Perez v. United States

PETITIONER:Perez
RESPONDENT:United States
LOCATION:U.S. District Court for the Eastern District of Louisiana

DOCKET NO.: 600
DECIDED BY: Burger Court (1970-1971)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 402 US 146 (1971)
ARGUED: Mar 22, 1971
DECIDED: Apr 26, 1971

Facts of the case

Question

Audio Transcription for Oral Argument – March 22, 1971 in Perez v. United States

Warren E. Burger:

Number 600, Perez against the United States.

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

Albert J. Krieger:

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

In considering the constitutionality of Title II of the Consumer Credit Protection Act, what has been popularly called the Federal Anti-loan Sharking statute.

We respectfully submit that the real question posed is whether Congress may constitutionally enact a general extortion statute because in truth and in fact, the statute enacted by Congress does not reach in the true sense the crime of loan sharking.

Loan sharking, if we follow the definition of that crime as testified to at the hearings before Congress is a lending at a usurious rate of interest.

This statute does not include anywhere within it.

Those activities as a criminal offense.

That which it makes criminal is extortion and extortion of the broadest tribe covering the myriad extortionate activities to which criminals may resort in our varied society.

Even though, the statute continually refers to the term, the phrase, extension of credit, extension of credit as defined by the statute refers not only to a debt but to a claim, be that claim valid or invalid, acknowledged or not, disputed or not, however arising, so long as the satisfaction of that claim is deferred.

The hearings before Congress certainly disclosed and it may well be assumed that organized crime is intestate in character and that organized crime may have as one of its substantial sources of revenue, loan sharking, that is the lending of money at usurious rates of interest.

But there is nothing within the proceedings had before Congress which would warrant the broad and sweeping finding that extortion per se is a crime which belongs in a federal lexicon.

The types of extortion covered here may well include the incidental extortion to which a loan shark may resort in seeking collection of a debt, of a lending.

It may also include an irate wage earner going to his employer and demanding wages.

It may include an irate motorist after a collision saying to another driver, “You will pay me for this damage, one way or the other and by the end of the week.”

These are all included within what we contend as any reasonable reading of the definition extension of credit.

Certainly, and we concede, there are times when extortionate means are employed by loan sharks but what Congress has done here is because organized crime may be well involved in loan sharking and loan sharking at some time may involve extortion, then all extortion regardless of how it arises becomes a federal offense.

We respectfully submit that such a statute is a classic case of overkill.

Certainly, Congress may legislate against the crime of extortion.

Congress has done so in 1951, 1952, the Travel Act.

Congress may broaden what it includes as a federal offense in extortion, so long as that extortion may reasonably be connected with a federal interest.

The federal interest however, between extortion generally, extortion generally appears to be lacking.

The federal interest connection to extortion generally appears to be lacking.

Certainly, it did not appear within the hearings.

The hearings were directed at a specific definable class of activity. Congress, in seeking to legislate against an organized crime activity enacted the statute and Congress stated that the purpose of this statute is to strike at the second most lucrative source of revenue for organized crime loan sharking.

There is nothing within the proceedings before Congress which characterized extortion as a uniquely organized crime activity or that extortion per se is a lucrative source of funds for organized crime.

The federal pay for the general extortion statute is lacking.

There is no definable class of activity or activities whose very nature might compel the finding of the federal interest, all of the current gambling statute, where Congress instead of making all gambling illegal said gambling of a certain type has characteristics which compel the finding of the federal interest such as it must involve — the gambling activity must involve five or more people deal in an amount in excess of $2,000.00 on a daily rate or be an activity which is continued for 30 days or more and that the gambling activity be the business of the individuals.

Here, any, if I may say occasional extortioner, finds himself fully within the purview of the statute even if his activity is totally unrelated to loan sharking, the vice which Congress was seeking to control.

It is our contention that the means that Congress has selected to control loan sharking, these means are far too broad, far too inclusive and exceeds the authority of Congress both under the Interstate Commerce clause and under the Bankruptcy clause.

Albert J. Krieger:

We believe and we do not argue here that every specific criminal statute requires a recitation that there must be proved to a jury, an interstate activity or that an interstate facility was used.

We do believe however, that in a criminal statute there must be a showing of the trial level if not of the interstate activity itself or the use of the interstate facility but such a state of facts as warrant the conclusion that the federal interest is involved.

The current–

What’re the underlying facts?

Albert J. Krieger:

The underlying facts in this case Mr. Justice Harlan are that in a local butcher’s store in Brooklyn, Mr. Miranda was the owner of the local butcher’s store in Brooklyn, that he needed some revenue.

He was not able to obtain monies through the usual sources and through a friend was introduced to a petitioner.

The petitioner loaned him some money at a usurious rate of interest.

Eventually the — Mr. Miranda was unable to repay, a new loans worked out, again at usurious rate of interest.

Mr. Miranda was again unable to repay and finally extortionate threats were made to Mr. Miranda to attempt to effect repayment.

There were no interstate facilities used.

This all involved a transaction occurring in Brooklyn, New York in the Williamsburg section.

