Citicorp Industrial Credit, Inc. v. Brock

PETITIONER:Citicorp Industrial Credit, Inc.
RESPONDENT:Brock
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

ADVOCATES:
Charles A. Rothfeld – on behalf of Respondent
Rex E. Lee – on behalf of Petitioner

Facts of the case

Question

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.

Antonin Scalia:

Is that a general rule or do we know when we ignore the language and consult the spirit?

Antonin Scalia:

Do we intuit that or what?

Rex E. Lee:

I think there is a real difference, Justice Scalia, between the kind of circumstance where Congress simply came up against the issue and there were competing views on both sides, neither side had the votes, and as a consequence they simply dodged it, and both sides made a lot of legislative history and then left it for this Court to fill in the details… I think that’s one circumstance.

It is quite another circumstance where Congress, in order to achieve one objective, used some language that was maybe a little bit broader than it should have achieved… or than it might have used, and then later on there is a circumstance that everyone agrees Congress has simply never focused on.

And it is particularly different where the effect of that interpretation is going to be to displace some state and federal laws that have specifically focused on the issue.

The leading case on this issue… and frankly, the more I look at it, the more I conclude it is this case… is this Holy Trinity case.

That involved also a federal statute, and it was a federal statute which prohibited the importation of any person, any person, for the purpose of performing labor within the United States.

And then it provided exceptions, and there were exceptions for actors, lecturers, teachers, but not exceptions for ministers of the gospel.

And the Holy Trinity Church brought in a Reverend Walpole for the purpose of preaching to their congregation, and the Secretary… or, excuse me… the United States of America brought suit, contending that the statute was violated.

And they won in the lower court.

The argument they made when they came to this Court, argument by Mr. William A. Maury, Assistant Attorney General of the United States, was that: Where the meaning of a statute is plain it is the duty of the Court to enforce it according to its obvious terms; in such case, there is no necessity for construction.

The case really comes down to this, we submit–

William H. Rehnquist:

Does it seem to you like a bad statement of the law, what you just read?

Rex E. Lee:

–What I just read, of course, whether it is good or bad, was the statement that was rejected by this Court in Holy Trinity.

And they held, in that very famous language, that it may be within the technical language, yet if it is outside what Congress was obviously thinking about the narrow language may not govern.

The reason that it is particularly compelling, we submit, that you not apply the literal language in this instance is as follows.

It is agreed on all sides that Congress has never squarely dealt with the question whether in insolvency wage claims ought to come ahead of secured creditors.

It did not specifically intend, therefore, a change, to effect a change in the state and federal laws that specifically deal with that issue.

Yet, a specific, focused Congressional intent is exactly what this court’s cases make very clear is required before state and federal law otherwise applicable can be displaced.

Sandra Day O’Connor:

Well, Mr. Lee, let me ask you one other question.

Under Section 215 to remove the taint, if the Sixth Circuit view is correct, would the secured creditor have to pay just the minimum wage or the full agreed wage, do you suppose?

Rex E. Lee:

I’m not sure, I’m not sure.

Sandra Day O’Connor:

Well, if it were only the minimum wage to remove the taint, certainly you could say that the statute… that your view continued to operate as to the difference between the minimum wage and the agreed wage.

Would that not be important–

Rex E. Lee:

Yes, and I would think it probably would only be the minimum wage.

But the fact is that either way the entity that is in first place–

Sandra Day O’Connor:

–If that were true, then certainly the statute wouldn’t completely have altered the priority of claims.

There would still be something left to which traditional bankruptcy and priority would apply.

Rex E. Lee:

–There would be some money left, but insofar as the theory is concerned it would have changed around, it would have altered the priorities that are otherwise provided for, because the basic policy question is whose lien should be first, which claim should be first, in those instances where there is not enough money to go around.

Antonin Scalia:

Mr. Lee, is it common ground that, if the employer had not gone into insolvency and had simply failed to pay a certain amount of wages, he still has plenty of money and he’s still in business, would it have been a violation of the Labor Standards Act to ship the goods that was made by the labor for which he has not yet paid the wages?

Rex E. Lee:

Yes, yes.

Antonin Scalia:

It would?

Rex E. Lee:

Yes.

Antonin Scalia:

I mean, it’s clear that it’s not just a violation of you contract for a lower wage, it’s also a violation if you contract for a proper wage, but fail to pay it?

Rex E. Lee:

I don’t know that that is that clear, and that is another issue that… as far as I know, that is an issue that has simply never been decided.

Antonin Scalia:

Are there any cases?

Rex E. Lee:

Not to my knowledge, not to my knowledge.

Antonin Scalia:

If that weren’t a violation, then this whole problem–

Rex E. Lee:

That is correct, that is correct.

And indeed, one of our positions is… you don’t have to go quite that far… that the Fair Labor Standards Act was simply never intended to apply to instances where the employer was paying the minimum wage, there is no question that he was paying the $3.35 an hour, but he simply went out of business and went broke, and that the Fair Labor Standards Act was never intended–

William H. Rehnquist:

–Well, you say he was paying the minimum wage but went broke.

I take it you would add that a few weeks before he went broke he didn’t pay the minimum wage because he was unable to?

Rex E. Lee:

–That is correct.

William H. Rehnquist:

So you would put up a means test a defense for any employer sued under the Fair Labor Standards Act?

Rex E. Lee:

Well, it is simply another approach, another view that we think supports our position, that the Fair Labor Standards Act was not intended to apply to the insolvency circumstance, for a couple of reasons.

William H. Rehnquist:

This doesn’t take away the property of the secured creditor.

It just says he can’t ship it in interstate commerce.

Rex E. Lee:

That is correct.

William H. Rehnquist:

Granted, that makes it largely valueless.

But it’s not like a lien statute that says the property passes from A to B.

Rex E. Lee:

That is correct, and that’s basically the Government’s argument.

We think it’s insufficient, for a couple of reasons, because frankly my client just doesn’t take much comfort from the Government’s assurance that the Sixth Circuit’s Interpretation here does not create a lien, because the reality is that under the Sixth Circuit’s rule Citicorp’s first priority lien that it enjoys because of article 9 of the Uniform Commercial Code, which would otherwise govern but for the Sixth Circuit’s ruling, does it no good unless it first pays off another batch of unsecured junior creditors.

