United States v. Braverman

PETITIONER:United States
RESPONDENT:Braverman
LOCATION:Circuit Court of Anne Arundel County

DOCKET NO.: 506
DECIDED BY: Warren Court (1962-1965)
LOWER COURT:

CITATION: 373 US 405 (1963)
ARGUED: Apr 22, 1963
DECIDED: May 27, 1963

Facts of the case

Question

Audio Transcription for Oral Argument – April 22, 1963 in United States v. Braverman

Earl Warren:

Number 506, Unites States, appellant versus Jerry Braverman.

Mr. Cox?

Archibald Cox:

Mr. Chief Justice, may it please the Court.

I should like to move the admission of Mr. Frank I. Goodman, of the California and District of Columbia Bars for purposes of arguing this cause on behalf of the United States.

Earl Warren:

[Inaudible]

Frank I. Goodman:

Mr. Chief Justice may it please the Court.

This case is here on direct appeal from the dismissal of an indictment by the District Court for the Southern District of California.

The issue it presents is a simple one; whether Section 1 of the Elkins Act is violated when the transportation manager of a shipper solicits from a carrier a personal kickback not for the benefit of his employer, the shipper, but for his own personal benefit.

The facts alleged in the indictment are briefly these.

The Andrew Jergens Company manufactures and sells cosmetics and toilet articles.

It maintains a branch warehouse and distribution center in Burbank, California from which it ships its merchandise in Interstate Commerce.

Jerry Braverman, the appellee, was employed by Jergens as the transportation manager of its Burbank branch.

During the period in question here, roughly from January to March 1962, Jergens made a number of shipments to points in the Pacific Northwest, utilizing the services of Superior Fast Freight Company, a freight forwarder subject to the provisions of Part IV of the Interstate Commerce Act.

The indictment alleged that on three separate occasions during this period, Braverman, the appellee had knowingly solicited from employees of Superior, rebates and concessions, which if granted would have resulted in the transportation of Jergens’ property at a rate lower than that prescribed in the official published tariff of Superior.

The first such rebate was in the amount of 2% of the freight revenues to be derived by Superior from carrying Jergens’ property.

The second rebate was in the amount of $200 and the third was in the amount of $150 for every $3,000 of freight revenues, which Superior would earn from carrying Jergens’ merchandise.

On the morning of the trial and before the empanelment of the jury, Judge Mathis invited Counsel to the bench and there conferred with them as to the legal merits of the indictment.

Counsel for the Government conceded that so far as this evidence showed, the rebate or concession had been solicited solely for the personal benefit of the appellee, not for Jergens’ benefit.

On that ground, Judge Mathis dismissed the indictment issuing a minute order in which he said that in as much as no benefit was intended for Jergens, the indictment failed to charge a crime under the Elkins Act.

Earl Warren:

[Inaudible]

Frank I. Goodman:

So far as I know, it was not.

Earl Warren:

[Inaudible]

Frank I. Goodman:

I don’t believe it would Mr. Chief Justice.

Now the statute that we are concerned —

Potter Stewart:

Does it indicate whether or not anybody else — any fellow employee knew about this?

Frank I. Goodman:

The record doesn’t show that Mr. Justice Stewart.

The statute we are concerned with is set forth on page two of the Government’s brief.

The pertinent part begins about nine lines down and reads as follows.

It shall be unlawful for any person, persons or corporation to offer, grant, or give, or to solicit, accept or receive any rebate concession or discrimination in respect of the transportation of any property in Interstate or Foreign Commerce by a common carrier subject to the act, whereby any such property shall by any device whatever be transported at a less rate than that named in the tariffs published and filed by such carrier.

If appellee’s Counsel were represented here, I would expect him to argue two things.

Frank I. Goodman:

First, he would argue that the term rebate connotes necessarily a payment to the shipper himself and not to some third person such as the shipper’s agent.

Secondly, he would argue that unless the payment is made to the shipper himself there is no departure from the published tariff rate.

