William H. Rehnquist: We'll hear argument first this morning in Number 89-931, Lawrence Crandon v. United States, and Number 88-938, Boeing Company v. United States. Mr. Lacovara.
Phillip Allen Lacovara: Mr. Chief Justice, and may it please the Court: The government's claim to recover the severance payments that Boeing made to its employees suffers from several significant flaws. The three issues before the Court this morning are the following. First, Section 209 of Title 18, on which the government relied exclusively as defining the fiduciary duty that the employees allegedly breached, does not apply to pre-employment severance payments. Second, the Fourth Circuit overstepped the proper bounds of a reviewing court in disregarding the amply-grounded findings of the trial court that none of these men accepted that severance payment with the kind of intent that Section 209 in other situations may prescribe. And third, under a common law claim to recover the value of any secret payments, adequate disclosure of the type that the trial court found here, bars a claim by an employer for recovery of any conflicting financial arrangements. Let me turn first to the statutory coverage question. This is an issue on which all... all roads lead to Rome: statutory language, legislative history and legislative purpose. The language of the statute, as it was revised in 1962, which appears on page 1a of our brief from Mr. Crandon, et al., could not be more clear, we submit. The statute, as it is common ground, defines two correlative offenses. Certain kinds of compensatory payments that are made by or received by government employees are prohibited. Looking first at the statutory application to the payor, in this case Boeing, the statute says, and I will, I think fairly allied the unnecessary language, whoever pays or makes any contribution to or in any way supplements the salary of any such officer or employee, meaning officer or employee of the United States, is guilty of a crime. The one overarching issue with which the government has never come to grips in this case is the following. Could the government, the day after these payments were made by Boeing to employees still on its payroll, who, as it was stipulated below and found by the trial court, not only were not government employees, but not had... had not been assured government employment or even formally offered government employment, could the government have indicted Boeing for violating Section 209 the day after these payments were made, days or weeks or in several cases months before these men actually became government employees. I submit the answer to that is clearly no, for the same reason Boeing could not have indicted the employees.
Anthony M. Kennedy: Could there have been an attempt indictment in that situation?
Phillip Allen Lacovara: I think not. The government certainly has never alleged in this case that the conduct here constituted an attempt to commit crime.
Anthony M. Kennedy: I'm just asking hypothetically. Could, would the facts you state support an indictment for an attempt?
Phillip Allen Lacovara: I think probably not, although the general law of attempt does apply to many criminal cases. But here what you have is a statutory definition of a particular conflict of interest crime, and for reasons that we will discuss in a moment, Justice Kennedy, Congress drew the line where it wanted to draw the line in distinguishing lawful conduct from unlawful conduct. And it is important, I think, to preserve that bright-line distinction, lest we criminalize a whole category of relationships that Congress never intended to cat... to criminalize.
Sandra Day O'Connor: What if the employer, before the government service began, paid a sum to the employee on the understanding and expectation that the employee might provide some favors to that employer later, during government service.
Phillip Allen Lacovara: That is an issue with which Congress has dealt, Justice O'Connor, in other sections. And it is very important to--
Sandra Day O'Connor: Would it violate this section as well?
Phillip Allen Lacovara: --No, no. It would not.
Sandra Day O'Connor: Simply because of the timing.
Phillip Allen Lacovara: That's right. And that is explicable, I think, in light of the--
Sandra Day O'Connor: Well, you certainly can read the language of the statute as not turning on the timing of the payment. If... if the payment is made to supplement the government salary, you certainly can read Section 209 as being applicable.
Phillip Allen Lacovara: --Well, our opening submission, Justice O'Connor, is that that is not a correct reading of the language and that under the rule of lenity, if your suggestion is that one could read the statute this way, ambiguities in criminal statutes are to be resolved against the government. Where you have statutory language that talks about making a payment to, or a contribution to, or... supplementing the salary of a government officer or employee, I suggest it is at least a strained reading to say that the timing makes no difference. But when you look at what Congress has done in trying to deal with the problem that you identify it becomes clear, and this is why I say that in reading this statutory language, as revised in 1962, the Court ought to consider the other statutes that Congress revised in 1962. The bribery statute expressly deals with that situation. Congress knew how to write that language. It covers payments made not only to incumbent federal officers or employees, but, as the statute defines it, persons "selected to be" public officers or employees. Similarly, Section 203 of Title 18, which was revised at the same time as this statute was revised, punish... punishes certain kinds of compensatory payments made to a person for services to be rendered at a time when he is a government officer or employee. So there are two examples of Congress' knowledge of how to reach pre-government employment payments, if they are made with the kinds of intent that are described in Section 201 and Section 203.
William H. Rehnquist: Mr. Lacovara-- --Mr. Lacovara, the Fourth Circuit relied upon the 1962 change in this statute to say that whatever may have been the case before then, they thought it now covered pre-employment payment.
Phillip Allen Lacovara: That is correct. The Fourth Circuit relied exclusively on that change. It is, I think, common ground now that the predecessor to this statute only reached payments to incumbents. It said whoever being a government officer or employee accepts the payment is guilty of a crime. Congress took that out in 1962. It did it, however, with an explanation of what limited changes it intended to accomplish in revising the language. We have set these out in our brief because we think it is important to do what the Fourth Circuit apparently didn't do, which is to read Congress' own explanation of whether it was intending to make what I submit would be a fairly substantial change in the coverage that the statute had in its prior form, which was clearly limited by time to incumbent government employees. Page 10a is the Senate report; page <twenty-five a@l> [= 25a] of our appendix to the brief sets forth the House report, and just let me read the two sentences. Section 209 is similar to Title 18 United States Code, Section 1914. The latter, that is the predecessor, prohibits a government employee from receiving any salary in connection with its government service from a private source. Subsection (a) of Section 209 would reenact this prohibition in substance, et cetera. The House report reads the same way. Attorney General Kennedy, whose administration had proposed the bill that ultimately became law, and this is set forth on page 47a, said exactly the same thing. Comparing the old statute with the new, Subsection (a) prevents an officer or employee of the executive branch from receiving, and anyone from paying him any salary or supplementation from a private source, et cetera. This... provision uses much of the language of former Section 1914 and does not vary from that statute in substance. Congress--
William H. Rehnquist: So it leaves a rather large hole in the statutory scheme, doesn't it, if an employer, a month before someone becomes a government employee, can pay them a large amount of money to tide them over the time that they will be a government employee.
