LOCATION: Massachusetts Citizens for Life
DOCKET NO.: 86-88
DECIDED BY: Rehnquist Court (1986-1987)
LOWER COURT: United States Court of Appeals for the Sixth Circuit
CITATION: 483 US 27 (1987)
ARGUED: Apr 20, 1987
DECIDED: Jun 22, 1987
Charles A. Rothfeld - on behalf of Respondent
Rex E. Lee - on behalf of Petitioner
Facts of the case
Media for Citicorp Industrial Credit, Inc. v. Brock
Audio Transcription for Oral Argument - April 20, 1987 in Citicorp Industrial Credit, Inc. v. Brock
William H. Rehnquist:
We'll hear argument first this morning in No. 86-88, Citicorp Industrial Credit versus William E. Brock.
Mr. Lee, you may proceed whenever you're ready.
Rex E. Lee:
Mr. Chief Justice and may it please the Court:
This case involves the competing claims of creditors to proceeds of an insolvent debtor's collateral.
The question presented is whether Congress when it enacted the Fair Labor Standards Act of 1938 intended not only to prevent employers from paying unconscionably low wages, but also to repeal otherwise applicable state and federal laws governing the lien priorities of wage earners vis a vis other creditors where the employer becomes insolvent and therefore fails to meet his payroll just before he goes out of business.
The legal issue in the case arises out of the following facts.
The Petitioner, Citicorp Industrial Credit, financed the manufacturing operations of a now defunct entity known as the Ely Group under an ordinary secured financing arrangement that gave Petitioner a security interest, which Petitioner properly perfected, in Ely's accounts receivable and inventory.
Approximately one-year later, Ely went out of business, defaulted on its obligations to Petitioner, and also failed to meet its payrolls in the last weeks of its operation.
Two district courts found... and this is a quote from both of those opinions... that:
"Both the employees and the secured creditor are innocent parties, the culprit being the manufacturer. "
Factually, therefore, the case fits the classic insolvency mold: no creditor is at fault, the debtor's assets are insufficient to satisfy all creditors, some will be paid and some will not.
So that the crucial practical question becomes, how do you determine which claims will be paid, which will be paid ahead of the others, and what law governs that priority.
The Secretary and the lower courts contend that that question is answered by our minimum wage and hour law, and that the FLSA resolves this issue in favor of the unsecured wage claimants because the FLSA's so-called hot goods provision, Section 15(a)(1), permits any person from shipping goods produced in violation of the Act.
That view, if adopted by this Court, is going to work some very large changes in state and federal statutes that specifically deal with the priorities of creditors' claims in cases of insolvency, notwithstanding the fact that even the Government agrees that there is no evidence Congress intended that result.
Everyone agrees that Congress has never considered whether the hot goods provision should apply to secured creditors.
Sandra Day O'Connor:
Mr. Lee, has this question just never come up before in the context of a secured creditor?
Rex E. Lee:
The Fair Labor Standards Act was... it has come up at least twice... well, several times.
The Fair Labor Standards Act was enacted in 1938.
So far as I can tell... and the best authority on this is the Second Circuit's decision in Powell Knitting, which was the first case to reach it in 1966... for the first quarter of a century the Secretary did not take the position that he takes today.
And indeed, if you look at that part of our brief that deals with a statement on how to insure against hot goods that the Secretary published early in the game, that was not his position.
The first effort to take this position, to apply it against secured creditors, apparently occurred about a quarter of a century after it was enacted, in the mid-1960's.
And on that occasion the Second Circuit rejected it.
Sandra Day O'Connor:
The plain language of the statute does support the Respondent's view, and Congress twice, I guess, has amended the statute to take care of situations that apparently it hadn't thought about before.
But it does not appear to have taken care of this situation.
Rex E. Lee:
Congress has amended the Act substantively, has amended the hot goods provision, once.
That amendment, in 1949, was to correct an erroneous interpretation by the Administrator as to its reach.
And I prefer not to go into all the detail of that legislative history here, but as set forth in our brief it is just quite clear that what Congress was doing simply correcting one erroneous interpretation by the Secretary.
Now, insofar as the language is concerned, the strongest argument that the Government has is the "any person" argument.
This is not the first time, however, that this Court has been called upon to consider a Congressional statute whose literal language reached any person or any case, and the Court has held that, though the language fit, it was not the kind of case that Congress wanted to cover with its statute.
Is that a general rule or do we know when we ignore the language and consult the spirit?