In effect, the shipper pays the full rate, the carrier receives the full rate and the fact that the carrier thereafter pays out a portion of his receipts as a personal bribe to the shipper in no way effects the rate which he has received.

[Inaudible]

Frank I. Goodman:

That’s essentially the argument.

The argument is that this is essentially similar to a brokerage commission or an advertising expense.

[Inaudible]

Frank I. Goodman:

Exactly and which raises his costs but doesn’t in anyway reduce his rate.

In support of this statutory construction, the appellee would argue that the sole purpose of the Elkins Act was to protect shippers against discrimination.

Its purpose was to ensure that all shippers were treated alike.

In developing the Government’s argument, I propose to make three principal points.

First, that the language of the statute on its face is broad enough to cover the transaction involved here.

Secondly, that from the standpoint of protecting carriers against the dissipation of their revenues and against extortionate demands at the hands of persons in control of routing, shipping in interstate commerce, it makes absolutely no difference, whether the rebate is solicited by the agent for his own benefit or for his employers’ benefit.

And thirdly, that even the policy of protecting shippers against discrimination would be seriously weakened if the distinction urged by the appellee were accepted.

First, as to the language of the statute itself; we believe that the term rebate has no such restricted technical meaning as the appellee would assign to it.

The statute doesn’t define it.

It’s not defined with any precision in the cases as far as I know.

But in common parlance, I would think that the term rebate was at least broad enough to cover a kickback, an under the table kickback to the buyer of transportation services.

Now in this case, Braverman was not the buyer of transportation services in the sense that he paid for them out of his own pocket only Jergens did that.

But he was the buyer in the sense that it was he who controlled the or at least I presume that is was he, he being the transportation manager, who controlled the routing of Jergens’ property in interstate commerce.

It was he who selected the carrier which would carry the merchandise.

We think that a kickback to such a person would certainly qualify as a rebate.

And even if it wouldn’t, the term concession also appears in the statute.

I would think that the term concession has no such limitations that might conceivably be attributed to the term rebate.

Secondly, it is our position that regardless of whether the money, regardless of whether the rebate is retained by the shippers agent or passed on to the shipper himself, the effect upon the carrier is still that of depriving him of a portion of the rate.

From the standpoint of the carrier and its revenues, it’s completely immaterially what happens to the money after the transportation manager gets it.

Arthur J. Goldberg:

[Inaudible]

Frank I. Goodman:

Well, Mr. Justice Goldberg, I don’t believe that Congress squarely focused on this problem at all.

For the most part the principle purpose of the Elkins Act I frankly concede was to protect shippers and not to protect carriers as such.

On the other hand, I think it’s important to note that the railroads were among the principle supporters of this act.

Frank I. Goodman:

It was recognized at the time that the railroads were as much the victims as the villains of this practice.

And that for the most part, they had no choice but to comply with the demands that were made upon by them by the larger shipping trusts if they expected to stay in business at all.

Arthur J. Goldberg:

[Inaudible]

Frank I. Goodman:

So as far as I know Mr. Justice Goldberg, there would be no federal criminal statute.

It may well be that this is a violation of a state anti-bribe law, although I don’t believe that California has such a statute.

California does have an anti-rebate statute which reads in term similar to the Federal Statute.

And of course, this conduct would be a breech of the employees’ fiduciary duty to his employer.

I’ll return to the legislative history in a few moments Mr. Justice Goldberg and perhaps answer your question fully.

Byron R. White:

[Inaudible]

Frank I. Goodman:

Well, Mr. Justice White, I think that if it we are not for the Federal statute here, which will make it a crime for the employer to attempt to recover this money from the employee on the ground that it would then be receiving a rebate, but were not for that statute.

I think that it’s fairly clear in the California law that the employer could recover the sums from the employee.

That as to say —

Byron R. White:

[Inaudible]

Frank I. Goodman:

You mean the shipper in this case?