Phillip Allen Lacovara: --If we were sitting down today to write legislations, Chief Justice, we might want to draw the line differently. But that is not the purpose that the statute had in mind when it was... Congress had in mind when it first enacted this statute in 1917, which was to prevent carrying people on the payroll of a private benefactor with the concern being, a concern that doesn't apply when the payment is made before government service, the concern being that the person who is supposedly discharging his duties with an eye solely on the public interest may be looking over his shoulder to see whether or not his judgments will... will affect whether that economic lifeline, as the New York City Bar put it, is going to be cut off. That danger is simply not there, the danger of divided loyalty, serving two masters, when an irrevocable, fixed, non-contingent payment is made before government service. Now, as Justice O'Connor pointed out, if there is some other understanding, that could constitute a bribe. Congress has defined the point where the bribery statute applies, at a certain point before government employment, but not at the... not infinitely back from government employment. So, Congress has decided to deal with a particular problem, divided loyalty. It rationally chose to draw the line at incumbency. Section 1914, it has certainly drawn the line there. The explanation for the changes in language in 1962 suggest only... only a narrowing purpose, changing the prior phrase in connection with government employment to a phrase, as compensation for government employment. And if Congress had intended to cover a whole new class of payments, especially in light of the fact that severance payments, pre-employment severance payments, are, as the government has agreed, quite common, one would think that Congress would have said something about that. When one looks at the reasons for dropping the magic phrase on which the Fourth Circuit exclusively focused, one sees that, in the original staff report back in 1958, a House staff report, there was a suggestion that that phrase be taken out, because the staff wanted to cover not only officers of the executive branch, but also members of Congress. And the phrase being a government officer or employee would not have covered those congressmen, that the--
Anthony M. Kennedy: Do you make the... Mr. Lacovara, do you make the same analysis of the first section... of the first paragraph of the statute as of the second? Could the government's position fare any better under the first paragraph than it does under the second?
Phillip Allen Lacovara: --I think not, Justice Kennedy, because it... I think it is common ground that these are supposed to be correlative offenses. Indeed, in the second paragraph the payer's defense--
Anthony M. Kennedy: Well, but the second paragraph is in part controlled by the first, because they talk about such officer or employee, and the first paragraph begins whoever receives.
Phillip Allen Lacovara: --Yes, for services as a government officer or employee. And what I am suggesting is that, to the extent there is any doubt about whether Congress intended to reach only payments received by government... incumbent government officials, one can appropriately take guidance from the second paragraph, which says all Congress is penalizing on the payor side is the payment to a government employee under circumstances that would make it illegal for him to accept it, namely it's accepted with compensatory intent.
Antonin Scalia: Mr. Lacovara, the first paragraph doesn't say... it doesn't say receives as an officer or employee. It says receives a salary, contribution to, supplementation of salary, as compensation for his services as an officer or an employee. You can receive it as compensation for your services as an officer or an employee whether or not you are now an officer or an employee.
Phillip Allen Lacovara: Justice Scalia, as I mentioned before, there might be an ambiguity--
Antonin Scalia: In the first paragraph.
Phillip Allen Lacovara: --In the first paragraph. If one--
Antonin Scalia: Now, I think you are stronger on the second paragraph.
Phillip Allen Lacovara: --If one read this paragraph, if that was all that existed in Title 18, there would be an ambiguity, which under the rule of lenity would have to be resolved in our favor in any event. But one has the second paragraph here, and one also has Section 201 and Section 203. And when you read those statutes, without even getting behind them into legislative purpose or legislative history, I think you are drawn rather firmly to the conclusion that when Congress wanted to reach pre-employment payments it used a form of words. Indeed, the City Bar, in proposing a revision of this predecessor, Section 1914, the predecessor of this section, did propose to add language that not only dropped the being a government officer or employee language, but proposed adding the language that Congress used in 203, for services to be rendered when the person is a government employee. So, you have here, I think, a rather clear statutory pattern. Certain kinds of pre-employment payments are covered, others are not--
Sandra Day O'Connor: Mr. Lacovara, do you mind my asking whether you concede that there is a civil cause of action by the government for whatever it is the statute... the criminal statute, says? Is there a common law cause of action to cover the exact contours of whatever this statute means?
Phillip Allen Lacovara: --We have never doubted that there is a common law cause of action to recover secret profits obtained in breach of trust. There is ample common law doctrine, federal common law doctrine, that that does exist. All of the cases, however, as the Fourth Circuit itself recognized, are limited to circumstances in which the... the tainting outside financial relationship is undisclosed, secret, so that the employer, new employer--
Sandra Day O'Connor: Well, what is your answer? That the cause of action for recovery is not covered exactly by the contours of the statute? It is something else?
Phillip Allen Lacovara: --That is... the government would make out its prima facia burden if there had been an illegal receipt of... in violation of Section 209, but it is at least a defense that that relationship was disclosed. And that is what we have argued below and what we think is supported by federal common law.
Speaker: Thank you, Mr. Lacovara. Mr. Sharp.
Benjamin S. Sharp: Mr. Chief Justice, and may it please the Court: Both the district court and the court of appeals held that the 209 required some proof of subjective intent on the part of the parties. In fact, the court of appeals expressly found, or expressly rejected, the government's assertion that the statute could be violated with simply a showing of objective intent, or without any intent at all. The construction that the courts below gave that, the statute, we think is compelled, because otherwise the statute would proscribe all manner of payment, including severance payments to which the government does not object. Having determined that the district court was correct in its holding on the law, the court of appeals nonetheless reversed on the facts. It reviewed the facts, the objective facts cited by the district court below and drew different inferences, but in doing so it necessarily drew inferences that the district court had in fact rejected. This Court has, on many occasions, held that the questions of intent are factual questions for the trier of fact. In fact, where intent itself requires some showing of actual motive or purpose or understanding, this Court's opinion in Pullman-Standard v. Swint held that the legal presumption to be drawn from factual showings less than actual motive was not proper. But that is precisely what the court of appeals has done here. It found new facts by making certain limited inferences, but in doing so it did not cite Rule 52(a), it did not discuss or define the proper standard of review, other than to make a passing reference that the court below was clearly erroneous, it did not discuss testimony--
John Paul Stevens: Mr. Sharp, what is it... what is your understanding of the intent requirement in the statute? What do you think the government had to prove?
