, affirmatively rescinding. We are talking about rescinding in recoupment, something that happens after 3 years when one has been sued in foreclosure.
William H. Rehnquist: And that's a State law right.
Bruce S. Rogow: That is, if State law permits recoupment, then there is a right to rescission and the question is, which right to rescission, State law rescission, or State law rescission and the Federal TILA rescission?
Sandra Day O'Connor: Mr. Rogow, did the petitioner ask for a rescission remedy as a matter of State law in the proceedings below?
Bruce S. Rogow: As a... the petitioner raised 1635 rescission, which was Federal rescission.
Sandra Day O'Connor: But not State law--
Bruce S. Rogow: At the... that's right.
Sandra Day O'Connor: --rescission. That was not raised.
Bruce S. Rogow: It was not, and at the time (i)(3) was not in existence when the petitioner filed his... his and her affirmative defenses, so they were relying upon the right to rescission, which every court that had addressed this since 1984 found that there was a right to rescission in recoupment after 3 years.
David H. Souter: Why is-- --May I... no, please. May I go back, though, to an earlier question. Leaving aside the fact that the word affirmative does not appear in 1635(f), how do you explain the distinction between the shall-not-be-brought language with respect to the damages remedy, which sounds like a normal statute of limitations, and the shall-expire language with respect to this rescission right? What is the reason, in effect, that I think you're telling us we should ignore that distinction?
Bruce S. Rogow: No. The cases, Bull, Reiter, Western Pacific, clearly make it plain that Congress... only the clearest congressional language would prevent a statute of limitations from being used in recoupment, and the language here, shall expire, is being read now as something other than a statute of limitations. I don't think the nomenclature makes any difference in this situation.
David H. Souter: Well, but my question is, why shouldn't it make some difference? The shall... the shall not be brought is standard limitation language. Shall expire is not, and on its face it suggests that in fact a distinction is being made, and I don't know why we should ignore that distinction in language and find it of no significance, and I don't think you've answered that.
Bruce S. Rogow: I think, Justice Souter, that the answer lies in (i)(3), that if one views, as is right, as having expired, then (i)(3) revived it by its language that leaves open the notion that there can be rescission in recoupment.
Antonin Scalia: Well, (i)(3) doesn't have to be read that way. Cannot (i)(3) refer to State law recoupment permissions that do not rely upon this Federal statute? That is to say, if the same failure to provide information under this Federal statute also constitutes a fraud under State law, this provision can be read to say, recoupment and rescission for that fraud is not affected by our 3-dyear termination of the rescission for violation of this act.
Bruce S. Rogow: But the question--
Antonin Scalia: Violation of the act is also a fraud.
Bruce S. Rogow: --But the question, Justice Scalia, is whether or not it can only be read that way. Congress had the opportunity--
Antonin Scalia: No, it need not only be read that way. I'm saying, when you put that together with the indication that Justice Souter was just referring to, the indication that they use language different from the statute of limitations, those two go together very nicely.
Bruce S. Rogow: --But the supreme court of Florida said it can only be read one way, and that, we think, is their error. It can be read... unless there's clear language that says there is no rescission in recoupment under Reiter, Bull, and Western Pacific, then the Court should conclude that--
Ruth Bader Ginsburg: But Mr. Rogow why isn't the word expire here? I mean, I dimly recall learning in law school that there were two kinds of time bars. One extinguished the remedy, and that's no action shall be brought, and one was supposed to extinguish the right, and that was the right terminates, not just the remedy. Now, that's what the difference in language triggered in my mind immediately, that expire sounds like the one you've got no more right, and the other is, well, too bad you can't sue on it.
Bruce S. Rogow: --And (i)(3) addresses that when it says that nothing in this section, which includes the 3-year limitation which is referred to in section (i), shall affect the right to rescission in recoupment under State law, so while that... your reading would be the usual reading, the fact that (i)(3) is added to this changes this from being that kind of statute of repose where the right has expired, died as often is suggested, into something that now has been revived.
David H. Souter: No, but your argument, as I understand it, is that the reason (i) revives it is that (i), in effect... or State law looks to... would look to Federal law, and specifically this act, but when Federal... when State law does look to Federal law under this act, what it sees is what Justice Ginsburg just described. It sees language that seems to say, with respect to the 1635 right, it expires, so whether (i) is there or whether (i) isn't there, you've got to deal with the expire language and I do not see that the formulaic incorpora... or reservation of State law has any bearing one way or the other on the significance of that distinction.
Bruce S. Rogow: Justice Souter, Congress had the opportunity to make it specific that there will be no rescission in recoupment. The AARP brief has in its appendix the four different bills, I think it was, that were offered to accomplish what Ocwen is now asking this Court. Congress rejected that. Congress did not include that language that made it clear that this right shall--
Antonin Scalia: Did they take a vote on that, the whole Congress said we do not want these statutes?
Bruce S. Rogow: --No, but by--
Antonin Scalia: Just a committee, right?
Bruce S. Rogow: --But by rejecting the bill, Justice Scalia, by rejecting the bill--
Antonin Scalia: Did the whole Congress reject the bill?
Bruce S. Rogow: --Well, in terms of how Congress voted, obviously the end result was (i)(3).
Antonin Scalia: Those bills were never presented to the whole Congress, were they?
Bruce S. Rogow: They did not come out of committee, but in this legislative process there has been no showing by Congress that this is what it intended, that this right shall expire. I think it's--
William H. Rehnquist: But it says in so many words that it shall expire.
Bruce S. Rogow: --It does for the affirmative right to rescind--
William H. Rehnquist: It doesn't say affirmative, Mr. Rogow. You've been putting that word in front of rescission all during this argument and the statute simply doesn't say it.
Bruce S. Rogow: --Justice... Chief Justice Rehnquist, by talking about that right in that section they are dealing specifically with that affirmative right to rescind within 3 years. I think it's important to note that the lender controls everything here. If the lender conforms to Federal law, then there is no potential for rescission.
Stephen G. Breyer: Is the... I'm back with Justice Kennedy. That is, this seems like such an odd legal animal, rescission in recoupment. I don't understand what it is, that... is there any other place it exists in the law? My understanding is that if you give me $2,000... suppose you gave me $2,000, and I was supposed to give it back to you. I never did, and you forgot about it. 20 years later, I sue you for $10,000 on something else, and even though there's a statute of limitations you could say, wait, Breyer has my $2,000. Deduct it from the 10. That's recoupment, isn't it?
Bruce S. Rogow: That is, Justice Breyer.
Stephen G. Breyer: All right. Well, by analogy that would here permit the borrower, the homeowner to deduct, when 20 years later they try to foreclose on the mortgage, the bank tries to get its money back, it would permit him to deduct however much he was hurt by a failure to disclose, but everybody concedes he gets that. Now what he wants is something more. He wants something he never gave me. He wants me not to collect any interest over 20 years, so that doesn't sound like anything to do with recoupment, and it's something else. It's like a penalty or something. So is there... if TILA never existed, if you look across all State law, is there any other instance you came across where something like that sounded as if it was part of recoupment? It just doesn't sound like recoupment. Everybody's saying, rescission in recoupment. I know it's written in a statute, but I want to know, is this like a normal legal animal, or is it something they invented out of TILA, or where did it ever come from?
Bruce S. Rogow: I'm not aware of it anywhere else, Justice Breyer, but--
Stephen G. Breyer: All right. So if it's nowhere else in the law, and if it starts out by saying, nothing in this subchapter shall, you know, have any effect on something called rescission and recoupment, then it sounds like, if nothing in this subchapter, then, forget it, it's gone, because there is no such thing.