So that the effect, though not the label that goes on it and not the concept… and that’s part of our argument, that since this was not the intent of the Fair Labor Standards Act it shouldn’t apply to this circumstance.

But the effect is not only to create a wage earner’s lien, but also to move that new lien ahead of secured creditors.

Now, there is also a batch of federal statutes that will necessarily be affected by the Secretary’s interpretation of the Fair Labor Standards Act.

They include: the Bankruptcy Act, which, like the UCC, gives secured creditors priority over unpaid wage earners; the Federal Tax Lien Act, under which either the Secretary of the Treasury or his delegate, usually the IRS district director, both of whom are clearly persons, have the responsibility of levying and enforcing federal tax liens; and two other federal statutes that give the unpaid sellers of livestock and perishable agricultural commodities a priority over other creditors, including employees whose wages have not been paid.

The Government observes, and correctly so, that this case does not involve bankruptcy and does not involve any of those other statutes.

But the point is that the literal interpretation of “any person” which the Government seeks will necessarily change a lot of lien statutes that would otherwise be applicable in this circumstance.

Antonin Scalia:

Mr. Lee, you said earlier that the Secretary has taken his current position only since the sixties; and for the first 25 years what was the situation?

He had taken the opposite position or had taken no position?

Rex E. Lee:

We think he had taken the opposite position.

Rex E. Lee:

There is not a lot of evidence as to the position that he had taken.

I refer you to Powell Knitting, the Second Circuit decision which was the first one to come up in 1966, and that case observes that this is apparently the first time the Secretary has taken this position.

Antonin Scalia:

Well, but that doesn’t answer my question.

It may be the first time he had taken that position, but had he previously taken the opposite position or had he previously taken none?

Rex E. Lee:

Yes, he had previously in our view taken exactly the opposite position.

John Paul Stevens:

In what form did he take it?

Rex E. Lee:

It was in the form, Justice Brennan, of a statement in a… the BNA put put a manual called a manual for Fair Labor Standards Act compliance, and there was a statement in that manual that dealt with insurance against hot goods.

And in that manual the Secretary took the position… it told you how you could get insurance against hot goods, and basically where it came out was that you could get insurance against hot goods if you could show that you had acted in good faith.

It used the example of those who bought… lumber processors who bought from mills, and said that if they would monitor the FLSA compliance of the lumber mills then that would be insurance against hot goods.

Now, under the provision… under the position that the Government takes today, there is no insurance against hot goods.

If they are hot at one time, they simply remain hot and no amount of insurance… or, excuse me… no amount of innocence will change that.

Now, the Government takes the position that what that manual said… or, not what the manual, what the insurance against hot goods was talking about was criminal prosecution.

And I simply submit that there is no way that that particular provision can be read that way, because what it talks about is goods that are in the hands of the creditor and that he can’t ship them and how to avoid that circumstance.

John Paul Stevens:

Mr. Lee, can I ask you one other question about the history.

What about the period between the Second Circuit case and the few cases recently?

Was there any litigation in the seventies, for example?

Rex E. Lee:

One.

It was the Fourth Circuit’s decision in a case called Shultz versus Factors, Inc.–

John Paul Stevens:

Wasn’t that in the eighties?

Rex E. Lee:

–’71.

John Paul Stevens:

That was ’71.

Rex E. Lee:

’71.

And in that case, the Fourth Circuit agreed with the Second, but added one additional provision, with which we agree, and that is that there must not be any complicity, any collusion, between the creditor and the employer.

John Paul Stevens:

But between that decision and this one, was there litigation all through the seventies?

I thought there was a period where the Government sort of threw in the towel.

Rex E. Lee:

Well, you know, they go for a quarter of a century and they don’t do anything, and then they lose in ’66, and then they lose again in ’71.

I am not aware… and there was one other one that they lost, a district court decision under Secretary Dunlop.

The first… they do not have any victories other than in the Sixth Circuit before the 1980’s.

John Paul Stevens:

Right.

Rex E. Lee:

All of their victories have been Sixth Circuit victories, and they’ve all come in the 1980’s.

Rex E. Lee:

The other federal statutes that will be affected are these two that deal with the trusts that are imposed on the sellers of perishable agricultural commodities and of livestock by federal statutes.

The point is that the wage and hour law need not be interpreted in such a way that it alters lien priorities, and it should not be.

It’s a point that is further underscored by the Government’s reliance on the Flammable Fabrics Act.

Antonin Scalia:

You say it need not be, but all you appeal to is this Holy Trinity, which says it’s a familiar principle, et cetera, et cetera, although it’s apparently not a sufficiently familiar principle that counsel can ever find any case other than Holy Trinity to cite for it, because it’s an old chestnut that comes up constantly when that principle is appealed to.

Is there any language, interpretation of the language, that you can give us that would lead to the conclusion that you want?

Or is it just you’re inviting us to throw up our hands and say, well, it doesn’t say that, but we appeal to the spirit of the laws?

Rex E. Lee:

Well, let me give you three brief answers.

The first is, it’s an old chestnut but a good one.

It’s been around for a long time and it’s entitled to some respect.

And I submit, it is indistinguishable.

They were doing exactly the same thing.

They were bringing people here, and it fairly fit the statute that says that any person… it’s unlawful to import any person any alien, for those purposes.

Antonin Scalia:

They made an exception for ministers, is that right?

Rex E. Lee:

No.

That is, the Court did, the Court did.

The statute made an exception, made about six exceptions, and ministers did not fit any single one of those exceptions.

Antonin Scalia:

You don’t think they might have had some First Amendment concerns?

Rex E. Lee:

They certainly didn’t say so.

It’s strictly a matter of statutory interpretation.

Antonin Scalia:

Did they say what besides ministers were covered by the spirit of the law?

Rex E. Lee:

No, no.

Antonin Scalia:

Just ministers?

Rex E. Lee:

In the good spirit of true adjudication, they decided only that case that was before them at that particular instance.

But there was an exception for lecturers, there was an exception for teachers, there was an exception for domestics, and several others.

The second answer is that that isn’t the only case.

There is another one that we think is right on point.

Unfortunately, we didn’t find it until we were preparing for oral argument, though I have advised Mr. Rothfeld of that right after we found it.

It’s a 1975 decision by this Court.

