Hunt v. McNair

PETITIONER:Hunt
RESPONDENT:McNair
LOCATION:Allegheny County District Court

DOCKET NO.: 71-1523
DECIDED BY: Burger Court (1972-1975)
LOWER COURT: South Carolina Supreme Court

CITATION: 413 US 734 (1973)
ARGUED: Feb 21, 1973
DECIDED: Jun 25, 1973

ADVOCATES:
Huger Sinkler – for appellees
Robert McCormick Figg, Jr. – for appellant
Robert McCormick Figg, Jr.

Facts of the case

Question

Audio Transcription for Oral Argument – February 21, 1973 in Hunt v. McNair

Warren E. Burger:

71-1523, Hunt against McNair.

Robert McCormick Figg, Jr.:

Mr. Chief Justice and may it please the Court.

Warren E. Burger:

Would you just suspend for a moment until we get clear, counsel.

Robert McCormick Figg, Jr.:

Excuse me, sir.

Warren E. Burger:

That’s fine, alright.

It takes a moment or two to clear the decks.

You may proceed now Mr. Figg.

Robert McCormick Figg, Jr.:

This is an appeal from the judgment of the Supreme Court of South Carolina which upheld against the challenge under the First Amendment of the Constitution of the United States.

A transaction between the State of South Carolina and the Baptist College of Charleston wherein made under a 1969 statute entitled the Educational Facilities Act.

The transaction on behalf of the State was to be conducted by its Educational Facilities Authority which this Act provided should be State’s Budget and Control Board.

That Board is composed of the Governor, the State Treasurer, the Comptroller General, the legislative and two legislative chairmen ex-official, it’s the core of the State Government.

It’s the governing board of the State’s Departments of Finance, Property and Personnel and the Act gives it these duties which I shall refer to “as an incident of its functions in connection with the public finances of the State.”

The Baptist College of Charleston is an activity of the South Carolina Baptist Convention and it’s chartered to “operate a Baptist Liberal Arts College for educational purposes.”

It manages the affairs of the college and trust for the South Carolina Baptist Convention and the courts below have found that it is a religious activity and that the question is properly raised in its case under the First Amendment even though they didn’t agree with that view of the decision.

Under this transaction, the — what is happening here is that the State under its own Constitution cannot give a grant to a religious institution to construct a building or a facility even though it’s of a neutral purpose because its own Constitution prohibits direct or indirect aide to a sectarian institution and our code has said that that means that no state funds can be given to a religious institution.

It undertakes therefore to authorize the Budget and Control Board which as I say is the core of the State Government to issue South Carolina State Revenue Bonds which would give the purchases immunity from federal income taxation on the interest and thereby benefit the institution.

To that extent, it enables, in other words the borrowing on behalf of the college to be at a lower rate of interest and would otherwise supply and it uses in order to accomplish this, the format of legislation under which was commonly known as self-liquidating project will authorize back in 1933 and 1934 and by other Act under which electrical systems and water works and what not were financed by out of the earnings of an operation and out of the profits, the fees that were derived from the consumers.

Warren E. Burger:

Has the State ever defaulted on a revenue bond to the extent that you could call it a default?

Robert McCormick Figg, Jr.:

In this case?

Warren E. Burger:

No, no.

In the experience of the State, do you — if you happen to know?

Robert McCormick Figg, Jr.:

If our State has ever defaulted?

Warren E. Burger:

Yes.

Robert McCormick Figg, Jr.:

On the contrary, our Supreme Court has made a statement in one case that in this enlightened age the State will not allow one of its revenue bond issues to go into default even though it’s not technically liable on them and we’ve never had a default on our revenue bond issue of the electric or the water works or the others.

Now, the State did have one revenue bond issued and what they call the South Carolina Public Service Authority, the Santee-Cooper Hydroelectric Project but those bonds have been paid over the operation of an electrical system and the charges to consumers.

Now, this is a little different though from the usual self-liquidating projects because here, they do not let the project issued the bonds and then pay off out of its operations because the project is the college and the college issuing revenue bonds would not be able to give the purchases of the tax immunity which the State can give.

So, what the State does is to take a conveyance from the Baptist College of a part of its campus, then it leases its back at an agreed rent, leases that campus back at an agreed rental and that rental is of course calculated to pay off the principal and interest of the bonds which the State has issued.

Now, the Act provides that this Authority, the Budget and Control Board, that is the State Government’s core, issue and sell to the public State of South Carolina general revenue bonds, payable principal and interest only from the rent to be received by the Board under the lease.

And those proceeds, as I said, are to be spent in a general program because it’s not just for religious colleges, it’s for all non-public colleges in the State and for religiously neutral facilities, these building and facilities.

But in order to make the bond saleable, the State Board as empowered by this Act to fix and revise from time to time and charge and collect fees and charges for the use of and for the services furnished by the project.

Robert McCormick Figg, Jr.:

So that, while the bonds are issued, pledged against the rents, the rents will never change because you don’t need to raise or lower the rents.

The rent is calculated to be the amount required to pay off the bond issued.

What the Board have to do with and in seeing that the rent is paid, is to have to do with the adequacy of the fees and charges for the use of the project.

Just as in an electrical project, the project itself would raise or lower the rate.

Here, the State assumes by legislation a responsibility in that regard.

