Franchise Tax Board of California v. United States Postal Service

PETITIONER:Franchise Tax Board of California
RESPONDENT:United States Postal Service
LOCATION:Grove City College

DOCKET NO.: 83-372
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 467 US 512 (1984)
ARGUED: Apr 17, 1984
DECIDED: Jun 11, 1984

ADVOCATES:
David A. Strauss – on behalf of the Appellee
Patti S. Kitching – on behalf of the Appellant

Facts of the case

Question

Audio Transcription for Oral Argument – April 17, 1984 in Franchise Tax Board of California v. United States Postal Service

Warren E. Burger:

Mrs. Kitching.

Patti S. Kitching:

Mr. Chief Justice, and may it please the Court:

We are here today because the Ninth Circuit has created an anomaly.

It has allowed one California taxing agency to garnish property held by the Postal Service on behalf of a third party, but has prohibited another state taxing agency from using a similar garnishment.

This is even though both agencies use analogous tax collection procedures.

In addition, seven circuits have found, and the Postal Service concedes, that garnishment by ordinary judgment creditors should be honored.

It must be emphasized that none of these garnishments were on property belonging to the Postal Service.

The garnishments were on property held by the Postal Service as a mere stakeholder.

The issue in this case, then, is whether the Ninth Circuit should have allowed the Franchise Tax Board to garnish the wages of Postal Service employees who did not pay their California income tax.

California submits that there are two controlling propositions in this case.

The first is that the sovereign immunity of the Postal Service has been waived, at least to the extent that it must honor a garnishment for delinquent taxes on wages of employees.

The second proposition is that the Ninth Circuit erred when it found that an unrelated federal statute dealing only with wage withholding preempted the Franchise Tax Board statute and garnishment.

This case arose because various Postal Service employees did not pay their California income tax.

These taxes are not in dispute.

They were either self-assessed or became final by assessment of the Franchise Tax Board.

In order to collect these taxes, the Franchise Tax Board attempted to garnish the wages of these employees, but the Postal Service refused to honor the garnishment.

William H. Rehnquist:

Ms. Kitching, is that the standard procedure in California whereby the state collects delinquent taxes?

It doesn’t go to court to get a garnishment, but it just kind of has an assessment like the IRS?

Patti S. Kitching:

Yes, Your Honor.

Our statutes are very similar to those of the IRS.

And in our state, once an assessment has become final, the assessment has the force of a judgment.

William H. Rehnquist:

It’s not just true of government employees, but it’s true of everybody.

Patti S. Kitching:

This is true.

As I will discuss a little later in more detail, before our tax assessment becomes final, the taxpayer is given a multitude of remedies.

The taxpayer can go through several levels of administrative review before the taxpayer has to pay the tax and before it comes final.

Once it–

William J. Brennan, Jr.:

Mrs. Kitching, what do you mean when you say… or did you say that it’s the same thing as judicial judgment, that it’s treated likewise?

Patti S. Kitching:

–Absolutely.

William J. Brennan, Jr.:

The administrative–

Patti S. Kitching:

Absolutely, Your Honor.

Patti S. Kitching:

Under California law, the Franchise Tax Board is given–

William J. Brennan, Jr.:

–What’s this?

By judicial decision?

Patti S. Kitching:

–It… it’s by both, Your Honor.

By the Code of Civil Procedure and also by judicial decision.

And as… as this Court has found in the Bull case, Bull v. United States, and GM Leasing, the Internal Revenue Service statutes, which are similar to those of the Franchise Tax Board, when the tax assessment is final, it has the force of a judgment.

So we think we have ample authority to show that our tax assessment–

William J. Brennan, Jr.:

Is it recorded like a judgment and things like that, like a judicial–

Patti S. Kitching:

–Yes.

We can file a lien, Your Honor.

We can file a lien and execute on the lien.

We can have the sheriff serve a warrant.

We can levy on the–

Warren E. Burger:

–Well, file a lien, file a lien on real estates, is that what you’re talking about?

Patti S. Kitching:

–Yes, yes.

It is given the force of a judgment, Your Honor.

It is.

And… and that is similar to that of the Internal Revenue Service.

That is the procedure in tax matters.

Because the taxpayer is given quite a bit of opportunity to present his facts and theories about whether the tax assessment is due.

Byron R. White:

So what is the waiver of immunity that you’re relying on?

Patti S. Kitching:

In this case, first of all, there’s Section 401 of the Postal Reorganization Act which found that the Postal Service may sue and be sued.

And secondly, the Burr case interpreted a waiver of sovereign immunity, a sue and be sued clause, to include garnishment.

And as this Court–

Byron R. White:

Well, garnishment in connection with the judgment.

Patti S. Kitching:

–Yes, that’s right, Your Honor.

And we believe we have the equivalent of a judgment, and that we fit under the Burr case.

Byron R. White:

Do you think you’re suing… you’re suing… you’re suing the Postal Service?

Patti S. Kitching:

Yes, we are.

Just like a judgment creditor would sue them if their garnishment were not honored.

Patti S. Kitching:

Sue and be sued is a term of art, and it means that sovereign immunity has been waived to a certain degree.

Burr determined that that degree included garnishment, and the reasoning in the Burr case pointed out that the government’s liability has not been expanded.

They already owe the money to their employee, and now a creditor is coming in and asking for the money, and the liability of the government isn’t expanded.

They had to pay it anyway.

Thurgood Marshall:

The statute gives the right to sue and be sued.

Patti S. Kitching:

That’s right.

Thurgood Marshall:

So there’s no question about that, is there?

Patti S. Kitching:

We don’t believe there is.

Warren E. Burger:

I take it that when you refer to garnishment, it included also a prejudgment garnishment simply on the basis that a tax had been identified and ascertained.

Patti S. Kitching:

There are only two ways that a tax could become final in California.

First, it would be self-assessed, of course, and then that… that’s no question.

And the only other way is after the tax person or the taxpayer has had the opportunity to go through administrative proceedings.

William J. Brennan, Jr.:

Well, I gather, Mrs. Kitching, your whole argument, or do I correctly understand it, is that you come within the sue and be sued waiver of sovereign immunity because the assessment is treated like a judicial judgment.

Patti S. Kitching:

Yes, Your Honor.

William J. Brennan, Jr.:

That’s your whole argument.