Bruce S. Rogow: --Well, then I think those words would be meaningless, the (i)(3) language would be meaningless.
Stephen G. Breyer: No, but it's possible... you know, you go to Congress, people get all mixed up and somebody comes and tells them there's something called rescission in recoupment under State law, and everybody says well, we don't want to touch that. I mean-- [Laughter]
Bruce S. Rogow: Well, this was considered and it was rejected, and I think two points I want to make before I reserve the rest of my time is, is that not only do the lenders have the right to cure this defect, because they can cure it and therefore render them not liable in rescission in recoupment, but they can conform to the law. And I think the beginning point of this is, this is a unique statute. It is a consumer protection statute. It's to inform and project the consumer, and rescission is not a penalty. It puts the parties back in their original position.
David H. Souter: May I ask you just to comment on one thing before you sit down, Mr. Rogow? It's a point that I came across and I thought I answered it, and then it occurred to me, maybe I didn't. You've mentioned 1635(i)(3). What I have in mind is the significance of 1635 (i)(1). I could read it, but you probably know it. Does that have any significance for your position?
Bruce S. Rogow: No. Those provisions in 1635(i) give the consumer a right to rescind within 3 years in certain conditions and the 1995 amendments actually limited the right to rescission. This made clear that there was a right to rescind within those 3 years for those reasons. A mortgage broker fee was not disclosed, those kinds of things.
David H. Souter: But it's referring to the right which occurs at the time of foreclosure.
Bruce S. Rogow: Yes.
David H. Souter: So it's a defensive... I assume it's a defensive right which functionally is being employed in the same way that you're arguing the general rescission right should be employed.
Bruce S. Rogow: It is, within 3 years, but that doesn't address recoupment, and recoupment is addressed in (i)(3)--
David H. Souter: Okay--
Bruce S. Rogow: --and (i)(4) makes it--
Stephen G. Breyer: --I have a technical question. If they do rescind 30 years later, the borrower, does he actually have to tender the value of the money, or is it that the bank simply has a legal claim to the value of the principal?
Bruce S. Rogow: --Well, there are equitable principles here, and the court could adjust the--
Stephen G. Breyer: Well, when you say... in other words, is it possible that 30 years later the homeowner comes back and says, yes, you are entitled, bank, to my original principal, $100,000. By the way, I'm in bankruptcy, and you don't have any security. Good luck. I mean, has that happened? Is that possible, in your interpretation that would happen?
Bruce S. Rogow: --There is no record of that happening.
Stephen G. Breyer: No, ever in the country? I mean, I'm trying to figure out--
Bruce S. Rogow: I'm not aware of any, Justice Breyer.
Stephen G. Breyer: --So they'd actually have to have the $100,000 and give it back to the bank, otherwise they couldn't do the rescission.
Bruce S. Rogow: The rescission requires a give-and-take.
Antonin Scalia: Is there any reason why a borrower would act within 3 years instead of just sitting back, once he knows there's been a mistake in the original transaction, and waiting for foreclosure? Meanwhile, he's using the money interest-free.
Bruce S. Rogow: Because if that were a strategic default, then under equitable recoupment principles and even, indeed, under the rescission principles, the court could take into consideration if there were some bad faith in the way the borrower had addressed this.
David H. Souter: And I take it the court could also take into consideration the fact that there's a provision in here that mere computational errors in fact do not support any rescission right at all. I mean, one of the things that surprises me about this case is what is described as the error here sounds like somebody's adding machine mistake to me, and I presume that if the bank comes forward and affirmatively shows that that's the case, this whole discussion is academic, isn't it?
Bruce S. Rogow: You would only have the right to rescind if there have been material disclosure errors that the court found were in clear violation of TILA, yes, Justice Souter.
William H. Rehnquist: Mr. Phillips, we'll hear from you.
Carter G. Phillips: Thank you, Mr. Chief Justice, and may it please the Court: Given the presentation in the first half-an-hour I'm not sure I'm going to gild this lily at great length, but a couple of points seem to me to warrant attention at this stage. First, Justice Breyer, in response to your question, the industry amicus brief talks about the problems that arise in the bankruptcy setting and the fact that there are lots of lenders who end up not being able to recover anywhere near the full amount of the outstanding loan in the rescission context, so that's some evidence of--
Stephen G. Breyer: Why would that be? I mean, that's... I'm trying to figure out legally why would that be? If, in order to rescind, the homeowner has to tender back the principal of the loan, why would the bank not get the principal of the loan? That's what was confusing me.
Carter G. Phillips: --As I under... because the principal of the loan is essentially an unsecured debt--
Stephen G. Breyer: No, but tendering back, I take it, means like you have a certified check and you hand it to the bank, and--
Carter G. Phillips: --Well, the question is going to be then, as a matter of equity, whether the tender-back rule has to be applied in the first instance or whether the bankruptcy protections ought to apply in the first instance, and I think a lower court's probably divided with respect to that particular question--
Stephen G. Breyer: --That's what I found out. It sounds to me this is an empirical question that should have an answer--
Carter G. Phillips: --Well, we know in the Bothelo case--
Stephen G. Breyer: --and it doesn't sound to me as if people know, particularly.
Carter G. Phillips: --Right. But the Bothelo case was the one case in which that actually happened and they did, in fact, eliminate the tender-back requirement in its full measure. That's the only one I know about that's cited in the briefs and that's a bankruptcy case, Your Honor. With respect to where their case stands at this point, we begin with the language of the statute and section 1635 says as plainly as it can that the right that the petitioners seek to assert here expired, and it expired in 1989, and they came in 1991 and they sought to raise it again. And what they were able to do in 1991, that they were able to do specifically because of section 1640, is they were able to get actual compensatory damages and they were able to get statutory damages, in point of fact, even though the statute of limitations on violations of TILA had already run, and that's because Congress was very careful in devising the remedial scheme that it adopted here. It recognized that that was an equitable response that frankly tracked this Court's decisions in Bull and Reiter v. Cooper and Western Pacific. Congress recognized that that was equitable to allow the borrower under those circumstances to come in and to assert that particular right, and they received that, and the question which Justice O'Connor began the argument with I think is really the one that we have to focus on. Under these circumstances, where you've received full recompense, what sense does it make for Congress to go further and ask you to grant a right of rescission, and the petitioners say that we have to find something in the statute that says you cannot have a right of rescission, and we submit to you that the more reasonable assessment of the equities of the relationship between the parties is, we ought to be looking in this statute for some evidence that a right of rescission in recoupment should exist under the circumstances of this case.
Stephen G. Breyer: His argument I think was, look at the language. It says nothing in this subsection affects a consumer's right of rescission in recoupment under State law. He says, that's an odd legal animal. The only thing he's ever found that that exists is this kind of a case, so Congress must have had something in mind, and if they didn't have this thing in mind, which distinguishes between affirmative rescissions and rescissions later on in recoupment, what could they have had in mind, so it's either meaningless, or what he says. That's what I take--
Carter G. Phillips: Justice Breyer, I can't improve on your characterization of what probably happened in Congress, which is that somebody identified the possibility of a State law right in rescission and recoupment and the Congress quite rightly reacted negatively and said, wait a second, in this subsection we certainly don't mean to withdraw any of those kinds of State remedies. Remember, this is a statute that is very solicitous of State law in general, and all of these--
John Paul Stevens: --Florida-- --Do you think there's any possibility that Congress meant rescission or recoupment? Rescission in recoupment just sounds crazy to me and it would--
Carter G. Phillips: --Well, I--
John Paul Stevens: --make perfect sense if it said rescission or recoupment.