Potter Stewart:

But it is conceded that run of the mill extortion was exercised.

And threat remained — I take it from your statement just now this is conceded.

Albert J. Krieger:

Oh, yes Your Honor.

There was extortion under the proof in this case, there was.

But we feel that the fact of extortion in this case still does not make the extortion as committed by the defendant here a federal offense.

The only way this extortion could become a federal offense is if a general extortion statute were part of a Federal Criminal Code and that is basically what the Consumer Credit Protection Act is.

If the intent of Congress were carried out, it is perhaps quite possible that Mr. Perez’s activities would fall within a loan sharking definition that would be constitutionally acceptable but we are dealing not with such a statute.

I repeat we’re dealing with a general extortion statute and regardless of the constant reference to this statute as a loan sharking statute.

A loan sharking statute, its basic nature is not changed.

The Congress in the proposed new Federal Criminal Code treated the loan sharking statute anew, and here they faced up to the problem because there was a recognition in the commentary that such jurisdiction referring to this plenary jurisdiction over extortionate activity may well be over broad and they recognized also apparently that the statute — the current statute was an extortion statute and they rewrote.

Byron R. White:

What’s the constitutional difference between a loan sharking statute as we call it means to say that it would be alright, it might be alright and this statute will not be —

Albert J. Krieger:

I would say that the Constitutional difference sir, is that this statute just generally with an enormous vacuum cleaner type of facts sweeps in every type of extortionate activity be at intrastate, be at interstate, be it connected with federal interest, be it not connected with the federal interest.

A loan sharking statute such as the one that appears in Section 1771 of the proposed code defines a class of activity, thereby limiting the scope of the statute.

It legislates against loan sharking as a business.

It implants definitions of the business, the character of the business and the nature of the business connects it with organized crime activity, so that the casual lender just as the casual gambler is omitted from the impact of federal jurisdiction.

I think that we are basically dealing sir, with matters of definition.

How far out may Congress reach in legislating against what might well be an interstate evil?

This is basically, I submit, a matter of scope.

It is true that extortion within the loan shark gambit may be reached but may extortion unrelated to the loan sharking activity be reached also.

Thurgood Marshall:

Can you have loan sharking without extortion?

Albert J. Krieger:

The hearing before Congress so state.

They say that the only time that extortion arises is when there is a failure to pay that loan sharking it’s —

Thurgood Marshall:

When does it pay to pay an extortionate rate of interest?

Albert J. Krieger:

A usurious rate of interest.

Thurgood Marshall:

He can collect it in any other way, can he, other than extortion?

Albert J. Krieger:

He cannot rely of course upon the Court and —

Thurgood Marshall:

Well, my question is, can he collect at any other way than by extortion?

If the man says I just won’t pay.

Albert J. Krieger:

If the man says I just won’t pay, I would assume that the loan shark would then have to resort to an extortionate pattern of conduct.

I cannot conceive of any other way.

Thurgood Marshall:

Well, then isn’t extortion a peculiarly necessary part of loan sharking?

Albert J. Krieger:

No, sir.

It would be a peculiarly — it would be a peculiar part of loan sharking in respect of that part of loan sharking which is based upon a failure to pay.

Now, we certainly are well aware of —

Thurgood Marshall:

Is it true in New York that the person who got the loan could go to Court and have it wiped down on the ground that was usurious?

Albert J. Krieger:

That’s a perfect defense to the loan, if the loan shark would so, the usurious rate of interest would render in the nature of a defense, the loan void and unenforceable in the Court, yes.

But we also have the situation where people who deal with loan sharks deal to a great extent in a manner of trust the same as in the gambling business where these sort of obligations apparently are honored.

That it is not necessary to be an extortioner to be a loan shark.

And I think that the hearing in it bare that out.

Warren E. Burger:

Well are you suggesting that the customers of this kind of an enterprise voluntarily pay these usurious interest to which are added increasing amounts as time goes on?

Albert J. Krieger:

Such was the testimony, Mr. Chief Justice that there are many, many people —

Warren E. Burger:

The testimony in the case or in the congressional hearings?

Albert J. Krieger:

In the congressional hearings, that there are many, many people who are unable to resort to a normal avenues of commerce in order to obtain loans or financing and the specific statement as a matter of fact from Mr. Medzker, an assistant District Attorney in the rocket section or District Attorney Hogan’s office in New York County was that most loan sharking transactions are amicable transactions in their commencement and in their conclusion.

Warren E. Burger:

Does it not depend on the extent of the usury, when the interest begins to equal the principal, doesn’t it begin to get into a situation where they must use threats or violence to collect as this record shows?

Albert J. Krieger:

I think that it does occur sir.

It does occur, Mr. Chief Justice but it isn’t an inherent part of the beast, that most loan sharking transactions according to what we find from the Congressional hearings and amicably.

There are those where there is the resort to extortion.

We do not question that but query does the resort to extortion in ‘x’ percentage of loan sharking transactions warrant the enactment of an extortion’s statute which reaches all and every type of extortion to which the human mind can imagine in this country, and make that a federal crime.

That, I think is the basic defect in the statute.