Patti S. Kitching:

That is what we argue, Your Honor.

We don’t think it expands the liability of the Postal Service, and we believe that we should be given at least equal respect to an ordinary judgment creditor because we’re a taxing agency trying to collect the revenue for the State of California, and yet the Postal Service will honor the levy of an ordinary judgment creditor, and we think that’s backwards.

Sandra Day O’Connor:

Mrs. Kitching, do you plan to address the jurisdictional question at all, whether this is a proper appeal?

I guess the court of appeals didn’t hold California’s law preempted.

It just interpreted the federal legislation as not providing for a waiver.

Do you think, then, that it’s a proper appeal?

Patti S. Kitching:

Yes, we do.

It… it’s difficult to exactly understand the opinion of the Ninth Circuit.

We try to explain how they could have come to their conclusion.

As you know, the Ninth Circuit apparently had no problem with waiver of sovereign immunity.

It makes it interesting, because that’s the primary argument of the Postal Service in this case; yet the Ninth Circuit had no problem with that.

The Ninth Circuit, we feel, did find that our statute was preempted as applied.

We feel that they decided that once we… once we had signed this agreement, that that agreement didn’t allow us to use our garnishment statute to… to levy, and thereby they… they voided our statute–

Sandra Day O’Connor:

Well, I guess one–

Patti S. Kitching:

–Pursuant–

Sandra Day O’Connor:

–Could read it the other way and say that the court of appeals just said the federal legislation didn’t do what you said it did.

Patti S. Kitching:

–Except that they didn’t find any problem generally with the waiver of sovereign immunity.

We would have won that case just as the Employee Development Department did, we feel, had not they felt Section 5517 precluded our recovery.

Therefore, we feel they would have found a waiver of sovereign immunity, but that this statute stood in our way and voided our state statute.

Thurgood Marshall:

Mrs. Kitching, why did California not use the other way of having the government collect the money for them?

Patti S. Kitching:

California’s remedies are cumulative, just as the remedies of the Internal Revenue Service are cumulative.

It… it is important to have a prompt and efficient collection of tax, and this is a very efficient way to collect tax.

And we… we have other remedies, but we should be allowed to use all of our remedies.

The Internal Revenue Service can use all of their remedies, and we should be able to use all of ours.

And sometimes taxpayers don’t have other property that we can file liens against, but perhaps they’re employed and we can levy on their wages.

So there are reasons when this would be the only way we could collect the tax–

As I mentioned, there was a companion case.

The Employment Development Department also filed a lawsuit because its garnishment was not honored.

They are responsible for collecting employment taxes, and their procedures are similar to those of the Franchise Tax Board.

The cases were consolidated, and the district court found for the Postal Service.

On appeal the cases were also consolidated.

As I said with regard to the appeal of the Employment Development Department, the Ninth Circuit found that the garnishment should be honored.

They found that the sue and be sued clause had waived the sovereign immunity of the Postal Service.

Also as I said, the Ninth Circuit found, however, that our garnishment was preempted under the facts of this case and because we had signed the agreement with the federal government.

In essence the Ninth Circuit decided that a statute, 5 U.S.C. Section 5517, which was enacted to help the states collect their revenue from all federal employees, should be interpreted to prohibit the State of California from garnishing the salary of Postal Service employees.

The dissenting judge found that the Franchise Tax Board’s garnishment should be honored.

She found no reason to believe that Congress would treat tax… tax debts any differently than it would treat other debts.

In fact, she concluded that the application of the California collection procedures was the only result which would further Congress’ intent to treat the Postal Service as a private employer.

We submit that the sovereign immunity of the Postal Service has been waived with regard to our garnishment.

In 1970–

John Paul Stevens:

Let me ask you a question right there.

Patti S. Kitching:

–Yes.

John Paul Stevens:

The argument, I know, has proceeded entirely on the question whether there’s waiver of sovereign immunity.

But when you read Justice Douglas’ opinion in the Burr case, he seems to assume that the Congress could have decided either to confer immunity or not to confer immunity without even reaching the question of labor.

Do you agree that… that there would be sovereign immunity here if Congress had said nothing at all about this?

Patti S. Kitching:

We mentioned that in our brief because of that comment in the Burr case, and we thought it was an important issue.

We don’t need to argue, I don’t think, in this case that there is no immunity.

We argue rather that–

John Paul Stevens:

Well, is there any law on the question whether an agency such as this automatically picks up the federal government’s immunity or not?

Patti S. Kitching:

–I believe the Burr case is authority that it does not automatically pick up the immunity of the government.

John Paul Stevens:

So that at least… do you argue or don’t you that there’s no immunity to start with?

I’m not quite clear on your position.

Patti S. Kitching:

We… we raise that issue.

We are not premising… we are not relying on that argument.

We think it’s an issue in this case.

We don’t feel we need to rely on that argument for us to prevail.

If there is no immunity–

John Paul Stevens:

It seems to me it’s something we ought to decide before we decide whether… you don’t decide whether something’s been waived unless you first decide that it would have been there to be waived.

Patti S. Kitching:

–I agree with you, Your Honor.

I… I have read many decisions.

There have been many, many decisions by courts.

Seven circuits have decided issues regarding the sovereign immunity of the Postal Service, and I don’t believe in any of those seven decisions has one of the courts addressed that… first that question.

Byron R. White:

But even if… even if there was no immunity in the first place, the argument is that your… that the agreement between the Postal Service and the state forbids collecting delinquent taxes.

Patti S. Kitching:

That’s what they argue, Your Honor.

Byron R. White:

Yes.

Patti S. Kitching:

We don’t agree with that.

William H. Rehnquist:

Even the Burr opinion was… used the term waiver of sovereign immunity as well as the expression Justice Stevens referred to about conferring immunity.

Patti S. Kitching:

Yes.

William H. Rehnquist:

I mean it didn’t speak just in one voice on the subject, did it?

Patti S. Kitching:

That’s right.

I believe the Burr decision is a very favorable decision for our position.

John Paul Stevens:

It’s kind of ambiguous, because it says no question is the power of Congress to waive the governmental immunity is present.

They say there’s no waiver issue in the case.

That’s what Justice Douglas said on page 244.

Patti S. Kitching:

We… we believe that that was an issue.

Patti S. Kitching:

That would make our case easier, I believe, but we don’t think we have to solely rely on that.