In fact, the Act says that a bondholder can compel the Authority to exert that power to re-fix and revise from time to time and charge and collect fees and charges for the use of the project.

How about the cost, Mr. Figg, may they also cut the expenses in order to be shared in net rentals?

Robert McCormick Figg, Jr.:

Yes, I wouldn’t — I don’t know that they are specifically authorized to do that but they are commanded to see that enough fees and charges are charged by the college to pay the maintenance, the repair and the operation of the college as the first group that to be taken into account in fixing and revising the fees and then next, pay the principal — they’re sufficient to pay the principal and interest on the bond.

Now, I would just ordinarily, of course should think that rent came in operating that shows you the language here is more referable in its wording to an ordinary self-liquidating project but it does point out the fact that the income, the funds that are pledged for these bonds are the student fees and charges.

Not just the rent because there would be no rent if the fees and charges are not adequate, the rent wouldn’t be paid.

If the fees and charges are too high and the student body is cut down, perhaps the rent wouldn’t be paid.

If the college got discouraged, perhaps the project would seize.

What would happen then?

We think the State under power given to operate these projects would have to step in for the bondholders and see that the religious activity is operated.

Now, that might have to stop —

Byron R. White:

What are the practicalities of these?

Why can’t this college do this itself?

Robert McCormick Figg, Jr.:

Well, just as all other colleges do, Mr. Justice, I think it can and I think that it — it’s an annual performance especially in these days of changing course.

It’s been an annual performance that student fees at virtually all institutions are not only fixed every year but affixed higher every year.

The requirements have been going up and of course, to some extent, that affects the patronage.

Byron R. White:

I think, I know that but what I’m trying to get at is what is the reason for the South Carolina legislation?

What brought it into being?

Were the colleges unable to do this kind of thing?

Robert McCormick Figg, Jr.:

The reason was that the colleges, I suspect, were having trouble from the fact that not being public.

Their tuition fees have been larger and therefore their student patronage has been smaller.

And the State has interest into itself because of that fact.

It has been recognized by this Court to be a public purpose to stimulate education and the State is undertaking to, I suppose to protect itself against having to take over.

The load has been carried by some 21 private colleges in South Carolina.

Byron R. White:

You’re here asking us to —

Robert McCormick Figg, Jr.:

Excuse me.

Byron R. White:

— invalidate the statute.

Would you throw the whole statute out?

Robert McCormick Figg, Jr.:

I would — I would think that on our provision under the First Amendment is that any — that what involves the State Board, that is the Board of Budget and Control Board in guarding against default on this bonds, we think that it has to keep itself informed to oversee to an extent the fiscal operations of this college.

We think that it’s too late when default has occurred.

We think that it has a duty, if not spelled out in so many words, so strongly implied by the powers that are given to the State Board in respect to the payment of these bonds.

We think it has a duty to see that the student fees and charges are at all times going to be calculated to keep that rent coming in, in the amount that will discharge the bond.

If these were an ordinary self-liquidating project, the college alone would in the first instance fix its income.

And then, if that were insufficient, as I recall, a trustee would be appointed by the Court to operate the project and do adjust to the fees, so that the project would pay out and this is the normal set up as I believe of the self-liquidating project.

In this case,–

Byron R. White:

Let me repeat my question.

Robert McCormick Figg, Jr.:

Yes.

Byron R. White:

You were asking us, you were attacking the statute here.

What I’m asking you is, in your theory, does the entire statute fall or would you be content if certain of the powers granted were rejected.

Robert McCormick Figg, Jr.:

Well, I would think that the unconstitutional part of the statute if it is unconstitutional are those under which the duty is either expressly or by implication or the function is put upon the State Board to fix and adjust from time to time the charges.

Byron R. White:

So you don’t — you do not claim that the State lending its credit is unconstitutional in the sense that by lending its credit, the institution gets a much lower interest rate on its borrowers?

Robert McCormick Figg, Jr.:

No, it would —

Byron R. White:

And that degree of benefit, you do not contend is unconstitutional?

Robert McCormick Figg, Jr.:

We do not contend that.

Byron R. White:

So, you’re going strictly on the entanglement?

Robert McCormick Figg, Jr.:

It’s — this was strictly —

Byron R. White:

Fairly rather than any benefit theory?

Robert McCormick Figg, Jr.:

That’s right, Mr. Justice.

We think it’s strictly an excessive entanglement proposition.

We think that there are two things that the Court, we asked the Court or submit to the Court our entanglement of an undesirable nature under the First Amendment.

One is that the State should busy itself with the operating affairs of a religious activity to be sure that it pays off bonds issued in the name of the State.

And the other is, that it be under the eventual possibility of having to take over and operate it because it in effect is the operator of the project when you apply a self-liquidating piece of legislation to it.

Warren E. Burger:

Your response prompts a question, a hypothetical question, if you’ll permit it.

Robert McCormick Figg, Jr.:

Yes, sir.

Warren E. Burger:

Suppose the State having made the judgment that you suggested earlier, the State made the judgment that rather than build two new universities or three, it would offer to these colleges in the State that they would build needed buildings on their campus or near it and leased these buildings to the church-related college, straight leasing arrangement, would you think that that was unconstitutional?

Robert McCormick Figg, Jr.:

It wouldn’t seem so under the First Amendment, as I understand the holding of this Court in the Tilton case, our Court —

Warren E. Burger:

Do you think this is pretty close to Tilton then, if you had that approach?