Carter G. Phillips: --Well, I think it would have made more sense if they had simply said State law rescission and recoupment. Again, I think all they wanted to make clear of was that State law would be protected.
John Paul Stevens: But is there such an animal in State law as rescission in recoupment?
Carter G. Phillips: There is a reference to that language in one of the... actually, one of the earlier Florida cases, where... it's not actually that language, but there is recoupment action, and they do talk about rescission, but you know, our footnote 6 in our brief goes to great lengths... we looked in vain for this to try to figure out where Congress came up with this particular animal and frankly couldn't find it.
John Paul Stevens: Nobody thought of the possibility of a scrivener's error?
Carter G. Phillips: Well, I'm always reluctant to press that as the basis for interpretation, Your Honor. [Laughter]
Anthony M. Kennedy: If it said or-- Thank you.
Carter G. Phillips: [Laughter]
Anthony M. Kennedy: --How would the case come out if it said or?
Carter G. Phillips: Rescission or recoupment under State law? It depends on whether State law applies to both. You see, I think it's clear--
Anthony M. Kennedy: And what's the answer to that?
Carter G. Phillips: --Well, I still think that Congress would have meant for State law to apply to both, so it wouldn't have made a difference.
John Paul Stevens: But Mr. Phillips, as I understand your position, you're just saying there's no Federal right here, but I don't think you take the position that if Florida said we're going to treat even a trivial violation of TILA as a ground for State law rescission, you aren't saying that it would be preempted--
Carter G. Phillips: No, I'm not arguing it would be preempted, but I do think it's important in that regard, a la Justice Scalia's question about a remand in this case, is that the first half of the Florida supreme court's opinion analyzes the Federal statutory issue. The second half of it analyzes it as a matter of State recoupment law and conclusively says that in our judgment this kind of a statute is not the kind of a statute in which we would exercise recoupment and therefore, as a matter of State law, there's no basis for recovery. That's over and above the fact that they've never asked for recovery under State law at any time.
John Paul Stevens: --Well, that's the other point I was going to ask is, when did their claim for a State law recoupment first assert itself? I didn't find it in the early opinion.
Carter G. Phillips: It never asserted itself, to this day. I mean, there is a single sentence in the reply brief in which they make reference to seeking rescission under State law. There's no support for it in the citations in the reply brief and there's nothing in the record and actually I heard counsel for petitioner today to effectively concede that the complaint clearly says nothing about State law, and nothing else arose throughout this litigation in--
Sandra Day O'Connor: But you think that nonetheless, as you read the opinion of the Florida supreme court, it rejected any State law recovery, right?
Carter G. Phillips: --Absolutely. Absolutely, because at the end of the--
Sandra Day O'Connor: Even though it wasn't requested.
Carter G. Phillips: --That's correct, Justice O'Connor, because the question that was certified to the Florida supreme court was whether or not there was this kind of a right under State law, and if you look at the joint appendix on 164 to 165, the last line of 164 says, after analyzing all of the traditional grounds for statutory interpretation as to why this provision doesn't grant a Federal right it says, but that does not end our inquiry, and then it turns, in Florida, and I take the rest of that analysis really--
Sandra Day O'Connor: And you don't think that the Florida court thought that it was simply not at liberty to confer some State law right of rescission on the theory that TILA had preempted State law.
Carter G. Phillips: --I don't see anything in the Court's opinion that remotely suggested that to be the case, Justice O'Connor.
William H. Rehnquist: Well, the question presented here is, may an action for the statutory right of rescission provided by TILA be revived as a defense in recoupment beyond the 3-year limit on the right of rescission set forth in section 13... 1635(f). I'm not sure that even includes that question.
Carter G. Phillips: Well, I... no question about it, Mr. Chief Justice, it doesn't include that question, and--
John Paul Stevens: That certainly wasn't... that wasn't the question framed in the petition.
Carter G. Phillips: --I'm sorry.
John Paul Stevens: We rewrote the question.
Carter G. Phillips: Right. Yes, Justice Stevens.
John Paul Stevens: So that's not what they present... yes.
Carter G. Phillips: Right, but the bottom line is, in terms of I think what is before this Court, is simply a question of Federal law and I think, based on all that's happened today, the question... the Federal question of law is unmistakable. That is, the right expired. There is nothing in this statute that remotely revives that right and certainly nothing in (i)(3), which as I think we've discussed now at sufficient length, which simply retains certain protection for State law. It was a peculiar way, if all you're trying to do is... if what you were really trying to do was to revive a Federal right that you categorically declare to be expired, this is not the way you'd do it, and therefore I don't think that's a fair interpretation of that language of the statute. If the Court has no further questions, I'll waive back the rest of my time.
William H. Rehnquist: Thank you, Mr. Phillips. Mr. Rogow, you have 1 minute remaining.
Bruce S. Rogow: Several things. The Florida supreme court opinion clearly is premised on its view that under 1635 there is no right to rescission, and that informed its view of State law also, and that's at page 171 of the joint appendix. The courts that have looked at this... Dawes, Colorado, Massachusetts, New York, New Jersey, Illinois... have all decided that there is a right to rescission in recoupment consistent with the Federal TILA right that could be asserted affirmatively within the first 3 years. This Court has talked generally about recoupment. It is an equitable remedy. There is nothing inequitable here. This is a consumer protection statute, and the lender controls both at the outset the duty to conform to the law and throughout the life of the loan the ability to cure the defect and, in this situation, the... without clear congressional language saying there shall be no recoupment, there is recoupment in rescission, and Florida permits rescission in recoupment and it should have permitted it in this case under Federal law.
William H. Rehnquist: Thank you, Mr. Rogow. The case is submitted.


Warren E. Burger: We will hear arguments next in Texaco against Short and the consolidated case.
John L. Carroll: Mr. Chief Justice, and may it please the Court, we present here today four constitutional issues involving an Indiana statute. These issues relate to procedural due process, taking, equal protection and impairment of contracts. Because of the shortness of time of the argument, I would like to limit my argument to two issues, procedural due process and taking. The nature of the interest which is involved and which we say has been unlawfully and unconstitutionally extinguished by the state of Indiana is a fee simple mineral interest, usually in the state of Indiana dealing with oil, gas and coal. Under Indiana state property law, those fee simple mineral interests have been determined to be vested property interests, separate and distinct from the surface ownership--
Speaker: They've also been determined to be defeasible after 20 years, though, have they not?
John L. Carroll: --The statute itself has determined that, Your Honor--
Speaker: Well, that's part of Indiana property law, isn't it?
John L. Carroll: --Not prior to the passage of this act, Justice Rehnquist.
Speaker: Well, so you would say this act is perfectly all right prospectively but not retroactively.
John L. Carroll: In terms of prospectively, on any deeds which are created after the date of the act, I don't think there's any question about it being constitutional and valid. Yes, sir. It is the retroactive nature of it and the lack of notice inherent within the statute that we think has the constitutional flaw.
Speaker: But you don't have a notice in any statute of limitations, do you? To take a typical state statute of limitation for adverse possession for real property, open and notorious possession for ten years. When that time is run, title changes and there isn't any notice that you get.