I would pronounce it Muniz versus Hoffman, and it also arose out of the labor context.

It involved the question of jury trial, jury trial for an individual who was convicted of contempt because of a violation of a court’s order pending… for an injunction pending determination of that issue by the National Labor Relations Act.

Rex E. Lee:

And the statute says that in any case involving or growing out of a labor dispute the accused shall enjoy the right to a speedy trial.

This Court, relying on Holy Trinity, said:

“It is not unusual that exceptions to the applicability of a statute’s otherwise all-inclusive language are not contained in the enactment itself, but are found in another statute dealing with particular situations to which the first statute might otherwise apply. “

All I’m saying is that there is good precedent for not extending the “any person” language where it’s going to have the kind of mischievous effects that it’s going to have here.

Byron R. White:

Mr. Lee, weren’t there wage priorities in the 1938 Bankruptcy Act?

Didn’t unpaid wages have a degree of priority?

Rex E. Lee:

Junior to secured creditor.

Byron R. White:

Yes, yes.

But that was subsequent to the Fair Labor Standards Act, I take it.

Rex E. Lee:

Well, there is a very–

Byron R. White:

At least there’s an inconsistency, you say, between the Bankruptcy Act and the Fair Labor Standards Act.

Rex E. Lee:

–That is correct.

Byron R. White:

And I suppose one argument is that the Bankruptcy Act impliedly repealed it or, if the Fair Labor Standards Act came afterwards, it really didn’t intend to repeal the Bankruptcy Act.

Rex E. Lee:

That’s exactly right, and that is one of the most powerful arguments for Congress’ real intent that there is in this whole case.

It so happens that the Chandler Act, which re-enacted provisions of… it was an amendment to the Bankruptcy Act, was enacted just three days before the Fair Labor Standards Act, and it continued in effect the same preference that had existed from the beginning in the Bankruptcy Act of secured creditor over unpaid wage claims.

Does anyone really seriously think that–

Antonin Scalia:

Well, but of course.

I mean, secured creditor were still intended to have that preference.

But you know, we’re not talking about all secured creditors here at all, and we’re not talking about their preferential position.

Rex E. Lee:

–That is correct.

Antonin Scalia:

Your clients can sell the stuff in intrastate commerce, I presume.

Rex E. Lee:

That is correct, that is correct.

But let’s go back for just a moment to the question that you just asked–

Byron R. White:

Well, they can’t sell it in intrastate commerce if they think the seller is going to sell it in interstate commerce.

Rex E. Lee:

–That is correct, that is correct.

And given this Court’s interpretation of interstate commerce, we’re prevented from selling it.

Antonin Scalia:

Was that the interpretation current at the time of the Fair Labor Standards Act?

Rex E. Lee:

Probably not, probably not.

The point is that, just as you referred to a moment ago, Justice Scalia, in connection with how many exceptions are carved out, your ruling in this case as to any person, if it means secured creditors, I don’t see how you can stop it from meaning trustees in bankruptcy.

And I don’t believe that anyone can seriously say that Congress three days after it passed the Chandler Act intended to reverse those lien priorities that were effected there.

Rex E. Lee:

And I also don’t think–

Antonin Scalia:

They didn’t intend to.

Is it part of your theory that Congress can’t make a mistake, that there is no such thing as a statute that has an unanticipated consequence, because whenever that happens we invoke the spirit of the law and correct it?

Is that the way the system works?

Rex E. Lee:

–I would not put it that way.

Antonin Scalia:

Well then, maybe this was a mistake.

Rex E. Lee:

I would not put it that Congress cannot make a mistake.

I would rather say that in melding together the rules dealing with preemption and repeal by implication, and applying both the Muniz case and also the Holy Trinity case, that in those instances where everyone agrees that Congress simply didn’t face or decide these kinds of issues that you’re not going to preempt inadvertently nor repeal by implication inadvertently when there is another interpretation.

Mr. Chief Justice, I’d like to reserve the rest of my time for rebuttal.

William H. Rehnquist:

Thank you, Mr. Lee.

We’ll hear now from you, Mr. Rothfeld.

Charles A. Rothfeld:

Mr. Chief Justice and may it please the Court:

This case is not about secret liens or state insolvency laws or priorities in bankruptcy, as Citicorp has argued this morning.

It is about the meaning of a completely unambiguous statute, the Fair Labor Standards Act.

Now, when it has talked about the Act at all, Citicorp has painted a picture that is a caricature of what was and is a dramatic piece of legislation.

The Act is written in the broadest possible terms.

It makes it illegal for any person to sell hot goods in interstate commerce until those goods are cured.

And Justice O’Connor, in response to your question, the goods are cured by the payment of the minimum wage, not all wages due the employees.

John Paul Stevens:

Mr. Rothfeld, does the statute provide for that cure?

Charles A. Rothfeld:

No, that has been the Secretary’s interpretation.

John Paul Stevens:

That is something that has been added to the language of the statute.

If you read the statute literally, that cure would be impermissible, would it not?

Charles A. Rothfeld:

Well, the statute, as you say–

John Paul Stevens:

Because the goods were produced in violation of the statute.

Charles A. Rothfeld:

–That’s true.

John Paul Stevens:

So how… where does the Secretary get the authority to okay a cure of that kind, in plain violation of the language of the statute?

Charles A. Rothfeld:

Well, I think the Secretary’s interpretation is not in plain violation of the language of the statute.

The Secretary has taken the position that the goods essentially are tainted, are hot, because they were produced under substandard labor conditions.

John Paul Stevens:

xxx in any way.

Charles A. Rothfeld:

That’s true, Justice Stevens, the statute doesn’t address that issue at all.

Charles A. Rothfeld:

And the Secretary’s reasoning, I think, is that because the goods were produced under substandard conditions, the taint is cured if the conditions are essentially corrected.

And the conditions are corrected by paying, albeit retroactively, what the employees were due.

I should add that Citicorp–

John Paul Stevens:

Well, why is that any different from reading into the statute an exception for a business that just goes out of business and there’s no ongoing violation, which is what Congress was obviously really thinking about?

Charles A. Rothfeld:

–I think that’s quite different, Justice Stevens.

Let me preface my answer by saying Citicorp invited this relief and it was granted by the district courts, the Court of Appeals, over the Secretary’s objection.

