Allenberg Cotton Company, Inc. v. Pittman – Oral Argument – October 17, 1974

Media for Allenberg Cotton Company, Inc. v. Pittman

Audio Transcription for Opinion Announcement – November 19, 1974 in Allenberg Cotton Company, Inc. v. Pittman

del

Warren E. Burger:

We’ll hear arguments next in Allenberg Cotton Company against Pittman.

Mr. McQuiston, you may proceed whenever you’re ready.

John McQuiston, II:

Thank you Your Honor.

Mr. Chief Justice and may it please the Court.

What this case involves is whether the State of Mississippi can require foreign corporations to obtain a license to buy cotton in Mississippi and ship it from the state.

My client, the Allenberg Cotton Company, buys cotton in the State of Mississippi without having any employees in the state, without an office in the state, without owning any warehouses in the state, and without even paying for the cotton in the state.

And he buys that cotton for the purpose of shipping every bale of cotton that he buys out of the State of Mississippi.

Allenberg made the contract that’s involved here following an industry pattern which has been established over the last 100 or more years, like almost every other cotton merchant in the sale.

Allenberg bids for the cotton over the telephone in a prior year, they did this over the telegraph and it submits those bids to local cotton brokers all over the south and makes contracts in that manner without qualification to do business in the various states where bids are submitted and contracts are made.

This pattern of activity follows a pattern which has been protected under the Commerce Clause, particularly in the agriculture merchandizing industry as shown in the decisions of Dahnke-Walker Milling Company, Lemke versus Farmers Grain Company and Shafer versus Farmers Grain Company.

All of which established the rule that making purchases to back commodities for shipment out of a state is an activity which is exempted from state licensing and qualification requirements by the Commerce Clause.

This principle was articulated recently by this Court in the Eli Lilly decision.

In that decision, all men of the justices recognized the principle that Commerce Clause guarantees free access to all markets in the United States and that as long as a foreign corporation limits it since activities in a state to those essential activities which a necessary to transact business in interstate commerce, that corporation should be free from local licensing of qualification requirements.

William O. Douglas:

What case is that?

John McQuiston, II:

The Eli Lilly decision Mr. Justice Douglas.

William O. Douglas:

Eli Louis?

John McQuiston, II:

Lilly.

William O. Douglas:

Lilly.

John McQuiston, II:

I’m sorry I have a very bad cold.

William O. Douglas:

Do you cite it in your brief?

John McQuiston, II:

Yes, I do.

The principle we cite it for is the principle that —

William O. Douglas:

Yes I see it, thank you.

John McQuiston, II:

Thank you.

What Allenberg did in this case fits into a very well established industry pattern and in of the pattern of existing law.

In January 1971, Pittman, a substantial Mississippi cotton planter went to a local cotton broker and I asked him to get a certain price for his cotton.

The local cotton broker picked up the phone and telephones the Allenberg Cotton Company in Memphis.

And after some negotiations over the telephone, a contract was entered into it.

As is the costume in the trade, Allenberg immediately might off setting sales of cotton on the New York Cotton Exchange and to its mill customers outside the State of Mississippi.

Potter Stewart:

Whose agent if any by is the broker?

John McQuiston, II:

The broker is really a joint agent.

The broker has a clientele like all of these brokers across the south.

They are the local cotton producers.

They come to him or he may go to them and the broker puts the buyer and sell it together and he’s paid a per bale commission which is added to the price of the cotton.

Sometimes, it comes out of the farmer’s pocket.

Sometimes the commission comes out of the buyer’s pocket that in all cases, it’s added to the price of cotton.

Potter Stewart:

And the title is never in the broker’s name isn’t?

John McQuiston, II:

The title is never in the broker’s name.

Lewis F. Powell, Jr.:

This broker hack it for others also?

John McQuiston, II:

Yes he did in prior years in the particular year involved in this case, he did not buy any cotton for any other company, but we didn’t restrict him.

He was — it was his own choice.

He actually acted as a merchant himself.

He was buying cotton for his own account during that year and acting — it running his own little small cotton merchandizing business.

And on the side, he was contracting cotton for Allenberg.

Potter Stewart:

But he acted for several producers always —

John McQuiston, II:

He acted for a number of different farmers in that year.

Potter Stewart:

But only for you as the buyer in that year?

John McQuiston, II:

Only for us, but that was his own choice.

It was just a coincidence.

Potter Stewart:

He wasn’t — you didn’t have any —

John McQuiston, II:

We have no control of what he did and did not act of the —

Warren E. Burger:

Who paid the commission here?

John McQuiston, II:

In the commission here was added to the invoice price of the cotton and Allenberg paid the full price of the cotton including the broker’s commission.

Warren E. Burger:

You indicated that sometimes it was either divided or —

John McQuiston, II:

Fully —

Farmer abated?

Yes, Your Honor.

In some cases where the farmer invoices his cotton directly to the merchant himself by attaching his negotiable warehouse for seeks to a draft and forwarding in directly to the buyer’s bank, he may receive the cash and have to go to the broker and pay him his commission.

In this case, the transaction was handled through the broker’s office and so what the broker did was he advance his own money to the farmer and then attached the negotiable warehouse receipts to a draft and drew on Allenberg’s bank in Memphis, and that draft included his commission.

Under this contract that Pittman and Allenberg made, Pittman was obligated to follow the normal industry practice of warehousing his cotton after it was harvested.

