United States v. Swank

PETITIONER: United States
LOCATION: 1980 Democratic National Convention, Madison Square Garden

DOCKET NO.: 79-1515
DECIDED BY: Burger Court (1975-1981)

CITATION: 451 US 571 (1981)
ARGUED: Dec 09, 1980
DECIDED: May 18, 1981

LeRoy Katz - on behalf of the Respondents
Stuart A. Smith - on behalf of the Petitioner

Facts of the case


Media for United States v. Swank

Audio Transcription for Oral Argument - December 09, 1980 in United States v. Swank

Warren E. Burger:

We will hear arguments next in United States v. Swank.

Mr. Smith, you may proceed whenever you are ready.

Stuart A. Smith:

Thank you.

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

These three cases are here on writ of certiorari to the United States Court of Claims.

They involve an important question of taxation in the mineral area, as to which there is a conflict of decisions in the lower courts.

Specifically, the question presented is whether a provision in a mineral lease permitting the lessor to terminate the lease on 30 days' notice without any cause deprives the lessee of an economic interest in the minerals in place so that the lessee is not entitled to the depletion deduction permitted under Section 611(a) of the Internal Revenue Code.

The facts of all three cases are virtually identical and can be summarized briefly as follows: respondents are all direct--

Harry A. Blackmun:

But there are some differences, aren't there, Mr. Smith?

Stuart A. Smith:

--There are some differences, Mr. Justice Blackmun, for the purposes, I think, that the case has come here... I think neither party thinks the differences are germane, but, you're right, there are some minor differences.

Principally, the respondents are all lessees under coal leases and as under these leases they were authorized to remove coal, in consideration of a stated royalty per ton.

The leases each permitted respondents to sell coal, the coal that was extracted, to anyone at any price.

Harry A. Blackmun:

Could I interrupt you at that point?

Stuart A. Smith:


Harry A. Blackmun:

There is talk in one of the briefs... I think it's Swank... that the county agreed not to terminate the lease.

Do you agree or concede that point, or do you not?

Stuart A. Smith:

No, we don't concede that point, Mr. Justice Blackmun, and we think it's a little late in the day for the Respondent Swank to be raising it, because while... may I refer the Court to pages 54a and 55a of the Appendix, which discusses this problem and specifically paragraph (c) on page 55a which says:

"Statements to the effect that Northumberland County would not terminate a lease except for cause were made to various individual mine operators including taxpayer, in public meetings of the commissioners, and reported in the press. "

But then it goes on to say, and this is from the stipulation of facts:

"However, no assurance was given that the county commissioners could not cancel a lease without cause. "

I think that the Court of Claims assumed for purposes of its decision that the Swank lease was a termination without cause.

Respondent Swank never took exception to that finding and I think that for purposes... as the case comes here, I think that is agreed, that must be agreed, that the Swank lease as well as the Bull Run and Black Hawk lease all provided for termination without cause.

Potter Stewart:

And it's only if they did that the issue is here at all.

Stuart A. Smith:


Byron R. White:

And you wouldn't be here if they had... if you accepted--

Stuart A. Smith:

We wouldn't be here on that... because if the lease were terminated for cause... and in fact, there were other provisions of these leases that were terminable, because, for example, if the respondents didn't pay their rent or their royalties, the leases were terminable.

We're not contending that that deprives the lessee of the depletion deduction.

In any event, each lease provided, as I said, that the lessor could terminate without cause on 30 days' notice, and it was on this basis that the Internal Revenue Service disallowed the respondents' depletion deductions on the ground that none of the respondents had an economic interest in the minerals covered by their leases.

The Court of Claims decided otherwise on the authority of its earlier decision in Bakertown Coal Company, which essentially presents the same question.

Warren E. Burger:

--Mr. Smith, what would be your view if it was cancellable on one year's notice?