Albert J. Krieger:

Certainly, if a certain type of extortionate behavior could be reasonably be defined as present in organized crime loan sharking, I think Congress could legislate against that.

Hugo L. Black:

May I ask how much this loan was?

Albert J. Krieger:

Originally, it was $1,000.00.

It went up to $3,000.00 finally.

Hugo L. Black:

And the interest rate to be paid?

Albert J. Krieger:

Oh, I would estimate well and excess of 45% which is mentioned in the statute.

Hugo L. Black:

Payable, how?

Albert J. Krieger:

It was payable on weekly terms.

I think the original loan was a thousand dollars payable at the rate of a hundred and some odd dollars, $105.00 a week for 14 weeks.

Hugo L. Black:

Now what was the extortion used?

Albert J. Krieger:

When Mr. Miranda’s business proved to be unsuccessful and he was unable to meet the payments.

The petitioner allegedly went to Mr. Miranda and told him that —

Hugo L. Black:

Was that the evidence.

Albert J. Krieger:

Yes, sir told him that somebody else had borrowed from them and had and paid and then wound up in the hospital.

The extortionate character of the statements —

Hugo L. Black:

Would that be extent of the extortion?

Albert J. Krieger:

No one was hurt if that is what Your Honor is referring to.

Hugo L. Black:

If what — I’m trying to find how extorted.

Albert J. Krieger:

He wasn’t successful.

I think one payment was made after the threat.

The entire debt was never repaid.

The defendant was arrested, some months —

Hugo L. Black:

I gather that but what was the extortion?

Albert J. Krieger:

The extortion was a threat of bodily injury in the event of failure to pay what was due and owing.

Hugo L. Black:

How?

Did you say how he would enter?

Albert J. Krieger:

No.

No, he had made reference to other people to another person who had gone to the hospital.

Hugo L. Black:

How many times did it did occurred?

Albert J. Krieger:

I think three times.

Hugo L. Black:

And each time, what was the same kind of statement that somebody else had been hurt?

Albert J. Krieger:

Basically, yes sir.

Hugo L. Black:

Was he indicted in the State Court?

Albert J. Krieger:

No, there was no prosecution brought in the State Courts.

Mr. Miranda first turned as a matter of fact, to the city police and I am unaware as to what happened when he made a complaint to the city police but he then complained to the FBI and then about a month after he complained to the FBI.

The petitioner was arrested.

Potter Stewart:

Mr. Krieger, you repeated several times as I have understood you at least that you think that Congress would have constitutional power to enact the criminal statute in this area and even to make the particular conduct involved in this case, a federal crime.

Did I understand you correctly but I know that you said that this statute is far too broad in scope?

Albert J. Krieger:

I think that I did say that Mr. Justice Stewart.

Potter Stewart:

And under what power of Congress, under what constitutional provision?

Albert J. Krieger:

Basically, under the interstate commerce clause.

As far as the bankruptcy clause is concerned I don’t think that I could add anything to what judge Hay said in the dissent in this case.

I think that it is a very broad reach and a large step from uniform laws on bankruptcy to a statute such as this dealing with extortion generally.

Potter Stewart:

Do you think that under the commerce power, Congress would have the power to make this conduct a criminal — a federal criminal offense?

Albert J. Krieger:

Provided that the loan sharking – the underlying loan sharking was connected in some manner with a federal interest.

That federal interest may come about through the use of federal facilities, interstate facilities or if the loan sharking activity was the type of business, was proved to be the type of business whereby the loan sharking would be thought of what we might call the organized crime complex.

Potter Stewart:

Now proved what — each individual a criminal prosecution or proved in Congressional hearings?

Albert J. Krieger:

I think that it should be proved in the manner in which suggested in the proposed code where they say there should be proof that the man was engaged in the business of loan sharking.

Potter Stewart:

And you think that if Congress enacted a statute saying it’s a criminal offense to be engaged in a business of loan sharking that that would be a constitutional statute, do you?

Albert J. Krieger:

To be engaged in the business of loan sharking with a few added provisions in there as well.

I don’t —

Potter Stewart:

Then where, in the statute.

Albert J. Krieger:

In the statute itself.

Potter Stewart:

— approved in the particular Congressional prosecution?

Albert J. Krieger:

In the statute itself which of course would be part of the proof that would be required at the trial.

Potter Stewart:

And what would this additional embroidery be?

Albert J. Krieger:

I think as the sense of the statute, the sense of the hearings is to attack organized crime.

There should be requirement that there is an organized criminal element in the loan sharking transaction against which the prosecution has leveled.

In the same manner as in the gambling statute, they seek a criminal organization in order to bring that gambling within the federal gambit.

If a man is individually a loan shark, then there is nothing within the Congressional hearings which would support the finding that he has an impact upon interstate commerce.

Albert J. Krieger:

If he is in the business of loan sharking and he utilizes other people, then he may well be engaged in an organized criminal activity.

Hugo L. Black:

Suppose it is but there is no connection with interstate commerce.

Potter Stewart:

Yes.