William H. Rehnquist:

Mr. McQuiston, before you get to the harvest point, what control did the contract give Allenberg over Pittman’s course of cotton collaboration?

John McQuiston, II:

The contract specifies that he would follow normal good forming methods.

It’s a contractual farmers’ that he didn’t — if he didn’t leave up to, he would be subject to breach of contract suit.

The only actual controlled that Allenberg had over, but they had no control over his farming methods except insofar as he was obligated to use normal good farming methods.

If the ginning process, some farmers from time to time have taken wet cotton and ginned it at a two high, a temperature went ruin the cotton, and so the contract specifies that the buyer will have the option to control the ginning temperature.

William H. Rehnquist:

Would Allenberg either by contractor by Mississippi law have a lean at any point on Pittman’s land or —

John McQuiston, II:

On the going crop — no Your Honor.

Potter Stewart:

When was the contract made?

John McQuiston, II:

The contract was made in January before Pittman ever planted a single seed.

Potter Stewart:

And what is the cotton you seized in that that part of this?

John McQuiston, II:

The planning is the spring in April.

Potter Stewart:

April?

John McQuiston, II:

And then the harvest would be September, October anywhere from — it begins at the point depending on the weather and end as late of March — I mean sorry, as late as December, January.

If weather is wet last year, we didn’t get cotton out of the fields until March.

Potter Stewart:

And the contract was — for what so many bales or —

John McQuiston, II:

It was for all —

Potter Stewart:

For the entire product —

John McQuiston, II:

— they produced on a 700 acres of land.

Potter Stewart:

Whatever was produced —

John McQuiston, II:

Whatever was produced.

Potter Stewart:

At so much per bale, was that it?

John McQuiston, II:

At so much depending on the quality of the cotton.

They’re had so much a bale.

Warren E. Burger:

There were several grades, were there not?

John McQuiston, II:

There were several grades.

Now, the — when the — after the cotton is put in the warehouse, a sample is cut from the cottons and sent to the Department of Agriculture.

The US Department of Agriculture grades the cotton and since they are independent, that’s used to determine how much the farmers paid for his cotton.

Another sample is cut from the bale of cotton and is mailed by the farmer to Memphis.

Now, once the cotton merchant has the sample in Memphis and the negotiable warehouse receipt, he uses those samples to make up shipping lots.

Now, the ultimate consumer of cotton is cotton mills and they use it in — traditionally 100-bale lots.

John McQuiston, II:

Each bale in a 100-bale lot has to match that another 99 bales in grade, staple and color.

Otherwise, it’s just not useable.

Now, the cotton does not come out of the fields in 100-bale even-running lots.

One of the primary functions of the merchant performs is grouping the cotton together in the even-running lots.

Warren E. Burger:

You speak of the merchant now who —

John McQuiston, II:

The cotton merchant in Memphis, Allenberg.

Warren E. Burger:

Memphis.

John McQuiston, II:

It perceives the samples in Memphis, uses them to make up 100-bale shipping lots of even-running cottons.

It’s all the same.

And at that point and not before then, is anybody in the industry able to determine where that cotton is to be going?

It can’t be taken from the fields and put on railroad cars.

It has to go into the warehouse, a sample has to be cut, group with another like bales, and then shipping orders issued.

The shipping orders are issued from Memphis and they’re a long list of the bales by number.

Each bale is treated individually and the warehouseman takes the list and mechanically pulls the bales out and puts them on the railroad car down from North Carolina to port of New Orleans web.

The point of that is that the cotton cannot move out of the State of Mississippi until it’s been warehoused and classified in the manner that’s — that Allenberg does in this case.

Now on the existing law, the activities that Allenberg performed in this case who making this contract as a commodities merchant are recognized as essential and integral parts of the National Commodities Merchandising System and of interstate commerce.

The Commodities Exchange Act, 7 U.S.C Section 3 states that a transaction in respect to cotton shall be considered to be an interstate commerce, if the transaction is a part of the current of commerce usual in the commodity’s trade including all cases where the purchase is for shipment out of the state.

The Commodities Exchange Act follows the definition of commerce, interstate commerce which was established in the leading agriculture marketing cases of Dahnke-Walker Milling Company, Shafer versus Farmers Grain, Lemke versus Farmers Grain.

This case that’s before the Court today is stronger than those cases.

In Shafer and Lemke, the Supreme Court held that purchases to buy wheat were made in interstate commerce and not subject to local licensing of qualification requirements, eventhough the buyers in those cases were located in the state had employees in the state, offices in the state, paid for the wheat and the state received delivery of the wheat in the state, and eventhough in local grain elevators in the state.

And in the Dahnke case, the contract between the selling farmer and wheat purchaser in that case was held to be an interstate commerce, eventhough the farmer did not know he was making a contract within out of state company.

And in here, Mr. Pittman knew from the beginning that he was making a contract with Allenberg Cotton Company, a Tennessee Corporation.

William H. Rehnquist:

In Dahnke, the sale was FOB, wasn’t it?

John McQuiston, II:

The sale was FOB course in Dahnke, but the sale in the Shafer and Lemke cases was delivery at the grain elevators which served the same function in the wheat industry that the cotton warehouse is doing in car industry.

Allenberg’s purchased — well, the facts of this case are also strong within this wheat cases because in the wheat cases, they said it’s approximately 90% of the wheat left the State of South Dakota.