Benjamin S. Sharp: --I think the government had to prove expressly that the parties intended to make payments that were compensation for federal services.
John Paul Stevens: What other motive could there possibly have been for the payments by Boeing?
Benjamin S. Sharp: I think a motive to fairly sever relations with long-standing employees, to make sure that--
John Paul Stevens: But nobody got this except people who were going into government service.
Benjamin S. Sharp: --No one got it except individuals who were compelled to terminate their employment with the company to enter into public service. There is ample evidence in the record that Boeing supported a general policy of encouraging public service, and that under circumstances it did not require that there be a complete severance from the company, no severance payment was paid because no severance was made. Under those circumstances, it was not infrequently the case that people were permitted to continue to participate in various company benefits programs, were able to take a leave of absence without pay, or in some cases a leave of absence with pay. This was the only circumstance, federal government service, of an encouraged, public service that required absolute severance from the company. And that is the reason that severance payments were only made in those circumstances.
Sandra Day O'Connor: What exactly do you understand was the government's theory at trial in its cause of action against Boeing?
Benjamin S. Sharp: That has long perplexed us. At trial the government for the first time took the position that its cause of action of Boeing, against Boeing, was a common law tort of inducing a conflict of interest situation.
Sandra Day O'Connor: Is that how it went to the trier of fact?
Benjamin S. Sharp: It is.
Sandra Day O'Connor: A common law tort of inducing breech of a fiduciary relationship?
Benjamin S. Sharp: Well, the exact language in paragraph 16 of the complaint says the common law tort of inducing a conflict of interest situation.
Sandra Day O'Connor: Uh huh.
Benjamin S. Sharp: Conversely, the claims against the individuals was sounded in quasi contract for their supposed breech of an undivided... duty of undivided loyalty.
Sandra Day O'Connor: Under that theory would the government be entitled to recover the amounts of the payments from the employees and also from Boeing, a double recovery sort of?
Benjamin S. Sharp: I do not think they would, and the district court and court of appeals both held they could not based on the precedent of Continental Management case. I believe that if the government made out a prima facia case, that the standard, or the quantum of damages, based on other precedent, might be the amount of a payment.
Byron R. White: How did the statute ever get into the case?
Benjamin S. Sharp: The supposed tort duty that the government claimed was--
Byron R. White: Was measured?
Benjamin S. Sharp: --derived from this criminal statute. So, in order to show... to make out the common law tort, they would have to show a violation of the criminal statute.
Antonin Scalia: Mr. Sharp, can I return to Justice Stevens' question? What do you take to be the subjective intent that is required by the phrase "as compensation for his services"? Specifically, does there have to be an exchange, does there have to be a quid pro quo? Is it... is it rather like consideration in the law of contracts?
Benjamin S. Sharp: I, I... we don't believe that the intent requires a quid pro quo or a specific intent to influence government service, but at least must be an intent to compensate for government services. At the very minimum, Justice Scalia--
Antonin Scalia: Well, what does to compensate mean? I mean, suppose somebody comes up to me after I have retired from government service and they say Scalia, we really admire you, you have done a great job for your country. We want to give you an award of $50,000 for outstanding public service. I am sure a lot of people get awards like that. Is that compensation for... for public service?
Benjamin S. Sharp: --I don't think so.
Antonin Scalia: Why not?
Benjamin S. Sharp: It is paid under circumstances... among other reasons it is paid under circumstances that could not conceivably create a conflict of interest or a potential for divided loyalties--
Antonin Scalia: There is nothing in here about that. This is a prophylactic rule. You don't have to examine case by case to see if there is a potential for conflict of interest, it is obviously prophylactic. But why is... in your mind that one is not covered. Now, I could explain why that is not covered, I could say there is really no quid pro quo. It is not if you go into the government, I'll pay you this amount of money. And therefore I could say it is not compensation for your being in the government. That way I could understand your arguing an intent requirement. But I don't understand what kind of intent requirement you are arguing. You say it has to be intent to give it to him as compensation. Well, that sounds very nice, but what does "as compensation" mean if it doesn't mean quid pro quo? You work for the government, and I will pay you the money.
Benjamin S. Sharp: --In the facts of this case it would fall far short of a quid pro quo in any event, in that these payments were fixed, final and irrevocable.
Antonin Scalia: Oh, I know that. I know that. But I don't understand what you mean by "as compensation". There has to be a subjective intent to give it to you as compensation. But, but it doesn't cover the situation where I say you have done a wonderful job for your country; in admiration of your work for your country I am giving you $50,000. That... that isn't covered.
Benjamin S. Sharp: The only suggestion I can make is to read some meaning into the phrase that would cover a conflict of interest, and if you construe that phrase in a fashion where there could be no conceivable conflict of interest, it seems to me that it is an overbroad reading of it, that doesn't serve the purpose of preventing the evil which Congress sought to prevent.
Antonin Scalia: Well, every prophylactic rule is over broad, I mean, and--
Benjamin S. Sharp: The statute, as originally enacted, obviously was directed at the... at the receipt of payments during a period of time where the performance of government services was being rendered, where there was a temptation, or at least a potential for influence of that government service, to assure that that economic benefit was continued to be received. If you have a factual pattern that does not present that same potential, I don't understand how it would be reasonable to construe the statute so broadly as to... as to sweep up factual patterns which could not conceivably constitute a conflict of interest.
John Paul Stevens: --Except here you have got a series of findings which totally negate any improper actual conduct. There is no... no motive to do anything like that. But then there is this finding 22 that says they were not intended as supplementation for government service or as compensation. I don't know quite... I'm really kind of puzzled as to what that means. Does that mean that Boeing did not have a policy of giving extra money to people who were going into service because they thought that (a) there's a public purpose to be served, and (b) these may be more valuable employees when they get back later, which are... neither of which is... when they get out of government service, neither of which is necessarily an invidious motive. I'm not suggesting that. But it does seem rather clear that the company must have thought that these people were going to have a financial sacrifice during this period of government service, and they wanted to help them over a tough period. And... but you are saying... I am trying to figure out... is that what the statute prohibits? Or, if it is, then it seems to me the finding is clearly erroneous, frankly. I just can't see how you can under... construe these payments otherwise. But maybe it requires something more, and if it requires something more, just what is it?