I think we… even if there was some kind of immunity, we can argue that it was waived by the sue and be sued clause.

In 1970, Congress created the Postal Service.

It was organized to operate in a businesslike, efficient manner.

At least four circuit courts of appeal have found that it was launched into the commercial world.

This Court in FHA v. Burr found that a sue and be sued clause is a waiver of sovereign immunity and permits garnishment.

We feel that the Burr case is controlling and is authority for our position in this case.

Comparable to the decision in Burr, the Franchise Tax Board is simply treating the Postal Service as a stakeholder and requiring it to turn over money otherwise payable to its employees.

We do not become involved with Postal Service functions or property–

Recognizing that the Postal Service is a mere stakeholder in this case, a decision for the Franchise Tax Board cannot be relied upon by other administrative agencies to burden the Postal Service.

Furthermore, if a decision sustaining the Franchise Tax Board is going to create the administrative burden that’s portrayed by the Postal Service, then why wasn’t the comparable and adverse Employment Development Department decision appealed from the Ninth Circuit?

Even though the Postal Service is simply a stakeholder, it alleges that California’s income tax garnishment should not be honored.

It argues that the sue and be sued clause only waives Postal Service immunity with regard to judicial proceedings.

This argument does not recognize, however, the similarity of tax assessment procedures to judicial proceedings.

As I stated, it was not necessary for California to obtain a court judgment, because a tax assessment is given the force of a judgment.

It should be given the force of a judgment because the procedure conducted is much the same way as a trial.

I will go into a little more detail as to the administrative procedure.

I think it’s important.

During the administrative procedure, the taxpayer is allowed to fully develop his facts and legal theories.

He can not only present them to the Franchise Tax Board, but he can present them to an independent appellate administrative agency.

In addition, he is entitled to an oral agency before that other agency.

It is only after he has been afforded his due process rights that the assessment can be final, and only then does he have to pay.

This is a valid reason why our tax assessment should be given the force of a judgment and why our tax garnishment should be honored.

By requiring the Franchise Tax Board to obtain a judgment even after this administrative process has been completed, the Postal Service would require the repetition of the same process in a judicial setting.

This obviously does not comport with the prompt collection of revenue.

Our final assessment, as I stated, also has authority to be given the force of a judgment under the decisions of this Court.

In Bull v. United States and GM Leasing… GM Leasing was decided in 1976 by a unanimous Court… this Court affirmed the principle that a tax assessment has the force of a judgment.

The principle was necessary, as this Court explained, because the existence of government depends upon the expedient collection of its revenue.

Even though the foregoing principles have been recognized by this Court, the Postal Service refused to give the Franchise Tax Board garnishment at least the same respect to that of an ordinary judgment creditor.

It must be emphasized again that the Postal Service is merely a stakeholder in these garnishment proceedings.

Patti S. Kitching:

During these proceedings it is not being asked to turn over its own funds; it is simply being asked to turn over funds owing to employee taxpayers who have refused to pay their valid state taxes.

The Postal Service will not remit these funds to the Franchise Tax Board; yet it must make such remittances to the Internal Revenue Service, in the Ninth Circuit to the Employment Development Department, and to ordinary judgment creditors.

It is significant to note that the rights of these judgment creditors were only recognized after repetitious and unsuccessful litigation by the Postal Service in seven circuit courts of appeals.

The Postal Service makes a secondary argument with regard to the waiver of sovereign immunity and attempts to support it with Section 5520 of 5 U.S.C. That section authorizes the withholding of local income taxes from federal employees.

The Postal Service alleges there would have been no need to specifically include the Postal Service in Section 5520 if sovereign immunity had been waived.

This is incorrect.

The legislative history makes it clear the Postal Service did not want to be included in Section 5520.

It proposed separate legislation whereby each Postal Service employee could decide whether or not he wanted to have local taxes withheld.

Congress was informed that the history of the Postal Service employees was one of delinquency in the payment of their local taxes.

Subsequently, the Postal Service’s recommendation of voluntary compliance was completely rejected.

Thus, the Postal Service was specifically included in order to remove all doubt that it was required to comply with local withholding.

This inclusion has nothing to do with sovereign immunity.

Byron R. White:

Well, it didn’t… it certainly has got something to do in the sense that it didn’t authorize the collection of delinquent taxes.

Patti S. Kitching:

That’s the… the Section 5517, and I’m… 5517 goes to the collection of state taxes, and 5520–

Byron R. White:

Yes.

Patti S. Kitching:

–Went to the collection of local taxes.

And as I just said, Section 5517 authorizes the federal government to withhold current state taxes from the salaries of federal employees.

In 1974, California and the Department of the Treasury signed an agreement under Section 5517 which implemented current withholding from federal employees.

Section 5517 agreements do not provide authority for a state to require an amount to be taken from a federal employee’s wages in payment of a delinquent tax liability.

California has not attempted to use this agreement for such purposes; rather, our authority to garnish Postal Service employees’ wages emanates from Section 401 and the Burr decision.

The Ninth Circuit confused the concept of current withholding with the collection of a delinquent tax and incorrectly held that these concepts involve the same subject matter.

In their opinion, the agreement covered both areas.

They did not understand what the term “withholding” meant, and that it was a term of art.

They incorrectly determined that any amount taken from a Postal Service employee’s wages, either for current taxes or delinquent taxes, was withholding.

Because of this confusion, I will briefly illustrate the difference.

Probably everyone in this room has an amount withheld from each salary payment to satisfy this year’s tax liability.

Hopefully, the total amount withheld over the year will be sufficient to meet the annual obligation.

This procedure is known as current withholding.

The collection of delinquent taxes concerns a different subject matter.

If someone fails to satisfy a final tax liability in a timely way, the unpaid amount is delinquent.

Patti S. Kitching:

That is when summary tax collection procedures, like wage garnishment, take place.

In this example, Section 5517 covers only the first part, current withholding.

It cannot and has not been used by California as authority for the second, the collection of delinquent taxes.

This conclusion is supported by the legislative history which makes clear that Congress enacted Section 5517 to cooperate with the states in the administration of their tax laws.

Congress could not have intended that when California signed the withholding agreement it forfeited its authority to collect delinquent taxes from the wages of Postal Service employees.