The 10% was use locally in Mississippi.

Every bale of cotton or virtually ever bale that’s produced in the state is shipped from the state.

There is just no significant amount of milling in the State of Mississippi.

Cotton is one of the nation’s most important exports.

In 1973, there was seven million bales of cotton exported by companies just like my client.

John McQuiston, II:

Out of a total US cotton crop of 12 millions bales, that 12 million bales in 1973 of that 12 million bales, 1.8 million bales were raised in Mississippi alone.

And in 1973, the time this decision was rendered by the Supreme Court of Mississippi, one million bales of cotton in the State of Mississippi were under forward contracts identical to the one before the Court in this case.

For this reason, the decision on the Mississippi Supreme Court in this case hit our industry like a bombshell.

In 1973, the United States Department of Agriculture had mounted an intensive campaign to convince everybody in the cotton industry to enter into forward contracts.

That is contracts that are made in the early part of the year for the farmer producers of plants this cotton.

This campaign was so successful in 1973.

The three out of every four bales of cotton raised in the country was subject to contracts like this one in this case.

The decision in this case which held in the middle of the year that a foreign cotton buyer could not enforce his contract in the Mississippi court, literally threatened to ruin our entire industry.

If this decision has stood in just Mississippi alone which it did not, thanks to the innovation of the federal District Courts there.

A large part of our industry would have been destroyed and I believe the entire nation would have suffered.

William H. Rehnquist:

Why would you not have gone ahead and qualify it if the Supreme Court of Mississippi decision have stood?

John McQuiston, II:

We did qualify immediately thereafter, but under the decision below, subsequent qualification does not cure the defects.

You can never sue on a contract made in Mississippi.

William H. Rehnquist:

But your contract — I would think you could sue on contracts made after your qualification in Mississippi?

John McQuiston, II:

Yes we could, but this in 1973 where made before this decision was announced.

William H. Rehnquist:

But I mean as to the future.

I don’t see why would have any grade impact.

Your contracts are annual ones aren’t they?

John McQuiston, II:

Well, it has an impact in this manner Mr. Justice Rehnquist.

Under present Mississippi law with this no cure or statute, there’s a market barrier raised around the boarders of the state.

A cotton company that’s not qualified to do business in the State of Mississippi cannot mail even submit a bid to buy cotton there.

William H. Rehnquist:

But you have qualified?

John McQuiston, II:

We have, yes.

And companies that — large companies of course will qualify and establish themselves in the markets, but they won’t be the free competition.

They won’t — a farmer in Mr. Pittman’s position today can’t pick up the phone and shop his cotton with any cotton merchant in the country.

He’s limited to those who previously qualified to do business from Mississippi.

Byron R. White:

Well, isn’t the burden of qualifying is nothing as vague isn’t it?

John McQuiston, II:

The burden is a — these are small companies Mr. Justice White and they are 500 to a thousand of them and the administrative cost in our industry are very significant factor in determining what areas of competition we operate in.

The essential tools of the cotton merchant are desk and a telephone in a good bank line of credit.

And we —

Byron R. White:

And not a lawyer?

John McQuiston, II:

And not a lawyer.

No, I wouldn’t say that because the Allenberg Cotton Company is a matter of fact is headed by Yale lawyer.

These companies are not qualify —

Byron R. White:

Free traders?

John McQuiston, II:

A free trader, absolutely under the decisions of this Court in the Dahnke-Walker case and Lemke and Shafer.

This administrative cost I know when after this decision, we have to qualify Allenberg in every state.

Byron R. White:

I wonder if what you really worried about was not disqualification, but other burdens that this might fore tend, might threatened.

Did you use like taxation?

John McQuiston, II:

We’re not worried about it at all.

As a matter of fact, I’d be happy to pay whatever Mississippi taxes were due because they’re non-due.

The state of tax —

Byron R. White:

What if the Mississippi designs a tax, put an excise tax on cottons store in Mississippi, in warehouses in Mississippi, even if it’s owned by Allenberg?

John McQuiston, II:

That would be all —

Byron R. White:

You would think they have jurisdiction to do it?

John McQuiston, II:

Yes.

Byron R. White:

But you — so you think the tax cases and the qualification cases are —

John McQuiston, II:

They have to be separated and they always have been for this reason.

Warren E. Burger:

I suppose the economic basis for your response is that Mississippi must remain competitive with the other states on the cotton market?

John McQuiston, II:

Yes, sir.

We supposedly a common market in this country and —

Byron R. White:

But you don’t think storing cotton in a state is intrastate business?

John McQuiston, II:

We don’t store the cotton there Your Honor.

The farmer that places it there —

Byron R. White:

Would you take title to it, it’s in a warehouse in Mississippi.

John McQuiston, II:

That’s exactly right; warehouse —

Byron R. White:

And you get the warehouse receipts and are you saying there’s no — there’s no —

John McQuiston, II:

There’s a small —

Byron R. White:

No substantial period of time that the lapses between that — could be the warehouse receipts to you in the shipment are the same?

John McQuiston, II:

Not in relation to the industry practice.

John McQuiston, II:

It’s a —

Byron R. White:

Well how long?

How long was the cotton stored in Mississippi?