Albert J. Krieger:

I think that if he is in an organized criminal activity and Congress through the hearings has established organized criminal activity as effecting interstate commerce, it may well be that under the Wickard against Filburn rule, he may find himself brought in within the gambit.

Hugo L. Black:

But there you have something more than an organized crime have it making an impact of some kind on interstate commerce?

Albert J. Krieger:

Yes, sir.

Hugo L. Black:

Is that what you claim that must be to be a valid federal statute?

Albert J. Krieger:

I do not contend that the impact on interstate commerce has to be proved at the trial.

If the definition of a criminal activity includes within it such provable facts, such provable facts at a trial level as of necessity linked to the criminal activity to interstate commerce.

Potter Stewart:

I suppose that you haven’t agreed that at least under existing constitutional law that Congress couldn’t make a local larceny of a federal criminal offense but is it abjure to what you concede that if a person were in the business of being of grand larceny that Congress could do so, if he just got up everyday and would do his job of stealing that that could be a federal offense just because he was in the business of it?

Albert J. Krieger:

No.

Potter Stewart:

I don’t understand your point at all really.

Albert J. Krieger:

I’m trying to equate the supposition that Your Honor, poses with the federal gambling statute.

Hugo L. Black:

That’s not the point.

Albert J. Krieger:

No, but they used certain standards sir in there which I think make that statute not necessarily constitutionally objectionable as opposed to this statute.

They say their man should be in the business of gambling, or instance, a man would have to be in the business of larceny that his activity by definition would be connected with organized criminal activity which has been established before Congress to be in the business of grand larceny of the type and nature of which this man stands accused in a Federal Court.

Potter Stewart:

But it’s not just as organized, it has to — there has to be findings or evidence that it’s a national or at least an interstate organization, is that right?

Albert J. Krieger:

Yes, sir.

Potter Stewart:

Or an international organization.

It’s got to be more than just organized and that has to be broader than merely statewide in scope.

Albert J. Krieger:

Well, if three people just go about the business of stealing, I don’t think it’s a federal offense nor does it have an impact upon a federal interest.

Thurgood Marshall:

It has to get on the contrary to prove it at least.

Albert J. Krieger:

I believe so.

Potter Stewart:

Well that’s what made me wonder why you conceded that this conduct of your client which you emphasized to us earlier was all within the City of Brooklyn, New York.

Why you conceded as I — you tell me you did and I didn’t misunderstand that it could have been made a federal criminal offense by a properly drawn statute.

Albert J. Krieger:

Well, then I made a mistake.

I did not intend to so concede.

I meant to surround that statement with other things such as organized criminal activity of a nature which Congress has found to be part of organized crime which Congress has also found to be interstate in character and nature.

I have nothing further sir.

Warren E. Burger:

Very well, thank you Mr. Krieger.

Warren E. Burger:

Mr. Solicitor General.

Erwin N. Griswold:

Mr. Chief Justice and may it please the Court.

This case is here on a writ of certiorari to review a decision of the Second Circuit Court of Appeals.

The decision there was a divided one with judges Feinberg and Waterman in the majority and Judge Hayes writing a dissenting opinion.

The question is solely a constitutional one and no question with respect to the construction of the statute or the weight or application of the evidence is involved.

And the question is whether Title II of the Consumer Protection Act enacted in 1968 as a part of the Truth in Lending Act whether that is constitutional.

And specifically Section 894 which is set forth on Page 5 of the Government’s brief which is the statute under which the defendant was indicted and convicted provides that whoever knowingly participates in any way or conspires to do so and no conspiracies involved here in the use of any extortionate means to collect or attempt to collect any extension of credit or to punish any person for the non-repayment thereof shall be fined not more than $10,000.00 or imprisoned no more than 20 years or both.

Now in addition to that, there is included in the statute, specific findings by Congress and these are set forth on Pages 2 and 3.

They are the result of extensive consideration and hearings in Congress and by other agencies.

We have outlined beginning on pages — on page 26 of our brief, the nature of the information which was before Congress but I would point out that it includes extensive consideration of a report by the New York State Commission on investigation on the loan shark racket.

Potter Stewart:

May I ask Mr. Solicitor General, to what is that reference in the last sentence of Section 2 of the findings of page 2 of the exclusionary rules?

Erwin N. Griswold:

Section?

Potter Stewart:

Subsection 2 of the findings of Page 2 of your brief.

The last sentence makes a reference to factors which have rendered past efforts of persecution on most wholly uneffected has been the existence of exclusionary rules of evidence stricter than necessary for the protection of –[Voice Overlap]

Erwin N. Griswold:

I’m not sure Mr. Justice.

I can’t find it anywhere.

Erwin N. Griswold:

No, I don’t — no, I — I’ll ask Mr. Reynolds to give me a note, if he has any idea what that refers to.

In addition to the New York report, it was referred to and summarized in the report of the President’s Commission on Law enforcement and the administration of justice which was before Congress and two of the task force reports of that commission which where before Congress and furthermore there was further information before Congress on the basis of which by formal enactment, the Congress makes the following findings.