Warren E. Burger:

Didn’t one of the legislative reports, either House or Senate, say affirmatively that this was to try to cooperate fully with the states in–

Patti S. Kitching:

Absolutely, Your Honor.

And the collection of taxes by levying on wages and the collection of delinquent taxes is such an important function to the state that it’s inconceivable to us that Congress would say in order to have the federal government collect your withholding, the current taxes due now for this year, you must give up the right to collect delinquent taxes from the wages of those same employees.

That is inconceivable that Congress would do that to the states, if Congress was attempting to cooperate with the states–

Byron R. White:

–Well, it’s not inconceivable that Congress thought that they weren’t permitted, that the state was not permitted to collect delinquent taxes by… by garnishment.

Patti S. Kitching:

–Well, we don’t… we… the agreement that–

Byron R. White:

Congress may well have, maybe perhaps mistakenly, thought that the sue and be sued clause didn’t have the reach that you say it does.

Patti S. Kitching:

–We don’t think that Congress had any of that in mind when it enacted 5517.

Byron R. White:

I’m sure you don’t.

Patti S. Kitching:

And at that time it was meant to be a gift to the states as to all federal employees, and the Postal Reorganization Act came almost 20 years later.

And in that act the Congress decided that the Postal Service could sue and be sued.

Now, we think it’s inconceivable that Congress would… would only allow us to participate in the withholding if we gave up the right to collect the delinquent taxes from the wages of the… of these taxpayers.

We don’t see any history for that.

The agreements don’t say that.

It only says that we can’t use that agreement to collect the delinquent taxes.

We are not using that agreement to collect the delinquent taxes.

We’re using the waiver of sovereign immunity and the Burr case.

I would like to reserve the rest of my time for rebuttal.

Warren E. Burger:

Very well.

Mr. Strauss.

David A. Strauss:

Thank you, Mr. Chief Justice, and may it please the Court:

The linchpin of my friend’s argument seems to be that the California state administrative tax levy has the force of a judgment or is the equivalent of a judgment.

Now, I don’t think that’s true, but more to the point, I don’t think it’s fruitful to try to discuss in the abstract whether the California administrative levy has the force of a judgment.

The question is what Congress intended, and specifically, what Congress intended when it enacted a routine sue and be sued clause as part of the Postal Reorganization Act.

The question is whether when Congress did this it intended to subject the Postal Service to these administrative levies.

David A. Strauss:

Now, in our view, when Congress said that the Postal Service could be sued, that’s what it meant.

It meant that the Postal Service could be subject to a lawsuit in court, not that the Postal Service could be subject to an administrative order issued without any judicial proceeding whatever.

This Court has always interpreted sue and be sued clauses according to their literal meaning.

A sue and be sued clause authorizes a lawsuit.

A sue and be sued clause does not say and it does not mean that sovereign immunity has simply become inapplicable to a federal agency’s affairs.

Now, I think that what’s happened is because sue and be sued clauses are so common and familiar, the Franchise Tax Board has succumbed to the temptation to forget that it is, after all, language in a statute, and it’s to be interpreted in the first instance at least according to its plain meaning.

That is, as I said, how the Court has interpreted sue and be sued clauses and when Congress was including–

Byron R. White:

Well, what’s… what may… why is it the plain meaning of the statute that the Postal Service may be garnished pursuant to a court judgment?

David A. Strauss:

–Well, in FHA against Burr this Court said that garnishment, post judgment garnishment is an incident of a suit.

Byron R. White:

Well, that may be, but the Postal Service isn’t being sued.

David A. Strauss:

Well, that argument was made in FHA against Burr, too, and the Court’s answer was that the garnishor–

Byron R. White:

So the clause really means more than being sued or sued.

David A. Strauss:

–No.

The Court’s answer was that the garnishor was standing in the shoes of the employee.

Byron R. White:

All right.

So what if the California law says final administrative assessments have the force of a judgment?

They’re unchallengeable.

They’re just like a judgment.

And then you garnish the Postal Service in connection with this judgment.

David A. Strauss:

As long as it is not part of a lawsuit, and there is no contention here that it is part of a suit.

Byron R. White:

Well, part of the state law says it’s the equivalent of a lawsuit in the judgment.

David A. Strauss:

Well, state law can’t alter the meaning of the federal law.

I don’t deny that there may be cases in which it’s hard to tell what’s an administrative proceeding and what’s a suit, but this is plainly not such a case.

After–

William H. Rehnquist:

Is… is your basic reason for that that your concept of sue and be sued clause means a garnishment issuing out of a process of a court?

David A. Strauss:

–That’s right.

In connection with a lawsuit.

Byron R. White:

So that if these… if the administrator here instead of garnishing on the assessment went to court and got a state court judgment, there could be a garnishment.

David A. Strauss:

Yes.

Absolutely.

David A. Strauss:

If the Franchise Tax Board were to reduce its tax delinquencies to judgments–

Byron R. White:

Even though the… even though the state law says don’t do it because you already have a judgment.

David A. Strauss:

–I don’t know that the state law says don’t do it.

My understanding is that state law–

Byron R. White:

Well, it doesn’t say don’t do it, but it says that you already have the judgment.

But they did say it.

David A. Strauss:

–No.

There’s no… this is not… this is not… one of the ways in which this is not a judgment is that after it is issued, someone else can institute a suit to challenge it.

The judicial proceedings in the California courts begin after this order has been issued and they be done by someone else other than the Franchise Tax Board.

This order has no connection to a suit, to a court, to a judicial process, to judicial proceedings.

It’s not reviewed by a judge.

It’s not issued by a judge.

It doesn’t enforce a court’s judgment.

Byron R. White:

What can happen after this assessment becomes what’s called a judgment under state law?

What can happen after that?

David A. Strauss:

I… I don’t know that there’s any place in the state statutes where it is called a judgment.

After it’s–

Byron R. White:

Well, I know, but let’s assume… anyway, there’s a final assessment, is that it?

And your colleague on the other side says that’s the equivalent of a judgment under our… under our law.

What can happen to it after that?

David A. Strauss:

–Well, my understanding is it’s served on the employer, and it’s the employer–

Byron R. White:

Well, I know, but how about the taxpayer?

David A. Strauss:

–Well, the taxpayer, if the employer honors it, the taxpayer–

Byron R. White:

Well, what about the taxpayer?

Forget about the garnishment for a minute.