John McQuiston, II:

The cotton crop begins to come in, in September and October, and as soon as those receipts have began to be received by the cotton merchants, it’s moved down if the — in it’s a continuous milling —

Byron R. White:

What’s the average length of time?

What’s the average length of time —

John McQuiston, II:

Well, there’s nothing in the record indicating that.

Byron R. White:

Well, for all we know then, the cotton stored there in your name for quite a while?

John McQuiston, II:

Well, for all that you know, I might replay the cotton losses immediately in an —

Byron R. White:

Well, I know, but do why do we do invalidate state statute on some assumption like that?

John McQuiston, II:

Well, I don’t think this case turns on how long the cotton stays there.

Byron R. White:

Well, that’s what I mean when we get to.

So your answer to my question awhile ago is it wouldn’t make any difference if you stored the cotton in — warehouse the cotton in Mississippi for a long time?

John McQuiston, II:

No, it would not Your Honor because the purchase contract, the making of the purchase contract is the protected activity here.

It’s entering in to this contract.

Byron R. White:

You mean eventhough — eventhough it was contemplated that Allenberg would not take the cotton on the state for a long time, but only when its future’s contracts matured, even if you were planning —

John McQuiston, II:

Even if you made that assumption, I would say that this contract was an interstate commerce when it was —

Byron R. White:

Well, what if you’re wrong on that — how about this case?

John McQuiston, II:

In this case, the cotton was never delivered, so there’s no evidence in the record is to how long it would’ve stay.

Now as industry practice see is that —

Byron R. White:

Well, who gets the benefit of that without knowing, the state or you?

John McQuiston, II:

I believe that we would be — we know from the industry practice as describe in this record that the cotton moves out of the state all during the succeeding weeks after it’s harvested.

It moves out just like the wheat crop did in the Shafer case and the Lemke case.

Byron R. White:

Well those cases, are they when the farmers sold it, put on a common carrier and headed out of the state?

John McQuiston, II:

No, the farmer sold the wheat in Shafer and Lemke to a grain elevator operator who stored it there and then when he made a carload lots and shipped that out afterwards.

In 1973, the price of cotton back unhappy coincidence rose to highest levels since the civil war.

And at the very same time, the decision in this case below was announced which cut across all the existing contracts in our industry and literally faced our industry with bankruptcy.

Disaster was avoided because of the honesty of most cotton farmers in the south and also because of the decisive action of the federal District Courts in Mississippi and Alabama held in the middle of the delivery season that these contracts were made in interstate commerce and they maintain the pre-flow law of cotton out of those states under court order and under injunctions.

Despite the fact that this case is typical of the industry practice and despite the fact that Dahnke-Walker Milling Company case rejects the title passage analyst, Pittman seizes on one aspect of this case and builds his entire argument around it, and that is the fact that title passes to Allenberg, and for short period of time as Mr. Justice White pointed out, we have title to cotton which is located in a compress and warehouse.

Byron R. White:

And would you think it might be subject to a local taxation?

John McQuiston, II:

Which I — I think that’s an open question.

And I think if this Court gets in to decide in qualification cases on the basis of whether or not the goods are taxable, you really open up a Pandora’s box.

Byron R. White:

Or in accordance we put there, it might be subject to service or processing the state?

John McQuiston, II:

Yes sir and that too.

Cotton, as I’ve tried to point out is not fungible and the warehousing step is absolutely essential to buying cotton in the State of Mississippi and shipping it from the state.

Cotton cannot leave the State of Mississippi until it’s gone through this process.

This case raises the question that was post in the Robbins versus Shelby County Taxing District case, and that is if the Commerce Clause guarantees a buyer of cotton access to Mississippi market to make its contracts to back cotton and remove it from the state, and how is the Allenberg Cotton Company to go into the Mississippi market in buy cotton and move it out of the state without qualifying to do business?

Another answer to this argument of the — of appellee is that it proves too much.

The appellee’s argument would mean that cotton buyers and buyers of wheat and other foreign products that are stored for which negotiable warehouse receipts are now freely transferable could not just buy or make a contract to buy any negotiable warehouse receipt in the country.

They would now have to look behind the receipt to determine whether they will qualify to do business in the state where the goods were stored, which would mean that negotiable warehouse receipts would not longer be freely negotiable.

Under the decision below, a very substantial trade barrier has been erected around the State of Mississippi.

No buyer who is qualified to do business in the State of Mississippi could now submit a bid to buy cotton there because if he submitted the bid and made a contract, a one-way contract would be created, which could be enforced against the buyer, but if the farmer’s option but the buyer could not enforce it against the farmer.

Potter Stewart:

What is involved in the registering to do business in Mississippi?

John McQuiston, II:

Filing a number of informational papers about the corporation’s activities and the basic corporate information and some fees and renewing that each year.

Potter Stewart:

It is annually renewed?

John McQuiston, II:

It is annually renewed and this is the thing that gets to be such a burden.

For example, when we qualified Allenberg after the decision in this case in the 17 different states where it shops for cotton, it took us about two months and we had the employee in the counting.

It didn’t take us two months working everyday, but I mean the period spread out over that long in time.

And we had the CT Corporation sending us forms and we have to get an accountant coming in and fill out the forms for us and we got to do that every year.

Now as a result as a practical matter, Allenberg just going to quit doing business in the couple of state where it has a very manner interest because it’s just the administratively too expensive to compete in those states that it has to qualify.