The Secretary did not agree that it was appropriate to stay the lower court judgments.

But I think that the Secretary is dealing with an issue which simply is not addressed in the statute at all, whether or not the taint can be cured.

The issue here that Citicorp is talking about is quite explicitly dealt with in the statute.

The statute says flatly no one can sell hot goods in interstate commerce, period.

John Paul Stevens:

No, it says no one can sell goods which were produced under these conditions.

And they were produced in violation of the statute under your view, because the employees were not paid.

Charles A. Rothfeld:

As I say, Justice Stevens, that’s true.

And the Secretary’s position… well–

Antonin Scalia:

Is he interpreting the statute necessarily, or maybe exercising his own prosecutorial discretion?

Charles A. Rothfeld:

–Well, that is one–

Antonin Scalia:

Just as a prosecutor may say, I’m not going to prosecute for a small amount of marijuana, maybe the Secretary thinks that his prosecutorial discretion is better used on other things than seeking a remedy for wages that have been paid up.

Charles A. Rothfeld:

–That is one, I think one approach to what the Secretary is doing.

John Paul Stevens:

So the Secretary would have had authority, if it wanted to, over these intervening years, simply not to enforce this provision in bankruptcy situations?

Charles A. Rothfeld:

That’s true.

John Paul Stevens:

The statute doesn’t require it.

It’s entirely up to the Secretary either to bring cases like this or not.

Charles A. Rothfeld:

That’s quite right, Justice Stevens.

Section 1501 is not self-enforcing.

It can only be brought into effect, as it was in this case, by an action for injunction under Section 17.

So if the Secretary–

John Paul Stevens:

xxx.

Charles A. Rothfeld:

–Clearly not, clearly not.

John Paul Stevens:

Do you agree with your opponent’s view that the same plain language argument would apply to the bankruptcy trustee?

Charles A. Rothfeld:

I think so, Justice Stevens.

Charles A. Rothfeld:

I should add–

John Paul Stevens:

So if a bankruptcy trustee, say, comes into possession of a large inventory of goods that have to be liquidated, he may not liquidate them, at least in interstate commerce, period?

Charles A. Rothfeld:

–Well, let me say several things about that, Justice.

Byron R. White:

Or without paying them at least, which gives the wage earners a priority in bankruptcy.

Charles A. Rothfeld:

Well, as I said, there are several responses to that point, Justice Stevens.

First of all, this case does not involve bankruptcy, so all of Citicorp’s arguments about bankruptcy are entirely hypothetical.

And anything the Court says about the applicability–

John Paul Stevens:

Yes, but there are a lot of bankruptcy situations in which you get the secured creditor, I’m sure, claiming the right to dispose of goods.

It’s not an unusual–

Charles A. Rothfeld:

–No, that is true, although the Court’s decision here doesn’t necessarily have to reach that.

John Paul Stevens:

–I don’t see why not, if the rule is that… all the policy reasons supporting the Government’s position would apply equally in an ordinary bankruptcy, without any secured creditors.

Charles A. Rothfeld:

Well, I think actually that is quite right, Justice Stevens.

And there is no conflict that we see between Section 1501 and priorities in bankruptcy, for several reasons.

First of all, the Bankruptcy Code itself recognizes the distinction that we have drawn in our statute between regulatory statutes and creditor’s rights provisions.

Section 362(b)(4) and (b)(5), it explicitly permits the Government to prosecute an action to enforce an injunctive… obtain injunctive relief when necessary to enforce public law requirements.

District courts and bankruptcy courts have uniformly concluded that the Fair Labor Standards Act is precisely that sort of statute.

So if this were a bankruptcy case, the code itself would permit this very action to proceed and the same relief to be awarded.

Second of all, we don’t think that the application of the Fair Labor Standards Act here affects priorities in bankruptcy at all, even apart from the Section 362(b)(4) and (b)(5) relief.

Now, we talked about this at length in our brief, and what I would like to do, with your indulgence, is explain how we think the statute operates and what we think it means, because that I think answers the question about whether or not this affects priorities in bankruptcy.

The short answer is that as a statute like the Flammable Fabrics Act, for example, which we cite in our brief… if flammable fabrics turned up in a bankrupt estate, the trustee certainly couldn’t claim that he had a right to sell those fabrics until they were conformed to the requirements of federal law.

Precisely the same thing is true here.

If goods that were tainted because they were produced under substandard labor conditions turn up in a bankrupt estate, the trustee cannot sell them until he satisfies the absolute requirements of federal law, which is that the taint be removed.

Now, the taint is removed by the payment of wages, essentially remedying the substandard labor condition.

But that doesn’t affect priorities in bankruptcy.

And as I say, I think as I outline how the operation of the statute and what Congress meant to accomplish, that becomes quite clear.

I’d like to talk about, I think, two things.

First–

Byron R. White:

xxx as a matter of law, is that it, not just discretion?

Charles A. Rothfeld:

–Well, I think the Secretary–

Byron R. White:

That’s the way you put it, anyway, although the law doesn’t say that.

Charles A. Rothfeld:

–That is how I put it, Justice.

But I think however one approaches it, the priorities in bankruptcy, priorities under state insolvency law, are simply not–

John Paul Stevens:

Do you think, Mr. Rothfeld, in the flammable fabrics example that you have discretion to permit these dangerous products to be shipped in interstate commerce?

Is there a difference between the flammable, violations of the Flammable Fabrics Act and this kind of “hot goods”?

Charles A. Rothfeld:

–Well, there would have to be an enforcement action of some sort.

John Paul Stevens:

But you don’t think that the Secretary would have discretion to say, well, we realize these are very dangerous, but we’re too busy to enforce this statute?

Charles A. Rothfeld:

Well, I think it would be inappropriate for an enforcement official to do that.

John Paul Stevens:

There is some difference between the two?

Charles A. Rothfeld:

Well, but the nature of the statutes are identical.

Both statutes are public laws that create general regulatory prohibitions on the introduction of certain goods into interstate commerce, for particular reasons, until those reasons are removed, whether or not it’s a question of enforcement discretion or it’s simply a straightforward interpretation of the statute.

William H. Rehnquist:

Well, but there is, it seems to me, a considerable difference between some item that’s perhaps made out of flammable fabrics and is simply dangerous, branded so by the statutory scheme, and say an automobile that may have been manufactured by a bankrupt automobile company, that the last couple weeks didn’t pay minimum wages.