David A. Strauss:

–Okay.

The taxpayer–

Byron R. White:

There’s a final assessment.

What can the taxpayer do about it besides paying?

David A. Strauss:

–The taxpayer has to challenge it administratively, and if the administrative challenge does not succeed, the taxpayer has to institute a suit.

David A. Strauss:

The suit then works its way up through the California courts and to this Court if there’s a federal issue.

Byron R. White:

So the tax assessment is not final in the sense that the taxpayer can never challenge it.

David A. Strauss:

Oh, certainly not, certainly not.

The taxpayer goes to court to challenge it.

I mean in a sense, to put the point bluntly, this is no more like a judgment than any tort.

It’s an action taken by one person against another that can give rise to a lawsuit if the person who is… who is at loss as a result of the action chooses to challenge it.

Otherwise, it has no connection to a lawsuit.

Byron R. White:

Of course, if the taxpayer… if the taxpayer-employee of the Postal Service gets garnished, like California wants to do, and they take the money out of his pay, and then he challenges the tax, he’s going to get his money back.

It’s just that he’s having to pay in advance.

David A. Strauss:

That’s right, if he successfully challenges the tax.

It’s not just that.

It’s that the Postal Service will have to divert its funds from the objects for which Congress designated now, the payment of this employee, in advance until the matter is resolved.

And I should also–

William H. Rehnquist:

Well, now, what do you mean?

You mean the Postal Service, even though it’s holding funds under a garnishment, nevertheless would feel obligated, holding this week’s salary under a writ of garnishment, would feel obligated to pay the salary to the employee?

David A. Strauss:

–Oh, no.

It wouldn’t feel obligated to pay the salary to the employee, but it would… the basis of the doctrine in this area is that it disrupts Congress’ design for a federal agency to have to pay funds to the creditor instead of to the employee.

William H. Rehnquist:

Well, but the sue and be sued clause certainly covers that if the garnishment issued out of court.

David A. Strauss:

If the garnishment is issued postjudgment, that’s right.

That’s right.

Thurgood Marshall:

But if this were a judgment, it would be collected from the Post Office?

David A. Strauss:

Yes.

From the Postal Service, yes.

Thurgood Marshall:

California could do it?

David A. Strauss:

Oh, yes.

Absolutely.

If the Franchise Tax–

Thurgood Marshall:

So the only problem here is the word “judgment”?

David A. Strauss:

–The problem is that California hasn’t sued us.

Thurgood Marshall:

Is that the one thing, the word “judgment”?

David A. Strauss:

The problem is the word “judgment” or the word “sue”.

Thurgood Marshall:

That’s all that’s involved.

And California says this is a judgment.

If California passes a statute that says that this is now labeled a judgment, then you’re out cold.

David A. Strauss:

Oh, no, no.

Certainly not, Justice Marshall.

California–

Thurgood Marshall:

Well, I thought you said that.

David A. Strauss:

–California… the critical word is the word “sue”.

That’s the word in the statute, the word “sue” and “sued”.

Thurgood Marshall:

Well, suppose California said this is a suit?

David A. Strauss:

Well, if California were to make it a suit–

Thurgood Marshall:

They’d have to do more, then.

David A. Strauss:

–They could, yes.

Thurgood Marshall:

They’d have to go to court.

David A. Strauss:

Yes, they would have to go to court.

That’s right.

Thurgood Marshall:

Well, suppose they go to court?

Suppose they named us as the tax court?

David A. Strauss:

If they were to set up a court–

Thurgood Marshall:

A tax court?

David A. Strauss:

–If they were to set up a court, even a tax court–

Thurgood Marshall:

And the tax court issued a judgment.

David A. Strauss:

–And the tax court issued a judgment–

Thurgood Marshall:

You would honor it.

David A. Strauss:

–We would honor it.

Now, that goes to the point that was brought out–

Thurgood Marshall:

But we’re not… we’re not engaged in semantics at all.

David A. Strauss:

–Well, it’s not just semantics.

This distinction between state administrative agencies and courts, while obviously there are borderline cases, there are, whenever you have a distinction, it’s sometimes clear.

David A. Strauss:

And this is an instance in which it’s clear.

It’s also a distinction, I should point out, that’s drawn by Congress in 28 U.S.C. 2283; they have the Injunction Act.

It’s a distinction for purposes of many exhaustion doctrines which say you have to exhaust state administrative remedies but not state judicial remedies.

John Paul Stevens:

Mr. Strauss, are there any cases in which this Court has held that a federal agency is not immune from judicial process but is immune from some kind of administrative process?

David A. Strauss:

I don’t know that this issue has ever come up.

John Paul Stevens:

Is there a doctrine… what is the scope of the doctrine of sovereign immunity?

It’s immunity from suit, isn’t it?

David A. Strauss:

It’s immunity from suit and state process.

John Paul Stevens:

Well, where do you… what case talks about immunity from anything other than suit?

David A. Strauss:

Well, I don’t know that a state has ever attempted to enforce its administrative process against federal agencies, presumably because it was clear that it couldn’t.

But it does seem to me that–

John Paul Stevens:

Well, there’s no authority for the proposition that it couldn’t, is there?

David A. Strauss:

–Well, there’s no authority for the proposition that it couldn’t or that it could.

It does seem to me that if a state decided–

John Paul Stevens:

Well, the Keifer… the Keifer case really says the first question is has Congress created an immunity when it created this agency.

David A. Strauss:

–Well, that’s–

John Paul Stevens:

That’s what Justice Frankfurter said is the issue.

David A. Strauss:

–Well, I think that’s… that’s right in the case of agencies like those involved in Keifer.

I think what Justice Frankfurter was doing there was taking that agency, and he said this… this looks exactly like these other 40 agencies to which Congress has attached sue and be sued clauses.

So unless there is some reason to think otherwise, we are going to assume that Congress meant–

John Paul Stevens:

Well, he even went farther, as I read the opinion, and said that when there was a silence with respect to the Smithsonian Institute, that there was no implied immunity.

David A. Strauss:

–Well, that it was historically accepted that the Smithsonian Institute–

John Paul Stevens:

Without a sue and be sued clause.

David A. Strauss:

–That… that… that is true, because it, too, was structured like these agencies.

The Postal Service, however, is not structured in the least bit like those agencies.