Robert McCormick Figg, Jr.:

That’s right and I think if the State of South Carolina had given these people the money to build this and walked away and forgotten about it, as the Government did in Tilton, except for the common and against religious use, I think that it would’ve been valid under the First Amendment.

Our State couldn’t do that because of its own Constitution and so this has been the approach to adopt the ordinary self-liquidating project legislation to getting around its own Constitution which prohibits it from doing what the Government did in the Tilton case.

So that —

Byron R. White:

Before you go on, I think you said there were 21 private colleges in South Carolina that benefit or have the right to benefit from this fund of this Board.

I take it from what you’ve just said in response to Chief Justice’s questions that if you have a non-sectarian college, you wouldn’t be here?

Robert McCormick Figg, Jr.:

That’s right.

Byron R. White:

What percentage of the student body had this college is Baptist?

Robert McCormick Figg, Jr.:

Certainly not all.

I believe that the student body would be mostly Baptist.

I’d say the majority is Baptist.

60% I’m told by my colleague who is better acquainted with the affairs of the institution than I am —

Byron R. White:

No restriction on taking non-Baptist then I take it?

Robert McCormick Figg, Jr.:

Not at all.

Byron R. White:

I’d like to ask you another question since I interrupted you.

The record may show it but I don’t recall it.

You referred to the responsibility of the State as I understood you to fix the fees charged to students in order to assure that revenues are sufficient, is that the way statute reads or does the indenture merely imposed covenants on the college itself to fix fees that are adequate to service the debt.

Robert McCormick Figg, Jr.:

On page 41 of the jurisdictional statement which is where the Act itself is set out under subsection L.

It reads “the authority may fix, revise, charge and collect rates, rent fees charges for the use of and for the services furnished or to be furnished by its project and may contract with any person so forth in respect to it.

Such rates, rents, fees and charges shall be fixed and adjusted in respect of the aggregative rates, rents fees and charges from such project so as to provide fund sufficient with other revenues if anyone to pay the cost of maintaining, repairing and operating the project in each and every portion thereof to the extent that the payment of such costs is not otherwise been adequately provided for to pay the principal of and the interest on outstanding revenue bonds of the authority issued in respect of such project as the same shall become due and payable in three and so forth.”

Byron R. White:

I see that now.

Robert McCormick Figg, Jr.:

And then it provides such rates and so forth shall not be subject to supervision or regulation by any other department, commission, board and so forth other then the Authority.

Now, the other place for the fixing of rates and fees is on page 36.

The Authority has given the power to determine the location and character of any project to be financed to construct, reconstruct model, maintain, repair, operate, lease of lessee or lessor and so forth.

And then it’s to designate a participating institution for higher education as each agent to determine the location and to build it and operate it.

And as the agent of the Authority, they enter into contracts for any or all of such purposes including contracts for the management in operation of such projects.

So, the Authority legislatively given is — to the power of legislatively given to the authority is to do all of this and to constitute the college as its agent in accomplishing its construction, its operation, its financing, its fee charging and everything else.

And then subsection F to issue bonds, that’s where as the bond section and G generally to fix and revise from time to time and charge and collect rates, rent fees and charges for the use of or for the services furnished or to be furnished by a project or any portion thereof and to contract and so forth and to establish rules and regulations for the use of a project.

Now, I’m not sure that all of that language would be in just those words as the Act had been tailored for this particular transaction.

I think what the Court have occurred is that language of the ordinary self-liquidating project statute has been put in here and the Authority thereby has been — has been endowed with the powers of the ordinary operator of a self-liquidating project.

Robert McCormick Figg, Jr.:

And if it’s going to do what the statute says that it’s empowered to do and as the bondholders under subsection N of the Act have a right to go to Court and get an order than it do, it has got to be well-posted on the daily and the monthly and the yearly affairs of this college.

It’s got to do what the ordinary responsible project will do for itself in always seeing the operation and we submit that this whole fee provision, these fee powers, after all, fixing fees is a continuous process.

There’s no formula for it.

It involves estimates.

William H. Rehnquist:

Mr. Figg —

Robert McCormick Figg, Jr.:

Yes, oh —

William H. Rehnquist:

What is your client’s standing in this action?

How does he claim that he was harmed by the statute?

Robert McCormick Figg, Jr.:

He’s a citizen and taxpayer whose interest would be affected like in —

William H. Rehnquist:

But if you prevail, you’re not going to prevent the expenditure of any tax monies, are you?

If you prevail and simply get some of the restrictions taken of, presumably, no tax monies are going to be saved.

Robert McCormick Figg, Jr.:

I think that the spending of tax monies has been avoided by this process.

Warren E. Burger:

And you concede there’s no aid — your complaint is not that there’s aid being given in violation of the Religion Clauses.

Robert McCormick Figg, Jr.:

There’s no aid being given in violation of the First Amendment.

Warren E. Burger:

You’re only con —

You know there’s aid — there’s the aid been given?

This isn’t a violation.

Robert McCormick Figg, Jr.:

I don’t think so, under the decision —

Warren E. Burger:

It’s only the entanglement that you’re concerned about?

Robert McCormick Figg, Jr.:

What is the entanglement?

Warren E. Burger:

No, I say, you are concerned about the entanglement but then going back to Justice Rehnquist’s question how does the entanglement produce a standing platform for you and your clients?