Lewis F. Powell, Jr.:

Is the annual qualification fee at Mississippi, a flat fee or it’s graduated in accordance with business or —

John McQuiston, II:

I’m not sure Mr. Justice Powell.

I’m sorry, I can’t answer that.

And of course in the various states, would — there are upgraded fee.

And of course, we’re talking here not just about qualifying in Mississippi, but in every state in the country.

In other industries that have to qualify — they would have to qualify at this decision we made at the law of the land, we’d have every variation in the 50 states.

Lewis F. Powell, Jr.:

This can’t say in technique of doing business obtains in all 17 in these states with forward contracts and warehousing in the states?

John McQuiston, II:

Yes Your Honor.

It’s identical for the entire industry.

Potter Stewart:

Not every state however —

John McQuiston, II:

Not every state has this “no cure statute.”

Potter Stewart:

— that has this no cure of sanction?

John McQuiston, II:

The no cure sanction is what is got our industry on the edge because what is happened is when these contracts were made in 1973, they were immediate hedged by off setting sales in the New York Cotton Exchange.

Those hedges are maintained with margin accounts in the New York Cotton Exchange that a bank financed.

Everything in this industry is financed in about a 90% basis.

Now, the whole principal of the National Agricultural Marketing System is that the hedge will be valid, the sale on the cotton exchange and the purchase in the field from the farmer.

In the Mississippi Supreme Court, all of a sudden told us the purchase contracts were no longer valid, and we’re looking at huge loses on the New York Cotton Exchange that loses what would have destroyed the industry, a large part of it and cost substantial loses to the banks that financed these purchases.

And —

Potter Stewart:

Excuse me.

John McQuiston, II:

Excuse me.

Potter Stewart:

I just been little untutored and unsophisticated in this business, I’m curious.

Maybe, I won’t be able to understand it at all, even after you explain it.

But as soon as Allenberg signed this contract to purchase cotton from Pittman —

John McQuiston, II:

Yes.

Potter Stewart:

And so in January, even long before any seed that even been planted, it made an offsetting sale of the New York Cotton Exchange.

John McQuiston, II:

Yes sir, the same —

Potter Stewart:

Of what?

What is — of cotton futures?

John McQuiston, II:

Of cotton futures to be delivered in October or December of the following year when it expected that this cotton —

Potter Stewart:

Of the same you year —

John McQuiston, II:

Of the same year.

Potter Stewart:

And out of the same amount of cotton?

John McQuiston, II:

But — yes sir.

Potter Stewart:

Or what certain number of bales of cotton, I guess?

John McQuiston, II:

The contracts on the New York Cotton Exchange are in 100-bale lots, so Allenberg made this contract in August in Mississippi decided about how much cotton estimated that’s involved.

Potter Stewart:

Estimated about the year —

John McQuiston, II:

And made an estimated sale on the New York Cotton Exchange at identical same time.

Potter Stewart:

And that what price compared to the price, you compared to the agreed purchase price?

John McQuiston, II:

That’s usually about what we call a 400-point spread.

Point is a penny.

John McQuiston, II:

So about $4.00 or $5.00 spread between the price that’s — that spread covers the expected cost borrowing the money to maintain the hedge for the year, shipping the cotton, paying the railroad freight and so on to get it to a point of deliver in the following year when it’s delivered.

So if we bought in cotton in 1973 a 30 cents of pound, the hedge would be at 34 or 35 cents a pound.

Potter Stewart:

It sells it —

John McQuiston, II:

Yes sir.

Potter Stewart:

Sell a futures for 34 cents?

John McQuiston, II:

34 or 35 cents.

Potter Stewart:

34 or 35.

John McQuiston, II:

And of course, if the price of cotton went up as it did in 1973 to almost a dollar a pound for the first time since the civil war, we’re looking at loses that far exceeded the capital of the entire industry.

Potter Stewart:

And then when the cotton, let’s — I’m just talking now about industry practice and not about this case.

John McQuiston, II:

Yes sir.

Potter Stewart:

When the cotton was delivered by Mr. Pittman or somebody else —

John McQuiston, II:

It had been —

Potter Stewart:

— to the warehouse, he gins it, he does the ginning?

John McQuiston, II:

He takes it to local gin, that’s all his business.

He gins it, then brings it to a —

Potter Stewart:

Warehouse.

John McQuiston, II:

A compress in warehouse.

The compress takes the loose cotton which he delivers to them which is not shippable because it’s also loose.

And compress is then to a bale and cuts the sample from the bale.

Potter Stewart:

Can you tell us about the cutting the samples, sending one to the Department of Agriculture, another one up to your client and your client has the job of having running what is called a running —

John McQuiston, II:

Making even-running lots out of all these hundreds of bales.

Potter Stewart:

Hundred of bale, 100-bale lots and then what happens when the time comes due on the New York Cotton Exchange?

John McQuiston, II:

The hedge is taken out by an offsetting transaction and if the market has gone up, there’s a loss account on the New York Cotton Exchange.

If the market has gone down, there’s a gain on the New York Cotton Exchange which hopefully offsets the loss on the purchase with the farmer.

Potter Stewart:

Because you say where you’re going to this business is with a desk and a telephone and a banker who exchange your credit?

John McQuiston, II:

Well, this is true not only in the cotton industry but wheat, soy beans —

Potter Stewart:

A lot of it.