There is a great deal of… of discussion in the Appellant’s brief designed to show that the Postal Service is really just like a private corporation.

That was not Congress’ idea at all.

Congress specifically rejected a proposal to make the Postal Service a corporate body, and instead put it in the executive branch of the government.

And the Postal Service has a dozen protections that any private corporation would love to have and several handicaps that would cause any private corporation to fold up.

I think, as I said, the critical question is whether California has sued, whether it has gone to court.

David A. Strauss:

That’s the language that this court’s opinions have used in interpreting sue and be sued clauses.

The Court said that a sue and be sued clause makes an agency amenable to judicial process.

It said that a suit for purposes of the clause is a proceeding in a court of justice or litigation between parties in a court of justice or the proceeding by which the decision of a court is sought.

John Paul Stevens:

May I ask one other question, Mr. Strauss.

Supposing the California procedure… and I don’t know whether it did… required the taxpayer to pay the tax if he wanted to challenge an assessment.

Would that make any difference?

In other words, that there… that he had to part with his money before he could question the assessment.

Then the money that would be collected from the government would have to be paid before he could raise any question about it.

Would that make any difference in your argument?

David A. Strauss:

I don’t think that would make any difference, Justice Stevens.

John Paul Stevens:

Okay.

David A. Strauss:

That’s our position.

The one other point that I think is important is that in this case in addition to the plain language of the statute, language interpreted by this Court to mean suits, we have unusually strong, if somewhat unconventional, evidence that the very congressional committees that drafted the Postal Reorganization Act and put the sue and be sued clause into it would have been very surprised to learn that they had rendered the Postal Service subject to orders like the Franchise Tax Board.

Shortly after the Postal Reorganization Act took effect, municipal tax collectors from several major cities came to Congress and complained that local income tax delinquencies of federal employees had become a serious problem.

And as my friend pointed out, Postal Service employees were frequently the subject of this discussion, apparently because they’re very large in number, they’re present in every city, and the turnover in Postal Service jobs is very rapid, and that makes collection more difficult.

Now, these local tax collectors sought legislation from Congress that would permit the withholding of local income taxes from the wages and salaries of federal employees.

Now, as I said, this proposed legislation was considered by the same committees that had recently drafted the Postal Reorganization Act.

It was the Post Office and Civil Service Committees of both Houses.

Now, the Board concedes in its brief that if its interpretation of the sue and be sued clause were correct, the local tax collectors did not need any additional legislation to deal with the Postal Service.

They could just have issued administrative orders to the Postal Service, as they would have to any other employer.

William H. Rehnquist:

Well, is that quite that clear?

I think there’s something to your opponent’s distinction between withholding and levy under assessment.

David A. Strauss:

Well, the California statutes provide that withholding taxes can be collected in precisely the same way; in fact, under the very same statutory provision.

William H. Rehnquist:

But withholding… are you talking about withholding taxes that the employer owes or taxes that should have been withheld from an employee?

David A. Strauss:

Well, withholding taxes that the employer should have withheld from the employee.

William H. Rehnquist:

Yeah.

I don’t think that’s quite the same.

David A. Strauss:

Well, if… if… I mean this is not… I think this point, Justice Rehnquist, is not in dispute; that if the sue and be sued clause means what the Franchise Tax Board says it mean, that this legislation sought by the local tax collectors and subsequently passed, the Section 5520 of Title 5, is, in their words, superfluous?

Byron R. White:

Why?

I don’t understand that.

Byron R. White:

Just… you’re talking about just withholding current taxes.

Without this legislation, I don’t suppose the Post Office Department would have any authority whatsoever to withhold from an employee’s pay state taxes.

David A. Strauss:

It would have the same authority that it has now to withhold delinquent taxes from the employees.

William H. Rehnquist:

Which would be after an assessment levied–

–Yes, exactly.

–By the Franchise Tax Board.

Exactly.

And withholding taxes aren’t collected by assessment levies.

David A. Strauss:

No, but there’s… no… nothing in the sue and be sued clause that suggests there’s a difference between an assessment levy and a withholding tax levy.

It’s an administrative levy designed to facilitate the collection of taxes.

William H. Rehnquist:

But ordinarily, withholding taxes simply aren’t collected by levy.

They may be collected under the threat of levy, but they’re simply collected by the employer agreeing, perhaps under threat of levy, to withhold from the employee’s paycheck.

David A. Strauss:

Well, I assume they’re collected because–

Byron R. White:

The employee… you’re just bootstrapping.

Unless the employer has the authority to withhold something from the employee’s wages, there’s not going to be any delinquent withholding taxes.

David A. Strauss:

–There’s not going to be any delinquent withholding taxes.

There may be delinquent taxes.

Byron R. White:

Exactly.

And so there won’t be any delinquent withholding taxes to be collected by a levy.

So this statute was essential to have the employer deduct from the wages every month a portion of the employee’s estimated tax.

David A. Strauss:

Well, I agree that it was essential, Justice White, but only because of our interpretation of the sue and be sued clause.

If the Franchise Tax Board’s interpretation of that clause is correct, then the taxing authority–

Byron R. White:

I don’t… I don’t see how the sue and be sued clause could possibly authorize the employer from withholding wages.

If the employee went to the employer and says how come you’re withholding money from me; pay me my whole… and he says well, I just… I just want to cooperate with the state.

David A. Strauss:

–He would say, presumably–

Byron R. White:

He would lose.

The employer would lose.

David A. Strauss:

–He would say I have this order from the state taxing authority.

Byron R. White:

The employer… state taxes, or he can’t give you… can’t… can’t issue an order to them saying withhold taxes.

David A. Strauss:

I don’t… I don’t know why not, if state process allows it, as state process would.

David A. Strauss:

There is no federal bar… there would be no federal bar to the taxing authority issuing an order, an administrative order to the Postal Service saying pay us X amount of taxes out of the employee’s pay.

And whether these are anticipated or delinquent liabilities certainly doesn’t reflect anything in federal law.

Warren E. Burger:

I don’t know whether Virginia is a more favored state, but in Virginia, residents of Virginia who work for the federal government have their Virginia tax taken out of their federal salary.

David A. Strauss:

Oh, yes.

That’s… that’s pursuant to legislation, 5517.

That’s right.

Those statutes are now on the books.