One, organized crime is interstate and international in character and skipping to the end of that paragraph is substantial part of the income of organized crime is generated by extortionate credit transactions and then extortionate credit transactions are characterized by the use or the expressed or implicit threat or the use of violence or other criminal means to cause harm to person, reputation or property as a means of enforcing payment.

And then they sentenced that I cannot give more information about.

And two more paragraphs relating to findings by Congress with respect to extortionate credit being carried on extensively in interstate and foreign commerce and through the means and instrumentalities in such commerce and even where extortionate credit transactions are purely intrastate in character, they nevertheless directly affect interstate and foreign commerce.

And extortionate credit transactions directly impair the effectiveness and frustrate to purposes of the laws enacted by Congress on the subject of bankruptcies and on the basis of these findings the Congress determines that the provisions of the statute including that involved here are necessary and proper for the purpose of carrying into execution the powers of Congress to regulate commerce and establish uniform and effective laws on the subject of bankruptcy.

Hugo L. Black:

Do you rely at all on the bankruptcy clause?

Erwin N. Griswold:

Yes Mr. Justice but I will rely on our brief for that.

It is as a practical matter impossible for a person in the position of the man involved here to get the benefit of the Bankruptcy Act because he may get a discharge in Court but he will also get a broken arm or worse from the enforcers who are involved here.

He is therefore afraid to seek bankruptcy and the purpose and policy of the Bankruptcy Act is in fact thwarted by extortionate credit method.

Thurgood Marshall:

Mr. Solicitor General, in criminal statute like this is, what degree of extortion is necessary as to one thing that worries me.

Erwin N. Griswold:

I do not know Mr. Justice but I think it is conceded here that there was an adequate degree of extortion.

If we had a case where only words were used, now really you are a very low fellow because you don’t repay me and I will not think well of you until you repay me, whether that is extortion or not, I don’t know.

I suppose that extortion involves threats of violence to someone or threats of impairing a reputation or standing.

Thurgood Marshall:

What would happen if I loaned — shall lose some money and he didn’t pay me and I would say “if you do not pay me I might injure you.”

That wouldn’t be extortion.

Erwin N. Griswold:

If you do not pay me, I might?

Thurgood Marshall:

I might injure you.

Erwin N. Griswold:

Yes I think that would be extorted yes.

A threat to do bodily harm, it seems to me to be a clear instance of extortion.

Thurgood Marshall:

When your answer to Mr. Krieger is this caused a fine after the automobile accident and all, they’re just not covered by the statute.

Erwin N. Griswold:

Mr. Krieger I think made the statute much broader that Congress has written it.

Congress has applied threats to extortionate credit transactions.

Thurgood Marshall:

A real threat.

Erwin N. Griswold:

Certainly a real threat, yes.

I think there maybe a question of degree as to whether relatively mild words come within it.

There is certainly no problem about it here.

The man involved in this case had the familiar name of Miranda.

He was 26 years old.

Since the age of 16, he had worked in the butcher shop, he was married.

He wanted to setup his own shop which he did.

He got credit from suppliers but he found he needed more cash in order to put in shelving and to have a larger stock to make it more attractive.

He went to the Chase, Manhattan Bank.

He couldn’t get a loan which was understandable.

He sought information about small business administration, he was told it would take eight weeks to process an application and he needed the money sooner.

A friend told him that he could get the money through the defendant in this case.

He met him in a restaurant.

He asked for a $1000.

The defendant went off and made a telephone call and came back and said he could provide $1000, indicating that there was somebody higher up.

He came back 15 minutes later and handed him the $1000.

The arrangement was that he was to pay a $105.00 a week for 14 weeks which would be $1,470.00 or $470.00 interest and rather less than third of a year.

Thereafter he demanded a $130.00 a week which was paid for a while.

After a while Miranda needed $2,000.00 more which he got.

It was agreed that he should make further payments and though the record isn’t wholly clear, we have pieced it out and it appears to us that Miranda borrowed a total of $3,000.00 in January and March 1968.

Erwin N. Griswold:

By July 1968, he had repaid $6,000.00.

He was then told that he still holds $6,400.00, thus his total repayment to that date would have been $12,400.00 on a $3,000.00 loan or interest of $9,400.00 on a $3,000.00 loan held for less than six months.

Hugo L. Black:

Is there any question, but the debt would have been a crime against the city of the State of New York.

Erwin N. Griswold:

Oh I have no doubt that this was a crime against the city and indeed Congress has expressly provided that nothing in the statute shall displace in any way any local remedy.

The only question is whether it is an effective offense against the federal government or whether Congress can make it an offense against the Federal Government.

Byron R. White:

Mr. Solicitor General, I’ll ask in light of the concession that what happened here constituted extortion and challenged that the statute is over broad.

It’s reaching other things on that kind of conduct.

Does the Government raise any question of the standing of this petition to challenge the over breadth of the statute?

Erwin N. Griswold:

I don’t know that it’s a question of standing.

This defendant is the defendant and the criminal charge he certainly has a standing to be here to raise any arguments that he can raise.

Potter Stewart:

Well except that I gather he concedes that his conduct by any definition, constitute extortion.