John L. Carroll: That's correct. We think this is not similar, Justice Rehnquist, to a statute of limitations because it is essentially different in its character and primarily different because the intent of the statute, as we see it both in terms of what briefs have been filed on behalf of the Appellees and the state as well as the decision of the Indiana Supreme Court was, to extinguish these interests, and the notice provision, the grace period provision, was merely incidental to that but it was not with the intent of preserving the interest. Now, statutes of limitation, by their very nature, go to the question of retaining the integrity of the judicial process. They're saying that we don't want courts to make judgments about matters which are stale causes of action. Here, there never was a cause of action dealing with this property prior to the passage of this act.
Speaker: But Indiana, in effect then, has given you more than you say a statute of limitations would.
John L. Carroll: No, I--
Speaker: They've given you a grace period.
John L. Carroll: --They have given us a grace period, and even statutes of limitations, if you're going to shorten a statute of limitation, Your Honor, requires a grace period. It is true that the cases say that there is no vested right in a statute of limitation. We say there is a vested right in this property which is involved here, but in terms of statutes of limitations, everybody understands that a time is running on a cause of action. And you have to understand there is a time limitation after which it runs out. That was not true of the interests that are involved here prior to the passage of this act. And we think that the purpose of a statute of limitations is to retain the integrity of the judicial process, is a far cry from the statute we have here, which deals with an intent to extinguish a valid property right interest, only because the state determines that they think it could be better developed by somebody else. If you start with the premise that you're dealing with a vested property right, and if you say that this statute is intended to extinguish that right,... and throughout you will see that that is shown to be the intent of the statute, to extinguish that right.
Speaker: Well, Mr. Carroll, suppose it were a proceeding between the mineral owner and the surface owner, who I gather is the beneficiary of this statute, say to build a quiet title brought by the mineral owner against the surface owner. And the surface owner does not interpose the statute of limitations.
John L. Carroll: There is no statute of limitations that applies to these--
Speaker: That's what I'm trying to get. The surface owner automatically prevails? Is that it? This is not... statute of limitations are ordinarily a matter of defense, aren't they?
John L. Carroll: --Following notice. That's correct. If he defaults following notice... and we don't have any quarrel with the statute if there was a notice provision involved with the statute. It is the lack of--
Speaker: That's unusual, as my Brother Rehnquist suggests, isn't it?
John L. Carroll: --No, I don't think so. In the first place, this statute is very unique.
Speaker: Can you suggest any statutes of limitations that have notice provisions?
John L. Carroll: Any statute of limitations... for example, if a statute of limitations were passed saying that all actions for personal injury must be filed within one year, let's say. And prior to that it had been two years. And that would apply to existing causes of action. That would be an unconstitutional taking of that interest, because you cannot, by the statute of limitations, eliminate the interest. That would be--
Speaker: Well, a statute of limitations doesn't really eliminate the interest. It eliminates the enforcement of the interest.
John L. Carroll: --That's correct. And the Supreme Court of the state of Indiana specifically in this case has said that this statute eliminates the right.
Speaker: The right--
John L. Carroll: The underlying right or rights.
Speaker: --The right to enforce?
John L. Carroll: And I'm talking about all of the rights. There are no rights left after this statute has done its job that it sets out--
Speaker: But this effects a defeasance of the title, then, doesn't it?
John L. Carroll: --It results in what the statute calls an extinguishment of title.
Speaker: Right, and the transfer of the title to someone else.
John L. Carroll: Yes, and that's the point because it isn't an extinguishment of title, the title doesn't go away, the interest in the minerals don't go away. They are transferred by virtue of the act from one party to another, as part of the stated purpose of the act. Now, we think that if the stated purpose of the act is to extinguish--
Speaker: So for that reason you say this is not really a statute of limitations--
John L. Carroll: --We do not say it's at all--
Speaker: --It goes way beyond that.
John L. Carroll: --It goes far beyond that.
Speaker: Well Congress, shortly after the second World War after this Court had made its portal to portal pay ruling retroactively made them inapplicable, did it not, and that statute was never struck down.
John L. Carroll: I don't think it was... was it ruled on by this Court?
Speaker: Second Circuit.
John L. Carroll: But not on a constitutional issue that had been brought before this Court, so I'm not able to answer that particular question, Justice Rehnquist.
Speaker: What would happen if the state changed its adverse possession law from 20 to 10 years?
John L. Carroll: If the state changed its... you see, the problem is that there was no adverse possession law possible in mineral interests in the state of Indiana prior to this act. There's probably none today.
Speaker: I assumed my question was hypothetical.
John L. Carroll: If the state would change its adverse possession law and attempt to do it retroactively and say that all things in which there had been adverse possession for 10 years and 20 years, if the effect of that act was to, as of the time of its passage, eliminate titles, then I submit to the Court that that would be an improper act and would violate the Constitution.
Speaker: I assume that it would be any state's adverse possession law... I don't understand all these qualifications you're putting in. It just says the same law that required 20 now requires 10, period. Nothing else. What's wrong with it?
John L. Carroll: If that ten years has already run, and prior to that it was 20 years, then I think there are cases that clearly say that that's an unconstitutional taking; that you cannot change a statute of limitations so as to, by the very passage, eliminate rights already accruing.
Speaker: I didn't know that adverse possession was a statute of limitations. It's a different animal.
John L. Carroll: But it has a time limit built within it.
Speaker: It certainly does. And I think a state can do it, don't you? Can change it? Well, could the state change it to 30?
John L. Carroll: The state can indeed change--
Speaker: But it can't change it to ten?
John L. Carroll: --Yes, it can change it to ten. The question is can it do it retroactively.
Speaker: Is that retroactive? I don't know.
John L. Carroll: The point I'm making, Mr. Justice Marshall, is that if they change it to ten and it had--
Speaker: Well, I'm trying to get at your point about you have to give notice. Because I'm waiting for that case--
John L. Carroll: --All I'm saying is the statute cannot be used retroactively--
Speaker: --I'd like to see that case about this notice.
John L. Carroll: --I'm not talking about notice; I'm talking about the constitutionality of the statute on its retroactive effect on the statute of limitations or adverse possession.
Speaker: Mr. Carroll, this statute had no retroactive effect, did it? Supposing it... it was passed in 1971, was it?
John L. Carroll: Yes, indeed.
Speaker: Supposing everybody in the state got a copy of the statute when it was passed, and everybody was told, in effect, if you don't pay any taxes on your mineral interests in the next two years, they will no longer be your property. Would it be unconstitutional?
John L. Carroll: If everybody had notice of the act in the manner that you prescribed, in my judgment it would not be unconstitutional.
Speaker: Don't we normally presume that the citizens have notice of the statutes that are passed?
John L. Carroll: And I understand the general principle of jurisprudence about how everybody is presumed to know the law, how ignorance to the law is no excuse--
Speaker: Your case rests on the assumption that that's an unrealistic presumption?
John L. Carroll: --The case rests on the fact that that's a legal fiction.
Speaker: Well, a lot of people know the law, particularly if they invest in mineral rights and if they generally follow what goes--
John L. Carroll: That's true, but if you're trying to deal with a due process issue, and if you're trying to deal with a property which is about to be extinguished--
Speaker: --Well, you've got two years at the time the statute was passed.
John L. Carroll: --You have a two year grace period, which is meaningless--
Speaker: Two years in which to perform a duty you should be performing in any event. You have a duty to pay taxes, I assume.
John L. Carroll: --That's correct. And if you have notice of that duty, we have no quarrel with this statute.
Speaker: Well, assume it's a state that says publication is notice.
John L. Carroll: That's right. That's exactly what the Minnesota case was--
Speaker: Would that be okay?