Benjamin S. Sharp: I think implicit in the "as compensation for" language is... is the notion that the payor is intending something that would create a conflict of interest, some impropriety. It simply cannot mean the confluence of events of government service in the receipt of moneys. And if it... if it meant that only, then every severance payment would be outlawed. And if you don't read some--
John Paul Stevens: Well, but if that only it would cover the case of say, well, we'll keep your salary going while you are in Washington. They clearly can't do that.
Benjamin S. Sharp: --They clearly cannot do that.
John Paul Stevens: But that would cover it even though it was totally benign in motive. Say he isn't going to do any work at all on Boeing matters and never coming back to work, but we just think this is a decent individual who ought to be given the equivalent of the kind of award that Justice Scalia describes. That still--
Benjamin S. Sharp: Well, under those circumstances certainly the employee would be acting at a time he was receiving discretionary--
John Paul Stevens: --Right.
Benjamin S. Sharp: --funds--
John Paul Stevens: The statute plainly--
Benjamin S. Sharp: --which could tempt him, could influence him, in a way that pre-employment severance payments could not.
William H. Rehnquist: --Well--
Benjamin S. Sharp: The second issue that we wish to cover briefly has to do with the court of appeals' determining that although there was no conflict of interest, that an appearance of a conflict of interest was both sufficient to violate the statute and sufficient toward injury for the United States to recover. We believe this conclusion is both wrong as a matter of law and insufficient... excuse me, wrong as a matter of fact and insufficient as a matter of law. The appearance of conflict of interest standard is dangerously imprecise. It has been in the past--
William H. Rehnquist: --Does this depend on the statutory construction, Mr. Sharp, or does this go to the measure of recovery or the nature of the common law tort?
Benjamin S. Sharp: --I think it goes to the statutory construction and to the issue of whether there has been--
William H. Rehnquist: But of course the statute doesn't say conflict of interest at all.
Benjamin S. Sharp: --That's correct.
William H. Rehnquist: So, when you say the... to say there was no conflict of interest, how does that cut one way or the other with respect to the statutory construction?
Benjamin S. Sharp: Again, simply that the construction of a conflict of interest statute ought to be such to give some meaning to the evil which Congress sought to prevent. If there was no conflict of interest, an overbroad reading would seem unwarranted. In this case the court of appeals held that an appearance of conflict of interest is sufficient injury in tort for the United States to recover. We would suggest that it is not sufficient injury for a tort recovery and that really what the court of appeals is saying here is that where there is no proof of a conflict of interest, if there is a bad appearance to the court it is sufficient injury and is sufficient to violate the statute. We think in part that that is a dangerous precedent, because if there is no... if there is insufficient evidence to prove a conflict of interest, it makes little sense to claim that although there is some probability that conflict occurred, but not proven, that we would nonetheless, as an appellate court, find... find an appearance was sufficient to predicate liability and damages. In other situations, courts have used conflict of interest also, or appearance of conflict of interest, to describe those situations where there was a clear and irreducible conflict of interest. And in those circumstances, as in the Kenealy case cited in all the briefs, I would suggest that an appearance of conflict of interest is either surplusage, in that all actual conflicts would appear to be conflicts, or it's a misnomer in that there is a good deal more than appearance of conflict of interest in, for example, a failed bribe or a self... economic self-dealing situation that are proscribed by statutes 201 and 208. In this case we have found no other case where liability was predicated or injury was found based on the appearance of conflict of interest. It seems to us where the court of appeals holds that there is in fact no conflict of interest, the appearance is insufficient on which to predicate liability. If there are no further questions--
William H. Rehnquist: Thank you, Mr. Sharp. Mr. Kneedler.
Edwin S. Kneedler: Thank you, Mr. Chief Justice, and may it please the Court: The payments made by Boeing to the individual Petitioners in this case go to the very core of the purposes underlying the prohibition in Section 209 against the private supplementation of the salaries of federal employees. Those purposes are... it is not just an appearance statute as Mr. Sharp said, the statute defines the existence of dual compensation as a conflict of interest, and it establishes a prophylactic prohibition against the temptations that might arise from the receipt of compensation. As--
William H. Rehnquist: Mr. Kneedler, although this was a civil case, I guess it is based on a criminal statute. Is the... is the statute to be construed the same way as if it were a criminal proceeding?
Edwin S. Kneedler: --The statute itself, yes.
William H. Rehnquist: Yes.
Edwin S. Kneedler: In terms of its scope, yes.
William H. Rehnquist: So, presumably the rule of lenity would have some application?
Edwin S. Kneedler: Yes, in terms of construing the scope, in terms of the showing of intent required, we don't think that that would be... that that would be necessary. But in terms of, for example, the scope of the coverage of the statute to pre-employment payments, yes, we believe that it would.
Byron R. White: Mr. Kneedler, is... is it correct, as Mr. Lacovara said, that you concede that the two paragraphs of 209(a) are coextensive? That is to say that no one can be liable for making the payment under the second paragraph... put it the other way. No one can be liable for receiving the payment under the first paragraph unless the person making the payment would also be liable under the second paragraph.
Edwin S. Kneedler: Yes. But the interpretation of the first paragraph... the first paragraph is the... is the essential definition of the... of the conduct being covered and informs the interpretation of the second.
Antonin Scalia: I understand that.
Edwin S. Kneedler: I think Mr. Lacovara had it backwards in terms of which, which provision of the statute you look to first.
Antonin Scalia: Well, but the first... the first is at least ambiguous, and the second doesn't seem to be ambiguous, because it says whoever pays or makes any contribution to or in any way supplements the salary of any such officer or employee.
Edwin S. Kneedler: Right, but it... it... there are several aspects of that that we think are significant. One is, it says in any way supplements, which suggests an intent to establish an all encompassing prohibition.
Antonin Scalia: Fine.