That automobile is a source of value somewhere, and you certainly want to find some way that you can cure whatever defect there was and get it back in commerce, in a way that you don’t with a flammable fabric.

Charles A. Rothfeld:

Well, I’m not sure that’s entirely true, as a flammable fabric can be cured, can be brought Into conformity with the federal standards.

The flammable fabric is not without value.

It simply is of reduced value because it’s defective.

And I think that–

William H. Rehnquist:

But certainly we shouldn’t strain to reach a result that says Congress intended that these particular goods simply rot here because their defect can’t be cured and they can’t be shipped, if there’s nothing really inherently wrong with the goods.

If Congress says that’s the result, now that’s what has to obtain.

But you don’t certainly strain to reach that result.

Charles A. Rothfeld:

–Well, let me answer that in two ways, Justice Rehnquist.

First, we don’t suggest that that’s the result which should obtain in this case.

I think we all agree that if the employees are paid, if the statutory requirements are satisfied, the goods can be introduced into interstate commerce.

The Secretary won’t object to that.

Second of all–

John Paul Stevens:

You say we all agree.

I don’t agree with that at all.

Charles A. Rothfeld:

–Well, I should say–

John Paul Stevens:

It’s plainly in violation of the statute if one’s going to read it literally.

Charles A. Rothfeld:

–Well, I should say the parties, I think, agree.

John Paul Stevens:

All right.

Charles A. Rothfeld:

And as to whether the Secretary will enforce the statute under those circumstances, I think it is clear the regulations would permit these goods to be introduced into interstate commerce.

John Paul Stevens:

Maybe you agreed too readily that the goods are manufactured in violation of the statute, if the proper wages are not paid before they are rolling off the press.

I mean, what if the wages are paid in arrears and goods are manufactured before the monetary payment has been made?

Does it never occur that goods are shipped in interstate commerce before the workers who produced those goods picked up their paycheck?

Charles A. Rothfeld:

Well, not at all, Justice Scalia.

Antonin Scalia:

Well, then maybe goods, you know, manufactured in violation of the Act doesn’t mean that payment has to be made before they are manufactured; it just means that payment of the wages has to be made at some point, and if it’s made at some point the goods have not been manufactured in violation of the Act.

At least there’s a linguistic way to get there, isn’t there?

Charles A. Rothfeld:

Well, I don’t think that that’s true, Justice Scalia.

Byron R. White:

He’s trying to help you a little.

Of course, if you follow that argument you might prove these goods were not manufactured in violation of the Act, because they might have had a practice of shipping the goods out before the end of the week when the payroll was due.

Charles A. Rothfeld:

Well, I think that’s right, Justice Stevens.

And the result that the Act ordains is quite clear.

Certainly if goods are produced, in the normal course of business employees are not paid until the week following the production of the goods, those goods are not hot goods during the week prior to the payment of the employees.

But if the employees are not paid in the normal course of business, if in this case they are not… as in this case, they are not paid at all, certainly there is a violation of the Fair Labor Standards Act.

The statute says flatly on its face in Section 6 that every employer shall pay statutory minimum wage, and it says flatly on its face in Section 7 that every employer cannot… no employer can work its employees more than 40 hours a week unless they–

John Paul Stevens:

Mr. Rothfeld, supposing you got an accumulation of inventory that was manufactured without the payroll being met for three or four weeks, and there are not enough assets in the estate to make up the wage shortage so the goods could… you could not generate enough money to comply with the statute.

I take it under your view they could never be shipped?

You’d just have to burn them.

Charles A. Rothfeld:

–Well, I think it will be an extraordinary situation where the goods themselves are worth less than the value of the labor that went into them.

If that–

John Paul Stevens:

It depends on how long this has been accumulating.

Charles A. Rothfeld:

–Well, if there were a case–

John Paul Stevens:

They may have shipped 90 percent of those, but then the ten percent that’s left over in inventory is not enough to pay for the full, you know, the full amount of the arrearage.

That could happen.

Charles A. Rothfeld:

–Well, if there were a case where it were impossible to pay the employees what they were owed, the statutory language is quite clear.

Congress provided that no person shall ship hot goods in interstate commerce.

John Paul Stevens:

So the trustee would just have to dispose of those goods, even though it’s highly uneconomic?

Charles A. Rothfeld:

Well, as I say, Justice Stevens, that is a situation which I think is unlikely and that’s demonstrated by the fact that it has never arisen In the 50 years the Act has been in operation.

Antonin Scalia:

Mr. Rothfeld, am I correct that it is also common ground between you and Mr. Lee that there is going to be a frustration of the bankruptcy laws by reason of the Fair Labor Standards Act in a lot of situations?

That is, whenever you have an employer who has intentionally violated the Act and has contracted to pay substandard wages and then goes into bankruptcy, those employees, you both agree, have preference over other creditors if the goods are ever going to be sold; is that right?

Charles A. Rothfeld:

The answer is both yes and no, Justice Scalia.

I think that your characterization of giving the employees priority and characterization of this as affecting priorities in bankruptcy is not correct.

Antonin Scalia:

All right.

On the assumption that it amounts to priorities in bankruptcy, there are going to be a lot of cases where that happens, and we’re arguing here not about bringing order into the whole scheme of things, but just whether one little corner of disorder is going to be eliminated.

Charles A. Rothfeld:

Well, let me give you two answers to that.

First of all, accepting your assumption, it is true that this does not disturb generally priorities in bankruptcy.

Congress was legislating with a particular problem in mind, the problem of employees who did not receive wages, and that is dealt with in this statute explicitly.

And no matter what any other provision of state law or the Bankruptcy Code says, this is the statute which deals with that problem.

The second answer to the question again is that this does not affect priorities in bankruptcy.

The Fair Labor Standards Act does not give employees any claim in the goods, does not give employees a claim on the bankrupt estate, does not create liens, does not adjust Citicorp’s property interest in the goods themselves vis a vis anyone else.

It simply provides a general federal prohibition, a universal prohibition, on the sale of tainted goods.

John Paul Stevens:

Mr. Rothfeld, in the normal violation situation doesn’t the employee have a claim against his employer for a violation of the Fair Labor Standards Act?