My point is that at the time that the local tax collectors asked for that legislation, they came to Congress right in the wake of the Postal Reorganization Act, asked that legislation with respect to the Postal Service, and were not told why do you need this legislation; we gave you what you needed in the sue and be sued clause.

You already have it with respect to–

Thurgood Marshall:

Well, I take it the position of California is that you are sued.

David A. Strauss:

–Well, you’re sued now or–

Thurgood Marshall:

In this case here.

David A. Strauss:

–Well, in this case that’s… that’s a complexity that… that I think, you know, is… needs to be understood, Justice Marshall.

We don’t claim–

Thurgood Marshall:

–Will be defended.

David A. Strauss:

–Well, if they win this suit, Justice Marshall, then they won’t have to sue us.

Then we will be obligated to honor the administrative levies.

We don’t claim that this suit is barred by sovereign immunity.

We claim that we win this suit on the merits because we didn’t have to honor the administrative levy.

Sandra Day O’Connor:

Mr. Strauss, should our interpretation of the sue and be sued clause in Section 401 be affected in any way by our understanding of Congress’ intent in trying to set up an independent agency with the Postal Service?

Should the structure and intent of Congress help us in determining the scope of the sue and be sued clause?

Now, while it isn’t set up totally as an independent business, as you’ve already said, Congress attempted to move in that direction and give the Postal Service more businesslike attributes and make it a more independent agency.

And it seems to me one of those attributes might well be that it should be subject to administrative withholdings in the nature of a garnishment such as this.

Is that possible?

David A. Strauss:

Well, I don’t think there’s any reason to think that’s true, Justice O’Connor.

What Congress… it’s true that Congress did change the organization of the Postal Service in some ways, but it did also put in a sue and be sued clause.

And it’s the construction of that clause that’s really at issue.

Now, I should say that I suspect when the drafters of the act put in the sue and be sued clause, they did not… probably did not envision that they were opening up the Postal Service to whole waves of new kinds of litigation.

They probably thought they were doing very little.

There is no explicit consideration of the clause in the legislative history, and from all appearances they treated it as a piece of–

Sandra Day O’Connor:

Well, I don’t know that whole waves of litigation is an accurate description.

This seems like a pretty normal state activity to want to collect its taxes and to treat the administrative garnishment much like a judicial garnishment.

David A. Strauss:

–Well, it is… it is a qualitatively different form of process from that to which federal agencies are subject.

There is no dispute that if they tried… if the Franchise Tax Board tried to serve one of these levies on any other federal agency that the agency would not have to honor it.

There is, I take it, no dispute that if the Franchise Tax Board had sued this levy on the Post Office Department before 1971, the Post Office would not have had to honor it.

So the only question is whether Congress withdrew that.

When Congress passed the sue and be sued clause, I should point out it also made the provisions of the Federal Tort Claims Act a very heavily… a very heavy qualification on any waiver of immunity from suit applicable to the Postal Service.

So the net effect on the Postal Service is very little.

In the common run of contract and tort cases, all the sue and be sued clause did was to make a plaintiff name the Postal Service instead of the United States as a defendant.

William H. Rehnquist:

Are there a fair number of agencies with sue and be sued clauses who are not protected, as you suggest, by the Federal Tort Claims Act?

David A. Strauss:

I don’t know, Justice Rehnquist.

I don’t know the answer to that question.

John Paul Stevens:

May I ask if… if you win this case and the California legislature passed a statute and said that before serving any levies on or tax assessments on the U.S. Postal Service, you shall go over to the nearest judge and get it signed by a judge, and then you may serve it, would that cure the problem?

David A. Strauss:

That’s… that begins to get into this… into this borderline area that comes up in these other instances in which the Court has to distinguish between state administrative agencies and state judicial bodies, like Lynch against Hasl.

John Paul Stevens:

Well, it wouldn’t take much more than that, in any event, would it?

David A. Strauss:

Well, at some point the intervention of a judicial officer would make this a judicial proceeding, that’s right.

John Paul Stevens:

And how… how does it matter to the United States whether that intervention takes place or not?

David A. Strauss:

Well, I think there are two answers to that, Justice Stevens.

When the Post Office… the Postal Service itself is the party in interest, when the state, or for that matter it’s just adventitious that this case involves a state, when a private party is trying to invoke state administrative process to obtain Postal Service assets because he has a dispute with the Postal Service.

If he proceeds against the Postal Service in state court, the Postal Service can remove the proceeding.

Congress saw to it that the Postal Service would have the right to get out of state court and into federal court when it wanted to.

If he proceeds against it in a state administrative agency, the Postal Service can’t remove it.

When the… when the Postal Service is not the real party in interest, when it’s, as this case, the Postal Service is holding funds–

John Paul Stevens:

Well, let me limit my question to cases in which an official authority, an official representative of the State of California is proceeding against the government agent.

Can it then make any difference whether you get the intervention of the judicial officer or not?

David A. Strauss:

–I think it can, at least for purposes of removal.

John Paul Stevens:

You mean if there… I don’t know what you’d remove if they serve you with an assessment.

You’re not… the Postal Service doesn’t have any interest in contesting the amount of the assessment, would it?

David A. Strauss:

Oh, no.

That’s why I confined my answer to cases in which the Postal Service is the real party in interest.

John Paul Stevens:

Oh, I see.

I see.

David A. Strauss:

In cases like this, the… the interest is different and in a way greater.

I think from the point of view of the employee who is subject to this levy, it makes a great deal of difference whether he has been sued and has been to court and has had a chance to have his defenses heard and has a final judgment entered against him and–

William H. Rehnquist:

Well, but under Burr a sue and be sued clause allows garnishment prior to judgment.

David A. Strauss:

–Well, under Pretty the sue and be sued clause allows attachment of a federal agency when you have a dispute with the federal agency.

The Court has not yet held that prejudgment wage garnishment–

William H. Rehnquist:

Well, but certainly Burr has dicta in it.

So I mean you’re not… in answer to Justice Stevens, you’re… you’re not talking basically about a situation in either case where there’s been a final adjudication of the right.

David A. Strauss:

–Well, if… if… if the case involves prejudgment wage garnishment, Justice Rehnquist, that’s right that there’s been no final adjudication, of course.

But there are two things to be said about that.

Prejudgment wage garnishment, I gather, is practically no longer used because it’s so difficult to conform to procedural requirements.