Edwin S. Kneedler: And it's referring to, it's referring to someone who, who is/was an employee. But in terms of the purpose of the payment, all that is required is it in any way supplement the salary of an employee. And the first... the first paragraph is written in all-encompassing terms with no exceptions at all. It says whoever; it doesn't say whoever, as the predecessor did, whoever being a government official or employee. It says whoever receives any salary or any supplementation of salary. Both the all-encompassing term whoever and the all-encompassing term any suggests an intent to be all encompassing. And in fact, with respect to the precise issue here, payments received from prior employers, it is significant that the second subsection of Section 209, 209(b), specifically provides for the receipt of certain payments from prior employers, permitting continued participation and severance and other employee benefit plans while the person's in government. So, just looking at the text of Section 209, it seems to us that there is no exclusion for lump sum payments. It says supplementations in any way. And this is consistent with the purposes of Section 209, which is to prevent the divided loyalty. If a person receives, just as... if a person receives a bribe before he goes into government service, the assumption would be that that bribe might continue to influence his performance while he is in government.
Antonin Scalia: But Congress, nonetheless, felt it necessary in the sections dealing with bribery to say explicitly that it covered payments made before you were actually in service.
Edwin S. Kneedler: Well--
Antonin Scalia: It says it, very explicitly. Why doesn't it say it explicitly here?
Edwin S. Kneedler: --Because it is unnecessary to do so, because the... because the language--
Antonin Scalia: You think it is that clear?
Edwin S. Kneedler: --Pardon me?
Antonin Scalia: The language is that clear.
Edwin S. Kneedler: It seems to me it is all encompassing. Whoever... I mean, it seems to me--
Sandra Day O'Connor: Well, the legislative history of the change, though, does not reflect that they intended to broaden the scope, does it?
Edwin S. Kneedler: --Well, I have several responses to that, Justice O'Connor. First of all, as we point out at pages 26 to 27 of our brief, the Justice Department had in fact taken the position before the amendment of the statute in 1962 and the provision in the memo quoted in the Roswell Perkins Law Review article, that the... that the statute did apply to severance payments made prior to the entry onto government... government service. And the reason for that is understandable. If you look at the... turn your attention, respectfully, to page 2(a) of the appendix to our brief, where the prior statute is reproduced. And the second paragraph... the first paragraph of Section 1914 did contain the phrase, after the word whoever, saying being a government official or employee. The second paragraph, however, had no such limitation. It says or in any way supplements the salary of a government employee. So... and one of the problems with the statute as it read prior to the 1962 amendments was there was an absence of correlation between the first and second paragraphs. And so there was substantial support for the proposition that the... that the statute, particularly the second paragraph, even prior to the passage of 1962, covered such payments, and in fact the report of the Association of the Bar of the City of New York, which was one of the two studies that gave rise to the 1962 amendment, specifically noted this ambiguity but said the statute should be clarified to make sure that it covers payments whenever received.
Sandra Day O'Connor: Well, Mr. Kneedler, this is a criminal statute. Do you think that the contours of the civil recovery are defined precisely by the terms of this statute?
Edwin S. Kneedler: I'm sorry.
Sandra Day O'Connor: Just because there is a criminal statute, does that automatically give the government the right to a civil damages action for its violation?
Edwin S. Kneedler: Well, as Mr. Lacovara conceded, it is well established that the government has a... has a cause of action to recover payments made to its employees in violation of fiduciary duties.
Sandra Day O'Connor: Right, but that, that common law cause of action presumably would encompass whether there's disclosure, whether there were secret profits taken, or something of that sort.
Edwin S. Kneedler: No, I think the cause of action would extend to violations of the fiduciary duty, however that fiduciary duty is defined. This statute defines the fiduciary duty with respect to the receipt of payments for government employment that contains no limitation that the... that the profits be secret.
William H. Rehnquist: How do you know it is a fiduciary duty that the statute defines, or... ordinarily an employee does not have a fiduciary duty to his employer, does he, just in the normal course of events?
Edwin S. Kneedler: Well, or a principal agency relationship. But, defining... defining a relationship of an agent to his principal as a fiduciary in this sense, and--
William H. Rehnquist: Well, why... you know, when you say there is a violation of a fiduciary duty that suggests some extraordinarily high duty, to me, that you don't find among ordinary relationships.
Edwin S. Kneedler: --Well--
William H. Rehnquist: Why is this a fiduciary duty?
Edwin S. Kneedler: --Well, the specific fiduciary duty at issue here is the duty of undivided loyalty to the employer, which is a fiduciary duty. There may be aspects of the performance of the job that are ministerial, but with respect to the basic demand of loyalty that an employer has a right to insist upon from his employees--
William H. Rehnquist: And can't... well then, he can insist upon that without regard to statute? Every employer can insist upon that as a fiduciary obligation from every employee?
Edwin S. Kneedler: --Well, as I say, the contours of the employer/employee relationship would be defined by whatever contract or whatever statute defines that relationship. Here we had a statute that precisely defines the scope of the relationship. And the common law--
William H. Rehnquist: Well, what is the--
Edwin S. Kneedler: --would enforce the contract between the parties.
William H. Rehnquist: --Where does it define the scope of the relationship?
Edwin S. Kneedler: Well, it... specifically, Section 209 says that a person, an employee or... a person cannot receive any compensation, any supplementation of his salary for his services as a government employee.
William H. Rehnquist: But how does that define the relationship of employer to employee?
Edwin S. Kneedler: It defines the duty of loyalty that the employee... that the agent owes to the principal.
William H. Rehnquist: Well, it is a prophylactic rule to prevent disloyalty. It really doesn't define the loyalty. In any event, you don't claim that there is a cause of action under this statute?
Edwin S. Kneedler: No, we say that there is... well, the statute doesn't expressly provide a civil cause of action. But it is well established that the Attorney General may bring a suit on behalf of the United States to protect the rights of the United States in contracts and in employment relationships and its property.
Byron R. White: Well, why... so it is a civil cause of action under the common law?
Edwin S. Kneedler: To enforce a... a duty defined or a prohibition defined by this statute. So it... the cause of action could be characterized as a common law--
Byron R. White: Then why do you say the... why do you say the disclosure element of the common law doesn't apply here?
Edwin S. Kneedler: --Because the... the particular duty being enforced here is defined by the statute, and the statute does not make the secrecy of the payments an element of the... of the prohibition. Just as, in the Mississippi Valley case, which dealt with a conflict of interest on the part of a government employee who had outside financial interests, the argument there was made, in fact, that the superior's knowledge of the fact that he had this outside financial interest eliminated any conflict, and that the contract was therefore enforceable. And this Court said no, the statute contains no provision for waiver.
Byron R. White: And you say because it doesn't say it, disclosure doesn't... won't help any.