Robert McCormick Figg, Jr.:

Well, we would say, if Your Honor please, I suspect that we don’t have a standing problem in this case under the — under the State procedure if there’s a standing problem under the First Amendment then it arises for the first time in this Court.

That question hasn’t been raised below and the Court below considered that the plaintiff had standing, I believe.

In the Circuit Court, the question wasn’t raised on appeal, it wasn’t raised the first time this case came up to this Court and it hasn’t been raised on the second time.

Warren E. Burger:

Well, maybe if there is a standing question or if there was a standing question, perhaps, there isn’t one anymore?

Robert McCormick Figg, Jr.:

Well, that could be very well be.

I must confess that I haven’t given too much thought to the question of standing because before I entered this case, the Court had been satisfied by the standing of the plaintiff and the question has never come and we didn’t anticipate that that would be.

As I’ve tried to make a claim, I don’t see anything but an entanglement question but I do think that the responsibilities put upon the State Government — I would think that this plaintiff who has brought his complaint as a citizen and a resident of the State of South Carolina, the State has recognized that he has some interest in its operation here.

It’s the Court to recognize that interest and I think it could very well be that his interest in the censuses of controversy between one of its citizens in the State of South Carolina as to whether it is violating the fundamental law of the United States as well as of the State which he first challenged.

He challenged both that this Court could very well consider that it’s the standing between the citizen and his Government rather than a monetary standing under the First Amendment.

Robert McCormick Figg, Jr.:

I’m not sure that the First Amendment is necessarily a monetary question.

I think that question goes beyond perhaps the amount of taxes he might have to pay or any other question.

And to conclude, if Your Honors please, the entanglement of fixing fees, we think which involves the previous year of surplus or deficit, the amount of maintenance expected, the repairs, insurance, the depreciations, salaries or wages, supplies, rents and so forth that all of that has got to be taken into account by the State in advance of the fixing of fees, default us to be guarded against and not awaited before the State would take action in discharge of the statutory duties.

And in the event that the college proved unable or unwilling to continue, then we think that in the end, the fact that the State would have to see to the operation of this religious activity to pay off the bond in itself will produce objection of an entanglement between Government and the church activity.

Warren E. Burger:

Thank you, Mr. Figg.

Huger Sinkler:

Mr. Chief Justice, may it please the Court.

Warren E. Burger:

Mr. Sinkler.

Huger Sinkler:

I certainly hope that the appellant here is regarded as having standing because this case does have some significance not only in South Carolina but throughout the United States (Inaudible).

This type of statute, this particular statute was adopted from the Massachusetts statute.

You have similar statutes in New Jersey which yesterday filed amicus brief relating this case which I hope Your Honors will entertain.

There are similar statutes in Ohio that I know of because I have correspondents with the bond counsel out there and quite a number of bonds had been issued in the State of New York.

We were lucky enough to have somehow rather foreseen or from the trend, the dissents perhaps in what might happen in Tilton, in Lemon and DiCenso, so when we started this case in 1970, we raised this First Amendment, had the question raised.

This is a declaratory judgment suit —

William H. Rehnquist:

What do you mean when you say, you had the question raised?

Huger Sinkler:

Well, because as bond counsel it’s our duty to see that all possible questions involving the constitutionality of the Act could, were properly presented and disposed of before people would be invited to buy bonds based on the statute.

The statute had serious implications.

William H. Rehnquist:

But it takes adversary implications (Voice Overlap).

Huger Sinkler:

This is adversary litigation of the tested variety which is quite frequent in all courts, state courts to determine question of constitutionality of statutes.

And we felt that this did raise serious questions.

They have been countless millions of dollars of bonds sold in this particular area.

None can be sold now as a consequence of the pendency of this litigation while it’s not particularly significant to the Baptist College because this litigation lasted so long they came along and financed most of their — got most of their or most of their problems with the private loan is still have an application before the Board.

It’s important to the 27 colleges that other colleges in South Carolina which need this type of help.

Are you employed by the State?

Huger Sinkler:

In this particular case, we’ve been associated.

We actually originally implied that —

But you are representing the Government?

Huger Sinkler:

Representing with — at the request of the Attorney General, yes with his permission at his request.

So, you are — (Voice Overlap)

Huger Sinkler:

I stay in the position of the State, yes and urging you to hear and decide the case in favor of the State.

Now, to get to the merits, I’d like to go back a bit and explain the nature of this transaction because it is not the ordinary self-liquidating type of revenue bond that really gained this (Inaudible) in the 30’s at the time when my friend and I served in the South Carolina together and had a lot of those statutes.

Huger Sinkler:

This is comparable to the normal industrial development revenue bond which have been going on and I think gained their sentences in the 60’s.

What happens here is this.

The Authority takes title.

It makes this lease with the college.

In this lease, it sets up the covenants which the colleges got to perform.

It then mortgages the project to a trustee bank and at the same time, assigns to that trustee bank its rights under the lease.

So that actually, the State is nothing more or less than conduit.

Now, the statute spells out what the State could do.

But actually, once this contract is made, the State steps aside, the trustee bank takes over.

Just as in the case of all industrial development bonds.

So that —

So, that you’re stating now that the —

Huger Sinkler:

The bondholder looks to the trustee to enforce his rights not to the State.