A lot of —

John McQuiston, II:

The commodities merchandising industry works exactly like the cotton industry does.

Harry A. Blackmun:

Mr. McQuiston, before you sit down, let me ask you question.

Harry A. Blackmun:

They’re too about the tactics.

This case strikes me as a very precisely issue case, fairly simple, and our Rule 40 readsa concise that there shall be in the brief, a concise statement of the case containing all that is material to the consideration, the questions presented.

Looking at your brief, there are some 30 pages in the statement of the case, do you think that complies with our rule?

John McQuiston, II:

Your Honor, we felt that there was no way to this Court to consider the case without considering the industry context.

And the 30 pages that you refer to are pages drawn from well established cotton industry textbooks to gather the court in seeing the context to this particular contract and from Department of Agriculture publications.

Harry A. Blackmun:

There are some members of the Court to think we have not to do, you have a 106-page brief and the 44-page reply brief and your friend Professor Blumstein has a 100-page brief, its make a 250 pages on a single issue.

I wonder whether the temptation is enough to have your brief forgo reading when it’s at that great length.

John McQuiston, II:

Well, I hope that that has not happened Mr. Chief Justice Blackmun and I apologize for burdening the Court with the extra pages.

The case is so important in our industry that perhaps we overdone it, but it didn’t want to leave any stone unturned.

We’re fighting for our lives.

Thank you.

Warren E. Burger:

Mr. Cochran?

George Calvin Cochran:

Mr. Chief Justice may it please the Court.

The reply brief referred to in part of the presentation here gives rise to at least one issue, which is non-constitutional, but I think it has to be covered insofar in the light of the reliance placed by appellant on the Curt Flood case.

The argument is that this company has relayed upon this Court oppressment, Dahnke-Walker, Shafer, and what not.

If you’ll turn to page 92 of the record in this case, the Secretary of Treasury of the corporation was asked if they had sought advice of counsel as whether or not they should qualify, and the answer was no.

And the reliance by this company on this Court’s oppressment is again pointed to by the fact that the Dahnke-Walker case wasn’t spotted until a petition for rehearing was filled at Mississippi Supreme Court decide against Allenberg Cotton Company, which brings up the question of jurisdiction.

You have a December the 17 certificate outstanding right now requesting that a full certificate be secured from Mississippi Supreme Court that federal question was raised in adequate state ground on exist their certificates later.

They have not taken any steps to comply with the December 17 order.

Warren E. Burger:

Wasn’t the certificate signed by the Chief Justice?

George Calvin Cochran:

Yes sir, it was.

Warren E. Burger:

Doesn’t that comply?

George Calvin Cochran:

Not under Alderson, Footnote 4 in Alderson indicates that a single judge certificate is not sufficient, and your order of December 17 — sir?

Warren E. Burger:

Did Alderson referred to a State Supreme Court, I forgotten —

George Calvin Cochran:

Yes sir it did.

And Footnote 4 in Alderson which you — this Court cites on December the 17 and sends back to Mississippi Supreme Court for a full court certificate.

Potter Stewart:

And our orders — that was our order of December 17 —

George Calvin Cochran:

December 17.

William H. Rehnquist:

It was never complied with?

George Calvin Cochran:

It was never complied with.

George Calvin Cochran:

So I — this jurisdictional problem is lurking there and my position is that until that December 17 order is complied with that is giving a full certificate from Mississippi Supreme Court, this Court lacks jurisdiction, but various a serious jurisdiction.

Potter Stewart:

Why did we note — what do we do?

George Calvin Cochran:

Two and in a half months later, you know that probable jurisdiction pending of determination of whether or not there was not jurisdiction.

Byron R. White:

The (Inaudible) and probably counselor wasn’t there?

George Calvin Cochran:

Yes, a filing was made reprinting the opinion of United States District Court case Cone Mills.

And then after that case arrived here, probable jurisdiction was noted.

Now, Dahnke-Walker is the major case relied upon by opposing counsel.

Well, Dahnke-Walker was a case where delivered was made on board or railroad car.

Here, we have delivery to warehouses with the record showing that these warehouses serves cotton concentration points with — at the least 25,000 bales by this company being stored in Mississippi for an indeterminate period.

The fact situation is right on all force with Coe versus Town of Errol, and the decision last term in Kosydar.

There are two cases, shaped of the two cases, Chassaniol and Federal Compress, relating to the type of business of Allenberg has engaged in; one allowing taxes on the warehousing business and the other, a license tax for buyers of cotton which Allenberg Cotton Company is.

The last decision by this Court, the Eli Lilly case using taxing cases for determination whether or not qualification is necessary.

The analogy follows that if a company is engage in taxable activities, then, it can be required to qualify.

Any questions?

Warren E. Burger:

Do you have any — do you make any distinction between engaging in taxable activities and the tax who every done the — on the raise of the company itself?

George Calvin Cochran:

Talking about actual tax being lend or a potential tax?

Warren E. Burger:

Either.

George Calvin Cochran:

Well, with respect to Allenberg, there are cases showing that an add vellore and property tax can be apply as well as a tax for engaging in the business, your license tax.

Warren E. Burger:

But which kind of a tax where you talking about?

George Calvin Cochran:

Well under Eli Lilly, it had to be licensing.

Eli Lilly breaks the point at licensing.

Then, you get in —

Warren E. Burger:

And ad valorem tax would create that problem in, is that your position?