Edwin S. Kneedler: That is exactly right. The statute contains no provision for waiver.
Byron R. White: How about the common law action you bring, except for the statute, you say disclosure would have cured the common law--
Edwin S. Kneedler: Well, I think that isn't clear. And in fact, in the Carter case--
Byron R. White: --Well, suppose it was.
Edwin S. Kneedler: --Well, I think--
Byron R. White: I would think... I would think the statute ought to say that disclosure won't cure this crime.
Edwin S. Kneedler: --Well, there is... in essence it does say that because there is no exception for situations in which the... in which the employee has disclosed the matter to the government and gets a waiver. And in fact the pertinent disclosure regulation that we cite in our brief, promulgated by the Office of Government Ethics, says that nothing in the disclosure program, either the regulations or the Ethics in Government Act, excuses an employee from complying with applicable statutes. So this waiver argument, or this disclosure argument, is inconsistent not only with Section 209, but with the very premises of the financial disclosure program.
William H. Rehnquist: But you are tacking a common law cause of action onto Section 209, and if the common law cause of action traditionally has required non-disclosure in order... as an element, it did... really the shoe is on the other foot, isn't it?
Edwin S. Kneedler: No, I think not. And let me explain again why I think that is not so. In a traditional suit of common law, if an employer brings a suit against his employee, he would be bringing a suit to enforce whatever contractual or other relationship there was between the employer and the employee, according to the terms of that contract. That's exactly what we are saying here. This statute, Section 209, is part of the statutes, the body of statutes, that define the relationship between one who is coming to be employed for the United States and the United States. It is an element of that contractual relationship which, like an element of a contractual relationship between private parties, the government has a right to enforce.
Antonin Scalia: It is not a contractual relationship though. There is a lot of law to that effect, and it seems to me, and this sort of gets back to what the Chief Justice was suggesting, Mr. Kneedler, it seems to me, are you really arguing that this has anything to do with the old common law cases dealing with fiduciary obligations? Because I don't think this statute reflects a fiduciary obligation. It goes well beyond fiduciary obligations to enact a prophylactic rule. You're essentially arguing that any federal statute that forbids an act by a federal employee brings along with it a cause of action by the government if that prohibition is violated. So, if it was a statute that no federal employee shall get his hair cut, you would be able to sue the barber that gave him a hair cut for the money that he paid the barber.
Edwin S. Kneedler: Well, it seems to me our submission here is a... is a lot narrower than that, and that is--
Antonin Scalia: Well, why is it? Why?
Edwin S. Kneedler: --Well, it's well accepted even in common law that when an agent receives money from a third party for the performance of his duties to the principal, he has a duty to account to the principal for the profits that he has received. That is just a straightforward principle of agency, as well as restitutionary law, that he... because he is performing that... those services for the principal, not the third party who pays him, he has a duty to account to the principal for those funds. And that is essentially the nature of this cause of action against the individuals, we're just asking the individuals to disgorge the profits that they improperly received from Boeing for the performance of their federal duties. And that is not an open-ended cause of action. It is one firmly rooted in the... in the common law, and 209 in that sense is an overlay on it--
Antonin Scalia: So you assert that there is a... that a private employer, let's assume Boeing found out that somebody was leaving Boeing to go to another private employer, presumably not in aerospace, or they wouldn't make the payment, but they say, you know, this is a good job he is going to, but it is not paying very much. He has been a good employee, let's give him a good, high severance payment in light of the low salary he will be getting for this private company. You say that private company would have a cause of action at common law?
Edwin S. Kneedler: --No. Only if the... only if the second employer had a prohibition against the receipt of the compensation. Presume... no, in the example you are citing, yes, he... presumably he would, because--
Antonin Scalia: He would?
Edwin S. Kneedler: --he would have been compensated for the... but whether or not the general common law would say that--
Antonin Scalia: I think that is the position you are driven to. You are really driven to say that is I give you a high severance payment because you are going to take a low-paying job with another private employer, that private employer can sue me and can sue the person that I make the payment for.
Edwin S. Kneedler: --Well, in the example you are citing, if the second employer had a specific provision in its... in its personnel manual or its contract--
Antonin Scalia: No, you say, you said this is common law. You said it is the common law principle of fiduciary obligation.
Edwin S. Kneedler: --But what I am saying, the common law allows parties to enforce the agreement or the rules that govern the relationship between themselves. It's not just a free floating body of law, but also if there are particular provisions in the contractual relationship or in the appointment relationship of federal employees that define the duties, that go beyond the common law or that give particular form to the common law, then the parties have a right to enforce the legal duties that arise between them. Not just those defined by common law, but as they are supplemented by contract or here, by statute with respect to the relationship between government employees.
Sandra Day O'Connor: Mr. Kneedler, do you think the statute would be violated by programs such as some universities have of, for giving student loan payments to students who go into government service?
Edwin S. Kneedler: If it was specifically tied to government service, yes, we do. If there was... if it was tied to some somewhat broader range of public service that included--
Sandra Day O'Connor: Government service and for private nonprofit organizations.
Edwin S. Kneedler: --At some point--
Sandra Day O'Connor: Would that save it?
Edwin S. Kneedler: --At some point it would be sufficiently broad, and we're not in a position at this point to say how broad. But at some point it would be sufficiently broad so that it was not focusing on government employment in the specific sense that we think it--
Sandra Day O'Connor: What about a MacArthur Foundation grant to someone who has performed extraordinary service in government?
Edwin S. Kneedler: --Well, the Justice Department has taken the position on a number of occasions that awards made to government employees are not covered by Section 209.
Sandra Day O'Connor: It certainly would be a supplement, though, under your--
Edwin S. Kneedler: It would be, but it--
Sandra Day O'Connor: --understanding of the statute.
Edwin S. Kneedler: --Right, but I think it, I think it goes into the, it is tied into the phrase "as compensation for". There has to be some sense, as Justice Scalia was saying, that the statute at least cover the situations where the government employment is the consideration for the making of the payment, the performance of the government services.
Antonin Scalia: Oh yes, at least, but is that required?
Edwin S. Kneedler: It may not be required in all situations, I mean, but in this situation... in this case the "as compensation for", it is clear that the federal employment was the--
Antonin Scalia: The quid pro quo? No, it isn't clear at all.
Edwin S. Kneedler: --Well, it's clear... it's clear that these payments were made only because the employees planned to go into government service.