Then you’re saying that the trustee bank cannot be an agent of the State in any way.

Huger Sinkler:

Well, it may be deemed to be an agent of the State in the sense that it is exercising.

But it’s actually really acting in a fiduciary capacity.

I think the trustee in one sense an agent but it’s an agent not at that stage for the State.

It’s an agent for the bondholders which it represents.

That’s its primary duty.

Because the trustee bank receives the money, pays it out and under the indenture enforces the rights and remedies of the bondholders.

And that’s the way that’s frankly, a routine type of financing in the industrial revenue bond field and in this college type of field.

This record contains no trust instrument of any kind?

Huger Sinkler:

It — I don’t think it contains.

It does not contain the trust instrument but what it does contain are rules and regulations that the State Board adopted following Tilton.

And in those regulations, it prescribes that there shall be a lease and it prescribes that there shall be an indenture, a trust indenture.

I think you’ll find those on — beginning on page 47 in the jurisdictional statement are the regulations relating to the functioning of the Authority which spell out just exactly what takes place.

So that, as I see it in the, in Tilton, there was an outright grant of money but there was also the covenant not to violate the religious that make use of the property for religious purposes.

We have to do that in a slightly different way because we’re not granting money and we can’t make the institution pay us back.

We’ve given them nothing, there’s nothing to take back.

So, what we do is to subject that property to our covenant that will not be use and so long as the institutional, any voluntary grantee of that institution on this property it can’t use it for religious purposes.

Huger Sinkler:

Now, that part of the, our regulations and the holding of grant holding in Tilton seem to me to be identical.

The only difference here is that we’re not granting money.

We are really taking an advantage of a provision in the internal revenue code to give these people tax exempt but that’s actually rather significant.

A million dollar saved at least two percent.

Well, this college actually refinanced most of its — the money that originally wanted to get because the application is now cut down from and we noted that to the Court for about $3.5 million to about $1 billion.

Potter Stewart:

Mr. Sinkler, may I interrupt you just a minute.

Are bonds actually been issued by any denominational college in South Carolina?

Huger Sinkler:

Not in South Carolina, no sir.

Potter Stewart:

This is the first?

Huger Sinkler:

This is absolutely the first.

But they happened elsewhere.

They happened elsewhere so that — and I think the fact that in New Jersey, some reason or other, their litigation stopped under amend didn’t come back up.

I think there are really just twin cases, so they filed a — the petitioner filed an amicus yesterday which I hope you all would —

Potter Stewart:

And then you — I think you said that the outset, Mr. Sinkler also there was a — there’s an Ohio case, it was (Voice Overlap)?

Huger Sinkler:

Not Ohio but some of the people in squire there’s out there had talked to me about the fact that (Voice Overlap).

I think that you may, I don’t know whether there’s Ohio case testing the validity of the statute or not.

I really don’t know that.

I should know the answer to that now but sorry I don’t.

But you might look because I’m sure that there have been bonds issued in Ohio.

New York, that I know of.

Massachusetts, I’m practically certain in.

I think, —

William O. Douglas:

I think where the New Jersey decision came here before did it not?

We set it —

Huger Sinkler:

Yes, you set, you treated South Carolina and New Jersey are exactly alike.

William O. Douglas:

New Jersey Supreme Court sustained its —

Huger Sinkler:

Yes, it’s the same as South Carolina did but the same effect.

Their statute, they say they vary their procedures if you’ll notice their amicus brief, they use and then maybe a little better, frankly.

It might be a little less entangling.

I think it’s a distinction without a difference.

Huger Sinkler:

We use this lease and you’ll assign the rights of the lease to the trustee bank and you take it over there.

In New Jersey, they use a loan agreement approach which we have used in other types of financing in South Carolina but not in this.

But this is —

William H. Rehnquist:

Mr. Sinkler, do you agree with what I understand to be your adversary’s explanation of the controversy here that the dispute is whether the credit shall be pledged with or without the conditions that neither of your dispute that the — it’s proper to pledge the credit of the State in this type of situation?

Huger Sinkler:

Well, I think, actually, as I understand it, and I hope I understand it, he simply alleges that the machinery or device at which we have employed, this is the lease in the State agency which has these powers which are all translated into the lease agreement.

He claims that involves entanglement which is forbidden under the decisions of this Court.

William H. Rehnquist:

If you were to prevail, what sort of relief are you to get?

Huger Sinkler:

Get very narrowly, I think Your Honor, I would simply say that I don’t see anything wrong with the thing except the fact that he might, you might want to say that the State Board could not do these things but I think the State Board ought to be allowed to supervise a lease agreement which would contain all these premises.

William O. Douglas:

Well, Mr. Sinkler, Mr. Figg’s argument puzzled me for a moment because I thought as Mr. Justice Rehnquist questions imply that perhaps he was saying, “Just strip out the entanglement features and let the rest of the statute stand.”

Huger Sinkler:

Well, he doesn’t think —

William O. Douglas:

Well, that isn’t the way it is.

The relief he asked for in this complaint, I’m looking at page 10 is an order declaring that the Act here above mentioned is unconstitutional, null and void.

And that sounds to me as if he’s saying by reason of excessive entanglement; the wholes statute must be declared (Voice Overlap).

Huger Sinkler:

I think it’s his basic position.

Warren E. Burger:

Well, isn’t there a difference between the position he has asserted in these briefs and somewhat modified position that he took in oral argument here?