John L. Carroll: --What the Minnesota case said was not constitutional. In Indiana, the very act we're dealing with here, the manner of notice by publication of the act is by merely printing the act and putting it in the clerk's offices of the various counties. That's the only notice that there is. Now, is that... the question that really, I believe, is before this Court for decision as we see it is, is that notice sufficient to comport with the Mullane decision on procedural due process.
Speaker: Mr. Carroll, under Indiana law, may mineral rights be taxed separately?
John L. Carroll: They may indeed be taxes separately.
Speaker: Are they taxed?
John L. Carroll: Not very regularly. In some counties yes, in other counties no.
Speaker: Is it up to the county?
John L. Carroll: It is up to the county.
Speaker: And if they are taxed by the county, does the county send out notices of taxes due?
John L. Carroll: It does.
Speaker: Were any notices received in these cases?
John L. Carroll: No, sir, these were not taxed by the county.
Speaker: None of the property involved in this case involved--
John L. Carroll: No, because an exception within the use rule relates to the payment of taxes, but they were not taxed. And along that same line, Justice Powell, if it were taxed, and in order to transfer a title because of non payment of tax there is still a notice requirement,--
Speaker: --Yes, I understand that, I'm familiar with the Virginia statute in that respect. But that would have put you on notice that you'd received a tax assessment.
John L. Carroll: --Yes.
Speaker: And if you knew some counties in Indiana were taxing mineral rights, would that have suggested the desirability of making inquiry?
John L. Carroll: Well, I think the matter of taxation of mineral interest is one way to solve the problem that Indiana feels that it has. If these mineral interests were taxed in the way in which other real properties were taxed, and if they didn't pay the tax the property could be sold at tax sale like any other property, and that's perfectly legitimate, there's no problem with that. Nothing constitutional about that. But under Indiana law, as in Virginia law and most other state law, when you sell property at tax sale, the man is entitled to notice that his property is about to be sold at tax sale, with the right to redeem. And there wasn't any such notice here and there wasn't any such right to redeem following the two year grace period. So I think it's distinctly different from the way in which taxes can be treated, but taxation is the way to deal with these old dormant mineral interests, because if the people are interested in them, they will pay the tax, they will keep it up. If they're not interested in them, they avoid the tax, it is sold at tax sale and the problem is solved.
Speaker: Well, they may be a more desirable way to deal with it, but don't you have to convince us that the way Indiana has chosen to deal with it violates the federal Constitution of the United States?
John L. Carroll: Yes, and I would like the opportunity, Mr. Justice Rehnquist, to do that by showing to you that here, by virtue of the act, just looking at what effect the act had, it did indeed have the effect of taking what prior to the act was a fee simple mineral interest entitled under the Indiana state cases to the firmest protection of the Constitution. Two years later, after the passage of that act for those that did not know that they had an obligation to record, they were left with nothing unless they happened to have ten or more interests, in which they event they had a right to protect themselves by notice under certain circumstances if they otherwise qualified. So--
Speaker: Mr. Carroll, how does that differ really in terms of procedure from other marketable title statutes or recording acts or adverse possession laws? I just don't think that I perceive the procedural differences.
John L. Carroll: --Justice O'Connor, the difference between this and the Marketable Titles Act, for example, is that the purpose of the Marketable Titles Act is to clear up appendages to titles that go back, in the case of Indiana, 50 years. And there, you must have a 50-year chain of clear title. At the end of that 50-year period if you had 50 years chain of clear title, then the law under the Marketable Titles Act says we will confirm what you've always claimed in that 50 years to have. The man in possession gets no more than what he has, in fact, claimed for the last 50 years. In one sense, marketable title acts are like adverse possession on the record. On the record you've been claiming these interests for 50 years. If you do so and the record is clear, at the end of that time, the law says, we're going to get rid of those old claims and you have a perfected title. On the dormant mineral interest statute, however... in this case, for example, Mrs. Short who acquired this property in 1974 had her property deed to her specifically setting forth these mineral interests. Now, that would not qualify for marketable title because she didn't have a chain going back 50 years back to remanence of title that didn't show these interests. So what Mrs. Short ends up by virtue of this statute in having a title in more than she acquired when she purchased the property. In marketable titles you only get what you've been claiming and no more. So here, what you've done is to enhance the title that the man had and you do it within a two year period. And I think that's a basic distinction between marketable titles and the effect of this act. Again, though, if... I want to recur back to the purpose of the Indiana Legislature in passing the act, because throughout the briefs and the--
Speaker: I know you want to be concerned with the purpose, but as I understand your brief, you're objecting to the procedure, and I don't see how the difference in purpose is significant if it's the procedural due process that you're concerned with.
John L. Carroll: --Right. First, we say that the passage of the act itself is not a due process notice that in any way satisfies the Mullane test.
Speaker: So would it be your position that the Marketable Titles Act and the Adverse Possession Act nationwide would be defective on the same ground?
John L. Carroll: Not at all. This court now has not passed on the Marketable Titles Act. Wisconsin, or Minnesota has passed on the Marketable Titles Act constitutionally and found them to be constitutional; whereas, they have found this act to be unconstitutional and have distinguished between the two acts and found them to be basically different. And the procedural due process question goes to the issue of what the state is attempting to achieve. Marketable Titles has a benign purpose in terms of protecting old titles. This has a stated state policy of extinguishing these interests.
Speaker: I don't understand your distinction that procedural due process depends on whether the state had a benign purpose or a non benign purpose. I thought it was simply procedural due process meant a matter of adequate notice, regardless of the state's purpose.
John L. Carroll: And I think that's true, you're correct in that statement, Justice Rehnquist. From that standpoint, except that it explains why there wasn't any notice provision in this statute that you would normally expect to find when you're going to extinguish rights. For example, if a taxing statute was passed saying that if you don't pay your taxes when they are due on the date they are due, there's an automatic forfeiture of rights under that taxing statute. Now, in terms of expectations of people owning property, that goes beyond any expectation of the property owner. So also here, in terms of the expectation of a fee simple title holder, he has no reason to believe that in a two year period for failure to register that his failure to do so is going to extinguish his property right.
Speaker: Do you think a change in the rate of the Internal Revenue Code requires a notice to be sent to each taxpayer?
John L. Carroll: No, indeed, I do not. I think here, however, where you're talking about extinguishment and you're talking about adoption of an act, and you give no notice other than the adoption of the act, and we all recognize that the adoption of the act is not, in fact, notice. You see, the act has to premise itself on a theory of abandonment. An abandonment is generally intended to be an intentional act. And if we get notice--
Speaker: Wait a minute, counsel. An abandonment is generally intended to be an intentional act?
John L. Carroll: --As it relates to real estate, yes, Mr. Chief Justice. But you cannot abandon real estate in most of the states... California I think has an exception to that. In most of the states and certainly in the state of Indiana.
Speaker: You can't do it by negligence and confusion and lapse of memory. Is that what you're telling us, in most states?
John L. Carroll: If your title is of record and the fact that you let the weeds grow--
Speaker: And adverse possessors.
John L. Carroll: --That, of course, is a different issue if there is an adverse possessor. But we're talking about abandonment which is independent of anybody else coming in on top of your property. They're proceeding on an abandonment theory here, the theory is that if they didn't record their interest in the two year period they intended not to be bothered with it, or they weren't around to protect it. The evidence in this case indicates that the appellants here were living in the area or known in each instance when there was a 60-day notice provision given under the statute, and within that 60-day period in each instance, the appellants in this case did respond, did put their interest of record in the case of Short v. Texaco and did contact the surface owner in the Pond v. Walden case, which resulted in an agreed case to be filed testing the act. But all of that was after the time that the two years had expired, beyond the time of the act. But the point is that there was no intent to abandon, and they responded as soon as they knew. But absent that notice that is directed toward the individual, we submit that that that does not comply or comport with the general sense of fairness that we think is necessary under the Mullane case and is procedural due process.