George Calvin Cochran:

No.

Byron R. White:

What about Shafer and Lemke?

George Calvin Cochran:

Well, the Shafer and Lemke — that was Shafer to begin with, you have language in that opinion that buying for interstate shipment is interstate commerce.

And that is the case relied upon appellants.

The case has been distinguished and distinguished since it was handed down by Mr. Justice VanBebber.

To me, it’s a preemption case, the Shafer is.

Today, it would a preemption case.

George Calvin Cochran:

Shafer has not been followed by this Court.

Chassaniol involving cotton buying —

Byron R. White:

But Lemke wasn’t a preemption hearing?

George Calvin Cochran:

No Your Honor, it wasn’t.

Byron R. White:

No trace of it?

George Calvin Cochran:

All right.

But in Shafer, Shafer when this Court came down with the decision in Chassaniol relating to whether or not you can license cotton buying, petition for rehearing was filled on the basis of Shafer.

Shafer was a distinguished away in Parker versus Brown purely on the basis that immediate shipment was involved in Shafer, while in Parker versus Brown in this case, they don’t have immediate shipment.

Byron R. White:

Are you relying in that here, there’s no immediate shipment?

Let’s assume —

George Calvin Cochran:

No, I’m pointing at the record says that —

Byron R. White:

Let’s assume Allenberg — let’s assume Allenberg took delivery from the farmer by a way of an interstate carrier.

George Calvin Cochran:

That would do it.

Byron R. White:

That would do what?

George Calvin Cochran:

They would not have to qualify.

They would be in interstate commerce delivering this on board.

Byron R. White:

So you think it’s just a way of taking delivery at the warehouse and then having it loaded on a carrier to warehouse —

George Calvin Cochran:

That was Coe versus Town of Errol.

Byron R. White:

So you think it doesn’t like the difference —

George Calvin Cochran:

Sure, well the cost of our opinion points out the mechanical test is a test which this Court feels is determinative, and here we have a delay prior the transit.

William H. Rehnquist:

Of course the Export Clause doesn’t necessarily follow the same guidelines as the interstate commerce?

George Calvin Cochran:

Well you got Richfield Oil and the County of Merced case that both indicates the same test will be use for import, export and Commerce Clause definition in the Coe versus Errol situation.

Of course, Coe versus Errol was interstate commerce and import export.

Byron R. White:

Well, I would think you would argue also that the Allenberg has an agent in the state.

George Calvin Cochran:

I don’t think —

Byron R. White:

That is supervising the execution of the contract.

George Calvin Cochran:

The — having an agent in the state my not be a critical fact.

The records replete with evidence that Mr. Cummington who is doing the buying was acting on the commission basis for Allenberg, but having an agent to me is not as critical as the fact that this company owns cotton.

Byron R. White:

Located in Mississippi?

George Calvin Cochran:

Located in Mississippi and stored there.

Byron R. White:

And now on its way in.

George Calvin Cochran:

They’re just like a local company.

No difference between Allenberg Cotton Company.

Byron R. White:

But Lemke and Shafer say that that’s stoppage and transit doesn’t — and still part of the interstate commerce.

George Calvin Cochran:

They stand alike, and you can’t reconcile with the Shafer with Coe versus Errol, or this Court’s decision last term in Kosydar.

Warren E. Burger:

Well, do you think time log in Kosydar has any implications in reference to this?

George Calvin Cochran:

Reference in the opinion has written in such a way that the timeline was not critically important.

The County of Merced case where you got this concrete factory being undone, the breaking for — there was a time, some minority had been shipped there, but it was the fact that the goods were at rest prior to insertion in the foreign commerce like prior to insertion in the interstate commerce here.

Once that delay is there, then the full power of the state to regulate tax comes into play and that’s what we have here.

Potter Stewart:

As my Brother Rehnquist has indicated just a moment ago the Export Import Clause is — not the Interstate Commerce Clause, it’s a separate clause in the Constitution.

It has separate laws on it by the decided cases of this Court because I remember in Kosydar, no cases were cited.

They relied on that didn’t —

George Calvin Cochran:

Involving interstate commerce.

Potter Stewart:

Involving the Commerce Clause.

George Calvin Cochran:

But Richfield Oil says the same test will be applied Mr. Justice Douglas.

When you have the schematic situation in the sense where goods are setting and prior to insertion in the same test.

Warren E. Burger:

Well, what about — what do you have the say about the impact of the Supreme Court — Mississippi Supreme Court decision?

George Calvin Cochran:

There’s nothing in the record.

Nothing in the record.

Warren E. Burger:

What are the realities of which we might take judicial notice?

What do you think the realities are —

George Calvin Cochran:

Realities of the industry?

Warren E. Burger:

Yes on interstate commerce?

George Calvin Cochran:

Well the reality —

Warren E. Burger:

That consistent with the history the interstate — the Commerce Clause itself?

George Calvin Cochran:

To penalize companies do not qualify by not giving them access to the court systems?

We don’t have interstate commerce here.

It’s intrastate state.

These are all activities —

Warren E. Burger:

(Voice Overlap) Of course, I would —

George Calvin Cochran:

You go down the garden house.

Warren E. Burger:

And have to take your conclusion.

George Calvin Cochran:

Well, but this is intrastate commerce.