Charles A. Rothfeld:

Yes, an employee is given a right under Section 216.

John Paul Stevens:

But he doesn’t have a right to invoke this particular provision?

Charles A. Rothfeld:

That’s quite right.

This is something… and I think that’s an important point, Justice Stevens.

An action of this sort under Section 17, 27 U.S.C. Section 217, is brought in the public interest by the Secretary.

It is not brought to benefit individual employees.

It is brought to combat generally the spread of substandard labor conditions and to exclude tainted goods from interstate commerce… all considerations that Congress was very concerned about when it passed the Act.

I think the Courts of Appeals have uniformly held that this should not be viewed as an action on behalf of the individual employee.

This is an action to enforce a requirement of public law.

John Paul Stevens:

And the purpose of that is to prevent the goods going into the market at depressed prices because they were produced at depressed wages, I suppose.

Charles A. Rothfeld:

Well, there are a variety of purposes to be served.

John Paul Stevens:

But one of the things is unfair competition to the employers who pay a decent wage scale.

Charles A. Rothfeld:

Well, that’s quite true, Justice.

John Paul Stevens:

And of course, that purpose would not be served by the sale of these goods anyway, even after the wages are paid.

They’re going to be sold no doubt at a great discount because it’s a liquidation of an inventory.

Charles A. Rothfeld:

Well, let me take a step backward.

John Paul Stevens:

So that purpose isn’t served no matter which way we decide this case.

Charles A. Rothfeld:

Well, I don’t think that’s true.

Charles A. Rothfeld:

But again, let me step back and talk about all of the purposes in context.

First of all, Congress viewed the exclusion of hot goods in and of itself as a goal of the statute and as an appropriate result.

When Congress passed the Act in 1938, it specifically endorsed President Roosevelt’s characterization–

Antonin Scalia:

The goal itself is offended by these–

Charles A. Rothfeld:

–Well, I think that’s right–

Antonin Scalia:

–these wicked goods being in interstate commerce?

It’s a sort of conceptual problem they have about evil goods just being there in the stream?

You don’t really think that that–

Charles A. Rothfeld:

–Well, all I can tell you, Justice Scalia, is Congress endorsed the description of the goods offered by President Roosevelt–

Antonin Scalia:

–It’s a public policy, we don’t want these offensive goods moving?

Surely there was some human objective.

Charles A. Rothfeld:

–Oh, yes.

There were a considerable number of objectives, Justice Scalia, and I can tick them off for you.

William H. Rehnquist:

That was in the tradition of a lot of these Acts, the Webb-Kenyon Act, the Asher-Summers Act, that all described the tainted goods interstate commerce.

That was the way Congress got at them.

Charles A. Rothfeld:

Well, that’s quite right, Justice Rehnquist.

There were two aspects of this.

One is that was the way Congress got at a problem and accomplished its purpose.

Another is Congress viewed these goods as, as then Assistant Attorney General Jackson put it, the product of ruined lives and, as President Roosevelt put it, contraband which should not be allowed to pollute the channels of interstate trade.

I think Congress did in fact want to exclude these goods for its own sake.

But there were also other purposes–

John Paul Stevens:

Of course, that rhetoric applies to an ongoing business doing it month after month after month.

It doesn’t really apply to a liquidation of a bankrupt, inventory in a bankruptcy, does it?

Charles A. Rothfeld:

–Well, again–

John Paul Stevens:

Don’t you get the same price whether the employees were paid or not?

The rhetoric just doesn’t fit.

Charles A. Rothfeld:

–Well, there were a number of purposes to be served.

First of all, the Congress was concerned… Citicorp has sort of raised the suggestion that Congress was not really concerned with problems of insolvency or employers who just didn’t meet their payroll occasionally.

We think that is just plainly not true.

Congress applied the Act to every employer.

Charles A. Rothfeld:

Congress wrote the Act in 1938 and it was aware of problems of insolvency and marginal employers.

And while it is certainly true that an employer can chisel, in Citicorp’s phrase, an employee by paying him regularly at half the minimum rate, it can chisel him just as effectively by skipping half of its payrolls.

There is no reason to think that Congress was unconcerned with that group of marginal employers who managed to operate close to the edge and stayed in business by bouncing payroll checks that they had no real expectations of ever being able to meet.

Sandra Day O’Connor:

Well, Mr. Rothfeld, there really is no concrete evidence in the legislative history, is there, to tell us that Congress was thinking about this problem of the bankrupt employer?

Charles A. Rothfeld:

Well, I think the clearest evidence of what Congress had in mind, Justice O’Connor, is what it said, and what it said is every employer–

Sandra Day O’Connor:

You have to fall back on plain language.

You certainly can’t find it in the legislative history.

Charles A. Rothfeld:

–Well, I think it does appear in the legislative history.

William H. Rehnquist:

Well, do you feel, if you had the choice between the plain language and the legislative history, which would you choose?

Charles A. Rothfeld:

Well, I think we’ve clearly won on the plain language, Chief Justice Rehnquist.

I’ll be happy to belabor the obvious and emphasize to the Court that there is no question that the plain terms of the statute say exactly… well, say precisely that Citicorp cannot sell hot goods in interstate commerce.

Antonin Scalia:

Do you have any cases in which, never mind bankruptcy, but you just have had an employer who has not paid his employees?

He contracted with them to pay above the minimum wage, but he failed to pay them.

And I asked Mr. Lee the same question and he said that he doesn’t think the law is clear on it.

Is the law clear?

Charles A. Rothfeld:

We think it is clear, Justice Scalia.

We cited in our brief on pages 16 and 17 a number of cases in which employers were sued for back pay.

There is no indication in the case, and I believe there is affirmative indication in the case, that the employers contracted to pay the regular rate, but simply didn’t pay for reasons of financial difficulty.

And when they were sued for back pay, the Courts of Appeals uniformly held that an employer’s financial difficulty is not a defense in the case, not a defense to a suit under the Fair Labor Standards Act.

Antonin Scalia:

If they’re sued for back pay, why do you have to use the Fair Labor Standards Act?

Charles A. Rothfeld:

Well, the Fair Labor Standards Act provides a number of–

Antonin Scalia:

I mean, if he’s promised to pay it it doesn’t matter whether he is legally obliged to promise to pay it.