Speaker: Mr. Carroll, may I ask you one other question about the Indiana practice on taxing these interests. I think you indicated they tax them in some counties and not in others.
John L. Carroll: The statute provides for it, yes. It's not uniform.
Speaker: But in those counties in which they do not tax, do they not tax any mineral interests, no matter how valuable, or is it that there is a practical--
John L. Carroll: I think they're probably not very selective, Justice Stevens. I think that in some counties they do and some tracts they do.
Speaker: --But are there... are you suggesting there are counties in which they impose no taxes at all on mineral interests regardless of their value?
John L. Carroll: I'm sure that there are counties that do not. I don't have--
Speaker: I got the impression it was kind of a question if there are nickels and dimes they don't bother but it there's a significant amount of money involved, they might.
John L. Carroll: --That may very well be the answer.
Speaker: Because if it's such a petty amount, then there's kind of an administrative explanation for not spending more money on notice and foreclosure and all the rest in order to collect 35 cents in tax.
John L. Carroll: But taxation, as is true in Minnesota, is the way... what they have done in Minnesota... it was held unconstitutional in Contos again because of the lack of notice, and it's a very similar statute to here, and there they even had publication of notice statewide and in the counties. Here we have no notice. Contos in Minnesota had notice by publication. They said that doesn't comply with Mullane; that you must have the best possible or practical notice that is available to be given. But in the Minnesota case in statute, he went on to say that in effect, if you give the notice and if you register the interest, then it's there to be taxed. And they set forth a special mineral interest tax. And if you don't pay the tax, you're going to lose the interest. And that is a perfectly constitutional way to solve this problem. But to say that you've got a right to come in and give a two year grace period and give no one notice of that two year grace period that's going to severely impact on his property. Now, and we get down to practicalities, I'm sure, if what we're talking about what the imposition of a tax, and it's a matter of a few dollars, then I don't think that the notice is going to be required. But where the remedy is extinguishment... and I guess that really goes to the heart of what we're saying... where the remedy is extinguishment within a two year period, then justice and fair play would insist that there be notice before that extinguishment take place. Otherwise, we do not think that there has been fair play and that there has been compliance with the procedural due process--
Speaker: Your time is running now. Are you going to address the taking question?
John L. Carroll: --Yes. I would like to just address the taking question by making reference to the Mahon case which this Court in most of the... not most of your decisions... in many of the decisions in recent years has reaffirmed the reasoning in the Mahon case and the decision of Mr. Justice Holmes in the Mahon case. In that instance, there was declared a taking because they could not take out all the subsurface coal, they would not let them allow subsidence. They didn't take all of the rights; they took part of the rights, and yet they said there was a taking, even though the benefit of the taking accrued to the surface owner. And that's what accrues here. The taking, they argue, is not a taking because the benefit goes to the surface owner. And yet Mahon is directly in point on the issue that you can still have a taking, even if the benefit is to the surface owner. So we think that the Mahon case and the later cases clearly show a taking assuming that there is no valid notice that would be required under procedural due process. These two are so intertwined that the taking occurs and it occurs primarily because the failure to have a procedural due process requirement.
Speaker: Suppose a state passes a statute and says that the state hereby acquires an easement over a certain described part of the state and specifically described the property, and that this easement will not be paid for unless somebody... unless everybody who should know about this law comes in and asks for it within two years.
John L. Carroll: I think there's an apt analogy, Justice White, to what we're talking about here. Where you're dealing with specific property and you're going to put either a burden on that property of the kind we're talking about, then I am suggesting that notice is a prerequisite before the law enforces--
Speaker: Well, are you saying also that it's a taking even if there's notice?
John L. Carroll: --If there is notice and if you had the opportunity to protect yourself--
Speaker: And you don't.
John L. Carroll: --And you don't, then I do not think there's a taking. Thank you.
Warren E. Burger: Mr. Partenheimer?
Verner P. Partenheimer, Jr.: Mr. Chief Justice, and may it please the Court, I'd like to commence by attempting to clarify for Justice Stevens what I believe is probably the situation concerning severed mineral taxation in both Indiana and, insofar as I know, the state of Illinois, which is about the limits of my general knowledge about this subject. The policy seems to be that if the interest is being developed or is in use, then it is subject to a form of local ad valorem taxation. Also, if it is owned by a coal company or some operative organization which is in the process of producing coal, then generally that interest is placed on the tax rolls and assessed for taxation. Otherwise, interests in the hands of individuals are generally considered perhaps not very valuable and that it's not administratively very remunerative to impose taxes.
Speaker: It is real property and not personal property in these states, isn't it?
Verner P. Partenheimer, Jr.: In these states it's real property in both instances, yes, sir. The Indiana Dormant Mineral Act we submit is essentially a recording act. The General Assembly determined that because of the elusive character of severed minerals, these types of interest required a re recording periodically for the maintenance of the public records. It also acts as a statute of limitations with respect to claims which remain, for whatever reason, unrecorded for a long period of time. The type of severances most affected by this act are severances of coal, oil, gas or any or all of them, either by a mineral deed or by a reservation in a general warranty deed, and these severances generally are perpetual on their face. Unfortunately, the record in this case comes to the Court without any factual background concerning why the statute may have been enacted or why it was necessary. And if you will, I'm going to ask the Court to permit me to indulge in a few assumptions which I believe are reasonable and would form the basis of this statute in the mind of a legislator dealing with it. First of all, my home county, Gibson County, has a total area of about 320,000 acres, or approximately 500 sections. There's not one section in that county that has not been drilled for oil, and approximately 40 % of the county has been involved in coal development at one time or another.
Speaker: This is southwestern Indiana?
Verner P. Partenheimer, Jr.: Yes, sir, southwestern Indiana. There are approximately seven mineral producing counties in southwestern Indiana, and the rest of the state is essentially non mineral producing. This oil and gas and coal development has occurred in really three phases for oil and perhaps two phases for coal, and it's been over a period of about three generations. Determining the ownership of land and interests in land from the public records, as I'm sure some of you are aware, is a difficult, time consuming and very expensive job. In my county, I have concluded from my own estimates that probably 15 % or 48,000 acres may be affected by severed mineral claims. And if I project this throughout the state, I'm of the opinion at least that probably 336,000 acres or 1 % of the entire state is affected by these types of severed mineral claims. So that it is, you can see, a rather localized problem. In my opinion, the total number of claimants; that is, persons, affected by this act throughout the state may be as many as 40,000, and perhaps 10,000 have had their rights extinguished under the act through their own failure to comply. So I hope that this gives you an idea at least of what I consider to be the size of the problem. For the most part, these claims have been treated as valueless until they've been developed. They've not been assessed for taxes and estates have been settled in which they have not been accounted for, they are not referred to in the preparation of persons' wills. So that after a generation or two or three, we have a situation in which the interests become very intricately fractionalized and very difficult to track down as a matter of public record. So this is the situation in which the General Assembly sought to construct a legislative remedy. That remedy, needless to say, had to be effective and efficient and should not have been unduly harsh. We think that the Legislature has done that. It may not be the proper answer for all states, but we think it's a proper answer for Indiana. The mineral claimants have relied on the Pennsylvania Coal Company case, stating that the act effects a taking without compensation. We think that the act has provided a means whereby any claimant can preserve his interest. It's a simple and inexpensive means; he can simply file once each 20 years periodically, and he loses nothing if he complies with the act. If you will, in the words of this Court, the act has simply taken a single strand of this bundle of rights; that is, the single right to hold that interest perpetually in the future without a corresponding duty or obligation to periodically keep the public records up to date by making a re recording. We think that the act in this regard and this case are similar, for example, to the Eagle-Relick case, where I believe it was Mr. Justice Brennan who suggested that the appellants in that case were attempting to compel the government to regulate by purchase. We think this case falls in that category so far as the taking question is concerned.