Huger Sinkler:

I was, it pressed me that way Your Honor, that it use that way.

William O. Douglas:

Well, let’s assume we rejected your opponent’s position that there was excessive entanglement and put aside the question of aid that he says isn’t involved in the suit, there would still be the question there, wouldn’t there?

Huger Sinkler:

Question of what?

I’m sorry, I didn’t understand.

William O. Douglas:

Of lending the State’s credit.

Huger Sinkler:

Well, the State’s credit is not as lend especially in effect.

All the states —

William O. Douglas:

Do you think there’s no benefit from lending the State’s credit?

Huger Sinkler:

Oh, lending the State — the fact that the State is the borrower and not the college amounts to about, is worth at least two percent per million dollars a year.

William O. Douglas:

So, this is a substantial benefit?

Huger Sinkler:

Surely, it’s a substantial benefit.

(Voice Overlap) $20,000 of 20 years is $400,000.

William O. Douglas:

As bound counsel?

Huger Sinkler:

Yes.

William O. Douglas:

Even if you’re opponent loss, you would still have to wrestle with that issue in terms of whether the bonds evaluated?

Huger Sinkler:

Oh, as to the State Supreme Court has held that the statute doesn’t get involved in State constitutional grounds, I would assume that if there’s no entanglement or First Amendment question, we could go right along with it.

William O. Douglas:

I don’t think that was Mr. Justice White’s question, Mr. Sinkler.

It was, as I understand that, at least I’d like to ask that question.

If there is state aid here, some kind of aid, as you said (Voice Overlap) benefit to the institution.

Then isn’t there a question, may I ask if there’s a question whether independently of the entanglement features, this statute violates by reason of the aid features, by reason of the First Amendment.

Huger Sinkler:

The aid feature is getting back to the action of the Court in Wilson against Essex — that’s sort of the Wolman against Essex; it was to the Ohio case.

Well, I think there, you have to go back to the first and second premises which you examined these statutes under.

William O. Douglas:

Yes, but I should think it’s bound — bound counsel, you would like the whole thing decided not just that you have to do.

Huger Sinkler:

Of course, I do.

The — I gather that the thrust in this attack was sufficient to bring the whole First Amendment into play and that —

William O. Douglas:

Do you think the issue was raised?

Do you think the issue was raised in the lower court?

Huger Sinkler:

It certainly was raised.

I think if you read the opinion of the —

William O. Douglas:

Was it determined?

Was it decided by the South Carolina Court?

Huger Sinkler:

Precisely sir.

Precisely.

Let me see if I could —

William O. Douglas:

They decided that the extent of aid lent was not violated with the First Amendment?

Huger Sinkler:

They said that the action taken was not violative of First Amendment.

William O. Douglas:

And the appellant, your opponent didn’t bring that part of the issue there?

Huger Sinkler:

Yes, you hear that all of the questions.

He brought it all here, but I think he laid special emphasis on the fact.Certainly, the object to the statute is a secular one because of its purposes to help the individual throughout the State.

It’s not to help the individual.

And even in Wolman against Essex where the Ohio statute was giving money to the parents of children who went to parochial schools.

The District — the three-judge court which you all approve, upheld recently held that that object was perfectly valid secular one.

And then the question of whether it’s principal or primary effect advance or inhibit the schools down that I suppose, they are more religious schools in the colleges.

I think more.

I think the actual breakdown, if you’re interested are.

Huger Sinkler:

There are 19 four-year colleges of which 12 have Baptist Episcopal or something.

William O. Douglas:

Mr. Sinkler, have any of those non-denominational colleges issued bonds under this?

Huger Sinkler:

No.

William O. Douglas:

Not a single bond has been issued under this?

Huger Sinkler:

Not a single bond has been issued under this sir.

We’ve been litigating for three years.[Laughter]

Warren E. Burger:

If I understood Mr. Figg’s litigation position in this Court, and he’ll correct me later if I did misunderstand it.

Once that the State gets a substantial benefit, the State gets an aid by being relieved to enlarge its State colleges, and in exchange, it gives this “aid” or assistance by lending its credit to these colleges.

Huger Sinkler:

That’s correct sir, they do get — the State does get the benefit of having, not to have to build additional four-year schools.

Warren E. Burger:

But what he objects to is the entangling relationship?

Huger Sinkler:

Well, I think that’s the emphasis of his argument.

So, I think perhaps he suggested that the whole things is bad anywhere under the First Amendment but I think the First Amendment question to ask, I think it was Mr. Justice White.

I think if you, the Supreme Court decision is in one of these things, I guess it’s in the jurisdictional statement and the last time it went back to the Court, they very carefully.

I think that decisions begin on about page 15 of the jurisdictional statement.

They specifically pass on these three questions.

I don’t think that if you look at the substance and not the form of this transaction, you will see that it’s the State is simply, they can’t view it and the aid that they are giving is to because those bonds will be in the State of South Carolina, they will have the tax exempt status permitted under the IRS Section 103.

And as a consequence, save these institutions substantial sums of money.

William O. Douglas:

Suppose you had a default on a bond issue like this, what would happen?

Who would enforce the right of the bondholders?

Huger Sinkler:

The trustee would do it.

William O. Douglas:

Would the State do anything?

Huger Sinkler:

The State would presumably be a party and presumably would join in the prayer of the trustee.