Erwin N. Griswold:

Well, but he doesn’t concede that it has an adequate nexus with interstate commerce or with some other basis of federal power.

Incidentally although Congress made no —

Potter Stewart:

Mr. Solicitor General, perhaps the petitioner could straighten this out later but I haven’t understood that any such concession was made, I’d understood that the claim in this case is that this statute was beyond the constitutional power of Congress to enact.

Erwin N. Griswold:

Yes Mr. Justice.

Potter Stewart:

Yes.

Erwin N. Griswold:

Because the statute does not itself have any requirement in it that the particular transaction must be shown to have a relation to interstate commerce.

Perhaps we ought to ask him but I thought on this colloquy with Mr. Justice Stewart, he had said this conduct might be made a crime by the Congress.

Well, as I understand, he sought to withdraw from that later on.

Potter Stewart:

I see.

Erwin N. Griswold:

But let me say, I was going to take some time to refer to the particular extortion that acts but they are outlined on pages 7 to 9 of our brief and they did include strong threats of violence not only to Miranda but also to his wife.

As I have been working on this case, I found myself repeatedly with the feeling that I have heard this record before.

By that I don’t mean that this is an easy case.

It obviously presents a problem in federalism but I think it can fairly be called a problem in constructive or creative federalism.

Indeed, has that not been the history of this Court’s decisions under the Commerce Clause beginning with Gibbons and Ogden, a 140 years ago.

It’s true that there was a time when the Court took a rather narrow view of the commerce clause as in Hammer and Dagenhart and in Carter against The Carter Coal Company.

But those decisions did not stand the test of time and have been overruled.

In many other cases it has often been urged on the Court, often by distinguished counsel that particular actions taken by Congress extended unduly the line circumscribing federal power.

And none of these cases was easy.

But again and again the Court has upheld the exercise of federal power under the Commerce Clause and as time goes on it becomes clearer and clearer in the view of history that these decisions have been sound and have indeed contributed to the working of an effective federalism.

Erwin N. Griswold:

And I refer to the National Labor Relations Act, Fair Labor Standards Act and many others which have been upheld.

Nearly 50 years ago, in 1922 then Professor Philip Frankfurter wrote the decisions under the Commerce Clause either allowing or confining state action are at bottom, acts of statesmanship.

And he quoted a passage from an article which he had just been published in 1922 by Thomas Repole, the Dean of the Columbia law school.

Professor Repole said, “The Court has drawn its lines where it has drawn them because it has thought it wise to draw them there.

The wisdom of its wisdom depends upon a judgment about practical matters and not upon the knowledge of the constitution.

And another passage to which I would like to refer in the general portion of my argument comes from a decision of this Court more than 25 years ago.

The interpenetrations of modern society have not wiped out state lines.

It is not for us to make inroads upon our federal system either by indifference to its maintenance or excessive regard for the unifying forces of modern technology.

Scholastic reasoning may prove that no activity is isolated within the boundaries of a single state but that cannot justify absorption of legislative power by the United States over every activity.

On the other hand, the old admonition never becomes still, that this Court is concerned with the bounds of legal power and not with the bounds of wisdom in its exercise by Congress.

When the conduct of an enterprise affects commerce among the states is a matter of practical judgment not to be determined by abstract notions.

The exercise of this practical judgment, the constitution entrusts primarily and very largely to Congress subject to the ladders controlled by the electorate.

Great power was thus given to the Congress.

The power of legislation and thereby the power of passing judgment upon the needs of a complex society.

Strictly confined though, far reaching power was given to this Court, that in determining whether the Congress has exceeded limits allowable and reason for the judgment which it has exercised.

To hold that to effect what meant a practical affairs would call Commerce.

And to deem them related to such commerce merely by gossamer threats and not by solid ties would be to disrespect the judgment that is open to men who have the constitutional power and responsibility to legislate for the nation and that comes from this Court’s opinion in Polish National Alliance against the National Labor Relation Board decided in 1944.

I know of no decision of this Court which as a precedent, clearly requires a decision in favor of the Government in this case.

But the problem here is thoroughly boxed in by many decisions which are now an established part of the Court’s jurisprudence.

Perhaps the closest and most important is a decision of more than 50 years ago, the great opinion by Justice Hughes in the Shreveport case in 234 U.S.

The statue involved in that case was in general terms without any reference to or limitation to acts burdening or affecting interstate commerce.

The Congress provided that — and I am quoting from page 355 and 356 of the opinion in this report case, “that it shall be unlawful for any common carrier subject to the provisions of this Act to make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation or locality in any respect whatsoever or to subject any particular person, company, firm, corporation or locality to any undue or unreasonable prejudice or disadvantage in any respect whatsoever.”

And there’s no limitation in that statute with respect to interstate commerce.

And the Court will recall that Shreveport case.

The Court held that the statute was broad enough to apply to discrimination in intrastate commerce and that the Congress had the constitutional power to enact that statute.

We come good many years later to the National Labor Relations Act.