And second, I think it does make a difference if the employee is already in court, and he’s involved in a judicial proceeding, and his rights and liabilities are going to be determined, and he doesn’t have to initiate a suit.

John Paul Stevens:

But in response to that, you earlier told me it didn’t matter if he had to pay the judgment… pay the assessment in order to challenge it.

You’d still take the same position.

David A. Strauss:

Well, if the state law required that the employee would have to pay the assessment, yes, I think as far as the Postal Service was concerned, we would still say that like other federal agencies, we don’t have to honor this assessment at all.

I don’t know where that would leave the employee under state law.

Lewis F. Powell, Jr.:

Mr. Strauss, describe to me what California would have to do to make this law compatible with your views of a judicial decision.

David A. Strauss:

It would have–

Lewis F. Powell, Jr.:

You have the tax board, and the tax court finds a delinquency in the payment of state income taxes.

David A. Strauss:

–That’s right.

Lewis F. Powell, Jr.:

At that point would the statute have to provide that… that the state would have to go to court to enforce the delinquency?

David A. Strauss:

The statute wouldn’t have to provide that in order to collect from the Postal Service.

Lewis F. Powell, Jr.:

Well,… well, if… if… if the state went to court, would it sue the Postal Service?

David A. Strauss:

It would sue… I don’t know what the form of the suit would be.

I suppose the form of the suit would be against the taxpayer.

Lewis F. Powell, Jr.:

The taxpayer.

David A. Strauss:

But what the Court said in Burr–

Lewis F. Powell, Jr.:

So that the tax… the tax board has already found that the taxpayer owes them money and had, as I understand it from the Attorney General, a due process hearing and lost.

Are you suggesting that California now would have to provide an additional procedure in which there would be a trial before a judge?

David A. Strauss:

–My understanding, Justice Powell, is that they don’t have to provide any adversary… I think they may as a matter of state law, but they don’t have to provide any adversary hearing at all.

Lewis F. Powell, Jr.:

They don’t now under California law, but I’m trying to ascertain what California would have to do to comply with what you said it must do before it can garnishee the salary owed by the Postal Service.

David A. Strauss:

They would have to go to court, Justice Powell.

They would have to sue.

And our reason for that is that that’s what the statute says.

It authorizes the Postal Service to be sued, and the Court has said–

Lewis F. Powell, Jr.:

Even though the administrative agency provided all of the due process that a court would provide?

David A. Strauss:

–Well, if an… if it were a court and not an administrative agency, and as I’ve said, there are borderline cases.

But this is a–

Lewis F. Powell, Jr.:

Well, there are regulatory commissions in every state in the United States as well as in the government that have both judicial and administrative legislative powers.

David A. Strauss:

–That’s right.

There is no contention, as I understand, that they are, in fact, a court, and so they would have to go to court and sue.

Lewis F. Powell, Jr.:

They would.

David A. Strauss:

Yes.

And that’s–

Warren E. Burger:

They wouldn’t have to go to judgment to get to this point.

I suppose 90 percent of all the garnishments in the United States are prejudgement.

The garnishment is served on the same day as the first process.

So as a practical matter, if they did it that way in California, started the suit, served the garnishment, it would wash out because they would probably have no defense in the vast majority of the cases.

David A. Strauss:

–My impression, Mr. Chief Justice, is that prejudgment wage garnishments are not widely used any more because of Snydak and other decisions imposing strict procedural requirements on them, and that they’re not a very popular remedy.

Warren E. Burger:

That doesn’t comport with studies on the subject.

David A. Strauss:

Well, as I said–

Warren E. Burger:

They were reduced after Snydak, but they’re still overwhelmingly prejudgments.

David A. Strauss:

–Well, that was my impression from… from the government’s experience with garnishment orders.

But the question is whether Congress could have distinguished, the Congress, whether it makes sense to attribute to Congress a distinction between garnishments issued incident to or pursuant to or an execution of a lawsuit or an order to give a court jurisdiction.

And orders that are not garnishments, that are not connected to a court or to judicial process at all.

And in view of this Court’s… since the question in the case is the interpretation of a sue and be sued clause, and since the Court has consistently said that sue and be sued clauses have to do with judicial process and judicial proceedings, I think the best understanding of Congress’ intent is that it did intend to subject the Postal Service only to orders connected to court proceedings or judicial proceedings and not to unadjudicated administrative orders.

If the Court has no further questions, thank you.

Patti S. Kitching:

Mr. Chief Justice, and may it please the Court:

Warren E. Burger:

Ms. Kitching.

Patti S. Kitching:

–The Postal Service apparently does not feel confident of the preemption argue, since they devoted only about two pages in their brief to that argument, and has not addressed that argument today.

Therefore, we feel basically that they are arguing the sovereign immunity.

As I said before, the Franchise Tax Board feels it comes directly under the Burr case and that it is not expanding any liability of the Postal Service.

The Postal Service would not have to divert any of its own funds.

The funds do not belong to the Postal Service.

They belong to the employee.

The Solicitor General has admitted that the collection of taxes from Postal Service employees has become very difficult, and we submit that the Postal Service should cooperate with the State of California in collecting these taxes.

Instead of being helpful, however, the Postal Service attempts to raise the shield of sovereign immunity to protect delinquent taxpayers.

Thurgood Marshall:

Well, while you’re on policy, why don’t you have the postal authority to deduct it, to withhold it?

Patti S. Kitching:

Pardon me?

Thurgood Marshall:

Why don’t you have the postal authority to withhold the taxes from the employee?

Patti S. Kitching:

Your Honor, the problem is–

Thurgood Marshall:

You can do that with a piece of paper.

Patti S. Kitching:

–That’s right, Your Honor.

We can have a certain amount withheld.

However, employees can earn money from other sources and end up with a delinquency even though they had some money withheld.

So that’s not the only way to collect the tax, and sometimes it isn’t enough.

Thurgood Marshall:

Well, you don’t expect the postal authority to collect the money that they work on outside jobs, do you?

Patti S. Kitching:

No, we don’t.

But I’m explaining that’s why the taxpayer would have an additional tax liability that it would be necessary to collect through garnishment.

Thank you, Your Honors.

Warren E. Burger:

Thank you, counsel.

The Honorable Court is now adjourned until tomorrow at 10:00.