I’m sure that the State would want to see the — would not want to see any bonds issued.

As a matter of fact, even industrial development bonds which are really industrial bonds out in the State.

Our State, same body reviews the financial standings, the figures of those companies before they approve bonds.

Would the trustee or the State go to the college and say, “Look, you must raise your fees and tuitions –”

Huger Sinkler:

Well, the trustee would do it.

The trustee — in other words, the rights of the State under the lease agreement which is a document which prescribes that rates and charges shall be sufficient to pay when due principal, interest, redemption fee, if any.

They are assigned to the trustee, just as in the case of the industrial development bonds.

All one transaction, all happens at the same time.

Huger Sinkler:

First of all, make you conveyance.

You next make your lease.

You make your trust indenture, the trust indenture not only mortgages the property itself but has an assignment in it of the leaseholder’s states so that the trustee at that time takes on, takes over everything, the State stands aside and the State has been in the transaction for the course of few hours at best because all of these things are in theory done simultaneously as Your Honor knows.

Thurgood Marshall:

What about that language. Did you figure out about the authority has to fine out all of these, it must do itself?

Huger Sinkler:

Well, I think the — I don’t think the statute says that I think Mr. Figg was arguing that the statute meant that the Authority had to do that.

I don’t think the Authority has to do that as a practical —

Thurgood Marshall:

Well, he read from it.

Huger Sinkler:

Maybe I misunderstood it.

(Inaudible)

Huger Sinkler:

Well, oh, as a parallel of the Acts, it simply says that the authority may exercise all its powers.

As I — those are not, it’s not mandatory on the Authority to do that.

As a practical matter, the Authority would do that through the lease.

But as I say, the lease is assigned to the trustees, so that it steps out.

But actually, this entanglement is actually what would happen, would be that whoever the bondholder himself or the trustee for the bondholders, is willing to act would go to Court and ask that the covenants be enforced.

All that the mortgage be foreclosed because as I pointed out in this particular support.

But what about the Act that’s before us.

The Act does put —

Huger Sinkler:

The Act doesn’t say, you shall do that.

The Act simply says, if you please, Your Honor that those are all powers if maybe availed of.

Page — I think you go back to page 39 — 39 says, the Authority may.

Then the resolution, you talk about the resolution which of course is also one of the working papers at the time of the transaction.

It’s term to set out on page 39 as to what it can do and what it can’t do.

But actually, you could strike Section 11 out of the, this paragraph 11 out of the Act and not of heard anything as I see.

Because if we do it all in the lease, on your resolutions.

Then if there’s a default foreclosure —

Huger Sinkler:

That’s just the strict, regular mortgage foreclosure.

Yes, then the, then the school can be or can be operated as a religious school or (Inaudible)?

Huger Sinkler:

Well, no.

The Act says this neither the school nor any voluntary transferee may do this.

Now, you say, the college is for — lets the mortgage get foreclosed with the idea that it will —

That’s an involuntary transferee.

Huger Sinkler:

Then it will get some third party to buy it then sell it back.

That’s the point me and your brother Figg —

Huger Sinkler:

That would be collusion that the courts could upset.

I mean, that’s the collusive transaction.

You couldn’t premise a decision here on this field.

Well, let’s say, we’re not collusive.

Let’s where there are non-collusive buyer that the —

Huger Sinkler:

Well, that’s right —

I wonder then operate — this is a religious (Voice Overlap) –organization which in the mean time has had all the State support.

Huger Sinkler:

Well, that’s a pretty far fetch.

Well, isn’t that the argument made in the brief of your brother?

Huger Sinkler:

Yes, that’s the argument made in the brief.

That’s a point but we have to have the foreclosable mortgage to be able to sell bonds from a practical standpoint.

That’s the reason that was put in there with that recognition.

But that doesn’t really answer the —

Huger Sinkler:

I think that’s so remote and actually if the college where they have most the property now, people could use it for anything.

But I think that in this particular case, and I suppose it’s a bad way to patent statutes on particular cases but this was just the college was really in financial trouble when this thing started.

It’s fortunately not in it now.

It had a very valuable tract of land that would be security and they wanted to — they wanted to authorize and you have to pull up that and that was one of the things.

So, this foreclosable mortgage with three of the covenant really is security to the guy who buys the bond.

Thank you.

Warren E. Burger:

Thank you.

Do you have anything further, Mr. Figg?

Robert McCormick Figg, Jr.:

If you’ll endorse me for a couple of moments, Your Honor, you — I did not intend to cut down the attack that was made in the original complaint on this litigation by the position I took here today but the Tilton case was decided since his complaint withdrawn and I’m not sure it would’ve been drawn the same way.

Byron R. White:

Well, I gather then Mr. Figg, if one would have think that independently of the entanglement features of one thought that the aid out and in of itself was a violation of the Establishment Clause.

You would, you’d advance that argument?

Robert McCormick Figg, Jr.:

I thought it was until we tried to apply the Tilton case to this case.

I thought the aid itself and we’ve contend it in the first argument in the Supreme Court of South Carolina.

Byron R. White:

Well, you’re not going to give it up based on Tilton, are you?

Robert McCormick Figg, Jr.:

Didn’t intend to give it up but —

Byron R. White:

So, none of that the issue is here for us to decide?

Robert McCormick Figg, Jr.:

Yes.