I would doubt it Mr. Justice White, because I would suppose that if the shipper were to accept the money, it would then be guilty I would suppose of receiving a rebate.

Byron R. White:

[Inaudible]

Frank I. Goodman:

Well, possibly by operation of law the shipper might be able to recovery on ordinary agency law of principles.

And certainly as I say, that would be the case if there were no Federal statute here.

Byron R. White:

[Inaudible]

Frank I. Goodman:

Well if the shipper would get the money I certainly think it would be, yes sir.

In candor, I’m not persuaded that, that would be the result.

It seems to me perhaps even more reasonable to give the money back to the railroad.

Now apart from the language of the — oh, there’s one another point I want to emphasize in this connection.

The statute does not in terms require that any discrimination be shown in favor of a particular shipper, nor does it require even that a benefit be shown in favor of a particular shipper.

Byron R. White:

[Inaudible]

Frank I. Goodman:

Yes, now I interpret that language Mr. Justice White as meaning an advantage to the shipper.

I think that is part and parcel of the legislative purpose to protect any one shipper from gaining an advantage over another shipper.

Byron R. White:

[Inaudible]

Frank I. Goodman:

Well the foregoing words are departures from the — foregoing words are whereby any such property shall by any device whatever be transported at a less rate than that named in the tariffs.

Now, I don’t believe that, that —

Byron R. White:

[Inaudible]

Frank I. Goodman:

Well I — that’s certainly a possible construction of the language sir.

Needless to say it’s not our construction.

One of the principle purposes of this statute was to dispense with the requirement which existed under the original Interstate Commerce Act to compel the government to prove in each case that there had actually been discrimination in favor of a shipper.

It was because that burden of proof turned out to be impracticable in practice, that the Elkins Act was passed.

It was recognized first that in practice the government could rarely prove that not only had a rebate been given to the particular shipper in question but that the same rebate had been denied other shippers, so that there has been discrimination.

It was also recognized that in many cases there had in fact had been no discrimination in the practice of rebates at that time.

In particular the Commission had investigated the meat packing industry in Chicago and Kansas City and they discovered that while virtually every pound of beef that had moved out of those cities for many years had traveled at rates substantially below the published tariff, nonetheless every shipping company had received exactly the same amount.

So that in the statutory sense there has been no discrimination.

So the principle innovation which was rocked by the Elkins Act was to make it unnecessary to show discrimination and to make the gravamen of the offense be any departure from the published tariff.

The real question then is whether or not there had in this case been a departure from the published tariff.

That question I submit should be considered in the light of two statutory policies.

The first statutory policy is one of protecting carriers not shippers, but carriers against the extortion of demands upon their revenues and against a distortion of their competitive practices.

Now this purpose was not the major purpose of the Elkins Act itself.

It was, however, I think a minor purpose.

Professor Sharplin who was the leading authority as the Court knows on the Interstate Commerce Act, has described the Elkins Act in the following terms.

This measure was enacted on the initiative of the railroads themselves as a means of conserving their revenues and was generally regarded from the public standpoint quite as much a necessary instrument for curbing the unconscionable tactics of the so called trusts in extorting special favors from the carriers, as it was a desirable extension of Federal Authority over the railroad.

So I think it’s fair to say that this was at least a secondary consideration at the time the Elkins Act was passed.

Since that time the protection and conservation of carrier revenues, the economic well being of the transportation system and the elimination of destructive competitive practices had become a matter of increasing and crucial legislative concern.

Arthur J. Goldberg:

[Inaudible]

Frank I. Goodman:

No sir, I think that would probably not be a rebate and I think it can be distinguished from a bribe to the shipping agent, in at least one respect and possibly more.

The traditional function of a rate reduction is to offer an inducement to the buyer of transportation services to purchase the services of that particular carrier.

Now I take it that the extortion that would be practiced by the labor organizer or an ordinary brokerage commission to a broker would not serve that function.

It would not be an inducement to the buyer of transportation services.