I don’t know why you’d have to bring a suit for back pay.

Charles A. Rothfeld:

–Well, I think that that’s not quite right, Justice Scalia.

The Fair Labor Standards Act provides a number of remedies which are in addition to those available under state contract law.

Antonin Scalia:

I see.

Charles A. Rothfeld:

It provides liquidated damages and it allows the Secretary to sue.

And that is an important point, because Congress was very concerned that the Act was benefiting employees who were least able to protect themselves and that they would need the assistance of the Secretary’s enforcement.

And the Court emphasized that point in–

Byron R. White:

Do you have cases where the employer has also been forbidden to ship his inventory in interstate commerce, just because he hasn’t paid wages which were above the minimum?

Charles A. Rothfeld:

–I’m not aware of any cases in which the hot goods clause–

Byron R. White:

That would be sort of self-defeating, wouldn’t it?

You say, you must pay your wages before you can ship your goods and get the money to pay them.

Charles A. Rothfeld:

–Well, generally speaking an employer must pay its employees in the course of business.

Byron R. White:

Of course, of course.

Charles A. Rothfeld:

An employer can’t operate on the edge.

Byron R. White:

So I ask you, are there some cases where the employer has been forbidden to ship his goods in interstate commerce or to sell the goods until he’s paid unpaid wages?

Charles A. Rothfeld:

I am not aware of any reported decisions, Justice White.

The Secretary I know does bring as a matter of practice suits under both Section 15(a)(1) and 15(a)(2), that combines the hot goods clause and a direct suit against the employer for violating the minimum wage and overtime requirements.

So I think it is a common practice to bring such suits, and I think it is so clearly accepted that perhaps it hasn’t been discussed generally by the Courts of Appeals.

Sandra Day O’Connor:

Mr. Rothfeld, what about the point Mr. Lee makes, that the Secretary has taken a contrary position in the past?

Charles A. Rothfeld:

Well, I think that’s simply not true, Justice O’Connor.

The Secretary first dealt with this issue in 1966, as Mr. Lee suggested, in the Powell Mills case, largely because, I suspect, the issue didn’t arise very often and still doesn’t arise very often.

We cite in footnote 31 in our brief all of the actions of which we’re aware in which the Secretary has tried to enforce the hot goods clause against secured creditor.

There were two in the 1970’s.

There have been a number in the 1980’s.

There was one in 1966.

Prior to 1966, this issue simply wasn’t addressed.

Mr. Lee has suggested that in 1949 the Secretary took a contrary position.

We discussed that at length in our brief at pages 29 to 31, and we think it is quite clear from the circular that Citicorp relies upon that the Secretary simply meant to say that good faith operators… the Secretary was not dealing there at all with secured creditors, but good faith operators generally could protect themselves only by making certain that their suppliers had complied with the Act.

The Secretary said innocence was a defense simply to criminal prosecution under Section 16, 16(a).

And I invite the Court’s examination of the document that Citicorp relies upon.

I think it is quite clear that our reading is correct.

The Secretary since 1966 has consistently taken the position in every case in which this issue has arisen–

John Paul Stevens:

Within the period between 1938 and 1966, this fact pattern surely arose many, many times.

Charles A. Rothfeld:

–Well, I’m not sure that’s true.

Citicorp represents, and I think it’s probably right, that early on inventory bank financing was relatively rare.

So it may be that there simply were not that many factual situations like this.

And I should add that even since 1966 there have been relatively few cases.

In order to prosecute an action of this sort, the Secretary has to find the violation and obtain an injunction relatively quickly, and he has to do it in the circumstance in which he thinks it’s appropriate.

Charles A. Rothfeld:

So it may be that there simply are not that many instances in which this issue arises.

I should return, while on that point, to the question of the Act, but before I do that I want to deal more directly with the plain language of the statute.

Citicorp’s entire argument, I think as the Court generally has noted, is devoted to running away from what Congress actually said in Section 15.

Its entire argument is based on cases like Holy Trinity, which relies upon the proposition that Congress here simply didn’t know what it was doing when it wrote Section 15(a)(1).

Whatever the propriety of departing from the statutory language in a situation like that, where Congress specifically intended an outcome in a given case, obviously a claim that Congress didn’t know what it was doing is one that should be treated with great skepticism.

Antonin Scalia:

The SG’s office isn’t promising not to cite Holy Trinity to us in the future?

Charles A. Rothfeld:

I cannot make that commitment for all time, Justice Scalia.

I doubt it.

Charles A. Rothfeld:

But I can certainly say that we think that the plain language of the statute is the clearest indication of how the statute should be applied.

And if one even deals with Citicorp on its own ground and says, did Congress mean what it was saying when it wrote Section 15(a)(1), I think there is no question that Congress meant precisely what it said.

Citicorp never exactly says precisely what the term “person” should mean if it doesn’t mean what it is defined to mean in the statute.

But it sort of hints in its brief that it means perhaps dealers and subcontractors or culpable parties.

If Congress had wanted to write those restrictions into the statute, it knew how to do that.

It wrote precisely those restrictions into other provisions of the Fair Labor Standards Act.

Dealers and manufacturers are dealt with by the child labor prohibitions of Section 12.

Willful violators are dealt with in the criminal penalty provisions of Section 16.

Other provisions of the Act deal only with employers.

But Section 15(a)(1), alone among the substantive prohibitions of the Act, deals with “any person”.

That could not have been inadvertent.

If there is any doubt about this, Section 15(a)(1) contains two explicit exemptions, one for common carriers, which was added only because Congress didn’t want a test of the constitutionality of the statute to arise in a case involving a carrier’s obligation to transport goods; the other for certain good faith purchasers which was added in 1949.

That exemption is worth looking at closely, because it is unusually strict.

It is not enough that a purchaser acquire goods for value and in good faith.

To benefit from that exemption, he also must acquire goods in reliance on the producer’s written statement of compliance with the Act.

Now, if Congress felt it necessary to write special exemptions of that sort into Section 15 to benefit two discrete and demonstrably innocent categories of people, it certainly thought that the Act otherwise would reach everyone, no matter how innocent or uninvolved.

Byron R. White:

Would it be consistent with the plain language of the Act if the employer produced a bunch of goods and put it in a warehouse and half of the goods in the warehouse were produced while he was paying his employees and half of the goods were produced when he wasn’t; could he ship the goods that were produced while he was paying his wages?