Antonin Scalia: Well, and when I get an award of $10,000 for having been a wonderful whatever it is for the federal government, after I have left federal government service, it's also clear that the reason they are giving me the $10,000 is the work I did for the government. It is just as clear. And yet you say the Justice Department takes the position that that is not covered.
Edwin S. Kneedler: Right. And it... the language--
Antonin Scalia: How can you reconcile the two? I don't understand it.
Edwin S. Kneedler: --Well, I think the language may be tied to the "as compensation for"--
Antonin Scalia: What if they give me the $10,000 in a lump sum before I go into the government. They say Scalia, we know you are going to do a great job for the government. Here is a $10,000 award in advance.
Edwin S. Kneedler: --Well, I think that would be... that would be considerably more difficult, because it is not... it is not for past accomplishment. It is not in recognition of a past accomplishment. I think it... that would raise the suggestion that the going into the federal government to perform in a particular way--
Antonin Scalia: It seems to me compensation is compensation, whether it is given before or whether it is given afterwards--
Edwin S. Kneedler: --That that's--
Antonin Scalia: --unless, unless you import a requirement of consideration, of quid pro quo. I'll give you the money if you do the work. Now, if you are willing to import that, I think you have a lot more to prove in this case.
Edwin S. Kneedler: --Well--
William J. Brennan, Jr.: Well, Mr. Kneedler, what about... don't many of the government agencies give bonuses to particularly good employees at the end of the year?
Edwin S. Kneedler: --Right. What the statute does... only reaches payments from a source other than the United States. So when the government itself pays the bonuses, the statute does not reach it.
William J. Brennan, Jr.: It does not apply.
Edwin S. Kneedler: No. If I could, I would like to make one last point on the disclosure before I go back to the statutory language, and that is that even if... even if the common law rule overrode the statute or the statute did not specifically govern here, there was no disclosure here of the nature of these payments sufficient to constitute the kind of disclosure that is talked about under those cases. There was nothing in the disclosure to, either on the disclosure forms or in the conversations with individual officials at the Defense Department, to suggest that these were payments made only because the employees were going into government service or that they were calculated in a way that were validly designed to supplement the government... the employee's services. So there was nothing on the face of these forms to alert the persons reviewing them that they even presented a conflict of interest situation that the government could in turn waive or regard as being an affirmative disclosure. So there is just not the factual basis in this case for the argument that is being made.
William H. Rehnquist: It is crucial to the government's case here, isn't it, that the structure of the Boeing severance payment was based on future hardship rather than past performance?
Edwin S. Kneedler: It is crucial that it was not based on past performance. There are two factors that we rely on in particular here. One is that it was paid only because they were going to... into the government service, and in fact, as we point out at page 40 of our brief, only because they were going to positions that were of interest to Boeing. But then also, that the payments were calculated on... to essentially supplement the salaries by making up the salary differential. That makes it particularly clear that they... that the payments were for future service rather than past.
Anthony M. Kennedy: If the employees had changed their mind and not gone to work for the government, I assume Boeing couldn't receive this back?
Edwin S. Kneedler: That was the understanding that the district court found, yes. But as Mr. Little, the vice president at Boeing, testified in his deposition, the... Boeing had no reason to doubt that these employees were going to go into the government when they left. Now, it may be that, for reasons beyond the recipient's control, the government wouldn't appoint him. But as far as Boeing was concerned it was part of the deal, I think, that these employees would follow through with their commitment to accept the government jobs as they were offered.
John Paul Stevens: Yes, but that wouldn't be... that wouldn't be sufficient to make out a violation of the statute if they never went to work for the government, would it?
Edwin S. Kneedler: That, that... I think it would, if... or at least on an attempt theory. But if the payments are made for the purpose of supplementing the salary of someone when he goes to work for the government, yes. In this case, though--
John Paul Stevens: And if he never... if they never went to work for the government, you say the statute would have been violated?
Edwin S. Kneedler: --Yes, in the same way that paying a bribe to somebody in anticipation that he is going to go work for the government. If he doesn't--
John Paul Stevens: Well, because the statute reads on that. But you think that this, they would have... that is very interesting, I didn't realize you went that far. [Laughter]
Edwin S. Kneedler: --But there is no need to reach that question here, because in fact--
John Paul Stevens: Well, there may be, because if the statute wasn't violated when they paid them, because of the possibility they might not go to work for the government, that conceivably would be a reason for your losing the case.
Edwin S. Kneedler: --Well, if there was a condition subsequent, such as you are suggesting, that they actually have to become employed, then that was satisfied here.
John Paul Stevens: No, it is not a condition subsequent. It is, the fact is they were not employees at the time they received the payments.
Edwin S. Kneedler: That is correct, but--
John Paul Stevens: And if they never became employees, it is a little difficult for me to-- --I didn't know that it was clear that these employees had agreed to go to work for the government, if that job was offered.
Edwin S. Kneedler: --They had... they had planned to, and they had agreed--
Byron R. White: That isn't what I asked. Had they agreed to--
Edwin S. Kneedler: --They hadn't entered into a formal agreement, but they... but the... as we cite in the footnote at--
Byron R. White: --Well, formally or otherwise, they hadn't agreed, they hadn't agreed to it.
Edwin S. Kneedler: --Well, they left... I think it's a, the only fair reading of the record that both sides anticipated that--
Byron R. White: Well, if one of them had gotten run over by a truck after this so-called understanding, do you think Boeing could have recovered the money?
Edwin S. Kneedler: --No, what I... what I said, if something happened for reasons beyond their control that they didn't accept it, but I think the understanding was that when they left, the plan was they were going to work for Boeing unless some other--
Byron R. White: So you figure if one of them had just said well, I've decided, I've got a better offer from some other company, they could have recovered the money?
Edwin S. Kneedler: --Perhaps not.
Byron R. White: Yes or no?
Edwin S. Kneedler: According... the district court said it was theirs to keep. All I am saying--
Anthony M. Kennedy: But under your view, the government could... could collect the money, couldn't it, Mr. Kneedler?
Edwin S. Kneedler: --Uh--
Anthony M. Kennedy: Boeing couldn't, but the government certainly could under your view.
Edwin S. Kneedler: --It... it's possible that the government could, yes.
Anthony M. Kennedy: Well, it's not... that is critical to your interpretation of the statute.