What we were trying to do here was to accommodate ourselves to the entanglement theory because I believe both of Walz case and the Tilton case have been decided since this complaint was drawn and presented to the Circuit Court.

Can you tell me what makes this college involve here questionable under the First Amendment?

You said it’s a Baptist College, what makes it a Baptist College?

Robert McCormick Figg, Jr.:

Well, it’s chartered to operate a Baptist Liberal Arts College.

Its trustees reported by the South Carolina Baptist Convention.

It operates —

But it has an open admissions policy?

Robert McCormick Figg, Jr.:

It has an open admissions policy.

Are all of its faculty Baptist?

Robert McCormick Figg, Jr.:

No, neither its students nor its faculty eliminated —

Then it’s not required to take any course in religion if he doesn’t want to?

Robert McCormick Figg, Jr.:

I don’t think they’re require to take any course and merely offer a Baptist offering but I know this that when I believe that counsel in this case were arguing at one time that it wasn’t a Baptist activity and I think there’s a certain Baptist, the South Carolina Baptist Convention called them on the cop, didn’t he?[Laughter]

And told them he was.

Was somebody at some sort, at some sort of this, in this case decided that it was —

Robert McCormick Figg, Jr.:

Yes, the Circuit Judge said it was at least in part a function of the South Carolina Baptist Convention.

The pay goes to the money.

The Baptist Convention gives this money.

Robert McCormick Figg, Jr.:

Yes, they give them capital —

Well, does that make it a — does that make it a Baptist, a sectarian institution in the sense the aid to it will support religion?

Robert McCormick Figg, Jr.:

Well, the Baptist thinks that it’s a religious activity of theirs.

I don’t care what?

How about under the First Amendment?

Robert McCormick Figg, Jr.:

Well, I think that — I think that it’s evident.

This institution is an activity of the Baptist of the South Carolina and I believe that they think, regardless of this application for assistance that governmental interference with what they’re doing here would be a violation of the Federal Constitution.

They think that this is a religious activity.

They would bind the Court or –?

Robert McCormick Figg, Jr.:

No, it wouldn’t bind the Court but at some evidence of what they think they’re doing is some —

Well, what do you think makes it a suspect under the First Amendment?

The connection between this institution and the Baptist Church what in practical thing makes it a suspect in your mind?

Robert McCormick Figg, Jr.:

Because it was created to include in its curriculum from religious courses and offerings and instruction in preparation to be a Baptist preacher.

Alright.

So, they do — they do have it.

They do teach religion their Baptist, the Baptist faith.

Robert McCormick Figg, Jr.:

What they think as the Baptist approach —

It’s to produce Baptist Ministry?

Robert McCormick Figg, Jr.:

That’s right.

They have courses that lead up to being a Baptist Minister.

Now, —

Mr. Figg, they don’t give degrees in divinity at this college, do they?

Robert McCormick Figg, Jr.:

I don’t believe they do, Mr. Justice.

They don’t?

I thought you said they just did.

Robert McCormick Figg, Jr.:

No, I said, they give courses.

They give courses but they get ministers out of that?

Robert McCormick Figg, Jr.:

Well, I’m not — this is a fairly new educational institution, isn’t it and it hasn’t yet developed to the point that I think the Baptist intended it to develop.

Now, this is, this –[Laughter]

Mr. Figg, let me take another approach.

Some of these schools have requirements that the Board or the percentage of it be members of the denomination.

Is that true here?

Does the record disclose this?

Robert McCormick Figg, Jr.:

The Board of Trustees here is named by the South Carolina Baptist Convention.

Now, they don’t have to be Baptist but they are appointed.

They are named under the Convention.

Robert McCormick Figg, Jr.:

They are appointed.

The whole Board and the operator they entrust for the South Carolina Baptist Convention.

Well, maybe this sense is in part of Justice White’s inquiry then?

Robert McCormick Figg, Jr.:

And when they got the charter, they wrote in there to operate a Baptist Liberal Arts Charter.

Robert McCormick Figg, Jr.:

Now, they are in —

Does the record show what degrees are offered at this college?

Robert McCormick Figg, Jr.:

I don’t believe it does, Mr. Justice.

The only other observation I want to make was that.

Byron R. White:

Do you think the Baptist have never support — never support and pay the expenses of the college, it wouldn’t be suspect under the First Amendment?

Robert McCormick Figg, Jr.:

If they haven’t done it?

No, they just never could — do you think it’s possible for a church to pay the expenses of the college without any —

Robert McCormick Figg, Jr.:

No, I don’t think.

I think they could contribute to it.

Well then, what is it that makes this college a Baptist?

Robert McCormick Figg, Jr.:

To me, it’s because they think it is.[Laughter]

And I take that as evidence that they’ve accomplished what they should —

But suppose they haven’t said that?

Robert McCormick Figg, Jr.:

Well, that’s all.

That’s all I know, Your Honor.

Warren E. Burger:

Suppose you might add to that their power to select the governing board and I suppose that’s central to your position.

Robert McCormick Figg, Jr.:

Yes, the naming of the Board of Trustees.

Warren E. Burger:

Even if they include Catholics and Presbyterians and Methodists and all other people?

Robert McCormick Figg, Jr.:

That’s right.

Warren E. Burger:

Thank you, Mr. Figg.

Thank you gentlemen.

The case is submitted.