A rebate to the shipper does play that role and so does a bribe to the shipping agent who was in charge of actually routing the shippers’ goods in interstate commerce.

Arthur J. Goldberg:

[Inaudible]

Frank I. Goodman:

I think so yes Mr. Justice Goldberg.

Arthur J. Goldberg:

[Inaudible]

Frank I. Goodman:

And perhaps even more specifically the person who actually is responsible for making the decision as to whether the carrier will be given the business.

I might say that there other distinctions that occurred between the extortion by the labor organizer and the extortion by the carrier’s agent, and it lies in this that in terms of its impact upon competing carriers, I would think that a great deal more damage would be done to the business of competing carriers, which might otherwise be able to attract a portion of the shipper’s business if under the table kickbacks were paid to the agent of the shipper, than if they were paid to say a broker and I would think also the labor organizer, I haven’t thought that through.

Frank I. Goodman:

Now the policy of protecting carriers and serving their revenues and ensuring that there are no unfair competitive practices among them has as I say grown an importance since the Elkins Act was passed.

Since that time the commission has been given the power to prescribe minimum rates as well as maximum rates.

And it now may disallow proposed rate reductions on the ground that they would be destructive, competitive practices or on the ground that they would be non-remunerative to the proponent carrier.

This development was — this development culminated in 1940 with the declaration of the National Transportation Policy by Congress, which Congress proclaimed that it’s a vowed objective, the elimination of destructive competitive practices, the preservation of inherent advantages of each carrier, and in general the protection of the carrier system.

Congress concluded that declaration by saying that all the provisions of this Act shall be administered and enforced with a view to carrying out the objectives of this policy.

Now technically the Elkins Act is not a part of the Interstate Commerce Act, as I believe we mistakenly implied in our brief.

It’s a separate Act, the title of which is an act to further regulate commerce.

Nonetheless it clearly is part of the overall scheme of carrier regulation and legislation and I think it’s clear that it should be construed in such a way as to effectuate the policy of that scheme.

Now let me give you an example to show, how the policy of that scheme would be completely frustrated if practices such as this were allowed to go unpunished.

Suppose you have two carriers, a railroad and a motor carrier.

Each of them has fully distributed cost of $0.25 for a particular movement on a particular commodity.

Each of them is charging a rate of exactly $0.25, just enough to recover the cost including return on their investment.

Under those circumstances if the railroad were now to try to reduce its rates in order to put its competitor out of business, the commission would clearly disallow the reduction on the ground that it was a destructive competitive practice non-compensatory et cetera.

The railroad tried to achieve exactly the same purpose by paying a rebate to the shipper, exactly the same result would obtain only this time that would clearly be a violation of the Elkins Act.

Now in our view the railroad should not be permitted to achieve that result by paying secret inducements to the agent of the shipper anymore than by paying secret inducements to the shipper himself.

Yet under the opposing view, the appellees’ view of this case, the result would be that the commission would be completely helpless to prevent that kind of practice.

Relief if any would have to be obtained at state law.

Now I think —

Earl Warren:

[Inaudible]

Frank I. Goodman:

Well, Mr. Chief Justice I see no escape from that conclusion.

I see no escape from that conclusion, because essentially in both cases the problem would be to construe the term rebate, and also to determine whether or not the result would be that the shipper’s goods was being transported at a rate lower than that prescribed in the published tariff and in the appellees’ view, those conditions would not be met and the statute would not be violated, nor so far as I am aware would any other federal statute be violated.

[Inaudible]

Frank I. Goodman:

Exactly, the Elkins Act really recapitulates and embraces prohibitions, which are contained in the original Interstate Commerce Act.

I think it —

[Inaudible]

Frank I. Goodman:

That’s right, which it certainly has power to do, and which courts can do under various penal provisions of the Interstate Commerce Act, quite independently of the Elkins Act.