Speaker: Would you say that the case would be any different if the provision was that if there's not the filing within two years that the property escheat to the state?
Verner P. Partenheimer, Jr.: The property, Mr. Justice White, does not escheat to the state in--
Speaker: I know it doesn't, but I just ask you would the question be the same if it did provide for escheat to the state.
Verner P. Partenheimer, Jr.: --I think that that question can be answered with reference to the Dormant Mineral Act cases... I mean the dormant bank account cases, and I will get to those in a minute.
Speaker: So your short answer is yes, it would be the same case on the taking.
Verner P. Partenheimer, Jr.: Well, I think when you interpose a taking by the state where the state itself obtains some proprietary interest, then I think there is a difference.
Speaker: Why?
Verner P. Partenheimer, Jr.: Well, then you get into the issue of a taking by the state for the purposes of the state. I'm reluctant to push that very far--
Speaker: You could say that there should be... it's less likely that there'd be a taking then because here, to the extent there's a taking it's a taking for private use. It's taking a fee interest in the one piece of property owned by X and giving it to Y.
Verner P. Partenheimer, Jr.: --Well, we prefer to think that it is an extinguishment for purposes of--
Speaker: I think you would.
Verner P. Partenheimer, Jr.: --For the purpose of restoring the integrity of the property.
Speaker: As long as I've got you interrupted, what if this act not only applied to mineral interests, but to all real property; any real property owner that didn't file his statement within two years loses his property?
Verner P. Partenheimer, Jr.: Well, I think that there are recording acts in various circumstances where there is a justifiable public need, which do just that.
Speaker: Well, this... I'll just pose a case where the record is perfectly clear as to who owns the property, there's no doubt about it whatsoever. The taxes are paid; the person just happens to live out of the state and never heard of the law, and doesn't file. Do you think the state can take his property that way?
Verner P. Partenheimer, Jr.: I think the--
Speaker: Without notice?
Verner P. Partenheimer, Jr.: --I think that if there is an overriding public policy, the state certainly can, and there are instances in which the state has done just that.
Speaker: You mean without paying him for it at all?
Verner P. Partenheimer, Jr.: Well, I grant you the case you put seems rather harsh, and I suppose it's difficult to disagree with you, but on the other hand, we do have a situation here in which there is notice of the law in which a simple remedy was provided.
Speaker: Well, notice of the law, but the fact is you say these dormant interests have become very splintered because they go through various estates and there may be 100 different owners living all over the United States. Right? Is that what you--
Verner P. Partenheimer, Jr.: It's conceivable, yes, sir.
Speaker: --Well, that's part of the problem that you wanted to cure, isn't it?
Verner P. Partenheimer, Jr.: Yes, sir.
Speaker: I suppose you can assume that all those people living in New York and Alaska would know that they ought to file an interest.
Verner P. Partenheimer, Jr.: I don't assume that people in general in those situations know the law. I think that is one of the presumptions that the law has to make in certain circumstances, and I think there are good reasons for it to be made in certain circumstances and this is one of them.
Speaker: You said you were going to relate this to the escheat of bank accounts... abandoned, neglected bank accounts.
Verner P. Partenheimer, Jr.: Yes, Your Honor. I think that probably the central issue in this case is just that; whether or not the incorporation of a traditional grace period in this type of law is still a constitutionally acceptable method of making the law work retroactively. In connection with that central issue, I would like to discuss the early dormant bank account cases. Three of them have been cited, Security Bank v. California, Anderson National Bank v. Luckett and Standard Oil v. New Jersey. In the Security Bank and Standard Oil cases, the act provided for an adjudication, a final adjudication of abandonment of these bank accounts, and at the same time provided for a... more or less simultaneously provided for... a seizure of the bank accounts. The court in these two cases was dealing with not the depositor himself, but with the bank who naturally wanted to keep the windfall, wanted to appropriate the windfall for itself rather than turn it over to the state, and was arguing that it would be placed in double jeopardy if it had to give up the deposit without some kind of good notice to the depositor. The court held that a simple newspaper publication was adequate for a notice to the depositor, so far as protection to the bank from double jeopardy was concerned because it was an In Rem proceeding. And I believe, certainly in the Security Bank case and I believe also in the Standard Oil case, the court did not decide any issues of constitutionality between the depositor himself and the state. I think those cases were cases wherein adjudication was provided for, a court adjudication, and the court simply held that notice by publication was sufficient. The Luckett case was a bit different. In that case, the portion of the act which was appealed from only involved a transfer of custody of the deposit from the bank to the state through an administrative proceeding by the Attorney General. In that case, the holding of the court especially indicated that all of us, or all persons who deposit money in banks in the state make those deposits with notice of the conditions which the state imposes by law upon those deposits, and that we must be presumed to have notice that under certain circumstances the surrender of our bank accounts to the state may be compelled. The court went on to hold that so far as the seizure of the property itself was concerned, the in rem matter, that the posting of a notice on the courthouse door was a sufficient form of notice to give to provide administrative jurisdiction to the seizure.
Speaker: Mr. Partenheimer, is my recollection correct that at least in the New Jersey case... I think I know something about that statute... there was a period of years after the seizure when the depositor was able to begin a proceeding and get his money back.
Verner P. Partenheimer, Jr.: Yes, that is true.
Speaker: Was it a number of years?
Verner P. Partenheimer, Jr.: I believe it was five years, if I'm not mistaken. Yes, five years I believe.
Speaker: There's nothing like that under this Indiana statute, is there?
Verner P. Partenheimer, Jr.: No, but this Indiana statute does not provide for an adjudication, either. The thought that you have is the fact that in the New Jersey case the statute provided a final adjudication, but then said that anyone who, because of lack of privy or lack of notice, was not bound by that adjudication had a five year statute of limitation in which to sort of come in and reopen the matter.
Speaker: But that does not happen in Indiana as to these mineral rights, does it?
Verner P. Partenheimer, Jr.: No, it does not because the statute itself provides for no adjudication at all. There is no proceeding at all involved.
Speaker: That period allowed is something like the redemption period after the foreclosure of a mortgage or a trust, is it not?