The first great decision there was the National Labor Relations Board against Jones and Laughlin Steel Company in 301 U.S, that statute by its terms is applicable to manufacturing but it refers to matters which are in commerce or affecting commerce.

Thus, it is a statute which is worded somewhat differently than the one here but the language of the Court is instructive.

On page 37 of 301 U.S.

Undoubtedly, the scope of this power must be considered in the light of our dual system of Government and may not be extended so as to embrace effects upon interstate commerce so indirect and remote that to embrace them in view of our complex society would effectually obliterate the distinction between what is national and what is local and create a completely centralized Government.

Erwin N. Griswold:

And we of course make no contention for anything of that sort here.

We make no suggestion that as my opponent has said that all extortion would be subject to federal regulation.

The only extortion which is involved here is with respect to credit transactions.

There are other powers besides the commerce power and the bankruptcy power which involved credit, the power for example, to coin money and regulate the value thereof is the foundation for the whole national bank system, the Federal Reserve System and indeed for the publicity provisions of the Truth in Lending Act of which this statute is a part.

We all know the elementary economics, from elementary economics, the effect of credit on the money supply and certainly that is involved in this case.

Now, the next case to which I would refer is United States against Darby in 312 U.S.

Which was a criminal case incidentally.

I don’t make anything of the point that Judge Hayes did in dissent that this was a criminal statute and of course criminal statutes must be carefully and narrowly construed but no question of construction is raised in this case.

If Congress has power in this area, I have no doubt that it has power to exercise, to impose a criminal sanction as well as a penalty which was involved in Wickard and Filburn or regulation as was involved in the National Labor Relations Act.

But the United States against Darby was a criminal statute.

It is applicable to goods by its term to people who are engaged in commerce or in the production of goods for commerce.

But that has been broadly extended in recent years and for example there isn’t the slightest doubt that Mr. Miranda, if he had been successful in operating his butcher shop would have been subject to the Fair Labor Standards Act or could have been made subject to it and also to the National Labor Relations Act.

Potter Stewart:

Then he would probably also have Federal Income Tax because that really doesn’t have much to do with it —

Erwin N. Griswold:

No but the Fair Labor Standards Act and the National Labor Relations Act turn on there being commerce and if there is —

Potter Stewart:

Mr. Solicitor General, what if in these findings that are reproduced here on pages two and three of your brief, Congress has found that extortionate credit transactions, every place where we now read extortionate credit transactions, what if Congress had found this about grand larceny so that for example, a fining had been a substantial part of the income of organized crime as generated by grand larceny and then the description of grand larceny works and grand larceny directly impairs the effectiveness and frustrates the purpose of the laws enacted and is subject to bankruptcies also.

Every place just grand larceny and then Congress had proceeded to say that whoever commits grand larceny or conspires to do so shall be fined not more than $10,000.00 or imprisoned not more than 20 years or both.

Would that have been a constitutional statute?

Erwin N. Griswold:

That would be a much more difficult statute than this.

Potter Stewart:

Why?

Erwin N. Griswold:

I can conceive of circumstances which we haven’t got too yet and I hope we never do get where organized crime has tentacles which reach so far and so deep and the states find that they are unable to deal with it.

I recall for example, my earlier experience in the Department of Justice that the only way it was possible to proceed against Al Capone in Chicago was through the federal income tax.

The state authorities were unable to take appropriate steps, and I can imagine other circumstances not involved here which might induce Congress to pass such a statute and if Congress passed such a statute I have no doubt that this Court would of course, give very careful consideration to the problem.

Potter Stewart:

But why would it be more difficult than this statute?

Erwin N. Griswold:

Because at the present time there is no factual basis that I know of for such statute.

It seems to me perfectly obvious based on the facts of this case that the extortionate credit transaction here directly dealt with the man who was trying to engage in commerce of the kind which Congress can regulate.

Warren E. Burger:

The same thing would have happened if somebody had stolen $12,000.00 from it, just exactly the same thing.

Erwin N. Griswold:

Such transactions do not so frequently recur as to be a matter which is a proper basis for national concern whereas loan sharking is on the basis of a half a billion dollars a year at least in the economy as it is a major factor in the economy.

Potter Stewart:

But how much have stolen every year in Grand Larceny?

Erwin N. Griswold:

What about —

Potter Stewart:

And my guess would be that considering more stolen every year and it is extortionate credit transactions without knowing —

Erwin N. Griswold:

Maybe you will persuade me that such a federal statute would have a constitutional foundation.

And it is not involved here, and I think that the factual basis for saying that loan sharking has an important bearing on commerce is a strong one.

Thurgood Marshall:

Mr. Solicitor General, suppose Perez loaned money to a housewife, who engaged in no business whatsoever, except $5,000.00 and threatened her, is that the beyond the statute?

Erwin N. Griswold:

Mr. Justice, I think that would under the statute.

That would be a very much harder case than this but on such a matter a case like Wickard v. Filburn seems to be to very instructive and you recall will that that involves the growing of 239 bushels of wheat on an intrastate farm in the center of the state which wheat was as all consumed on that farm and the Court held that penalty provisions of the Agricultural Adjustment Act were valid and applicable to that case.