Edwin S. Kneedler: Well, in this, yes. In terms of the criminal violation, for purposes of the civil recovery, all that's necessary for the court to say is that at least at the time they became federal employees they had a duty to account to the government for any payments they received for their government service prior to that time. And that's all that is necessary to say here. They all... all five in fact did quickly become government employees after they received these payments.
Byron R. White: Well, could... I take it the person who changes his mind, goes to work for the other company, he could be convicted under this statute, and so could his employer who paid him the money?
Edwin S. Kneedler: Yes.
John Paul Stevens: Mr. Kneedler, what if, instead of paying severance payments, Boeing had a policy of paying bonuses upon employment after government service, and paid precisely the same amounts... I don't know whether these people did go back to Boeing, but assume they had been totally severed, worked for the government for three or four years, then went to work for Boeing and received advance payments that more or less supplemented for the sacrifice they had made in the prior three years.
Edwin S. Kneedler: It would be the same result, and for good reason. If a person, while in government service, has reason to anticipate that he is going to be rewarded in the same way--
John Paul Stevens: So it applies to... if a law firm hires a person out of government service and pays a higher signing bonus, in effect, to compensate for the decreased earnings while in government service, that would violate this statute, if it is an executive employee.
Edwin S. Kneedler: --If it... again it would depend on the purpose. If the bonus is paid because of the presumption of the increased experience, which I think may be the basis for the signing bonuses for people coming from the government, that would be all right. But if it was... if it was explicitly intended--
John Paul Stevens: The presumption of increased experience... in other words, would Boeing be safe if they had elaborate explanation that the purpose of their policy was because they thought these people would be back, likely come back, and they would have increased experience when they got back, and therefore be more valuable to them. Would that be permissible?
Edwin S. Kneedler: --Excuse me, conceivably, yes, it would. But, but at that point it gets very difficult to separate what--
John Paul Stevens: Well, if that is conceivable and that is permissible, then how do we know these findings are clearly erroneous?
Edwin S. Kneedler: --Well, if they--
John Paul Stevens: On intent.
Edwin S. Kneedler: --If they are being paid... if they are being paid for... if they are essentially being paid for their government work, as it seems to me these people were being paid to accept their government job, that's sufficient. But if they are being paid because, after they leave, because of the experience they will have acquired there, that is forward looking, when they go back to the former employer. And the statute, if you are paying somebody for what he is worth, wherever he gained that experience, the statute doesn't reach that. I would like to go... to turn to the legislative history on the--
Anthony M. Kennedy: Mr. Kneedler, if you could answer one short question. I think there is a short answer, but it escapes me at the moment. Can the government, or does the government ever rely on state law? Suppose there was a law in the state of Washington that protected you in this instance. Could you just sue under the Washington law? Or is the argument that since there is no federal law, the probable intent is that you not recover?
Edwin S. Kneedler: --I would think that ordinarily we would... we would... because the relationship between prospective employees in the federal government is one of federal law, that we would ordinarily be limited to federal law, although conceivably federal law might borrow a state statute or principle on a particular case. But here we are not relying on a particular aspect of state law. I think it... with respect to the argument on the legislative history, I think it is critical to point out several important defects in what the Petitioners rely on in the legislative history in 1962. First of all, the phrase being a government official or employee in the first paragraph of Section, then 1914, was specifically dropped from the statute at that point. And Congress had two purposes... Congress did two things. It both defined that phrase more precisely to be limited to executive employees only, which is the only purpose the Petitioners mentioned, but they also did something else. They deleted it entirely and put the reference to the types of employees further down in the first paragraph, referring only to the time of the performance of the services. They did not leave the reference to government officials in there twice. They deleted it the first time it appeared. That is, by the way, precisely what Congress did when it modified the former Section 281, now Section <two oh three> [= 203], which bars the receipt of compensation for services performed for someone outside the government while you are a government employee. Congress also deleted the phrase "being a government official" right at the same place in the statute and moved down further in the statute the specification of the... of the precise categories of employees that are covered. And as the legislative history shows, that was done for the specific purpose, and the staff report that we cite in our brief says this, it was done for the specific purpose of making clear that the time of the receipt of the payment did not matter. That it was... at the time that the services were performed.
Antonin Scalia: Was that done at the same time?
Edwin S. Kneedler: It was done at the same time in 1962, and the precise phrase was dropped from both places. Mr. Lacovara says that the, relies on the phrase 203 and the fact that Section 203 covers members of Congress elect. The fact is that the predecessor statute had precisely the same coverage. It contained the word, and this is important, it contained the phrase "to be rendered", the very phrase he relies on, and it also covered members of Congress, even before they qualified, or after they have qualified for office, even if they haven't taken it. So it was not the phrase "to be rendered" that covered employees, persons before they became employees. It was the deletion of the same phrase that was deleted here that resulted in the coverage of persons before they enter into government. And in fact at page 61 of the staff report, which again formed the basis for the statute, the staff report states that this language dealing with government officials or employees was modified to conform its scope to Section 281 as the staff report proposed to revise it, which would have covered all three branches but also would have revised it to apply only when, in that case, when the services are performed, not when the payments are received.
Edwin S. Kneedler: [inaudible]
Edwin S. Kneedler: The staff report of the judiciary subcommittee, which the legislative history shows was the principal basis on which the revision was... the 1962 revision was based.
Antonin Scalia: Mr. Kneedler, could you provide us with a citation to the Justice Department position that says that a government employee, after leaving government employment, can receive an award, or even during government employment--
Edwin S. Kneedler: I will get the opinions.
Antonin Scalia: --based upon his government service.
Edwin S. Kneedler: There are Justice Department opinions, and I will furnish them to the Court.
Antonin Scalia: Thank you.
Edwin S. Kneedler: Also, I should point out that the consistent position of the Office of Legal Counsel and of the Office of Government Ethics has been that the statute applies to payments made prior to the time that a person enters into government service, which, after all, is consistent with the position that the Justice Department had taken under the--
Byron R. White: When was that, when was that position first taken?
Edwin S. Kneedler: --The... in 1974 in the... are the first times with respect to the opinions that we cited in the Appendix to our brief. But it goes back to 1961 in the memorandum under the prior statute.
William H. Rehnquist: Thank you, Mr. Kneedler. The case is submitted.