Verner P. Partenheimer, Jr.: In the case Justice Brennan put, I would agree, yes. While we're on that subject I would simply argue to the Court that not one of those cases, nor any other case, has ever held that an administrative or judicial proceeding is a necessary element of due process in a law affecting property rights. In this case the appellants argue for notice of extinguishment of their rights. Well certainly, notice would be of no value to them unless they had the opportunity to do something about it after the notice were given. Title puritive legislation characteristically has not done this. It relies on independent remedies such as ejectment and quiet title proceedings, and we think there are some practical reasons for that and I'd like to mention just two or three. First, there is a great difficulty in identifying and locating who are the persons who would be... to whom the act would be applicable. We can't send a copy of the general laws to every citizen, and if we did that still wouldn't provide him with any realistic notice of anything. Secondly, if these people could be identified and located, who has the motivation to do it? Certainly not the state. The state has no obligation. Certainly not the owner of the servient interest. Why would that person who had the estate which was subservient, why would he be interested in providing notice to someone who was away and who had left his property and advise him that he should come back and do something to preserve it and take advantage of it. There simply is no logic that a statute of that type would work. And finally, the public policy is as well served by the extinguishment of the right as by any other result. Therefore, we think that there have been good reasons for the simple use of grace periods. The statute is enacted, a grace period is allowed, and people are presumed after a certain period of time to have had sufficient interest in a property to care for it. This philosophy and reasoning of course has been annunciated many times. Personally, I like the view by Justice McKenna in a relatively old case, Ballard v. Hunter, that's 204 US at 262, and if I may, I'm going to quote just a little bit of his philosophy concerning this matter. He says, "The law cannot give personal notice of its provisions or proceedings to everyone. " "Of what concerns or may concern their real estate, men usually keep informed. " "And on that probability the law may frame its proceedings. " "Indeed, must frame them and assume the care of proper to be universal if it would give efficiency to many of its exercises. " I have two further points that I would like to make. I won't argue the contract impairment theory because the opponent does not argue it and we simply feel that it is a slight regulatory impairment, and the same reasoning applies as applies with regard to the taking issue. The remaining matter that I'd like to discuss just briefly is equal protection. In the briefs, we think the appellants' equal protection arguments are strained if not a little misleading. The Section 5 of the act has not one but four requirements; all of which are equally important. It requires, number one, that the owner have had ten or more interests in the county. Number two, that he had made a diligent effort to preserve those interests. Number three, that he had, in fact, preserved some interests in the county. And number four, that his failure to preserve was through inadvertence. We think it fair to say that the legislature could have concluded and reasonably so that a person who has ten or more interests in the same county probably owns them as a block, and probably acquired them for the purpose of development and probably would, in fact, develop these rights rather than simply hold and speculate on them. We think the legislature could have concluded that one holding ten or more interests might have a significantly higher risk of inadvertently losing one or more than one through a mis filing or an error in filing, a clerical misfeasance of some kind. And we think that the legislature could have concluded that such an error might bring on a very significant loss, or a more significant loss, to someone who held a lost of interests in a block as opposed to someone who held only one or very few scattered interests.
Speaker: Do you know of any case that says that due process and equal protection is measured by how much money is involved?
Verner P. Partenheimer, Jr.: Well, I suppose that's a debatable question. The extent of the--
Speaker: It would be debatable if you could give me a case. I don't think any protection has ever been considered that it only applies to the poor and doesn't apply to the rich, or only applies to the rich and doesn't apply to the poor. That's drawing the line on people who have got money, isn't it?
Verner P. Partenheimer, Jr.: --Yes, sir, that would be. I agree with you on the equal protection question as such. I don't know that the due process standard is always the same, depending upon the quality or quantity of the interest involved.
Speaker: Mr. Partenheimer, may I ask, what was your answer to your colleague's reliance on Mahon on the taking question?
Verner P. Partenheimer, Jr.: I think, Your Honor, that the fact that there is a means provided that is simple and expedient by a simple re recording or re filing to preserve this interest indefinite--
Speaker: Something not present under the Pennsylvania scheme in Mahon?
Verner P. Partenheimer, Jr.: --Oh, no. In the Pennsylvania act, once the act took place, their rights were gone, irretrievably. I have one final point to make, and that is that the appellants and the trial court in this case tended to focus on the issue of who was a known owner and who might be an unknown owner, and to try to distinguish between those. In the situation as we perceive it, the question of who is an unknown owner and who is a known owner can only be determined by some kind of an objective standard. Everyone is unknown until he either makes himself known or until someone hunts him down and makes him known. We think that the statute has provided an objective standard to determine who is going to be treated as known and who is going to be treated as unknown. Those persons who have used their interest or who have filed will be considered known. Those persons who have not, will be considered as unknown. And accordingly, we think that this objective standard, together with the filing alternative and the incorporation of the grace period to cover the retroactive situation entitles this law to be treated as a constitutional exercise of the regulatory power of the state, and that the decision of the Indiana Supreme Court on this issue should be affirmed.
John L. Carroll: Two more comments, if I may. One is we somehow have put this case based upon expediency, and I don't think we're going to make... should not make constitutional judgments about what is expedient on the matter of whether we're going to give notice. Counsel has said that the act is going to determine who is known and who is unknown as an owner. I submit that Section 6 of the act is an answer to the questions which are raised, because it will clarify and protect your recording statute, which he says this is; it will put on the record those that are known or unknown; and if you read Section 6, it is a perfect answer to procedural due process. The only problem with Section 6 is it only applies if you have ten or more interests. Had it applied to all of the interests, we would not be here today. This is a statute which, by its nature, does not treat people who have less than ten interests fairly. It was designed to terminate their interest. But if you look at Section 6 you have a perfect answer to how it should have been done on a constitutional basis and protect everybody, be they rich, the poor, the large, the small owner, put the interests of record. Because if they don't come forward after the notice, then you can assume the surface owner is the owner. If they do come forward, then they have their interest of record. The statute does not do that, and it does not do that because its intent is to extinguish that interest. Thank you.
Warren E. Burger: Thank you, gentlemen, the case is submitted.


Earl Warren: Mr. Newcomb.
Wyllys S. Newcomb: Mr. Justice and learned Justices. I suggest that whether or not, as a matter of fact, the court below examined the document is something that should not be in issue here. In our brief in the Court of Appeals, we've categorically stated that the Court did not examine the documents. The appeal was argued by the Assistant United States Attorney who tried the case, and the argument in the Court of Appeals was all upon the basis that the Court did not examine the document. And, I respectfully suggest that a simple check by the Solicitor General would suffice. Let us, if the Court please, go back to the fundamentals. Why are we here? In examining Sanfilippo, I put to him this question which is the key to why we are here and, I respectfully say, it is why this Learned Court granted the petition for certiorari. I said to him, we're referring to Exhibit 6, “Mr. Sanfilippo, I ask you whether your memory of it was better then,” namely, on July 16th when he said, “I don't know,” “than your memory of it when you testified here upon the trial, some 16 or 18 months later, and approximately four-and-a half or five years after you say you received this paper.” He answered, “I feel my recollection of the circumstances is better today because we reviewed that several times.” And petitioner does not challenge the right or even the duty of skilled investigators and prosecutors to refresh recollection of witnesses even by using repeated and suggestive interrogation, if honestly done. The prosecution must be vigorous, determined and persistent. Truth is not obtained from witnesses always in the first instance. Therefore, the interest and right of the Government is that there should be vigorous investigation and prosecution. But, as one who has been a prosecutor local, state and federal for many years, I have long been conscious as I am sure this Court is conscious of the fearsome power which the skilled investigator and the skilled prosecutor possesses if, may it please the Court, there is a record of a change and evolution of testimony on a vital point. And it appears, as a matter of timing, that it occurred coincidental with repeated interrogation and preparation. This is not an indictment of the Government, the prosecutor or the Investigator. But, I say to the Court, with real sincerity, that if that is to be done, as it must be done, then the defense, when it occurs, must be given every reasonable, fair, intelligent opportunity to inquire as to whether it was done and, if so, how and when? And I say to the Court that that right in this case was clearly denied to us.