It was argued that what was involved was farming and not commerce but the Court — there is a particular passage.

But even this is on page 125, but even if appellee’s activity be local and though it may not be regarded as commerce, it may still whatever its nature be reached by Congress, if it exerts a substantial economic effect on Interstate Commerce.

And this irrespective of whether such effect is what might at some earlier time have been defined as direct or indirect.

And there the 239 bushels of wheat were founded to exert an adequate effect on commerce to sustain the exercise of federal power.

And I’m quite willing to stand on the proposition that if it can be shown on facts put before Congress, that grand larceny has a substantial deterring effect on commerce that Congress, if in its judgment it decided that it was the appropriate thing for Congress to do would have that power and it should be sustained by the Court.

But I repeat that that is not before the Court here.

What we have here is loan sharking and which there is a large mass of material to support the proposition that it has an important bearing on commerce.

And then I would refer to the case of Katzenbach against McClung and Heart of Atlanta Motel against United States where the Civil Rights Act of 1964 or 1965 was held to be applicable against a local motel in one case.

There, the statute refers to transient guests.

It says nothing about guests moving in Interstate Commerce.

The transient guest might all have been within Georgia as far as the statutory language is concerned there but the Court found no difficulty with that.

And in Katzenbach against McClung, the statute did provide that it served interstate travelers or that a substantial portion of the food moved in commerce.

The last case which seems to me to be very strong in this area is Maryland against Wirtz where the Court held that the Fair Labor Standard Act could be applied to all employees of a business even though those employees were not engaged in commerce if any of the employees were engaged in commerce.

If I may Mr. Chief Justice, I’d like to make reference just to one case cited in the reply brief of the defendant United States against Denmark which he says controls this.

That is a case 27 years ago where there was no opinion for the Court.

It’s rather refreshing to see that these things happened in other times.

Three justices held that a statute with respect to the registration of gambling equipment should not be construed to apply to the registration of intrastate gambling devices.

Two justices, Justices Black and Douglas, the only two of that Court who are still here held that the statute was unconstitutionally vague so that there were five votes against sustaining the conviction and four justices held that the statute should be construed to apply and was constitutional.

It’s clear that there’s no judgment or opinion in that case which is authoritative.

And this case, our submission is that this statue adequately based on findings of fact made by Congress after full and careful consideration of a difficult national problem though not squarely supported by any prior case, is but to stop on all sides by firm decisions of this Court and that the decision below should be affirmed.

Warren E. Burger:

Thank you Mr. Solicitor General.

Mr. Krieger we will enlarge your time a bit and give you three minutes now.

Albert J. Krieger:

Thank you Mr. Chief Justice.

I would like to correct one impression and that is this apparent concession of mine that the activities of Mr. Perez would be subject to a federal proscription.

I do not intend such concession and I’m intended to say that perhaps Congress can enact the statute which upon the addition of other fact that is not present in this case could reach specific loan sharking.

Albert J. Krieger:

The case as it has come here affecting the specific type of transaction in which Mr. Perez engaged, I think is beyond the reach of Congress.

It cannot be the subject of a congressional enactment.

I think that all necessary points have been covered Mr. Chief Justice.

Warren E. Burger:

Mr. Krieger if all of the small businessmen of this category were proud of the business as he was obviously the big market business would go to the large operators on the supermarkets who do not have the difficulty, same difficulty in getting financed.

Would you say that that is not enough impact on commerce, potential impact on commerce to warrant federal legislation in the field?

Albert J. Krieger:

Well I think that that would cover a host of — that the same reasoning could be applied to a host of other activities to pick up the instance which Mr. Justice Stewart gave in regard to larceny.

Certainly, any crime which affects the economic stability of a business then would be subject to federal legislation.

Warren E. Burger:

Well, there’s a difference, isn’t there?

That that sort of larceny has a different impact on the large supermarket than it does on a small independent marginal businessmen.

Albert J. Krieger:

Well, certainly if a warehouse of AMP was broken into and a $100,000.00 of merchandise was stolen, AMP would survive.

If Mr. Perez’s cash box — if Mr. Miranda’s cash box was riffled by a thief, he might well not survive.

I think that the test is not whether — the test is not that the criminal activity may result in the extermination of a small businessman because once we apply that test I think we have opened the flood gates to every type of criminal activity.

If the man did not carry automobile insurance and he was in an accident and was compelled to pay a heavy judgment.

He would similarly be out of business.

Warren E. Burger:

Has not Congress made a finding that this activity, the loan sharking is widespread in small business operators in the extensive hearings that were conducted here?

Albert J. Krieger:

They made a finding sir that loan sharking activity is not restricted in any respect to small business activity.

They have found that loan sharking is generally utilized by the person who is unavailable — who finds other credit unavailable be he a small businessman or a large businessman.

They gave instances of people in substantial businesses who’ve turned to loan sharks because of their financial situation.

Warren E. Burger:

Thank you Mr. Krieger, thank you Mr. General.

Albert J. Krieger:

Thank you.

Warren E. Burger:

The case is submitted.