This is a contract between a Mississippi farmer for delivery to a Mississippi warehouse, activities before interstate commerce begins.

A purely intrastate sequence of defense can be regulated in tax by the state, and obviously —

Warren E. Burger:

On your theory then, the only way to escape this situation would be get those bales and —

George Calvin Cochran:

Put them on railroad cars.

Warren E. Burger:

Put them on a railroad car, how long could they be there, 24 hours?

George Calvin Cochran:

On the railroad car?

Warren E. Burger:

No, no.

The railroad cars are available right away.

Sometimes you got to put them on a loading platform.

George Calvin Cochran:

Well, then you’ve got cases which I’ve cited on my brief, if they aren’t loaded directly on the car, then there’s going to be problems.

This can be to be taxable and it’s going to be intrastate commerce.

Warren E. Burger:

On a shipping platform?

George Calvin Cochran:

I would say would have to go directly to the railroad carriers with no storage facility between the time that it leaves the field, the time is placed on the interstate —

Warren E. Burger:

That you go on a truck or some vehicle from the field right along side of the trucks and then be put on the cars?

George Calvin Cochran:

Yes, I take it.

I’d put on a common carrier, say a truck from the field and delivered to another common carrier and then it’s a straight through systematic and out of the Coe versus Errol problem, not taxable, but cannot be regulated by the state and purely interstate commerce.

Warren E. Burger:

What if the carrier doesn’t have enough cars and holds it for week, but just that do it to worse?

George Calvin Cochran:

Well, you can parallel that situation with the situation where you have goods in interstate transit and there’s a stop, and the cot-mill transit test is it for a business purpose.

On Coe versus Errol again, you got the logs that were placed — that where there because water was down, not taxable.

So taking Coe versus Errol to your analysis that if — it’s just because there’s not enough trucks or something; Coe versus Errol not taxable.

Warren E. Burger:

I’m not giving you an analysis; I’m just asking a question.

George Calvin Cochran:

That would be the best, the only analysis I could parallel your fact situation with.

William H. Rehnquist:

Well of course, you could make provision for many of the hypotheses of the Chief Justice has proposed to you by simply providing that title passes or risk of laws passes FOB, the railroad car — the cotton, this particular cotton has been in the State of Mississippi for months.

It’s just a question when Allenberg takes title to it isn’t it?

George Calvin Cochran:

They take title immediately upon placement in the warehouse, right at the point.

Byron R. White:

Well, they take when the warehouse certificates should deliver to him?

George Calvin Cochran:

Yeah, the farmer has to get those certificates —

Byron R. White:

He gets them, and gives with Allenberg already.

George Calvin Cochran:

But then, I’m into a part of the case.

I with along Mr. Justice Stewart, I’m not exactly sure what happens after the purchase has made.

There’s nothing in the record.

Warren E. Burger:

I think your friend said that the bill of lading goes to the bank in Memphis for collection.

George Calvin Cochran:

There’s nothing in the record honestly.

Lewis F. Powell, Jr.:

Mr. Cochran in your view, what state interest is served by having a no cure sanction for failure to qualify?

George Calvin Cochran:

What state interest?

Lewis F. Powell, Jr.:

Yes.

George Calvin Cochran:

It’s a brutal penalty but it provides immediate leverage to companies to ensure that they will qualify and there is a high state interest in the qualification.

Lewis F. Powell, Jr.:

Right.

George Calvin Cochran:

You can parallel the no cure thing as to 60 years for smoking marijuana.

Does the penalty have anything to do with the malfece of issue.

It is a strong pulley but there’s no constitutional issue raised on.

Lewis F. Powell, Jr.:

But here, one private party in affect achieved a windfall and the other party advised of their penalty.

It’s hard for me to see precisely what the state interest did.

George Calvin Cochran:

Well, the state interest — they’re qualified now.

Lewis F. Powell, Jr.:

Yes, but that could achieve couldn’t it with the somewhat less penalty or allowing qualification and the payment of fees before suit can be brought?

Political, but it’s not a constitutional proportion.

That’s the point I’m trying to — this is strong penalty, but it doesn’t give rights to constitutional issue where I can see.

Plus, it wasn’t raised in the court below.

The only point raised was this interstate commerce.

No issue with respect to the penalty — argue within the petition for rehearing wasn’t mentioned.

Now it’s mentioned in the reply brief.

William H. Rehnquist:

Mr. Cochran?

George Calvin Cochran:

Yes.

William H. Rehnquist:

If you permit cure in the situation like this, it’s kind of like a one bite type of thing.

Isn’t that the company can go along without qualifying for a years until finally it has to bring the suit, then it can qualify so that it really never has to qualify for practical purposes until it’s actually involve in litigation?

George Calvin Cochran:

If you have a retroactive penalty, what happen — say that there is a cure provision but you can sue on honest in deaths, well then what you do is you negotiate with the defendant and say, look — the defendant can’t raise the defense because as soon as the company complies the defenses law, so the state interest and requiring qualification is out the window without the type of provision Mississippi has.

So it is a powerful weapon and it’s been used here.

George Calvin Cochran:

But still, there’s nothing in the record as to what the industry situation is with respect to cotton brokers.

This is just part of the on going war when the price of cotton goes down other things occur.

Thank you.

Warren E. Burger:

Thank you.

I think you’ve used all your time Mr. McQuiston.

Thank you gentlemen.

The case is submitted.