Now even if one views this case solely from the standpoint of protecting shippers, not protecting carriers, and ensuring a quality of treatment among all shippers, we would still maintain that, that policy cannot be effectuated if the distinction proposed here is made.

In the first place even in cases where the agent retains the rebate himself and doesn’t pass it on to his employer, the employer may still derive various indirect benefits.

That is to say the money which money which the agent extorts from the carrier, he might otherwise have demanded from the shipper in the form of higher salaries.

I think it’s quite well known that in the restaurant business for example, the universal practice of tipping waiters and waitresses has resulted in a depression in the salaries of waiters and waitresses.

Frank I. Goodman:

In fact, I’ve even heard it said that in New York night clubs the head waiter actually has to pay for the privilege of keeping his job.

Arthur J. Goldberg:

[Inaudible]

Frank I. Goodman:

Well I would suggest two answers to that to question Mr. Justice Goldberg.

In the first place it certainly wouldn’t apply to the situation where the initiative is taken by the railroad, I should think or by the carrier.

And secondly as far as the situation where there is some semblance of extortion by the shipping agent, I like you, I’m a little bit bewildered by the concluding phrase about under color of official right.

Now, the essence of this case is that he has not solicited the rebate in his capacity as a transportation manager.

He is not acting within the scope of his office as it were.

Arthur J. Goldberg:

[Inaudible]

Frank I. Goodman:

Well I’m not familiar with the Ryan case Mr. Justice Goldberg.

I would ask though whether not the money was extorted for the benefit of the rail — of the labor union in that case.

Arthur J. Goldberg:

[Inaudible]

Frank I. Goodman:

Well in that case the situations would perhaps be parallel.

I don’t know whether this would meet the description of — meet the statutory test of extortion under the hard fact or not.

Now there are two other reasons why I don’t think that the policy of protecting shippers could be carried out if the decisions below were affirmed.

First of all, you would almost never able to convict a carrier if the decision were affirmed even if there were a benefit to the shipper, because in every case the carrier upon paying the rebate could demand assurance perhaps even written assurance from the shipper that the money would be, from the agent, that the money would retained by the agent and not passed on to the shipper.

And then even if by some miracle the government were able to trace the proceeds from the shipping agent to the shipper himself, the carrier would still have an impregnable defense, namely that he didn’t intend the money to go to the shipper, that he paid it on condition that it would not go to the shipper.

And I should think that under those circumstances there would really be nothing that the prosecutor could respond.

Finally even as far as convicting shippers are concerned where benefits have actually been received by shippers, I would think that it was virtually impossible in most cases for the government to trace the proceeds from the agent to his employer.

The route by which the money passed from one to the other could readily be disguised, it could be circuitous, there could be complex secret arrangements between the two parties for example involving adjustments in the salary of the shipping agent which would virtually preclude conviction I would think.

Now it seems to me very difficult to believe that Congress which enacted this statute in order to close all loopholes in the way of enforcing the prohibitions against discriminatory benefits, should have wished its language to be construed so narrowly as to leave open a loophole of this kind, and that an Act which was passed in order to relieve the government of impracticable burdens of proof should be construed in such a way as to impose somewhat different one, but one which is equally impracticable.

Finally, I might point out until the decision below, every Lower Federal Court which had considered this question, had resulted in the government’s favor.

In fact only three years after the Elkins Act was passed the Southern District of New York dealt with a case which was almost on all force.

That case which is the Lackawanna railroad case cited in our brief and which appears at 152 Fed I believe, involved an indictment against the carrier for paying a bribe to the shipping agent.

And the carrier made the defense there that the benefit had not accrued to the shipper, but only to his agent and that therefore Elkins Act was not violated.

Southern District of New York held that nonetheless the indictment lay.

Arthur J. Goldberg:

[Inaudible]

Frank I. Goodman:

No Your Honor I don’t believe it did.

Arthur J. Goldberg:

[Inaudible]

Frank I. Goodman:

I can’t remember it, now if the Court has no further questions, I’ve concluded my argument.