Charles A. Rothfeld:

Well, probably, Justice White.

The term 3, I believe it’s Section 3(j), to include goods that were handled by employees who… both production and handling.

So if the goods were handled by employees who hadn’t been paid, those goods could not be shipped either.

If the goods had entirely been treated by employees who were paid in compliance with the Act, they could of course be shipped.

There would be no statutory prohibition.

Charles A. Rothfeld:

Our point is that the plain language of the statute applies in a case like this one, where there was the statutory obligation to pay and no pay was made, and where the person as defined in the statute, and Citicorp undoubtedly is a person as defined in the statute, is trying to introduce those goods into interstate commerce.

Section 15 says on its face that Citicorp shouldn’t be able to do that.

Applying the statute here accomplishes precisely what Congress set out to accomplish when it wrote Section 15, because Congress intended to make sure that everyone… well, Congress intended to apply Section 15 to everyone, so that no one would be able to deal in hot goods, so that everyone would be aware to watch out for hot goods, everyone would be aware that they could not benefit from an employer’s failure to pay minimum wage.

That is part of the entire enforcement scheme of the Act.

Citicorp’s argument to the contrary simply ignores the theory on which the Fair Labor Standards Act operates.

I should add one additional thing about this insolvency and bankruptcy point, which we think is a red herring thrown into the case by Citicorp to distract the Court from the plain language of the statute.

As I was suggesting before, the Act essentially creates a universal prohibition on anyone’s ability to deal with certain types of goods.

It does not create property interests in those goods, it does not create liens.

It simply says no one can deal with those goods until they have been cured in the meaning of the statute or until the Secretary determines not to bring an enforcement action.

Nothing in that addresses insolvency.

Nothing in that type of enactment addresses priorities in bankruptcy.

It simply, as I say, creates a universal prohibition as a matter of public policy, a familiar type of prohibition that Congress created many times.

There is no doubt that if, for example, any of these goods had been flammable rather than hot, they could not have been introduced into interstate commerce.

And we think precisely the same principle is at stake in this case.

We urge the Court to apply the statute as it was written, to accomplish the purposes Congress tried to accomplish.

If there are no further questions.

William H. Rehnquist:

Thank you, Mr. Rothfeld.

Mr. Lee, you have four minutes remaining.

Rex E. Lee:

One objective of the Fair Labor Standards Act was to force the payment of minimum wages by chiseling employers, and it had one other objective which was supportive thereof, and that was to take away the competitive advantage in interstate commerce that the substandard employers would enjoy vis a vis those who had paid standard wages.

You do not get at that objective by requiring third parties whose only leverage existed because of something they did a year before the insolvency occurs.

Mr. Rothfeld has conceded, as of course he must, that there is a conflict between the substantive provisions of the Bankruptcy Act, which deal with creditors’ priorities, and the Fair Labor Standards Act as it would be interpreted here.

Antonin Scalia:

Mr. Lee, you do acknowledge that you have got a problem with the Bankruptcy Act in the case where… I mean, assuming that this affects priorities, you have a problem where the employer has intentionally paid substandard wages.

Now, why shouldn’t we correct that impingement–

Rex E. Lee:

No, not where it’s intentionally, but where there’s been some complicity between the creditor and the employer.

Antonin Scalia:

–Oh, you say that even where the employer has contracted, and not because of insolvency but he’s been a bad actor all along, he’s contracted for substandard wages, if he later goes into bankruptcy you think that even those goods can be shipped in interstate commerce?

Rex E. Lee:

Once they’re in the hands–

Antonin Scalia:

Once they’re in the hands?

Rex E. Lee:

–Yes, yes.

Antonin Scalia:

I see.

Rex E. Lee:

As they are… as he has exercised his secured lien, unless there is some complicity, unless there is some fault on the part of the secured creditor.

Antonin Scalia:

Okay.

I didn’t understand that.

Rex E. Lee:

There is no question that Congress has the power to repeal state and federal laws dealing with these lien priorities and to move wage creditors to the head of the line.

But this Court said just last year in Bowen versus American Hospital Association that the implications and limitations of our federal system constitute a major premise of all Congressional legislation and that Congress will not be deemed to have displaced state law unless otherwise the purpose of the Act would be defeated.

At a very minimum, we submit that means that in making decisions such as in this case some kind of a comparative balance of the comparative impact on state and federal laws must be taken into account.

That does not mean that we are taking the position that Congress did not know what it was doing.

We are simply saying that in every instance that I am aware of in which the Court has faced the identical situation in this case, Congress was aiming at a particular problem, used language that would sweep in a few other instances, this Court has not simply woodenly said, therefore those other instances were also legislated unintentionally.

The only cases that deal with it so far as I am aware are Holy Trinity… and there has been no attempt to distinguish Holy Trinity… this Muniz case, and then there is a case that comes fairly close to it, this Court’s recent decision in the Jersey Shore Bank case.

Antonin Scalia:

The only cases in 200 years in which you think Congress has written a statute that picks up something that maybe, had they thought about it, they wouldn’t have wanted to pick it up, and we caught both of them?

[Laughter]

All three.

Rex E. Lee:

But the point is that in every instance where you caught it, you were consistent.

You were consistent in what you did.

And all I’m asking is that you be consistent for a fourth time.

John Paul Stevens:

Mr. Lee, may I ask you, do you think the Johnson case we decided the other day is such a case, the Weber case is such a case?

Rex E. Lee:

Oh, Johnson, I do know the Johnson case, I do know the Johnson case.

It’s an entirely different–

John Paul Stevens:

The language is pretty clear there, wasn’t it?

Rex E. Lee:

–That goes back to the conversation that I had with Justice Scalia.

May I answer the question, Mr. Chief Justice?

It goes back to the conversation that I had earlier with Justice Scalia.

There is a difference between the circumstances where Congress was facing either one interpretation or the other and didn’t actually make it clear which it was doing.

That’s the Johnson and the Weber circumstance, at least as I read Johnson and Weber.

This is a circumstance that is quite different, where Congress used language that no one contends, no one contends, was intended to be applicable.

William H. Rehnquist:

Thank you, Mr. Lee.

The case is submitted.